8. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Investors In Q1 2024: 74
Tesla, Inc. (NASDAQ:TSLA)’s primary business is manufacturing and selling electric cars. Along with this, it also sells energy storage equipment, provides semi autonomous driving software, and is focused on high growth industries such as robotics. Tesla, Inc. (NASDAQ:TSLA)’s reliance on EVs as its bread and butter means that the firm, like other consumer cyclical stocks, is at the mercy of economic trends. EVs are not cheap products, and easy consumer access to financing allows them to easily buy Tesla, Inc. (NASDAQ:TSLA)’s cars. The firm is also dependent on the global lithium supply chain and prices for its financial well being, and any supply disruptions that lead to rapid price increases end up hurting Tesla, Inc. (NASDAQ:TSLA)’s margins. It is also competing in the highly cutthroat Chinese market, where the threat of competition has forced it to reduce margins by lowering prices right when lithium prices are high, costs are rising, and access to financing is tough. However, Tesla, Inc. (NASDAQ:TSLA) enjoys considerable advantages over other EV companies because of its strong manufacturing model, and a major catalyst should be the highly anticipated cheaper EV that could spur demand.
Polen Capital mentioned Tesla, Inc. (NASDAQ:TSLA) in its Q1 2024 investor letter. Here is what the firm said:
Tesla’s narrative wasn’t just about being a great electric vehicle manufacturer. The way we see it, the narrative included Tesla becoming a fully autonomous fleet of electric vehicles (“Robotaxi”) soon, the charging platform for all E.V.s soon, an AI play, a global solar utility company soon, a future subscription business, a more. When we research Tesla, we see a differentiated auto business and the potential for many of these interesting “options” to be realized over a long enough period. However, the timing and true viability of many of these options are still unknown and often take much longer than many hope. To justify today’s valuation, even after the recent pullback, we see a company that needs to crack the mass market with a $25,000 or less model at acceptable margins. Yet, the company hasn’t articulated a clear path to getting there. Interest rates have risen, and competition in China has intensified, tempering demand for its existing, higher- priced cars. Valuation has become more difficult to justify at these levels. We feel the reality of these dynamics has finally started to settle into Tesla stock prices, and we look forward to seeing a more reasonable valuation that reflects the existing product portfolio and any future offerings that demonstrate a very clear path to near-term commercialization.
