Here's what happened in China's markets last trade day (8/14):
1. Tesla just cut the price of its Model Y electric vehicle in China again in a sign of intensifying competition in the world’s largest EV market.
The price reduction of 4% is the second cut this year and equates to almost $2,000 for its long range Model Y. At just $41,320, the Tesla Model Y Long Range is now priced 18% cheaper than what it would normally cost in the US. The company delivered 325,528 units from its Shanghai Gigafactory in the first 7 months of this year, up 58% from the same period in 2022. This may not be the last price cut as Beijing’s renewed push to promote EV consumption and extension of subsidies until the end of 2027 to encourage carmakers to come out with better offers to lure buyers. $Tesla (TSLA.US)$
2. Country Garden, once a giant in China’s real estate industry, has suspended the trading of 11 onshore bonds starting August 14 as the company moves to restructure debts. $COUNTRY GARDEN (02007.HK)$ $CG SERVICES (06098.HK)$
The company missed two coupon payments last week and while it has a 30-day grace period to make good on its obligations, the move to suspend trading of its bonds indicates the company is suffering from liquidity issues that may be deeper than reported. CountryGarden had amassed $194 billion in liabilities as of end-2022, but only $37 billion of that are interest-bearing liabilities, while it has $20.5 billion in cash. The sharp declines in sales in 1H23 is contributing to Country Garden’s liquidity problems as lower upfront sales means they dip into their cash pile to settle obligations to suppliers and contractors. Recent moves by Beijing to promote real estate purchases will take longer to be felt in the market. $Global X Funds Global X Msci China Real Estate Etf (CHIR.US)$ $iShares MSCI China ETF (MCHI.US)$
3. Foxconn, a top contractor for Apple, gave a dire outlook for the smartphone industry after reporting a 14% decline in revenue for 2Q23. $Foxconn Concept (LIST0576.SH)$
Gross profits also declined 14%, while operating income fell 30% for the behemoth contract manufacturer. The company has been branching out into other new areas, particularly electric vehicles where it has collaborations with 10 customers on 20 electric vehicle projects. Meanwhile, Foxconn is looking to spend $1.2 billion or more developing its operations in India which is enjoying a surge of manufacturing business thanks to decoupling and de-risking efforts in light of US sanctions against China. Management expects sales falling in the current quarter and full year, which is another sign of trouble for consumer technology companies like Apple. $Apple (AAPL.US)$
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