Cathie Wood is offloading Tesla shares and investing in another electric vehicle company with a price under $5. Is it wise to mimic her moves?
Cathie Wood is offloading Tesla shares and investing in another electric vehicle company with a price under $5. Is it wise to mimic her moves?
As the head of Ark Invest, Cathie Wood has gained recognition for her commitment to cutting-edge technologies and high-profile investments in businesses looking to disrupt traditional systems.
Wood has been a prime supporter of electric vehicle (EV) manufacturer Tesla (TSLA 3.64%), regularly highlighting the potential of autonomous driving and artificial intelligence's role in the company's future plans, even before it was trendy. However, in recent times, Wood has been decreasing her stake in Tesla and directing the profits into another EV specialist, Archer Aviation (ACHR 2.48%), which concentrates on the development of electric air taxis.
I'll elaborate on Wood's moves below and shed light on her motives. There's a lot to process, and her shift to Archer reveals more than meets the eye. Let's delve into the details.
Cathie Wood is divesting from Tesla and...
In the month of October, Wood sold over 280,000 shares of Tesla across ARK Innovation, ARK Autonomous Technology & Robotics, and ARK Next Generation Internet exchange-traded funds (ETF). Following this, Wood offloaded an additional 530,000 shares between Nov. 1 and Nov. 7.
It's worth noting that the timing of these sales may not be coincidental. Wood initiated reducing Ark's Tesla position on Oct. 24, the day following the company's third-quarter results announcement. In the last week of October, Tesla's shares climbed by more than 16%. Meanwhile, between Nov. 1 and Nov. 7, Tesla stock surged by 19%.
Taking all this into account, since Tesla reported its earnings on Oct. 23, the stock has gained approximately 38% as of Nov. 7 (the date of Wood's last reported sale of Tesla shares).
... investing in this other EV company but...
Archer Aviation focuses on a specific sector of the mobility industry known as electric vertical take-off and landing (eVTOL) aircraft. While this may seem like something straight out of The Jetsons, eVTOL air taxis actually present some intriguing practical applications.
The most obvious use-case is to employ Archer's air taxis as a transportation alternative in densely populated urban areas, such as cities. What makes this particular use-case intriguing is the fact that such congested urban environments are a global concern.
Archer disclosed in its Q3 earnings update that it had entered into an agreement with Japan Airlines and Oracle. The intent was to purchase up to 100 of Archer's aircraft with a total value of $500 million. The goal was to bring air taxi services to some of the most congested cities in Japan.
Archer has also managed to secure interest from other airlines, such as United Airlines and Southwest Airlines. The company's aircraft are also proving to be an appealing solution for stealth missions in the military due to their quiet operation.
In the final week of October, Wood acquired around 2.5 million shares of Archer stock for the Ark funds. Given that Archer's shares are trading at below $5 and Tesla's recent valuation expansion has made it somewhat expensive, did Wood just make an unparalleled investment?
... keeping the long-term strategy in view
From the information provided, it's clear that Tesla's stock performance has been nothing short of remarkable over such a brief period. During volatile times, wise investors never shy away from booking profits.
In Wood's case, Tesla stock occupies a significant position within the Ark portfolio. In a recent interview, Wood acknowledged that Tesla's recent momentum had made her position in the stock disproportionately large within Ark's portfolio. As a seasoned portfolio manager, Wood will rebalance her positions and subsequently reinvest profits in other companies from time to time.
From my perspective, Archer remains primarily a speculative opportunity. Although the company boasts an impressive order book valued at over $6 billion, widespread commercialization of eVTOL aircraft appears to be several years away. Ultimately, it's evident that Wood's recent actions do not indicate that she views Archer as a superior investment opportunity over Tesla.
Cathie Wood is not entirely abandoning her investment in Tesla, as she still holds a significant position within the Ark portfolio. However, she is also directing some of the profits from her Tesla sales into Archer Aviation, showing an interest in the potential of electric air taxis and their role in addressing urban congestion.
Despite Wood's recent investment in Archer, her moves suggest that she is maintaining a long-term strategy, as she continues to see value in both Tesla and Archer Aviation, and is simply rebalancing her portfolio based on market conditions and the opportunities these two companies provide in the realm of finance and investing.