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Why Tesla Stock Bounced Back Today

What happened

Tesla (NASDAQ: TSLA) stock got rocked on Thursday, falling more than 5% on news that the company has been forced to recall 5,530 Model 3 sedans and Model Y SUVs to fix issues with how front seat belts are secured, 2,166 more Model Ys to fix issues with the backseat seat belts, and 734 Model 3s imported into China due to a combination of seat belt- and tire-related faults.

Today, Tesla stock is rebounding from yesterday's losses and gaining back 3.5% as of 11 a.m. EDT. And yet new worries are rising that could put that rebound at risk.

A family stands in the lot of a car dealership.

Image source: Getty Images.

So what

As Reuters reported yesterday afternoon, citing data from The Information, orders of Tesla EVs in China were "nearly halved in May from April" levels. (April's numbers themselves weren't all that great, down 26% from March.)

Tesla isn't yet commenting on the report, but according to the data, Tesla's net orders in China declined to just 9,800 cars sold in May, down from 18,000 in April and 21,000 in March.

Now what

Investors seem to be shrugging off the bad news from China, but that could be a mistake. Recall that China is Tesla's No. 2 market for car sales after the U.S., and that the company is expecting China to constitute 40% of its total global car sales by next year. Recall, too, that last month Tesla appeared to be rethinking those projections when it reportedly suspended plans to buy more land adjacent to its Shanghai manufacturing plant for expansion.

So what's happening in China is in fact of real importance to Tesla. And now, there's one more piece of this puzzle that investors should keep an eye on. Last month, the biggest worry about Tesla's business in China was that, not only were Tesla's sales declining, but simultaneously, the sales of Tesla's electric car rivals NIO, XPeng, and Li Auto were growing.

If it turns out that this happened again in May, Tesla could be in trouble.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NIO Inc. and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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