There’s no denying that since its June 2010 initial public offering (IPO), Tesla (TSLA) has become a story stock. As of April 6, a $10,000 investment in Tesla on its IPO date would be worth about $1.16 million.
Predictably, some investors infer from that performance that the “easy money” has already been minted in Tesla stock, and with the company’s current market capitalization of $502.26 billion, upside from here could be limited. ARK Investment Management, which is one of the larger institutional owners of Tesla shares, isn’t buying that thesis.
In a recent report, the exchange traded funds issuer says shares of Elon Musk’s electric vehicle juggernaut could be worth $2,000 in 2027 with a bull case scenario of $2,500. Even ARK’s bear case on Tesla is compelling, with the asset manager saying there’s a 25% chance the stock could be worth $1,400 (or less) in 2027. At $1,400, that implies a more than six-fold rise from current levels. Autonomous transportation could be a significant driver of those potential gains.
“Tesla’s prospective robotaxi business line is a key driver, contributing 67% of expected enterprise value and 64% of expected EBITDA in 2027. Across our simulation set, electric vehicles account for 47% of revenues in 2027, at substantially lower margins than robotaxi revenue,” observed ARK.
While many investors view Tesla through the lends of a traditional automotive company, it’s far from that. In fact, some market participants argue the company should be treated as a technology company with automotive exposure, not the other way around. On that note, Tesla’s artificial intelligence (AI) footprint could be a contributor upside for the stock over the long-term.
“In our view, Tesla’s vertical integration strategy and Dojo training supercomputer are key competitive advantages. Training currently runs at 100% capacity, suggesting that Tesla’s plan to expand Dojo by two orders of magnitude next year will help the company shorten the time between model updates,” added ARK.
ARK acknowledges conservative treatment of Tesla’s strong balance sheet, which features more cash than debt and holdings of bitcoin, but no yield-bearing assets. The ETF issuer notes its assumptions don’t factor in potential share buyback programs by the company.
Today, nearly 280 ETFs hold shares of Tesla. In terms of weight to that stock, the ARK Autonomous Technology & Robotics ETF (ARKQ) is second on the list while the ARK Innovation Fund (ARKK) is fifth. The ARK Next Generation Internet ETF (ARKW) is also a top 20 ETF holder of Tesla shares.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.