Ron Baron: Tesla Worth $1T By 2030 💫📈💸

[Music] what a hyper change welcome to another episode today we're talking about Ron Barron's latest interview on CNBC about Tesla and markets I tweeted this video recently got a ton of love on Twitter and it's a 34 minute interview that I thought was you know an incredible insight into one of the smartest investors buy-and-hold out there Ron Barron is the founder of Baron funds this mutual fund company he founded decades ago now has about 30 billion under management he's worth a couple of billion himself outstanding track record his recent interview just you know I've already watched it like four times in the past two days it came out so I wanted to chop together the best parts of the interview and then give you sort of my analysis piece by piece so let's without any further ado get right into it but what do you make of the current board though because the the the critique is that there that there is no I dare say adults in the room or people who are at least willing or able to control you on must you know when you look at a business from the outside as I said this company's valuation is going to depend on how many cars they sell and how much they make on the cars and how many they can make how much profits they're gonna make per car and how many batter is going to sell it's not going to depend on whether we like or don't like a tweet comes out of of the CEO how how upsetting must it be to an individual like Elon Musk who's working his butt off to try to change the world and get rid of carbon emissions and help the environment and and for every day to be criticized because he has he's different than most people and whole tweet this is why Ron Baron is such a legend I think he's so awesome you know comes right off the bat just focusing on the fundamentals of the company here you know people love to say in the media the Tesla Long's believers are just you know we're not paying attention any numbers or any facts we're paying stuff that doesn't matter but look at what Ron Barron sings look at wheat isn't impacting the sales the revenue the financials of the company that's what's gonna guide the valuation in the long term that's what matters that's what we should be focusing on love that just clear-headed response you know right off the bat and now here's a little bit of history of how Ron Barron actually got involved with Tesla because he was even a shareholder even pre-ipo you know I did a friend a favor about 10 years ago and he was formerly the head of a VOC mark and he went to law school together and he was telling me that he is now going to mentor an individual in a private equity investment and if I invested in that equity and in private equity then it would be helpful to him as far as raising money for other investors as I said I only invest in our mutual funds but Vic I know you since 1966 and of course I'll do whatever you want so I invested some money here money my money this is just my money in this partnership and the first stock that I got back was Tesla stock 3 dollars a share that was my cost three dollars a share they give me stock back and then they're getting ready to go public and he comes to visit me yeah Elon does when it in his Roadshow and we talked for a couple hours and I say I can't understand how this could be successful and in fact I just gave you a you know a table here was 50 car companies that have failed in the past since 1950s 50 of them just one after another just look at these qualities companies I mean Nash Rambler American Motors Bricklin checkered tail DeLorean DeSoto 50 companies I said there's no way this could be successful then they take a car out to my house in Long Island and I test drive it and when is roadsters I can hardly get into it and I say this is crazy car so fast and how am I going to know I'm not gonna get crushed or run over in the highway and so I get back to the office and there's there's $3 stock that I had I sell and it's about 25 or 30 dollars so it this piece of history is so so important the more you study a company the more comfortable you become with it the better you understand it so just seeing it through the lens as Ron Barron was actually a shareholder at $3 per share pre IPO and then actually cashed out because he didn't believe in the story but he kept following it and here's what happened and but I keep following the company it's in case there is something that I'm missing and we keep watching it and then in 2014 or 13 I realized I made a mistake in fact snellie we go ahead and my Clippard and I go out and visit him we spend a couple hours with him that is terrible I've made it but Mike at least own the stock and to say after that meeting say Mike you know at least you're smart enough to own it and I don't congratulations is ironic sold it so you sold it after you listen to what he had to say you sold the stock you kidding me and he says yeah I did and now the stock is 70 or 80 dollars this year and all of a sudden they're starting to deliver his Model S's and I say I gotta buy the stock I have to and the stock goes to in 2014 is 160 160 i sold its target 25 or 30 and I say okay I have to own stock and so we start buying stock at 160 and we buy stock between 160 and 230 our average cost is 219 over a between 2014 and 2016 for a million six hundred fifty thousand that we can make twenty times their money so after all that after cashing out at 25 or 30 bucks a share he starts believing in the thesis seeing Tesla's execution starts adding a huge you know making it a very large position and is fun between 2014 and 2016 bought about one point six six million shares or that's what he holds now which is almost one percent of the company worth you know four hundred five hundred million dollars and yes he thinks the upside from that 219 price could be 20x or better we're gonna get more laughs more on that later this was from Bob Lutz on Friday and I know Bob Lutz hasn't liked this from the beginning he's an old line car company guy he says they're gonna go bankrupt you think they're gonna go bankrupt but he brought up a point on Friday that I hadn't really considered before and that's that the not having dealers is a huge disadvantage over the long run from a financial perspective because when you have a dealership network they take the ownership of the vehicle from the minute it moves out of the factory if you don't have that dealer network system then this is inventory that has to sit on your balance sheet same thing in terms of used car sales how do you handle that if you don't have a dealer network that does it I did a little more research on it and it turns out that Henry Ford was the one who invented the dealership model and he did it because Ford was short of cash at that point the dealership model allowed it so that he couldn't have this inventory and move out the doors local dealerships would take out their own loans from their local banks and that way the organization would have a much bigger float and it wouldn't be writing a Sarah the company that that's an argument that kind of makes sense to me why why is testa so Henry Ford when he formed this the other Network you're right it was because you didn't have enough capital and I mean and so he couldn't build him in on them and and he had to have some way to get him out in the field and the dealers several years later invested millions of dollars in each of their businesses and what happened to them is that they became incredibly successful and powerful and a lobbying powerful they have perpetual licenses that means that whatever card they're getting a rake off of all the profitability that's sold that is achieved by auto companies and you're right they do take inventory but a Tesla manual and several months of inventory that they're in the dealers are holding that's a big risk that means that the car dealer the car owner you know the core company he's at risk these guys aren't going to sell that inventory and they're gonna have to write up some specials test the only manufacturers to orders where they get an order they make your car and they don't have an order they don't make the car the ABC anchor here brings up an excellent point I love this piece of history that she interviews into the story but she keeps missing what in my opinion the thing that I'm like screaming at the TV when I'm watching this is why do these car companies want to get rid of these assets sooner if those assets aren't great and they can pass on the liability to their dealer network it's a sign of weakness not strength and they've always been using this crutch of the dealer network to sort of smooth out inventory changes and I just think that's so so fundamentally important here is that if the assets are amazing you wouldn't want to get rid of them off your balance sheet but if they're crappy assets you do you know this really like open my eyes to why there's such you know bad incentives in the way current car companies work because they're immediately pushing the liabilities of their assets onto their dealer network but Ron Barron does say one thing here which i think is super interesting that tesla builds their cars to order they're not gonna build your car unless they get north that was true and in my understanding until about six months ago or three months ago and this last model three push to hit five thousand a week to go to profitability they've started building cars and batches and putting them in inventory and just predicting that people are going to choose them because they have such limited options so I hope the Tesla goes back to the bill to order model but I do think it's very important - correct Ron barring a little bit here the Tesla's actually been moving away from that a little bit but Ron Barron's follow-up point is why I think Tesla's model here is so so brilliant it's just a better consumer perspective and financially there's this concept called float which is incredibly attractive that Tesla has sort of wandered into you because of their direct consumer model and from the time they take an order in 28 days they're able to deliver that car to the purchaser direct direct to consumer there's nobody no dealer in between the idea the credit of Tesla is so good with the suppliers that the suppliers give them terms and oftentimes it's two or three months so basically they're getting paid in 28 days and they're not having to pay the people who built the car the people who have the metal the four four twenty two thirds 60 days or 90 days now that's counter to what we've heard friend is very important the suppliers the the suppliers say that Tesla has tried to push for tougher deals than they have with other companies or everybody pushes for tough deals yeah every single car company pushing protect you you're saying suppliers down those consignee does a billion dollars a month of revenues they're getting a billion dollars of float a billion dollars have float so they're creating float every time they're selling cars in addition to that you know that's that's you know above that was if they do a billion dollars a month now then they have a billion dollars in float two dollars two billion dollars means two billion dollars in float so that's a very positive thing only reason the car companies the the big OMS are making these electric cars and not making money on them as they get their credit they don't think of it - Tesla first things first I love how Ron Barron debunks the fun I mean we all remember in the Wall Street Journal a little while ago there was this whole report about how Tesla's squeezing suppliers I even made up talk about on Piper change and just said what Ron Barron said this is standard you know as Tesla gets bigger as Tesla gets more leverage they're gonna push for more deals get you know better and better terms for those payments for suppliers that's what's happening and then why that's such a fascinating piece of Tesla's model and why is is unique to every other automaker is chess Tesla's generating flow let's say you place an order in 28 days they deliver the car and you're getting and Tesla's getting that 80 whatever grand for that car but the 80 grand of metals that they had to pay to get that car you know they don't have to pay for those metals for 60 days so the difference there that that 32 day difference or whatever however big it may be and it see growing is when Tesla can leverage that capital to generate flow now this is a concept that Warren Buffett has with his insurance companies and part of the reason why Berkshire has been so successful is because they generate float essentially excess capital that you can invest and get a return on and then use that return to augment your profitability so if we assume that Tesla puts that you know billion a month in float or billion whatever in float that Ron Barron's talking about into let's say Treasuries then they can earn you know a couple percentage points annualized on that capital and that could actually turn out to be millions of dollars of additional earnings and this is such a beautiful flywheel for Teslin even beyond just the way that you know they could be generating minor interest just the way the capital flows and not having to put up the money upfront means that they can grow so much faster here they're not tied down by these terms because they're getting paid before they have to pay their suppliers Jamie Stone and my office had a Porsche hey boy what a model three he said its unique it's not comparable to a Porsche he says it's unbelievable different our trader David Schneider just bought a model three he says it's the best car he's ever had my kids have one of my son's as a model X he says he will never own another car other than a Tesla never and if you talk to anyone who owns he's model 3 so I'll tell you the same thing it's unbelievable the quality and it keeps getting better and better and better I love the focus and how you know Ron Baron to do all the numbers but then he also just brings it back to like what's the product what's the anecdotal thing I'm seeing on the ground with the product I think that says it all you know I was out with a couple of guys I guess three people in my office and we were out at the General Motors plant in Orion Ohio vast Wednesday and we're the president of General Motors he was a four and a half hours and this whole team I'm walking around the plant we're talking this is where they're making the bolt and it's also where they're making the Robo taxis and he was telling me just to cut to the chase here he said what Tesla has accomplished is extraordinary extraordinary my first question to an Mary Barra says the same thing my first question to him was that you know you got all these billions of dollars invested in plants that make motors you're not going to need motors anymore how is it that you're able to convince the board of General Motors to make these huge investments that are required in batteries and electric cars yeah how do you and the dealers don't want to sell them because there's nothing to fix the dealers make all their money on fixing stuff as opposed to selling stuff how do you get your board to do that and so this part is just a fascinating catch-22 that the automakers are in that bran Baron explains so eloquently is that all of their assets all of their EDD is tied to manufacturing the internal combustion engine if we don't need the internal combustion engine we don't need their assets they're incentivized to milk the internal combustion engine technology as long as possible to get the most out of their assets and then under this incredibly difficult position of how do we tell our board that we need to we want to start losing a ton of money go even further into debt to start betting on a technology that we're already behind on electric vehicles because that's where the future is and that's what we need to invest in and the hundreds of years of technology investing into building the motors that burn fossil fuels is irrelevant and so that is a reality that I think automakers haven't dealt with yet and now this kid tidbit about battery cost I think is so awesome because it just shows how Ron Barron you know he's been following the story for so long just has this incredible perspective of Tesla's falling battery costs and this is the problem with the mainstream media in the press is the stagnation fallacy they believe that you know everything stays the same this is almost every bad theory and Finance or thing that I disagree with can be chalked up the stagnation fallacy that the belief that things will stay as they are that's the dumbest belief ever things are constantly changing the rate of that change is accelerating we're in hyper change etc battery costs are going through that phenomena here's where I'm buried to tell you more when you get the cost of a battery to be less than the cost of a motor then it's going to take off from the battery cost when I start investing in Tesla the cost of the battery per car was thirty-five thousand dollars of a car thirty-five thousand it's now maybe twelve or thirteen thousand the cost of a motor is five or six or seven thousand dollars the cost of a battery is going to be half of what it is now in three or four years the questioned battery keeps falling in the cost of an engine keeps going up this is such an amazing tidbit thirty five thousand dollars of battery now it's 12 or 13 thousand I mean it's literally 33% cheaper the cost trajectory continues to fall this is why Tesla's investment in the gigafactory was such a brilliant move a pile of sand in the desert four years ago now the world's largest battery factories this vertical integration economies of scale approach has made Tesla physically be able to drop the battery price themselves there they're the reason the battery prices are falling because they're pushing the technology to advance cheaper batteries and so I just think and so and this is the trend that's on Tesla's tail and this is what I want to hear people saying they'll never build a $35,000 model 3 their costs are too bloated well that's you're falling into the stagnation fallacy the battery costs are continuing to drop that's why Tesla can keep range cheaper and cheaper cars to market that's why the $35,000 model 3 is coming that's why there's a $25,000 Tesla that's coming in a few years after that it's all based on this falling battery cost trajectory now this part is just ridiculous so what he's got to use natural gas for the grid I mean it how about solar I don't know but it's there's not much difference in terms of the the you know the carbon footprint whatever you're talking about difference between natural gas and natural gas no I'm talking about between charging your Tesla you still got to get the the power from the grid and and so at this point it's not so I mean this is kind of why I don't appreciate CNBC I mean we all know and I'd love for the hyper changers to step in here why is it so much more efficient even with the current state of the grid to charge your electric car at home than it is to burn fossil fuels in an internal combustion engine my understanding is it's dramatically more efficient dramatically more sustainable to use an electric car that's why I have this whole rating called miles per gallon equivalent which shows the efficiency and in theory this system the you know climate impact of cars and the MPG equivalent of every single electric car especially Tesla's is way off the charts way above the industry average of ice cars because they're way more sustainable and once again this is the stagnation fallacy that's not even assuming that the grid is going renewable which is happening at an ever-accelerating rate so just mega fed by CNBC there thought I was worth pointing out what have your conversations with with Elon been like over the past couple of weeks they were really interesting that I think he is really a guy who wants to do the right thing and he's not an easy person to work for he's demanding like perfection Minh Specht other people to work through heaters I think the reason you had some people leave is not because something's wrong with the cars is because he's a tough guy to work for and he hey so so what I think is that he thinks about how to make his shareholders happy how to make it how to make his customers happy how to make his shareholders happy he had to make his employees happy he's always trying bright and it's just he's you know he's not like other people I've met this was just a fascinating insight in Elon I mean Ron Barron as someone who talks to Elon Musk is is probably someone an advisor to him in many ways you know it's fascinating to hear how he thinks of ilana he understands him because he gets a look into Elon that almost no one else in the world does so I the way he sums up you know how many stakeholders Elon is trying to balance the complexity of this mission like it's just almost impossible to put yourself in those shoes but I thought that was an awesome awesome breakdown of it and now this part is a little bit of a story and I just kind of included the whole thing in there because I thought it you could get some value from it but how he almost passed and missed I guess investing in Amazon when when when I was in 1969 1999 we had an investment in Sotheby's and this historically had been the biggest loss that I have ever experienced so we invested five hundred million dollars out of our eight or nine billion dollars at the time we had under management in Sotheby's 20 dollars a share I thought the idea was that they were going to take it and put it onto the internet and the stock went from 20 to 40 so we're making five hundred million dollars then the Chairman gets indicted for price-fixing and the stock goes from $40 to ten and so we've lost two hundred fifty million dollars devastating loss and for me at the time and I always thought that that was the worst of us to ever had but the worst loss was in a 1999 for an entire year so after the stock goes in doubles to $40 I spent the entire year talking to Jeff Bezos and talking to Meg Whitman made Whitman from eBay and Jeff Bezos from Amazon Amazon and I visited him three times spoke with him on the phone maybe every month talk to Meg Whitman a few times and I wanted to get them to buy Sotheby's so say Here I am trying to get him to by this company that I have an investment in I'm trapped and and instead of focusing on oh my god this guy has changed the world if that my biggest mistake is not investing in Amazon I'm sitting in the corner he's he's laughing that funny laugh and I didn't invest in him how could I miss it but I said if I ever meet someone like that again I will invest it and that's what you would just meet speak he's an uncompromising person he's innovative he takes your advice some of it and if they're very least he takes it for a wise view he told me that that he thanked me for simply no right so I think he understands but he's different and Jesus is different okay you didn't hear it for me you heard it from Rob Aaron he's different you know there's this you know I'm a huge believer in betting on the jockey not the horse that this combination the holy grail of operating and capitalism is the owner/operator founder you started the company you're running the company you own the most of it you started it the vision is your baby you're driven to make this work on sort of a different existential level than other CEOs and I think that is just this weird trait that that certain entrepreneurs have Bezos is one of it you know musk is another one and this is from coming from Ron baron not from some 25 year old but from a 70 something year old who's made billions and billions who's made a career out of spotting people like this and and I just think that you know you can't it at the end of the day Tesla's financials today what Tesla's worth today how they're gonna do in the future is almost so dependent on the people at the company and especially the leader of that company I mean that's why almost the most important bet you could make when you're investing in a company that's still growing that still has a ton of execution left to run is on the CEO and that's why analyzing them is so important and that's why you know I choose it and put my capital into Tesla because I do believe Elan is in that Bezos category but Yvonne's 46 or 47 he's a decade earlier than Bezos imagine if you invested in Amazon ten years ago the market is not at high levels at 16 times earnings that growth is accelerating multiples of companies should be different should be higher now than it had been before because you have capital late models instead of having to build plants you're having you're getting our hotels were getting fees from the assets that other people are investing in businesses okay so I didn't exactly get what he meant by capital eight businesses or actually should mean that the software should trade at a higher valuation than it normally has so if you have any ideas on that please leave in the comments below but I love it just goes right back to the ESPYs earning multiple sixteen you know I think that's pretty cheap especially if you invert the yield on it it's about five and a half percent I mean the 10-year treasuries the yield in two and a half or three percent so I think stocks look like a much better deal on the earnings yield I think the earnings yield could expand to about 20x I think that's really interesting but here's what I'm buried with a little more color on to how he thinks about valuing the stock market and just the overall economy in the long term this is golden right in line with what how Buffett sort of thinks about the economy as well last night I asked my wife I said Judy you know when we started dating 1975 and so you were a systems analyst how much was your salary and she said twenty thousand dollars I said well I just looked up and systems analyst now salaries eighty thousand or you should have kept your job but but that was three and a half percent increase per year for that's that's through that's a rate of inflation that's the VAT so your value of your money is going down by three or four percent a year that's what it costs you to hire someone there's the same qualifications that it had before three or four percent a year look up anything you want and go back and you will see it's three or four percent of your except for something like land on the ocean which is probably seventy eight percent a year but I mean basically three or four percent a year that's the number and then so so we're doing something we're taking money that's falling in value a hundred percent certainty it's gonna fall in value every single democracy ever exists that done the same thing and then we're taking that asset that's falling and buying something it's increasing in value businesses so the way you protect yourself is by investing in yourself so I was telling her gold so gold in 1975 was one hundred and thirty dollars an ounce is now thirteen hundred that's five and a half percent a year and the Dow Jones in 1975 was a thousand and it's now twenty six thousand that's eight percent a year plus it says stocks are in the best play one thousand two twenty six thousand and that's eight percent of your compound there the plus dividends a couple more sets for almost 10% a year there's constantly people trying to predict this bubble that's a bubble this crash this is overvalued everything's crazy I mean in the long run the stock market is just consistently climbing at this rate that he's saying six or seven percent per year or eight percent per year and this is based on the you know real rate of growth in the economy and I mean this is just the fundamental aspect of why as an asset class stocks are the most attractive thing out there because they are tied to the growth the economy and if you want to have exposure to that you need to invest in this asset class and that's why over the long run even if you bought it every single to the top of every single bubble in the market you would be crushing it and making a ton of money still because it always surpasses that and keeps going in compounds at that you know six or seven percent per year on average doubling every ten years like you said that's a pattern that is gonna continue into the future unless something totally changes on our capitalist system I mean as long as the geopolitical you know infrastructure that's currently in place stays pretty similar I don't see any way this changes this is a fascinating insight and it just how money works how the Federal Reserve system works I mean the way that our banking system works by constantly inflating currency a little bit like he says three to four percent per year you're losing value which is this weird incentive and pressure on the economy to invest in things that are increasing in value aka businesses and this is the sort of very intricate very high level trade-off that we're doing to pressure the economy to invest in growth and there's a lot of people out there say oh you know we're constantly putting money the Fed is you know this huge scam and there's this huge conspiracy amount the Federal Reserve and I used to believe that too and I was super into the Fed conspiracy for a while but then the more and more you think about it you know the financial system of constantly having inflation and the way debt works the way it constantly soared the way it sort of all ties together into pressuring growth and funneling capital into businesses and creating new ideas and funding those new ideas that are making lives better for people all around the world is an incredible system that we're in and so I thought bran Barrett hearing Ron Baer and a legend explain it like that what was just priceless this is also a little history on the Baron funds that I thought was awesome in 1992 we had 100 million dollars under management and now I'll have twenty nine point five eight billion and we made our clients 27 point three billion dollars and realized and unrealized gains 27 point three billion at twenty-nine point five or six is from the gains that we've achieved and so I happen to think that if we don't have flows then we are getting flows but if we don't have flows then then I think that we could double our money again next five or six or seven years and if you look at that list of companies we've made in 15 socks the I didn't start off to be a long-term investor and that wasn't the idea the idea was I was selling research for commissions and so my idea was to begin am I going too far in this Nana and and so we're getting one percent Commission's that there were fixed rates in the 1970s and so I would get I would invest in Disney and McDonald's and Federal Express and Nike and Mattel and Hyatt and Dale in which all teaming became from Home Depot and so invest in these companies and my idea was if I got eight someone to invest eight hundred thousand dollars they buy fast insurance I'm an eight hundred dollar stock I'm making a thousand or Commission and I said take moment figure out that if I got him to give me an eight thousand or Commission for buying a thousand shares of something eight hundred thousand dollar investment Ben if I got him to sell eight hundred thousand dollars I would also make another $1,000 Commission so I was buying and selling and and then I look back in ten years and I say oh my god what a disaster I've been all these companies that I was recommending initially look what they became and and I could have been rich you know 20 so they're buying the stocks instead of recommending I mean hold on that's where the buying and holding comes from it comes from looking back and seeing to try to find these businesses that can double in size and investing you've been keeping up you don't really have many other comments on that part other than just you know investing when you have people like Ron Barron that are legends in the game that they've seen so much and hearing their story and how they started and how their philosophy got shaped I think is priceless towards learning how you can shape your own investing philosophy and that is why I think you know listening to that part of interview was so so productive and educational now I know what you've all been waiting for Tesla to a trillion that's what Ron Barron predicts let's get into the fun stuff you talk about doubling in size and maybe to bring the bring the interview because I know we're gonna come to an end in a moment back to Tesla you did say at one point that you thought this would be a trillion dollar company by 2030 yes that that would be much more than doubling yes 20 times 30 times does that happen in your scenario boy it's really hard it's hard it's really hard and there could be so but he has all kinds of products yeah I think it could be a 500 billion dollar battery business 500 billion dollar acquire business I think I give that better than 50/50 chance I give the fact that it could be a sixty billion dollar company in three years I give that maybe eighty percent chance so I think that in three years working triple our money and I think in if you take my scenario and and I'm right and I think is better than 50/50 chance and in twelve years that he's going to get to a trillion dollars in revenues that revenues that means you making 150 billion dollars a year 150 billion dollars a year the companies telling 450 billion dollars right now you want to give it a 10 multiple and want to give it a five month when I give it 15 multiple the back of a napkin math here is absolutely beautiful I mean this is a billionaire he's one of the smartest investors in the world he's doing math to value this company that he can explain in two minutes that you can all understand it's not in a discounted cash flow statement that is something to take note of and and and you know his thesis is look Tesla's compounding revenue incredibly rapidly keeping thing can get to a trillion in revenue overall half of it from cars half of it from batteries then he assumes off 15 percent operating income multiple that's where it gets the 150 billion on the trillion and 150 billion in earnings then he's saying look you make that a five times earnings multiple then we're looking at a six or seven hundred billion dollar company and that's you know a 12 acts from where we are maybe a 10 times multiple it's at one point five trillion dollar company and and this is how you can adjust off' I that Tesla's gonna get to you know twenty to thirty extra money from today and so the hard part is figuring out you know how fast can they hit a trillion dollars in revenue how many products how many cars they need to sell to get there but this framework of understanding okay then you hit a trillion in revenue by 2030 they need to have 15 percent margins then and let's work backwards and see what they need to do to get there absolutely love that framework and virtually every other car company in the in the business has to either go out of business there's no I mean I'm talking about selling 10 million cars there's 90 million cars a year that are sold at 17 million United States I'm telling you I think this since it's going to be the biggest car company I think thing you have 10 or 10 million cars 15 million cars a year I think the battery business where there's all this technology in the batteries I think the battery business is going to be big as the core business is super high-level Tesla's bull visas 30 20 31 trillion dollar market cap or revenue scenario they only be selling 10 million cars a year you know even if you assume that car sales get cut in half by 2030 because of ride-sharing because of autonomy because of whatever let's just be conservative 10 million cars a year is only 20 to 30 percent of that market I think Tesla you know the apple of the auto world this is exactly what we're seeing they're gonna evolve into being that luxury sustainable premium brand that captures you know maybe only 10 or 20% of the overall market but probably 80 to 90 percent of the profits of that market because they're going after the most lucrative consumers and the most lucrative niche that's exactly how it's playing out even framing this you know Ron Berger doesn't doesn't mention this but the reason why I you know you might be saying the skeptics out there well it's easy to just say you're gonna hit 500 billion of this 5 minute billion of that first of all Tesla's have been compounding its revenue at 90 something percent since its IPO this is just an extrapolation of a slight deceleration of that growth rate going forward so you're sort of basically assuming Tesla keeps growing as they happen but the other flip side of this is the bigger the problem the bigger the opportunity this is the fundamental framework in which I invest I believe the bigger the problem the bigger there is a business to solve that problem the more value that can be created because that problem or that pain point is so large I mean the pain point that every single car I go on when I go to Manhattan outside here in New York City every single car almost that I see 98% of them are burning fossil fuels with the internal combustion engine that is a massive problem there's so many so many cars that we need to sell to electrify transport I mean that is just one way that I think of how big of an opportunity this is the second is how we're generating our power natural gas coal you know almost none of its with solar you know we're using these peak emission plants to even out the grid there's a huge use case for batteries there so you know fixing the world--to electrifying transport to electrifying our power systems or massive massive multi-hundred billion almost trillion-dollar businesses and opportunities globally that Tesla's going after with their battery and suck with their battery technology and so I just think that is so important to frame how big the problem is that Tesla's facing and that is why that in the future many of us Bulls believe that this could be one of the largest companies on the planet worth a trillion or two trillion dollars because the businesses they're going into and looking like dominating electric vehicles and renewable energy are going to be that big by the year 2030 and I'm not even talking about being an Airbnb type of business that you have where you drive your car to your plant you have $500 a month of payments for your car and instead of you making them then that car is just going to drive away as part of the test the fleet and you know and someone's going to use it during the day and then that met money that is obtained from it half will go to you and half will be going to Tesla and that's a business where Tess has no money tied up and in addition to that if those cars that they sell for forty thousand they buy back for twenty thousand it's a hundred thousand miles that you can you know do a year and you charge and you get fifty thousand revenue miles fifty thousand dollars of dollar a mile fifty thousand for twenty thousand our investment that's a big deal to drop in 15,000 cars anymore the car the car business is about to change in the next ten years more than it has in the last hundred the way we think about cars as an asset is getting flipped on their head I mean Ron Barron here explaining the excitement of the Tesla Network this robot hacks the opportunity how this changes the fundamental value calculation of these car assets say you know Tesla could buy your used model three that and it's get it for super cheap put it on the network making a ton of money from this asset and so there's this entire you know the that's why it's so frustrating that when Tesla gets the value down they're losing money today they're not their cars are profitable today like nobody's thinking about the the amount of time they're investing in building a custom new AI chip you know and installing all this hardware into their cars to be the backbone of this self-driving future and how that self-driving future is gonna turn over the economics of these assets on their head I mean imagining being able to tap a button and get an equivalent of an uber ride but for one-fourth the cost and the margin of that company who's giving you that ride is gonna be four times better than what members margin is now and the company who gets there and the company wins the race to autonomy or the couple that do are gonna be getting that massive juicy margin opportunity that is what I believe Tesla is actually a first mover and barreling towards I mean the company is collecting billions of billions of miles of real-world driving data this is magnitudes more than any of their competition and that is going to be a moat that in my opinion is gonna make them a leader and a first mover in this autonomous vehicle you know robot taxi race which maybe it'll be five years maybe ten years but it's coming and when it does it's gonna be the biggest thing to happen at transport it's gonna be a billion maybe even trillion-dollar market opportunity this is why arc research is putting out a four thousand dollar price target on Tesla because they think they're gonna get this holy grail of the future of transport the robot taxi and so that's and and what's so crazy about that is even if you think that's ten years wait you know that's never happening that's not in the trillion dollars in revenue thesis that's that's what Bron Baron says here he's like that that five hundred billion a car business that five hundred billion of battery business well guess what that's not assuming anything for robot for the the taxi network and guess what else Tesla is gonna be in by 2030 or that I think they're gonna be getting into huge ass boats cargo boats like like massive freight liners that carry now like huge I guess barrels of oil across the ocean or other goods from China just global trade I think those are massive polluters those are gonna go electric eventually planes when the energy density and cost of batteries continues to decrease which we know it will you know electric planes are gonna happen that's something that I can see Tesla moving into around 2030 as well so I think this is a business that could still be in growth mode at 2030 doing a trillion in revenues so that gets me unbelievably excited and here's the last note that Ron Barron comes in about competition I think the car companies overall are way behind and they're hoping that they can delay the onset of electrification for they know what's coming but they would hope that they could delay it because they have hundreds of billions invested in plants that make motors which is their competitive advantage that's going away because you're not going to eat motors anymore where I'm gonna thank you very much for being with us today back to see you thank you for the conversation broadband understanding how the incentives of both executives and the art largest auto companies are aligned to delay the advancement of electric fields look at the production schedules of you know the Porsche take in the Jaguar IPAs even the Chevy bolt like they're never planning on producing them in the hundreds of thousands and half a million million units per year that Tesla's saying because that would mean that they would actually be really cannibalizing their own business and they're not ready to admit that first of all because that would meet all their hundreds of billions of assets obsolete second of all they can't even sell electric cars for a profit so why are they gonna make all of their profitable business obsolete to get into a business that money it makes no sense it's a catch-22 it's the innovators dilemma it's why they're dragging their feet when the first thing they need to be doing is investing and going all into the future that's right Tesla competition is not legacy automakers they're already way behind they're already dead r.i.p as far as I'm concerned our competition is the people who are going all-in starting from the ground up me away mo you know what Lucid motors name whoever you will I think those are way those are Apple you know Amazon these are much bigger threats to Tesla than the legacy auto companies anyway that is my summary of the ROM Baron interview I know it's this kind of a long episode I left a ton in there just because I think he has so much wisdom if you want watch the full 34 minute interview of course I'm gonna put a link to that in the description and I just think in general if I could leave you with one sort of paper changer wisdom at the end of this episode it's that when you find somebody like Ron Baron you know find your on someone that you just respect that you aligns with your interests that learn everything you can for them watch other speeches read all their stuff and hit them up try and meet them I actually got in contact with Baron funds like yesterday or the day before I tweeted I wanted to beat up someone thankfully just gave me their website I was like why haven't I called them yet I called them I'm trying to get a meeting Ron Baron if you're watching this I think would be unbelievable have a meeting talk about Tesla scheme on this because I feel like nobody is thinking about what this company is gonna look like in 2030 as much as the hyper changers and as much as you have or no one else that I can find on the internet is thinking about it like this and so I just think you know finding these great sort of like-minded investors who've been through it all who've seen cycles who've been with companies who've been investing for decades have priceless wisdom that can advance your own understanding of markets and I think you know one of the best ways to learn is watching these great ones and the Internet has made it free cheap easy fast to watch hours of content from these genius investing people and so how could you not you know be be watching brown bear and interviews non-stop if you want you know I don't know so so that that's why I really hope you enjoyed this episode would love to know everything you think about this in the comments below I'm sure we're gonna get an awesome discussion in the comments so please let me know you think also if you like hyper change huge shout-out to our patreon supporters if you want to learn more about how to support the show definitely check that out anyway I'll see you guys next time peace [Music]

Channel: HyperChange TV

Views: 173,182

Rating: 4.8218493 out of 5

Keywords: Finance, Investing, Stocks, Stock Market, Financial Education, Tesla, Ron Baron, Elon Musk, Model 3, 1 Trillion, Tesla Stock, Tesla Financials, Model S, Model X, Model Y, Tesla Semi, Batteries, Sustainability, Tesla Energy, Disruption, Fund Manager, Interview, Value Investing

Id: 6HVAuCitcOo

Length: 39min 47sec (2387 seconds)

Published: Sat Oct 06 2018

Reddit Comments

[u/PogClap]

If they make as many cars as Toyota maintaining the gross margin, they will be no problem. They still, have literally no competition, no one is close. No superchargers, no gigafactories, no competing vehicles, no software stack...

[u/[deleted]]

If tesla was worth 1t by 2030 then I'd be pretty happy

[u/FearlessFluff]

Yeh, well the 12 targets rise in $50 billion increments, start at $100 billion!!! :D Tesla is already the most valuable car maker in the United States, after overtaking General Motors last year with the company’s market cap is currently around $59 billion. It's ridiculous, i know :D