Where to next for the Tesla share price?

Can Tesla’s share price extend its 80% year-to-date gains?

Following its better-than-expected Q4 2022 earnings on 25 January, Tesla’s share price immediately surged by 5% and by nearly ten times as much in the following weeks when it reached its three-month 9 February high at $241.00 before giving back some of its lofty gains.

The stock rallied by over 80% year-to-date as Tesla’s CEO Elon Musk said the company is on track to produce 2 million cars this year, at almost twice the rate of production, is seeing the strongest ever orders year-to-date, saw (adjusted) earnings at $1.19 versus an expected $1.13 per share and revenue at $24.32 billion versus an expected $24.16 billion, according to Refinitiv.

The question is whether such as swift and sharp rally in the Tesla share price is sustainable?

The fact that Tesla’s car sales have been boosted by a significant cut in its vehicle prices globally, by up to 20%, a feat which cannot be repeated ad aeternam as it weighs on margins, and that the company is losing market share as other car manufacturers sell more electric vehicles (EV), may soon put a dampener on the EV manufacturer’s share price.

Tesla’s fourth-quarter results showed that automotive gross margins came in at 25.9%, the lowest figure in the last five quarters, while its market share in the US slipped to 63% compared to its Q3 2018 peak at 86% and in the world’s largest EV market, China, dropped to 10% in 2022 versus 15% in 2020.

Throwing further fuel on the fire, China’s major EV car maker BYD, Toyota’s EV partner, will begin selling its cars in the UK in the first quarter of 2023, following on from its EV bus sales in the UK and in Europe where its Atto 3 car model is on sale in several member states.

With BYD this year looking to be on track to overtake Tesla as the biggest global seller of pure electric vehicles (not including hybrids, which it also manufactures), Tesla’s share price may suffer.

While Tesla cut its car prices across the board, it did increase the price of its Model Y performance crossover by $1,000 to $58,990, its website showed, due to strong demand.

Tesla’s CEO, Elon Musk, said that the company would focus on price to drive demand with the economy headed toward what he believes will be a recession.

The company’s recent price cuts came after nearly two years when it had been pushing prices higher as it could not keep up with demand.

How to trade the Tesla share price?

Refinitiv data shows a consensus analyst rating of ‘buy’ for Tesla – 10 strong buy, 15 buy, 12 hold, 3 sell and 2 strong sell - with the median of estimates suggesting a long-term price target of $196.00 for the share, roughly where the share is trading at the moment (as of 14 February 2023).

IG sentiment data shows that 68% of clients with open positions on the share (as of 14 February 2023) expect the price to rise over the near term, while 32% of clients expect the price to fall whereas trading activity over this week showed 51% of buys and this month 58% of sells.

From a technical perspective this year’s rally is beginning to lose upside momentum with weekly candles becoming ever shorter and as volume keeps decreasing as well, just as was the case in the March 2022 and July-to-August 2022 rallies which were followed by further downside momentum.

When considering that Tesla’s share price last week stalled slightly above the May and June 2022 lows which, together with the July 2022 low at $216.17, acts as resistance, at least a several week- long consolidation may be around the corner.

Tesla Weekly Chart

A short-term toppish scenario remains in play as long as no advance takes the Tesla share price above the late October 2022 peak at $237.40 on a weekly chart closing basis.

Minor support can be found at the 31 January low at $162.78, a slip through which could lead to the closure of the 25 to 26 January Q4 earnings price gap, seen between $154.76 to $146.41.

While Monday’s low at $187.61 underpins on a daily chart closing basis, immediate upside pressure should remain in play, though.

Tesla Daily Chart