Michael Burry Cautions on Tesla’s Valuation, Predicts Erosion of Value Amid Musk’s $1 Trillion Payout
Big Short investor Michael Burry has raised concerns about Tesla’s high market valuation, labeling it “ridiculously overvalued.” In a recent post on his Substack newsletter, Burry criticized the electric vehicle manufacturer’s stock-based compensation practices, suggesting they mislead investors regarding the company’s true profitability. He also highlighted CEO Elon Musk’s newly approved $1 trillion compensation package, warning that it could further dilute shareholder returns.
Concerns Over Shareholder Dilution
Burry pointed out that Tesla’s share count increases by approximately 3.6% annually due to the company’s practice of granting substantial stock awards to employees. He noted that since Tesla does not engage in share buybacks to offset these awards, existing shareholders end up owning a smaller portion of the company each year. Burry illustrated this point with a chart for his subscribers, demonstrating how ongoing dilution can significantly diminish a company’s present value over time. He argued that when the actual costs of stock-based compensation are taken into account, Tesla’s valuation appears far less justifiable than its surface figures suggest. Furthermore, he expressed concern that Musk’s new pay package, which received 75% approval from shareholders, could exacerbate this dilution. If performance targets are met, Musk could see his ownership stake rise from 15% to nearly 29%, thereby reducing the percentage of ownership for other shareholders. Burry emphasized that this dilution is likely to persist, which he believes is a fundamental reason for the disconnect between Tesla’s market value and its actual worth.
Critique of Tech Industry Accounting Practices
Burry’s critique extends beyond Tesla to encompass the broader technology sector. He criticized many tech companies for excluding stock-based compensation from their “adjusted” earnings reports, which he believes creates a misleading picture of profitability. According to Burry, firms like Tesla, Amazon, and Palantir benefit from this accounting practice, as it makes their financial results appear more favorable than they truly are. He referenced Warren Buffett’s long-standing view that stock-based compensation is a legitimate cost to shareholders and should not be treated as a mere footnote in financial statements. This perspective aligns with Burry’s belief that the tech industry’s accounting methods can obscure the real financial health of these companies, potentially leading investors to make misguided decisions.
Market Response and Investor Sentiment
Following Burry’s remarks, Tesla’s stock experienced a slight decline, although it remains up over 6% for the year, with a current valuation of approximately $1.43 trillion. Burry also commented on the evolving narrative surrounding Tesla, noting that the company’s most ardent supporters have shifted their focus over the years—from electric vehicles to autonomous driving and now to humanoid robots. He suggested that this constant repositioning indicates a company in search of its next significant growth justification. Burry’s insights were shared on his newly launched Substack, “Cassandra Unchained,” which he initiated after deregistering Scion Asset Management. His recent posts have primarily focused on what he perceives as emerging bubbles across various sectors, particularly in artificial intelligence.
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