Legendary investor Michael Burry, famous for predicting the 2008 financial crisis, has launched a sharp critique against Tesla and other major technology firms. His target is their extensive use of stock-based compensation, a practice he argues unfairly erodes shareholder value and is misleadingly excluded from earnings reports.
Burry's Core Argument: Shareholder Dilution and Flawed Accounting
In his paid Substack newsletter, "Cassandra Unchained," Burry detailed his concerns. He stated that Tesla dilutes its shareholders at an annual rate of roughly 3.6% by issuing stock to employees as compensation. The problem, according to Burry, is compounded because Tesla does not conduct share buybacks to counter this dilution effect. He further described the electric vehicle maker's market capitalisation as having been excessively high for a prolonged period.
Burry's criticism extends beyond Tesla. He accused the broader technology sector of using accounting practices to mask true costs. Companies issue substantial stock-based compensation but then present "adjusted earnings" figures that exclude this expense. This, Burry argues, gives a distorted picture of financial health. He provided a detailed analysis of how stock-based compensation is not accurately reflected under standard accounting rules (GAAP).
Other tech giants named in his newsletter include Palantir and Amazon, which he says also significantly dilute their shares through employee compensation plans. To reinforce his point, Burry cited investing icon Warren Buffett, quoting him as asking if stock-based compensation is anything but a real expense: "What else could it be — a gift from shareholders?"
Elon Musk's Massive Pay Package Under Scrutiny
A specific point of concern for Burry is Tesla CEO Elon Musk's colossal compensation plan. The plan, which received approval from about 75% of shareholders, could grant Musk hundreds of millions of additional shares if he meets ambitious performance targets. This 2025 pay plan has the potential to increase Musk's stake in Tesla to 29% from his current 15%.
Burry warned that this arrangement would lead to continued dilution for existing Tesla investors, further impacting their share of the company's ownership and value.
Burry's Platform and Market Reaction
Michael Burry launched his $379-per-year Substack newsletter after closing his hedge fund, Scion Asset Management, in November. The platform has become his primary channel for sharing market insights, with a recent focus on overvaluations in artificial intelligence and questionable accounting in the tech sector.
Despite Burry's bearish assessment, Tesla's shares were trading near $426 following his commentary, marking a year-to-date gain of more than 6% at the time. This highlights the ongoing divergence of opinion on the company's valuation among investors.
