A Tesla investor explains the final straw that made him sell his entire stake in the company
- Elon Musk surprised Wall Street last week by announcing Tesla would close most of its 378 retail stores around the world.
- For Alex Chalekian, CEO of a firm with about $150 million AUM, that move was the final straw.
- Chalekian talked to Business Insider about why he was exiting his stake, even after weathering a 2018 that saw Tesla marred by production issues, financial uncertainty, and a lawsuit from the SEC.
Alex Chalekian had weathered plenty of storms with his Tesla investment.
Like most of the company's major investors, the CEO of Lake Avenue Financial, which manages about $150 million in assets, stayed focused on the longterm efforts by Elon Musk throughout a 2018 scarred with production issues, financial uncertainty, and a scuffle with federal regulators.
"I looked at it as: 'This is an innovative company, there's always going to be some sort of chaos going on,'" Chalekian, who purchased a Model S in 2009, told Business Insider in a phone interview.
But Elon Musk's surprise announcement that the company would shutter most of its 378 retail locations last week was the final straw. Chalekian sold his firm's full stake in the company.
Chalekian's clients were still in the green on their investment (he declined to say by how much or when the firm had initiated its position) but the investment manager said he could no longer uphold his fiduciary duty by investing clients' money in a stock as volatile as Tesla.
Read more: Tesla's reputation with consumers took a big hit after a wild year, according to a new poll
"The risks outweigh the rewards at this point," he said. "It would be one thing to close down some of the stores that are not performing well, but from what I gathered, the goal is to close the stores and move all sales to online."
The decision to close "many" of Tesla's 378 retail stores signaled to many on Wall Street, including analysts at some of the world's largest banks, that the company could be in major cash-saving mode. Not only would the move save on payroll costs, but leased land for the stores as well.
Musk said on a conference call with reporters that closing them and reducing headcount was necessary. "There's no other way for us to achieve the savings required."
"Based on the stuff that's going on, I wouldn't want to buy any more shares," Chalekian said. For now, he's focused on the Model Y reveal, set for March 15.
"It reminded me of a crowdfunding idea," Chalekian said. "The fact that they are using it as a way to raise capital, likely through deposits, I'm assuming this might be another cash flow play for them."