What does a $3.6bn stock sale mean for Tesla’s future?

Tesla is playing the long game. Despite its market value tumbling $700bn year-to-date and its share price currently trading at a two-year low, investors and analysts are mostly optimistic about the auto maker’s medium- to long-term outlook, as well as the future of the EV industry in general.

- Elon Musk sold 22 million Tesla shares worth $3.6bn last week.

- Cathie Wood bought nearly 75,000 Tesla shares across three Ark Invest ETFs.

- Tesla’s share price is down 57.4% year-to-date.

Elon Musk offloaded 22 million Tesla [TSLA] shares worth approximately $3.6bn last week in a second tranche of sales, bringing Musk’s total selloffs to $39bn since the EV maker’s stock peaked in November 2021. This comes despite Musk announcing there would be no further TSLA sales in April.

Against the backdrop of a lower week for the overall stock market amid looming recession fears, Tesla’s share price fell 6.3% on Monday and 10.5% over the last week, making for a 57.4% year-to-date drop.

Following the price tumble, Musk lost his position as the world’s richest person to Bernard Arnault, the CEO of luxury fashion brand Moët Hennessy Louis Vuitton [LVMH.MI].

The exact reason for the stock sale is unclear, although a tweet by Musk on Tuesday alluded to debt and interest rates, and some are speculating it could go towards paying off Twitter’s $13bn debt.

Musk juggles Twitter and Tesla

While Tesla’s stock has lost more than $700bn in market capitalisation since its high at the beginning of the year, it still leads the charts as the highest-valued auto maker globally, and continues to far outweigh competition in the EV space.

Many investors are, however, sceptical about Musk’s involvement in Twitter, and believe Tesla could have enormous medium- to long-term growth potential if its CEO focused his attention there instead. Future Fund portfolio manager Gary Black said in a tweet that he wishes Musk would “hire someone to fix Twitter”, and focus on Tesla as CEO, which, he believes, “could be a $3trn market cap company in five years.”

Tesla’s shares began sharply declining since the Twitter deal closed end-October, and are now at their lowest point in two years.

On the other hand, some still have great confidence in Musk'd vision. Ark Invest’s Cathie Wood picked up nearly 75,000 Tesla shares across three of her ETFs after the latest stock selloff, capitalising on the plunge, and in doing so indicated her confidence in the EV maker’s long-term potential.

Analysts are wary

Historically, Tesla’s stock movement has not always been the best indicator of the company’s performance, with Musk himself claiming the share price was at times inflated. Trading at discounted rates currently, the stock appears to be offering an opportunity to invest for the long term. Out of 43 analysts, 22 held a ‘buy’ rating and 12 settled on ‘hold’, according to MarketWatch data.

Raising concerns about Musk's divided attention, Goldman Sachs lowered their target price from $305 per share to $235. By contrast, Morgan Stanley chose Tesla as one of its three “top picks” for 2023, standing by its price target at $330.

Neverthless, the firm is not optimistic about the short-term outlook of the sector.  Morgan Stanley analyst Adam Jonas said he expects a “challenging” 2023 for the broader auto industry, and particularly for EV makers, due to dropping demand and deflation, with car prices reaching unaffordable levels.

In short, Morgan Stanley argues for cautious optimism, believing that Tesla has what it takes to ride the recession wave and emerge stronger in the medium to long term.

Funds in focus: Global X Lithium & Battery ETF, VanEck Low Carbon Energy ETF, First Trust NASDAQ Clean Edge Green Energy Index Fund

In a recent interview on thematic investing with Opto Sessions, Pedro Palandrani, the vice president and director of research at ETF provider Global X, recommended “identifying those disruptive macro-level events that are changing our economy” when scouting for themes with long-term potential. The Global X Lithium & Battery ETF [LIT], for instance, is down 9% over the last month, but represents a strong opportunity as EVs are now powered by lithium-ion battery cells. The EV sector is set to grow from about $178.5bn in 2021 to $1.1trn by 2030, according to Beyond Market Insights.

The First Trust NASDAQ Clean Edge Green Energy Index Fund [QCLN] includes a 5.37% holding of Tesla, and has distribution across automobile, renewable energy, semiconductors and other related industries. The fund was down 10.9% in the last month and 23.3% year-to-date.

The VanEck Low Carbon Energy ETF [SMOG] offers exposure to industries involved in clean energy and has a 4.83% holding of Tesla. The fund is down 1.25% over the past month and down 26.5% year-to-date.