Cathie Wood is one of the most followed portfolio managers in the world right now. This is due to the fact that her ARK Invest funds have generated enormous returns for investors in recent years.
One stock Wood is very bullish on at present is Tesla (NASDAQ: TSLA). In a research report published a few weeks ago, Wood said that she expects TSLA shares to be trading at a much higher level by 2025.
Should I buy Tesla stock on the back of Cathie Wood’s bullish view? Let’s take a look.
Cathie Wood has been right about Tesla stock before
Cathie Wood has a strong track record on the stock. Back in 2018, for example, the portfolio manager said that within five years, Tesla would trade at $4,000 ($800 after the five-for-one stock split). At the time, many investors thought she was mad. However, Tesla hit that target earlier this year – two years ahead of schedule.
Wood’s latest forecasts for Tesla stock are mainly based on the prediction that the company will launch an autonomous ‘robo-taxi’ service in the not-too-distant future. In its report, ARK says that it believes there’s a 50% chance Tesla will achieve fully autonomous driving within five years. This could allow the company to scale its planned robo-taxi service quickly.
My thoughts on TSLA stock
While Cathie Wood and her team have clearly done their research, I still have reservations about investing in the stock.
For Tesla stock to justify its current market cap (approx $630bn), I think the company needs to completely dominate the car industry in the future. And I just can’t see that happening.
In the short term, I think Tesla is likely to face an intense level of competition in the electric vehicle space. Pretty much all the other major manufacturers are now getting serious about EVs. Just recently, for example, Volkswagen – which plans to be a major player in the EV space – announced that it plans to build six electric-vehicle battery factories across Europe and make electric vehicles its main product by 2030. Other manufacturers such as Porsche and Ford have recently released new premium EVs that have the potential to steal market share from Tesla.
Meanwhile, in the long term, I don’t think we can assume that Tesla is going to dominate the autonomous vehicle industry. While it;s certainly making progress on this front, it’s likely to face a high level of competition from the likes of Alphabet, Apple, and Baidu in the years ahead.
All things considered, I don’t see Tesla as a good fit for my portfolio right now. In my view, its market cap is still too high, given the level of competition the company is likely to face.
While Cathie Wood is bullish on Tesla stock, I think there are better growth stocks I could buy today.
Edward Sheldon owns shares in Alphabet and Apple. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Apple, Baidu, and Tesla and recommends the following options: short March 2023 $130 calls on Apple and long March 2023 $120 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.