Tesla’s Stock Forms Head and Shoulders Pattern, as China Sales Plummet

Tesla's stock (NASDAQ: TSLA) has retreated almost 45% from December highs, less than three months ago, as sentiment on the firm has markedly shifted.

From a technical analysis perspective, the stock looks to be completing a head and shoulders pattern on the 6 month, daily chart below. December's high marks the ‘head', with the ‘shoulders' represented by the $365 level from last month, and November last year.

This pattern is typically bearish, although cannot be relied on in isolation. With holders looking to the future, and next stages of development for the business as growth areas, the current EV business is running into obstacles.

The company is grappling with significant challenges in China, one of its critical markets, as new data released by the China Passenger Car Association (CPCA) paints a somewhat concerning picture. In February, Tesla's shipments in China fell to 30,688 units, marking a 49% decline compared to the same period last year. This also represents more than a 50% drop from January's shipments.

Despite Tesla's struggles, the overall new energy vehicle (NEV) sales in China surged by 82% over the past year. This indicates a stark contrast between Tesla's performance and the broader market, suggesting that domestic competitors are gaining significant ground. Companies like BYD and NIO are not only capturing market share but also innovating with AI-driven technologies, presenting stronger competition to Tesla.

Speculation is also growing around geopolitical tensions affecting Tesla. Some suggest that China might withhold Tesla's full self-driving (FSD) approval as leverage in response to the U.S Government's decision to double tariffs on Chinese imports to 20%.

The shifting dynamics in China’s NEV market, along with mounting geopolitical and competitive pressures, indicate a challenging road ahead for Tesla as it seeks to regain its foothold in this crucial market.