Tesla is in hot water with one of its key customer bases, and some bulls are getting antsy.
On Friday, the Wall Street Journal reported that China is restricting the use of Tesla vehicles by military and state-owned enterprise employees owing to security concerns. China is said to be worried that the vehicles could record and monitor surroundings, sending data back to the U.S.-based company, the Journal reported, citing sources. Separately, Bloomberg reported Friday that Tesla vehicles were being banned from military complexes and compounds.
Tesla did not immediately respond to Fortune’s request for comment.
The Elon Musk–led company’s stock was down by more than 3% on Friday morning before retracing some of its losses to around 1% as of late morning trading.
“I think in itself, it’s not a big deal in terms of the impact it has on Tesla, but it’s a bit of a shot across the bow from Beijing that Big Brother’s watching,” Wedbush’s Dan Ives, a longtime Tesla bull, tells Fortune.
The “broader worry,” he says, “which has always been percolating among investors, is if Tesla started to get too successful in China, would they ever start to get their wings clipped?” Adds Ives: “The fear among the bulls [is that they] just don’t want to see this snowball.”
Tesla has become successful in the region: Morningstar analyst David Whiston pointed out in a February note that the electric-vehicle maker has “customer concentration risk,” with the U.S. and China together making up roughly 69% of 2020 GAAP revenue, up from 56% in 2015, he observed. Meanwhile, Wedbush’s Ives estimates China will make up roughly 40% of Tesla’s deliveries by 2022.
For some analysts, the company faces similar challenges to other U.S. stalwarts that have gained share in China, like Apple. “Especially at this time of essentially a cold tech war between the U.S. and China, Tesla finds itself in the crosshairs, and I think it’s just another challenge for Musk to navigate over the coming months to make sure this doesn’t start to be a broader issue,” he says.
Morningstar’s Whiston argues that negative sentiment toward the U.S. may be involved “due to ongoing tensions between the two countries for a number of years, so hopefully relations improve.” It’s “too early to say this is going to hurt Tesla sales in China,” he told Fortune via email.
The news comes at a time when investors are already apprehensive about the stock. Tesla shares have traded down over 16% in the past month, and other big players like General Motors and Volkswagen are moving into the EV space.
“Right now, we’re going through a glass-half-empty view of Tesla,” notes Ives. “Any news that in any way could be interpreted as negative will have a negative impact in the stock. And that’s what you’re seeing today.”
But of course, Ives isn’t one to capitulate to the bears: He still thinks Tesla’s stock will go higher over the next 12 to 18 months. But for the time being, he thinks Tesla will need to “play nice in the sandbox with Beijing.”
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