Tesla shares (NASDAQ:TSLA) will hit US$6,000 per share, said Cathie Wood, CEO, and Founder of ARK Invest. Wood explained why she sees such a secure financial future for the Elon Musk-led company in a recent interview. Those who have been listening to the CEO of ARK Invest will not be surprised by her reasons for her US$6,000 prediction, as she has been vocal about her thoughts on TSLA.
In her interview with economist Robert Shiller during Forbes’ 30 under 30 Summit in Detroit, Wood announced her ambitious TSLA price target and gave three reasons for it. Cathie Wood’s US$6,000 goal for Tesla has to do with the company’s tech: namely its battery costs, artificial intelligence, and autonomous driving data, reported Benzinga.
Analysis of Wood’s Reasons
1. Battery Costs
Wood said Tesla was reducing its battery manufacturing costs. She stated that Musk’s company was down the cost curve created by cell phones and laptops. The electric car maker’s battery costs are destroying the belief that new battery tech would ruin Tesla. Wood brought up the Porsche Taycan’s battery, which has been pitted against Tesla.
“We did an analysis of the Taycan on every important metric to EVs. It loses to Tesla by a lot,” she said. Wood further elaborated that one of the metrics was battery costs.
“[Porsche is] using lithium-ion, pouch batteries—completely new for electric vehicles. Tesla’s battery costs are much lower and will be for the foreseeable future.”
Wood didn’t mention it during her interview, but Tesla has its own battery chemistry, unlike all the other EVs on the market. Since Tesla has its own formula, the company has better control over which materials are used to manufacture its batteries and how they are made. As such, they can influence the price of their batteries to a certain extent. They only need battery supply companies like Panasonic to help manufacture batteries.
Other EV-makers buy off-the-shelf batteries and are totally in the hands of battery suppliers when it comes to price. Since they don’t have their own chemistries, they are left to the mercy of battery suppliers like LG Chem.
Enjoyable bull/uber-bull debate with @CathieDWood on CNBC this morning. Did I say no competitor comes close to #Tesla ? That’s unfair! 40%+ behind is a great start. Keep it up, team auto-manufacturers. 😂 $TSLA. https://t.co/1jD8NOSOwk
— Pierre Ferragu (@p_ferragu) October 24, 2019
2. Artificial Intelligence
Wood’s second reason for her US$6,000 price target was Tesla’s home-grown AI chip, otherwise known as Elon Musk’s Autopilot Hardware 3.0.
According to ARK analyst James Wang, who previously worked at Nvidia, Tesla’s AI chip is four years ahead when compared to any competitor developing the same tech.
Wang’s assessment supports Elon Musk’s own words about Tesla’s AI chip. “At first, it seems improbable. How could it be that Tesla, who has never designed a chip before, would design the best chip in the world. But that is, objectively, what has occurred, not best by a small margin, best by a huge margin,” Musk said.
The electric car maker’s AI chip is the main reason for Wood’s third reason. It may be the tech that could drive Tesla’s stock up to US$6,000.
3. Autonomous Driving Data
When it comes to autonomous driving data, no one is near Tesla. To catch up to Elon Musk’s company in this sector would take a lot of work and tech that probably hasn’t been invented yet.
Tesla has about 10 to 12 billion miles worth of real-world driving data, thanks to its AI chip and Neural Net. In comparison, Waymo—another leader in the autonomous driving sphere—has only 15 to 20 million miles.
Wood further elaborated that Waymo focuses more on computer simulations to grow its self-driving tech, compared to Tesla, which concentrates on real-world data.
Another aspect of Tesla's autonomous driving data Wood didn’t touch on during her interview is the company’s Neural Net. It is the brain of Tesla’s fleet and spreads data from one Tesla owner to others. So Tesla doesn’t just have billions of miles worth of data, it has a way of spreading that data almost instantaneously.
To Wood, Tesla is probably the closest to establishing an autonomous fleet for transportation services. She thinks self-driving transportation as a business will bring Tesla’s future gross margins up in the 80s level.
People shouldn't be so shocked that Tesla was able to reduce costs. Of all the Model 3s ever made, ~22% were made in Q3 2019.
— Sam Korus (@skorusARK) October 24, 2019
Given that cumulative increase, Wright's law suggests ~$2,000 cost improvement per car for the Model 3. https://t.co/nzrMEVzeKi
Wood and ARK Invest’s Stance
Wood and her ARK analysts are seen as super bulls, but that doesn't seem to be bothering them at all. They are sticking to their conviction and in it for the long haul with Tesla.
ARK analysts Sam Korus and Tasha Keeney predict a 30 percent gross margin for Tesla by the end of 2020. Korus and Keeney base their prediction on Wright’s Law. A 30 percent gross margin in 2020 may sound a little nuts to some investors, but ARK Invest doesn’t seem to function like other investment firms. The fund adopts an out-of-the-box stance, much like the companies it invests in like Tesla.
