The drama surrounding Elon Musk’s on-again, off-again, attempt to take over Twitter has also taken a toll on Tesla’s stock, as Musk sold billions of dollars worth of his shares to get the deal completed — and analysts think he will like end up selling billions more. Meanwhile, Tesla’s lackluster sales and recessionary worries continue to plague the stock.
But none of that seems to faze Worm Capital’s Arne Alsin, one of Tesla’s earliest supporters. Alsin has been sticking with the electric car company despite the pain it has caused recently — which is considerable for his hedge fund.
“Market prices are just not worth getting too worked up over,” he told Worm’s director of research Eric Markowitz in a recent Q&A, which Institutional Investor has obtained.
By the end of the third quarter, Worm Capital’s hedge fund was down 53 percent this year — compared with a loss of about 25 percent for Tesla during that time period. Alsin’s long-only fund had fallen about 35 percent this year through September.
Much of the decline was due to the firm’s outsize Tesla position: Some 34 percent of Worm Capital’s public equities portfolio was in Tesla at the end of the second quarter, and Alsin owned listed option calls worth another 37 percent at that time, according to a filing with the Securities and Exchange Commission. (Worm says it has increased his position “slightly” since the second quarter filings )
So far this year, Tesla shares are down about 41 percent, and on Monday they hit a 52-week low when Musk said Tesla would have to lower Chinese prices to beat the competition.
Alsin said he has watched the rising competition closely and thinks Tesla is still far ahead. And while there are short-term risks related to Covid-related lockdowns and supply chain headwinds, his long term concerns are the “levels of demand and profitability at scale,” the hedge fund manager said in the Q&A. But Alsin remains unperturbed. “I’ve just been incredibly impressed with Tesla’s growth and technical innovations, along with ability to adapt and solve problems time after time.”
“Tesla is destined to be Wall Street’s favorite stock,” Alsin said. “It’s got all the right ingredients — fast growth into vast, global end markets, rapidly expanding gross and net margins, a wide moat, endless demand for the product, and crazy potential upside from energy storage FSD, bots, AI — none of which I think are priced into the stock.”
Alsin acknowledged that “the stock is hated by some pockets of the investment community” — but he does not care. “The best investments are almost always hated for a period of time before they become consensus. Many of the so-called ‘smart money’ on Wall Street wouldn’t touch Amazon in the 2010s but had no problem buying it in the 2020s.”
He argues that Tesla should be valued at about $3 trillion, or more than three times today’s market cap. It fell below $1 trillion this year and is now around $650 billon.
Alsin is also sanguine about the overall market, having lived through the 1987 crash, the dot-com bust, and the 2008 meltdown. “There’s always a crisis that shakes investor confidence at some point, people sell, quotes plummet, and so on,” he said in the Q&A. “And then this is what always happens next: The market seems to bottom when people least expect it to, and then a couple of years go by and people begin to say, ‘If I had only bought more then…’”
“The best companies always rip back,” he said.
Tesla is one of three core positions that Worm holds, the others being Spotify and Amazon. Alsin acknowledged that the heavy concentration is ”unorthodox, for sure,” but said that’s part of what distinguished his firm from other asset managers.
“A lot of Wall Street, their incentive is to grow assets, to keep assets, that sort of thing,” he said. “In other words, their goal is to just not rock the boat. They design portfolios that look good on the surface, and I think many end up just being overly diversified. And the results are often average at best.”
Despite this year’s market pullback, Alsin said in the Worm’s third quarter letter to investors that “nothing material has changed in our view. We’re on track… We play the long game.”
