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Tesla’s China Data Is Horrific – Here’s Why the Stock Will Still Hit New Highs

Last Updated September 23, 2020 1:57 PM
Kiril Nikolaev
Last Updated September 23, 2020 1:57 PM
  • Tesla registrations in the high-growth Chinese market are showing signs of weakness.
  • With its Shanghai and Fremont factories back in full swing, Tesla is still on track to meet the 2020 guidance of 500,000 deliveries.
  • Elon Musk might not be bullish on TSLA, but shares could soon rocket to new all-time highs.

For all its critics, Tesla stock has been one of the world’s best-performing assets this year.

Shares of the Silicon Valley electric automaker are up nearly 90% year-to-date. Not even a bearish forecast from its own CEO could knock Tesla stock off its ascent.

Don’t expect that rally to fade anytime soon, even if Tesla’s latest China results are less than encouraging.

Tesla Sales Take a Nosedive in China

Before the coronavirus pandemic struck, Tesla bulls trumpeted the importance of its new Shanghai facility.

Analysts said it would allow the firm to crank up production and penetrate a high-growth market that was already in love with Tesla’s vehicles.

The coronavirus pandemic understandably brought Tesla’s China sales to a crawl. But even after local lockdown restrictions began to ease, it doesn’t look like Chinese consumers rushed out to purchase new vehicles.

According to Reuters, Tesla registrations plunged 64% in April  to just 4,633 units, down from 12,709 in March.

While the data indicates weakening demand in a key growth region, it’s important to remember that China still represents a fraction of the company’s sales.

The U.S. dominates Tesla’s market
The U.S. is still Tesla’s dominant market. | Source: Statista 

Besides, investors have always evaluated Tesla differently from legacy auto companies.

One metric they focus on is its ability to ramp up production to meet future increases in demand.

And the good news for bulls is that production is quickly recovering from the coronavirus lockdown.

Production at Fremont and Shanghai Back in Full Swing

Elon Musk, Tesla, China, Shanghai Gigafactory
Tesla’s Shanghai factory should produce 4,000 vehicles per week. | Source: REUTERS/Aly Song

At the start of the year, investors turned ultra bullish on Tesla after the company announced that it could comfortably deliver 500,000 units.

That projection fell into limbo after shelter-in-place orders shut down Tesla’s Fremont facility. Elon Musk fought tooth and nail to restart operations at the site. His efforts paid off; the company received approval to resume operations this week .

And remarkably, it looks like Tesla can still hit its delivery target.

The company produced 105,000 vehicles at its Fremont facility  in Q4 2019, a rate of about 8,750 cars per week. The new Shanghai plant is expected to add another 4,000 cars  to that weekly tally.

This means Tesla could potentially churn out as many as 76,500 vehicles before the quarter ends in June. Add the 14,000 cars in inventory after the first quarter , and the company can exceed analyst expectations of 70,000 to 90,000 deliveries in the second quarter .

Tesla’s production is in a strong uptrend
Vehicle production is in a strong uptrend. | Source: CleanTechnica 

More importantly, it looks like Tesla is back on track to eclipse the delivery guidance that the company offered at the start of the year. It’s a good sign that the company did not withdraw this guidance during the pandemic .

Despite recent headwinds, Tesla remains fundamentally robust. And as the automaker continues to chase new heights, expect its stock price to follow suit.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The writer does not own TSLA shares.