ARK Invest’s New Tesla [TSLA] Bull Case — $4 Trillion Market Cap, 10 Million Cars Sold in 2025
Once upon a time, every other Tesla analyst had a far lower target price for Tesla [TSLA] than ARK Invest, and the fund was seen as a wild outlier. Then Tesla rose to ARK Invest’s price target and everyone else dramatically adjusted their expectations. Now, ARK Invest has a new Tesla price target out: a $4 trillion market cap. It is also forecasting 10 million car sales in 2025.
ARK Invest released this update yesterday. It includes an estimate that there’s an over 25% chance the company will be worth more than $4 trillion by 2025. The key updates in ARK Invests’s newly updated forecast to its model are as follows:
- Pushed its forecast price target forward one year to 2025.
- Refined the estimates for Tesla’s capital efficiency.
- Added Tesla’s insurance business to its model.
- Added assumptions for a human-driven ride-hail service.
- Increased the probability of Tesla achieving fully autonomous driving within 5 years.
ARK Invest’s bear case, or worst-case scenario, is still a price target of $1500. In other words, in a worst-case scenario, ARK believes that anyone holding Tesla stock from now till 2025 will see that stock more than double. If true, that’s not a bad return on investment by most standards.
That would put the company at a market cap of $1.5 trillion. TechAU shared a bit of perspective: Apple has a $2.01 trillion market cap today and Amazon is at $1.55 trillion. So, even in this bear case, ARK Invest sees Tesla getting almost to where Amazon is today.
ARK has Tesla growing to 5 million car sales a year by 2025 in this bear case. That’s about half the sales of the world’s top automakers, Volkswagen Group and Toyota.
Fully Autonomous Ride-Hail Service
ARK noted that in its last valuation model, it assumed that Tesla had a 30% chance of delivering fully autonomous driving in the 5 years ending in 2024. Now that has changed with the probability at 40% by 2025. The company noted that since its last forecast, neural networks have solved many complex problems previously considered unsolvable. This increases the probability that robotaxies are viable. ARK also estimated that Tesla’s vehicle fleet will give it access to 30–40 million miles of data per day, which is up from the 20 million per day last year.
If Tesla succeeds in this, it could scale its robotaxi service rapidly and allocate the additional cash to manufacturing capacity serving its autonomous network. ARK noted that if 60% of Tesla’s vehicles equipped with Autopilot were to serve as robotaxis, Tesla could generate an additional $160 billion in earnings before interest, tax, and depreciation in 2025.
“In our bull case, ride-hail would account for the majority of Tesla’s enterprise value in 2025.” —ARK Invest.
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 Tesla collects from its customers’ vehicles. By partnering with underwriters, Tesla introduced its insurance product back in 2019 and it’s 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 that Tesla could roll out its insurance offering to more states in the next few years. Since Tesla’s vehicles have better than average safety profiles, it should be able to use real-time data to offer better insurance in its vehicles than from conventional insurance companies. This would lead to lower customer acquisition costs and increased 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. 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.”
Tesla Vehicle Sales
ARK increased its assumptions for Tesla’s capital efficiency since its 2024 analysis. It previously estimated that Tesla would spend $11,000 to $16,000 per incremental unit of capacity in 2024. However, Tesla has been pretty busy. “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, which, ARK noted, puts 2021’s capital efficiency at $10,330 assuming a 60% increase in vehicle production. The company noted that this math could overstate the capital required for an incremental vehicle since a portion of capex is for long-dated projects such as Tesla’s vertically integrated cell factory.
During Tesla’s Battery Day event last year, the company announced that its updated cell chemistry and manufacturing process would eventually reduce investment costs by 75%. ARK wanted to give Tesla credit for its superior capital efficiency and lowered its gross capital expenditure per car in 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.”