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Why Shares Of Tesla Are Down By 10% This Week?

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Tesla Video 11.05.21.

Tesla Stock Moves Lower As Reuters Indicates That The Company Halted Plans To Expand Its Plant In China

Tesla shares opened with a gap down today after Reuters reported that the company had paused plans to expand its Shanghai plant.

According to the report, the reason for this decision is the uncertainty related to U.S. – China tensions. While the current U.S. President Joe Biden is not using harsh rhetoric against China like former President Donald Trump, the course of U.S. – China relations has not changed.

Other electric vehicle stocks like NIO or Li Auto have also moved lower at the start of today’s trading session but managed to attract buyers and moved closer to the positive territory. The continued deterioration of U.S. – China relations can hurt both Tesla and Chinese electric vehicle makers.

What’s Next For Tesla?

Tesla had a rough start of the week as tech stocks were under pressure due to inflation worries. Earnings estimates for 2021 and 2022 have continued to move higher in recent weeks but Tesla is still trading at 97 forward P/E for 2022. This is an extremely rich valuation which makes Tesla shares dependent on market mood in the near term.

It looks that market sentiment towards tech stocks has become more bearish in May. The tech-heavy Nasdaq made several attempts to get to new highs back in April but failed to develop sufficient upside momentum and pulled back towards March 2021 levels.

Inflation worries are growing, and investors start to pay some attention to valuations. In this environment, disappointing news finally begin to serve as bearish catalysts for tech stocks.

In Tesla’s case, worries about U.S. – China tensions look reasonable as current tariffs imposed on Chinese electric vehicles will likely remain intact for the foreseable future.

In addition, the broad-based sell-off in the tech space may continue as investors have a good reason to take some profits off the table after a huge bull run from the lows that were reached back in March 2020.

At the same time, it should be noted that Tesla is down by more than 30% from highs that were seen at the beginning of this year, and the continuation of the current pullback may attract more speculative traders who were waiting for an opportunity to buy the company’s shares at a discount.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire