Why isn’t Buffett investing in Tesla (NASDAQ: TSLA )? | by Jason Huynh | October 2023

Capital costs and an uncertain future keep the Oracle of Omaha from investing

Photo by Michael Förtsch on Unsplash

I recently read that Musk wanted Buffett to invest in Tesla after Buffett showed great admiration for Musk. I agree that Musk is admirable because Musk really found PayPal, Tesla, SpaceX and so on.

However, Buffett said he also can’t invest in Tesla because of the large capital costs (you need a lot of investment money to maintain an automotive competitive edge) and that Buffett failed to predict Tesla’s market share in 5 years.

In addition, Buffett’s longtime business partner, Charlie Munger, chimed in, saying that Berkshire could have bought Tesla when it had a market cap of $200 million, but now it’s worth $800 billion. So, even if Berkshire did invest, how much could Tesla’s market cap actually grow?

After a bit of research, I can say two things about Buffett’s comments. I agree that Tesla needs a lot of capital to maintain its competitive edge, but I would say that Tesla has a good chance of maintaining its market leadership in 5 years.

Here are my reasons why.

Tesla 2022 Cash Flow Statement Selected
Tesla’s 2022 earnings report

I admit that Tesla’s financial statements are hard to read and it took me quite a while to understand them. But if you read from right to left, you can see on the cash flow statement that Tesla had to increase the purchase of land, buildings and equipment from 3 billion in 2020 to 7 billion in 2022.

In 2020, these investments were financed by debt and a public offering, but as the company became more profitable, Tesla began paying down its debt and began using cash from profits for investments.

Even if you don’t watch the cash move, the one thing you need to understand is that Tesla has to pump a lot of capital into its business.

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