Dear Elon: An Open Letter Against Taking Tesla Private
Dear Elon and Tesla’s Board of Directors,
As Chief Investment Officer of ARK Invest, a Tesla shareholder, I am writing to express some of our views about its outlook and investment potential. We believe that Tesla should remain a public company.
According to ARK Invest’s research, Tesla should be valued somewhere between $700 and $4,000 per share in five years.1 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.
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.
Because many investors find ARK’s Tesla projections difficult to believe, I am providing some of our top-down and bottom-up models and assumptions. See Model Below. Led by our Director of Research, Brett Winton, our Industrial Innovation analysts, Tasha Keeney and Sam Korus, have been evolving for more than four years what I believe are the most comprehensive models of MaaS in the financial markets today. Their modeling spans autonomous taxi networks, autonomous truck platoons, electric vehicles (EVs) and energy storage, as well as air taxis and other drones.
Because of the short-term investment time horizon of investors in the public markets and inflated valuations in the private markets today, I understand why you may want to take Tesla private, but I must try to dissuade you. First, as a private company, Tesla will be unable to capitalize on its competitive advantages as rapidly and dramatically as it would as a public company, an important consideration given the network effects and natural geographic monopolies to which autonomous taxi and truck networks will submit. Second, in the private market, Tesla would lose the free publicity associated with your role as the CEO of the public company not only with the bestselling mid-sized premium sedan in the US, but also arguably in the best position to launch a completely autonomous taxi network nationwide in the next few years. Just ask Michael Dell: he wants to lead a public company once again for a reason. Third, you will deprive most of your individual investors of a security to bet on you and your strategy, ceding that opportunity to high net worth and institutional investors. Finally, if you do not take Tesla private, you will be surprised and gratified at investor reaction once they realize and understand the scope and ramifications of your long-term vision and strategies. With time, I believe that truth always wins out in the public markets, as has been the case for Apple, Amazon, Netflix, Salesforce, and other companies with visionary leaders....MOREThe stock is up $4.16 at $325.80.
As noted in the outro from August 9's "CNBC: "Tesla stock going to $4,000" (TSLA)":
In pre-market trade the stock is changing hands at $366, down $4.40, leaving plenty of upside should the analyst prove correct....
