Michael Burry versus Tesla 💡

Renowned investor Michael Burry has resumed his criticism of the technology sector. In his new Substack, "Cassandra Unchained," he described Tesla (TSLA.US) as absurdly overvalued, adding it to the list of speculative bubbles alongside Nvidia and Palantir. Burry closed his hedge fund Scion Asset Management in November and launched a paid newsletter for £39 per month. The investor explained that managing the fund involved regulatory restrictions that prevented him from communicating freely. More than 35,000 people already subscribe to his newsletter, where he plans to publish one to two posts per week.

Burry points to the annual dilution of value for Tesla shareholders of approximately 3.6% without share buybacks through employee compensation packages based on share issuance. By comparison, Amazon dilutes by 1.3% and Palantir by 4.6%. What Burry called "tragic algebra" is the constant erosion of value for current shareholders — mathematics that the market ignores, treating stock compensation as a non-cash expense.

What is more, shareholders approved Musk's remuneration package worth up to a billion dollars at the turn of October and November. It may be awarded over a decade if Tesla achieves aggressive milestones, including a market capitalisation of 8.5 trillion dollars. Burry sees this as a guarantee of further share issues – Tesla is trading at a price-to-earnings ratio of nearly 300 times earnings. For existing shareholders, this means an increasingly smaller piece of the "pie" at the same price.

Burry ironically notes that investors were involved in electric cars until competition emerged, then in autonomous driving systems until competition emerged, and now in robots until competition emerges. When Tesla's growth stalled, the narrative shifted to Cybercab and the Optimus robot. Every time the business looked weak, the story jumped to the next frontier.

The forward P/E ratio for Tesla shares for the next 12 months is currently hovering around its highest level in five years. Source: Koyfin

TSLA shares are maintaining their long-term upward trend after returning above the 50-day EMA (blue curve on the chart) last week. Source: xStation