Tesla Down 70% in 2022! Where Next?

Tesla started the year on a negative note, with shares falling 14% after disappointing delivery numbers. What's under the hood for the EV company after its demise last year?

Record deliveries fail to impress investors

In a sign of just how unorthodox the market thinking is regarding Tesla, the company reported 20% q/q growth in sales, which disappointed investors. Shares slumped 70% in a year, during which the company doubled the number of operating factories, and deliveries increased by 40%. And that was shy of the 50% annualised growth the company expected to achieve over the next few years.

Deliveries amounted to 405K cars globally, but investors were expecting 427K. Although the company doesn't provide figures broken down by region, there are some indicators for why results might have disappointed: The Shanghai factory had to suspend production, affected by the covid outbreak. This put the company on the back foot in the largest EV market in the world, allowing its Chinese competitor, BYD, to nab the prize of the largest full-electric car seller in the world.

Musk's reassurances email worrisome

In an email to employees late last month, CEO Musk asked employees not to be "too bothered by stock market craziness". Generally, letters from CEOs to employees to reassure them of the company's stability have been seen as a negative sign. Previously in the quarter, Credit Suisse's CEO sent out a similar letter ahead of disclosing significant losses. Tesla's shares had been recovering near the end of the year on expectations that Q4 results would be outstanding. Those gains have been erased since the delivery numbers were released.

Musk also blamed rising interest rates that have punished tech companies across the board, but Telsa has been underperforming even by that metric. Critics point to the takeover of Twitter as contributing to the drop in the share price. Others point to Musk having sold shares throughout the year. Still, others are optimistic, citing expectations for the new Berlin and Austin factories to continue their production ramp-up, allowing the company to continue sales momentum.
Additionally, it's expected that the company will soon announce the construction of a new gigafactory. China's lifting of lockdown restrictions could mean no more disruption in the critical Shanghai facility.

Tesla in H&S Pattern

Tesla's stock price plummeted from its record high of $415 per share to $105, just shy of the floor of $100. Breaking lower could expose the stock to $64, as there is little support in the interim. The 78.6% Fibonacci retracement of the $12-$415 exponential leg could be the last resort for bullish defence. It is also the length between the head and the neckline of a potential H&S pattern. Increasing bets could send prices back to 61.8%, near $166, where further clarity will be provided. Until $205 or the 50% Fibonacci near $215, we consider the pattern a head-and-shoulder.

Key Takeaways

Tesla's shares fell 70% in a year despite doubling operating factories and increasing deliveries by 40%. Some people think this is because CEO Elon Musk sold some of his shares and find his latest email to employees worrisome. On the other hand, some believe it's because of the recent Twitter takeover. The main reason investors might be disappointed with Tesla's performance seems to be issues related to China's capacity to produce during covid outbreaks. This, in turn, allows for some optimism that Tesla will continue to see sales momentum from easing restrictions in China and the new factories in Austin and Berlin.