Elon Musk trumpets Tesla’s foray into car insurance – after Warren Buffett warned any automaker would struggle in the business

Elon Musk trumpeted Tesla’s first forays into auto insurance last week. Warren Buffett, whose Berkshire Hathaway conglomerate owns Geico, has raised serious doubts about the ability of Tesla and other automakers to break into the industry and turn a profit.

Tesla recently began selling auto insurance for customers in Oregon, Colorado and Virginia. The electric vehicle company plans to offer insurance to 80% of its U.S. customers by the end of this year, according to its first-quarter earnings call.

Musk said showing customers in real time how their driving has affected their insurance costs could result in safer driving habits and lower premiums. Tesla can also use vehicle data to quickly settle claims and arrange same-day repairs, providing a better customer experience than conventional auto insurers, he added.

Additionally, Tesla can analyze crash data to identify how crashes were caused and then reduce the risk of them happening again by changing the design or software of its cars, Musk added.

Buffett played down the threat posed to Geico by Tesla’s insurance ambitions at Berkshire’s 2019 annual meeting. An automaker is as likely to fail in the insurance business as an insurer is likely to fail. ‘fail in making cars,’ Buffett said, adding that he was far more concerned. over rivals such as Progressive than the likes of Tesla.

“It’s not an easy business at all,” he said. “I would wager that no company in the automotive sector would be unusually successful.”

“I don’t think they’ll make money in the insurance business,” Buffett added of the automakers. He recognized the value of vehicle data, but as telematics is widely adopted, he doubts it will give automakers an advantage over established insurers.

Christopher Bloomstran, chairman of Semper Augustus Investments and a close follower of Buffett and Berkshire, said explained on Twitter why he is skeptical of Tesla’s insurance business.

The fund manager questioned whether Tesla had the excess capital needed to write large amounts of insurance. He also said that running and growing an insurance underwriting business and paying claims costs money, and the complexity of Tesla cars will make them more expensive to repair than conventional cars.

Bloomstran also pointed out that the auto insurance industry is competitive, its players have low profit margins, and regulators will lower Tesla’s prices if it starts making big profits.

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