…
Tesla: Apple and Tesla, two of the leading US tech firms, are currently experiencing problems with their stock values.
Because the two firms are facing significant challenges in China, investors are concerned.
Apple’s stock decreased by more than 3% as concerns about the iPhone lineup for the December quarter increased.
Tesla, however, saw a 12% drop on Tuesday when the company reported that deliveries missed the mark of analyst expectations.
China’s influence
Challenges in China may factor in the two tech giants’ stock values declining.
The country contributes 17% of Apple’s sales and 23% of Tesla’s income, making it a big market for both companies.
Daniel Ives of Wedbush Securities, offered his opinion on the companies’ issues.
“China is the heart and lungs of both demand and supply for both Apple and Tesla.”
“The biggest worry for the Street is that the China economy and consumer are reining in spending, and this is an ominous sign.”
He continued:
“In 2022, the worry was supply chain issues and zero Covid-related issues, 2023 is the demand worry and this has cast a major overhang on both Apple and Tesla, which heavily relied on the Chinese consumer.”
Tesla delivery
The share price of Tesla decreased as a result of the delay in vehicle deliveries.
Deliveries of cars fell short of expectations in the fourth quarter, falling to 405,278 from 427,000.
Both the supply chain and Chinese demand were factors in the drop.
During the entirety of 2022, Covid interruptions impacted Tesla’s Shanghai Gigafactory.
However, analysts have also voiced concerns about Chinese consumer demand.
“Tesla will point to supply disruptions and lockdowns as the main problem in China in 2022,” said Bill Russo, the CEO of Shanghai-based Automobility.
“While these are real headwinds, it cannot hide the fact that demand has softened for a variety of reasons, and their order backlog is 70% smaller than it was prior to the Shanghai lockdown.”
Shanghai saw lockdowns in the latter weeks of March 2022 as the authorities sought to contain an outbreak of Covid.
Headwinds
Investors are concerned that Tesla may reduce pricing to draw customers, which puts pressure on margins.
In October, Tesla lowered the price of the Model 3 and Model Y in China, returning to the 2022 pricing company had previously established.
Another obstacle for Tesla in China is the escalating domestic competition from companies like Nio and Li Auto.
Additionally, this year will see the launch of new models from domestic rivals at lower pricing.
“Tesla’s models have been in the market for a while and are not as fresh to the Chinese consumer as other alternatives,” offered Russo.
“What we are learning is, EV product life cycles are short as they are shopped for their technology features.”
“Buying an older EV is like buying last year’s smartphone,” he continued.”
“They need new or refreshed models to reignite the market. Just pricing lower can damage their brand in the long run.”
Read also: Prices of 2022: the highs and lows
iPhone factory problems
Investors are anticipating Apple’s fiscal first-quarter results, which will probably include the December holiday season.
The largest iPhone manufacturer in China, Zhengzhou, experienced a Covid incident in October.
Foxconn, the factory’s owner, placed restrictions.
By November, there had been numerous employee walkouts due to a salary dispute.
Foxconn tried to entice them back with incentives.
Since then, things have become more stable.
Additionally, according to Reuters, the factory was almost running at full capacity on Tuesday.
The incident exposed Apple’s reliance on China for iPhone production.
According to the tech titans, the facility was reportedly operating at significantly lower capacity due to the Covid ban.
Fears
According to Evercore ISI analysts, Apple had a $5 to $8 billion sales imbalance in the quarter ending in December.
However, according to Refinitiv’s estimate, the company may report a 1% yearly decline in revenue in the December quarter.
Investors who expected the iPhone 14 to do well have also expressed concern.
However, Apple is facing more than just supply chain issues.
China has modified its zero-Covid policy to reopen its economy.
But, widespread Covid-19 outbreaks in the country could affect iPhone demand.
IDC research manager Will Wong offered his opinion on the matter and stated:
“The key challenge is expected to be on the demand side, especially since resilient high-end consumers may have started to shift their spending to travel while some may have shifted their focus to medical supplies.”
“The shift in spending will pose a key challenge in the short term.”
Reference:
China risks loom over US tech giants Tesla and Apple as share prices plunge
