Images: ARK Investment

ARK Investment Management is a longtime supporter of Tesla (NASDAQ: TSLA) and its faith in the manufacturer has continued to strengthen over the years for a number of reasons. ARK's confidence that Tesla will become a leader in autonomous technology, for example, has increased in recent months. And now the company has prepared a new price benchmark for Tesla stock, raising its price target to $3,000.

In 2020, ARK estimated that Tesla's share price would hit $7,000 per share in 2024, which equates to $1,400 per share after a five-for-one stock split. In the past few months, the firm has conducted new research and estimates that in 2025, the cost per share of the manufacturer could be close to $3,000.

To arrive at this forecast, ARK used a Monte Carlo model with 34 inputs, the high and low forecasts incorporating 40,000 possible simulations. Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted due to the intervention of random variables. It is a technique used to understand the impact of risk and uncertainty in prediction and forecasting models.

Thus, the simulation increased the firm's confidence in Tesla even more, so the price forecasts were updated as follows:





With no single bear and bull case from 40,000 simulations, ARK has selected what they believe to be a plausible case for each one, as shown below.

Estimated Values ​​in Bull and Bear Example Cases



Key updates to ARK's model:

• The firm pushed its forecast price target forward one year to 2025.
• The firm refined its estimates for Tesla's capital efficiency.
• The firm added Tesla's insurance business to its model.
• The firm added assumptions for a human-driven ride-hail service.
• The firm increased the probability of Tesla achieving fully autonomous driving within five years.

Vehicles: ARK projects Tesla's sales of 5 to 10 million vehicles in 2025.

Insurance: ARK estimates that Tesla could achieve better than average margins on insurance thanks to the highly detailed driving data it collects from customer vehicles. If the company was able to sell 40% of vehicles with its own insurance offering by 2025, Tesla's insurance revenues could approach $23 billion annually in ARK's bear case. In its bull case, ARK estimates that, as robotaxis ramp, Tesla’s insurance revenues will be incorporated into a platform fee. Insurance boosts the price target by roughly $60 in 2025.

Human-Driven Ride-Hail: ARK's bear case now includes Tesla's opportunity to launch a human-driven ride-hail service. In its bear case example, ride-hail could add an additional $20 billion to Tesla's operating profit by 2025, increasing the firm's price target by about $500.

Fully Autonomous Ride-Hail: ARK assumed that Tesla has a 50% chance of delivering fully autonomous driving by 2025. If 60% of its vehicles equipped with Autopilot were to serve as robotaxis, Tesla could generate an additional $160 billion in EBITDA in 2025.



With these updates to the model, the 2025 ARK price target for Tesla is $3,000. ARK's bear and bull case suggest that Tesla could be worth roughly $1,500 and $4,000 per share, respectively. Of note, the firm warned that it does not factor in Tesla's utility energy storage nor solar business into its models.

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