CEO, Tesla; CEO, SpaceX; CTO, X

Elon Musk

A defining investment — Scottish Mortgage was an early and high-conviction Tesla shareholder

Anderson saw Tesla not as a car company but as an energy and technology company pursuing exponential learning curves in battery technology and autonomous systems. Scottish Mortgage held Tesla through multiple near-bankruptcy episodes and was rewarded with returns that transformed the trust's performance. Anderson has described Musk as the clearest living embodiment of the kind of 'ambitious impossibilism' he looks for in founders — the willingness to pursue goals that conventional analysis declares impossible.

Full Profile

Elon Musk

Biography

Elon Reeve Musk (b. 1971) is the South African-born entrepreneur behind Zip2, PayPal, SpaceX (founded 2002) and Tesla, which he joined as chairman and lead investor in 2004 before becoming CEO in 2008. Tesla's trajectory — from a niche Roadster maker dismissed by the entire automotive establishment to the company that forced the global industry's electric transition — made it, during Anderson's tenure, the most contested stock in world markets and the single largest contributor to Scottish Mortgage's historic returns.

For Anderson, Musk is the clearest living embodiment of the quality he prizes above all others in a founder: the willingness to pursue goals that conventional analysis declares impossible, and to keep investing through every drawdown, lawsuit, short-seller campaign and missed quarter that follows. If Jeff Bezos taught Anderson what a transformative company looks like on paper, Musk taught him what it costs in practice — and how thoroughly the market's information machinery (analysts, short sellers, headline media) fails to price a learning curve. Anderson has described Tesla as an investment that "was hardly demanding" once one listened to experts rather than brokers: the battery and manufacturing improvement rates made the outcome "as close to inevitable as investing allows." The hard part was never the thesis; it was enduring everything the world threw at the thesis between 2013 and 2020.

Key Stories

The 2013 origin.

Scottish Mortgage first invested in Tesla around 2013. As Anderson reconstructed the decision in Stay on the Road Less Travelled: "the regularity and pace of improvement in battery performance and of learning in building electric vehicles was already clear in practice and well-elucidated in academic study... This made it as close to inevitable as investing allows that at some point electric vehicles were going to be better and cheaper than the internal combustion engine — quite aside from environmental issues. That's simply what happens when a 15% plus improvement rate meets a 2-3% snail." Tesla was the only substantial Western player. "We just had to listen to experts and wait."

The 75 percent confidence interval.

Anderson later quantified the original conviction in the 2022 interview: "back in 2014, we had approximately 75 percent confidence interval that that 15 to 25 percent across all the different parts of the industry was the improvement rate." The number matters less for its precision than for its provenance: the operative question was whether "the whole panoply of technology" behind electric vehicles "can continue to compound" — a question Anderson took to academics and scientists for checkpoints, explicitly not to brokers, market commentators or the Federal Reserve.

"A small but growing possibility."

Six years before the 2019 essay, Musk had told the Scottish Mortgage team: "There is a small but growing possibility that Tesla will be the largest company in the world." Anderson cites the sentence in Graham or Growth as the model of a legitimate extreme claim — improbable, but assignable a probability, and priceless if right. The sentence is a compact lesson in imagination in investing: the job is to evaluate claims like this against learning curves, not to dismiss them as founder grandiosity.

The scenario sketch.

In Graham or Growth Anderson turned Musk's sentence into arithmetic — and showed his working. Model 3 unit sales "could easily reach 1.5 million a year" on existing luxury-car markets alone; "revenues of $75 billion are conceivable"; at long-run target margins the exercise yields "a putative equity value of $400 billion in five years time," to which he assigned, conservatively, "a 20 per cent chance." Beside it stood the admission that the shares "could fall 75 per cent." The pairing is the point: "isn't this the type of skewed, asymmetric and to many frightening sets of potential pay-offs that we should welcome."

The Model 3 moment, 2016.

The 2016 Annual Report records the unveiling as "one of those rare moments that have meaning beyond the normal": 232,000 orders and a potential $8.1 billion of revenue in two days — against the original iPhone's 270,000 units and $135 million in the same span. "Whether electric vehicles have come of age or not Tesla itself most certainly has... Sheer ambition matters. We have bought more Tesla shares."

Enduring the short war.

Through 2017–2019 Tesla was the most-shorted large stock in the world; Anderson catalogued the attacks — "one day for the astounding revelation that building a car factory requires capital, the next claiming that Tesla makes dangerous machines (as if the death toll of the car industry in the past should be ignored)." The trust held through "production hell," funding panics and the SEC settlement, treating the noise as the exact "blatant market inefficiency offering an extraordinarily high likelihood of high returns to the patient."

The 2021 trim — discipline, not doubt.

After Tesla's historic run, Anderson reduced the holding, applying the top-five-percent test: "We did not think... that we could see that degree of upside. It was not about a worry that it would go down... It's that we doubted there was sufficient upside." He immediately added that Tesla's execution since had been "taken aback" brilliant — factory build-out, battery expertise, internationalization — and that the decision "is perfectly possible you'll be wrong." The trim is the cleanest public example of his selling discipline operating independently of admiration for the founder.

Impact on Anderson's Work

Proof of the method. Tesla is the completed experiment for Anderson's philosophy: a knowable process (learning curves), an unknowable set of outcomes (exact cash flows, autonomy economics), a founder of the first-principles type, a market that could not price any of it, and returns that validated concentration, patience and the refusal to forecast — "To us it is bizarre that brokers, hedge fund mavens and commentators can claim to be able to decipher the future and assign a precise numerical target to the value of Tesla."

The imagination benchmark. Tesla also became Anderson's calibration for how much imagination an investment actually demands. The Tesla roadmap, he wrote, "requires less imagination than in most of the investments we make," because the company "only needs to capture currently existing markets to have dramatic potential whereas many of the internet platforms have had to create a new world." The discipline lies on the other side of the ledger: "On the upside indeed creativity rather than analysis has to be the focus" — a sentence that redirects the analyst's craft from modelling to envisioning.

The founder template, extended. From Musk, Anderson generalized the outsider-founder criterion: transformation almost never comes from inside the industry. He quotes John Elkann of Ferrari and Stellantis — himself no small authority — conceding that Tesla "couldn't have been done by anybody from inside the industry."

The bridge to private markets. Musk's SpaceX became one of Scottish Mortgage's emblematic unlisted holdings, carrying the Tesla logic into private markets: transformative capital intensity that public-market quarterly machinery would punish, funded instead by patient capital.

The autonomy boundary — the honest limit of conviction. Anderson's treatment of Tesla's autonomous-driving ambitions is his own case study in epistemic humility: "try though we do it seems implausible that we can estimate either the likelihood of success in a radically new endeavour nor the precise outcomes in cash-flows should success emerge." The lesson: hold the high-probability conviction (EVs win), admit the unknowable (autonomy timing), and never confuse the two.

Key Passages

"There is a small but growing possibility that Tesla will be the largest company in the world."

— Elon Musk to the Scottish Mortgage team, cited in Graham or Growth (2018)

"Since Tesla was the only substantial Western player our investment decision was hardly demanding. We just had to listen to experts and wait. But most investors do not listen to experts. Instead they listen to brokers and the media, besotted as it is by fear mongering and the many short sellers. The headlines tell them that next quarter will be hard for Tesla and that Elon Musk is outspoken. To us this was a blatant market inefficiency offering an extraordinarily high likelihood of high returns to the patient."

— Stay on the Road Less Travelled (2021)

"All too many investment decisions are marginal judgments. That electric vehicles would win had become intensely likely. We needed no insight, no clever model to spot it - only patience and trust in experts and the company. The uncertainty was elsewhere."

— Stay on the Road Less Travelled (2021)

"The extraordinary success of the Model 3 unveiling seems to us to be one of those rare moments that have meaning beyond the normal... Whether electric vehicles have come of age or not Tesla itself most certainly has."

— Scottish Mortgage Annual Report 2016

"I have to say that, if anything, we have been — I'd almost say taken aback by the excellence, the brilliance of Tesla's execution... their ability to build out the factories, to build out their expertise in the batteries... their ability to, in fact, increase their leadership over the industry... is truly remarkable."

— Masters in Business Interview (2022)

Referenced In

Source: Chian.io — James Anderson Knowledge Base

Letters Mentioning Elon Musk

2014 · Scottish Mortgage Investment Trust PLC

Scottish Mortgage Annual Report 2014

ehavemadefewchangestoyourportfolio.Westillownall but heofthe30largestholdingsoflastyear.Mosthavebeenin place for severalyears.Rathertooursurprisemarketshaveseen torewardmanyoftheseholdingswithsubstantialshareprice sesinthelastyear.Sixofthecurrenttop30haveseentheir harepnicesmorethandoubleinthelast12months.Twoare hinesetechnologycompanies(Tencentand thesoontobe quotedAlibaba)whilstthreeareinnovativeCalifornianventuresin the shape oflllumina,FacebookandTesla.Thelast,andperhaps most surprising.memberofthegroupisFiat.Fortunatelyallof these werelargeholdingsb

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2016 · Scottish Mortgage Investment Trust PLC

Scottish Mortgage Annual Report 2016

It has been a year of sound and fury. In conventional terms it has signified very little. Markets and our portfolio ended the 12 months little changed in prices after varied and frenetic zigzags throughout the period. Mr. Market has been more than usually emotional in his moods but has ended up back much where he was a year ago.

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2018 · Baillie Gifford

Graham or Growth

Fifteen years on, markets and facts have been generally kind to the cause of Growth Investing. But there is still a shortage of material, whether written, internet or podcast, available that makes the case for a serious and consistent commitment to Growth investing. There's little evidence here that when the facts change investment opinion adapts. There's equally little evidence given for the widespread presumption that time will inevitably and eventually ride to the rescue of value.

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2020 · Investors Chronicle

IC Interview: Tesla's Rise Is a Symbol of a Revolution in Energy

A lot of what's happened, a lot of the companies that we've owned have been powered by progress in Moore's law. We think that progress in Moore's law is underwritten for at least the next 10 to 15 years. A lot of our insights come from ASML, which is in itself a large holding, but that will end up in giving us something like a 60-fold increase in computing power. If you get that, then it's natural that more sectors will be impacted, that we haven't even started thinking about as yet in terms of most commentaries on the world.

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2021 · Baillie Gifford Insights

Stay on the Road Less Travelled

After many years of anodyne reviews perhaps some bluntness is permissible in this final and twenty second version. There's much that I have misunderstood and misjudged over the two decades but my ever-growing conviction is that my greatest failing has been to be insufficiently radical. To be blunt: the world of conventional investment management is irretrievably broken. It demands far in excess of the canonical 'six impossible things before breakfast' that Alice in Wonderland propounds.

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2021 · MoneyWeek Talks Podcast

Merryn Talks to James Anderson

We've gone from questioning where are the customers' yachts to where are the customers' superyachts over this period of time.

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2022 · Bloomberg Masters in Business

Masters in Business: James Anderson on Long-Term Investing

RITHOLTZ: This week on the podcast, man, strap yourself in. I love finding these people, just rock star fund managers who — who just blow everybody else’s doors off, but have somehow managed to maintain a relatively low profile over the decades they’ve been in — in the business, and today’s guest is absolutely an example of that.

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