Baillie Gifford, Tesla’s biggest outside investor, has reduced her stake in the company. The company blamed portfolio constraints for the reduction. Tesla said Tuesday it would sell up to $5 billion worth of new shares. At one point, its shares fell nearly 10 percent after the news. Tesla’s shares jumped more than 70 percent after the split was announced.
(Tesla’s share price changes in a month)
Bailey Giffords now owns 5 percent, down from 6.32 percent, or 39.63 million shares, according to FactSet, according to Securities and Exchange Commission filings wednesday, which would reduce the 112-year-old investment firm’s ranking as Tesla’s largest shareholder from second to Fourth place behind Musk. In a previous statement, Gifford reiterated his long-standing belief in Musk’s company, with ownership reduced only due to portfolio constraints, and stressed that the company’s long-term performance was bullish.
Tesla’s stock fell 7.5 percent in afternoon trading, its biggest one-day drop since May 1. The company’s shares have fallen 12 percent since Monday’s 1-5 split. But despite today’s correction in Tesla’s share price, Dan Ives of Wedbush Securities, one of Tesla’s biggest long-term prospects, remains upbeat about the stock. According to Ives, Tesla’s bull market target is $700 a share.
However, there are also growing concerns on Wall Street about Tesla’s high valuations, and the stock is expected to fall in the near term. Tom Essaye, founder of Sevens Report Research, says the shares are overvalued. He also noted that Zoom’s asset valuation also has moisture at current valuations.
Even hardcore fans must be wondering if Tesla’s share price is rising a little too fast. There is no doubt that Tesla is a great company, but in an era of software such as Robin Hood, is it purely psychological that controls valuations?
Second, as Mario Gabelli, a billionaire value investor, said in a recent interview, even if investors are bullish on Tesla’s stock, there is one issue that cannot be ignored: Tesla will struggle to sell a huge number of electric cars to justify its soaring valuation.
Gabelli warned that the trend in car sales would not allow Tesla to reach its market value and that annual global car production would increase in the coming years, but stressed that the proportion of electric vehicles could be limited. “Today, around the world, there are about 89 million cars produced, and by 2025, even if production reaches 100 million, will there be 10 million vehicles, or 10 percent of people thinking about electric cars?” he said. “
According to LMC Automotive, a market analysis firm, car sales in the world’s major markets fell by more than 4 per cent to 90.3m last year, while IHS Markit expects sales to fall 22 per cent year-on-year in 2020 as a result of the new crown, while electric cars accounted for 2.6 per cent of global sales last year. In a 2018 report, JPMorgan warned that the share of electric vehicles in total vehicle sales is expected to grow over the next decade, but that increased charging stations and changes in infrastructure such as battery costs could also slow that growth.
To justify its high valuation, Tesla needs to make $204 billion a year by 2030, selling 3.5 million electric cars for $58,000 each, according to an analysis by Fortune. Last year, the company reported revenue of $24.6 billion and has yet to make a profit. While the future direction of electric vehicles is a sea of blue, the challenge for Musk is enormous.
That’s why Tesla is so eager to split and sell new shares: The higher Tesla’s share price, the more money it can raise to build plants and produce more cars, which in turn will make Tesla’s stock more valuable. Tesla’s share price is driven by valuation-driven growth, with higher stock prices bringing more equity financing and more growth, which is why investors want Tesla’s “value” to match “price.”
John Murphy, an analyst at Bank of America, even compared how many factories Tesla could build by issuing 10 per cent of its outstanding shares at different price points: at $700 a share, Tesla could raise nearly $70bn by issuing 10 per cent of outstanding shares, which would give it 24 new plants and 6m new cars. However, 24 factories will take years to build, and 6m cars are still less than 10 per cent of the global car industry.
So tesla’s future deliveries will be a key factor in keeping tesla’s share price rising, but a day of stock price volatility doesn’t tell investors anything, and some see it as a good time to buy because things have changed radically in the year that has kept Tesla going.
Mr Ives believes he has spent the past six months talking to a number of institutional investors, most of whom think Tesla’s earnings are sensible, and that, unlike many, retail investors from Robin Hood, while part of the push for Tesla’s rise, are more of an institutional investor.
About 58 percent of Tesla’s shares are held by institutions, according to Yahoo Finance. Although Tesla’s stake is not as high as most companies with market capitalisations of a similar size, it has a higher institutional stake than its rival Fu, which has a 55 per cent stake.
Meanwhile, Tesla’s five institutional shareholders are the most trusted celebrities, according to Bloomberg: Ballie Gifford, Capital Group, Vanguard, BlackRock and FMR. And regulatory documents show that smaller institutions such as ARK Investment Management, Legal and General Group and Northern Trust have increased their holdings of Tesla shares since June 30. If this trend continues, Tesla should have more room to rise.