Tesla Inc. dropped out of the top ten assets of a South Korean EV mutual fund for the first time ever due to its massive sell-off last year.
The fund Korea Investment Management Co. worth $1.3 billion steadily reduced its stake in Tesla to less than 2% of its net asset value to deliver lower volatility. The U.S.-based EV giant had previously accounted for as much as 9% of the fund, which was founded in 2017.
“We thought many external and internal elements were not favorable,” Hwang Woo-taek, Lead Manager of the $1.3 billion fund, said in an interview with Bloomberg last week. Negative factors include growing competition from traditional automakers and Elon Musk’s stake sales to fund his purchase of Twitter Inc.
Even with last year’s 65% drop, Tesla is still trading at more than 28 times its estimated earnings for 2023. That compares with 21 times for the Nasdaq 100 Index.
“We need something else to justify its valuations,” said Hwang, whose fund has outperformed 98% of its peers over the past three years. The company needs to prove it can live up to expectations, e.g., with new battery models and plans to cut costs.
By cutting its bets on Tesla, the fund has increased its stake in EV charging stations including Eaton Corp. and ABB Ltd. Also, Hwang remains optimistic about EV battery stocks and is ready to buy more when their stock prices drop.
According to Hwang, South Korea’s LG Energy Solution Ltd. may see “a lot of selling volume” later this month when the lock-up expires on assets by employees who bought shares in the battery maker’s IPO.
Hwang’s fund has ranked among the top performers over the past three years thanks in large part to its holding of Tesla during the pandemic rise. In 2022, the fund recorded its worst performance ever, losing about 28% amid weak sentiment toward the EV industry.
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