“We just put out our latest research on Tesla,” says Ark Investment analyst Tasha Keeney. “We think over the next five years our expected value for the stock is $7,000 per share.” Tesla’s current share price is roughly $735 equating to a market cap of $132.4 billion. A $7,000 per share price would increase their current value tenfold. And that’s just Ark’s “expected” valuation. Ark’s bullish valuation is $15,000 a share, a $2.7 trillion market cap.
Keeney says it’s because Tesla is a leader in electric autonomous vehicles. “That’s the future of the auto market. What we’ve seen over the past year is that traditional autos have really struggled to produce EVs that are on par with Tesla’s cars and its data library. In terms of autonomous driving, it is really just running away from the competition.”
Tesla Has a Massive Advantage With Their Machine Learning Algorithms
In electric vehicles, Tesla is the leader and that’s because they’re writing down the battery cost decline curve. At Arc Invest we’ve actually done a lot of work using Wright’s Law to predict the future declines of batteries. Basically, for every cumulative doubling in production, you get a corresponding reduction in cost. We actually think that Tesla’s gross margins could go from say around 20 percent today, if you take out credits, to up to 40 in the best-case scenario. They also have not lost share in the electric vehicle market.
They’re sitting right around an 18 percent share. We think that they’re at least three years ahead of other automakers on a battery efficiency standpoint. That’s dollar per range that you get out of the car. Then on autonomous driving, they’re the only automaker that’s collecting data from their vehicles. This gives them a massive advantage in terms of training their machine learning algorithms to get the car to drive.
Our Case Is Really Driven By Autonomous Driving
We’ve devised a probability matrix where we’ve looked at the past year. We’ve seen what Tesla’s done in Shanghai and It’s amazing. They’ve built the factory in less than a year, and they’re right now shipping cars. Tesla’s shown that they can scale in a capital-efficient manner. We look at a few key variables. We look at capital efficiency, gross margins based on our Wright’s Law work, and autonomous driving. We set probabilities to each of those that help us arrive at that $7,000 mark.
Our bulk case is really driven by autonomous driving. This could be a huge opportunity for Tesla. It’s going to totally transform the business model if they pull it off. They’re going to get software like margins in a market that we think could be worth trillions of dollars globally.
Tesla’s In a Great Position To Be the Leader of the Future
Tesla’s been misinterpreted for a long time. One, on the autonomous driving front. You can’t value it like a traditional automaker because the future of the auto industry is changing. Electric vehicles and autonomous vehicles are going to make this a more consolidated market. A lot of automakers are going to go out of business and Tesla’s really in a great position to take advantage and be the leader of the future.
So again, if you look at autonomous driving that means software like multiples because we think they’ll get software like margins off of that business.