Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of electric-car company Tesla Motors, (NASDAQ:TSLA) shocked the Street today, rising as much as 6.8% following word out of China that subsidies for electric vehicles will be increased for 2014 and 2015.
So what: China had previously announced cuts in subsides for electric vehicles of 10% for 2014 and 20% for 2015. In an effort to combat air pollution, the country told the press that it would reduce those previously announced cuts in half to 5% and 10%. The market is speculating that the newly calculated subsidies will increase demand for Tesla's vehicles.
CEO Elon Musk previously stated that China is expected to be a lucrative market for the company. In a strategy aimed for long-term perception and demand, Tesla has priced its vehicles in China at the same level it charges elsewhere in the world, despite the fact that it could get almost twice as much per vehicle if it priced it according to industry standards.
Now what: The news couldn't have come at a better time -- Tesla is anticipating its first deliveries to China to occur over the next month. Musk had previously mentioned that new orders from China would have at least a six-month wait. Increased production is expected to be absorbed with sales. Additionally, the subsidies should make the more expensive options for the vehicles even more attractive to buyers.
Look for Tesla to potentially raise its demand outlook for China, and possibly guide for profit margins higher than 25% for the year, when it reports its earnings later this month.
Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.