Cathie Wood and Elon Musk Say Tesla Will Be Worth $7 Trillion. So Why Are Insiders Dumping the Stock?

Of all the “Magnificent Seven” stocks, none is more controversial or more of a battleground stock than Tesla (TSLA -0.35%).

Ever since the days of the $TSLAQ hashtag on Twitter, Tesla has had its share of die-hard bulls and haters. While the stock has made early investors who held on rich, it remains a controversial pick today for a number of reasons, including CEO Elon Musk’s antics, what some observers say are its overpromises about its autonomous vehicle technology, and its lofty valuation.

Among Tesla’s biggest backers is Cathie Wood, the head of ARK Invest, a growth-oriented exchange-traded fund (ETF) manager that has held Tesla as one of its largest positions for years. Wood is a big believer in the company’s autonomous vehicle strategy, and predicts that its robotaxi business will provide the large majority of Tesla’s earnings and value by 2030. She forecasts that its market cap will reach $7 trillion or more by 2029.

Similarly, on the company’s earnings call in October, Musk said that autonomy would make it the most valuable company in the world, “probably by a long shot.”

However, not everyone who knows Tesla well seems to agree. In fact, in the third quarter, three Tesla insiders set up 10b5-1 plans, under which they sell predetermined amounts of stock at preset intervals. These plans — which set out guidelines in advance, but put the precise timing and sales decisions in the hands of the shareholder’s broker — are designed to eliminate any appearance that when an insider sells, they are doing so based on material non-public information.

Are Tesla insiders bailing?

Among those Tesla insiders are Board Chair Robyn Denholm, Kimbal Musk, a director and Elon’s brother, and Kathleen Wilson-Thompson, who has been on the board of directors since 2018.

Denholm’s plans call for her to sell up to 674,345 shares that she earned from stock options expiring in June 2025. Her 10b5-1 plan expires in June 2025. Those shares are now worth nearly $170 million.

Kimbal Musk filed to sell up to 152,088 shares currently worth $38 million in a plan expiring in May 2025. Wilson-Thompson could sell up to 300,000 shares, currently valued at $75 million, in an arrangement lapsing in February.

It’s not unusual for insiders to sell stock, and they do so for a wide variety of reasons, including a desire to diversify their holdings or spend that money on something else, like real estate, but the timing of these moves is curious.

Tesla has struggled to grow revenue and profits over the last four quarters, and its EV production levels have been essentially flat amid a broader growth slowdown in the electric vehicle industry. However, Elon Musk has continued to hype his autonomous vehicle vision, especially after the company unveiled its Cybercab at its splashy “We, Robot” event just a few weeks ago, and that has helped keep the stock price elevated.

Presumably, if a breakthrough in autonomy for Tesla was right around the corner, the people who know the company best and have the most direct connections to Musk wouldn’t be selling the stock.

Notably, even if all three directors sold all the shares covered under their 10b5-1 allotments, each would still be left with a majority of the Tesla shares they held as of March 31, 2024, according to the company’s proxy statement.

Is this a sell signal for Tesla shareholders?

Insider selling on its own isn’t a strong enough signal to indicate that individual investors ought to sell the stock, but it is one of many data points that they should consider.

Tesla took a big step with its introduction of the Cybercab last month. Musk hopes to get them on the road in Texas and California in 2025, and ramp up the annual production rate of the autonomous two-seater vehicles into the millions as early as 2026. However, there are regulatory hurdles standing in the way of the company taking its robotaxi mainstream.

The National Highway Transportation Safety Administration (NHTSA) currently tightly restricts the deployment of autonomous vehicles without traditional controls like steering wheels to just 2,500 per year. In other words, Tesla would need to convince the NHTSA that its AV technology is safe and get the regulatory regime for such vehicles loosened if it’s going to realize Musk’s vision.

It might seem this could be easier if former President Donald Trump wins next week, as Musk has gone all-in for the Trump campaign. Worries about potential political risks to Tesla if Vice President Kamala Harris wins offer another possible reason why those insiders are selling beyond the stock’s currently high valuation — its price-to-earnings ratio is above 100.

Tesla may eventually roll out a national network of robotaxis and become a multi-trillion-dollar company, as Musk imagines, but given the stock’s surge on its third-quarter earnings report, its generally sluggish growth in recent quarters, and the risk to the stock in a Harris victory, taking some profits now, especially for longtime investors, doesn’t seem like a bad idea.