February 13, 2023

Why Tesla Stock Dropped Monday

What happened

Tesla (NASDAQ: TSLA) shares are starting the week on a down note. The stock began 2023 with impressive gains of more than 50% as many investors bought the dip after a 65% correction in 2022.

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But some industry watchers now see potential trouble ahead, particularly in Tesla’s second-largest market. The stock dropped as much as 4.7% Monday morning and remained lower by 2% as of 11:11 a.m. ET.

So what

An analysis released by Reuters today pointed out that Tesla has an uphill battle in the important Chinese market even after its recent success in bolstering demand with vehicle price cuts.

After Tesla dropped prices for Chinese consumers, deliveries from its Shanghai manufacturing plant spiked 18% in January versus the prior month, according to data from the China Passenger Car Association (CPCA). But that organization’s secretary general told Reuters that the short-term demand spike might not reflect the long-term reality of what Tesla faces in the world’s largest automotive market.

red Tesla Model Y driving down empty road.

© Tesla
red Tesla Model Y driving down empty road.

Now what

That 18% month-over-month increase was even more impressive considering sales in the overall Chinese electric vehicle (EV) market actually fell about 45% last month versus December. But some of Tesla’s deliveries from its Shanghai plant are exported to Europe and elsewhere. Those sales will be claimed by Tesla’s German factory in the future after that facility ramps up to full capacity.

Cui Dongshu, secretary general of the CPCA, pointed out that Tesla has already lost meaningful market share in China as domestic manufacturers ramp up EV production. Tesla’s share of the Chinese EV market has dropped from 15% in 2020 to 10% in 2022.

Cui pointed to several factors where the company is falling behind: “Tesla’s facing a serious problem of a very limited product mix. Its slowness to respond to Chinese consumers’ preferences has led to a very passive positioning for Tesla to rely on few means such as price cuts to stay competitive.”

The Chinese market is critical for Tesla. After these vulnerabilities were published, and after the stock has surged thus far in 2023, some investors turned negative on the shares today.

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