Michael Burry Takes Aim at Tesla
Michael Burry, known for correctly predicting the 2008 financial crisis, has taken a bold stance against Tesla (NASDAQ: TSLA) by placing a short position. He deems Tesla’s valuation ‘ridiculously overvalued’, trading at nearly 200 times its projected 12-month earnings, vastly outpacing most tech companies’ multiples.
Dilution Concerns and Shareholder Impacts
At the heart of Burry’s argument lies the issue of stock dilution. Tesla’s stock-based compensation plan dilutes shareholder value by 3.6% per year, and the absence of a stock buyback program compounds this issue. Additionally, Elon Musk’s proposed $1 trillion pay package could result in the issuance of 300 million new shares, further diluting existing shareholders’ stakes.
Institutional Skepticism Grows
Notably, Norges Bank Investment Management, the world’s largest sovereign wealth fund, voted against Musk’s compensation plan. Their rejection underscores a growing wariness from institutional investors concerning Tesla’s valuation and governance, specifically highlighting package size, shareholder dilution, and over-reliance on Musk. Such disapproval could signal a shift in investor sentiment towards a more cautious outlook on Tesla.
Technical Challenges: Stock Performance and Trading Range
From a technical analysis perspective, Tesla’s stock closed at $428.59 on December 2, in a narrow range between $400 support and $440 resistance levels. Relative Strength Index (RSI) indicates a neutral zone in the mid-50s, while the 50-day and 200-day moving averages rest near $418 and $375, respectively. A surge above $440 might propel the price to $460 or higher, while a dip below $400 could trigger additional selling pressure.
European Sales Decline
Adding to Tesla’s challenges, its sales in France plummeted by 57.8% year-over-year in November, marking a stark contrast to competitors like BYD, Volkswagen, and Stellantis, which are swiftly gaining market share in Europe. Overall, Tesla’s French market share has dropped 33% this year, compared to a modest 4.9% industry-wide decline.
Lessons from Burry’s Track Record
This isn’t the first time Michael Burry has targeted a high-valuation tech company. He previously shorted Nvidia, citing similar concerns about unsustainable valuations and aggressive stock compensation practices. Investors would do well to consider his critiques, especially in an environment where Tesla promises ambitious technological leaps, including AI and self-driving capabilities.
Boost Your Investment Toolkit
Are you looking to make smarter investment decisions? Consider “The Intelligent Investor by Benjamin Graham“, a timeless classic recommended by experts for enhancing investment strategies.
Stay informed, and evaluate Tesla’s evolving narrative amid dilution worries and intensifying global competition. Could Burry’s prediction signal pivotal changes for the electric vehicle leader?
