News & Analysis

Short Circuit! Tesla gets a £376 million electric shock from expert trader

Andrew Saks, Wednesday, 19 May 2021

Maverick and eccentric scientific disruptor Elon Musk has been basking in his own self-promoted ray of glory over the past few years.

He has risen in status from the unusual character whose daughter's name is a mathematical equation and whose out-of-nowhere, leftfield and downright genius ideas have landed him in hot water and near bankruptcy whilst at the same time nudging the establishment into action.

Yes, Ford Motor Company and Volvo, two very highly respected automotive stalwarts have almost flawless electric cars and have brought them to market seamlessly due to their ability to simply call R&D and marketing, and say "Make one of those please", but it was Elon Musk's expensive and risky entry from out of nowhere into the auto industry that made them do it.

Yes, the Volvo is a better car, but it was Tesla that got the long-established motor industry to change tack.

Mr Musk's tireless ingenuity has led him to become the third richest man in the world, an accolade that is as remarkable as it is interesting. Rather like his Tesla electric cars, suddenly he was nowhere, and within a short time he usurped the established multi-billionaires.

It took Mr Musk 5 years to achieve what it has taken Warren Buffett - one of the world's most astute and flawless investors, Bernard Arnault, the CEO of the largest luxury brand firm in the world LVMH Moet Hennessy Louis Vuitton SE, and Microsoft founder Bill Gates all of their 40 year careers to achieve.

These days, however, despite Mr Musk's clearly very broad shoulders, there is another aspect to bear in mind. He is now very much in the sights of the most accurate and devious investors, traders and market movers.

Just this week, Tesla, which, rather unlike the automotive industry's listed stock, is regarded by traders as part of the high-flying tech stocks alongside internet giants such as Google, Facebook and Amazon, has become the focus of notorious trader Michael Burry.

Who's he? You may quip.

It may not be a name that comes up often, but when it does come up, it is usually as a result of something very big having happened.

Mr Burry has been shorting entire markets for years. In 2008 he shorted the sub-prime mortgage market just before the global financial crisis and infamous credit crunch came into existence.

Now he is back with another similar strategy, this time having shorted Tesla's stock by making a £376 million position against Tesla's share prices, and holding a 'put' option on 800,100 shares in Tesla.

A 'put' option is the opposite to a 'call' option, and allows traders to sell shares at a specific price in the future. Should a share price in a certain stock decrease, those held with put options increase in value due to the depreciation of the shares available on the open market.

Mr Burry has been looking at this for some time, and has not done so quietly, which is why such a trade should perhaps not come as a surprise. At the end of last year, Mr Burry made a public announcement that his own family office, Scion Asset Management, had begun shorting Tesla stock which at the time was trading at an astonishing $883, a level it has never been traded at previously.

This was a shrewd move, as the stock has fallen by over 34% since. Some OTC derivatives brokerages are well aware of Mr Burry's perceived intention, in that he could be taking a bet on the future prices based on the relative doubts that are in the minds of many regarding Tesla as a company.

It was always clear that Tesla would be a disruptor, and a disruptor only. That is what Elon Musk is good at - disrupting existing businesses from outside of their industry sectors with a facsimile of their product but done in a different way.

It is fair to say that although many traditional, established car manufacturers have been long since looking at electric cars - remember the ghastly 1990 GM EV-1 project that took forever to develop and never made it to production?

However the drive to actually go into mainstream manufacturing never came until the Tesla hit the streets. For a short while everyone marvelled at it. What was it? Half car, half iPhone? A laptop computer with wheels and an electric motor? A 600bhp milk float that looks like a sports sedan?

Now, it is simply relatively bland lease company stock by comparison to the reactionary products by the establishment.

Mr Burry has given the market the impression that he thinks along the same lines.

 

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