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A Fund That Bought Tesla for Less Than $30 a Share

- By Holly LaFon

Primecap Management Company is an under-the-radar adviser that doesn't talk to the media. But it did something no other tracked fund did: it bought Tesla for less than $30 a share in 2011 and hung on to it through the stock's explosion this year. That's an estimated gain of 469%.

Primecap advises the Odyssey Funds, which consist of a stock fund, growth fund and aggressive growth fund. Its investment profile reads like that of most typical value advisers, looking to uncover undervalued stocks whose fundamentals will develop beyond Wall Street's expectations. With a long-term approach, the managers identify changes in a company that could increase value in three-to-five years, such as new products or management, and then wait.


Jack Bogle, founder of $2.3 trillion firm Vanguard Asset Management, kicked off Primecap in 1984 with $100,000 initial capital. Little information about Primecap's portfolio managers exists, but Theo Kolokotrones, a Primecap founder, is chairman of Primecap Management and co-CEO of Primecap Odyssey Funds, a role he shares with Joel Fried and Alfred Mordecai. In addition to the Odyssey Funds, Primecap manages Vanguard's Primecap Fund, Primecap Core Fund and Capital Opportunity Fund.

Their Tesla investment started back in 2011, when the fledgling brainchild of science wizard Elon Musk was coasting above its IPO price of $17, at an average in the second quarter of $27 per share. Musk's Silicon Valley team had begun selling its first electric car, the Tesla Roadster, in 2008. Primecap invested as the company was preparing to launch the world's first premium electric car, the Model S, in 2012. The new model could spring from zero to 60 miles per hour in five seconds and won Motor Trend's 2013 Car of the Year award, competing with stalwarts like GM (GM) and Honda (HMC).

The launch of the model S also ignited Tesla's share price, but not before Primecap could increase its holdings from 65,000 shares originally to 2,041,090 shares by the end of 2012, at average quarterly share prices of no higher than $32 each. Tesla's share price doubled in each of the proceeding two quarters, to $75, and then to $148.

Primecap took some gains from the holding as Tesla's price continued to soar but still held 1.02 million by the third quarter of 2016 before making another successful move. Managers increased the position by almost 15% as shares sank to $197 in the fourth quarter, their lowest price in three years.

Year to date, Tesla's rocketed a further 47%, closing at $312.17 per share, rounding out Primecap's almost five-fold gain over five years.

Other funds have cashed in on Tesla, though to a lesser degree. Ron Baron (Trades, Portfolio), founder of Baron Funds, who owns the biggest percentage of funds tracked at 0.96% of outstanding shares, started participating Tesla in early 2014 for around $200 per share. His average price for all of his share purchases is $217, for an estimated gain of 43%.

Yet, Baron has declined to leap at media appearances to "take a victory lap" for the investment, he said in his first-quarter shareholder letter this week, saying it was "too early for us to claim victory."

"In fact, we think it will still be too early in 2020 or 2021 when we think Tesla could sell one million cars per year, produce $70 billion in revenue and more than $7 billion in operating profits before reinvesting in its business to grow several times larger," he said. "A lot has to go right for that to take place."

See Primecap Management's portfolio here and Ron Baron (Trades, Portfolio)'s portfolio here.

This article first appeared on GuruFocus.