Billionaire Ron Baron defends Tesla's decision to acquire SolarCity

Buy and hold billionaire Ron Baron told CNBC on Tuesday he initially was not happy Tesla had acquired SolarCity.

But the founder of Baron Capital said the more research he did, the more he understood the role the solar panel company would play in Tesla's future.

In an interview on "Squawk Box," Baron said that if Tesla sells as many cars as it expects, it will need a lot of electricity — specifically solar energy — to keep those cars charged.

He also said Tesla has reduced of selling expenses by ditching its door-to-door sales program in favor for selling in the company's stores, and "demand is enormous."

Baron, who is known for holding onto his stock purchases over the long haul, is a major Tesla shareholder. He said he bought about 1.6 million shares about 3½ years ago at an average share price around $208-$210.

Tesla's stock was up 2 percent in premarket trading Tuesday.