Tesla’s Elon Musk sparks speculation about Gonzo stock buyback

All Elon Musk Needs To Get His Heart Tesla aflutter investor is a simple word.

A week after Singapore-based billionaire Leo KoGuan warned only stock buybacks or 100% earnings growth would pull Tesla out of its current slump, Musk has finally responded to his third-largest shareholder. mine.

Note“He wrote on Thursday.

Minutes later, the stock reversed losses as investors took it as a clear sign that Musk could tip Tesla to spend between $5 billion and even $10 billion on an acquisition. first stock.

While Musk’s cryptic response may have left the door open about if anything he’s up to, he interacts with his fan base on Facebook. Twitter daily and their ever-increasing acquisition calls will not be able to escape his attention.

The Tesla CEO couldn’t have picked a better time: his company could announce a buyback when it reports third-quarter earnings on October 19, after which Musk is free to sell any stock. he needs to raise cash for his Twitter purchases. .

A Delaware judge gave him until October 28 to honor his $44 billion deal with the social media platform, or she’ll go ahead with the 5-day trial he’s expected to lose. The excess from his pending acquisition has weighed on sentiments that no one knows in advance sure about how much stock Musk might need to unload.

Too much support

With the mood so bad, all Tesla needed to hit a 52-week low on Thursday was hotter than expected. September inflation print is 8.2%. Then it even appeared, Musk could be subject of a federal investigation.

Adding to his Twitter problems is the possibility that third-party investors are backing his deal. Proposal to report initial investors signed on to the $7 billion offering — such as Manhattan Venture Partners and Apollo Global Management—Lucky now pull their equity,.

Repurchase Argument

Tesla has compelling arguments it could use next week to justify the acquisition, if its board indeed approves it. Directors could argue buying back billions of dollars in a company’s own stock makes sense when the share price is weighed down by external factors like the rapid pace of the Federal Reserve. With the company within reach with a 50% annual output growth target, stock trading near a one-year low doesn’t quite reflect Tesla’s strong fundamentals.

Furthermore, any stock purchased before the end of the year will be exempt from the annual 1% tax, which will go into effect in January as part of President Biden’s Inflation Reduction Act.

With AppleTesla’s retail investor community is the largest of any megacap stock, according to Vanda Researchand no topic is more hotly debated than stock buybacks.

A quick poll conducted on Tuesday by prominent Tesla influencer Steven Mark Ryan showed overwhelming support among the nearly 11,000 users surveyed.

‘Send a strong signal’

One of the Strong push to buy back is Alexandra Merz. Tesla shareholders lead public campaign against the credit rating agencies that gave Tesla the low debt market. After write to them personally to urge them to upgrade Tesla debt from junk, Merz post their answers online.

“We’ve got our blood in this company, we’ve all spent way too much time talking about it, doing a lot of things about it, investing in it and all the rest,” she said in one podcasts on Thursdays. “I think there should be some reward for retail investors.”

The company has $18.3 billion in cash on hand, but there are questions about how much of that is in the US. Cash back from abroad comes with taxes, that’s why Apple issued it bonds to finance its own buybacks.

“I want them to issue more debt, which is one of the reasons I’m so interested after upgrading this credit rating to investment grade, because it allows them to issue bonds at a premium. much lower, as they are not rated junk,” added Merz.

Her sentiment reflects a broader shift among many small shareholders following the stock’s decline. In the past, it was suggested that Tesla should reinvest excess cash in growth. Musk has set a goal of selling 20 million cars a year by the end of the decade, a 20-fold increase from last year, and this requires ongoing spending on new production capacity.

But the economic outlook for such investment has changed radically.

To maintain the zero COVID policy, China is imposing rolling lockdown measures that slow down growth. Europe while it is mostly cut off from Russian natural gas, and therefore actively destroy the need arrive Conserve energy supplies for winter. And in North America, the Federal Reserve is quickly on the brakes real estate market, which is important for overall economic growth. In this scenario, Tesla may be less inclined to pour billions of dollars into a new car factory for at least another year, if not longer.

Musk, in turn, will have an automatic buyer of his stock, and the higher price will greatly benefit him if he is forced to buy Twitter. Governance may not be an issue as the board, including Kimbal’s brother, rarely interfere.

On Thursday, Future Fund Co-founder Gary Black wrote an open letter to Tesla executives arguing the $10 billion buyout was funded from cash reserves, not new debt.

Doing so sends in his words a “strong signal that the board takes its role in driving shareholder value very seriously.”

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