Michael Burry's BIG Short Against Tesla Stock REVEALED!

Well, Michael Burry has released Scion Asset Management's 13F filing for Q1 of 2021, and it was very interesting this time around. Firstly, lots of options. Secondly, big bets on interest rates going north, which is essentially a prediction that we'll see big inflation ahead. But thirdly, this 13F finally showed us exactly what Michael Burry's bet against Tesla is, and it's a big bet. So that's what we're going to look into in this video. I think I'll just have to come back and make another video honing in a little bit more on those other topics, so make sure you subscribe and look out for that one in the future. But for now, let's get started.

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It was back in December of 2020 that Barry first revealed a bet against Tesla. He tweeted, "So Elon Musk, yes I'm sure Tesla. However, 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."

Funnily enough, at the time, Tesla stock price was pretty much exactly where it is now, around $560 to $580 per share. And boy, oh boy, did this cause a stir at the time. Barry essentially had half the crowd yelling, "You know you're crazy for shorting Tesla. Don't bet against Elon Musk!" The other half of the crowd was shouting, "You're a genius. Tesla stock is a massive bubble."

But for all the controversy it caused, we didn't actually get any more information on this short position. In the Q4 2020 13F filing, again nothing. Now, that is to be expected because stocks sold short don't show up in the 13F filing.

But now, fast forward another quarter, and something did show up in the 13F: a $500 million bet against Tesla. So what did he do? Well, in Q1, Michael Barry bought option contracts on Tesla stock representing 800,100 Tesla shares.

Now, remember how put options work? This is just an example, but the contract would read something like, "Dear Sir/Madam, this contract gives you the right but not the obligation to sell your Tesla shares to me at $550." For example, valid until some specific date in the not too distant future.

So Barry has bought those contracts, and they become more valuable the further Tesla stock goes below, in this example, $550. Because the person that wrote the contract has agreed that they'll buy the stock from you for $550 before that options expiration date.

So, for this example, if the stock price went to, say, $500, Barry could simply buy the stock for peanuts on the open market and then make the person that wrote the option buy those shares from him for $550 a pop. Or he could just sell the option on to someone else at a much higher price than he originally bought it because that option contract is now very valuable.

But here's the annoying thing about options in 13F filings: we don't know how long the option is valid for, and we don't know the strike price. All we know is that at the end of Q1 2021, Michael Barry had a $534 million bet against Tesla, and he's done it through put options.

So that means Barry has bought these options at some point when Tesla was between $563 and $883 per share. And that's a big range. But if we assume he bought these put options at the worst possible time in Q1, so AKA when the stock was at its lowest point, if the Tesla stock price stays below $563 from now, he will have definitely made money.

And vice versa, if the stock rises above the $883 mark from now, which would have been the best time in Q1 to buy a put option, then we will know that Barry is definitely losing money.

But here's the last point: unfortunately, we don't even know how long Michael Burry's put options are valid for. You know, maybe they're expiring in a week or a month, or perhaps they've already expired. We just don't know.

So in reality, it does become very hard to accurately estimate whether a big investor is winning or losing on an option bet that shows up in a 13F.

Now lastly, before I signed off on this video, I just wanted to go through why Michael Barry would have done this. Why is he shorting Tesla stock? Because, you know, chances are if you're watching this video, you probably feel reasonably strongly that Barry is either a genius or an idiot.

But to be honest, I don't actually think Michael Burry dislikes Tesla's business. From his post, he seems to like Elon Musk, and I actually reckon he would support what Tesla are doing. I spoke about this in the last video I made on the topic. I don't actually think Michael Burry is making a bet against Tesla the company; I think he's purely making a bet against Tesla the stock.

The reason I think this is that when this information first came out from Michael Burry on his Twitter page, he posted an interesting table comparing the total revenue, EBIT, and market cap from 32 large auto manufacturers and then he compared that to Tesla.

What it showed was that when you add together the revenue of these 32 companies, you got $2.3 trillion, and at the time Tesla was sitting at $24.5 billion. Then when you looked at EBIT, you got $102 billion for all 32 car companies combined versus negative $70 million for Tesla.

However, when you looked at the market capitalization, all 32 car companies added together came to $991 billion, and Tesla at the time sat at $646 billion. So for just one-third more market cap, you're getting about 90 times more revenue.

While I would say to Michael Burry, "Look, you're not considering the future. You're not considering full self-driving potential or robo-taxi potential," that will be a huge driver for revenue for Tesla in the future and should easily take Tesla past all of these other auto companies.

While I would say that to him, that's probably not something he would even care about for this situation. He could actually agree with that and still make this bet, because what Michael Burry is betting on right now is that Tesla stock right now is in a short-term bubble, which is fed mostly by speculation at this point.

Even if you believe that Tesla will be the biggest company in the world in the future, I think you could still probably agree that the price movements we've seen over the past few months that have taken Tesla to a P/E ratio of over 600 are primarily fueled on speculation as opposed to investment.

Because even if Tesla achieves their stated 40% to 50% compound annual growth rate, a discounted cash flow analysis will still tell you that you'll have to wait about a decade before the business catches up to the stock.

I think that's really what Michael Burry is doing. He's making a bet against the stock price over the short to medium term. He's not betting that the business sucks. He's not betting that Robo-taxis are never gonna happen, nothing like that that you'd hear from one of the short sellers of Tesla.

He's just found a situation where, you know, like a GameStop, the share price is irrationally high for where it ought to be. So in this instance, he believes, you know, he gives a high probability to the share price coming down from the clouds as opposed to continuing to skyrocket even more.

But of course, we'll have to wait and see. So anyway, let me know your thoughts down in the comments section below. I'd love to hear what you have to say. Michael Burry: Genius or fool?

I know certainly from my perspective I would never have the balls to bet against Elon Musk, but he clearly does. So what do you reckon? Do you feel like this put option position is going to work out for him, or do you feel like Tesla is going to keep on its charge and yeah, he's gonna have to take a bit of an L on this position?

I'd love to hear from you guys. Let me know in the comment section down below. Leave a like on the video if you did enjoy it or if you found it useful. I really appreciate it; it helps out the video heaps in the YouTube algorithm, so I really do appreciate it.

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But that will do me for today, guys. Thank you all very much for watching, and I'll see you guys in the next video.

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