The day after a lackluster fourth-quarter and full-year 2023 earnings report, Tesla (NASDAQ: TSLA) shares slid 12% on Jan. 25, and currently remain more than 50% off of highs. With macroeconomic headwinds forming and limited growth in the electric vehicle industry expected in the near term, Tesla investors are having to readjust expectations for the first time in a while.
But not popular investor Cathie Wood. Treating the sell-off as a buying opportunity, the funds of the Ark Invest CEO scooped up around 377,000 shares, good enough to bring Ark’s total position up to a value of $796 million and around 6% of its entire portfolio.
While Tesla’s success in the electric vehicle industry aligns perfectly with Ark Invest’s strategy of investing in disruptive and innovative companies, it probably isn’t why Wood went on the recent buying spree. The real reason boils down to one thing: artificial intelligence (AI).
As Wood plainly put it in a November 2023 interview on CNBC, Tesla is the “biggest AI play” on the market today. But what does that really mean? With a deeper exploration, it becomes abundantly clear why Wood and other AI enthusiasts are so bullish on Tesla, CEO Elon Musk, and the company’s various AI frontiers.
The taxis that drive themselves
Wood’s enthusiasm regarding Tesla’s AI future is primarily related to autonomous driving. Even though the technology has yet to completely replace drivers, Tesla achieved a major breakthrough in 2023. Previously, Tesla software engineers would code in responses for vehicles to make, but now the vehicle’s course of action is determined by artificial intelligence neural networks that learn to drive just like you and me. The breakthrough holds the potential to scale development of the full-self driving software much faster and efficiently since humans are no longer needed to hardcode individual responses.
Once full autonomy is reached, a reality Musk sees happening by late 2025, Musk aims to launch a robotaxi business where users can hail rides from self-driving vehicles. Citing what he has called “quasi-infinite” demand, Musk believes the successful launch of a robotaxi fleet will be a moment talked about 100 years from now. While at times eccentric in his thinking, Musk isn’t alone in the belief that robotaxis could transform society and spur financial growth for the company.
Conducting a Monte Carlo simulation that used computer algorithms to predict a range of potential outcomes based on mix of possible variables, analysts from Ark Invest attempted to quantify the impact a robotaxi business could have on Tesla’s bottom line. Based on the results, Ark Invest projected in April 2023 that robotaxis could eventually account for 44% of total revenue and help push the company past the $1 trillion revenue mark, nearly a 4,000% increase from today. Should that estimate become reality, Tesla could reach $2,000 per share, a far cry from current prices of around $190.
These numbers may sound astronomical, but that doesn’t mean they should be dismissed. One of the primary reasons Wood and her team think robotaxis could generate significant revenue lies in the assumption that a robotaxi business would operate similarly to software-as-a-service (SaaS) products.
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