Why Did Cathie Wood Sell Tesla?

When people talk about the amazing price history of Tesla stock, and buying and selling influences over the past few years, one name comes up quite a bit – Cathie Wood.

This name is unusual in a number of ways. Wood’s early investment philosophy and trading activity at Tupelo Capital Management and elsewhere started a domino process where ultimately she became the head of a very prominent set of investment funds under the company name ARK Invest.

Seen as an unusually prescient market analyst, Wood became famous partially for her ideas about Tesla before that company’s massive stock price increase in 2020, its 5-1 stock split, and subsequent strength and staying power as the brainchild of Elon Musk.

However, Wood really became a familiar name for investors after founding ARK Invest in 2014, allegedly naming these novel funds after the biblical Ark of the Covenant. ARK’s ARKK, ARKF, ARKG and ARKQ funds are well-known to wealth management professionals, and their orbit influences today’s tech markets.

Cathie Wood’s Tesla Thesis

Starting with Wood’s early pronouncements on Tesla, we can see that one reason she favors this stock is the similarity between the two business models, the complementary ideas behind the development of both ARK Invest and Tesla (TSLA).

Both are built on the premise that rapid technological advance presents financial opportunity. Both are diversified in this idea – rather than focusing on one single technology, they each have a diverse focus and an expansive mindset.

However, there’s another component to Wood’s early investment in Tesla.

When interviewed, Wood indicated that she saw Tesla as a value stock – in other words, as a stock that was trading under the value of its fundamentals. That means after looking at Tesla’s earnings, revenue and everything else, Wood thought the stock had a lot of room to run – and run it did, over the past year and a half. 

Her early insistence that TSLA had lots to offer the market was part of what led Wood to urge Elon Musk to keep the company public, as he pondered a buyback, and a component of why ARK Invest made such a strategic investment in Tesla in the first place.

Cathie Wood’s Tesla Prediction

Cathie Wood has made a number of predictions around Tesla’s future stock price.

Back when the stock was trading for several times less than it is today, Wood had suggested that Tesla’s price could hit $4,000 per share by 2023. Remember this was before it split 5:1 so the equivalent share price post-split was $800 – which it hit two years sooner than her projection.

More recently, in the past months, Wood has revised this to a prediction that Tesla’s share price could top $3,000 per share by 2025. That’s a little more runway and a little less maximum value, but it still indicates that there’s growth potential for Tesla.

Does Cathie Wood Own Tesla?

The ARK funds own Tesla, so yes, Wood’s management strategy includes “owning” Tesla. When analysts and outsiders look at the relationship between ARK Invest and Tesla, it’s not just the fact that the fund has included Tesla in its portfolio. It’s also how ARK’s funds are weighted.

Deeper analysis into core holdings shows that ARK’s next-generation fund and innovation fund are invested in Tesla, to the tune of about 11%. That’s nothing to sneeze at, and it’s not an insignificant stake for diversified actively managed funds that are supposed to represent a basket of equities.

Also, as recently as the past February, Wood’s funds bought additional Tesla stock.

Did Cathie Wood Dump Tesla?

Some headlines from past months indicate that ARK Invest leadership decided to “dump” some Tesla stock, but that wording is somewhat misleading. Actually, it’s fairly off the mark, according to more detailed coverage of what happened.

Yes, it turns out the company sold a portion of its Tesla stock, but with a few fractions of a percent sold, the funds are still similarly invested in Tesla to a great extent. Moving from 11% to 10% in fund weighting, for example, doesn’t mean you’re getting out of some particular market equity – it just means you’re trimming a little, for one purpose or another. It does not necessarily mean that the divesting party is worried about where the stock is going at all.

For Cathie and her team it’s very likely that the sale is financing the purchase of other investments that may have higher upside potential.

Why Did Cathie Wood Sell Tesla?

The key thing here is that you can see by analysis of the transaction and by interviews that it doesn’t mean Cathie Wood is less bullish on Tesla’s long-term growth.

First of all, that proportional sale was equivalent to 0.26% of ARKK holdings in the first place (not a whole lot in the grand scheme of things).

It was reported that the Tesla sale was combined with a purchase of shares of Coinbase (COIN). That’s along with some investment in Intercontinental Exchange.

At the time, Coinbase had just gone public, and this crypto exchange has been an example of cryptocurrency innovation that’s attractive to investors.

So if Cathie Wood and crew took a small portion of Tesla stock and swapped that for Coinbase, it doesn’t infer necessarily a negative for Tesla, it just means that rebalancing diversification allows for more opportunity elsewhere.

Also, over the time that ARK held Tesla, the stock had ballooned by around 800%. Most people don’t expect that kind of growth to continue year after year. It’s more realistic to expect that Tesla will continue to mature in a more traditional way in stages as its market presence expands.

The bottom line is it’s clear from interviews that Wood is still bullish on Tesla.

“Corrections are good, they keep us all humble,” Wood said after a recent TSLA dip, according to Bloomberg. “The strongest bull markets I’ve been in are built on walls of worry.”

That’s commitment. Look for ARK funds to hold strong on TSLA moving into the next market season.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.