Michael Burry just seems to not be able to learn.
In his latest Substack, he said…
“Tesla’s market capitalization is ridiculously overvalued today and has been for a good long time,” Burry said, adding that CEO Elon Musk’s $1 trillion dollar pay package will dilute Tesla stock even further. Last month, Tesla shareholders approved the controversial pay package at its shareholder meeting.
But just last month, Bury shut Scion Capital Management because he said he no longer understood the market…
And now he’s short Tesla.
In my view Bury is just as bad as the British government at invoking ambition.
Tesla might be overvalued if you look at it from a Benjamin Graham’s Intelligent Investor perspective.
Which merely implies that you should focus on discounted value and not momentum…
But fundamentally, investors are now pricing in the future on a far longer timeframe than before.
And it’s down to this one thing in my view…
Moore’s Law.
See, with big tech, we’re looking at a play on fierce competition and the ability to do compute quicker, with less power and with better outcomes.
Moore’s Law dictates that the number of transistors on a circuit doubles roughly every two years since it scales exponentially with the increase in power of computing.
With this being the case, why wouldn’t you be pricing tech firms way, way further into the future, especially when this ‘Law’ has shown itself to be true over the last decade especially?
Tesla is at the forefront of innovation, and whatever your view on Musk, it’s hard to deny this one fact.
But what’s more is Tesla is and has been the top selling car maker globally for a while now.
Which means revenue and sales growth.
Which means a higher share price over a 5y average…
Burry seems a bit demented by his own success from 2008, and is perhaps trying to apply the wrong cause to a different context.
See, back in 2008, Burry was pretty much just betting that fraudulence would come to light and show where the true value of the housing market was.
But is Tesla fraudulent?
Is there any sort of misdemeanour going on?
Or is it just that investors are betting on Musk to keep innovating?
And fwiw, I used to be a Musk hater, but in 2019, I grew up.
Because if we look at the revenue per employee of Tesla, there doesn’t really seem to be any sort of problem to bet against…
And if we look at Tesla’s price to book ratio (we look at valuation metrics in the Blueprint to Investing btw)…
We’re actually at relative lows to historical…
One area you might have critique over is Tesla’s cash flow drop over the last 2 years…
But what’s the real story?
Well, Musk cut the price of the Model Y and 3 from 2023 to 2024 to compete with the Chinese manufacturers and some of zee Germans.
While he also ramped up capital expenditure on future projects.
So is this a cause for concern?
Not really.
It shows 1) protection over market positioning and 2) that growth is important – and the latter is exactly what investors want to see, and why a company can retain a higher multiple.
For a firm to be investable, they have to keep dangling a carrot in front of investors, since the whole essence of markets is based on future projections.
Nothing right now really matters.
All while ensuring the company will be profitable next quarter.
Hard job being a CEO.
But the interesting thing for me is what clearly is a bit of a personal gripe from Burry.
Musk’s $1tn pay package is extremely unlikely to be met.
It’s why shareholders voted for it – because if he does actually meet the terms of being paid $1tn across various remuneration avenues, then he makes the shareholders also exceedingly rich.
Burry doesn’t seem to get this for whatever reason.
He seems to think there is no incentive or second order outcomes of Musk achieving this pay, that ight actually be beneficial for others.
He is just seeing it from a balance sheet perspective of ‘OMG big number, big number no go to Elon because big number means less number for me.’
Caveman vibes.
One of the only reasons I dunk on Burry is because I truly think he has warped investors’ minds, as I’ve said before.
And it’s really sad because clearly he is smart, but also simply doesn’t understand the way of markets now.