With risks in China looming, Tesla and Apple share prices plummet.

Due to significant challenges in China, investors are nervous about the two American technology behemoths Apple and Tesla. Tuesday saw a more than 12% decline in the price of Tesla's stock after the electric vehicle manufacturer reported lower shipments than analysts had anticipated. 

Apple's stock trade dropped more than 3% as worries about the company's premium iPhone demand in the December quarter resurfaced. The stock market's decline is partially attributable to China's issues. Tesla yields 23% of Apple's revenues and 17% of Apple's sales.

Apple and Tesla's supply and demand are derived from China, and China's economy and consumers are cutting back on spending, which is "ominous." There were no COVID-related issues in 2022; in 2023, the concern is demand, and this has cast a significant overhang on Tesla and Apple, which rely heavily on Chinese consumers."

Sales concerns for Apple's iPhone

This month, Apple is expected to announce its fiscal first-quarter results, covering the crucial holiday season in December. Investors are keeping an eye on it. However, in October, the plant's operator, the Taiwanese corporation Foxconn, imposed limitations after a COVID outbreak struck Zhengzhou, China's largest iPhone factory. 

A pay dispute rocked the factory in November, and many employees left. Foxconn has made an effort to woo workers back by offering bonuses. Foxconn's Zhengzhou factory, according to Reuters, is almost back to full production. The incident made clear how heavily Apple depends on China to produce its iPhones. 

After Foxconn placed COVID restrictions at the facility at the beginning of November, Apple reported that the plant was running at "significantly reduced capacity. “Evercore ISI analysts predict Apple will experience a $5 billion to $8 billion revenue shortfall in the December quarter. According to consensus estimates from Refinitiv, Apple may have reported a 1% annual decline in revenue for the December quarter. 

Investors are concerned about this since they anticipated a strong performance from the company's newest smartphone, the iPhone 14 series. However, it goes beyond just the current supply chain problems Apple is experiencing. Regarding its "zero-carbon" policy, China has changed its mind as it seeks to reopen the economy. 

It is currently possible that COVID-19 outbreaks will affect demand for iPhones. Beijing's approach to containing the virus included strict lockdowns and extensive testing. In light of the possibility that resilient high-end consumers may have begun shifting their spending toward travel while others may have shifted their attention to medical supplies, the main obstacle is expected to come from the demand side. IDC's Will Wong told CNBC that the shift in spending would soon pose a significant challenge.

Tesla deliveries are late.

The closest estimate of sales provided by Elon Musk's electric car manufacturer, Tesla, was missed vehicle deliveries, which caused a decline in share price on Tuesday. Deliveries of 405,277 cars missed expectations of 426,000. Again, the supply chain and the China demand story are the main topics.

At its Shanghai Gigafactory, Tesla experienced COVID interruptions throughout 2022. However, analysts also stated that there is worry regarding Chinese consumer demand. Tesla will cite supply interruptions and lockdowns as the main issue in China in 2022, according to Bill Russo, CEO of Shanghai-based Automobility. Despite the Shanghai lockdown, their order backlog has fallen by 70% even more than earlier.

To contain a COVID outbreak, Shanghai's government implemented lockdowns beginning in late March 2022. Investors are also concerned that Tesla may have to lower prices to attract customers, which could put margin pressure on the company. In October, Tesla rolled back some of the prices increases it made earlier this year on its Model 3 and Model Y cars in China.

In addition, Tesla faces significant competition in China from domestic rivals like Nio and Li Auto, as well as more affordable rivals who will introduce new models soon. A lot of Chinese consumers aren't as familiar with Tesla's models as they are with other options because they have been available for quite some time. 

Our research indicates that the short lifecycles of electric vehicles are due to their marketability. If you buy an older EV, you're buying last year's smartphone. To re-ignite the market, you'll need new or updated models. Their brand will suffer long-term if they lower prices.

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