The iconic investor who inspired the book and movie The Big Short, Michael Burry, is betting on the fall of Tesla’s share price. Burry, who became a billionaire and is known for getting ahead of the stock market crash in 2008, believes that Tesla’s share price appreciation is not justified relative to the company’s returns in the real sector.
According to a report released by the Securities and Exchange Commission (SEC), the firm Scion Asset Management has a put option worth $534 billion in Tesla stock. A put option is a bearish option that gives the holder the right to sell the asset (stock in this case) at a fixed price for a specified period.
With this action Michael Burry is anticipating that Tesla’s share price will continue to fall as it has over the past few weeks. In December 2020 Burry had announced that he had taken a short position (put option) against Tesla, and in January he tweeted that, “my big short is getting bigger and bigger and bigger.”
Burry’s predictions in January do not seem to be so crazy, as from Monday through Wednesday Tesla’s share price fell 18%, after having a colossal climb during 2020 where its price grew more than 743%.
Why is Tesla’s share price falling?
Tesla is no longer free from competition, although for a long time it seemed to dominate the car scene. Already companies like Volkswagen, GME, Ford and Hyundai are entering the electric or hybrid vehicle scene, presenting stiff competition for Musk’s company.
Wall Street is also concerned about Tesla’s loss of market share in China, where sales are going to local competitors such as Nio and Li Auto. Nio is not only looking to expand in China, but in the global market. The company recently announced that it would begin marketing its cars in Norway, Tesla’s one-time stronghold.
The situation is especially worrisome in Europe, where Tesla has been gradually losing market share this year. In fact, since the beginning of January 2021, Volkswagen’s electric vehicle sales have surpassed Tesla’s sales on the European continent.
According to Schmidt Consulting, with the imposition of carbon quotas in Europe, European automakers have redoubled efforts in their production of electric cars, in an effort to replace sales of gasoline-powered cars.
Although Musk still dominates the electric car sector in the United States, with Biden’s infrastructure plan – which will invest heavily in electric transportation infrastructure – this picture could change.
Ford recently received a $6 billion loan for the development of new electric vehicles, while other companies such as GME are looking for new electric vehicle startups to invest in, as was the failed case of Nikola.
Although Tesla is still the electric car company with the highest number of sales, the company is far from having its future guaranteed in this market in which traditional car manufacturers have begun to enter and in which more Chinese companies are also entering to compete.