“Tesla will have a market cap of $4.5 trillion (about 6223 trillion won) in 8 to 10 years”
Ron Baron, chairman and CEO of Baron Capital, said in an interview with CNBC on the 4th (local time). Baron rose to fame as an early investor in Tesla, making huge sums of money. Between 2014 and 2016, he invested heavily in Tesla and acquired stocks worth 387 million dollars (he earned about 535 billion). At the time, the average unit price was $14 (based on two stock splits). I sold some of them in between, but I still hold $4 billion worth of Tesla shares (about 5.52 trillion won).
The market cap of $4.5 trillion after 10 years proposed by Baron is close to 8 times Tesla’s current value ($578.4 billion, based on the closing price on the 17th). Tesla is already the 6th largest conglomerate in the US by market cap. Growing 8 times for SMEs and growing 8 times for large companies are two different things.
The Baron’s argument is as follows. “(As Musk promised) If Tesla sells 20 million $50,000 vehicles a year, that’s worth $1 trillion a year. Applying Tesla’s 30% operating margin, the operating profit is $300 billion. If you give it a multiple of 15x, it’s worth $4.5 trillion. This calculation does not include autonomous driving, robots and batteries.”
Much disagreement could arise with the Baron’s agitated attitude. It is not known whether Tesla, which is expected to sell 1.3 million units this year, will be able to sell 20 million units in 10 years or continue to maintain a 30% operating margin. As Tesla CEO Elon Musk said, self-driving can achieve great success and deliver even more value. Importantly, Baron and Musk have a long-term vision in mind. This is why many recommend investing in Tesla stock with a long-term view.
How to invest in Tesla with ETFs
Stocks, however, are highly volatile investments. Long term investing is not easy. Growth stocks, such as Tesla, whose stock price fluctuates a lot, have had to endure great pain in the recent bear market. The company’s share price has recently fallen by around 50% since the start of the year. That is why masters like Warren Buffett and Peter Lynch referred to ‘patience’ as the main requirement for investment.
How can I invest for a long period of time while reducing stock volatility? Experts say exchange traded funds (ETFs) could be an alternative. ETFs provide cheap and easy diversified investment in multiple stocks included in the tracking index. Compared to general funds, management fees are lower, making them suitable for long-term investments. In particular, if it is a domestic ETF, you can invest through a tax-advantaged pension savings account or retirement pension. This is one of the biggest advantages.
Then, is there any way to invest in Tesla as a domestic ETF? First of all, the Nasdaq ETF, which became popular with the US stock investment craze, invests indirectly in Tesla. In the case of the ‘TIGER US Nasdaq 100’, which ranked 6th in net purchases of individual investor ETFs from January last year to March this year, Tesla’s share was around 3.23% (from the last 17 days). Tesla’s share is small, but it has the advantage of being a diversified investment.
Which domestic ETFs have a larger share of Tesla? From here, you need to look for active, non-exponential ETFs. △KODEX US FANG Plus (H) (6.39%) △TIGER US Tech TOP10 INDXX (7.21%) △Asset Plus Global Platform Active (19.6%) contains a lot of Tesla.
Tesla single stock ETF coming out
However, there may be a ‘Teslam’ that doesn’t take as much weight. For these investors, a new ETF product will be released soon. It is a ‘single stock ETF’. Four asset management companies, including Samsung and Mirae Asset, will list one ETF on the domestic stock market this month. Of these, Mirae Asset Global Investments plans to release an ETF with Tesla as its main stock.
A single stock ETF is a ‘blended ETF’ that contains one stock and the rest bonds. An existing hybrid ETF required a minimum of 10 stocks and 10 bonds to be incorporated. This has been changed to a total of more than 10 types of ‘no distinction between stocks and bonds’ due to recent loosening of regulations for the financial investment industry. The weighting of some stocks can be up to 30%. In other words, a ‘Tesla ETF’ invests 30% of assets in Tesla and fills the remaining 70% with bonds. The higher the bond exposure, the lower the volatility than Tesla stock.
As mentioned earlier, this product is worth using for investing a pension account. This is particularly true for retirement pensions (IRP‧DC) which must contain at least 30% safe assets. Tesla ETFs with less than 30% stock exposure are classified as safe assets for retirement accounts. Aggressive investors can add up to 79% of their risk assets in their pension accounts by incorporating these single stock ETFs.
Retirement pensions are very costly to terminate in exchange for tax benefits from the government. There is a ‘forced saving/forced investment’ effect. It’s hard for everyone to endure the long term like the long-term investor Baron. If you invest money that you need to spend soon and lose money, it is normal to be desperate to think about the principal. However, if you invest through your retirement account, you can resist the temptation to ‘stop a loss’ to some extent. This is because it is spare money that cannot be used immediately.
‘Teslam’ pension account portfolio
A, an office worker in his mid-40s who works for a small business, currently earns about 3.5 million won per month. As a result of working for almost 20 years, I managed to prepare my own home in the metropolitan area. But the future is the problem. I have to worry about retirement in about 10 years, but I don’t have much money saved to buy a house and pay off the loan. I am worried that I will face old age unprepared.
Mr A is a ‘Teslam’ who believes in Tesla’s long term vision. He believes that Tesla will overtake Apple and Aramco to become the world’s largest company by market cap after 2030. Mr. A currently has about 100 million earned in his retirement pension account. If the Tesla ETF comes out, I’m going to use it to replace my retirement account portfolio.
The first portfolio that Mr. A thought of was 100 million earned entirely in the Tesla ETF. Like ‘Teslam’, he has no particular desire to invest in other stocks. However, it worries me that the stocks are only 30%. Even if Tesla’s stock price rises 8 times in 10 years, as Baron claims, his expected rate of return on his pension account is 140% (Tesla) + α (return on bond investment). This is a rather disappointing result for him, an aggressive investor. However, the larger the proportion of bonds, the higher the stability.
The second portfolio is to take a US stock index investment and a Tesla ETF together. You can think of investing 70% of the ‘TIGER US Nasdaq 100’, which includes the top 100 NASDAQ stocks, and 30% of the Tesla ETF. It is a very aggressive composition with stocks, which are risky assets, reaching 79%. However, Tesla’s actual investment share is reduced to around 11%. The average annual return (CAGR) over the last 10 years of QQQ (Invesco QQQ Trust), an American ETF similar to ‘TIGER US Nasdaq 100’, is 16.6%.
The third portfolio is a way to increase Tesla’s equity and exposure. Let’s assume that 50% of Asset Plus Global Platform Active, an active ETF, and 50% of Tesla ETF are included. Mr A will invest 24.5% in Tesla stocks, 40.5% in foreign stocks excluding Tesla, and 21% in bonds. It is a composition with more than twice the weight of Tesla than the Nasdaq ETF. However, since it is an active ETF, the share of the Tesla may change in the future. Volatility can also be more than exponential. It is also important to consider that Global Platform Active is a currency hedge product, so it suffers a loss during a strong dollar period.
‘Teslam’ It is difficult to see Mr A’s three portfolios as suitable for ordinary investors. Because if Tesla fails, it could be a big disappointment. Experts recommend configuring a pension account with 60% stocks and 40% bonds. If your inclination is conservative, you should increase your exposure to bonds.
If you believe in the ‘innovator’ Musk
The launch of the Tesla ETF is likely to generate significant interest among Tesla shareholders. If you look at the Tesla community, there are still many people who are not shaken by ‘two hearts’ even when the stock price has been cut in half compared to the beginning of the year. According to a report by the Asian Economy on the 16th, Seohak ant bought Tesla shares worth $241 million (about 317 billion won) this month, ranking first in net purchases. I saw it as a cheap buying opportunity. What on earth do these ‘Teslams’ believe in?
An elderly gentleman asks Musk, who attended the Baron Investment Conference on the 4th. “Tesla stock is down 40% from its peak and trading at 70 times earnings. Benz, which has just produced an electric vehicle, has a PER of 6x. Why should I invest in Tesla instead of Mercedes?” This is a point that can be made enough for Tesla, a high PER company. Musk responded:
“I have rarely encouraged people to invest in Tesla. But people ignored me and continued to buy stock. So if you think about it, autonomous driving will be a fundamental development in this problem. No one can match Tesla when it comes to self-driving technology. Cars will become five times more useful in the future for the same cost. If you calculate that future in terms of present value, it’s huge. Tesla also has an Optimus robot. If the workforce is no longer constrained by humanoid robots, what will limit its growth?”
And the pioneer promised to add. “This will definitely happen”
▶ ‘Teslam goes’
We’ll unravel the story behind Tesla, who will lead the ‘mobility revolution’ in the 2020s. Elon Musk, who is rated as the best ‘visionary CEO’, is also a major search target. Present news and issues from domestic and foreign Tesla YouTubers and Twitter users. Subscribe to the reporter page below to receive weekly articles.
Reporter Sujeon Baek jerry@hankyung.com
