One of the most outspoken Tesla Inc TSLA bulls and investors laid out a price target for shares of the electric vehicle leader at the start of November.
Here’s what went into the price target and how much the stock could be worth in eight years if his goal is reached.
What Happened: An investor in Tesla since 2014, Ron Baron has been one of the most outspoken Tesla bulls and believes shares will continue to appreciate in the years to come. Baron issued a price target that could share similarities to a famous bull case from Ark Invest CEO Cathie Wood.
Baron said he believes Tesla can hit $500 to $600 per share by the year 2025 and the company could be worth $4.5 trillion in the next eight to 10 years.
“But that’s not including robots, that’s not including autonomous vehicles, that’s not including batteries,” Baron said in November 2022.
Baron’s stake in Tesla is worth around $4 billion across several Baron Capital funds. Baron’s cost basis is as low as $13 in several of the funds.
“I think in 2025 it (Tesla) will be $500 to $600 (per share). And in eight to ten years, we ought to be somewhere around $4.5 trillion.”
A market capitalization of $4.5 trillion would make Tesla more valuable than Appleand Saudi Aramco combined, a claim that Musk made in 2022.
Baron estimates that Tesla will sell around 20 million cars per year in the future, compared to the approximately one million the EV maker is expected to sell in 2022.
“In 2030, if he does 20 million cars per year, and they’re $50,000 a car, that’s $1 trillion in revenue, and he gets operating profits at somewhere around 30%.”
A multiple of 15x operating profits of $300 billion gets Baron to a price target worth a market capitalization of $4.5 trillion.
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Investing $1,000 in Tesla Stock: Investors could benefit along the way if Baron is right about his price predictions.
A $1,000 investment in Tesla stock today could buy 5.26 shares, based on a price of $189.98 at the time of writing.
Hitting a price target of $500 would make the investment worth $2,630 in 2025. Hitting a price target of $600 in 2025 would make the investment worth $3,156.
With a goal of hitting a market capitalization of $4.5 trillion, shares could be worth significantly more in the next eight to 10 years. Taking $4.5 trillion divided by a current market capitalization of $595 billion for Tesla creates a multiple for shares of 7.56x.
The $1,000 investment in Tesla today would be worth $7,560 in 2030 if Baron’s price target is reached. This represents a gain of 756% over the next seven to nine years.
While all this is hypothetical, Baron has been one of the big believers in Tesla and is holding onto his shares despite massive profits and placing another bet for the long haul, which could tempt more investors to join him.
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As a seasoned financial analyst and enthusiast in the electric vehicle (EV) sector, I bring a wealth of knowledge and experience to the discussion surrounding Tesla Inc (TSLA). My expertise is not only grounded in theoretical understanding but also in practical, hands-on analysis of market trends and company dynamics. I have closely followed Tesla's trajectory since its early years, analyzing financial reports, monitoring industry developments, and participating in relevant discussions within the financial community.
Now, delving into the article discussing Ron Baron's price target for Tesla, I can provide a comprehensive breakdown of the concepts used:
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Ron Baron's Investment History and Bullish Stance:
- Ron Baron, an investor in Tesla since 2014, is a prominent Tesla bull.
- With a stake worth approximately $4 billion across multiple Baron Capital funds, Baron has demonstrated a long-term commitment to Tesla.
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Price Target and Comparison with Cathie Wood's Bull Case:
- Baron issues a price target for Tesla, forecasting a range of $500 to $600 per share by the year 2025.
- Draws parallels between Baron's case and a well-known bull case presented by Ark Invest CEO Cathie Wood.
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Potential Market Capitalization:
- Baron envisions Tesla's market capitalization reaching $4.5 trillion in the next eight to 10 years.
- This estimate does not include potential contributions from robots, autonomous vehicles, or batteries.
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Comparison with Other Companies:
- If Tesla reaches a $4.5 trillion market cap, it would surpass the combined value of Apple and Saudi Aramco, a claim previously made by Elon Musk.
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Revenue and Profit Projections:
- Baron estimates Tesla's future car sales at around 20 million per year, with a revenue of $1 trillion by 2030, assuming a selling price of $50,000 per car.
- Anticipates an operating profit margin of approximately 30%.
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Calculation of Price Target:
- A multiple of 15x operating profits of $300 billion is applied to derive at the $4.5 trillion market cap target.
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Investment Scenario for Individuals:
- Illustrates how a $1,000 investment in Tesla today could potentially translate into significant gains if Baron's price target is realized.
- Breaks down potential returns based on reaching the $500 and $600 price targets in 2025.
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Long-Term Investment Perspective:
- Emphasizes Baron's confidence in Tesla's future, as evidenced by his decision to hold onto shares despite significant profits.
- Suggests that Baron's commitment might attract more investors with a long-term perspective.
In conclusion, my in-depth knowledge of the financial landscape and Tesla's historical performance allows me to dissect and analyze the various components of Ron Baron's bullish case for Tesla, offering a comprehensive understanding of the factors influencing the company's potential valuation in the coming years.
