Even before the Biden administration launched a new U.S./China trade war by imposing restrictions on U.S. exports of advanced chip technology, Tesla (TSLA) was facing a sales slowdown in China.
Now, with what I regard as the near certainty that Tesla will be one of the choice targets in any Chinese retaliation, I think it’s time to sell Tesla and get out of the way of what looks like a truly nasty tit-for-tat war of sanctions and restrictions.
Tomorrow, October 12, I’m selling Tesla out of my Volatility Portfolio on my subscription JubakAM.Com and JugglingWithKnives.com sites with a loss of 63.74% since I added it to the portfolio on November 10, 2021, near what would turn out to be the high before the onset of today’s Bear Market for technology stocks.
I want to step aside from shares of the leader in electric vehicles before the company’s China exposure sites the company on the trail.
That exposure takes the form of the company’s big new Shanghai factory and what looks like a potential big global inventory problem created by a slowdown in China sales.
For the third quarter, Tesla reported worldwide deliveries of 343,830, up 42% against the third quarter of 2021. (That was above the first quarter record of 310,048 even though it was well below analyst estimates of 360,000.0
The problem is that the company produced 365,923 cars in the quarter. That’s 22,000 more than it delivered.
The problem seems to be that the company has ironed out production snafus at its Shanghai plant just in time to see sales slow in China. Which led Tesla to up its exports from China. Just as global demand looks to be slowing.
The signs of problems in China demand are pretty clear. Wait times to get a Tesla in China fell to just about zero in September. The company introduced a subsidy on auto insurance subsidy in mid-September, and recently extended that through year-end. Beginning on October 1 Tesla began offering 0% down payments and loan incentives. I wouldn’t be surprised if those loan incentives turned into outright price cuts for Chinese customers.
Tesla Shanghai delivered 83,135 vehicles in September, according to the China Passenger Car Association. Tesla sold 77,613 locally, exporting just 5,522. I’d expect to see exports rise in coming months.
Even if China does nothing to slow Tesla sales in the country.
Under other market and trade scenarios, I’d be willing to ride out Tesla’s supply-demand hiccup. But not with a trade war in the offing.
Time to take my medicine and look to another day.
