ARK Invest buys $71 million in Tesla on the Dip and makes the Case it's a Buy
ARK Invest on Wednesday purchased 110,731 shares of Tesla Inc (NASDAQ:TSLA) estimated to be worth about $71.38 million for the innovation fund, ARKK. The transaction was the first purchase of Tesla Inc (NASDAQ:TSLA) in any of ARK's ETFs in over a month and is the largest single-day purchase of Tesla shares by ARK since February.
Tesla 3 Month Stock Performance
In The Know with Cathie Wood - Invest in Innovation with ARK Invest —July 2, 2021
Cathie Wood shared her thoughts during the latest ARK “IN THE KNOW” video, a monthly series for followers and investors.
Why buy Tesla Now
The bi-partisan infrastructure bill intends to construct 500,000 EV chargers. Currently Tesla operates globally 25,000 high-speed chargers, the bill supports huge growth in EV cars on the road. While a change to EV tax credits has not yet been approved or put into the bill, the expected infrastructure investment into EV chargers may prove to be a good for Tesla sales domestically.
Wood believes the approaching midterm congressional elections reduce the likelihood of a US corporate tax hike in any infrastructure billed passed. This will be a positive for Tesla.
Bond Market
Knowing the inverse relationship between high-yield treasury bonds and growth investing, Wood reiterated her conviction in the deflationary forces of technological innovation. The US 10-year treasury bond yield sits near 1.30%; its lowest level since February. Wood, noting her bias, is looking for the bond market to continue to sell-off as her deflationary outlook continues. The low inflation environment, indicated by low bond yields, allows higher P/E ratios (such as Tesla's) to remain elevated.
Oil Prices
Crude oil traded over $76 per barrel—its highest prices in nearly three years — driven by lack of supply. Wood believes if crude goes above $77 per barrel “it will be like ‘06,” when oil prices steadily ramped up to touch $145 by 2008.
Cathie is not sure if higher gas prices will increase consideration of an EV car but thinks there may be more interest in EV cars that will push Tesla sales.
Bull Market Strength
The bull market “has strengthened” stated Wood. The market has continued to climb upward despite tax discussions and a valuation correction. The S&P 500, despite the aforementioned deterrents, is up over 17% YTD. While some may believe that the market is currently overvalued, Wood sees earnings growth bringing P/E ratios down to the “mid to upper teens”. Similarly, we can expect to see Tesla’s P/E decrease as quarters with greater profitability continue to replace less profitable ones.
Tesla Q2 Vehicle Deliveries
Wood made sure to mention Tesla’s 121% year-over-year increase for Q2 deliveries. Wood then elaborates on the significance of The Tesla Semi photo embedded in the page “just you wait,” she quips. While other autonomous vehicle companies such as TuSimple and Aurora may be getting attention, Wood believes Tesla’s autonomous tech is far-more superior and will prove itself in time. You can read the price target analysis from Ark Invest that puts a target $3,000 price per share for Tesla by 2025. (full report here) ¹
TESLA SEMI-TRUCK
Poised ready to go into full production could disrupt the heavy trucking industry
ARK INVEST PREDICTED SENARIOS ¹
| Scenario | 2025 Target | Significance |
|---|---|---|
| Expected Value | $3,000 | This is prediction is our base case for this stock price base on our monte carlo analysis |
| Bear Case | $1,500 | We believe there is a 25% probability Telsa could be worth $1,500 per share or less in 2025 |
| Bull Case | $4,000 | We believe there is a 25% probability Telsa could be worth $4,000 per share or less in 2025 |
In the end — Final Thoughts
Tesla is the largest holding in several ARK Invest ETFs. Any opportunity to buy on a dip is quickly executed by the ARK team. Early July was no exception as the they purchased a significant number of shares. Jim Cramer also iterated that at $650 per share Tesla is a great buying opportunity. Cramer also stated that he thinks Tesla is a better buy than GM but he did also recommend Ford as a buy because their trucks are number 1 in the market and have a waitlist through 2022 for the latest models including EV’s. When investing with Tesla, the stock is volatile so if you can hold without going crazy this could be a good add to your portfolio to hold through the next 3 years.
All investment strategies discussed are for informational purposes only and can involve risk and loss. Nothing contained in this website should be construed as investment advice.
