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Why Tesla Stock Was Slipping Today

By Jeremy Bowman - May 17, 2021 at 4:14PM

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Michael Burry revealed a big short bet against the electric vehicle maker.

What happened

Shares of Tesla (TSLA -1.31%) were falling today after Michael Burry revealed that he had a heavy short position on the electric vehicle maker in a filing this morning.

As of 3:25 p.m. EDT, Tesla was down 4.1%.

Tesla vehicles lined up next to superchargers

Image source: Tesla.

So what

Burry's hedge fund, Scion Asset Management, filed a 13-F quarterly update this morning, showing that it held 800,000 put options on Tesla, betting $534 million that the stock will fall. That was the fund's biggest single position.

Known from The Big Short, Burry gained fame as one of the investment managers who made huge returns betting on the collapse of the housing market during the financial crisis. Given that track record, investors tend to respect his opinions, especially on short bets.

The hedge fund manager has made his opinion on Tesla clear in the past, saying that the stock could fall 90%, and criticizing it for its reliance on regulatory credits and a valuation that dwarfs that of any other carmaker.

Now what

Tesla may be the biggest battleground stock on the market, and it's been that way for years. Before Tesla's 2019 rally, legions of bears expected the company to go bankrupt, and even today plenty of critics say the company's market cap defies logic. Based on classic fundamentals, it's easy to call Tesla overvalued. It's by far the most valuable car company despite being much smaller by production than most major car manufacturers, and the company still relies on regulatory credits to post a bottom-line profit.

However, Tesla has also pioneered the electric vehicle industry, inspiring traditional automakers to follow it, and it could disrupt it again with "robotaxis" as CEO Elon Musk has long promoted. Some have even suspected that Tesla could have plans to launch its own cryptocurrency.

Musk is one of the most followed and admired business leaders today, and that alone gives Tesla an advantage as the company spends almost nothing on traditional marketing.

Still, if other car companies narrow the gap in electric vehicles, Tesla's valuation is likely to come back to earth.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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