Tesla stock could slump 50% while 3 legacy automaker pose challenge to EV leadership, says Livermore hedge fund manager

• Tesla stock may face a 50% decline in the event of a slump in the auto market, David Neuhauser told CNBC.
• The leading EV maker is facing pressure from legacy automakers like Volkswagen, Ford, and GM.
• Tesla is going to have a difficult time increasing its $1 trillion market valuation, he added.

Tesla stock is ripe for a big decline in the event of a market slump as several legacy automakers catch up in the electric-vehicle space, according to hedge fund manager David Neuhauser.

In an interview with CNBC, the chief investment officer at Chicago-based hedge fund Livermore Partners, said shares could have a 50% downside in the event of an auto industry decline — whenever that may be.

Tesla CEO Elon Musk built the company "in a way that it almost only has downside," Neuhauser told CNBC, adding that the company is going to face "tremendous pressure" from legacy automakers who were previously behind the curve in EVs.

Legacy automakers including Volkswagen, Ford, and General Motors are the most likely competitors to Tesla's market leadership, he added.

Insider previously reported legacy automakers like these plan to release a tidal wave of EVs this year, doubling the number of electric vehicle options in the US to 40 by the end of 2022. Ford, for example, will begin selling its F-150 Lightning.

"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," said Neuhauser, who is known for shorting Cathie Wood's Ark Innovation ETF along with Tesla and Facebook last year.

Neuhauser said increasing EV competition from these legacy automakers could cause Tesla to have a difficult time boosting its $1 trillion market valuation. Tesla stock has slumped 14% to $1,030.51 so far this year as of the Tuesday close, giving it a market cap of $1.035 trillion.

The recent decline is a reversal from the approximate 45% rally last year when the company largely shrugged off supply chain disruptions and delivered a record number of vehicles in the second half of the year.