One of Tesla's most vocal investors sold more than $39 million of the stock ahead of the company's earnings report (TSLA)
- ARK Investment Management, a relatively small but extremely vocal supporter of Tesla, has trimmed its stake by 150,000 shares ahead of the company's earnings report, which will be released on Wednesday.
- Ren Leggi, the firm's lead portfolio manager, said ARK's conviction was as strong as ever and that the sales were related to overall trading strategies.
- Tesla remains the top holding in ARK's portfolio, at around 10% of its investments.
- The electric-car company will report third-quarter earnings on Wednesday, when there's historical precedent for shares to move up to 10% in either direction.
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ARK Investment Management, a relatively small but extremely vocal backer of Tesla, has massively trimmed its exposure to the stock as the company prepares to release its third-quarter financials on Wednesday — but it's not about fear, a portfolio manager said.
Since October 1, the firm, which has a $6,000 price target for shares of Elon Musk's electric-car company, has sold about 154,000 shares of Tesla, worth roughly $39 million at Monday's prices. The sales were voluntarily disclosed by ARK, which publishes all of its intraday trades in email updates and on a regularly updated website.
While ARK is a small holder of Tesla stock — its 0.65% stake at the end of the second quarter made it the 21st-largest shareholder — the volume of its outspoken support for the company and its sky-high price target make the sales notable.
Ren Leggi, a client-portfolio manager at the $9.6 billion firm, said in an interview with Business Insider that Tesla remained one of its top picks and conviction was still high.
"We're long-term investors, but we are short-term contrarian," he said by phone on Monday. "We trade quite often — in some cases almost every day — and we trade around positions. We're not market timers, but we will take advantage of volatility."
Tesla's stock price was near record lows in June, amid a spat with the Securities and Exchange Commission, at about $170 per share. ARK was buying then, Leggi said, and eventually had to sell in order to stay below internal rules that limit individual holdings to 10%.
"Our conviction is still very high," he said. "In fact, it's probably only increased since we first held it. So it's not a matter of conviction, the selling, it's more opportunistic trading."
What's more, the company is scheduled to report earnings on Wednesday after the close of trading. Historically, shares have moved up to 10% in either direction following Tesla's earnings reports. This quarter is likely no exception, as some analysts have warned the company could cut its estimates for full-year vehicle production.
Analysts are likely to ask for an update on plans for Tesla's planned network of autonomous robo-taxis. Musk said in April that a 1 million-strong network would hit the roads by next year, and the plans are key to ARK's investment theory.
"We think that Tesla, right now, has a large competitive advantage compared to others like Waymo and Cruise," he said. "From an autonomous perspective, if they are able to deliver, then we think the stock could be worth $5,000 to $6,000 per share within five years."
Even if that doesn't happen, ARK's bear case for only electric vehicles still has Tesla's share price more than doubling to $600.
Wall Street analysts polled by Bloomberg expect Tesla on Wednesday to remain in the red for the third quarter, despite a record amount of vehicle production and deliveries as the company struggles to return to profitability.
Ryan Brinkman, an analyst at JPMorgan, said in a note to clients on Friday: "We are maintaining our recently lowered estimates, which reflect the fact that while overall 3Q deliveries tracked higher, the beat was driven by higher than anticipated sales of the lower ASP (average selling price) and lower margin Model 3, which more than offset relative weakness in sales of the higher ASP and higher margin Model S/X."
Shares of Tesla are down 23% since the beginning of the year.