Elon Musk thinks he could take Tesla private for $420 a share. But one Tesla investor thinks that’s a bad idea — because the stock could be worth nearly 10 times that amount in the most optimistic scenario.
Cathie Wood, CEO of money management firm ARK Invest, wrote an open letter to Musk earlier this week saying Tesla could be valued somewhere between $700 and $4,000 per share in five years.
Wood he tweeted link letter to Elon Musk Wednesday evening. Musk replied in less than an hour and told Wood “thank you for the thoughtful letter.”
In an interview with CNNMoney on Thursday, Wood said Tesla’s investor relations also quickly responded to her letter and forwarded it to the board, but the board has not yet heard back.
Tesla (TSLA) shares rose after Musk is now infamous tweet “funding secured”. earlier this month, reaching a high of $387.46.
But the stock has since fallen back to around $320 due to growing skepticism on Musk’s ability to actually close the deal.
Going private now would be a mistake
Still, Wood says Musk should resist the urge to go private, even if he could close a deal.
“Taking Tesla private at $420 per share would greatly undervalue it and deprive many investors of the opportunity to share in its success,” she wrote.
Wood argues that Tesla could evolve out of the relatively low-profit business of making electric cars. He envisions Tesla generating fat profit margins from autonomous taxis, drones, energy storage services and a greater presence in China.
If Tesla can do that, the stock could eventually reach the $4,000 target. But Wood admits it will take time – and patience on the part of shareholders. He recognizes that some Tesla shareholders are impatient.
“Given the short investment horizon of investors in the public markets and the inflated valuations in the private markets today, I understand why you might want to take Tesla private, but I have to try to dissuade you,” she said.
According to Wood, Tesla is the largest or second largest holding in the three ETFs managed by ARK ARK innovation (ARKK), ARK Industrial Innovations (ARQ) and ARK Web x.0 (ARKW) funds.
Shorter clue if Tesla went private?
Wood thinks there are other investors like her who would be willing to give Musk a chance to realize his vision.
“If you don’t take Tesla private, you will be surprised and delighted by the reaction of investors once they realize and understand the scope and implications of your long-term vision,” she said, adding: “I believe that over time the truth will always prevail. in the public markets.”
She pointed to Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Salesforce (CRM) like other companies with visionary leaders whose share prices have soared. Wood also said if Tesla he went privateit may have fewer investors, which could actually make Musk’s life more difficult.
“Please don’t let the short-term thinking of professional public equity investors convince you to take Tesla private,” she said.
“I believe you will be on a much shorter leash in the private markets, depriving a broad and loyal investor base of one of the most important investment opportunities of their lives,” Wood wrote at the end of the letter.
Wood added in an interview with CNNMoney that she understands many Tesla bears are skeptical of her extremely bullish $4,000 target. But she said that “even if we’re half right, stocks could double.”
CNNMoney (New York) First published August 23, 2018: 4:25 pm ET