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Why Does Warren Buffett's Bet On Apple And BYD Make More Sense Than Berkshire Throwing Money At Tesla? Fund Manager Explains

Shanthi Rexaline
May 08, 2024

Right after Berkshire Hathaway, Inc.’s (NYSE:BRK) (NYSE:BRK) annual shareholder meeting, Tesla, Inc. (NASDAQ:TSLA) CEO Elon Musk yet again indirectly urged Warren Buffett to invest some of his cash pile in the electric vehicle maker. However, Tesla investor and Future Fund Managing Partner Gary Black doesn’t see this as a possibility.

What Happened: Black stated, “Buffett would not buy $TSLA as an investment – it's not his type of stock,” in a post on X, formerly known as Twitter. 

He explained that Buffett is a value investor, who typically expects growth rates and margins to revert to the mean. Tesla, on the other hand, is considered a growth stock that doesn’t follow this presumption.

Value investing focuses on stocks that are undervalued relative to their intrinsic value at a given time, while growth stocks are associated with companies that can increase their stock prices, revenue, profits, or cash flow at a faster rate than the market.

Black highlighted that Tesla was trading at 70 times its estimated earnings per share for 2024. “At 70x FY'24 EPS, TSLA would likely be the most expensive stock in Berkshire's portfolio, so I don't see it,” he remarked. Another reason for potential pushback could be Buffett’s preference for businesses that can operate independently from the CEO. “He [Buffett] likes businesses that run themselves,” Black added.

See Also: Best Electric Vehicle Stocks

Why It’s Important: Regarding Buffett’s stance on investing in the zero-emission vehicle industry, he expressed skepticism during the shareholder meeting.

Buffett mentioned that Berkshire didn't possess any special expertise in that field, stating, “I would certainly not know how to pick the winners in an industry like that — but I'll be delighted if there are some winners — but don't count on us for seeing who the winners will be and don't count on us for predicting when something will happen.”

What About Apple And BYD? When Black’s social media followers mentioned the significant increase in Apple shares since Berkshire first acquired a stake in the company in the first quarter of 2016, he pointed out that, at the time of investment, the iPhone maker’s stock was trading at 11 times its earnings for the running year.

Interestingly, Berkshire has invested in the Chinese EV startup BYD Co. Ltd. (OTC:BYDDY) (OTC:BYDDF). Black noted that BYD’s shares currently trade at 18 times the estimated earnings for 2024. When Berkshire initially invested in BYD in 2008, at the urging of Buffett’s trusted lieutenant Charlie Munger, the stock was even cheaper, with a P/E ratio of less than 10.

Tesla closed Tuesday’s session down 3.76% at $177.81 and was down 1.60% in Wednesday’s pre-market session, according to data from Benzinga Pro.

Read Next: Warren Buffett Admits No One Knows How To Use Berkshire’s $189B Cash Pile Effectively Just Because ‘Things Aren’t Attractive’ Right Now

This illustration was generated using artificial intelligence via MidJourney.

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