Tesla to be hit by triple whammy of China price cuts, wage hikes and Berlin disruption

The year has barely started and Q1 2024 is already not going to turn out well for Tesla. Wage hikes, factory shutdown and price cuts will affect deliveries and gross margin for the quarter.

Tesla reportedly has reduced prices on two models in China, where it faces stiff competition from rivals. Investors were also grappling with news of a temporary shutdown of production facilities in Germany.

Tesla cut starting prices on its Model 3 sedan by 5.9% and its Model Y sport-utility vehicle to 2.8%, according to reports Fri from Reuters, Bloomberg News and social-media accounts tracking the automaker.

Shares of Tesla are down over 8% so far this year - the stock has seen just one positive session since Dec. 28. Those losses come as the automaker reported forecast-beating fourth-quarter deliveries at the start of the month, but was knocked off its pedestal as the world's leading EV seller by Berkshire Hathaway-backed BYD.

Separately Tesla appears to have also been dragged into the Middle East conflict, with media reports saying the EV maker will halt the majority of its auto production near Berlin for two weeks due to "a lack of components."

"The armed conflicts in the Red Sea and the associated shifts in transport routes between Europe and Asia via the Cape of Good Hope are also having an impact on production in Grünheide," Tesla said in a statement on Thu, according to Reuters and other media outlets.

The alternate route is longer and often incurs more costs for companies involved, while global shipping rates have been spiking due to those attacks.

Analysts at Baird surmised that the Berlin factory produces 5,000 to 7,000 vehicles a week, "due to the factory not always reaching full utilization and other factors". The shutdown would result in a 10,000 to 14,000 hit to first-quarter deliveries, said analysts Ben Kallo and David Sunderland in a note.

"While the length of the conflict in the region is uncertain, we are wary of further impacts to [Tesla's] supply chain and/or shipping routes for international deliveries," they added. Specifically, they note that Tesla's Shanghai factory deliveries to several regions, including Australia and Europe.

"No delays have been cited, however, we speculate that disruptions in the Red Sea may lead to longer wait times as supply chains are rerouted," they said.