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

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

#241

Post by rictic »

fullshark wrote: post #136
rubyn00bie wrote: post #98

Earlier quoted context omitted.

I'm not one to typically paraphrase billionaires, or think they're too connected to reality... but something I heard Mark Cuban say the other day was kind of "oh, shit that's true" moment for me. It was something to the affect of (I can't find the clip at the moment), "Back in 2010 we never thought we'd see a company hit $1 trillion. We never thought Apple or Amazon (et. al) would be able to continue their growth yea…

> I'd be more skeptical but EVs are eventually going to cost way less to make than typical ICE (internal combustion engine) cars, and per unit that savings translates into a lot of fucking profit. What's the basis for this? Battery tech evolution and ICE cars have no more (safe) optimizations to make to get costs down?

I won't speak to profit, but battery performance per dollar has been improving at a fast exponential clip for the past couple decades, which is one of the largest costs of an EV.

An EV drivetrain is also far, far simpler. Fewer parts, and less complexity in those parts. No clutch, gearbox, carburetor, differential, starter, pumps, exhaust…

A modern ICE car is an absolutely unbelievable engineering marvel, but unless battery progress unexpectedly stalls there's just no way they can keep up in price or reliability with EVs.

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

#242

Post by totalZero »

gruez wrote: post #62
totalZero wrote: post #43

Earlier quoted context omitted.

I personally am against selling equity that you don't own. It creates so many failure modes for the equity markets (failure to deliver chief among them). And I wouldn't be surprised if the net impact of short selling were actually positive for spot price, because shorts tend to sell into strength but they often squeeze into weakness. We've gotten accustomed to short selling and buybacks, but the equity markets would…

>It creates so many failure modes for the equity markets (failure to deliver chief among them). Has this actually caused issues? Stock prices usually go up when the economy is doing well, so when short sellers default the economy/banking system is well prepared to absorb the impact. This is as opposed to something like MBS which causes a downward spiral of "people losing their jobs -> default on mortgage -> banks pul…

> Has this actually caused issues?

That was one of the issues for the clearinghouse with GME. When a market-maker sells short, they don't have to locate inventory prior to selling. Sometimes, they are unable to deliver to the clearinghouse, which technically forces the clearinghouse to remain short to the buyer. A "buy-in" is supposed to take place when a short seller cannot deliver, but this doesn't happen with market-makers because they get extra time under the rules, and also they tend to trade so much that the clock resets on their past undelivered shorts every time they buy and sell (this is called a "reset transaction" and it is illegal for any other market participant to do). If a market-maker gets caught wrong-way on a position where they sold lots of shares that they neither own nor have the solvency to buy at market, they can collapse and that puts the clearinghouse itself at risk. This is why a firm like Citadel (one of the biggest market-makers) had an incentive to capitalize Melvin Capital with $2B to attenuate a squeeze. IMO it was self-preservation, not charity nor opportunity.

The SEC makes FTD data available twice monthly. You can find it here: https://www.sec.gov/data/foiadocsfailsdatahtm

MBS wasn't a problem because of the defaults themselves. It was a problem because the correlation of defaults was underpriced, so banks took heavy losses on positions that they thought were pristine.

> Why? Buybacks are equivalent to paying dividends and then reinvesting them (which most people do).

This isn't true. Buybacks do two things that make them highly attractive to executives. First, buybacks allow option holders (including many insiders) to generate capital appreciation on those options without exercising them. Dividends, on the other hand, distribute only to shareholders and actually reduce the price of the stock (share price drops by the amount of dividend on ex-date). Second, buybacks provide a perpetual bid to the stock that mitigates the downward impact of selloffs, which is particularly nice for executives that receive performance incentive bonuses based on share price. With something like an ASR (a more complicated buyback traded against a derivatives desk), buying may even get more aggressive (in terms of % of total volume) as the stock declines. Buybacks are rationalized as capital return but really they are a form of inducing asset inflation.

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

#243

Post by seem_2211 »

tomp wrote: post #234
seem_2211 wrote: post #154

Earlier quoted context omitted.

This is also predicated on the idea that every part of Tesla's operations are substantially better than existing automakers. Do people really believe that Tesla is literally run 10x better than Toyota, Volkswagen, Daimler, BMW or Honda? I don't think so. Then there's the nightmare of trying to appeal to two wildly different consumer groups. At the low end: does Tesla have a meaningful reliability advantage versus Hon…

> why would anyone buy a Tesla over a comparatively priced Audi, Porsche, Mercedes or BMW Because you want to drive far? Tesla model 3 range: 354 - 504 km Porsche Taycan range: 333 - 463 km (and most certainly not comparatively priced)

If you are buying a Taycan you would not even consider the Model 3 and if you want to drive far you buy an ICE.

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

#244

Post by seem_2211 »

MomoXenosaga wrote: post #238
seem_2211 wrote: post #154

Earlier quoted context omitted.

This is also predicated on the idea that every part of Tesla's operations are substantially better than existing automakers. Do people really believe that Tesla is literally run 10x better than Toyota, Volkswagen, Daimler, BMW or Honda? I don't think so. Then there's the nightmare of trying to appeal to two wildly different consumer groups. At the low end: does Tesla have a meaningful reliability advantage versus Hon…

Realism is the problem. BMW and Volkswagen are boring. Not much to hype. They just sell cars not tech nerd dreams.

The company valuation of BMW and VW isn’t the problem- it’s a problem for Tesla. There aren’t enough nerds in the world to justify it’s insane stock price.

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

#245

Post by medvezhenok »

nostromo wrote: post #67
eaenki wrote: post #38

Earlier quoted context omitted.

So how would you go about making an educated reverse engineering claim on the stake at risk without knowing his other legs nor expiry dates? Is it even possible? How about a wide range?

> As of March 31, Burry owned 8,001 put contracts, with unknown value, strike price, or expiry, according to the filing. You can't figure out his position with this information. For example, you could buy very, very out-of-the-money puts for a penny. (Your bet would basically be: TSLA loses 95% of it's value in the next week.) My total value at risk for this bet (of 8,001 put contracts) would be $80.

*Small correction - the minimum value of 8000 put contracts would be $8000, since one put at a price of $.01 actually costs $1 and controls 100 shares of stock (the price is price per share)

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

#246

Post by totalZero »

sigstoat wrote: post #135
totalZero wrote: post #43

Earlier quoted context omitted.

I personally am against selling equity that you don't own. It creates so many failure modes for the equity markets (failure to deliver chief among them). And I wouldn't be surprised if the net impact of short selling were actually positive for spot price, because shorts tend to sell into strength but they often squeeze into weakness. We've gotten accustomed to short selling and buybacks, but the equity markets would…

> Borrowing something to sell it is a recursive behavior, as is buying shares of yourself. no, it isn't. this is nonsense, you're just trying to equate some reasonable market activities with something that sounds a bit scary and weird because you don't understand it. > ... in computer programming, we have to be careful about recursive behaviors. no, we don't. no more than of any other failure to terminate a loop.

I'll ignore the ad hominem parts of your comment.

If I borrow a share and sell it, I can later borrow it again and sell it again.

That is recursion.

When it hits a base case -- eg, I get liquidated -- all of those shorts have to be simultaneously covered. Doing so can create a stronger bid than the float of the asset.

> no, we don't. no more than of any other failure to terminate a loop.

A loop that can be done in-place, or in constant space, is less space-complex than a recursive function that cannot. Surely you have had situations where writing a top-down recursive function requires more memory than achieving the same result with a bottom-up recursive function, or vice versa. That doesn't happen with an iterative loop where I can better characterize the space required a priori.

There is no rule in Regulation SHO preventing market-makers from selling a greater number of shares than the float, and there is no rule preventing any short-seller from borrowing and selling the entire float multiple times over.

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

#247

Post by zaat »

LeifCarrotson wrote: post #171
burnished wrote: post #149

Earlier quoted context omitted.

OK, but the person you were responding to was asking if this also meant that the upside was unlimited - so in your example the answer is 'yes', if you bought in at $300 the stock price can just keep going up without bound. Can you clarify why these are different?

If you win $300, good for you, if you win $430,000, that's even better for you, but the market doesn't really care which way that goes. However, if you lose $300 that you brought to the table, that's your problem, too bad for you. If you lose $430,000 when you only brought $300 to the table, that's beyond being just your problem, that's the system's problem. A system which allows this situation to happen is fundament…

Hence there are checks and defense mechanisms in place, and a risky short position (meaning position with loss over the credit given to the position holder) will be closed by the bank/broker.

Those guys in finance and regulations have been here before we were born, they managed to cover most basic stuff by now.

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

#248

Post by mxschumacher »

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…

If you're looking for a vertically integrated electric car maker with an impressive position in batteries and semiconductors, I suggest you look into BYD.

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

#249

Post by mxschumacher »

kickopotomus wrote: post #223
anyfoo wrote: post #172

Earlier quoted context omitted.

> Climate change and the EV transition are going to be tough. That has to be depressing their valuations some. Does it have to be? I can imagine that going from 100 years[1] of internal combustion engines to an entirely different type of drive train is going to be jarring, to say the least. But neither are EV completely new at this point, nor is a car just its drive train. Surely other comparable transitions have bee…

> But neither are EV completely new at this point, nor is a car just its drive train. Exactly this. The EV drivetrain is also simpler than an ICE because a transmission is not needed[1]. I think the hardest part about vehicle manufacturing, which is the issue Tesla seems to run into repeatedly, is dependable mass production. The major auto conglomerates have a lot of experience with cranking out massive volumes of qu…

In light of the Panasonic partnership with its large involvement in the gigafactory, I don't understand why Tesla is supposed to be considered vertically integrated in batteries. Nothing stops Panasonic from collaborating with a car maker that churns out 10m+ cars per year

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

#250

Post by mxschumacher »

MrPowers wrote: post #164
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…

I agree with the sentiment that comparing Tesla's market cap with traditional car companies is inaccurate. For certain companies, market capitalization is a good proxy for enterprise value, but as this poster is mentioning, that's not always the case for companies with debt. enterprise_value = market_cap + debt - cash Looking at the market caps of long-standing US car manufacturers is doubly problematic cause they ha…

At the same time we have to consider that debt is both exceptionally cheap and advantageous in an inflationary environment. Having to serve debt at 2% is much, much easier than doing so at 7%+
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