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

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

#191

Post by T-A » Mon, May 17, 2021, 9:13 PM UTC

victor106 wrote: post #176

bryanlarsen wrote: post #118

Earlier quoted context omitted.

The statement "Tesla market value is the same as everybody else put together" means either Tesla is expensive or everybody else is cheap or the statement is inaccurate. It's a little bit of all three. 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…

> Tesla also has a really good profit margin. Their net profit margin is barely 2%.[1] I would not call it good by any stretch. By contrast Apple has a 25% net margin[2]. That is what I call good. [1] https://www.macrotrends.net/stocks/charts/TSLA/tesla/profit-... [2] https://www.macrotrends.net/stocks/charts/AAPL/apple/profit-...

Even worse, those profits would be losses without the regulatory credit sales mentioned as a "red flag" in the article:

[1] https://www.bloomberg.com/news/articles/2021-05-05/tesla-wil...

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

#192

Post by gruez » Mon, May 17, 2021, 9:16 PM UTC

Kiro wrote: post #170

incrudible wrote: post #61

Earlier quoted context omitted.

> I won't short them tough, in the end I'm just a dog on the internet and have no clue how stonks work. To be clear, Michael Burry didn't short Tesla, he bought put options, which gives him the right but not the obligation to sell Tesla stock for a certain price, on a certain date. If the bet works against him, his options expire worthless. This puts an upper limit on his losses. If you have an actual short position,…

Why can't you have a limit on short positions and just withdraw when it reaches it?

That's basically how a margin call works. If your position loses too much money relative to the other components of your portfolio, your broker forcibly closes your position to prevent further losses.

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

#193

Post by lamp_book » Mon, May 17, 2021, 9:17 PM UTC

overhero wrote: post #74

patorjk wrote: post #64

> Besides his “Big Short,” Burry made a killing from a long GameStop position recently as the Reddit favorite made Wall Street history with its massive short squeeze. Except I remember reading that he sold for before the price exploded [1]. So although he made a profit, he missed out on the squeeze because he sold too early. [1] https://markets.businessinsider.com/news/stocks/big-short-mi...

he was not wrong though, just too early

"That's the same thing"

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

#194

Post by nunez » Mon, May 17, 2021, 9:18 PM UTC

bryanlarsen wrote: post #118

turbinerneiter wrote: post #15

Teslas price is just too high. I think they will be very successful and become a big, dominant car maker. But their price only makes sense if they end up being the only car maker left. That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you. For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the…

The statement "Tesla market value is the same as everybody else put together" means either Tesla is expensive or everybody else is cheap or the statement is inaccurate. It's a little bit of all three. 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…

There are other things to consider too:

- Tesla is achieving vertical integration to a degree no other mainstream auto OEM has achieved. The only other example of vertical integration to the extreme that I can think of is Koeneigsegg, and they are _very_ niche. This only helps Tesla make cheaper cars faster while collecting more margin per car.

- Tesla's FSD marketing is highly contentious, but they are the only auto manufacturer that is building (designing) their own SoCs explicitly for this. I wouldn't be surprised if they are outspending other auto OEMs on autonomous driving R&D by several degrees of magnitude.

- Tesla still has a major, major lead in EV battery tech which will only be cemented if they can get 4680 into revenue production. They also own the largest and (arguably) most reliable charging network in the world, which is growing at a faster rate than Electrify America, the second biggest competitor.

I think that Tesla is overpriced long term in a world where 91% of American cars are EVs and 48% of them are self-driving, but I think they are correctly priced for _right now_

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

#195

Post by [deleted] » Mon, May 17, 2021, 9:19 PM UTC

turbinerneiter wrote: post #15

Teslas price is just too high. I think they will be very successful and become a big, dominant car maker. But their price only makes sense if they end up being the only car maker left. That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you. For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the…

[deleted]

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

#196

Post by mypalmike » Mon, May 17, 2021, 9:22 PM UTC

AlanSE wrote: post #168

arcticbull wrote: post #125

Earlier quoted context omitted.

With a put option, you pay premium in the form of "theta decay" over time. If Tesla stays flat, you lose your entire premium, and on a stock like TSLA with high implied volatility, that can be a very expensive proposition. Similarly, with a short position, you'll be paying a borrow fee which will vary over time based on short interest.

Fascinating subject. I also just want to mention why it makes sense that people SELL put options, in addition to buying them. If you sell a put option, then you have the obligation to sell in the future at the fixed price, regardless of the market price at the time. However, many of these positions are "covered", meaning that someone can sell a put option while owning as many stocks as they sell in options. So if the…

> these positions are "covered", meaning that someone can sell a put option while owning as many stocks as they sell in options

A covered call is where you sell options backed by long shares. A covered put is backed by short shares. A common way of selling puts without shorting the underlying stock is just having enough cash on hand to buy the underlying asset if the option is exercised.

And yeah, some small investors do claim to make decent income primarily writing options. The basic idea is that if you can eke out like 0.5% a week on average, you can get around 25% annual returns. I've been looking into trying to automate some basic strategies, but it's rather daunting just getting started in automated trading. Figuring out how to just get the data you need for implementing a strategy is a pretty big hurdle, for instance.

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

#197

Post by greycol » Mon, May 17, 2021, 9:22 PM UTC

alex_young wrote: post #82

incrudible wrote: post #61

Earlier quoted context omitted.

> I won't short them tough, in the end I'm just a dog on the internet and have no clue how stonks work. To be clear, Michael Burry didn't short Tesla, he bought put options, which gives him the right but not the obligation to sell Tesla stock for a certain price, on a certain date. If the bet works against him, his options expire worthless. This puts an upper limit on his losses. If you have an actual short position,…

> If you have an actual short position, your potential losses are unlimited. Isn’t this a bit like saying that the potential upside of holding any stock is unlimited?

If you need to cover your short and there are no shares being sold you effectively must keep offering higher and higher prices until someone will sell you a share as you are legally obligated to buy a share[1]. To end the unlimited downside (of raising the price you'll pay by more and more) you need to have enough sell orders on the books to cover your short or have raised the price enough for someone to sell. During the time you are trying to buy your loss is increasing (as you raise the price to get a seller) and is unbounded.

If you have a stock you have to sell and there are no offers to buy on the books you can't offer to sell then keep raising the price, instead you would need to keep lowering the price. The price is either limited by what's on the books, or you need to wait an indeterminate amount of time for some one to buy at the price you are selling. During this time you are trying to sell your profit is decreasing (as you lower the price to get a buyer) and bounded by $0 (for a limited liability company).

So while it's true that if you hold a stock indefinitely the value you could get is unlimited with a short the value you could lose could be unlimited over a much shorter time frame.

[1] Whether you actually need to cover your shorts may be a matter of some debate if you look at the wild rumors around GME

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

#198

Post by felixfurtak » Mon, May 17, 2021, 9:23 PM UTC

MrPowers wrote: post #174

Tesla can grow and sell tons of cars and the stock price might still fall. Cisco Systems is a great example of a fantastically profitable business with a stock price that's still below peak. It's an incredibly successful company that makes more than $10 billion in profit every year. The stock price is still below the March 2000 peak. If Tesla "only" made $20 billion in profit a year, the market would probably conside…

Some interesting parallels with automotive industry here. Cisco saw huge valuation base on a perceived future. Nortel (who were more of an incumbent) also saw massive stock price increases at that time. Only one of these two companies survived. Cisco had the right tech but Nortel had fundamentally the wrong tech. I suspect we'll see something similar in the automotive industry.

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

#199

Post by underwater » Mon, May 17, 2021, 9:24 PM UTC

bryanlarsen wrote: post #118

turbinerneiter wrote: post #15

Teslas price is just too high. I think they will be very successful and become a big, dominant car maker. But their price only makes sense if they end up being the only car maker left. That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you. For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the…

The statement "Tesla market value is the same as everybody else put together" means either Tesla is expensive or everybody else is cheap or the statement is inaccurate. It's a little bit of all three. 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…

iPhones are not a commodity product. At the moment Teslas are. How will Tesla convince consumers that their car, with a high profit margin, is worth it over a mature EV vehicle from Ford, BMW, etc.

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

#200

Post by TechBro8615 » Mon, May 17, 2021, 9:25 PM UTC

nunez wrote: post #194

bryanlarsen wrote: post #118

Earlier quoted context omitted.

The statement "Tesla market value is the same as everybody else put together" means either Tesla is expensive or everybody else is cheap or the statement is inaccurate. It's a little bit of all three. 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…

There are other things to consider too: - Tesla is achieving vertical integration to a degree no other mainstream auto OEM has achieved. The only other example of vertical integration to the extreme that I can think of is Koeneigsegg, and they are _very_ niche. This only helps Tesla make cheaper cars faster while collecting more margin per car. - Tesla's FSD marketing is highly contentious, but they are the only auto…

> Tesla is achieving vertical integration to a degree no other mainstream auto OEM has achieved

This is crucial. It’s also why Tesla vs automakers reminds me of Apple iPhone vs existing cell phones. Sure making an electric car is “not that hard,” but because the carmakers didn’t take Tesla seriously for 10+ years, they now have a lot of catching up to do.