ARK’s Expected Value For Tesla In 2027: $2,000 Per Share
ARK’s updated open-source Tesla model yields an expected value per share of $2,000 in 2027. The bull and bear cases, tuned to the 75th and 25th percentile Monte Carlo outcomes, respectively, are approximately $2,500 and $1,400 per share, as shown below.
|ARK’s Simulation Outputs||ARK’s 2027 Price Estimate (Per Share)||Significance|
|Expected Value||$2,000||ARK’s expected value for Tesla’s stock price in 2027, based on our Monte Carlo analysis.|
|Bear||$1,400||We model a 25% probability that Tesla could be worth $1,400 per share or less in 2027.|
|Bull||$2,500||We model a 25% probability that Tesla could be worth $2,500 per share or more in 2027.|
This research update presents ARK’s new open-source Tesla model, which incorporates distributions for 41 independent inputs to simulate a range of potential outcomes for the company.
Tesla’s prospective robotaxi business line is a key driver, contributing 67% of expected enterprise value and 64% of expected EBITDA in 2027. Across our simulation set, electric vehicles account for 47% of revenues in 2027, at substantially lower margins than robotaxi revenue. The chart below breaks down attributable revenue, EBITDA, and value by business-line.
This article outlines five topics, including the risks and limits associated with our assumptions:
- Example Bear And Bull Outcomes
- Key Model Inputs And Updates To ARK’s 2022 Tesla Model
- 2027 Share Price Forecast
- 2027 Model Considerations That Are Not Key Drivers Of Our Price Estimates
- Risks and Limits Of Our Model
- Business Opportunities Not Included In The Model
Example Bear and Bull Outcomes
We do not provide a single bull or bear case because we dimension the bull and bear outcomes as the 75th and 25th percentile output from the simulation. Nonetheless, the table below presents what we believe are plausible examples for each case.
Example Outputs for Bear and Bull Outcomes
|Example Output*||2022 Actual||Example Bear Outcome 2027||Example Bull Outcome 2027|
|Cars Sold (Millions)||1.3||10.3||20.7|
|Average Selling Price (ASP)||$53,000||$34,000||$26,000|
|Electric Vehicle Revenue (Billions)||$70||$346||$528|
|Human-Driven Ride-Hail Revenue (Net, Billions)||$-||$54||$-|
|Autonomous Ride-Hail Revenue (Net, Billions)||$-||$200||$613|
|Electric Vehicle Gross Margin (Ex-credits)||24%||34%||23%|
|Total Gross Margin||26%||51%||52%|
|Total EBITDA Margin**||24%||37%||34%|
|Market Cap (Billions)||$553||$4,442||$7,939|
|Share Price and CAGR***||$184||$1,400 (53%)||$2,500 (73%)|
|Free Cash Flow Yield||1.90%||4.60%||4.20%|
Key Model Inputs: The following table presents the ranges for the key inputs to our forecast.
|Key Model Input Ranges||Worst Case||Downside (-1 Standard Deviation)||Upside (+1 Standard Deviation)||Best Case|
|Using Wright’s Law,* Electric Vehicle Gross Margins Never Exceed||20%||40%||60%||80%|
|Vehicle Capital Efficiency (Gross Capex Per Car, USD)||$14,000||$7,000||$2,000||$1,500|
|Maximum Annual Production Increase||20%||50%||100%||200%|
|Max % of 2027 production sold into human driven ride-hail network||0%||30%||60%||70%|
|Robotaxi Launch Period||2030||2026||Q4 2023||Q4 2023|
Updates to ARK’s 2022 Tesla Model:
Updates to ARK’s 2022 open-source Tesla model include:
- Assumptions and inputs for autonomous ride-hail
- Capital efficiency estimates
- Stationary energy storage deployment
- Share price forecast pushed to 2027
Assumptions and Inputs for Autonomous Ride-Hail
ARK has grown increasingly confident that Tesla will launch a robotaxi service soon. Our updated Monte Carlo model includes a range of launch dates, with late 2024 as the weighted average of all cases, as shown below.
The recent flurry of AI progress—from large language models like ChatGPT to image-generation diffusion models like Midjourney—should accelerate innovation in the autonomous driving industry. Tesla, for example, already uses transformers popularized by large language models for lane and intersection prediction. In our view, Tesla’s vertical integration strategy and Dojo training supercomputer are key competitive advantages. Training currently runs at 100% capacity, suggesting that Tesla’s plan to expand Dojo by two orders of magnitude next year will help the company shorten the time between model updates. Recent videos of its latest full self-driving (FSD) software update, including one of a driver who nearly completes a full ride-hail ride without touching the wheel, suggest that Tesla is close to launch in some geographies.
Tesla’s data library should help prove statistically the safety of its vehicles, giving it significant advantage over peers in the regulatory approval process. Tesla’s customer-owned fleet drives more than 120 million miles per day, and over one million miles per day in FSD. In contrast, in their multi-year lifetimes, Cruise and Waymo have reached just one million miles each driven on public roads with no one behind the wheel. Moreover, accident statistics suggest that Tesla already has achieved performance superior to human drivers. According to our research, adjusting for its use on surface streets only, Tesla’s FSD is 5X safer than a manually driven Tesla.
Capital Efficiency Estimates
Tesla’s capital efficiency in 2027 remains the same as last year’s forecast for 2026. Capital expenditure per incremental unit of capacity improved from ~$84,000 when the Model 3 was ramping in 2017 to ~$7,700, in 2021. Simultaneous production ramps at two Gigafactories led capital efficiency measured at the end of the year to increase to $14,755 in 2022. Once the initial ramp of those factories is complete, the implied capital expenditure per unit capacity continues its decline to ~$7,000 as shown below.
While these improvements indicate that Tesla could continue to increase margins, the more important takeaway is that capital is not a bottleneck limiting growth. Instead, Tesla should be able to grow as quickly as management bandwidth and supply constraints allow—two factors we model by constraining Tesla’s annual production growth using the “Max Annual Production Increase” input. Tesla’s Investor Day on March 1, 2023, highlighted its next generation vehicle architecture and manufacturing process, including steps to reduce the footprint and time associated with building factories, which should reduce bandwidth requirements and accelerate scaling.
Stationary Energy Storage Deployment
We expect Tesla to prioritize its vehicle business. To reflect this in this year’s model, we scale its stationary energy storage business only as the vehicle business becomes scaling constrained. According to our analysis, energy storage should contribute $6.6 billion, or 3%, to Tesla’s expected enterprise value in 2027. In ARK’s expected value, ~16% of all battery capacity goes into stationary energy storage and ~84% goes toward vehicles, resulting in ~200 GWh of stationary energy storage deployed in 2027, as shown in the second chart below.
ARK’s research suggests Tesla will use batteries for the most profitable use case. A robotaxi should provide the highest investment return on batteries for Tesla, as shown below. With a robotaxi platform, Tesla should be able to generate earnings from both the vehicle sale and a recurring ride-hail revenue stream, which ARK believes could generate software-like margins. As Elon Musk has phrased it, autonomous ride-hail “probably will be the biggest asset value increase in history.”
According to our analysis, the stationary energy business should yield margins of ~20-25%. We have not modeled the option value embedded in Tesla’s ability to turn its battery systems into virtual power plants that allocate dynamically to overtaxed electrical grids, or returns from participating in capacity markets. Tesla also could accelerate its energy storage strategy by vertically integrating cryptocurrency mining and home HVAC systems. For now, we consider such options beyond the scope of this model.
Share Price Forecast
Our simulation is highly sensitive to the year in which Tesla launches robotaxis, as shown in the two charts below. The chart titled “Modeled Share Price Outcomes” represents the likely distribution of all possible price targets from our Monte Carlo analysis and identifies the bear and bull cases as the 25th and 75th percentile outcomes, respectively. “Expected value” is the average of all 1 million simulations.
The chart titled “Modeled Scenarios” illustrates the mix of robotaxi and human ride-hail outcomes that corresponds with each share price represented in the prior “Modeled Share Price Outcomes” chart. In our lowest price-per-share scenarios, Tesla launches a vertically-integrated, human-driven ride-hail service but does not launch a robotaxi network—as shown in dark grey on the lower left-hand corner) Although Tesla has not committed publicly to launching human-driven ride-hail, ARK previously detailed the strategic and tactical advantages of doing so. Note that in many of our higher price-per-share scenarios, Tesla launches a robotaxi network within the next two years.
2027 Model Considerations That Are Not Key Drivers Of Our Price Estimates
As the updated model extends the forecast one year to 2027, we note the following considerations:
The midpoint of our assumptions suggests that Tesla will fund 25% of the buildout of future factories with debt.
We updated our bitcoin assumptions in line with ARK’s current bitcoin expectations. The digital asset continues to have less than a 5% impact on our 2027 expected price per share.
As in last year’s model, we assume Tesla will use ~$3 billion in additional equity for incentive compensation. Given the cash we expect from the autonomous ride-hail network and electric vehicle sales, we do not anticipate that Tesla will need to raise more capital.
We have made conservative assumptions about strategic financial decisions. We do not believe these decisions will be primary drivers of Tesla’s stock price appreciation:
- Tesla holds cash and bitcoin on its balance sheet and does not benefit from any yield-generating assets.
- With more cash than debt on its balance sheet, Tesla does not use the cash to pay down debt. The interest cost of the debt remains at 4%.
- Tesla does not repurchase shares.
Note: The assumptions above could lead to divergences between our forecast of Tesla’s share price and the actual price of Tesla shares. Our modeling cannot include all variables that will impact Tesla’s share price and our assumptions could be inaccurate and incomplete. Moreover, our assumptions are subject to change as more information becomes available. Our estimates and forecasts are subject to risks and limitations and should not be relied upon for individual investment decisions.
Business Opportunities Not Included In The Model
We do not believe that either Dojo training-as-a-service or Tesla’s Optimus humanoid robot will contribute significantly to Tesla’s value within our five-year investment time horizon, though they could drive value over a longer time horizon.
Risks and Limits of Our Monte Carlo Model
ARK’s 41 independent variables are meant to cover all scenarios that we see as plausible outcomes for Tesla over the next five years. An unexpected event, such as Elon Musk’s sudden departure from the company, or a natural disaster or pandemic, could cause actual results to differ from our expectations.
Given the updates outlined in this article, ARK’s price target for Tesla is $2,000 per share in 2027. Our bear and bull cases suggest that TSLA could be valued between ~$1,400 and $2,500 per share in 2027. We have published our simulation model on GitHub and invite readers to explore and test assumptions and/or craft visualizations in the simulations.
- ARK Investment Management, LLC. 2023. “Big Ideas 2023.” ARK-Invest. https://ark-invest.com/big-ideas-2023/.
- Bureau of Transportation Statistics. 2023. “Roadway Vehicle-Miles Traveled (VMT) and VMT per Lane-Mile by Functional Class.” BTS. https://www.bts.gov/content/roadway-vehicle-miles-traveled-vmt-and-vmt-lane-mile-functional-class.
- Musk, E. 2023. “Team is closing the loop on interventions very rapidly. To get enough training examples for potential serious accidents, we have to run them in sim, as we have so few in the fleet, despite doing ~1M miles per day of FSD.” Twitter. https://twitter.com/elonmusk/status/1643144343254110209?s=20.
- National Highway Traffic Safety Administration. 2023. “Traffic Safety Facts Annual Report Tables.” NHTSA. https://cdan.nhtsa.gov/tsftables/tsfar.htm.
- Tesla, Inc. 2022. “Tesla AI Day 2022.” YouTube. https://www.youtube.com/watch?v=ODSJsviD_SU.
- Tesla, Inc. 2023a. “2023 Investor Day.” YouTube. https://www.youtube.com/watch?v=Hl1zEzVUV7w.
- Tesla, Inc. 2023b. “Master Plan Part 3.” Tesla. https://www.tesla.com/ns_videos/Tesla-Master-Plan-Part-3.pdf.
- Tesla, Inc. 2023c. “Tesla Vehicle Safety Report.” Tesla. https://www.tesla.com/VehicleSafetyReport.
- Tesla, Inc. 2023d. “Tesla, Inc. Q4 2022 Financial Results and Q&A Webcast.” Tesla. https://ir.tesla.com/webcast-2023-01-25.
- Whole Mars Catalog. 2023. “Can Tesla Full Self-Driving Beta 11.3.3 Handle Real Ride Sharing Rides?” YouTube. https://www.youtube.com/watch?v=nW-3KcEKjpQ.
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