- Tesla shares are still suffering from the stock split
- Some new news is already priced into the market
- A production cut in China weighs on the outlook
Tesla (NASDAQ:TSLA) shares are sliding, and there is no one simple answer. The stock split that took effect in August is still weighing on the stock, for one thing, and there are several other headwinds for the market to bear as well. Among them are reports from Bloomberg that Tesla will cut production at its Shanghai plant by 20% in December.
The production cut is noted as the first-ever voluntary cut made by Tesla due to a lack of demand. It’s not that there is no demand but that demand in domestic and Chinese markets for the Model 3 and Model Y (made in Shanghai) is not what the company expected. The news comes just after official Chinese sources revealed Tesla sales had jumped 90% YOY, aided in large part by the ramp of Shanghai production.
Headwinds Mount For Tesla
The takeaway is that Chinese support for EV markets is fading, and there is a risk of the same in the US. The Chinese subsidy for EV purchases ends at the end of December, spurring a lot of activity in 2022. Tesla’s sales in calendar Q4 could be above expectation due to this phenomenon, but the plan to cut production suggests strength is not expected to last.
The recently passed Inflation Reduction Act in the US is under ever-increasing pressure from international leaders. The Inflation Reduction Act includes several provisions viewed as illegal by the EU, as it provides unfair advantages against international laws.
Ursula von der Leyen, president of the European Commission, said,
"There is a risk that the Inflation Reduction Act could lead to unfair competition, close markets and fragment critical supply chains. We must take action to rebalance the playing field... to improve our state aid frameworks. In other words: We need to do our homework in Europe and at the same time work with the U.S. to mitigate competitive disadvantages."
Delivery Of The First Semi’s No Catalyst
Tesla recently announced the delivery of the first Semi, which was no catalyst at all. The Semi is an all-electric class 8 long-haul truck that features three motors and is expected to deliver up to $70,000 in fuel savings per vehicle annually, depending on the cost of electricity.
The first trucks, which were well telegraphed, went to Pepsico (NASDAQ:PEP), which is going to use them in a zero-emissions project at a Frito-Lay facility in California. The takeaway here is the market had already priced in the deliveries. If Pepsico turns around and orders another couple of hundred Semis, then Tesla stock might move again.
The analysts were not impressed by any recent Tesla news to alter their sentiment or price targets, but there are some interesting details in the data. The 36 analysts with ratings on the stock have it pegged at a Strong Hold verging on Buy, and the sentiment is trending higher.
The most recent upgrade came from Citigroup (NYSE:C), which upped the stock to Neutral from Sell and raised the price target from $144 to $176 compared to the consensus of $278. The consensus, by the way, is expecting about a 50% upside for the stock.
The Technical Outlook: Tesla Is Bottoming
The price action in Tesla is under pressure, but the charts show the stock is bottoming. The price action is tracing out a Heady & Shoulders Reversal Pattern that could result in upward movement but will result in a trend change to sideways at least. In the long term, investors might expect to see Tesla consolidate and build a base at this level before moving higher again.
