Elon Musk has been integral to Tesla's growth, AI: Cathie Wood

Ark Invest Founder, CEO, and CIO Cathie Wood — whose ARK Innovation ETF (ARKK) holds nearly $726.8 million in Tesla shares — is forecasting that Tesla (TSLA) stock could climb to $2,600 per share by 2029, in her firm's latest call on the EV maker. A long-time supporter of Tesla CEO Elon Musk, Wood joins Yahoo Finance to discuss the value Musk has brought to Tesla through his leadership.

Tesla shareholders have ultimately voted to approve Musk's pay package, valued at around $46 billion based on the company's current stock price, with the results revealed at Tesla's annual shareholder meeting early Thursday evening.

"Elon Musk has been incredibly important to Tesla and still is, not so much on the electric vehicle side — that's on automatic pilot, it's on the autonomous side," Wood says, emphasizing Musk's commitment to autonomous driving functions and integration of AI as to why she sees the stock soaring to $2,600.

Wood goes on to say that there's no other company that will be as impactful for humanity as Tesla under Musk: "What many people don't understand is, the most important variable — once you've got the domain expertise and the AI expertise — is proprietary data. And Tesla has probably more proprietary data, than almost any company in the world. Elon Musk is the CEO of this age that we believe is going to best capitalize on the convergences between and among technologies..."

Wood also comments on Tesla's position in the ARK Innovation ETF as the tech-adjacent EV maker maneuvers auto industry headwinds and a higher for longer interest rate environment.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance's Special Report on Tesla's annual shareholder meeting.

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Video transcript

Kw has been a vocal champion of Musk for years.

She voted to support his pay package in today's shareholder vote and has high expectations for Tesla stock in the years to come.

Her firm are best expect shares of Tesla will hit $2600 in five years.

That would be a more than 1300% point increase from where the stock stands today.

KW, CEO and Cio of a Best is joining us now.

C it's great to see you.

Great to see you, Julie.

Happy to be here.

Thank you for inviting me, of course.

So you're somebody, one of the main people I wanted to talk to today about this vote because you have been very supported, uh supportive of Musk.

So you voted yesterday just briefly give us your rationale for why you think this pay package is justified and and it should stand well.

Uh uh I should say from the outset uh Elon Musk was willing to uh he was willing to commit to working 10 years uh without any uh uh salary bonus stock compensation.

Um uh Unless he achieved these goals and they were ranched, there were 12 tranches um, but uh, he accomplished what, at the time 2018, most people were saying was laughably impossible.

Number one, now we thought it was possible with brilliant execution.

Uh But most, if you, if you listen to the analysts and other auto manufacturers back then, uh they more often than not use the word, you know, possible bankruptcy.

Uh That's how much he was betting the company.

Uh, and that he did and uh he accomplished something phenomenal.

And uh really at the, at the beginning, the, the value of the pay package was 2.3 billion.

The reason it got to 56 billion was the performance which was outstanding.

Kathy.

I'm also interested to get your take on how critical you think Musk is to Tesla because we've had analysts come on the show, uh Kathy who cover Tesla and they'll, they'll kind of suggest in their opinion, he is almost foundational.

They'll say things like Musk is Tesla.

Tesla is Musk.

Do you agree with that, Kathy?

I think, uh I think Tesla, Elon Musk has been incredibly important to Tesla and still is um not so much on the electric vehicle side that's on automatic pilot.

It's on the autonomous side, which is the reason we anticipate that the stock will scale to 2600 in our base case.

Um given our research in the next five years, uh in fact, the probability of autonomous has gone up dramatically here.

Um because of breakthroughs in A I which Elon and his team are harnessing and this is a winner, take most opportunity.

Uh the first uh autonomous taxi network to evolve and get people from point A to point B as safely and quickly as possible is probably going to win the lion's share of a given market.

Uh I think this will be country by country or maybe continent by continent.

So um and we think Tesla is in the pole position, certainly here in the United States.

And we were very pleasantly surprised that China has invited Tesla to partner with Baidu on the Apollo uh autonomous Project.

I think the signaling there is uh the Chinese companies are trying to go autonomous and beat us at this game.

Uh But they have been unable to do so.

Uh and just like on the electric vehicle front, they've invited Tesla in uh to help them to help show the way.

Um I, I wanna dig more into autonomy but first I wanna linger on the vote for a, a little bit more Kathy because what I'm curious about is, is Musk has been quite vocal of what he wants here.

He wants 25% voting control of Tesla.

Um He has said that if the pay package didn't go through, although it seems like indications are it's going to go through, but that if it didn't go through, he was going to take some of his A I technology to one of his other um endeavors if the pay package indeed does get past.

Are you, what's your level of confidence that he won't still at some point get angry at something?

He is Mercurial and take that A I technology elsewhere.

Uh Well, first of all, and just to finish off on the last uh question, uh once autonomy is in place and, and we're almost there.

Anyone who has FSD full self driving today knows that every two weeks now we're seeing leaps in performance.

And so uh uh we do think that autonomous is almost here and then, and then you can ask me the question uh after that happens um in terms of uh taking uh A I his A I strategy elsewhere.

Um I think uh what many people do not understand is uh Tesla is the largest A I project on Earth Autonomous Mobility is the largest A I uh project.

We see revenue scaling in the entire ecosystem globally to 8 to $10 trillion from essentially nothing.

Now uh uh uh in the next 5 to 10 years and the taxi platforms will get half of that again, country by country or region by region.

Um So uh we think that uh oh I've lost the question.

Um uh Julie, I'm so sorry.

Uh It was about the, the, the package.

Oh yes.

Would he take his marbles and go somewhere else?

Well, I think what many people don't understand is um the most important variable once you've got the domain expertise and, and the A I expertise is proprietary data and Tesla has uh probably more proprietary data uh than almost any company in the world.

Uh uh Elon Musk is the CEO of this age that we believe is going to best capitalize on the convergences between and among technologies.

Uh autonomous mobility is three of the platform's robotics, energy storage and artificial intelligence converging uh technologies that are going to create explosive growth.

The other companies um we don't think are going to change humanity uh as much or the environment shall we say as much as Tesla is?

And uh I think Elon is passionate about that uh topic.

Uh The other companies are A I companies is going to harness A I and um and, and create in the case of X, the Everything App, we do think that's, that's his plan there.

But the biggest project is this one.

The most challenging project is this one and I don't think he is going to leave until he sees autonomous on uh I guess you could say automatic pilot and Kathy, as you're kind of suggesting there, you know, Musk is a busy guy.

He's always been a busy guy, but he seems busier than ever.

I mean, as you're mentioning Tesla um Neuralink, you know Xaix, I mean, are you as an investor?

Um Kathy, are you ever concerned that he's spread too thin at this point.

Uh I am not because again of this convergence idea, we almost need CEO S to become multidisciplinary uh in order to understand how the world is going to work.

And uh uh Elon epitomizes that right, in, in terms of A I, in each of the projects, autonomous mobility here on Earth and Space uh and uh A I projects elsewhere.

So this is really even neuralink there are, there's A I uh uh they're harnessing A I there as well.

So, um I think that he is becoming a better executive from a strategic positioning point of view because of um hi, his focus on these various A I projects.

Um Kathy, I know you have a longer time horizon.

We've talked about this frequently as that's evidenced by your um your firms now analysis going out to 2029 for, for Tesla and where it should be.

Um But Tesla is down this year.

Um And your uh benchmark arc um uh arc ETF is down this year, but it's also down over the three and five year periods.

Um And so I'm just curious how you're thinking about strategy with uh with regard to Tesla and more broadly, given that.

Well, uh given our price target, as you say, uh Julie, uh we have a long term time horizon.

Uh The reason Tesla is down is because ev sales are much weaker in this macroeconomic environment.

And uh there's price discounting uh many people ask us about that.

We would worry more about the traditional auto manufacturers as electric vehicle prices come down below gas powered car prices.

Uh So we've got our eye on the prize.

It's a five year investment time horizon.

You are right.

Uh The three and five year numbers, uh We have not met our 15% compound annual rate of return uh over a five year period.

Uh And I think I know the reason for that in this particular case was the shock uh that we saw coming out of the fed a 24 fold uh interest rate increase uh in little more than a year which absolutely crucified long duration assets arc uh epitomizes in the equity world long duration.

We have a five year investment time horizon whereas most have uh one I would say these days.

So um uh we understand why we think we've paid our dues in terms of uh rising rates.

If anything, the recent inflation data suggests interest rates will fall this year.

And the number of uh dot Plots is increasing once again, that should uh accrue to the benefit of our strategy.

Um This year, uh The the, the backup or the underperformance has had a lot to do with going from six interest rate cuts expected at the end of last year to at 1.0 or, or just one.

Now we're up to two.

And we think as inflation continues to surprise on the low side of expectations, which we do believe because innovation is deflationary gasoline prices are coming down now.

Uh rents are coming down in many, many cities.

So we do think interest rates will follow if we were one of the worst disadvantaged or the worst hit.

Uh among strategies, our long duration strategy, just like long bonds, long duration uh strategy there too, they were hit harder than they have been since the 17 hundreds.

Uh So very unusual experience if that's the reason we ha we got hit so hard stands to reason also that as rates come down, we should benefit.

Uh and maybe the market needs to see more from the fed in terms of rhetoric here.

Uh But we have started to outperform very recently.

And we think uh what we've experienced in the last, well in the last few years is the most amazing concentration of performance into just a few stocks.

Now, the mag six And in fact, Goldman did a study about concentration which says this is the highest concentration ever even worse than during the Great Depression.

When uh when investors were seeking companies that they knew would not go bankrupt, big cash cushions, big cash flows uh much like now, much like now.

So there is still fear in the market which has disadvantage our strategy when risk appetites uh uh pick up and investment time horizons extend a little bit as they do during bull markets.

Uh we should enjoy um AAA nice rebound.

We think last year we were up 68% beating all the major benchmarks.

Uh and that was simply because of the width of lower infla inflate, I mean interest rates.

Uh We think uh that, that wi will turn into a reality this year.

Um Kathy finally, as you look have that outlook right, for um the fed to start cutting rates for an improvement in the portfolio um to circle it back around to Tesla.

You know, Tesla is the top holding in that ETF um at about 11% or so.

Uh after the today's vote outcome, would you anticipate even adding to that stake?

Well, we cannot add to any stake.

Uh When a stock is at 10% or higher, we can let it run.

Uh We don't have to cut back right away.

Uh But we, we um if a stock is above 10% it has outperformed other stocks because we usually gone to 10%.

It's outperformed other stocks.

And so again, we can let it run.

We just can't buy any more if, if we're at 10% or more.

Gotcha, Kathy.

Thanks a lot, Kathy.

Thank you as always for joining us.

We appreciate your time.

Thank you so much.

Thank you both.

And uh uh we're looking forward to a big bull market ahead as interest rates come down.

Thank you, Cathy.