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So today i want to share with you guys why if warren buffett bought tesla stock i’m talking buy five ten billion dollars worth of tesla stock i want to share with you why that could be one of the smartest investment decisions warren buffett has ever made in his investing life and that is saying a lot because this is the oracle of omaha we are talking about all
Right and here’s the best part whether warren buffett made money or lost money on the position it would still be one of the smartest investments he ever made that’s why we’re gonna get into this video now first i just wanted to dispel a couple very popular things that some people might say okay they may say tesla’s balance sheet that’s not good enough silly jeremy
No way warren buffett’s gonna buy tesla with their balance sheet well if you saw yesterday’s video which kraft heinz is one of warren buffett’s biggest investments i think is around us six biggest investment right net video we went ahead and we looked at kraft heinz balance sheet and it’s arguably one of the worst i’ve ever seen in my life we’re talking about a
Company that’s got about 1.3 billion dollars in cash but there’s a company that has around 31 billion dollars in long-term debt that is absolutely incredible guys 31 billion dollars in long-term debt and 1.3 billion dollars in cash one of the worst i ever seen it makes tesla look like they got a pristine balance sheet honestly okay tesla right now has about 3.6
3.7 billion dollars in cash on their balance sheet and they have about eight point four billion dollars in long-term debt and here’s the best part tesla just became profitable very recently within the past few quarters so as tesla grows over time and should become more and more profitable guess what that balance sheet should strengthen up more and more as time
Goes on down the road all right now some people might also try to say well tesla’s probably too volatile of a stock for warren buffett to buy well let’s think about it the kraft heinz company one of his biggest investments just felt 27 percent yesterday okay that it makes even tesla look like it’s not that volatile if we look at warren buffett’s biggest investment
In the entire stock market right now it’s apple stock right look at apple sark this is just looking at a one-year chart of apple stock you’re gonna see a stock that’s been anywhere is in the 140 dollar range to 230 plus dollars and you’re gonna see apple stock has just moved up and down big throughout the course a year you can even look at something like a wells
Fargo warren buffett’s other biggest investments well at wells fargo’s for instance has been a very volatile stock this is once again just looking at a one-year chart and look at how volatile our stock like wells fargo has been so i think the notion that old warren buffett might not want to buys tesla stock because it’s got doesn’t have a good enough balance sheet
No he’s bought plenty of stocks that have way worse balance sheets and tesla ii it might be too volatile absolutely not you look at a lot of warren buffett stocks they’re very volatile by the way volatility for an investor such as warren buffett of value investors it’s absolutely a great thing because you love it as a value investor when your shares can dip huge
Right because you get to buy for very very cheap all right so that’s just a good thing know if you’re not familiar with warren buffett’s company that he owns or your loans part of right he’s got this almost all his wealth and his company name berkshire hathaway berkshire hathaway basically has two business segments all right on one side you have berkshire that owns
Pretty much a hundred percent of those businesses and they get all the profits they can do whatever they want with that money all right and then you’ve got the other side which is percentage own company so companies they made own 5% or 10% of or 20% of and that’s kind of what i suggest they do with tesla they buy a percentage of tesla they maybe buy five billion
Dollars worth of tesla stock or ten billion dollars to buy a percentage of tesla stock all right and basically those percentage owned companies that can make money two ways one is through dividend income most of his companies he owns stocks in right paid to him out dividends and two if they go to sell someday hopefully they can sell for a much steeper price than
What they paid when they went ahead and bought it that’s berkshires business they got the hundred percent owned businesses and then they got their partial owned businesses all right no let’s start getting into us so warren buffett’s main cash cow business is geico pie phone away geico is their main cash business which is honestly an insurance company at the end of
The day is slow do you guys probably have geico for your insurance out there geico is a company that does somewhere between 25 and 27 billion dollars worth of revenue and imagine the type of profits that geico produces each and every quarter that warren buffett basically can just go ahead and invest that money right this is cash cow business and if we think about
Tesla if we think about tesla we don’t just think about all their there are electric vehicles but we’re thinking autonomous driving and how much that technology is going to change the game over the next three seven years in how most tesla cars over the next few years will start to become fully autonomous we’re talking level four level five autonomy within just a few
Years and this is going to be a very bad thing for geico’s business overall guy code i cook it’s a ton of their business from car insurance okay and warren buffett has specifically cited this before that self-driving cars will be a negative to auto insurance companies he explained that in an interview over a year ago and so you’re looking at one of berkshares cash cow
Businesses being hurt substantially by autonomous driving because basically once we get autonomous fleets an amount of accidents that are going to happen is going to be substantially less basically wants most cars out there are autonomous the amount of accidents that happen are gonna go down substantially when you have the amount of accidents go down substantially
Guess what geico is not gonna be able to charge nearly the premiums as they used to charge back in the day as in right now which means geico is going to become less and less of a cash cow business in the future and that is a bad bad thing for berkshire and their business model overall okay that’s not it they also own a railway burlington northern santa fe warren
Buffett bought this business quite a few years ago as a business that brings in around 20 billion dollars a year in revenue as we’ve seen with the tesla semite these semis can become fully autonomous in the future meaning they probably won’t even need drivers and they’ve even talked about things like the capability to convoy tesla founder elon must reveal that the
Tesla semi unveil that the truck can work in conve mode with a three truck conve beating not only traditional diesel trucks but also rail transport in terms of cost per mile price it can do 85 cents per mile with diesel only able to do around a dollar 25 at today’s gas prices and you could think about it this way imagine the improvements tesla and elon musk are
Going to make in the future as far as this cognitively mode and imagine how much of a cost advantage maybe this can be in a five-year span or ten year span versus railroads and so this is kind of a little further outplay but if you’re looking at you know five years out or ten years out this is a big competitive threat to all real companies now hyper changed it great
Video recently about the stagnation fallacy which basically goes into the fact that sometimes people think like things are just gonna stay the same and there won’t be major improvements if you look at an industry like the real industry there isn’t been any major improvements in decades and decades and there aren’t gonna be in the real industry however an autonomous
Driving battery technology there’s mass improvements going on tesla’s change in the game as far as that goes they’re pushing things so much faster than anybody expected that there’s no such thing as a stagnation fallacy with tesla because they’re just going to get the cost down more and more and more and if you’re talking about 85 cents a mile imagine what the cost
Advantage can be in three years from now five years from now ten years from now the real players are gonna be at a real risk of having their businesses hurt quite a bit by things like the convoy mode okay then you look at lubrizol which is another huge company that berks your owns this company throws off billions upon billions of dollars each year around six point
Five to seven billion dollars per year this company is a specialty chemicals company for the transportation industrial and consumer markets these products include additives for engine oils and other transportation related fluids additives for industrial lubricants and additives for gasoline and diesel fuel gasoline and diesel fuel will likely become less and less
Relevant as the years go on as we can get electric semis out there and then as more and more folks start getting electric cars gonna make oils and gasoline’s less and less relevant as time goes on so you got another major business that is at a real risk of being impacted in a very negative way because of tesla and the whole electric wave you even look at a company
Like they bought a big ownership stake in pilot flying j pilot flying j they get the majority i far and away the majority of their revenues from diesel fuel and from people basically gassing up their cars so warren buffett has all these major major investments and these major companies he owns that basically produce of all this cash right and these companies are
Really in the crosshairs of tesla either directly or indirectly and how they’re gonna be threatened by tesla over time and this is why it makes sense for warren buffett in my opinion to just go out there and buy five or ten billion dollars worth of tests of stock okay the reason is it’s hedging a position at the end of the day which means you’re going to basically
Offset some of your potential losses are some of your gains out there we have many of warren buffett’s businesses potentially being hurt a lot over the next five to ten years basically directly or indirectly because of tesla and the way they’re changing the game so warren buffett can just like crosses fingers and say i hope they don’t make it or something like that
And maybe they fail and electric cars fail and this whole change never happens right but guess what every single day that goes by is becoming more and more of a reality that this is happening this is the way the world is going and ice vehicles are the thing of the past and electric vehicles are the now in the future and so warren buffett’s in a position where he
Could buy a five or ten billion dollar position in a stock like tesla right get that position built and then okay let’s say tesla succeeds and you know the stock goes up to thousands of dollars in the future you know mass amounts of electric cars are out there in the future you know by you know let’s see five or 10 years from now out pretty much everybody’s buying
An electric car whether it be a test or some other kind the solar business becomes a big business and things like that right great he makes a ton of money on those tesla shares but guess what his other businesses will be hurt and so he’s going to lose some profits but he’s hedged his position however let’s say tesla does succeed and he’s got no position well then
He’s stuck in a position where he doesn’t get the upside with tesla stock and number two all those businesses are hurt now let’s say on the flip side he buys five or ten billion dollars a tesla stock and let’s say tesla somehow just fails which i don’t think tesla can fail at this point in time i think they’re starting to get to be a level where they’re too big
Also warren buffett could go ahead and pump money into them if you really wanted to if he had a direct investment and he wanted that investment to succeed he’s got plenty of money they got 100 plus billion he can you know loan it out to tesla and get them through whatever they need to get through right but let’s say whatever reason tesla fails you know must fails
Tesla fails right okay he loses five or ten billion dollars but guess what those other companies are that they’re they’re gonna do great in the future because obviously the electric wave would die down in a major major way so it would be a very intelligent hedge on warren buffett’s part to say hey you know what the tesla’s going to indirectly or directly affect
A ton of my companies very negatively let me go ahead and buy a position in it or no let me not buy a position in and let’s just who watch it happen and hope for the best right that’s a tough position so i think it would be a very very intelligent move by warren buffett i know he’s not the valuation on tesla and that’s fine at the end of the day it’s not really
About making so much money for him it’s just about hedging that position in case tesla really becomes the big bad beast in the future okay i hope you guys enjoy this let me know what you think about this in the comments section thank you for watching have a great day
Transcribed from video
Warren Buffett Should Buy Tesla Stock Heavy! Elon Musk 😁 By Financial Education
