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Cathie Wood on the chip shortage and what it means for Tesla

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ARK Invest's CEO Cathie Wood joined Yahoo Finance Live for an exclusive interview to talk about the chip shortage, Tesla, and more.

Video Transcript

BRIAN SOZZI: Welcome back to Yahoo Finance Live. Innovation never takes a breather, even in front of a long holiday weekend and after a jobs report. And that means there could be new investing opportunities staring you right smack in the face. Who better to discuss the intersection of innovation and investing than Cathie Wood? She is, of course, the founder, CEO, and CIO at ARK Invest and joins us now for an exclusive chat.

Cathie, welcome back to Yahoo Finance. Thanks for taking some time. I had a long weekend here. I wish you could see my notes, because I have pages of them. But before we get into some of your recent picks and things you've been buying, talk to us a little bit about the labor report today. Came in below estimates. Is this the type of report where you have to take a step back as an investor and rethink any of the strategies you've been putting on?

CATHIE WOOD: Well, we believe there are three reasons that the employment report was weaker than expected. And one of them is the Delta variant of the coronavirus. We saw leisure and hospitality flat. The employment gains-- there weren't any. That's a big change. We also know supply chain problems are at work here. Certainly, we're hearing a lot about that from the auto sector-- many sectors. And we saw it in manufacturing. The total hours worked were down 0.5%.

So that suggests some possible supply chain problems. Or-- and here's where I think some people might be missing the mark-- we think there is an inventory buildup out there. But the inventories-- let's just take autos, for example-- are not on dealer lots. I get a lot of people pushing back against the notion that there's an underlying weakness developing in the auto sector. And one of the main reasons we believe it's happening is because the inventory is in our driveways or garages. We spent the last year trying to avoid mass transit. So used cars went crazy to the upside, and as did new car sales, much stronger than expected.

And now I think, however, there's another reason. And that is the consumer is thinking about his or her next purchase. Is it going to be gas-powered or electric? And we believe that electric vehicle sales will be up more than 50% this year, perhaps much more than 50%-- and that's a global number-- while traditional auto sales are basically flat. It seems like they're going to be up very slightly, if at all, on an average annual basis.

BRIAN SOZZI: Cathie, so let's stay in the auto sector. Of course, one of your top holdings in your funds is Tesla. It's been a long time holding for you. Given the chip shortage that we have seen, are you concerned about Tesla missing any delivery estimates this year?

CATHIE WOOD: Well, if we're right on what's going on with the gas-powered vehicle sales, I think that auto manufacturers are going to be cutting back. And that will free up some of the chip supply that might have gone to gas-powered vehicles for the electric vehicle manufacturers who are growing dramatically here. So I've been amazed at the way that Elon Musk and team have been able to work around the chip shortage because it's not just the most sophisticated chips. It's microcontrollers.

So their ingenuity has been at work in terms of substitution. We know it's a scramble. But if we're right on what's going on with the traditional auto sector, the gas-powered part of the market, some of that chip supply will free up for the electric vehicle manufacturers.

BRIAN SOZZI: Cathie, when you originally came out with your prediction on Tesla, I believe it was a $7,000 price target. Really, GM, Ford, Toyota, they weren't doing much in the electric vehicle space. But now that they are-- I mean, Ford's electric pickup looks pretty cool to me-- how did that impact the longer-term growth profile of a company like Tesla?

CATHIE WOOD: Well, I think it validates it. According to our estimates, based on rights law, which we can get into if you'd like-- it's a relative of Moore's law-- we believe that electric vehicle sales will shoot up from 2.2 million units last year-- it looks like will be 3.6 million or 3.8 million this year-- to 40 million in 2025 as electric vehicle prices drop below gas-powered car prices on a like-for-like basis. And our concern about that 40 million number was that other auto manufacturers were not responding rapidly enough.

Now what has happened is China, with a big focus on the environment, is subsidizing electric vehicles aggressively. And the supply, therefore, is starting to shift up. So no, we think this is good news. It's validating this massive move from the internal combustion engine and gas-powered cars-- we sold 80 to 90 million of them in the last few years per year-- to electric, which, as I said, is at such a low base right now-- 2.2 last year, maybe 3.6 million or 3.8 million this year-- all the way to 40 million. I think it just tells us that the exponential growth trajectory is in place. And given the way China is subsidizing, we could be conservative.

BRIAN SOZZI: Wow. Interesting there. And just staying on that, Cathie, it's been an impressive year for Tesla-- several quarters of profits, US business humming along, doing good business in China. To your point, do you see Tesla's fair value above $7,000 just given the year that they have had?

CATHIE WOOD: So that original number was on the old stock. We've had a five-for-one split. So our new number-- our base case for Tesla on the split stock is $3,000. The stock right now is a little over $700. On the old basis, that would be $15,000. So what that tells you is our estimate for Tesla's success has gone up. And the main reason for that is their market share, instead of going down from year end 2017 to today, has actually gone up fairly dramatically around the world.

BRIAN SOZZI: Interesting. Cathie, before we had to break real quick here, I do want to ask you about one more name-- actually, a couple more, but one right here-- Zoom. You were in the market picking up Zoom shares, if I'm correct, this week after that's earnings report looked good. I think some investors were concerned about the slowdown there. What did they miss, and what do you see?

CATHIE WOOD: Yes. So we think there's a transformation taking place in the communications sector. Many people think of Zoom as nothing more than these video sessions that you and I are on right now, but it's becoming much more than that. We think it's going to, with Zoom phone, take over the PBX system. In other words, it is going to start taking more share of the communications stack in technology.

And enterprise communications is a $1.5-trillion opportunity. And we believe that Zoom is on its way to usurping the role of players like Cisco, for example, in the years ahead. So it's a very big story. It is not just about video and stay at home or even hybrid. It's much bigger than that.

BRIAN SOZZI: Is it partially though, too, Cathie, a play on we are likely to be in this hybrid work model for five years, the next decade, who knows? And you know what? We may see more pandemics. Is that part of the play on Zoom?

CATHIE WOOD: Yes, but I really think that they're spreading their wings within the communications equipment realm, which, as I just mentioned, is the largest part of the tech stack, $1.5 trillion. We think they're going after that. And one of the reasons they got their nose under the tent is because of what happened during the coronavirus. This was the best-performing communications tool we had, any of us.

I know I much prefer when I know that my next call is going to be on Zoom as opposed to one of the legacy players because it just works better, and the user interface is much better as well. So they got their nose under the communications equipment tent that way, and now they're just going to move forward very dramatically, we think, from there.

BRIAN SOZZI: I do love Zoom. I've actually figured out how to use it on my phone, Cathie, believe it or not. But do hang with us. You have kindly agreed to hang with us for another block. We'll be right back with more from Cathie Wood on Yahoo Finance.