Why has the Tesla share price jumped today?

Posted: 29 March 2022 1:43 pm
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Shares in the electric car maker have climbed nearly 35% in the last month alone.

Shares in electric car giant Tesla, Inc. (NASDAQ: TSLA) have been among the best performers in Wall Street trading overnight, racing more than 8% higher to US$1,094.81.

That adds to the ongoing rebound in the stock, which has climbed more than a third in the last 1 month alone.

What is boosting the Tesla stock price?

The latest gains in Tesla shares came after the electric car maker announced that it would seek approval for its second stock split in less than 2 years.

Tesla said it would seek approval at its upcoming annual shareholder meeting later this year to increase the number of its authorised shares so it can split the stock in the form of a dividend. It did not indicate any ratio for such a stock split.

Companies generally do stock splits to provide liquidity in their stock when their share prices rise to very high levels, making it difficult for retail investors to purchase.

Tesla debuted on the stock market in 2010 at a measly US$17 a share. It first split its stock in August 2020 in a 5-for-1 ratio. However, since then, Tesla shares have more than doubled, boosting its market capitalisation above US$1 trillion and making it the world's biggest automaker by value.

The EV company follows other tech giants in splitting shares because their stock prices have soared beyond the reach of most investors. Google's parent company, Alphabet, announced a 20-for-1 stock split in February. Ecommerce giant Amazon also announced a similar 2-for-1 stock split earlier this month.

Mixed outlook

The announcement comes amid mixed fortunes for the company. Tesla CEO Elon Musk opened the company's first European factory last week in Germany. It will employ 12,000 people and produce 500,000 vehicles a year.

But the EV giant also said this week that its factory in China will be closed for 4 days as Shanghai undergoes a 2-stage lockdown to carry out mass COVID-19 testing. Tesla's artificial intelligence chief Andrej Karpathy has also just gone on a 4-month sabbatical, at a critical time when Musk wants to achieve full self-driving capability.

Tesla delivered more than 936,000 vehicles globally last year even though global computer-chip shortages limited vehicle production across the auto industry. This helped the company deliver an annual profit of US$5.5 billion on sales of US$53.8 billion.

Tesla has navigated the supply crunch by making design changes that allow its software to use chips that are more easily available. It has also benefited after sharply raising US vehicle prices as demand exceeded supply.

Despite this, the company has been warning of headwinds through this year that it expects will limit electric vehicle production.

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