Major Tesla Investor Urges the Electric Automaker to Issue Stock Buyback After Share Price Plummets 30% Since April

resource from: Reuters   

One of Tesla's biggest shareholders is not happy with the electric automaker's tumbling stock price since last month. Tesla shares have been on a downward trend ever since Chief Executive Elon Musk expressed agreement to a deal to buy social media platform Twitter for $54.20 a share, or $44 billion. 

Now billionaire Leo KoGuan, co-founder of IT provider SHI International Corp and a major individual investor in Tesla, is calling on the company to buy back shares in order to return some of Tesla's massive stock losses back to shareholders like himself, Reuters reports.

KoGuan's plea to Tesla comes after high-profile Tesla bull Daniel Ives, an analyst at Wedbush, cut the target share price of Tesla due to production disruptions at Tesla's Shanghai due to covoid related shutdowns in place since March. Ives also warned of "distraction risks" from Musk's high-profile deal to acquire Twitter, which Musk has already put on hold over what he says are too many "bots" on the social media platform.

After initially reaching an agreement with Twitter board members to purchase the company, last Friday Musk tweeted that the $44 billion deal to purchase Twitter was "temporarily on hold". He said he was waiting for data on the number of fake accounts on the platform, which also sent Twitter shares down by nearly 10% to $40.49 last week.

Twitter share price fell as low as $38.06 In pre-market trading last week in New York, well below the $54.20 per share deal price. Many are accusing Musk of not doing due diligence and getting cold feet over what's looking more like a poor financial decision on his part.

In order to help pay for the $44 billion purchase of Twitter, Musk sold off $8.5 billion worth of Tesla stock. Since the major sellout, Tesla shares have lost one third of their value, erasing over $400 billion in market cap since early April, which is worrisome to many Tesla investors besides KoGuan. 

Tesla shares are also affected by the company removal this week from the coveted S&P sustainability index, which reportedly has infuriated Musk.

"Tesla must announce immediately and buy back $5 billion of Tesla shares from its free cash flow this year and $10 billion from its free cash flow next year, without affecting its existing $18 billion cash reserves with ZERO debt," KoGuan said in a Twitter message to Tesla's head of investor relations, Martin Viecha.

According to Reuters, last year, KoGuan claimed in a tweet that he was the third largest individual shareholder of Tesla. He said last year that his position in Tesla is even larger than ARK Invest and Baron Capital, although that has not been confirmed.

KoGuan previously said he was investing billions in Tesla because he believes in Musk's "great vision I share." In March when Tesla's shares dipped and were trading at $766, KoGuan said he was buying even more Tesla shares.

Tesla's stock price on Thursday fell to $709.42, its lowest since August 2021.

Many investors believe that Musk's intention to buy Twitter is nothing more than a huge distraction that is hurting long-term Tesla investors like KoGuan that believe in Tesla's mission to transition the world to sustainable energy.

Tesla bull Gary Black, portfolio manager at The Future Fund, told Reuters, "If he (Musk) could get out (of the Twitter deal) Tesla's stock would go up 10%."

Stock buybacks are the repurchasing of shares of stock on the public market by the company that issued them, in this case Tesla. It's fairly common in business and used to return some cash to investors when a company's stock price falls. 

A buyback occurs when the issuing company pays shareholders the "market value" per share. The company then re-absorbs that portion of its ownership that was previously distributed among public and private investors.

More recently, stock buybacks have been a preferred way for listed companies to return cash to shareholders over paying dividends. 

resource from: Reuters

Eric Walz

Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.