Tesla shares were limping along around $200 in May 2019, about where they had traded five years earlier, when Elon Musk’s biggest Wall Street booster tried a gutsy experiment. Cathie Wood and her Ark Investment Management were already well-known for their way-out-there predictions that Tesla would build a fleet of robotaxis worth $1 trillion and that its shares would soar 20- or 30-fold by 2023. Now she stirred the pot again by publishing online Ark’s new bull’scase valuation of $1.4 trillion, implying a share price above $6,000, complete with every Excel calculation and assumption behind those estimates.
Criticism came fast and furious. Tesla short seller Jim Chanos, famed for uncovering Enron’s fraud, took Wood to task over Ark’s forecasts of Tesla’s gross margins. “[W]hat Ark has produced is a forward pricing for Tesla, not a valuation,’’ sniffed valuation expert Aswath Damodaran, a finance professor at New York University. The model, he noted, didn’t include a discounted cash-flow analysis and carried incomplete forecasts on the costs Tesla would incur to scale its vehicle production. That $1 trillion value Ark was placing on Tesla’s nonexistent robo-taxi fleet? “Strikes me as more fairy tale than valuation,’’ Damodaran opined.
Sixteen months later, Tesla shares—after a five-for-one August stock split—were trading at $400. In other words, they’d risen tenfold, driven up by speculation and excitement over Musk’s autonomousdriving and battery technologies and Tesla’s stronger-than-expected financial performance. Musk’s car company is now worth five times more than Ford and General Motors combined, and Wood has made a fortune. The nitpicking skeptics, she believes, have missed the big picture: As electric cars go increasingly mainstream, production efficiencies and advances in batteries and other technologies will cut what it costs to make them. And as sticker prices fall, demand will surge, including from businesses like ride sharing companies. In September, Musk promised a $25,000 car within three years.
Meanwhile, Wood, 64, is perfectly happy to have a chorus of critics: “It almost makes me feel comfortable, to be honest, because it means if we’re right, then the rewards will be pretty enormous.”
Wood’s comfort with going her own way has helped her turn Ark into one of the fastest-growing and top-performing investment firms in the world. Its flagship $8.6 billion Ark Innovation Fund is up a staggering 75% in 2020 and has returned an annual average of 36% over the past five years, nearly triple that of the S&P 500.
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