Ark Cathie Wood: Tesla shares to surge 10x on Musk robotaxi plan

Describing the autonomous taxi ecosystem as an “$8 trillion to $10 trillion global revenue opportunity,” Wood sees platform providers including Tesla taking as much as half that. Investors are shifting away from valuing Tesla purely as an electric-vehicle maker and pricing in some of the autonomous taxi potential, she told Bloomberg Television’s David Ingles and Bloomberg Intelligence’s Rebecca Sin for the Tiger Money podcast.

“Autonomous taxi platforms are the biggest AI project evolving today,” she said, adding Ark has primarily based its Tesla valuation on its autonomous-driving potential. “If we are right, the stock has miles to go.”

Wood and Ark have been promulgating the potential of a Tesla autonomous-taxi network since at least early 2017, months after Chief Executive Officer Elon Musk said the company would one day set up such a service. Tesla has yet to bring vehicles to market that are capable of navigating roads without constant human supervision in the eight years since Musk outlined those plans.

Optimism about Tesla’s efforts to bring robotaxis to market have fueled its shares erasing as much as a 43% decline for the year as of April 22. While the stock rallied all the way back into positive territory early this month, it’s still underperformed Magnificent Seven peers by wide margins over the last year.

Wood has been bullish on Tesla for a long time, making it a top holding in her Ark Innovation ETF. The fund has lost nearly 9% this year, while assets slumped about a third, partly due to redemptions. That compares with an 18% gain in the S&P 500 Index. Wood is known for making outsize predictions, including her call that Bitcoin would reach as much as $1.48 million by 2030. 

Autonomous taxi networks will be a “winner-takes-most” opportunity, where the provider that can get passengers from point A to point B in the safest and quickest fashion will clinch the lion’s share of business, Wood said. The network provider will be able to take a 30% to 50% share of revenue generated by fleet owners on its platform, giving it “a recurring revenue with explosive cash flows” as well as a profit margin north of 50%, she added. That departs from the build and sell, or “one and done” business model of making vehicles.

“That is what we think people are missing: the size of the opportunity, how quickly it’s going to scale, and how profitable it’s going to be,” she said, adding she expects Tesla to lead the US market. 

Tesla’s weighting in the $6.5 billion ARK Innovation ETF Fund surpassed 15% last week. Ark doesn’t usually add to a position once its weight in the portfolio hits 10%, Wood said. While a holding may drift higher from share appreciation, the firm would usually start selling well before it hits Tesla’s levels. 

The asset manager has taken some profits on Tesla but has permitted it to surge beyond the normal ceiling, believing Musk’s company is on the cusp of sharing a lot more information on its robotaxi project, she said. 

Tesla delayed its planned robotaxi unveiling by roughly two months, to October, to allow teams more time to build additional prototypes, Bloomberg News reported last week. The news sent the stock down 8.4%, the steepest one-day drop since January. Wood is unfazed.

“We’re probably getting closer to this robotaxi opportunity, not further away,” she said. Musk “wants to show us something more awe-inspiring than we might have seen on Aug. 8. And he believes it’s possible by October.”

Ark’s valuation model hasn’t taken into account much of Tesla’s potential in China or in the humanoid robot and energy-storage space. Musk in April won in-principle approval from Chinese officials to deploy its driver-assistance system into the world’s biggest auto market, after reaching a mapping and navigation pact with Chinese tech giant Baidu Inc. and meeting requirements for data-security and privacy protection.

Wood sees autonomous trucks undercutting rail in pricing and providing point-to-point services. The railway systems favored by veteran investor Warren Buffett may be “stuck with stranded assets,” she said.

Ark’s founder and chief executive officer continued to cast doubts on Nvidia Corp.’s valuation. Ark bought the AI-focused chipmaker at $4 in 2014 and held it until it approached $40 on a split-adjusted basis. It sold most of its stake before the stunning rally since last year.

Investors who sent the stock to current levels haven’t baked in the amount of time it will take businesses to figure out how to adopt transformational AI technology. “It is simply, in our view, too much, too soon,” Wood said.

Market Concentration

Investors have been piling into the Magnificent Six, driving stock market concentration to a level higher than that of 1932, she said. Back then, investors flocked to mega stocks such as AT&T Inc., whose huge cash cushions and free cash flow were seen as boosting their chances of survival after the Great Depression. The four ensuing years instead saw smaller companies outperform. 

Similarly, higher interest rates have driven investors toward the Magnificent Six for their massive cash positions and in part for their AI-propelled revenue growth. Investors’ risk appetite will broaden to other stocks with disruptive technologies as interest rates fall.

“Now would be the wrong time to sell our strategy,” Wood said. “We believe interest rates are going to come down and going to come down more dramatically than most people think.”