Tesla
is planning to halt production at its German factory for two weeks as attacks on Red Sea shipping lengthen transport times from Asia to Europe.
It’s an example of how the disruption is hitting global supply chains and threatening to derail the fight against inflation.
Tesla
said Friday it would stop nearly all production at its factory near Berlin from Jan. 29 and resume production on Feb. 12 as longer shipping times caused a lack of needed components, The Wall Street Journal reported, citing a company statement.
Tesla
shares were down 1.6% in early trading Friday at $223.56 apiece, while the
S&P 500
and
Nasdaq Composite
were both up about 0.5%.
The delay, however, isn’t the most likely reason for the drop. Instead, Tesla cut prices on its electric vehicles in China by roughly 3% to 6%. More price cuts will spur additional concerns about competition and pressures on profit margins. Tesla reported operating profit margins of almost 17% in 2022. Profit margins in 2023 should come in at about 10%. Wall Street expects profit margins to improve in 2024, but lower prices will make that hard.
”The [Berlin plant] shutdown is temporary and any volume shortfall can be made up late this quarter, so [it] shouldn’t impact valuation,” says
Future Fund Active ETF
co-founder Gary Black. He isn’t too worried about the price cuts in China, and doesn’t think they will be followed by significant cuts around the globe. The cuts will, however, create more worry about the direction of profit margins, he adds.
International shipping companies have been forced to find alternative routes after a string of attacks on vessels transiting the Red Sea by Iran-backed Houthi fighters. Around 12% of global trade passes through the waterway normally.
The current volume of containers shipped in the Red Sea is around 200,000 containers a day, compared with around 500,000 containers in November, according to the Kiel Institute for the World Economy in a report published Thursday.
Write to Adam Clark at [email protected]
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