Tesla stock slumps after startling China decision

INTRODUCTION
Tesla (TSLA) shares moved lower Friday, extending its run as the worst-performing stock on the S&P 500, as the carmaker continues to face challenges in its most important market.

Tesla shares have shed more than $240 billion in value this year as investors count the cost of its strategy to win market share while sacrificing profits and assess the impact of fading EV demand in key markets around the world.

Tesla itself warned investors in January that vehicle-delivery growth rates would be "notably lower" than 2023 levels, while CEO Elon Musk said profit margins would improve only on the back of central-bank interest-rate cuts.Tesla's profit margins, probably the most closely tracked metric by analysts on Wall Street, narrowed to 17.6% over the three months ended in December, down from a 23.8% margin over the year-earlier period.

Weaker-than-expected sales figures from China, where volumes fell to the lowest levels in more than a year last month, are also adding to overall pressures on Tesla's aggressive delivery targets.

Tesla's China Challenge
Tesla is also facing a huge wave of competition in China, its biggest and most important market, where sales over the first two months of 2024 rose only 6.8% from a year earlier.

"Chinese car companies are the most competitive car companies in the world," Musk told investors in January. "I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established. Frankly, I think if there are not trade barriers established, they will pretty much demolish most other companies in the world."

CONCLUSION
We believe Tesla has significant attributes to be valued as an [artificial-intelligence] beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first,” Jonas wrote. "If there was ever a time for Tesla to potentially post [GAAP earnings before interest and taxes], it may be this year.”

Tesla shares were marked 3.8% lower in premarket trading to indicate an opening bell price of $166.26 each, a move would extend the stock's year-to-date decline to around 33%.