Some of Tesla’s institutional shareholders are starting to divest, convinced that the electric carmaker’s rapid growth phase might be over. Tesla’s shares have declined nearly 30% this year and over 50% since their 2021 peak, erasing about $600 billion in market value as CEO Elon Musk grapples with intense competition and decreasing sales. Although Tesla’s first-quarter results fell short of analysts’ expectations, Musk announced plans to release more affordable models in 2025.
“It started to feel like the fundamentals were becoming detached from reality,” said John Belton, a portfolio manager at Gabelli Funds. Belton’s firm sold its entire stake of 65,900 shares, acquired in early 2022, during the first quarter of the year. “We think the stock works best when there are auto company fundamentals that justify the stock price.”
Tesla’s nearly 14-fold increase in its stock price over the past five years conditioned investors to hold on during tough times, accepting valuations more akin to technology companies than traditional automakers. However, even some of Tesla’s staunchest supporters now question whether similar growth is achievable and view the stock as too risky.
Data from Morningstar indicates that of the 18 mutual funds holding Tesla shares since 2019, 10 reduced their positions in the last quarter, with four cutting their stakes by 15% or more. Only five funds increased their holdings.
Despite the pullback from some investors, Wall Street has not entirely turned its back on Tesla. Nineteen analysts tracked by LSEG now rate Tesla as a “buy” or “strong buy,” up from 17 in February. The average price target among 49 analysts is $178.95, slightly above the stock’s recent closing price of $176.29.
Ross Gerber, whose firm Gerber Kawasaki Wealth & Investment Management bought 500,000 Tesla shares over a decade ago, has been steadily selling this year. “I think the story is over,” said Gerber, who has reduced his position to around 300,000 shares. He cited underfunding of Tesla’s public relations department and Musk’s distractions by political and cultural issues as key concerns. Gerber believes the shares are fairly valued at $100, about 40% below their current price, as long as Musk remains CEO.
Tesla remains the world’s most valuable automaker, with a market capitalization exceeding $560 billion, significantly higher than Toyota’s $333.7 billion market cap. However, Tesla’s valuation of approximately 64 times future earnings outpaces those of other automakers and even some tech giants. For comparison, Nvidia and Super Micro Computer trade at 37.8 and 23.2 times earnings, respectively, while traditional automakers like General Motors, Ford, and Toyota trade at much lower multiples.
Bullish investors justify Tesla’s high valuation due to its advanced technology and dedicated fan base. Optimism has been fueled by the company’s push into fully autonomous driving and its expansion in China. Dan Ives, an analyst at Wedbush Securities, maintains a $275 price target for Tesla, citing the potential of self-driving technology as a critical growth driver.
Cathie Wood, founder of Ark Invest, has held Tesla in her ARK Innovation Fund since 2014 and increased her stake by 10% in the first quarter of this year. Wood remains bullish, forecasting a $2,000 per share valuation by 2027, driven by the rollout of a robotaxi business. She has recently purchased about $100 million worth of new shares, emphasizing her long-term confidence in Tesla.
Despite the optimism, critics argue that fully autonomous vehicles face significant technological and regulatory challenges. Deutsche Bank highlighted these concerns in an April report, noting the substantial obstacles to achieving full driverless autonomy.
Graham Tanaka, who liquidated his entire Tesla position in his $21.5 million Tanaka Growth Fund over the past six months, now prefers Nvidia. Confident in Nvidia’s prospects amid the AI boom, Tanaka views Tesla as too risky compared to the chipmaking giant, whose stock has soared over 130% this year.
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