From the time Tesla CEO Elon Musk announced his intention to buy Twitter in April 2022, Tesla shares have continued to dip. This, among many other reasons, is due to concerns that Musk will get distracted from properly managing the EV company.
Responding to shareholder concerns, Musk assures them of a buyback possibility awaiting Tesla board approval. According to him, this will put Tesla stock back at a better price point. Will buyback improve stock prices? What benefits does it have for investors? You will find that out as we continue in this blog. Ensure you read it till the end, so you don’t miss out on any important points.
Musk Assures Them of a Buyback Possibility Awaiting Tesla Board Approval
With supply chain issues, competition, inflation, and recession hitting the globe, Tesla stock has fallen massively. Beyond that, Musk still has to sell off stocks to facilitate the smooth acquisition of Twitter at 44 billion dollars and is moving more of his attention to the social media company.
This caused Tesla investors to witness stocks dip up to a two-year low and had them call for a mechanism to fix the company’s situation. Musk also sold another 3.95 billion dollars of Tesla stock to further finance and manage Twitter. On this, he told Twitter employees that he was doing so to save the social media company and put things in place so he could have his focus back on Tesla and other companies.
Following this move, it becomes harder for Tesla boards to ignore the uproar of investors demanding the repurchase of the share of the company.
During Tesla’s quarter-three earnings call, Musk affirms the possibility of Tesla making a buyback of its shares, saying, “Tesla is likely to do a meaningful buy back next year, hopefully between five to ten billion dollars. We’ve debated the buyback idea extensively at the board level”. He went further, highlighting that “The board generally thinks that it makes sense to do a buyback. Even in the downside scenario next year, even given next year is a difficult year, we still have the ability to do a five to ten billion dollars worth of buyback. This is obviously pending board review and approval. So, it’s likely that we will do some meaningful buyback.”
Repurchasing shares from the stock market will help to cut down the number of available stocks, which will raise the ownership power of current stockholders and increase share value. This follows the basic law of supply and demand. When there is a shorter supply of Tesla stock in the market compared to demand, there is a higher chance of a price increase.
Tesla investors have long been demanding this move from Tesla. One of Tesla’s largest stockholders, Leo Koguan, asked Tesla to make a massive buyback of its shares. This was seen in his tweet noting that “Tesla would be wise to start the buyback now” because “it was both the best timing and the right thing to do”. Koguan, who comes after Musk and Oracle CEO as the third largest individual shareholders, also commented on Musk’s most recent stock sales. “Investors are feeling the brunt of the dump”, he expressed.
Tesla bulls and influencers also support the idea of the buyback. This was clear in the statement of Alexandra Merz and others. According to her, making a quick massive buyback will offer Tesla the chance to “benefit from a currently very unvalued stock price” and “act before the one percent tax on share buybacks becomes applicable on Jan 1, 2023.”
Investors also voiced their view that a share repurchase “would be a show of confidence in Tesla’s future and would return wealth to stockholders”.
The plunge in Tesla stock accelerated following Musk’s notice about softening customer demand as a wake-up call that Tesla might not be able to hit the target of increasing delivery up to 50 per cent in 2022.
Despite Tesla’s Q3 revenue falling short of analysts’ expectations, it’s expected that the repurchase will put the EV company on a good stand and boost its share value.
A time like this is a rare advantage for Tesla bulls to buy more stock as the price is soon expected to surge once the buyback happens. It makes sense that you can buy low now and watch the stock rise after the buyback.
Cathie Wood is a good player in this game. Being a bullish Tesla investor, she leads Ark-invest management to buy more Tesla stock during the dip. Wood and other Tesla bulls believe in the EV company’s future growth. So, they see the short-term price falls as an opportunity to load more Tesla stock into their portfolio. Wise investors should do the same by purchasing shares now that it’s cheap, so they won’t have to buy at higher prices after the buyback.
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Recommended books for further reading:
- Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!
- Smarter Investing: Simpler Decisions for Better Results
- A Beginner’s Guide to the Stock Market: Everything You Need to Start Making Money Today
- The Barefoot Investor: The Only Money Guide You’ll Ever Need
- The Five Rules Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market
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