The Perils of Pioneering: Henry Ford and Elon Musk
The Perils of Pioneering: Henry Ford and Elon Musk
A recent Barron’s article speculated that Elon Musk is making a similar mistake with Tesla that Henry Ford made with his namesake company in 1924. The article suggests that Musk “seems more interested in moonshots” than in the primary business of Tesla: engineering, manufacturing, and selling electric vehicles (EVs). Barron’s described a Henry Ford who was stuck on a product strategy that ultimately destroyed the dominance Ford enjoyed between 1908 and 1927.
Similar to the Barron’s article, Warren Buffett used a story about Henry Ford when responding to a question during the 2023 Berkshire Hathaway shareholder meeting. The question concerned investing in the EV automotive space. Surprisingly, given Berkshire’s stock ownership in GM and BYD at the time, Buffett described the automotive industry as “too tough.” He utilized the history of Henry Ford and the Ford Motor Company to prove his point.
Buffett described Henry Ford as “owning the world” in 1920. The Ford Model T was the world’s best-selling car, and Henry Ford was the richest person then as well, with a net worth of $1.2 billion. In 1914, Ford even chose to double the wages of his factory workers to $5 per day to reduce turnover and ensure that Ford workers earned enough to purchase the cars they were building. This wage increase had far-reaching consequences for the entire American economy at the time.
Yet by 1927, automotive industry leadership had already shifted. General Motors surpassed Ford as the largest automaker in the world that year. By 1941, GM reported a net profit of $381 million. Ford reported a net loss of $12.5 million.
GM remained the largest automaker in the world from 1927 to 2007. But in 2008, Toyota took the sales crown as GM teetered toward its eventual bankruptcy a year later. Years prior, a bankrupt GM seemed unfathomable. But it happened!
During that shareholder meeting in 2023, Buffett even suggested that global automakers would not cede leadership to any singular automotive competitor like Tesla. Given the challenges Tesla is experiencing today, along with the successes many legacy automakers are enjoying, it seems history might be repeating itself.
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