SMR keeps saying that it would be dumb for Tesla not to buy TSLA at this point, as it's the best ROI they can get on the capital if they have no other place to invest it, and how they're going to be making 10s of $Bs a year in no time. I'm with Gali on this tho. Let's not count our chickens before they're hatched. Let's optimize for strength and survival over short term gains. When we're printing money in bulk, THEN let's start the buy backs.
@@ramon2786 But that is really having the tail wag the dog. If Tesla were to spend all of their cash ($21.1B), they could only purchase 3.1875% of their shares, and that would completely deplete their reserves. Now let's say they had to pay a 1% tax on that, so your $21.1B turns into $20.9B, which would result in buying 3.1556% of the shares. So for that 0.0319% increase in share count you're going to jeopardize the future of the company?? Now of course the proponents would say, "we're not going to use all of their cash!" Well then that 1% hit means even less! The value gained by buying shares right now is nowhere nearly in line with the risk we're taking on by doing it.
I am with you Gali. we just did a stock split to give smaller investors the opportunity to invest. Now we do a buyback and communicate that the split was a mistake? Cash is king and having 30 to 50 billion is a giant advantage. There could be technologies that Tesla could benefit from and without cash that opportunity could pass.
The Sage has spoken! Good to see you back. In terms of buyback I agree with your points but on the flip side, inflation is killing the value of cash so why hold on to it.
Agree, a buyback is a short term emotional fix, nothing for the long term. Plus, the mission is not complete and a buyback will not get Tesla closer to the mission.
I’m for the buyback. I’ve been invested in Tesla since 2017, so no I’m not thinking short term. Tesla management has consistently said they’ve spent capital as efficiently as possible and now they can’t spend the excess capital quick enough without wasting it. Also, the buyback can be over the period of years, not in one lump sum. I think the 5-10B is reasonable, tens/hundreds of billions in buybacks at the moment seems excessive and too pie in the sky. Just my 2 cents.
A share buyback, to me, would signal to the market, that Tesla is no longer growing. It's been growing at around 50% CAGR and is forecast to continue at a similar rate. Invest some of the capitol in further R&D, ramping battery capacity, Tesla Energy, etc. Take that money and keep innovating!
I would love to see a huge chunk of cash be put into superchargers that are all 100% solar with battery backup, expanded service centers, and expanded mobile tech.
I totally agree. It's making me sick of this whole pressure from some stockholders that are not thinking about all the risks that are on the horizon. Let me put the "Doom Hat" as you said: what happens if the Chinese factory is permanently shut down because of political problems with the US and Taiwan. It is clearly too early to think of this. Wait until you have production alternatives working in all cylinders.
Although I do agree with you that if Tesla can deploy capital on other things like building more batteries, solar panels, etc it's way better than doing the buyback. However, management have stated multiple times that they spend as much money as they can. So they maxed out their spending. They are probably, as you mentioned, constrained by talent. I think the ROI is higher on buybacks at this price than hiring B, C or even D class engineers just for the sake of excess capital.
Gali Buybacks are AFTER all CAPEX and M&A. There is no way to spend money faster than they already are without wasting it. Also D&A expense is not where you say it is. It it’s only 7-800M/Q. If factories were shuttered they would have 5 years + of stagnant expense runway.
@@JonathanRootD yeah, but there aren't plenty of untapped "world class AAA" engineers. One elite engineer is worth an infinite number of decent engineers. People make this mistake of thinking of human capital like it's fungible, and it's not. There is just one Elon Musk, period, doesn't matter how many $Bs you throw at it, you don't get two. Likewise, each time Tesla get's the very best, of the best, at any particular thing, that means everything else is something less, something that will detract, instead of add. It's the talent at the very top of the game that moves the needle, and that talent is not readily available.
firstly, would be helpful to know what kind of "emergency fund" is comfortable and reasonable. how much exactly. then determine total r & d expense for the next ~3 years. then, plow any extra into lithium refining. then, if limiting factor #2 is engineers, then plow the money into the school elon mentioned he'd like to start - t.i.t.s.
Gali you normally see the full vision, but maybe fear is preventing you to see it actually happening. He said he’s 100% confident about solving FSD. The best value for capital would be to invest in TSLA, the same thing us long term investors think. Doing a stock buy back will not put Tesla at risk or slow down growth, because the leadership at Tesla are that confident.
Agree Gali. I was thinking about it when I saw that Dave Lee video. But you are right. Much better ways to use that money and cushion is good. Imagine China goes to war with Taiwan. German factory has to close for a while due to energy. There are real risks.
HEY your baaaaaaack !!! We missed you man !! Hope all is well with you. Kept checking for updates but none to be seen. Hope you are not too down on the movement of the stock, we all know it will go back up, just question of when. I knew you had too much energy and passion for T to stop your videos for good.....
I’m for the buyback. Buybacks are only after all capital expenditures. They’re not deciding to buy back the stock instead of growing, they’re only buying back the stock with a small percentage of cash after alllll growth has been funded. Preparing for a black swan is definitely smart, but you need to weigh that against the ROI of buying TSLA at these depressed prices.
Not about to happen this yr., maybe mid 2023 which is much better in my mind despite the current low price which is the only good reason to do it this yr instead. A healthy balance sheet is more important.
They cannot accelerate more.. thats the point they mentioned Gali.. also they mentioned they would do it over the next years.. so i assume they will work on this step by step moving forward and considering the current environment at the time..
100%. Also there's still a lot of problems with the company. Service, supercharging, early adopters not getting features they were promised. They need to sort these before doing buy backs. Why not start buying companies like mining and refining companies?
I agree with you. I was surprised to see smr cheerlead that move. I truly believe they can find great ways to spend that money with positive return. Would be soul crushing to see them do that lame corporate move
4:38 you hit it on the head, so much free cash flow. They are deploying as much as they can they don't wanna over extended so please the share holders. If they expand when they don't have enough human resources that would be far worse than a share but back. I like the eagerness to keep expanding but with out enough talented people to spear head it makes other things slip to try and make everything successful. Hence like 6 models instead of like 20. They need to stay focused without overwhelming there talent.
Like wtf is the reasoning here? On one hand Gali is afraid of economic downturn so Tesla should have large financia lcushin on the other hand wants to invest into more factories during economic downturn? Besides they are going as fast as they can already.
The original stock buyback idea came from Tesla Momma. She wanted Tesla to get moved to investment grade and the ratings companies had them at junk status. Apple got bumped when they asked them to rate them for a bond loan in order to do a buyback. That forced the ratings companies to bump Apple to investment grade, then they got their loan to do buyback. Investment grade affects how many funds are allowed to put Tesla in their funds. Those new investments could help the stock go higher.
I like the going vertical idea. Owning the batteries. And later, owning the robotaxis. On the other hand, authorizing the buyback early but not utilizing it would be good to have it there if the stock does tank hard.
Elon did imply that we are just constrained by Engineers. I do not see buyback as a negative specially if it is expected to provide higher ROIC while keeping dilution at level. If that os the best way for them to deploy capital I support it. If they decide to invest in something else great as well. I am all for conservative balance sheet but keeping all of it for long periods of time doing nothing is not too wise either. 5-10B in buybacks next year assuming have nothing better to use it for sounds good to me.
Gali so glad to hear from you and your take on this !!! The amount of info and insight you deliver is always on point, 150$ is perfect entry for Tesla to buy back, otherwise more verticals is best IMO, other than grid investments
A couple of things.... First, Tesla should not be saving money for a trip to Mars, that is SpaceX's responsibility. Second, although we're not quite there yet, it won't be long before Tesla is "printing money" so fast that there is literally no way they could spend it that fast responsibly. (Advent of robotaxis is an obvious inflection point.) When they are printing money at such a rate, I think they should not only do stock buybacks, but also start paying a modest dividend too.
Investment is better for long term, buyback is for the short term. I'm in for the long term. Tesla’s mission is inspiring. Shouldn't deviate from that.
My take - if you are willing to raise money diluting shareholders during a tough phase (as Tesla did in 2018), the company should be willing to buy back said shares to ‘un dilute’ shareholders to reward them when they have too much cash left after investing in factories and R&D.
I don't really want to see a buyback either. But if I were going to try to look for a reason why it might make sense from their perspective, I'd look at it like this: 1) They have good reason to assume that their profits are about to go through the roof, even if there is a major recession. 2) They are looking at their cash being devalued to the tune of 10-20% every year due to the high levels of inflation we are seeing 3) There is currently no better investment out there than Tesla stock 4) Buying stock now will make it easier for them to sell more stock in the future at a higher (nominal and actual) dollar valuation. But I'd rather see them: 1) Buy their own solar and batteries and set up their own microgrid at and around each of their factories (like you said) 2) Buy land for future Gigafactories and start building 3) Buy companies in the mining, mineral processing, AI, chip making, automation, 3D printing, material science, car parts, etc. spaces 4) Buy fusion and thorium reactor companies like Commonweath Fusion and FLiBe Energy.
couldn't agree more, but at $200 is attractive time for BB. Vertical integration is cool, but those projects have high operating expenses, low return and are also at constant risk of nationalization.... raw materials are a very complicated/delicate game... you can't just buy it and rest easy... requires a lot of mental/physical energy.... and EXPERIENCE too
Agreed Gali, investing in real world infrastructure moves the needle more than a stock buy back. It would be dope to see Tesla pick a medium sized city and build the energy infrastructure of the future while also being profitable and delivering a great UX. A blueprint for a real renewable city.
Elon has consistently said they are investing into everything they can which makes sense. Simply throwing money into everything makes no sense, then you will just be like the govt wasting money.
Valid points. As a stock holder I'd rather see TSLA look out for the upcoming couple years of Twitter, Taiwan and inflation volatility. Screw mars, build a dozen grid storage projects if you have more money than you know what to do with.
its a display of confidence. we need anyone to act like they aren't preparing for the apocalypse. they are growing at an arguably unhealthy speed anyway. whatever they think is right is good for me.
I am with you, Gali. As a financial investor, I wouldn't mind a significant buyback. As an investor in a more general sense, I say we should commit to the mission and invest to ACCELERATE the world transition to sustainable energy.
Saw the title, first thought was don’t do buyback, invest it into manufacturing. I want to see them integrate into refining minerals. If they do share buybacks I want them to issue new CEO goals so that Elon can scoop up them shares with clear goal milestones again.
Tesla should invest in solar canopies at Supercharger stations. It would pay for itself by making more profit on the electricity being sold and it would also make a good sustainability statement.
Thanks for giving voice to a bunch of us stakeholders that are very much willing to wait to the right moment. p.s. I'm a stockholder since 2012, and I'm here for the long run. Don't do the buyback.
A Problem of capital efficiency. Giving cash back to shareholders helps them not be distracted by it. Works if cash doubles in 12-15 months. Otherwise wait.
1. Elon said repeatedly that they are limited by engineers. So, they can't spend more money on growth, or R&D, or new projects. 2. Supply is a limiting factor too. I'm sure Elon would be happy to build huge solar farms with thousands of Megapacks, but there's no excess supply just waiting for capital. The Megapack has a multi-year backlog. 3. They said at the earnings call that they modeled the worst scenarios they could imagine, and they are confident in that they'll still be able to generate cash. So a $20B cushion should be enough. 4. If Tesla can't sell any cars, that means the world ended, so nothing matters anyway. 5. I think the idea is to buy back shares with debt, not cash. The sudden S&P rating upgrade is the first step of that. This way Tesla can buy back a larger amount without depleting their war chest. And then they can pay it back with next year's profits, which will be enormous. 6. The stock is already grossly undervalued. Even if you ignore everything else and just look at the car business, with the rate Tesla grows earnings, its PE ratio should be 100-150, and it's more like 50 now. 7. Most likely we are at the bottom of the market, unless yet another major disaster happens. So this is likely the best time to buy back shares.
Agreed. I think there is a psychological aspect here where investors are feeling hurt and afraid due to the low stock price, so it's tempting to turn lemon into lemonade and feel like we are the victors and that the low stock price was a good thing. But the more rational thinking is like you said, is it really worth burning 50% of our cash in order to boost shareholder returns by 1% - 2%? I'd certainly rather more cash on the balance sheet. If they don't need the cash, buy bitcoin again with it.
I think your last sentence totally messed up the whole argument. Why buy bitcoin? That's equally volatile. In terms of pure ROI on an investment, they might as well buy back shares then, they would have much more insight and control on that ROI since it's their own company. I like bitcoin but who knows where that is going in the next 1-5 years
@@Matzes Buying back their own stock is a fundamentally different investment than buying another liquid asset such as Bitcoin. They can exit a Bitcoin investment any time by selling for cash. Buying back stock on the other hand is an irreversible burning of cash that gets returned to shareholder as equity. Exiting a stock buyback is essentially a new capital raise which is subject to market conditions and can cause a death spiral if the capital markets aren't supportive at the time.
@@ashh3051 exiting a stock buyback is just raising new capital through stock issuance. Tesla has done that a few times. Yes its dependent on market situation. So is bitcoin. But yes bitcoin is way more liquid, I will give you that
Buybacks come after all Expenses. A buyback would not take anything away from it's growth spending. In the Q3 call we heard a lot of optimism on Tesla printing money even in a deep recession. Buybacks are not for the short term appeasal of twitter bulls. It's a long term investment AFTER you have invested everything you can into future growth
Completely agree. In my model I had assumed buy backs would not start until cash pile was $50b. This is too early given the numerous risks over the next few years.
I agree with you Gali. Pursuing the depressed price of the stock to play the buyback game is unnecessary at this time of the company, and the macro global recession potential. Yes, 2023 has an artificial demand catalyst. And Cybertruck will be online. Revenue is healthy, but I doubt in a bad economy will Tesla be able to sustain 50% growth. More like 15-25% next year. IF the war escalates, if China becomes the next Russia crisis due to Xi and invasion of Taiwan, the global economy will spiral downward for 5-7 years.
I believe the buyback will only move the stock a little. Many will trade this away. I’d rather Tesla invest it to continue their hyper growth. Maybe acquire more suppliers.
Happy to see you back on the ‘tube Gali! I don’t think anything is going to help the stock price in these adverse macroeconomic times - has anyone analysed how much the stock price will rise with a buyback? If it’s negligible, why bother? It is the ultimate faith in the stock though isn’t it?
I think the biggest issue is that any significant increase in the number projects takes away Elon's attention much more than just buying back the stock, which will be redeployed as employee stock options anyways. Tesla's biggest goals still require Elon's full attention and there just isn't a good way to deploy capital without diluting his attention at the same time.
That was also my take, and it's 100% because Gali's youtube taught me to think this way lol. I remember when everything seemed so dicey and I didn't know whether my all-in would go bellyup or not. I don't want to be in that position again. And it's not just a cushion in times of war and economic uncertainty, but it's also dry powder to use if a new opportunity comes up like M&A's, factories, or new ventures that we can't foresee yet.
I agree with you Gali, I think all your reasons are spot on. *Except* There could be *one* good reason for a buy-back: Look 15 months into the future. The stock price is $650. Instead of now getting 1-2% shares for 5-10 $billion, later you get only 0.3-0.6% of the shares. To make same difference you have to spend $15 -30 $billion At today’s prices, a $10 billion buyback bringing in 2% of the stock could be a very good deal.
I’m wondering if Tesla is looking down the line at supply chain limitations and realistic growth timelines and realizing the pointlessness of expanding too quickly. Like Gali said, a factory operating at partial capacity is expensive. No use having a ton of factories if the development of raw material supply can’t keep up.
Makes me realise how late I was to Tesla, buying in 2020. I haven't been through any of the pain that earlier investors did. It's also so early though, thinking in 5, 10 & 20 year timeframes.
Thank you Gali. Generally I'm annoyed by Tesla talk that is so stock price centered. We all know why we invested in Tesla in the first place, and that is that is that it gives us a fighting chance against climate change. Somewhere around 2019/2020, it started being about stock, twitter and AI too much. All interesting discussions in their own right, but hurting the focus on the mission.
We miss you making videos! How about 2 per month? TOTALLY agree on energy! Show it can be done, force oil (and government!) to switch! . Still have my "pet guess" of HOUSING. They need to build the complete system of Home, Heating, Comms, Transport, Energy.
I 100 percent agree on all your points. Buy back is way too early
Gali! You're back! Thanks for sharing your two cents on the subject!!
SMR keeps saying that it would be dumb for Tesla not to buy TSLA at this point, as it's the best ROI they can get on the capital if they have no other place to invest it, and how they're going to be making 10s of $Bs a year in no time. I'm with Gali on this tho. Let's not count our chickens before they're hatched. Let's optimize for strength and survival over short term gains. When we're printing money in bulk, THEN let's start the buy backs.
Part of the urgency argument is the 1% tax which takes effect on 01/01/23
@@ramon2786 But that is really having the tail wag the dog. If Tesla were to spend all of their cash ($21.1B), they could only purchase 3.1875% of their shares, and that would completely deplete their reserves. Now let's say they had to pay a 1% tax on that, so your $21.1B turns into $20.9B, which would result in buying 3.1556% of the shares. So for that 0.0319% increase in share count you're going to jeopardize the future of the company?? Now of course the proponents would say, "we're not going to use all of their cash!" Well then that 1% hit means even less! The value gained by buying shares right now is nowhere nearly in line with the risk we're taking on by doing it.
Stock buybacks mean a company is out of ideas
Or production limited
Or the company is that lean and on a massive scale that deploying "excess" capital has a very low ROI. Stating Tesla is out of ideas is just stupid.
I am with you Gali. we just did a stock split to give smaller investors the opportunity to invest. Now we do a buyback and communicate that the split was a mistake? Cash is king and having 30 to 50 billion is a giant advantage. There could be technologies that Tesla could benefit from and without cash that opportunity could pass.
The Sage has spoken!
Good to see you back.
In terms of buyback I agree with your points but on the flip side, inflation is killing the value of cash so why hold on to it.
Agree, a buyback is a short term emotional fix, nothing for the long term. Plus, the mission is not complete and a buyback will not get Tesla closer to the mission.
Buybacks are a repeated way of returning capital. It’s not a one time thing. Have a look at Apple.
I’m for the buyback. I’ve been invested in Tesla since 2017, so no I’m not thinking short term. Tesla management has consistently said they’ve spent capital as efficiently as possible and now they can’t spend the excess capital quick enough without wasting it. Also, the buyback can be over the period of years, not in one lump sum.
I think the 5-10B is reasonable, tens/hundreds of billions in buybacks at the moment seems excessive and too pie in the sky. Just my 2 cents.
A share buyback, to me, would signal to the market, that Tesla is no longer growing. It's been growing at around 50% CAGR and is forecast to continue at a similar rate. Invest some of the capitol in further R&D, ramping battery capacity, Tesla Energy, etc. Take that money and keep innovating!
Tesla management have stated numerous times they’re spending cash as fast as they can spend it well. Returning excess cash is prudent.
I would love to see a huge chunk of cash be put into superchargers that are all 100% solar with battery backup, expanded service centers, and expanded mobile tech.
I totally agree. It's making me sick of this whole pressure from some stockholders that are not thinking about all the risks that are on the horizon. Let me put the "Doom Hat" as you said: what happens if the Chinese factory is permanently shut down because of political problems with the US and Taiwan. It is clearly too early to think of this. Wait until you have production alternatives working in all cylinders.
Agree re China!
Good thinking, that scenario would be devastating and would make a buyback seem completely idiotic
agree with you way too young to buy back but tesla did make young company mistake buying btc which punished tsla big time.
Although I do agree with you that if Tesla can deploy capital on other things like building more batteries, solar panels, etc it's way better than doing the buyback. However, management have stated multiple times that they spend as much money as they can. So they maxed out their spending. They are probably, as you mentioned, constrained by talent. I think the ROI is higher on buybacks at this price than hiring B, C or even D class engineers just for the sake of excess capital.
Gali Buybacks are AFTER all CAPEX and M&A. There is no way to spend money faster than they already are without wasting it.
Also D&A expense is not where you say it is. It it’s only 7-800M/Q. If factories were shuttered they would have 5 years + of stagnant expense runway.
Calling BS. Plenty of engineers in the world that are untapped.
@@JonathanRootD i agree with both of you rn. even tho that makes no sense lol
@@JonathanRootD “there is no engineer factory spitting out engineers, if there were we would hire them” - Elon
@@JonathanRootD yeah, but there aren't plenty of untapped "world class AAA" engineers. One elite engineer is worth an infinite number of decent engineers. People make this mistake of thinking of human capital like it's fungible, and it's not. There is just one Elon Musk, period, doesn't matter how many $Bs you throw at it, you don't get two. Likewise, each time Tesla get's the very best, of the best, at any particular thing, that means everything else is something less, something that will detract, instead of add. It's the talent at the very top of the game that moves the needle, and that talent is not readily available.
@@agea3280 then what do you call India? 🤣 Elons said a lot of silly things that aren't true.
Great point with the grid stablelization concept. love your input and ideas, doggy. Glad you miss making videos, maybe you'll start up again. lol
firstly, would be helpful to know what kind of "emergency fund" is comfortable and reasonable. how much exactly. then determine total r & d expense for the next ~3 years. then, plow any extra into lithium refining. then, if limiting factor #2 is engineers, then plow the money into the school elon mentioned he'd like to start - t.i.t.s.
Gali you normally see the full vision, but maybe fear is preventing you to see it actually happening. He said he’s 100% confident about solving FSD. The best value for capital would be to invest in TSLA, the same thing us long term investors think. Doing a stock buy back will not put Tesla at risk or slow down growth, because the leadership at Tesla are that confident.
💯 that's how I see it too. specially if FSD is about to be solved It would totally make sense to buy the stock at these levels.
@@robertoc.j.5563 It's not
I agree
Agree Gali. I was thinking about it when I saw that Dave Lee video. But you are right. Much better ways to use that money and cushion is good. Imagine China goes to war with Taiwan. German factory has to close for a while due to energy. There are real risks.
missing hypercharts badly as a Canadian :( that list of stocks based on market cap was really good
Buying back the stock doesn't mean the stock price will rise. psychology, & lots of other stuff affects prices. just a waste of $$$$. U R 100% right.
HEY your baaaaaaack !!! We missed you man !! Hope all is well with you. Kept checking for updates but none to be seen. Hope you are not too down on the movement of the stock, we all know it will go back up, just question of when. I knew you had too much energy and passion for T to stop your videos for good.....
While I agree that now might not be the time.. Tesla leadership has said multiple times they are spending on everything they can currently think of.
@@ks4129 The ROI of buying stock at these levels might be a 4x return in 1 year. Whereas installing solar might be like a 15% ROI per year.
I’m for the buyback. Buybacks are only after all capital expenditures. They’re not deciding to buy back the stock instead of growing, they’re only buying back the stock with a small percentage of cash after alllll growth has been funded. Preparing for a black swan is definitely smart, but you need to weigh that against the ROI of buying TSLA at these depressed prices.
Exactly. Buybacks are not a short-term play, they are a long-term investment.
Not about to happen this yr., maybe mid 2023 which is much better in my mind despite the current low price which is the only good reason to do it this yr instead. A healthy balance sheet is more important.
Also we don't know what investments they have in mind for next yr.
Elon has said numerous times, they are spending as fast as they can. $5-$10b over the next 12 months makes sense to me.
You are in the minority, it seems. The only one I know who is against buyback other than you is Dave Lee
They cannot accelerate more.. thats the point they mentioned Gali.. also they mentioned they would do it over the next years.. so i assume they will work on this step by step moving forward and considering the current environment at the time..
Just wonder if they are maxed out battery cell production and engineers.
100% with you. They should do a 5 billion dollar solar project or something. Focus on their energy business.
Provide some details on what this 5 billion solar project would be?
100%. Also there's still a lot of problems with the company. Service, supercharging, early adopters not getting features they were promised. They need to sort these before doing buy backs.
Why not start buying companies like mining and refining companies?
I agree with you. I was surprised to see smr cheerlead that move. I truly believe they can find great ways to spend that money with positive return. Would be soul crushing to see them do that lame corporate move
Tesla's growth is not capped by money anymore, as Elon said it's talent capped.
So nice he uploaded it twice!
Update on FUV....
4:38 you hit it on the head, so much free cash flow. They are deploying as much as they can they don't wanna over extended so please the share holders.
If they expand when they don't have enough human resources that would be far worse than a share but back. I like the eagerness to keep expanding but with out enough talented people to spear head it makes other things slip to try and make everything successful. Hence like 6 models instead of like 20. They need to stay focused without overwhelming there talent.
100% agree Gali 💪🏻 Your studio & style is a banger by the way.
great points. I agree with you. your videos have a huge value now that they are so rare.
Glad to see you again! What happened to your old videos? Those are like a Roadster, part of Tesla history!
Agreed. The objective now is to build new and bigger factories.
Like wtf is the reasoning here? On one hand Gali is afraid of economic downturn so Tesla should have large financia lcushin on the other hand wants to invest into more factories during economic downturn? Besides they are going as fast as they can already.
The original stock buyback idea came from Tesla Momma. She wanted Tesla to get moved to investment grade and the ratings companies had them at junk status. Apple got bumped when they asked them to rate them for a bond loan in order to do a buyback. That forced the ratings companies to bump Apple to investment grade, then they got their loan to do buyback. Investment grade affects how many funds are allowed to put Tesla in their funds. Those new investments could help the stock go higher.
The buyback people are the same ones asking about stock splits
Thank you for your insight Gali. Great point of view!
Good video Gali. I'm also more on the side of let's do buybacks later.
I like the going vertical idea. Owning the batteries. And later, owning the robotaxis.
On the other hand, authorizing the buyback early but not utilizing it would be good to have it there if the stock does tank hard.
Welcome back! We missed ya
Elon did imply that we are just constrained by Engineers. I do not see buyback as a negative specially if it is expected to provide higher ROIC while keeping dilution at level. If that os the best way for them to deploy capital I support it. If they decide to invest in something else great as well. I am all for conservative balance sheet but keeping all of it for long periods of time doing nothing is not too wise either. 5-10B in buybacks next year assuming have nothing better to use it for sounds good to me.
Gali so glad to hear from you and your take on this !!!
The amount of info and insight you deliver is always on point, 150$ is perfect entry for Tesla to buy back, otherwise more verticals is best IMO, other than grid investments
A couple of things.... First, Tesla should not be saving money for a trip to Mars, that is SpaceX's responsibility. Second, although we're not quite there yet, it won't be long before Tesla is "printing money" so fast that there is literally no way they could spend it that fast responsibly. (Advent of robotaxis is an obvious inflection point.) When they are printing money at such a rate, I think they should not only do stock buybacks, but also start paying a modest dividend too.
Investment is better for long term, buyback is for the short term. I'm in for the long term. Tesla’s mission is inspiring. Shouldn't deviate from that.
Elon says they're deploying capital as fast as possible, and I don't think he's exagerrating.
My take - if you are willing to raise money diluting shareholders during a tough phase (as Tesla did in 2018), the company should be willing to buy back said shares to ‘un dilute’ shareholders to reward them when they have too much cash left after investing in factories and R&D.
You make some really good points.
I don't really want to see a buyback either. But if I were going to try to look for a reason why it might make sense from their perspective, I'd look at it like this:
1) They have good reason to assume that their profits are about to go through the roof, even if there is a major recession.
2) They are looking at their cash being devalued to the tune of 10-20% every year due to the high levels of inflation we are seeing
3) There is currently no better investment out there than Tesla stock
4) Buying stock now will make it easier for them to sell more stock in the future at a higher (nominal and actual) dollar valuation.
But I'd rather see them:
1) Buy their own solar and batteries and set up their own microgrid at and around each of their factories (like you said)
2) Buy land for future Gigafactories and start building
3) Buy companies in the mining, mineral processing, AI, chip making, automation, 3D printing, material science, car parts, etc. spaces
4) Buy fusion and thorium reactor companies like Commonweath Fusion and FLiBe Energy.
Agreed….it’s too early.
Nice to see you back with interesting thoughts.✨🙏
couldn't agree more, but at $200 is attractive time for BB. Vertical integration is cool, but those projects have high operating expenses, low return and are also at constant risk of nationalization.... raw materials are a very complicated/delicate game... you can't just buy it and rest easy... requires a lot of mental/physical energy.... and EXPERIENCE too
Love this guy and I completely agree 💯
Agreed Gali, investing in real world infrastructure moves the needle more than a stock buy back. It would be dope to see Tesla pick a medium sized city and build the energy infrastructure of the future while also being profitable and delivering a great UX. A blueprint for a real renewable city.
Are you not listening? Money is not the obstacle for Tesla to invest in infrastructure.
There isn't much more to invest in ...
@@whynotstartusingyourbrain8726 who said it was? 🤷
Elon has consistently said they are investing into everything they can which makes sense. Simply throwing money into everything makes no sense, then you will just be like the govt wasting money.
@@JanMichaelGuzman How else is it moving the needle.
Great to hear your perspective
Valid points. As a stock holder I'd rather see TSLA look out for the upcoming couple years of Twitter, Taiwan and inflation volatility.
Screw mars, build a dozen grid storage projects if you have more money than you know what to do with.
There is another long term investment Tesla could make: increased customer service and increased density of superchargers.
its a display of confidence. we need anyone to act like they aren't preparing for the apocalypse. they are growing at an arguably unhealthy speed anyway. whatever they think is right is good for me.
I love HyperChange videos !!! I agree with you 💯% ! Please, Gali, make more !!! 👏👏👏
Why did he stop?
Totally agree!
I am with you, Gali.
As a financial investor, I wouldn't mind a significant buyback.
As an investor in a more general sense, I say we should commit to the mission and invest to ACCELERATE the world transition to sustainable energy.
Love the hat! Preach
Apple started buybacks at a time where it really didn't make sense. What a smart move.
I could see doing some buyback to 'restock' treasury shares, not retire them. They could also pay for another factory or two with current cash.
Saw the title, first thought was don’t do buyback, invest it into manufacturing. I want to see them integrate into refining minerals.
If they do share buybacks I want them to issue new CEO goals so that Elon can scoop up them shares with clear goal milestones again.
Tesla should invest in solar canopies at Supercharger stations. It would pay for itself by making more profit on the electricity being sold and it would also make a good sustainability statement.
Right on! agree a lot to be done with energy storage and solar if cash not needed on auto side
Absolutely!
thanks for just speaking and starting the video
Thanks for giving voice to a bunch of us stakeholders that are very much willing to wait to the right moment. p.s. I'm a stockholder since 2012, and I'm here for the long run. Don't do the buyback.
Fantastic!
A Problem of capital efficiency. Giving cash back to shareholders helps them not be distracted by it. Works if cash doubles in 12-15 months. Otherwise wait.
1. Elon said repeatedly that they are limited by engineers. So, they can't spend more money on growth, or R&D, or new projects.
2. Supply is a limiting factor too. I'm sure Elon would be happy to build huge solar farms with thousands of Megapacks, but there's no excess supply just waiting for capital. The Megapack has a multi-year backlog.
3. They said at the earnings call that they modeled the worst scenarios they could imagine, and they are confident in that they'll still be able to generate cash. So a $20B cushion should be enough.
4. If Tesla can't sell any cars, that means the world ended, so nothing matters anyway.
5. I think the idea is to buy back shares with debt, not cash. The sudden S&P rating upgrade is the first step of that. This way Tesla can buy back a larger amount without depleting their war chest. And then they can pay it back with next year's profits, which will be enormous.
6. The stock is already grossly undervalued. Even if you ignore everything else and just look at the car business, with the rate Tesla grows earnings, its PE ratio should be 100-150, and it's more like 50 now.
7. Most likely we are at the bottom of the market, unless yet another major disaster happens. So this is likely the best time to buy back shares.
Agreed. I think there is a psychological aspect here where investors are feeling hurt and afraid due to the low stock price, so it's tempting to turn lemon into lemonade and feel like we are the victors and that the low stock price was a good thing. But the more rational thinking is like you said, is it really worth burning 50% of our cash in order to boost shareholder returns by 1% - 2%? I'd certainly rather more cash on the balance sheet. If they don't need the cash, buy bitcoin again with it.
I think your last sentence totally messed up the whole argument. Why buy bitcoin? That's equally volatile. In terms of pure ROI on an investment, they might as well buy back shares then, they would have much more insight and control on that ROI since it's their own company. I like bitcoin but who knows where that is going in the next 1-5 years
@@Matzes Buying back their own stock is a fundamentally different investment than buying another liquid asset such as Bitcoin. They can exit a Bitcoin investment any time by selling for cash. Buying back stock on the other hand is an irreversible burning of cash that gets returned to shareholder as equity. Exiting a stock buyback is essentially a new capital raise which is subject to market conditions and can cause a death spiral if the capital markets aren't supportive at the time.
@@ashh3051 exiting a stock buyback is just raising new capital through stock issuance. Tesla has done that a few times. Yes its dependent on market situation. So is bitcoin. But yes bitcoin is way more liquid, I will give you that
Yes I want those solar cities and I want burger stands with free charging stations for teslas and regular chargers for others
Buybacks come after all Expenses. A buyback would not take anything away from it's growth spending.
In the Q3 call we heard a lot of optimism on Tesla printing money even in a deep recession.
Buybacks are not for the short term appeasal of twitter bulls. It's a long term investment AFTER you have invested everything you can into future growth
Completely agree. In my model I had assumed buy backs would not start until cash pile was $50b. This is too early given the numerous risks over the next few years.
Good to see a video on the OG channel.
No way that’s your dooms day cap! Haha. Fresh!! Thanks for the thoughts
Welcome back Gali. Tesla should keep the rainy-day fund to weather the 1-3 yr economic storm.
Growth is faster than the ability to spend money efficiently
I agree with you Gali. Pursuing the depressed price of the stock to play the buyback game is unnecessary at this time of the company, and the macro global recession potential. Yes, 2023 has an artificial demand catalyst. And Cybertruck will be online. Revenue is healthy, but I doubt in a bad economy will Tesla be able to sustain 50% growth. More like 15-25% next year. IF the war escalates, if China becomes the next Russia crisis due to Xi and invasion of Taiwan, the global economy will spiral downward for 5-7 years.
Some great points. 👍🏽
I believe the buyback will only move the stock a little. Many will trade this away. I’d rather Tesla invest it to continue their hyper growth. Maybe acquire more suppliers.
I appreciate you, Gali. ❤️
I agree with you 100% my man, exactly my thoughts
well articulated. where have you been?!
Happy to see you back on the ‘tube Gali!
I don’t think anything is going to help the stock price in these adverse macroeconomic times - has anyone analysed how much the stock price will rise with a buyback? If it’s negligible, why bother? It is the ultimate faith in the stock though isn’t it?
Hey Gali good to see the video.
Are you gonna do a video to tell us where you and all your videos went?
Glad to see you back mate.
I think the biggest issue is that any significant increase in the number projects takes away Elon's attention much more than just buying back the stock, which will be redeployed as employee stock options anyways.
Tesla's biggest goals still require Elon's full attention and there just isn't a good way to deploy capital without diluting his attention at the same time.
That was also my take, and it's 100% because Gali's youtube taught me to think this way lol. I remember when everything seemed so dicey and I didn't know whether my all-in would go bellyup or not. I don't want to be in that position again. And it's not just a cushion in times of war and economic uncertainty, but it's also dry powder to use if a new opportunity comes up like M&A's, factories, or new ventures that we can't foresee yet.
How long have you been calling the multiple high? Seems like you usually talk about how undervalued the company is.
I agree with you Gali, I think all your reasons are spot on.
*Except*
There could be *one* good reason for a buy-back:
Look 15 months into the future.
The stock price is $650.
Instead of now getting 1-2% shares for 5-10 $billion, later you get only 0.3-0.6% of the shares.
To make same difference you have to spend $15 -30 $billion
At today’s prices, a $10 billion buyback bringing in 2% of the stock could be a very good deal.
I’m wondering if Tesla is looking down the line at supply chain limitations and realistic growth timelines and realizing the pointlessness of expanding too quickly. Like Gali said, a factory operating at partial capacity is expensive. No use having a ton of factories if the development of raw material supply can’t keep up.
production, Production, PRODUCTIONNN
Makes me realise how late I was to Tesla, buying in 2020. I haven't been through any of the pain that earlier investors did. It's also so early though, thinking in 5, 10 & 20 year timeframes.
Totally agree! Build a new factory for the smaller form-factor Tesla, and start it immediately.
Hope all is well, all the best to you Gali
Thank you Gali. Generally I'm annoyed by Tesla talk that is so stock price centered. We all know why we invested in Tesla in the first place, and that is that is that it gives us a fighting chance against climate change. Somewhere around 2019/2020, it started being about stock, twitter and AI too much. All interesting discussions in their own right, but hurting the focus on the mission.
We miss you making videos!
How about 2 per month?
TOTALLY agree on energy! Show it can be done, force oil (and government!) to switch!
.
Still have my "pet guess" of HOUSING.
They need to build the complete system of Home, Heating, Comms, Transport, Energy.