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Tesla investors push for buybacks after Musk’s sales

by SuperiorInvest

Elon Musk is not the only Tesla (TSLA) shareholder feel the pinch after the electric vehicle (EV) maker’s shares have lost nearly half their value this year.

Key things

  • Tesla shares rose 5% on Wednesday after losing more than half of their value this year following upbeat comments from Wall Street analysts.
  • Shareholders have urged CEO Elon Musk to start a share buyback, and Musk has indicated that Tesla’s board is committed.
  • Shareholder complaints about the decline in Tesla stock intensified after Musk sold nearly $4 billion in shares, bringing his sales to $36 billion over the past year.
  • Musk warned that Tesla could miss its target of 50% delivery growth this year due to softening demand.
  • Analysts expect EV sales to get a boost in 2023 thanks to tax incentives passed by the Inflation Reduction Act.

A drumbeat of investor demands for Tesla share buybacks became harder to ignore after Musk sold roughly $4 billion in Tesla stock on Nov. 11, bringing the Tesla CEO’s total sales to $36 billion over the past year.

Musk supported such speculation and hinted at share buybacks during a post-Tesla conference call financial results for the third quarter a month ago.

“We have discussed the idea of ​​a buyback extensively at the board level,” Musk said. “The board generally believes that it makes sense to do a buyback. Even in an adverse scenario next year, even if next year is going to be very difficult, we still have the option to do a $5 billion to $10 billion buyback. It’s obviously pending board review and approval . So we’re likely to do some meaningful buyback.”

Next year isn’t early enough for some shareholders.

The company “would be wise to start the buyback now,” Singaporean billionaire Leo KoGuan tweeted on Nov. 14, saying it was the best timing and “the right thing to do.” KoGuan is the third largest individual shareholder of Tesla after Musk and CEO of Oracle Larry Ellison. In the same tweet, she bemoaned the latest selloff in Musk’s stock, saying “investors are feeling the brunt of the dump.”

The comment was accompanied by a meme depicting Musk as an Aztec priest holding a heart ripped from a victim labeled as “TSLA investors”. After another Twitter user agreed, demanding a buyback and accusing Musk of “crushing Tesla shareholders” to fund his acquisition of Twitter, Tesla’s CEO responded, “That’s up to Tesla’s board of directors.”

Another investor lobbying for a buyback in October noted that Tesla shares were as cheap as they have been since the start of the pandemic at 37 times projected 2023 earnings. A drop in stocks has since reduced that ratio until about the 31st.

Tesla can certainly afford a buyback: it held $21 billion in cash and short-term marketable securities since September. Whether it should do so if its CEO continues to sell large chunks of his stake is another matter. Together with him, Musk holds 14% of Tesla’s outstanding shares single option to buy an additional 9% of the company.

The decline in Tesla shares accelerated in October after Musk reported softening customer demand following its third-quarter results, suggesting the company may miss its goal of increasing deliveries by 50% this year.

Wednesday’s 5% rebound in the stock price was fueled by analyst calls suggesting the stock had become oversold. Citi cited a recent drop in share prices and an expected sales boost next year due to tax incentives for electric vehicles included in the Inflation Reduction Act as one of the reasons for upgrading Tesla stock to Neutral from Sell and raising it price target to $176 from a split edited $141.33.

Meanwhile, Morgan Stanley analyst Adam Jonas, a longtime Tesla bull bull who warned early last week that Musk’s preoccupation with Twitter could send Tesla’s stock price down another 25% also offered a positive follow-up.

“Tesla is the only name we cover that generates a profit (before incentives) from EV sales,” Jonas wrote. “Tesla is the only self-funding EV name we cover and has achieved a unique position in securing the necessary battery and related upstream supplies necessary to produce EVs at multi-million scale.” According to the analyst, the company’s advantages over competitors could increase even more during an economic downturn.

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