Warren Buffett, CEO of Berkshire Hathaway, recently spoke about the uncertainty and unpredictability of the electric vehicle (EV) market during the company’s annual meeting. According to Buffett, there is no clear winner in the sector, as the industry evolves rapidly and is highly competitive.
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In his remarks, Buffett cited the example of Ford Motor Co.’s success with the Model T, which dominated the automobile market for two decades before the company suffered substantial losses. According to Buffett, this cautionary tale is relevant to Tesla Inc., the U.S.-based EV manufacturer with the largest market share, which faces stiff competition from other companies with funding and supply chain issues.
Tesla’s stock has fallen by 21% in the past year, as the EV market faces growth challenges. Some investors have looked to the startups market for growth opportunities, such as Civilized Cycles, a startup that has gained traction with retail investors on Wefunder.
Reports suggest that U.S. EV startups are struggling to gain a foothold amid declining EV demand and challenging economic conditions. Thomas Hayes, chairman of hedge fund Great Hill Capital, has expressed concern about companies that are losing money and have a low valuation.
Even established players such as General Motors Co. and Ford are experiencing financial difficulties in their EV divisions. GM is aiming to halt cash burn by 2025, while Ford reported a loss of $722 million in the first quarter for its EV division, according to energy market analyst Robert Bryce.
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Currently, Tesla faces challenges such as the need to reduce prices to maintain demand and the impact of raw material inflation on profit margins. There are concerns that federal government subsidy plans could exacerbate these problems.
Although Berkshire Hathaway has extensive holdings in multiple industries, including the automotive sector, Buffett and his associate Charlie Munger voiced caution about expanding their involvement in the auto business any further. They believe the industry is too competitive and unpredictable to guarantee long-term success.
“Charlie and I long have felt that the auto industry is just too tough,” said Buffett. “It’s just a business where you’ve got a lot of worldwide competitors, they’re not going to go away, and it looks like there are winners at any given time, but it doesn’t get you a permanent place.”
Munger agreed, acknowledging the capital costs and risks of investing in EVs. “At the moment, it’s imposing huge capital costs and huge risks, and I don’t like huge capital costs and huge risks.”
Instead, Buffett emphasized the importance of finding more predictable investment opportunities. He contrasted his ability to predict Apple Inc.’s trajectory with the unpredictable nature of the auto industry. “I think I know where Apple’s going to be in five or 10 years, and I don’t know what the car companies are going to be in five or 10 years,” he said.
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