Outperforming S&P 500 fund cites reasons for Tesla stock to rise in 2026

Tesla shares remain under pressure in 2025, but that's about to change, said Joseph Dennison, manager of the Virtus Zevenbergen Innovative Growth fund. Tesla is one of the largest positions in the fund's portfolio, overtaking the S&P 500 index in returns this year. Dennison cited several reasons for the company's rise after a string of setbacks in 2025, noting that the stock's current decline is far from the biggest in its history and that the buzz around Elon Musk is not capable of hurting the stock over the long term.

Despite Tesla shares falling in 2025, Virtus Zevenbergen Innovative Growth fund manager Joseph Dennison believes the tipping point is near. This fund outperforms the S&P 500 by 1pc in 2025. Tesla securities are the fourth most important stock in Virtus Zevenbergen (7.3% of total assets) - one of the largest shares of any diversified fund in the US, Morningstar notes. According to Dennison, Tesla's peak difficulties are behind it, and the company is poised for a recovery in 2026 thanks to several factors.

The first is the development of autonomous technologies and robotaxis: the successful launch of Tesla's robotaxi in Austin, Texas, was a significant event, and the license obtained to operate throughout the state opens the way to scaling the project. The transportation of the future will be electric and autonomous, he said. "And there is no company better positioned to capitalize on this opportunity than Tesla," the fund manager noted. Dennison believes that the further the auto industry moves toward autonomous transportation, the more Tesla will be able to leverage its competitive advantage.

Further fueling the recovery will be new, more affordable Tesla models. Dennison believes these models will help expand Tesla's customer base. In his opinion, the company is working to increase the affordability of its cars, and the six-seat Model Y L version will attract new buyers.

In addition, Tesla will get a boost to its recovery thanks to artificial intelligence. "We have always viewed Tesla not just as a car company, but as a unique leader of its generation in AI, robotics and sustainable energy," says Dennison. - The critical factors for AI development are access to proprietary data, capital to invest in software and hardware, and engineering talent. We believe Tesla has all of these components." Dennison emphasized Tesla's strong balance sheet - $15.6 billion in cash and cash equivalents at the end of the second quarter of 2025 - and the company's attractiveness to young engineers. He also pointed to the rapid growth of Tesla's energy business: it now accounts for 10-15% of revenue, but the segment is growing at 50% per year.

Dennison cited data flow as the last and perhaps key factor: training autonomous vehicle models requires enormous amounts of data, and Tesla's fleet of millions of cars collecting real data from the roads gives the company a unique advantage.

The fund manager admitted that the company is going through a difficult period, but noted that this is not its first turbulent period. In addition, the 14.5% drop in the company's stock price in 2025 was not the biggest in the company's history. For example, in 2002, the stock was losing 65% as of Aug. 20, and in 2019, it was losing about 32% over the same period. "We fully recognize that there will always be short-term headwinds or turbulence on the supply side, demand side, and more recently sentiment," Dennison noted. - But the company continues to make the necessary investments to ensure long-term shareholder returns."

The main problems for Tesla stock in 2025 were falling sales and the political activities of CEO Elon Musk, Morningstar noted. Dennison compared the situation to 2016, when the launch of the Model 3 was accompanied by losses and a 40% drop in quotes, but the company later adjusted production and entered profitability, allowing the stock to rise 45% in 2017.

The scandals surrounding Musk have also battered Tesla on more than one occasion, but by themselves are not capable of undermining its long-term prospects, Dennison believes. He recalled Musk's tweet from 2018, where he wrote, "Considering taking Tesla private at $420. Funding secured." When it became clear that the company would not go private, the SEC sued Musk, which ended in a fine and Musk stepping down as chairman, after which the stock collapsed but then recovered and rose multiple times. Dennison emphasized: this case showed that the scandal around Musk alone is not enough to hurt Tesla stock in the long run. According to him, even now everything will be decided not by the noise around Musk, but by the company's ability to execute its strategy and demonstrate results.

This article was AI-translated and verified by a human editor