Just in case, new TSLA price target: ARK’s Price Target for Tesla in 2025 is $3,000 Per Share
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Oh boy, forget investing in Tesla and reaching FIRE, I want to go work for ARK. Coming up with the assumptions for the model and writing articles like that is art!
I’m not an expert in finance nor cars, why are the electric cars revenues bigger than the multiplication of cars sold by their average price? Used cars selling? Charging or software services accounted for in this category?
Also, I may not understand the assumptions properly but:
- We pushed our forecast price target forward one year to 2025.[2]
- We refined our estimates for Tesla’s capital efficiency.
- We added Tesla’s insurance business to our model.
- We added assumptions for a human-driven ride-hail service.
- We increased the probability of Tesla achieving fully autonomous driving within five years.
It sounds to me like they’ve used a more favorable set of assumptions than in their previous model, yet come out one year later with a price less than half their previous forecast. Is that an expected result of simulations like theirs? Or do I not understand part of the process and they have greatly reduced some forecasts I don’t see?
Edit: Thanks @Bojack for pointing out what I had missed: ARK’s price target moved from an adjusted $1,400 to $3,000 a share, so a consistent move upward.
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I’m not sure if I really understand what you’re writing here. But I’ll put the very first sentence from the linked article and you explain what you mean.
Last year, ARK estimated that in 2024 Tesla’s share price would hit $7,000 per share, or $1,400 adjusted for its five for one stock split. Based on our updated research, we now estimate that it could approach $3,000 in 2025.
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That is the part I had not understood. The adjustment makes a lot more sense to me now, thanks!
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Don’t worry or lose any sleep about it.
Their forecasts shouldn’t just be taken with a grain of salt.
Digesting them seems more akin to eating raw, pure salt.
I know I shouldn’t waste my time on that but…
- Tesla car sales are supposed to increase tenfold within five years.
- …while being sold at an average price that’s bordering on the “luxury car” segment in the U.S. The average new car in the U.S. sells for less than 40k, though that has been rising as of late. Go look at what competitors charge for new cars in the U.S. - most of them are starting below 30k USD.
- Tesla’s gross margin on electric vehicles is supposed to roughly double to 40% - twice the industry average
- Tesla’s human-driven ride-hail revenue is supposed to overtake their competitors from being non-existent today to more than double their U.S. competitors within five years. Uber and Lyft are the two dominating ride-sharing companies in the U.S., basically dividing the domestic market between them. They’ve had revenues of about 18 billion USD in pre-pandemic 2019 (albeit globally).
- Tesla’s human-driven ride-share service will supposedly be “delivering a highly profitable recurring revenue stream” - while both competitors in the ride-hailing have not been profitable today.
- Tesla’s insurance business is supposed to grow from hardly existent today to become the 4th or 5th largest car insurance provider within five - though they’ll be offering to holders of one particular automotive brand only. ARK estimate a gross margin of close to 40% for Tesla insurance - compared to 0% (or negative) to 9% for the sector. Progressive’s cited 13% margin is a bit of an outlier, probably contributed to by the decline in car driving from the pandemic.
- Tesla’s price/sales ratio would then be about 5. About ten times the industry figure (very roughly).
In summary:
- TSLA to grow their car / ride / insurance businesses all (at least) tenfold by 2025
- while maintaining margins that are twice or thrice as high as competitors
…is ARK’s “Example Bear Case”. Bear case.
PS: Side note: Market cap won’t be 1500 billions in 2025 at a stock price of 1500, assuming TSLA keep diluting their shares by another 20% - the same rate they’ve been doing it over the last couple of years.
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5-10 million in 2025. It’s also hard to believe for me. They say one gigafactory can deliver 500k cars per year. So that would need 10 gigafactories plus some further efficiency gains. So 6 more factories would need to be announced, built and fully operational within the next 4 years…
But with an EV you pay a higher price up front and then you save on gas and service. The total cost of ownership of a model 3 is not comparable to ICE cars with a similar price tag.
I don’t get why Tesla should start a human-driven taxi service, only to get rid of these people once FSD is ready. Here I don’t follow ARKs logic.
This one I can understand. If you’re constantly collecting the data from the car and the driver, you can provide a better estimate for the insurance premium.
It would be nice to see ARK explain some of these number. Like, a back of a napkin split of these supposed 5 million cars in 2025. Which factory would produce how much?
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I’m not even comparing to ICE cars. I can configure Volkswagen ID.4 or Chevy Bolt for less than 40k (with fast charging and assisted driving features).
Weren’t you saying electric batteries would become exponentially cheaper?
Sure, I have little doubt that their costs of acquisition can be lower.
But single-digit underwriting margins in the industry vs. 40% for Tesla?
Don’t forget that they’re supposedly a growth company. In order to grow at luxury prices, they need to cannibalise market share from other car manufacturers. When somebody (and many will be needed for these growth targets) switches from another manufacturer to a owning and operating a Tesla car, Tesla won’t have any driving data from competitor’s cars.
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The deciding factor will be how much are you able to ask for it. If a competing ICE car has a total ownership cost of X over 5 years, you just need to match that with an EV, provided that it’s more environmentally friendly, fun to drive, you can charge it at home, etc etc. The selling price of ID.4 is an argument if VW can produce them at scale and still generate profit. If VW undercuts Tesla and is able to satisfy the demand at that price, then it becomes a problem.
Somebody will.
I don’t know about but don’t doubt somebody will.
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Just as there are many cheaper alternatives to Apple products. Tesla has a few aces up their sleeve. Front+Rear body castings (simplifying the production process), 4680 battery and structural battery design, the Cybertruck which needs no body shop. Tesla is the first to try these things and I wonder if others will be just able to copy that. These are not just some gimmicks, these are huge cost and time savers. And I’m sure they didn’t stop there, they will keep innovating.
I’d say if other automakers want to keep up with Tesla, they will need to build their factories from scratch. Which needs capital. At the same time, all old production lines, you can just get rid of them. And many of them probably didn’t pay off yet.
What advantages do current automakers have? They have well recognized brands, that is true. They have some loyal customers. They have organized supply and distribution chains, but these may prove useless, as an EV needs different components to a large extent. Dealers are not so hot on selling EVs, as these don’t break that often, so they don’t get sweet money from servicing the car.
I’m very curious to see how they’ll pass any pedestrian safety test with that car…with a solid steel outer body full of sharp angles I can only imagine it’s going to cut through the test dummies…
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Regarding Tesla being the Apple of EV, it seems realistic.
Regarding competition, your remarks describe well the situation… of a few years ago.
Now every brand pushes its EV models (often they offer ICE, hybrid and EV as a choice).
They are not considering building factories, they are selling EVs in all dealerships a few streets away in my town, putting ads in my mailbox, advertise in the newspapers, etc.
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They don’t. Just look at Volkwagen ramping their EV production at their Terafactory in Zwickau:
After the last ICE vehicle rolled off the line in June last year, they are already manufacturing ID.3 and ID.4 there. They factory is on schedule to be completely re-equipped by mid-2021 (in a couple of weeks!), after which “six electric models for three Group brands are to be produced at the plant, with a total volume of up to 330,000 units per year”.
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Show me a good competitor for Model 3/Y and tell me how many were sold? If sales pick up, Tesla might always retaliate by lowering their prices.
Why terafactory? The gigafactory is about billions, I guess billions of $ annual output. Anyway, if the factory should really soon output 330’000 cars per year, then that’s impressive and a reason for Tesla to worry. That being said, VW is probably their biggest competitor, whose CEO bets fully on EVs and admits openly that Tesla is in the lead.
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I will study that next time I need a new car (could take a decade or two: I’ve bought a new one in 2019, right before the EV boom at mainstream carmakers). But I’m confident there are lots of comparison in the specialized press, and carmakers would not take a reputation risk of showing bad EVs in their showcases just for the sake of “greening” them.
People have now basically the choice. Pay a visit to a dealership around the corner.
By milking even more shareholders and bondholders?..
Having just 10 billion less cash at hand than Volkswagen and operating margins that are roughly on par as well, why not?
Why shareholders? Can’t they just subsidise car prices from their Bitcoin investments?
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Of course! I completely forgot their new source of income. Thanks for reminding.
@San_Francisco I’m curious what valuation you would get if you plugged in your assumptions to ARK’s Spreadsheet on Github.
Let’s call it the… San Francisco simulation 
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I’ll ask my wife’s boyfriend if he can lend me 20 uninterrupted minutes on his Excel computer.
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