Insights

Why Tesla Shares Bounced Ahead of Its Stock-Split Vote

What happened

Tesla (NASDAQ: TSLA) will hold its annual shareholder meeting Thursday, when investors will find out if the company’s proposed 3-for-1 stock split has been approved. Anticipation of that had Tesla shares trading 2.2% higher as of 2 p.m. ET Wednesday. 

So what

Wednesday’s gains came despite escalating tensions between the U.S. and China that potentially could directly impact the businesses of U.S. electric vehicle (EV) manufacturers. But investors seemed more focused on Tesla’s annual meeting, which will be the final chance for shareholders to vote on the proposed stock split

Now what

The company has offered two main reasons to support the stock split.

“We believe the stock split would help reset the market price of our common stock so that our employees will have more flexibility in managing their equity,” management said. “…[T]he stock split will also make our common stock more accessible to our retail shareholders.”

Tesla last split its shares in a 5-for-1 transaction in August 2020. The stock is up about 80% since that time. While stock splits don’t change anything about a business or its valuation, a lower per share price can make a stock more accessible for some retail investors and options traders. 

Shareholders also hope the meeting will provide more details on how the company plans to meet its battery needs as it continues to rapidly increase production volumes. Tensions between the U.S. and China have been on the increase with U.S. House Speaker Nancy Pelosi visiting Taiwan this week. Chinese EV battery maker CATL was rumored to be postponing its plans to expand its manufacturing to North America. But Reuters subsequently reported that the world’s largest battery maker will move forward with those plans.

Given that it has a major manufacturing facility in Shanghai, Tesla would benefit from stability between the two countries. Both China and the U.S. want to expand the use of electric vehicles, and investors seem to be seeing good news on that front, beyond their optimism about the upcoming stock split vote.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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