Tesla poised for $85bn gain in value on stock-split signal

Tesla was on pace to add about $85bn (R1.2-trillion) in market value on Monday, more than Ford’s total market capitalisation, after the electric-vehicle maker said it is planning a second stock split in about two years. 

Stock splits for large companies have returned to the spotlight recently with Amazon earlier this month saying it will do a 20-for-1 stock split, followed by Alphabet’s own share split plan announced in February, as these companies try to make their lofty stocks more attractive for retail investors 

The news, announced via a tweet, helped to add further fuel to a recent rally in the stock making Tesla the biggest gainer on the NYSE FANG+ Index this year. The shares jumped as much as 8.2% to $1,093.71, the highest intraday level since January 13. 

The last time Tesla split its stock was in August 2020. Its share price rose a staggering 743% that year, and the split was often cited among one of the reasons that drove the gains. 

While there are few details on Tesla’s plan, here’s some initial reactions from fund managers, strategists and analysts.

Sam Stovall, chief investment strategist at CFRA

• “It’s really just adding excitement to its name.”
• “We have the stock ranked buy, so we’re optimistic on its performance in the coming 12 months. By the company splitting its shares and introducing its dividend, will now broaden its appeal to income oriented investors.”

Marc LoPresti, MD of The Strategic Funds

• “A lot of people consider this to be a classic example of market psychology at work. If you look historically over time, most companies do well and perform well — and in some instances very well — following the announcement of stock splits.”
• “In a case like this, Elon Musk is absolutely brilliant at market psychology. He’s one of the masters of market psychology.”

David Trainer, CEO of New Constructs

• “Tesla’s desire to pursue a stock split doesn’t change the fact that its stock is still trading at a valuation completely disconnected from fundamentals.”
• “A Tesla stock split would dramatically reduce the price of Tesla’s stock, which would make it even more attractive to unsuspecting retail investors. This could further fuel the bubble in Tesla’s stock that has been brewing over the past two years.”

Daniel Ives, analyst at Wedbush

• Is not surprised that the company is heading for another stock split, especially with robust EV demand and the buildouts of the “flagship Berlin and Austin Giga factories now on a glide path.”
• “We view Tesla’s move following the likes of Amazon, Google, Apple and initiating its second stock split in two years as a smart strategic move that will be a positive catalyst for shares going forward.”

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