One of Tesla's most optimistic backers explains why its doubling down as other investors rush for the exits
- The firm Ark Invest has gained notoriety for its controversial, ultra-bullish view on Tesla.
- Ark is also a women-led investment manager with a female analyst covering the stock - a rare combination in the majority-male Tesla investment community.
- Two Ark analysts spoke with Markets Insider about the firm's recently updated model and why they've grown more optimistic on Tesla - even as shares have plunged.
- Watch Tesla trade live.
Tesla may be losing the confidence of most of Wall Street, but an investment firm long known for its bullish view on the stock is doubling down on the electric-car maker's future.
Ark Invest, the New York investment manager founded by chief executive and chief investment officer Cathie Wood, has a wildly bullish $6,000 price target over the next five years, which is way out of whack with the rest of Wall Street. Wall Street analysts polled by Bloomberg have a 12-month price target of $276.72. The firm does not compile a five-year target.
Ark, which has a 0.4% stake in Tesla and is the 31st-largest shareholder, has made the electric-car maker the largest holding in its innovation-focused exchange-traded fund.
It has only grown more optimistic on its investment as shares plunge, analysts call its future cash generation and vehicle demand into question, and after the company a huge first-quarter loss. In fact, Ark added 339,743 shares to its Tesla position in the first quarter, according to a filing with the Securities and Exchange Commission.
Ark's bullishness has been challenged by many in the investment community.
"Supported by Mr. Musk's side ventures in rockets to Mars (SpaceX), hyperloops, advanced tunnelling, and even brain-computer implants, Tesla investors and car buyers are deeply attached to the notion that they're not buying a regular financial instrument, but instead a ticket to the future that some bulls expect to go to $4,000 or more someday," Barclays analyst Brian Johnson wrote , nodding to the low end of Ark's target.
But, the firm has defended its call, reiterating that it's focused on Tesla's long-term potential and that analysts tend to misunderstand Tesla's worth (as many Tesla bulls argue).
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Ark Invest analysts Tasha Keeney and Sam Korus last week authored an updated model for evaluating Tesla shares, introducing a bull case that is based upon a "more aggressive estimate" for electric-vehicle sales. Ark's original estimate for Tesla selling roughly 1.7 million electric vehicles in 2023 is now its bear case.
"During our podcast, Elon Musk noted that Tesla could produce 3 million EVs in 2023," the analysts wrote. "As a result, we have modeled a bull case for EV sales at 3 million units in 2023, which would be consistent with an exponential ramp in production."
In other words, the firm is doubling down on its view that Tesla can effectively compete in the coming years - even amid increasing competition in the space. Ark's analysts believe the stock could rally significantly even if Musk's autonomy vision doesn't pan out.
"Even if full autonomy turns out to be 'science fiction' and Tesla cannot produce an autonomous car, Ark estimates that the electric vehicle opportunity alone would boost its stock 2-6 fold from $195 today to $560-$1,200 by 2023," the firm wrote.
On the timing of Ark's updated model
But why update its model now?
Keeney said in an interview this week that the firm's previous $4,000 price target "has been thrown around a lot."
"This was an opportunity to go with Ark's general ethos of being transparent, and adding more language to explain that," she said. "Because we think there is a reason the Street doesn't have the same model as us, and there's a lot that's misunderstood about Tesla's competitive advantage, and it was a good time to delve deeper into those details as well."
When it comes to the firm's five-year forecast, Keeney said it's reflective of Ark's longer-term view of Tesla.
"When Tesla misses production estimates by a couple weeks, that's not going to change the outcome in five years, the big picture," she said.
"That's missing the forest for the trees, in that sense. We're following all those short-term movements, but unless something happened that made us think that the EV market was going to be smaller than we originally anticipated - so if global demand for electric vehicles was going to be different, or that Tesla would not be able to create an autonomous car - those would be show-stoppers. But the emphasis on the quarterly outcomes, we think, is overdone."
A rare female voice on Tesla
Outside of its ultra-bullish view, it's particularly noteworthy that Wood, Ark's CEO, arguably the only noted female Tesla bull.
Of the 42 Tesla analysts Bloomberg tracks - making the stock a widely covered name, on par with major technology and industrial stocks - none are women.
When asked whether the firm thought having a rare female voice leading its Tesla coverage - with Wood at the helm - played a role in Ark's coverage, Keeney said it just comes down to Ark's research.
"Our investment team has a higher female representation than other firms, but I think Cathie would say the differentiation comes down to the research, regardless of which analyst is behind it," she said. "It really comes down to the differentiated research that we do. I would hope that when people are looking at Ark, that's what they focus on."
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