Why Tesla stock popped on Tuesday

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

a woman smiles as she checks her phone in one hand with a takeaway coffee in the other as she charges her electric vehicle at a charging station.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of leading electric vehicle maker Tesla (NASDAQ: TSLA) jumped in morning trading on Tuesday, up 1.5% as of 12:04 p.m. ET.

You may be able to thank government officials in China for that.

So what

The mega-city of Shanghai, as you’ve probably heard, suffered an outbreak of COVID-19 in March. In response, the government imposed strict quarantines during March and April, which — among other things — essentially shut down production at the city’s factories. Tesla’s Shanghai Gigafactory went dark for 22 days.

The good news is that, according to news reports, this latest coronavirus outbreak now appears to be under control in Shanghai. PBS reported on Monday that new cases in the city fell below 10,000 per day over the weekend, and government authorities are beginning to relax restrictions on movement in the metropolis.    

However, the better news came from Reuters which, in an exclusive report, says it’s seen a letter from Tesla to the Shanghai government that confirms that the government had assisted Tesla in restarting production, even as the wider lockdown remained in place. The city government provided decontamination teams to help sterilize the factory, and buses to shuttle its 6,000 workers from home to the factory and back to reduce the chances that they would get infected.  

Now what

The Shanghai Gigafactory resumed production on April 19. Granted, Reuters notes that, by its calculations, Tesla lost about 50,000 vehicles’ worth of production during the 22 days it was shut down. But here’s the thing:

That actually sounds like good news to me.

Consider: Tesla’s Shanghai Gigafactory produced 484,100 vehicles in 2021. The company has said it wants to expand production toward one million cars a year. But if a 22-day shutdown — about 6% of the year — prevented the production of 50,000 Teslas, this implies that Gigafactory Shanghai is now capable of producing as many as 830,000 cars annually.

In short, the real story here wasn’t that China helped out Tesla. It was that Tesla already has greater production capacity in China than many investors may realize. That’s good news for the automaker, and a good reason for Tesla’s stock price to be rising Tuesday.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Tesla stock popped on Tuesday appeared first on The Motley Fool Australia.

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More reading

Rich Smith has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.



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