Without a doubt, Ark Investment Management CEO Cathie Wood has received criticism for sticking to her optimistic position in electric vehicle (EV) manufacturer Tesla (NASDAQ:TSLA). Yet, Wood isn’t giving up on TSLA stock. Investors should consider following her lead, as Tesla’s using a savvy strategy to stay competitive in a challenging but high-conviction EV market.
There’s never a shortage of controversy surrounding Tesla and its mercurial CEO, Elon Musk. He’s opinionated, unpredictable and off-putting to some ultra-cautious investors. Also, some folks are bothered by Musk’s sale of nearly 22 million Tesla shares in mid-December.
Of course, this doesn’t mean Musk has dumped his entire stake in Tesla. He and Wood, and you as well, can potentially enjoy robust returns over the coming years. By 2025, Tesla is likely to regain any lost ground from 2022 and then some — but you certainly won’t profit if you’re not in the trade.
Wood Remains Bullish on TSLA Stock
TSLA stock lost more than 60% of its value last year. That fact might be enough to scare some financial traders away. Yet, Wood isn’t budging, and she has even added to her share position in Tesla.
Reportedly, Ark Investment Management’s funds have added 806,663 Tesla shares in January. Not long ago, those shares were worth roughly $105.4 million.
Where does Wood envision TSLA stock going in five years? On that topic, Wood stated, “Just from electric vehicles there could be almost a fivefold increase in this stock during the next five years.” That prediction implies a share price above $600.
That’s not all, though. Wood then said, “And if you believe in autonomous cars at all, it’s closer to 13 times during the next five years. So we are as bullish about Tesla as we have ever been.” With that, Wood’s followers might anticipate a Tesla share price above $1,600. Anything’s possible, right?
EV Model Price Cuts Will Make Tesla More Competitive
I’m not quite as optimistic as Wood is, but I do imagine robust returns for TSLA stock investors over the next five years. That’s because Tesla made a very smart move by reducing the prices of some EV models.
Surely, there are people who considered buying an EV but were simply priced out of the market. Now, they may be enticed into purchasing a Tesla vehicle. Reportedly, Tesla lowered the prices of its Model 3 sedan and Model Y crossover SUV by 6% to 20%. Reuters calculated that the basic Model Y’s price would therefore be reduced from $65,990 to $52,990.
Actually, government incentives could make Tesla’s EVs even more affordable than those figures indicate. As Reuters pointed out, “Those cuts are before a $7,500 U.S. federal tax credit that took effect for many electric vehicles on Jan. 1 that could bring discounts to more than 30%.”
Tesla already had high profit margins, having earned $15,653 in gross profit per vehicle during 2022’s third quarter. The company can certainly afford to make its EVs more affordable now.
Piper Sandler analysts take a very positive view of Tesla’s price cuts, commenting, “We don’t think most investors appreciate the extent to which lower pricing could support Tesla’s market share.” I agree 100% and expect Tesla’s market share to grow over the coming years.
So, Where Will Tesla Be in 5 Years?
I’m not going to echo Wood’s hints that TSLA stock might reach $600 or $1,600 in five years. Those outcomes are possible, but investors should stay calm and maintain realistic price targets.
$500 looks, to me at least, like a reasonable price target for Tesla shares in five years. The company demonstrated its willingness to be flexible in order to remain competitive. That’s a positive sign, and it bodes well for Tesla and its shareholders in the coming years.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.