ARK Invest Sets TSLA 2026 PT at $4,600, $5,800 Bull Case as Robotaxi Business Has Big Prospects

von Eva Fox April 15, 2022

ARK Invest Sets TSLA 2026 PT at $4,600, $5,800 Bull Case as Robotaxi Business Has Big Prospects

Image: ARK Invest

ARK Invest has published an update on Tesla's 2026 price target. The firm believes that in fi’ve years, TSLA will be worth $4,600 per share. The bull and bear cases show Tesla could be worth roughly $5,800 and $2,900 per share, respectively.

The new research update is based on ARK’s new open-source Tesla model, which incorporates distributions for 38 independent inputs to simulate a range of potential outcomes for the company.

Tesla’s prospective robotaxi business line is a key driver, contributing 60% of expected value and more than half of expected EBITDA in 2026. Across ARK's simulation set, the firm expects electric vehicles to constitute 57% of the company’s revenue in 2026, albeit at substantially lower margins than robotaxi revenue.

Autonomous Driving
ARK's new model includes updated assumptions for the total market for autonomous ride-hail at each price point, as well as the probability that Tesla will solve for fully autonomous driving. Based on its analysis of consumers’ perceived value of time, the firm now expects more demand for autonomous ride-hail at higher price points than they had modeled originally. ARK estimates the total addressable market for autonomous ride-hailing at roughly $11-12 trillion.

Capital Efficiency/Maximum Annual Production Increase
ARK's updated model also increases Tesla's capital efficiency. Since 2017, Tesla’s capital expenditure per incremental unit of capacity has improved from ~$84,000, when Model 3 was ramping, to ~$7,700. In last year’s model, the firm estimated that Tesla would spend $6,000-$8,000 per incremental unit of capacity in 2025. Given its much better than expected capital efficiency, ARK Invest now assumes that Tesla will spend $2,000-$7,000 per incremental unit of capacity in 2026.

These improvements indicate that Tesla could continue to increase margins, and that capital is no longer a bottleneck limiting its growth. Instead, Tesla should be able to grow as quickly as management bandwidth and supply constraints will allow.

Forecast of 2026 Share Price
The firm's simulation is highly sensitive to the year in which Tesla launches robotaxis. In many of ARK's lowest price-per-share scenarios, Tesla launches a vertically integrated, human-driven ride-hail service but does not launch a robotaxi network, as shown in light green. In some scenarios, Tesla does not launch either service, as shown in dark gray.



Importantly, human-driven ride-hail could become a profitable recurring revenue stream before Tesla launches a fully autonomous service. For cases in which Tesla launches a human-driven ride-hail service and solves for fully autonomous driving, the firm assumes that its human-driven ride-hail cars will transition to the autonomous ride-hail network over time. If it is unable to launch a robotaxi service within five years, Tesla still could launch a human-driven ride-hail while trying to solve for full autonomy. In many of ARK's higher price-per-share scenarios, Tesla launches a robotaxi network in the next two to three years.

Model Assumptions That Are Not Key Drivers Of ARK's Tesla Price Estimates

The firm's updated model includes the following assumptions:


Insurance
Insurance increases ARK's 2026 market capitalization estimate by roughly 2%.

Bitcoin
Tesla's Bitcoin holdings are included in the model, along with potential upside or downside swings in price. Though Tesla cannot mark Bitcoin up given current accounting standards, the firm assumes that investors will incorporate Bitcoin’s impact on enterprise value at its market value in 2026. Bitcoin increases its 2026 expected price per share by less than 5%.

Balance Sheet: ARK has made conservative assumptions about strategic financial decisions. The firm does not believe these decisions will be the primary drivers of the appreciation in Tesla’s stock price.

  • Aside from Bitcoin, Tesla keeps cash on its balance sheet and does not invest in any yield-generating assets.
  • With more cash than debt, Tesla does not use its cash to pay down debt.
  • Tesla will not repurchase shares.
  • The interest rate on Tesla's debt will remain at 4%.

Business Opportunities Not Included In The Model

Additional business lines and opportunities could be strategically interesting and financially meaningful but are too uncertain at this time. In ARK's view, they are unlikely to be significant drivers of Tesla’s business value over the next five years. For this reason, the firm has not reflected the following opportunities in its modeling and they do not impact its price estimates:

Tesla’s energy business
Tesla’s cell constraints are likely to continue over the medium term. Because its most profitable use of cells is likely to be in electric vehicles, ARK does not expect Tesla’s energy storage business to drive enterprise value meaningfully during the next five years. The firm has not modeled the option value embedded in Tesla’s ability to turn its battery systems into virtual power plants that allocate dynamically to overtaxed electrical grids. Tesla also could accelerate its energy storage strategy by vertically integrating cryptocurrency mining and home HVAC systems. For now, the firm place such options beyond the timeframe of this model.

AI-as-a-service
Tesla has said that it could offer as a service its Dojo supercomputer neural network training. Tesla says that Dojo is on track to do “something useful” this summer, but its meaningful impact probably falls outside of ARK's five-year horizon. The firm forecast that AI-as-a-service companies offering foundation models like Dojo could command up to $20 trillion in enterprise value by 2030, but it incorporates neither that opportunity nor its option-value into Tesla’s 2026 model.

Humanoid robot
Tesla could bootstrap its learnings from factory automation and autonomous driving, becoming one of the first and few companies to develop foundation models for more generalized AI capabilities and embedding them in Optimus, its humanoid robot. The financial impact of that initiative most likely falls outside ARK's five-year model window.

If any of these opportunities develops more rapidly than expected, they could impact Tesla’s share price positively.

© 2022, Eva Fox | Tesmanian. All rights reserved.

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Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.









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