Cathie Wood is the head of Ark Investment Management, which manages eight exchange-traded funds (ETFs) to give investors exposure to companies developing innovative technologies, from electric vehicles to robotics to artificial intelligence (AI). 

Wood is one of the most bullish voices on Wall Street when it comes to the long-term growth potential of the tech sector, and none of her stock picks embody that stance more than Tesla (TSLA -1.57%), which is Ark's largest overall holding. 

Tesla has delivered a whopping 25,859% return for shareholders since it listed publicly in 2010, and it has completed two stock splits to ensure it continues to remain accessible to smaller investors. The latest was in August 2022, when the electric vehicle (EV) giant increased its share count threefold in order to reduce its stock price by two-thirds. 

Tesla stock currently trades at $291.26, but Ark Invest thinks it could climb to $2,000 over the next four years. That means there's plenty of upside left in the tank, even for investors who don't own it yet. But Ark's prediction depends on a substantial change to Tesla's business model, and here's what that might look like. 

Tesla leads the electric vehicle industry, but it's shifting its focus

Tesla is the undisputed global leader in electric vehicle production and sales right now. Even though competition is growing, the company has a long head start on both legacy automakers and start-ups entering the EV space. Plus, it has the most advanced production processes in the industry, which have led to a gross profit margin far superior to any other manufacturer.

That carries substantial benefits in tough economic times like the present because Tesla can slash the sale price of its vehicles to stoke demand without completely eroding its bottom-line profitability. That gives the company a major advantage over its competitors, which are still trying to scale their EV presence. 

Obviously, Tesla's goal is to sell as many cars as possible because that's how it makes money. However, there's another reason CEO Elon Musk wants to flood the market with Teslas: They create an ecosystem for the company's software products. It has developed a leading autonomous self-driving platform which customers have already used for a whopping 150 million miles in the real world in beta mode, and it could create the most lucrative financial opportunity in Tesla's history. 

Musk says the average passenger vehicle is only used for about 12 hours per week, meaning it spends most of its time parked up. As a result, he wants to build an autonomous ride-hailing network (think Uber, but without human drivers) in which Tesla owners can lend their cars when they aren't using them. Tesla would earn revenue from licensing the software to each customer, and the company would also get a share of the revenue from each ride-hailing trip. 

Musk thinks this will transform the company's economics. He says it could increase the gross margin from producing each vehicle to upwards of 70% (from sub-20% today). Theoretically, Tesla could sell each vehicle at cost and rely on software sales and ride-hailing to generate a profit. That completely sets it apart from its competitors, which are simply selling cars alone. 

Tesla's revenue breakdown could change drastically

Tesla just reported its financial results for the second quarter of 2023 (ended June 30). It delivered a record-high 466,140 vehicles and generated $24.9 billion in total revenue; the latter figure was up 47% year over year. Of course, about 82% of its revenue came from electric vehicle sales, with minor contributions from its solar energy business and its services segment. 

The company's vehicle price cuts ate further into its gross margin in Q2, with the figure coming in at 18.2% compared to 25% a year ago. That was even lower than its 19.3% margin in Q1, and it's likely to continue to shrink as Tesla battles this tough economic period and fends off more competition.

Here's a breakdown of Tesla's financial results from the quarter:

A flow chart of Tesla's financial results from the second quarter of 2023.

Data source: Tesla. Chart by The Motley Fool.

But as I touched on earlier, Tesla's financials could transform over the next few years if Musk manages to steer customers toward its autonomous technology. 

Ark Invest is predicting electric vehicle sales will account for less than half the company's total revenue by 2027, with robotaxis (cars serving in the autonomous ride-hailing network) accounting for 44%. That would be a rapid ascent considering robotaxi revenue is effectively zero today. 

It could catapult Tesla stock 587% higher

The onset of full self-driving vehicles could send Tesla's revenue to over $1 trillion annually in 2027, according to Ark Invest. The firm believes the company would then be valued at $6.1 trillion, which translates into $2,000 per share, or 587% higher than where it trades as of this writing. 

Is that realistic? Tesla is expected to generate $100 billion in revenue this year, so it would have to grow that figure at a compound annual rate (CAGR) of 78.7% for the next four years to satisfy Ark's prediction. Considering Tesla has only grown its revenue at 39.6% per year over the last four years, it appears unlikely to hit that mark. Plus, Musk himself is aiming to grow the company at a CAGR of just 50% going forward. 

Therefore, it's possible Ark's numbers are a little too optimistic. But with that said, the firm is betting the autonomous ride-hailing industry will grow from generating practically zero revenue today to $4 trillion over the next five years. If that happens, then Tesla would only need an 11% market share to make Ark's predictions a reality. 

If that scenario plays out, there's a potential 587% gain on the table in Tesla stock between now and 2027.