Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Tesla’s recent share price surge may only be the start, according to ARK Investment Management. A recent price target set by ARK shows some very opportunistic views on Tesla’s future in the auto-mobile industry. For many investors, a $7000 price target in 5 years seems quite out of the question, however their research explains how they have achieved this number. In my opinion, $7000 seems way too high to set as a short term prediction (based on 5 years) however at YIG we aim to provide a balanced opinion so let’s dive into the research.
ARK have admitted their predictions are quite far-fetched however insist their research explains how they achieved these price targets. ARK have split 3 scenarios into a probability matrix. The graph on their website cites that there is a 50% chance that Tesla will break $7,000 by 2024, while a 25% of the stock holds true to $1500 or less and a 25% chance of the stock breaking $15,000. These numbers are based upon 3 key independant variables according to ARK.
- “Gross Margins” – ARK state that Tesla’s manufacturing costs may continue to fall in relation to “Wrights Law”. Wright found that progress increases with experience, simply put this just means the efficiency of production increases as the company learns from it’s mistakes in the production process.
- “Capital Efficiency”- relates to cost per unit, similar to Economies of Scale. As Tesla has not reached the optimum point of production, there is still room for them to drop their models to affordable prices for the middle class.
- “Autonomous Capability”- This would have to be the most interesting part- ARK mentions that Tesla could autonomise the Taxi industry. A theory of course, and I do not think ARK took into account the legislation needed to push this idea however if this did happen it would inflate Tesla’s stock price significantly.
How did ARK land on $7000 by 2024?
ARK’s bullish theory assumes that Tesla will maintain it’s 18% market share through until 2024 and “that a substantial percentage of its fleet will generate high-margin robotaxi platform fees”. Part of their scenarios included a bearish case that assumes Tesla will sell 3.2 million units in 2024 based on current forecasts. These outcomes are all added together in a possibility matrix which lands on $7000 as the most likely out of all the possibilities. Like it or not, Tesla is gaining ground everyday on future competitors that try enter the industry come 2024. It will be interesting to follow the Tesla story as it continues to make history.
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As this is not our theory and we are only commentating on there approach we recommend checking their research out at https://ark-invest.com/research/tesla-price-target.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Tyger Fitzpatrick, Founder of YIG.