Ron Baron Talks Tesla, SpaceX, And GM Using Tesla Suppliers

3 weeks ago by EVANNEX 33

Tesla

Ron Baron (right) interviewing Tesla CEO Elon Musk (left) at the 2015 Baron Capital conference (Image: Baron Funds)

RON BARON DISCUSSES TESLA, SPACEX, AND A CURIOUS MOVE BY GM

Renowned mutual fund manager and investment icon Ron Baron of Baron Capital is well-known for his conservative, long-term approach to stock picking over his 46-year career. He’s been compared to Warren Buffett (both for his investing style and outstanding track record) and recently created a bit of a stir when he predicted Tesla stock could hit $1,000 by 2020.

Baron Funds second quarter commentary (via Valuewalk) includes a letter from Ron Baron highlighting some fascinating insights surrounding Tesla. To understand businesses, Baron notes the importance of, “the individuals who lead those businesses; and of the character and talent of the individuals… In the end, we think it’s all about people.” Baron cites an unnamed Tesla executive who told him, “It is amazing to me how little most people know about Tesla.” 

Baron explains, “Few institutional investors have met with Elon and JB. Fewer still, we’re guessing, have met with the co-founder’s teaching instructor at Stanford. We believe fewer and fewer in the investment industry are performing even the most basic research on businesses… Our meeting with Dr. Yadigaroglu is one example of Baron Funds’ differentiated primary research approach.”

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman.

Tesla

Tesla co-founders, CEO Elon Musk and CTO JB Straubel, in the early days driving Tesla’s Roadster “P1” (Images: Tesla)

So who is Dr. Yadigaroglu? Baron elaborates:

“As part of our ongoing effort to gain further insight into Tesla’s prospects, we recently met with Dr. Ion Yadigaroglu, a venture capitalist. Ion is an engineer with a doctorate in physics from Stanford. Ion has been programming since he was eight years old! Ion’s dad is a prominent nuclear scientist. So much for Ion’s creds. When Ion studied at Stanford graduate school, his roommate founded eBay. Ion’s $1,300 investment in the eBay startup became worth millions. In 1992, at the dawn of the Internet, Ion met Elon Musk. Elon had come to Palo Alto to research battery technologies in Stanford’s labs.”

Furthermore, it turns out that, “while at Stanford, Ion was the teaching instructor for JB Straubel, Tesla’s CTO and chief engineer. Ion believes JB and his team are better at battery technology than anyone else. It was lucky for Ion that he met both Elon and JB. Ion invested in Tesla when it was just beginning, and so far has made a lot more than he did in eBay. After meeting Ion, we concluded it was lucky for Elon and JB they met Ion as well.”

Tesla

Dr. Ion Yadigaroglu (Image: Skoll Foundation via Flickriver)

In studying Tesla, Baron also points out parallels with SpaceX. SpaceX, as Musk had originally envisioned it, has been able to reinvent the aerospace industry by reducing costs and, ultimately, saving millions with its reusable rockets. Baron reminds us, “Elon Musk’s SpaceX were [also] awarded contracts to design, build, and fly new spacecraft to ferry U.S. astronauts to the International Space Station (ISS)… The cost of commercial flights to the ISS will be a fraction of the cost of previous government flights, in part because rockets will be reusable.”

Similar to SpaceX, Musk’s emphasis on driving down costs remains mission critical at Tesla. Baron notes, “Despite Tesla’s requirements [for] functional design resulting in minimal waste, it often obtains better pricing for outsourced parts than its competitors. We believe its parts vendors try to accommodate this unique and fast-growing company because they think Tesla’s engineering skills and designs will make them better suppliers! Further, since Tesla can insource production, it has the advantage of knowing exactly what a product should cost and how to produce it.”

Tesla

And, according to Baron, GM is now following Tesla’s lead on this front. He notes that “Mary T. Barra, General Motors’ CEO who has been trained as an engineer, has instructed her supply chain to ‘use Tesla suppliers…even if they cost more!’ Her rationale is that despite incurring higher costs to build a car, maintenance and warranty costs will be lower; car safety will be improved, and GM’s reputation will be enhanced.” That said, it might be worth pondering whether or not this move was executed strictly for reasons Baron stated in his letter — after all, GM has a tense, and sometimes adversarial, history with Tesla.

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Source: Valuewalk via Baron Funds

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers. Our thanks go out to EVANNEX, Check out the site here.

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33 responses to "Ron Baron Talks Tesla, SpaceX, And GM Using Tesla Suppliers"

  1. mx says:

    GM could use Tesla so that Tesla has no competitive product advantage. Or, GM want’s influence on Tesla supplier chain.
    Or, GM with this relationship wants advanced notice of Tesla product changes…

  2. L'amata says:

    0r GM can just Stuff it!

  3. theflew says:

    The GM part of the story doesn’t make a lot of sense. Many manufactures use the same suppliers. On the EV front the biggest difference is LG versus Panasonic and I don’t see GM switching that relationship anytime soon. It’s not as if Tesla is known for quality or reliability.

    Normally this time of decision would be made below a CEO level.

    1. kbm3 says:

      Tesla is merely known for absolutely dominating the high end of the luxury market with their rookie efforts (ASP ~ $100k).

      Funny how GM (along with almost every other company) has been trying to create a BMW 3 series killer forever and it looks like Tesla will do it right out of the gate!

      1. Will says:

        Sorry but the model 3 at lease is $900 a month just for the base. I can get a 3 series for $300 a month

        1. Steve Townsend says:

          Yeah, but it’s no a Tesla. 😉

        2. paul smith says:

          Where did you get that $900/mth lease figure?

          1. Bryan says:

            Yeah, I don’t get the $900 lease either. That is in the range of the bottom end Model S not a Model 3. Doesn’t quite jive.

          2. Mark.ca says:

            He pulled out of his ass…he does that alot.

            1. Mark.ca says:

              For the sake of simplifying things let’s take the 60% residual TMS has and a price of 45000 for a loaded TM3. Without considering mf the monthly will be around $500/36months before any credits are applied. Get out yo’ mama’s basement, Will!

            2. Philip Reeve says:

              +1

          3. mx says:

            There should be a limit on stupid troll posts. I say 3 strikes and OUT.

        3. Mister G says:

          Will did you make it past elementary school? Because your math is terrible LOL

        4. windbourne says:

          considering that a base 340i, which is comparable to a M3, costs more, why are you having a lease that costs 3x as much, esp. when Tesla is holding their retail value MUCH better than any of the POSs coming out of Germany these days?

    2. Pushmi-Pullyu says:

      theflew said:

      “On the EV front the biggest difference is LG versus Panasonic and I don’t see GM switching that relationship anytime soon. It’s not as if Tesla is known for quality or reliability.”

      Tesla’s battery packs certainly are known for quality and reliability, altho perhaps GM’s Volt packs have equally high quality.

      And of course GM isn’t planning on switching to Panasonic batteries! Panasonic’s EV battery production is more or less entirely tied up with contracts with Tesla. It wouldn’t do any good for GM to try to buy batteries in quantity from Panasonic. Tesla’s demand alone has completely overwhelmed Panasonic; that’s why Tesla had to spend billions of dollars its own money to build Gigafactory 1.

  4. CDAVIS says:

    It is true that most financial analysts don’t “get” what Tesla is all about. Tesla requires no-traditional analysis to gain an understanding of the current & potential value of the company.

    Many analysts try to value Tesla as a car maker in the same way financial analysts in the early days of Amazon tried to value Amazon as a books retailer. Financial analysts like to use standard industry specific metrics to value a target company so to be able to easily draw “Related Company Comps” for measuring comparative performance & value. That does not work for companies like Tesla & Amazon. For the exame (according to Goggle Finance) the Related Companies to Tesla are Ford Motor Company & Toyota Motor Company which Tesla has very little in common with:

    https://finance.google.com/finance?q=Tsla&ei=X0LNWdmIOc2mebCVk_gL

    1. theflew says:

      Tesla isn’t Amazon or Apple. In the end they are just an auto manufacturer. Which is a capitol expensive big widget business. Tesla can spin it any way they want. But the model 3 comes down to how many they can get out the door at a good enough profit margin to keep the machines running.

      Unlike the Model S/X where they have enjoyed a unique position with unique products. They don’t have as much wiggle room with the 3. And it’s easily argued the model Y should have come first. So that was bad planning on their part to see where the market was going. Right now Volvo, Jaguar and potentially the Buick based Bolt will hit the sweet spot in the current CUV crazed market.

      1. paul smith says:

        Well, someone who knows more than Ron Baron about investment value.

      2. CDAVIS says:

        @theflew said: “Tesla isn’t Amazon or Apple. In the end they are just an auto manufacturer…”
        ——–

        @theflew,
        Thanks for providing a comment that illustrates my point…

        Most financial analysts (or wannabe analysts) don’t “get” what Tesla is all about.

        Tesla has much more in common with Amazon & Apple than it does with Ford or Toyota.

        1. theflew says:

          I don’t think you understand. Amazon doesn’t build anything. They are a logistics and services company. They have Alexa but that is just a means to tie into their logistics and cloud services. Apple on the other hand has great brand value with crazy profit margins. Their products tie into their services closely. But even their ivory tower is weakening.

          Tesla’s biggest advantage at this point is the supercharger network. That can be easily reproduced with a relatively small investment by one of the major makes. But since they have no product at this point they aren’t in a hurry. So if you want to see who’s serious watch out for charge station build out between cities.

          1. CDAVIS says:

            @theflew said: “…That [Tesla Supercharger Network] can be easily reproduced with a relatively small investment by one of the major makes…So if you want to see who’s serious watch out for charge station build out between cities”
            ——–

            I disagree with @theflew that the Tesla Supercharger Network can be easily reproduced:
            https://www.tesla.com/supercharger

            I do agree with @theflew that supercharger build-out between cities indicates who is serious about EVs.

          2. Rotex says:

            What I would give to know TheFlew’s twitter handle, Facebook profile and/or Googleplus account.

            The guy is just going on and on about stuff he doesn’t have a clue about.
            Another anonymous guy tht will go down with Bob Lutz and Jim Chanos as the next group of losers who bet against world changing technology like the internet.

            In not so many years, unlike the nameless losers who bet against the internet,I will see to it that these names become synonymous with championing a failed crusade against the Tesla led sustainable revolution.

    2. mx says:

      Exactly. Most don’t seem to know Tesla is working on All Variables in the Multi-Variable Problem, not just cars.

      1. Rotex says:

        @mx,
        don’t even bother. It is actually even better that they do not know.
        In fact, these days, I get excited when I read their arguments.
        The longer it tales them to figure it out, the more humiliating the thrashing would be.

        I’ve had someone argue with me and he had pitched BMW, Mercedez Benz and GM combined against Tesla.

        So I asked him how it would sound to compare the New York Yankees, Boston Red Socks and Cleveland Indians teaming up against some newly formed team called Sacramento Wasps.

        The biggest undoing of these status-quo lovers would be their failure to grasp what innovation is truly all about.

  5. CCIE says:

    I’ve been having a lot of trouble accessing the site today from multiple computers on different networks. Slowness, errors about mixed secure/insecure data, and page rendering issues.

    Is something going on? Anyone else having trouble?

    1. Jay Cole says:

      It is. I just posted a ditty about this on another thread…if you will indulge me, I will just repost:

      We are working at converting to a secured/HTTPS tag for the site at the moment (all websites will soon be flagged as unsecure by google without it).

      …and while we have got the HTTPS cert now in place (huZZah), its playing some havoc with the load times/not allowing external images and widgets, slowing everything down big time.

      Hopefully we can get it sorted out relatively quickly.

  6. HVACman says:

    Yes, Tesla is a master at selecting and coordinating with only the best outside suppliers, who both manufacture top quality and always on-time.

    Exhibit 1 – Model X falcon-wing doors. Flawless production, indeed.

    Exhibit 2 – Multiple recent quarterly earnings conference calls where Elon emphasized that Tesla’s vendors are so great that production is never held up.

    And if you believe that…..

    1. floydboy says:

      Actually, Elon admitted on the conference call, that only NOW(with the Model 3) are they able to get all first tier suppliers.

    2. Marshal G says:

      Actually they dumped the first supplier of FWD actuators if I recall and had to do a last minute redesign. Man I can’t wait until the full history of Tesla is written many years from now.

      1. windbourne says:

        In fact, the Germany company that screwed all that up, sued Tesla and IIRC, lost big time.
        Hopefully Tesla counter-sued and got paid back for that company’s massive foul-ups.

    3. 3rd EV start up says:

      spot on!

      KSS= GM supplier
      INTEVIA=GM supplier.
      Draexlmaier=GM supplier
      Metalsa= GM supplier
      HUF= GM supplier
      U-Shin=GM supplier
      Brembo= GM supplier.
      Dura= GM supplier.
      YangFeng ( JCI)

      ect….ect…ect so what makes Tesla suppliers so great ????

  7. Mister G says:

    Thank you Elon Musk for saving American tax payers some money.

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