Michael Burry estimates that Tesla's equity-based compensation plan could dilute shareholder value by approximately 3.6% annually without offsetting buybacks. Burry specifically criticized Elon Musk's proposed $1 trillion compensation package, stating that its scale and potential dilutive impact have become a focal point for institutional investors assessing the company’s risk.
Michael Burry, the investor known for successfully predicting the 2008 financial crisis and the prototype for the movie 'The Big Short,' has once again taken a short position in Tesla stock, calling its valuation "absurdly high" and warning that Elon Musk's proposed compensation package will further dilute shareholder equity. $Tesla (TSLA.US)$ This move continues Burry’s bearish stance on highly-valued technology stocks, echoing his previous strategies of shorting NVIDIA and Palantir.
On Tuesday, according to media reports citing an article by Burry published on the paid subscription platform Substack, he estimated that Tesla’s equity-based compensation plan would dilute shareholder value by approximately 3.6% annually without offsetting share buybacks. Burry specifically criticized Musk’s proposed $1 trillion compensation plan, stating that its scale and potential dilutive effect have become a focal point for institutional investors assessing company risk.
Tesla’s stock price has risen 6.5% this year but significantly lags behind the Nasdaq 100 Index’s 20.6% gain, currently trading at a forward 12-month price-to-earnings ratio close to 200 times. Norges Bank Investment Management, the world’s largest sovereign wealth fund, has voted against Musk’s compensation plan, citing concerns over its size, dilutive effects, and excessive reliance on Musk.
Shortly before disclosing his short position in Tesla, Burry dissolved his firm, Scion Asset Management, signaling his intent to directly engage with the market through his Substack account and influence discussions around tech stock valuations. Market reactions have been relatively muted, with Tesla’s stock closing nearly flat on Monday.
Continued Bearish Stance on AI Stocks and Escalation of Debate with NVIDIA
Burry has recently focused his criticism on the artificial intelligence sector, describing NVIDIA’s internal rebuttal memo distributed to Wall Street analysts as "disappointing" and riddled with "straw man arguments." In his Substack blog, he expressed disbelief that such responses came from the world’s most valuable publicly traded company, calling the document "almost like a scam" upon reading it.
Burry revealed that he "continues to hold put options against Palantir and NVIDIA," directly signaling his bearish outlook on these two AI star companies. According to documents filed by Scion Asset Management on November 3, the firm held put options on NVIDIA and Palantir as of the end of September, despite their nominal value reaching up to $1.1 billion, with actual costs being approximately $10 million each.
Regarding NVIDIA’s seven-page rebuttal memo, Burry pointed out that its core arguments were misrepresented. He emphasized that he never questioned NVIDIA’s fixed asset depreciation policy since, as a chip design company, NVIDIA’s capital expenditures are minimal. His focus is on future risks—namely, the possibility that new chips may become functionally obsolete between 2026 and 2028.
The crux of Burry's warning lies in the accounting treatment adopted by AI companies, particularly the systematic extension of the useful life of chips and servers by hyperscale data centers that have spent heavily on AI chips. Extending the depreciation period from three years to five or six years can enhance short-term profitability, but it poses risks of asset write-downs amid rapid technological iteration.
Elon Musk’s compensation package faces widespread scrutiny.
Musk’s proposed $1 trillion compensation plan has become a focal point of shareholder debate, as it is contingent upon achieving specific performance milestones. The scale of the plan and its potential dilutive effects have emerged as key considerations for institutional investors assessing Tesla’s concentration risk and reliance on key personnel.
Norges Bank Investment Management voted against the compensation proposal, citing concerns over its magnitude, dilutive impact, and insufficient mitigation of reliance on Musk. This stance reflects that opposition has expanded beyond notable short-sellers like Burry to include mainstream asset management firms.
Tesla’s shares are currently trading at nearly 200 times the projected earnings for the next 12 months, with Bloomberg data showing its valuation significantly exceeds that of peers. Against the backdrop of growing investor concerns over a potential AI bubble, Burry’s critique of the compensation structure has further intensified market apprehension.
Editor/Liam
