Michael Burry is shorting Tesla stock. Here’s what I’d do now

Michael Burry predicted the 2008/09 US housing market crash. Now, the hedge fund manager is betting against Tesla stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One investor I tend to keep a close eye on is hedge fund manager Michael Burry. A little over a decade ago, Burry made an absolute fortune by successfully predicting the 2008/2009 US housing market crash and betting against subprime mortgages. His character was featured in the Hollywood blockbuster ‘The Big Short’.

Recently, it has come to light that Burry has a huge short position in Tesla stock. This means he’s betting that shares in the electric vehicle manufacturer will fall. Here, I’m going to take a closer look at Burry’s position on TSLA. I’ll also explain how I’d approach Tesla stock now.

Burry is shorting Tesla stock

Regulatory filings from Burry’s firm, Scion Asset Management, reveal that at the end of March, Burry owned put options on 800,100 Tesla shares.

A put option on a stock allows an investor to sell that stock at a certain price in the future. Sophisticated investors often buy put options on a stock when they expect that stock’s price to fall. If the price does fall, the put options become more valuable.

Based on Tesla’s share price of $668 at the end of the first quarter, the value of Burry’s short bet on Tesla was about $530m. This is clearly a big bet against the stock.

Why is Burry shorting Tesla?

Burry typically doesn’t say much about his positions. He tends to stay out of the spotlight. Since it came to light that Scion has a $530m bet against Tesla, the firm has not said anything about the short position.

However, in my view, it’s pretty easy to see why Burry is shorting Tesla. You see, Burry is a committed value investor. In the past, he’s said his investment style is built around the book ‘Security Analysis’ by Benjamin Graham and David Dodd – which focuses on value investing. “All my stock picking is 100% based on the concept of a margin of safety,” he has said.

Looking at Tesla, it’s hard to see value. Currently, the company has a market capitalisation of $557bn. That’s about 11.5 times the market-cap of Ford. Given that Tesla delivered 499,500 cars last year, it’s valued at about $1.1m per car delivered (versus $11,500 for Ford). Clearly, Burry believes Tesla’s valuation is too high.

How I’d approach TSLA stock now

Tesla does have a number of things going for it. For starters, it’s the clear leader in the electric vehicle (EV) space right now. This industry is growing rapidly and has a long growth runway ahead. In the coming years, Tesla is going to sell a lot of EVs.

Secondly, it has an amazing CEO in Elon Musk. There’s no doubting Musk is a genius. Betting against him hasn’t worked out well in the past.

However, given the size of Burry’s short on Tesla, I continue to think caution is warranted towards the stock at present. Given his track record, I think his view on Tesla is worth noting.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should I buy National Grid shares for the big dividend before it’s too late?

This year's price weakness has left National Grid shares on what looks like a tempting valuation. I hope it doesn't…

Read more »

Investing Articles

There are now 5,000 ISA millionaires! See the surprising UK dividend shares they’re buying

The number of ISA millionaires is growing all the time and guess what? They're really into blue-chip dividend shares listed…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Down 38% in weeks! Time to snap up NIO stock?

NIO stock's more than doubled in value over the past five years but has been on a wild ride lately.…

Read more »