Shares of electric-car maker Tesla Motors (NASDAQ:TSLA) increased as much as 5% on Tuesday after billionaire investor Ron Baron talked about his investment in the company. The billionaire's fund has amassed a $300 million position in Tesla, and he expects to make billions.
Ron Baron's take
It has taken Baron around three years to build his $300 million position in Tesla, he told CNBC in an interview. His average cost is about $208 to $210 per share. With shares trading at about $232 at the time of this writing he's made a slight profit, but he won't likely be selling anytime soon.
"I think this could be one of the largest companies in the United States and the whole world," Baron said.
His fund's $300 million position understates his bullishness on the stock, he explained.
Tesla -- I am so excited about this. But, unfortunately, I can only have $300 million invested in it because it's one-and-a-half percent of our assets -- less than one-and-a-half percent. ... I think in this one investment we can make $6 or $7 billion in profits in the next 10 or 15 years.
Baron's bullish view is based on a projection for Tesla to increase sales from about $4 billion in 2015 to $8 billion to $9 billion this year, and around $20 billion next year. He also believes much of the company's high spending now will pay off more handsomely in the future than investors anticipate. Even as bears criticize Tesla for not reporting profits yet, Baron believes the company's high level of spending will actually prove to yield a "capital light" model in comparison to incumbents in the auto industry. Baron cites management's recent narrative that it believes it can get more production out of its Gigafactory and its car factory than originally anticipated.
And the billionaire investor isn't worried about competition:
"The competition is not anywhere," he said. "They could have caught him four or five years ago. But they can't catch him now. He's too far ahead."
When asked about the company's recent equity offering, a method of raising capital that dilutes shareholder ownership, Baron said he believes Tesla won't need to go "back to the market for quite a while."
"Throughout [Tesla CEO Elon Musk's] whole operation, he has the opportunities to invest small amounts of capital and have high rates of return," he said. Baron believes this latest equity offering will be invested wisely enough to get to a level that it can fund its own operations.
Baron is also bullish on Tesla's energy storage business.
"They can do as much sales in batteries ultimately as they can in cars," Baron predicted.
While Baron's capital-backed bullishness on Tesla stock is interesting, it's always best for investors to do their own due diligence. While Baron's long-term, 10,000-foot view may be refreshing to some Tesla shareholders, investors should keep in mind that there's always risk to forward-looking projections -- particularly projections requiring both a long time horizon and significant growth.