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A Tesla Bull Explains the Risks—and Where Cathie Wood Could Be Wrong
G ary Black isn’t short on opinions about electric-vehicle pioneer Tesla. He shared some of those thoughts with Barron’s and our readers on a live conference call this past Thursday. The conversation ranged from Ford‘s coming electric F-150 to the risks facing Tesla and where bulls, including ARK Invest’s Cathie Wood, could be wrong.
Black is a longtime Wall Street executive, working as a Wall Street analyst and fund manager. Currently, he’s the managing partner and chief investment officer of investment advisor the Future Fund. His exchange-traded fund, the Future Fund, will launch at the end of August with the stock symbol FFND.
Tesla (ticker: TSLA) stock is down 1% year to date, trailing the 18% and 15% respective returns of the S&P 500 and Dow Jones Industrial Average. Shares have paused after a 2020 gain of 743%, which made Tesla the world’s most valuable car company by a wide margin.
Here are edited highlights of the conversation:
Barron’s: The Biden administration wants 50% of new car sales in the U.S. to be electric by 2030. Is that a realistic goal?
Black: I think 40% to 50% is about right. We’re forecasting 25% by 2025. It was about 3% last year. We think it’s going to be about 5% in the U.S. this year. But the U.S. is lagging. You look at China, [where EV penetration] is about 10%. Norway, which is out in front, is about 60%.
I see a big sea change in how big companies are acting toward EVs. GM [GM] and Ford [F] are now deliberately cannibalizing their profitable…internal combustion engine businesses. When you see that, you can see a point where you get to 40% to 50%.
Can Tesla maintain its market share?
I’m using 25% [market share] for the next few years. I’ll think they’ll be fine. More competition is good because it gets more people interested in EVs. People get a phone call or an email from [Porsche saying], “You should check out our new [electric] Taycan.” [People] get on line and start doing research and see Tesla is the top-ranked EV and that Tesla has so many things going for it in terms of range, technology, and safety.
Will GM and Ford be successful?
GM and Ford want to be, and know they have to be, strong in EV because they recognize looking around the world that’s where things are going. But what you’ve seen so far is the [competitive] range is much lower than Tesla…the performance is nothing like Tesla…the technology is nothing like Tesla has with [its autonomous driving features called] FSD.
How important is the electric F-150 for Ford?
[Trucks] are where competitors have taken the gloves off. [So far] competitors have introduced brand-new [EV] brands—think of an Audi eTron. That doesn’t work. What [competitors] realize is they have to take existing brand equity. The F-150 is the bestselling pickup in America. They are actually going to stick an EV brand on there. That’s a huge thing to see if it works. That’s next year [in 2022].
You value Tesla stock at $1,100, from a current $700. How do you get there?
Tesla is continuing to introduce new models, going into new markets. By 2025, if you figure global [car sales] of 80 million units, EV adoption about 25%, Tesla has a 25% share. That’s about 5 million units [for Tesla]. For perspective, Tesla will deliver about 860,000 units in [2021]. That’s about 55% [average annual] growth between now and 2025. That is huge growth. The [automotive] gross margin continues to increase.
When I add it all up, I get about $32 of [per-share] earnings for 2025. The question is what multiple to pay for that. I assume 20% growth going forward from 2025. I think its legitimate to put a 50 multiple on [2025 earnings], about 2.5 times growth. The S&P 500 trades at about 2.9 times [price to earnings divided by growth].
Thirty-two dollars times 50 is your $1,600 price target in 2025. Cathie Wood thinks Tesla will be $3,000 in 2025. That’s a big difference.
I admire [Cathie]. I used to work with her at Alliance Bernstein. A lot of the super bulls assume a [Tesla autonomous] Robotaxi business with values upward of $1,000 a share. I assume no value for Robotaxi. I look at FSD [Tesla’s self driving software option] as a great option that will allow Tesla to sell more Teslas. Tesla could prove me wrong. Elon [Musk] is a genius. They could have a Robotaxi business in 2025. All I do is assume that FSD…allows them to increase their share. I do assume [competitors] will have a version of FSD by 2025.
What do you worry about for Tesla?
I do worry about competitors with this go-hard-or-go-home strategy of cannibalizing their best brands with EVs. It could dent Tesla. That’s a risk.
[China] has become very competitive. There is some pricing pressure in the Chinese market. [XPeng’s] new model, the P5, is priced at the equivalent of $25,000 and is going right after Tesla.
Thanks, Gary.
The full chat is available as a Barron’s Live podcast and can be listened to or downloaded anywhere podcasts are available.
Write to Al Root at [email protected]
https://www.barrons.com/articles/tesla-stock-cathie-wood-51628351858
G ary Black isn’t short on opinions about electric-vehicle pioneer Tesla. He shared some of those thoughts with Barron’s and our readers on a live conference call this past Thursday. The conversation ranged from Ford‘s coming electric F-150 to the risks facing Tesla and where bulls, including ARK Invest’s Cathie Wood, could be wrong.
Black is a longtime Wall Street executive, working as a Wall Street analyst and fund manager. Currently, he’s the managing partner and chief investment officer of investment advisor the Future Fund. His exchange-traded fund, the Future Fund, will launch at the end of August with the stock symbol FFND.
Tesla (ticker: TSLA) stock is down 1% year to date, trailing the 18% and 15% respective returns of the S&P 500 and Dow Jones Industrial Average. Shares have paused after a 2020 gain of 743%, which made Tesla the world’s most valuable car company by a wide margin.
Here are edited highlights of the conversation:
Barron’s: The Biden administration wants 50% of new car sales in the U.S. to be electric by 2030. Is that a realistic goal?
Black: I think 40% to 50% is about right. We’re forecasting 25% by 2025. It was about 3% last year. We think it’s going to be about 5% in the U.S. this year. But the U.S. is lagging. You look at China, [where EV penetration] is about 10%. Norway, which is out in front, is about 60%.
I see a big sea change in how big companies are acting toward EVs. GM [GM] and Ford [F] are now deliberately cannibalizing their profitable…internal combustion engine businesses. When you see that, you can see a point where you get to 40% to 50%.
Can Tesla maintain its market share?
I’m using 25% [market share] for the next few years. I’ll think they’ll be fine. More competition is good because it gets more people interested in EVs. People get a phone call or an email from [Porsche saying], “You should check out our new [electric] Taycan.” [People] get on line and start doing research and see Tesla is the top-ranked EV and that Tesla has so many things going for it in terms of range, technology, and safety.
Will GM and Ford be successful?
GM and Ford want to be, and know they have to be, strong in EV because they recognize looking around the world that’s where things are going. But what you’ve seen so far is the [competitive] range is much lower than Tesla…the performance is nothing like Tesla…the technology is nothing like Tesla has with [its autonomous driving features called] FSD.
How important is the electric F-150 for Ford?
[Trucks] are where competitors have taken the gloves off. [So far] competitors have introduced brand-new [EV] brands—think of an Audi eTron. That doesn’t work. What [competitors] realize is they have to take existing brand equity. The F-150 is the bestselling pickup in America. They are actually going to stick an EV brand on there. That’s a huge thing to see if it works. That’s next year [in 2022].
You value Tesla stock at $1,100, from a current $700. How do you get there?
Tesla is continuing to introduce new models, going into new markets. By 2025, if you figure global [car sales] of 80 million units, EV adoption about 25%, Tesla has a 25% share. That’s about 5 million units [for Tesla]. For perspective, Tesla will deliver about 860,000 units in [2021]. That’s about 55% [average annual] growth between now and 2025. That is huge growth. The [automotive] gross margin continues to increase.
When I add it all up, I get about $32 of [per-share] earnings for 2025. The question is what multiple to pay for that. I assume 20% growth going forward from 2025. I think its legitimate to put a 50 multiple on [2025 earnings], about 2.5 times growth. The S&P 500 trades at about 2.9 times [price to earnings divided by growth].
Thirty-two dollars times 50 is your $1,600 price target in 2025. Cathie Wood thinks Tesla will be $3,000 in 2025. That’s a big difference.
I admire [Cathie]. I used to work with her at Alliance Bernstein. A lot of the super bulls assume a [Tesla autonomous] Robotaxi business with values upward of $1,000 a share. I assume no value for Robotaxi. I look at FSD [Tesla’s self driving software option] as a great option that will allow Tesla to sell more Teslas. Tesla could prove me wrong. Elon [Musk] is a genius. They could have a Robotaxi business in 2025. All I do is assume that FSD…allows them to increase their share. I do assume [competitors] will have a version of FSD by 2025.
What do you worry about for Tesla?
I do worry about competitors with this go-hard-or-go-home strategy of cannibalizing their best brands with EVs. It could dent Tesla. That’s a risk.
[China] has become very competitive. There is some pricing pressure in the Chinese market. [XPeng’s] new model, the P5, is priced at the equivalent of $25,000 and is going right after Tesla.
Thanks, Gary.
The full chat is available as a Barron’s Live podcast and can be listened to or downloaded anywhere podcasts are available.
Write to Al Root at [email protected]
https://www.barrons.com/articles/tesla-stock-cathie-wood-51628351858
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