Now is not the time to buy… or sell: Hold fire on Tesla shares

Elon Musk is the world’s richest man and the most talked about business leader. The pronouncements of the Tesla boss on any subject stir controversy, dividing opinion between fans and sceptics.

As usual, there are two opposing points of view on whether he is worth his $55billion – or £43billion – pay package from Tesla which was struck down this week by a US court.

The ruling bars the ‘paradigmatic superstar CEO’, as the judge in the case described him, from raising his 22 per cent stake in the £482billion electrical vehicle (EV) maker to 25 per cent.

There are also two schools of thought on Tesla’s outlook. In the assessment of Musk and his disciples, the business is ‘between two major growth waves’. But others contend that the slowdown is more than a bump in the road.

Tesla was one of the Magnificent Seven tech companies that dominated stock markets last year. Yet over the past month, shares have fallen 29 per cent to $191 (around £150), thanks to a shift in sentiment. The company delivered 1.8m vehicles in 2023, a rise of 38 per cent over a year. But its fourth-quarter sales and profits failed to match analysts’ estimates.

Driven to distraction: Over the past month, Tesla shares have fallen 29 per cent to $191 (around £150)

As a consequence, critics say that Tesla should be considered more as a slow-growth, slim-margin car manufacturer than as a supremo in AI (artificial intelligence) and robotics.

Musk’s insistence that these activities are the company’s key purpose – although most of the revenues come from cars at present – has helped to power a near-15,000 per cent increase in the share price since Tesla went public in 2010.

Is the price decline a chance to bet on Musk’s prodigious ingenuity, which may be boosted by his less attractive ‘enraging qualities’, according to his biographer Walter Isaacson?

The tycoon’s capacity for hard work is also proven, which may or may not be related by the need to provide for his 11 children.

His other enterprises include rocket company Space X, social media platform X, and medical technology company Neuralink which this week implanted a silicon chip in the brain of a human.

Cathie Wood – the American fund manager who is reviled by some and revered by others, a bit like Musk – has been making use of the tumbling share price to buy for her Ark Innovation fund. She forecasts that Tesla shares could reach $2,000 (around £1,580) in five years’ time. This prediction is based on the arrival of a more affordable Tesla model, probably in 2026.

The long-awaited self-driving robotaxis are to be built on this car’s architecture.

Such launches could provide what US analysts Baird calls ‘a steady cadence of upcoming catalysts’, bringing further benefits.

Investors should also ask, however, whether Musk’s enraging and other qualities can overcome the new climate in the EV sector. There are questions over the planet-friendly credentials of EVs, and demand is slackening. Ford, GM, Renault and Volkswagen are cutting costs and investment.

Lower interest rates should encourage new buyers. But Tesla’s luxury models will still be seen as expensive, especially as their second-hand values are disappointing.

The futuristic-looking Cybertruck exemplifies the issues facing the company. The recently-released model can cost as much as $100,000, or nearly £80,000, although the windows are bullet-proof. Meanwhile, competition is accelerating. The firm that is fast overtaking Tesla is China’s BYD, in which Warren Buffett is a shareholder. In China, a BYD Seagull sells for about $11,000 – or £8,700 – against $34,600 – more than £27,000 – for a Tesla Model 3.

Against this background, the brokers Bernstein argues that Tesla shares deserve to be shorted since they are ‘disconnected with the financial realities’. However, most analysts rate Tesla a ‘hold’ rather than a ‘buy’ or a ‘sell’, which seems like a rational strategy at this uncertain moment. 

You may regard Musk and his ventures as too racy. But you have staked your future on this key personality of our epoch if you have money in the Vanguard US index funds, or in Baillie Gifford American and its stablemate Scottish Mortgage where Space X is also a holding.

As I have said before, I am sticking with this high-risk trust because it is a way to bet on American innovation in which Musk is a central player. The man himself may argue that ‘possessions kind of weigh you down’.

The rest of us need to take some risk to accumulate a savings pot, however.

This post first appeared on Dailymail.co.uk