Tesla, Inc. Perhaps you’ve heard of it.
At the time of this writing, $TSLA is trading at $272.32, just short of its all-time high $280.98 reached just days ago. Q4 earnings are just two days away. Ron Baron is a billionaire investor who thinks this price is going to multiply many times over in the coming years and decades. Is he right? I’m skeptical. Here’s why.
What is Tesla, Inc.?
For the uninformed, Tesla is the big crazy electric car company started by South African billionaire Elon Musk. Musk achieved early wealth as an innovator in the 2000’s internet boom. He got even richer as a major driving force behind Paypal, just before its sale to eBay. In 2002 and 2003 he started SpaceX and Tesla Motors.
SpaceX is its own can of worms, but Tesla is complex and confusing all by itself. Musk recently changed the name from Tesla Motors to Tesla, Inc., because Tesla is now much more than a designer of sexy electric cars for the wealthy.
Last year, Tesla bought SolarCity (a freakin’ solar electricity company) and announced it was going to start producing solar producing roofs and large home-scale batteries (the Powerwall) to store all that extra energy. This wasn’t as random a move as it might sound; it’s all part of Musk’s plan to completely change American transportation.
To power a fleet of EVs, America’s energy grid will need more juice. Musk’s plan to, at once, decentralize American electricity and increase its capacity is beyond audacious. If he succeeds, the sky’s the limit for $TSLA shareholders. But revolutionizing the world is easier said than done, and that’s where Tesla runs into problems. More on that in a moment.
Who is Ron Baron?
— Elon Musk (@elonmusk) November 4, 2016
Ron Baron is a billionaire investor who likes to buy and hold. His firm apparently has $300 million in Tesla stock, bought over the past couple of years at an average of $208 per share. Baron goes on TV making incredible claims about Tesla’s future value. Most recently, he’s said that by 2020, he’ll have made 4X his money, by 2025 another 3X, and by 2030 another 3x.
Why does Ron Baron think he’s going to get 3000%+ returns on Tesla over the next 15 years? Because he thinks they’re going to sell a bunch of cars and completely transform the International electric grid.
It’s possible that Tesla will do just that, but I have my doubts. Here’s why.
Why I’m Not Buying Tesla Stock
There is no company on planet earth that is more hyped than Tesla, Inc. The Tesla story sounds downright supernatural when told by a committed Musk fanboy. It’s true, Elon Musk is a big thinker and he’s had a lot of success. In a world that seems kind of dark and scary to many, he’s a beacon of light for what the future could be.
That’s the story, that’s the hype. But stories and hype are not good reasons to invest in a company. In my mind, there are many more reasons not to invest in Tesla. Here are some:
- Over-promise, Under-deliver. Tesla doesn’t have a lot of products that…you know…exist. How many Teslas have you seen on the road?
- China. Tesla has struck out hard with China. Chinese companies like BYD and Chery account for 98.5% of the country’s domestic EV sales. The Chinese government subsidizes Chinese EVs, meaning Teslas barely sell there. On the electricity front, China wants to revolutionize its own grid, building multiple factories to rival Tesla’s Gigafactory.
- Model 3 Delays. Tesla originally promised 100,000 Model 3’s on the road in the US by 2018. Now it looks like it might be 2020 before we see that many Teslas. Tesla can’t work without the Model 3. How long can we (and they) wait?
- Competition! Chevy’s Bolt and Volt are selling like hotcakes. How will an expensive, luxury EV compete, especially one this delayed at getting to market?
- Model X, Model S. Not roaring successes.
- DEBT! Tesla’s $5 Billion+ in debt with no signs of slowing down.
- Do lots of people really want solar roofs and Powerwalls? Are you sure?
- Cheap gas. Why do I need the most expensive EV on the market when gas is $2.20 a gallon?
I could go on, but you get the idea. All that being said, Elon Musk might find a way to beat the odds. That’s the way the public sees it, and that’s why $TSLA just keeps getting frothier. Two days from the time of this writing, Tesla will announce its Q4 earnings report, and then we’ll see some fireworks.
For now though, I’m profoundly skeptical and I’m not putting any money in Tesla. Maybe in 10 years I’ll kick myself, but in that amount of time there are plenty of other ways to make money grow. Ron Baron, I wish you the best, but I wouldn’t do what you’re doing, at least based on information available to the general public.