“Tesla is a formidable company.” Mary Barra. CEO. General Motors. April 2015.
“I’ve spent time in the Model S, and I have a lot of respect for it….It’s an impressive vehicle.” I found CEO Barra’s remarks unusual since I think it unlikely she would make similar statements about Ford Motor Company, Chrysler or any other automobile manufacturer and their cars. As noteworthy, I thought, was a remark by a Ford Motor Company executive who recently told me, “The most interesting question I would like answered is whether and when Tesla (TSLA, Financial) can build one million cars per year on a sustained basis.” Tesla plans to build 50,000 -55,000 cars in 2015 after building 35,000 cars in 2014 and 22,000 in 2013! The company hopes to build 500,000 cars in 2020 and several times that number annually in the following decade. We will see.
We have been an investor in Tesla for a year and a half. I presently visit the Tesla plant in Fremont, California three or four times a year.
I had wanted to visit General Motors (GM, Financial), Ford Motor (F, Financial) and Chrysler plants for quite a while to compare those facilities to Tesla’s. I became even more interested after two Baron analysts visited BMW’s research and production facilities in Germany last summer. I recently had the perfect opportunity for a “field trip” to a General Motors’ truck plant in Flint, Michigan. Four of our analysts were planning to visit Diplomat Pharmacy’s distribution center in Flint and invited me to tag along. Diplomat delivers to
individuals, high cost, difficult to administer drugs that require special handling. Baron Funds is an investor in Diplomat. Our plan was to spend the morning with Diplomat, have lunch at the Flint GM plant and spend the afternoon touring that facility before heading home.
I arrived in Flint at 11 PM the evening before our meetings. I had been on my way home to New York following a brief research trip to the West Coast. After spending the next morning with Diplomat’s management team in their office/distribution facility, we were driven across town to the GM plant. The General Motors’ factory employs 2,820 union workers. We met with the head of the GM Truck division, that plant’s manager and the head of its union for a two-hour sandwiches and salads lunch. We were told demand for GM heavy trucks was so strong that this plant, built in 1947, presently operates six days a week, 24 hours per day. We then toured the facility, spoke with its production line workers and were shown how to align fasteners on truck doors and drive trucks off the production line.
When we were leaving late in the afternoon, the head of the autoworker’s union rushed after me to say “goodbye” and give me his card. “Ron, of all the things we talked about and showed you today, there is one thing I want to make sure you understand. This plant’s manager and I are good friends. We speak every day to resolve problems. My union understands this plant needs to be profitable to protect our jobs. We will be flexible about work rules as long as management protects our jobs.” The union leader then told me his members had done such outstanding work last year that each earned $9,000 bonuses as a reward for their productivity!
While the automation in GM’s Flint plant seemed to me significantly less than at Tesla’s in Fremont, the relationship between the auto workers and GM’s management was the most encouraging thing I learned that day. It was an enormous contrast to what I had expected. One more thing. When I asked the plant manager whether he had ever seen or driven a Tesla and if he had, what did he think? “I haven’t driven one. I have seen one. It’s a beautiful car,” he replied. “My 16 year-old-son also thinks the Tesla is a beautiful car. If it were made by General Motors, my son would try to figure out how to buy one.”
We often tell investors in Baron Funds that “we invest in people.” Tesla’s Elon Musk is one of those people in whom we have invested. Will Danoff is the portfolio manager of the $125 billion Fidelity Contrafund. He also happens to be a friend of mine and an individual I admire, both because he is an exceptional portfolio manager and analyst and because he is a thoughtful, nice person. A favorite Will maxim is to “bet on billionaires.” In the case of Tesla’s Elon Musk, we couldn’t agree more.
From Ron Baron (Trades, Portfolio)'s Second Quarter Shareholder Letter.
