InvestMacro

By Admiral Markets

Both Tesla and NIO have been two of the financial markets’ major players during the last year, since many investors have focused their attention on companies manufacturing electric vehicles. However, the market sentiment so far this year has failed to match up to levels seen in 2020.

While Tesla and NIO showed their positive side with increases of 743.40% and 1112.24% respectively last year, so far in 2021 both companies are experiencing a strong correction that amounts to 17.68 % and 30.12% respectively.

Such decreases can in part be explained by the problems and doubts emanating from the rise in inflation in the United States. Moreover, possible changes that the Federal Reserve may make in its current policy regarding interest rates and the programme of debt purchase could also have an impact. This is because it directly affects the yield of the US bond, and in turn, directly impacting the debt markets. As a result of this, technology companies are affected, because they generally have a significant debt structure, while an increase in this will reduce their margins and increase their costs.

On the other hand, these companies have also been affected by the problems derived from the crisis, caused by the shortage of semiconductor chips that has been an ongoing issue since the start of the pandemic. Following the emergence of the coronavirus last year, consumption habits towards digital products was fired up at a time when manufacturers had to delay their production. Therefore, despite these factories now being in full swing, we continue to have a shortage of these products, directly affecting production and the business model of both companies.

In April, the quarterly results of Tesla were released, where we saw an increase in the delivery of vehicles to 184,800 units and mixed data. This is despite the fact that the investment made in Bitcoin last February by Tesla had a generally positive impact on results.

Specifically, Tesla posted an earnings per share of $0.93 per share compared to the $0.74 expected by the market consensus after obtaining a net profit of $438 million in the first quarter of the year. The negative aspect of these results can be found in revenues, since these were lower than expected by the market consensus, reaching $10.39 billion, compared to an expected $10.42 billion.

If we look at the daily chart, we can see that, after breaking down its bullish channel that began at the beginning of last March, the price has experienced a new downward impulse. This has taken it back to the annual lows and to a fight for its important support level in the 200 session average, although it seems that the price could be making a double bottom. It is very important that the price maintains this level of support, since the break of this could open the door to a further correction towards a level close to $465 per share.

Source: Admiral Markets MetaTrader 5 platform Tesla daily chart from January 22, 2020 to May 24, 2021. Taken: May 24 at 12:40 CEST. Note: Past performance is not a reliable indicator of future results, or future performance.

Evolution of the last 5 years:

• 2020: 743.40%
• 2019: 25.71%
• 2018: 6.89%
• 2017: 45.69%
• 2016: -10.96%

If we focus on NIO, we can see that last month the company also presented its corresponding results for the first quarter of the year, where we were able to find both a better than expected earnings per share and income amount. This is reflected in the results, with an earnings per share of -$0.23 and an income of $7.98. In addition, recently, we learned that NIO has opened a flagship store on alibaba’s Tmall.com, thus allying itself with the Chinese online sales giant and indicating that it is planning to increase its car manufacturing levels.

Technically speaking, if we look at the daily chart we can see how during this year it has maintained a clear bearish structure, breaking important support / resistance levels represented in green, thus fulfilling the negative divergence that we could observe in the last section of last year between the price and its MACD indicator. The loss of these levels has led the price to break down to the important average of 200 sessions and form a double bottom around $31 per share.

Looking ahead and facing a possible recovery, it is important that this possible double bottom is quickly confirmed, since its 18-session moving average in black has also broken down to its 200-session moving average and the loss of $30 would open the gates to a further correction. The upward break of the triangular formation between the bottom in red and the short-term downtrend line in red, could lead the price to seek levels close to the blue band above $45 per share.

Source: Daily chart of the Admiral Markets MetaTrader 5 platform NIO from January 21, 2020 to May 24, 2021. Realized: May 24 at 12:50 CEST. Note: Past performance is not a reliable indicator of future results, or future performance.

Evolution of the last 5 years:

• 2020: 1112.24%
• 2019: -36.89%
• 2018: -8.74%

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