Tesla’s surprise just shocked the stock market

Lwhether we like it or hate it, You’re here (NASDAQ: TSLA) receives a lot of attention from investors. When the news affects the electric vehicle pioneer, people are taking note – and its stock movements can affect the entire market.

Thursday was a generally weak day on Wall Street, as investor enthusiasm for popular meme stocks gave way to nervousness about the sustainability of their recent gains. Losses for the Dow Jones Industrial Average (DJINDICES: ^ DJI), S&P 500 (SNPINDEX: ^ GSPC), and Nasdaq Composite (NASDAQINDEX: ^ IXIC) were not extreme, but a surprising announcement from Tesla in the middle of the day seemed to take the market’s breath away and could indicate problems ahead not only for the automaker’s shares but for the markets more broadly.


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Data source: Yahoo! Finance.

A double blow for Tesla

Tesla shares fell more than 5% on Thursday. The company’s shareholders have had to deal with a few new threats that could endanger the leading position of the electric vehicle giant around the world.

Early Thursday, Tesla revealed a few different recalls. One will cover approximately 5,500 Model 3 and Y vehicles, as the automaker seeks to ensure that the fasteners that install the front seat occupant shoulder seat belts are securely fastened. A second recall involves approximately 2,200 Model Y SUVs and will examine a similar issue that could potentially affect seat belt systems in the second rows of these vehicles.

Image source: Tesla.

The announcements followed a Tesla recall released earlier in the week. The concern centers on brake caliper systems that could loosen and cause tire pressure loss, and affects nearly 6,000 Model 3 and Y vehicles.

Yet the most damaging issue Tesla had to face involved a report from a third-party source. An article published on technology news site The Information reported that Tesla’s order volume from China was roughly halved in May from April levels. Citing internal sources, the publication claimed that Tesla’s Chinese orders fell below 10,000 vehicles, compared to more than 18,000 in April and 21,000 in March.

This calls into question whether Tesla maintains its competitive advantages abroad. True, in China, Tesla faces substantial competition from domestic producers such as XPeng (NYSE: XPEV) and NIO (NYSE: NIO). After building a Gigafactory complex in Shanghai, Tesla now has strong demand for its EVs in China. If that demand doesn’t materialize as expected, it could have huge implications for Tesla’s growth trajectory not only there, but across the Asia-Pacific region.

Need to keep the rhythm

The massive stock price gains Tesla produced in 2020 were largely based on the idea that the electric vehicle maker would be able to replicate its success in the U.S. market across the globe. Indeed, some investors have speculated that Tesla’s vehicles would be even better received in some overseas markets, particularly those where higher consumer demand for sustainable energy options would help give the company an edge over markets. manufacturers of internal combustion vehicles.

It is far too early to tell if Tesla has really lost its advantage in China. But with this possibility, shareholders appear to be reassessing Tesla’s growth prospects – and that reassessment impulse could spill over to other stocks as well.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns stock and recommends NIO Inc. and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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