Famed Investor Warns Tesla Shareholders Over Elon Musk's $1 Trillion Package
Michael Burry of "Big Short" fame turned heads with his message on the CEO's pay package, but what does the chart say?
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The news has now been plastered all financial media platforms on Tuesday morning: In his Substack newsletter, famed, and some might say "overrated," investor Michael Burry of the shuttered hedge fund Scion Asset Management opined on electric vehicle/AI/robotics/energy storage giant Tesla (TSLA) .
Burry is best known for predicting and profiting from the subprime mortgage crisis that led to the "Great Recession" of 2008/2009 (and well beyond, for most private sector workers).
In his note, Burry referred to Tesla's market cap as "ridiculously overvalued." Burry also expects that CEO Elon Musk's $1 trillion pay package would dilute shareholder equity. On those two points, I do understand the thought process. At 261-times forward looking earnings, it's obvious that investors are trying to price in the firm's future (AI/robotics/energy storage) and not its past (electric vehicles).
Quite simply, there is no longer a market for electric vehicles. What demand there was, appears, at least anecdotally, to be close to saturated. The public, for the most part, has voted. They still prefer vehicles with an internal combustion engine under the hood that consumes fossil fuels. No hate mail please. These are just how the facts appear to this investor. These are not political statements. Hate me if you must, but I am a mercenary in nature when it comes to trading and investing. I am up front about that.
Additionally, while the manufacture of automobiles is a high-overhead, low-margin business to begin with, the higher tech stuff seems just the opposite. Machine learning, generative artificial intelligence, energy production and storage, and robotics are where the corporate spending is, it's where the margins will be and it may very well be how the EV business once again becomes more viable. That's how mass transit and overland transport reduce cost.
Unfortunately, jobs will disappear as autonomous fleets become common. While a potential problem for the broader U.S. and global economies, this will not be a negative for Tesla's stock price.
No, I Don't Love Tesla
In fact, I don't have any position in the stock right now. I am considering one though. Fiscal Q3 earnings, reported in late October, were not great, though revenue was solid. Q4 earnings are not due until late January. Wall Street is looking for an adjusted $0.45 per share on $25.25 billion. That won't "wow" anyone. In fact, that would compare poorly to $0.73 for the year-ago period on a year-over-year contraction in revenue of almost 2%. About half of analysts that cover the stock have revised their estimates for the current quarter lower since the start of the period.
So, Does Burry Have a Case?
Sure. Maybe. He may or may not have access to better research than you and I have. I have no idea. It does look to me, technically at least, that maybe the stock is setting up to price something that is more positive than where it has been. Take a look:
Readers will see that TSLA broke out from a closing-pennant formation in early September and went on a tear. The stock then developed a double-top pattern of bearish reversal this past autumn that appears to have worked like a charm. The pivot for that pattern was close to $412. The stock bottomed at $382 and change. That's a 7.3% drop from pivot to bottom. I usually only shoot for 8% to 10% gains off of downside pivots, so this could have possibly been "it."
The stock has now entered into very interesting territory. For three days, support has been found at the 21-day EMA suggesting increased participation from the swing crowd. For three days, resistance has been met at the stock's 50-day SMA, suggesting that many portfolio managers have not yet bought into this recent rally. Treating that 50-day SMA as an upside pivot, my models could place the stock's target price in between $499 and $542. Obviously, I have to refine my work here, but if the stock can get the professionals to increase long-side exposure upon a take and hold of that 50-day line, we could have a ballgame.
My Thoughts
I'm not about to engage unless I see that line taken. Note the daily MACD, while not yet bullishly postured, is clearly improved form where it was just a few days ago.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
