The Diary Game 23/05/2021. Michael Burry against Tesla.
Michael Burry, who predicted the 2007 crisis, is betting against Tesla. Take a look at some very interesting information about Tesla Motors, which seems to me a pretty big blow to the value of their shares: Michael Burry is betting that they will drop massively.
That means shorting, meaning he will make money if the shares fall. How do you make money if a company's shares fall? It's a mechanism explained in more detail at GameStop a few months ago. In short: you borrow someone's shares right now and sell them on the market, taking a lot of money on them. You're counting on them to be cheaper in a few months. At that moment you buy them back, you give them back to the one you borrowed them from and you are left with the difference in money.
For example, you borrow 10 shares from someone. You sell them for $ 8 a piece and you have $ 80. In 3 months, for various other reasons, the shares of that company are worth $ 3.5. You then buy back 10 shares for $ 35 and give them back to the one you borrowed them from, along with a small interest. That person has the 10 shares back, you have an extra $ 45 in your pocket.
It would not be something new that the world shortens Tesla, including on eToro about 2% do that, let alone the large funds specialized in such a thing. Important is another detail: Michael Burry is the one who successfully predicted that more banks will fall in 2007, which happened in the great economic crisis since then.
These events are very cool described in the movie The Big Short. You should see it, it's on Amazon Prime Video, it's great for its subject and it shows very well what triggered the crisis since then and how some took advantage of it.
Burry analyzed all sorts of data and indicators and came to believe since 2005 that banks will have big problems with mortgages sold and resold. He bet against them at a time when financial problems for JP Morgan Chase, Goldman Sachs or AIG seemed impossible. In 2007, when the crisis came exactly as predicted, Burry's investment fund made a profit of $ 700 million for its clients, plus $ 100 million in its commission, at a time when millions of people had lost money.
So when Burry says that a company's shares will fall, people become careful.
The Tesla short was recently discovered, when Burry's investment fund submitted the required documents quarterly to the authorities in the field. The statement there talks about 800,100 Tesla shares, and the value at the end of the first quarter would mean a bet of 534 million dollars.
Tesla shares have risen sharply in 2020, reaching over $ 800, and all experts say they are highly overvalued. A realistic value would be around $ 500-600. At the moment it is $ 576, it has been steadily declining in recent months.
Let's do a simplistic calculation. If Burry has shortened to $ 676 and is making money now, it means a profit of $ 100 per share. It has 800,100 shares, so it would make $ 80,010,000 in profit. But maybe he was short when it was $ 750 or $ 800 (or the all-time high of $ 885), who knows, and maybe he's still waiting for it to go down.
Burry once explained why he thought Tesla would go down. In short, it's not because cars aren't wanted or sold, it's because a lot of Tesla's revenue comes from selling green certificates in the automotive industry.
The system here is this: the authorities oblige car manufacturers to also manufacture eco-friendly cars. Most do not do this or do it in small quantities, switching to hybrids and electrics is still timid. Tesla, however, only produces electricity, so it is very good in this regard. Car manufacturers who failed to reach the quota imposed by the authorities bought from Tesla "green credits", that it was allowed, and paid tens of millions of dollars for it.
However, Burry says that the car industry is reorganizing, that more and more manufacturers are launching electric and hybrid cars on the market and therefore will reach their own green share, which means that they will not buy from Tesla in the future. Stellantis, which is Fiat-Chrysler's alliance with Peugeot-Citroen, recently announced that they will reach their carbon dioxide target this year.
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girolamomarotta
Italy Country Representative 🇮🇹