Cathie Wood unloads $62 million of Tesla shares

Emily McCormick and Brian Sozzi discuss the factors contributing to Cathie Wood’s exchange-traded funds unloading millions dollars in Tesla shares.

Video transcript

- Welcome back to Yahoo Finance Live. It's time now for our Sozzi take. And Brian will walk you through what he's watching in markets today. And Brian, this morning, you're taking a look at the latest on Cathie Wood's Ark funds. And it looks like the major Ark ETFs are unloading more shares of Tesla. What's the latest on that?

BRIAN SOZZI: Yeah, Cathie Wood I think, quietly making some news on one of her favorite companies, and that is in fact, Tesla stock and a company that essentially made her name in 2020. Nonetheless, Cathie Wood, her exchange traded funds are selling more of that Tesla stake. Recently just sold 81,600 shares as of Wednesday. That's about $62 million worth of shares.

Now, month to date, Wood has sold about $266 million worth of Tesla shares. That's about 350,000 shares in total. Now, Tesla is overall, it's still one of Wood's largest holdings in her various ETFs. She continues to like the company. In fact, I just talked to her about this a week and a half ago. Take a listen.

CATHIE WOOD: Our new number, our base case for Tesla with this, on the split stock, is $3,000 The stock right now is a little over $700. On the old basis that would be 15,000. So what that tells you is our estimate for Tesla's success has gone up. And the main reason for that is their market share, instead of going down from 2,000 year end 2017 to today, has actually gone up fairly dramatically around the world.

BRIAN SOZZI: So it is a little surprising to me, Emily, to see Wood selling. Really just lightening the load here on Tesla so aggressively, and I would say it's somewhat aggressive here. Any time you dump $300 million worth of stock, that is not chump change, as they would say here. Despite Wood looking or she sees fair value to $3,000 a share.

Now, by the same token, I will mention, Wood has not hidden the fact that she likes the trim positions. She's not going to hold on to these stocks for 20 years and not take any profits. She will take profits when she sees fit and allocate that cash into other places. But overall, I would say, Emily, it is a little bit of a red flag to those Tesla bulls to see Cathie Wood selling here. And look--

- Absolutely Brian.

BRIAN SOZZI: That's one of the red flags here. I mean, you have Tesla, you have her selling these stocks. You have to wonder, if you're a bull here, Emily, what does Cathie Wood see that you don't? Is she concerned about component shortages? This is something that Elon Musk warned about recently on Twitter. How that might impact Tesla's sales and profits for the balance of this year.

Number two, there is a lot of EV competition. We've been saying this for two to three years. But this is now starting to finally come to fruition. I'm getting ready to go out to Michigan in early October, spend a day with the General Motors team for their investor day. They're likely to talk up the barrage of electric cars they have coming out over the next few years.

And then last but not least, Emily, bring on that Rivian IPO. It is likely that Rivian IPOs at some point this year. And now you have Tesla potentially competing for investors that love the electric vehicle story.

- Right. And I think you make a lot of good points, Brian. And I think as you mentioned, one of the big things that investors should keep in context with this headline news of Cathie Wood unloading more Tesla shares, is the fact that, again, Tesla still does remain the largest holding in many of these major Ark funds. But I think as we take a look from an investment perspective here for Tesla, really has had quite a bit of a moderation in terms of its stock price this year, compared to that 743% run up that we saw so far in-- or really last year in 2020.

And year to date, we have Tesla shares up just 7% so far this year. Over a little bit of a shorter horizon, it has fared a bit better, up about 34% since mid-May. But again, I think these concerns about competition are something that investors are really keeping an eye on here. And the fact that, of course, one of the bull cases that so many analysts have been focusing on for Tesla, is about automation and is the fact that it does have this lead over other competitors when it comes to just the data that it has on its users, in terms of being able to deploy software to its fleet, its existing customer base.

And of course, just last year, the myriad of really catalysts that we had for Tesla that a lot of other automakers didn't. We had Tesla being included in the S&P 500, posting consecutive quarters of profitability, posting record deliveries when we saw the rest of the legacy auto industry really getting hit by the pandemic. And I think when you try to follow a year like that, it does make it difficult for a stock to really maintain that type of growth. So perhaps no surprise that we are seeing a little bit of profit taking here.

BRIAN SOZZI: No, you're on the mark there, Emily. And lastly, I will just add too, at its core, what is Tesla? It is a high multiple growth stock. I'm looking at some data here now on our platform. Forward price to earnings multiple, a hundred times price to sales, trailing 12 months. 21 times you have a price to book trailing 12 months. I hope I'm not putting anybody to sleep with this stuff, but it is actually important. 31% times.

And I think if we've learned anything the past decade since the great financial crisis ended, any time the Fed pulls back on liquidity, as they are likely to do over the next 12 months with their tapering program, that has brought more challenges for high multiple stocks. So potentially Wood is trying to get out in front of that here.

- Absolutely. And again, Brian, we just flashed that five year chart for Tesla and really staggering seeing that growth in the share price over the past couple of years.