ARK’s Expected Value For Tesla In 2029 (2024)

By Tasha Keeney, CFA, Sam Korus, & Daniel Maguire, ACA

ARK's updated open-source Tesla (TSLA, TSLA:CA) model yields an expected value of $2,600 per share in 2029. The bull and bear cases, tuned to the 75th and 25th percentile Monte Carlo outcomes, respectively, are approximately $3,100 and $2,000 per share, as shown below. This research update presents ARK's open-source Tesla model, which incorporates distributions for 45 independent inputs to simulate a range of potential outcomes for the company and its stock.

Source: ARK Investment Management LLC, 2024. This ARK analysis is based on a range of data sources, which are available upon request. Forecasts are inherently limited and cannot be relied upon as a basis for making an investment decision and are built on our modeling that reflects our biases and long-term positive view of the company. Please see additional disclosures on forecasts at the end of the document. For informational purposes only and should not be considered investment advice, or a recommendation to buy, sell or hold any particular security.

ARK estimates that nearly 90% of Tesla's enterprise value and earnings will be attributed to the robotaxi business in 2029, as shown below. Meanwhile, electric vehicles could approximate a quarter of total sales and ~10% of Tesla's earnings potential, as we believe the robotaxi business will have much higher margins. The charts below breaks down attributable revenue, EBITDA,¹ and enterprise value by business-line.

This article presents 4 sections:

• Example Bear and Bull Outcomes
• Updates To ARK's 2023 Tesla Model
• Business Opportunities Not Included In The Model
• Risks And Limits Of Our Model

Example Bear and Bull Outcomes

We do not provide a single bull or bear case because we dimension their outcomes as the 75th and 25th percentile output from the simulation. Nonetheless, the table below presents what are plausible forecasts for each case.

Example Outputs for Bear and Bull Outcomes

This forecast relies on data that has not been verified, and is subject to numerous criteria, assumptions, risks, and limitations that are inherently uncertain, and there will be variations with real life that could cause substantially different results. The forecast includes assumptions on gross margin and capital efficiency, and certain other metrics, which are subject to change or revisions over time, which are influenced by ARK's subjective judgments and biases that heighten the risks and limit the uses of the forecast as a decision-making tool. Given the unpredictable nature of markets and other future events, relying on forecasts is inherently risky. While we believe that there is a sound basis for the forecasts presented, they are provided for illustrative purposes only and no representations are made as to their accuracy. These forecasts do not reflect any fees or expenses related to owning Tesla shares.

Updates To ARK's 2023 Tesla Model

Updates to ARK's 2023 open-source Tesla model include:

• Updated Autonomous Driving Assumptions
• Updated Tesla Manufacturing Growth Rate
• 2029 Model Considerations That Are Not Key Drivers Of Our Price Estimates

Updated Autonomous Driving Assumptions

We believe that Tesla will launch a robotaxi service within the next two years, and that the probability Tesla fails to launch a robotaxi service within five years is diminishing, as shown below.

While unlikely, if we were to eliminate the possibility of a robotaxi network from our model, our price target would be ~$350. Note that in cases where robotaxis do not launch, Tesla could launch a human-driven ride-hail service for both strategic and tactical reasons, as we have analyzed previously.²

From a modeling perspective, we previously estimated that Tesla's take rate would be ~40-60% on average, higher than Uber's ~20-30% take rate.³ This year, we fine-tuned our analysis to include the assumption that, initially, Tesla will own and operate its vehicle network, retaining all revenue per mile for the first one to three years. For later years, we assume that third-party companies will own and maintain the vehicle fleet, earning ~$0.20 per mile for their services, while the remainder of revenue per mile accrues to Tesla. In effect, Tesla's take rate is ~80% on average in the final year of the model. Meanwhile, we revised our median case expectation for the start of a robotaxi service to late 2025.

While we pushed back our median launch date for Tesla's robotaxi service by one year, we remain confident that the service will launch within the next five years. With the release of Full Self-Driving (FSD) v12, Tesla transitioned to a neural network that learns from video data and directly controls the vehicle, eliminating over 300,000 lines of manual code.⁴ This update has enabled human-like - and in some instances, zero-intervention driving⁵ by leveraging Tesla's significant data advantage, which now exceeds 1.3 billion cumulative FSD miles.⁶ According to our research, Tesla is accumulating data at ~110x the rate of Waymo, as shown below.

Furthermore, our research suggests that a Tesla in FSD mode is ~5X safer than a human-driven Tesla, as shown below, and ~16X safer than the average car on the road, also shown below. No longer constrained by AI training compute,⁷ Tesla's accelerated software updates are enhancing performance and safety.⁸ As a result, Tesla should be able to demonstrate superior, statistically significant safety metrics and receive regulatory approval for its robotaxi network.

Tesla plans to unveil its dedicated robotaxi vehicle in August 2024.⁹ While Tesla could transform its current fleet into robotaxis, we believe a custom-built CyberCab reflects increased confidence that its autonomy software will allow Tesla to scale the robotaxi business. Meanwhile, FSD's 30-day free trial in North America¹⁰ has increased Tesla's data library, as would the rollout of FSD in China, which Tesla is rumored to launch soon.¹¹ Lastly, the inclusion of ride-hail app renderings in its latest earnings report teases the release of that business model, which could launch first with human drivers and pave the way for their robot counterparts.¹² Our confidence in Tesla's ability to launch a robotaxi network within the next five years has increased considerably. As a result, its business model should transform from one-off vehicle sales to a recurring revenue base as every car becomes an AI-powered cash flow generation machine.

Updated Tesla Manufacturing Growth Rate

In our expected value case, after a flat-to-up year in 2024, vehicle production increases 45% per year through year-end 2029. After this year, we expect that Tesla's ability to scale will be a function of management bandwidth and Tesla's ability to open new factories. As production scales from 1.8 million units per year today to 6-16 million per year, the law of large numbers should lead to lower growth rates. Robotaxis likely ease manufacturing scaling by simplifying vehicle designs as well as generating additional capital from highly cash flow generative rides. We also expect that most robotaxis will be sold to fleet owners rather than to individuals, potentially simplifying the sales funnel.

2029 Model Considerations That Are Not Key Drivers Of Our Price Estimates

Optimus

We assume that Optimus will have minimal impact on our price target. Over the next decade, we expect Tesla to become a leading manufacturer and service provider of robots that move through physical space, as it will have the opportunity to leverage learnings from robotaxis as well as its in-house inference chips, training compute, and manufacturing scale. Tesla expects Optimus to be completing useful factory tasks by year-end¹³ Assuming that it were able to subsume 10-20% of Tesla's labor hours worked with productivity equal to or twice that of its human counterparts, Optimus could save Tesla $3-4 billion, or 1-2% in manufacturing costs, in 2029.

Our research suggests that generalizable humanoid robots represent a ~$24 trillion global revenue opportunity at scale, ~50% in manufacturing.¹⁴ Should it decide to sell Optimus externally, Tesla could capture a significant share of this multi-trillion-dollar market, though the meaningful commercialization ramp is likely to happen beyond the five years captured in this model.

Stationary Energy Storage

We estimate that Tesla's stationary energy storage growth will outpace its vehicle growth, accommodating ~850GWh of energy in 2029. If batteries are a limiting factor, however, Tesla is likely to prioritize robotaxis to generate a higher return on investment, as shown below.

Business Opportunities Not Included In The Model

Tesla Semi

Tesla plans to commercialize the semi in 2026. We do not believe the Tesla Semi will contribute significantly to Tesla's value within our five-year investment time horizon.

Supercharging Network

This year, Tesla solidified its technology as the North American Charging Standard, with buy-in from Ford (F) and General Motors (GM), and partners like BP, which is funding incremental supercharger expansion.¹⁵ Now, with outside capital, we believe Tesla is likely to reorient its funding toward charging infrastructure optimized for robotaxis. While essential for electric vehicles, according to ARK's research, superchargers are unlikely to generate significant revenue for Tesla. Even if the Supercharger network were to continue growing at current rates and its utilization were to increase from ~11% on average to the ~34% typical of gas stations,¹⁶ the financial impact on our price target would pale in comparison to the scaling of Tesla's robotaxi business.

FSD Licensing

Tesla currently is in discussions to license its FSD software to one automaker.¹⁷ While potentially a monumental event for Tesla, based on traditional automotive design to production timelines,¹⁸ non-Tesla FSD-equipped vehicles probably will not debut for years.

Even so, much like over-the-air updates, automakers might trial FSD on select vehicle models, perhaps prioritizing electric drivetrains, which recently have pulled back on traditional auto production schedules. That said, our research suggests that FSD licensing is unlikely to move the needle on Tesla's revenue or earnings during the next five years.

AI-As-A-Service

Tesla's plans to offer distributed AI-inference-as-a-service (IaaS) and Dojo training-as-a-service probably is outside our five-year investment horizon.¹⁹ While integrating distributed inference-as-a-service into personally owned vehicles could present challenges - like unstable Wi-Fi connectivity and bottlenecks in scheduling during owner downtime - a robotaxi fleet could address some of the issues. Dedicated infrastructure for charging and stable internet access in conjunction with dependable schedules for vehicle driving hours could result in an organizational structure that can support AI IaaS services.

Tesla began production on its next-generation Dojo tile this year, signaling progress, despite management downplaying the Dojo effort during its first quarter earnings call in January 2024. Dojo could become a meaningful contributor to Tesla's internal compute capacity, but, similar to last year, we do not expect that external use of Dojo will contribute meaningfully to Tesla's value over the next five years.

Risks And Limits Of Our Monte Carlo Model²⁰

ARK's 45 independent variables cover scenarios that, we believe, are plausible outcomes for Tesla over the next five years. An unexpected event, such as Elon Musk's sudden departure from the company, or a natural disaster or pandemic, could throw these outcomes off considerably.

Conclusion

Based on the updates delineated above, ARK's price target for Tesla is $2,600 per share in 2029. Our bear and bull cases suggest that Tesla could be valued between ~$2,000 and ~$3,100 per share in 2029. We have published our simulation model on GitHub and invite readers to explore and test assumptions and/or create visualizations from the simulations.

Disclosure

The forecasts and price estimates herein are subject to revision by ARK Invest ("ARK") and provided solely as a guide to current expectations. Forecasts regarding broad markets and individual issuers are not, and are not intended to be, representative of any ARK-managed investment product or the characteristics of any ARK portfolio.

Disclosure: ARK's statements are not an endorsem*nt of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.

FORECASTS ARE HYPOTHETICAL AND HIGHLY SPECULATIVE, AND PRESENT MANY RISKS AND LIMITATIONS. While ARK believes that there is a sound basis for the forecasts presented, they are provided for illustrative purposes only and no representations are made as to their accuracy.

The recipient is urged to use extreme caution when considering the forecasts, as they are inherently subjective and reflect ARK's inherent bias toward positive expected results. Any positive results should be viewed as a measure of the relative risk of such companies, with higher forecasts generally reflecting greater risk. There is no guarantee that any results will align with the forecasts, and they might not be predictive. Some or all results may be substantially lower than projected results.

The forecast has not been achieved by the company, and like all modeled, projected, or hypothetical information, it is important to note that there are multiple versions of a model, and ARK has a conflict of interest in that we have an incentive to show you the best performing results. These forecasts rely on models, which have several inherent limitations, including 1) reliance on a variety of data obtained from sources that are believed to be reliable, but might be incorrect, inaccurate or incomplete and ARK does not guarantee the accuracy or completeness of any information obtained from any third party, 2) potential inclusion of inherent model creation biases, data discrepancies and/or calculation errors that could cause actual results to differ materially from those projected, and 3) NO reflection of the impact that material economic and market factors might have had and do not involve market risk. The forecasts rely on assumptions, forecasts, estimates, modeling, algorithms and other data input by ARK, some of which relies on third-parties, that could be or prove over time to be incorrect, inaccurate or incomplete.

The forecasts are based on a variety of criteria and assumptions, which might vary substantially, and involve significant elements of subjective judgment and analysis that reflect our own expectations and biases, which might prove invalid or change without notice. It is possible that other foreseeable events that were not taken into account could occur. The forecasts contained herein represent the application of the simulation models as currently in effect on the date first written above, and there can be no assurance that the models will remain the same in the future or that an application of the current models in the future will produce similar results because the relevant market and economic conditions that prevailed during the period will not necessarily occur. The results will not be updated as the models change, or any information upon which they rely changes. There are numerous other factors related to the markets in general or to the public equity security specifically that cannot be fully accounted for in the preparation of forecasts, all of which can adversely affect actual results. For these reasons, forecasted results will differ, and could differ significantly from actual results. FORECASTS ARE PRESENTED FOR ILLUSTRATIVE PURPOSES ONLY.

ARK does not have investment banking, consulting, or similar direct relationships with the subject company.

• ¹Earnings before interest, taxes, depreciations, and amortization.
• ²Keeney, T. 2020. "Tesla Should Launch a Human Driven Ride-Hail Service to Accelerate Its Autonomous Strategy." ARK Investment Management LLC.
• ³Uber Technologies. 2024. "Uber-Q1-24-Earnings-Supplemental-Data."
• 4Ali, E. 2024. "Tesla FSD Beta v12.3 at Challenging Unprotected Left Turns." CleanTechnica.
• ⁵Byeon, C. 2024. "Tesla FSD Drove the Entire Way…" X.
• ⁶Tesla. 2024. "Q1 2024 Update."
• ⁷Musk, E. 2024. "Yeah, 99% of people have no idea." X.
• ⁸Musk, E. 2024. "Yeah, seeing it everywhere." X.
• ⁹Musk, E. 2024. "Tesla Robotaxi Unveil on 8/8." X.
• ¹⁰Tesla. 2024. "Full Self-Driving (Supervised) 30-Day Trial."
• ¹¹Bloomberg News. 2024. "Tesla Soars on Tentative China Approval for Driving System." Reuters. 2024. "Exclusive: Tesla makes push to roll out advanced FSD self-driving in China."
• ¹²Tesla. 2024. "Q1 2024 Update."
• ¹³Motley Fool Transcripts. 2024. "Tesla (TSLA) Q1 2024 Earnings Call Transcript."
• ¹⁴ARK Investment Management LLC. 2024. Big Ideas 2024: Disrupting the Norm, Defining the Future."
• ¹⁵St. John, A. 2024. "One of the Last Major Holdouts Says it Will Adopt Tesla's Charging Technology." Business Insider. See also Bp. 2023. "bp boosts EV charging network with $100 million order of Tesla ultra-fast chargers."
• ¹⁶We think it's unlikely that superchargers will need to achieve gas station level utilization because of the ability to charge vehicles at home and where electricity is available, as opposed to the limited availability of on-site gasoline. See Keeney, T. 2016. "Supercharger: A Charge Could Cost Half the Price of Gas."
• ¹⁷Lambert, F. 2024. "Tesla is in talks with 'one major automaker about licensing Full Self-Driving'. " Electrek.
• ¹⁸Motley Fool Transcripts. 2024. "Tesla (TSLA) Q1 2024 Earnings Call Transcript."
• ¹⁹Motley Fool Transcripts. 2024. "Tesla (TSLA) Q1 2024 Earnings Call Transcript."
• ²⁰Note: A Monte Carlo simulation models the probability of different outcomes in a process that cannot be predicted easily because of the intervention of random variables. For further elaboration, see Kenton, W. 2023. "Monte Carlo Simulation: What It Is, History, How It Works, and 4 Key Steps." Investopedia.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

ARK Investment Management