This week isn’t off to a good start for Tesla (NASDAQ:TSLA). The electric vehicle (EV) leader is falling today on news that George Soros has dumped his entire stake in the company. Soros, one of the world’s most prominent hedge fund managers, has recently trimmed his position in several other companies, including Rivian (NASDAQ:RIVN). But according to a 13F form published on Friday, May 12, Soros Fund Management, his family office has cashed out of Tesla entirely. News of this development has sent TSLA stock down today, calling the company’s growth prospects into question as it prepares for a new quarter. Soros offloading shares isn’t the only factor impacting it, but it may be the most important right now.
Does this mean that investors should be avoiding Tesla right now? Let’s take a closer look at this news and examine Soros’s decision to sell.
What’s Happening With TSLA Stock
Since markets opened today, TSLA stock has been highly volatile. Despite a quick burst as trading began, it quickly reversed course and dropped significantly. As of this writing, it is down more than 1% for the day, but these patterns make it impossible to predict where it will go from here. However, the fact that one of the biggest names in institutional investing has cashed out of the company certainly doesn’t help its growth prospects in the short term.
Only a few months ago, Soros had a different take on TSLA stock. His family office loaded up on shares during the final quarter of 2022. Even as Elon Musk’s problems at Twitter pushed share prices down, Soros Fund Management doubled down on the company. It added 42,000 Tesla shares late in the year, bringing its total holdings to roughly 132,000. And although TSLA stock has been down for the past two quarters, it has been rising since the year began. Cashing out now has likely yielded the fund a very healthy profit. Per Markets Insider:
“Tesla shares jumped 68% in the first quarter, thanks to a broad rally in the technology sector amid expectations that cooling inflation would allow the Federal Reserve to halt its interest-rate increases. The stock has pared its advance since then, and is currently up about 37% year-to-date.”
Why It Matters
With that in mind, the decision from Soros Fund Management to sell now makes plenty of sense. Does it mean that investors should approach the EV sector with caution? Not necessarily.
Soros giving up on Tesla entirely shouldn’t be seen as a reflection on the entire industry. Tesla has been facing significant problems for months, which were amplified when it reported disappointing Q1 earnings last month. On top of that, the company’s high valuation could be dangerous. As InvestorPlace contributor Dana Blankenhorn notes, this is especially true when we consider that competition is rising and China’s EV producers are threatening Tesla’s market share.
It is also important to note that other EV stocks still offer investors far more than Tesla. The company’s market share will only shrink as competition mounts, and Soros likely knows it. The billionaire hasn’t offered any insights as to why he chose to offload TSLA stock, but the fact that his family office cashed out completely speaks volumes. The fund has given up on Tesla, and investors should do the same.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.