Wood expects Tesla to hit $3,000 a share in 2025. That means Wood expects to earn about 50% a year on average between now and 2025 based on Tesla’s (ticker: TSLA) Friday closing price of $654.87 a share.
That would make Tesla worth roughly $3.6 trillion based on shares outstanding, including management stock options and other potential shares.
(AAPL), in comparison, is worth roughly $2 trillion today. Apple would have to gain roughly 30% a year on average to keep its title as the most valuable U.S. company.
A target Wood set in 2018 was $800 a share. It was an aggressive target at the time, as Tesla shares were trading around $70. But the shares hit $800 early in 2021, earning investors more than 100% a year on average since the beginning of 2018. It has been an incredible run.
A big reason for the newest price target bump seems to be higher potential for a self- driving taxi business.
“In our last valuation model, ARK assumed that Tesla had a 30% chance of delivering fully autonomous driving in the five years ended 2024,” ARK’s research paper says. “Now, ARK estimates that the probability is 50% by 2025.”
Armed with autonomous driving, Tesla-operated robotaxis might translate into $160 billion in additional Ebitda (earnings before interest, taxes, depreciation, and amortization) for the company. Tesla generated about $4.8 billion in Ebitda this past year.
Tesla management, for its part, targets 50% unit volume growth a year on average for the foreseeable future.
Barron’s recently took a guess at where Wood’s new target price might land. Our estimate was $2,300 a share. It wasn’t a projection based on fundamentals. Instead, Wood told Barron’s Jack Hough that she expected the stock to do substantially better than her 15% return hurdle rate for buying a stock. We believed an average annual return of about 30% was substantially better than 15%, but we were low.
Tesla’s stock has hit a roadblock recently. Higher interest rates have hurt high growth stocks like Tesla more than others. For starters, higher interest rates make it more expensive to finance growth. Second, high growth companies generate most of their cash flow far in the future. Higher rates make the promise of future cash a little less attractive, relatively speaking, than higher yield from bonds in the present day.
The yield on the 10-year Treasury note recently rose past 1.7%, up about 0.5% in recent weeks.
Tesla stock is down by about 7% year to date, trailing comparable returns of the
Dow Jones Industrial Average.
The stock is off about 27% from its 52-week high in January. At that time, the yield on the 10-year Treasury note was about 1.1%.
Write to Al Root at [email protected]