Tesla investor Ron Baron thinks Elon Musk and the company are surrounded by enemies — but he’s wrong

Tesla CEO Elon Musk.

Tesla CEO Elon Musk.
Reuters/Mike Blake

  • Tesla investor Ron Baron thinks the company is surrounded by enemies.
  • The narrative that CEO Elon Musk has triumphed against all foes is useful for those arguing that Musk therefore deserves a massive new compensation package.
  • But Tesla is largely threatened by its own problems, not those imposed on its from outside.

Ron Baron is a Tesla perma-bull who never misses a chance to boost the company and CEO Elon Musk, often without much understanding of the competitive environment Tesla finds itself in.

Most recently, Baron rehashed his Elon-versus-everybody argument in the context of a coming shareholder vote on Musk’s compensation, which will require investors to accept the idea that Tesla can achieve a $650 billion market capitalization and keep Musk as the profitless company’s leader.

“Think about Elon Musk and what he’s had to overcome to achieve what he has achieved,” Baron told Bloomberg. “The OEMs are against him, the dealers are against him, the unions are against him. Everyone is aligned against him.”

A great soundbite coming from a guy who owns 1.6 million Tesla shares (a $528 million stake, at today’s trading price of about $330). But utterly false.

Rival automakers (referred to by Baron as “OEMs”), in fact, aren’t against Musk. For years, they’ve been happy to watch as Tesla has bravely taken all all the risk of developing all-electric vehicles and trying to sell them into weak demand. Electric-vehicle sales make up only about 1% of the worldwide market.

Auto executives actually admire Musk for his vision and boldness, and there’s a view in the industry that because Tesla has validated some legitimate consumer appetite for all-electric cars, the future looks good for everyone on that front. No one wants to kill Tesla – though carmakers from General Motors to Jaguar want to compete with Musk. The goal is for all boats to rise.

Dealers and unions aren’t Tesla’s enemies

A Tesla store.

A Tesla store.
REUTERS/Jason Reed

The dealers aren’t specifically against Musk. They’re against anyone who would undermine the franchise model that has kept them fat and happy for over a century – and not incidentally, has made them major local employers and significant contributors to state and city tax coffers. If Ford decided that it wanted to sell cars directly to consumers, dealers would be against Ford.

For Baron, this is just more meaningless Elon versus some vaguely defined malevolent oppositional group. Why wouldn’t you monumentally reward a man who’s up against such intractable evil?

The unions aren’t against Musk, either. United Auto Workers has made efforts to organize collective bargaining at Tesla’s Fremont, California, factory – a plant that was unionized in its prior life as a joint venture between GM and Toyota. The more successful Tesla is, the more likely it is to hire additional workers, so the UAW has a vested interest in Musk’s continued prosperity. A bankrupt Tesla wouldn’t be good for anybody, least of all labor.

Baron can obviously say whatever he wants and put as much money into Tesla as his investors will tolerate. But his statements showcase a new theme among Tesla bulls: The company has no limits and is being guided to a financial promised land by the greatest visionary since Thomas Edison.

It’s not enough to leave it there and see how things play out. Baron has to create enemies where there are none so the big Tesla story and Musk have something to battle against. This distorts Tesla’s important role in the auto industry and creates a circle-the-wagons attitude around the company that reinforces its separation from a car business that it ought to be more inspirationally integrated with.

We’ve met the enemy, and it is us

Tesla Detroit sales vs market cap

Andy Kiersz/Business Insider

A best, Baron’s position is fairly benign. But at worst, it comes across in statements from Musk himself, who at times acts as though the traditionally industry is out to get Tesla rather than simply aiming to compete with it.

Understanding motives for this is straightforward: Tesla is basically a tiny monopoly – in expensive all-electric luxury vehicles – whose most bullish investors would like to see it become a larger monopoly. That’s really the only way it will achieve a $650 billion market cap.

The auto industry, particularly in the US, is hypercompetitive and largely monopoly-proof. It has also been quite profitable during the recovery from the financial crisis and has rewarded all its stakeholders, even ultra-patient investors who have seen steady dividend payouts from GM and Ford as those carmakers’ stock prices have lagged the broader markets’. Dealers have done well, and the auto workers have gotten big profit-sharing checks.

Meanwhile, Tesla has made no money in 14 years and has repeatedly diluted existing shareholders through capital raises. The company has also loaded up its balance sheet with debt, thanks to a merger with SolarCity, and is burning through over a $1 billion a quarter while struggling to launch a relatively simple-to-build car in the Model 3 sedan.

So contrary to what Baron thinks, Tesla worst enemies aren’t automakers, dealers, or workers. The biggest threat to the company’s existence is Tesla itself.