https://ark-invest.com/articles/analyst-research/tesla-price-target-2/Expected Value$3,000 - This projection is our base case for TSLA’s stock price in 2025 based on our Monte Carlo analysis.
Bear Case $1,500 - We believe that there is a 25% probability that Tesla could be worth $1,500 per share or less in 2025.
Bull Case $4,000 - We believe that there is a 25% probability that Tesla could be worth $4,000 per share or more in 2025.
Key updates to our model: We pushed our forecast price target forward one year to 2025.[2]
We refined our estimates for Tesla’s capital efficiency.
We added Tesla’s insurance business to our model.
We added assumptions for a human-driven ride-hail service.
We increased the probability of Tesla achieving fully autonomous driving within five years.
Electric VehiclesSince our 2024 analysis, we have increased our assumptions for Tesla’s capital efficiency. Previously we estimated that Tesla would spend $11,000-$16,000 per incremental unit of capacity in 2024. In 2019, Tesla spent $1.33 billion on capital expenditures (capex) and produced 509,737 vehicles, an increase of 144,505 vehicles from the previous year, suggesting that its capex per incremental vehicle produced was roughly $9,200. In 2020, Tesla spent $3.16 billion on capex, putting capital efficiency in 2021 at $10,330 assuming a 60%[3] increase in vehicle production. Note that this math probably overstates the capital required for an incremental vehicle because a portion of capex is for long-dated projects like autonomous data centers and Tesla’s vertically integrated cell factory. At Battery Day, Tesla announced that its updated cell chemistry and manufacturing process would reduce investment costs by 75% over time. To give Tesla credit for what we believe is its superior capital efficiency, we lowered gross capital expenditure per car in our latest model. Given these updated estimates, along with an additional year of growth added to our model, our forecast for Tesla’s unit sales is between 5 and 10 million vehicles in 2025.
InsuranceARK estimates that Tesla could achieve better than average margins on insurance thanks to the highly detailed driving data it collects from customer vehicles. Partnering with underwriters, Tesla introduced its insurance product in August 2019. Currently, it is available only in California. ARK believes that in the next few years Tesla could roll out its insurance offering to more states, underwriting its own insurance policies. Because its vehicles have better than average safety profiles, Tesla should be able to use real-time data to offer insurance in its vehicles, pricing it dynamically, lowering customer acquisition costs, and increasing margins. Relative to Progressive’s 13% EBIT margin in 2019, ARK estimates that Tesla could achieve margins close to 40%. If it were to sell 40% of vehicles with its own insurance offering by 2025, Tesla’s insurance revenues could approach $23 billion annually in our bear case.[4] In our bull case, ARK estimates that, as robotaxis ramp, Tesla’s insurance revenues will be incorporated into a platform fee. Insurance boosts our price target by roughly $60 in 2025.
Human-Driven Ride-HailARK’s bear case now includes Tesla’s opportunity to launch a human-driven ride-hail service. Previously, ARK detailed that a Tesla human-driven ride-hail service would have a lower cost structure than that of incumbent companies, laying the foundation for a fully autonomous ride-hail network. In our bear case example, ride-hail could add an additional $20 billion to Tesla’s operating profit by 2025, increasing our price target by about $500.[5] In preparation for its robotaxi service, Tesla could launch a human-driven ride-hail network first, delivering a highly profitable recurring revenue stream and limiting the downside of a failed autonomous service. A human-driven ride-hail service could boost Tesla’s price target in ARK’s bear case significantly.
Fully Autonomous Ride-HailIn our last valuation model, ARK assumed that Tesla had a 30% chance of delivering fully autonomous driving in the five years ended 2024. Now, ARK estimates that the probability is 50% by 2025. Since our last forecast, neural networks have solved many complex problems previously considered unsolvable, increasing the probability that robotaxis are viable.[6] ARK estimates that Tesla’s vehicle fleet gives it access to 30-40 million miles of data per day, up from 20 million per day last year. If successful, Tesla could scale its robotaxi service rapidly, allocating the additional cash in turn to manufacturing capacity serving its autonomous network. If 60% of its vehicles equipped with Autopilot were to serve as robotaxis, Tesla could generate an additional $160 billion in EBITDA in 2025.[7] In our bull case, ride-hail would account for the majority of Tesla’s enterprise value in 2025.
Note that autonomous driving pushes the distribution of our expected price targets up significantly, as shown below. The first chart represents the likely distribution of all possible price targets from our Monte Carlo analysis, while the second chart shows which scenarios occur within the ranges of price targets across our distribution.
In many of the low-end cases we modeled, production constraints limit Tesla to fewer than 4 million units produced per year, while technological and logistical bottlenecks prevent the launch of both human-driven and autonomous ride-hail networks, as shown in gray. When production is not constrained, a human-driven ride-hail network increases the expected price target range, as shown in green (less than 20% of Tesla vehicles sold into ride-hail in 2025) and navy (20-70% of Tesla vehicles sold into ride-hail in 2025). Finally, in purple, the high-end price targets incorporate the assumption that Tesla launches a robotaxi service.
In ARK’s Tesla price target, please note that electric vehicle and robotaxi business lines generate roughly 40% and 50% of Tesla’s expected market cap, the average values from our Monte Carlo simulation, respectively, in 2025, as shown below.
analysis of their predicitions
This post was edited by S3th on Mar 20 2021 11:41am