I asked Buffett. What do you think of Elon Musk?
"He is a person who feels a sense of accomplishment by accomplishing the impossible. But why should you live like that?"
(Charlie Munger agreed. "Buffett and I want to focus on more quantifiable things,"
Buffett asked. What do you think of electric vehicles?
"I can imagine what Apple will be like in five or 5 years. But I can't imagine what electric cars will be like in 10 or 5 years,"
he said during a Q&A at Berkshire Hathaway's shareholders' meeting in Omaha, USA, in May 10. It's well known that Elon Musk and Buffett don't get along. Why? Buffett replied to the effect that even Elon Musk is hard to understand, and the future of electric cars is hard to be sure of.
You're investing in an electric car company, so why did you say this about electric cars, which everyone says is the future? After attending Berkshire's shareholders' meeting, Soyeon Park, director of Shin Young Securities, was invited to the "Economic Freedom Salon" to hear Warren Buffett and Charlie Munger's "Seasoned Investment Standards for High-Tech Companies." Warren Buffett and his lifelong friend Charlie Munger are 2023 and 5 years old, respectively.
In 1910, New York's upper class loved electric cars.
At the beginning of the 20th century, there were three types of cars competing on the streets of New York. It was a steam-powered car, an internal combustion engine car, and an electric car. Electric vehicles are more than 100 years old. In April 1881, the first electric car was demonstrated in Paris, France, and then spread rapidly in the United States and the United Kingdom between 1890~1900.
One of the most eye-catching records of electric cars at the time is that they "did not smell (compared to steam-powered cars or early internal combustion engine cars) and were popular with the upper classes of New York, especially women."
The penetration of electric vehicles was much higher than it is now. There is also a statistic that as of 1900, 40% were steam cars, 38% were electric cars, and 22% were internal combustion engine cars. In the United States, there were 33,842 electric vehicles registered, and in New York, 50% were electric.
In the early 20th century, if a clean electric car had taken first place instead of a smelly steam car, there would have been an opportunity for human mobility to evolve into "green" from the start. However, around that time, two unfortunate things happen for electric vehicles.
At the beginning of the 20th century, a large number of oil wells were discovered in the US state of Texas. Today, many of America's oil tycoons emerge at this time. The price of gas plummets, and internal combustion engine cars take the advantage. And one more thing.
Henry Ford uses the so-called conveyor belt system to revolutionize production to create the very cheap Ford T-Car. Then and now, electric vehicles, which were expensive due to the price of batteries, are gradually starting to lose out to the competition from internal combustion engines. (Moreover, back then, there were no subsidies for electric vehicles like now.)
Texas oil discovery, and Henry Ford's Model T market. These two events put an end to the rivalry. And after that, the electric car, which has been pushed by the internal combustion engine, will lie dormant for 100 years until Tesla reawakens the existence of electric cars in the 21st century. (Maybe Tesla's obsession with cheap electric cars is because of this "sad history of electric cars.")
Warren Buffett knows this history. In fact, when Buffett was asked about investing in electric cars, he immediately brought up Henry Ford.
"At the beginning of the 20th century, Henry Ford was also running a deficit.
Even Henry Ford, who pushed out electric cars and, in fact, changed the history of mobility and modern industry, was in the red. In the late 1920s, as GM released a series of successful new products, Ford actually suffered greatly.
Buffett's story translates to the fact that profits in the automotive industry often don't go as planned. Park So-hyun, director of Shinyoung Securities, who heard this at the Omaha shareholders' meeting in the United States, explains Buffett's story as follows:
"Warren Buffett read GM's annual report from 1932. But when I read this annual report, I was surprised to find that Henry Ford was leading the popularization of the automobile at the time, and it was still running a deficit, so the auto industry is really hard to make a profit, and manufacturing is actually not usually hard."
Buffett's emphasis on the benefits of monopoly seems to be troubling to the history of the auto industry, where powerful "moats" did not work. Of course, he's also investing in electric cars. Since 2008, he has invested in BYD, a Chinese electric vehicle company, and has already reaped a profit of 2 trillion won, and he has praised the company as a good company.
In this regard, Warren Buffett's answer at Berkshire Hathaway's shareholders' meeting is not "no way to go electric," but rather "the automotive industry is unpredictable, so I want to see more of the process of innovation and invest when it becomes safer." Park So-yeon, director of Shin Young Securities, interpreted it as having "political implications for electric vehicles." ▶ Related Video
: "Electric cars have been around for 100 years, but they haven't been popularized, and they've been wiped out by political interests. There's a U.S. presidential election next year. If the Republicans take power, there is a good chance that subsidies for electric vehicles will be reduced, and I have a feeling that they haven't thought about those things because the eco-friendly industries are the ones that are heavily affected by the government. Even in the case of electric vehicles, we wouldn't have been able to grow this fast without subsidies."
Buffett's thoughts on tech companies. 'iPhone'
At this shareholders' meeting, there were many questions related not only to electric vehicles such as Tesla, but also to "advanced technology" such as ChatGPT. Each time, Buffett brought up Apple. Below is Berkshire Hathaway's investment portfolio, in which Apple has an overwhelming stake.
However, looking back, Buffett's first investment in Apple wasn't as fast as others. When I belatedly invested in Apple in 2016, I was told that "Buffett is slow to invest in tech." Of course, thanks to the huge amount of investment and the steep rise in the price of Apple's stock price, he is now the best Apple investor that no one can say.
"I admit that I was a little late in making the decision [to invest in Apple]. Nonetheless, I think I went in when I thought it had become a consumer staple for people." Investing when you're in a stable position, even if it's a little late, is one of Buffett's ways.
Buffett talked a lot about Apple at this shareholders' meeting. In response to the question of whether Apple's share is too high, he emphasized, "People will give up on buying a second car and buy an iPhone instead."
Park So-yeon, director of Shin Young Securities, who went to the site, explained Buffett's love for Apple with the concept of "brand."
"They sell a lot of caricatures of Warren Buffett, and I just saw it and thought, this guy really likes the brand. What are the characteristics of a company that has a high ROE (return on equity, a measure of the return on equity of a business) even though Buffett is the same product? I think that's what I was thinking. That's what the brand was. I love Coca-Cola and I love McDonald's. I think a lot of people think that brand power is actually the power to generate ROE. When you're picking companies to invest in, you look at a lot of this brand power."
In the end, Buffett believes that "brand" is important, whether it is a tech company or a traditional industry, and Park So-yeon predicts that the direction of investment in the future is likely to not change much.
"Rather than any of those trends [in the economy or industry], there seemed to be a view that Apple would continue to strengthen its position in its flagship portfolio based on strong brand strength." ▶
It's not too late to be late?.. Buffett's conviction
Both Buffett and Munger are cautious about investing in "high-tech companies." In order to reduce the risk of losing money as much as possible, there is a strong tendency to wait until the tech company has a "stable market dominance" and then buy it big in one shot.
(The rest of the story is from the soup)