In the world of disruptive innovation, Cathie Wood, the founder and CEO of Ark Invest, has gained significant attention for her bold investment strategies. Despite the recent disappearance of gains, Wood maintains confidence in several companies, with Tesla being a key focus. Ark Invest recently published a valuation model projecting Tesla’s stock to reach $2,000 per share by 2027, implying a remarkable 1,030% upside from its current price.
Wood’s valuation model revolves around the concept of robotaxis, a topic that Tesla CEO Elon Musk recently discussed in an interview with CNBC. Musk expressed his belief that Tesla’s full self-driving (FSD) technology will enable the company to sell cars at software margins. He commended Ark Invest for having the “best analysis” on the potential of robotaxis.
Tesla’s extraordinary valuation, surpassing that of its peers, reflects its dominance in the battery electric vehicle (BEV) and self-driving car markets. In 2022, Tesla led the BEV market and further increased its market share in the first quarter of 2023, accounting for nearly 24% of BEV sales in March. Notably, the company achieved the highest operating margin among volume carmakers, attributed to its manufacturing expertise and advanced technology.
Tesla’s management expects to maintain its industry-leading margins, primarily due to the profitability potential of FSD software, which can be sold at almost 100% gross margin. Musk emphasized that robotaxi revenue could generate “two or three times the original value, or sale value of the car.” With a significant number of autopilot-enabled cars on the road, Tesla possesses extensive training data for its artificial intelligence algorithms and is confident in its superior inference computer technology. The company plans to mass produce a robotaxi by 2024.
Building a fleet of robotaxis is just the first step for Tesla. The company aims to launch an autonomous riding-hailing network, which would significantly expand its addressable market. According to Ark Invest, autonomous ride-hailing platforms could generate $4 trillion in revenue by 2027 and $9 trillion by 2030.
Ark’s valuation model for Tesla presents three scenarios: a bear case valuing Tesla at $1,400 per share, a bull case valuing it at $2,500 per share, and an intermediate case valuing it at $2,000 per share. The intermediate scenario predicts $1.02 trillion in revenue by 2027, with 44% of that revenue ($449 billion) coming from robotaxis.
While Ark’s valuation model suggests ambitious annualized revenue growth of 68% through 2027, some may view it as overly optimistic. However, Wood’s track record and Musk’s endorsement of Ark’s analysis lend credibility to their bullish outlook. Despite occasional overestimations, Musk has steered Tesla to become a BEV market leader with exceptional margins. Given these factors, investors should not be surprised if Tesla emerges as a frontrunner in the future robotaxi market.
In conclusion, Cathie Wood and Ark Invest continue to showcase their enthusiasm for the disruptive potential of Tesla’s robotaxis. As the market evolves, the successful implementation of FSD technology and the growth of Tesla’s robotaxi network could significantly impact the company’s future success. Investors will closely monitor these developments while assessing the feasibility of Ark’s optimistic valuation model.