Remember that quiet moment in 2008 when almost nobody believed the housing market could collapse? One guy did. And now that same guy just looked at the current market darlings, squinted, and basically said, “Here we go again.”
I’ve followed Michael Burry for years, not because I agree with everything he says, but because when he speaks publicly, it’s usually worth stopping whatever you’re doing and listening. This time he didn’t scream from the rooftops. He just published a calm, data-heavy post on his new Substack and casually called Tesla “ridiculously overvalued.” Not slightly rich. Not expensive. Ridiculously overvalued. And he didn’t stop at Tesla—he took a flamethrower to a practice almost the entire tech sector uses to make its numbers look prettier than they actually are.
So let’s unpack this slowly, the way Burry himself seems to prefer, because there’s a lot more here than a single hot take on an electric car company.
The Core Argument Nobody Wants to Talk About
At the heart of Burry’s latest warning sits one simple, brutal truth: stock-based compensation is real money leaving shareholders’ pockets, even if Wall Street pretends otherwise.
Every time a company hands out restricted stock units or options to employees (and especially to billionaire CEOs), new shares get created. Those new shares dilute everyone who already owns the company. It’s not complicated. It’s math. Yet for years the standard playbook in Silicon Valley has been: issue mountains of stock to talent, then report “adjusted” earnings that simply ignore the cost of that stock entirely.
Burry finds that absurd. Honestly, most value investors do too, but very few have the microphone—or the track record—to make people care.
“What else could it be—a gift from shareholders?”
– Warren Buffett, 2018 Berkshire Hathaway letter
Buffett’s line is old, but Burry just dusted it off and pointed it straight at today’s mega-cap tech names. And Tesla, more than almost anyone else, embodies the extreme version of this story.
Tesla’s Dilution Machine in Plain Numbers
Here’s the part that made me stop scrolling: Tesla currently dilutes existing shareholders by roughly 3.6% per year through stock-based compensation. Think about that for a second. Even if the company never spent a dime on anything else, your slice of the pie shrinks by more than one thirtieth every single year—just to keep employees and executives happy.
And unlike mature giants that offset dilution with massive share buybacks (Apple, Microsoft, etc.), Tesla barely buys back stock. The dilution is effectively permanent.
Then came the shareholder vote reinstating Elon Musk’s 2018 compensation package—potentially worth hundreds of billions depending on performance targets. The vote passed with flying colors. Translation: dilution isn’t slowing down; it’s probably accelerating.
- 2018–2024 average annual dilution: ~3–4%
- No meaningful buyback program to counteract it
- Another enormous option grant now officially back on the books
- Market cap still sitting above $1.4 trillion
Put another way, investors are paying a trillion-plus valuation for a company that voluntarily shrinks their ownership every year and has just promised to shrink it even faster. Burry’s word “ridiculous” starts feeling charitable.
Why “Adjusted” Earnings Are the Real Sleight of Hand
Walk into any earnings call for a high-growth tech name and you’ll hear two numbers: the GAAP number nobody cares about, and the “non-GAAP” or “adjusted” number that excludes stock-based compensation (among other things). Analysts focus on the adjusted figure. Guidance is given on the adjusted figure. Bonuses are often tied to the adjusted figure.
Burry’s point—and it’s hard to argue once you think about it—is that stock-based comp isn’t some imaginary expense like amortization of intangibles. It’s actual ownership transferred from public shareholders to employees. Forever.
When you back out stock-based comp, Tesla’s “earnings” look spectacular. When you put it back in, the picture changes dramatically. In some years the company has barely been profitable on a true economic basis. Yet the market prices it like a cash-spewing machine.
It’s not fraud—everything is disclosed in the footnotes—but it’s definitely convenient.
This Isn’t Just a Tesla Problem
Burry name-checked Palantir and Amazon as other serial diluters. Palantir is the poster child right now: insane valuation, huge stock-based comp, almost no buybacks. Amazon did it for decades while it was growing, though it has finally started repurchasing shares in recent years.
The pattern is everywhere in tech. Employees demand equity because cash salaries can’t compete with the upside. Founders and executives demand even more. Investors shrug because the stock only goes up. Until, of course, one day it doesn’t.
I’ve seen this movie before. We all have. It’s just wearing a different costume this time—electric cars, AI, “mission-driven” companies, whatever the narrative flavor of the month happens to be.
The Math of Perpetual Dilution
Let me try to make the dilution impact concrete with a simplified example.
Imagine you own 100% of a company worth $100 million. Every year the company issues new shares equal to 4% of the outstanding count to employees. Assume the business itself grows earnings at a respectable 15% annually, but never buys back stock.
| Year | Shares Outstanding | Your Ownership % | Company Value (15% growth) | Your Slice |
| 0 | 100 | 100% | $100M | $100M |
| 5 | 134 | 74.6% | $201M | $150M |
| 10 | 180 | 55.6% | $405M | $225M |
| 20 | 320 | 31.3% | $1.64B | $513M |
Even with strong business growth, your personal wealth grows much slower than the headline numbers suggest because your ownership keeps evaporating. Now scale that effect to Tesla’s size and speed things up. That’s the hidden drag most investors never bother calculating.
What Happens When the Music Slows Down?
Right now growth covers a multitude of sins. As long as revenue and “units delivered” or “AI contracts” keep climbing faster than the dilution, nobody complains. Employees cash in, executives become legends, retail investors feel like geniuses.
But growth doesn’t last forever. Eventually competition arrives, margins compress, or the market simply decides to value profitability over story. When that happens, the compounding effect of years of dilution becomes impossible to ignore.
Ask Cisco shareholders from 2000. Ask anyone who held dot-com darlings that issued stock like confetti. The recovery, when it finally comes, is usually measured in decades, not years.
Does Any of This Mean Tesla Is Doomed?
No. Tesla could still execute flawlessly on robotaxis, energy storage, humanoid robots—pick your favorite narrative—and make today’s valuation look cheap in hindsight. Stranger things have happened.
But Burry isn’t predicting bankruptcy. He’s pointing out that the current price assumes not just execution, but perfect execution forever, while simultaneously ignoring a massive ongoing wealth transfer from public shareholders to insiders.
That’s a lot to ask of any company, even one led by the world’s richest human.
Final Thought: Maybe It’s Time to Start Reading the Footnotes Again
I don’t know if Michael Burry is early, late, or exactly on time with this one. Markets can stay irrational far longer than most of us can stay solvent—that’s not a cliché, it’s a survival warning.
But I do know this: when someone who successfully bet against the entire housing market in 2008 tells you a trillion-dollar company is ridiculously overvalued because of a practice the whole industry uses… well, it’s probably worth at least running the numbers yourself instead of dismissing it as noise.
The footnotes are still there. The dilution tables are still filed every quarter. Nobody’s hiding anything. They’re just counting on most people never bothering to look.
Maybe this time we should.
