Katie Wood is the founder and CEO of ARK Invest. Over the past couple of years, it has built a reputation as one of the best stock pickers on Wall Street. As proof, the return on the ARK Innovation ETF, which her company operates, has significantly outperformed the S&P 500 over the past five years, up 490% (while the S&P 500 is up 105%).
It is noteworthy that ARK is actively investing in Tesla. In fact, the EV maker is the firm’s largest holding, with Tesla holding a 10% stake in the ARK Innovation ETF portfolio. Given Katie Wood’s reputation, it definitely makes sense for investors to take her position seriously.
So is Tesla stock a good buy?
Tesla Market Opportunities
By the end of last year, 10 million electric vehicles had been produced worldwide (for comparison, in 2010, this figure was only 17,000). This growing popularity has been driven by several factors: improved battery technology, cost savings, government procurement subsidies, and an increasingly pressing drive to reduce carbon dioxide emissions.
More importantly, this trend is expected to continue. According to Allied Market Research, the global electric vehicle market will grow at almost 23% per year and will reach $ 803 billion by 2027. And Tesla is at the forefront of this trend.
As of March 2021, the company’s share of the EV (electric vehicle) market was 16%, while the next closest competitor had only 9%. This provides certain benefits, but the company also has other trump cards besides this.
Since October 2016, all Tesla vehicles have been shipped with the latest autopilot equipment. And with over 1 million vehicles on the road, Tesla automatically has access to far more real-world driving data than any of its competitors. In fact, as of February 2020, Tesla’s entire fleet has covered over 3 billion miles on autopilot. This gives the company a significant edge in the race to create a fully autonomous vehicle.
It is noteworthy that in the future Tesla plans to launch an autonomous network of such vehicles for passenger transportation. And according to Katie Wood, this market could generate more than $ 1 trillion in profits by 2030. And she estimates the potential of the entire market for autonomous cars at $ 250 billion. This means that several large markets will be open for Tesla at once.
Tesla’s financial performance
Tesla currently manufactures vehicles at the Fremont plant in California (USA) and at the Gigafactory plant in Shanghai (China). The company estimates that these two facilities have a combined annual capacity of 1.05 million vehicles. Tesla only produced 509,737 vehicles in 2020, roughly half of its estimated capacity.
However, Tesla achieved record production and shipments in the first quarter of 2021, up 76% and 109%, respectively. And the Model 3 became the world’s best-selling premium sedan, overtaking the BMW 3 Series.
Tesla’s numbers have been strong in recent years and earnings have grown, although it’s worth noting that most of its Q1 net income continued to come from bitcoin sales and regulatory lending.
|Indicator||2017||1st quarter 2021 **||CAGR|
|Revenue, $ billion||11.8||35.9||41%|
|Free cash flow, billion $||(3.5)||2.4||–|
To further expand its manufacturing capacity, Tesla is building factories in Berlin (Gigafactory Berlin) for the Model Y, and in Texas (Gigafactory Texas) that will produce both Model Y and Cybertruck. With this additional capacity, Tesla will be able to increase its shipments by 50% annually for many years (which is quite in line with the projected growth rate of the EV market).
This is good news for investors. According to Grand View Research, the total number of EV units will grow by 42% per year through 2027. If Tesla can outpace the growth of the industry as a whole, it will capture the lion’s share of the market in the coming years.
Tesla has a market cap of $ 575 billion. This means the company is worth more than Toyota, Volkswagen, Daimler and General Motors combined. But it was not always so. Just 12 months ago, Tesla had a market cap of $ 150 billion – in other words, its value has grown 280% over the past year.
Unsurprisingly, Tesla stock looks pretty expensive. In fact, they are quite overrated. The overwhelming majority of automakers do not even come close to the values of the multiples that are currently relevant for Tesla shares. Therefore, investors must ask themselves an important question: can this company justify its current price in the long run?
I think in the long run this EV maker can do what most companies only dream of. Tesla can truly change the world. Nevertheless, one cannot deny the absurd, at the moment, valuation of the shares. Wall Street clearly has high hopes for this brainchild of Elon Musk.
So here’s my advice: If you like Tesla’s long-term perspective and want to buy these stocks, buy them in small fractions. Do not invest all your savings and do not open the entire position at once. And while Tesla’s share price is now down 30% from a 52-week high, that doesn’t mean it can’t keep falling.
Review from 06.06.2021 prepared using materials The motley fool
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