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How Warren Buffett & Elon Musk Both Compete and Contrast on Energy

July 25, 2016, 2:00 PM UTC
Photograph By Heiko Junge — AFP/Getty Images

Two of the world’s best known billionaires, Elon Musk and Warren Buffett, have made major bets on the future of energy, and how generating power, and transportation will evolve over the coming years.

Musk and Buffett see the energy and transportation sectors changing in similar ways, and, over the past few years, their companies have increasingly competed with each other over both solar energy and electric cars.

But at the same time, the moguls seem have core differences. They appear to see the future of clean energy emerging in different ways (at least through their investments) and have taken different view points about the current fossil-fuel dependent landscape.

That two of the world’s savviest business minds seem to disagree over how key parts of how the clean energy sector will develop are reflects how the world’s energy transformation is still in its early days. Their opposing viewpoints about fossil fuels also highlight Musk’s entrepreneurial vision-driven spirit with Buffett’s down-to-earth profit-driven investment strategy.

Musk’s vision for the energy industry is well-known by now. Just this week, he published his Master Plan Part Deux in which he outlined how a combined Tesla (TSLA) and SolarCity (SCTY) would create a clean energy powerhouse that makes and sells solar panels and batteries, as well as electric vehicles of all types including buses and semis.

A SolarCity Corp. Residential Solar Panel Installation Ahead Of Earnings Figures
A worker lays down a solar panel on a rooftop. Sergio Flores—Bloomberg via Getty Images
Sergio Flores—Bloomberg via Getty Images

Through SolarCity, Musk sees the rise of what’s called “distributed solar.” This involves solar companies installing solar panels on individual rooftops, which can either send the power back onto the grid, or be used to power the building beneath them.

While distributed solar accounts for most of SolarCity’s revenues, the company has also worked on what’s known as “centralized solar” projects for utilities. This is where solar companies create sprawling ground-based solar farms in remote areas, and then sell the energy to local utilities. Tesla has contributed its batteries to store that type of solar energy.

Centralized solar is largely what Warren Buffett’s solar-leaning energy companies are interested in. His company, Berkshire Hathaway Energy, owns a handful of utilities, which tend to prefer to buy power from centralized solar plants partly because they can get the energy for cheaper than they can from rooftop solar power.

Utilities are also more comfortable with buying energy from a centralized power plant, because it more resembles buying energy from big natural gas or coal plants. Distributed solar systems require additional upgrades to the power grid, including enabling the grid to operate in both directions, and most utilities are pushing back against covering those upgrade expenses.

When it comes to centralized solar, as well as wind farms, Berkshire Hathaway Energy has been a leader. The company said earlier this month that it had already spent some $15 billion on clean energy as of 2014, and had committed to invest an additional $15 billion. Berkshire Hathaway Energy company MidAmerican Energy says it owns the most wind farms of any of its investor-owned and regulated U.S. utility peers.

For more on what Elon Musk wishes he’s done differently watch our video.

However, at least one of Berkshire Hathaway Energy’s companies have come into conflict over centralized versus distributed solar. SolarCity and Nevada utility NV Energy, owned by Berkshire, famously have been battling it out in Nevada over that state regulator’s decision to change the rates and economic structure for rooftop solar.

Starting this year, owners of rooftop solar systems in Nevada must pay higher fees, and are paid lower rates for their electricity. As a result SolarCity and others decided to stop selling rooftop solar systems in the state because they said the economics no longer made sense.

SolarCity accused the regulators of being in the pocket of NV Energy, and have lobbied Nevada legislators at Tesla’s battery factory outside of Reno, Nev. The battle is closely watched, as states try to figure out how to both encourage rooftop solar but also manage it as it becomes larger and more mainstream.

There are now two measures on the November ballot for Nevada voters to weigh in on. A ballot measure, dubbed the Energy Choice Initiative, would enable companies to buy power on the open market rather than only through NV Energy. Another ballot measure asks voters if they want to restore the more favorable solar rates, though that measure is being contested in the state Supreme Court.

Musk and Buffett’s energy competition doesn’t end with solar energy. They’ve also got electric car companies that compete in some markets.

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Musk of course has spent hundreds of millions of dollars of his own money building electric car maker Tesla over the past decade. The company’s strategy has long been to first build a luxury electric sports car (the Roadster), followed by a lower cost family electric car (the Model S), and finally a mainstream electric car (the planned Model 3). For a startup, that’s strapped for cash, that strategy has continuously made sense for Tesla.

Buffett’s investments in electric cars is less known. Eight years ago Buffett invested $232 million for a nearly 10% stake in BYD (Build Your Dreams), a Chinese company that makes lithium-ion batteries and electric cars. The company, which is over 20 years old and trades on the Hong Kong Stock Exchange, was a major battery maker for cell phones.

Last year BYD sold 61,722 electric cars, almost all of them in China. Those numbers are all highway-ready cars, and does not include low speed neighborhood electric vehicles that look like golf carts.

Those numbers made BYD the world’s largest electric vehicle seller in 2015. In comparison, Tesla shipped closer to 50,000 electric cars last year, most of them in the U.S.

Interview With Lloyd Blankfein, Warren Buffett, Michael Bloomberg & Michigan Governor Rick Snyder
Warren Buffett, CEO of Berkshire Hathaway. Photographer: Jeff Kowalsky/Bloomberg via Getty Images
Bloomberg Bloomberg via Getty Images

The companies have different product and sales strategies. Tesla’s cars were far pricier than BYD’s with much of its cars likely sold for $70,000 to $120,000. BYD’s cars are generally much cheaper, from $20,000 to $35,000.

BYD’s vehicle ambitions have long been more sweeping than Tesla’s, which has divisions making electric buses, and with plans to get into other forms of urban transportation like monorails. However this week Musk said Tesla, too, is interested in buses and urban transportation.

Tesla has had a particularly hard time breaking into the Chinese electric car market, where the restrictions can be onerous, but government subsidies are high. BYD, a homegrown Chinese company has stuck to its original goals of making low cost compact electric cars.

Just this week, BYD announced that Samsung had invested $449 million in it. While Tesla has notably aligned with Japanese battery and electronics giant Panasonic, BYD has joined up with the Korean battery and electronics giant. As the world adopts more electric cars, the world’s largest electronics and battery makers are making big bets by securing partnerships.

At the end of the day, Buffett is a seasoned investor and Musk is a hard-charging, risk-taking entrepreneur. They look at the world through a different lens.

That would explain why Buffett appears comfortable, for now, to profit from the fossil fuel industry. He’s made major bets on oil stocks this year, and Berkshire Hathaway Energy owns holdings in both oil and natural gas.

While the company has pledged to retire over two thirds of its coal power plants in Nevada, that’s largely because coal is becoming less economical. Buffett has unabashedly said that without subsidies wind farms don’t make sense for investing.

Musk, on the other hand, is trying to make money from a future that is based on sustainable energy, and moving the world off of fossil fuels, as he explained in his Master Plan Part Deux. It’s a world that in many ways doesn’t really exist yet, but that Musk is trying to create.

He has an agenda, beyond a profit, and that’s helping the world transition to using energy that doesn’t contribute to climate change. And that means he makes business decisions that aren’t always financially obvious, like combining Tesla and SolarCity.

The conflicting ideologies can also be seen in how much the billionaires are worth. Buffett became the third richest person in the world this year, while Musk cracked into the top 100 at number 94. It should also be noted, that Musk is about half of Buffett’s age, and he says a combined SolarCity and Tesla would be worth a trillion dollars some day.

While it’s difficult to compare a seasoned investor with an entrepreneur, the two billionaires are affecting the energy industry in fundamental ways. Their competitions and contrasts will likely just go stronger as clean energy continues to rise.