Supercharging Station In The World - Arctic Circle North (via Lennarth K)

Supercharging Station In The World - Arctic Circle North (via Lennarth K)

Over the past few years we have heard some pretty varied opinions on Tesla, both on its financial prowess and the ultimate adoption of its all-electric cars in the future.

Ronald Baron Of Baron Funds Fame

Ronald Baron Of Baron Funds Fame

Generally the wilder the story, the more obscure the source.

Not so for this one, as Ron Baron of Baron Capital (mutual funds) goes way out on a limb in favor of what the company can accomplish in an interview.  Typically, Mr. Baron's management style has been one of "invest and hold" long-term - so this would seem to be a departure from the norm for the CEO.

Mr. Baron wrote to his shareholders and clients on the business of Tesla.

"We are a fan of Tesla’s business and of Elon Musk. One competitive advantage that we think will make Tesla “built to last” and  is that its competitors are being compelled to build and sell electric cars."

While normally we raise an eyebrow when looking at some analyst's projections of short term sales (past even Tesla's own numbers) to justify future growth beyond the company's 30 billion market cap today,  but Mr. Baron is not really advocating for today, or that Tesla has a particular secret sauce giving them an advantage - he is suggesting that everyone will be a Tesla customer at some point because of the stubbornness of the traditional automaker.

"As a result (of other OEMs disinterest), they are developing electric expertise so slowly that the lead Tesla has built up through its fast growing staff of Silicon Valley engineers may soon become nearly insurmountable."

Could Mr. Baron be right?  If your belief is that personal vehicle plug-in technology is the transportation solution of tomorrow, you have to at least consider the possibility most of us will own a Tesla product over the next quarter century.

Here is Mr. Baron's further statement in regard to Tesla.  The analyst also notes that BMW (probably considered to be the least traditional of the major auto makers today) is also likely to benefit in the future by their forward EV thinking:

Car companies don’t want to build electric cars because their existing plants that make engines, transmissions and drive trains would become “stranded assets.” Their unions don’t want electric cars since they are simpler to manufacture than cars with internal combustion engines (ICE), which means fewer factory assembly workers. Dealers don’t want electric cars, either. Tesla bypasse franchised dealers to sell its cars directly to consumers. Franchised car dealers also make a lot more money servicing cars than selling new ones. Tesla cars need less service than ICE cars. A standard ICE automobile has more than 2,000 moving parts. Tesla cars have 18 moving parts!

Tesla’s culture is far different from that of other car companies. Tesla’s mission is to build the planet’s best AND safest automobile.  Tesla’s car also happens to be best for the environment. The following says all we need to know about Tesla’s culture and why the best engineers in Silicon Valley want to work there. When Tesla began to manufacture its cars, its inspection process was not as strong as it needed to be. Elon then conducted line inspections personally until his fellow workers understood exactly how he wanted the process to work. Elon next moved his drafting table to the middle of the manufacturing floor to write software with his engineers. That was to make sure everyone knew how important the quality of the product was to him. Our kind of chairman, that is for sure. Our kind of culture, in which every employee does whatever it takes to provide Tesla customers with the best product possible.

One more thing. While many car companies doubt electric cars will ultimately represent a large portion of new car sales, BMW is not one of those companies. Two of our research analysts recently visited BMW’s headquarters in Munich, as well as its electric vehicle and carbon fiber assembly plants in Leipzig, Germany, and its battery pack assembly plant and research facility in Dingolfing, Germany. The BMW financial team believes a revolution in drive train is underway. We believe that BMW will likely phase out internal combustion engines over the next 10 years!

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