(News Bulletin 247) – Both groups fell sharply on Wednesday, erasing billions of dollars in market capitalization. The Apple group suffered from very weak sales in China while Tesla was weighed down by low shipments from its Chinese factory as well as a shutdown of its production in Germany.

At the end of the film “The Seven Mercenaries” by John Sturges, only three fighters remain. Will the same massacre be observed this year on the seven mercenaries of Wall Street, that is to say Alphabet, Microsoft, Meta, Apple, Nvidia, Tesla and Amazon?

Currently Apple and especially Tesla are clearly weakened within this group of super tech stocks which have almost single-handedly carried the S&P 500 in 2023. The Apple group has lost 11.6% since the start of the year while the electric vehicle specialist gave up 27.3%. The other members of the “mercenary seven” (or “magnificent seven”) of Wall Street are doing better or even much better: Microsoft takes 7%, Amazon 14.6%, Meta 38.5%, Nvidia 73.6%. Only Alphabet is also suffering but to a much lesser extent than Apple and Tesla, its action falling by 5% over the whole of 2024.

What Tesla and Apple have in common is that they share a risk: that linked to their exposure to China, a country which represents both the largest market for electric vehicles and around 20% of the revenues of the famous smartphone manufacturer.

However, the two stocks have swung significantly over the last two sessions precisely because of information surrounding China.

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Apple sales plunge in China

Apple lost 2.8%, erasing around sixty billion dollars of market capitalization.

This decline followed information from Bloomberg relaying dramatic smartphone sales figures in China. According to data from Counterpoint Research cited by the agency, Apple sales in the country fell 24% year-on-year over the first six weeks of 2024, in a market down 7%. Conversely, Huawei is making life difficult for its competitors, with a 64% jump in sales over the same period.

Which confirms Apple’s weakness in a country where local authorities have put pressure on certain civil servants not to use foreign-brand phones at work.

“Huawei has clearly benefited from massive momentum in mainland China, while Apple is going through a very difficult time in terms of iPhone demand in this key region, which represents around 20% of global iPhones,” emphasizes Dan Ives from Wedbush.

“In Asia where we visited for a few weeks, we saw with our own eyes additional discounts around the iPhone 15 in the region, which makes investors more worried about Apple. It’s the icing on the sundae bad news from Cupertino with last week’s information that Apple is abandoning the electric automobile project to focus on artificial intelligence, a much-publicized bad bet of ten years,” he continues.

Beyond China, at a time when the market swears by artificial intelligence (AI), the group’s strategy in this area leaves the market quite skeptical. The most optimistic, like Bank of America, believe that Apple will be able to turn the tide by unveiling technologies – a new smartphone, new operating systems – enriched with AI. But so far, the group’s lack of announcement to capitalize on AI may create impatience among investors.

“Rightly or wrongly, Apple must show that it is still relevant in a world where investors want AI,” underlines Kim Forrest, investment director at Bokeh Capital Partners LLC, quoted by Bloomberg.

Tesla, a sign of disenchantment with electricity on the stock market

Tesla fell even more than Apple, losing almost 4% on Tuesday evening with a market capitalization now below $600 billion, or almost a quarter of that of Nvidia. On Monday the group had already fallen by 7.2%.

Here again, China is one of the factors explaining the decline in shares. As Carlos Tavares, CEO of Stellantis, pointed out, competition in the electric sector in the Chinese market is intense, which translates into very low margins. Tesla must deal with increased competition from local player BYD, which took away the title of leading electric manufacturer in the world in the fourth quarter of 2023.

According to data from the CPCA (China Passenger Car Association) relayed by the Wall Street Journal, Tesla delivered only 60,365 in February from its Chinese sites, a figure at its lowest since the end of 2022. That’s twice less than BYD.

The stock also suffered on Tuesday from the shutdown of production at its site near Berlin, Germany, following an arson attack.

More broadly, the plunge in Tesla shares illustrates the market’s recent disenchantment with electric vehicles. Investors are now scalded by the lower margins in this technology than in thermal, but also by the slowdown in its growth, caused by the reduction or elimination of subsidies which make electric vehicles less affordable for households.

Tesla itself noted this slowdown, admitting that in 2024 its growth rate could be significantly lower than that of 2023. Previously, the group planned to increase its sales by 50% per year…

“Despite the stock’s underperformance year-to-date, we struggle to see a catalyst for Tesla,” Bernstein analyst Toni Sacconaghi wrote in a note dated Monday and cited by Bloomberg. The analyst expects “tepid growth” for the company in 2024 and 2025, “challenging the company’s growth narrative.”