One of the key justifications for the bet is that Tesla’s dependence on government-issued regulatory credits is unsustainable due to the growing competition in the electric vehicle niche.
Famed Wall Street investor and the founder of Scion Asset Management Michael Burry foresees a downtrend in the share price of the electric automaker Tesla Inc (NASDAQ: TSLA) and has placed a bet to back his projections. As contained in a regulatory filing, per a CNBC report, Burry entered is long puts against 800,100 shares of Tesla or about $534 million worth of the securities by the end of the first quarter.
Puts are a form of options contracts that lets you speculate on the future price of an asset. Buying a put option places you in profits when the prices of the underlying asset decline in value over time. As revealed by the filing submitted to the Securities and Exchange Commission, Michael Burry owned as many as 8,001 put contracts, with unknown value, strike price, or expiry.
One of the key justifications for the bet is that Tesla’s dependence on government-issued regulatory credits is unsustainable due to the growing competition in the electric vehicle niche. Tesla has often sold these regulatory credits to other automakers to help them maintain environmental regulatory compliance.
In the fourth quarter of the 2020 fiscal year, Tesla recorded a $270 million net income, a figure that was boosted by the company’s sale of $401 million in regulatory credits to its top competitors. The same trend continued in the first quarter of this year with the Palo Alto firm reporting $518 million in sales of regulatory credits. Should these sales pipe down, Tesla’s shares will bear the brunts of it.
Tesla shares are down 2.19% to $576.83. In a continuous freefall, the firm’s stock has lost over 20% year-to-date, a bearish trend to the 740% upsurge recorded in 2020.
Can Bitcoin Come to the Rescue against Michael Burry’s Bet?
One of the primary anchors the electric maker has had amidst its falling share price this year is its Bitcoin (BTC) investments. A few weeks after it invested as much as $1.5 billion in the cryptocurrency in early February, Wedbush Securities analyst Dan Ives pointed out that the firm has earned an additional $1 billion on its holdings following the rise in the price of the digital currency.
The performance even increased when Bitcoin soared to an ATH above $60,000 a little more than a month ago. While BTC can be a notable backbone to help Tesla sustain its earnings, the digital currency is on a downward spiral, thanks to the company rescinding its decision to accept the coin as a form of payment for its product. Both the company and its Chief Executive Officer, Elon Musk, are under fire by the crypto-community.
There have been calls for the company to sell off its Bitcoin holdings, so Elon may stop instigating Fear, Uncertainty, and Doubt (FUD) in the market. While the odds of the future sustenance in the sales of regulatory credits in the long term is low, the BTC prospects are also low in the short term, giving Michael Burry an increased likelihood of winning his bet. The investor is known to profit from uncertain market moves, and by his precedents, Tesla might be the next company he will hit new gains from.