Cathie Wood isn’t shy about making bold predictions, especially when it comes to her flagship’s top spot Ark Innovation ETF.
Wood has a history of setting lofty goals for her favorite stocks, Tesla (NASDAQ: TSLA), which has had a tough time lately, is down 54% from its 2021 high and down about 25% from last year. This poor performance meanwhile came while the S&P500 has reached new all-time highs. Clearly, Tesla hasn’t been along for the ride.
Let’s take a look at Wood’s latest Tesla prediction and see if there’s a realistic chance of the stock hitting its price target.
New Tesla price target
Earlier this month, Wood set a $2,600 price target for Tesla, which should be reached in 2029. She also mentioned a price target of $3,100 in a bullish scenario, along with a bear case of $2,000.
Wood’s case for her $2,600 price target largely revolves around Tesla’s robotaxi business, which she projects will account for 63% of Tesla’s revenue and 86% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2029. She estimates there will be only 26. % of sales and 10% of EBITDA will come from electric vehicles (EV). She models that stationary energy storage activities represent 10% of revenue and 3% of EBITDA, while insurance represents 1% of both revenue and EBITDA. In total, she has the company producing $440 billion in EBITDA by 2029.
Wood assumes Tesla will own and operate its own robotaxi fleet for the first one to three years of launch, with third-party companies owning and maintaining the fleet later. Wood expects Tesla to achieve an 80% take rate from its fleet by 2029, with these third parties earning $0.20 per mile.
Woods said her belief that Tesla will launch a robotaxi network within the next five years has been greatly strengthened. She said this will transform the company’s business model “from one-off car sales to recurring revenue as every car becomes an AI-powered cash flow generating machine.”
The portfolio manager said Tesla’s Optimus robot, which Musk has predicted could become Tesla’s biggest asset, is not currently in its model and is unlikely to see meaningful commercialization for at least five years. She also doesn’t think the supercharging network will have a meaningful impact compared to robotaxi capabilities.
Without the robotaxi network, Wood said her price target would be $350.
Is Wood’s price target realistic?
Large price targets for a stock are often a way to attract media and investor attention and may not always be based on reality. For Tesla to reach Wood’s price target, the stock would have to increase in value fourteen times over the next five years.
However, Wood did see Tesla achieve a big earlier goal she set in 2018, when she predicted the shares would reach $4,000 by 2023 (pre-splits). She hoped the shares would rise 12 times over that period, and they did. achieve its goal in 2021. Adjusted for a 5-for-1 split and a later 3-for-1 split, that $4,000 post-split price would be around $267 today, so the stock has fallen back since then.
At the time of its 2018 call, Tesla was dealing with quality control issues with its Model 3, while liquidity was also a concern. However, Wood was able to see through that and the company’s fortunes changed for the better. A later price target of $7,000 ($467 after the split) in 2024, made in 2020, seems less likely.
Right now, Wood is trying to model a robotaxi network, something that doesn’t currently exist. No one knows what kind of reception these self-driving vehicles will face from commuters, nor what kind of regulations they might face in major cities. If competition enters the market, it can also quickly change economic dynamics.
As such, Wood’s Tesla goal, while possible, is also unlikely given the number of variables involved. That said, Tesla doesn’t need to achieve Wood’s goal to be a successful investment over the next five years. Right now, an investment in the company is very much an investment in Tesla CEO Elon Musk and his technological vision. If he can create a robotaxi network or if his Optimus robots end up being Tesla’s biggest part, the stock market could have a lot of room.
At the same time, it is always riskier to invest in business models and products that do not yet exist, so investors should budget their investments accordingly.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool has a disclosure policy.
Cathie Wood has given Tesla a price target of $2,600. With shares down 54% from their highs, is now the time to buy? was originally published by The Motley Fool
