The prominent investor Michael Burry, famed for his prescient bet against the housing market before the 2008 financial crisis, has issued a stark warning regarding Tesla. He describes the electric vehicle maker’s valuation through a lens of “tragic algebra,” pointing to significant overvaluation risks that the market may be overlooking. This critique emerges even as Tesla’s share price holds steady, raising the question of whether the celebrated “Big Short” investor is mistaken this time.
The Institutional Counter-Narrative
In stark contrast to Burry’s cautionary stance, major institutional players are demonstrating considerable confidence. Recent filings reveal that asset manager Invesco Ltd. substantially increased its stake in Tesla by a notable 6.2%, bringing its total holdings to over 15.7 million shares. This aggressive buying by a large institution highlights a clear divergence in market sentiment, setting up a tug-of-war between fundamental valuation concerns and the unwavering growth narrative championed by bullish investors.
Dissecting the “Tragic Algebra”
Burry’s analysis shifts focus from Tesla’s vehicles to its corporate financial mechanics. He labels the company’s market capitalization as “ridiculously high,” with his central thesis revolving around shareholder dilution. The investor argues that Tesla’s aggressive use of stock-based compensation results in an annual dilution of approximately 3.6% for existing shareholders.
Should investors sell immediately? Or is it worth buying Tesla?
Unlike other technology giants such as Amazon, which often mitigate this effect through substantial share buyback programs, Tesla has allowed its share count to continue expanding. Burry further cautions that the terms of CEO Elon Musk’s monumental compensation package could potentially accelerate this dilution effect dramatically. Notably, despite the forceful criticism, Burry has not disclosed a new short position against Tesla, framing his argument purely on fundamental grounds.
Market Performance Amidst the Debate
Despite the high-profile verbal assault, Tesla’s stock has shown remarkable resilience. The shares currently trade at a stable €368.45. From a technical analysis perspective, the longer-term trend remains positive, with the price maintaining a comfortable cushion above its 200-day moving average of €299.95. This positioning underscores an intact upward trajectory, even as the equity navigates a consolidation phase and contends with technical resistance levels.
Investors now face a critical evaluation: will the sobering mathematics of continuous dilution ultimately outweigh the market’s enthusiasm for Tesla’s ventures into artificial intelligence and robotics? For the time being, as long as key support levels hold, the bullish narrative appears to retain control—though volatility is expected to remain elevated.
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