Tesla, Inc. (TSLA, Financial) designs, manufactures, and sells fully electric vehicles, solar products, and energy storage solutions. Strong quarterly results increased investor confidence and generated stock appreciation. Tesla noted strong demand trends, market share growth, and improved gross margins, cost controls, and cash generation, leading to increased revenue and free cash flow. Tesla’s China factory project is moving ahead of schedule, and investors are anticipating that the new Model Y will positively impact the company’s P&L.
There have been (and continue to be) many skeptics of Tesla. Most of them believed the company could not develop the technology, generate demand for and cost-effectively produce electric vehicles at scale, and obtain financing for its growth ambitions (to name a few of the often-cited criticisms). Tesla has shown these concerns to be unfounded. The company delivered 303,000 of its economically priced Model 3 vehicles in 2019, double the amount delivered in 2018. We believe total deliveries can grow approximately 50% again in 2020 as its newly opened China facility ramps up production and its U.S. plant continues to increase its output. We believe the company will continue to experience growth with new facilities planned in Europe and new vehicle model launches that we think can be even more popular than its existing lineup. Tesla’s manufacturing costs have also declined as it is implementing lessons learned to make the production more efficient and benefits from its scale. Tesla’s solar panel and energy storage businesses could bring added benefits.
From Ron Baron (Trades, Portfolio)'s Baron Partners Fund fourth-quarter 2019 shareholder letter.
