Tesla Faces Crucial Test as China Factory Closes Amid Coronavirus Outbreak

There's no guarantee that Tesla's China production will resume on time.

Tesla CEO Elon Musk
Tesla’s Shanghai Gigafactory is a key step in Elon Musk’s plan to conquer the Chinese EV market. Xinhua/ via Getty Images

Tesla (TSLA) stock has been defying every law of economics lately. After rising more than 10% on a better-than-expected Q4 earnings report last Thursday, the electric carmaker’s shares miraculously held steady on Friday despite major U.S. indexes recording their worst one-day losses in years due to escalating fears over China’s coronavirus outbreak. And on Monday, Tesla stock jumped another 12% after one of its biggest bulls, investment firm ARK, predicted that the company’s shares could reach $7,000 by 2024. (Shares are currently trading at $728.)

Tesla’s future looks increasingly shaky, though, as its market value has surpassed that of Detroit’s “Big Three” combined while selling only a tiny fraction of cars, and its new China factory, a big factor behind its stock surge lately, has halted production amid the deadly coronavirus epidemic.

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Last Wednesday, the Chinese government ordered all private-sector companies in the country, including Tesla’s Shanghai Gigafactory, to shut down until February 9 in response to a national emergency to contain the spread of the virus. Tesla’s young chief financial officer Zach Kirkhorn assured investors that the 1.5-week shutdown would only “slightly” impact the company’s profitability in the first quarter of 2020.

The Shanghai factory, responsible for making Model 3 cars for local customers, is a key step in Elon Musk’s grand plan to conquer the Chinese market, the world’s largest for electric vehicles, and get around U.S.-China tariffs. The factory was completed within a year and began delivering Model 3 in December.

Kirkhorn stressed that the temporary closure wouldn’t cause too big of a financial hit to Tesla, as made-in-China Model 3 cars represent a small fraction of the company’s quarterly profits.

But as the death toll and cases of infection from the coronavirus rise by the day, there’s no guarantee that Tesla China will resume production on time.

On Friday, the World Health Organization (WHO) declared the virus outbreak a global public health emergency after the number of infection cases climbed past 10,000 in 25 countries. In response, the U.S. and several other countries declared national emergencies and ordered customs to deny entry of Chinese travelers, affecting regular business travelers working for multinational corporations like Tesla.

In the meantime, the number of coronavirus infection cases continued to surge over the weekend. As of Monday, the deadly virus has infected 17,488 people globally and killed 362. In Hubei Province, where the epidemic first erupted late December, the government has extended business and school shutdowns to February 13.

Tesla Faces Crucial Test as China Factory Closes Amid Coronavirus Outbreak