Ron Baron Hated Tesla's SolarCity Deal, But Now He Loves It

Many Wall Street analysts and investors were not initially supportive of Tesla Inc (NASDAQ: TSLA)'s multi-billion acquisition of its sister company SolarCity. For instance, notable fund manager James Chanos said the acquisition represents a "shameful example of corporate governance at its worst."

Billionaire investor and Tesla shareholder Ron Baron was also among those who initially hated the acquisition, but his stance has since changed because he now understands the long-term story.

Tesla's 2020 volume target of 1 million vehicles has already been communicated to investors, but there is one underlying problem that is flying under the radar, Baron explained during CNBC's "Squawk Box" segment Tuesday. Electricity demand to power Tesla's cars will be "enormous" in the coming years, but the current electric grid isn't able to keep up with the number of cars Tesla says it can sell over the coming years.

And this is where SolarCity comes in, Baron continued. SolarCity now sells solar panels that double as a roof for consumers and the solar energy it can generate will be sufficient to power Tesla's cars parked in the garage.

In fact, Tesla's stock is projected to hit $1,000 per share in 2020 and at that point the company will only be seeing the beginning of SolarCity's contributions from solar roofs and batteries.

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