Tesla could reach $7K by 2024: Analyst

Yahoo Finance's Akiko Fujita is joined by ARK Invest Analyst Tasha Keeney to discuss Tesla's upcoming stock split.

Video Transcript

AKIKO FUJITA: Well, two stocks that have helped drive the recent rally, Apple and Tesla, both shares have surged since announcing stock splits. Apple shares up about 18% since the end of July, and Tesla up nearly 40% since announcing the stock split. Let's bring in Tasha Keeney. She is an Analyst at ARK Invest and covers Tesla there.

Tasha, let's talk about what we have seen in the run-up to this stock split. This is taking effect on Monday. As far as we understand, it doesn't change the fundamentals of the company, but it seems like investors just can't get enough of it.

TASHA KEENEY: Yeah, well, you know, I think you nailed the point there, that it doesn't really change the fundamentals of the company or the story. So you know, I think from-- from our perspective, you know, a stock split now, especially with fractional shares, shouldn't have that big of an impact. But of course, you could see some price appreciation from investors basically sort of misunderstanding it and thinking that it might be cheaper.

But you know, the long-term story with Tesla, our thesis is still intact. We think it's a leader in electric vehicles and full autonomy. And we think it's three to four years ahead of the competition on that front. So from that perspective, you know, our expected value for Tesla by 2024 is still $7,000.

AKIKO FUJITA: $7,000?

TASHA KEENEY: Yes.

AKIKO FUJITA: I mean, has the fundamentals-- that's a pretty high target when you consider where it's trading at right now. You know, you mentioned that there's this fundamental misunderstanding of what a stock split is, but we've heard a lot of investors or a lot of analysts who've come on and talked about the potential in the Battery Day, what could happen moving forward. I mean, is there a fundamental case for Tesla that has changed over the last month that has driven this stock even higher?

TASHA KEENEY: Well, I think-- you know, I think, in general this year, there's been a couple of things on Tesla's side. Of course, the earnings report was received well, the possibility of S&P inclusion. But really, I think that during the coronavirus shutdowns, it's become even more clear-- so if we just look at the electric vehicle opportunity, if you think of a traditional automaker who is investing in electric vehicles and basically how they're going to handle that when their core business is really sinking, I mean, that just becomes a lot more difficult.

And they we're already struggling with the technology. It's not their core expertise. They have to build an entirely new car. If you want to copy Tesla that means building it from the ground up. That just becomes 10 times harder in a time like now.

So I really feel like Tesla's leadership in the field is solidified. And then, of course, on the autonomous front, you know, we still see Tesla has much more scale than any other automaker, than any startup, because it's using its customer fleet to collect data. So that's still ongoing. So you know, again, I think more-- more so now than ever, it's-- it's sort of, as an innovator because Tesla's so far ahead, it now has that sustained lead.

AKIKO FUJITA: There's certainly a lot of excitement riding on Battery Day later in September. What specifically are you expecting on that front?

TASHA KEENEY: Yeah, so my-- my partner analyst Sam Korus has done a lot of great work on-- on the batteries for Tesla. So one thing that we're currently excited about is there was some teasing of basically an improvement in energy density that would make it so that batteries would allow for electric jets. So Elon Musk has talked about supersonic electric jets before, but said that the energy density wasn't there.

Now, he's saying that could happen in the next three to four years. What that means is that could be an incremental improvement for electric vehicles, but where it really makes the difference is for vehicles that fly. So this could enable things like electric air taxis. So actually, you know, according to Sam's work, an electric eVTOL, a vertical takeoff and landing vehicle, could actually transport you, for instance in New York, from downtown to the airport for the price of a taxi today.

So this could be very disruptive, very quick. You could basically fly over traffic. And we think, you know, this could be a fully autonomous operation. And I think it's-- you know, it sounds like a very far out there idea, but the fact is, we're actually approaching that point today because of these chemistry improvements.

AKIKO FUJITA: So what you're saying is, essentially, we're not likely to-- it's not about just a shift of Tesla going from manufacturer to supplier with its battery technology, but being able to expand where they supply the batteries in place.

TASHA KEENEY: Yes. Well, it could, exactly, could sort of open up opportunities for batteries across vehicle form factors. So we think, you know, batteries are sort of this innovative platform. One of the reasons we're so concentrated on the Menark is because they enable disruption across a lot of fields.

Electric vehicles is a huge opportunity, but it also enables things like drones. So this could be, in this case, the larger form factor drone that transports people or cargo. You could also have drones that, of course, transport-- transport smaller packages. So again, this seems like a far out there reality, but it's-- it's here. It's now. And the technology is ready.

AKIKO FUJITA: And Tasha, when you talk about the kind of level you're expecting for the stock, upwards of $7,000, is the battery technology really going to be the catalyst to get it there? I mean, it's interesting, we've been talking so much about, you know, what has been working for Tesla, and the cars, the auto element of it, almost seems sort of like an afterthought, given the potential you're seeing in its expanding business in other areas.

TASHA KEENEY: Yeah, I'm glad you asked that question because-- so the expected value includes our assumptions for the core EV business, but also Tesla's position in enabling a fully autonomous taxi network. And actually one thing in our research that has changed over the past year-- so Tesla's talked about launching this Uber-like autonomous service. You know, on the last earnings call, Elon Musk said that he's basically, at this point, where he can drive from his house to work with almost no interventions. He thinks they're very close to solving for full autonomy.

With our most recent research-- so let's say Tesla launches a ride-hailing network with human drivers. They basically have to do this to learn the ins and outs of ride-hailing anyway and to see the autonomous network sort of that create the bones of it. But this is also an interesting business opportunity for them, because Tesla's costs on a per mile basis to drive a Tesla is actually cheaper than the average vehicle on the road or than the average ride-hailing vehicle.

So what that means is Tesla could take a higher cut than Uber and Lyft off of revenues. It could actually pay its drivers more. It could offer, you know, vertically integrated insurance offerings, because it's much more vertically integrated than the ride-hailing networks. And it could be a really interesting time to launch that right now with the coronavirus epidemic because pandemics are-- because basically, you know, there are these gig workers that are looking for work.

There are customers that don't want to take public transportation. And Uber and Lyft are really hurting. So I think this could be a big opportunity for Tesla. And it actually sort of de-risks that autonomous thesis.

Because if you think autonomous technology is crazy and it's never going to happen, well, OK, they can launch this ride-hailing network, and that, you know that-- that actually gives them this software-as-a-service like margin business model, this recurring revenue without solving for that big technological leap. And if you do believe in autonomy, it also gives them the data to then feed that autonomous network and make it better.

AKIKO FUJITA: Tasha, it's fascinating to look at all the parts that way. Let me ask you really quickly, though, about what you see in the Chinese EV market. We had XPeng, which is seen as a competitor to Tesla, come to market this week.

We've also seen a huge run-up in the stock for NIO, also a competitor, although that stock is down more than 6% today. Is that case for growth in China still intact? And in fact, are we seeing it gain momentum now?

TASHA KEENEY: Yeah, so, you know, the Chinese market, it's the most important auto market. And for electric vehicles, our forecast is 37 million EVs sold in 2024. China should be roughly a third of that. And actually for autonomous taxis, we think the market value should be worth in the trillions at that point, around $4 to $5 trillion. And again, China could be a third of that.

So it's really, you know, it's basically the most important market in both cases. In the electric vehicle market specifically, competition is very high. There's over 150 electric vehicle manufacturers in China. And it's a very unique market where the government has a lot of say in who wins. So that's that.

Looking at startups like this, you know, we don't think that a company like Tesla is going to be the only player in the Chinese-- certainly in the Chinese electric vehicle market, but also in the global electric vehicle market. I think it's really important to sort of see and watch how these companies get to scale. One important thing to look at for both of them is how much they're insourcing versus outsourcing, again, because that vertical integration has been a really key advantage of Tesla's.

It's very important when you're building a software platform on top of the car, and it's also very-- of course, very important for an autonomous network as well. But you also get the full advantage of your battery system, again, if you're sort of vertically integrated. So I think, you know, that both of those players are outsourcing some parts. So I think sort of watching that story and seeing what the end product will be, how much will they insource versus outsource is an important thing to look at.

AKIKO FUJITA: Tasha Kenney with ARK Invest, always good to talk to you.

TASHA KEENEY: Great to see you, Akiko.