BYD,
the Warren Buffett-backed company that overtook
Tesla
as the biggest maker of electric vehicles last year, may buy back twice as many shares as previously suggested as it tries to boost its stock price.
Maybe
Tesla
should try doing something similar and for the same reason.
The Chinese auto maker said in an exchange filing that it could repurchase 400 million yuan ($56 million) in shares. In December, it proposed a plan to buy back half that amount.
The buyback is “to better safeguard the interests of all shareholders of the company, enhance investor confidence, stabilize and improve company value,” said Wang Chuanfu, BYD chairman and president, in a news release.
A buyback is a buyback, but that’s an incredibly small amount. The company has a $70 billion-plus market capitalization, according to FactSet. The proposed buyback is only 0.1% of the value of the company.
Buybacks and dividends are the two main ways companies return cash to shareholders. The average annual capital return—buybacks plus dividends—for an
S&P 500
company is close to 4% of total value.
What’s more, $56 million amounts to roughly 1% of the $5 billion in free cash flow Wall Street projects for BYD in 2024.
Buybacks are partly meant to signal confidence from management to investors about the future, so any amount helps. Investors haven’t been feeling that confident these days. BYD shares have decline 12% since the start of the year and 18% over the past three months.
More electric-vehicle competition as well as slowing demand growth are what have investors feeling nervous.
Tesla stock has dropped 24% this year and 18% over the past 12 months. Investors would probably like it if Tesla considered doing a buyback too.
The topic of stock buybacks has come up several times at Tesla investor events. CEO Elon Musk mentioned in October 2022 that a $5 billion to $10 billion buyback for 2023 was discussed by the board. Tesla didn’t repurchase shares last year. That discussion took place before Tesla’s aggressive price cuts. It also took place when Tesla stock was about $215 a share, not too far off where shares have traded recently. Tesla stock closed out this past week at about $192 a share.
For BYD, the buyback had the desired effect—at least in trading Monday. BYD rose stock by 1.5% in Hong Kong. Tesla stock fell 0.4% in premarket trading in the U.S. while
S&P 500
and
Nasdaq Composite
futures were flat.
Write to Brian Swint at brian.swint@barrons.com
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