(Bloomberg) — Slowing growth and falling profits have made Tesla Inc. the weakest stock on the Nasdaq 100 this year. Fund manager David Baron believes it will be a roadblock for Elon Musk's company before another parabolic rally.
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That's a tough bet at this point, after the electric vehicle maker warned Wednesday that it would expand at a “significantly slower” pace this year, causing shares to plunge 12%. As of Thursday's close, the company has now lost about $209 billion in market value this month.
But Baron trusts the controversial CEO to lead the company through the tough times.
The Baron Focused Growth Fund manager expects Tesla shares to reach $1,200 by 2030, up about 550% from current levels, citing the company's strong brand. As of Dec. 31, Tesla and Musk's privately held SpaceX were the fund's largest holdings. Last year, the fund rose 28%, outpacing the 18% rise of its benchmark, the Russell 2500 Growth Index, and the 24% rise of the S&P 500.
And despite Tesla's prospect of slower sales growth this year – a result of the EV winter sweeping the entire industry – Baron still expects the stock to hit around $300 in about 12 months, based on estimates of about $183 as of Thursday's close.
“While it may not be growing at 50% per year as the company thought,” Baron said in an interview, “this year in a difficult environment, it is still growing volume at 15% to 20% per year, giving us $7,000 gross.” -dollars per car.”
Tesla delivered 1.8 million cars in 2023, 38% more than the previous year. This year, Wall Street analysts are predicting a 17% increase in unit sales. The company did not respond to an email seeking comment.
The Tesla stake is key to Baron's goal of growing his fund's assets to $2 billion this year from $1.3 billion as of Dec. 31.
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The fund manager's father, Wall Street veteran Ron Baron, is known to be a big Musk bull. The elder Baron oversees the Baron Partners Fund, which was the only one among thousands of competitors to beat the Nasdaq 100 over the past five, 10 and 15 years, according to a Bloomberg Intelligence study published in August.
David Baron predicts that SpaceX's value will increase 20% in a year, double within three years, and triple within five years. The space and satellite company is worth $175 billion or more, Bloomberg reported last month.
Baron, 43, became co-portfolio manager with his father in 2018. The small and mid-cap fund first bought Tesla shares in 2014. Its outperformance last year came as Tesla shares doubled, thanks in no small part to the potential of artificial intelligence.
It will be difficult to repeat this success in 2024 if Tesla struggles amid slowing demand for electric vehicles.
“More investors are increasingly beginning to question the company’s growth story,” Sanford C. Bernstein analyst Toni Sacconaghi wrote in a note following the company’s latest quarterly results. And while Tesla bulls often say that the company's innovations can allow it to maintain a cost advantage and high margins, “the counterargument is that the automotive industry is extremely competitive and automakers have historically been unable to maintain cost advantages.” , the analyst added.
David Baron's approach reflects the investment thesis his father promoted: invest only in companies whose executives have significant stakes in the company and that the asset manager believes can double their market value in five to six years, which is one Total growth of 15% per year equals year.
“We're OK if this capital doesn't provide a short-term return for the company, as long as we believe there's a way to generate high returns over time,” said David Baron.
He's also betting on CoStar Group Inc., for which he sees upside potential of up to 20% as its residential real estate investments begin generating returns. He also expects holdings like Arch Capital Group Ltd., Figs Inc. and Choice Hotels International Inc. to generate strong cash flows this year.
But Musk and his auto and aerospace companies remain crucial to his portfolio.
“His interests align with ours,” Baron said. “He won’t do anything stupid to change the trajectory of companies.”
– With support from Denitsa Tsekova.
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