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.
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.