Ron Baron, Baron Capital, has a growing portfolio called the Baron Opportunity Fund, and Tesla (TSLA) is among its top 10 holdings.
In an interview with Barron's, Ron Baron shared information on how his firm works and why Tesla could be worth $1.5 trillion by 2030.
As a long-term investor, Baron is not worried about the news because his company conducts its own research. They have 36 investment professionals and 170 employees.
Baron says that stock prices generally double approximately every 10 years. His company, he said, invests in business, not in stocks. He says that he doesn't like commodities and materials, he just wants to invest in growing companies - companies that can grow much faster than the economy, companies where they like people, companies, who have a competitive advantage that prevents others from doing the same. At such companies, Baron Capital hang on for the long term.
An asset management firm has 480 investments. Their top 40 investments account for 56% of company's assets. The cost of those top 40 was $5.1 billion. The market value is $19.6 billion.
The Baron believes that Tesla is just beginning. His company acquired almost all of their TSLA shares from 2014 to 2016: 1.62 million shares at an average price of $219.14. Their value amounted to $355 million, for which the company indulged in widespread criticism.
In the summer of 2019, stocks were about $230 each, and now their price has tripled. The company grew from an annual revenue of $2.5 billion in 2013 to $25 billion last year. This year, Tesla could reach $33 billion. In 2024, its income can range from $100 to $125 billion, and its cost will be from $300 to $400 billion. Now the company's market capitalization is about $120 billion. In 2030, revenue can range from $750 to $1 trillion, and operating profit from $150 to $200 billion. By that time, Tesla could be worth $1.5 trillion, which will ultimately make it one of the largest and most valuable companies in the world.
Ron Baron admires the fact that Elon Musk built all his projects without ads, while his rivals spend millions of dollars on it.
He says car companies have several problems. They spend money on researching engines, not batteries. According to Baron Capital, between $200 and $300 billion was invested in their plants for the production of internal combustion engines.
Another problem is how they sell their cars. In fact, dealers earn the bulk of the money not from selling, but from servicing. But with electric cars the situation is not so, they don't have so many details, so in fact, there is nothing to break. Therefore, dealers are not interested in selling electric vehicles. Tesla corrects and changes its car with each new update, so for dealers there is no earnings.
Tesla sold 367,000 cars last year, which means it will produce 1 million in two years. Currently, more than 90 million cars are sold per year. And Baron thinks that in the future Tesla will produce at least 10 million a year.
Ron also shared that he doesn't intend to sell the company's shares now. He said that a couple of colleagues came up to him with a proposal to sell some TSLA now, but the Baron answered them: "I said, do whatever you want, but your clients will look back, and you're never going to be able to buy the stock again. This is the reason people pay us. We're going to make 10 times our money from here."
Featured image: CNBC