Here’s what share buybacks could mean for Tesla stock and whether it will actually happen under Musk’s watch.
Musk talked about Tesla share buybacks in the annual meeting.
In the Tesla 2022 shareholders meeting, Musk seemed to intentionally contradict himself after saying it’s a “recipe for disaster” to predict macroeconomic conditions, then followed up with his own forecasts. In addition to stating peak inflation is behind us, and that a forthcoming recession is likely to be mild but prolonged at around 18 months, he mentioned potential Tesla share buybacks.
When discussing forecasted spending, Musk said, “A sort of share buyback is possible” but that he “wouldn’t want to commit” to such a thing just yet. That could change, he adds, depending on unforeseen circumstances.
Basically, Musk said a “share buyback is on the table” given global market conditions achieve relative stability and cash flow is solid.
A share buyback could impact Tesla stock.
A share buyback would allow Tesla to purchase back some stock for the sake of increasing investors’ EPS while retaining the value of the total position. In contrast to dividends, share buybacks are a favorable tax solution for shareholders.
However, there are some potential drawbacks to share buybacks. If it works to make executives richer, cover up problems in the financials, or starve the business of much-needed capital, then the process becomes an issue for shareholders. Assuming Tesla remains transparent throughout the process, it could be a positive for investors long on TSLA stock.
Tesla hasn't been immune to controversy in recent months. Layoffs and in-person work mandates for employees, production gaps at the Shanghai camp, mysterious crash rates, and Musk’s general newsworthiness have all contributed to it. A move like a share buyback must be handled carefully.
TSLA stock responds in the short term.
TSLA stockholders didn't appreciate Musk’s input at the annual meeting. As a result, the stock is down 4.6 percent overnight. YTD, the stock has been fairly volatile, ultimately losing 26.38 percent by Friday, Aug. 5.
Stock buybacks aren't a new practice for Tesla, which has been publicly traded since June 2010. In March, September, and December 2020, the company bought back $2.3 billion, $4.97 billion, and $4.99 billion in stock, respectively. Still, TSLA retains a market cap of nearly $933 billion, leaving plenty of buyback wiggle room.
It isn't just the potential stock buyback that is setting off alarms for shareholders. Other news, like the Cybertruck’s higher-than-hoped, but yet undisclosed, price tag has reduced sentiment in the Tesla department (the truck was supposed to start at $39,900, but that’s no longer attainable, the company says). Still, the company could double the output of existing vehicles on a YoY consideration by the end of 2022.