Tesla stock jumps 9% on stock split plan

Posted: 28 March 2022 5:09 pm
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The EV maker’s stock popped after the company disclosed plans to issue a stock split. What investors need to know.

Shares of Tesla (TSLA) are climbing Monday on news that it wants to split its stock so it can pay a dividend to its shareholders.
Tesla’s stock has been rallying lately as the company ramps up its vehicle production, and a split will help make the stock more attainable to retail investors.
At the time of this writing Monday afternoon, Tesla stock is up 9% and has gained 57% in only a month.

Why Tesla stock is rising

Tesla is proposing a stock split so it can pay a dividend to its shareholders, according to a filing with the Securities and Exchange Commission (SEC).
The filing said the electric-vehicle (EV) maker will request stockholder approval at its upcoming annual shareholders meeting “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.”
A stock dividend is a dividend payment made to shareholders in the form of additional shares rather than cash. Stock dividends have the advantage of rewarding shareholders without reducing the company’s cash balance, but they can dilute its share price because it increases the number of shares outstanding for the company.
If approved, this would be Tesla’s second stock split since going public in 2010.
Tesla last split its stock in August 2020 when its stock was well above $2,000 per share. Its shares have more than doubled since that 5-for-1 split took effect.
Tesla has yet to specify the split ratio of this latest stock split.

Tesla stock rallies as the company accelerates production

Last week, Tesla’s stock soared 22% after the company’s long-awaited manufacturing plant in Germany was given the green light to start production. Tesla sees the Berlin factory producing up to 500,000 vehicles annually.

The opening of its newest “gigafactory” in Europe comes as the EV maker continues to face supply chain constraints that have limited the company’s ability to run its factories at full capacity.
Bloomberg News reported over the weekend that Tesla now plans to suspend production at its Shanghai factory amid tighter COVID-19 restrictions as cases surge in the city.
According to Tesla’s last quarterly report, its Gigafactory Shanghai is the company’s main export hub for both Tesla’s Model 3 and Model Y EVs. The plant can produce around 450,000 vehicles per year when running at full capacity.
Production will be halted for at least one day, Monday. The company hasn’t yet informed its employees whether it will extend its suspension, according to Bloomberg.
As it begins to ramp up production, Tesla’s new Gigafactory Berlin-Brandenburg should be able to help offset some of the Shanghai production losses. But this support will be limited, as Tesla’s Gigafactory Berlin is now only producing Model Y vehicles.

Thinking of buying Tesla stock?

Shares of Tesla have climbed 57% since hitting a six-month low of $700 on February 24. Its stock was last trading at these prices in late August 2021. With the most recent rally, the stock is now down only 14% from its 52-week high of $1,243.49.
For a five-year view of the performance of this stock, see the graph in our dedicated guide.
Tesla stock has been outperforming analyst expectations as of late. Its shares are currently trading around 15% higher than the $949.22 average price target set by Wall Street.
So is Tesla stock a buy at its current price and with a potential stock split on the horizon?
Despite ongoing supply chain constraints and the temporary production halt in China, Tesla’s production is accelerating and its sales will likely continue to soar. Tesla grew its annual vehicle production by 83% in 2021, while its total vehicle sales climbed 73%.
Additionally, the EV market is only getting hotter, and Tesla is still the leader in the space. Tesla accounted for more than half of all EVs sold in 2021.
Wedbush Securities Managing Director of Equity Research Dan Ives told CNBC’s Joe Kernen Monday morning that Tesla’s move to issue a stock split and dividend could help drive the stock price higher because of growing investor confidence.
“I think this is something that’s really just the start of investors really viewing this not just as a positive move in terms of the stock but also increased confidence for Tesla in their business for the rest of the year,” Ives said. “I think this is going to be a massive catalyst for the stock over the coming months.”
At the time of publication, Matt Miczulski owned shares of TSLA.

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