You’re here (TSLA) the actions are rally after company discloses plans to split shares Monday. But one strategist isn’t convinced the fanfare will last very long among investors.
The move threatens to further inflate what some stock watchers see as a budding market bubble for Tesla when the stock split dramatically cuts its stock price and “unsuspecting” retail investors inevitably flock in, David Trainer, CEO of investment firm New Construct, argued in reaction to the news.
Moreover, Tesla’s plan to conduct a stock split (which, if approved, would mark the second time in nearly two years) doesn’t change the fact that shares are trading at a valuation “completely disconnected from fundamentals,” Trainer said.
The electric vehicle giant revealed in a tweet on Monday — and later confirmed by file plans with the Securities and Exchange Commission (SEC) — that Tesla would seek shareholder approval at its annual meeting to split the company’s stock so it can pay a special dividend to investors.
Tesla’s announcement sent shares up as much as 8% in intraday trading on Monday. The stock rose 6.3% at 12:17 p.m. ET to trade at around $1,074.48 per share.
According to Trainer, the reduction in Tesla’s price resulting from the split could encourage investors to seize the opportunity to buy and fuel what he perceives as a bubble, when a stock’s share price skyrockets. but is out of proportion to the fundamentals of the business. assess.
The plan to seek shareholder approval on a stock split comes as Tesla faces growing competition from traditional automakers rushing into the electric vehicle market. Trainer also said Tesla needs to sell well over 16 million cars a year to justify its current price of over $1,000 a share, when it only sold about 1 million cars in 2021 and that it is far from producing enough cars to justify this price level. .
A recent closure of its Shanghai plant for four days as the city prepares for a COVID-related lockdown may also impact production as the company is already grappling with a series of supply chain snafus headwinds. A week-long shutdown followed by a week-long restart of production could see the plant lose around 17,300 production units based on Giga Shanghai’s theoretical output of 450,000 vehicles a year.
“We advise investors to sell the rally in Tesla shares, as the stock does not face any fundamental upward catalyst,” he said, adding that almost all major automakers have a production strategy of significant electric vehicles underway to compete with the electric car pioneer. “Tesla’s first-mover advantage in electric vehicles is rapidly fading.”
Tesla announced its first stock split, a 5-for-1 offer, in August 2020. The shares were trading around the $1,300 level at the time of the previous stock split announcement and pushed to $2,000 after the news to raise the market capitalization above $400 billion.
It remains unclear what type of stock split Tesla will offer shareholders at its next annual meeting, likely to be held in June.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc