Teslas price is just too high. I think they will be very successful and become a big, dominant car maker.
But their price only makes sense if they end up being the only car maker left.
That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you.
For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the price, but what I see right now looks like there is many players, old and new, moving in.
I won't short them tough, in the end I'm just a dog on the internet and have no clue how stonks work.
The statement "Tesla market value is the same as everybody else put together" means either Tesla is expensive or everybody else is cheap or the statement is inaccurate. It's a little bit of all three.
All other car companies are primarily debt financed rather than equity financed. Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for a total enterprise value of $160B.
So Tesla isn't worth as much as all of the companies put together, it's worth about as much as 2 or 3 of the big ones. Which is still a lot.
But all the other car companies are facing an existential threat. Climate change and the EV transition are going to be tough. That has to be depressing their valuations some.
Tesla also has a really good profit margin. If they can keep that up, it goes a long way to justifying their prices. Pretty big if, that one -- the general assumption is that it will go down as they go downmarket to chase volume. Vertical integration might let them keep it up, though. Think of it like Apple -- 20% market share but >80% of the profit.
What I'm saying is that if Toyota or Volkswagen had no debt, a Tesla level profit margin and no overhanging challenge like the transition to EV, they'd have a market cap similar to Tesla's.
That still doesn't justify Tesla's market cap, but it makes it seem less insane.
>Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for a total enterprise value of $160B.
I believe that's a bit misleading because it includes Ford's lending arm. They borrow money and lend it out at higher rates. So lots of Ford debt is lent back out to consumers at profit.
- Tesla is achieving vertical integration to a degree no other mainstream auto OEM has achieved. The only other example of vertical integration to the extreme that I can think of is Koeneigsegg, and they are _very_ niche. This only helps Tesla make cheaper cars faster while collecting more margin per car.
- Tesla's FSD marketing is highly contentious, but they are the only auto manufacturer that is building (designing) their own SoCs explicitly for this. I wouldn't be surprised if they are outspending other auto OEMs on autonomous driving R&D by several degrees of magnitude.
- Tesla still has a major, major lead in EV battery tech which will only be cemented if they can get 4680 into revenue production. They also own the largest and (arguably) most reliable charging network in the world, which is growing at a faster rate than Electrify America, the second biggest competitor.
I think that Tesla is overpriced long term in a world where 91% of American cars are EVs and 48% of them are self-driving, but I think they are correctly priced for _right now_
> Climate change and the EV transition are going to be tough. That has to be depressing their valuations some.
Does it have to be? I can imagine that going from 100 years[1] of internal combustion engines to an entirely different type of drive train is going to be jarring, to say the least. But neither are EV completely new at this point, nor is a car just its drive train.
Surely other comparable transitions have been successful? Any older computer corporation has more or less reinvented itself a few times. More topically, airplane manufactures must have gone from piston engines to vastly different jet engines at some point[2].
[1] BMW for example exists since 1916.
[2] Apparently Boeing was originally founded in 1916, too.
I agree with the sentiment that comparing Tesla's market cap with traditional car companies is inaccurate.
For certain companies, market capitalization is a good proxy for enterprise value, but as this poster is mentioning, that's not always the case for companies with debt.
enterprise_value = market_cap + debt - cash
Looking at the market caps of long-standing US car manufacturers is doubly problematic cause they have significant pension obligations. They're producing cars to build shareholder value and pay for retirements.
Comparing market capitalizations of companies that have completely different debt / pension obligations is misleading.
iPhones are not a commodity product. At the moment Teslas are. How will Tesla convince consumers that their car, with a high profit margin, is worth it over a mature EV vehicle from Ford, BMW, etc.
> I won't short them tough, in the end I'm just a dog on the internet and have no clue how stonks work.
To be clear, Michael Burry didn't short Tesla, he bought put options, which gives him the right but not the obligation to sell Tesla stock for a certain price, on a certain date.
If the bet works against him, his options expire worthless. This puts an upper limit on his losses.
If you have an actual short position, your potential losses are unlimited.
Actually we have no idea if he is short TSLA. The fact that he has purchased TSLA put options is from the SEC Form 13F which he's required to file quarterly.
Short positions (for some reason) are not on the 13F.
So he could be long TSLA and have purchased put options as a hedge or any number of other strategies.
I'm not sure that's necessarily meaningful. Sure, you pay for optionality in a put as opposed to a short, but it may be easier and cheaper to buy a put than finance a short if you believe the stock will go down. The downside isn't unlimited if you short, since I don't think you'd be on the hook if you hit a margin call, your collateral would simply be seized and your position would be exited.
I'm sure there's other intricacies in short vs buy a put, but I don't think you can infer too much from the choice without knowing a lot more. I think all you could say is that he's bearish on the stock in the short term.
I could be wrong though so I would love to hear other interpretations or whether there's some liability apart from your margin in a naked short.
All three technologies are really key parts of the future, and controlling that aspect of the suburban home energy profile have absolutely huge synergies.
As we get to higher penetration of renewables, our grid will change from the current model of supplying whatever power is demanded, to a far more two way mode where excess supply will drive time-shifted demand.
Right now the only monetization strategy on the grid for solar/storage providers are 1) net-metered solar, and 2) backup electricity for outages. This will change.
The most expensive component of an EV is the battery, and it's likely we will have as much grid-attached non-EV storage as we have EV storage.
IMHO the current price is unhinged from any analysis, and fully in the tulip bulb stage of share pricing. But I think that Tesla is better positioned to take advantage of three core technologies of our energy future, three techs that must be tightly coupled, and no other player is even really thinking of that.
That may be true for car makers, but in the energy world, other than some battery storage projects, Tesla is really not a major player at all, and there is an endlessly long list of companies that are more meaningful for this market and better able to take advantage of the increased renewables rollout around the world.
I'm not one to typically paraphrase billionaires, or think they're too connected to reality... but something I heard Mark Cuban say the other day was kind of "oh, shit that's true" moment for me. It was something to the affect of (I can't find the clip at the moment), "Back in 2010 we never thought we'd see a company hit $1 trillion. We never thought Apple or Amazon (et. al) would be able to continue their growth year after year to even be those $2 trillion dollar companies..." All I could think was "oh shit, yeah, I never thought I'd see it either."
Ten years ago, Apple was worth $297 billion dollars, today it's worth $2.1 trillion dollars. I think Tesla stands a good a chance to be worth these seemingly absurd valuations. The market price isn't solely defined by the current value. With tech companies especially, it reflects expected value, and Tesla still has a lot of room to grow. I'd be more skeptical but EVs are eventually going to cost way less to make than typical ICE (internal combustion engine) cars, and per unit that savings translates into a lot of fucking profit. Not to mention the additional profit they're raking in thanks to the public's image of Tesla's and the experience generally being "magical" (even if gimmicky). Also, a "green crypto" if a Tesla branded play (I feel musk is bringing this soon) will cause a pretty gigantic boost to the company's bottom line.
For at least the next 2-5 years Tesla is gonna be pretty safe, and I'd guess that 2-5 will buy it like 3-5 more years just being the incumbent... I don't think Burry is going to be to happy on this one. Mark Spiegel has already fallen to the beast, and I suspect Burry is likely going to as well.
"Tech" companies here encompasses quite a broad list of markets. Just because Apple and Amazon managed to upend expectations doesn't mean that Tesla will. Most of these gigantic technology companies are software companies that have incredible profit margins and really hard to disrupt market positions. Apple is unique in that it manages to sell a premium product with premium pricing without it affecting overall demand with the best-in-class product differentiation that the Apple brand is known for.
Yes, Tesla's managed to do something somewhat similar, but will that continue to hold? Even as automobile competitors finally wake up and start competing on electric cars? Will they become the largest automaker in the world? Tough questions to answer.
FWIW, the context of that was him defending wallstreetbets putting money into gamestop. His argument was that for most investors stocks just represent a store of value and little else - not some bullshit "owning part of a company" or even "fundamentals".
Part of his argument was that even companies like Apple have gone way beyond any valuation anyone would have thought reasonable as little as 10 years ago.
> I'd be more skeptical but EVs are eventually going to cost way less to make than typical ICE (internal combustion engine) cars, and per unit that savings translates into a lot of fucking profit.
What's the basis for this? Battery tech evolution and ICE cars have no more (safe) optimizations to make to get costs down?
Amazon and Apple are WAY WAY WAY different companies than Tesla.
Apple has dominated high-end smartphones for over a decade. Amazon has dominated eCommerce for that time and longer.
Tesla dominates EV, which is a tiny portion of all auto sales. There is about to be huge competition in the EV space from legacy auto manufacturers and a car is not the same as a phone.
There are plenty of cars with a WAY better driving experience than a Toyota Camry but it's still the best selling sedan on the road. So really hard to believe Tesla can win by offering "premium" driving experience.
The question imo is if time benefits the incumbents (due to monopoly / network consolidation) or if time benefits the disruptors (due to the commoditization of growth/scale, the shrinking of the distance between 0-$1B, and tech monopolies being based on 90s web tech which is stretched to breaking point). How will climate disruption fit into this, who benefits as the world starts to break faster and faster.
> EVs are eventually going to cost way less to make than typical ICE (internal combustion engine) cars, and per unit that savings translates into a lot of fucking profit
Not in a competitive market which is where Tesla may be in 10 or 15 years, especially if everyone commutes by robo-taxi.
When Berkshire Hathaway was still a textile company the operating manager excitedly told Warren Buffett about a new loom machine being developed which was far more efficient. Buffett's responded that if the report was true he would likely close the business, because he cost savings would flow to the customer and the long-term return on the new capital investment would be low.
The world needs enormous amounts of stationary storage to transition to zero carbon electrical generation, and nuclear ain’t happening. Tesla sells batteries in lots of products, some with better margins than others.
F150 Lightning being unveiled in a couple days is a good example of this. The F150 is the most popular vehicle in America & this has a good chance at being a pretty big success.
Telsa's only significant achievement was to create a company structure that allowed it to pursue a loss making manufacturing startup to begin with. The big auto makers have golden handcuffs and can't risk that sort of paradigm shift to a new market. Now they know people will buy them they will easily retool towards electric. I think Tesla will either be crushed or end up a midsized player.
TSLA price may be justified in the future IFF they are not "just a car maker". I think with batteries, self-driving, something else?, they have a potential to be "more" than a "dominant car maker" but they are definitely not there yet. Will they ever be in such position? This is a bet some are willing to make. Personally, I invested in them near their IPO price right when Elon joined betting that they will become "the best EV maker". They achieved that. Will they achieve a much bigger bet of being "much more than a carmaker"? I am not yet comfortable making such bet. At least not at this cost.
> I think they will be very successful and become a big, dominant car maker.
I'm not sure really. They keep throwing the entire company at insanely poorly leveraged bets with unfulfilled promises. (Cybertruck is on track to be delivered at a longer timeframe than any car tesla has ever made, they haven't even built the factory or unveiled the final design, same for Semi and Roadster, the new Model S was supposed to be shipping in..uh.. March?) I think they are scaled too big to breathe and survive, eventually being bought in a post-Elon world by a Ford, GM, or possibly Google or Apple.
They bet the company on the OG roadster, S, and 3.
They don't need to now. The 3 and Y are quite successful and quite profitable.
The Truck, Semi, Roadster, Leaf Blower, and such are all distractions that aren't worth building until they've managed to establish much larger battery volumes and aren't selling every Y and 3 they make months before they make them.
What's their run rate? They've got a ton of cash and viable products (3 and Y) where there are people lined up to buy them before they're even made. And they've got the supercharger network which is an enormous differentiator against any other EV.
Their biggest threat is if there's some enormous unseen flaw in their battery design where they get swamped with battery warranty claims.
The share price is absurdly high, but it is similarly absurd to project the company going out of business.
This comment reminds me of a car auction i went to years ago: This 2 yr old car with around 250,000kms on it came up, likely used for long distance travel as this was in rural Australia. The car looked like a 2 year old car inside and out, it was completely normal except for the odometer reading. The auctioneer used the line "No one can read the odometer when you're driving on by". I wouldn't have bought it, but i liked the line.
While I won't dispute that Tesla's share price is high given where the company is at right now when valued as an auto business, there are a few things I think are worth mentioning and commenting on in your post.
> Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you.
This couldn't be further from the truth. While making a prototype EV is relatively easy, yes. EV industry followers will note that the real challenge is scaling EV production, and specifically the batteries' production. You don't need to look further then to answer: 'Why don't all of these automakers have tonnes of EVs on their lots available today as we speak? Why are they all '2022 release' or even 'dozens of models in 2025'. Because all of the tier 1 and tier 2 li-ion battery supplies have already been allocated from now to several years out, and if you want 'EV model volume' scale batteries, you better be ready to fork over the capital or purchase commitment for a batttery cell production line that might not have had a shovel hitting the ground yet. And waiting a few years for assembled product.
> But their price only makes sense if they end up being the only car maker left.
Assuming both the gross margin profile and auto ownership model stay the same - sure. Tesla has proven to generate more gross margin per vehicle than other automakers as is, they have 'practically' infinite demand (stimulated by expanding geographies and targeted price reductions when demand sags). And this isn't accounting for GM expansion for vehicles that could be a part of a ride hailing network (autonomous or not).
I do believe, like other 'Tesla fans', that when factoring in their lead in scale and tech, unit cost advantage as well as how things look on a decade or two time horizon, I think it is quite likely that there will not be a better time to become a shareholder in the next 1-2 decades.
One way I look at it is by comparing it to Apple, a ~$2T market cap company in 2020 dollars. ARPU of an Apple customer compared to a Tesla customer is probably between 1/4-1/10 (how much iphone/mac/apple services does one buy versus transportation spend on an annual basis). If you project Tesla margins to look more like Apple's 10 years from now (yes, a big bet), even with similar market share breakdowns of iOS/Android today - it isn't a huge stretch to imagine with ~50-100M EVs on the roads by then - that you could have Tesla with a market cap between 10T and 20T in 2020 dollars. Particularly when factoring in their business segments beyond personal transport/light vehicles.
They are so far the only company making EVs to have crossed the 'valley of death'[See: crossing the chasm]. Startups and established automakers will need to spend billions in order to get EVs sold at scale that generate FCF per unit. It is a tall order.
(Not financial advice do your own research etc etc)
EDIT: Also note that Tesla has stated in an earnings call that they are looking at 50% CAGRs moving forward, and I do think that they could be undershooting this number a bit.
European car brands (combined) sold more EVs in January-March than Tesla. Also, Nissan was selling more EVs than Tesla for many years. It just doesn't seem that difficult to scale EV production.
I don't follow this very closely, but hasn't Volkswagen already shown they're not that far behind, and aren't they already outselling Tesla in Europe? I've watched a lot of the ID4 reviews (since I'm in the US and we don't get the ID3), and the issues with the car seem very minor, and potentially fixable with OTA updates. If they end up selling a lot of them, that should take a lot of the wind out of Tesla's sails IMO.
I'd think of Tesla as of an iPhone for affluent hipsters. Teslas remain connected to the manufacturer that collects extensive info on drivers (spying, some would say) and can use it for marketing or other purposes later. Teslas can be a powerful distribution channel if Musk figures a way to discreetly advertise to them right in their cars. Teslas are a golf club in a sense: a directory of important people, except that the club has managed to install mics, gps trackers and a internet connected screen right in the members' cars.
Is Tesla the only car company collecting usage data? Off the top of my head, I don't think so.
Your comment kind of reminds me of how much shit "Big Tech" gets for data collection, just because they're highly visible, while the really scary shit (e.g. cell carriers offering granular per-user location data APIs to anybody with money) flies under the radar because it doesn't have that sexy down-with-big-tech angle that (ironically?) seems to drive the most clicks.
That's not to say the usual "Big Tech" suspects are choirboys, but the public discourse's focus on their data collection activities is absurdly myopic.
Tesla isn't a car company, though. They even removed "Motors" from their name years ago - showing wider interest, and not just batteries. Solar roofing as well, and others.
I don't hold TSLA right now, regretfully, I entered pre-split at $27 and sold at $200. I also think the current price is way too high, for what it's worth. WAY too high. But it's not at all about cars, at least not for me, when trying to justify the valuation. It's about energy at large scale, and transportation at large scale. Not just car sales. Or battery sales.
Edit: Currently P/E is ~570! I remember it being 1,300 recently. Yikes.
Panasonic makes Tesla's batteries though. I've heard this argument since at least 2015. I was told then that Tesla was just leveraging Panasonic and would eventually make their own batteries. Still hasn't happened.
The P/E is probably still skewed. They're accounting for the robotaxi windfall which is leveraging their buyback program, kind of ridiculous considering the constant delays and skepticism surrounding their fully autonomous system and then you've got to consider the regulatory hurdles that are inevitably going to develop after deployment.
Take a look at the "Common Sense Skeptic" youtube channel. Tesla's purchase of Solar City is a scandal on itself, it was never a play on entering the solar roof business. It was just a bail out using Tesla's shareholders money to save Musks and his business partners (which were Musks cousins btw) investments. This channel also destroys all the hype surrounding Starship, it's a joy to watch.
The only new reveal is the dollar figure. Burry has been very openly (and vocally) short on Tesla for a while now. He has been Tweeting a bunch about it since September last year. Tesla shares are up ~75% since those original Tweets.
"The market can remain irrational longer than you can remain solvent" applies to both amateur traders and the most seasoned investor/genius alike.
Possibly worth noting that Burry is not the only Big Short figure to openly opine that Tesla's pricing seems way out of whack compared to its fundamentals. Steve Eisman (aka Mark Baum in the movie) was publicly short Tesla for a bit. I think he ended up closing out and losing money at some point with a rueful "It's very hard to short a stock that's a cult."
It's possible both of them are wrong and Tesla has fundamental value at a level they were unable to analyze. Or it's possible that Tesla's future will be determined by things beyond fundamental value. But it's also possible they're right on some timeline.
Infamously Musk himself tweeted 'Tesla stock price too high imo' at around (can't get accurate atm) $150; it's currently at $573.
(Not that anything Musk tweets should be taken as anything other than.. an indication that one or all of TSLA, Bitcoin, or Dogecoin is about to move rapidly in one or both directions..!)
Oh you're completely missing the nuisance of what we just learned.
Sure, he's been talking short since September, but the size of his position has grown considerably since then - almost certainly timing the S&P inclusion (sorry index investors, you quite literally paid the top price for a stock that has lost almost 45% since you bought it).
He's almost certainly made a killing with his position and the beauty is we don't even know what it is today. He could have realized hundreds of millions in gains, or he could have them all still open.
If he has the position from the filings - just today, when Tesla is down $22 - he has made over $16 million dollars in unrealized gains.
It will be hilarious watching the Musk Zealots crying to have Elon tweet something to fraudulently try to pump the stock price and try to trigger a squeeze. Meanwhile they don't realize he's doing this with options, not shorting directly.
> (sorry index investors, you quite literally paid the top price for a stock that has lost almost 45% since you bought it).
If there's a single index investor that feels saddened by this stat, in the slightest way, they should stop index investing right now. The great joy of index investing is that this single stock is down, while on average everything else is way up...
>If he has the position from the filings - just today, when Tesla is down $22 - he has made over $16 million dollars in unrealized gains.
We don't have enough information to determine that. We would need to know strikes and expirations to even start to figure that out. AFAIK, we don't have either.
Tesla can grow and sell tons of cars and the stock price might still fall.
Cisco Systems is a great example of a fantastically profitable business with a stock price that's still below peak. It's an incredibly successful company that makes more than $10 billion in profit every year. The stock price is still below the March 2000 peak.
If Tesla "only" made $20 billion in profit a year, the market would probably consider it a failure. Expectations are high.
I can see the bull case for Tesla becoming a multi-trillion dollar company or the bear case. Hard to assess Burry's position without knowing the expiration date and strike price of his puts.
I was curious and looked it up- Cisco is indeed still off of its peak stock price $52 vs $77 in 3/2000... But if you reinvested their dividends you would be a little closer! Just don't adjust for inflation!
$10k invested on 1/2000 would have peaked at $14k in March, and now would be worth $9.5k
Some interesting parallels with automotive industry here. Cisco saw huge valuation base on a perceived future. Nortel (who were more of an incumbent) also saw massive stock price increases at that time. Only one of these two companies survived. Cisco had the right tech but Nortel had fundamentally the wrong tech. I suspect we'll see something similar in the automotive industry.
>Hard to assess Burry's position without knowing the expiration date and strike price of his puts.
Even if you knew the exact pieces of paper that he held today, that would tell you nothing about his overall plan. Very few options strategies involve a one-time purchase of contracts in hopes that the dates & prices on those will hold until conclusion. For something this big, you would continue to acquire (and sell) contracts at a range of strike prices & expiration dates until the overall play is concluded.
I find the title misleading. Unless I misunderstand, Michael Burry has not actually put $530M of his money at risk. He's made a much smaller, leveraged bet. $530M is just the notional value.
So how would you go about making an educated reverse engineering claim on the stake at risk without knowing his other legs nor expiry dates? Is it even possible? How about a wide range?
He bought 8001 put options on some undisclosed date at an undisclosed strike date and price. You can take a look at the options chain for TSLA to get an idea.
For example, a $450 put for September 17th 2021 would cost about $16.70 per share:
One option counts for 100 shares, so that would be a (8001 * 16.70 * 100) 13.36 million dollar bet. Suppose that TSLA is worth only $400 on that date, with your right to sell at $450 you'd be in the money for 40 million dollars, or roughly $26 million in profits. If TSLA is worth $450 or more on that date, your options expire worthless.
> As of March 31, Burry owned 8,001 put contracts, with unknown value, strike price, or expiry, according to the filing.
You can't figure out his position with this information.
For example, you could buy very, very out-of-the-money puts for a penny. (Your bet would basically be: TSLA loses 95% of it's value in the next week.) My total value at risk for this bet (of 8,001 put contracts) would be $80.
Can someone ELI5 how this works to those of us who only buy and sell things? I've looked up the definitions, but I'm curious about the purposes and practical risk/reward scenarios of this particular sort of bet.
When you buy a “put” you are entering into a contract that gives you the right, but not the obligation, to sell X number of shares of Acme Class A common stock for $Y/share on (or sometimes within) a specific date.
So let’s say Acme Class A is currently trading at $50/share. If you think, for whatever reason, Acme Class A common stock will be trading at $1 next week you might want to buy a put that lets you sell 100,000 shares for $10/share. If the price of Acme Class A stays the same, you would never exercise the option to sell because you’d lose money - why would you sell Acme Class A for $10/share when you could sell it on the open market for $50/share? But if you’re right, and Acme Class A is trading at $1/share, you would then of course want to sell as many shares as possible at the $10/share rate. So you’d go on the open market, buy yourself 100,000 shares for $100,000, then turn right around and exercise your option to sell those shares for $1,000,000.
So the only money at risk is the cost of the contract itself because you don’t have to actually buy the shares until you decide whether you want to exercise the option to sell them.
If you want a put contract that allows you the option to sell 100,000 shares of TSLA for $0.01/share tomorrow it wouldn’t cost much because it’s highly unlikely you’d exercise the option and so, for the person on the other side of the agreement, it would basically be free money. When there’s more uncertainty then the cost of buying the contract is higher because the person on the other side is taking a risk that they’ll be stuck buying a bunch of securities at a price much higher than what they’re actually worth.
TLDR: when you buy a put contract you’re essentially paying money to someone to lock in a price.
Options are time-limited and expire so you're betting that it goes up or down BEFORE a certain date.
You can buy very cheap out of the money options at small fractions of the cost of the shares by making bets that TSLA will drop hard in the next year while the market thinks that in that timeframe it will not.
Most of the time you lose money doing this.
Time it right, though and you can make 10x returns, but you have to be right and the rest of the market needs to be wrong, which is often unlikely.
But even if you're right in the long-term you need to also get it right in the short-term.
I don't think I'd be betting against this market right now, there's no guessing how irrational we'll wind up getting. Post-pandemic I would guess we'll have even more of an irrational bubble around back-to-normal, and a rising tide lifts all the boats.
A put is a option contract that gives its holder the right to sell a share at a certain price (strike) within a certain time (maturity for American options, European options can only be exercised at maturity). If you buy a put of strike 100 and a stock is at 90 you can exercise it thus selling the stock at 100 which is higher than its actual price.
So when you buy a put you are betting that the stock is going to go down. Each put usually gives you right to sell 100 shares, and since you can buy/sell the contract itself, you can easily get leverage when compared to actually trading the shares.
Without knowing what the strike prices and how much he paid for those contracts you can't really determine how much he is going to gain/lose. His gain is capped though as TSLA cannot go below 0.
It sounds like the short thesis is centered around Tesla’s revenue coming in large part from regulatory credits.
If you take out credits and crypto, they look like most other car manufacturers, struggling to make a profit.
> As more automakers produce battery electric vehicles of their own, ostensibly fewer will need to purchase environmental regulatory credits from Tesla, which they have done in order to become compliant with environmental regulations.
> In the fourth quarter of 2020, Tesla’s $270 million in net income was enabled by its sale of $401 million in regulatory credits to other automakers.
Except...the traditional automakers are not struggling to make profit. Not even close. VW Group made $10B last year, during a pandemic year. Toyota $19B. FCA, with their public image of "also ran", $7B. BMW made $4.5B just last quarter.
Even minor automakers like Suzuki or Kia still make multiples of Tesla's profit without breaking a sweat
Tesla sells its regulatory credits to other auto makers. Other auto makers are becoming more environmentally friendly and are weening off buying credits from Tesla.
Tesla ins't "struggling to make a profit". It never made it. Other than artificially imposed government credits, Tesla business is not and have never been sustainable. Maybe someday people will start to see Musk for the carnival barker that he really is.
I'm having a hard time with this one since from the article it doesn't seem like Burry is seeing anything that isn't very well discussed/analyzed already regarding Tesla. Short sellers have gotten very burned in the past in gambles like this, but they've also sometimes made money. Given how historically irrational the market has been about Tesla, this just seems like a gamble rather than the well-reasoned short position based on deep (and unpopular) analysis that his subprime mortgage play was.
> this just seems like a gamble rather than the well-reasoned short position based on deep (and unpopular) analysis that his subprime mortgage play was.
A short is a gamble all the time because you don't know the time component. Burry was "lucky" in that it happened fast enough. There are lots of people who want to short Tesla but don't dare to because of the cost involved in it and unpredictability of when their bet would pay off.
It's likely he's already up massively on his PUTs, which were purchased sometime in Q1. We don't really know the strikes or expiry dates, so it's hard to say.
Tesla is a bubble for sure but this is way too risky. Sure, we don’t know the strikes or expiry dates but there are plenty of fan boys to take on the fight against Burry ad infinitum.
The market can become irrational longer than you can become solvent.
I'm 100% on Burry camp though.
Well, Musk had lots of bitcoin/dogecoin on his mind lately. He is exchanging those for cars but not in a trustable way, how long do you think this can go? I don't have proof of anything but this can certainly damage the Tesla's balance sheet.
Tesla has already achieved its objective: To bring about the electric car revolution. Its secondary objective of pushing the self-driving car revolution has done so-so. How Tesla performs going forward is more of a nice-to-have, but otherwise irrelevant since the ball is now rolling and not in danger of stopping anymore.
The remaining pieces now are solar generation on building surfaces, battery tech, smart grids to route the energy efficiently, cheap space travel, cheap tunneling, and maybe hyperloop if no one picks it up.
This might be Elon Musk's objective, not Tesla's (whatever that means, as that will be a different thing if you ask it to one of its board members, to a sales person, to a developer, etc).
Michael Burry shorted the mortgage backed securities market before most other short sellers. He even suffered from redemptions of his fund and had to disallow them to stop the hemorrhage. Let’s see if his timing is closer to the downwards inflection point now. The market seems super frothy now and I am wary of calling the moment of the inevitable downward spiral. Seen this movie many times before. Just always called it too early (which means you lose). I think being a momentum trader is very hard and requires nerves of steel.
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But their price only makes sense if they end up being the only car maker left.
That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you.
For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the price, but what I see right now looks like there is many players, old and new, moving in.
I won't short them tough, in the end I'm just a dog on the internet and have no clue how stonks work.
All other car companies are primarily debt financed rather than equity financed. Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for a total enterprise value of $160B.
So Tesla isn't worth as much as all of the companies put together, it's worth about as much as 2 or 3 of the big ones. Which is still a lot.
But all the other car companies are facing an existential threat. Climate change and the EV transition are going to be tough. That has to be depressing their valuations some.
Tesla also has a really good profit margin. If they can keep that up, it goes a long way to justifying their prices. Pretty big if, that one -- the general assumption is that it will go down as they go downmarket to chase volume. Vertical integration might let them keep it up, though. Think of it like Apple -- 20% market share but >80% of the profit.
What I'm saying is that if Toyota or Volkswagen had no debt, a Tesla level profit margin and no overhanging challenge like the transition to EV, they'd have a market cap similar to Tesla's.
That still doesn't justify Tesla's market cap, but it makes it seem less insane.
I believe that's a bit misleading because it includes Ford's lending arm. They borrow money and lend it out at higher rates. So lots of Ford debt is lent back out to consumers at profit.
The majority of their debt comes from financing the sales of their cars to fleets, dealers, or consumers. This earned them 1.7B last year.
Tesla's real advantage imo comes down to not having dealers eat into their margins.
[1] https://en.wikipedia.org/wiki/Ford_Motor_Credit_Company
- Tesla is achieving vertical integration to a degree no other mainstream auto OEM has achieved. The only other example of vertical integration to the extreme that I can think of is Koeneigsegg, and they are _very_ niche. This only helps Tesla make cheaper cars faster while collecting more margin per car.
- Tesla's FSD marketing is highly contentious, but they are the only auto manufacturer that is building (designing) their own SoCs explicitly for this. I wouldn't be surprised if they are outspending other auto OEMs on autonomous driving R&D by several degrees of magnitude.
- Tesla still has a major, major lead in EV battery tech which will only be cemented if they can get 4680 into revenue production. They also own the largest and (arguably) most reliable charging network in the world, which is growing at a faster rate than Electrify America, the second biggest competitor.
I think that Tesla is overpriced long term in a world where 91% of American cars are EVs and 48% of them are self-driving, but I think they are correctly priced for _right now_
Does it have to be? I can imagine that going from 100 years[1] of internal combustion engines to an entirely different type of drive train is going to be jarring, to say the least. But neither are EV completely new at this point, nor is a car just its drive train.
Surely other comparable transitions have been successful? Any older computer corporation has more or less reinvented itself a few times. More topically, airplane manufactures must have gone from piston engines to vastly different jet engines at some point[2].
[1] BMW for example exists since 1916. [2] Apparently Boeing was originally founded in 1916, too.
For certain companies, market capitalization is a good proxy for enterprise value, but as this poster is mentioning, that's not always the case for companies with debt.
enterprise_value = market_cap + debt - cash
Looking at the market caps of long-standing US car manufacturers is doubly problematic cause they have significant pension obligations. They're producing cars to build shareholder value and pay for retirements.
Comparing market capitalizations of companies that have completely different debt / pension obligations is misleading.
That's not an impossible outcome. I have no bets in this market, I'm strictly wait-and-see.
It's worth pointing out that Apple's valuation before it carved out that "Apple-sized share" was much, much lower.
Their net profit margin is barely 2%.[1]
I would not call it good by any stretch.
By contrast Apple has a 25% net margin[2]. That is what I call good.
[1] https://www.macrotrends.net/stocks/charts/TSLA/tesla/profit-...
[2] https://www.macrotrends.net/stocks/charts/AAPL/apple/profit-...
To be clear, Michael Burry didn't short Tesla, he bought put options, which gives him the right but not the obligation to sell Tesla stock for a certain price, on a certain date.
If the bet works against him, his options expire worthless. This puts an upper limit on his losses.
If you have an actual short position, your potential losses are unlimited.
Short positions (for some reason) are not on the 13F.
So he could be long TSLA and have purchased put options as a hedge or any number of other strategies.
I'm sure there's other intricacies in short vs buy a put, but I don't think you can infer too much from the choice without knowing a lot more. I think all you could say is that he's bearish on the stock in the short term.
I could be wrong though so I would love to hear other interpretations or whether there's some liability apart from your margin in a naked short.
Isn’t this a bit like saying that the potential upside of holding any stock is unlimited?
All three technologies are really key parts of the future, and controlling that aspect of the suburban home energy profile have absolutely huge synergies.
As we get to higher penetration of renewables, our grid will change from the current model of supplying whatever power is demanded, to a far more two way mode where excess supply will drive time-shifted demand.
Right now the only monetization strategy on the grid for solar/storage providers are 1) net-metered solar, and 2) backup electricity for outages. This will change.
The most expensive component of an EV is the battery, and it's likely we will have as much grid-attached non-EV storage as we have EV storage.
IMHO the current price is unhinged from any analysis, and fully in the tulip bulb stage of share pricing. But I think that Tesla is better positioned to take advantage of three core technologies of our energy future, three techs that must be tightly coupled, and no other player is even really thinking of that.
Ten years ago, Apple was worth $297 billion dollars, today it's worth $2.1 trillion dollars. I think Tesla stands a good a chance to be worth these seemingly absurd valuations. The market price isn't solely defined by the current value. With tech companies especially, it reflects expected value, and Tesla still has a lot of room to grow. I'd be more skeptical but EVs are eventually going to cost way less to make than typical ICE (internal combustion engine) cars, and per unit that savings translates into a lot of fucking profit. Not to mention the additional profit they're raking in thanks to the public's image of Tesla's and the experience generally being "magical" (even if gimmicky). Also, a "green crypto" if a Tesla branded play (I feel musk is bringing this soon) will cause a pretty gigantic boost to the company's bottom line.
For at least the next 2-5 years Tesla is gonna be pretty safe, and I'd guess that 2-5 will buy it like 3-5 more years just being the incumbent... I don't think Burry is going to be to happy on this one. Mark Spiegel has already fallen to the beast, and I suspect Burry is likely going to as well.
shrug just my two cents.
Yes, Tesla's managed to do something somewhat similar, but will that continue to hold? Even as automobile competitors finally wake up and start competing on electric cars? Will they become the largest automaker in the world? Tough questions to answer.
Part of his argument was that even companies like Apple have gone way beyond any valuation anyone would have thought reasonable as little as 10 years ago.
What's the basis for this? Battery tech evolution and ICE cars have no more (safe) optimizations to make to get costs down?
Apple has dominated high-end smartphones for over a decade. Amazon has dominated eCommerce for that time and longer.
Tesla dominates EV, which is a tiny portion of all auto sales. There is about to be huge competition in the EV space from legacy auto manufacturers and a car is not the same as a phone.
There are plenty of cars with a WAY better driving experience than a Toyota Camry but it's still the best selling sedan on the road. So really hard to believe Tesla can win by offering "premium" driving experience.
Not in a competitive market which is where Tesla may be in 10 or 15 years, especially if everyone commutes by robo-taxi.
When Berkshire Hathaway was still a textile company the operating manager excitedly told Warren Buffett about a new loom machine being developed which was far more efficient. Buffett's responded that if the report was true he would likely close the business, because he cost savings would flow to the customer and the long-term return on the new capital investment would be low.
It's likely margins remain the same and prices fall substantially. That's what competition does, and the auto world is full of it.
"Big, dominant" in the same sense as maybe Ferrari: Prestigious cars for a niche audience that are willing to pay a premium for the brand.
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But tesla price was never based on actual company financial, they were based on the dream Elon was selling his investors.
I'm not sure really. They keep throwing the entire company at insanely poorly leveraged bets with unfulfilled promises. (Cybertruck is on track to be delivered at a longer timeframe than any car tesla has ever made, they haven't even built the factory or unveiled the final design, same for Semi and Roadster, the new Model S was supposed to be shipping in..uh.. March?) I think they are scaled too big to breathe and survive, eventually being bought in a post-Elon world by a Ford, GM, or possibly Google or Apple.
They don't need to now. The 3 and Y are quite successful and quite profitable.
The Truck, Semi, Roadster, Leaf Blower, and such are all distractions that aren't worth building until they've managed to establish much larger battery volumes and aren't selling every Y and 3 they make months before they make them.
What's their run rate? They've got a ton of cash and viable products (3 and Y) where there are people lined up to buy them before they're even made. And they've got the supercharger network which is an enormous differentiator against any other EV.
Their biggest threat is if there's some enormous unseen flaw in their battery design where they get swamped with battery warranty claims.
The share price is absurdly high, but it is similarly absurd to project the company going out of business.
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> Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you.
This couldn't be further from the truth. While making a prototype EV is relatively easy, yes. EV industry followers will note that the real challenge is scaling EV production, and specifically the batteries' production. You don't need to look further then to answer: 'Why don't all of these automakers have tonnes of EVs on their lots available today as we speak? Why are they all '2022 release' or even 'dozens of models in 2025'. Because all of the tier 1 and tier 2 li-ion battery supplies have already been allocated from now to several years out, and if you want 'EV model volume' scale batteries, you better be ready to fork over the capital or purchase commitment for a batttery cell production line that might not have had a shovel hitting the ground yet. And waiting a few years for assembled product.
> But their price only makes sense if they end up being the only car maker left.
Assuming both the gross margin profile and auto ownership model stay the same - sure. Tesla has proven to generate more gross margin per vehicle than other automakers as is, they have 'practically' infinite demand (stimulated by expanding geographies and targeted price reductions when demand sags). And this isn't accounting for GM expansion for vehicles that could be a part of a ride hailing network (autonomous or not).
I do believe, like other 'Tesla fans', that when factoring in their lead in scale and tech, unit cost advantage as well as how things look on a decade or two time horizon, I think it is quite likely that there will not be a better time to become a shareholder in the next 1-2 decades.
One way I look at it is by comparing it to Apple, a ~$2T market cap company in 2020 dollars. ARPU of an Apple customer compared to a Tesla customer is probably between 1/4-1/10 (how much iphone/mac/apple services does one buy versus transportation spend on an annual basis). If you project Tesla margins to look more like Apple's 10 years from now (yes, a big bet), even with similar market share breakdowns of iOS/Android today - it isn't a huge stretch to imagine with ~50-100M EVs on the roads by then - that you could have Tesla with a market cap between 10T and 20T in 2020 dollars. Particularly when factoring in their business segments beyond personal transport/light vehicles.
They are so far the only company making EVs to have crossed the 'valley of death'[See: crossing the chasm]. Startups and established automakers will need to spend billions in order to get EVs sold at scale that generate FCF per unit. It is a tall order.
(Not financial advice do your own research etc etc)
EDIT: Also note that Tesla has stated in an earnings call that they are looking at 50% CAGRs moving forward, and I do think that they could be undershooting this number a bit.
Source: https://insideevs.com/news/504647/global-plugin-sales-march-...
Your comment kind of reminds me of how much shit "Big Tech" gets for data collection, just because they're highly visible, while the really scary shit (e.g. cell carriers offering granular per-user location data APIs to anybody with money) flies under the radar because it doesn't have that sexy down-with-big-tech angle that (ironically?) seems to drive the most clicks.
That's not to say the usual "Big Tech" suspects are choirboys, but the public discourse's focus on their data collection activities is absurdly myopic.
I don't hold TSLA right now, regretfully, I entered pre-split at $27 and sold at $200. I also think the current price is way too high, for what it's worth. WAY too high. But it's not at all about cars, at least not for me, when trying to justify the valuation. It's about energy at large scale, and transportation at large scale. Not just car sales. Or battery sales.
Edit: Currently P/E is ~570! I remember it being 1,300 recently. Yikes.
"The market can remain irrational longer than you can remain solvent" applies to both amateur traders and the most seasoned investor/genius alike.
It's possible both of them are wrong and Tesla has fundamental value at a level they were unable to analyze. Or it's possible that Tesla's future will be determined by things beyond fundamental value. But it's also possible they're right on some timeline.
(Not that anything Musk tweets should be taken as anything other than.. an indication that one or all of TSLA, Bitcoin, or Dogecoin is about to move rapidly in one or both directions..!)
Sure, he's been talking short since September, but the size of his position has grown considerably since then - almost certainly timing the S&P inclusion (sorry index investors, you quite literally paid the top price for a stock that has lost almost 45% since you bought it).
He's almost certainly made a killing with his position and the beauty is we don't even know what it is today. He could have realized hundreds of millions in gains, or he could have them all still open.
If he has the position from the filings - just today, when Tesla is down $22 - he has made over $16 million dollars in unrealized gains.
It will be hilarious watching the Musk Zealots crying to have Elon tweet something to fraudulently try to pump the stock price and try to trigger a squeeze. Meanwhile they don't realize he's doing this with options, not shorting directly.
If there's a single index investor that feels saddened by this stat, in the slightest way, they should stop index investing right now. The great joy of index investing is that this single stock is down, while on average everything else is way up...
> As of March 31, Burry owned 8,001 put contracts, with unknown value, strike price, or expiry, according to the filing.
So what are you basing any of this on?
We don't have enough information to determine that. We would need to know strikes and expirations to even start to figure that out. AFAIK, we don't have either.
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Cisco Systems is a great example of a fantastically profitable business with a stock price that's still below peak. It's an incredibly successful company that makes more than $10 billion in profit every year. The stock price is still below the March 2000 peak.
If Tesla "only" made $20 billion in profit a year, the market would probably consider it a failure. Expectations are high.
I can see the bull case for Tesla becoming a multi-trillion dollar company or the bear case. Hard to assess Burry's position without knowing the expiration date and strike price of his puts.
$10k invested on 1/2000 would have peaked at $14k in March, and now would be worth $9.5k
Even if you knew the exact pieces of paper that he held today, that would tell you nothing about his overall plan. Very few options strategies involve a one-time purchase of contracts in hopes that the dates & prices on those will hold until conclusion. For something this big, you would continue to acquire (and sell) contracts at a range of strike prices & expiration dates until the overall play is concluded.
> long puts against 800,100 shares
I find the title misleading. Unless I misunderstand, Michael Burry has not actually put $530M of his money at risk. He's made a much smaller, leveraged bet. $530M is just the notional value.
For example, a $450 put for September 17th 2021 would cost about $16.70 per share:
https://finance.yahoo.com/quote/TSLA/options?strike=450&stra...
One option counts for 100 shares, so that would be a (8001 * 16.70 * 100) 13.36 million dollar bet. Suppose that TSLA is worth only $400 on that date, with your right to sell at $450 you'd be in the money for 40 million dollars, or roughly $26 million in profits. If TSLA is worth $450 or more on that date, your options expire worthless.
You can't figure out his position with this information.
For example, you could buy very, very out-of-the-money puts for a penny. (Your bet would basically be: TSLA loses 95% of it's value in the next week.) My total value at risk for this bet (of 8,001 put contracts) would be $80.
So let’s say Acme Class A is currently trading at $50/share. If you think, for whatever reason, Acme Class A common stock will be trading at $1 next week you might want to buy a put that lets you sell 100,000 shares for $10/share. If the price of Acme Class A stays the same, you would never exercise the option to sell because you’d lose money - why would you sell Acme Class A for $10/share when you could sell it on the open market for $50/share? But if you’re right, and Acme Class A is trading at $1/share, you would then of course want to sell as many shares as possible at the $10/share rate. So you’d go on the open market, buy yourself 100,000 shares for $100,000, then turn right around and exercise your option to sell those shares for $1,000,000.
So the only money at risk is the cost of the contract itself because you don’t have to actually buy the shares until you decide whether you want to exercise the option to sell them.
If you want a put contract that allows you the option to sell 100,000 shares of TSLA for $0.01/share tomorrow it wouldn’t cost much because it’s highly unlikely you’d exercise the option and so, for the person on the other side of the agreement, it would basically be free money. When there’s more uncertainty then the cost of buying the contract is higher because the person on the other side is taking a risk that they’ll be stuck buying a bunch of securities at a price much higher than what they’re actually worth.
TLDR: when you buy a put contract you’re essentially paying money to someone to lock in a price.
You can buy very cheap out of the money options at small fractions of the cost of the shares by making bets that TSLA will drop hard in the next year while the market thinks that in that timeframe it will not.
Most of the time you lose money doing this.
Time it right, though and you can make 10x returns, but you have to be right and the rest of the market needs to be wrong, which is often unlikely.
But even if you're right in the long-term you need to also get it right in the short-term.
I don't think I'd be betting against this market right now, there's no guessing how irrational we'll wind up getting. Post-pandemic I would guess we'll have even more of an irrational bubble around back-to-normal, and a rising tide lifts all the boats.
So when you buy a put you are betting that the stock is going to go down. Each put usually gives you right to sell 100 shares, and since you can buy/sell the contract itself, you can easily get leverage when compared to actually trading the shares.
Without knowing what the strike prices and how much he paid for those contracts you can't really determine how much he is going to gain/lose. His gain is capped though as TSLA cannot go below 0.
I just bought a 2-month expiry put option at a strike of $10k on your car.
Two month later, I check the resell value for your car.
If it's more than $10k, let's say 13, I buy yours at 10 and resell it at 13K. I won 3-1=$2k
If it's less that $10k, I just pass, I lost $1k.
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If you take out credits and crypto, they look like most other car manufacturers, struggling to make a profit.
> As more automakers produce battery electric vehicles of their own, ostensibly fewer will need to purchase environmental regulatory credits from Tesla, which they have done in order to become compliant with environmental regulations.
> In the fourth quarter of 2020, Tesla’s $270 million in net income was enabled by its sale of $401 million in regulatory credits to other automakers.
Even minor automakers like Suzuki or Kia still make multiples of Tesla's profit without breaking a sweat
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Hopefully not (for Burry), because where are those going?
A short is a gamble all the time because you don't know the time component. Burry was "lucky" in that it happened fast enough. There are lots of people who want to short Tesla but don't dare to because of the cost involved in it and unpredictability of when their bet would pay off.
The remaining pieces now are solar generation on building surfaces, battery tech, smart grids to route the energy efficiently, cheap space travel, cheap tunneling, and maybe hyperloop if no one picks it up.
https://www.investopedia.com/trading/introduction-to-momentu...