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tesla (TSLA) has reportedly reduced production at its Shanghai factory amid slowing demand for electric vehicles in the world’s largest auto market. The decision to reduce production in China also comes as the global electric vehicle giant is heading towards a possible loss of deliveries in the first quarter and has announced that vehicle prices will begin to increase. Tesla shares fell early Friday.
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Tesla is reducing production at the China plant from 6.5 days to five days a week, according to Bloomberg, citing sources. The production cuts began in early March and could continue into April, Bloomberg reported on Friday.
The move comes amid slowing electric vehicle growth in China and Tesla’s Shanghai facility no longer producing at full capacity. Tesla watchers have repeatedly said in recent weeks that global inventory appears high.
Earlier this week, local media reported that Tesla will slightly increase list prices in China for Model Y vehicles starting April 1, following similar plans in the United States and Europe. Tesla is also offering discounts of between $1,000 and $1,500 in China on inventory Model Y vehicles. Inventory discounts are most significant in the United States and Europe.
Rising list prices could cool future demand, especially in China, as rivals are launching new or refreshed models at a rapid pace, often with aggressive pricing.
First quarter deliveries below expectations
The global electric vehicle company finished 2023 on top in China. However, the dynamics of electric vehicles in China have changed in early 2024. Tesla CEO Elon Musk has also said that China’s electric vehicle companies are Tesla’s main competition, with BYD (BYDDF), child (CHILD), Auto Li (L.I.) and others, all of them entering the electric vehicle market.
Tesla China delivered 60,365 vehicles in February, about 19% less than last year, according to the China Passenger Car Association (CPCA). Chinese New Year lasted for two weeks in February, from February 10 to February 1. 24. Tesla’s deliveries of Chinese-made vehicles in January and February totaled 131,812, down 6% from 2023.
On Thursday, Li Auto cut delivery forecasts for the first quarter, implying March sales are about half of what the Chinese electric vehicle maker predicted on March 1.
Cutting production in Shanghai would be further confirmation of weakening demand not only in China, but also in Europe and other key markets. Shanghai’s exports to Europe have declined in recent months, while Tesla’s Berlin factory is running well below capacity.
Meanwhile, with the first quarter ending soon, Tesla appears headed for a delivery failure. Wall Street consensus still calls for first-quarter deliveries of 481,000 units, according to FactSet, but many analysts have trimmed their predictions in recent days. Tesla is expected to report first-quarter deliveries in early April.
Tesla stock performance
TSLA shares fell 3.3% to 167.14 during market action on Friday. Tesla shares fell 1.6% to 172.82 on Thursday. Tesla seeks its first weekly advance in three weeks.
Last week, Tesla shares fell 6.7% to 163.57, hitting new 2024 lows and levels not seen since May 2023. TSLA is down more than 14% in March and is the index’s biggest loser S&P 500 so far in 2024.
Last week, UBS lowered its price target on Tesla shares to 165, from 225, and maintained a neutral rating on the stock. UBS lowered its first-quarter delivery forecast to 432,000 units, from its previous forecast of 466,000. The company also reduced full-year deliveries to 1.96 million units, from 2.02 million previously.
With 2023 in the rearview mirror, analyst consensus now puts Tesla’s 2024 earnings below the level of 2023. That signals another year of earnings declines for this growth stock. Wall Street expects Tesla earnings per share of just $2.96 per share in 2024, according to FactSet. That would be a drop of about 5% from $3.12 last year.
Morgan Stanley Tesla bull Adam Jonas recently issued an investor note in which he cut his 2024 Tesla profit projections by 25%, saying the electric vehicle giant could “potentially” lose money this year.
Jonas lowered his price target on Tesla to 320, from 345, but maintained an overweight rating on the stock. Jonas also lowered his 2024 Tesla EPS projections to $1.51. His previous view was $2.04 per share. The analyst expects auto gross profit margins to plunge to 11.4% amid continued demand issues for electric vehicles.
The electric vehicle giant ranks eighth among the 35 IBD members Automobile Manufacturers Industry Group. The stock has a Composite Rating of 30 out of a best possible rating of 99. Tesla stock also has a Relative Strength Rating of 10 and an EPS Rating of 68.
Follow Kit Norton on X, formerly known as Twitter, @KitNorton for greater coverage.
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