As Elon Musk dumps Tesla shares, should I buy?

As Elon Musk sells some of his Tesla shares, our writer considers whether there is a buying opportunity for his own portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Elon Musk has had a successful business career, most recently in his roles at Tesla (NASDAQ: TSLA) and SpaceX. So, when he sells billions of pounds worth of shares in his own company, investors are bound to sit up and take notice.

In recent days, Musk has sold over £3bn worth of Tesla shares. That might be a selling signal. But alternatively, it could upset the market and provide me with a buying opportunity for my portfolio. Let’s consider the options.

Why is Elon Musk selling Tesla shares?

Musk hasn’t become as successful as he is by behaving in conventional ways. So while his use of a social media poll to gauge opinion on whether he ought to sell some of his Tesla shares was unusual, in itself I don’t think it is that important.

The bigger point here is that Musk is selling some of his shares. Other insiders have also been unloading Tesla shares on the market in recent weeks. Could that be a sign that the company’s management now sees its stock as overpriced?

Are Tesla shares overpriced?

The share sales could indeed suggest that Musk and others see Tesla shares as overpriced. After all, last month the company reached a market capitalisation of over a trillion dollars. That is a heady valuation even if one foresees strong future demand for electric vehicles and other technologies Tesla is developing, such as battery storage.

However, people have been saying that Tesla is overvalued for years, yet the company’s share price has often confounded its critics. Locking in some profits at the current price could be a way for Musk to diversify his portfolio, a commonly used risk management approach. It doesn’t necessarily mean he thinks the shares are overvalued. It’s also worth bearing in mind that the sales reported on Monday and Tuesday this week amounted to only 3% of Musk’s Tesla holding. He still has a huge amount of his personal wealth tied up in Tesla shares.

Is this a buying opportunity?

The market has reacted nervously to the sales, with Tesla falling 13% in five days at the time of writing this article earlier today. The shares are still up 156% over a 12-month period, however.

If I felt bullish on Tesla, this could be a good opportunity to start a position in the shares while the price is cheaper than it has been recently. I do think there is a lot to like about the company, from its vertically integrated business model to the loyalty it engenders in many customers. But thinking a company is attractive isn’t the same as finding its shares attractive.

Even if Tesla continues to dominate the electric vehicle industry — which I think it will struggle to do as competitors invest in building their own capabilities — its current valuation looks rich to me. That doesn’t mean it might not grow into it over time, but for that to happen a lot needs to go right. I would rather invest in a company where I think less needs to go right to justify its current valuation, such as Alphabet or Apple. So, I won’t be buying any of the Tesla shares Elon Musk is selling.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Christopher Ruane has no position in any shares mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Portrait of pensive bearded senior looking on screen of laptop sitting at table with coffee cup.
Investing Articles

7.5x earnings, £80.2m in net cash, and a big yield… what’s not to like about this UK stock?

This UK stock has a really strong net cash position relative to its size and its other metrics are very…

Read more »

Two male friends are out in Tynemouth, North East UK. They are walking on a sidewalk and pushing their baby sons in strollers. They are wearing warm clothing.
Investing For Beginners

My daughter could earn a £75,000 second income because we started an ISA at birth

Earning a second income is a dream for many Britons. By leveraging time, investors could make it a reality for…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Could this trigger a stock market crash?

Dr James Fox takes a closer look at an alarming trend in the Far East that could have consequences for…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

What’s happening with the Jet2 share price?

The Jet2 share price has lost momentum after the tour operator said that customers were leaving their bookings to the…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

Could the Chancellor’s Leeds Reforms trigger a bull market for UK stocks?

More competitive lending and greater interest in shares could help kick start growth for UK businesses. But could it also…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I think this AI stock could double before Palantir

Palantir stock is up almost 100% this year. As a result, it now sports a market cap of $350bn meaning…

Read more »

Elevated view over city of London skyline
Investing Articles

As the FTSE 100 hits an all-time high, is it time to reconsider the S&P 500?

Christopher Ruane explains why a surging FTSE 100 has not yet made him focus more on the potential of S&P…

Read more »

GSK scientist holding lab syringe
Investing Articles

The FTSE 100 sits at a record high. But some stocks still look dirt cheap!

The usually sluggish FTSE 100 is having a surprisingly good year. But our writer feels there are still potential bargains…

Read more »