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Would Warren Buffett Buy Tesla Stock in 2023?

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While you probably don’t need the reminder, it’s been a brutally bad year on Wall Street. All three major US equity indices fell into respective bear markets, with declines from high to low of more than 20%. Meanwhile, the bond market is poised for its worst year in history.

But you won’t find any sulking of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. The Oracle of Omaha understands that steep declines in the broader market are a red-carpet opportunity to buy high-quality companies at a discount. Buffett and his team have invested tens of billions of dollars this year in buying 19 separate stocks.

The $64,000 question is, what stock could be next on Warren Buffett’s buy list?

Warren Buffett at the Berkshire Hathaway Annual Meeting of Shareholders.

Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.

With shares of an electric vehicle (EV) manufacturer You’re here (NASDAQ: TSLA) around 70% below their all-time high set at the end of last year, could this be Buffett’s next buy?

Before we answer that question, let’s take a look at the four factors that could put Tesla on the Oracle of Omaha’s radar.

Here’s what could, in theory, put Tesla on Warren Buffett’s radar in 2023

First, it’s an industry leader – and I’m not just talking about its market capitalization, which tops all other auto stocks. During the third quarter, Tesla accounted for 65% of electric vehicles registered in the United States, according to S&P Global Mobility, a division of S&P Global. Buffett is a firm believer that industry leaders tend to keep winning as long as they have a sustainable moat.

Second, Tesla can maintain its industry-leading position by dramatically increasing production to meet growing demand for electric vehicles. Earlier this year gigafactories in Austin, Texas and Berlin, Germany went live. Although supply chain issues could disrupt production in 2023, it’s possible Tesla could top 1.5 million EVs produced next year after making more than 1 million EV deliveries in 2022.

The third beacon for Warren Buffett and his investment team would be corporate income statements. Tesla has been profitable based on generally accepted accounting principles (GAAP) in each of the past three years. Over the past five quarters, GAAP net income has ranged from $1.62 billion to $3.32 billion. Even though regulatory credits contribute to Tesla’s profits, these emission credits are no longer necessary to achieve profitability.

The fourth and final factor that could catch the Oracle of Omaha’s attention is Tesla’s balance sheet, which ended in September with $21.1 billion in cash, cash equivalents and marketable securities. CEO Elon Musk has suggested Tesla’s board will consider a stock buyback once the US and global economic outlook stabilizes somewhat.

Is Tesla a Warren Buffett Stock?

But are these four factors enough to compel the Oracle of Omaha to work Berkshire Hathaway’s money into Tesla? In my opinion, not a chance – and there are two main reasons for this.

1. Tesla doesn’t have a real moat

For starters, Tesla’s competitive advantages aren’t as strong as its market share would imply. The company’s U.S. and global market share has shrunk as global automakers spend aggressively on electric vehicles, autonomous vehicle (AV) research and battery production.

In the USA, General Engines (NYSE:GM) — a current interest of Berkshire Hathaway — and Ford Motor Company (NYSE:F) allocated $35 billion and $50 billion to research into electric vehicles, audio-visual vehicles and batteries, respectively. By the end of 2025, GM and Ford are each expected to have unveiled 30 new electric vehicle models globally.

To add to this point, even though Tesla is the best-selling electric vehicle in North America, it lacks the history and brand awareness that stalwarts like General Motors and Ford bring to the table. Building vehicles for American workers for more than a century is an intangible benefit that market capitalization simply does not exceed.

Moreover, Tesla’s competitive advantages are already being overturned by new entrants into the electric vehicle space. For example, based in China Nio brought two sedans (the ET7 and ET5) to market this year that offer a range of 621 miles with the industry-leading battery upgrade. It literally and metaphorically revolves around the range offered by Tesla’s flagship Model 3 sedan.

Without a clear moat, Tesla would be no match for Warren Buffett and his investment team.

A Tesla Cybertruck parked in a desert landscape.

The production of the Tesla Cybertruck has been delayed. Image source: Tesla.

2. Elon Musk does not talk about shareholder confidence

The other reason I think there is absolutely no chance of the Oracle of Omaha or his investor lieutenants (Todd Combs and Ted Weschler) buying Tesla stock in 2023 is CEO Elon Musk.

For Buffett, strong management teams are a luxury, not a necessity, as long as the company he invests in is strong. However, if this management team threatens consumer and shareholder confidence or could negatively impact its operational performance, that is a big red flag.

Over the past few years, it has become apparent that Musk is a legal, financial and operational liability for Tesla. Yes, he’s an innovator who helped make Tesla the most valuable automotive company in the world. But he has also drawn the ire of US regulators on more than one occasion and has a habit of over-promising and under-delivering when it comes to new innovations and products.

As an example, Musk proclaimed that Level 5 fully autonomous vehicles are one year away in the past eight years (and counting). He also expected a million robotaxis to be on the road a few years ago (the current number of robotaxis is zero). There’s also the Tesla Semi and the Cybertruck, which have been delayed for years.

The fact is, Musk is too much of a joker to be trusted in a leadership role. Because of this, Warren Buffett and his investment probably wouldn’t touch Tesla shares.

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Sean Williams has no position in the stocks mentioned. The Motley Fool holds positions and recommends Berkshire Hathaway, Nio, S&P Global and Tesla. The Motley Fool recommends the following options: January 2023 long calls on Berkshire Hathaway $200, January 2023 short calls on Berkshire Hathaway $200 and January 2023 short calls on Berkshire Hathaway $265. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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