There's no shortage of Tesla (TSLA -1.11%) bulls out there. CEO Elon Musk has developed a cult-like following, and early investors who have stuck with Tesla over the years have been handsomely rewarded. The stock is up more than 13,000% since its 2010 IPO and has returned more than 2,000% over the past decade.
Arguably, there's no bigger Tesla bull than Ark Invest's Cathie Wood. She made her reputation as a top growth stock investor in part because of a bold call on Tesla in 2018 that the EV stock would hit a pre-split price of $4,000 a share in the next five years, implying a gain of more than 1,000%. While many scoffed at that prediction, it remarkably came true in 2021. Wood has since raised Ark's base case price target on Tesla to $2,000 a share by 2027, implying a gain of around 1,000% again.
However, Ark Invest's recent transactions belie Wood's bullish talk on Tesla. The Ark chief has justified that price target by predicting that Tesla will dominate the market for "robotaxis," which she thinks will be a $9 trillion market by 2030.
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Cathie Wood is dumping Tesla
Unlike most actively managed exchange-traded funds, which make quarterly filings showing their portfolio transactions for that period, Ark publishes its transaction data every day, making the fund's activities fully transparent.
We know from those updates that Ark hasn't purchased Tesla shares in more than six months. However, its funds have sold the stock more than 50 times since then, dumping more than 1 million shares of the EV stock. At its current market value, that represents more than $200 million worth of Tesla stock.
Tesla had long been the top holding of its flagship Ark Innovation ETF (ARKK 1.05%), but it has now fallen to No. 3 behind Coinbase and Roku, stocks that are trading at a deep discount relative to their earlier peaks.
The conventional wisdom is that Ark is selling the stock for rebalancing and portfolio allocation reasons, redeploying the capital to more undervalued stocks. Despite the recent slide in Tesla stock, it's still a big winner year to date, so Ark can book gains from earlier in the year.
To be fair, Ark still owns a substantial amount of Tesla with the Ark Innovation ETF holding nearly $600 million worth of the stock, but it's clear that Wood's funds have cut a substantial percentage of their Tesla holdings.
Something doesn't add up here on Tesla stock
Wood hasn't changed her position on Tesla and stands by her earlier price target, but if the company was so confident in its $2,000 price target, it would be unusual for it to be selling the stock instead of adding to its position. After all, that price target implies a 1,000% gain in the stock.
Ark hasn't sold any Tesla since the EV maker's third-quarter earnings report, and the post-earnings sell-off makes the fund manager's sales look prescient. Tesla stock is down nearly 20% since the earnings report on concerns about declining EV demand, falling prices, slowing production, and declining profits.
With the electric-vehicle industry seemingly in the midst of a correction with several manufacturers cutting back on production, Tesla is facing significant challenges, and the stock still trades at a premium valuation, making the rebalancing explanation for Ark's activity seem logical.
Investors can keep an eye on Ark's activity to see what price point could lead the fund to sell more Tesla or even start to buy it again, but if the EV stock's biggest bull is still trying to offload shares, that looks like a warning sign for the rest of the market.
