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Bill Freehling
Bill Freehling
Articles 

Warren Buffett: All Cars Will Be Electric in 20 Years

November 29, 2009 | About:

All cars on the road will be electric in 20 years, Warren Buffett told a class of business students from Rice University this month.

Buffett made the comments during a question-and-answer session with the Rice students in Omaha, reports The Houston Chronicle. Buffett routinely speaks to business school classes about investing, business and various life topics.

The newspaper reported that Jan Goetgeluk, president of the Rice business school's Finance Club, asked Buffett his thoughts on the peak oil theory, which states that oil production is in decline.

Buffett responded that in 20 years all cars on the road would be electric. He said BYD, the Chinese automaker in which Berkshire Hathaway owns 10 percent, is working on the technology to make that happen.

It seems like a bit of a stretch to think there won't be any gas-powered cars on the road within two decades, but the auto industry is clearly moving toward all-electric and hybrid vehicles.

And this explains another reason why Burlington Northern Santa Fe would be attractive to Buffett.

All those electric cars will need to be recharged, and the electricity that will enable that will be mostly created by coal, at least for the foreseeable future. Burlington's tracks run right through the coal-rich Powder River Basin in Montana and Wyoming, meaning BNSF will be hauling coal to meet the nation's increased electrical needs.

Berkshire's recent investment in ExxonMobil is interesting given Buffett's thoughts about the future of oil. Though Berkshire reported just a $100 million stake in Exxon as of Sept. 30, small by Berkshire's standards. Further, Exxon does much more than produce oil.

One final Buffett note: Mary Buffett and David Clark have written a new book about the Oracle of Omaha. "Warren Buffett's Management Secrets" is due out Dec. 8. Click here to read more about the book.

About the author:

Bill Freehling
Bill Freehling
For gurufocus.com
[email protected]

Rating: 3.4/5 (26 votes)

Comments

Robert Sprinkel
Robert Sprinkel - 7 years ago    Report SPAM
Warren Buffett, wrong? Yup. More cars will be powered by liquid natural gas than batteries in twenty years. In forty years? Maybe when 80% of power is nuclear like it is here in France and where, also, I drive a natural gas powered car (Honda Jazz).. I had my first natural gas powered car ten years ago while living in England. It was a 4.2 Audi A8 and ran like dream at half the cost. (BTW/I am not a tree hugger. I didn't believe in climate change before the fraud was disclosed. I just like to save money.)
AlbertaSunwapta
AlbertaSunwapta - 7 years ago    Report SPAM
Good point.

And there are already companies like Cumins selling surprisingly large numbers of natural gas truck engines to China and India.

And natural gas prices may stay down due to huge new "estimates" of recoverable reserves.

However, that gas may instead go to electric generation.

CNG
CNG - 7 years ago    Report SPAM
The above comment is absolutely right. It will be a disaster if all cars are electric. Fifty five percent of our electricity comes from dirty poluting coal powered generators. I'm surprised that the auto news and tech people have not commented on this. Also the cost of the batteries for the first tiny electric cars cost from $8,000 to $15,000. Long charging time, short travel range and the expensive infrastructure of charging points will make electric cars extremely inconvient to use. Large and very popular personal vehicles like trucks and SUV's can not be driven by relatively weak battery power. Natural gas on the other hand can quite easily replace gasoline in all our current gas cars of any size. There are over 10 million Natural Gas cars in Europe produced by Mercedes, Ford, Open (GM) VW, Fiat and others. We also have a 100 years of natural gas reserves right here within our borders. It's time we stop sending billions of dollars overseas for the dwindling oil supplies and realize the best alternative is right below our feet. It's also the cleanest fuel available and that includes electric cars when you consider the real source of the power. Warren Buffett is completely wrong on this issue.
AlbertaSunwapta
AlbertaSunwapta - 7 years ago    Report SPAM
CNG - you may be too quick to judge. He may not be wrong.

At the very least I imagine all cars will be electric-hybrid.

Also, cleaning central plant pollutants has got to be a lot cheaper than cleaning the pollutants from millions of cars. If the gas is used for electric generation (maybe even hybrid gas-coal plants) and cleaned there, while powering electric vehicles driven by new technology capacitors or batteries the the best of those two worlds may be attained.

Additionally, gas turbines can be placed close to the users - limiting line losses.

Lastly, if tough times and taxpayer funded investment continues, then building power plants is a certain way to create jobs and build infrastructure that benefits numerous end users. (In comparison, devoting taxpayer resources to automotive production creates far less certain results.)

I'd say, better key an eye on copper.
Sivaram
Sivaram - 7 years ago    Report SPAM


CNG: "The above comment is absolutely right. It will be a disaster if all cars are electric. Fifty five percent of our electricity comes from dirty poluting coal powered generators."

The lower-polluting coal is probably more environmentally friendly than burning gasoline but in any case, technology may alter the picture in 20 years. What if nuclear or wind or solar or something else was used to generate electricity? Fifteen years ago, many would have considered it ludicrous to imagine that 1% of electricity generation in some countries would come from wind. But very few foresaw that. Admittedly wind is still uneconomic without subsidies but it's getting there.

In any case, I'm sure that Warren Buffett is being misinterpreted. Perhaps he was referring to certain vehicles in certain markets and not the entire auto industry throughout the whole world.

All I know is that if electric cars take off, the oil industry would be toast. Oil will still be important for certain fuels (diesel, kerosene, etc), plastics, and so forth. But if they lose the passenger vehicles (i.e. gasoline) they will resemble the giant whale oil companies from the late 1800's.
prelitz
Prelitz - 7 years ago    Report SPAM
I have a challenge with anyone forecasting an ALL theory. My crystal ball says we'll have lot's of silver buckshot (algae biodiesel, ethnol from waste, CNG, etc) and not just one silver bullet like EV's. Buffet has an agenda of course. His hopes are for wind to replace coal as much as possible.
Sivaram
Sivaram - 7 years ago    Report SPAM


Prelitz: "I have a challenge with anyone forecasting an ALL theory. My crystal ball says we'll have lot's of silver buckshot (algae biodiesel, ethnol from waste, CNG, etc) and not just one silver bullet like EV's."

You may be right but the thing is... my impression of history is that it is more likely that one or two energy sources become dominant within a particular area (say transporation; or lighting) rather than several. I suspect this is because economies of scale of the dominant source becomes more and more dominant as it gains popularity.

For example, look at the fuel sources in the last few hundread years and you'll notice that the top one or two totally dominate. Examples include wind (pre-1800's), wood (1700's-1800's), whale oil (1800's), coal (1800's-1900's), oil & gas (1900's), hydroelectric (1900's), and so on. The ordering depends on nature and the environment (e.g. a country without many rivers or lakes really can't use hydroelectric power) and things have changed over time (personal transporation is more dominant now than a few hundread years ago) but I would say the top 2 within each category dominate.

I think the reason the "multiple winner" scenario looks plausible now is because nothing has really taken off and replaced oil. Almost all the alternative sources are uneconomic (without subsidies or carbon taxes) so it appears biomass will be as popular as, say, ocean waves, or wind. But if, say, biomass takes off, I suspect its economics would get better at an exponential (or at least some really-really-fast rate) and others likely won't catch up.

The real question is, whether we will see any breakthrough. I think the closest thing to a source that can have a spectacular advance is solar (imagine if it entered an exponential curve like semiconductors)... but that's also one of the most expensive sources right now.
MIKEFLYER4
MIKEFLYER4 - 7 years ago    Report SPAM
A well run railroad is a is an excellent investment. BNSF is one of the best, ie: equipment,routes,management. It will only get better with someone from Berkshire GENTLY nuging it in a more profitable direction.

Railroads can haul / move a lot of things besides coal. They are one of the cheapest ways to move CNG, and can bring it real close to where it will be used.

Here in northwest Ohio, there have been serious talks about converting one of First Energy's coal fired plants to natural gas. At less than ten railroad cars a day, compaired to twice that of coal, and with supply as close as the nearest railhead, it will happen in just a few years.

I'm not so sure about ALL cars. A few holdouts from the 60's will try to hide a Cobra or a Hemi Charger in the barn, but hybrids, CNG, electric, hydrogen and nuclear should make it very unreasonable to continue down the loser,loser path of gasoline.
Bill Northrup
Bill Northrup - 7 years ago    Report SPAM
I believe that in 20 years all cars will have some form of electrical drive. An electric drive system will save a significant amount of fuel with greatly reduced emissions. Maybe that’s what Warren meant.

Ladd Dezendorf
Ladd Dezendorf - 7 years ago    Report SPAM
The solution for all of the above can be summed up in one Word 'Natural Gas' [Thanks for the word count Joe].

All Americans want our country to be energy independent, but the 'Energy Tax Bill'. is not the answer. We need to produce as much of our own energy as we can, while finding all available 'competitive market' methods to reduce our energy usage. Drilling, particularly in Alaska where our vast resources are, is one way to start reducing foreign oil dependence. Tax credits for industry to encourage research into cheaper alternative energy sources is a second path to energy independence. Production of automobiles which are fueled by our abundant natural gas reserves will also substantially reduce our need for oil. Nuclear power, a proven success in Europe, particularly France, could provide much of the electrical energy needed for homes and businesses. Each of these, as well as the Wind power farms we are now in the process of building will have more and better effects than the phony Energy Tax Bill passed by the House and being considered by the U.S. Senate.

If we provide our own fuel [Natural Gas] we will not have to import oil. Nuclear fuel should be used for Electricity Generating plants, and Natural Gas for most Vehicle Fuel and Heating [replacing fuel oil]. We will, of course, still need oil to some degree. That would be fulfilled by production in the U.S., Canada and Mexico.

The massive reduction of imports of oil from overseas will have a significant positive impact on our balance of payments.

Our overseas oil payments will not be going to countries like Saudi Arabia and other unfriendly nations who are major financiers of groups involved in Islamic Extremism and Terrorism.

Oh, and about that 'Global Warming' thing; Natural Gas is a very clean burning fuel, so converting to Natural Gas will decrease those bad pollutants that are claimed to cause 'Global Warming'.
kfh227
Kfh227 - 7 years ago    Report SPAM
20 years from now. I don't have the bravery to predict anything.

There is a simple formula:

cheap solar panels + long lasting rechargeable batteries = cheap energy and cheap storage

Solar panels right now are inefficient (10% of the light energy is turned into electricity) and very expensive. If you can get 20% efficiency and cut production costs in half, that would be a quadrupling of

cost effectiveness.

If it is more cost effective than natural gas in 20 years, it will be the winner. In my opinion, setting time lines is pointless. It is an issue of when, not if .... that all cars are electric.
Sivaram
Sivaram - 7 years ago    Report SPAM
Ladd Dezendorf Wrote: ------------------------------------------------------- > The solution for all of the above can be summed up > in one Word 'Natural Gas' . >

The problem with natgas is that it is non-renewable. Although the latest discoveries seem to imply there is a lot of natgas to go around, I am not sure what happens if, say, 25% of cars, which would be a huge number, start using it.

Natgas is the simplest solution, with the fastest implementation time, and is definitely clean. However, it isn't quite the same game as solar, nuclear, wind, geothermal, etc are playing...
yswolinsky
Yswolinsky - 7 years ago    Report SPAM
In regards to all the comments about solar-

Israel has been using solar energy extensively for at least 20 years. If you go to the roof of any residential apartment building it is blanketed by solar panels.
Sivaram
Sivaram - 7 years ago    Report SPAM


Yswolinsky: "Israel has been using solar energy extensively for at least 20 years. If you go to the roof of any residential apartment building it is blanketed by solar panels."

The desert-like weather over there likely helps a lot but ignoring that... are those solar panels economic? Israel probably doesn't have many other energy sources, such as coal, oil, etc so they may be able to get away with higher cost sources. The problem in America (and Canada) is that there are polluting energy sources that are so cheap that it is difficult for anything to compete against that. The best example is coal.

It's almost like a mini-curse for America. On the one hand, the plentiful coal, hydro, etc, means that America can be self-sufficient during emergencies (say a big war.) But on the other hand, this also means that there is little incentive for anyone to do anything. The old-school energy sources are just too dominant and far cheaper than renewables.

Unrelated to this but a similar scenario can be seen in water technology. A lot of the water tech (such as desalination, cleaning/filteration, etc) are being worked on in places like Israel, China, etc. But there is little need in America given the plentiful clean fresh water everywhere (except California/Nevada/etc.) Yet, water technology could have a massive impact on the future because many poor countries, such as China, India, etc, have serious problems with a lack of clean water. This is going to be a huge business in the future. People always talk as if the auto industry in China is going to be big but I can see clean-water-related industries being just as big. America and Europe always had clean, big, rivers and lakes and didn't have the high population count like in Asia. Because of high population, sourcing and maintaining clean water may end up being a huge problem in Asia.
yswolinsky
Yswolinsky - 7 years ago    Report SPAM
I agree with Sivaram great way to describe it. That our abundant natural resources are like a mini curse.

Israel has practically no natural resources. They had some oil in Sinai which they gave back to Egypt in the 1979 Peace treaty. They recently discovered large amounts of natural gas of the coast. Israel is building many desalinization plants. Israel's water sources are drying up and the Kinneret lake (which is receding every year) provides 70% of Israel's fresh water, Israel may return in a future peace treaty with Syria. I think Israel plans to produce all its water through desalinization.

Sometimes having handicaps like little natural resources lead to great innovation to over come those handicaps, Israel is an example of this. I expect writing an article on investment opportunities in Israel shortly, which is a country many times over looked for investment opportunities.
yswolinsky
Yswolinsky - 7 years ago    Report SPAM
a
viksingh01
Viksingh01 - 7 years ago    Report SPAM
Excess of something leads to dearth of another connected resource.

Excess of Cheap Oil lead to dearth in efficiency and use of other resources.

Excess of Information leads to dearth of attention to process the information

To Sivaram's point, the real cost of any fuel should be calculated by taking into account all aspects that are associated with the fuel

1. Extraction cost should include not only cost to extract but the cost to restore the area of exploitation and the flora and fauna that such extraction causes. This includes some accounting for long term consequences irrespective of the accuracy of such as estimates

2. Complete cost of use - This should also include the impact to environment and health. For example if gasoline is more polluting than solar, the cost of treating pollution related illnesses should be factored in to the cost per gallon of fuel.The calculation may be inaccurate but nothing is worse than saying the cost is zero.

I believe the biggest mischief in all of this is lack of complete ecological accounting i.e. the calculation of true cost of exploiting any resource

Vikram
kfh227
Kfh227 - 7 years ago    Report SPAM
yswolinsky Wrote: ------------------------------------------------------- > In regards to all the comments about solar- > > Israel has been using solar energy extensively for > at least 20 years. If you go to the roof of any > residential apartment building it is blanketed by > solar panels.

Yes, but apitalism will determine the winner in the US. If $2 in natural gas will take you 20 miles and $1 in electricity will take you 20 miles, cars will go electric. The counter argument is also true.
CNG
CNG - 6 years ago    Report SPAM
As they say, time is money. If you have to wait 12 hours to fully charge your electric vehicle and only 5 minutes to fill your natural gas tank, suddenly the fuel price advantage of the electric car goes away. On top of that, if you can only drive 50 miles out and 50 miles back (100 total at best) before needing a recharge, the inconvenience of the electric car becomes a serious disadvantage. It should also be noted that the "blanket" of solar panels on the roof of any residential apartment building can only supply a small fraction of the electrical power needs of that building.

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