Tesla Inc will seek investor approval to increase its number of shares to enable a stock split in the form of a dividend, the electric-car maker said on Monday, sending its shares up about 5%.
The plan came as the company suspended work at its Shanghai factory amid Covid-19-related lockdown measures and its artificial intelligence head took a sabbatical as the company aims to achieve full self-driving capability this year.
The proposal, first announced on Twitter, has been approved by its board and shareholders will vote on it at an annual meeting. The stock split, if approved, would be the latest after a five-for-one split in August 2020 that made Tesla shares cheaper for its employees and investors.
Following a pandemic-induced rally in the technology shares, Alphabet, Amazon.com and Apple have in the recent times split their shares to make them more affordable.
Tesla debuted at $17 per share in 2010. Following its 2020 5-for-1 stock split it is trading above $1,000, equivalent to over $5,000 on a pre-stock split basis.
Since the stock split in 2020, they have surged 128%, boosting the company’s market capitalization above $1 trillion and making it the biggest US automaker by that measure.
“This (stock split) could further fuel the bubble in Tesla’s stock that has been brewing over the past two years,” David Trainer, chief executive of investment research firm New Constructs, said.
Tesla has delivered nearly a million electric cars annually, while ramping up production by setting up new factories in Austin, Texas, and Berlin amid Covid-19 related disruptions and increasing competition.
Tesla on Monday notified its suppliers and workers that its Shanghai factory in China will be closed for four days as the financial hub said it would lock down in two stages to carry out mass Covid-19 testing.
Tesla chief executive officer Elon Musk said on Monday that he had “supposedly” tested positive for Covid-19, a few days after he attended a car delivery event at the company’s new Berlin factory.
“We think Berlin ramping, and both the MiniCar and India are on the horizon, we would agree with the timing,” Roth Capital analyst Craig Irwin said, hinting that companies usually execute stock splits when good news is ahead.
AI Chief On A Sabbatical
Musk also said on Sunday Tesla’s artificial intelligence chief Andrej Karpathy was on a fourth-month sabbatical, at a critical time that Musk wants to achieve full self-driving capability and roll out a humanoid robot prototype this year.
“Especially excited to get focused time to re-sharpen my technical edge and train some neural nets!” Karparthy tweeted.
“Though I already miss all the robots and GPU/Dojo clusters and looking forward to having them at my fingertips again,” he said, referring to Tesla’s AI chip Dojo.
Musk said in a podcast interview in January that Karpathy played an important role, adding: “People will give me too much credit and they’ll give Andrej too much credit.”
Meanwhile, Tesla’s announcement that it will seek shareholder approval to increase its share count in order to enable a stock split adds to a recent wave of megacap companies splitting their shares in a bid to attract more investors.
Tesla said in a filing it would hold a vote at its upcoming annual shareholder meeting to increase the number of authorised shares in order to enable a stock split.
A stock split by Tesla would be the electric car maker’s second since 2020, and it would follow stock split announcements by other major US companies in recent years.
In the past two years, Apple, Nvidia and Tesla have split their shares, while Amazon and Google-parent Alphabet have recently announced upcoming share splits.
Companies split their shares to make their stock prices appear less expensive and appeal to more investors. However, splitting a stock does not affect its underlying fundamentals.
Still, BofA Global Research said in recent research note that stock splits “historically are bullish” for companies that enact them, with their shares marking an average returns of 25% one year later versus 9% for the market overall.
Tesla’s stock surged 8% on Monday, adding over $100 billion to its stock market value.
Amazon has gained about 20% since March 9, when the e-commerce heavyweight announced a stock split that will take effect on June 6.
That compares to a 7% gain in the Nasdaq during the same period. During that time, Wall Street has also seen a broad rebound in megacap growth stocks following losses earlier this year, as well as volatility related to rising interest rates and Russia’s invasion of Ukraine.
Tesla was the most traded stock among Fidelity’s online brokerage customers on Monday, with buy and sell orders almost evenly split, suggesting retail investors are cautious about the company.
Since joining the S&P 500 in December 2020, Tesla has been one of its most heavily weighted stocks, currently accounting for over 2% of the index. It has gained about 300% since announcing its first stock split in August 2020.
Other S&P 500 companies with nominally high share prices, which analysts say could hint at a future stock split announcement, include Chipotle Mexican Grill, up 0.1% on Monday at $1,558, as well as Booking Holdings, trading near flat at about $2,247.
- Reuters with additional editing by Sean OMeara
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