Tesla stock tumbles 11% amid production cut worries

13/01/2023
15:35

Tesla stock price extended its decline on Tuesday amid growing risks of lower demand in China.

The stock has declined over 69% in 2022 and heading toward the worst month, quarter, and year in history. Shares were down 11% yesterday, closing at the price of $109 considered the worst day in 8 months.

Some investors are claiming that the main reason behind the recent selloff is that CEO Elon Musk’s interest is moving away from the company and being distracted by Twitter. The lack of future investment vision is making it harder for investors to assess growth opportunities for Tesla.
However, the latest crash is mainly due to reports that Tesla suspended production at its Shanghai electric car plant for eight days and planning to continue running a reduced production in January. The decision was taken in reply to the rising number of COVID-19 infections in China.

it is important to note the company was already struggling this year with a higher interest rates environment, in addition, the stock suffered heavy selling pressure fueled by tax loss selling of large funds, which opted to sell their Tesla stock holdings at a capital loss to balance other investment gains and lower their income tax base.

Following the latest crash, Tesla has now fallen behind in the ranking of the world’s largest companies measured by market capitalization and is now only ranked 20th with a market cap of $344.5 Billion.

On the other side, other EV makers, like NIO are also facing challenging times, the Chinese carmaker saw company shares drop by 8% on Tuesday after cutting its Q4 delivery forecasts.

Tesla is facing demand issues and must find alternative solutions to grow its sales for next year.

Looking now at the technical picture of Tesla stock, buyers were unable to keep prices above the $400 mark and the stock peaked at $415 in November of last year.

The first warning was the formation of a bearish reversal pattern (Head & Shoulders), which was validated a year later as prices managed to break below the neckline of this pattern at the end of October. The main support zone was located between $200 and $180, and the break below those levels triggered a strong selloff.

For the time being, the pair is facing a strong bearish pressure both fundamentally and technically, the selling momentum remains strong, therefore prices are likely to extend the decline in the direction of the next support located at $90 in the coming weeks as shown in the weekly chart below.

In the daily chart, we can see that Tesla stock has reached a support level in the near-term located at $109 which represents a strong demand level formed in September 2020 and from where a strong rally has begun. Therefore, we might witness the start of profit-taking by short sellers ahead of this year’s end.

Economic analyst
Amine Hiani