Tesla (NASDAQ:TSLA)
After reporting disappointing Q1 profits, Tesla (NASDAQ:TSLA) stock dropped last week. Although results were generally in line with projections, management did not present an optimistic gross margin outlook and did not increase annual output projections. Two prominent Tesla bulls have significantly reduced their company stock holdings in their respective exchange-traded funds (“ETFs”).
Last week, the Future Fund Active ETF (FFND) manager Gary Black’s massive Tesla stock reduction was the first I’d heard of. Since its inception in August 2021, when many growth names had already peaked, Tesla has been in the largest position in this ETF. Compared to the approximately 6% loss seen by the SPDR® S&P 500 ETF Trust (SPY) since its inception, The Future Fund has seen a loss of about 35% as of Monday.
Gary is one of the most prominent Tesla bulls on Twitter and often posts a list of future Tesla catalysts. Despite being bullish on the name in the long run, Gary decided to reduce his holdings in the company before it reported its results. The number of shares held by the Future Fund ETF has decreased by more than 31%, from 3,880 last week to 2,660. As of early March, the position was down 100 shares, which doesn’t account for the slight loss resulting from fund redemptions.
Gary Black appears in conventional media outside of Twitter, most notably CNBC. His business is an SEC-Registered Advisor. Tesla has been a big holding, accounting for almost half of the firm’s declared net assets. Gary may be known for his regularly updated Tesla price estimate, which he lowered to $320 after the electric vehicle (“EV”) manufacturer announced more price cuts.
Ross Gerber is the second outspoken bull I’d want to talk about today. Ross owns a wealth management business but also introduced the AdvisorShares Gerber Kawasaki ETF (GK) around two months before Gary Black did. More than a third of the value of the GK ETF has been wiped out since its creation, similar to FFND, whereas the SPY has lost less than three percent. Ross is a regular international television and radio fixture and is very active on Twitter.
Ross considered seeking a position on the Tesla board earlier this year but ultimately opted against it. He has urged Tesla to “grow up,” mostly in response to CEO Elon Musk’s tweeting antics. Ross has long advocated for Tesla to invest in advertising rather than deep price cuts and establish a succession plan for life beyond Musk. After the price dropped significantly from its all-time high, Ross was critical of Elon Musk’s share sales.
Ross opted to reduce his Tesla investment in the ETF throughout the day, reflected in GK’s holdings report released Monday night. More than 27.5% of the fund’s stake was reduced on Friday when it sold 1,900 shares, bringing the total number of shares held down to around 5,000. As the tweet above explains, a stake of more than 8,000 shares was reduced in late February, marking one of many recent positions decreases in the ETF. Like FFND, fund redemptions only accounted for a tiny fraction of the drop in recent months.
Both ETF managers have expressed repeated concern this year about Tesla’s declining profits per share, having initially anticipated $6 or more. Gary Black uses a formula to make a projection all the way out to the year 2030, then works backward to the current day to get his price objective, which was $3.60 for the year 2023 just last week. Ross Gerber has suggested a P/E of 50 for Tesla, claiming the company is worth $300 if it can earn $6 this year but just $200 if it earns $4.
As one would assume, the dropping price goals directly result from the lowering Street forecasts. The average street value has dropped from nearly $208 to $192 since last week’s report. Remember that over a year ago, Wall Street felt that Tesla was worth more than $335. Although the current number indicates an 18% upside from Monday’s closing, it’s important to put that in context. In my piece after the results, I highlighted that Tesla stock had dropped below its 50-day moving average. The price has recently dropped below that crucial technical level and is steadily heading down as each day passes.
Tesla’s disappointing Q1 earnings report and price decrease extravaganza have silenced several loud bulls. Although neither Gary Black’s nor Ross Gerber’s ETFs maintain very large holdings in terms of total shares, they are well-regarded among Tesla investors. Ross’s reduction on Monday made Tesla GK’s fifth biggest stake, removing it from its formerly dominant position. On Monday, Tesla’s stock price fell below $160 for the first time since late January, signaling a negative sentiment around the company.
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