Tesla's share could touch $6,000 in five years, analyst says

Electric vehicle manufacturer Tesla’s stocks, which crossed $500 (Dh1,835) a share mark for the first time on Monday, could be worth $6,000 per share in the next five years, according to Catherine Wood, founder of the New York-based financial services firm Ark Investment. This bullish prediction is based on the grounds that California-headquartered firm “will not considerably lose its market share”, she added.

“As we are looking at other auto companies, seeing how far behind Tesla they are, we are beginning to believe they [Tesla] might not lose market share, which is a huge change in our assumptions,” Ms Wood told CNBC. Earlier in February 2018, she said “market share was a concern” for Tesla and predicted the company would trade at $4,000 per share at one point of time in future.

Tesla led the EV market in the third quarter of last year, taking 20 per cent of the global share, according to Hong Kong's Counterpoint. It was followed by Chinese car makers BAIC Group and BYD Auto who retained 10 per cent at 9 per cent respectively. German car-maker BMW had an 8 per cent share of the market. The company’s shares have more than doubled since October last year, when they were trading at $254. They closed on Wednesday at $518.50.

The firm’s current market cap is almost $93.46 billion – making it the most valuable US automaker in the history. Nearly $6,000 per share would put Tesla comfortably in the $1 trillion stock market value club, based on the company’s 180 million shares outstanding.

Financial company Jefferies is also optimistic and expects Tesla shares to climb another 14 per cent in the coming days. Tesla is the only automaker “engaged in a positive-sum game” in the EV business “amid rising market acceptance”, Jefferies’ analyst Philippe Houchois wrote in a research note on Tuesday.

He forecasts Tesla should turn profitable this year.

Tesla is expected to report an adjusted profit of $1.53 a share on sales of $6.9bn in the last quarter of 2019, according to analysts polled by FactSet, a Connecticutbased financial data and software company. The company reported a profit of $1.93 a share on sales of $7.2bn in the last quarter of 2018.

Ark Investment Management founder Catherine Wood told CNBC on Tuesday that she believes Tesla could be worth more than $6,000 per share in the next five years. That’s up from the last time her firm ran its model, she said, adding a more recent run may yield an even higher target.

“Stay tuned,” Wood said on “Squawk Alley” of the upcoming five-year time horizon projection.

Underlying this bullish view is a belief that Tesla will not lose its considerable share of the electric-vehicle market, she said. Initially, Wood said she thought Tesla would lose about one-third of its 17% market share last year.

“As we’re looking at other auto companies, seeing how far behind Tesla they are, we’re beginning to believe they might not lose market share, which is a huge change in our assumptions,” she said. Wood first predicted in February 2018 that Tesla would one day trade at $4,000 per share.

Based on 180 million shares outstanding, Tesla over $6,000 would put the electric-auto maker firmly in the $1 trillion stock market value club. Currently, Tesla’s market cap is approaching $100 billion.

Apple, in August 2018, was the first U.S. public company to hit a market cap of $1 trillion. Amazon was the second a month later. In August 2019, Microsoft hit $1 trillion. Tesla’s stock hit another alltime high Tuesday, after the electric-vehicle maker sprinted more than 9% higher Monday to over $500. The shares have soared nearly 30% in 2020 and more than doubled since late September.

Oppenheimer analyst Colin Rusch on Monday became the biggest Tesla bull among traditional Wall Street firms, when he raised his price target on the stock by nearly 60% to $612 per share.

The other critical aspect of Wood’s optimistic Tesla projection is autonomous vehicles, around which optimism has thus far outpaced anything close to widespread adoption. A truly autonomous vehicle does not yet exist.

In Wood’s view, Tesla is positioned to be the dominant player in that emerging technology space because its fleet of existing vehicles almost 700,000 of them, she said are already collecting data.

She said Tesla developing and deploying a fleet of autonomous taxis could yield software as a service type margins around 80%, which she argues could support a stock price around $6,000.

“The winner in autonomous platforms, and in any artificial intelligence project, is that company with the most data and the highest-quality data,” she said. “That company is Tesla.”

More than a dozen Wall Street firms have adjusted their ratings or price targets on Tesla shares since the beginning of the year, playing catch-up after stock of Elon Musk’s electric-car maker more than doubled in the past three months.

Analysts who missed the rally have tried to explain away why they were wrong on Tesla’s stock. Some skeptics even stuck by bearish outlooks, while they simultaneously were forced to increase their price targets to accommodate for the rally. For example, Credit Suisse, which has a sell rating, tried to explain that Tesla’s blistering climb was still within its expectations, because “Tesla can be a volatile momentum stock in either direction given very wide theoretical scenarios for the company.”

“To us, it’s not necessarily about being bearish or bullish but rather risk/reward. The potential [long term] reward side of the equation hasn’t really been an issue for us,” Credit Suisse said.

The firm declared the note was to intended “take a step back to consider whether the reward side of the equation has meaningfully changed.” Yet its conclusion was that there was “no change to our stock views,” expecting Tesla shares will fall nearly 60% in the year ahead.