![New Tesla from ARK Invest [TSLA] Bull Case – $ 4 trillion market value, 10 million cars sold in 2025](https://cleantechnica.com/files/2021/03/ARK-Invest-2025-Tesla-TSLA-Price-Target-Split.png "New Tesla from ARK Invest [TSLA] Bull Case – $ 4 trillion market value, 10 million cars sold in 2025")
Once upon a time, all other Tesla analysts had a much lower target price for Tesla [TSLA] than ARK Invest, and the fund was seen as an extravagant outlier. Then Tesla hit the target price for ARK Invest and everyone else dramatically adjusted their expectations. Now, ARK Invest has a new Tesla price target: a market value of $ 4 trillion. It is also forecasting 10 million car sales in 2025.
ARK Invest released this update yesterday. It includes an estimate that there is more than a 25% chance that the company will be worth more than $ 4 trillion in 2025. The main updates to the recently updated ARK Invests forecast for its model are as follows:
- It boosted its one-year price target by 2025.
- Refined the estimates for Tesla’s capital efficiency.
- Added Tesla’s insurance business to its model.
- Assumptions added for a human-driven hail service.
- Tesla is more likely to reach a fully autonomous direction in 5 years.
Image courtesy of ARK Invest.
The bearish scenario, or worst case scenario, of ARK Invest is still a target price of $ 1,500. In other words, in a worst-case scenario, ARK believes that anyone with Tesla shares from now until 2025 will see those shares more than double. If true, this is not a bad return on investment by most standards.
This would put the company at a market capitalization of $ 1.5 trillion. TechAU shared a little perspective: Apple has a market capitalization of $ 2.01 trillion today and Amazon is at $ 1.55 trillion. So even in this bear case, ARK Invest sees Tesla arriving almost where Amazon is today.
ARK has Tesla growing to 5 million car sales a year by 2025 in this bear case. This represents about half of the sales of the main automakers in the world, Volkswagen Group and Toyota.
Image courtesy of ARK Invest.
Fully Autonomous Ride-Hail Service
ARK noted that in its latest valuation model, it assumed that Tesla had a 30% chance of delivering a fully autonomous management in the 5 years that ended in 2024. Now that has changed with a 40% probability in 2025. The company noted that , since its last prediction, neural networks have solved many complex problems previously considered unsolvable. This increases the likelihood that robots will be viable. ARK also estimated that Tesla’s vehicle fleet will give you access to 30-40 million miles of data a day, which represents 20 million a day last year.
If Tesla succeeds in this, it will be able to scale its robotaxi service quickly and allocate the additional money to the production capacity that serves its autonomous network. ARK noted that if 60% of Tesla vehicles equipped with autopilot served as robot taxis, Tesla could generate an additional $ 160 billion in earnings before interest, taxes and depreciation in 2025.
“In our case, hail would represent most of Tesla’s business value in 2025.” —ARK Invest.
Tesla Insurance
ARK included insurance in its report and estimated that Tesla could achieve better-than-average margins. This is due to the highly detailed driving data that Tesla collects from its customers’ vehicles. In partnership with underwriters, Tesla launched its insurance product in 2019 and is currently available in California. However, three new states will soon have Tesla’s new insurance product as an option for their residents as well.
The company noted that it believes Tesla could extend its insurance offering to more states in the coming years. Since Tesla vehicles have better-than-average safety profiles, it must be able to use real-time data to offer better insurance on its vehicles than conventional insurers. This would lead to lower customer acquisition costs and increased margins.
“Regarding Progressive’s 13% EBIT margin in 2019, ARK estimates that Tesla could achieve margins close to 40%. If it sold 40% of the vehicles with its own insurance offering by 2025, Tesla’s insurance revenues could approach $ 23 billion annually in our case.[4] In our bull case, ARK estimates that, as a robotaxis ramp, Tesla’s insurance proceeds will be incorporated into a platform fee. Insurance increases our target price by about $ 60 in 2025 ”.
Tesla vehicle sales
ARK has increased its assumptions for Tesla’s capital efficiency since its 2024 review. Previously, it was estimated that Tesla would spend $ 11,000 to $ 16,000 per incremental unit of capacity in 2024. However, Tesla has been very busy . “In 2019, Tesla spent $ 1.33 billion in capital expenditures (capex) and produced 509,737 vehicles, an increase of 144,505 vehicles over the previous year, suggesting that its capex per incremental vehicle produced was about $ 9,200. ”
In 2020, Tesla spent $ 3.16 billion in capex, which, ARK noted, puts the 2021 capital efficiency at $ 10,330, assuming a 60% increase in vehicle production. The company noted that this mathematics could exaggerate the capital needed for an incremental vehicle, since part of the capex is for old projects, such as Tesla’s vertically integrated cell plant.
During Tesla’s Battery Day event last year, the company announced that its updated cell chemistry and manufacturing process would reduce investment costs by 75%. ARK wanted to give Tesla credit for its superior capital efficiency and reduced its gross capital expenditure per car on its 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.”
You can read the full report here.
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