Thread by @ChrisBloomstran

Ark Invest, the bucket shop EFT promotional “investor,” the one whose founder CEO told a CNBC audience a year ago that ARKK would earn 50% a year (correct if she said minus), is back with its 3rd annual Tesla “research report” with a fresh $2,000 price forecast by 2027. Amen. 1/

That’s a $7 trillion market cap, or a mere 21% of the S&P 500's current cap. MSFT, AAPL, GOOGL, AMZN and META have a combined $7.7 trillion market cap today, up from $6.2 trillion at yearend. From today’s $165 share price, $2,000 in 4.75 years is 69% per year. Makes sense. 2/

Zero mention of expected hyperinflation in the report. Cue the class action lawyers. Cue @SECEnfDirector. The bull case is $2,500 per share, 25% higher than the base case and a market cap of nearly $9 trillion, or 26% of the current S&P and up from 1.5% of the index now. 3/

Forget that the bull case predicts robotaxis launching in Q4 2023. Forget that the bear case predicts 10.3 million cars sold with a bull case at 20.7 million (more than market share leaders Toyota and Volkswagen combined) and more than 20% of all cars sold globally in a year. 4/

Forget a bear case 34% EV gross margin (ex-credits), up from 19% in the latest quarter. Forget $1.12 trillion (with a “t”) in expected revenues, up from $86 billion for the last 12 months, 69% growth per year, just a bit higher than 23% revenue growth over the last 12 months. 5/

Forget expected $354B in EBITDA, up from $18B over the last 12 months, 87% growth per year. Forget all that and let’s talk auto insurance for a minute. And perhaps honesty, and a lack of it. Tesla does now write insurance. Seems too expensive by insurers that know insurance. 6/

When ARK released its report Thursday, it included this series of pie charts for revenue, EBITDA and enterprise value, with share by business line. Tesla’s CFO suggested the firm had $300 million in insurance revenues in 2022 (too immaterial for the 10K). Note the insurance %: 7/

ARK’s charts forecast $20.4B 2027 insurance revenues (presumably premiums written), EBITDA of $14.2B and enterprise value to Tesla of $244B. Before exploring the stunning implausibility of these projections, it appears ARK revised its charts yesterday to the following: 8/

Instead of insurance representing 2% of revenues, 4% of EBITDA and 4% of enterprise value, the figures changed to 2% for each. Note the disclosure below the new charts. ARK states, “Previously, the pie charts included 2026 expectations. They have now been updated to 2027.” 9/

However, inspecting the actual charts in last year’s report, the three insurance components are not each 2%. Rather, the actual report still on ARK’s website has 3% insurance revenue, 4% EBITDA and 3% EV, not 2%, 4% and 4% as the new disclosure suggests appeared last year: 10/

Simple mistake or dishonesty? Dunno. Regardless, team ARK continues to demonstrate complete lack of understanding of the private passenger auto insurance industry and how insurance works. The entire U.S. private passenger auto industry wrote $277 billion in premiums in 2022. 11/

State Farm remains the market share leader with 16.8%, writing $46.7 billion. Progressive passed Berkshire Hathaway’s GEICO with 14.1% share and $38.9 billion written vs 13.8% share and $38.1 billion for GEICO. These companies were founded in the 1930s. Insurance is tough. 12/

[Incidentally, when measured by premiums EARNED and not WRITTEN, GEICO still leads, $38.0B to PGR’s $37.5. Why? PGR writes nearly the max amount of premium relative to statutory capital so when bond prices fall and eat into surplus they send more business to reinsurers] 13/

Allstate and USAA round out the top five, with USAA writing $16.4 billion. Projecting $20.4B in revenues suggests ARK believes Tesla insurance will be a top 5 insurer in 4.75 years. How many non-Tesla owners will use Tesla insurance? If they price it cheap enough maybe! 14/

When ARK first trotted out it’s Tesla valuation 2 years ago, the ARK CIO responded to one of my questions that Tesla would only write in the U.S. No doubt if they write globally the market grows.

Now EBITDA: ARK expects $7.1B ($14.2B in Thursday’s report) on $20.4B revenue. 15/

That’s essentially a 35% pretax margin. No clue. These people really need to hire an insurance analyst. Insurance is regulated and prices are approved by state insurance commissions. Profit on equity capital is regulated. Excess profit forces price down on rate applications. 16/

The industry writes over time at a slight underwriting loss, leaning on investment income on invested assets to generate return. The industry was massacred last year. Thinking an underwriter can make $7.1B pretax on $20.4B revenue demonstrates zero clue. Maybe less than zero. 17/

ARK may counter that its assumptions (revised) are only 2% of total revenue, EBITDA and enterprise value. So a throwaway 2% enterprise value equates to $122B in insurance value (double that on Thursday). For sure. PGR also writes homeowners and has an $80 billion market cap. 18/

If Tesla is writing $20.4 billion in premiums, it will require at least $6.8 billion in statutory surplus (insurance book value). Auto insurers can write $3 in premium volume for each $1 in surplus. Progressive writes at this level. Some that are overcapitalized write less. 19/

The entire U.S. property/casualty industry has a combined total surplus dedicated to private passenger auto of probably ~$100 billion. For perspective, Berkshire Hathaway’s entire insurance operation writes $80 billion in premium across GEICO, specialty lines and reinsurance. 20/

The Berkshire collection has a nearly $300B of statutory surplus. My valuation on the entire Berkshire insurance group is $460B (roughly half of Berkshire's entire intrinsic value). BRK's insurers own a stock portfolio of more than $300B and total investments over $400B. 21/

So Tesla, which wrote $300 million premium and likely has no more than $200 million capital today will be worth $122 billion (or $244B as of Thursday), ¼ or ½ of Berkshire Insurance? BRK insurance at 1.5x book value vs Tesla insurance at 18x (or 36x) 2027's $6.8B surplus? 22/

Why so critical? ARK continues to promote the impossible to retail investors. B.O.H.I.C.A. The SEC doesn’t appear willing to act. The class action lawyers are surely coming, particularly as these puff pieces and spectacular return projections prove impossibly insane. 23/

The primary author of the ARK report is a CFA. How about @CFAinstitute investigate for failure to use a reasonable basis in investment recommendations? Seriously. There exists a wholesale history of red flags suggesting gross incompetence or outright dishonesty at ARK. 24/

Of course, one thing remains certain: ARK continues to attract fresh money to burn, all the while collecting more than $300 million (and counting) in management fees since 2014. The fleecing of the retail investor continues unabated. We are not at a bottom. Far from one it seems.