European Regulators Investigate Subsidies Impacting Chinese Auto Makers, Including Tesla

European regulators are currently examining the subsidies received by Chinese auto makers, and this investigation now includes Tesla. Despite this news, investors do not appear overly concerned.

It was reported on Tuesday by Bloomberg that Tesla's cars, which are exported from China to Europe, are under scrutiny by EU regulators. This comes after the European Commission announced earlier this month that it would be launching an investigation.

EU Commission President Ursula von der Leyen expressed her concerns about the current situation in a speech on September 13th. She asserted that the global markets are being flooded with inexpensive Chinese electric cars, which are artificially kept at low prices due to substantial state subsidies. This distortion of the market is considered unacceptable by the European Union.

If the investigation finds evidence of unfair subsidies, potential outcomes could include the implementation of import taxes designed to offset these subsidies. Consequently, imported cars would become less competitive compared to locally produced models due to increased prices.

While Tesla's stock has declined by 1.3% in premarket trading on Tuesday, it is crucial to note that the EU probe is likely not the primary factor driving this decrease. Both S&P 500 and Nasdaq Composite futures have also experienced slight declines of approximately 0.5%.

Tesla's European Car Exports from China Slowing Down

Tesla's car exports to Europe from China have been steadily declining as the company increases production at its German factory. In the fourth quarter of 2022, Tesla exported approximately 106,000 vehicles to Europe from China. This number dropped to around 92,000 in the first quarter of 2023, and further decreased to about 88,000 in the second quarter of the same year. However, the trend suggests that third-quarter exports will be lower than the second quarter.

The significant factor impacting Tesla's stock is the decline in delivery estimates. According to FactSet, Wall Street now expects Tesla to deliver about 462,000 units in the third quarter, compared to previous estimates of approximately 473,000 units. Moreover, the delivery estimate range for the third quarter is a wide 70,000 units, double the range observed in the second quarter.

The uncertainty surrounding delivery estimates has contributed to a recent decline in Tesla's stock price. Over the past few days, it has fallen by approximately 11%. Gary Black, co-founder of the Future Fund Active exchange-traded fund (FFND), states that lower deliveries are mainly due to supply constraints. He points out that the updated version of the Model 3 has not yet made a significant impact on shipments in China and Europe. However, Black predicts that the company will deliver over 500,000 units in the fourth quarter.

According to FactSet, analysts' consensus call for the fourth quarter stands at around 490,000 units. The exact number will be reported in early 2024. In the meantime, investors will need to navigate through various speculations and market noise related to Tesla's stock. This is a familiar scenario for anyone involved with Tesla stock.

Stay tuned for further updates on Tesla's performance in the coming months.