During Saturday’s Berkshire Hathaway annual shareholder meeting, Warren Buffet was asked a question about investment opportunities in the zero emission automotive space. Buffet plainly responded that the automotive industry “is too tough.” As an example, he described the successes and failures of Henry Ford.
From Buffet’s perspective, Henry Ford “owned the world” in 1920. The Ford Model T was the best selling car in the world. And Ford was the richest person in the world, with a net worth of $1.2 billion. In 1914, Ford even doubled the wages of his factory workers to $5 per day to reduce turnover and insure that Ford workers earned enough to purchase the cars they were building. This wage increase had far reaching consequences for the auto industry as well as the American economy.
Yet, in 1927, automotive industry leadership already had turned. General Motors surpassed Ford as the largest automaker in the world that year. In 1941, GM reported a net profit of $381 million. Ford reported a net loss of $12.5 million.
It is also instructive to recognize that from 1927 to 2007, GM remained the largest automaker in the world. But in 2008, Toyota took the sales crown as GM teetered toward its eventual bankruptcy in 2009. Years prior, a bankrupt GM seemed unfathomable. As Buffet noted, GM’s 1932 annual report stated that the company had 19,000 dealers. Today, the entire auto industry in the U.S. only has 18,000 dealers.
For Buffet, all of this are examples of the difficulty of picking future winners in the auto sector, irrespective of today’s advancing industry electrification. Buffet warns that global automakers will not cede automotive leadership to any singular automotive competitor like Tesla. Additionally, he does not believe that any one automaker ever will own the global automotive sector.
My views about the auto industry have transitioned over the years, and are now similar to Buffet. There was a time when I believed that Tesla possessed insurmountable advantages. This is why I invested in Tesla shares in 2018 (I no longer own any Tesla stock, however). I now recognize that the company possesses no significant advantages over many legacy automakers other than the advantage of being first to scale production and sales of electric vehicles. Yet, “first” does not guarantee “forever” in the automotive business as we learned about Ford in the 1920s.
For me, an Elon Musk analogy to Henry Ford was described well in a tweet I discovered recently. If you don’t know the story of the Ford Edsel, it is a cautious tale that there are no “sure bets” in the automotive industry.
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.