One of the most steadfast and consistent supporters of Tesla is billionaire investor and Chairman/CEO of Baron Capital, Ron Baron.
Despite Tesla’s aggressive price cuts and significant narrowing of profit margins, Baron remains optimistic about the company’s future.
In a recent CNBC interview, he revealed his belief that Tesla’s stock will quadruple over the next seven years. With shares selling for $271 at the time of the interview, this would translate to Tesla share prices of over $1000 by 2030.
The magnitude of Baron’s trust in Tesla is evident through his personal ownership of 4.5 million shares, valued at around $1.2 billion. When combined with his company’s investments, Baron’s total stake in Tesla amounts to nearly $5 billion.
Why Baron is bullish
Baron’s bullish stance on Tesla centers around several key factors.
Firstly, Baron is confident in Tesla’s unconventional but visionary founder, Elon Musk. Although Musk’s unconventional methods sometimes make Baron uneasy, Baron recognizes that extraordinary achievements require unconventional thinking.
Additionally, Baron points to Tesla’s unwavering commitment to cost reduction, its impressive delivery growth, and its plans to license technology and software to competitors as reasons for his optimistic outlook.
Because of these advantages, Baron anticipates a drastic increase in Tesla’s production capacity. He projects that Tesla will ultimately produce 20 million cars per year (compared to the current level of less than 2 million). Baron also expects Tesla’s battery business to expand exponentially, growing to 30 times its current size.
According to The Motley Fool, Tesla enjoyed an 83% year-over-year increase in deliveries in Q2. The company’s management is predicting that around 1.8 million vehicles will be produced this year, up from approximately 1.4 million last year.
The expected rollout of Tesla’s long-anticipated Cybertruck later this fall is another reason for investor optimism.
Why Baron might be wrong
With all of that said, there are several major risks associated with Tesla. The company’s aggressive price reductions in 2023 suggest that Tesla is particularly vulnerable to central bank interest rate hikes.
Moreover, some investors may see Tesla’s valuation as a disadvantage. With a price-to-earnings ratio of 79, the market has already factored in expectations of significant and sustained growth in the years ahead.
Tesla’s competition is intensifying as more automakers embrace electrification. If competition results in a slowdown in Tesla’s growth and narrower margins (as is likely), it could be difficult for Tesla to satisfy shareholder expectations.
In addition, since Baron is a large Tesla shareholder, it would be wise to take his analysis with a grain of salt.
Image Source: Sawyer Merritt, https://shorturl.at/bEV19
