Discussion: ARK Invest sets $4,146 price target for Tesla in Q2 2023

[strangecosmos]

I love ARK Invest and have devoured their research. Everyone should read ARK analyst Tasha Keeney’s research on self-driving cars. I think ARK’s Director of Research Brett Winton is the most fascinating person I follow on Twitter. ARK’s CEO Cathie Wood is eloquent, funny, passionate, and she has such a compelling contrarian take on investing.

Here is Cathie Wood explaining her view of Tesla:

The open letter Cathie wrote to Elon is now published, and the best part is it contains ARK’s models and price targets for Tesla 5 years from now. Check out the charts at the bottom:

Dear Elon: An Open Letter Against Taking Tesla Private - ARK Investment Management

With 4.2 million autonomous taxis, ARK forecasts that Tesla will generate $36.2 billion in cash flow. I’m not sure whether this is operating cash flow or free cash flow. Maybe someone who understands the chart better than I do can clarify that. If operating cash flow, the historical average cash flow yield of 9.4% for S&P 500 companies would justify a $385 billion market cap. If free cash flow, the historical average free cash flow yield of 4.0% would justify a market cap of $905 billion.

(Side note: American stocks may be artificially inflated by 25% by bad policy in the post-Milton Friedman era that has led to a Tobin’s Q higher than other developed countries. That’s something to keep in mind when considering these historical multiples. Policy reform may deflate the value of American stocks by 25% by reducing Tobin’s Q to levels on par with other developed countries, and effectively redistribute that wealth from shareholders to workers and other stakeholders. However, that same reform could lead to higher long-term economic growth and stock market performance. $289 billion or $679 billion is still a lot.)

 

[strangecosmos]

I think it’s probably $36.2 billion in operating cash flow, not free cash flow. Usually if you say “cash flow” and it isn’t further specified, you’re referring to operating cash flow. Also, if it were free cash flow, then ARK would be greatly undervaluing Tesla, since they give it a $909 billion market cap in Q2 2023 based on cash from both autonomous taxis and 1.6 million annual car sales.

 

[GeorgeSymonds]

They actually set a range starting at $700, the higher figure not linked to automotive manufacturer, and not even Tesla as an energy company, but to have first mover advantage in MaaS which I read as selling autonomous vehicle technology. If they crack that one first and have a secret sauce that nobody else has limiting the competition, then anything is possible but that’s a massive “if”, but Tesla is in the game so its not impossible.

I also think many feel Tesla are strong at the AP level but are looking increasingly weak at full self driving as they’ve repeatedly under estimated the processing power required and arguably the sensor array and regulatory needs. It would be some swing to leap ahead of those other companies with autonomous vehicles driving around now. I can’t see the Tesla way swaying many regulators and law makers

 

[strangecosmos]

Yes, the $4,146 price target reflects the autonomous ride-hailing opportunity — Tesla operating a fully autonomous Uber-like service and selling rides for $1/mile.

Tesla’s competitive advantage is data from production cars.

(Waymo miles self-reported. Enhanced Autopilot miles estimated by Lex Fridman.)

The new computing hardware should address concerns about processing power.

There is speculation by some that regulators will require lidar on all autonomous vehicles, but I haven’t seen any indication of this from regulators. I don’t think such a rule would make sense, either. Why not simply require that autonomous vehicles have a crash rate at least several times lower than humans?