In Focus: Wood and Tesla 3K
Updated: Mar 28, 2021
This week one of my favorite analysts to read and listen to put out a new target on Tesla. The analyst, Cathie Wood of Ark Funds, put a $3,000 price target on Tesla (TSLA), believing that a Tesla autonomous taxi-fleet could add $160 billion in EBITDA.
Cathie has been extremely bullish on Tesla in the past, and she's been right, so there's no need for me to question her analysis on Tesla.
In 2019, when Elon Musk was in the news for everything not related to Tesla, and some analysts were predicting Tesla would have to raise more money or go bankrupt, Wood put a $4,000 price target on Tesla. Tesla's stock was down almost 30% on the year when Cathie made her call, and it seemed that Tesla had a better chance of dropping further in price than going up.
Eventually Tesla started to put together profitable quarters and investors raced to buy the leading name in electric vehicles, proving once again that Cathie Wood knows what she's doing.
If you can invest in what you see you'll make money, if you can invest in what can't be seen yet, you'll make a fortune. This is one of the reasons I love to hear analysis from Cathie Wood. When it comes to technology, Cathie is thinking about the future, she is looking far beyond the next two or three quarters. If you're not up on Cathie Wood now you are. If you're serious about investing and gaining wealth from the stock market, first buy the Seville Report's quarterly newsletter, second listen to Cathie Wood.
Why Tesla Will Make a Run to $3,000
Community - Tesla owners are their own community, separate from other electric vehicle owners who also want to do their part to save the planet. There is money in community, just look at Facebook versus Twitter. Why Facebook has been able to achieve the market valuation it has is because Facebook is a community, Twitter is a bunch of individuals yelling through a bullhorn. There is money in community, especially when people have to pay to join it.
Insurance - Don't underestimate Tesla's insurance company. Insurance is one of those things that we all pay for but have very little idea how it works. I spent over a decade in insurance primarily handling claims, but what could be big drivers for Tesla insurance is its underwriting ratio (how much money they keep for every dollar made) and its float (the pool of premium dollars collected and invested until needed to pay out claims).
An insurance company will never tell you this, but an insurance premium is a responsibility score. Two people of the same age with the same car, but person A owns a home, has a bachelor's degree and an M.B.A, is a professor that makes $85,000 a year, and is a member of a nationally known fraternity, and person B rents an apartment, only completed high school, does a customer service job, makes $40,000 a year, and has no affiliations to any fraternities or groups. On paper, person A appears to be more responsible than person B and will pay the lower insurance premium.
This all matters when it's time to give insurance coverage. Insurance companies want responsible people, because they hope that responsible people make responsible drivers, which results in less accidents, and more money in the float earning money. Teslas are luxury vehicles, and being able to own one means you've been able to get your ducks in a row or your financial house in order, which speaks to responsibility, which makes a Tesla owner a higher quality applicant to an insurance company.
Currently Tesla insurance is only available in California, but if they decide to roll this out nationwide, watch out. There are so many other benefits that I can't get to like the claims process, the handling of total loss vehicles and how this can be a supply of recyclable parts for Tesla.
The Tesla insurance company get's the opportunity to insure the cream of the crop, which in turn should lead to less claims and a higher than average underwriting ratio. It's like having a bank that only accepts high wealth individuals as customers.
Experience - Other car manufacturers are leaning into electric vehicles hoping that Wall Street will reward them by purchasing their shares, but it won't happen. What GM, Ford, Audi, Mercedes, Volvo, and all of the others aren't replicating is the experience of owning a Tesla.
The Apple store is a great example of creating an experience. I can buy an iPhone or a MacBook anywhere, but buying it from an Apple store is an experience. The person who sells you the product can check you out from wherever you are in the store. If you have an old product they ask if you need help transferring data, if it's your first Apple purchase they inform you of classes and workshops you can attend to get the most out of your purchase. Tesla has found a way to create an experience with its cars.
Because Musk and company see Tesla as a tech company and not a car company, they're constantly updating, tinkering, and making the tech better, which results in a better owner experience.
$3,000 is Achievable
Community, insurance, and experience, together they set Tesla apart from their competitors, and currently there is no competitor close to Tesla.
Investors shouldn't underestimate Cathie Wood's call on Tesla, nor should they ignore the power of community, the ability to insure high quality applicants, and the art of creating a great buying and ownership experience. If Tesla's taxi service ambitions get delayed or dropped all together, community, insurance, and experience could still get the stock to $3,000 a share.