1. Tesla Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holdings: 72
Based in Austin, Texas, Tesla Inc. (NASDAQ:TSLA) is an American multinational automotive and clean energy company. Widely regarded as one of the most valuable companies in the world, the company has a market cap of more than $862.7 billion, as of September 26. In fiscal 2021, the company reported record sales of BEVs and PHEVs, capturing effectively 21% of the battery-electric (purely electric) market and 14% of the plug-in market (which includes plug-in hybrids). Furthermore, in addition to being one of the biggest producers of battery energy storage systems in the world, The Tesla Energy Plan is an energy tariff which automatically transfers one’s reserve energy to the local grid during times when demand is high, offering 100% renewable electricity support. As of the second quarter of 2022, Citadel Investment Group is the largest shareholder in the company. In Q2 2022, the company posted an EPS of $0.76, beating estimates of $0.60 by $0.16. It also reported a revenue of $16.93 billion in Q2 2022.
On September 20, Morgan Stanley analyst Adam Jonas conferred Tesla Inc. (NASDAQ:TSLA) with an Overweight rating and $383 price target. In his research note, he stated that although the company is facing ruthless competition from domestic Chinese EV companies in the present and is heavily dependent on their demand and supply ecosystems, it is well-leveraged to overcome this dependency by the end of 2023. This will occur in the backdrop of capacity growth in the U.S. and Europe in addition to greater levels of vertical integration. Jonas maintains that Tesla’s (NASDAQ:TSLA) NAFTA and EU subsidiaries will soon comply with initiatives such as the IRA and other similar legislative acts enforced by the EU. This will lead China to roll back its penetration into Tesla’s (NASDAQ:TSLA) demand footprint and supply ecosystem.
Here is what Baron Funds had to say about Tesla (NASDAQ:TSLA) in their 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 (NASDAQ:TSLA) 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 (NASDAQ:TSLA), which diligence has been ongoing since 2014, we decided to invest $360 million in Tesla (NASDAQ:TSLA) 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 (NASDAQ:TSLA) 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.”
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