Elon Musk. Picture: STEVE NESIUS/REUTERS
Elon Musk. Picture: STEVE NESIUS/REUTERS

San Francisco —  Tesla  is splitting its richly valued shares in a 5-for-1 exchange, a move designed to make the stock less expensive for individual investors after the company become the world’s most valuable automaker.

Each stockholder of record on August 21 will receive a dividend of four additional shares of common stock for each one they own, the electric-vehicle (EV) maker said on Tuesday in a statement. The shares, which have more than quadrupled since March to close above $1,600 in July, pared a gain of as much as 7% on Wednesday to trade up 4.8% to $1,440.63 in New York.

The split aims to capitalise on and support Tesla’s recent surge, which has pushed its market capitalisation to more than $256bn, exceeding the value of Toyota and Ford combined. The huge rally for the shares has priced them out of reach for some smaller retail investors just as the EV industry is capturing their imagination.

“At a time where the appetite for the stock and overall EV story continues to gain momentum, I think it’s a smart move,” said Dan Ives, an analyst at Wedbush who rates the shares the equivalent of a hold. Tesla is taking after Apple, which Ives said other tech giants are likely to emulate.

Apple announced a 4-for-1 stock split after the close on July 30 and retail traders have piled in to bet on further gains. Tesla will start trading on a split-adjusted basis on August 31.

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Tesla has been a favourite stock for day traders and other retail investors lately. At one point in July, nearly 40,000 Robinhood account holders added shares of the carmaker during a four-hour span. The surge has been a boon to other EV companies, some of which have yet to actually produce a vehicle.

“The stock split is a recognition of the fact that the market is increasingly influenced by individual investors, including those looking to gain exposure to next-generation transportation,” Ben Kallo, a Robert W  Baird analyst who rates Tesla the equivalent of a hold, wrote to clients.

Tesla’s gains have been partly fuelled by speculation the company is likely to join the S&P 500 after it reported the latest in a string of profitable quarters. That would make the stock a must-buy for mutual and exchange traded funds that seek to mimic the benchmark index.

The timing of the split may have come as a surprise to close followers of Tesla CEO Elon Musk’s Twitter feed. He was asked on June 30 whether he had any thoughts about a Tesla stock split and said it was worth discussing at the company’s annual meeting, which is not  until September 22.

Bloomberg 

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