1 unstoppable stock up 990%, according to Cathie Wood’s Ark Invest

Cathie Wood is the founder and chief investment officer of Ark Invest, which operates a family of private and exchange-traded funds. Each fund invests in innovative technologies such as electric vehicles (EVs), robotics, space exploration, artificial intelligence (AI) and more.

The recently described wood adze (NASDAQ:TSLA) as the world’s biggest artificial intelligence opportunity, thanks to the introduction of the latest version of self-driving technology (FSD), which could transform the company’s economy. For the same reason, Ark also issued a report in June that included a $2,600 price target for Tesla stock through 2029.

That implies a 990% upside to where the stock is trading today, which might be ambitious given that Tesla’s electric vehicle sales are currently in decline. In fact, even the company’s CEO, Elon Musk, believes the Ark target will be difficult to achieve.

Tesla’s core business faces headwinds

Tesla delivered a record 1.8 million vehicles in 2023, a 38% increase from the previous year. The company declined to provide a forecast of shipments for this year, but some analysts expect the number to reach 2.2 million. This would represent a decelerated growth rate of only 22%.

Musk previously told investors that Tesla could increase its electric vehicle production (and by extension, deliveries) by 50% per year for the foreseeable future, which no longer seems likely. In addition, Tesla’s deliveries were down 6.5% in the first half of 2024, compared with the same period in 2023. That’s despite the company cutting prices over the past year to support demand, which has crushed its auto gross profit margin. It reached just 14.6% in the second quarter, which is a far cry from the 2021 peak of over 30%. (I’ll explain why this is important later.)

So why is Tesla struggling to sell cars? Demand for electric vehicles in general appears to be declining. In Europe, sales fell 44% in August compared to the same month last year, with electric vehicle market share falling to just 14% from 21% previously. Old car makers love it I see and General Motors have scaled back planned investments in the billion-dollar segment over the past year, citing demand concerns.

Research by Goldman Sachs suggests that consumers are worried about the lack of fast-charging infrastructure and also about depreciation as used electric vehicle prices plummet. In addition, high interest rates around the world have increased borrowing costs, so many consumers in the market for a new car may opt for cheaper gas models.

Then there is the competition factor. based in China BYDfor example, it now sells one of its electric vehicle models for less than $10,000 in its home market (where Tesla has a large presence) and could reach Europe in 2025. Tesla simply cannot compete at that price . , but the company is working on a low-cost model that could sell for as little as $25,000. It’s due to launch next year, and Tesla hopes its premium brand reputation will be enough to attract lower-income consumers.

The story continues

FSD is the key to Wood’s forecast

Tesla is one of the leading developers of self-driving software, and while that software is not approved for widespread use on U.S. roads, Ark’s research suggests that customers have so far driven 1.3 billion miles using beta versions of technology. The latest version, 12.5, has a lot more parameters than version 12.4, so it should be the most capable iteration yet.

The company is expected to unveil a robotaxi called the Cybercab on October 10. That’s a key piece of Ark’s $2,600 price target for Tesla stock. It will be powered entirely by FSD, paving the way for new revenue streams such as autonomous transport (think Uberbut without a human driver).

Musk wants to build a ride-sharing network where Cybercabs can earn around-the-clock revenue. Tesla customers who pay for FSD will also be able to borrow their vehicles on the network when not in use, earning additional revenue (which will be shared with Tesla).

Ark believes that Tesla will generate a whopping $1.2 trillion in revenue in 2029, with 63% ($756 billion) coming from the robotaxi platform. That doesn’t include potential FSD licensing deals with other automakers, which appear to be in the works. That’s incredibly ambitious, as the company is only on track to deliver $98.9 billion in total revenue this year, meaning the company will need compound annual growth of 64.7% between now and 2029 to meet Ark’s projections.

Remember, Musk himself previously only forecast 50% annual growth, and he’s not even hitting that target right now. In fact, in a post on social media platform X in June, he said that meeting Ark’s forecast will be “extremely challenging.”

Achieving the Ark price target by 2029 will be nearly impossible

So Ark’s revenue model could be a considerable stretch based on the facts at hand today. But I want to go back to the decline in Tesla’s gross profit margin that I mentioned earlier, as it leads to a sharp drop in the company’s earnings per share (EPS).

Tesla generated $0.42 in EPS in Q2 2024, down 46% year-over-year. The company’s trailing 12-month EPS is $3.56 and, based on its share price of approximately $238 at the time of writing, trades at a price-to-earnings (P/E) ratio of 67.

That’s more than double the P/E ratio of 30.8 al Nasdaq-100 index, suggesting that Tesla is heavily overvalued compared to its high-tech peers. With Tesla’s rapidly declining earnings, it’s very hard to justify that premium valuation.

Investors could pay for the stock because of opportunities like FSD and robotaxi, which, if Ark is right, could eclipse Tesla’s electric vehicle business in the coming years. But no one knows when (or if) those technologies will receive regulatory approval, so their potential financial impact on the company isn’t entirely relevant at this point.

Therefore, I think it is highly unlikely that Tesla stock will rise 990% to reach $2,600 by 2029 based on calculations. I have no doubt that the company has an exciting future, but investors are exposing themselves to downside risk if they buy the stock at the current price.

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Anthony Di Pizio has no position in any of the shares mentioned. The Motley Fool has positions in and recommends BYD Company, Goldman Sachs Group, Tesla and Uber Technologies. The Motley Fool recommends General Motors and recommends the following options: Long Jan 2025 $25 Call General Motors. The Motley Fool has a disclosure policy.

1 Unstoppable Stock Up 990% According to Cathie Wood’s Ark Invest was originally published by The Motley Fool