If anyone was going to give one of the world's most renowned investors unsolicited investment advice, it's probably not surprising that that someone was Elon Musk.
After Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) reduced its position in Apple, Musk went on his social media platform X, formerly known as Twitter, calling on Warren Buffett to buy shares of his company Tesla(NASDAQ: TSLA).
Musk said Buffett taking a stake in Telsa was "an obvious move." Let's look at why that absolutely, positively won't happen.
Buffett's investment style
Warren Buffett has been one of the most successful investors in the world. He took over failing textile manufacturer Berkshire Hathaway in 1965, which he later turned into a holding company for his various private and public investments.
A disciple of famed value investor Benjamin Graham, Buffett altered Graham's strategy with the help of Charlie Munger to invest in great companies at fair prices and to hold onto them for a very long time.
Buffett summed up his investment philosophy nicely in his 1996 letter to Berkshire shareholders, saying the goal of investors should be to find companies with easily understandable businesses whose earnings are almost certain to be significantly higher five, 10 and 20 years from now. He added that these aren't easy companies to find, but when you do, buy a meaningful amount and hold on.
Buffett likes easily understandable businesses, which is why he has tended to shy away from technology companies in the past. He has admitted that he missed out on Alphabet and Amazon because he did not understand their businesses and staying power well enough. At the same time, his investment in IBM didn't work out as planned, as the company ended up facing more competition than he originally foresaw.
Now Berkshire has had a lot of success with one tech investment. That investment was in Apple, which remains Berkshire's largest position. However, Buffett didn't take a position in Apple because of its cutting-edge technology; he bought it for its brand power. Much like his investments in Coca-Cola or Kraft Heinz, this investment revolves around the popularity of the company's products and consumers' unlikely switch because of brand loyalty.
Why Tesla isn't a Warren Buffett stock
If Tesla was simply an electric vehicle (EV) maker trading at what Buffett thought was a reasonable price, he might buy the stock. In fact, Berkshire still holds an investment in Chinese EV maker BYD. Buffett originally took a stake in the company back in 2008.
However, Tesla is not just an EV maker, nor is it valued as one. A car business is easy to understand, and Buffett has made investments in the industry over the years.
An investment in Tesla is more about Musk's vision for the future. That involves things such as self-driving vehicles, robo-taxis, artificial intelligence, charging networks, super-computers, gigafactories, and robots.
That makes Tesla a difficult business to understand. In addition, investors don't really know what part of Tesla's business will be its largest contributor ten years from now. In fact, on Telsa's most recent earnings call, Musk said he believed that Tesla's humanoid robot Optimus would become the company's biggest business in the future.
Image source: Getty Images.
Tesla has the fervent brand loyalty that Buffett likes in his investments, but Tesla's numerous ventures outside its current core EV brands will undoubtedly keep Buffett away. The fact that the company is worth more than most other top automakers combined also likely doesn't fit into his valuation framework.
Investing in Berkshire Hathaway and Tesla
Now just because Tesla isn't right for Warren Buffett doesn't mean it will be a poor investment in 10 years. Musk has shown himself to be a visionary, so it would be best not to count him out. One thing is for sure: The Tesla of today will likely look very different from the Tesla 10 years from now. The stock is currently well off its highs due to waning EV demand, but an investment in Tesla will continue to be about a future that goes well beyond just EVs.
Berkshire Hathaway, meanwhile, will also likely look different in 10 years, given that Warren Buffett is now 93 years old. Greg Abel has been tapped to succeed him as CEO, and the 25-year Berkshire veteran is expected to keep Buffett's same investment philosophy and has already taken over many of the day-to-day investment roles.
I'd expect more of the same from Berkshire, which is to continue to invest in great, easily understandable businesses that compound over the long term. This should lead to continued outperformance from the stock. Just don't expect Tesla to be one of those investments.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, BYD, Berkshire Hathaway, and Tesla. The Motley Fool recommends International Business Machines and Kraft Heinz. The Motley Fool has a disclosure policy.
