Baron Funds, an asset management firm, published its second-quarter 2022 investor letter – a copy of which can be downloaded here. The fund invest for the long term (meaning years…often decades…not quarters) in terrific, competitively advantaged, growth businesses managed by exceptionally talented individuals whom it trusts. Go over the fund’s top 5 positions to have a glimpse of its finest picks for 2022.
In its Q2 2022 investor letter, Baron Fund mentioned Tesla, Inc. (NASDAQ:TSLA) and explained its insights for the company. Founded in 2003, Tesla, Inc. (NASDAQ:TSLA) is an Austin, Texas-based multinational automotive and clean energy company with a $940.1 billion market capitalization. Tesla, Inc. (NASDAQ:TSLA) delivered a -14.83% return since the beginning of the year, while its 12-month returns are up by 25.51%. The stock closed at $900.09 per share on August 12, 2022.
Here is what Baron Fund has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q2 2022 investor letter:
“In 2014, before we began to invest in Tesla (NASDAQ:TSLA), I called Roger to ask whether he thought Elon Musk’s electric car business would succeed. I did not believe that Roger, an owner of dealerships that sell cars powered by internal combustion engines (ICE) would likely have a favorable opinion of Tesla’s prospects. That was principally for two reasons:
- First, automobile manufacturing and distribution is unusually complicated, capital intensive, and highly regulated, which makes profitability problematic;
- second, cars with ICE motors require extensive annual maintenance, and dealer services revenues, not profits from automobile sales, are the most important contributor to profits of perpetual licensed ICE car dealerships.
Penske Automotive Group is principally an ICE car dealer. Since electric cars are powered by batteries and need little service, franchised dealerships are incented to sell ICE not EV automobiles. Further, Roger had been a long-term director of General Motors. General Motors’ ICE automobile business would be disrupted if Tesla were successful.
Regardless, I was right to have spoken with Roger. That was since he outlined numerous issues we needed to consider, study, and question before we determined whether we believed Tesla could be a successful business…before we ultimately chose whether to invest in that company.
When we completed our initial due diligence on Tesla, which diligence has been ongoing since 2014, we decided to invest $360 million in Tesla over the next two years. I then called Roger and outlined why I thought we could earn 20 times our capital over the next 10 years. Roger was so certain I was wrong that he offered to bet me $1 million that Tesla would fail. “Roger, I can’t bet you a million dollars. First, if you are right, I couldn’t afford to pay you. Second, if I’m right, you’re my friend, and I couldn’t take your money.” We settled on a dinner bet…” (Click here to see the full text)
Our calculations show that Tesla, Inc. (NASDAQ:TSLA) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Tesla, Inc. (NASDAQ:TSLA) was in 80 hedge fund portfolios at the end of the second quarter of 2022, compared to 91 funds in the previous quarter. Tesla, Inc. (NASDAQ:TSLA) delivered a 16.96% return in the past 3 months.
In June 2022, we also shared another hedge fund’s views on Tesla, Inc. (NASDAQ:TSLA) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.
Disclosure: None. This article is originally published at Insider Monkey.
