Catherine Wood, the chief investment officer of ARK Invest, a Tesla shareholder, has penned an open letter to Elon Musk asking him not to take the company private. The reason: because she believes Tesla shares could be worth up to $4,000 apiece in five years. Currently, the shares sit at around $320. Wood argues that taking Tesla private today would greatly undervalue the company. As Wood wrote:
According to ARK Invest’s research, Tesla should be valued somewhere between $700 and $4,000 per share in five years. Taking Tesla private today at $420 per share would undervalue it greatly, depriving many investors of the opportunity to participate in its success. In our view, given the right investment time horizon, TSLA is a deep value stock today.
She goes on to explain exactly how Tesla gets to $4,000 a share:
Our $4,000 price target assumes that Tesla evolves from a hardware manufacturer with 19% gross margins to a company generating most of its profits from Mobility-as-a-Service (MaaS), a business that we believe will enjoy 80% gross margins. In the $4,000 scenario, our assumptions are conservative: we incorporate profits only from cars and certain autonomous taxi networks, not from trucks, drones, utility scale energy storage, or the MaaS opportunity in China. Further, we incorporate the roughly $20 billion in dilution that might be necessary to penetrate and scale the latter four markets. Clearly, most asset managers in the public markets do not agree with us, which is why I’m writing to you now.
Wood’s entire letter is well worth the read, which you can do here. And it already seems to be having some impact–because Elon Musk has already replied to it:
Thank you for the thoughtful letter
— Elon Musk (@elonmusk) August 23, 2018