• Tesla is slated to see the highest net inflows from retail traders of any security in 2023, research shows.
• It's a crowning moment for the stock, which climbed in individual investor interest in recent years.
• Everyday investors say they like Tesla because of its disruptive technology and focus on the future.

Marko Sustic has bet big on Tesla this year.

The investor, who also happens to work in the European auto industry, bought Tesla shares nearly every month in 2023 and has almost doubled the size of his position over the course of the year. Sustic has no other electric vehicle holdings out of a belief that competitors won't be able to beat Tesla's technology.

"There is no catching up with them," said the 32-year-old, who also has two Tesla cars at his home in Croatia. "It's just a matter of time when the stock will explode."

Sustic isn't alone. Tesla, which entered the S&P 500 three years ago this week, is on pace to attract the largest flow of individual investor dollars of any security in 2023, according to data from Vanda Research. The firm calculates net inflows to find these favorites, subtracting the amount of stock sold from what was bought.

That means Tesla will eclipse even the SPDR S&P 500 ETF Trust (SPY), which tracks the largest stock market index in the world. This underscores the stock's fast ascent to retail-investor glory, especially considering Tesla wasn't even among the top 20 equities that individual investors bought before 2019, Vanda data shows.

A banner year

Tesla's increasing favor among retail traders can be tied to its comeback in 2023, according to Christopher Schwarz, a finance professor at the University of California Irvine. After plunging 65% in 2022, the Elon Musk-led stock has more than doubled in 2023.

The stock has outperformed the market this year in tandem with other mega-cap technology names dubbed the "Magnificent 7." Many investors looking to play "disruptive" technology in this elite group have focused on Tesla and chipmaker Nvidia. But after more than tripling this year thanks to an appetite for all things tied to artificial intelligence, Schwarz said Nvidia may be too expensive for many individual investors.

Schwarz researches retail trader behavior, and thinks a lot of attention comes from Musk. The Tesla CEO's contentious purchase of X, formerly known as Twitter, has brought increased media coverage as well as scrutiny of the billionaire business mogul, Schwarz said.

When faced with thousands of stocks to choose from, Schwarz said individual traders mainly look for names that grab their attention, are familiar and have saliency to current trends. Given Musk's persona, the growing ubiquity of Teslas on the road and concerns about climate change, Schwarz said the stock checks many boxes for everyday investors.

"It's always in people's minds to trade when they're looking for something to trade," Schwarz said.

'That was a bargain'

Individual investors told CNBC that Tesla's bumpy ride in recent years hasn't made them doubt the company as much as it's created opportunities to pick up shares at cheaper prices. To them, there's little doubt the share price will continue to surge.

One of those is Jeremy Ford, a construction contractor in Virginia who first bought Tesla shares as the pandemic took hold in 2020. He became interested when his wife considered — and ultimately ended up — purchasing one of the company's cars.

Ford has tried to time buying and selling shares to Tesla news over the past year. For example, he sold some stock before what turned out to be poor third-quarter delivery numbers, only to load back up ahead of the release of new details about Tesla's electric pickup truck.

The 48-year-old now holds about the same number of Tesla shares as he did when 2023 began, but lowered his cost basis. Given an interest in disruptive technology, Ford reallocated some of those profits to new stakes in Palantir and Nvidia. The latter is tracking to see the fourth largest net inflows this year, while the former is not in the top 20, according to Vanda data.

Still, he's all in on Tesla's story, citing the push into robots and AI chips as cause for long-term optimism. His only serious concern would be if Musk left and the company's performance worsened.

"If you can find a company that makes a product that people love, and it's different than anything that other people have, then you have that chance to really make substantial money," Ford said. "At some point, I do believe that I'll look back at the price of the stock now and go, 'Wow, that was a bargain.'"

'Guts and heart'

Despite Tesla's strong year on Wall Street and Main Street, others see challenges ahead. Roth MKM analyst Craig Irwin said profit margins could come under pressure from additional price cuts amid cooling growth.

But that may not dent individual investors' enthusiasm. In fact, Irwin said the stock could be a beneficiary of turbulence in the electric vehicle industry, because any uncertainty would lead investors to companies like Tesla that have proven they can design, make and sell vehicles.

Given their affinity for the brand, Irwin said retail traders may also stick with Tesla longer than institutional investors. That could keep Tesla stock "levitating" above where it would otherwise be priced.

"Retail tends to trade on guts and heart," Irwin said. "And a lot of people love Tesla."

Changes in individual investor sentiment are so key to Tesla's stock performance that hedge funds take note of these trends when evaluating what to do, the analyst noted earlier this year.

Irwin is in the majority on Wall Street in giving Tesla a neutral rating of no more than "hold," neither recommending it be bought nor sold. Following 2023's rebound, the average analyst surveyed by LSEG sees the stock falling about 13% over the next year.

Retail investors have often been the butt of the joke, with experts pointing to their inability to time the market and best allocate their money.

Yet individual traders have gained attention following the rise of short-squeezed "meme" stocks during the pandemic. Even as that craze fizzled, retail trading remains popular: Everyday investors put more than four times the amount of money into their 20 most-bought securities in 2023 than they did in all of 2018, according to Vanda data from early December.

For Schwarz, the UC professor, the flight to Tesla this year is complicated.

It's concerning, he said, if individual investors are making bigger bets on single stocks than funds that invest in diversified indexes like the S&P 500 ETF. Still, while investments that spread bets across a pool of stocks is safer, trying to pick certain companies is more desirable than not being in the market at all, he said. 

"Traders would be much better off if they just bought [the] index and forgot the password to their brokerage account," he said. But, "even if Tesla doesn't do as well as the market, it's still better than probably just spending it on useless consumption and not participating."