Tesla (TSLA) has become one of the most successful stocks in history, with a compound annual return of 51.1% since its IPO in 2010. This is compared to the S&P 500 index, which returned 11.6% over the same period. In order to make the stock more accessible to smaller investors, Tesla has completed two stock splits, with the latest being a 3-for-1 split in August 2022.
Apart from its success in the electric vehicle (EV) market, Tesla has also caught the attention of Wall Street investors like Cathie Wood, who believes that the company is not just an EV play, but also a major player in artificial intelligence (AI). Wood’s firm, Ark Investment Management, holds Tesla as its second-largest holding overall. Ark believes that Tesla’s stock could potentially increase by 720% as the company leverages AI to develop autonomous vehicles.
Tesla is currently the largest pure-play EV company, with plans to produce 1.8 million cars this year. Unlike other car manufacturers, Tesla is able to sell its EVs at a profit, thanks to its scale and innovative production processes. CEO Elon Musk envisions Tesla producing 20 million cars per year from 12 gigafactories by 2030, which would make it one of the largest car companies in history.
One of Tesla’s biggest opportunities lies in autonomous driving technology. The company has 5 million cars on the road constantly collecting data, giving it a significant advantage over its competitors. Tesla aims to sell its self-driving software to owners of its vehicles, as well as build an autonomous ride-hailing network. Musk believes that by doing so, Tesla could increase its gross profit margin on each vehicle to 70% or higher, significantly transforming the company’s economics.
Despite recent price cuts affecting Tesla’s financials, the company remains optimistic about its future. Tesla delivered 435,059 cars in the third quarter of 2023, slightly below Wall Street’s forecast. However, Tesla expects demand to remain strong and is confident in its full-year production target. In the long term, Tesla plans to become the dominant EV producer and create a lucrative robotaxi business.
Currently, EV sales account for 84% of Tesla’s total revenue. However, Ark Invest predicts that by 2027, this number could shrink to 47%, with robotaxis contributing 44% of total revenue. This would result in Tesla generating over $1 trillion in annual revenue by 2027, with a stock price of $2,000, representing a 720% gain from its current trading price.
While some may see Ark’s forecasts as ambitious, the growth of industries like autonomous ride-sharing could play a significant role in Tesla’s future success. Ark believes that autonomous ride-sharing could generate $4 trillion in revenue over the next five years, providing Tesla with the additional growth it needs.
Regardless of the timing, Cathie Wood believes that Tesla stock will always remain a top holding at Ark as long as autonomous driving becomes a reality.
