- From 2014 through 2016, Tesla’s share price experienced extreme volatility.
- We then purchased 27.0 million Tesla shares at a cost of $390 million: our average split-adjusted purchase price was $14.42 per share.
- We sold 6.8 million shares from 2020-2022, about 25% of our shares: our average selling price was $221.56 per share.
- We believed Tesla’s share price would reach $500 per share in 2025 and $1,500 by 2030. Still do.
The following segment was excerpted from this fund letter.
From 2014 through 2016, Tesla’s share price experienced extreme volatility. This was as engineer/entrepreneur Elon Musk and his team ramped its electric car manufacturing capacity and incurred significant plant and operational startup expenses. We then purchased 27.0 million Tesla shares at a cost of $390 million. Our average split-adjusted purchase price was $14.42 per share.
At the end of 2016, our Tesla investment represented approximately 1.6% of our Firm’s assets under management. Although we thought Tesla’s opportunity was large and its competitive advantages were likely substantial, we regarded our investment in this disruptive business as riskier than most.
Few investors then believed this electric car company would be successful. We were among the few. In several guest appearances on CNBC’s Squawk Box from 2014 through 2016, I stated that we believed Tesla’s share price could increase “20 times in the next 10 years if it is successful.” We were right.
Tesla manufactured and sold 31,000 electric cars in 2014. Tesla has since become the largest electric car manufacturer in the world. In 2022 it sold more than 1.3 million electric cars….and is now producing cars at an annual rate of 1.8 million cars! Total annual car manufacturing on the planet is about 80 million cars per year. Only about 5% are electric.
Tesla has also established unparalleled competitive advantages…which are about to increase further with its 2024 planned introduction of a lower-priced version of its exceptional vehicles designed from the ground up. Among factors distinguishing this vertically integrated car manufacturer are batteries with proprietary form factor and chemistry. Tesla’s version of a fully functional FSD (full self-driving) autonomous vehicle will be at least as significant.
Tesla’s share price reached over $400 per share in late 2021. Since its stock had increased so dramatically over the preceding two-year period, it had become a very large percentage of assets in two of our mutual funds and several managed accounts. To reduce the single stock risk of those two funds and other accounts, we sold 6.8 million shares from 2020-2022, about 25% of our shares. Our average selling price was $221.56 per share.
We continue to hold 17.6 million shares of Tesla’s stock, which is valued at about $3.1 billion at the time we are writing this letter.
We believed Tesla’s share price would reach $500 per share in 2025 and $1,500 by 2030. Still do. That’s based on our expectations for Tesla’s long-term sales growth and high, industry-leading profit margins achieved for its exceptional products. Not only are there approximately 80 million cars sold per year, but the “car park” worldwide that needs to be replaced is more than 2 billion cars. Those are cars powered by pollution emitting internal combustion engines.
Baron also has a significant investment in Elon Musk’s private company SpaceX, which we are super excited about. Baron has been investing in that business since 2017. We will write more about this investment in future Letters from Ron.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Additional disclosure: Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summary prospectuses contain this and other information about the Funds. You may obtain them from the Funds’ distributor, Baron Capital, Inc., by calling 1-800-99BARON or visiting www.BaronFunds.com. Please read them carefully before investing.
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