Will Tesla, Inc.’s TSLA full self-driving technology pose a risk to the prospects of one of Berkshire Hathaway, Inc.’s BRKA BRKB portfolio companies? Billionaire investor Warren Buffett was asked this question at the company’s annual shareholder meeting on Saturday.
Tesla A Risk To GEICO? An investor in both Elon Musk‘s Tesla and Berkshire posed a question to Buffett: If Musk succeeds in reducing accidents by 50% compared to human drivers with Full Self-Driving (FSD), wouldn’t auto insurance rates decrease to reflect the reduced underwriting risk? The investor also asked the investment guru whether this would affect GEICO‘s revenues, float and margins.
In response, Buffett stated that if accident rates decrease, the data will reflect it, and consequently, prices will come down.
“There have been a lot of people talk about doing that in the past. I mean General Motors used to be very big in the insurance business and when Uber first started, they used some firm, which now is, I think, confirmed they’re close to bankruptcy … because of taking things out at the wrong prices,” he said.
The billionaire said a 50% reduction in accidents is good for society and would be bad for the insurance company’s volume.
“But you know, good for society is what we’re looking for,” he said.
Buffett pointed out that the number of people killed per 100 million passenger miles driven has declined from 15 during his youth to approximately seven after World War II. It has since fallen substantially to around two, Buffett said, giving credit to political activist Ralph Nader, who crusaded for auto safety.
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At that point, Ajit Jain, vice chairman of insurance operations, asserted that Tesla’s belief that the number of accidents will decrease is certainly demonstrable.
“What needs to be factored in as well is the repair cost of each one of these accidents has skyrocketed,” he said.
“If you multiply the number of accidents times the cost of each accident, I’m not sure that total number has come down as much as Tesla would like us to believe.”
Jain also remarked that Tesla has been considering the possibility of offering insurance directly or indirectly, but thus far, it hasn’t experienced significant success.
“I think … automation just shifts a lot of the expense from the operator to the equipment provider,” he said.
Opportunities In EV Space: Buffett was also asked about potential opportunities in the zero-emission vehicles space, as these vehicles have finally reached the cusp of massive adoption.
He said that massive adoption has been a moving target so far.
“I hope we get there,” he said, adding that he didn’t believe Berkshire brought any special expertise to that field. He noted that vehicle manufacturers were better suited for such endeavors.
“I would certainly not know how to pick the winners in an industry like that, but I’ll be delighted if there are some winners, but don’t count on us for seeing who the winners will be and don’t count on us for predicting when something will happen,” Buffett said.
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