Tesla’s shares experienced a significant 10% drop on Thursday following the company’s underwhelming Q1 results announced on Wednesday. CEO Elon Musk cited affordability challenges, the effects of rising interest rates, and economic instability during a subsequent conference call as crucial contributing factors.
After six price reductions this year that dented Tesla’s Q1 margins and led to a 24% YoY decline in net income to $2.51 billion, numerous analysts cut their price targets for the EV titan on Thursday. David Trainer, CEO of investment research firm New Constructs, even suggested that Tesla’s shares could plummet 80% to a mere $28 as competition in the EV market intensifies.
Cathie Wood’s Unwavering Confidence in Tesla’s Vision
Despite the recent setbacks, ARK Invest CEO Cathie Wood, a dedicated Tesla investor, remains confident in Elon Musk’s ability to transform Tesla into one of the world’s largest companies by developing a fleet of autonomous vehicles or robotaxis.
Wood told CNBC on Thursday, “We think that the robotaxi opportunity, globally, will deliver $8 to $10 trillion in revenue by 2030,” referring to it as “one of the most important investment opportunities of our lifetimes.”
Wood anticipates that Tesla’s stock will skyrocket by over 1,100% to $2,000 per share by 2027 as the company’s robotaxi fleet is deployed. This would result in a market cap of over $5 trillion, almost double that of Apple, the largest firm by this metric today. Even in her bearish scenario, Wood expects Tesla’s stock to reach $1,400 within five years.
In response to the adverse reactions to its price cuts, Tesla reversed its strategy and increased prices for some high-end models on Thursday. However, ARK Invest would prefer that Musk maintain lower prices and maximize EV sales.
Wood states, “We want Tesla to scale its units because each represents the potential for a robotaxi and a robotaxi fleet.”
Tesla’s Shift to a SAAS Model and Robotaxi Revenues
Wood, who has allocated nearly 10% of her flagship fund’s holdings to Tesla stock, believes that the EV behemoth could transform its vehicle fleet into robotaxis without retrofitting additional sensors or cameras.
That would allow Tesla to adopt a software-as-a-service (SAAS) model, generating recurring revenue through high-margin, full-self-driving software subscriptions for customers instead of relying solely on vehicle sales.
ARK Invest analysts stated in a Thursday research report that their price target is based on the assumption that the “prospective” robotaxi business will account for 25% of Tesla’s revenue by 2027 and almost 50% of its earnings.
Other Analysts Express Caution
However, not all bullish analysts were as optimistic following Tesla’s recent earnings report. Wedbush tech analyst Dan Ives reduced his 12-month price target from $225 to $215 per share. He also warned that Musk is walking a “tightrope” between balancing margins and driving demand in an “EV arms race.”
Ives wrote in a Thursday note, “This margin compression and price cut narrative must be carefully managed over the coming quarters as it now emerges as a clear overhang on the stock.”
Like Wood, Ives remains “very bullish on the Tesla story” in the long run. Although Wood’s new price target may appear extravagant, she accurately predicted in 2018 that Tesla’s stock would reach $4,000 per share within five years.
Her forecast materialized in 2021 on a split-adjusted basis when Tesla surpassed $300 per share, though the stock has since lost half its value.
The Road Ahead for Tesla
Despite the recent challenges, many investors and analysts remain optimistic about Tesla’s long-term growth potential. The key to the company’s future success lies in its ability to execute its ambitious robotaxi plan and capitalize on the rapidly expanding global EV market.
Tesla’s strategic focus on autonomous vehicles, software-as-a-service, and scalable technology will be crucial in determining its position in the highly competitive EV landscape. While some analysts remain cautious about Tesla’s short-term prospects, the company’s long-term vision and potential to disrupt the traditional automotive industry remain strong.
Tesla’s recent setbacks have undoubtedly raised concerns among investors and analysts. However, the unwavering confidence of ARK Invest CEO Cathie Wood in the company’s potential to become a dominant player in the EV and robotaxi markets highlights the significance of its long-term vision.
As the EV market continues to evolve and competition intensifies, Tesla’s ability to navigate the industry’s challenges and successfully implement its innovative strategies will ultimately determine its future success.
Whether Tesla’s ambitious plans for a robotaxi fleet will come to fruition remains to be seen. Still, there is no denying the transformative potential of such a breakthrough for the company and the automotive industry.