Shares of Tesla Inc. TSLA and Apple Inc. AAPL — two companies that rely heavily on China for both production and sales — are sliding in premarket trading on Monday.
China Lockdown Stirs Protests: China has continued to impose stricter COVID-19 curbs, officially called the zero-COVID policy, as new cases surge. The restrictions have impacted the life of the common man, prompting people to resort to protests. Voices opposing Chinese President Xi Jinping have also gained strength.
Apple, Tesla And Their China Connection: Apple has already warned of a short supply of iPhone Pro variants due to the disruptions at the Zhengzhou iPhone factory of supplier Hon Hai Precision Manufacturing Company Limited HNHPF. The impact could be bigger than initially estimated as the situation worsens. A Bloomberg report, citing sources, said about six million fewer iPhone Pro models would be produced due to the situation in China.
The disruptions could cost Apple heavily in the key holiday selling season.
Loup Funds' Gene Munster said in a note that 75-80% of the company’s product sales, or 60-62% of overall sales, are “Made in China.” Cupertino is also heavily reliant on China for its revenues, as the Greater China region, comprising China, Taiwan, Hong Kong and Macau, contributes about 18% of the company’s total annual revenue, he added.
Like Apple, Tesla has big revenue and production exposure to China. About half of its global production is manufactured at the Giga Shanghai plant. The factory is also key from the margin perspective due to the cheaper labor costs.
The weakness in Tesla stock could also be attributable to profit-taking following its recent run-up. After slipping to a two-year low of $166.19 on Wednesday, the stock has advanced about 10%.
Price Action: In premarket trading, Apple declined 1.90% to $145.30 and Tesla moved down about 2.27% to $ 178.70, according to Benzinga Pro data.
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