But there’s still an ongoing sense of uncertainty around how to treat the wider EV market
About 18 per cent of the 500-plus hedge funds tracked by data provider Hazeltree Fund Services Inc. had an overall short position on Tesla at the end of June, the highest percentage in more than a year, according to figures shared with Bloomberg. That compares with just under 15 per cent at the end of March.
Tesla’s profit margins are likely to improve, helped by lower production and raw material costs, according to Morningstar Inc.’s Seth Goldstein, one of the top three analysts covering the stock in a Bloomberg ranking that tracks price recommendations.
The company will likely “return to profit growth” next year, he said in a note to clients. But how Tesla handles the market’s intensifying focus on affordable EVs will be key, he added.
The development feeds into an ongoing sense of uncertainty around how to treat the wider EV market, amid a sea of conflicting dynamics. The industry — a key plank in the global race to reach net-zero emissions by 2050 — benefits from generous tax credits. Yet it’s also contending with significant hurdles in the form of tariff wars and even identity politics, with some consumers rejecting EVs as a form of “woke” transport.
Meanwhile, the list of internal disruptions at Tesla is long. In April, Musk told staff to brace for major job cuts, with sales roles among those affected. And the Cybertruck, Tesla’s first new consumer model in years, has been slow to ramp up.
For that reason, some hedge fund managers have decided the stock is out of bounds altogether. Tesla is “very difficult for us to position,” said Fabio Pecce, chief investment officer at Ambienta Sgr SpA, where he oversees US$700 million, including managing the Ambienta x Alpha hedge fund.
It’s not clear whether investors are dealing with “a top company with a great management team” or whether it’s “a challenged franchise with deficient corporate governance,” he said.
However, “if Trump wins, it is truly going to be very positive” for Tesla, though “obviously not amazing for EVs and renewables in general,” Pecce said. That’s because Trump is expected to impose “massive tariffs towards the Chinese players,” which would be “beneficial” to Tesla, he said.
Investors ended 2023 declaring they’d likely retreat further from green stocks in general and EVs specifically, according to a Bloomberg Markets Live Pulse survey. Almost two-thirds of the 620 respondents said they planned to stay away from the EV sector, with close to 60 per cent expecting the iShares Global Clean Energy exchange-traded fund to extend its slide in 2024. The ETF has lost 13 per cent so far this year after sinking more than 20 per cent in 2023.
The Bloomberg Electric Vehicles Price Return Index, whose members include BYD Co. Ltd., Tesla and Rivian Automotive Inc., is down about 22 per cent so far in 2024.
At the same time, the metals and minerals needed to produce batteries are at the mercy of wildly volatile commodities markets, with speculators regularly trying to make a quick buck on shifts in supply and demand. Price volatility means some battery manufacturers are having to adjust to a market in which their profit margins have been getting badly squeezed.
Against that backdrop, more traditional automakers are finding themselves under pressure from shareholders to slow down their capital expenditure on EVs, with recent examples including Porsche AG. Polestar Automotive Holding UK PLC, a high-end EV manufacturer, has lost almost 95 per cent of its value since being spun out of Volvo Car AB two years ago. And the value of Fisker Inc., another luxury EV maker, was wiped out starting last year and has since filed for Chapter 11 bankruptcy protection.
Soren Aandahl, founder and chief investment officer at Texas-based Blue Orca Capital LLC, said “valuations in the EV space are so beat up” that he’s now avoiding shorting the sector. It’s no longer an obvious contrarian bet, because those tend to do best if investors enter “when things are a little bit higher,” he said. But at this point, “a lot of the air’s already come out of the balloon.”
But Eirik Hogner, deputy portfolio manager at US$2.7-billion hedge fund Clean Energy Transition LLP, suggests there may be more pain to come for the wider EV industry. There are still “way too many” startups that remain “sub-scale” and with gross margins that are simply “too low,” he said.
As a result, the supply-demand dynamic of the EV market “is still very negative,” he said. “Ultimately, I think you need to see more bankruptcies” before the market starts to look healthier.
— With assistance from Craig Trudell.