Oil is doomed, the mainstream automotive industry is holding back electric cars, and only Tesla and BMW really understand plug-in vehicles.
That’s the message from famed mutual fund manager Ron Baron of Baron Capital, who gave an interview with CNBC last week in which he reiterated his unwavering support for Tesla, predicting that his company will stand to make ten times the money it has invested in Tesla within a decade. What’s more, Baron says we’ll all be driving Tesla cars within twenty five years, and BMW is readying to ditch its internal combustion engine for good within the same time frame.
Talking to the cable news network last Thursday shortly after Tesla released its Q3 earnings for 2014, Baron — whose investment fund currently has between $240 million and $250 million invested in the Californian automaker — said he expects a tenfold return on investing in Tesla over the next eight to ten years, far better than the doubling he expects the general stock market to experience. Despite the recent bad news about the delay to the 2015 Tesla Model X, Barons’ bullish attitude to Tesla Motors [NASDAQ:TSLA] isn’t a short-term one. Instead, he explains, he’s after the long-term gains.
“The opportunity here is not for [Tesla] to do 35,000 cars on their way to 50,000 or 100,000. This confidence is in the market for 100 million cars a year.,” he said. “Maybe they could in eight or ten years do a million or two million cars a year but the potential is that they could maybe do ten million cars a year in fifteen years, so their potential is enormous.”
The reason for this optimism? The price of oil. Despite a drop in recent oil prices, Baron argues that electricity is now far cheaper than gasoline to produce.
“Gasoline was 7 cents a gallon,” he said of the early days of the automobile. “Electricity was twice as much. But today, gasoline is $3 a gallon, and the same amount of electricity is 75 cents. Now it’s cheaper for electricity than it is for gasoline.”
Why aren’t more people driving electric cars now? That, says Baron, is down to the automotive industry, whose enormous investments in internal combustion engine technology means that they are reticent to switch tracks to electric cars, and the dealers — who make a lot of money from servicing internal combustion engined cars — don’t want Tesla’s direct-to-customer sales model.
“[Even] the unions don’t want it, because it’s much simpler to make one of these cars than it is a gasoline car,” he added.
Despite this competition from mainstream automakers however, Baron views the electric car revolution as an inevitable one, as more and more automakers feel ‘compelled’ to build electric cars to compete with Tesla. Even then however, Baron believes Tesla will lead the way.
“All of us will likely be Tesla customers in 25 years,” he wrote in the Q3 Baron Capital Shareholder Letter. “Tesla’s car culture is far different form that of other car companies.” The only exception to this, he noted, was BMW, which he claimed would be phasing out its internal combustion engines within ten years.
It’s pretty obvious from listening or watching to Baron’s recent CNBC interview that he’s been drinking both the Tesla and electric car Kool Aid. But with plug-in cars on the rise and companies like Toyota forced to make backhanded remarks about the future of plug-in cars, we think he might be on to something.
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