The following article, Tesla's Fundamental Challenges Don't Deter Ark Investment's Optimistic Outlook, was first published on Flag And Cross.
Tesla, Inc.‘s (NASDAQ:TSLA) price cuts and ensuing fundamental challenges, compounded by economic uncertainty, have led to cautious investor sentiment, causing the stock to trade considerably below its yearly highs. However, Cathie Wood‘s Ark Investment Management has reiterated its optimistic outlook on the company.
Cybertruck Stirs Concerns: Tesla CEO Elon Musk’s reference to potential difficulty in the production ramp-up of the Cybertruck was one of the reasons that put off investors. Tasha Keeney, Ark’s Director of Investment Analysis & Institutional Strategies, does not attach much significance to it.
In the firm’s weekly “Ark Disrupt” innovation newsletter, the analyst said Tesla has had experience with difficult volume production ramps. The Model X was “notoriously over-engineered,” and the ramp of the Model 3 was nothing short of “production hell,” she noted.
Investors were caught off guard, as despite the simple cost-effective design the company promised initially, the Cybertruck is apparently facing manufacturing complexity, Keeney said. “With parts unlike those in any other Tesla model, its costs are likely to surprise on the high side of expectations in the short term,” she added.
Musk’s Macro Card Backfires? Keeney also noted that the Tesla CEO expressed concerns that the rapid rise in interest rates during the past 18 months has hurt consumer purchasing power for big-ticket items.
As inflation began to rear its ugly head in the aftermath of the stimulatory measures announced to tackle COVID-19’s impact, the Federal Reserve was forced to begin a string of aggressive rate hikes in March 2022. From near-zero levels, the Fed funds rate is currently at a 22-year high of 5.25%-5.50%.
She noted that auto loan delinquencies exceeding 60 days have reached levels comparable to the highs of the 2008/2009 recession.
However, it’s important to note that some believe Musk may have overplayed the macroeconomic card. For instance, Gary Black of Future Fund pointed out that Tesla’s EV monthly payments are currently lower than they were 12 to 18 months ago due to lower prices.
Future Perfect: Despite the present “growing pains,” Keeney reiterated Ark’s belief that Tesla remains “years ahead” of the competition in producing cost-effective, high-performance electric vehicles. She highlighted Tesla’s development of one of the world’s most powerful supercomputers, combined with its vast real-world driving data advantage, positioning the company to lead the way in autonomous electric transportation.
Tesla continues to be the top holding of two of Ark’s major exchange-traded funds, namely ARK Innovation ETF (NYSE:ARKK) and the ARK Autonomous Technology & Robotics ETF (CBOE: ARKQ), and the fifth biggest holding in the ARK Next Generation Internet ETF (NYSE:ARKW). The firm holds $729.30 million worth of shares in these three ETFs
Tesla’s stock closed Monday’s session at $212.08, a far cry from the year’s high of $299.29 reached on July 19, according to data from Zenger News Pro.
Produced in association with Benzinga
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