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Is Tesla stock a good stock to buy now with a rumoured stock split?

by | Last updated 27 Nov, 2022 | Automotive

Key Points

  • Tesla opens 500,000 annual production capacity in Giga Berlin.
  • Management is contemplating another stock split.
  • Tesla’s stock is up about 200% since the last split in August 2020.

In 2020, Tesla (NASDAQ:TSLA) announced a stock split. From the time it was announced to the actual split, anyone who had invested in the EV stock would have made a return of over 80% in less than a month. As a reminder, the split was announced on 11 August and executed on 31 August 2020.

Will this happen again now that another stock split could be on the horizon? Since the last split, Tesla stock has soared about 200%. With that in mind, should I buy shares now that another split is in the pipeline?

What is a stock split? 

A stock split occurs when a company increases the number of shares available in the market. This can improve market liquidity as it lowers the barrier to investment for individuals with a smaller amount of capital available (without needing to purchase fractional shares).

In August 2020, Tesla did a 5-for-1 split. With that, the number of stocks increased by five times in the market. But equally, the share price dropped by five times. Consequently, nothing actually changes in terms of the company’s value. Nevertheless, stock splits can trigger short term boosts as more investors pile in.

Tesla is not the only company that has announced a stock split. Alphabet, Google’s parent company, in February announced a 20-for-1 split. This was followed by Amazon, which announced a 20-for-1 split also. Riding on the trend, GameStop also announced a stock split that pumped the price of the stock higher. Needless to say, the stock split will increase buying interest in Tesla’s stock. At least, that’s what I think.

A bull case for Tesla’s stock

By market cap, Tesla is the most valuable Auto company in the world. At the price of $1084.59 per share, It has a market capitalisation of $1.12trn. This equally puts it among the top 10 valuable companies by size.

Undoubtedly, the group will solidify this position in the coming years. The company recently opened its new factory in Germany, Giga Berlin or Gigafactory Berlin. Management expects to produce 500,000 electric vehicles (EVs) at this factory annually. Giga Berlin is the company’s first factory in Europe. This is amidst the fact that the firm recently moved its headquarters to Austin, Texas, where it opened Gigafactory Texas.

As of today, Tesla, Inc. has six factories spread across the world. Needless to say, it will continue to increase its production capacity. And if it can maintain its demand, the Tesla stock price could continue to climb alongside. 

More importantly, the business has become profitable since 2019 and has remained so. With the penetration of EVs and the adoption of renewable energy, Tesla’s stock may continue to soar. But no company is without risks.

Risk factors

While Tesla is a clear leader in the EV market, competitors are getting stronger. Aside from EV pure-play companies like Nio, Xpeng and Lucid that compete for market share, legacy automakers are becoming more important in the EV space.

Aside from that, supply chain issues continue to affect the manufacturing of EVs. If disruptions continue, it could open the door for competitors to start stealing market share.

Is Tesla’s stock a good stock to buy right now?

Elon Musk’s charisma has continued to work wonders for Tesla. Clearly, the firm is ahead of all its competitors. Aside from that, fundamentals are in favour of long-term growth. And if the stock split happens, it will renew more buying interest, especially from retail investors.

As such, while it’s by no means a cheap stock by Warren Buffett standards, I think Tesla is a good buy for my portfolio right now.

Learn more about electric vehicle stocks

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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. The Money Cog has published a Premium Investment Report on Tesla Inc. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.

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