Tesla (NASDAQ: TSLA) CEO Elon Musk said he was considering buying back $5 billion to $10 billion worth of shares, making it the first buyback in Tesla's history. On Wednesday, he told analysts he was considering a buyback because he believes Tesla shares were undervalued. It is common knowledge that share buybacks often help increase the worth of a company's shares.
About a week ago, a top Tesla shareholder tweeted that Tesla should consider a buyback to raise its share prices. Fortunately, this got the attention of Elon Musk, and he replied 'Noted' under the tweet. Before then, many investors raised the idea of approving a stock buyback due to stock decline concerns.
Purchasing stocks close to the higher range of the intended amount Musk estimated would equal about 46 million shares. It could also be said that expenses on capital projects and vehicle development could be other reasons for buyback consideration, as buybacks are one of the ways to deploy excess cash.
That said, Elon Musk is concerned about valuation as he projects that Tesla has the potential to be worth more than Apple and Saudi Aramco combined. If this happened, it would mean that Tesla's market capitalization would be over $4 trillion, making it the largest company in the world by that metric. However, it should be noted that Tesla's capital recently plunged below $700 billion as shares dipped below 50% from an all-time high in November last year.
Tesla Q3 earnings report
Tesla reported revenue of $21.45 billion in Q3, less than the $21.96 billion analysts forecasted. At the same time, adjusted earnings were at $1.05 per share against the 99 cents expected. The net income (GAAP),valued at $3.33 billion, was reported to have risen more than double from over a year ago (about $1.62 billion in profit) and automotive revenue of $18.69 billion, indicating a rise of 55% from the same quarter a year ago.
In the Q3 earnings release, Tesla's energy unit was reported to generate $1.12 billion for the quarter. This unit specializes in the sales of backup batteries for residential and commercial use and solar rooftop installation services. The vehicle production rate increased by 54% (about 365,923 vehicles produced) in Q3 compared to a year ago. This surpassed analyst predictions and expectations.
Tesla competitors to watch out for in the EV market space
Several players compete with Tesla in the electric vehicle (EV) market. Some include legacy manufacturers such as Ford (NYSE: F), Volkswagen , General Motors (NYSE: GM), Nissan, Honda and Chinese-based companies XPeng (NYSE: XPEV) and NIO (NYSE: NIO).
A report released by the International Energy Agency revealed that the number of electric vehicles increased from 45,000 in 2011 to 3.24 million in 2020. It is expected to rise further to 27 million by 2030.
While Tesla is the leading manufacturer in the EV market, other major players are looking to enter this high-growth market. The U.S and the Chinese governments are already offering subsidies and incentives to some of these electric vehicle manufacturers and buyers in a bid to achieve the goal of clean and sustainable energy in the few decades to come.
Over a year ago, Ford (NYSE: F) received close to $6 billion in loans intended to be used for producing EVs and hybrid vehicles. Other key players like Volkswagen and General motors also intend to sell EVs by the end of this decade or before 2035.
Although there are many players, Tesla is still the leading electric vehicle production provider. So, it will take a while before Tesla's top position is threatened due to its innovation, enormous influence and impact as a pioneer in the EV industry.