Michael Burry Warns Tesla Stock Is “Ridiculously Overvalued” as Valuation Hits $1.4 Trillion

The man who is known for his prediction of the housing crash is once again notifying, but this time at the trillion-dollar doorstep of Tesla. Let’s be honest, when Burry labels a share “ridiculously overvalued,” it is hard to ignore. 

To be precise, his performance is not a matter of chance, instead it is a matter of experience. With Tesla’s high valuation, decreasing profit, and Elon Musk’s universe sized salary dangling over shareholder dilution like a storm, Burry’s alertness sounds less like a controversial take and more like a reality check that the market is not ready to accept.

Burry’s Warning

Tesla’s shares have once again jumped back to being the center of attention after Burry, through his new Cassandra Unchained newsletter , called the company “ridiculously overvalued.” 

The iconic investor puts forward the argument that Tesla’s trillion-dollar valuation does not mirror its slowing factors, particularly as profit margins continue going down. 

Also, Musk’s $1 trillion pay package, along with Tesla’s decision to not buy back the shares, has left investors vulnerable to dilution effects that are ongoing.

All this is happening at a company that has been decreasing its focus on the core business area and is instead making futuristic promises such as autonomous ride-sharing, AI-powered robots, and a vision of an automated world. 

But having a vision does not mean you ignore the reality and math. Tesla’s revenue in 2024 is hardly any different from 2023, and operating income has declined sharply. Tesla’s growth story has not been broken, but it definitely is no longer a sprinting one.

Near-Term Challenges

Tesla is continuing its growth trajectory, but not at the rate that Wall Street has been accustomed to. In 2024, the revenue increased only 1% to $97.7 billion, which is a significant reduction from 2023’s 19% growth. Q3 indeed brought in record revenue of $28.1 billion (12% up YoY), and it was backed by making 497,099 vehicle deliveries. However, there is the disturbing part, where the profitability is going down.

Operating margins have been reduced from 9.2% in 2023 to 7.2% in 2024, and the most recent quarter showed a staggering 40% drop in the operating income. The company is under pressure due to heavy investments. 

Tesla has a plan to spend around $9 billion on capital projects in 2025 to build up Cybercab production, Semi trucks, along with AI infrastructure for autonomous driving and robotics. Such projects could bring in substantial revenue in the future, but for the time being they are taking a toll on the cash flow and the margins. 

That is the conflict, where the investors are being asked to accept the futuristic projects of Tesla, while at the same time they are choking on the weaker performance of today.

Tesla’s Valuation Problem

With the shares priced close to $430 and a total market cap of $1.4 trillion, Tesla is dealing with a valuation of around 294x its earnings. Such valuation is usually provided to explosive, margin-rich software companies, and not to manufacturers of cars who are struggling with increasing production costs. 

Even if one looks at the company from the perspective of sales rather than earnings, the situation is still quite extreme, where Tesla is trading at 16x sales, while Toyota and GM are just under 1.

Those who support Tesla claim that the comparison of the company with traditional automakers miss the whole story of its software and AI potential. Elon Musk’s vision exactly highlights this point. 

During the Q3 earnings announcement, Musk even went as far as to say,

“Optimus at scale is the infinite money glitch”

This indicates that the robot might one day completely take over the entire vehicle business.

Burry is resisting the narratives of the market around him. His viewpoint is that Tesla’s market valuation presupposes that there will be perfect execution in all aspects, which includes autonomy, robot taxis, robotics, and energy. 

Even the core auto margins are already under stress and shareholders are being diluted. When the valuation is stretched to such a degree, even minor disappointments can lead to huge reactions.

Bottom Line

The stance that Burry has taken is a very logical one. Tesla keeps on being a remarkable company with the power to innovate and have enormous potential, but potential is different from reliable growth. Markets, in most cases, reward the dreamers, but at the same time it punishes the inconsistent ones. 

This does not imply that the company will go down the drain, it simply means that the stock price is conveying a much larger story than the current numbers can support.

Acquiring shares at this valuation level means that one should be convinced of the near-perfect performance in robots, AI, self-driving cars, and new giant profit areas, all this while the company is facing declining margins and high operating costs. 

This is exactly the reason for Burry’s doubtfulness, he is asking if the stock price does not portray something that is very far from the current reality. So, to be cautious is not to be bearish, instead it is being rational.