Tesla: Institutional Sentiment – Tesla Motors (NASDAQ:TSLA)

A version of article was published in Tesla Forum on November 24.

T. Rowe Price (TROW) was a top-three institutional holder of Tesla’s stock (TSLA) until it sold about half of its shares in 2Q17, as I discussed in Tesla Ownership: T. Rowe Price Sells, What’s Next?

As of September 30, various T. Rowe funds still held five million shares in total, or more than $1.5 billion.

Is T. Rowe Buying Again?

This Bloomberg article points out that at least one T. Rowe Price fund manager may have revised financial projections upward:

Joe Fath, fund manager for T. Rowe Price Group Inc., Tesla’s seventh-largest shareholder, said that prior to the unveiling he thought Tesla’s heavy-duty truck might be able to address about a quarter of the hauling tasks performed by the largest heavy-duty freight trucks, known as Class 8 semis. In North America alone, these big trucks account for about $30 billion in sales each year, according to industry data tracked by Bloomberg.

The promises in Musk’s presentation persuaded Fath that Tesla will be able to compete in nearly two thirds of the Class 8 market. “If they execute,” he said, “they have a very big opportunity.”

Two key observations:

  1. Mr. Fath’s estimate of Tesla Semi’s total addressable market more than doubled from a quarter of the Class 8 market to two-thirds; and
  2. Mr. Fath is focused on Tesla’s execution, which is in-line with my understanding of why Tesla’s market price is still significantly lower than its longer term intrinsic value calculated using a high discount rate.

We may find out as early as first week of January, or as late as February 15, if Mr. Fath, or other managers at T. Rowe Price or other institutional investors have added to their positions in Tesla, following the Semi reveal event, which I discussed extensively in Semi Reveal: Significant Developments and Tesla Roadster: Key Implications.

Significant Changes

The following table illustrates the shares held by institutional investors as of the most recent quarter-end, September 30, and any changes in the third quarter:

Source: NASDAQ

Four key observations caught my attention:

  1. Wellington Management Group, a global investment management firm with more than $1 trillion in assets under management, increased its position in Tesla by 160% to nearly $320 million. If the investment firm chooses to increase its stake, it certainly has the capacity to do so.
  2. Susquehanna International Group, a global quantitative investment firm, increased its position by nearly five-fold to more than $300 million.
  3. In terms of absolute value, Fidelity, a long-time investor in Tesla, reduced its position by 1.8 million shares, but still held more than $6.1 billion in the company as of the most recent quarter end.
  4. The number of shares held by Top 15 investors remained relatively unchanged at 69 million and comprised approximately 40% of the company’s total market capitalization, which is high for a company of Tesla’s size.

Bottom Line

T. Rowe Price is an important institutional investor that has invested in Tesla for a long time. The above comments from Mr. Fath may mean that managers at T. Rowe Price could be looking to buy back the millions of shares they sold earlier this year at a lower market price and with a higher intrinsic value estimate.

This is a significant development.

Follow For Free Articles

If you enjoyed this article, please scroll up to the top of the page and click the “Follow” button next to my name. Your support will allow me to invest further time and resources into creating proprietary research for you.

Premium Research

If you’re interested in learning about my investment methodology as well as high-quality fundamental research on Tesla, supported by detailed financial projections by product and service line, including years 2019 and beyond, as well as timely price target alerts and weekly Live Chat community discussions, join Tesla Forum. I’m confident that you will find my research to be very insightful, and I look forward to discussing ideas with you.

Disclosure: I am/we are long TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Leave a Reply