Berkshire Hathaway Executive Director Warren Buffett highlighted the uncertainty in the electric vehicle (EV) market during the company’s annual meeting. Buffett stated that there will be no clear winner in the industry because the industry is highly unpredictable and subject to constant change.
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Buffett reflected Ford Motor Co.A dominant position in the automobile market years ago due to the success of the Model T. But two decades later, the company suffered significant losses. This historical example serves as a cautionary tale Tesla Inc., which holds the largest market share of any electrical appliance manufacturer in the United States. However, Tesla is facing increasing competition, although its competitors have not yet caught up to Tesla’s position due to supply chain and financing issues.
Tesla is down 21% over the past 12 months. As the EV market and manufacturers like Tesla continue to struggle for growth, some retail investors have looked to the startup market. For example, Civilized Cycles launched on Wefunder and has seen significant traction from retail investors.
Recent reports show that US EV startups continue to burn cash without showing tangible progress against a challenging economic backdrop marked by declining demand for EVs. Thomas Hayes, president of hedge fund Great Hill Capital, expressed concern about companies that are losing money and have low valuations, highlighting the vulnerability of EVs in this regard.
Even established players like General Motors Co. and Ford are struggling financially in their EV divisions. GM, despite aiming to end cash burn by 2025, is struggling in this area. Ford reported a first-quarter loss of $722 million for its EV division, which translates to more than $66,000 per vehicle, energy market analyst Robert Bryce revealed.
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Tesla also faces challenges, including the need to lower prices to keep up with demand and the impact of raw material inflation on profit margins. The federal government’s subsidy programs under the Inflation Reduction Act can exacerbate these problems.
Berkshire Hathaway has large stakes in various industries, including a dealership group with more than 100 franchises representing 27 automakers in 10 states. But Buffett and his trusted partner Charlie Munger have made it clear that they are not inclined to further expand their involvement in the auto business.
Buffett expressed his long-standing belief that the auto industry is a huge industry, saying: “Charlie and I have felt for a long time that the auto industry is too tough. It’s just a business where you have a lot of competitors all over the world, they’re not going to go away, and there seems to be winners at any moment, but that doesn’t give you a permanent place.
The sentiment resonates with their cautious approach to venturing deeper into the industry, despite their current holdings, which include approximately 40 million shares of General Motors. This is down from the 50 million shares they hold in 2022.
Munger echoed Buffett’s sentiments, acknowledging the significant growth of electric vehicles but emphasizing the capital costs and risks involved.
“The electric car is coming big time and it’s a very exciting development,” he said. “Right now it’s huge capital expenditure and huge risk, and I don’t like huge capital expenditure and huge risk.”
Instead of embracing the automotive industry more, Buffett emphasized the importance of identifying opportunities more clearly. He contrasted his confidence in predicting Apple Inc.’s trajectory in the coming years with the unpredictable nature of car companies, saying: machine companies will be in five or 10 years.”
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This article Warren Buffett says the electric car market is too difficult to solve, there are no clear winners and too much competition originally appeared on Benzinga.com.
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