Tesla, Inc. TSLA shares have been on an extended lean patch amid fundamental woes and the electric-vehicle maker’s CEO Elon Musk on Monday suggested that there could be redemption at sight in the long term.
What Happened: Musk was responding to a post by asset management firm Baron Capital on X, in which it shared an excerpt from the letter to its fund shareholders. The firm led by Ron Baron is bullish on Tesla, which is Baron Partners Fund’s top holding at the end of the first quarter.
Tesla has been a staple in the portfolio ever since the firm first acquired it in 2014 and the value of shares Baron Partners Fund held at the end of the first quarter was over $2 billion.
It doesn’t therefore come as a surprise that that the fund’s performance was in the red in the first quarter. Over the past three years, the fund's annualized return was negative 0.20%, with the first quarter’s performance at a negative 9% versus the S&P 500’s return of over 10.5% during the same period.
Offering an explanation for the weakness, the firm said the underperformance was primarily due to Tesla’s weakness. But it expressed confidence in a bounce back. Quoting comments from Ron Baron and Michael Baron, the firm said in the letter that in past instances when Tesla has underperformed during a discrete period, the stock has come back up and appreciated strongly, riding on the strength of the underlying business of the company.
Reacting to the post, Musk said, “Long-term return on Tesla will, I believe, be exceptional.”
See Also: Everything You Need to Know About Tesla Stock
Why It’s Important: Tesla’s problems are partly related to the headwinds faced by the industry and party self-inflicted. As demand faltered amid a surge in inflation in 2022, sales growth began to slow down. The lean patch extended into 2023 and the company deemed it fit to counter the weakness by implementing price cuts. This served not only to set off a price war in the industry but also eroded Tesla’s margins and impacted profitability.
The lack of new EV offerings and competitive pressure from Chinese rivals also pressured Tesla.
The Musk-led company has now taken the strategic direction of growing as an AI and robotics company. Ancillary businesses such as full self-driving technology that is yet to go into an unsupervised mode, the energy business and the humanoid robots are likely to be the way forward for the company.
The Master Plan 4 Musk teased earlier this month will likely delve into everything but cars, said Morgan Stanley’s Adam Jonas in a recent note.
Recently Cathie Wood’s Ark Invest said it expects Tesla stock to hit $2,600 by 2029, with much of the valuation accounted for by robotaxis.
Tesla ended Monday’s session down 0.23% at $182.58, according to Benzinga Pro data. It is down more than 26% for the year so far.
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