(Bloomberg Opinion) — The most notable aspect of Michael Burry’s outing as a short seller of Tesla Inc. is that he is Michael Burry “of ‘Big-Short’ fame.” The second-most notable aspect is that he has entered a trade that, like much else in 2020, emptied out all of a sudden.
This isn’t just a function of Tesla’s trading volume surging along with its price either. Last year’s roughly eightfold increase in the stock put Tesla’s bears in a bear hug, with even longtime skeptic Jim Chanos reducing the size of his trade. Whereas two years ago roughly a third of Tesla’s free float was held short, only 5% was at the end of April, an all-time low.
Burry laid out some critiques of Tesla earlier this year in several since-deleted tweets. They covered pretty familiar ground, noting Tesla’s outsize valuation relative to other automakers (see this), CEO Elon Musk’s sudden fascination with Bitcoin as the company began to experience public-relations problems in China (see this), as well as the bubbly similarities between Musk’s favorite stock and cryptocurrency.
Burry is noted for a pretty traditional value investing approach against which Tesla resides in an entirely different universe. Burry was also early to bet against the housing crash, which made him famous, as well as the earlier tech bubble. He isn’t early with Tesla, of course. However, he does appear to have entered this trade when many others have cleared out. Tesla has already lost almost $300 billion, or a third, of its market cap since the peak in late January. But it still trades comfortably above half-a-trillion dollars and almost 170 times forward earnings. Meanwhile, Musk appears as distracted (or distracting) with the crypto as ever. In some ways, nothing has changed. For Tesla bulls, the still-giant valuation remains the ultimate symbol of Musk’s inevitable victory. For the likes of Burry, few though they may be at this stage, it remains nothing more than a giant bull’s-eye.
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Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.