February has been jam-packed with data releases for the investing community. Between earnings reports, economic data, and a Federal Open Market Committee meeting to kick off the month, it'd be very easy to miss something important.
It just so happens that one of the most important data releases may have flown under investors' radars given that it landed on Valentine's Day. Feb. 14 marked the Form 13F filing deadline with the Securities and Exchange Commission (SEC) for money managers with at least $100 million in assets under management.
A 13F is a quarterly filing that provides investors with a fund's portfolio snapshot. Effectively, it shows what the brightest and most successful money managers on Wall Street bought, sold, and held in the latest quarter. Even though 13Fs display a portfolio snapshot that's six weeks old by the time they're filed, they can still offer valuable information with regard to what stocks, industries, sectors, and trends are interesting Wall Street's top investors.
A Tesla Model S charging. Image source: Tesla.
Wall Street's most debated stock has been a popular buy among billionaire investors
The latest round of 13F filings, which cover investment activity during the fourth quarter, is particularly interesting for Wall Street's most polarizing stock. I'm talking about electric vehicle (EV) manufacturer Tesla (TSLA 0.01%).
There aren't too many publicly traded companies where analysts and pundits have issued price targets that imply a company could gain 677% (an implied increase of $4.22 trillion in market value) by 2026 in the case of Ark Invest's Cathie Wood, or lose 88% of its value as predicted by CEO and founder of GLJ Research, Gordon Johnson. But that's exactly what you get with Tesla -- a wide gamut of prognostications, with analyst ratings and price targets all over the map.
However, there was nothing polarizing about Tesla during Q4 at least among billionaire money managers. Whereas North America's leading EV manufacturer was aggressively sold by billionaire investors during Q3, top-tier money managers were mashing the buy button in the December-ended quarter.
According to 13F filings, Tesla was one of the top buys during Q4 for more than a half-dozen billionaires:
- Jeff Yass of Susquehanna International purchased 11.48 million shares.
- Ken Griffin of Citadel Advisors bought 4.82 million shares.
- Jim Simons of Renaissance Technologies added 3.4 million shares.
- John Overdeck and David Siegel of Two Sigma Investments picked up 1.18 million shares.
- Steven Cohen of Point72 Asset Management gobbled up nearly 878,000 shares.
- Israel Englander of Millennium Management scooped up close to 796,000 shares.
Why are billionaires stomping the accelerator on Tesla?
What compelled these (and other) billionaire money managers to reverse course in just a matter of months and pile into Tesla during Q4?
One possibility is the value Tesla brings to the table with its first-mover advantage. It's the first auto company in over a half-century to have successfully expanded to mass production. Tesla produced 1.37 million EVs in 2022, and with the Austin, Texas and Berlin, Germany gigafactories ramping up activity in 2023, management believes Tesla can tip the scales at 1.8 million EVs this year.
Another likely reason more than a half-dozen billionaire investors took to Tesla in Q4 is the company having three years of generally accepted accounting principles (GAAP) profitability (2020 to 2022) under its belt. Although selling renewable energy credits (RECs) is continuing to boost the company's net income, Tesla no longer requires these RECs to push it into the profit column. By comparison, the EV segments of new and legacy automakers are almost universally bleeding money as they spend big on infrastructure and product development.
Billionaire fund managers might also be getting into Tesla in advance of the expected commercial launch of the Cybertruck during the second-half of 2023. CEO Elon Musk noted last year that 1.5 million Cybertruck reservations have been taken. While this level of backlog is unprecedented, keep in mind that it only takes a $100 fully refundable deposit to reserve a Cybertruck.
CEO Elon Musk could be yet another reason for this optimism in Tesla among billionaire investors. Musk announced in December that he plans to find a new CEO for social media platform Twitter, which he acquired in October for $44 billion. Twitter has been broadly viewed as a distraction for Musk, and anything that would put his focus back onto Tesla can be viewed as a positive.
Lastly, we could be seeing billionaire money managers reacting to emotion-driven swings in Tesla's share price. Whereas they were sellers when the fear of missing out (FOMO effectively pumped Tesla to well over $300 per share), billionaires piled back in when the company lost 54% of its value during Q4.
Image source: Getty Images.
Tesla is giving investors signs that they should be hitting the brakes
While it's eye-popping to see billionaire investors treat Tesla as a top buy in Q4, call me perplexed. Although Tesla is profitable at a time when other automakers' EV segments are losing money, there are a number of signals to suggest Tesla is headed for a breakdown.
From a macroeconomic perspective, Tesla isn't in good shape. Auto stocks are highly cyclical, and three recession-probability indicators are all in agreement that the U.S. looks to be headed toward a recession at some point in the next (roughly) 12 months. It's perfectly normal for consumers to pare back their discretionary spending during recessions, which would naturally reduce demand for Tesla's EVs.
To build on this point, we're already seeing clear evidence of this weakness via Tesla's pricing activity. Over the past couple of months, Tesla has slashed the price of its flagship Model 3 sedan and top-selling SUV, the Model Y, by up to 20% in China and the United States. Automakers adjust their prices based on inventory and demand. With rising inventory levels, Tesla's price cuts show it's not in a position of strength.
Tesla isn't getting any help from its ancillary operating segments, either. Even though it brought in $10 billion in total sales from energy generation, storage, and services in 2022, the company's gross profit on these ancillary segments was a meager $499 million (out of $20.85 billion in total gross profit). Once below-the-line expenses are taken into account, energy and services become money-losers. Tesla really is just a car company, and its profits are entirely dependent on selling EVs, RECs, and to a lesser extent leasing.
Even with its share price more than halved from its all-time high, Tesla is still egregiously expensive. The vast majority of auto stocks trade in a range of 6 to 8 times their earnings per share. Meanwhile, Tesla is currently valued at 50 times Wall Street's consensus earnings for this year, which seems likely to fall given the company's aggressive price-cutting and the growing likelihood of a domestic recession.
Finally, Elon Musk is a liability investors should account for. He's found himself in trouble with securities regulators on a number of occasions and more importantly has made promises about new innovations that haven't been kept. Musk's claims of 1 million robotaxis hitting our roads by 2020 and level 5 full self-driving vehicles being "one year away" for nine years are perfect examples. Tesla's share price could deflate significantly if Musk continues to overpromise and underdeliver.
