- Tesla shares rose 5% Wednesday after losing more than half their value this year following upbeat notes from Wall Street analysts.
- Shareholders have pressed CEO Elon Musk to launch a share buyback, and Musk has hinted Tesla's board will oblige.
- Shareholder complaints about Tesla's stock slide grew louder after Musk sold nearly $4 billion in stock, bringing his sales over the past year to $36 billion.
- Musk has warned Tesla could miss its target of 50% growth in deliveries this year amid softening demand.
- Analysts expect EV sales to receive a 2023 boost from tax incentives passed in the Inflation Reduction Act.
A drumbeat of investor demands for Tesla share repurchases has become harder to ignore after Musk sold about $4 billion of Tesla shares on Nov. 11, bringing aggregate sales by the Tesla CEO to $36 billion over the past year.
Musk has encouraged such speculation, bringing up share repurchases on the conference call following Tesla's third-quarter earnings results a month ago.
"We've debated the buyback idea extensively at the board level," Musk said. "The board generally thinks that it makes sense to do a buyback. Even in the downside scenario next year, even given if next year is a very difficult year, we still have the ability to do a $5 billion to $10 billion buyback. This is obviously pending board review and approval. So it's likely that we'll do some meaningful buyback."
Next year isn't soon enough for some shareholders.
The company "would be wise to start buyback now," Singapore billionaire Leo KoGuan tweeted on Nov. 14, saying it was both the best timing and "the right thing to do." KoGuan is Tesla's third-biggest individual shareholder after Musk and Oracle CEO Larry Ellison. In the same tweet her lamented Musk's latest stock sale, saying "investors are feeling the brunt of the dump."
The comment accompanied a meme depicting Musk as an Aztec priest holding a heart ripped from a sacrifice victim labeled "TSLA investors." After another Twitter user agreed, demanding a buyback and accusing Musk of "crushing Tesla shareholders" to finance his acquisition of Twitter, the Tesla CEO responded, "This is up to the Tesla board."
Another investor lobbying for a buyback in October noted at the time Tesla's stock was as cheap as it's been since the start of the pandemic at 37 times projected 2023 earnings. The stock's drop since then has lowered that ratio to about 31.
Tesla can certainly afford a buyback: it held $21 billion in cash and short-term marketable securities as of September. Whether it should do one if its CEO were to keep selling big chunks of his stake is another matter. Musk holds 14% of Tesla's outstanding shares along with vested options to purchase another 9% of the company.
The decline in Tesla's shares accelerated in October after Musk noted softening customer demand in the wake of the third-quarter results, suggesting the company might fall short of its target to increase deliveries 50% this year.
Wednesday's 5% rebound in the share price was fueled by analyst calls suggesting the stock had become oversold. Citi cited the recent share price declines and the expected boost to sales next year from tax incentives for electric vehicles included in the Inflation Reduction Act as among the reasons for upgrading Tesla's stock to Neutral from Sell and lifting its price target to $176 from a split-adjusted $141.33.
Meanwhile, Morgan Stanley analyst Adam Jonas, a longtime Tesla bull who had warned early last week that Musk's preoccupation with Twitter could drop Tesla's share price another 25%, also offered an upbeat follow-up.
"Tesla is the only name we cover that generates a profit (before incentives) on the sale of EVs," Jonas wrote. "Tesla is the only self-funding pure play EV name we cover and has achieved a unique position to secure supply of the necessary battery metals and related up-stream supply necessary to produce EVs at multi-million-unit scale." The company's advantages over its competitors could be magnified in an economic downturn, according to the analyst.