Tesla could be a trillion-dollar company in 2030, as its profitability is set to rise, Ron Baron, the founder of Baron Capital and CEO at Baron Funds, told CNBC on Friday.
Tesla’s current valuation of US$60 billion could triple in three to four years, but in 12 years, Tesla could be a trillion-dollar firm, Baron said.
Tesla’s cash flow doesn’t appear to be a problem, “when I look at the numbers,” Baron added. Elon Musk has said that cash flow won’t be a problem, “I take him in his word,” the Baron Funds chief executive said.
“We are at the point now where incremental investments are going to be incredibly profitable,” Baron said, noting that Tesla will be able to produce 7,000 Model 3 vehicles a week for “virtually no additional investment.”
What Musk has done is not easy and it’s remarkable what he’s done, Baron said.
The gross profit margin of Tesla’s Model S and Model X is currently at 31 percent, up from 20 percent at the beginning. The gross profit margin of the Model 3 is set to rise and be as good as the Model S and Model X gross profit margin, Baron said.
At the end of October, Tesla surprised Wall Street and analysts with a rare quarterly profit in the third quarter, which the company described as “a truly historic quarter for Tesla,” but which also brought a lot of controversy surrounding Musk, who tweeted in early August that he was taking Tesla private with “funding secured”.
The tweet secured Musk an investigation from the SEC, which later charged Tesla’s CEO with securities fraud. Musk and the SEC quickly settled the charge days after the commission charged him, with Musk and Tesla each agreeing to pay a penalty of US$20 million, and Musk stepping down as Tesla chairman to make room for an independent director.
Earlier this week, Tesla said that Robyn Denholm had been appointed as Chair of the Tesla Board, effective immediately. Denholm, who has served on the Tesla Board as an independent director since 2014, will be leaving her role as CFO and Head of Strategy at Telstra, Australia’s largest telecommunications company, once her six-month notice period with Telstra is complete, Tesla said.
By Tsvetana Paraskova for Oilprice.com
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