China raises risk on US tech giants Tesla and Apple as share prices fall

Apple And Tesla Heads in China are facing headwinds, contributing to investor jitters around the two US technology giants.

Tesla shares fell 12% The electric carmaker on Tuesday reported deliveries that fell short of analysts’ expectations apple fell more than 3% As concerns about demand for the company’s flagship iPhone resurfaced in the December quarter.

China’s challenges are partly behind the stock fall. The world’s second-largest economy accounts for about 17% of Apple’s sales and 23% of Tesla’s revenue, making it an important market for both US firms.

“China is the heart and lungs of both demand and supply for both Apple and Tesla. The biggest concern for the Street is that China’s economy and consumer spending are reining in and this is an ominous sign” Apple and Tesla, Daniel As for Ives, senior equity analyst at Wedbush Securities told CNBC.

“The concern in 2022 was supply chain issues and zero covid related issues, 2023 is the demand concern and this has made a big impact on both Apple and Tesla which are heavily dependent on the Chinese consumer.”

But in October, the world’s largest iPhone factory in Zhengzhou, China hit with a covid outbreak, Taiwanese firm Foxconn, which runs the plant, imposed sanctions. In November, the factory was rAngered by the protest of the employees regarding the salary dispute Many employees left the company. Foxconn has tried to Pay back employees by giving them bonuses, Reuters reported on Tuesday that Foxconn’s Zhengzhou factory almost back to full production,

The episode exposed Apple’s reliance on China for iPhone production. In early November, after Foxconn imposed Covid restrictions on the factory, Apple said the plant was operating at “significantly reduced capacity”.

Analysts at Evercore ISI expect Apple’s revenue to decline by $5 billion to $8 billion in the December quarter. Apple could report a 1% annual decline in revenue in the December quarter, according to Refinitiv consensus estimates. This is a matter of concern for investors who were expecting a strong performance for the iPhone 14 series, Apple’s latest smartphones.

But it’s not just supply chain issues Apple is facing right now. China has reversed course on its zero-Covid policy as it looks to reopen the economy. Beijing’s policy included strict lockdowns and mass testing to try to control the virus. Now there is an outbreak of Kovid-19 in large parts of the country which may affect the demand for iPhones.

“The key challenge is expected to be on the demand side, especially as resilient high-end consumers will have begun to shift their spending to travel, while some will have shifted their focus to medical supplies. will present a significant challenge. Short term,” Will Wong, research manager at IDC, told CNBC.

Tesla’s Tuesday share price decline was driven by a decrease in vehicle deliveries, the closest estimate of sales by Elon Musk’s electric carmaker. 405,278 cars delivered in the fourth quarter of 2022 427,000 deliveries fell short of expectations.

Again, the China demand story as well as the supply chain is in focus.

Throughout 2022, Tesla faces Covid disruptions at its Shanghai Gigafactory. But analysts also said there are concerns about demand from Chinese consumers.

“Tesla will point to supply disruptions and lockdowns in China as the main problem in 2022. While these are real headwinds, it cannot hide the fact that demand has softened for a number of reasons and their order backlog is larger than ever.” 70% smaller. Shanghai for the lockdown,” Bill Russo, CEO of Shanghai-based Automobility, told CNBC.

Lockdown in Shanghai to begin in late March 2022 As the government of the megacity sought to control a Covid outbreak.

Investors are also worried that Tesla will have to cut prices to attract buyers, which could put pressure on margins. Tesla in China Reduced the price of its Model 3 and Model Y vehicles in OctoberReversing some price increases made earlier in the year.

But another major hurdle for Tesla in China is growing competition from domestic rivals nio And Lee Auto With all low cost competitorwhich are Launching new models in 2023,

“Tesla’s models have been on the market for a while and are not as new to the Chinese consumer as other options. What we are learning is EV product life cycles are shorter because they are shopping for their technology features. Buying an older EV is like buying last year’s smartphone,” Russo said.

“They need a new or innovative model to revive the market. Merely reducing the price can hurt their brand in the long run.”