What it would mean for Tesla to buy back shares • TechCrunch

Tesla investors are pleading with CEO Elon Musk and Tesla’s board to consider a share buyback as the company’s stock price falls to a two-year low. Tesla stock was trading at $183.20 after hours on Wednesday, and its market capitalization has fallen nearly $700 billion from its peak a year ago.

Musk said during Tesla’s third-quarter earnings conference call that the company is likely to do a “substantial buyback” next year, possibly between $5 billion and $10 billion. Last week, he he said it will be up to Tesla’s board of directors to decide.

Buying back shares from the market would reduce the number of available shares outstanding, which increases the ownership stake of current shareholders. This is because a reduced supply of shares often causes the price to rise. Tesla bull and influencer Alexandra Merz recently filed a petition on Change.org to support a quick buyback before the end of the year. Merz said this would allow Tesla to “take advantage of a very unreliable share price” and avoid the 1% justification tax to which any acquisitions above $1 million will be subject until January 1, 2023.

Merz and other investors also argued that a share buyback would be a sign of confidence in Tesla’s future results and return wealth to shareholders.

“I’m a huge fan of Tesla and a stock holder in the past, but to preserve my capital I was forced to go to the dark side,” commented one petitioner, of which there are currently 5,807. “I recently started shorting stocks and have won back about half of my losses. I believe in Tesla’s long-term growth, but I need to see some action from the board before I go long again. A nice buyback would show confidence from the board that Tesla is still a good investment.”

Tesla stock has taken a hit recently for a variety of reasons, including declining investor confidence in Musk to effectively manage the company. Many have complained that Musk is distracted, at best, by his recent purchase and acquisition of Twitter, a social media platform on which the executive has recently been airing his politics even more than usual. Musk and some Tesla board members are currently in court over the CEO’s $56 billion pay package after a Tesla shareholder accused Musk of being a “part-time CEO.”

The falls in Tesla shares also followed massive stock selling by Musk, who needed liquid cash to finance the $44 billion Twitter deal.

Some analysts, such as Adam Jones at Morgan Stanley, worry that the Twitter fiasco and Musk’s rampant tweeting could hurt consumer demand for Tesla, as well as trade deals and government relations.

Musk’s Twitter involvement isn’t the only reason the stock is down. While Tesla still remains the leader in the U.S. electric vehicle market, the company is quickly losing market share to other automakers as new models come online. In the third quarter, Tesla had a 64% market share in electric vehicles, down from 66% in the second quarter and 75% in the first quarter. Ford, GM and Hyundai are fast approaching as they ramp up production of popular EV models like the Mustang Mach-E, Chevy Bolt and Ioniq 5.

Tesla is also losing ground to Chinese electric vehicle makers such as BYD and Wuling Motors in China, where the automaker recently cut prices to lure buyers, reportedly receiving tepid enthusiasm. In addition, Beijing is now on lockdown and more restrictions have been imposed in China as the number of coronavirus cases increases. This may not only affect Tesla’s ability to operate its giant factory in Shanghai, but further restrictions will further affect China’s weakened economy and reduce demand for luxury products like Teslas.

Then there are the back-to-back recalls Tesla issued over the weekend — more than 350,000 vehicles from customers in the U.S. with software bugs that disable taillights or deploy airbags during minor crashes in some cars. That’s on top of the other 17 recalls this year.

Finally, Tesla has gotten plenty of bad press this year about its advanced Autopilot and “full self-driving” or FSD driver assistance systems, which have been linked to a few fatal crashes at worst and simply not performing as expected at best. In September, drivers filed a lawsuit against the company for falsely advertising its technology’s autonomous capabilities.

All of the above, combined with the market’s decline, has seen Tesla’s market capitalization drop from $1.2 trillion last November to $574 billion as of Wednesday’s close.

Billionaire Leo Koguan, who says he is Tesla’s third-largest single shareholder, has been advocating the buyback for months. Last week he he tweeted that Musk should stop selling shares and take advantage of the “right timing” to buy back shares “before the fourth quarter.” Musk responded to the tweet by saying it was “up to Tesla’s board of directors.”

In October Koguan called Tesla to buy back at least $5 billion worth of stock, and has previously backed up to $15 billion worth of acquisitionssaying Tesla will have to use its free cash flow to fund the buyback.

As of the third quarter, Tesla has free cash flow of $3.3 billion.

Koguan he has said Tesla can still invest in FSD, Optimus bot and new gigafactories, while also buying “undervalued shares”.

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