Michael Burry Just SHORTED Tesla Stock!

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Hey guys, welcome back to the channel! Got an exciting bit of news to talk about today. Um, controversial, definitely controversial. Michael Burry is shorting Tesla stock.

So, Michael Burry, you guys probably know him from "The Big Short." He's one of the characters—or he's a real person, obviously—but one of the characters. He's Christian Bale's character in "The Big Short." He's the one that bet against the housing market in 2008 and made a lot of money in the process.

But recently, he has taken to Twitter to announce to the world that he is now shorting Tesla. So this is what he said in his tweet: "So Elon Musk, yes, I'm short Tesla, but some free advice for a good guy, seriously: issue 25 to 50% of your shares at the current ridiculous price. That's not dilution; you'd be cementing permanence and untold optionality. If there are buyers, sell that. #TeslaSouffle."

So that reference to the Tesla souffle came from a leaked email from Elon Musk to Tesla employees. What it said—I’ll just read you the email, it's not very long at all: "At a time like this, when our stock is reaching new heights, it may seem as though spending carefully is not as important. This is definitely not true."

Now this is the article that matters, so listen to this one: "When looking at our actual profitability, it is very low, at around 1% for the past year. Investors are giving us a lot of credit for future profitability, but if at any point they conclude that it's not going to happen, our stock will immediately get crushed like a souffle under a sledgehammer."

So this is where Michael Burry gets the Tesla souffle hashtag from, and boy oh boy, I find this news very, very interesting because Michael Burry has now done something that most people try and fail at time and time again.

One of the rules of investing that I like to follow is: don't bet against Elon Musk. But he has. He has shorted Tesla.

Very quickly, if you're not quite up to speed with what short selling is, it's essentially betting that the price of a stock is going to go down. So the way it works is that you actually sell first. You sell high and buy low in that order, as opposed to buying low and selling high. The way you do that is by borrowing someone else's shares and selling them for the higher price. But at some point in the future, you have to buy back the shares to return what you borrowed, right?

So what you're hoping for is that you can sell the shares high, you can then, the share price crashes, you can buy them back low, and return those shares, and you still profit the difference. It's the same as buy low, sell high—it's just the other way around, but the profit remains the same.

So that's short selling. And what I find really interesting with Michael Burry—when he made this tweet, he showed a photo, and the photo was essentially like a little photo of an Excel spreadsheet, I guess. But this photo really highlights the core of Michael Burry's bet against Tesla.

So what he did—and I’ll chuck it up on the screen right now—is he gathered the total revenue, the market capitalization, and the EBIT from 32 large auto manufacturers. Then he added those numbers together and then he compared them to what Tesla's same numbers are right now, and these are trailing 12-month numbers.

So when we have a look at what those numbers actually were, you can see for the 32 car companies added together, they had revenue of 2.3 trillion dollars. You compare that to Tesla, and they had revenue of 25 billion dollars.

Then you have a look at EBIT, and you get 102 billion for the 32 auto manufacturers added together, and then for Tesla, you get minus 70 million.

However, this is where things get really interesting. When you look at the price, so the market capitalization—essentially the market value of these businesses added together for all those 32 car companies—the market capitalization is 991 billion, so almost a trillion dollars. And then for Tesla, 646 billion.

So to put that in simple terms—and this is what Hamish was talking about—we actually discussed this on the latest episode of the Young Investors Podcast, which is coming out on Saturday. But this is what Hamish said: "You're essentially paying 50% more than Tesla to get all of these 32 other auto manufacturers. And in paying 50% more, you're actually getting 90 times more revenue. That's pretty insane, right? 90 times more revenue. That's quite mind-blowing."

Looking at EBIT: negative 70 million for Tesla or 102 billion for all those 32 other car companies added together. The reason that Michael Burry points this out is not to maliciously jab at Elon Musk or at Tesla. In fact, from what he wrote, it actually seems like he is a bit of an Elon Musk fan. He seems like he doesn't mind the guy.

But he's not trying to take a malicious stab at Tesla's business and say, "Oh, the business is going to go bankrupt" or "blah blah blah blah." No, it's nothing like that. Michael Burry is simply, in this case, betting against the stock price.

Because if you have a look at Tesla stock over the past 12 months, Tesla stock has essentially gone 10x. I don't know if there's a word that is more impactful than "skyrocket," maybe "space rocket," to put things in the Muskerverse. But that's what Tesla stock has done.

Now, personally, I kind of have two opinions on this topic. Call me a fence sitter if you like, but I have points for Michael Burry and against Michael Burry.

I think the first thing that I'll try and defend Tesla a little bit—I do think the comparison that Michael Burry has made is a little bit unfair because he's saying he quite simply is straight up comparing Tesla to other auto manufacturers. We know that Tesla is quite different.

For example, their vertical integration, but also think about Tesla is equally as much a hardware company as a software company. So obviously when you compare a Tesla to a General Motors, it's not really apples for apples because Tesla obviously has the closest thing to autonomous driving that we've seen, and that has significant implications to future revenue, which should be taken into account and is obviously priced into Tesla's stock price.

And that's also not including the fact that Tesla is also, I think, destined to be one of the world's, if not the world's, largest battery manufacturer in the future. They also make products like the Mega Pack and the Powerwall, and they also make solar panels. So there are more parts to their business as opposed to just cars.

However, I think it's fair that Michael Burry, for his argument, compares these like the apple samples. And that is because right now, where Tesla is—not thinking about where they're going to be in 10 years—but right now, the key thing to Tesla's success or failure is quite simply how many cars they can produce and sell.

So I think that's why he's making the bet, because I don't think Michael Burry is making this short position. I don't think he wants to keep this short position open for the next five to ten years, right? He is seeing the current situation and he's making a bet on what he sees right now.

And that's where I go over to the flip side of the argument where I side a little bit with Michael Burry. Michael Burry, remember, he is not maliciously jabbing at Elon Musk or maliciously jabbing at Tesla.

He is quite simply shorting Tesla because of what has happened with the stock price. I'm sure if the stock price hadn't surged 10x in the last year and it's now got a P/E ratio of 1127.

I mean, we're usually looking at companies with P/E ratios of 20, 30—maybe in the current climate, 40, 50—because everything's so expensive. But Tesla's got one of over 1100.

So from Michael Burry's perspective, like I said, he's not looking to short this over the next five years. He's just seeing the current reality as it is, and he's seen what's happened to Tesla stock, and he's making a bet against Tesla stock.

But he's not one of those classic Wall Street shorters that's going to come out and spread a big, you know, misinformation campaign. So that's kind of my take on the situation.

I think there are definitely things where Michael Burry, he might have made too much of a simple comparison, but at the same time, you can understand the core of his argument is short-term. So that's why he's going to compare Tesla to the other auto manufacturers as they stand right now, and he's not going to consider where Tesla might be in 20 years from now, as what we would do as long-term shareholders.

But anyway, I find that really interesting because I am—you guys know I'm a long-term Tesla shareholder—but I also definitely look up to Michael Burry. Right, he is a great investor, so it's an interesting one. I think that's why I'm sitting on the fence a little bit.

But anyway, I'd love to hear what you guys think. Have you guys ever shorted a stock? Personally, I've never done it. I've never shorted a stock, but I'd love to hear what you guys have done in the past and what do you think about Tesla as a business.

I'd really like to hear from you guys—Tesla as a business versus Tesla as a stock—because I think for me personally, when I look at Tesla as a business, I'm like, "Wow, next 10, 20 years, this is going to be what a company this is going to turn into." I look at the stock and I start sweating. I'm like, "Holy moly, it's very overvalued."

But anyway, I want to hear from you guys. Leave that stuff down in the comments section below. That'll do me for today, guys.

Um, appreciate you guys watching. Keeping up with the new money advent calendar, so thank you very much. We're going to keep going. I'll see you guys again tomorrow!

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I'll see you guys in the next video!

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