Cathie Wood is the CEO and chief investment officer at Ark Invest, an asset management firm focused on disruptive innovation. Wood and her team manage several thematic index funds that offer exposure to technologies like artificial intelligence (AI).
Ark sold down its position in Nvidia throughout February, and the selling has continued in March. That may strike readers as strange given that Nvidia chips are the gold standard in AI infrastructure. But Nvidia shares have soared 260% over the past year, so it appears Ark is taking profits and reinvesting capital into other AI companies.
For instance, Wood and her team have been buying shares of Tesla (TSLA -1.11%) in March. Here's what investors should know about the electric carmaker.
Tesla is still the market leader in battery electric vehicles
Tesla reported disappointing financial results in the fourth quarter. Revenue increased just 3% year over year to $25.1 billion, operating margin contracted nearly 800 basis points, and non-GAAP net income declined 39% to $2.5 billion. The company also expects vehicle volume to grow more slowly this year as it prepares its next-generation, low-cost vehicle platform. But there is some good news for shareholders.
Tesla's disappointing financial results can be attributed to macroeconomic headwinds. The company cut prices throughout the year to offset muted demand caused by high interest rates. Those price cuts stunted revenue growth and cut deeply into margins. But top-line growth and profitability should improve as interest rates begin falling, which could happen later this year.
Additionally, Tesla still led the industry in battery electric vehicle sales last year, capturing 19.1% market share, up from 18.2% in 2022. That means the company is well positioned to benefit as electric vehicles continue to displace internal combustion engines. To quantify that opportunity, Grand View Research says electric vehicle sales will grow 15% annually through 2030.
Finally, Tesla plans to build a next-generation vehicle in late 2025 that could support market share gains. That vehicle will be assembled with new manufacturing technology that could reduce production costs by 50%, according to management. In turn, the company will be able to sell these new vehicles at a much lower price than current models, perhaps as low as $25,000, meaning more consumers will be able to afford a Tesla.
Tesla could be a leader in autonomous vehicle technology
Much like Apple monetizes its devices with add-ons like cloud storage, Tesla hopes to monetize its vehicles with adjacent software and services. For instance, the company recently opened its Supercharger network to third-party automakers. Wedbush Securities analyst Dan Ives believes paid charging could generate $10 billion to $20 billion in annual revenue by 2030.
Similarly, Tesla sells full self-driving (FSD) beta subscriptions in certain geographies, and demand should increase as the product approaches true autonomy. Tesla also plans to monetize FSD with licensing deals and mobility (robotaxi) services in the future. Morgan Stanley analyst Adam Jonas believes FSD software and mobility services could generate $70 billion in annual revenue by 2030.
Tesla is already a leader in autonomous driving technology. Its Dojo supercomputer is purpose-built for training artificial intelligence (AI) vision systems, and it reportedly offers six times better performance than GPU alternatives. Tesla also has 50 times more driving data than its closest competitor. That combination gives the company an important advantage.
Specifically, Tesla should be able to train its AI models more effectively than its peers, meaning FSD can be superior to other autonomous driving platforms. Data from Ark Invest supports that theory. Tesla's in FSD mode experience roughly one crash per 3.2 million miles, making them 16 times safer than the national average (one crash per 192,000 miles) and six times safer than Waymo's autonomous vehicles (one crash per 476,000 miles).
Tesla has not provided a specific timeline for branching into mobility services, but in April 2022, CEO Elon Musk said the company hopes to achieve volume production of a dedicated robotaxi in 2024. More recently, Musk told CNBC that FSD software and autonomous ridesharing services could push gross margins to 70%, up from 18% last year.
Tesla stock trades at a reasonable valuation (for certain investors)
Wall Street expects Tesla to grow sales 16% annually over the next five years, but that figure encompasses a wide range of estimates given the uncertainty surrounding its FSD technology. For instance, Adam Jonas at Morgan Stanley thinks Tesla could grow sales 19% annually over the next seven years, and Cathie Wood at Ark Invest thinks sales could grow 60% annually through 2027.
The variation between those estimates makes life difficult for investors. The stock currently trades at 6.3 times sales, a tolerable valuation if the Wall Street consensus is correct, a reasonable valuation if Morgan Stanley is correct, and a dirt-cheap valuation if Ark Invest is correct. With that in mind, investors who think Tesla can meaningfully monetize FSD should consider buying a few shares today.
