Why Tesla Stock Dropped Before Earnings

On Wednesday, 26 January, Tesla (NASDAQ:TSLA) will report its Q4 earnings for fiscal year 2021, so the fact that Tesla stock is falling today does not foreshadow particularly well. Tesla stock is trading down 2.5%, about five times worse than the decline on the broader Nasdaq index.

Why Tesla stock is down is not immediately clear. The latest read on the company’s earnings from Wall Street, after all, was rather positive. Yesterday estimates were raised for both 2022 and 2023 earnings, saying Tesla is growing faster than expected and has “marginally higher volume-driven gross margin.

It is predicted that Tesla will continue to command a disproportionate share of the industry profit pool; and the banker expects to see further evidence of this trend in next week’s report.

As Reuters just reported, Tesla is starting to catch flack in the US Congress. The chairmen of two-House Ways and Means subcommittees criticized Tesla’s decision to set up a car showroom in China’s Xinjiang region, as misguided and a poor example that gives the Chinese government a pass for its reprehensible policies.

Congress may not stop at mere scolding. In a letter to Tesla, the subcommittee chairmen requested that Tesla advise if it sources any car parts from Xinjiang. If all Tesla is doing is selling cars in the province, it might be bad press for the company, but Tesla is not necessarily doing anything wrong. On the other hand, if Tesla is also buying products potentially produced by coerced labour in Xinjiang.