The Chinese stock market is plunging and the economy is crumbling. Leaked data indicates the actual number of confirmed coronavirus cases and deaths are substantially higher. In the short to medium-term, it could have a negative effect on the momentum of Tesla.
Year-to-date, in just over a month, the Tesla stock is up 75 percent. It has outperformed nearly all assets across various markets that have surged since January including bitcoin.
As the Tesla stock started to climb above $500, short orders betting against the stock began to stack up as well. Positive forecasts and earnings continued to take the stock up further, causing a significant short squeeze.
This week, the Tesla stock saw a noticeable increase in the inflow of retail investors, using platforms like Robinhood to invest at a high price range.
For Tesla to sustain the current valuation of $132 billion, it would have to report a significant increase in earnings in the first half of 2019 and show progress in other areas.
Outside of the sales of its flagship models, investors were looking towards the Cybertruck and the progress of the Gigafactory in China.
But, as the coronavirus outbreak expands rapidly, the Chinese government is expected to further restrict roads and transportation in major cities.
According to the South China Morning Post, China has already locked down Hangzhou, a megacity in China that is home to Alibaba.
Reports show that both Beijing and Shanghai remain deserted after the coronavirus outbreak. Shopping malls, highways, roads, and streets are empty as people take precautionary measures.
If the coronavirus outbreak is not contained in the near future, a model from Hong Kong University predicted that it could reach its peak in April or May.
A research paper from HKU read:
We estimated that if there was no reduction in transmissibility, the Wuhan epidemic would peak around April, 2020, and local epidemics across cities in mainland China would lag by 1–2 weeks. If transmissibility was reduced by 25% in all cities domestically, then both the growth rate and magnitude of local epidemics would be substantially reduced; the epidemic peak would be delayed by about 1 month and its magnitude reduced by about 50%.
An extended outbreak would cause Tesla and other consumer-targeting businesses in general to take a hit.
Already, Tesla has closed all of its stores in China, based on a report from CNBC. A sales employee of the company wrote in an online forum that for the foreseeable future, only line orders will be accepted.
Whether that would lead to a slower rate of production in Tesla’s China gigafactory remains to be seen.
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Last modified: June 24, 2020 1:04 AM UTC