Will Tesla Overcome a Tough EV Market and Rebound in the Second Half?
Tesla (TSLA) shareholders have had a disappointing first half of 2024. Since the start of this year, as the major indexes reached a series of new highs, shares of the Austin, Texas-based EV maker fell 24%.
Over the past five years, the stock has returned an incredible 1,172%. However, Tesla currently has several factors working against it. EV sales in general are slow.
According to the U.S. Energy Information Administration, electric and hybrid vehicle sales fell from 18.8% of total U.S. light-duty vehicle sales in the last quarter of 2023 to 18% in the first quarter of 2024.
Source: U.S. Energy Information Administration
This is partly due to the large number of used EVs currently available. By purchasing a used EV, consumers can experience this newer technology while making a smaller financial commitment.
However, there is one positive for EV manufacturers like Tesla. The price of lIthium, a key component used in EV batteries, has been falling sharply. This is due to increasing supply from new mines, as well as reduced demand from EV manufacturers.
Investment bank Citigroup has turned bearish on lithium, suggesting that the fundamentals of the chemical element have become “detached from reality.” According to Citi, lithium stockpiles have increased by 70,000 tons this year.
To see what has happened to lithium and where it may be headed next, check out shares of Albemarle (ALB) , the world’s largest lithium producer. This stock, which once gained over 600% over a three-year period (point A to point B), has lost one-third of its value year-to-date, and over half its value in the past year.
Albemarle weekly chart. Source: Tradingview
More recently, Albemarle formed a pattern known as a descending triangle (point C). That bearish pattern suggests a further decline to the $80 area. As the stock broke down from the pattern (point D), volume increased (arrow), another bearish signal.
Regarding Tesla, the company has been beset by a wave of negative news. Last quarter saw a 20% reduction in quarter-over-quarter sales. Analysts are already anticipating another tough quarter. Investors are also digesting the latest recall of Tesla’s Cybertruck.
Despite the negative news, shares of Tesla have been resilient in recent weeks. On Wednesday, the stock traded at its highest level since late April.
Technically, shares of Tesla are still trapped in a bearish channel (parallel lines). However, during the first half of this year, the stock formed a rounded bottom (shaded area). This bullish pattern suggests Tesla could soon drive past $200.
Tesla daily chart. Source: Tradingview
I expect Tesla to face stiff resistance in the $205-$210 area, as the stock’s 200-day moving average (red) and its bearish trendline (dotted line) both reside in that area.
Tesla is expected to report vehicle production and delivery figures early next month. The company’s second quarter earnings are scheduled for July 23. It’ll be interesting to not only see those figures, but how the stock reacts to them.
Could it be that the recent spate of negative news is already priced into the stock? If Tesla can continue its trend of resilience in the face of negativity, that’s a positive sign for investors.
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At the time of publication, Ponsi was long TSLA.