Tesla investment reaps $29bn profit for Edinburgh fund manager

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Elon Musk has made so much money from Tesla that he is now the richest person on the planet. However, the second-biggest winners are investors in an Edinburgh-based investment manager that began backing Musk’s electric car company in 2013.

Baillie Gifford’s investments in Tesla have made an extraordinary $29bn (£21bn) for investors including pension funds, foundations and charities, according to figures released to the Guardian.

Tech companies have seen their values soar this year following a surge in profits as the pandemic has driven the adoption of digital services and moves to de-carbonise economies has accelerated the purchase of electric cars.

Apple, Facebook and Microsoft are also expected to report bumper sales and profits when they report their latest quarterly results on Tuesday and Wednesday.

Scottish Mortgage Investment Trust, which is managed by Baillie Gifford, began buying Tesla heavily in 2013 when the shares were changing hands at about $6 each. Tesla’s shares, which have risen by 640% in the past year alone, closed at $846 on Friday valuing the California electric car company at $802bn – which makes it worth about 25 times as much as Tesco.

The soaring Tesla share price led Scottish Mortgage to be admitted into the FTSE 100 index of the UK’s biggest listed companies in 2017. Last year Scottish Mortgage was the best-performing company in the FTSE 100.

The Scottish Mortgage data comes as Tesla is expected to report its sixth consecutive quarter of increased profits on Wednesday following years of losses as it invested in getting the technology right. Analysts expect Tesla to record fourth quarter sales of $10.5bn, up from $7.4bn a year earlier.

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Analysts will be keen to see what targets Musk sets for Tesla in 2021. In October, one analyst predicted sales this year of 840,000 to 1m vehicles. At the time Musk said his own target was “in that vicinity” and the analyst was “not far off”. The company came within a whisker of hitting its 500,000 car sales target for 2020, selling 499,550 vehicles despite the pandemic shutting down some production.

As Tesla’s share price continued to soar in value it triggered a warning alarm that the Tesla stake had crossed the maximum percentage value that Scottish Mortgage was able to hold in any single stock. That meant fund managers James Anderson and Tom Slater had to sell Tesla’s shares to keep within their rules.

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Baillie Gifford, the fund management group that includes the flagship Scottish Mortgage fund, has made a $14.8bn profit for its investors from Tesla shares it has sold during the last calendar year. It also made $14.6bn on the shares it has retained in Tesla, leaving a total profit of $29.5bn for 2020. Scottish Mortgage’s total profit on Tesla in 2020 was $5.5bn.

Anderson, who first made the decision to invest in Tesla in 2013, said if the fund had not acted to sell some of Tesla shares, the stock would have accounted for more than a third of the whole fund. Tesla is still Scottish Mortgage’s largest holding at 8.9% of total assets.

Explaining why he first bought Tesla, at a time when many experienced investors thought it was hugely overvalued at $6 a share, Anderson said: “To us it was, frankly, clear even back half a dozen years that the underlying technologies from batteries, to solar to eventually self-driving were progressing and would continue to do so.

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“We thought (and simply observed) that Tesla was already past the technological and practical challenges to a good degree and that execution and finance were the practical issues. What we needed was time. Not many investors can have that luxury and necessity.”

Anderson said he believes the electric car revolution could only have been started by a maverick outsider such as Musk, and said he deserves the record-breaking $55.8bn bonus he is on track to collect.

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“Let’s be clear that we thought this could only be done by a visionary from outside the traditional industry,” Anderson said. “We’re usually sceptics of management rewards but Elon deserves it. So, more recently, does his burgeoning team.

“This leads on to a core belief: that our purpose as investors is to assist beneficial, transformation change. Isn’t this the point of capital allocation? If we do this our results for shareholders will look after themselves.”

Anderson said Scottish Mortgage had used the funds realised by selling Tesla to buy into other future tech firms, such as Swedish green battery maker Northvolt.

This article was amended on 25 January 2021 to clarify that Baillie Gifford is an investment manager rather than a single investment fund