Warren Buffett isn’t buying Tesla shares despite the huge sell-off. Why is that?

Dr James Fox explains the reason why he thinks Warren Buffett isn’t buying Tesla stock despite it having a huge $700bn wiped off its market value.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young black woman using a mobile phone in a transport facility

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Warren Buffett is among the most famous investors worldwide, known for his value-investing strategy. The so-called ‘Oracle of Omaha’ is the chairman and CEO of Berkshire Hathaway and has a net-worth of over $100bn as of November 2022, making him the world’s sixth-wealthiest person.

Value investing is a strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. So why isn’t Buffett buying shares in Tesla (NASDAQ:TSLA)?

The Elon Musk firm has seen $700bn wiped off its market value over the past 18 months, most of it in the past four months. Maybe this electric vehicle (EV) giant is still too expensive.


Buffett’s preferred EV stock isn’t Tesla. The US investor backed BYD in 2008, and the decision appears to have been a good one.

The veteran investor says he only invests in sectors and companies that he understands. As he invests in BYD, I think it’s fair to say he knows the industry. So this can’t be the reason he hasn’t invested in Tesla.

Looking specifically at the last year, BYD — a Chinese automotive firm with a heavy leaning towards the EV market — has fallen 15%. But that’s nothing compared to its peers. Tesla stock is down 65% over 12 months.

And despite Tesla’s huge sell-off, it’s still more expensive that BYD, according to several metrics. For example, Tesla has an EV-to-sales ratio of 4.58 versus BYD’s 2.04.

However, according to earnings-related metrics, Tesla and BYD share similar valuations. The EV-to-EBITDA ratio of Tesla is 21, while BYD’s is 26. In fact, here, BYD appears more expensive. So maybe valuation isn’t the reason?

Well, there’s plenty of uncertainty about Tesla’s earnings going forward. Growth is slow and margins are coming under pressure. That’s very concerning for investors and it makes the above calculations slightly meaningless. 

Tesla had boosted the best margins in the sector, but with price cuts in the US and extended sales incentives in China, margins are likely to come under substantial pressure. Despite these incentives, Tesla still missed its delivery targets in the final quarter.

As a value investor, Buffett looks for companies that are undervalued and offer him a margin of safety. And with concerns about Tesla’s performance over the next few years, valuation could well be the issue.

Could there be another reason?

Buffett tends to invest in stable and occasionally unexciting companies. I’d wonder if Musk might be a little too ‘eccentric’ for the 92-year-old investor. After all, Musk once said that he thought his own company was overvalued. Some will say he’s a genius, but he’s probably partially responsible for the volatility we’ve seen this year.

It’s also worth considering that now might not be the right time for Buffett. In a baseball analogy, he once said that “the trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘swing, you bum!’ ignore them“. 

In other words, Tesla might not be in that sweet spot right now.

For me, I’m keeping a close eye on Tesla but at it’s current price, it’s not for me. I think there a several Chinese EV companies — including NIO and Li Auto — that look more promising investments.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has positions in Li Auto and Nio. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black father holding daughter in a field of cows
Investing Articles

A FTSE 100 share that could create generational wealth

Investing in FTSE shares can help individuals pass down a significant chunk of cash to their children and grandchildren, data…

Read more »

Investing Articles

Here’s what the BT share price could mean for passive income investors

The BT share price has been falling for years, but that might be about to change. And dividends could be…

Read more »

Investing Articles

At £4.76, is the Aviva share price a steal? Here’s what the charts say!

Aviva has outperformed the Footsie over the last year. But is there still value in its share price? This Fool…

Read more »

Photo of a man going through financial problems
Investing Articles

Does a 43% price drop make this undervalued UK stalwart one of the best cheap shares to buy now?

After losing a third of its value of the past five years, this might be one of the most undervalued…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

My top 3 picks today for a £20,000 Stocks and Shares ISA

Here are three very different investments to consider for a Stocks and Shares ISA, covering both the UK and US…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The Darktrace share price has been surging — and it could climb higher

I think the Darktrace share price could have more room to run. Despite the competitive AI industry, the firm looks…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

With its 7% dividend, should I be watching the Aviva share price?

Dividend investors will struggle to find many companies with a yield above 7%, so should the Aviva share price be…

Read more »

Investing Articles

Could this be one of the FTSE 100’s best cheap dividend shares?

Looking for the best dividend growth shares to buy? Our writer Royston Wild thinks this FTSE 100 housebuilder might well…

Read more »