Tesla Surges Post Stock Split Announcement - Why?

Tesla jumps over 10% after announcing a stock split. Why the surge in demand?

Tech (1)

Tesla has surged over 10% on Wednesday, year to date the stock is up 248% and across the past 12 months the share price has jumped over 555%.

The world’s most valuable car makers announced that it will have a 5 – 1 stock split at the end of August.
The announcement comes hot on the heels of a similar announcement from Apple of a 4 – 1 stock split.

What is a stock split?
The number of shares in the company increase and the vale of those shares decrease
In Tesla’s case of a 5 – 1 split 100 shares at the current price of $1500 becomes 500 shares at $300 as the value of each share is reduced by 80%.
Whilst you would still own the same value of shares the number of shares that you own increases. This does not change anything fundamentally at the company.

Why do this?
After Tesla’s share value more than tripled this year the most obvious answer is to make the stock “more accessible to investors and employees”. Stock splits traditionally incentivise smaller retail investors. Individual investors like Tesla, on Robinhood Tesla trades second only to Apple and this move could make Tesla shares even more attractive. However, the fact that it is possible to trade fractions of a share raises doubts over this point.

More subtly the message that a stock split sends is often bullish. Previous studies have documented a strong correlation between stock splits and long run performance of a stock.

If Apple’s stock split is anything to go by, the stock split should be good news for the stock, at least short term. Apple has seen its shares rise over 13% since. The stock split is having the same affect on Tesla adding fuel to its upward movement.
Tesla shares jumped 10% to $1518, although this is still off the recent all time high of $1795 struck three weeks ago,

Not all hot air?
The rapid rally in the share price has been helped by the broad belief that Tesla has fixed past manufacturing problems and as it moves to widen its appeal to beyond the luxury niche. A solid recent financial performance with two straight quarters of profits now under its belt despite  lockdown measures closing down its California factory.

S&P listing here we come
After two straight quarters of profitability Tesla is set to join the S&P. This means that many funds and institutional investors who previous had to avoid the stock will now be allowed to buy in. The decision is awaited.

Chart thoughts

The share price trades firmly its 50,100 & 200 daily moving average and above its ascending trendline, despite selling off since hitting its all time high in early July. The sell off has stalled and a move over resistance at $1564 could see more bulls jump in. Support can be seen at $1362. A break through this level could see the trendline support move into focus.



More from Tech Stocks

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.