Back on April Fools' Day, there were rumors about Warren Buffett acquiring Tesla (NASDAQ: TSLA) for $1 trillion and taking it over, in what would have been a stunning move for the billionaire investor. But it turned out to be a joke, nothing else. While Tesla is a leading company in the electric vehicle (EV) market, it's simply not the type of stock I would ever expect Buffett to buy, let alone for it to take up a significant position in the Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) portfolio.
Here's why Buffett would likely never own the stock, regardless of its valuation.
Tesla lacks a moat
Competition is inevitable for companies, but some are much better equipped than others when it comes to dealing with it. And for Buffett, that is a paramount issue: he prefers companies that have a defendable, competitive advantage over its rivals that can allow it to outperform over the long run. He refers to this as its moat.
If you look at some of Buffett's favorite stocks, you'll notice they have strong competitive moats that enable them to dominate their respective industries. Coca-Cola is an iconic soft drink company that has a brand that resonates with consumers all over the world. Apple has a loyal following of customers and its iPhones are not only extremely popular, but are also status symbols.
The one car company that Buffett has mentioned in the past as having a similar type of aura is luxury automaker Ferrari, which he says has a "special place" in the industry and is a standout in that respect. But others face significant competition and will have a hard time separating themselves from the pack.
And predicting the future of the industry can be incredibly difficult. "I think I know where Apple's going to be in five or 10 years, and I don't know what the car companies are going to be in five or 10 years," Buffett said in 2023.
Tech isn't within his circle of competence
Another important reason Buffett probably won't own Tesla stock is that it is focused on more than just the automotive industry, with CEO Elon Musk also looking at making robots and being heavily involved with artificial intelligence. Tech isn't Buffett's specialty and while there may be the odd tech company within Berkshire's portfolio, those types of purchases likely haven't been made by Buffett himself, but rather others on his team. And they are also fairly small holdings.
When looking at the top companies within Berkshire's portfolio, there is more of a focus on energy, consumer goods, and financials. While some might call Apple a tech company, it resembles more of a consumer goods company these days as it isn't at the cutting edge of innovation and is more cautious and measured in its growth.
Buffett advocates for staying within your circle of competence and not wading out too far into uncharted waters, where risk is often far greater. That's why I couldn't imagine him buying a stock like Tesla, which loves to focus on new and emerging growth opportunities.
Buffett might not own Tesla, but should you?
If you're a tech investor or are bullish on EVs, then odds are you probably wouldn't see Buffett owning stocks that you might buy, and there's nothing wrong with that. If you're OK with the risk and the growing competition in the EV market, then Tesla may be worth investing in, even if Buffett may never do the same.
Ultimately, it's important to focus on your own needs and strengths as an investor; they won't be the same as Buffett's. And you can use your knowledge to your advantage by buying stocks others may not be as familiar with. Just because Buffett or another prominent investor isn't buying a particular stock doesn't mean that it's a bad one.
Anytime you are investing in a stock, it's important to do your own independent research, and if that research concludes the stock is a good buy and you're confident about it, then you should consider adding it to your portfolio, regardless of who else owns it.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Tesla. The Motley Fool has a disclosure policy.
