Tesla opened sharply higher on Monday thanks to news it plans a second stock split, a measure typically aimed at broadening the appeal for retail investors.
In an SEC filing posted on Monday, Tesla said it would request approval at the upcoming annual shareholder meeting for an amendment to its articles of incorporation that would enable a split, without specifying further.
“The company’s definitive proxy statement relating to the annual meeting will include additional details regarding the amendment, as well as the record date, date and location of the annual meeting,“ it said in the statement, adding the board must still give its final approval.
Shares in Elon Musk’s Tesla, which is increasingly repositioning itself as an artificial intelligence company rather than a carmaker, opened higher to trade 6.4% up at $1,075 early in Monday’s session.
This would be the second stock split for Tesla, after its decision in August 2020 for a five-for-one split to make ownership “more accessible”. It also follows Amazon’s recent 20-for-1 stock split from earlier this month that went down well among investors.
Ever since Tesla stock vaulted over the $1,000 per share mark following the Hertz electric vehicle deal in October, speculation over a split went into overdrive.
Some believed December 9th would be the day of an announcement, but talk died down after a disappointing product roadmap in January and a broader selloff in growth stocks cooled demand for Tesla shares off.
Recently however broader risk appetite has returned in a big way, buoying sentiment for Tesla as well. The stock has been on a tear for the past couple of weeks, rising from a close of $766 to finish on Friday back up above $1,000.
A stock split reduces the cost to buy a single share, but not the valuation assigned by the market, so it only becomes optically cheaper. A key reason for such moves is to lower the entry point for private stockholders, as the nominal price is no barrier for professional money managers.
Gary Black, managing partner at The Future Fund with a $1,600 price target, has been advocating for a stock split for months, arguing it would further support demand in the share.
On Monday, he reaffirmed his call, arguing splits were typically done by well-managed companies where management wanted to convey “confidence in the future” and helped retail investors.
Small shareholders have been piling into Tesla in droves, with tens of thousands opening Robinhood accounts in the pandemic year of 2020 during lockdowns just to buy the EV manufacturer’s stock and piggyback on its bull market run.
Many have also sought to double or triple their returns through short-dated call options.
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