Why Musk May Go Ahead With a Tesla Stock Split

For the last few years, investors have been calling on Amazon to split its stock. The company has finally announced a 20-for-1 split, following in the footsteps of several other U.S. tech companies. Will Tesla be the next company to announce a stock split?

For Amazon, this is its fourth stock split and the first one since 1999. Importantly, the split comes less than a year after Jeff Bezos quit as the company’s CEO. While Bezos avoided calls to split the stock, his successor, Andy Jassy, seems to have found them hard to resist.

Amazon stock had a rough 2021 as the worst-performing FAANG stock. That may have prompted the company to go for a stock split, which could draw more retail investors in with a lower price. Also, it might be a candidate for the Dow Jones.

When a company splits its stock, its outstanding share count goes up. Amazon has 508.8 million outstanding shares, according to Yahoo Finance. After the company completes its stock split, the outstanding share count would rise by 20 times but the market cap would stay the same and the stock price would drop (theoretically, by 95 percent). Stock usually rises on split announcements and when the split actually happens.

Whereas there isn't a set threshold for a stock split, companies whose stock trades above $1,000 should consider a split. After split announcements from Google parent Alphabet and Amazon, the following companies also look overdue for one:

• NVR.
• Chipotle Mexican Grill.
• Seaboard.
• Booking Holdings.

Tesla, popular among retail investors, is among the top trending stocks on Reddit group WallStreetBets. The company appreciates the importance of its vast and loyal retail stockholder base and announced a stock split in 2020. With news of Amazon's upcoming split, many expect Tesla to follow suit.

Tesla stock has rallied since Oct. 2019. In 2020, a phenomenal year for the Musk-run company, the stock gained over 740 percent, and in 2021, it gained over 50 percent. The stock has weakened this year, however, amid a sell-off of growth stocks.

The day Tesla announced a split—Aug. 11, 2020—the stock closed around $1,374. The company made a post-split high of $1,243.49 in 2021 and as of March 28, 2022, it was trading at $1,065.77.

Whereas another stock split once seemed unlikely for Tesla, things have changed. CNBC reports that Tesla’s SEC filing stated that the EV maker will be calling upon its annual shareholders to “increase the number of authorized shares of common stock…in order to enable a stock split of the company’s common stock in the form of a stock dividend.” After Tesla’s 2020 stock split, the company watched its shares “more than double.”