Founder of ARK Invest and
Bull Cathie Wood has posted a new Tesla price target. It is a wonder.
Wood expects Tesla to hit $ 3,000 a share in 2025. That means Wood expects to earn about 50% annually on average between now and 2025 based on Tesla’s Friday closing price (ticker: TSLA) of $ 654.87 per action.
That would make Tesla worth roughly $ 3.6 trillion based on shares outstanding, including stock management options and other potential stocks.
(AAPL), by comparison, is worth about $ 2 trillion today. Apple would have to earn about 30% annually on average to maintain its title as the most valuable American company.
A target set by Wood in 2018 was $ 800 per share. It was an aggressive target at the time, as Tesla shares were trading around $ 70. But the shares hit $ 800 in early 2021, allowing investors to earn more than 100% annually on average since early. of 2018. It has been an incredible race.
A big reason for the most recent price target increase appears to be increased potential for a self-driving taxi business.
“In our latest valuation model, ARK assumed that Tesla had a 30% chance of offering fully autonomous driving in the five years ending in 2024,” the ARK research article says. “Now, ARK estimates that the probability is 50% by 2025.”
Armed with autonomous driving, the Tesla-operated robotaxis could translate into $ 160 billion in additional Ebitda (earnings before interest, taxes, depreciation and amortization) for the company. Tesla generated around $ 4.8 billion in Ebitda last year.
Tesla management, meanwhile, is aiming for unit volume growth of 50% per year on average for the foreseeable future.
Barron I recently guessed where Wood’s new price target might land. Our estimate was $ 2,300 per share. It was not a projection based on fundamentals. Instead, Wood said Barron Jack Hough said he expected the stock to perform substantially better than its 15% minimum rate of return for buying a share. We believed that an average annual return of around 30% was substantially better than 15%, but we were low.
Tesla shares have hit a roadblock recently. Higher interest rates have hit high-growth stocks like Tesla more than others. For starters, higher interest rates make financing growth more expensive. Second, high-growth companies generate most of their cash flow going forward. The higher rates make the promise of future cash slightly less attractive, relatively speaking, than the higher yield on bonds today.
The yield on the 10-year Treasury note recently rose above 1.7%, an increase of around 0.5% in recent weeks.
Tesla shares are down about 7% year-to-date, lagging behind comparable returns from
Dow Jones Industrial Average.
The stock is down about 27% from its 52-week high in January. At that time, the yield on the 10-year Treasury note was about 1.1%.
Write Al Root at [email protected]