How Much of Warren Buffett’s Empire is at Risk if Elon Musk’s Vision for the Future is Realized?
Warren Buffett recently invested billions into big oil with his $4.1 billion stake in Chevron, which leads us to think that he just not into clean energy any more. In 2014, he invested billions more into renewables, but one would think that if you really cared about making the world a cleaner place, you’d go all-in on renewable energy. This includes Tesla.
In light of Buffett’s investment, Gali Filche from Hyperchange reshared a 2017 video he made titled, Dear Mr. Buffett, Buy Tesla. Gali asked this question: How much of Warren Buffett’s empire is at risk if Elon Musk’s vision for the future is realized?
Gali mentioned that GEICO and BNSF Railway would have to compete with self-driving trucks. Gali also concluded that 48% of Berkshire Hathaway’s revenue was at risk of disruption due to Tesla. After looking over Berkshire Hathaway’s income statement from 2017, Gali noted that the first line of that statement was insurance premium earned.
“These represent about $46 billion of Berkshire’s $233 billion of 2016 annual revenue. Approximately 21% of the total of Berkshire’s sales, and of that $46 billion of insurance premiums earned, about half of them — 56% to be exact — were related to GEICO, whose main business is car insurance. That means, in total, about 11% of the entire revenue of Berkshire is correlated to GEICO as insurance premiums earned,” Gali said. This, Gali predicted, would be an issue due to self-driving cars.
He shared a clip from CNBC of Warren Buffett himself sharing how self-driving cars could hurt GEICO’s business significantly.
“Self-driving cars will be adopted if they’re safer. If they’re safer, there’s less in the way of insurance costs. That brings down premiums significantly. So if the day comes when a significant portion of the cars on the road are autonomous, it will hurt GEICO’s business very significantly,” Buffett said. Gali pointed out that Buffett may think we’re 10 years away from full autonomy, but this will not be the start of the impact on GEICO’s business model.
“We think the impact is going to start happening right now. In fact, Tesla’s already begun offering its own insurance product. Because of their new Autopilot features, their cars are much safer than anything else on the road. Legacy insurance companies are slow to react to this and adjust the rates. Therefore, Tesla had to step in and create their own customized insurance product to accurately reflect the risks and safety of their vehicles. Tesla’s vehicles are only getting safer by the day as the company continues to invest in its Autopilot and autonomous driving software, and even if the car is never fully autonomous, even partial autonomy could result in as much as 90% improvement in safety, or 10×, according to Elon Musk. This would be enough to flip the entire economics of insurance on their head,” Gali said in the video.
Gali also believes that GEICO is at risk of losing almost the entirety of its business as the auto insurance market shrinks during the advent of self-driving cars.
This is just one example Gali gave as to why Warren Buffett should invest in Tesla. One key fact that Gali presented in his video was that two-thirds of Berkshire’s energy generation of the 30,000 megawatts that the company produced in 2016 were related to coal and natural gas. “So, one-third was related to renewables, which is great, and I actually want to give Buffett a lot of credit for pushing renewables in his energy companies. Although, he’s done it questionably with NV Energy in Nevada, kicking out SolarCity.” Gali noted that was a different story for a different time.
“If you think that Tesla’s solar roofs and their vision of a distributed energy system will take off, then that’s going to pose an immediate threat to the entirety of your utility business, or at least compete with them to lower rates,” Gali explained in the video.
Gali’s Thoughts On Buffett’s Investment In Chevron
In a much more recent video — a few days ago — Gali shared his thoughts on Buffett’s investment into Chevron. “You know Warren Buffett — someone I’ve said is an idol of mine, someone I’ve looked up to, I’ve recommended his book, The Snowball, on this channel. He’s what got me into investing,” he said at the beginning of his video.
If Warren Buffet would have spent $5 billion on TSLA when it was $300 a share pre-split, his investment would have gone up more than 10×, Gali pointed out. “I’ve been pounding the table — ‘Warren Buffett, buy Tesla, buy Tesla, buy Tesla! This is the future. We’re all going electric. It’s the next great American brand.‘ And then next thing you know, he bought Chevron.”
This hurt Gali’s heart simply because Gali believes in value investing in the companies you believe in that will change the world, whereas it seems that Buffett is value investing just to make money. It’s as if Buffett doesn’t care about the impact his billions will have on the rest of us.
Gali speaks of the mindset of investors in New York and why he left. “They just live on a spreadsheet, ‘I don’t give a crap what business I’m buying, I just want my investment to go up the most as possible. You know, it’s just about me, my perspective, not about what’s good for the planet, not a systems approach, not thinking about other stakeholders,’ and I just think that’s such a wrong mentality and I think everything about Buffett buying Chevron now leans into that mentality, and that’s why it’s so frustrating.”
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