Michael Burry, the renowned investor known for his prescient predictions, has sparked a heated debate with his recent comments on Tesla and the tech industry. In a bold statement, Burry called out Tesla's valuation as "ridiculously overvalued," shedding light on a controversial practice that has long been a bone of contention in the corporate world.
Burry's argument revolves around the issue of stock-based compensation, a common practice among technology companies. He asserts that when the true cost of this compensation is factored into earnings results, it significantly impacts a company's valuation. In a scathing critique, Burry wrote, "Tesla's market capitalization is ridiculously overvalued today and has been for a good long time."
But here's where it gets controversial: Burry points out that Tesla's dilution of shareholders, at a rate of 3.6% annually, coupled with the absence of buybacks, is a recipe for disaster. He shared a chart with his subscribers, illustrating the devastating impact of such dilution on the company's present value.
The approval of Elon Musk's $1 trillion compensation plan, Burry argues, will only exacerbate this issue, further diluting investors' ownership stakes. Despite opposition from proxy advisors Glass Lewis and ISS, the plan received a 75% approval rating among voting shares.
"With recent news of Elon Musk's $1 trillion pay package, dilution is certain to continue," Burry wrote, leaving little room for interpretation.
As of 2025, Tesla's market cap stands at a whopping $1.43 trillion, with its shares outperforming the S&P 500 by a significant margin. However, Burry warns that the issue of dilution is not an easy one to overcome for businesses. He cites Palantir and Amazon as other prominent tech companies that employ similar shareholder-diluting practices through employee-based compensation.
In a detailed newsletter post, Burry delves into the intricacies of stock-based compensation and its inaccurate representation under Generally Accepted Accounting Principles (GAAP). He highlights how companies manipulate "adjusted" earnings to present a false bottom line, ignoring this practice as a legitimate expense.
Burry quotes Warren Buffett's insightful take on the matter: "What else could it be—a gift from shareholders?" Buffett's words echo Burry's sentiment that stock-based compensation should be treated as a tangible expense, not a mere formality.
Burry's Substack, "Cassandra Unchained," launched late last month after he deregistered his hedge fund, Scion Asset Management. With an annual subscription fee of $379, the blog has focused on Burry's belief that artificial intelligence is a bubble waiting to burst.
So, what do you think? Is Burry's critique of Tesla and the tech industry justified? Or is he missing the mark? Share your thoughts in the comments and let's spark a discussion on this controversial topic!
