This split will take the form of dividends, which will pay additional shares to shareholders. Most dividends are paid to investors in cash.
The electric car maker did not provide details on how many shares investors would receive. Its previous split in August 2020 gave shareholders five shares for every share they own.
Tesla shares struggled earlier this year, but since the company announced it had received German government approval to deliver the first cars built at its new plant outside of Berlin, they have tumbled. Shares are up 32% since closing at $766.37 just two weeks ago. The stock closed Friday at $1,010, again giving the company a market value of over $1 trillion.
Tesla shares rose 8% in morning trading.
A number of other high-tech companies have recently announced a split, including Amazon (AMZN)
and Google owner Alphabet (GOOG)
. Both have announced plans for a 20-to-1 stock split from early February.
The timing of the Tesla split is also unknown, as the date for this year’s shareholder meeting to vote on the plan has yet to be announced. Last year, the shareholders’ meeting was held on October 7th.
A stock split does not fundamentally change the value of a company. But because they lower the price that shareholders have to pay to buy one share, they can increase demand and hence the price.
On the day Tesla’s previous five-for-one split went into effect, the stock jumped 12.6%. And the stock has more than doubled since then. But that split comes at the height of a historic run for Tesla shares, which are up 743% during 2020.
“Given how well stocks have performed since the last split, this is not a surprise,” said Dan Ives, technical analyst at Wedbush Securities.
Given the various options available to retail investors to buy only a portion of the shares of individual companies with high stock prices, such as index funds and ETFs, a stock split is not as important as it used to be. But most companies, with the exception of Berkshire Hathaway, don’t want their individual stocks to get too high. Tesla shares will be worth more than $5,000 each without the initial split.
Even with new factories near Berlin and Austin, Texas, Tesla is still undersized by most established automakers. But rapid growth — the company predicts annual sales growth of 50% or more — and the expectation that Tesla can capitalize on the industry-wide transition from internal combustion engines to electric vehicles have led to an incredible increase in market value.
Since October 2019, when Tesla went from a string of quarterly losses to windfall gains, the stock was up 1,884% by Friday’s close. Tesla is now worth more than the combined value of the world’s 13 largest automakers.