Michael Burry Has a New Short Target: “Ridiculously Overvalued” Tesla

TSLA -0.09%

Quick Read

• Tesla (TSLA) trades at over 287 times trailing earnings with a market cap exceeding $1.4T.

• Michael Burry opened a new short position on Tesla and calls the stock “ridiculously overvalued.”

• Tesla dilutes shareholders by 3.6% annually through stock-based compensation with zero buybacks to offset.

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Michael Burry, the billionaire investor immortalized in The Big Short for predicting the 2008 housing crash, has stirred the markets again. Just months ago, he made headlines by betting against the AI frenzy, snapping up put options on Nvidia (NASDAQ:NVDA) and Palantir Technologies (NYSE:PLTR). Those moves signaled his skepticism toward the tech sector's explosive growth, driven by hype over artificial intelligence.

Now, Burry has turned his gaze to another high-flyer: Tesla (NASDAQ:TSLA). In a recent Substack post, he labeled the electric vehicle giant "ridiculously overvalued," unveiling a fresh short position. This isn't Burry's first dance with Tesla -- he held a $530 million bearish bet in 2021 -- but it underscores his view that the stock's surge defies fundamentals amid intensifying competition and questionable leadership decisions.

Decoding Burry's Tesla Critique

Burry's takedown of Tesla hinges on a core issue: its sky-high valuation. With shares trading around $430 and a market cap exceeding $1.4 trillion, Tesla commands a price-to-earnings multiple of over 287 times trailing earnings -- dwarfing traditional automakers like Ford (NYSE:F) or General Motors (NYSE:GM), which hover below 15.

Burry argues this premium stems from relentless optimism among investors, who keep pivoting narratives to justify the price. "Tesla’s market capitalization is ridiculously overvalued today and has been for a good long time," he wrote bluntly. He points to the "Elon cult" -- die-hard fans who championed electric cars until rivals like BYD and legacy players ramped up, then shifted to autonomous driving dreams, and now hype humanoid robots like Optimus. But Burry warns competition will inevitably erode these edges, as it has Tesla's 41% U.S. EV market share.

The Musk Factor Risk

No Burry critique lands without a jab at leadership, and Elon Musk draws sharp fire here. Burry slams Musk's newly approved $1 trillion compensation package as a massive dilution threat, exacerbating Tesla's already aggressive stock-based pay. He calculates the company hands out about 3.6% of shares annually to employees, with zero buybacks to counter the erosion.

This practice, Burry contends, inflates the share count without proportional value creation, punishing long-term holders. Musk's package, tied to ambitious performance milestones, could flood the market with billions more shares if met -- further pressuring the stock. Burry's disdain echoes his broader beef with tech CEOs who prioritize spectacle over shareholder returns, likening Tesla's trajectory to a bubble waiting to pop.

This short revives Burry's 2021 Tesla wager, which he cashed out quickly as "just a trade." Today, it fits his pattern of targeting frothy tech names. After shorting Nvidia and Palantir on AI overhyping and dilution parallels, Burry deregistered his Scion Asset Management hedge fund last month to go independent via Substack. There, he dissects overvaluations unfiltered, framing Tesla as exhibit A in a market detached from reality. At nearly 200 times forward profits, the stock leaves little margin for error if growth falters.

Key Takeaway

Burry's Tesla short pits him squarely against bullish titans like Cathie Wood of ARK Invest, who forecasts $2,000 shares by 2027 on robotaxi and AI dominance, or Ron Baron, who touts Tesla's moat in energy and autonomy.

Wood's optimism hinges on exponential tech adoption, while Burry bets on mean reversion through competition and economics. History favors Burry, but Tesla's cult-like following and Musk's execution track record (SpaceX, xAI, The Boring Company) give bulls ammunition. Still, at these multiples, a correction feels probable if EV demand softens further or robots underdeliver.

For investors, don't pick sides blindly. Diversify beyond Tesla, eye put options for downside protection, or trim exposure if shares hit resistance near $450. In volatile times, Burry's caution provides an important reminder: Valuations matter more than visions.

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