Following Berkshire Hathaway, Inc.’s annual shareholder meeting, Tesla, Inc. CEO Elon Musk once again indirectly suggested that Warren Buffett should invest some of his cash pile in the electric vehicle maker. However, Tesla investor and Future Fund Managing Partner Gary Black doesn’t view this as a viable possibility.
Black made his stance clear, stating that Buffett is unlikely to invest in Tesla because it doesn’t align with his investment philosophy. Buffett is known as a value investor, preferring stocks that are undervalued relative to their intrinsic value at a given time. This investment approach involves seeking out companies with strong fundamentals that are trading at prices below their intrinsic worth, based on metrics such as earnings, dividends, and growth potential. Tesla, on the other hand, is considered a growth stock, which doesn’t conform to Buffett’s preference for companies with growth rates and margins that are expected to revert to the mean.
Tesla’s valuation is a key factor in Buffett’s potential reluctance to invest. Black pointed out that Tesla was trading at 70 times its estimated earnings per share for 2024, making it potentially the most expensive stock in Berkshire’s portfolio. This high valuation may deter Buffett, who typically seeks out stocks trading at more reasonable valuations relative to their earnings and growth prospects. Additionally, Buffett prefers businesses that can operate independently from the CEO, which may pose another hurdle for investing in Tesla, considering Musk’s central role in the company.
Buffett himself expressed skepticism about investing in the zero-emission vehicle industry during the shareholder meeting, citing Berkshire’s lack of expertise in the field. Buffett has historically been cautious about investing in industries or companies that he doesn’t fully understand, preferring to stick to industries where Berkshire has a competitive advantage or deep knowledge.
Despite Buffett’s reservations about Tesla, Berkshire has made notable investments in other companies, such as Apple and BYD Co. Ltd., a Chinese EV startup. Apple’s stock was trading at a much lower valuation when Berkshire first acquired a stake in 2016, while BYD’s valuation was also more attractive when Berkshire initially invested in 2008.
In summary, while Elon Musk may continue to suggest that Warren Buffett invest in Tesla, Gary Black and others believe it’s unlikely due to differences in investment philosophies and valuation metrics. Buffett’s cautious approach to investing in industries outside Berkshire’s expertise further reinforces this perspective.