Is Michael Burry Right on Tesla? Will the Tesla Bubble Really Collapse?

Michael Burry, the healthcare investor who famously predicted the 2008 financial crisis, has recently voiced his thoughts on the overvaluation of Tesla. Many are questioning whether Burry is correct in his assessment and whether Tesla's current valuation will indeed lead to a significant correction. Let's delve into the analysis and potential implications.

Is Tesla Overvalued?

According to Burry, Tesla is overly valued. This has led to speculation about whether the company might be in the midst of a bubble, destined to collapse. Some argue that Burry, having been accurate in his past predictions, should be trusted. However, it is crucial to understand that past success does not guarantee future accuracy.

Burry’s Insights and Market Context

Burry’s perspective is rooted in his deep understanding of market dynamics and company valuation. While Burry correctly predicted the collapse of the housing market, his recent comments on Tesla are based on his analysis of the tech-driven nature of the company. Tesla is not just a car manufacturer; it is a company leveraging technology in various sectors, including power distribution, home batteries, and electronic control systems. This diverse portfolio of technologies forms the foundation of its value, making a simple car business comparison less relevant.

Myth vs. Reality

The argument that Tesla could be a bubble often hinges on the assumption that it is merely a car company. In reality, Tesla is far more than that. It is a software and energy company, utilizing its cars as platforms to deliver its advanced technologies. This is akin to the razor/blade model, where Tesla sells a car, then provides continuous revenue through software updates and energy solutions like solar and superchargers.

Comparing Tesla to Traditional Auto Manufacturers

Another point of contention is the comparison of Tesla to traditional auto manufacturers. Many argue that Tesla’s market cap is disproportionate to its current market position, citing the numerous mismanaged companies and bankruptcies within the industry. However, these comparisons miss the mark. Tesla’s business model, which involves a continuous revenue stream through ongoing software updates and energy services, is fundamentally different and more robust.

The Long-Term Perspective

While it is true that no one can predict the future with certainty, it is reasonable to estimate the long-term prospects of Tesla. Given the intense competition from traditional auto manufacturers and the rapid pace of technological change, the notion that Tesla will maintain its supremacy in the automotive market in the next decade or two seems highly optimistic. As a result, the current valuation may be overinflated, leading to potential corrections in the future.

Conclusion

Michael Burry’s skepticism towards Tesla’s valuation is grounded in a detailed understanding of the company’s complex technology and business model. While past success does not guarantee future accuracy, Burry’s analysisuggests a more nuanced view that goes beyond simplistic comparisons to traditional auto manufacturers. By recognizing the software and energy aspects of Tesla’s business, we can better understand the potential for a market correction, albeit without the potential for a complete bubble collapse.