Has Cathie Wood lost her love for Tesla (TSLA 3.91%)? At first glance, you might think that's the case. Two of her Ark Invest exchange-traded funds (ETFs) sold shares of Tesla last month.
However, those sales merely reflected minor rebalancing moves and didn't involve a significant block of shares. The reality is that Wood remains as big of a Tesla fan as ever.
She appeared on CNBC's Fast Money program on Sept. 18 and talked about her views on Tesla. Wood predicted that Tesla stock will skyrocket to $1,400 or more by 2027. Here's why she could be right.
Wood's bear case for Tesla
It's important to note that Wood's $1,400 price target for Tesla is her bear case for the stock. She thinks it's likely that Tesla's share price will rise significantly higher than that over the next four years.
Wood does foresee strong sales growth for Tesla's electric vehicles (EVs). However, she told CNBC's Melissa Lee earlier this week that EVs make up only around one-third of Ark Invest's projected valuation for Tesla. The other two-thirds of Ark's valuation is related to autonomous vehicles. In particular, Wood believes that Tesla has a massive opportunity in autonomous ride-hailing, sometimes referred to as robotaxis.
Ark Invest detailed in a report released in April 2023 that Tesla could generate annual net revenue in the ballpark of $200 billion by 2027 from autonomous ride-hailing. Again, that's the bear case.
No, Tesla doesn't have a robotaxi service right now. However, Ark expects the company to launch one relatively soon, with 2024 as the most likely timing.
Why Wood could be right about Tesla
There are several factors that could prove Wood's prediction wrong. Competition especially stands out, considering that a few of Tesla's rivals already have robotaxi services in selected U.S. markets. But Wood could also be right about Tesla stock soaring more than 5x by 2027.
She stated in the CNBC interview on Monday, "Tesla is in the pole position here in the United States." Wood argued that Tesla has a major advantage because it has more data than all the other autonomous vehicle companies combined. The Ark Invest leader doesn't look for Tesla to command a robotaxi monopoly because of its edge. However, she thinks that autonomous ride-hailing will be "a winner-take-most market." And that winner, in her view, will be Tesla.
In particular, Wood believes that safety will be a key factor behind Tesla's success. She noted that auto deaths are rising in the U.S. Texting while driving is an especially big issue. Human error ranks as the top cause, by far, in motor vehicle accidents.
Wood thinks that shifting to vehicles driven by artificial intelligence can help address these problems, saying, "People driving in Tesla cars are 40%-plus safer with Autopilot and FSD [full self-driving capability] than in other cars." Ark Invest reported in April that its research found that "Tesla's FSD is 5x safer than a manually driven Tesla" adjusting for use on regular city streets only.
What's Ark's bull case for Tesla?
If a return of more than 5x by 2027 is Wood's bear case for Tesla, what is her bull case for the stock? Ark Invest thinks that Tesla's share price could skyrocket nearly 9.5x to $2,500 over the next four years. In this bull model, Tesla's robotaxi revenue could grow to more than $600 billion by 2027.
There's one significant fly in the ointment with Wood's full-blown bullish outlook for Tesla, though: It depends on the company rolling out its robotaxi service in the fourth quarter of 2023. That timing appears to be highly unlikely.
Tesla CEO Elon Musk did say in the company's second-quarter conference call that he expects the FSD technology will "be better than humans by the end of this year." But he acknowledged that Tesla hasn't won U.S. regulatory approval yet. Musk also admitted: "I've been wrong in the past. I may be wrong this time."
Many might argue that Wood's bear case price target for Tesla is also unrealistic. However, if her assumptions about the robotaxi market -- and Tesla's advantages in that market -- prove to be correct, so will her prediction about the stock.
There's one thing we know for sure: With Tesla ranking by far as the top holding for Ark Invest, Wood is putting her money (and Ark investors' money) where her mouth is.
