Chart of the week: when will Tesla shares hit a new high?

The electric vehicle leader has been written off before, and it’s bounced back every time. Here’s where our technical analyst thinks the shares are going now.

Tesla keeps climbing those Walls of Worry

Long-term investors in Tesla (NASDAQ:TSLA) have had to endure much derision of their CEO – Mr Elon Musk - over the years since inception. There were the infamous tweets where he announced market-moving 'news' which drew the ire of the federal authorities. And the announcement of an electric truck that was about to go into production (which in fact was nowhere near out of the research phase).

Yes, much fun by outsiders have been had by his often chaotic and confusing tweets, especially his views on the Covid virus.

• Six things you must do before buying any share
• Check out our award-winning stocks and shares ISA

And still, the shares keep marching north. Of course, the cars are hugely popular and recent UK sales figures shows the top seller was the Tesla 3; and China has registered a similar performance. So, he must be doing something right!

Here is the long-term chart that presents a textbook Elliott wave structure:

Past performance is no guide to future performance

From the early days as long ago as late 2019, the market has risen spectacularly in five clear impulsive waves to the all-time high at $900 set in January. 

Production and other problems induced a decline in three clear waves, a-b-c. And from there, the shares have advanced strongly with stronger vehicle sales.

Here is the shorter-term chart showing the structure of wave 4:

Past performance is no guide to future performance

I have slightly different and equally valid wave labels here, but both options imply further moves higher. 

In this chart, once the correction had run its course, the shares punched above the down-sloping trendline, which was resistance before the break and now is support.

That was clearly the correct interpretation when the market moved back to plant a kiss on the trendline, and then moved sharply higher in what I call a Scalded Cat Bounce.

At that kiss, the shares were a low-risk buy at around $675.

And last week, the market moved above my upper tramline and is about to test the $900 all-time high. I fully expect that high to be exceeded fairly soon.

Of course, while Tesla is the electric vehicle (EV) of choice for the trendy set, the major auto manufacturers are not sitting on their hands watching Tesla dominate that space. Both German and Chinese auto makers are hot in pursuit, and it is barely conceivable that one or more of them cannot make a huge dent in their dominance.

• Read more insights from John Burford here
• Explore our six-part series on charting for beginners

But the bigger question for investors is this: can the exploding market for EVs mean there is room for almost everybody at this early stage, and even if Tesla is overtaken, can it still make rising profits for the foreseeable future? 

Remember, it was only two years ago when EVs were a dream to most and now they are very much a reality.

Today's EV scene looks very much like the early days of the internal combustion engine vehicles a hundred years ago or so. There were very many start-ups then, but most were gone in a few decades and only a few survived into the mature phase of the industry in the 1950s.

Possible bumps on the road for EV’s are battery technology and lithium supply as well as the UK's problem of charging points for flat dwellers. As always in technology, where there is a will (profit), there is (almost) always a way.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.