Tesla Stock: Cathie Wood Now Lacks Conviction (NASDAQ:TSLA)

Perhaps the biggest single stock story ongoing in the market now is the crash in shares of Tesla (NASDAQ:TSLA). The electric vehicle maker has lost more than two-thirds of its value from its peak, with shares recently plunging a bit as Elon Musk looks to save his disastrous acquisition of Twitter. You would think that the fall in the stock would provide an opportunity for investors to back up the truck, but one of Tesla’s most vocal supporters over the years seemingly is now lacking serious conviction in the name.

Earlier this year, ARK Invest CEO Cathie Wood detailed her latest Tesla price target, which is now a bit over $1,500 when adjusting for this year’s stock split. Ark has three active ETFs that own shares – the ARK Innovation ETF (ARKK), the ARK Autonomous Technology & Robotics ETF (ARKQ), and the ARK Next Generation Internet ETF (ARKW). For a while, Tesla was the largest holding in all three of these funds, and sometimes by a significant margin over the second largest position in each ETF.

As of this week, however, Tesla isn’t even in the top spot in any of the three ETFs. In ARKQ, where the stock once had a weight of more than 16.2%, Tesla could soon find itself not even in the top five spots. In the flagship ARKK fund that holds more than half of ARK Invest’s assets currently, Tesla has fallen out of the top three spots and perhaps even 4th when we get the official daily update. In ARKW, the stock has fallen to fifth place, and it could easily fall out of that position with another bad day or two.

I started tracking ARK Invest’s moves on a daily basis back in March 2020, a time frame that’s now approaching 700 trading days. On Monday, all three ARK Invest ETFs had their lowest respective weights for Tesla over this time period, each surpassing their previous lows by a decent margin. In the chart below, for example, you can see Tesla’s daily weight in ARKK, with the latest data point being an estimate for December 27th. With a weight now at just about 6.00%, that figure is now less than half of what it was at the peak around 13.00%.

In the two smaller ETFs, however, the weight change has been even more dramatic. I mentioned above the peak for ARKQ, the smallest of these three ARK Invest ETFs, where Tesla finished Monday’s trading session with an implied weight of just 6.97%. In ARKW, Tesla’s estimated weight as of Monday was 5.27%, which is less than 40% of the peak at 13.26%.

Now I’m sure some people will point out that Tesla has appeared in the ARK Invest daily trades e-mail recently. That is true, with purchases of nearly 215,000 shares since December 14th. However, using respective daily closing prices, that amounts to around $31 million in total. On September 1st of this year, the three ETFs combined to sell just over 150,000 shares during that one trading day alone, or almost $42 million using the day’s close.

Thus, the eight days’ worth of purchases we’ve seen recently (there was one day with no buys) are rather small in the grand scheme of things. The last two daily buys in ARKK totaled less than 9 basis points of the fund’s weight, which is almost a rounding error at this point. In fact, if we go back to July 30th of last year, net allocation sales (the ones that show up in the daily e-mail) are still nearly 9.44 million shares on a split adjusted basis. As the chart below shows, net sales are only about 6% off the peak, and again, these are not sales related to fund redemptions that are a completely separate and much smaller item.

No matter which way you look at things, whether it be ETF weight or daily purchases, there is certainly a lack of conviction here when it comes to Tesla. If you do a Google search for Cathie Wood and Tesla, you’ll find numerous articles regarding the recent small purchases, but I haven’t seen a ton of discussion about the numbers I’ve discussed above. In fact, in the last 9 trading days, only one day had all three ETFs buying Tesla, with just one other day with two ETFs buying. It almost appears that Cathie Wood and the team just want a headline to show up that they are buying like every day, but six days here with just one fund buying is a lack of faith in my opinion compared to what we’ve seen in the past.

Perhaps the ARK Invest team is looking at the situation around Tesla and realizing things aren’t as great as they seemed earlier this year. Longtime Tesla bull, Wedbush analyst Dan Ives, who had a more than $400 split adjusted target on Tesla earlier this year, cut his price target from $250 to $175 last week while slashing Q4 delivery estimates. Tesla cut prices in China earlier in the period, and has since introduced multiple promotions to help demand in that country. Discounts have been offered in the US, Canada, and other countries to help as well. The average analyst revenue estimate has started to come down a bit in recent weeks as seen below.

In the end, it certainly appears that Cathie Wood and her team at ARK Invest are losing some of their conviction in Tesla. Despite the plunge in shares of the electric vehicle maker recently, the ETF firm hasn’t exactly been rushing to buy the stock. In fact, Tesla’s weight in all three active funds that hold it is at multi-year lows, with the stock not even one of the top couple of holdings in any of them right now. As Tesla cuts prices, economic worries increase, and Elon Musk’s Twitter drama continues, one of the biggest bulls on this name has suddenly gone very quiet.