Tesla, Inc. TSLA shares have failed to take off despite the promising start to the year and a rally to a high of $217.65 in mid-February. At this point, CEO Elon Musk should probably take inspiration from a piece of advice that billionaire investor Warren Buffett gave former Apple CEO Steve Jobs years ago.
What Happened: Worries surrounding the lowering demand for Tesla's electric vehicles, impacted margins following a slew of recent price cuts, a lack of new models and a budget EV, along with Musk's absentee leadership amid his preoccupation with his other ventures, also exerted downward pressure on the stock.
After a torrid 2021, when the stock was among the worst-performing mega-caps, Tesla stock recovered nicely in early 2022 as the company began reducing its EV prices. Investors were hopeful the aggressive pricing actions would likely lift margins. That, however, was not the case, as evident by the subpar deliveries Tesla reported for the first quarter. With the auto gross margin (excluding regulatory credit) undershooting the target in the first quarter, worries intensified.
On Friday, the stock came under further pressure when rumors claimed that Musk would step down from Tesla. The stock closed Friday's session down 2.38% at $167.98, according to Benzinga Pro data.
Buffett's Sagacious Advice: In late January, Future Fund's Gary Black renewed calls for the company to buy back its shares in order to lift them from depressed levels.
Black recounted the advice given by Warren Buffett to none other than Apple co-founder Steve Jobs.
Buffett said, in a 2013 interview with CNBC, that he once asked Jobs if Apple stock was cheap. Jobs replied that it was. Buffett then asked Jobs whether the latter had more cash than he needed. Jobs replied that he had “a little.”
The "Oracle of Omaha" told CNBC that he then told Jobs to buy back his [Apple] stock. Job apparently didn’t heed his advice. Buffett also recalled that, when Berkshire Hathaway's stock was cut by half from $90,000 to $40,000-$45,000 at one point, the company apparently wanted to buy the stock but didn’t do it.
“If you could buy dollar bills for 80 cents, it’s a very good thing to do,” Buffett told CNBC.
See also: Best Electric Vehicles Stocks
Why It’s Important: When Tesla fell off the cliff in 2022, Tesla bulls, including Black and Ross Gerber of Gerber Kawasaki Wealth And Investment Management, called for a buyback as a means of salvaging the ailing stock.
Black wrote an open letter to the Tesla board, urging it to initiate a $10 billion buyback.
Musk, however, has been noncommittal. On a third-quarter earnings call, he said it was up to the board to decide on a buyback program. A stock repurchase in the order of $5 billion to $10 billion could not be ruled out, he added.
Tesla operates in an investment-intensive industry, requiring huge capital spending. At the same time, returns are very attractive as well. It, therefore, may make more sense to plow profits back into future growth opportunities than to buy back shares.
With the annual shareholder meeting scheduled for Tuesday, the question in everybody's minds is whether buyback talks will be back on the table. Proxy statement filed with the SEC shows that the topic is not on agenda, although this could be just what the doctor ordered for Tesla stock.
Check out more of Benzinga's Future Of Mobility coverage by following this link.
Some elements of this story were previously reported by Benzinga and it has been updated.
Photo: Created with an image from Steve Jurvetson on Flickr
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