Tesla-Infused ETFs React to Analyst Downgrades

Tesla-Infused ETFs React to Analyst Downgrades

A wide variety of exchange-traded funds exist for bulls and bears alike.

Reviewed by: Lisa Barr
Edited by: Lisa Barr

A pair of Wall Street rating downgrades hit stock market darling Tesla Inc. during the past week, one from Barclays and one from longtime Morgan Stanley analyst Adam Jonas.  

Anytime Tesla makes news, it impacts the exchange-traded fund landscape, particularly since, according to etf.com's Stock Finder tool, 325 ETFs hold Tesla stock. That’s about one out of every 10 ETFs that trade in the U.S. 

Tesla and its ubiquitous founder Elon Musk may be the most well-known and controversial things going when it comes to investing’s modern rumor mill. The debate rages on: Is Tesla a revolutionary ecosphere, or just a car company whose first-mover advantage is fading? Is Musk involved in too many things, or is he the straw that stirs the drink, as baseball star Reggie Jackson said in the 1970s, referring (of course) to himself? 

For those who went to college in the 1980s, Tesla was not a car, it was an alternative rock song. A band known as OMD had a club hit with “Tesla Girls” which was actually a reference to the same 19th/20th-century Serbian-American inventor, Nikola Tesla, who Musk named his now world-famous company after. 

For ETF investors, Tesla is one of the more accessible listed companies. Its five-year gain of more than 1,000% has likely played a key role in bringing an array of niche ETFs to market. Meanwhile, Tesla’s increased market capitalization now makes it a prominent piece of many traditional types of ETFs, such as sector funds and broad market ETFs.  

ETFs To Ride Along With Tesla

Since Tesla is considered a consumer discretionary stock by S&P and not a technology company, the Consumer Discretionary Select Sector SPDR (XLY) currently carries a 20% weighting in the stock. Meanwhile, the popular ARK Innovation ETF (ARKK) has a 12% allocation.  

The highest Tesla allocation in a “diversified” ETF is the 27% stake held by a seven-month-old, $38 million fund started by a YouTube personality. The Meet Kevin Pricing Power ETF (PP) includes Mr. Musk’s company as the largest holding in a concentrated fund that devotes more than 80% of its assets to only 10 stocks. 

Then there are the speciality ETFs devoted to the modern auto industry, the environmental impact around it, or the inputs into it. The Simplify Volt RoboCar Disruption and Tech ETF (VCAR) allocates 11% to Tesla, while the Amplify Lithium & Battery Technology ETF (BATT) devotes 10% of its portfolio there. And the VanEck Low Carbon Energy ETF (SMOG) currently sports a 9% allocation to Tesla. 

For ETF investors who prefer to own their Tesla (stock) more directly, but add some leverage without options or margin, a pair of single-stock ETFs accommodate that. They are the GraniteShares 1.25x Long TSLA Daily ETF (TSL) and the Direxion Daily TSLA Bull 1.5X Shares (TSLL).  

However, not everyone is a Tesla bull. That explains why multiple ETFs exist that effectively short the stock, either using leverage, or in a one-for-one format, such as with the AXS TSLA Bear Daily ETF (TSLQ)

Clearly, investor interest in Tesla stock is very high. And the ETF business has found a wide variety of forms in which to express one’s views of the company. 

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.