Tesla investors are asking 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 shares were trading at $183.20 after hours on Wednesday, and its market capitalization has tumbled nearly $700 billion from its peak a year ago.
Musk said on Tesla’s third-quarter earnings call that the company will likely do a “significant buyback” next year, likely between $5 billion and $10 billion. Last week he said the decision will be up to the “Tesla board”.
Buying back shares from the market would reduce the number of shares available in circulation, 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 Mertz recently released petition on Change.org to advocate for a quick buyback before the end of the year. Mertz said this would allow Tesla to “take advantage of the currently very undervalued share price” and avoid the 1% apology tax on which any buyback above $1 million will be taxed until January 1, 2023.
Mertz and other investors also argued that a share buyback would be a show of confidence in Tesla’s future performance and return wealth to shareholders.
“I’m a big fan of Tesla and a former shareholder, but to preserve my capital I was forced to go to the dark side,” commented one petitioner, of whom there are currently 5,807. half of your losses. I believe in Tesla’s long-term growth, but I need to see some action from the board before we go long again. A good buyback will show the board’s confidence that Tesla is still a good investment.”
Tesla’s stock has taken a hit recently for a variety of reasons, including declining investor confidence in Musk to run the company effectively. Many complain that Musk is at best distracted by his own people recent purchase and takeover of Twitter, a social media platform where the executive branch has been airing its politics even more than usual lately. Musk and some Tesla board members are currently in court for $56 billion CEO pay package after a Tesla shareholder accused Musk of being a “part-time CEO.”
Tesla shares also fell massive stock sales from Musk, who needed liquid cash to finance the $44 billion Twitter deal.
Some analysts, such as Morgan Stanley’s Adam Jones, worry that the Twitter fiasco and Musk’s rampant tweeting could hurt Tesla’s consumer demand as well as trade deals and government relations.
Musk’s Twitter involvement isn’t the only reason the stock is down. Although Tesla still remains the leader in the US electric vehicle market, the company is rapidly losing market share to other automakers as new models come online. In the third quarter, Tesla holds 64% market share in electric vehicles, down from 66% in Q2 and 75% in Q1. Ford, GM and Hyundai brands are quickly catching up as they scale up production of popular EV models like the Mustang Mach-E, Chevy Bolt and Ioniq 5.
Tesla is also losing ground to Chinese EV makers such as BYD and Wuling Motors in China, where the automaker recently cut prices to attract buyers, getting reportedly a lack of enthusiasm. In addition, Beijing is already in lockdown mode and more restrictions have been imposed in China as the cases of coronavirus rise. Not only could this affect Tesla’s ability to operate its Shanghai gigafactory, but further restrictions will further affect China’s weakened economy and reduce demand for luxury products like Teslas.
Then there is consecutive calls that Tesla issued over the weekend more than 350,000 vehicles from U.S. customers with software problems that disable taillights or deploy airbags during minor crashes in some cars. That’s on top of 17 other downloads this year.
Finally, Tesla has gotten a lot of bad press this year around its advanced Autopilot and “full self-driving” or FSD driver assistance systems, which were associated with some fatal crashes at worst and at best they simply did not perform as expected. In September, the drivers filed a lawsuit against the company for false advertising the autonomous capabilities of its tech.
All of the above, combined with a market decline, saw Tesla’s market capitalization drop from $1.2 trillion last November to $574 billion as of Wednesday’s close.
Billionaire Leo Coguan, who says he is Tesla’s third-largest individual shareholder, has been pushing for a buyback for months. Last week he tweeted that Musk should stop selling shares and take advantage of the “right moment” to buy back shares “before Q4.” Musk responded to the tweet by saying it “depends on the Tesla board.”
In October Koguan Tesla called to buy back at least $5 billion worth of stock, and in the past has argued for up to A $15 billion buybacksaying that Tesla should use its free cash flow to fund the buyback.
Considered by third quarter, Tesla has free cash flow of $3.3 billion.