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Tesla, Inc. (NASDAQ:TSLA) shares may be relatively attractive, given their recent underperformance, but a portfolio manager said he is not too keen on owning the stock yet.
What Happened: Tesla could be stymied by its absence in the low-end segment, Hennessy Stance ESG ETF portfolio manager Bill Davis said in an interview with Yahoo Finance. The combination of high interest rates and expensive cars is not a great recipe for growth, he said, adding that Tesla’s foundation is beginning to crumble.
“In an effort to become the leader that they weren't — I don't take anything away from some of the things that they accomplished — they also basically ceded the market to the low-cost entrants,” he said.
The next evolution of growth in the electric-vehicle space is not going to be in premium-priced sedans costing $100,000 but it is going to be in the $25,000-$30,000 price segments and in the other parts of the world in the $10,000 category, he added.
“I think that they are late to that game and as a result, they're not only losing market share but also their performance is really kind of ho-hum,” said Davis.
The price discounting has impacted margins and their profitability has suffered, the portfolio manager said. While the Cybertruck was projected to be a big thing, it hasn’t been one and has been plagued by recalls, he said.
He also said “robotaxis,” which the company projects as the next big thing has to be tested out to see how well it works.
Davis flagged a key management risk the company faces. “Elon Musk is Elon Musk..you like him or hate him but the reality is he's a part-time CEO running this company,” he said. He also said the billionaire has alienated the one base that’s actually super important to him and so a lot of people aren’t going to buy a new Tesla.
“I think he's equally bad on the brand side of things,” he added.
See Also: How to Buy Tesla Stock
Davis also pointed to another looming risk. “I also worry that with the driverless stuff, the taxis that they're rolling out… any real bad news there and I think bad news gets amplified,” he said.
“Any kinds of problems that they have with that rollout I think could be really harmful to the brand moving forward. So I do think if the rollout occurs on time if there is massive interest in demand for low-end …price point vehicles, I think that this could in effect become a buy again,” he added. “Until then, it's kind of dead in the water.”
Why It’s Important: Tesla shares have been rangebound since the second half of 2023 after a promising start to the year. Shares of most mega-cap peers have been on a tear during the same period. For the year-to-date period, Tesla has fallen over 10% compared to the 18.5% gain for the SPDR S&P 500 ETF Trust (NYSE:SPY), an exchange-traded fund that tracks the performance of the broader S&P 500 Index.
Tesla has tried to counter demand weakness via price cuts, however, demand has proven to be inelastic despite these measures. The company is now banking on the robotaxi launch and the full self-driving technology, which will likely power the service. The Oct. 10 robotaxi launch event will give more clarity on the near-term outlook.
Price Action: In premarket trading on Tuesday, Tesla shares rose 0.90% to $224.85, according to Benzinga Pro data.
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