Text size
Transversospinales / Dreamstime
Let us assume that the Trump administration is advancing its threats to stop American companies from working with both ByteDance unit TikTok and Tencent Holdings-owned WeChat.
What will the Chinese government do in response?
Amber analyst Toni Sacconaghi has pondered that question. He owns both Apple (ticker: AAPL) and Tesla (TSLA), both iconic American companies with deep ties in China. Sacconaghi notes that China accounts for 15% of Apple revenue, and the company sources almost all of its products there. Tesla generates 15% of its turnover from China and aims for a mix of 30% -plus after the recent construction of its Shanghai Gigafactory.
In short, China could destroy both companies if it made the effort. And Sacconaghi does not think current share prices for both Apple and Tesla reflect all potential China risks.
How much risk exists is hard to tell, he admits.
For one thing, he notes that President Donald Trump’s executive order on WeChat is vague. “If it were to eventually ban WeChat worldwide on iOS, it would have a material impact on Apple’s sales in China,” he writes, likely sharply curtailing hardware sales in the country. “But the risk of collateral damage by China is probably the most worrying.”
Sacconaghi notes that despite the gradual decline in relations between the US and China, Apple’s business in China has been fairly resilient over the past two years, ‘perhaps reflecting the company’s deep ties with the Chinese economy, with more than 3 million- plus Chinese indirectly in the supply of Apple chain, and very strong consumer markets. ”
He adds that Tesla “has maintained warm relations with China to this day – as evidenced by the Shanghai Gigafactory’s state-sponsored construction schedule – because the Chinese government is likely to view Tesla as critical of its own electricity initiatives. cars. “
But he also writes that the rising share prices in recent weeks for both Apple and Tesla “would suggest that investors do not discount much China risk.”
In his research note, Sacconaghi includes a comprehensive list of previous repetitions by the Chinese government in other disputes.
- In March 2010, the Chinese government attacked the quality of Hewlett-Packard laptops on a CCTV television program, causing a sharp drop in sales. Sacconaghi notes that “this government sanction and the resulting consumer reaction are likely to have exacerbated a continuing decline in HP’s market in China, resulting in the company not recovering its market share for years to come.”
- In August and September 2012, a border dispute between China and Japan encouraged Chinese consumers to boycott Japanese carmakers, reducing their market share in the fourth quarter of 2012 to 13.4% from 19% in the third quarter, although the markets the lost hell share within a year.
- In late 2016, amid a dispute with South Korea over the installation of a US-produced missile system, China shut down 74 of 99 supermarkets operated by the South Korean Lotte Group for proven security breaches.
- In April 2016, China banned Apple’s iTunes Movies and iBooks stores.
In 2018, the growth of Apple’s App Store in China was suddenly nosedive due to Chinese regulatory delays in approving new games.
Sacconaghi writes that refutation can be unofficial. He notes that China delayed the release of the iPhone 6 by a month in 2014, presumably due to the US accusation of several Chinese military hackers.
“Alternatively, this may take the form of customs delays for imported components or exported products, be excluded from bidding for contracts of Chinese companies in the state, or be blocked from purchases with major Chinese operations, regardless of whether the purchase purpose is China basis (as in the case of Qualcomm and NXP)
[Semiconductors] in 2018), ”he writes.
On Tuesday, Apple stock fell 3%, to $ 437.50, while Tesla was 3.1%, to $ 1,374.39. The S&P 500 closed 0.8%.
Write to Eric J. Savitz by [email protected]
.
