Fund Manager David Baron remains optimistic about Tesla's potential for massive growth, despite the company's recent challenges. Despite Tesla's slowing growth and shrinking profit, Baron believes that these setbacks are just a bump in the road for Elon Musk's company, and that another parabolic rally is on the horizon.
Baron's faith in Tesla stems from his belief in Musk's ability to navigate the rocky times ahead. While Tesla warned of a "notably lower" expansion pace this year, Baron sees the company reaching a stock price of $1,200 by 2030, representing a staggering 550% increase from current levels. He cites Tesla's strong brand as a significant factor in this prediction. In fact, Tesla and Musk's privately held SpaceX were the largest holdings in Baron's focused growth fund as of December 31, 2023.
Despite Tesla's outlook for slower sales growth in an industry that is currently experiencing an EV winter, Baron still expects the stock to touch around $300 in approximately 12 months, compared to the current price of $183. He points out that even in a tough environment, Tesla is still achieving a volume growth of 15% to 20% per year and generating $7,000 in gross profit per car.
Last year, Tesla delivered 1.8 million cars, showing a 38% increase from the previous year. Analysts project that unit sales will increase by 17% this year. These figures highlight Tesla's resilience and ability to continue expanding and growing, albeit at a slower pace.
Baron's optimism surrounding Tesla is essential to achieving his goal of boosting his fund's assets to $2 billion this year, from $1.3 billion as of December 31, 2023. His father, Ron Baron, a Wall Street veteran, is famously a large proponent of Tesla and Musk. In fact, Baron's Partners Fund, overseen by Ron Baron, was found to be the only one among thousands of rivals to outperform the Nasdaq 100 over the prior five, ten, and fifteen years.
In addition to Tesla, David Baron is also optimistic about SpaceX, projecting its valuation to rise 20% in a year, double within three years, and triple within five. Last month, Bloomberg reported that the space and satellite company is worth $175 billion or more.
Baron's investment approach aligns with his father's investment thesis. Both believe in investing in companies where leaders have significant stakes in the business and hold the potential to double in market value in five to six years, representing a compounded growth of 15% per year. They are willing to accept short-term setbacks as long as they see the potential for strong long-term returns.
While some investors have started questioning Tesla's growth narrative, Baron remains confident in the company's ability to innovate and maintain a cost advantage. He acknowledges the hyper-competitive nature of the automotive industry but believes that Tesla's unique position and forward-thinking approach will help it stand out.
Ultimately, Baron's belief in Tesla and Musk's leadership continues to shape his investment strategy. He trusts that Musk won't make any drastic decisions that could negatively impact the trajectory of the companies. As a result, both Tesla and SpaceX remain crucial holdings in Baron's portfolio.