Cathie Wood’s ARK Invest leapt to prominence on the back of high-conviction calls on one the Street's most polarizing names — Tesla (TSLA). And now, the firm is doubling down on its bullishness around the electric vehicle maker with another bold price target for the stock: $2,000 by 2027.
Key to the firm's latest optimism on Tesla is the company's not-yet-launched robotaxi business backed by its self-driving technology. In ARK's bull case scenario, Tesla's robotaxi business could bring in $613 billion in revenue by 2027 and account for two-thirds of the company's enterprise value.
This bull case scenario would see Tesla stock hit $2,400 per share and the company's market cap approach $8 trillion.
Tesla shares closed Monday's trading session at $162.55, giving the company a market cap just over $500 billion. Over the last year, Tesla stock has been roughly cut in half.
"We've actually modeled the opportunity in Robotaxis in autonomy, and if you look at the future of Tesla vehicles that are capable of becoming robotaxi enabled, and earning a recurring revenue stream at what we think will be a software as a service like margins, this is an amazing potential for Tesla," ARK analyst Tasha Keeney told Yahoo Finance Live on Monday. "It'll definitely be the highest return on investment per battery produced, as we've analyzed in our new report."
Notably, Tesla does not yet have a revenue generating robotaxi business.
Timing-wise Keeney believes it's possible Tesla unveils fully autonomous software by the end of the year — which CEO Elon Musk predicted on the company's first quarter earnings call — though she believes mid-2024 is a more realistic expectation.
According to ARK's model, the faster Tesla can release this software and capability the better, as the financial payoff for first-mover status could be huge.
"We think the market for robotaxis globally could be worth $9 to $10 trillion in the next decade," Keeney said.
ARK's latest round of optimism comes as Wall Street held a largely downbeat view on Tesla's first quarter report, with the company's price cuts eating into margins. Gross margins in the first quarter fell to 19.3%, down from 29.1% in the same period last year.
"They're backed into a corner," Ronald Jewsikow, an analyst at Guggenheim Securities, told Yahoo Finance Live after last Wednesday's report. "They put a lot of supply in place that needs to find a home. And the only tool they really have is cutting prices."
In the first quarter, Tesla reported revenue of $23.3 billion, roughly in-line with Wall Street expectations while earnings per share came in at $0.85, a penny off estimates.
"Musk & Co. cut prices to further stimulate consumer demand in a shaky macro amidst rising EV competition globally in this EV arms race," Wedbush analyst Dan Ives wrote in a note to clients last week. "With no rose-colored glasses: Margins are now a delicate issue that are keeping Tesla investors up at night."
Keeney told Yahoo Finance that ARK views Tesla's price cuts as part of its efforts to gain global EV market share, a more important measure than per-car profitability at this point in the market's shift to EVs.
"We think on an efficiency basis per cost for the price that you're paying for the car, they're still way ahead of the competition," Keeney said. "And I'd be pretty scared if I were a traditional automaker right now and I saw Tesla cutting prices, I'll tell you that, because not all of these platforms are profitable at other automakers yet."
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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