Tesla, Inc. (TSLA) shares fell more than 8% in early trading on Wednesday after the company disclosed fourth quarter production levels. Model 3 production was in line with guidance at 61,394 deliveries, while Model S and Model X production reached 25,161, which was consistent with the long-term run rate of 100,000 per year. Inventory levels also remained very low, which is a positive for cash flow.

The bearish market movement was likely due to a $2,000 price cut on Model 3, Model S and Model X vehicles, which was designed to counteract the reduction in the 2019 federal electric vehicle (EV) tax credit. During the first six months of the phase-out, customers are eligible for half of the prior credit of $2,000 to $7,500. Those figures fall to 25% during the six months after that and to zero after the full year is over. The unexpected price cut could have an impact on short-term profitability, but it could pay off over the long term if more sales help offset the lower margin per vehicle.

Wedbush analysts weighed in on the production report, keeping their Outperform rating and their price target of $440 per share on Tesla stock.

Technical chart showing the share price performance of Tesla, Inc. (TSLA)
StockCharts.com

From a technical standpoint, the stock moved lower from pivot point and 50-day moving average resistance at around $336.63 toward trendline support near $300.00. The relative strength index (RSI) appears neutral at around 40.92, but the moving average convergence divergence (MACD) remains bearish after a crossover in mid-December. These indicators suggest that there could be more downside ahead.

Traders should watch for a rebound from key support levels near $300 to retest the pivot point and 50-day moving average. If the stock breaks out from these levels, traders could see a further move higher toward upper trendline and R1 resistance at $367.83. If the stock breaks down from key support levels, traders could see the stock retest its lows near S2 support at $250.06.

The author holds no position in the stock(s) mentioned except through passively managed index funds.