China risks overhang U.S. tech giants Tesla and Apple as share prices plunge
Apple and Tesla are facing major headwinds in China which is contributing to investor jitters around the two U.S. technology giants.
Tesla shares tanked 12% on Tuesday after the electric carmaker reported deliveries that fell short of analyst expectations, while Apple fell more than 3% as concerns resurfaced about demand for the company’s flagship iPhone in the December quarter.
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Challenges in China are partly behind the stock falls. The world’s second-largest economy accounts for around 17% of Apple’s sales and 23% of Tesla’s revenue, making it a significant market for both American firms.
“China is the hearts and lungs of both demand and supply for both Apple and Tesla. The biggest worry for the Street is that the China economy and consumer are reining in spending and this is an ominous sign” for Apple and Tesla, Daniel Ives, senior equity analyst at Wedbush Securities, told CNBC.
“In 2022 the worry was supply chain issues and zero Covid related issues, 2023 is the demand worries and this has cast a major overhang on both Apple and Tesla which heavily rely on the Chinese consumer.”
Apple iPhone demand worries
For Apple, investors have one eye on Apple’s fiscal first-quarter results likely to be released later this month which covers the crucial December holiday period.
But in October, the world’s biggest iPhone factory in Zhengzhou, China, was hit with a Covid outbreak. Taiwanese firm Foxconn, which runs the plant, imposed restrictions. In November, the factory was rocked by worker protests over a pay dispute with many employees walking out of the company. Foxconn has attempted to entice workers back with bonuses. Reuters reported on Tuesday that Foxconn’s Zhengzhou factory is almost back to full production.
The episode highlighted Apple’s reliance on China for iPhone production. In early November, after Foxconn imposed Covid restrictions at the factory, Apple said the plant was operating at a “significantly reduced capacity.”
The world’s biggest iPhone factory, located in China and run by Foxconn, faced disruptions in 2022. That is likely to filter through to Apple’s December quarter results. Meanwhile, analysts questioned demand for the iPhone 14 from Chinese consumers.
Nic Coury | Bloomberg | Getty Images
Analysts at Evercore ISI estimate a $5 billion to $8 billion revenue shortfall for Apple in the December quarter. Apple could report a 1% annual decline in revenue in the December quarter, according to Refinitiv consensus estimates. That is worrying investors who were expecting a strong showing for the iPhone 14 series, Apple’s latest smartphone.
But it is not just the supply chain issues Apple is facing now. China has reversed course on its zero-Covid policy as it looks to reopen the economy. Beijing’s policy involved strict lockdowns and mass testing to try to control the virus. Now there are Covid-19 outbreaks across large parts of the country which could impact demand for iPhones.
“The key challenge is expected to be on the demand side, especially since resilient high-end consumers may have started to shift their spending to travel while some may have shifted their focus to medical supplies. The shift in spending will pose a key challenge in the short term,” Will Wong, research manager at IDC, told CNBC.
Tesla delivery miss
Tesla’s Tuesday share price plunge was driven by a miss in vehicle deliveries, the closest approximation of sales disclosed by Elon Musk’s electric carmaker. The 405,278 cars delivered in the fourth quarter of 2022 fell short of expectations of 427,000 deliveries.
Again, the China demand story is in focus as well as the supply chain.
Throughout 2022, Tesla faced Covid disruptions at its Shanghai Gigafactory. But analysts also said there is concern over demand from Chinese consumers.
“Tesla will point to supply disruptions and lockdowns as the main problem in China in 2022. While these are real headwinds, it cannot hide the fact that demand has softened for a variety of reasons and their order backlog is 70% smaller than it was prior to the Shanghai lockdown,” Bill Russo, CEO at Shanghai-based Automobility, told CNBC.
Lockdowns in Shanghai began in late March 2022 as the megacity’s government sought to control a Covid outbreak.
Investors are also concerned that Tesla will have to cut prices to attract buyers which could pressure margins. In China, Tesla slashed the price of its Model 3 and Model Y vehicles in October, reversing some of the price rises it made earlier in the year.
But another major headwind for Tesla in China is the rising competition from domestic rivals like Nio and Li Auto as well as lower-priced competitors, which are launching new models in 2023.
“Tesla’s models have been in the market for a while and are not as fresh to the Chinese consumer as other alternatives. What we are learning is EV product life cycles are short as they are shopped for their technology features. Buying an older EV is like buying last year’s smartphone,” Russo said.
“They need new or refreshed models to reignite the market. Just pricing lower can damage their brand in the long run.”
Chris Martin of Coldplay performs live at San Siro Stadium, Milan, Italy, in July 2017.
Mairo Cinquetti | NurPhoto | Getty Images
Astronomer‘s interim CEO said in his first public comment since unexpectedly taking over the role on Saturday that he hopes to move the tech startup past the viral moment that captured national attention last week.
Pete DeJoy was appointed to the top job due to the resignation of CEO Andy Byron, days after he was caught on video in an intimate moment with the company’s head of human resources at a Coldplay concert. Astronomer said over the weekend that it would begin a search for a new CEO.
“The events of the past few days have received a level of media attention that few companies — let alone startups in our small corner of the data and AI world — ever encounter,” DeJoy wrote in a LinkedIn post on Monday. “The spotlight has been unusual and surreal for our team and, while I would never have wished for it to happen like this, Astronomer is now a household name.”
Byron was shown on a big screen at the concert in Boston on Wednesday with his arms around Chief People Officer Kristin Cabot. Byron, who is married with children, immediately hid when the couple was shown on screen. Lead singer Chris Martin said, “Either they’re having an affair or they’re just very shy.” A concert attendee’s video of the affair went viral.
DeJoy helped start Astronomer in 2017, according to his LinkedIn profile, and had been serving as chief product officer since earlier this year.
In May, Astronomer announced a $93 million investment round led by Bain Ventures and other investors, including Salesforce Ventures.
“I’m stepping into this role with a wholehearted commitment to taking care of our people and delivering for our customers,” DeJoy wrote. He added that “our story is very much still being written.”
Astronomer is commercializing the open-source data operations platform Astro. DeJoy wrote that customers “trust us with their most ambitious data & AI projects” and that “we’re here because the mission is bigger than any one moment.”
Dylan Field, co-founder and CEO of Figma Inc., after the morning sessions at the Allen & Co. Media and Technology Conference in Sun Valley, Idaho, on July 11, 2024.
David Paul Morris | Bloomberg | Getty Images
Design software company Figma on Monday published an updated prospectus for its initial public offering.
The company said it expects to sell about 37 million shares at $25 to $28 each. That would generate as much as $1 billion in proceeds, between the company and selling shareholders.
The IPO could value Figma, led by co-founder Dylan Field, a fully diluted valuation of $14.6 billion to $16.4 billion. Field plans to sell 2.35 million shares, which could be worth as much as $65.8 million.
In a 2024 tender offer, investors valued the company at $12.5 billion. In 2022, Adobe had agreed to acquire Figma for $20 billion, but the deal was scrapped after regulators objected.
The flow of technology companies joining U.S. exchanges has slowed since late 2021. Concerns over inflation and a recession made some investors less interested in backing fast-growing but money-losing companies.
But a few technology stocks have become available in recent months. CoreWeave went public in March, and Circle and Chime shares started trading in June.
Figma filed to go public on July 1, announcing plans to trade on the New York Stock Exchange under the symbol “FIG.”
On Monday, it provided preliminary results for the second quarter, showing $9.0 million to $12.0 million in operating income on $247 million to $250 million in revenue. That would imply year-over-year revenue growth of 39% at the low end and 41% at the high end. Growth in the first quarter exceeded 46%.
During the second quarter, Figma added clients and expanded business with existing ones. The company’s operating margin would be ticking up to 4% to 5%, up from 3% in the same quarter a year ago, based on the preliminary results.
Figma said it has authorized the issuance of “blockchain common stock” in the form of “blockchain-based tokens.” So far, though, Figma said it isn’t planning to issue this type of stock. In July, Figma disclosed investments in a stablecoin and a Bitcoin exchange-traded fund.
Mike Krieger, a co-founder of Instagram who is now chief product officer of artificial intelligence model developer Anthropic, has joined the board. Luis von Ahn, co-founder and CEO of Duolingo, is also joining the board, according to the filing.
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