- Elon Musk’s presence on social media has created governance concerns for some fund managers.
- Tesla’s ownership of bitcoin, which is volatile, is problematic, Rathbones’ David Coombs said.
- Big carmakers are in the race to develop electric vehicles, and Tesla may not win, he added.
Elon Musk, the self-proclaimed Technoking of Tesla, has thrown out the corporate-governance handbook to the delight of his many followers, but for some fund managers, this is making his electric-vehicle maker uninvestable.
Tesla’s rise to EV-market dominance has been nothing short of extraordinary, boasting stock-price gains of well over 1,200% over the past five years. By late 2020, its market value was larger than that of the nine next biggest car makers in the world combined. For investors such as Baillie Gifford – the asset manager with headquaters in Edinburgh, Scotland, that oversees around $445.3 billion – the company has been one of the jewels in their portfolio.
But for others, Tesla has become less attractive, on the grounds that Musk himself poses too much of a governance risk, said David Coombs, the head of multi-asset strategy at Rathbones, which manages $3.17 billion.
“I don’t invest in companies where you have a guru, or someone who’s so important that [they] run the business almost like a personal entity,” Coombs said.
Tesla did not respond to a request for comment.
In mid-March, Musk added the title of "Technoking" to his list of positions at Tesla, including CEO, in a filing to the Securities and Exchange Commission. In the same filing, he named the company's CFO, Zach Kirkhorn, "Master of Coin," an apparent reference to the television series "Game of Thrones."
But, Musk's online presence occasionally attracts the attention of the regulators.
One Tesla investor sued Musk and Tesla's board earlier in March, saying some of Musk's comments on Twitter violated a settlement with the Securities and Exchange Commission. The lawsuit cited a May tweet from Musk's verified account, which said: "Tesla stock is too high imo." Tesla's stock tumbled almost 10% in the hours after.
Musk sent out a tweet on Friday that implied Tesla could soon become more valuable than Apple, the world's largest company by market capitalization, but then quickly deleted it. On Thursday, the National Labor Relations Board asked Musk to delete a tweet about Tesla employees' union efforts.
The other cause of concern for Coombs is the company's investment in bitcoin.
Bitcoin is one of the best-performing assets of the last year, with a gain of nearly 900%. A big catalyst this year was Tesla's announcement in February that it had bought $1.5 billion worth of the cryptocurrency and added it to its balance sheet. But, this means that if bitcoin falls in value, it can affect Tesla's finances.
It now also accepts bitcoin as payment for its vehicles for customers in the United States. Musk even added "#bitcoin" to his Twitter bio, which on the day, helped boost the price of the token by as much as 20%.
For Coombs, this backs up his thinking about Musk's control over the company. With "the bitcoin thing, this is not a company I can invest in," he said.
Another issue for Tesla is the growing competition from traditional carmakers like Volkswagen, GM and Ford, as they ramp up their EV offerings.
An investment has "got to make sense from a business perspective, and to me, Volkswagen will beat Tesla," Coombs said. "I just don't think the business model has a 10-year visibility to me," he added.
Mission T is Volkswagen's big effort to catch up with Tesla. CEO Herbert Diess has committed to offering a fully electric vehicle for each of its stable of brands, including Audi, Bentley and Porsche by 2025.