Musk vs. Buffett: An Invitation for Investors to Take Sides

Elon Musk and Warren E. Buffett clashed over the weekend after Mr. Musk, Tesla’s chief executive, derided as lame Mr. Buffett’s concept of companies having “moats” to keep potential competitors at bay. When Mr. Buffett, the Berkshire Hathaway chairman, cited his confectionery maker, See’s Candies, as proof to the contrary, Mr. Musk pledged to launch his own candy maker. It’s an invitation for investors to take sides; many already have.

For the 40,000 shareholders who flooded Omaha for Berkshire Hathaway’s annual meeting on Saturday, Tesla looks like the epitome of a terrible investment. Mr. Buffett prizes companies with healthy management incentives, simple operations and little competition. Mr. Musk’s electric-car maker flunks on all three counts.

Take incentives. Mr. Musk is remunerated in part for pumping up Tesla’s share price — his new 10-year bonus plan could net him $55.8 billion in stock if the company’s market capitalization hits $650 billion and bull’s-eyes certain revenue and profitability targets. Investors won’t be complaining if he gets there, but it’s an incentive to take huge risks. If the company misses those goals, or fails outright, Mr. Musk has other irons in the fire. He holds a significant stake in the rocket company SpaceX, recently valued in a private transaction at around $26 billion.

The gulf in temperament is also growing wider. Mr. Musk last week threw a tantrum over “boring, bonehead questions” from analysts. He then took to Twitter to justify his outburst, complaining that they represented a “short seller thesis,” although he later said he was “foolish” not to answer them. Mr. Buffett, meanwhile, sat for hours on Saturday answering investor questions that ranged from punchy to banal.

The cultural divide is mirrored on the balance sheet: While Berkshire Hathaway holds $116 billion in cash, Tesla has just $2.7 billion in cash — roughly equivalent to one year’s capital expenditure — yet is burning greenbacks and has $500 million in debt coming due in a few months.

The Oracle of Omaha and the Playboy of Palo Alto have taken opposing positions before, including when Mr. Buffett’s Nevada energy company clashed with Mr. Musk’s solar-panel group SolarCity in 2016. Yet they share some common ground, too. Both think deeply about their customers. Mr. Musk often responds personally to Twitter requests — such as for a service center in Iceland or a hardtop convertible. He’d probably agree with Mr. Buffett that thinking like a consumer is paramount.

For now, at least, shareholders have Mr. Musk trailing Mr. Buffett. Tesla’s highly volatile shares are down 4 percent over the past year, whereas Berkshire Hathaway’s are up 19 percent. And investors have piled into short-selling Tesla, with almost one-quarter of the stock out on loan, according to Thomson Reuters data.

Of course, Tesla doubters could end up burned if the shares rise in the short term, as Mr. Musk says they will. And Mr. Buffett himself doesn’t bet against stocks falling. So buying Berkshire Hathaway and shorting Tesla makes ample sense for those who believe Mr. Buffett’s teachings — but not those who actually copy him.