Big Short Investor Warns Tesla’s Valuation and Pay Packages Threaten Shareholders
Michael Burry, the investor who famously predicted and profited from the 2008 housing market collapse, has issued a stark warning about electric vehicle giant Tesla. In a recent critique, Burry labeled Tesla as “ridiculously overvalued” and pointed to its use of stock-based compensation as a major threat to long-term shareholder value.
The Core of Burry’s Argument
Burry’s criticism centers on how Tesla accounts for employee pay, particularly the monumental compensation package awarded to CEO Elon Musk. This package, valued at roughly $56 billion and recently re-approved by shareholders, is tied to stock performance milestones. Burry argues that issuing massive amounts of new stock to fulfill these compensation plans dilutes the ownership stake of existing shareholders.
Each new share granted to executives or employees makes every existing share represent a slightly smaller piece of the company. Over time, this dilution can erode the value of an investor’s holdings if the company’s growth does not sufficiently outpace the new shares being created.
Accounting and the “True Cost” of Business
Burry further contends that this practice distorts Tesla’s true profitability. In standard accounting, stock-based compensation is treated as a non-cash expense. This means it doesn’t reduce the company’s cash balance, but it is still a real cost of doing business. Burry believes that by relying heavily on this form of pay, Tesla and other tech companies mask recurring operational expenses.
The argument is that if Tesla had to pay its employees, including its CEO, entirely in cash, its reported profits would be significantly lower. This accounting treatment, Burry suggests, creates a misleading picture of financial health and makes the company’s towering market valuation—still above $600 billion—appear unsustainable without this favorable accounting.
Context for Investors
Burry’s view stands in sharp contrast to the narrative that has driven Tesla’s stock for years. Many investors have valued Tesla not just as a car company but as a future leader in artificial intelligence, robotics, and sustainable energy. This potential for transformative growth has historically justified premium valuations in the eyes of its supporters.
However, Burry is highlighting a fundamental financial mechanic that often gets overlooked during bull markets. Stock-based compensation is widespread in the technology sector, used to attract top talent without immediate cash outlays. The debate is whether its scale at certain companies, like Tesla, has crossed a line from smart incentive into value destruction for shareholders.
The recent shareholder vote to reaffirm Musk’s 2018 pay package has brought this issue back to the forefront. While supporters see it as rewarding unprecedented growth, critics like Burry see it as a prime example of the dilution problem he warns about.
A Cautionary Voice in the Market
Michael Burry remains a closely watched figure due to his prescient call on the subprime mortgage crisis, immortalized in the book and film “The Big Short.” His bets against Tesla in the past have not yet paid off as the stock has seen enormous rallies. Nonetheless, his latest comments serve as a detailed critique of accounting practices and corporate governance that go beyond simple stock price predictions.
For general investors, the warning underscores the importance of looking beneath headline earnings numbers. Understanding how compensation is structured and its long-term impact on shareholder equity is a crucial part of evaluating any company, especially in the high-flying tech sector where stock awards are commonplace.
