Tesla's Valuation Under Scrutiny: Analyzing Burry's Bearish Stance Amid Delivery Slowdowns

Tesla's valuation has long been a lightning rod for debate, but 2025 has intensified the conversation. With the company's stock trading at 294x trailing earnings and 192x forward earnings, skeptics like Michael Burry argue the math doesn't add up. Meanwhile, delivery slowdowns and margin compression have raised fresh questions about whether Tesla's AI-driven optimism can offset its automotive struggles. This analysis unpacks Burry's bearish rationale, the implications of Tesla's recent performance, and what contrarian investors should make of the noise.

The Burry Thesis: Dilution, Earnings, and Overvaluation

Michael Burry, the investor who famously shorted the 2008 housing bubble, has been a vocal critic of Tesla's valuation for years. In a 2025 Substack post, he called the stock "ridiculously overvalued," citing three core arguments:
1. Stock-Based Compensation (SBC) Dilution: Tesla's SBC program, which grants employees shares instead of cash, dilutes existing shareholders at a rate of 3.6% annually. Burry argues this dilution is not offset by buybacks, eroding ownership value over time.
2. Earnings Multiples: Tesla's P/E ratio of 294x trailing earnings and 192x forward earnings far exceeds traditional automakers like Ford (12x) and GM (8x). Burry questions whether such multiples are justified by fundamentals, especially as operating margins have compressed to 5.8% in 2025.
3. Musk's Compensation Plan: The shareholder-approved $1 trillion compensation package for Elon Musk, tied to performance metrics, could further dilute ownership and penalize investors.

Burry's skepticism extends beyond Tesla to broader tech valuations, where he believes accounting practices obscure the true cost of SBC. His bearish stance is rooted in a contrarian playbook: bet against hype when fundamentals lag.

Delivery Slowdowns: A Symptom of Structural Shifts?

Tesla's Q4 2025 delivery guidance-422,850 units, a 15% year-over-year decline-has compounded concerns. This marks the second consecutive annual drop in deliveries, with full-year 2025 totals expected at 1.64 million vehicles, down 8.3% from 2024. Analysts attribute the slowdown to:
- Expired U.S. Tax Credits: The loss of federal incentives in Q3 2025 pulled forward demand, leaving Q4 with weaker momentum.
- Global Competition: Traditional automakers and EV startups are closing the gap, pressuring Tesla's market share.
- Musk's Political Rhetoric: Elon Musk's public statements earlier in 2025 may have spooked consumers and investors.

Despite these headwinds, Tesla has taken an unusual step to manage expectations: publicly releasing its delivery consensus to anchor the narrative around results. This transparency, while rare for a company of Tesla's size, underscores the fragility of its growth story.

Contrarian Investing: Can AI and Innovation Offset Weakness?

While Burry and others focus on the negatives, some investors see opportunity. The Contrarius Global Equity Fund, for example, maintains Tesla as a top holding, betting on its AI and energy storage initiatives. Analysts highlight long-term catalysts:
- Full Self-Driving (FSD) and Robotaxi: Tesla plans to deploy FSD v14 and expand its Robotaxi service, potentially unlocking new revenue streams.
- Lower-Cost Models: The Model 3 and Model Y variants priced at $36,990 and $39,990 aim to offset lost tax credits and stabilize demand.
- Energy Growth: Tesla's energy storage division is projected to contribute 17.5% of 2025 revenue.

However, these bets hinge on execution. Goldman Sachs, for instance, warns that the lower-cost models may sacrifice profitability. Meanwhile, Tesla's operating expenses have surged 50% year-over-year, driven by AI and R&D investments, raising questions about margin recovery.

Valuation Sustainability: A Tale of Two Narratives

The debate over Tesla's valuation boils down to competing narratives:
- Bull Case: Tesla's AI roadmap, robotaxi economics, and energy diversification justify its premium multiples. Analysts like Baird and President Capital have raised price targets to $548 and $529, respectively.
- Bear Case: Without clear monetization of FSD or margin recovery, Tesla's valuation could compress. The MarketBeat consensus maintains a "Hold" rating with an average price target of $414.50, while some reports project a 13% downside.

The key question for contrarians is whether Tesla's non-automotive innovations can offset its core business's struggles. For now, the data is mixed: Q3 2025 revenue hit a record $28.1 billion, but net income fell 36.8% year-over-year.

Conclusion: A Contrarian's Dilemma

Tesla's valuation remains a paradox. On one hand, its AI ambitions and energy diversification offer tantalizing upside. On the other, its automotive fundamentals-dilution, margin compression, and delivery slowdowns-pose significant risks. For contrarian investors, the challenge is to weigh these factors without succumbing to either hype or despair.

Michael Burry's bearish stance is a reminder that valuations are not self-sustaining; they require fundamentals to justify them. If Tesla's AI and energy bets fail to materialize, its current multiples could collapse. But if they succeed, the company's detractors may find themselves on the wrong side of history. The question is whether investors are prepared to bet on either outcome.