Tesla Inc (NASDAQ:TSLA) is a great company to invest in. Period. Yes, it misses its targets and reports weaker-than-expected EPS and revenue on a regular basis. Yes, its stock is overvalued. But it’s still a great company to invest in not because of where it is, but where it is headed. In short, it’s a company in which you should invest because of its vision.
In fact, Tesla Inc (NASDAQ:TSLA) is the only stock I regret not having bought at the right time. I first encountered Tesla when it was trading at around $18 per share and before reading anything about its financials, solely based on the company’s description and a brief read on Elon Musk, I knew that it was headed for greatness. Unfortunately, at the time I was a poor student struggling to cover my bills, so investing in anything was out of the question. Instead, I watched the stock climb to over $240 per share.
In this article we are going to take a closer look at the latest developments surrounding Tesla Inc (NASDAQ:TSLA) and assess the latest smart money action surrounding the stock as well as some of the opinions about the company voiced by both bullish and bearish investors. We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 39.7%, topping the 24.1% gain registered by S&P 500 ETFs. Insider Monkey’s enhanced small-cap strategy registered gains of more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points in the last 4.5 years (see details here).
Overall, it looks like smart money is not so excited about Tesla Inc (NASDAQ:TSLA) and it’s understandable. Even though it is one of the most interesting companies in the world, Tesla is competing with huge automakers while not being one itself, as it has yet to transition to a car company from a high-tech company. It has had issues along the road with its previous cars: the Roadster, the Model S and the Model X. Now it is trying to become a car company by releasing a mass-production Model 3 vehicle, which is expected to be competitively priced. However, the competition in the electric vehicles industry that Tesla has disrupted is becoming more aggressive, as larger carmakers with bigger R&D budgets are also trying to show that they’ve embraced the concept of “green driving”. GM is releasing its Chevy Bolt later this year, which will be the closest competitor to the Model 3. Ford announced earlier this year that it plans to release 13 fully-electric or hybrid cars, including a hybrid Mustang and an F-150 truck. Mercedes, Volkswagen, and BMW are two other players in the field of electric vehicles.
Sidenote: in my opinion a hybrid Mustang or F-150 makes sense only as long as the electric powertrain is used to boost power and torque in ways similar to a McLaren P1 or a Porsche 918, otherwise it’s just stupid, because people buy Mustangs and F-150’s because they don’t care about polar bears. Therefore, a “green” Mustang or pick-up truck is as pointless as speed limits or those little signs on the street near my house telling people that they will be fined if they don’t pick up their dogs’ s**t.
Let’s get back to Tesla Inc (NASDAQ:TSLA) though. The company’s stock gained over 18% over the last year and the company recently acquired SolarCity, which allowed it to diversify into the solar industry. It also recently announced the solar roof, a roof tile with an included solar cell. The product is expected to change the way people power their homes and in combination with Tesla’s existing Powerwall battery, households will be able to power their houses at night. The merger with SolarCity was unpopular among analysts, many calling the move a bailout of SolarCity, which had taken a lot of debt to fund rooftop solar panels that were leased to customers.
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However, Elon Musk denied the idea of the deal being a bailout of SolarCity, a company that he co-founded and had led as its Chairman. In fact, the deal is one more step towards Elon Musk’s vision of helping households generate clean energy. The rooftop solar installations business is yet to become profitable, but the outlook appears good and with the acquisition of SolarCity, Tesla Inc (NASDAQ:TSLA) will be able to implement the project faster and reach the level of economies of scale required to drive the costs and prices lower. Both Tesla and SolarCity are cash-flow negative, but we are likely to see changes in that area too. SolarCity has already launched a loan program for customers who want to buy solar panels instead of leasing them, which should allow the company to rely less on debt.
On the next page, we will see what smart money investors think about Tesla and what the general hedge fund sentiment towards the stock is.
As stated earlier, Tesla Inc (NASDAQ:TSLA) is not a very popular stock among smart money investors. Out of over 700 funds that we track, only 38 reported long positions in the company as of the end of 2016, having amassed $1.19 billion worth of the company’s stock, or roughly 3.50% of its float. Over the quarter, these figures increased, as there had been 34 funds holding in aggregate around $1.00 billion worth of Tesla shares at the end of September. Moreover, many investors prefer to own options underlying shares. For example, billionaire Ken Griffin’s Citadel Investment Group holds just 24,519 shares of Tesla, down by 69% over the quarter, but it also owns ‘Put’ options underlying 1.83 million shares and ‘Call’ options underlying 1.04 million shares. In a similar fashion, David S. Och’s OZ Management disclosed holding 3,600 shares, and ‘Call’ and ‘Put’ options underlying 40,268 shares and 1.83 million shares, respectively.
One of the most notorious short-sellers, Jim Chanos of Kynikos Associates is a long-term bear on Tesla Inc (NASDAQ:TSLA). Back in 2015, Chanos said that one of Tesla’s weak points was its scale and that the company was overvalued. He was also shorting SolarCity because of the company’s business-model that relied on debt, but was bullish on the solar business. Last year, after the deal between SolarCity and Tesla had been announced, Chanos called the deal “crazy” at the Delivering Alpha conference. In November, he went further and said that the merger was “absurd”. “There’s deflation going on in the solar business and Tesla is taking on these debts,” Chanos said during an interview on Bloomberg.
Another investor that has presented its case against Tesla Inc (NASDAQ:TSLA) is Mark Spiegel of Stanphyl Capital, a small New York-based hedge fund. Spiegel’s presentation at the Robin Hood Investors Conference held at the end of November was called “Tesla Is a Zero”, but the investor said that the debt actually made Tesla’s equity worth less than zero. Among the reasons fueling his bet against Tesla, Spiegel said that Tesla’s financials “are horrible” even though there isn’t any direct competition and that with big carmakers jumping in the EV segment, Tesla will struggle even more.
Among Tesla bulls is billionaire long-term investor Ron Baron, who reportedly owns $300 million worth of Tesla’s stock. Baron thinks that by 2020 he’ll have quadrupled his investment and that by 2025 he’ll have a return of 3,000% on his shares of Tesla.
In conclusion, Tesla Inc (NASDAQ:TSLA) bears do have a point; the company will face tougher competition, it has weak financials and the stock is overvalued. Nevertheless, call me naive, but I think that a bet on Tesla is a bet on Elon Musk, who is going to do great things for both the electric car and solar rooftop segments, and for the planet Earth. And let’s not forget about SpaceX, Hyperloop and his latest project that involves digging tunnels.
Disclosure: None
