Will Tesla 6x?
When Cathie Wood first bet that Tesla would hit a trillion dollar market capitalization, it was valued at around 6% of that level.
Naysayers said she was crazy.
They cited unequivocal statistics that “proved” Tesla was overvalued, like summing up the market caps of all vehicle manufacturers and pointing to Tesla’s being greater than the combination of them all.
But Tesla isn’t any ordinary car manufacturer.
Tesla optimists go so far as to say the company is a software company, an energy company, and a car manufacturer all in-one. Few precedents in history exist, except for perhaps Standard Oil. Elon Musk, the bulls claim, is this century’s energy baron and manufacturing tycoon all in one.
One person who has been an unabashedly optimistic about the future of Tesla is Cathie Wood, and she’s worth listening to if for no other reason than she’s been right in her first eye-popping Tesla forecast.
So, what is she calling for now?
A rise of almost 6x is on the cards according to her ARK Invest team of analysts. But will she be right again? Can lightning really strike twice?
Tesla Price Target
According to Cathie, Tesla can soar to as high as $1,533 per share within 4 years.
What takes a little luster off of the prediction is the destruction in value among shareholders of her flagship ARK Innovation ETF this year. At the time of research, her fund was down an astonishing 58.6% for the year.
That kind of value destruction has some wondering if ARK Invest was a one-hit wonder during the COVID era, and whether disruptive innovation is a theme that can withstand market fragility.
The Bull Case For Tesla
Tesla bulls have strong arguments on their side.
For one, Tesla has turned profitable. Unlike the litany of U.S. car companies that went bankrupt during the last century, Tesla has a real chance of becoming a sustainable company, not just from the standpoint of energy but financially too.
And while other car manufacturers are faced with massive supply chain and manufacturing disruption as they service legacy combustion engine businesses while migrating to electric vehicle manufacturing, Tesla has a massive headstart as a pure-play EV business.
The company’s Gigafactories are popping up all over the world now, from Europe to US and onward to Asia. Tesla has scaled its manufacturing business while its rivals are playing catch-up.
The argument that bulls hang their hat on is Tesla’s software, which is widely regarded as far superior to its rivals. The question is how far ahead is it? Some say 5 years while others claim it is as many as 10 years.
That software advantage has loyal drivers raving about how driving a Tesla is like driving a “new” car every few months as software upgrades replenish the driver experience.
A model 3 driver we spoke to as part of our research was thrilled to be able to buy an extra software package to goose 0-60mph times. If delighting your customers is a key to success as Warren Buffett has famously claimed, Tesla is clearly winning.
Another bullish argument is that those loyal customers refer friends through word-of-mouth marketing, which means Tesla – unlike its rivals – doesn’t have to sink money into expensive marketing and PR campaigns.
A positive optionality for investors is the company’s autonomous self-driving software that could transform modern day travel. CEO Elon Musk has stated that the ultimate goal is for drivers to not even have a steering wheel. After all, why would you need a steering wheel when a car drives itself?
The market size for autonomous vehicles is estimated to reach over $2 trillion by the end of the decade. If that’s even close to being right, Tesla stands head and shoulders above its competition in being able to capture a dominant market share.
And if all that wasn’t enough, Tesla has an entire solar division that can claim 25 terawatt hours of clean energy over the past decade, enough to easily offset the energy consumption from Tesla’s car production facilities and units combined.
Is Tesla A Buy?
The Law of Large Numbers is going to catch up with Tesla eventually but so far the company’s growth has been exponential. In the past decade the company has gone from producing just a few thousand vehicles to almost one million per year.
As production volumes ramp up around the world, expect Tesla unit volumes to pop further and analysts’ forecasts of almost $120 billion in revenue to be realized.
That in turn should lead to even more stock splits. So while Tesla may not reach Cathie Wood’s $1,533 price target on a pre-split basis, it might well do so in the coming years on a post-split basis.
On a technical basis, the trend for Tesla is bearish at the moment but lower prices will only make the upside valuation opportunity more enticing as market woes sew fear in investors’ minds.