Tesla plans to split its shares for the second time in two years Can the stock price usher in a long red again?

Tesla disclosed on Monday (March 28) that it will request approval for the company's common stock split in the form of a stock dividend at its annual general meeting this year. It has been less than two years since the last stock split.

At the end of August 2020, Tesla had a stock split with a split ratio of 1:5, which greatly pushed up Tesla's stock price, rising nearly 80% in the next 5 months.

The latest stock split news also boosted Tesla's stock. On Monday (March 28), EST, Tesla stock surged 8 percent, with its market capitalization soaring $84 billion. Tesla has fallen more than 4% since the beginning of 2022.

Giants piled up to split shares

Back in February, Google's parent company Alphabet announced its 1:20 share split, which will take place on July 15 this year.

Since then, Amazon also announced earlier this month that it will carry out a stock split, the same ratio of 1:20, which is expected to take place on May 25. It was also Amazon's first stock split since 1999.

Stock splitting means that a stock is split into multiple shares proportionally, the number of shares in the hands of shareholders increases, and the stock price also decreases with the proportion, but the market value of the company remains unchanged. Stock splits often imply that the company's performance is good, and the increase in stocks is that the liquidity is greatly improved, which can be used for more investors to enter, and the second is that the high stock price stocks with a higher threshold can also become stocks with slightly lower stock prices, absorbing more small and medium-sized investors.

In fact, the three giants, including Tesla, which have announced their share split this year, are all members of the "Thousand Dollar Club", Google's current price is $2829.11, Amazon's price is $3379.81, and Tesla's stock price is $1091.84. These prices look really ungrounded, and some small investors really can't afford to buy them.

When Tesla split its stock in 2020, its stock price was around $500.

If Tesla's share ratio this year is still 1:5, its stock price will be adjusted to about $200.

The annual report has long been implied

Tesla announced its 2021 financial report in February this year, and repeatedly mentioned in the earnings report that some changes may be made in equity.

The first is to emphasize the importance of employee retention in the risk warning. According to its disclosure, if Tesla's key employees are not bound by specific terms of employment agreements, tesla may not be able to successfully attract and retain the senior leadership needed to grow the business.

As a result, Tesla mentioned in its earnings report that it will regularly seek and obtain shareholder approval to increase the number of equity incentives and incentives in the stock purchase plan available to employees. Tesla may spend extra cash on rewards if shareholder approval is not possible, but they believe it could hurt Tesla's ability to hire employees.

After the stock split, the liquidity of Tesla's stock has been greatly improved, the stock price has also been adjusted to a relatively low level, and the rising expectations brought by the stock split will be more in line with Tesla's interests in employee incentives.

Tesla also said in its share split two years ago that it was working to "make it easier for employees and investors to acquire stock ownership."

In addition, Tesla also stressed that in recent years, the business will continue to be capital-intensive, which has higher requirements for Tesla's ability to raise funds.

According to the financial report, Tesla has long suggested that it will obtain funds through various channels such as issuing stocks, bonds or credit.

The most important point in obtaining funding is the market's confidence in Tesla. But the Russian-Ukrainian midway in recent months, supply chain disruptions, soaring battery raw material prices and the shutdown of the Shanghai Gigafactory have all dampened investor optimism about Tesla.

Splitting shares, now is a dose of cardiotonic agent, first pull up the expectations, and then raise money is not easy.

Will Tesla surely rise in the future?

Although stock splits have always been accompanied by the rise of stocks, the market's opinion on Tesla is not unanimous.

Daniel Ives, an analyst at Wedbush Securities, commented: Considering the rapid rise in the company's stock price due to the company's share split in 2020, it is not surprising that Tesla is once again on the road to share splitting, especially with strong demand for electric vehicles and the construction of gigafactories in Berlin and Austin.

"We believe that Tesla's second round of stock splits in two years after Amazon, Google and Apple (August 31, 2021) is a very wise strategy and will be a positive catalyst for the stock price to move forward."

Wedbush also said it would maintain its overweight rating for Tesla and its $1,400 price target.

But some analysts believe that the split brings a good time to exit.

David Trainer, chief executive of U.S. stock research firm New Constructs, believes that Tesla's share split has not changed the fact that the trading value of its stock is completely out of touch with fundamentals.

Trainer even worries that the steeply reduced price after the split could be more attractive to "unsuspecting" retail investors.

"This could further exacerbate the Tesla bubble that has been brewing for the past two years," he noted, "and we recommend investors selling the rising Tesla stock because it doesn't have upside support from fundamentals." ”