It might seem like deja vu, but electric vehicle and battery manufacturer Tesla Inc (NASDAQ: TSLA) is planning a stock split. Yes, another one.
It was only back in August 2020 that Elon Musk's company undertook its last stock split. But the company's share price growth has clearly elicited the company to undertake a second split in as many years.
Since its last split was announced, Tesla is up more than 130%. Tesla made the announcement last night, which promptly saw the Tesla stock price leap an extraordinary 8% or so. The company began US trading at US$1,010.64 a share, but closed this morning (our time) at US$1,091.84, up 8.03%.
So what did the company actually say? Not too much as it turns out. Here's some of what Tesla's SEC filing stated:
On March 28, 2022, Tesla, Inc… announced its plan to request stockholder approval at the upcoming 2022 Annual Meeting of Stockholders… for an increase in the number of authorized shares of common stock… in order to enable a stock split of the Company's common stock in the form of a stock dividend. Tesla's Board of Directors… has approved the management proposal, but the stock dividend will be contingent on final Board approval.
We don't yet know what or when the exact split will be. But we know that it has certainly made a good impression on investors, or at least it did overnight.
Tesla stock price soars on latest stock split
Stock splits have been all the rage in the US tech sector in recent years. Tesla kicked off this trend back in 2020 when it first announced its last split. This saw a five-for-one division of Tesla shares. This was followed by Apple Inc (NASDAQ: AAPL) announcing its own four-for-one split soon after. More recently, we have seen both Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Amazon.com Inc (NASDAQ: AMZN) announce 20-for-1 splits of their own. These haven't been initiated yet.
So why do investors like stock splits? Well, that is somewhat unclear. A stock split has very little real benefit for a company or its investors. It simply results in a re-division of a company's shares into smaller parcels. Think of it as cutting a pie into smaller sized slices. The pie itself doesn't change size, but its slices do. For example, Tesla's last stock split was done at a five-to-one ratio. That means that an investor who held 10 shares before the split held 50 shares after the split, with each share worth approximately 20% of what an old one was worth.
But even though it's just 'recutting the pie', stock splits still have arguable benefits. A lower share price increases a company's liquidity. It also could increase the appeal for smaller, retail investors. That's because it's a lot more affordable to buy a share worth US$200 than US$1,000.
So we'll have to wait and see what this new split will look like when Tesla releases more details. But it looks as though there are about to be a lot more Tesla shares on the markets. At last night's close, Tesla shares are up 78.6% over the past 12 months and an eye-watering 1,862% over the past five years.
Tesla's market capitalisation now stands at US$1.13 trillion.
