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.
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.
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.
“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.”
Tesla launched a revamped version of its Model Y in China.
Tesla
Tesla on Friday announced a revamped version of its popular Model Y in China, as the U.S. electric car giant looks to fend off challenges from domestic rivals.
The Model Y will start at 263,500 Chinese yuan ($35,935), with deliveries set to begin in March. That is 5.4% more expensive than the starting price of the previous Model Y.
A spokesperson for Tesla China said that the new Model Y is only open for pre-sale in the Chinese market, rather than being launched globally.
Elon Musk’s electric vehicle firm is facing heightened competition around the world, from startups and traditional carmakers in Europe. In China, the company continues to face an onslaught of rivals from BYD to newer players like Xpeng and Nio.
Jason Low, principal analyst at Canalys, notes that the Tesla Model Y was the best-selling EV in China in 2024 and that the popularity of the car “remains high.” However, he noted that the competition in the sports utility vehicle (SUV) segment with vehicles priced between 250,000 yuan and 350,000 yuan “has been fierce.”
“Tesla must showcase compelling smart features, particularly a unique but well localized cockpit and services ecosystem,” as well as “effective” semi-autonomous driver assistance features “to ensure its competitiveness in the market,” Low added.
Tesla is offering a number of incentives for customers to buy the Model Y including a five-year 0% interest financing plan.
The new Model Y can accelerate from 0 kilometers per hour to 100 kilometers per hour in 4.3 seconds, Tesla said, exceeding the speed capabilities of the previous vehicle. The Model Y Long Range has a further driving range on a single charge versus its predecessor.
Tesla has not introduced a new model since it began delivering the Cybertruck in late 2023, which starts at nearly $80,000.
Investors have been yearning for a new mass-market model to reinvigorate sales. Tesla has previously hinted that that a new affordable model could be launched in the first half of 2025.
Despite Tesla’s headwinds, the company’s stock is up nearly 70% over the last 12 months, partly due to CEO Musk’s close relationship with U.S. President-elect Donald Trump.
The logo for Taiwan Semiconductor Manufacturing Company is displayed on a screen on the floor of the New York Stock Exchange on Sept. 26, 2023.
Brendan Mcdermid | Reuters
Taiwan Semiconductor Manufacturing Co. posted December quarter revenue that topped analyst estimates, as the company continues to get a boost from the AI boom.
The world’s largest chip manufacturer reported fourth-quarter revenue of 868.5 billion New Taiwan dollars ($26.3 billion), according to CNBC calculations, up 38.8% year-on-year.
That beat Refinitiv consensus estimates of 850.1 billion New Taiwan dollars.
For 2024, TSMC’s revenue totaled 2.9 trillion New Taiwan Dollars, its highest annual sales since going public in 1994.
TSMC manufacturers semiconductors for some of the world’s biggest companies, including Apple and Nvidia.
TSMC is seen as the most advanced chipmaker in the world, given its ability to manufacture leading-edge semiconductors. The company has been helped along by the strong demand for AI chips, particularly from Nvidia, as well as ever-improving smartphone semiconductors.
“TSMC has benefited significantly from the strong demand for AI,” Brady Wang, associate director at Counterpoint Research told CNBC.
Wang said “capacity utilization” for TSMC’s 3 nanometer and 5 nanometer processes — the most advanced chips — “has consistently exceeded 100%.”
AI graphics processing units (GPUs), such as those designed by Nvidia, and other artificial intelligence chips are driving this demand, Wang said.
Taiwan-listed shares of TSMC have risen 88% over the last 12 months.
TSMC’s latest sales figures may also give hope to investors that the the demand for artificial intelligence chips and services may continue into 2025.
Meanwhile, Microsoft this month said that it plans to spend $80 billion in its fiscal year to June on the construction of data centers that can handle artificial intelligence workloads.
Tik Tok creators gather before a press conference to voice their opposition to the “Protecting Americans from Foreign Adversary Controlled Applications Act,” pending crackdown legislation on TikTok in the House of Representatives, on Capitol Hill in Washington, U.S., March 12, 2024.
Craig Hudson | Reuters
The Supreme Court on Friday will hear oral arguments in the case involving the future of TikTok in the U.S., which could ban the popular app as soon as next week.
The justices will consider whether the Protecting Americans from Foreign Adversary Controlled Applications Act, the law that targets TikTok’s ban and imposes harsh civil penalties for app “entities” that continue to carry the service after Jan.19, violates the U.S. Constitution’s free speech protections.
It’s unclear when the court will hand down a decision, and if China’s ByteDance continues to refuse to divest TikTok to an American company, it faces a complete ban nationwide.
What will change about the user experience?
The roughly 115 million U.S. TikTok monthly active users could face a range of scenarios depending on when the Supreme Court hands down a decision.
If no word comes before the law takes effect on Jan. 19 and the ban goes through, it’s possible that users would still be able to post or engage with the app if they already have it downloaded. However, those users would likely be unable to update or redownload the app after that date, multiple legal experts said.
Thousands of short-form video creators who generate income from TikTok through ad revenue, paid partnerships, merchandise and more will likely need to transition their businesses to other platforms, like YouTube or Instagram.
“Shutting down TikTok, even for a single day, would be a big deal, not just for people who create content on TikTok, but everyone who shares or views content,” said George Wang, a staff attorney at the Knight First Amendment Institute who helped write the institute’s amicus briefs on the case.
“It sets a really dangerous precedent for how we regulate speech online,” Wang said.
Who supports and opposes the ban?
Dozens of high-profile amicus briefs from organizations, members of Congress and President-elect Donald Trump were filed supporting both the government and ByteDance.
The government, led by Attorney General Merrick Garland, alleges that until ByteDance divests TikTok, the app remains a “powerful tool for espionage” and a “potent weapon for covert influence operations.”
Trump’s brief did not voice support for either side, but it did ask the court to oppose banning the platform and allow him to find a political resolution that allows the service to continue while addressing national security concerns.
The short-form video app played a notable role in both Trump and Democratic nominee Kamala Harris’ presidential campaigns in 2024, and it’s one of the most common news sources for younger voters.
In a September Truth Social post, Trump wrote in all caps Americans who want to save TikTok should vote for him. The post was quoted in his amicus brief.
What comes next?
It’s unclear when the Supreme Court will issue its ruling, but the case’s expedited hearing has some predicting that the court could issue a quick ruling.
The case will have “enormous implications” since TikTok’s user base in the U.S. is so large, said Erwin Chemerinsky, dean of Berkeley Law.
“It’s unprecedented for the government to prohibit platforms for speech, especially one so many people use,” Chemerinsky said. “Ultimately, this is a tension between free speech issues on the one hand and claims of national security on the other.”