Five causes to avoid Tesla shares

Elon Musk is the world’s richest man and the most talked about business leader on the planet. But has he lost the plot? Between 2014 and 2023, investors profited from a stunning 1,000 per cent rise in shares in his electric car company Tesla.

But since the start of the year, they have fallen by 40 per cent amid concerns over his increasingly eccentric behaviour and questions over whether the maverick is focused enough on the company.

Many private investors in the UK hold Tesla shares either directly, or through a fund such as the Scottish Mortgage Investment Trust. So should they hang on to them, sell up, or even buy more?

There are a number of reasons to be fearful:

On Thursday, investors will decide whether to vote in favour of a $56 billion (£44 billion) rewards package for Elon Musk

On Thursday, investors will decide whether to vote in favour of a $56 billion (£44 billion) rewards package for Elon Musk 

Outsize pay packet

A key test of the tycoon’s credibility will be the annual meeting this Thursday, where investors will decide whether to vote in favour of his $56 billion (£44 billion) rewards package.

This is based on Tesla’s market value and how well its operations performed from 2018 to 2023. The sheer size of it has led to criticism that he has been overcome by greed and grandiosity.

Objectors include the California Public Employees’ Retirement System, one of the world’s largest pension fund managers.

If shareholders wave it through, Musk will add to his $200 billion fortune and leave his nearest rivals in the wealth stakes – LVMH’s Bernard Arnault, Amazon’s Jeff Bezos and Meta’s Mark Zuckerberg – far behind

Rivals catching up 

It has taken the traditional giants of the automotive industry time to wake up to the electric vehicle revolution, but they may soon overtake Tesla.

Musk has for years promised to deliver completely driverless Teslas, saying his electric car company would be ‘worth basically zero’ if it didn’t prioritise self-driving technology. But his company, say critics, is falling behind on that front.

Rivals such as Ford have already introduced hands-free driving systems.

Spread too thin

The tycoon, say his critics, is distracted from Tesla by his eclectic portfolio of other business interests. These include his 2022 purchase of social media site Twitter, now known as X.

This led to a long-running wrangle with US watchdog the Securities and Exchange Commission, which is investigating whether he broke federal securities laws.

The billionaire has said the SEC is trying to ‘harass’ him with a number of subpoenas, damaging the reputation of Tesla and hitting the company’s share price.

The wider issue is the range and variety of his activities, which may mean he is not spending enough time on Tesla. There’s SpaceX, where he built the world’s most powerful rocket, infrastructure startup The Boring Company, as well as Neuralink, a developer of ‘interfaces to connect humans and computers’.

One analyst said: ‘Musk is stretching himself too thin between his pursuits of an automotive revolution, a Mars colony, cyborgs and the world’s definitive social network.’

Political backlash

The Tesla founder is an ally of Donald Trump and a poster boy for the US right. He and Trump speak several times a month since privately meeting in March at the home of billionaire investor Nelson Peltz. The two have discussed an advisory role for Musk if Trump wins back the White House in November – potentially giving the Tesla boss influence over economic and border policies.

Asked last year if he was becoming more political, Musk said: ‘I guess if you consider fighting the woke mind virus, which I consider to be a civilisational threat, to be political, then yes.’

Threat from China 

This is the biggest threat of all. The dominant electric car makers in the world now are Chinese.

BYD, a carmaker Musk once ridiculed, overtook Tesla at the end of last year as the top seller of electric vehicles on the planet.

The situation is set to get worse for Tesla as Chinese manufacturers continue to flood Western markets – making up 25 per cent of nearly all cars sold.

Musk is well aware of the danger, stating earlier this year that Chinese electric vehicle companies will crush competitors in the absence of trade restrictions.

On the other hand… 

Musk does still have high profile backers, notably US fund manager Cathie Wood at Ark, though she herself has struggled of late.

She forecasts Tesla shares could reach $2,000 in five years. They are trading at $175 and this is based on the arrival of a more affordable Tesla model, probably in 2026.

But most powerful of all is Musk’s loyal band of small investors, who hold 30 per cent of the stock. Many are active on social media platforms Reddit and X.

Musk has been energising these followers to get his pay package over the line, taking out adverts, and offering private tours of Tesla’s factory in Texas.

Musk’s appeal to his followers stems from his charismatic, often antagonistic behaviour, and regular brushes with authority.

He has appeared with Joe Rogan – a famous US broadcaster – smoking cannabis. He openly talked about the benefits he believes he has experienced from taking ketamine and frequently had run-ins with the Wall Street regulators.

But there are reasons a more sceptical investor might consider Tesla shares a hold, or a buy, too.

They offer exposure to two major trends: the move to green energy and artificial intelligence.

Tesla has led the way and its name is almost synonymous with electric cars.

The shares have been volatile – as has Musk himself – but he has often proved his critics wrong.

It has taken the traditional giants of the automotive industry time to wake up to the electric vehicle revolution, but they may soon overtake Tesla

It has taken the traditional giants of the automotive industry time to wake up to the electric vehicle revolution, but they may soon overtake Tesla

 Still unsure? Here’s what the experts say

In total, 45 analysts across the globe cover Tesla.

Of those, 16 have a buy rating on the stock, 20 have a hold recommendation and just nine are advising their clients to sell.

SELL: JP Morgan American Investment Trust

Manager Felise Agranoff says: ‘We sold it earlier this year. Demand for electric cars in the US has been disappointing. Yes, Tesla has a strong market position, but the market is becoming more competitive and more political.’

HOLD: Deutsche Bank

‘Cracking the code on full driverless autonomy is a significant technological, regulatory and operational challenge,’ says analyst Emmanuel Rosner. ‘Electric vehicle investors may start throwing in the towel and be replaced by AI tech investors.’

BUY: Wedbush

Dan Ives, analyst at US wealth manager Wedbush, says Musk and Tesla are under attack from all directions. But he adds: ‘We have been here before a number of times over the last decade as the doubters have said the Tesla story is done and electric vehicles are a fad, not a long term transformational trend that will change the auto industry.’

How do I buy Tesla shares?

Tesla shares can be bought via platforms such as Hargreaves Lansdown and AJ Bell. But for those who want to deal with a professional fund manager, Scottish Mortgage Investment Trust and the Vanguard US index fund both offer exposure.