It’s common news that commodities are rising in price at concerning rates. Many companies and households are feeling the pressure of rising costs. On Sunday, Elon Musk, Tesla CEO, tweeted that Tesla and SpaceX are both facing the pressure and are not alone in this matter. Commodity prices are at their highest level since 2008.

Where are the costs?

In car production, aluminium is used in the body work, palladium is used for the catalytic converters and in electric vehicles, nickel is used in the batteries. The increase in costs for these materials has risen 28%, 46% and 176% respectively since the start of February.

Western sanctions have mainly been focused on oil, which generates the most money for Russia. However, many shippers have been staying clear of Russian goods altogether, so the supply is facing pressure without any specific sanctions. This is not helping an industry that is already facing the challenges of the micro-chip shortage since the beginning of the pandemic.

Model price increases

Last week, Tesla raised prices of its U.S. Model Y SUVs and Model 3 Long Range sedans by $1,000 each and some China-made Model 3 and Model Y vehicles by 10,000 yuan ($1,582.40).

Many other car makers are making adjustments too. Rivian (NASDAQ:RIVN) has scaled its production by half due to rising costs. Toyota (TSE:7203) have scaled back by 20% for the next quarter to help ease the pressure on suppliers.

Tesla shares

Tesla’s share price fell 5.12% on Friday. The price is down a further 0.64% in pre market today. The company reached a low of $700 recently, prices not seen since August last year. There is definitely more downside as costs continue to rise and show not sign of changing. Production and delivery numbers will most likely be affected by this, which will be seen in earnings at the start of May.

However, Tesla will eventually recover, along with other car manufacturers, from this current challenges. What can this mean? Right now, we may be looking at a discount sale for long term positions on many big names. From highs down to $700, Tesla fell over 43%. Long term, this could be a very short term downside in the big picture.

But trying to guess the bottom never works out. A good strategy is to slowly build into a position over a period of time. This will offer you a better average if the price does move lower and also limits the amount of capital you risk to further downside.

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