Written by By Staff Writer Staff Writer, CNN
Some investors may be snapping up more shares of Tesla following its Tuesday announcement that the company had sold another $1.2 billion worth of stock.
The electric vehicle and energy storage company announced the initial sale of common stock along with fourth-quarter earnings, which ended more than flat from a year earlier.
Two days later, Tesla added $1.2 billion more of stock to its stock market listings in a move on Friday to combat a possible boost to competition.
Musk has gained a reputation as one of the more market-savvy and vocal tech executives in Silicon Valley. The announcement on Thursday was a clear sign of that: The company disclosed a buyback plan intended to supplement a planned $1.5 billion share sale.
“Even if the buyback was legal, I doubt anyone is biting,” David Learmount, editor of auto news website Auto Express, told CNN Business. “The reality is that Tesla is not a company that invests in technology or investment in R&D, it just sells cars.”
Critics have turned their attention toward the company in recent weeks over a “supply chain road map” that industry analysts criticized as overly optimistic. And then there are the potential pitfalls of Musk’s famously eccentric behavior — criticisms that he ignored during the earnings call.
The rationale behind the planned $1.5 billion buyback, according to the company, is to reduce the number of shares of Tesla stock outstanding. As a result, “it creates more cash on our balance sheet for our business and thereby increases our ability to invest in new and exciting vehicle development and production growth, as well as for other investments,” Tesla said.
But “more cash” does not necessarily equal more opportunity, Learmount pointed out.
The bottom line is, “if you have lots of cash, you can be a bigger fat cat and lay off suppliers” and perhaps burn through more cash in debt payment, he said. “Even if you’ve got a fatter wallet, you’re probably still not a good businessman.”
While it’s uncommon for a company to announce a buyback program, that’s especially true for a company that is not generating more cash. The move signals that Tesla’s revenues may not be growing as fast as the company hoped. And that may make investors more wary about whether Tesla can consistently make money, said Tom Gimbel, CEO of LaSalle Network, a staffing and recruiting company.
“I think (the Wall Street analysts) are less than thrilled, if not completely stunned, to see Elon Musk take such a bold step,” Gimbel said.
And now that shares of Tesla have gone up, both Tesla and Musk will “become easier targets for the SEC,” Gimbel said.
For its part, the company is touting what it calls the “Tesla accelerated” plan to deliver 500,000 cars next year and up to 2 million per year in two to three years. The company produced 150,000 vehicles in 2018.
Tesla stock was off about 1% following Friday’s announcement, but analysts say that may be just pre-holiday buying pressure. And some of those shares were likely already on the books, Learmount said.