Tesla (NASDAQ: TSLA) stock price lost 31% of value since the start of this year amid concerns related to trade tensions and rising competition in the EV industry. The stock is currently trading slightly higher from $200 level. China has been imposing tariffs on automakers in response to big tariffs from the U.S. on Chinese products.
The trade war tensions and rising tariffs are likely to impact sales and margins. Tesla, on the other hand, plans to significantly increase its market share in Chinese markets. They are working on building a Gigafactory in Shanghai – which they plan to launch next year.
Market analysts expect a massive drop in Chinese auto sales. UBS anticipates negative 8% car sales growth this year in China.
“China auto sales year-to-date has been much weaker than we anticipated at the beginning of the year,” UBS analyst Gong wrote. “Continuous trade conflict and lukewarm economic growth, coupled with the absence of strong stimulus policy, probably explain this prolonged down-cycle,” Gong added.
Tesla has missed its earnings expectations for the latest quarter due to higher costs related to China. The company announced to increase vehicle prices in China. Higher prices could create a negative impact on sales. It generated negative earnings per share of $1.12 in the second quarter, missing analysts estimate for negative $0.71 per share.
Morgan Stanley has dropped its full-year gross profit margin estimate from 19.6% to 17.4%. The drop is due to rising costs and higher operational expenses. Tesla has always tried to keep gross margin around 25%
Besides from trade war worries, Tesla has also been experiencing rising competition in the EV industry. Several well-established brands such as General Motors and others are aggressively working on offering various types of EV cars. The performance of Tesla stock price depends on several factors such as tariffs, growth in sales and margins. Investors need to look at these factors before creating any position in this company.