Michael Burry, the investor known for his housing market call in the 2000s, has recently taken aim at Tesla's valuation, calling it 'ridiculously overvalued'. Burry's critique focuses on the tech industry's widespread practice of issuing stock-based compensation, which he argues is not accurately reflected in earnings results. He believes that when accounting for the true costs and negative dilution of the company's value over time, Tesla's valuation should be lower.
In a recent newsletter, Burry highlighted Tesla's annual dilution rate of 3.6% and the lack of buybacks. He shared a chart demonstrating the present value destruction caused by this dilution. The recent approval of Elon Musk's $1 trillion compensation plan further exacerbates the issue, as Burry predicts further dilution of shareholders' ownership. Burry also mentioned that companies like Palantir and Amazon use similar stock-based compensation practices, which he considers 'penalizing shareholders'.
The newsletter delves into the controversy surrounding stock-based compensation, explaining how it is not accurately reflected under Generally Accepted Accounting Principles (GAAP). Burry quotes Warren Buffett's view that stock-based compensation should be treated as a tangible expense, not a gift from shareholders. Burry's new Substack, 'Cassandra Unchained', focuses on his belief that artificial intelligence is a bubble, and he has launched it after deregistering his hedge fund, Scion Asset Management.
