TESLA: The 'New' Big Short

Okay, hello and welcome. It's Tuesday the 18th of May, and last night we had 13F filings, which is always a really interesting point in the year where we get to see a little bit under the bonnet of some of the positional changes that major players in the market, i.e., hedge funds, are making. And there was one big headline, the new Big Short, which is Tesla and Michael Burry. And I've got, uh, head of Amplify Me, Eddie Donmez, is, is joining me, and he's going to talk to exactly what that finding showed, why this bet's been taken, and some rationale behind it. So Eddie, how's it going?

Yes, good, um, another big short, uh, and it's Tesla this time. So there's Michael Burry, obviously very famous investor from the film on Netflix, and I'm sure you've seen it everywhere, The Big Short. He called the subprime mortgage crisis of 2008-2009 Uh, but he's at it again with Tesla, uh, and he's long 8,000 puts against 800,000 Tesla shares. So this is a notional amount that he's short of around $500 million or half a billion, uh, and this is a sizable sum, 40% of his total portfolio. Um, so first let's dive into what is a put, okay? So Essentially a derivative, and these securities will benefit when the underlying shares, obviously being Tesla, decrease past the strike price. So in this 13F filing, it's not actually disclosed what the expiry of these puts are or the strike price. So we don't actually know if it's in profit yet. However, looking at Burry's track record, it's probably in the green slightly. Especially as Tesla's down something like 35% as well.

There was a post that you did and you were talking about how this, this position is different to say GameStop because he wants to protect himself against kind of a big breakout against his position. So can you explain that for us?

Yeah, definitely. So, um, last year and a bit of this year as well with obviously GameStop and AMC and the Reddit-fueled rallies and all of that good type of stuff. Um, it's very important to notice that he's not short the calls, which slightly different kind of play. But given the short squeezes that we have seen some of those names, and the gamma squeezes we saw even with SoftBank with Tesla shares, if you remember last year, and especially more recently, um, it's a much smarter way of actually playing this short without the threat of basically blowing up because being short the calls, if— We've all seen the explosive rallies that names like Tesla and Reddit-fueled stocks can have. This is just a much smarter way of, okay, a bit more initial capital up front, but protecting yourself from an explosive move for whatever reason. In the market we're in, high speculative excess, we've seen it with things like Dogecoin, Musk has a huge following, which I guess slightly has been dented by the whole Bitcoin argument that he's been going after, but he's very much got a tribe behind him. Let's take a look at why Burry's short.

Talk me through the rationale.

Well, he's long the puts, but he's effectively short. He has tweeted and then deleted He's very wary of the regulatory energy credits that Tesla have been making a lot of money selling to different automakers. And it's widely recognized that Tesla do share those energy credits. I mean, in Tesla's favor, or the argument for Tesla is, why wouldn't you sell them if you were able to? And the argument for the long-term bull case for Tesla is similar to that of Amazon. Why would you not sell those regulatory credits to then invest via CapEx, new factories, Gigafactories all over the world to then lower your long-term costs to then produce Model Ss, et cetera, Model 3s at a lower cost base, which is like $30,000 electric car that Musk has talked about quite frequently. Why wouldn't you do that and invest in the future if Amazon's a perfect example and now they're the massive company that they are? So that's kind of the case. However, let's take a look at Tesla and why it's been crashing more recently. It's down something like 15% last week, 35% over the last 3 months. The sales in the key market of China have dropped to 26,000 in April. That's from 35,000 in the prior month of March. They've paused their plans to expand in Shanghai due to the regulatory kind of tensions coming from the administration. So Biden, and a good kind of point that speaks to Burry's play as well, higher rates and the threat of inflation that everyone is talking about right now. Is hitting those highly speculative names across the board. Tesla is still trading at a 97, pretty much 100 forward price-to-earnings ratio, which is still rich on a traditional basis. So speaking to Burry's play, he's actually put a— he's basically aggressively positioning for inflation and higher yields. So he's got large calls cool positions on things like TLT, the ultra short ETF, 20-year ultra short. He's got a put on the TLT 20-year. Yes, he's betting on Tesla, the negative price action, but he's also got more of a macro inflationary bet on as well. Of course, if you're looking at what's happened recently, inflation up, Yields up, lower discounted cash flows going out into the future for the highly speculative names, tech stocks, highly speculative names getting hit.

Okay, so let's pivot back and let's talk about the other big proponent of this, which is Elon Musk. And he's gone from that SNL appearance, it's all gone a little bit slippery for him recently over the last week or so. Any, any thoughts on Elon? And one of the things, just to lead you into this, that I just wanted to share was I asked one of the guys to go back through and put together for me a study about the behavior of Elon on Twitter. You and I were discussing this the other day. We were like, Christ, he's like the new— Trump goes, someone's got to fill that position as like the dominant force on Twitter. And Elon Musk certainly isn't shy of putting forward his opinion, as we've seen. And so what I wanted to do was look year to date, but also do a slightly bigger study as well, which I'm still collating information on. But this is year to date. So Musk has done about 1,000— well, to be precise, he's done 1,009 tweets so far year to date. So he's averaging around 7 a day. But this is the profile of timings around when he tweets. And what's quite interesting is if you were to factor in the opening hours of Wall Street, that's the lowest time of day of which then he tweets. Whether or not there's any sensitivity to he's aware that the stock price is tradable at that point, whether he's actually doing some work and not on Twitter, But there's a really distinct pattern of where he tends to be most active post-market close. If you're looking after the closing bell on Wall Street up until midnight, you can just imagine Elon sat there after a really— a genius like him, I'm sure he's just got so much going on in his head, it all comes out. And so if you were looking at the session ahead, what I'm anticipating here is I'm sure Elon's going to bite. He seems like the character that actually enjoys confrontation. It's almost like a challenge to him. What do you reckon?

Yeah, I mean, he's been kind of picking fights with the Bitcoin mob, probably kind of poking the bear on that one. I think he's so intellectually strong that he does love a challenge and he loves to pick apart arguments. And he almost doesn't care about the stock price. I think that's worth noting in the sense of he doesn't really seem to care if it goes up, hence why he's been tweeting this stock price is too high before. He doesn't really care if he gets hit in the short term. Um, he's now got enough capital for that to be, uh, not an issue. Uh, so yes, I do believe that he will 100% have something to say about this. Um, like he's picked the fight with the Bitcoin mob. Um, I definitely think he'll address this in some— probably maybe not directly, but obscurely, uh, via some, some tweets or, or something like that. But who knows, we might get another movie out of it just like The Big Short, which I'm hoping for.

Well, just to finish, is I was looking at the share price and downside. I'd just like to mark out $542 which was that low that we printed back on the 2nd of Dec and the low on the 5th of March. Now yesterday we closed at around 576. But what I'm quite interested in is that we know Tesla is a very popular name amongst the retail crowd. And just by association of The Big Short, I wonder if that and to what degree behaviorally that has an impact, even though we're talking about one of the world's largest companies. Um, so I definitely would have that on my radar. I think a breakdown, whether that happens today or not, I think a break of $542, we go to $500 ASAP, which would be that previous all-time high that we were seeing back in, in September of 2020. But let's see, a few hours to go yet until the open.

Yeah, let's, um, I'm looking forward to seeing it. I think, um, after that kind of run-up last year, they were up 740% or something last year with the inclusion of, uh, of them in the S&P because of those regulatory credits driving some of that. Um, and I think they're sitting on their 200-day average or some, some moving average, something like that.

It's 200.

Yeah, exactly. So if that breaks down, then look out below. Um, I, I do think it's a bit of mean reversion as well, and this macro inflation hitting these names more generally. But, um, yeah, let's see, let's see if Musk responds. Cool.

On that, thanks, everybody. Have a good day.

Thanks a lot.