Stock splits might not do anything to affect the intrinsic value of a company, but many investors still look forward to seeing the companies in their portfolios split their shares. So far, electric vehicle pioneer Tesla (NASDAQ: TSLA) has never done a stock split, even though CEO Elon Musk has expressed plenty of confidence in the company's future. Having seen its stock jump as much as 20-fold from its $17-per-share IPO price just seven years ago, Tesla shareholders are curious whether a stock split could make the share price move higher and add to their long-term gains.
A soaring Tesla, but no split
Often, a big share-price gain prompts a company to do a stock split. Tesla's move higher over the past few years has certainly justified a closer look at the stock. Even more recently, a jump from below $200 per share toward the end of 2016 to nearly $400 earlier this year drew a lot of attention, even from investors who are skeptical about the prospects for Tesla shares ever to split.
So far, Tesla has resisted natural catalysts to doing stock splits. The initial jump in 2013 from around $30 per share up to triple-digit stock prices came amid excitement about the Model S sedan, and the subsequent increase in production capacity allowed delivery figures to rise, prompting further share-price advances into the high $200s by 2014.
Subsequent releases of new vehicle ideas also added to Tesla's success. The Model X and Model 3 announcements were both seen as evolutionary in Tesla's development, and although the stock's reaction to those moves wasn't as large as the initial success of the Model S, Tesla still continued to deliver solid returns for its shareholders.
Image source: Tesla.
Musk, however, has never wasted time in his conference calls with investors to discuss the potential for a stock split. The focus has always remained on operational considerations that have a larger future impact on the company's long-term success. For instance, in its most recent earnings call, Tesla noted that production challenges are plaguing the automaker's efforts to ramp up production of the Model 3 mass-market vehicle. Battery module manufacturing has been a bottleneck for Tesla, and the company pushed back its anticipated timeline for reaching higher production targets as a result. Even with those difficulties, Tesla isn't standing still, having announced earlier this month its progress toward a commercial semitrailerÂ as well as a reimagined Roadster.
What Tesla investors should expect for 2018
Investors who expect that Tesla will decide to do a stock split in the coming year are likely to be disappointed. With the company having avoided splitting its shares at key milestones like $100 and $200, the most likely scenario under which Tesla would consider a stock split is if the share price were to reach $700. That's a level at which several major technology companies have looked at 7-for-1 stock splits, and Tesla clearly puts itself in the same camp as those tech giants rather than its carmaker peers. It's possible that Tesla shares could more than double in 2018, but even if they did, it wouldn't guarantee that the company would change its stock split strategy. Tesla also doesn't have the same pressures that companies that are part of the Dow Jones Industrials have, because the indexes that include its shares aren't price-weighted.
In the end, despite how much attention the whole question gets, it doesn't matter whether Tesla splits its stock or not. The way that discount brokers allow investors to buy as little as a single share of a high-priced stock has made it far easier for small investors to gain access to red-hot companies. As long as the company continues to show signs of future success, then a rising share price should be reward enough for Tesla shareholders.
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