Billionaire Ron Baron: By 2030 Tesla Could be a Trillion Dollar Company

Nov 09

Billionaire investor Ron Baron says that by 2030 Tesla could be a trillion dollar company. He says it’s clear that Tesla will be at $60 billion in sales within the next 3-4 years. Baron added, “It’s remarkable what Elon Musk has done.”

Ron Baron, Founder of Baron Capital, discussed his bullish opinion of Tesla on CNBC:

By 2030 Tesla Could be a Trillion Dollar Company

It was a good quarter for Tesla. They had $6.8 billion in sales versus $4 billion, so it’s up 70 percent. They made a billion for cash flow in the quarter before they spent on investing. That means they’re at an annualized rate of $5.5 billion of cash flow before they spend them investing. The company is valued for $60 billion, so it’s 11 or 12 times earnings, that’s not bad.

In addition to that, they are growing at 50 percent a year. I think that this year they did sales at $20 billion. We started in 2014 when they were doing $3.7 billion and this year it’s $20 billion, next year is $30 billion. I think that in 12 to 13 years, by 2030, this could be a trillion dollar company. I think it’s clear they’re going to be $60 billion in three or four years. This could be a really big company.

Cash Flow Doesn’t Appear to be a Problem

As the cash flow goes, when I look at the numbers it doesn’t appear to be the problem. Elon Musk says it’s not a problem, I take him at his word. He could have sold equity a year and a half ago at $370 to $380 a share, people were scrambling to buy, he chose not to. You have these businesses that they invest and when they’re investing they penalize profitability.

When you build a faith factory and you spend $300 million on the factory and it’s built for 250,000 cars a year and you’re doing 20,000 cars a year or 30,000, you’re not going to be profitable with that. But all of a sudden, you get it to 250,000 cars a year, you’re making $150 million on a $300 million investment, then you can double it. You’re at the point now where incremental investments are going to be incredibly profitable. They are now doing 5,000 cars a week, they’re going to be able to do Model 3 for virtually no additional investment. They’re going to get to 7,000 cars a week.

It’s Remarkable What Elon Musk Has Done

They told Wall Street this quarter that just ended that they were hoping to produce a gross profit margin of 15 percent on the Model 3 and it came out over 20 percent. Internally, they were hoping for 20 percent and he kept calling meetings, you got to cut costs here, you’ve got to watch that. When you’re building something from the ground up it’s not easy, it’s not easy doing what he’s done, remarkable what he’s done.

When he started making the Model S and Model X, those cars initially, when they were selling for over $100,000 a car, they had gross profits of 20 percent. Now they’re in the 90s for the car and the gross profits are 31 percent. Gross profits keep going up even though the price has gone down. The same thing is going to happen with this car. I think the gross profits on the Model 3 are going to be as good as they are on the Model S and X and I think the Model Y is going to be the best one they’ve ever had.

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