Tesla Inc
.’s
TSLA
tumbled more than 5% during yesterday’s trading session after a report, stating that the company’s vehicle orders in China dropped by almost half in May, surfaced.
Per The Information, a San Francisco-based tech news company, the red-hot electric vehicle (EV) giant’s monthly net orders in China dipped to approximately 9,800 this May from more than 18,000 in April.
Currently, China is the world’s biggest EV market and the country has been head strong in its transition toward a green future. Importantly, the country aims electric cars to account for 25% of the new car sales by 2025 and kick start an era of green transportation. Amid this transforming scenario, automakers in China are fast changing gears to electric.
Reportedly, China is Tesla’s second largest market after the United States, accounting for about 30% of its top line. Tesla currently manufactures electric Model 3 sedans and Model Y sport-utility vehicles (SUVs) at its Shanghai plant in China. Tesla regained its Chinese market share once it started selling domestically-produced vehicles in China in late 2019 as those were 13% cheaper for Chinese consumers than the vehicles imported from the United States. The EV giant had also received strong backing from Shanghai when it built its first overseas factory there in 2019.
The China market is the key to Tesla’s global growth ambitions. In fact, Tesla’s Model 3 sedan is one of the best-selling EVs in the country. The company has a dominant market share in the mainland with sale of 147,445 vehicles last year. The company’s flagship model in China — Model Y — also secured green signal for sale in the country last December.
The picture, nevertheless, seems to have changed recently. Tesla was called in by regulators in China over recalls, quality and safety concerns with its cars, including battery fires and abnormal acceleration. The auto biggie was also forced into issuing a public apology to China’s state grid in February after a video apparently showed a staff blaming an overload in the national electricity network for damage to a customer’s vehicle.
Along with this, the heightening friction between China and Washington over the U.S. government’s hostility against China-based telecom firm Huawei on the grounds that Beijing could have access to the United States’ telecom infrastructure is also a primary reason why Chinese regulators have taken a tough stance on Tesla.
Moreover, despite its robust foothold in China, the California-based EV maker is battling stiff competition from Chinese electric vehicle firms, like the Shanghai-based electric startup
NIO Inc.
NIO
. Further, Chinese companies like
XPeng Inc.
XPEV
and
Li Auto
LI
, both of which debuted on U.S. exchanges last year, are also capitalizing on the trending EV hype.
Tesla’s sales in China had, in fact, faltered in the month of April as well. Tesla sold old 25,845 made-in-China vehicles last month, down 27% from 35,478 in March.
Amid the recent backlash faced by Tesla in China, it projects material impact on its branding, orders and deliveries in the country for the upcoming months as well.
Tesla Issues Three Vehicle Recalls
Meanwhile, Tesla has issued three separate voluntary recalls in the United States this week over production issues that can cause potential safety problems.
Two of the recalls are over possible seat belt issues, affecting roughly 7,696 vehicles in the United States, while the third recall is over faulty brake bolts.
The first recall applies to 5,530 of Tesla’s electric cars, covering Model 3 cars developed between 2018 and 2020, and Model Y cars built between 2019 and 2021. It concerns the safety belts in the driver’s and front passenger’s seats. The malfunction resulted from the failure to torque the seat belts into place correctly.
The second recall applies to 2,166 of Tesla’s 2019 to 2021 Model Y crossovers. The recall resulted from fasteners, which secure the left and right second-row seat belt retractors, not being properly attached.
The third recall applies to Model 3 vehicles developed between December 2018 and March 2021, and Model Y vehicles built between January 2020 and January 2021. The number of vehicles recalled is 5,974. Reportedly, the problem with the models in question is that brake caliper bolts might not have been secured to the correct specification. This is feared to cause the bolts to loosen over time and in rare circumstances, cause an abnormal noise to occur, preventing the wheel from moving freely, resulting in tire pressure loss.
Per the company, it is not aware of any accidents or injuries related to the recalls.
Tesla currently carries a Zacks Rank of 3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, shares of the company have skyrocketed 233.4% in the past year compared with the
industry
’s rally of 145%.
Image Source: Zacks Investment Research
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