Tesla will split its stock for the first time in the electric-vehicle maker’s history to make its shares more affordable, giving more investors the chance to buy a stake in the company after a meteoric rise in its market value.
The five-for-one stock split announced Tuesday won’t change how much Tesla’s business is worth, but will automatically reduce the price of Tesla shares by 80% when it’s completed on Aug. 31.
The move follows a similar announcement by Apple in late July that it would split its stock four-to-one later this month — the fifth such action by the iPhone maker, and first since 2014.
Wedbush Securities analysts praised the stock splits and predicted they would be followed by others.
“We expect more tech giants to potentially head down this path over the coming months as the parabolic rally in tech/EV names over the past five months has put companies in a position of strength to make such moves,” analysts Daniel Ives, Strecker Backe and Ahmad Khalil wrote in a Wednesday note.
Tesla’s stock has further room to run, driven primarily by “the massive China market which is showing clear signs of a spike in demand for Musk & Co. heading into the rest of this year,” the analysts added.
The sharp drop in price per shares caused by the coming split will create a wider universe of potential investors and could project the impression of the stock being on sale. That scenario could spur a rally. Apple’s stock price, for instance, has climbed 14% since its disclosure of a four-for-one split less than two weeks ago.
Tesla stock surge
It seems Tesla could benefit from the same phenomenon. The company’s shares surged $127, or 9.3%, to 1,501.37 in Wednesday morning trading.
The Palo Alto, California, company went public at $17 per share a decade ago. An investor who bought $10,000 worth of stock at that IPO price would now have stock worth about $860,000.
Tesla’s shares have already tripled this year to give the automaker a market value of $256 billion — nearly three times more than the combined value of long-established rivals Ford Motor, General Motors and Fiat Chrysler.
The rapid run-up in Tesla’s stock has been propelled by a widening belief that the company has fixed its past manufacturing problems. The company is also seen as moving to widen the appeal of its vehicles beyond the luxury niche with a series of new models.
Tesla has also been able to reverse a long history of losses under its eccentric CEO and co-founder, Elon Musk, to post four consecutive quarters of profits.
The company’s financial turnaround has qualified Musk as of May for two compensation payouts valued at nearly $3 billion.