What happened
Shares of Tesla (TSLA 1.85%) were trading up over 4% earlier this morning before giving back those gains by early afternoon. As of 12:14 p.m. ET, the stock was up 1.37%.
What probably got the market off on a positive note was a small pullback in interest rates at the start of trading on Tuesday. Long-term U.S. Treasury rates have more than doubled year to date, which has pressured the valuations of expensive growth stocks like Tesla.
However, later in the morning, Reuters reported that Tesla planned to hold production at its Shanghai plant below full capacity. The market is trying to figure out what this might mean for Tesla's business.
So what
Ongoing semiconductor shortages, resulting in many completed cars having to wait on chips before they can finish production, has been a big problem for car manufacturers. The chip shortage is expected to last into 2023, causing Honda Motor to cut 40% of its production recently, according to reports.
Reuters reported that Tesla plans to hold production at its Shanghai plant at 93% of capacity. Whether this signals production challenges or a lack of consumer demand is anyone's guess at this point. What is certain is that the recent rise in interest rates is making it more expensive to purchase new vehicles, but this might not be a problem for high-income individuals who are interested in Tesla's cars.
Now what
In July, CEO Elon Musk expressed optimism about the second half of the year, noting the potential for "record-breaking" results after achieving production records at the Fremont and Shanghai plants during the second quarter. Of course, that was before more data came out showing that inflation is still running too high. The Federal Reserve recently raised the fed funds rate again, with more rate hikes likely on the way.
Analysts expect Tesla to report record deliveries of 350,000 units for the third quarter. Investors will get new information about demand trends when the company releases the next update on deliveries, which should come out by Oct. 2.
