Tesla shares continue to free-fall

​Tesla’s share price has had a tumultuous start to the year

Tesla’s share price has had a volatile start to the year, dropping by around 40% from its early January high to its February low before rallying by close to 65% to its early April high, only to then fall back again by around 45% and now trade at near one-year lows.

These gyrations in the Tesla share price occurred amid general market risk-on and -off phases of several weeks’ duration as the war in Ukraine kicked off, central banks around the world tightened their monetary policy, China closed up shop for over a month due to their zero tolerance Covid-19 policy, and CEO Elon Musk opened his delayed €5 billion ‘Gigafactory’ near Berlin before making a bid for Twitter.

The $44 billion Twitter acquisition is pending approval from regulators and shareholders but has been interpreted by some analysts and investors as Musk taking his eyes off Tesla, provoking further selling of its stock to levels last seen in July 2021.

This comes despite the electric car maker resorting to isolating thousands of its workers in an old military camp and in several disused factories in China to ensure they don’t catch Covid-19, part of a large-scale plan by Tesla to ramp up production at its ‘Gigafactory’ in Shanghai, alongside its other five global sites, as the city emerges from lockdown.

There remain clouds on Tesla’s horizon, though, with competitors such as Volkswagen, Europe’s biggest car maker, playing catch up in the electric vehicle (EV) market and expecting to beat Tesla’s sales by 2025.

At the World Economic Forum in Davos, Switzerland, Volkswagen’s chief executive, Herbert Diess said on Tuesday’s CNBC “Squawk Box Europe” that alleviating supply chain issues would likely help create some momentum for the German auto behemoth over the coming months. When asked why investors valued Tesla at such a premium to other traditional carmakers, Diess replied that “markets are always about the future” and that “we are still aiming at keeping up and probably overtaking [Tesla] by 2025 when it comes to sales.”

The Volkswagen CEO also stated that “I think for Tesla, also, ramping up now will probably be a bit more challenging. They are opening up new plants and we are trying to keep up speed. We think in the second half of the year, we are going to create some momentum.”

How much longer will the supply chain crisis last?

More than two years into the global coronavirus pandemic, the automotive industry continues to struggle and is finding it difficult to obtain vital parts and thus build enough vehicles to meet demand, leading to never-seen-before elevated second-hand car prices.

Those shortages of critical supplies, particularly in relation to battery production, could be an ongoing problem for the growth of electric vehicle sales in the years to come. Tesla has tried to get ahead of this issue via ownership of 13 battery production lines and by building new ones in Indonesia, where Musk recently met with the Indonesian president and has reportedly agreed to build a battery and electric vehicle factory.

On Tuesday, Diess said he “would see an alleviation of this [supply bottlenecks] situation towards mid-year and second half” and that Volkswagen “should be in better shape — if the situation is not getting any worse, which I don’t think so.” When asked whether this means he anticipates that the semiconductor supply constraints could end in the second half of the year, Diess replied: “I wouldn’t say end but we see a much-improved situation. I think supply chains are getting in order again.”

Where to next for the Tesla share price?

Tesla’s share price has been trading in a clearly defined downtrend channel – showing a series of lower highs and lower lows – from its early April peak and has since fallen by approximately 45% in value while trading at levels last seen in late July 2021.

The slip through the 2020-to-2022 uptrend line at around the $768 mark and the subsequent drop through the February low does not bode well for the bulls with the July 2021 low at $620.72 on the Daily Financial Bet (DFB) currently being probed. Below this low lies major long-term support which can be spotted between the August 2020 high, March and May 2021 lows at $545.04 to $538.38.

Since several monthly highs and lows congregate in this region, the Tesla share price is likely to stabilise within this support zone, at least short-term, were another 15% drop from current levels towards it to ensue.

Below this significant support zone there is no support to speak of until the minor psychological $500 mark.

For the Tesla share price to reverse its fortunes, not only would a rise back above the breached long-term uptrend need to be seen, but also a daily chart close above its last reaction high, meaning a daily candle which has a higher high than the candle to its left and to its right, which is seen at the 13 May high at $787.20.

Looking at the steep downtrend and with the mid-May high lying around 20% above the current Tesla share price, the odds clearly point to lower prices remaining in sight.