When Reuters reported on Tuesday that Tesla (NASDAQ:TSLA) planned to operate a reduced production schedule in January at its Shanghai facility, investors panicked about the potential for lower demand in the world’s largest auto market. Tesla stock plunged 11.4% on Tuesday.
Tesla stock, which had its worst day in eight months and its worst day in more than two years, was the most significant drag on the benchmark S&P 500 index and the tech-heavy Nasdaq index. The stock sank to its lowest level in more than two years.
Since the beginning of October, its value has dropped by more than half, and investors are concerned that Chief Executive Elon Musk is spending too much time on Twitter. Musk is also concerned about selling his Tesla stock in the company that manufactures electric cars.
The most valuable carmaker in the world has reduced production at its facility in Shanghai in response to an increase in the number of COVID-19 illnesses reported in the nation.
Great Hill Capital Chairman Thomas Hayes stated, “There’s no doubt there are demand anxieties,” citing a delivery prediction drop from Chinese competitor Nio (NYSE:NIO) Inc in the significant sector. “There’s no question there are demand fears,”
Hayes also said that Tesla’s stock was facing a “perfect storm” because of rising interest rates, selling of tax losses, and share sales by certain funds that own a significant amount of Tesla stock. He described these three factors as the “perfect storm.”
When an investor sells an asset at a loss to reduce or eliminate the capital gain achieved by other assets for income tax planning, this transaction is referred to as “tax loss selling.”
While this was going on, Reuters conducted a study that revealed the prices of used Tesla cars were dropping faster than those of other carmakers. This is hurting the demand for the new vehicles that the firm is producing.
Featured Image – Pexels © Pixabay