I have read the ARK analysis and I do believe they are nuts. Although the price target of $700 to $4,000 correlates with my opinion, I believe it is for entirely opposite reasons to the ones they state. I will try and explain why.
The ARK analysis relies heavily on the Maas first player opportunity. This is pretty reckless. We have no evidence that Tesla will be anywhere near ready to have fully automated taxis ever, nevermind be “launching the Tesla Network in the next 1-2 years”. I agree that once Tesla can demonstrate a car autonomously driving across the US then this should make the stock price pop because one autonomous taxi can make a lot of money each year, and they would have a complete monopoly on a novelty product, but it is too soon to price any of this in yet.
For me, we get to $700 and $4,000 purely for ramping the manufacturing of cars and batteries:
- In five years, Tesla will be manufacturing 1 million vehicles per year. At average price of $50k and 25% profit, this is $12.5b profits
- As mentioned in the last quarterly management call, they are aiming to scale the battery energy business at 100% per year. In 2018, battery storage will account for roughly $1b revenue at 10% profit. In five years, this is likely to be $32b at 20% profit (approaching parity with the vehicle business). Therefore $6.4b profits
- In 2023, we will have 3 million Teslas on the road, now we should see significant revenue from the superchargers. Lets say 20% of these cars supercharge once per week at an average cost of $30 per user. That is $1b in revenue. If Tesla can use their battery tech to either store solar energy or to siphon off excess energy from power stations at night, then we could see good profit margins here. For now, lets just say 20% again. Therefore $200m profits. This assumes that Tesla does not open up the superchargers to any other car company
- Apps and services. Paid for apps and services can only come once we have full autonomy with some exceptions with regards to possibly music or destination booking (restaurants, hotels etc). So probably we shouldn’t price this in now
So, we are looking at roughly $20bn profits in five years’ time. You can multiply this by 20-30 to get a market cap as the business will still have a long way to grow, so this would be $400bn-$600bn without any mention of Maas. Maas would take it over $1tn