Tesla’s shares have more than doubled this year. Why this investor is still a fanatic.

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This conversation with Baillie Gifford’s partner and global equity chief James Anderson about Tesla’s shares is excerpted from Barron’s recent mid-year Roundtable, released on July 10. To read the full article, click here.

Barron’s: James, has the current crisis changed your way of thinking about the market and your investments?

James Anderson: It is a profound human tragedy and clearly changes the anatomy of 2020. But since I believe stocks represent the current discount to future cash flows, it makes less difference to our thinking process than I suspect it does to many. At the same time, I am nervous about extrapolating behavior under current conditions to the future. People are too sure to know what is going to happen. Under stress, we believe what we want to believe again.

That said, interest rates are likely to stay low for a long time. Second, something really important happened in the first quarter of this year that will have longer-term implications than the pandemic: we have reached a tipping point on the way to the end of carbon. More than 50% of German electricity came from renewable sources in the first quarter. The Tesla Model 3 was the best-selling car in California. The implications of this for the stock market and the global economy will be profound in the coming decades.

The mid-year round table 2020

We assume that you are not investing in oil stocks.

You take it correctly. I don’t see much reason to change the names that I recommended in January; we hope they pay in the long term. There are two names with which I feel even stronger. It would be more enthusiastic to add Kering [ticker: KER.France] and Alibaba Group Holding
[BABA]. Others’ share prices have risen a bit.

The long-term strengths of luxury goods companies like Kering have deepened. Kering is agnostic about its mode of delivery, whether online or through stores. It is well diversified internationally. Earnings will be lower this year, but there is no reason to think that the company’s competitive position has weakened. As for Alibaba, its achievements have been overshadowed by concerns about a possible exclusion of Chinese stocks in the US and SoftBank Group.‘s
[9984.Japan] sales. The last concern is ending. Alibaba’s progress in its retail and cloud computing businesses remains exceptionally strong.

Tesla‘s
values [TSLA] It has more than doubled since it was recommended in January. Is it a purchase at this level?

Many people thought that Volkswagen
[VOW3.Germany] and other auto companies would prove this year that they could compete with Tesla. That has not happened. Tesla appears to have a structural leadership of five to seven years. The company has been able to expand its growth rate and lower costs faster than we thought. Tesla is overcoming the worst of its battery supply limitations as former Tesla employees start battery supply companies.

Furthermore, there is nothing remotely like self-satisfaction in Tesla’s ambition to become much larger in scale and in its impact on the world. I have never seen a company with so little complacency. With Tesla, perhaps more than any other company, predicting what the stock price will do in a day or three months is a dice game. But I am happy to be a very strong owner for years to come.

Are you also a fan of Nikola?
[NKLA], the manufacturer of electric trucks and fuel cells?

We are not big believers in the hydrogen fuel cell hypothesis. We believe there is more evidence that trucks will also go electric, especially as battery restrictions ease.

Are there other actions that you are passionate about?

Much of what we are most excited about is in private markets, whether it’s the next generation of electric vehicle, solar, or synthetic biology companies. It may be a decade or two before synthetic biology stands out, but a lot is happening in the field. George Church [a professor of genetics at Harvard University] co-author of an interesting book on the subject some years ago [Regenesis: How Synthetic Biology Will Reinvent Nature and Ourselves.] It is a good source of information.

Write to Lauren R. Rublin at [email protected]