Introduction
In a surprising move, Tesla analyst Gary Black, representing The Future Fund, announced today that his firm has divested its entire position in Tesla Inc. (TSLA). This marks a significant shift as it is the first time since 2021 that the firm does not hold any shares in the electric vehicle giant. Black’s decision comes amidst a backdrop of skepticism regarding Tesla's financial health and future prospects, raising questions about the company's trajectory in a competitive market.
The Background of the Decision
Gary Black has been known for his cautious stance on Tesla, often expressing concerns that diverge from the bullish sentiment prevalent among many investors. The Future Fund sold its TSLA holdings at a price of $358 per share, a decision that reflects Black’s assessment of the company’s current and future performance. According to Black, the firm’s price target for Tesla remains at $310, based on projections of significant volume and earnings per share by 2030.
Concerns Over Price-to-Earnings Ratio
One of the primary issues that led to the sale is Tesla’s inflated price-to-earnings (P/E) ratio. As of now, Black highlights that TSLA trades at a staggering 188 times its projected earnings for 2025, a number that raises eyebrows among analysts. "Earnings estimates have been on a downward trend, decreasing by 5% just this past week and plummeting 40% year-to-date," he noted. This decline in earnings is closely tied to Tesla's disappointing year-to-date delivery figures, which have sparked concerns about the company's growth potential.
Delivery Projections and Market Comparisons
Black predicts that Tesla's quarterly deliveries may drop by 12% in the upcoming quarters, contrasting with Wall Street's more optimistic forecast of a 7% decrease for the second quarter. Furthermore, he anticipates a 10% decline over the entire year, which raises red flags about Tesla's ability to maintain its growth trajectory in a rapidly evolving automotive landscape.
Robotaxi Initiative Under Scrutiny
Another significant factor in The Future Fund’s decision relates to Tesla’s ambitious Robotaxi project, which Black describes as a high-risk venture. He comments that the "risk/reward associated with the Austin robotaxi test remains asymmetrical to the downside." Despite the media's portrayal of the Robotaxi initiative as a potential game-changer, skepticism persists regarding its feasibility and the timeline for its release.
Concerns About Affordable Models
Black also raises concerns regarding Tesla’s strategy for introducing more affordable models. He suggests that the upcoming affordable model may simply be a modified version of the Model Y, rather than a groundbreaking new vehicle. This potential outcome could undermine the expected expansion of Tesla's total addressable market (TAM). "While a lower-priced model could attract more buyers, if it lacks key features, it may not have the desired impact on overall sales," he cautioned.
Future Earnings Estimates and Market Dynamics
As the electric vehicle market becomes increasingly competitive, the future earnings estimates for Tesla could see further declines. Black warns that the company might face a repeat of the 2023-2024 scenario, where price reductions aimed at stimulating sales yielded minimal incremental growth. Black’s insights reflect a growing concern among analysts that Tesla’s aggressive pricing strategy may not be sustainable in the long run.
Conclusion
The Future Fund’s decision to sell its entire TSLA position encapsulates a broader uncertainty surrounding Tesla’s immediate future and its strategic direction. With challenges such as a declining P/E ratio, disappointing delivery figures, and skepticism about innovative projects like the Robotaxi, Black’s caution serves as a reminder of the complexities facing investors in today’s dynamic market. As Tesla navigates these hurdles, stakeholders will keenly observe how the company adapts and evolves in response to these pressing challenges.
