The effects of Tesla stock split

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tesla stock

Weeks ago, Tesla announced that it would split its shares. This brought optimism to its environment; however, since this split went into effect, the stocks of the electric vehicle manufacturer fell.

This is the second time that the company led by Elon Musk split its shares, the first one took place in August 2020 at a five-for-one ratio.

After the close of the markets on August 24, Tesla shares went on a three-for-one split. Prior to the division, the price per share was slightly above $891, subsequently opening at $302.36 on Aug. 25. Tesla closed the day down 0.35% and its stock price ended at $296.07.

Tesla went in the opposite direction of the market because the major indexes, the Dow Jones, Nasdaq, and S&P 500 all posted gains this week.

This slight drop for the EV manufacturer may be given more as a sign that some investors are taking short-term profits rather than having doubts about the value of the stock. A split like the one Tesla just had is likely to cause the stock price to become more affordable for retail investors and thus increase demand and raise its price. 

According to some Wall Street analysts, this dip that Tesla suffered won’t mean much because the company will continue to perform at its best. “In our view, the stock split doesn’t fundamentally change anything; the impact is more psychological, as companies with better prospects and rising stock prices tend to do stock splits,” CFRA analyst, Garrett Nelson wrote in a note. “It is worth noting that studies have shown that stocks that split tend to outperform the broader market in the 1 to 3 years following the split. A lower share price could also attract retail investors,” he said.

Tesla is having a great pace of Model Y production in China following the factory shutdowns it had during April and May because of Covid. There is speculation that if the company maintains these production levels, it will reach manufacturing more than 1 million vehicles per year.

“Demand is not the problem for Tesla, but supply has been and is now clearly on an upward trajectory with China on its next level of Model Y production, while Berlin and Austin ramp their production lines toward the end of the year,” said Dan Ives, an analyst at Wedbush. “While macroeconomic instability will clearly cut into some of Tesla’s (as well as the industry’s) demand, we believe demand continues to hold firm for the electric vehicle stalwart in the U.S., Europe, and China,” he added.

Specialists believe this stock split will serve as a bullish catalyst for Tesla. Morgan Stanley analyst Adam Jonas gave a “Buy” rating on the company’s stock and raised the price target to $383, a 29% upside potential. Likewise, Nelson also believes Tesla’s return will exceed estimates and he raised the average price to $415.

Penny for your thoughts. Do you think the stock split will benefit Tesla in the long run? Would you invest in the electric automaker?

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