Morgan Stanley might be talking a bear case price target of $10 on Tesla (TSLA +1%), but undaunted Ark Invest is still talking huge targets in a research note.
"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. If Tesla does solve for full autonomy, however, and its electric vehicle production surpasses our bear case estimates, TSLA could scale significantly higher than our previous $4,000 price target during the next five years, thanks to our newly introduced bull case for electric vehicle volumes," write analysts Tasha Keeney and Sam Korus.
Ark's math: "At an average selling price of $48,250 (today’s ASP), Tesla’s EV revenue would total $82 billion at 1.7 million units and $145 billion at 3 million, respectively, in 2023. In the bear case, gross margins would average 25%, which is Tesla’s guidance, while selling, general, and administrative costs (SG&A) average 10% of sales, comparable to that of other premium auto companies even though its overhead should be much lower. ARK also assumes that Tesla will spend 13% of sales on research and development (R&D), its average for the past five years compared to the 4.3% average of GM, Ford, and Fiat Chrysler in 2018. ARK also expects Tesla to reinvest excess cash back into the business to fuel growth. We expect its multiple of EV to EBITDA/R&D to reach 8, slightly higher than the 7.3X average for the auto industry today despite the superior growth profile of EVs relative to gas powered cars. Taken together, based on the electric vehicle opportunity alone, these assumptions suggest that Tesla’s enterprise value will scale from $47 billion today to $120 billion in our bear case and $250 billion in our bull case, pushing its stock price up from roughly $195 into the $560-$1,200 price range."
Ark Invest has open-sourced its valuation model on Tesla with a spreadsheet available for download through GitHub.
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