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China Matters a Lot to Tesla. That’s Why Elon Musk Has Given Assurances About Its Data.

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Elon Musk

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News that

Tesla

might have a Chinese problem roiled the stock a little on Friday.

China, after all, matters a lot for every electric vehicle maker, and Tesla is the most valuable EV maker of all. Now CEO Elon Musk has addressed the issue. And he doesn’t appear too worried.

On Friday, The Wall Street Journal reported that the Chinese government might stop driving Tesla (ticker: TSLA) vehicles because of national security concerns. The timing coincided with the U.S.-China talks in Alaska that devolved into a contentious back and forth about human rights and democracy.

Tesla stock dropped in early Friday trading, but finished the day up about 0.3% while the

Nasdaq Composite

gained 0.8% and the

S&P 500

dropped a little.

Reuters reported on Saturday that Musk told Chinese listeners that his company has a very strong incentive to be very careful with any information that might be gathered by the company or by sensors and cameras on its cars.

“If Tesla used cars to spy in China or anywhere, we will get shut down,” Musk said, according to Reuters.

For the stock, the issue with the Chinese government appears to be a small one, but investors have to follow along because China is critical for the success of the company. China is the largest market for new cars and new EVs. Wedbush analyst Dan Ives calls China the linchpin of future growth for the company. He rates Tesla stock a Hold and has a $950 price target for shares.

“At a moment of some white-knuckle tensions between the US and China, Musk & Co. find themselves in a unique position—along with

Apple

—of being caught in the crossfire,” Ives wrote in a report Friday. He added that while he did not expect the situation to spiral out of control, he was watching developments closely.

Tesla shares are down in recent weeks, but not because of geopolitical tensions.

Higher interest rates have hurt Tesla stock. High rates hurt high growth stocks like Tesla more than others. For starters, higher interest rates make it more expensive to finance growth. Second, high growth companies generate most of their cash flow far in the future. Higher rates make the promise of future cash a little less attractive, relatively speaking, than higher yield from bonds in the present day.

Tesla shares are down about 7% year to date, trailing behind comparable returns of the S&P 500 and

Dow Jones Industrial Average.

Shares are off about 27% from their 52-week high in January. The yield on the 10-year Treasury note recently rose past 1.7%, up about 0.5% in recent weeks.

Write to Al Root at [email protected]

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