Tesla (TSLA) Stock Drops Over 3.5% After China Cuts Electric Vehicle Subsidies

Francisco Memoria

The price of Tesla (NASDAQ: TSLA) has dropped nearly 4% to test the $700 mark shortly after surpassing it, as investors started selling TSLA after China announced cuts to subsidies on electric cars.

According to Reuters, China is lowering subsidies on electric cars and tightening eligibility for rebates while extending support for swappable battery technology. China is the world’s biggest market for electric cars, and it’s cutting subsidies on new energy vehicles (NEVs) by 10% this year.

The move doesn’t just hit Tesla, but also Volkswagen (VOW.DE), General Motors (NYSE: GM), and Ford (NYSE:F) as Western automakers have been investing in the electric car sector to expand in the Chinese market while meeting the government’s regulations. China is looking to improve auto sales of electric or hybrid models to 20% of the total by 2025, from the current 5%.

The subsidy cut is notably seen as a measure of support, however, as China was initially planning to end subsidies altogether this year. Instead, these are being extended until 2022, as well as related tax exemptions.

The measure of support doesn’t help Tesla, however, as only passenger cars cheaper than 300,000 yuan (about $42,000) are eligible to receive subsidies. TSLA’s cheapest made-in-China vehicle, the Model 3, starts at about 323,800 yuan, or $46,000, making it too expensive to qualify.

As a result, investors dropped Tesla stock after considering the potential effects this will have on the company’s full-year vehicle delivery target of 500,000 vehicles. TSLA dropped 3.6% before the closing bell, but appears to be recovering slightly pre-market.

TSLA pre-market priceSource: Google

China’s new policy deems “NEVs” include battery electric cars, hydrogen fuel-cell cars, and plug-in hybrid cars. While Tesla’s stock dropped 3.6%, Ford went up 2.5%, while GM moved up 1% and Volkswagen slid 1%.

It’s worth noting that according to the China Association of Automobile Manufacturers, sales of electric and hybrid cars fell in March for the ninth month in a row in the country, and are now down 50% year-over-year.

Analysts are seemingly divided on TSLA, as while GLJ Research CEO Gordon Johnson has argued for a $70 price target for the automaker, Jim Cramer said it’s a “buy” ahead of earnings as it’s a “tech company on wheels.”

Tesla’s earnings report is expected n April 29 after the closing bell.

Featured image via Pixabay.