Why Tesla Shouldn't Do A Stock Buyback

Tesla is floating the idea of a $5-10B stock buyback. I wanted to give my thoughts. Although Tesla's $5.1B of operating cashflow is impressive, it's also good for Tesla to operate prudently with a cash cushion in case of a major global recession or some other unforeseen event. If it's true the only bottleneck is engineers not capital, then I may be able to be convinced in a small buyback. But part of me feels like Tesla is way to early in its maturity as a company, and progress towards achieving its mission to spend capital on a sharebuyback instead of something epic in the real world.

Let me know what you think in the comments!!

0:00 Buyback Idea
1:17 Earnings Quality/Cash Cushion
3:23 Elon Deploying Capital
4:20 Case FOR a buyback
6:48 Crazy ideas for Tesla’s Cash

As of 1/30/2022 I'm invested in: Tesla, SpaceX, Bitcoin, Ethereum, Unisocks, VeeFriends, JOYToys, Coinbase, Arcimoto, Dogecoin, Snap, Rainbow Wallet, Atoms, Carta, Pipe, Alloy Automation, Genies, DMN8, Haus, Community, Dadi, Pigeon Loans & others.

[barnibizer]

I 100 percent agree on all your points. Buy back is way too early

[motofunk]

Agree, a buyback is a short term emotional fix, nothing for the long term. Plus, the mission is not complete and a buyback will not get Tesla closer to the mission.

[walterhiegel]

I am with you Gali. we just did a stock split to give smaller investors the opportunity to invest. Now we do a buyback and communicate that the split was a mistake? Cash is king and having 30 to 50 billion is a giant advantage. There could be technologies that Tesla could benefit from and without cash that opportunity could pass.

[Nexus-]

A share buyback, to me, would signal to the market, that Tesla is no longer growing. It's been growing at around 50% CAGR and is forecast to continue at a similar rate. Invest some of the capitol in further R&D, ramping battery capacity, Tesla Energy, etc. Take that money and keep innovating!

[RyanSmith-bxyb]

Gali! You're back! Thanks for sharing your two cents on the subject!!

[bujin]

SMR keeps saying that it would be dumb for Tesla not to buy TSLA at this point, as it's the best ROI they can get on the capital if they have no other place to invest it, and how they're going to be making 10s of $Bs a year in no time. I'm with Gali on this tho. Let's not count our chickens before they're hatched. Let's optimize for strength and survival over short term gains. When we're printing money in bulk, THEN let's start the buy backs.

[Witnessmoo]

The Sage has spoken!

Good to see you back.

In terms of buyback I agree with your points but on the flip side, inflation is killing the value of cash so why hold on to it.

[travyhaagy]

I would love to see a huge chunk of cash be put into superchargers that are all 100% solar with battery backup, expanded service centers, and expanded mobile tech.

[XxGsaburzxX]

I’m for the buyback. I’ve been invested in Tesla since 2017, so no I’m not thinking short term. Tesla management has consistently said they’ve spent capital as efficiently as possible and now they can’t spend the excess capital quick enough without wasting it. Also, the buyback can be over the period of years, not in one lump sum.

I think the 5-10B is reasonable, tens/hundreds of billions in buybacks at the moment seems excessive and too pie in the sky. Just my 2 cents.

[morphos]

I totally agree. It's making me sick of this whole pressure from some stockholders that are not thinking about all the risks that are on the horizon. Let me put the "Doom Hat" as you said: what happens if the Chinese factory is permanently shut down because of political problems with the US and Taiwan. It is clearly too early to think of this. Wait until you have production alternatives working in all cylinders.

[hunnymilk-brunch]

firstly, would be helpful to know what kind of "emergency fund" is comfortable and reasonable. how much exactly. then determine total r & d expense for the next ~3 years. then, plow any extra into lithium refining. then, if limiting factor #2 is engineers, then plow the money into the school elon mentioned he'd like to start - t.i.t.s.

[agea]

Gali Buybacks are AFTER all CAPEX and M&A. There is no way to spend money faster than they already are without wasting it.

Also D&A expense is not where you say it is. It it’s only 7-800M/Q. If factories were shuttered they would have 5 years + of stagnant expense runway.

[grantguy]

agree with you way too young to buy back but tesla did make young company mistake buying btc which punished tsla big time.

[TheTrickyBAM]

Gali you normally see the full vision, but maybe fear is preventing you to see it actually happening. He said he’s 100% confident about solving FSD. The best value for capital would be to invest in TSLA, the same thing us long term investors think. Doing a stock buy back will not put Tesla at risk or slow down growth, because the leadership at Tesla are that confident.

[HiHi-klkx]

Stock buybacks mean a company is out of ideas

[daliborandrin]

I’m for the buyback. Buybacks are only after all capital expenditures. They’re not deciding to buy back the stock instead of growing, they’re only buying back the stock with a small percentage of cash after growth has been funded. Preparing for a black swan is definitely smart, but you need to weigh that against the ROI of buying TSLA at these depressed prices.

[Emanuel-jrii]

Although I do agree with you that if Tesla can deploy capital on other things like building more batteries, solar panels, etc it's way better than doing the buyback. However, management have stated multiple times that they spend as much money as they can. So they maxed out their spending. They are probably, as you mentioned, constrained by talent. I think the ROI is higher on buybacks at this price than hiring B, C or even D class engineers just for the sake of excess capital.

[JamesNeilMeece]

Agree Gali. I was thinking about it when I saw that Dave Lee video. But you are right. Much better ways to use that money and cushion is good. Imagine China goes to war with Taiwan. German factory has to close for a while due to energy. There are real risks.

[biofueler]

Buying back the stock doesn't mean the stock price will rise. psychology, & lots of other stuff affects prices. just a waste of $$$$. U R 100% right.

[ynotthesong]

They cannot accelerate more.. thats the point they mentioned Gali.. also they mentioned they would do it over the next years.. so i assume they will work on this step by step moving forward and considering the current environment at the time..