Tesla's 'Ridiculously Overvalued': What Michael Burry and Other Tesla Bears See

One of the biggest investors from The Big Short is now calling one of the Magnificent 7 stocks, Tesla, a short.

Famed investor Michael Burry called Tesla "ridiculously overvalued" in a recent Substack post. Burry became celebrated for his blockbuster trades against the U.S. housing market in the run-up to the global financial crisis in 2008, earning big bucks on his prescient trades.

Now he's out with a new report warning investors about the electric-vehicle ("EV") maker's stock, amid the company's slowing business prospects and aggressive valuation.

But just how overvalued is Tesla? Some comparisons suggest that the stock could well be overvalued by 10 times – maybe more!

Tesla's Valuation: "Ridiculously Overvalued"

Tesla's sales have been shrinking in key markets, while the Chinese EV market is flooded with low-price competition. And these rivals are making inroads in foreign markets. Yet Tesla stock is close to all-time highs.

While Burry's analysis sits behind a paywall, we can run our own comparison to see how much investors are paying for Tesla stock and determine what Burry may be warning about. Let's look at the company's market cap per vehicle delivered. Here are the figures using current market caps and 2024 full-year deliveries, showing the discrepancy between Tesla and key rivals.

The stocks of General Motors ("GM") and Ford are close in per-unit valuation, while the troubled Stellantis sits at about half that level. But Tesla? It's priced at nearly 70 times the per-unit valuation of GM and Ford. Absolutely stunning for a company with declining unit sales!

On traditional metrics such as the price-to-earnings (P/E) ratio, Tesla is valued at an eye-popping 296 times this year's earnings or 192 times expected 2026 numbers. Meanwhile, GM trades for about 7 times 2025 estimates and about 6.5 times next year's. Ford is about 12.5 and 9 times, respectively.

If Tesla lost 90% of its value – suggesting it was 10 times overvalued – it would still be trading at nearly four times the P/E of GM on this year's earnings.

Tesla bulls point to self-driving cars, robotaxis, and humanoid robots as reasons for a premium valuation. But Tesla has none of those now, despite years and years of overpromising from Elon Musk. Once-in-a-century breakthroughs have been coming "next year" at Tesla for a decade.

Tesla's stock dilution: A Wealth Tax on Shareholders.

One of Burry's key points is how the carmaker richly rewards insiders, especially CEO Elon Musk, with stock. It's what investors call stock dilution. Burry pegs the cost of dilution at 3.6% annually. That may not sound like a lot – and insiders often pretend that such stock-based compensation is unimportant – but it's a real cost to a company's investors, whittling away their wealth.

So stock dilution is a kind of stealth wealth tax on investors, reducing the value of their own stake in a company. Imagine a 3.6% annual tax on an investment you already own. Your slice of the pie is being chipped away and given to Tesla insiders every single year.

But let's put the cost of dilution in another context: It acts much like an expense ratio on an ETF or mutual fund. Regardless of the fund's performance, investors are paying that cost, which is discreetly subtracted from their fund every day. While Tesla is diluting shareholders by 3.6% each year, according to Burry, the best investment funds charge less than 0.1% annually.

Some companies repurchase their stock to offset, partially or fully, the effects of dilution, but not Tesla, says Burry. So Tesla's margins, for example, look much better than they otherwise would if the company had simply paid its insiders in cash rather than in stock.

The thing is, it may actually make excellent financial sense for Tesla to pay with a currency such as its own stock if it's massively overinflated, as Burry claims. In any case, this concern didn't stop Elon Musk from purchasing $1 billion in Tesla stock earlier this year.

Despite the obvious overvaluation, Tesla stock may get even more expensive, thanks to a new pay package for Elon Musk.

Musk's $1 Trillion Payday Means More Hype for Tesla

Musk's recently approved $1 trillion pay package all but guarantees more stock dilution, even as it may build further hype around the stock and push up the share price. In the new agreement voted on by investors last month, Musk may earn as much as $1 trillion worth of company stock if he meets certain benchmarks over the next 10 years, earning up to 423.7 million shares of newly issued stock.

The performance benchmarks include the following operational and financial objectives:

• Increase total cumulative vehicle deliveries from 8 million to 20 million

• Raise self-driving subscribers from the current 930,000 to 10 million

• Deliver 1 million robotaxis (from 0 currently)

• Deliver 1 million robots (from 0 currently)

• Increase and sustain Tesla's market cap to at least $8.5 trillion

Some objectives look suspiciously low – selling effectively 1.2 million cars annually on average over the next decade, when Tesla already delivered 1.79 million vehicles in 2024. But other objectives look quite aggressive. The targeted market cap of $8.5 trillion for the max payout is more than six times today's market cap, implying about 20% annual returns for a decade.

One key way Musk can reach that lofty payout is by continuing to massively hype the stock, beyond even its already-inflated levels. This new comp package incentivizes him to do just that, repeating the same tactics that Musk used to get the stock where it is today – overpromising on lofty goals such as self-driving taxis and then introducing new ones such as humanoid robots when progress on prior goals remains unachieved and lagging.

Now, with all that said....

Playing Devil's Advocate With TSLA

To be fair to Tesla and Musk, it's not as if the company has accomplished nothing during its history.

Tesla is indeed America's largest EV maker by volume. The cars themselves are wonderful products, chock-full of advanced technology. Tesla has also built out nearly 3,000 charging stations across the United States. And while a robotaxi service has yet to be seen, the company has made tremendous progress with its self-driving technology.

We're not saying the company is worthless, far from it. And we're not saying that Tesla shouldn't trade at a premium to legacy automakers. It probably has earned that.

But in order for Tesla's current valuation to make sense, investors must assume that the company will eventually dominate in electric vehicles, autonomous driving services, and humanoid robotics in the years ahead.

Musk admitted as much in a 2020 earnings call when he said, "Tesla should really be thought of as roughly a dozen technology startups, many of which have little to no correlation with traditional automotive companies."

Maybe Tesla can pull that off, but it's a tall order. And if markets ever begin to believe that Tesla will fall short, the stock will likely be viewed for what it is – an automotive manufacturer. And it will be given a valuation to match.

Bottom line

The Musk payday may be great for traders who want more volatility and short-term opportunities to trade Tesla stock, but it looks like a loser for long-term investors who want Musk to be focused on driving the real operational results that can sustain the company. Instead, shareholders will get what they're paying for – more hype and overpromising.

By any reasonable measure, Tesla is overvalued, but that doesn't mean its stock is going to fall. After all, it's likely been overvalued for years, as Burry claims. It's a reminder of the old traders' wisdom not to short on valuation. Still, overvalued stocks have a habit of eventually returning to their correct valuation, even if investors must endure years and years of hype first. But investors may have to wait for a broader market decline to actually see Tesla itself fall.

Regards,

James Royal

Editor's Note: Should investors prepare for an AI crash or buy the dips? Analyst and True Wealth editor Brett Eversole just posted a surprising answer. According to Brett's research, there's a pattern taking shape that could defy all the worst predictions about a bust. He's calling it a Melt Up Tsunami. And he has identified at least a half-dozen stocks that could benefit, including his #1 stock to own right now. He shares the ticker in this new presentation.