Five reasons to steer clear of Tesla shares: Though it’s dangerous to bet against Musk, here’s why you should be fearful

Elon Musk is the richest man in the world and the most talked about business leader in the world. But has he lost the plot? Between 2014 and 2023, investors benefited from a stunning 1,000 percent rise in the shares of his electric car company Tesla.

But they have fallen 40 percent since the start of the year amid concerns about his increasingly eccentric behavior and questions about whether the maverick is focused enough on the business.

Many private investors in Britain hold Tesla shares, either directly or through a fund such as the Scottish Mortgage Investment Trust. So should they hold on to them, sell them or even buy more?

There are a number of reasons to be afraid:

On Thursday, investors will decide whether to vote for a $56 billion (£44 billion) pay package for Elon Musk.

Outstanding pay package

A key test of the tycoon’s credibility will be next Thursday’s annual meeting, where investors will decide whether to vote in favor of his $56 billion (£44 billion) pay package.

This is based on Tesla’s market value and how well its business performed between 2018 and 2023. Its sheer size has led to criticism that it is overwhelmed by greed and grandeur.

Objectors include the California Public Employees’ Retirement System, one of the largest pension fund managers in the world.

If shareholders agree, Musk will add to his $200 billion fortune, leaving his closest rivals in wealth – LVMH’s Bernard Arnault, Amazon’s Jeff Bezos and Meta’s Mark Zuckerberg – far behind.

Overtaking rivals

It’s taken the traditional giants of the auto industry time to wake up to the electric vehicle revolution, but they may soon overtake Tesla.

Musk has promised for years to deliver fully self-driving Teslas, saying his electric car company would be “basically worth zero” if it didn’t prioritize self-driving technology. But critics say his company is falling behind on that front.

Rivals such as Ford have already introduced hands-free driving systems.

Spread too thinly

The magnate, his critics say, is distracted from Tesla by his eclectic portfolio of other business interests. These include his 2022 purchase of the social media site Twitter, now known as X.

This led to a long-running feud with the US watchdog the Securities and Exchange Commission, which is investigating whether he violated federal securities laws.

The billionaire has said the SEC is trying to “harass” him with a number of subpoenas, damaging Tesla’s reputation and hitting the company’s stock price.

The broader problem is the scope and variety of his activities, which may mean he isn’t spending enough time on Tesla. There’s SpaceX, where he built the world’s most powerful rocket, infrastructure startup The Boring Company, and Neuralink, a developer of “interfaces to connect humans and computers.”

One analyst said: ‘Musk is too far between his pursuit of an auto revolution, a Martian colony, cyborgs and the world’s ultimate social network.’

Political backlash

The Tesla founder is an ally of Donald Trump and a poster boy for the US right. He and Trump have been speaking several times a month since their private meeting in March at the home of billionaire investor Nelson Peltz. The two have discussed an advisory role for Musk if Trump wins back the White House in November, which could potentially give the Tesla boss influence over economic and border policy.

When Musk was asked last year if he was becoming more political, he said: “I think if you consider the fight against the woke mind virus, which I consider a threat to civilization, to be political, then yes.”

Threat from China

This is the biggest threat of all. The world’s dominant electric car manufacturers are now Chinese.

BYD, a carmaker that Musk once ridiculed, overtook Tesla late last year as the world’s best seller of electric vehicles.

The situation for Tesla will worsen as Chinese manufacturers continue to flood Western markets – accounting for 25 percent of almost all cars sold.

Musk is well aware of the danger and stated earlier this year that Chinese electric vehicle makers will crush their competitors if there are no trade restrictions.

On the other hand…

Musk still has prominent supporters, most notably US fund manager Cathie Wood at Ark, even if she has struggled recently.

She predicts that Tesla stock could reach $2,000 in five years. They are trading at $175 and this is based on the arrival of a more affordable Tesla model, likely in 2026.

But most powerful of all is Musk’s loyal group of small investors, who own 30 percent of the shares. Many are active on the social media platforms Reddit and X.

Musk has encouraged these followers to push his pay package, post ads and offer private tours of Tesla’s Texas factory.

Musk’s appeal to his followers stems from his charismatic, often hostile behavior and his frequent brushes with authority.

He has appeared with Joe Rogan – a famous American broadcaster – smoking cannabis. He has spoken openly about the benefits he believes he has received from using ketamine and has had frequent run-ins with Wall Street regulators.

But there are reasons why a more skeptical investor might consider Tesla stock a hold or a buy.

They provide exposure to two key trends: the move to green energy and artificial intelligence.

Tesla is leading the way and its name is almost synonymous with electric cars.

The stocks have been volatile – much like Musk himself – but he has often proven his critics wrong.

It’s taken the traditional giants of the auto industry time to wake up to the electric vehicle revolution, but they may soon overtake Tesla

Still not sure? This is what the experts say

A total of 45 analysts around the world follow Tesla.

Of those, 16 have a buy recommendation for the stock, 20 have a hold recommendation and only nine advise their clients to sell.

TO SELL: JP Morgan American investment trust

Manager Felise Agranoff says, “We sold it earlier this year. Demand for electric cars in the US is disappointing. Yes, Tesla has a strong market position, but the market is becoming more competitive and political.’

HOLD: Deutsche Bank

“Cracking the code for full driverless autonomy is a significant technological, regulatory and operational challenge,” said analyst Emmanuel Rosner. “Investors in electric vehicles could throw in the towel and be replaced by investors in AI technology.”

BUY: Wedbush

Dan Ives, analyst at US asset manager Wedbush, says Musk and Tesla are under attack from all sides. But he adds: “We’ve been here a number of times over the last decade as the doubters have said the Tesla story is over and electric vehicles are a fad, not a long-term transformative trend that the auto industry will change.”

How do I buy Tesla shares?

Tesla shares can be purchased through platforms such as Hargreaves Lansdown and AJ Bell. But for those who want to deal with a professional fund manager, Scottish Mortgage Investment Trust and US index fund Vanguard both offer exposure.