During the 2019 Berkshire Hathaway Annual Shareholders Meeting in Omaha, Nebraska, finance titan Warren Buffet expressed his thoughts about Tesla’s online sales strategy and Elon Musk’s plans to start an auto insurance service for its electric cars.
While Buffet admitted that the practice of selling cars online has merit, he noted that such a strategy would not be enough to destroy traditional auto dealers, particularly those who take care of their clientele. Tesla has made it a point to remove dealers in its business model, with the company operating every one of its physical stores across the globe.
“Using the internet to shop for cars is like, you know, using the internet for shopping for everything. It’s another competitor, and there’s no question that people will look for better ways. It’s another competitor, but I don’t think it destroys the auto dealer who takes good care of the customers and is there to service the customers. It’s not an overwhelming threat, but it’s obviously something that’s going to be around,” he said.
The Berkshire Hathaway CEO was more cautious with regards to Elon Musk’s plan to introduce an insurance program for Tesla’s electric cars. The Tesla CEO confirmed the upcoming insurance program during the company’s first-quarter earnings call, and he has since provided a few brief details about the initiative. Among these is the idea that Tesla will be able to price its customers’ insurance accurately due to driving data gathered from customers. Buffet expressed a word of caution to Elon Musk in his reply.
“Actually, General Motors, the company, for a long time, (had a service) called motors insurance company and various companies have tried it. I would say that the success of the auto companies getting into the insurance business is probably about as likely as the success of the insurance companies getting into the auto business. I worry much more about progressive than all of the auto company possibilities that I can see getting into the insurance business. It’s not an easy business at all. I would bet against any company in the auto business being any kind of an unusual success,” he said.
Warren Buffet’s warnings to Elon Musk about the auto insurance business is coming from a place of authority. GEICO, one of the most notable auto insurance services today, is a wholly-owned subsidiary of Berkshire Hathaway, which Buffet leads. Nevertheless, Elon Musk might know a thing or two about difficult businesses. Over his career, Musk started several disruptive companies, from Zip2 and X.com (which later became PayPal) to Tesla and SpaceX. All of these companies required Musk to work himself to the bone, but all of them saw success. The auto insurance business might not be easy, but a private space enterprise and an electric car company are not simple endeavors either. With this in mind, it might be too early to discount Tesla’s insurance initiative just yet.
Watch Warren Buffet talk about Tesla in the video below.