How far will Elon Musk go to keep his Tesla (NASDAQ:TSLA) stock soaring? He’s already gone further than you’d think.
Tesla’s behavior is in sharp contrast to other American firms like Apple (NASDAQ:AAPL), Starbucks (NASDAQ:SBUX), and American Airlines (NASDAQ:AAL). These companies have all scaled back operations in China due to the outbreak.
So why is Tesla embarking on this reckless strategy? The answer lies in the overly optimistic guidance that sent its stock soaring after fourth-quarter earnings.
Coronavirus is showing no signs of slowing down. According to the most recent data, the deadly respiratory illness has grown to infect over 40,500 people, with 910 total deaths. A total of 299 have fallen ill in Shanghai, where Tesla’s new factory is located, while one resident has died.
Of the almost 300 infections in Shanghai, only 48 have recovered. Nearby Zhejiang records 1,092 cases while Anhui and Jiangsu record 830 and 492, respectively.
Shanghai is surrounded by cities with significant infection rates. The likelihood of more diagnoses is high in the coming days. One professor claims the virus is infecting 50,000 people every day. Tesla’s factory workers will be working in these terrifying conditions.
Despite the high risks, Tesla has decided to resume operations at its new Gigafactory in Shanghai. The stock soared up to 7% in the pre-market but is currently flat in early-morning trading.
Unconfirmed photographs show Chinese Tesla workers returning to work at the Shanghai plant. They seem to be equipped with face masks. According to the Centers for Disease Control and Prevention, facemasks are not an effective way to control the coronavirus.
Tesla’s workers are also reportedly living in large communal dormitories. The spread of coronavirus could become uncontrollable in such tight quarters.
So why is Elon Musk proceeding with this reckless and immoral strategy? The answer is simple: He needs to justify the wildly overoptimistic guidance he just delivered.
Elon claimed that vehicle deliveries would comfortably exceed 500,000 units in 2020. Expectations for China largely drive this projection. Elon needs the Shanghai factory open so he can drive down prices for the Model 3 and meet his lofty sales targets.
This is what he said in an earlier earnings call:
We need to bring the Shanghai factory online. I think that’s the biggest variable for getting to 500,000-plus a year. Our car is just very expensive going into China. We’ve got import duties, we’ve got transport costs, we’ve got higher costs of labor here.
Musk went on to elaborate:
We need the Shanghai factory to have the cars be affordable. It’s important to appreciate, the demand for Model 3 is insanely high. The inhibitor is affordability.
Tesla’s lofty 2020 projections sent the company’s stock price soaring to all-time highs of over $900 following the fourth-quarter earnings call. Shares quickly fell back down to earth as the market accounted for challenges with the coronavirus.
Musk could’ve given investors responsible guidance that accounted for the coronavirus’s impact. Instead, he decided to give the market a wildly over-optimistic forecast. Chinese workers are now risking their lives to make it a reality.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.