What happened
For the second day in a row, electric car giant Tesla (NASDAQ: TSLA) saw its stock tumble, as it continued to be rocked by investor worries over a renewed risk of conflict between Russia and Ukraine, rising interest rates in the U.S., the expansion of a recent Model 3 and Model Y recall into China, and of course -- Hitlergate.
Tesla stock is down 3.6% as of 12:55 p.m. ET today. Any or all of the above factors may have contributed to today's decline, at least in part. And now investors have a new worry to consider, too:
So what
In a lengthy piece out this morning, iconic business news publication Barron's explains how yesterday's steep sell-off of Albemarle (NYSE: ALB) stock (Albemarle is a producer of lithium, used to manufacture the electric car batteries that power Tesla's vehicles) could foreshadow an era of declining profitability at the carmaker.
Albemarle reported fourth-quarter sales and earnings yesterday that mostly matched Wall Street's forecasts for the company. Problem was, Albemarle's profit margins -- and its profits, period -- took a huge hit as it spent heavily to build out its production capacity to satisfy the tremendous global demand for lithium.
This effect of up-front capital investment weighing on profit margins is what investors call "low fixed-cost absorption," and in today's article, Barron's warns that a similar fate could await Tesla as it spends heavily to set up two new car production plants in Germany and Texas.
Image source: Getty Images.
Now what
On the plus side, these two new factories should quickly enable Tesla to ramp up its annual car production by as much as 100,000 cars -- and eventually, by 1 million cars total. On the minus side, though, "it will take a while to get production ramped up," warns Barron's, and while production gets up to speed, Tesla's profit margins could take a hit.
Barron's notes that Tesla CFO Zachary Kirkhorn has been trying to prepare investors for this bad news, warning of "higher fixed and semi-variable costs in the near term," as well as "the usual inefficiencies as we ramp a new factory" in the company's Q4 conference call.
Investors may not have been paying close attention when he said that last month -- but they sure seem to be paying attention now that Barron's has repeated the warning today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Tesla. The Motley Fool has a disclosure policy.
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