Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

> Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you.

This couldn't be further from the truth. While making a prototype EV is relatively easy, yes. EV industry followers will note that the real challenge is scaling EV production, and specifically the batteries' production. You don't need to look further then to answer: 'Why don't all of these automakers have tonnes of EVs on their lots available today as we speak? Why are they all '2022 release' or even 'dozens of models in 2025'. Because all of the tier 1 and tier 2 li-ion battery supplies have already been allocated from now to several years out, and if you want 'EV model volume' scale batteries, you better be ready to fork over the capital or purchase commitment for a batttery cell production line that might not have had a shovel hitting the ground yet. And waiting a few years for assembled product.

> But their price only makes sense if they end up being the only car maker left.

Assuming both the gross margin profile and auto ownership model stay the same - sure. Tesla has proven to generate more gross margin per vehicle than other automakers as is, they have 'practically' infinite demand (stimulated by expanding geographies and targeted price reductions when demand sags). And this isn't accounting for GM expansion for vehicles that could be a part of a ride hailing network (autonomous or not).

I do believe, like other 'Tesla fans', that when factoring in their lead in scale and tech, unit cost advantage as well as how things look on a decade or two time horizon, I think it is quite likely that there will not be a better time to become a shareholder in the next 1-2 decades.

One way I look at it is by comparing it to Apple, a ~$2T market cap company in 2020 dollars. ARPU of an Apple customer compared to a Tesla customer is probably between 1/4-1/10 (how much iphone/mac/apple services does one buy versus transportation spend on an annual basis). If you project Tesla margins to look more like Apple's 10 years from now (yes, a big bet), even with similar market share breakdowns of iOS/Android today - it isn't a huge stretch to imagine with ~50-100M EVs on the roads by then - that you could have Tesla with a market cap between 10T and 20T in 2020 dollars. Particularly when factoring in their business segments beyond personal transport/light vehicles.

They are so far the only company making EVs to have crossed the 'valley of death'[See: crossing the chasm]. Startups and established automakers will need to spend billions in order to get EVs sold at scale that generate FCF per unit. It is a tall order.

(Not financial advice do your own research etc etc)

EDIT: Also note that Tesla has stated in an earnings call that they are looking at 50% CAGRs moving forward, and I do think that they could be undershooting this number a bit.

All other car companies are primarily debt financed rather than equity financed. Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for a total enterprise value of $160B.

So Tesla isn't worth as much as all of the companies put together, it's worth about as much as 2 or 3 of the big ones. Which is still a lot.

But all the other car companies are facing an existential threat. Climate change and the EV transition are going to be tough. That has to be depressing their valuations some.

Tesla also has a really good profit margin. If they can keep that up, it goes a long way to justifying their prices. Pretty big if, that one -- the general assumption is that it will go down as they go downmarket to chase volume. Vertical integration might let them keep it up, though. Think of it like Apple -- 20% market share but >80% of the profit.

What I'm saying is that if Toyota or Volkswagen had no debt, a Tesla level profit margin and no overhanging challenge like the transition to EV, they'd have a market cap similar to Tesla's.

That still doesn't justify Tesla's market cap, but it makes it seem less insane.

You can buy very cheap out of the money options at small fractions of the cost of the shares by making bets that TSLA will drop hard in the next year while the market thinks that in that timeframe it will not.

Most of the time you lose money doing this.

Time it right, though and you can make 10x returns, but you have to be right and the rest of the market needs to be wrong, which is often unlikely.

But even if you're right in the long-term you need to also get it right in the short-term.

I don't think I'd be betting against this market right now, there's no guessing how irrational we'll wind up getting. Post-pandemic I would guess we'll have even more of an irrational bubble around back-to-normal, and a rising tide lifts all the boats.