Elon Musk’s electric car manufacturer TESLA stock fell Friday as production at its factory near Berlin was temporarily suspended due to shipping delays, yet another indication that Red Sea attacks are having a detrimental impact on manufacturers worldwide.
Houthi rebel attacks in the Red Sea have forced major shipping companies to avoid one of the quickest routes between Asia and Europe, leading to shortages.
Houthi Rebels
Houthi rebels backed by Iran are attacking ships in the Red Sea – one of the world’s busiest shipping lanes – prolonging transport times and increasing costs from Asia to Europe.
That trend is already having an effect on many industries, including automakers and energy producers. On Thursday, Hertz (HTZ) announced it would unload 20,000 electric vehicles this year due to low demand and costly repair costs.
On Thursday, an alliance of activist investors including Amalgamated Bank, Sisters of St. Joseph of Carondelet, United Church Funds and Investor Advocates for Social Justice issued a joint letter asking Tesla CEO Elon Musk to pay more attention to the core business. These investors believe Musk spends too much time working on “moonshot” projects like SpaceX, Boring Company and Neuralink which they argue may take away from growth prospects – an important concern since TESLA stock remains valued on lofty growth projections
Rising Labor Costs
Tesla saw production and profitability suffer during the third quarter, due to rising interest rates and its older vehicles’ increasingly reduced sales momentum against rivals.
EV King has experienced supply chain problems from the Red Sea conflict, which has disrupted global shipping routes through this canal that accounts for 12.1 percent of trade. On Thursday night it announced it would suspend most production at its factory near Berlin from January 29 through February 11 due to shifts in transport routes caused by attacks against vessels in the Red Sea.
Cutting prices might entice more customers to purchase cars from Tesla, but this won’t sustain their company long term. Building cars is an expensive business; if price cuts fail to create more demand, Tesla could end up sacrificing millions in future sales due to unfavorable labor costs and stock valuation. That is why understanding labor costs as they relate to its stock valuation is vitally important.
China Price Cuts
Price cuts by BYD in China could reduce profit margins but demonstrate strong demand. For instance, the long-range version of Model Y now costs less than its best-selling Seal model – an indication of strong consumer interest for these vehicles.
Elon Musk’s electric vehicle manufacturer announced Thursday that most production at its plant near Berlin would be suspended between Jan 29th and Feb 11th due to transport routes being altered as a result of attacks on ships in the Red Sea, leading to longer shipping times and longer transportation times.
Chinese Tesla owners were unhappy with reduced prices and threatened to protest at dealerships, according to social media posts. Investors also voiced concern over spending on growth projects like SpaceX, Neuralink and Boring Co; research found a correlation between increased tweet frequency from Elon Musk and decreased stock returns of TESLA stock; while several shareholders including Amalgamated Bank, Sisters of St Joseph of Carondelet, United Church Funds and New York City Comptroller signed letters asking him to focus on improving Tesla operations instead.
TESLA Stock
TESLA shares fell as much as 4% Friday morning after the company cut prices again on its Model 3 and two Model Y variants in China. Additionally, production at its Berlin factory would be suspended from January 29 to February 11 due to delays from attacks in Red Sea shipping lanes preventing parts shipments arriving as promised.
Gruenheide’s factory near Berlin halt is compounding growing global supply chain concerns over Yemen. Since Houthi rebels started attacking ships in the Red Sea, major shipping companies have had to reroute Europe-bound cargo through Africa instead, increasing delivery times by days or even weeks.
Complicating factors, like rising labor costs and an announcement by rental car giant Hertz that it will sell off its EV fleet, have all contributed to TESLA having an unfavorable year in 2018. Analysts anticipate a turnaround next year as investors look beyond 2024 towards potential growth over time.
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