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Recently, Ark Invest CEO Katie Wood made some pretty bold predictions about Tesla shares, which are the largest holding in their investment funds. Today, I'll look at some of these predictions, as well as the arguments she makes in favor of an optimistic scenario for Tesla, to see if they're accurate or just wishful thinking.
As if Tesla itself is n't a dream. So stay with us. Hello everyone, welcome back to The Contrarian channel. My name is Logan. I enjoy talking about successful investing, as well as how to go against the grain. I think Tesla is a good example of the madness that a crowd can create in the market. I think this is a great example of such a situation.
But I'll make a caveat right away: I don't want you to take my words as investment advice. This is simply a YouTuber expressing his personal opinions and interpretations regarding the company. So, you know, why should you even listen to some YouTuber? First of all, I want to clarify that until recently I myself was an optimist about Tesla.
I saw it as a good investment opportunity. However, I personally do not consider the current assessment justified. But I will give you both sides of the argument. I see so much nonsense being said about Tesla stock right now after its parabolic rise. Just type “Tesla stock” into YouTube to see what I mean.
" Wall Street's biggest optimist believes the automaker could reach 15,000 in 2024. " “Kathy Wood predicts Tesla stock breakout,” as if they were n’t already making breakouts. You know, just silly headlines like this. It's interesting to look back and see what CNBC was saying a year ago. They were quite pessimistic or neutral about Tesla, and now they are constantly promoting it.
So I think this is a great example of how you can see corruption in various financial media companies, which clearly have a plan to spread this campaign as much as possible. Morgan Stanley were big pessimists until last fall. And recently they set a price target of $2,000. So, this is clearly just an artificial hype created by the media.
Recently on CNBC, Wood said that the worst-case scenario for the end of 2024 is 7,000. And she also added that this scenario takes into account various probabilities, including bankruptcy. The likelihood that we will see the $7,000 mark in the next 4 years is very high. According to Katie Wood, they don't even factor in autonomous driving in that $7,000 calculation.
So, the worst-case scenario assumes a market capitalization of 1.3 trillion. This is madness. The best-case scenario, she said, is a market capitalization of $2.6 trillion, or $15,000 per share, which would make it the most valuable company in the world today. Katie Wood also cites several sources for this growth.
The first argument she makes is that Tesla's market share gives it a competitive advantage . For example, they are constantly increasing their lead or their share of the pie in the electric vehicle market . She also says that their battery manufacturing technologies are 3-4 years ahead of the market.
Other automakers found themselves in a losing situation. They are destroying their own combustion engine cars and potentially losing money on the electric cars they are forced to sell. She notes that their factories in China, Berlin, and Texas are already under construction or planned, and this is a good reason for optimism about Tesla.
The second reason she cites is the rapid emergence of autonomous driving capabilities, and in her opinion, this is where Tesla is in for a major surprise. The third reason is that Tesla is at the intersection of three major innovation areas: AI , batteries, and autonomy. Three exponential growth trends converge at one point.
To quote Katie Wood: “We have never seen so many breakthrough innovations come together at the same time.” So, to start, I'll tell you what I agree with as someone who has studied Tesla extensively in the past. First of all, I agree that they have an advantage over other automakers, mainly in battery technology.
It is now very difficult to reduce the cost of battery production to the level that Tesla has achieved . They have been making batteries for much longer than any other car company. So that's really their advantage. I also agree that their unique computer chip for autonomous driving is far ahead of Nvidia's technology today.
I definitely agree that they have an advantage in this. When I studied Tesla a year or two ago, the stock was clearly undervalued at $200-300, so I bought it. However, at a price of $1,400 per share, it is significantly overvalued in my opinion. This, one might say, is the opposite extreme . Um, I would also agree that other automakers don't have much incentive to enter the electric vehicle market right now , as they are in a win-win situation.
They will have to stop producing profitable cars with internal combustion engines and switch to potentially unprofitable electric car models. However, I disagree with her that Tesla is invincible at this point . I mean, there are plenty of automakers like Ford, Toyota, or Honda that have enough cash and research capital to catch up faster than most people think.
I also believe that a startup like Rivian, which has Amazon backing, a lot of capital from Amazon and Jeff Bezos, could become a serious competitor to Tesla in a few years precisely because of its huge financial resources. So, there are a few points in Katie's words that I would like to point out. First, as is often the case with Elon, autonomous driving is severely delayed, although he promised that it would appear around mid-2020.
During an investor day dedicated to autonomy, which took place about a year ago, in June or May, he stated that by mid-2020, drivers will not have to pay attention to the road when the car is driving itself. He then clarified that by mid-2020 it will be the fifth level of autonomy, meaning the autopilot will be able to handle any situation.
And at the moment, Tesla's most advanced autopilot is only the second level. So I think this is a very big promise. Apparently, Elon has never kept his promises, especially regarding deadlines. However, I think this is a very reckless move on his part, as Tesla already has a bunch of lawsuits over its Level 2 Autopilot, which has caused several fatal accidents due to drivers misunderstanding or not knowing what it actually means.
So, in my opinion, it was unwise for Elon to make such promises. Because, let's say they have a breakdown, and the probability says it will happen, and their cars encounter a situation for which there was no machine learning—Tesla will definitely be liable if it results in fatalities or property damage.
Um, Elon personally even said that in such a situation, Tesla would be responsible for this accident. So, in my opinion, it's a very bad position to place such expectations on a company. Second, even if Tesla is capable of full autonomy, that doesn't mean it will be road legal. There can be a big gap between technology and the law.
Of course, in terms of cars that drive themselves, as Musk promised, I think it's still a long way off, you know, to the point where you can just let a car drive like a driverless Uber. I think the adoption of relevant legislation could take, perhaps, a decade. Again , if Tesla releases this without any approval, it could significantly slow down the development of autonomous cars.
I guess it's comparable to assuming your parents won't mind a party at home while they're away for the weekend, and then asking them for leniency when you get back. This is generally not the best idea. Second, let's look at Tesla's production figures, which Katie calls exponential. And while 2018 can definitely be called that, we have grown little since then , and in 2020 we are even experiencing a decline.
This is a very bad sign. Because even with the recent completion of Tesla's Shanghai factory, their global production has stagnated and fallen since late 2018. Obviously, demand for their cars fell in 2020 due to Covid, and there's simply no other explanation for the drop in production, because they have a whole new factory in Shanghai, they just finished it, their factory in Fremont is still operating, and demand for cars has still fallen.
So I think this is a bad sign, especially when you look at 2019. There was no serious pandemic in 2019, but their sales did not increase significantly. So I take this as a very bad sign. Another fundamental thing Wood ignores is potential changes in the macroeconomic world. The fundamental rule of investing is that macroeconomics trumps microeconomics.
What happens globally is certainly more important than what happens within a single company. I think everyone will agree with this. And Tesla is now planning to build two more factories in Texas and Berlin, which increases the debt load on their balance sheet. And at a time when demand could fall even more, in my opinion, this is a bad sign.
As I explained before, Tesla is a luxury item, no different than Louis Vuitton, resorts, or cruise ships. During a deep recession or depression, people do not buy new cars, especially expensive and difficult to repair cars. Believe me, I think their cars are cool and I would love to have one someday .
Especially the Cybertruck, but during a depression or a serious recession, people won't buy them. On the contrary, people will massively dump used, cheap Teslas onto the market. So could Wood's prediction be correct ? I'd say it's possible. I suppose it's possible , but only if we fully recover from COVID lockdowns, which, as I've discussed, is unheard of and virtually impossible.
You can't just move from a real unemployment rate of 15–20%. Back to what we had before, —3.5%. In fact, I think unemployment benefits had the opposite effect , as people didn't work because they often received more than they earned at work. So, to sum up, I think Tesla is too risky right now. In my opinion, it is significantly overrated.
Maybe if we could go back and undo the effects of COVID, everything would turn out the way Katie Wood says, but in my opinion, that's definitely not going to happen. I think it's just too risky an investment for me at this point. But if you like these kinds of topics, please subscribe, and I hope to see you again.
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