Tesla’s market cap now stands at more than $140 billion as TSLA stock has already reached $780 (and is moving even higher in the premarket). Let that sink in for a bit. This is more than the famous U.S. automakers General Motors ($48.2B) and Ford ($35.7B) – together. And that’s not all folks. The best is yet to come.
As per the ARK Investment Management, which has assigned an astronomical price target for the electric vehicle manufacturer of $15,000 by 2024. If that happens, it would make Tesla a member of trillionaires club with a market cap of $2.7 trillion!
Still, some skeptics say that the quadrupling of Tesla’s share price in less than a year is not really possible and here are the three reasons why not (and why yes).
Autonomous Taxi Network Still Not a Done Deal
ARK’s bull case hooks on Tesla’s future business with so-called robotaxis. As the company imagined it, these should work as autonomous Tesla vehicles that would operate as taxis.
ARK says that the company could generate approximately $351 billion in revenues in 2024, only from the autonomous cab network. First thing’s first, self-driving cars’ status is still not legally set in any country. If we presume that, until 2024, those rules should already exist, it is still a pretty optimistic figure. Statista data show that by 2023 revenues from the ride-hailing sector are estimated to reach $318 billion at a compounded annual growth rate of 13.7%. However, it could maybe be possible If tesla would defeat all possible competition. It had been doing it by now so… why not?
Other objections regard the fact that the human factor is still more than needed. Still, if we take a look just three years behind, no one was even talking about self-driving cars. Last year was the first year where you actually got the privilege to summon your car (Tesla of course) or park it sideways without a human driver inside. So, who can tell that in four years self-driving cars won’t be much more sophisticated than they are now?
Traditional Carmakers Are Fighting Back
ARK said the Tesla stock price will come to $15,000 but under the assumption that the electric car company will keep its market share of around 20%. Ok, that may be optimistic because every day we hear about traditional car makers who are working on their own EVs. Companies as General Motors, Ford, Volkswagen and other manufacturers are making giant steps in making their own spot in the EV sector.
Also, the electric Mustang crossover was completely sold out. However, Tesla still has the best performances and prices as well. And let’s also mention the public that seems to be pretty faithful to Musk’s design.
Gross Margins Will Rise
To reach $15,000 per share, the company’s gross margins should come to 40%. That is double the Q4 2019 figure of 20.9%. This ARK’s prediction is based on Wright’s Law and that’s really interesting. Specifically, Wright discovered that progress increases with experience: each percent increase in cumulative production in given industry results in a fixed percentage improvement in production efficiency. He determined this while studying airplane manufacture – for every doubling of airplane production the labor requirement was reduced by 10-15%.
However, even though the law may be true, it ignores some possible unexpected scenarios. If the competition increases, Tesla will be forced to lower prices. However, for now, the company doesn’t have to worry. Its price-performance ratio is still dominant.
Still, skeptics are claiming that Tesla will have to align its gross margins with the rest of the car sector. Currently, gross margins among car manufacturers stand at just under 11%.
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