BYD Considers Share Buyback Increase

BYD, the company backed by Warren Buffett that became the largest electric vehicle maker over Tesla last year, is considering buying back twice as many shares as initially proposed in an effort to elevate its stock price.

A Potential Boost for Tesla?

Perhaps Tesla should take a page out of BYD's book and consider a similar strategy for the same purpose.

The Chinese automaker disclosed in an exchange filing its potential plans to repurchase 400 million yuan ($56 million) worth of shares. This is double the amount suggested in December.

BYD's chairman and president, Wang Chuanfu, stated that the buyback aims to "safeguard shareholder interests, enhance investor confidence, and improve company value."

While the proposed buyback may seem small compared to its $70 billion-plus market capitalization, representing only 0.1% of the company's value, it is a significant move to utilize buybacks as a way to return cash to shareholders.

Utilizing Buybacks for Shareholder Returns

Buybacks are one of the primary methods companies use to return cash to shareholders, alongside dividends. The average annual capital return for an S&P 500 company typically hovers around 4% of total value.

Additionally, the $56 million buyback accounts for approximately 1% of the $5 billion in free cash flow that Wall Street anticipates for BYD in 2024.

## Boosting Investor Confidence Through Buybacks

Stock buybacks serve as a way for management to convey confidence to investors regarding the company's future prospects. Even a small buyback can help instill a sense of assurance. However, in the current market climate, investors seem to be lacking in confidence.

BYD and Tesla Facing Challenges

BYD shares have experienced a 12% decline since the beginning of the year, with an 18% drop over the past three months. The situation is not any better for Tesla, whose stock has decreased by 24% this year and 18% over the last 12 months.

The heightened competition in the electric-vehicle sector, coupled with a slowdown in demand growth, is what is leaving investors feeling apprehensive. Given the circumstances, investors are wondering if Tesla should also consider initiating a buyback program.

Tesla's Potential Buyback Plans

During Tesla investor events, the topic of stock buybacks has surfaced on multiple occasions. CEO Elon Musk mentioned in October 2022 that the board had discussions about a potential $5 billion to $10 billion buyback for 2023. Although no shares were repurchased by Tesla last year, talks surrounding the buyback occurred prior to Tesla's aggressive price cuts. The discussions also took place when Tesla's stock traded around $215 per share, not too far from its recent trading levels of approximately $192 per share.

Market Reactions

Following BYD's buyback announcement, the effect was evident in Monday's trading, with BYD shares rising by 1.5% in Hong Kong. On the other hand, Tesla's stock saw a 0.4% decline in premarket trading in the U.S., while S&P 500 and Nasdaq Composite futures remained flat.

These developments highlight the delicate balance between boosting investor confidence through buybacks and navigating the challenges present in today's market environment.