Elon Musk has suggested that Warren Buffett should invest in Tesla, calling it an “evident manoeuvre”. However, this suggestion is far from self-explanatory.
Despite having a record $189 billion amassed by Berkshire Hathaway (to which I am a shareholder), putting that sum in Tesla appears dubious. Buffett has communicated displeasure in the automobile business in the past year, describing it as “overly complex”. Though he saw a steady future for Apple in the next decade, he didn’t have the same certainty for key automotive manufacturers.
At present, Berkshire has a long-held investment in China’s EV firm BYD, which was economically inexpensive at the time of purchase in 2008. Presently, the shares of BYD are being traded less than 19 times their predicted earnings, with a price-sales proportion of less than one.
Contrastingly, Tesla’s stocks are being traded almost 70 times their projected earnings, more than six times their sales. Though Tesla’s value has more than halved since its peak late last year, it’s still not a bargain.
Buffett doesn’t strictly adhere to valuation ratios. Charlie Munger, his late former ally, persuaded him that it’s wiser to purchase an impressive company at a reasonable cost rather than a decent company at an impressive price. However, Tesla’s current situation—slashing prices, dropping sales, mass redundancies, amplified competition—seems far from impressive. It’s highly doubtful Buffett would see things differently.