The electric car manufacturer juggernaut Tesla Inc. (TSLA) was recently hit by three sets of bad new

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First, Friday’s Consumer Price Index (CPI) report showed that US inflation rose 8.6% year on year in May. This is bad news because high inflation often leads to higher interest rates and higher interest rates make car loans more much expensive. In fact, US 10-year reference government bond yields rose again to 3.3%. At the beginning of March it was only at 1.7%.

Second, Electrek’s specialist news website received a leaked e-mail from Tesla CEO Elon Musk to company employees saying that Tesla had a “very difficult quarter” due to problems in the Chinese supply chain and urging employees to “find it difficult to gather.” This could be a sign that the electric car manufacturer is sitting behind production targets and pushing hard to get to the end of the quarter. Third, China has repeated some bans in major cities in Beijing and Shanghai as part of its “zero COVID” policy after seeing clusters of new cases and there are fears it could soon return to worse lock down conditions. This can be negative for companies looking for products from China, as mentioned above.

Rising interest rates, tight quarters and possible exclusion in China – this is not good news, especially since COVID-19 bans in China need to be curtailed to keep supply chains running smoothly. This will help reduce the supply and demand imbalances that drive inflation up, which in turn will lead to higher interest rates.
However, investor sentiment on these issues could change quickly as China relaxes its restrictions. Unfortunately, it will be a bumpy ride until it happens and Tesla’s investors will have to come to terms with the fact that the company will not reach its goal of producing 1.5 million cars by 2022.

Investors will have to wait and see what happens next when they look at interest rates and their impact on the wider economy, with a special focus on consumer spending patterns. If interest rates continue to rise, sectors such as housing and cars may experience some weakness. However, it is too early to conclude that this will happen.

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