Billionaire Tesla Investor Urges Patience

Ron Baron says Tesla's problems are only temporary.

Tesla Inc (Nasdaq: TSLA) has its fair share of detractors, but one of the company's largest investors is convinced that Tesla's share price still has explosive long-term potential. Baron Capital founder Ron Baron says investors that are hung up on Tesla's cash burn are being too short-sighted, and patient investors have some huge gains ahead.
Baron Capital has roughly $27 billion in assets under management, and Tesla currently makes up 1.6 percent of its portfolio. Baron first bought Tesla stock in 2014.
"I think we're going to make 20 times our money because the opportunity is so enormous," Baron said on CNBC Monday. He said cash burn is forgivable for a company like Tesla, which is aggressively building factories and infrastructure for the future.
Tesla has said it expects its Model 3 gross margins to be "highly positive" by the third quarter and has assured investors that it will not need to raise additional capital in 2018. However, Tesla has repeatedly missed its Model 3 production targets, and Moody's Investors Service recently said Tesla will need to raise about $2 billion in 2018. Concerns over Model 3 production and Tesla's business economics have sent the stock down 6.5 percent over the past year.
Baron says investors need to focus more on how Tesla is putting that capital to use and what it means for the future. He also says investors who wait until Tesla is past its development stage to buy the stock will likely miss out on some big gains.
"What we try to do is buy when that development is taking place," Baron says.
Nomura analyst Romit Shah says investors may not need to wait much longer to see drastic improvements in Tesla's business. Shah says Tesla's $52 billion market cap could nearly double to $100 million within the next two years, and Tesla is well-positioned to capture 10 percent of the global luxury vehicle market by 2022.
"We believe that over the next three to six months the narrative on the company will shift from insolvency risk and cash burn to market opportunity and growth," Shah says.
Nomura has a "buy" rating and $420 price target for TSLA stock.

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