I agree with @bradsferguson that $Tesla(TSLA.US) should use its $37 billion in excess cash to buy back stock rather than let it build up as more excess cash. Those who say TSLA should re-invest its cash organically (robotaxi, humanoid robots) are also correct, but that’s irrelevant since we’re talking about what to do with TSLA’s EXCESS cash after all internal investments have been fully satisfied. Financial theory tells you there are only five things a company can do with EXCESS cash: Pay down debt, pay dividends, buy back stock, make acquisitions, or let cash build up (see William Priest’s excellent book “Free Cash Flow and Shareholder Yield”, available on Amazon). Institutions would clearly prefer $Tesla(TSLA.US) do the latter.
Where I disagree with Brad: institutions under own TSLA for one main reason: To them, the stock looks expensive relative to their estimate of intrinsic value. No mega cap stock with a present value of future cash flows discounted back to the present at an appropriate risk adjusted cost of capital sells for anywhere near 240x next year’s earnings (NVDA forward P/E 39x). Valuation is why TSLA remains under owned - not because of its high volatility. TSLA’s volatility as measured by beta vs SPX (1.6x) is less than $NVIDIA(NVDA.US) (1.9x) but NVDA is one of the most institutionally owned (NVDA 71% of shares vs TSLA 50% of shares) of all S&P 500 names. Excess volatility is not why institutions shy away from TSLA. It’s TSLA’s valuation relative to its price.
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