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Tesla is flirting with its first-ever share buyback - and it's a signal the company thinks its stock is undervalued

Brian Evans   

Tesla is flirting with its first-ever share buyback - and it's a signal the company thinks its stock is undervalued
  • The potential for Tesla to buyback stock for the first time has gained steam in recent days.
  • CEO Elon Musk said late Wednesday that Tesla was considering a share buyback of $5 billion to $10 billion.

The table is being set for Tesla to issue its first stock buyback in the company's history, as CEO Elon Musk indicated shares are undervalued.

Late Wednesday, he told analysts on the company's third-quarter earnings call that the company was working on "the right process to do a buyback" anywhere from $5 billion to $10 billion.

Speculation initially mounted last week after a top shareholder tweeted that Tesla needs to buy back stock to raise its price, to which Musk replied "noted."

He doubled down on Wednesday, telling analysts that "we'll do some meaningful buyback. Even if next year is a very difficult year, we still have the ability to do a $5 billion to $10 billion buyback."

If Tesla chooses to purchase stock on the higher end of Musk's estimate, that would equate to over 46 million shares of stock.

Companies often launch repurchase programs when they want to deploy excess cash, try to engineer more favorable earnings per share results by lowering outstanding shares, or signal that they think shares are undervalued.

In Tesla's case, the company is still spending heavily on capital projects and vehicle development, while its earnings per share beat views in the third quarter. But valuation is on Musk's mind.

On Wednesday, he offered a sky-high prediction for the company's valuation, saying he sees "potential path for Tesla to be worth more than Apple and Saudi Aramco combined."

That scenario would bring Tesla's market capitalization to over $4 trillion, making it by far the largest company by that key metric in the world.

Meanwhile, Tesla's current market cap has dipped below $700 billion recently as shares have plunged 50% from all-time highs in November.



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