Michael Burry Criticizes Tesla (TSLA) Valuation, Warns of ‘Ridiculous’ Dilution
Michael Burry, known for his role in predicting the 2008 financial crisis, has recently voiced strong criticisms regarding Tesla’s (TSLA) valuation. In his latest newsletter, he highlights the significant issue of stock-based compensation (SBC) and its effects on existing shareholders. Burry asserts that Tesla’s high annual dilution rate and its ongoing narrative shifts to robotics reflect a stock that is “ridiculously overvalued.”
Understanding Burry’s Position on Tesla’s Valuation
Burry, who gained fame through the book and film “The Big Short,” is an experienced investor who has consistently analyzed market trends. His current focus is on the tech industry, particularly companies like NVIDIA and Tesla, which utilize SBC in a way that he believes obscures true financial health.
In a specific analysis directed at Tesla, Burry draws attention to the company’s annual dilution rate of approximately 3.6%. He argues that this dilution comes without any buybacks to offset the release of new shares, ultimately harming existing shareholders.
Comparing Dilution Rates
- Tesla: 3.6% annual dilution
- Amazon: 1.3% annual dilution
- Palantir: 4.6% annual dilution
This comparison emphasizes Burry’s argument that while Tesla presents itself as profitable, much of that profitability is redistributed to employees and management instead of being retained for shareholders.
Elon Musk’s Compensation Packages
Burry’s commentary extends to Musk’s substantial compensation packages, which have been scrutinized by shareholders. After a judge overturned an earlier compensation plan valued at around $55 billion, the Delaware Supreme Court is currently deliberating whether to enforce a new $29 billion compensation plan. Recently, shareholders approved an additional stock option package for Musk potentially worth up to $1 trillion.
Burry views this substantial compensation structure as detrimental to current shareholders, stating, “With news of Elon Musk’s $1 trillion pay package, dilution is certain to continue.” He believes that this situation exacerbates Tesla’s already inflated market cap.
The Shift in Narrative Around Tesla
Burry also critiques the changing narratives surrounding Tesla as its vehicle delivery growth has stalled. Initially valued as a leader in automotive growth, Tesla’s focus has shifted towards robotics and autonomous driving technology as competition increases. He describes this pivot as an attempt to maintain investor confidence amidst changing market dynamics.
Burry’s Conclusion
Burry’s insights draw attention to the potential consequences of Tesla’s strategies on its valuation. He argues that the current stock price does not reflect the company’s actual financial performance and warns investors to be cautious. As he noted, “Tesla’s market capitalization is ridiculously overvalued today and has been for a good long time.”
In light of Burry’s analysis, investors may want to reassess their positions regarding Tesla amidst ongoing discussions about valuation and corporate governance.
