Cathie Wood Tesla Prediction: Tesla (NASDAQ:TSLA) is one of the hottest stocks of the last several years. The EV manufacturer has consistently delivered strong returns and baffled bearish investors.
The question most investors have, though, is whether Tesla can continue to grow at a breakneck pace over the next few years.
One of the best answers to this question may be found in ARK Invest’s Tesla price forecast. Here’s what you need to know about ARK’s forecast, its assumptions and what pitfalls could affect it.
ARK Tesla Investment Thesis
ARK’s thesis for Tesla seems to be that the company is on track to maintain very high levels of growth through at least 2025.
The company’s forecasts are based on a comprehensive analysis involving 34 variables and 40,000 individual simulations.
As such, this is one of the most comprehensive analyses of Tesla’s prospects currently available to investors. The firm’s conclusions, therefore, are very much worth taking into account if you own or plan to buy shares of Tesla.
ARK Tesla Price Target Bull Case
On the bullish side, ARK projects that Tesla shares could be worth $4,000 or more in 2025.
Compared to its current price in or around the $1,000 level, this represents a gain of almost 300 percent over the coming three years if it plays out.
This projection has a 25 percent likelihood of occurring, in ARK’s view.
Ark Tesla Price Target Bear Case
ARK projects a 25 percent probability of Tesla shares being worth $1,500 or less in 2025.
This would still represent a gain for investors, albeit a much more modest one of only about 43 percent over three years.
ARK Tesla Target Price Expected Value
The most probable view, according to ARK’s projections, is that Tesla shares will be worth $3,000 in 2025. According to this view, the stock would increase in value by about 186 percent over the next three years.
An important point to note in this evaluation is that the expected target price is not the simple average between the low and high projections. While it is $1,000 short of the high target, it is still $1,500 above the low target. This strongly suggests that ARK views Tesla as a stock that is more likely to overperform than underperform.
Source: Pixabay
Tesla Revenue Streams Forecast
ARK has also made a series of projections relating to Tesla’s various revenue streams. The most important of these is revenue from electric vehicle sales. In 2020, Tesla generated $26 billion in revenue through these sales. The bear case for 2025 posits that the company will bring in $234 billion, while the bull case suggests $367 billion.
On insurance revenue, in the bull case, Tesla would bring in $23 billion from insurance, while the bearish case projects only $6 billion. Insurance revenues for 2020 have not been disclosed, so there is no current data for comparison.
Another very important component of the revenue picture is Tesla’s much-anticipated entry into the ride-hailing business.
The starting point for this business is simple since Tesla generated no revenue from ride-hailing in 2020. In the most bullish case, Tesla would bring in $327 billion from ride-hailing, all of which would be generated by self-driving vehicles. In the bear case, a much more modest $0 billion in revenue is projected. That bear case includes no self-driving vehicle revenue and is based entirely on human-driven vehicles.
Margin is also a major factor behind both of these stock price forecasts. The bear case rests on a total gross margin of 43 percent, and the bull case posits 50 percent. Both of these would represent very large increases in total margin. In 2020, Tesla’s total gross margin was 21 percent.
Tesla Price Target Assumptions
As with any financial projection, ARK’s Tesla price forecasts are based on a set of underlying assumptions. The single biggest assumption that both cases make is that Tesla will continue to radically expand its delivery of vehicles in the next three years.
The bear case projection rests on Tesla selling 5 million cars in 2025. The bull case is even more aggressive with a projection of 10 million cars. In 2020, the company sold 500,000 cars.
The projections do, however, take into account an ongoing reduction in the actual price of each Tesla vehicle. In 2020, the average price for a Tesla was $50,000. The more bearish case projects Tesla selling its vehicles for $45,000 by 2025. The bull case prices each vehicle at just $36,000.
ARK also built assumptions about Tesla’s manufacturing efficiencies and growth into its models. One of these assumptions is the maximum gross margin for each electric vehicle. In the bull case, the maximum gross margin is 40 percent. In the bear case, that number is 25 percent.
ARK’s models even attempt to model probable annual production increases. The firm seems to believe that Tesla’s capacity will grow rapidly under any circumstances. The bear example has Tesla expanding production by 65 percent each year, a number that climbs to 90 percent in the bull case.
Finally, the success of Tesla’s autonomous driving technology comes into play. In the bearish case, ARK assumed that no Teslas would be on a fully autonomous platform by 2025. The bullish case assumes that the technology develops rapidly and is in use in 60 percent of all Teslas on the road by 2025.
ARK Tesla Forecast: What Could Go Wrong?
ARK’s price forecast for Tesla is undeniably very positive. With that said, there are still risk factors that could cause Tesla shares to falter.
To begin with, there’s at least a decent argument that Tesla is already overvalued. Trading at about 120 times its projected earnings for 2022, the electric vehicle manufacturer is unquestionably a pricey buy. Investor concerns of overvaluation could affect Tesla’s share price at some point between now and 2025.
Failure of government policy to aggressively support the EV industry could also have an effect on Tesla. A major assumption in the growth of EV manufacturers is that charging infrastructure will expand significantly in the coming years.
Tesla, as a major electric vehicle seller, stood to profit from the Build Back Better infrastructure plan. The bill would have invested $7.5 billion in charging stations throughout the US. That bill, however, is stalled in the Senate and may never pass. Without more charging infrastructure, it’s difficult to imagine Tesla selling the number of electric vehicles projected in ARK’s forecasts.
A final roadblock that could come up for Tesla involves increased competition from more traditional automakers. Established manufacturers, most notably Ford and GM, are rapidly working to expand their EV offerings. This puts Tesla in the position of finally facing serious competition within its market niche.
Cathie Wood Tesla Prediction: Bottom Line
While Tesla holds a competitive advantage today, this may not remain the case indefinitely. If the company’s market share contracts, Tesla is unlikely to remain on its high-growth trajectory.
Overall, ARK’s projections are likely among the best price forecasts for Tesla out there at the moment given the research firm’s historical accuracy. While there are some possible pitfalls, the same is true of any financial analysis. If you’re interested in buying Tesla stock, these forecasts offer a substantially bullish argument.
Will Tesla hit $4,000 per share as Cathie Wood forecasts?
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.