Chamath Palihapitiya Liquidates Entire Position in Tesla
Is this the ultimate Diamond Hands flex?
On September 29, 2021 former Facebook executive turned billionaire venture capitalist Chamath Palihapitiya sat down for an interview with CNBC’s Scott Wapner as part of the program’s Delivering Alpha conference.
The price of admission was a cool $795. Unfortunately, this fee won’t get you anywhere close to some other festivities (*Met Gala*); however, it does buy you the ability to hear from some of the financial world’s most established and well-respected minds before anyone else (that is, before the soundbites are published to Twitter 5 minutes later).
During this event, host Scott Wapner asked Chamath about his position in Tesla. This was actually a natural question to ask because the two had not sparred about such topic since earlier this year, in January (but more on that later). The audience learned that Chamath sold his entire stake in Tesla over the last year. I’d like to break down why I think Chamath did this and what I believe it means for Tesla as a company and the stock.
Why Did Chamath Sell His Tesla Stock?
My guess is that a lot of people think that Chamath operates like most traditional venture capital or private equity investors such that he has a rolodex of limited partners who provide him with capital to invest on their behalf. The reality is a bit more nuanced than this. Here is what the “About Us” page on Social Capital's website says:
As we can see, the fund is structured more like a family office, meaning that the majority (if not all) of the capital deployed is coming from Chamath himself. A traditional venture capital firm has the ability to raise funds from their investor syndicate on a periodic basis (so long as they have a good track record). For Chamath, he may need to reallocate his existing capital from time to time in order to fund a new investment.
The question still lingers: Why Tesla? Here is what I have been able to gather by listening to Chamath for several years. First and foremost, we do not know all of his public company holdings. Second, Chamath is a pretty secretive person (he seldom does interviews). However, he does host a podcast called All-In with three of his investor friends (or besties, as he calls them).
During one episode I specifically recall Chamath talking about how he sold all of his Facebook stock and reinvested the proceeds into Amazon. His thesis was that Jeff Bezos is the greatest capital allocator of our generation because he reinvested billions of dollars of free cash flow back into the business and pursued longer term bets at the expense of short term profitability targets. I have a hunch that Chamath does not hold a large basket of public equities. Rather, my guess is that he has very large positions in a small cohort of companies (excluding the companies he is personally involved with via his SPACs). This leads me to “why Tesla?”.
I think that Chamath has new opportunities on his plate and was faced with a common investor dilemma: where do I find the funds? Since I believe that he has a finite number of liquidation options, and since Amazon seems to be his highest conviction public company holding, I think he settled on selling Tesla.
In Some Ways This Makes Sense
For hypothetical purposes, let’s just say that Chamath was torn on selling Tesla vs. Amazon. Well, one of these stocks performed far more dramatically than the other in 2020. Tesla soared over 700% whereas Amazon’s stock price increased by over 70%. Although 2020 was a great year for Tesla as a business, the stock clearly started to trade in its own universe. I think that the volatility of Tesla’s stock allowed Chamath to take advantage of some more pronounced gains in order to pursue other high-conviction projects.
What Does This Mean For Tesla?
Nothing. Absolutely nothing. Tesla has continued to deliver outstanding operational achievements and make major strides over the last two years. The company should be able to attain another level of success once the gigafactories in Berlin and Austin are fully functioning.
It would not surprise me if Chamath hops back into Tesla at some point. This interview from January 2021 showcases Chamath’s bullish stance on electronic vehicles, and Tesla in particular. Savvy and methodical investors rarely reverse or alter their opinion completely, especially in such a short time frame. Once Chamath has some of these other projects funded, I wouldn’t be surprised if he opens another position in Tesla when the time is right.