Tesla Inc.’s creation of a self-driving taxi platform will be the catalyst for a tenfold increase in its stock price, according to Ark Investment Management LLC Cathie Wood said, echoing years of optimistic predictions about a business the automaker has yet to sustain.
Describing the autonomous taxi ecosystem as an “$8 trillion to $10 trillion global revenue opportunity,” Wood estimates that platform providers, including Tesla, are raking in as much as half of that. Investors are moving away from valuing Tesla as a pure electric vehicle maker and pricing in some of the potential of autonomous taxis, she told Bloomberg Television’s David Ingles and Bloomberg Intelligence’s Rebecca Sin for the Tiger Money podcast.
“Self-driving taxi platforms are the biggest AI project evolving today,” she said, adding that Ark had based its valuation of Tesla primarily on its autonomous driving potential. “If we’re right, the stock still has a long way to go.”
Wood and Ark have been touting the potential of a Tesla self-driving taxi network for at least early 2017months after CEO Elon Musk said the company would one day implement such a service. Tesla has yet to bring to market vehicles that can drive on roads without constant human supervision in the eight years since Musk introduced the services. plans.
Optimism about Tesla’s efforts to bring robotaxis to market has fueled its shares, erasing as much as a 43% decline for the year as of April 22. As the stock rebounded to positive territory At the start of the month, it still significantly underperformed its Magnificent Seven peers compared to last year.
Wood has long been bullish on Tesla, making it a top holding in her Ark Innovation ETF. The fund has lost nearly 9% this year, while assets have fallen by about a third, partly because of buybacks. By comparison, the S&P 500 index has gained 18%. Wood is known for her outrageous predictions, including her assumption that Bitcoin would reach as high as $1.48 million by 2030.
Self-driving taxi networks will be a “winner-takes-all” opportunity, where the provider that can get passengers from point A to point B safest and fastest will win the lion’s share of business, Wood said. The network provider will be able to take a 30% to 50% share of the revenue generated by fleet owners on its platform, giving it “recurring revenue with explosive cash flow” and a profit margin of more than 50%, she added. This is a departure from the build-and-sell business model, or the “one-and-done” business model of manufacturing vehicles.
“That’s what we think people forget: the size of the opportunity, how quickly it’s going to scale and how profitable it is,” she said, adding that she expects Tesla to be the market leader in the U.S.
Last week, Tesla’s stake in the $6.5 billion ARK Innovation ETF surpassed 15%. Ark typically doesn’t increase its position once its share of the portfolio reaches 10%, Wood said. While a stake can increase due to stock appreciation, the company typically starts selling well before it reaches Tesla’s levels.
The asset manager took some profits on Tesla but let it rise above the normal cap, believing Musk’s company is about to share much more information about its robotaxi project, it said.
Tesla has delayed the launch of its robotaxi by about two months, until October, to give teams more time to build additional prototypes, Bloomberg News reported. reported Last week, the news sent the stock down 8.4%, its biggest one-day drop since January. Wood isn’t fazed.
“We’re probably moving closer to this robotaxi opportunity, not away from it,” she said. Musk “wants to show us something more impressive than what we saw on August 8th. And he thinks it’s possible by October.”
Ark’s valuation model didn’t really factor in Tesla’s potential in China or in humanoid robots and energy storage. In April, Musk won approval in principle from Chinese authorities to deploy his driver-assistance system in the world’s largest auto market after striking a mapping and navigation deal with Chinese tech giant Baidu Inc. and meeting data security and privacy requirements.
Wood said autonomous trucks could compete with rail on price and point-to-point service. The rail systems favored by veteran investor Warren Buffett could be “stuck with stranded assets,” she said.
Ark’s founder and chief executive has continued to cast doubt on Nvidia Corp.’s valuation. Ark bought the AI-focused chipmaker at $4 in 2014 and held on to it until it approached $40 on a split-adjusted basis. He sold most of his stake before the dramatic rally since last year.
Investors who have driven the stock price to its current levels have failed to anticipate how long it will take for companies to figure out how to adopt transformative AI technology. “It’s simply, in our view, too early,” Wood said.
Market concentration
Investors flocked to the “Magnificent Six,” pushing stock market concentration to a level higher than in 1932, she said. Back then, investors flocked to mega stocks like AT&T Inc., whose huge cash reserves and free cash flow were seen as boosting their chances of survival after the Great Depression. Over the next four years, smaller companies outperformed.
Similarly, rising interest rates have pushed investors to the “Magnificent Six” for their massive cash reserves and partly for their AI-driven revenue growth. Investors’ risk appetite will broaden to other stocks with disruptive technologies as interest rates fall.
“This would not be the time to sell our strategy,” Wood said. “We think interest rates are going to come down and more sharply than most people think.”
