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Why Tesla Won't Likely Split Its Stock For the Foreseeable Future
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After a challenging 2023, Tesla (NASDAQ:TSLA) rebounded with a number of strong earnings reports, causing the stock price to take off again. As we speak, Tesla’s stock price is rocketing higher once again, and is now approaching its 2021 highs.
On the heels of the presidential victory from Donald Trump, Tesla stock has soared to more than $330 per share. For some investors, this may mean the stock is once again in “stock split territory,” with Tesla being among the leading mega-cap tech/EV companies that’s split its stock a number of times during previous rallies.
Accordingly, this is a stock that’s on watch for any sort of announcement on this front. And with its current momentum, one might wonder if the company’s CEO Elon Musk may float the idea of another cut, given how the company’s investor base has reacted to such moves in the past.
Let’s dive into why I think that may actually not be the case, at least for the foreseeable future.
Key Points About This Article:
- Tesla is among the leading mega-cap tech companies that’s split its stock numerous times on its recent rise to trillion dollar market cap status.
- However, this rally may be relatively short-lived, particularly if the company’s fundamentals revert toward their slower-growth pace.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Stock Split History
Tesla has undergone two notable stock splits in its history. The first 5-for-1 stock split took place on August 31, 2020, as the company’s stock price skyrocketed toward its eventual all-time high in 2021. A second split, which came just after the stock did reach its all-time high in August 2022 (a 3-for-1 split) once again tripled the company’s share count. As a result, investors who owned stock over this entire period now have 15-times as many shares – not a bad proposition for existing shareholders.
As many investors are aware, stock splits do nothing to affect a given company’s valuation. However, these splits do make it easier for companies like Tesla to issue stock-based compensation to its employees, and broaden out an investor base. Retail investors and smaller investors who are forced to buy full shares by the brokerage firms may not be able to do so if the share price was 15-times higher than it is today (around $5,000 per share). Thus, there are some ancillary benefits to these moves.
But perhaps the biggest inclination for a company like Tesla to split its stock price is the resulting surge in interest around its shares heading into the split (and usually for a few weeks after the split). Lower per-share prices make options cheaper, and Tesla continues to be among the most-traded stocks on this front. So, with more investor interest generally comes more capital inflows and momentum, something that’s driven this stock higher for a long time.
Recent Price Action for TSLA Stock
That said, one could argue that Tesla really doesn’t need any more momentum than it’s already got. Given the Trump presidential win, and how close Elon Musk has positioned himself to the new leader (who has talked extensively about implementing vast tariffs which could benefit Tesla), it’s clear that the company stands to be a big winner from this regime change in Washington. While no CEO, including Musk, is likely to turn down the opportunity to ratchet up the momentum on their stock’s parabolic move higher, it’s also true that we could see some profit-taking at some point.
In fact, that’s my base case. As I’m writing this, Tesla has dropped more than 6% on Tuesday as investors appear to be doing just that. If we do get some mean reversion selling (which I think is likely, given how far TSLA stock has run in such a short amount of time), a stock split could lower the company’s share price below the level the company’s management team may be comfortable. We’ll have to see, but for now, I think the company’s management team and board will likely encourage a more slow and steady approach to managing its share count.
Politics Matter a Great Deal
As mentioned, Tesla’s shares have absolutely skyrocketed last week, as investors anticipated benefits from a potential Trump presidency. With reduced subsidies for alternative energy threatening smaller competitors, Tesla is poised to gain from Trump’s proposed tariffs on Chinese imports, which could hinder Chinese EV sales in the U.S. Wedbush analyst Dan Ives noted Tesla’s unmatched scale as a competitive advantage. In contrast, rival EV stocks fell, with Nio down 5.3%, Rivian dropping 8.3%, and Lucid Group also down 5.3%. Tesla maintained a 48.9% market share in U.S. EV sales as of mid-2024.
Donald Trump’s election-night speech highlighted Elon Musk as a major winner, with Trump thanking Musk for his over $130 million investment in conservative causes. He praised Musk’s SpaceX and Starlink, suggesting they are well-positioned for government contracts. Trump also announced plans to create a “government efficiency” role for Musk. This alliance could lead to reduced regulatory oversight for Musk’s companies, which have already secured $15.4 billion in government contracts over the past decade, as Musk aims to protect his businesses from regulation and gain access to subsidies.
The Verdict
In my view, Tesla remains a leading EV company which still likely has a path to growth long-term. However, my view is that growth may still be harder to come by for the largest U.S. EV maker, with or without tariffs. The consumer is strapped, and we’re entering a period of time which may be volatile for stocks given how much consumers are pulling back on spending. I’m of the view that most higher income earnings who already could have afforded a Tesla are likely in the market, and I’m not sure where future demand will come from outside of those looking for relative deals (compared to where prices were previously).
If Tesla’s stock price comes back to earth by the end of the year (my base case scenario for the stock), I think current enthusiasm around a potential stock split could be nipped in the bud. We’ll see, anything’s possible. We’re talking about Elon Musk and Tesla here. But for now, I’m just not in the stock split camp.
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