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As I’ve written countless times before, Tesla is in or approaching an extreme inflection point again. If the company is able to flip the switch on truly driverless “Full Self Driving” that lets people text, watch movies, work, or sleep while the car drives itself (and Tesla takes on the legal liability) across millions of vehicles, the company’s vehicle demand and revenue will skyrocket. That’s what many people are currently betting on, and hence some Wall Street analysts claiming it is a “must own” stock and others putting a $500+ price target on it. However …
Tesla continues to miss Elon Musk’s bold forecasts and timeline targets for robotaxis, a quite small fleet of human-supervised robotaxis has gotten into several accidents in a short amount of time, and the AI and central hardware costs of improving FSD just keep increasing and increasing without any notable revenue coming in to pay for them.
In short, Tesla is in a kind of race against time again, needing to get FSD to a tipping point sooner than later, probably within the next year or so. Even then, there is still a question of how viable robotaxis are as a profit source, but I do think simply the extra vehicle demand resulting from true hands-free and eyes-free driving would be enough to keep the profits flowing.
Now, though, an investor with quite a strong track record is chiming in, and he’s clearly not bullish on the Tesla story. Michael Burry, who is the famous investor The Big Short was based on, has claimed that Tesla [NASDAQ:TSLA] is “ridiculously overvalued.”
“Tesla’s market capitalization is ridiculously overvalued today and has been for a good long time,” Burry wrote in his Cassandra Unchained Substack column this week. But it’s not just about what I wrote above. He emphasized that stock-based compensation is warping things, and that companies like Tesla are excluding it from earnings results in a deceitful way. “The investor argues that when accounting for the true profits that include the cost of this compensation and its negative dilution of the company’s value over time, companies like Tesla should have lower valuations,” CNBC summarizes. (But does that matter when Elon Musk fans want to pour any extra money they make into buying more Tesla stock?)
“Burry pointed out that Tesla dilutes shareholders at a rate of 3.6% each year and doesn’t offer buybacks. […] The newsletter post goes into an in-depth explanation of how stock-based compensation is not accurately reflected under Generally Accepted Accounting Principles (GAAP) and how companies used ‘adjusted’ earnings to present a bottom line that wrongly ignores the practice as a real expense.”
Admittedly, I did not read Burry’s article. His just-launched Substack column comes with a $379 annual subscription fee. His column was launched last month after he deregistered his hedge fund Scion Asset Management. Good sign or bad sign? I don’t know, but on the merits of his argument, Warren Buffett seems to agree that this accounting workaround regarding stock-based compensation is indeed deceptive, since it should be considered a genuine expense. “What else could it be — a gift from shareholders?” he wrote in 2018.
I don’t know how many people are actually going to change their minds on the matter of Tesla stock these days, though. Some people think Elon Musk can do no wrong, and will just keep buying more and more Tesla stock as they can, while others think Musk is losing his mind and won’t touch the stock.
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