Tesla (NASDAQ:TSLA) stock recently gained after Elon Musk claimed that the company’s fourth master plan would be “epic.” However, the share price was little changed after Cathie Wood and her ARK Invest fund set a $2,600 target price on Tesla for 2029 (the stock price is currently near $185). So, is there any way Tesla could justify this price target? Personally, I’m not sure. As much as I want to be bullish on Tesla and the potential that self-driving cars and excess computing power offer, I’m neutral.
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Cathie Wood Backs Tesla Stock
When Wood’s ARK Invest fund issued its forecast for Tesla, the stock was trading at about $180 per share. While Wood expects Tesla stock to be worth $2,600 by 2029, Wood’s team even suggests that in a more optimistic scenario, the stock could surge to $3,100. A more conservative estimate places the stock at $2,000 per share.
To put this into context, the stock would have to climb approximately 1,500% from the current price to reach the price target in the next five years. In order to achieve this, the stock would need to increase by 70% annually. The bull case projection requires an increase of around 1,600%, while the bear case calls for a 1,000% rise.
In ARK Invest’s forecasts, the company believes that Tesla’s robotaxi business will be a game-changer, delivering stronger margins than the electric vehicle (EV) segment. According to Wood’s projections, EVs will account for a quarter of Tesla’s total sales and just 10% of its earnings potential in 2029.
ARK Invest said that Tesla could sell 5.8 million EVs in its bear-case scenario, generating $250 billion in revenue in 2029. In its bull-case scenario, unit volume rises to 14.4 million, and sales hit $394 billion. However, this pales into insignificance compared with projected earnings from its robotaxi operations — which are yet to commence. Ride-hailing could generate between $603 billion and $951 billion in 2029, according to ARK Invest.
Wood has been a big believer in Tesla for some time, claiming it’s in a “pole position to dominate” the autonomous vehicle revolution. She had previously suggested it was in a “pole position to dominate” the EV sector. Wood’s ARK portfolios also have significant holdings in Tesla.
There was no mention of selling Tesla’s excess computing power — the excess capabilities of millions of cars with AI computers onboard. Musk has previously touted this as an area the company will explore. Wood may have included this within her robotaxi revenues.
Tesla’s Next Master Plan
I’ve been unsure about Tesla for some time. Clearly, at 73x forward earnings, it’s a very expensive EV manufacturer. This is a 378% premium versus the average for the consumer discretionary sector and is vastly higher than many of its peers.
In fact, it’s not just me who is unsure. Tesla is subject to a variety of forecasts, and the consensus is for earnings per share (EPS) to grow at just 11.2% over the next three to five years. In turn, this gives us a price-to-earnings-to-growth ratio of 6.8x. These are not compelling metrics, and this growth rate contrasts sharply with the views expressed by Wood and ARK Invest.
However, I suspect most forecasts take a conservative approach to Tesla’s future operations in the ride-hailing space. After all, we don’t even know if Tesla has a functioning robotaxi. It certainly holds a lot of promise, but for risk-averse investors, there’s very little to grasp onto.
Musk and his master plans have been central to the bullishness surrounding Tesla over the past two decades. The company released its third master plan in 2023, noting a focus on scaling Tesla to “extreme size” and developing AI capabilities for autonomous driving. However, in an announcement on X on June 17, Musk said that he was already working on a fourth master plan, claiming it would be “epic.”
There’s a lot to unpack with Musk’s comments. He has a history of overpromising and underdelivering, but I also appreciate that the latest advances in chip and GPU technology are game-changing for a host of applications. The fourth master plan may also provide some details on Musk’s plan to sell excess computing power.
Is Tesla Stock a Buy, According to Analysts?
On TipRanks, TSLA comes in as a Hold based on 10 Buys, 14 Holds, and nine Sell ratings assigned by analysts in the past three months. The average Tesla stock price target is $176.96, implying 4.3% downside potential.
The Bottom Line on Tesla Stock
Tesla stock certainly isn’t cheap when using near-term metrics. It’s vastly more expensive than any other EV manufacturer, and this reflects Musk’s desire for the company to be treated as a tech stock and not a car maker. Not everyone obliges, but the company’s valuation is a testament to Tesla’s potential.
Cathie Wood is one of Musk’s and Tesla’s biggest fans. However, I fear that some of her team’s forecasts might be slightly overambitious, considering we don’t even know whether Tesla has a functioning robotaxi. Personally, I remain neutral on the stock.
