When we last blogged about Tesla almost a year ago,[1] we advised “If Tesla won’t own the world, consider selling your shares.”

Tesla was then trading at $269 per share.

And since then, it doesn’t look like Tesla will own the world. Tesla shares closed on Friday at $178 each.

Tesla is again in the news, because of a lawsuit in Delaware over CEO Elon Musk’s compensation package, and because Tesla is leaving Delaware in favor of Texas.

How might Tesla shareholders think about Tesla now?

The Delaware judge has thrown out the company’s incentive compensation package for Musk.

Telsa shareholders have voted almost 3 to 1 to reinstate the compensation package, and Musk has indicated that if it is not reinstated, he may focus his AI efforts elsewhere.

Yet the Delaware judge seems to think that her vote counts more than the votes of ¾ of Tesla’s shareholders.

The lawsuit is at best a distraction and a waste of corporate resources, and at worst could mean the end of Tesla’s amazing ride if Musk were to leave.

Even long time Tesla skeptics like Roth Capital’s Craig Irwin has said that Tesla without Musk would be much less interesting to investors. Irwin says, “God forbid there’s a catastrophic accident [involving Musk], I would expect a very large correction to the stock, as much as 30 or 50%.”[2]

Risk
Even with Musk, Tesla has been an extremely volatile stock. The recent volatility of the S&P 500 has been around 15% to 17%. Tesla, in contrast, has been about three times as volatile, with annualized standard deviation of return at over 50%.

Value
As holders of Tesla know, Tesla is down over 28% since the beginning of the year.

Tesla still trades 45 times earnings, and over 8 times book value. This compares, for example, to Toyota, which trades at about 9 times earnings, and 1.2 times book value

Owners with large gains might want to take some risk off the table.

With Tesla’s volatility, most advisors we’ve spoken with suggest that Tesla’s 1.1% of the S&P 500 seems about right as a target for a good portfolio weight to Tesla.

However, given Tesla’s tremendous long term performance, many investors have a much bigger position.

How to Avoid Capital Gains Tax
Reluctance to pay the capital gains tax on large gains makes some people hold even when they know they should sell.

For people who should sell, and don’t want to pay the capital gains tax, a good alternative may be a tax-exempt Stock Diversification Trust.

Tesla Webinar
We are conducting a webinar on Tesla on Tuesday (tomorrow) at 2pm.

To register, click here.

You’ll learn more about where Tesla’s been, where it might be going, and some tax-efficient ways to reduce exposure.

Or to learn more, please call us at 703 437 9720 and ask for Connor or Katherine. Or request a copy of our Sterling Advisor Guide: Concentrated Stock Positions. This 31 page guide, available free, will walk you through nine common solutions, how each works, its benefits and limitations, and provides a convenient “Choosing a Solution” flowchart to help you select the best alternative for each client situation.

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[1] https://blog.sterlingfoundations.com/2023/07/10/will-tesla-own-the-world/

[2] https://insideevs.com/features/706877/why-tesla-still-needs-musk/