Tesla Headed for Another Stock Split

Tesla Headed for Another Stock Split

Tesla is seeking permission from its shareholders to split its stock for the second time in two years. This split would take the form of a dividend, which would provide additional shares to stockholders. The majority of dividends are paid in cash to investors.

The electric vehicle manufacturer did not specify how many shares investors would receive. The company's previous split, which took place in August 2020, awarded stockholders five shares for every one they owned.

Tesla stock has been on a tear since the firm revealed it got German government approval to deliver the first cars made at its new factory outside of Berlin. Since closing at $766.37 two weeks ago, the stock has gained 32%.

Image Credit: Bloomberg: Opening of Tesla Berlin Last Week

The stock finished Friday at $1,010, giving the business a market worth of more than $1 trillion for the second time. On Monday, Tesla stock gained 8% in morning trading.

A number of other high-flying tech stocks, notably Amazon (AMZN) and Google owner Alphabet, have lately announced splits (GOOG). Since the beginning of February, both companies have announced intentions for 20-for-1 stock splits.

The date of this year's shareholders meeting, at which the plan will be voted on, has yet to be announced, therefore the timing of the Tesla split is unknown. The shareholders' meeting was held on October 7 last year.

Stock splits do not have a significant impact on a company's value. However, by lowering the price at which shareholders must pay to purchase a single share, they can raise demand and therefore the price.


Strong Position

Tesla's stock rose 12.6 percent on the day that its previous five-for-one split went into effect. Since then, the stock has more than doubled in value. However, the split occurred in the midst of Tesla's record run, which saw the stock rise 743 percent in 2020.

"Given how well the stock has done since the last split, this wasn't a surprise," said Dan Ives, tech analyst with Wedbush Securities.

A stock split isn't as important as it previously was, given the multiple options available for regular investors to buy just a fraction of a share of individual companies with high stock values, such as index funds and ETFs. However, most firms, with the exception of Berkshire Hathaway, do not want their individual share prices to rise too high. Without the original split, each Tesla share would be worth more than $5,000.

Tesla is still a fraction of the size of most long-established automakers, even with its new operations near Berlin and Austin, Texas. However, Tesla's quick development — the firm expects annual sales to soar by 50% or more — and the expectation that the company will profit from an industry-wide move away from internal combustion engines and towards electric vehicles have spurred remarkable market value gains.

Tesla's stock has risen 1884 percent through Friday's close since October 2019, when the company went from a string of quarterly losses to an unexpected profit. Tesla is now worth more than the total market capitalization of the world's top 13 automakers.

Tesla's market worth has increased by more than a hundred billion dollars since the firm announced a stock split. Because of the increase in share value, Tesla now has a market worth equal to that of IBM, Boeing, and Goldman Sachs combined. The news was announced on Twitter a few hours before the US markets started on Tuesday.

The fact that rising gasoline costs are causing a boom in demand for electric cars like Tesla also appears to be working in their favor. Due to extensive wait lists for new Teslas, some used Teslas are currently selling at auction house Lloyd's for more than the original price.