Tesla 'Victim Of Its Own Success:' Analyst Flags 2 Reasons Behind Reported China Production Cut

Tesla Inc. TSLA shares plunged 6.37% on Monday after two separate reports suggested the electric vehicle maker reduced Made-In-China Model Y production by 20% in December. The company, however, denied the reports.

The Tesla Analyst: Piper Sandler analyst Alexander Potter has an Overweight rating and $340 price target for Tesla stock.

The Tesla Thesis: China-related anxiety is rising among Tesla shareholders, Potter said in a note.

If at all Tesla decides to cut production in China, the action would not be due to competitive pressure in the domestic market, the analyst said. Rather, the predicament will likely be due to macroeconomic headwinds in China and ramping up of the company’s Giga Berlin plant, he added.

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“Tesla may become a victim of its own success,” Potter said, adding that the company could possibly run out of buyers in the $50,000+ price range amid a shaky macroeconomic situation and the ongoing COVID-19 disruptions.

Source: Piper Sandler

Also, localized production is ramping up in Europe, reducing demand for exports, Potter added.

Tesla could respond by cutting output in Shanghai, but a more likely outcome would be a downward adjustment of pricing in an effort to poach demand from models such as Volkswagen AG's VWAGY Tiguan, Toyota Motor Corp.’s TM RAV4 and Honda Motor Company’s HMC CR-V, Potter said.

Price Action: Tesla closed Monday’s session down 6.37% at $182.45, according to Benzinga Pro data.

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