Why Ron Baron Is Betting Big On Tesla

Ron Baron, chairman and CEO of Baron Capital, sits down with “Squawk Box” to explain why he has decided to invest long-term in Tesla despite analysts shying away from the stock. He says that by investing in this company he thinks what’s going to happen is that it’s going to make this preferred issue a very strong issue.

Ron Baron, Tesla strong issue

Why Legendary Investor Ron Baron Is Betting Big On Tesla

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Transcript

This is a big holding for you. I think it represents about one point six seven percent of your assets under management which by the way are twenty eight point twenty five billion dollars up from when you started with just 10 million back in 1982. But let's focus on Tesla for just a moment because you've been a long term bull on this stock a long term believer. You just met with the chair. But there have been so many questions that have been circulating I'm I'll let you make your case and then maybe I'll push back on some of this stuff.

Well 28 billion of assets and twenty six billion 26 and a quarter billion.

We're talking about overall assets not your assets and profits.

And so we made our clients more than 26 billion in profits and we now have 28 billion in 1992 we had 150 million dollars. So it made a lot of money and made it by being a long term investor and often. Investing in businesses that I mentioned before which if we buy them for some period of time nothing happens to the stock. In fact one of the stocks that's in the news that we own right now is Iridium and Iridium was in the news this morning and yesterday because they have an area and is the satellite service that provided the FAA with information that allowed them to figure out what seems to be wrong with the plane and they stopped it but we invested in the final round of capital raise for Iridium three years four years ago and after we invested that was the last money they need. We've got 10 percent of the company stock was trading at seven and a quarter. I'll get to test in a moment. Just the idea that we have here it's 27 and a quarter. One of my friends is on the board and he told me they had a significant personal investment in the company told me he thought that I would be interested in looking at it knew something about satellites that who do we talk to put us in touch with the chairman spoke to him on a Thursday afternoon came up to visit us all day Friday spoke to him over the weekend spoke to Moore on Monday morning with the rest of our diligence and then we said okay we'll buy 10 percent of your company at six and three quarters. But if you sell to anyone else at a lower price in the next year I want a lower price.

We ultimately got six and a quarter for it. And I say that by investing in this company I think what's going to happen is that it's going to make this preferred issue a very strong issue. I want 10 percent of that to he said that's fine. It was a very strong issue. We've got the preferred 10 percent of that we got the common 10 percent of the company for three years after we bought it while they were making and launching satellites stock was unchanged. To how many people can make investments where nothing happens in a stock for three years after they bought it and Space X by the way was launching satellites we're an investor in space x 2. So I knew something about that and now in the past year. Now that all the satellites are flying around and you know the whole constellation Department Defense IoT. Erion and so now all of a sudden you're are going to generate revenues of companies buy it for three billion dollars. Today it's up four times from where we bought it didn't change for three years. Now it's up four times and and now it's 3 billion to our value. They're going to generate over 2 billion dollars of cash flow over the next four or five years. And I think it could be twice as to trace the price.

And we're looking at it right there next year. But Tesla has to also be trying a patient investors kind of patience.

So Tesla we began to invest in 2014.

What's your cost is what two hundred nineteen dollars for shares of Tesla. Yes. So it was trading at 10 to 90 now.

Yeah. So my clients that I haven't bought stock for myself for 17 years. This is the first stock that I told the board I would like to make an investment. Half of our firm bearing capital in this company was 225 thousand shares at 235 after we bought it. You know we have 165 thousand including the 200 25000 that I own for Baron Capital and ditto for Baron Capital because they said gee I can afford to lose the investment that I have and care bear in this company but I can't afford not to make a billion dollars and which is what I think is going to happen next tener.

So one point six million shares that you have includes a 225 that you personally were for clients and 225 for Baron Capital.

But my investments are principally in the mutual funds and they have been for 17 years and I'm a big investor in the mutual funds. Every single year significant amounts of money.

So there are concerns about testing. So let's run through a few things. Let's start first of all with the SEC.

One more thing before we start to Tesla. When we started to invest three point seven billion dollars a year revenues this past year the 21 billion year coming up to do 30 billion I think in five years to do 150 billion. So this is not a small company more 30 billion in revenues from three point seven billion. So the company is up seven times in revenues in the last five years. And the stock is up.

30/40/50 percent. Okay let's actually start starting with the FCC. Let's start backwards from that just because you bring up the idea of how they're going to grow from here. The bear case out there takes a look at.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold