Tesla shares plummet as cheap oil and coronavirus challenge electric car and solar sales

Key Points
  • Tesla shares plummeted 13.6% on Monday, shedding more than $95 to close at $608 per share, dropping 6 percentage points more than the S&P did for the day. 
  • Uncertainty around the coronavirus COVID-19 outbreak, and oil price battles between Saudi Arabia and Russia are weighing on shares of Elon Musk's electric car maker.
  • Historically, when crude prices decline, electric vehicle sales -- and solar installations -- slow down. 
A Tesla Model 3 vehicle set to be delivered to a company employee moves off an assembly line during a ceremony at the company's Gigafactory in Shanghai, China, on Monday, Dec. 30, 2019. Tesla spent over $1 billion in the most recent quarter on factories, including one in Germany, and Elon Musk has hinted that India could be the next target.
Qilai Shen | Bloomberg | Getty Images

Tesla shares plummeted by 13.6% to $608 per share on Monday, dropping 6 percentage points more than the S&P for the day, as plunging oil prices and the continuing coronavirus outbreak weighed on investors.

The oil price battles between Saudi Arabia and Russia could challenge Tesla's electric vehicle and solar roof sales in markets where it remains more affordable for people to stick with fossil fuels, and where they are not incentivized to switch to renewables. Historically, when crude oil and gas prices decline, electric vehicle sales -- and solar installations -- slow down.

Tesla is also grappling with the impact of the novel coronavirus outbreak in and beyond China. The epidemic has forced temporary closures of Tesla's new Shanghai car plant and stores throughout the country. 

Last week, Tesla customers there complained that the company delivered them new Model 3s with a version of Autopilot hardware that was not as advanced as promised. Tesla blamed its decision to use the older version of their hardware in new Model 3s on supply chain disruptions, which it had not previously disclosed. 

Wedbush Securities' Dan Ives wrote, in a note to investors on Monday that Tesla's outlook in China is strong over the long-term but challenged throughout 2020.

"Supply chain issues in China remain a lingering worry," he wrote. "Given the demand overhang from the coronavirus outbreak in China as well as Europe we believe that 1Q unit demand levels will be difficult to hit for Tesla and is a dynamic currently being factored by the Street into the name (as well as its auto/tech brethren). We still believe reaching the company's 500k unit demand levels for FY20 remain an achievable bogey to hit."

According to multiple reports, citing data from CPAC officials, Tesla delivered 3,958 cars in China during the month of February amid widespread coronavirus-related closures. The reports did not say how many of Tesla's cars made in China were sitting in inventory and sold on a wholesale basis to the company's own stores, versus delivered to end-customers.

Wood Mackenzie's principal analyst for electric vehicles and mobility, Ram Chandrasekaran, told CNBC that shares in Tesla skyrocketed for weeks as a reaction to Tesla making strides in China, and narrowing its losses, financially. So it's not surprising to see shares come down amid a market freefall on Monday.

Chandrasekaran noted that only a small portion, around 10%, of new vehicle shoppers make a final decision about what car to buy based on a comparison of energy costs.

"Most people make their buying decisions based on how they like a car, how comfortable it is, its design, and performance and so on," he said. "While gas prices at $2 a gallon could weigh on Tesla sales a bit, what is more important will be the battery prices, battery performance and charging infrastructure." 

Elon Musk's car company was not alone: Other electric vehicle makers and solar firms, like Nio (down 7.3%) and SunRun (down 17%) saw their share prices drop steeply on Monday as well.