When Tesla announced during its last earnings report that it was considering entering the insurance business (because that’s clearly an organic pivot to making electric cars and batteries), some people were surprised, others weren’t. Supporters of the company, clinging to Elon Musk’s every desperate business model pivot, applauded the idea. “Great way to diversify, Elon,” they likely thought. Skeptics and – well, pretty much anybody else – were immediately critical of the idea, including the Oracle From Omaha himself, Warren Buffett.
Buffett said at Berkshire’s annual meeting that Tesla will struggle if it goes into the insurance business, a field where Buffett just happens to be a bit of an expert, according to CNBC. Musk has been called out in the past (see here and here and here) by experts in fields of study that he claims to understand but doesn’t, and it’s happening yet again.
Buffett said: “It’s not an easy business. The success of the auto companies getting into the insurance business is probably as likely as the success of the insurance companies getting into the auto business.”
As a reminder, Musk told analysts last month that Tesla would be launching an insurance product in May. He claimed that his company has direct knowledge of a person’s risk profile “based on the car” which gives it an “information arbitrage” opportunity. Because, you know, “traditional” non-disruptive auto insurance actuaries don’t take into account what kind of car you drive. Warren Buffett – again, a finely tuned expert in the insurance industry – called Musk on that bulls*it.
“I’d bet against any company in the auto business…” Buffett also commented.
About 1/3 of Berkshire Hathaway’s business is in insurance, including Geico, whose value has risen more than $50 billion since Berkshire acquired it.
And in terms of Tesla getting its insurance product off the ground, PlainSite tweeted out that the company has had the name “Tesla Insurance Services” registered since 2017. According to PlainSite, they have 1 registered agent working out of San Francisco. This compares to Geico, who has 499 agents whose names just begin with the letters A, B and C.
It has one (1) endorsed agent who works out of a shared office in San Francisco.
— PlainSite (@PlainSite) April 24, 2019
On the other hand, insurance is a great industry for playing accounting tricks and collecting cash up front – two things Tesla has been honing its expertise in.