Why Michael Burry says Tesla is 'ridiculously overvalued'

Michael Burry has decided Tesla belongs successful his idiosyncratic pantheon of overvalued giants. The “Big Short” investor, who named his caller Substack “Cassandra Unchained” aft the doomed mythological prophet and amassed astir $1.1 cardinal successful puts connected Nvidia and Palantir, is present utilizing his newsletter to reason that “Tesla’s marketplace capitalization is ridiculously overvalued contiguous and has been for a bully agelong time” and that CEO Elon Musk’s $1 trillion wage bundle each but guarantees much dilution for shareholders.

In Burry’s latest Substack post, “Foundations: The Tragic Algebra of Stock-Based Compensation,” the capitalist walks done however generous equity awards softly devour into “owner’s earnings” implicit time. Burry parks Tesla squarely successful the mediate of what helium calls the “tragic algebra of stock-based compensation.”

The Musk plan, approved by Tesla shareholders successful aboriginal November, could beryllium worthy up to $1 trillion if the institution hits assertive accumulation and market-cap milestones, including a semipermanent valuation people of astir $8.5 trillion tied to robotaxis and humanoid robots. 

That, successful Burry’s view, is little a reward than a lasting acquisition to support issuing equity astatine a institution that’s already priced similar a marketplace colossus, with a trailing P/E ratio of astir 300. For existing shareholders, helium argues, the mathematics is simple: You’re paying a giant’s aggregate for a shrinking portion of the pie.

Writing astir what helium labels the “Elon cult,” Burry says the company’s ever-faithful fans were “all-in connected electrical cars until contention showed up, past all-in connected autonomous driving until contention showed up, and present [are] all-in connected robots – until contention shows up.” Every clip 1 of Tesla’s concern lines starts to look mortal, helium says, the communicative jumps to the adjacent frontier — and the valuation comes on for the ride.

Tesla is simply a acquainted foil for Burry. Back successful 2021, his precocious deregistered Scion Asset Management disclosed bearish enactment options connected 800,100 Tesla shares — a notional $534 cardinal stake astatine the clip — portion Burry was posting connected societal media that Tesla investors should “enjoy it portion it lasts.” He yet told CNBC he’d closed the presumption and downplayed it arsenic “just a trade,” saying the media had overhyped the size and value of his short.

The caller Substack salvo doesn’t enactment caller Tesla options connected the record, but it does fold Musk’s institution into Burry’s broader statement that the marketplace is erstwhile again paying bubble prices for companies it assumes volition turn successful a consecutive line. Burry has, successful caller weeks, utilized his Substack (and his filings) to reason that stock-based wage and circular deal-making are eroding shareholder worth crossed the AI trade, drafting explicit parallels betwixt today’s marketplace leaders and past bubbles.