Michael Burry, who is best known for shorting the 2007 mortgage bond market, has revealed his latest bet. In a regulatory filing with the US Securities Exchange Commission, Burry's Scion Asset Management reported a short position against Tesla worth more than half a billion.
Shares of Tesla fell more than 4 percent on Monday, bringing its month-to-date losses to nearly 20 percent.
According to the filing, Burry was long puts against 800,100 shares (or $534 million) of Tesla at the end of the first quarter of calendar 2021.
A put option gives investors the right to sell a stock at a specified strike price before a certain expiration date. If the price of the underlying equity falls, investors can benefit by exercising their right to sell the underlying at the predetermined strike price.
Hence, if Tesla's stock price falls below the strike price before the options expire, Burry can sell his shares for a profit.
On March 31, Burry owned 8,001 put contracts, with unknown value, strike price, or expiry, according to the filing.
In a tweet that has since been deleted, the Scion chief said Tesla’s reliance on regulatory credits to generate profits is a red flag. A big part of Tesla's income comes from the environmental regulatory credits which Elon Musk’s company generally receives from government programs to support renewable energy.
Environmental emissions programs around the world give out credits to automakers that produce and sell electric vehicles. If an automaker doesn’t have enough credits by the end of the year, it could face punishment from state regulators. Being a pure electric brand, the Elon Musk-led company racks up way more credits than it needs to meet the minimum regulatory requirements, which, in turn, sells to other automakers.
Burry's argument stems from the fact that as more automakers start producing battery-electric vehicles of their own, fewer will need to purchase environmental regulatory credits from Tesla. This could significantly impact the earnings of the electric carmaker which raked in $518 million in sales of regulatory credits in the first quarter of CY2021.
This wasn't the first time Burry was critical of Tesla. In December last year, the famed investor revealed that he was short Tesla, describing the automaker's stock price of about $570 at the time as "ridiculous." He went on to compare the massive interest around the automaker to the dot-com and housing bubbles, and he told shareholders to "enjoy it while it lasts."
Burry was the first investor to foresee and profit from the subprime mortgage crisis that occurred between 2007 and 2010. His life is chronicled in the critically-acclaimed book and movie "The Big Short."