How Cathie Wood's ARK Invest is Betting on Tesla's Future

Tesla (TSLA) is one of the most popular and controversial stocks in the market, with a loyal fan base and a vocal group of skeptics. The electric vehicle maker has been on a roller coaster ride in the past year, soaring to record highs in late 2023 and then plunging by more than 25% in January 2024 after disappointing earnings and guidance. Despite the volatility, some investors remain bullish on Tesla's long-term prospects, especially Cathie Wood's ARK Invest.

ARK Invest is an investment management firm that focuses on disruptive innovation and technology. The firm runs several exchange-traded funds (ETFs) that have outperformed the market in recent years, thanks to their exposure to high-growth sectors such as genomics, robotics, artificial intelligence, and space exploration. Tesla is one of the largest holdings in ARK Invest's portfolio, accounting for about 10% of its flagship ARK Innovation ETF (ARKK) and ARK Next Generation Internet ETF (ARKW).

Cathie Wood, the founder and CEO of ARK Invest, is a vocal supporter of Tesla and its visionary leader Elon Musk. She has repeatedly defended Tesla against critics and short-sellers, arguing that the company is not just a car maker, but a platform for autonomous driving, battery technology, solar energy, and software. She has also made bold predictions about Tesla's future valuation, projecting that its stock price could reach $2,000 by 2027, implying a market capitalization of over $2 trillion.

To back up her bullish thesis, Wood has been buying more Tesla shares whenever the stock dips. According to data from ARK Invest's website, the firm bought a total of 360,411 shares of Tesla on January 27 and 28, worth about $66 million as of the closing prices. The purchases came after Tesla reported weaker-than-expected earnings and revenue for the fourth quarter of 2023, as well as lower-than-anticipated vehicle deliveries for 2024. Tesla also gave little indication of positive drivers until 2026 or later, such as the launch of its robotaxi service or its entry into new markets like India.

Wood's buying spree continued into February, as ARK Invest added another 24,782 shares of Tesla on February 1, worth about $4.7 million as of the closing price. The firm also invested an equal amount in Rocket Lab USA (RKLB), a space launch company that competes with Musk's SpaceX. Rocket Lab recently announced a private offering of $275 million convertible senior notes due 2029 and reported preliminary fourth-quarter financials that showed strong revenue growth and gross margin improvement.

Wood's strategy of buying the dip has paid off in the past, as Tesla has proven to be resilient and innovative despite facing multiple challenges and uncertainties. The company has achieved five consecutive years of profitability and positive free cash flow, while expanding its production capacity and product portfolio. Tesla has also maintained its leadership position in the global electric vehicle market, with a 23% share in 2023, according to data from EV-Volumes.

However, Tesla also faces increasing competition from both traditional automakers and new entrants in the electric vehicle space. The company's valuation is also extremely high compared to its peers, trading at over 100 times its trailing 12-month earnings and over 10 times its sales. Moreover, Tesla's growth prospects may depend on its ability to execute on its ambitious plans for autonomous driving, battery innovation, solar roofs, and cybertrucks.

Wood's conviction in Tesla may be justified by her long-term vision and deep understanding of disruptive technologies. However, investors should also be aware of the risks and uncertainties involved in betting on such a volatile and controversial stock. Tesla may have a bright future ahead, but it may also face many bumps along the road.