What happened
Tesla (TSLA 4.96%) shares plunged as much as 7.4% Monday morning, dropping to their lowest level in almost 18 months. The move stemmed from two related reasons. As of 12:55 p.m. ET, the stock had recovered some ground, but was still down 3.3%.
So what
The main cause of today's pessimism likely came from a pricing move reported by The Wall Street Journal. Tesla is dropping the price of its Model 3 and Model Y vehicles for Chinese customers. That's not the only news impacting Tesla shares today, but the other item is also about China.
Investors are concerned the price cut could mean the company is seeing waning demand in the important Chinese market. It comes just as Chinese President Xi Jinping secured a third term and stacked his government with loyalists that are considered less friendly to private companies.
Image source: Tesla.
Now what
Chinese tech stocks also dropped sharply today because investors fear policies including lockdowns to control the spread of COVID-19 and tighter regulations on businesses could hurt economic growth in the country. But Tesla investors likely focused more on the pricing move, especially on the heels of comments made by CEO Elon Musk last week.
Musk said during the EV maker's third-quarter earnings conference call that China is experiencing "a recession of sorts" related mostly to the property markets. After the company just dropped prices there by 5% and 9% for the Model 3 and Model Y, respectively, investors are wondering if that critical market might actually be faring worse than Musk indicated.
The new prices will have the Model Y selling for under the equivalent of $40,000 and the Model 3 for about $36,600 to Chinese consumers. It's a real concern for investors if the company is lowering prices due to slowing demand. Tesla's plant in Shanghai was recently upgraded and produced a record 83,135 EVs in September. Declining raw material costs could also be what spurred the price drop. Commodity prices have dipped from peak levels recently, and investors might have nothing to worry about if lower costs are the reason. But combined with the concerns about potential future government policies, Tesla stock took a dive.
