Is Warren Buffett Secretly Buying Billions of Tesla Stock (TSLA)?

Hey everybody, Rob Maurer here for today's second episode, so make sure you didn't miss the first one. We talk about the movement in Tesla stock, the upgraded note from Morgan Stanley, and a couple other topics as well. But this topic I did want to separate into its own episode, I think it's kind of unique. I was hoping to avoid it, it's very speculative, but because there is some press coverage on this, we're going to talk a little bit about if Warren Buffett and Berkshire Hathaway have potentially made an investment in Tesla stock. As a preface for why that would be important, obviously Buffett manages billions of dollars, they have the ability to take significant stakes in companies. So as we've been talking about with the S&P 500 inclusion, if Berkshire Hathaway did acquire a significant stake in Tesla, that would further reduce the amount of float shares available, probably pretty significantly increase the stock price while all those shares were being purchased, and then perhaps most significantly, Tesla would gain that stamp of confidence on their valuation from a very widely respected investor in Warren Buffett. This would be even more significant in Tesla's case because Buffett has been not all that positive in the past on Musk or on Tesla as an investment. Alright, so if that's the case, why are we even talking about this? Well, today Electric posted an article with the title of quote, Tesla surges to near record high on mysterious new investor, buying big, end quote. They then go on to cite a series of tweets from Tesla investor Frank Pelin, who I am familiar with, I think he does really great work in general, and these tweets go down a pretty big rabbit hole that we're about to go all the way into. So for a while now, Frank has been tracking Tesla related changes to 13 F filings. 13 F filings are quarterly filings that are required by the SEC for institutional investment managers with at least $100 million in assets under management disclosing their equity holdings. So from these filings, you can get a sense for who has sizable positions in Tesla stock. And if you look at the changes, you can see how those positions have changed over time. And if these big institutions are buying or selling. So Frank noticed that at the end of Q2, all these investors, and he includes Elon Musk in here, owned about 155 million shares of Tesla. So post split, that's about 774 million shares. And then he's seeing 687 million shares for the Q3 13 F filings. So that's a reduction of about 87 million shares. And then of course, Tesla raised capital that added about 10 million more shares. So Frank's question then is, okay, where did those 97 million shares get sold to if it's not to these large institutions? 100 million shares is, you know, $40 billion. That would be a lot to end up in the hands of retail investors or smaller funds that don't have to make this disclosure. And that's where some recent news from Berkshire Hathaway comes in. So this missing 100 million shares is where the story starts to generate from. Frank later did find that Vanguard had actually not filed their 13 F yet. So he says that actually brings the variance from 100 million shares down to 60 million shares. That's still a pretty significant amount to have unaccounted, but keep that number in mind as we shift over to Berkshire Hathaway here, and we will come back to it. So the question at this point is then, where did these shares go? And this is where things get really interesting because a couple of days ago, Business Insider had an article that pointed out in the most recent 13 F filing for Berkshire Hathaway, they included a line in that document that said, quote, confidential information has been omitted from the public form 13 F report and filed separately with the U.S. Securities and Exchange Commission, end quote. Okay, pretty interesting. Business Insider says this has actually happened before with Berkshire Hathaway when they were taking stakes in Phillips and in IBM. Business Insider reached out to David Cass, who's a finance professor at the University of Maryland. He's apparently followed Buffett for more than 30 years. And he said, quote, he is undoubtedly building a large position now and may reveal it in his next 13 F. Buffett has received confidentiality treatment several times in the past, end quote. An analyst at Edward Jones covering Berkshire Hathaway gave them a similar statement saying, quote, I suspect that Berkshire is building a large position in a public company and they would like to continue to do that before disclosing it, end quote. All right, so we've got missing Tesla shares and then we have this mystery company being added by Berkshire Hathaway. Things then get even more interesting if we hop back into a little bit more math here. So in the Business Insider article, they mentioned that in Berkshire Hathaway's 10 Q, so the company's quarterly earnings filing, they say that they have $245 billion invested in equity. And for some reason that excludes their investment in Kraft Heinz. So that is notable and we'll come back to that point. But Berkshire's 13 F filing from the same point in time, which remember breaks down all their equity holdings, only shows a total value of $229 billion. So knowing that, we'll flip back over to Frank. He posted in a blog post titled, quote, is Tesla Berkshire Hathaway's new mystery investment, end quote. And I'm just going to read a section here because I think it's the clearest way to explain this. First off, he just mentions Twitter user at S17 Scott and TMC user The Kiwi for pointing out to him this Berkshire discrepancy. Then goes on to say, quote, according to this Business Insider article, there is a $25 billion difference between the value of the portfolio Berkshire Hathaway declared in its 13 F and its 10 Q, 220 billion versus 245 billion. In actuality, they declared 245 and a half billion in their 10 Q and 229 billion in their 13 F, a difference of 16 and a half billion. The Business Insider article also mentions a $6 billion investment into five big Japanese trading companies made over a 12 month period, which was made public in early August, and which supposedly explains part of the disparity between the 13 F and the 10 Q. This seems to be true because there is also a disparity of $5 billion between Berkshire's second quarter 13 F and 10 Q. In other recent quarters, the differences were $5 billion, $5 billion, and $6 billion. So the current 16 and a half billion dollar difference is definitely not normal, end quote. So the logic that then follows is, okay, if there's a 16 and a half billion dollar variance and five to six billion of that is from these other investments, there's still $11 billion unaccounted for. From there, we get to bring in another accounting rule, which is that if a company owns more than 5% of a publicly traded company, they need to disclose that. That's a completely separate thing versus these 13 F filings, and Berkshire Hathaway has not made any disclosure like that. So if there's an $11 billion investment that's being hidden here on the 13 F, it needs to be less than 5% of the market cap of the company, meaning it needs to be at least a $220 billion company. So on the U.S. exchanges, there are only about 25 companies that are above that threshold, and Frank has done some research and found that Berkshire Hathaway already owns positions in nine of them. They are also one themselves, so about 15 remain. So based on some speculative math that we're actually going to look at a little bit closer here in a second, it's starting to look like there's a decent chance that, okay, there's missing Tesla shares. Berkshire is not disclosing something. If they've got an $11 billion position sitting there at the end of Q3, that would have been about 25 million shares of Tesla. So that would go a pretty long way in explaining where those missing roughly 60 million shares had gone. So that's basically what Frank is saying in this blog post. That's what Electrek has picked up, and I'm guessing now that Electrek has picked it up, others will start to pick it up as well. I think it seems like some pretty decent speculation based on the information that we have presented so far, but now I want to approach the counter arguments. First, there are two corrections that I want to make to the math that has been presented so far. The first is on that $11 billion number, which was used to calculate the $220 billion market cap threshold. So remember, that $11 billion number came from the variance between the 10Q and the 13F. Frank said it was $245 billion versus $229 billion, with Business Insider then saying $6 billion was explained by foreign investments, leaving roughly $10 to $11 billion unexplained, which Frank then validates by looking at the past variance between the 10Qs and the 13Fs, showing that the last few quarters have varied by $5 billion, $5 billion, and $6 billion, respectively. But the comparison being made here is actually faulty. There was a key detail that was missed. Remember, Business Insider said that the variance between the 10Q and the 13F was $245 versus $220 billion, not $229 billion. The reason they lowered that to $220 versus the $229 that Frank has used is because the $245 billion excludes the invested equity for Kraft. So remember earlier I said we'd come back to that? Here we are. If we exclude that from the 10Q, we also need to exclude that from the 10F, and Frank has missed that step. So if we correct for that, the actual 13F is about $219.1 billion versus the 10Q at $245.3 billion. So the variance there is $26.2 billion. Business Insider rounded that to $25, but you can already see that $11 billion number falling apart because there's a $26 billion variance here, and if only $6 billion of that is explained by foreign investment, then there's still $20 billion unaccounted for, not $11. You might then say, oh, well, that actually explains it better because then there's a $20 billion gap there. Maybe they've taken that size of a position. That would pretty much have to be in Tesla. That'd be about 45 million shares at the end of Q3, and that would explain all the variance. The problem then arises when we look at the past quarters. So unlike the blog post said, the variances for those past quarters are not $5 to $6 billion. They're actually $13 to $16 billion, with the Q2 variance being about $15.5 billion, the Q1 variance being about $13.3 billion, and the Q4 variance being about $16.5 billion. And that's where I think this whole theory falls apart to some extent because, okay, if there's $26 billion unexplained right now, and we thought maybe $6 billion of that could be explained by these foreign investments, well, what about the remaining $10 billion in those previous quarters? Where is that at? Why don't we know about it? And if we're about to learn where this, you know, missing $20 billion is, why didn't we already know that for these past quarters? This doesn't make it completely worthless. We did still see a really big increase in the difference between Q2 and Q3. That math actually did end up working out to be about $11 billion. So I'm not saying this rules out an investment of that size, or that it can't be an investment in Tesla. I'm just saying that the math as it was presented before is not necessarily as clean as it seemed to indicate. So that's my first tang up here. The second is with the number of shares that seem to be missing. The first is that it started off as 100 million, then it went down to 60 million on Twitter, then in the blog post for some reason it's now saying about 50 million. So big chunks of that original number have already been explained. Who knows what else we might be missing. Declining short interest was the first thing that came to mind for me. For shares that are sold short, effectively they have to be bought twice because they're borrowed and then sold again. So when a short sale is covered, that effectively removes a share from circulation. So I looked at this a little bit more closely. Frank's process did actually account for it. So at the end of Q3, September 30th, short interest was 57.1 million shares. So that would match what I would put there. But for Q2, they wouldn't match. He's got 11.9 million. Post split, that would be just shy of 60 million. But the actual short interest at the end of Q2 was just shy of 70 million. So that's a 10 million share variance. Maybe that's what moved Frank's number from 60 million down to 50 million. But if not, that moves another 10 million shares more down to 40 million. And as that number declines, it just becomes less and less weird about where those shares ended up. So those are the things I want to point out on the math. I don't intend to be overly critical of Frank here. He's done awesome work. Even just bringing this to light has a possibility. This is the type of stuff that makes the Tesla investor community so cool, is there are people that do this and share this type of stuff. And then we can all talk about it. We can fact check it. We can come to the best conclusion. But sometimes it does have a way of snowballing a little bit. This is one of those things that I could see doing that. So I wanted to make sure to get my full thoughts on this. And then setting aside any of the math here, I think we just need to consider Buffett's investment style. The comments that he has made in the past on Tesla and on Musk and comments from Charlie Munger, the vice chairman at Berkshire Hathaway. On the positive side of the coin, you have Buffett already having a precedence for investing in an electric vehicle maker. That was BYD in China back in 2008, though that seemed to be just as much a play on the regulatory climate in China as anything else. But they have held that investment for a long time. And obviously there's some familiarity there with electric vehicles. But we do have pretty recent comments from both Munger and from Buffett on Tesla that I think kind of sour any of the speculation. So Munger, back in February, was asked about Tesla at Berkshire's shareholder meeting. He said, quote, My thoughts are, too, I would never buy Tesla and I would never sell it short. End quote. Then implying that Musk is someone that consistently overestimates himself, but that Munger would never bet against somebody like that because on a rare occasion they can actually succeed. As for Buffett, even more recently, back in May, he sat down with Yahoo Finance. They asked him about Tesla and Musk and they summarized that by saying, quote, But when it came down to the million dollar question of whether or not Buffett would invest in Tesla stock, the Oracle of Omaha kept his answer short and sweet. No, Buffett said. End quote. All right. Fair enough, I suppose, though. That is what someone might say if they're trying to acquire a significant stake in a company. So to wrap everything up, to me, I'm still extremely skeptical that this would be a position in Tesla. I certainly don't think there's enough here to rule that out. And there are some interesting connections lining up. But at my core, I still feel like it's just too soon for Buffett. I don't think Tesla is the type of company that would be in his investing wheelhouse. But hey, sometimes people surprise you. So I'll be really curious to hear people's thoughts on this. Let me know what you think about the speculation in the comments. Again, this is the second episode for today, so make sure you didn't miss the first one. Other than that, though, thank you for listening. Make sure you subscribe and sign up for notifications. You can also find me on Twitter at Tesla Podcast. And I will see you tomorrow for the Thursday, November 19th episode of Tesla Daily. Thank you.