Popular money manager Cathie Wood on Wednesday defended her bet on electric vehicle maker Tesla Inc TSLA and said she believed that the stock market is not in a bubble.
The head of the New York-based Ark Investment Management was speaking virtually at the Morningstar Investment Conference and discussed high equity valuation of stocks such as Tesla with veteran investor Rob Arnott, founder and chairman at Research Affiliates.
Wood spoke at length on various issues ranging from how average electric vehicle prices are expected to fall dramatically to battery costs, falling traditional auto sales, how legacy automakers are far behind Tesla, and how investors have "become benchmark sensitive."
Wood’s investment firm sold some shares in Tesla earlier this month after the stock rallied. Ark Invest still counts the Elon Musk-led company as its largest holding.
See Also: Cathie Wood Shed Another $11M From Tesla Stake On Friday, Bought Disney And These Stocks Instead
Here are the top takeaways from Wood’s insights during the panel:
1. On Electric Vehicle Prices: “Last year, we globally produced and sold roughly 2.2 million electric vehicles. Based on that, the cost decline in battery pack systems — the largest cost component of electric vehicles — we believe the average electric vehicle price will drop below that of the average gas power vehicle price in the next year or so.”
“It will continue to decline so that in the year 2025, the average Toyota Camry-like electric vehicle will be $18,000 while the regular Camy will still be roughly $25,000-$26,000.”
2. On Electric Vehicle Growth: “We believe the number of electric vehicles sold will scale from 2.2 million vehicles last year to 40 million which is almost half of the total car sales globally that we expect in 2025. That is a twenty-fold increase and an exponential growth to be sure, an 89% CAGR, simply based on the notion that these cars are going to become more affordable than gas-powered vehicles.”
3. On Automotive Inventories: "Many people think that the inventories out there are very lean in the auto sector, we don't think so. We think that inventories after a year of buying to avoid mass transit are parked in garages and driveways," Wood said. "And it's because gas power vehicle sales are falling apart.”
4. On Four Barriers To Entry Created By Tesla: "Tesla builds its cars on cylinder batteries while most others have based it on lithium-ion pouch batteries...which is roughly 15%-20% more expensive.”
“So, its battery cost will be lower as far as we can see. The second barrier to entry is the artificial intelligence chip that Tesla designed," where it said the Musk company has pulled a leaf out of Apple Inc's AAPL book.
“The other barrier to entry is the number of real-world miles driven that Tesla has collected,” Wood added. “The fourth barrier to entry is that Tesla is still the only car using the over the air software update to improve performance and prevent breakdowns.”
5. On Tesla’s EV Market Share: “There may be a lot of electric vehicle manufacturers out there but they are tiny. Tesla’s share is surprisingly high. We thought it would go down, at the end of 2018 it was roughly 17% of global sales, and instead, it went up. That has been a big surprise. That is a function of the four barriers of entries.”
See Also: Cathie Wood Fires Back At Michael Burry After He Reveals Bet Against ARK Fund
6. On Legacy Automakers' Struggle: “In the early days of the battery...auto manufacturers and analysts laughed at Tesla for building its vehicles based on cell phone batteries that are blowing up in airplanes. Now we see General Motors Co GM’s Bolt has had to recall most of the vehicles because its batteries are catching on fire. That was a concern 6-7 years ago and Tesla nailed that down and traditional automakers are having problems.”
7. On Investor Fears: “The tech and telecom bust and the 2008-09 debacle put such fear in investors that many just became benchmark sensitive and backward-looking in a flight to safety. And that continued for 4-5 years in our evolution as a company."
8. On Disruptive Technology: “Most of the world is used to looking at the linear growth opportunities, that's the kind of growth that has dominated ever since telephone, electricity and internal combustion engines. We got a glimpse of that exponential growth during the internet, it turned so many people off because they were so wrong. Costs were too high, technology was not ready. And now we have lower costs and technologies are ready.”
9. On Market Bubble: “This is no bubble. We are not in a bubble. The market is beginning to understand how profound some of these platform opportunities are and how sustained and rapid the growth rates are going to be.”
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