Tesla shares were down 6% on Monday, erasing another $30 billion in market cap to extend this year's dismal performance for the stock.
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Tesla and Elon Musk could face increased pressure from activist investors in 2023, according to a Monday note from Wedbush analyst Dan Ives.
Tesla is a ripe target for activists because even as its underlying business continues to grow considerably, its stock price has gotten cut in half in 2022. Tesla's stock was down another 6% on Monday, bringing its year-to-date market value loss to $560 billion.
Another reason Tesla is likely to face activist pressure is because CEO Elon Musk is not fully focused on running the electric vehicle company. Instead, Musk splits his time between being CEO of several different high-profile companies including SpaceX, Tesla, and now Twitter.
According to Ives, activist investors could pressure Tesla to launch a stock buyback program, improve profit margins, or make "strategic moves."
"We also believe activism will start to increase across the broader tech sector as names such as Salesforce and Tesla being two examples will face growing pressure around margins, buybacks, and strategic moves," Ives said.
A stock buyback program for Tesla has been increasingly talked about among investors in recent months after Musk teased the idea of a stock buyback on Tesla's third-quarter earnings call.
"We want to work through the right process to do a buyback, but it's certainly possible for us to do a buyback on the order of $5 billion to $10 billion," Musk said on the call.
Tesla is trading at its lowest valuation multiple since it first became profitable in 2020, according to data from YCharts. The stock has a price-to-earnings multiple of 52x and a forward P/E multiple of about 32x. While that's still double the S&P 500's forward P/E multiple of about 17x, it's well below Tesla's high earnings multiple of 1,401x in early 2021.
Whether now is a good time for Tesla to buy back its own stock as competition in the EV sector heats up remains to be seen, as some would argue Tesla is still in growth mode and should reinvest its profits to cement its lead in the sector, rather than repurchase shares.
That's why any activist pressure on Tesla in 2023 is likely to first focus on low-hanging fruit, like refocusing Musk on his Tesla responsibilities and launching initiatives that would help improve profit margins.
