Financial Associated Press, December 13 (Editor Bian Chun) According to a report released by investment bank Wedbush (Wedbush) analyst Dan Ives on Monday, in 2023 Tesla and Musk may face increasing pressure from activist investors.
Tesla’s share price has more than halved so far in 2022, despite continued substantial growth in the company’s underlying business. Tesla shares fell 6 percent on Monday, wiping $560 billion off its market value so far this year. The slump in its stock price has made Tesla a possible target for pressure from activist investors. Another reason Tesla may be facing pressure from activist investors is that CEO Elon Musk isn't fully focused on running the electric vehicle company. In addition to Tesla, Musk also owns several well-known companies including SpaceX and Twitter, which took his time and energy.
Radical investors, also known as activist investors, usually refer to some hedge funds and institutional investors. In order to defend their rights and interests, they will ask the company to make changes or even intervene in corporate decisions, such as increasing dividends, repurchasing stock , cutting costs, adjusting management, and sometimes even splitting and reorganizing companies.
Activist investors may pressure Tesla to initiate buybacks
According to Ives, activist investors may pressure Tesla to initiate stock repurchase programs, increase profit margins, or take "strategic moves. ".
"We also believe that activism across the technology industry will start to increase, with companies like Salesforce and Tesla facing increasing pressure on margins, buybacks and strategic moves," Ives said.
In October of this year, Musk talked about the possibility of stock repurchases in Tesla's third quarterly report conference call, saying that he may repurchase 5 billion to 10 billion U.S. dollars in stocks. Since then, investors have increasingly talked about Tesla's share buyback program.
According to data from financial services company YCharts, Tesla’s current price-to-earnings ratio is at its lowest level since its first profit in 2020. The stock trades at 52 times earnings and about 32 times forward earnings. While this is still twice the forward P/E ratio of the S&P 500 (about 17x), it is well below Tesla's ultra-high P/E ratio of 1,401x in early 2021.
It is worth noting that whether now is a good time for Tesla to buy back shares as competition intensifies in the electric vehicle industry remains to be seen. Some argue that Tesla is still in growth mode and should reinvest its profits to solidify its industry leadership, rather than buy back shares.
Because of this, any pressure on Tesla from activist investors in 2023 is likely to focus first on low-hanging fruit, such as refocusing Musk on his responsibilities at Tesla and launching a Initiatives to improve the company's profitability.
