Hedge fund manager says forget Tesla — and names 3 'cheaper' EV stocks

Published Wed, Jan 19 20221:16 AM EST

Tesla may be the first name that springs to mind when it comes to electric vehicle stocks, but hedge fund manager David Neuhauser tells CNBC why he is giving the stock a miss. After rallying around 45% last year, shares of Tesla — the world's most famous EV manufacturer and newly minted member of the $1 trillion market cap club — is down around 12% this year. Looking ahead, Neuhauser, founder and chief investment officer of Chicago-based Livermore Partners, says things could get even worse for the company's share price. "[CEO Elon Musk] has built Tesla in a way that it almost only has downside in my view simply, because it is going to see tremendous pressure from some of the legacy automakers who were way behind the curve from Tesla," Neuhauser said in a CNBC Pro Talks interview on Jan. 12. However, he does not believe Tesla will be relinquishing its leadership of the EV space anytime soon. "Tesla is the leader today. It has been a huge beneficiary of EV and I think it will continue to do so," he said. Neuhauser expects Tesla to ramp up deliveries as new factories become operational, but said the company will have a "hard time" increasing its trillion-dollar valuation, as growing competition hits Tesla's margins and prices. Moreover, Tesla could eventually find itself in a downturn, given the cyclical nature of the auto industry, he added. "I think that is the biggest concern for me. I think the shares have 50% downside when that time comes," Neuhauser said. "I am just not going to be the guy that is going to try to pick that time frame." Other analysts are more bullish on Tesla, however. Morgan Stanley hiked its price target on Tesla to $1,300 from $1,200 on Jan. 10, representing a potential upside of 24% to the stock's closing price of around $1,050 on Jan. 14. Goldman Sachs also raised its price target to $1,200 on the same day, which implies a potential upside of 14% to the stock's closing price on Jan. 14. Both firms have named Tesla as one of their top stock picks for 2022. Tesla alternatives Neuhauser believes there are other ways to play the EV trend, however. "I think are cheaper places to play it in terms of EV," he said. "There are ways to play the EV space besides Tesla." He named Volkswagen , Ford , and General Motors (GM) as the legacy automakers mostly likely to mount a challenge to Tesla's leadership. "These stocks have lagged for such a long time when it came to the EV revolution, but I think just recently in the past few months, you are starting to see those names come to life and actually outperformed Tesla," Neuhauser said.

Signage outside the new Tesla South Austin showroom within the Yard development in Austin, Texas, U.S., on Saturday, Oct. 16, 2021.

Mark Felix | Bloomberg | Getty Images

Tesla may be the first name that springs to mind when it comes to electric vehicle stocks, but hedge fund manager David Neuhauser tells CNBC why he is giving the stock a miss.