Tesla could be worth $1.5 trillion by the end of the decade, says Ron Baron

Ron Baron, a billionaire stock investor and Tesla shareholder, says that Tesla could be worth $1.5 trillion by the end of the decade.

From 2014 to 2016, Baron got sold on Tesla and Elon Musk’s vision and started buying shares of the company.

He has since been extremely vocal about his investment and has made some predictions.

In 2017, the investor said that Tesla could be a $1 trillion company by the end of the next decade.

Now a few years later, and after the stock already surged over the last few months, Baron says that Tesla could be making $1 trillion a year in revenue by the end of the decade, and now adds that he believes that Tesla should be worth $1.5 trillion.

He said in a new interview with the magazine Barron’s:

It’s just starting. We purchased nearly all our shares from 2014 to 2016: 1.62 million shares at an average price of $219.14. Our cost was $355 million. We were widely criticized. Last summer, the stock was something like $230. Now it has tripled. The company went from annual revenue of $2.5 billion in 2013 to $25 billion last year. This year, it could reach $33 billion. In 2024, Tesla could have $100 billion to $125 billion in revenue, and be worth $300 to $400 billion. It is now selling for $150 billion. That is only the beginning. In 2030, it could have revenue of $750 billion to $1 trillion, with operating profit of $150 billion to $200 billion. By then, Tesla could be worth $1.5 trillion, ultimately putting it among the largest and most valuable companies in the world.

A $1.5 trillion valuation would be a 12x increase over Tesla’s current valuation.

As for what it means in terms of car sales, Baron predicts 1 million cars in two years:

Tesla’s becoming capital-light. Suppliers like it so much they give them extra terms. [Musk] sold 367,000 vehicles last year. He’ll do a million in two years. There are more than 90 million cars per year sold presently. I think he’ll do at least 10 million per year.

The investor doesn’t believe that Tesla’s competition is going to slow them down in any way:

It’s very, very difficult for other people to compete. Car companies have a couple of challenges. They spend research money on motors, not batteries. We believe $200 billion to $300 billion has been invested in their internal combustion-engine plants. Those are stranded assets. Challenge two, how will they sell them? Dealers make money not from selling, but from servicing. Electric cars have a fraction of the parts. The guys selling your cars aren’t incentivized to sell electric cars. Then there are communications between the car and the cloud. Tesla’s correcting and changing your car every time you get into it. The dealer isn’t involved.

When asked if he sold stocks following the recent surge, Baron said:

No. A couple of colleagues came to me and said, ‘Shouldn’t we sell a little bit of Tesla now? We just tripled our money.’ I said, do whatever you want, but your clients will look back, and you’re never going to be able to buy the stock again. This is the reason people pay us. We’re going to make 10 times our money from here.

Tesla’s stock was down over 12% yesterday and it is down by as much as 5% in premarket trading this morning.

Electrek’s Take

I don’t disagree with a lot of what Baron says. I think Tesla is going to run away with a big chunk of the auto industry in this electric revolution.

However, I am not sure it will ever reach 10 million cars from Tesla alone. I agree with what Barron‘s says about Tesla’s competition, but that just applies to established automakers. The disruption in the auto industry is leaving room for other new entrants to take some space too, especially in China.

I think some of those new entrants are also going to reach some important electric vehicle volume by the end of the decade.

While I don’t necessarily agree with Baron regarding how big a piece of the auto industry pie Tesla will get, I think Tesla could grow even bigger due to something Baron didn’t even mention: the energy business.

As Tesla’s fleet grows, it will become a big business to supply the energy for it, and the company is addressing that directly with Tesla Energy. Right now, it doesn’t mean much within Tesla’s valuation, but I think it could contribute 20% to 40% of it by the end of the decade.

Disclosure: I am long TSLA.