‘The Big Short’ Genius Makes a Half Billion Dollar Bet Against Tesla and Elon Musk

Mandatory Credit: Photo by Dave Allocca/Starpix/Shutterstock (5630768be)Michael Burry'The Big Short' film premiere, New York, America - 23 Nov 2015New York Premiere of 'The Big Short' from Paramount Pictures & Regency Enterprises.
Dave Allocca/Starpix/Shutterstock / Dave Allocca/Starpix/Shutterstock

The real-life inspiration for the main character in “The Big Short,” Michael Burry, has made an official call for Tesla’s downfall.

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Burry became well-known in the financial world, and later in Hollywood, for being one of the first people to see the financial crisis of 2008 before it happened. His research into the subprime mortgage crisis allowed him at the time to bet big — and win — against mortgage lenders throughout the country.

Burry’s firm, Scion Asset Management, is making another large bet, this time against Elon Musk’s Tesla. In a government filing with the Securities Exchange Commission, Scion is long puts against 800,100 shares of Tesla or $534 million by the end of the first quarter.

But wait – “long puts”? What does that mean?

A put is the right to sell a security at a predetermined price. An investor buys, or is long on, a put contract when they believe the price of the security they are betting on will fall. As of March 31, Burry owned 8,001 put contracts, with unknown value, strike price, or expiry, CNBC reports.

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Essentially, Burry believes so strongly that Tesla will fall that he’s willing to put half a billion dollars on it. From the man whole intuitions led him to predict the largest financial meltdown in recent history, that bet is something sure to shake up public sentiment toward the electric car behemoth.

Burry previously stated in a now-deleted tweet that Tesla’s reliance on regulatory credits was a big red flag.

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“Well, my last Big Short got bigger and bigger and BIGGER too. Enjoy it while it lasts,” Burry wrote in the message which was posted Jan. 10 to his now-removed Twitter account, according to MarketWatch.

The government doles out regulatory carbon emissions credits, which auto manufacturers can trade amongst themselves. These credits are incentives for automakers to generate less emissions. If one of these companies does not have a certain amount of credits left each year they can face a penalty. For a company like Tesla, whose entire manufacturing catalog is electric vehicles, these credits are free money. Their credits are all sold for a profit, and as GOBankingRates previously reported, Tesla made $518 million in the first quarter alone in the sale of regulatory credits. Tesla also made more money selling bitcoin in the first quarter of 2021 than it did selling cars.

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Given this skewed balance sheet, Burry’s concerns might be warranted. Tesla has been somewhat of a Wall Street darling and anomaly this past year. Tesla’s stock price increased a whopping 740% in 2020, although the year-to-date value is down around 20%. Shares also fell 4% Monday after news of Burry’s bet.

What makes Burry’s bet so eye-opening is the volume of contracts purchased. While the price of each contract and the expiration date — that is when Burry expects the downfall to happen — is not available, the bet itself is astonishing.

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Being long puts, as Burry is with Tesla, is not the riskiest investment option but it is certainly a significant one for Tesla’s future stock price. This has undoubtedly been fueled by Musk’s antics on Twitter and radio talk shows including his endorsements of meme cryptocurrencies.

Controversies have recently surrounded the EV manufacturer with news of its positions in cryptocurrencies and regulatory credits netting it more money than actual sales of cars.

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Additionally, news of delivery and production delays in some of its models have also contributed to its fallen share price.

Burry’s bet perhaps achieves what many have believed needed to happen for some time but didn’t have the means to do — solidify Tesla for the risk it truly might be rather than the opportunistic tech stock that is possibly riding its last few waves.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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