Cathie Wood’s new Tesla price target is out

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ARK Invest founder and

Tesla

bull Cathie Wood has published a new Tesla target price. It’s a doozy.

Wood expects Tesla to hit $ 3,000 per share by 2025. That means Wood expects to earn an average of about 50% per year between now and 2025 based on Tesla’s (ticker: TSLA) Friday closing price of $ 654.87 per share.

That would make Tesla worth about $ 3.6 trillion based on stock outstanding, including management stock options and other potential stocks.

Apple

(AAPL), in comparison, is worth about $ 2 trillion today. Apple would need to gain about 30% per year on average to maintain its title as the most valuable American company.

A target Wood set in 2018 was $ 800 per share. It was an aggressive target at the time as Tesla stock traded around $ 70. But the stock hit $ 800 in early 2021, bringing investors more than 100% a year on average since early 2018. It was an incredible run.

A major reason for the latest price target hike appears to be greater potential for a self-driving taxi company.

“In our latest valuation model, ARK assumed that Tesla had a 30% chance of driving fully autonomously in the five years to 2024,” says ARK’s research paper. “Now ARK estimates that the probability in 2025 is 50%.”

Armed with autonomous driving, Tesla-powered robotaxis could translate into $ 160 billion in additional Ebitda (earnings before interest, taxes, depreciation and amortization) for the company. Tesla generated approximately $ 4.8 billion in Ebitda in the past year.

Tesla’s management, for its part, is aiming for an average unit volume growth of 50% per year for the foreseeable future.

Barron’s recently took a guess where Wood’s new target price could land. Our estimate was $ 2,300 per share. It was not a projection based on fundamentals. Instead, Wood said Barron’s Jack Hough said she expected the stock to significantly outperform her 15% return for buying a stock. We thought an average annual return of about 30% was significantly better than 15%, but we were low.

Tesla’s stock recently hit a roadblock. 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, fast-growing companies generate most of their cash flow well into the future. Higher interest rates make the promise of future cash a little less attractive in relative terms than a higher yield on bonds today.

The yield on the 10-year Treasury bill has recently risen past 1.7%, up around 0.5% in recent weeks.

Tesla shares are down about 7% so far, trailing comparable returns from the

S&P 500

and

Dow Jones Industrial Average.

The stock is down about 27% from its 52-week high in January. At the time, the return on the 10-year Treasury was about 1.1%.

Write to Al Root at [email protected]