Tesla to $3,000?

Aside from the fact that she spells her name with an “ie,” I have nothing against Cathie Wood. 

But I do want to know how she managed to stroll in seemingly out of nowhere and take a seat smack-dab at ground zero of the financial world.  

I mean, I get it: Warren Buffett is still mentally scrappy. But he’s way past his fighting prime. He’s not as limber as he once was. And his body shots don’t leave a mark. I bet I could take him without a single roundhouse kick….

But an attention hound like Elon Musk? Not a chance you push him out of center stage. You just know he fights dirty. You even think about taking his spot in the limelight, and you’ll probably get shanked.

Seriously, though, I listen to Bloomberg radio all the time, and I swear I never heard of Cathie Wood until about six weeks ago.

Now, believe it or not, I’m not really much of a social butterfly anymore. And with COVID eager to kill me, I’m practically a hermit. So it’s possible I just missed her introduction or coming out party or whatever it was…

I’ve now heard her interviewed at least three times. She’s in the hedge fund world, managing an ETF called the ARKK Fund (NYSE: ARKK). She does the tech visionary thing — investing in emerging and disruptive technology. She’s sharp. 

And even better, she has passion. So when she tells you the tech story — how much our lives will be changed by tech, how revolutionary it will all be, and how very few people truly appreciate this particular era, which is a turning point in the history of mankind — well, you’ll probably be prompted to review some of your facts and baseline assumptions. I definitely ran through the old mental checklist to make sure I’m at least in the ballpark.

But then Ms. Wood had to go and say she thinks Tesla shares will trade at $3,000 a piece… in 2025. 

Sigh. What a letdown. I was kind of starting to enjoy the new kid on the financial block. 

You Can Fool Some of the People…

Now, I’m well aware that we Angel editors rag on Elon Musk and Tesla fairly often. I hope you don’t think we hold a grudge or have an ax to grind or anything like that…

We don’t. We’ve all learned a long time ago that emotions, biases, grudges, preconceived notions, sweeping generalities — all these serve one purpose for an investor: They help you miss opportunities and lose money. 

If you want to be a successful investor, you check all that crap at the door and walk into the room as wide-eyed as a 6-year old on their first day of first grade. 

Because a successful investor takes in as much as possible, letting the flood of information, opinions, numbers, and projections wash over them without judgment or ridicule. 

Of course, no one can take it all in. There’s too much, and new information never stops coming. Each investor has to decide for him or herself when enough is enough. And this is actually a critical part of being a successful investor. Because this is the process by which you discover what kind of investor you are.  

Everybody has to specialize at some point. The size of your investment universe should be determined by your ability to comfortably monitor it. If it’s too big, you’ll know because stuff will start falling through the cracks.

My point is simply that when one of us tells you we like or don’t like a certain stock, well, no one’s right 100% of the time. But what you will get from us is a well-thought out and well-reasoned argument. 

For me, I’m very impressed with anyone who has had the stones to hold Tesla to the levels where it now trades. It takes some serious conviction to hold through some of the stunts Musk has pulled. Funding secured, smoking a joint on TV, and so on…

I know I’m not that kind of investor — more power to you if you are.

But I am the kind of investor who will tell you why Tesla is highly unlikely to be a $3,000 stock in four years.

Red Means Run, Son — Numbers Add up to Nothing

Right now, at $690 a share, Tesla is worth $650 billion. For those shares to get to $3,000, it means that Tesla is worth around $2.7 trillion. Trillion, with a T.

In 2013, the entire world bought 57.5 million cars. In 2019, 65.5 million new cars were driven off lots around the world. 

So let’s be generous and project that six-year unit growth of 8 million out to 2025, which gets us to 73.5 million new cars. Of that 73.5 million, the smart people say that 12.5 million of them will be EVs. Tesla’s share of that might be 2.5 million, because that’s all it will be able to build.

Now, do you know how many car companies are valued higher than their annual revenue? One — Tesla. 

Toyota, Volkswagen, you name it — every other car company is worth less than its annual revenue. That’s because profit margins for automakers are really small. 

Competition means things like margins don’t change much for any particular industry over time. One company innovates, and the others copy. It’s hard to raise prices in a competitive market.

Maybe Tesla will change the math. Maybe it’s different this time.

More likely, Tesla will get valued more like its peers in 2025. 

Now, I haven’t mentioned anything about batteries. But did you know that 2025 is the year the solid-state lithium battery should hit the market?

Also, did you know that 2025 is the year that Volkswagen is expected to surpass Tesla in EV sales? 

Yep, 2025 is gonna be a significant year for Tesla, all right. Probably not in a good way, though…

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.