Why Tesla Stock Is Up By 8% Today

Key Insights

• Tesla will ask its shareholders to approve a stock split. 
• The stock split will increase retail investors’ demand for Tesla stock.
• The company halts production in Shanghai due to the coronavirus lockdown, but the market is not worried.

Tesla Stock Rallies On Stock Split News

Shares of Tesla gained strong upside momentum after the company stated that it wanted to have a stock split in the form of a dividend.

A stock split will make the stock more affordable for retail investors. At a current price of almost $1100 per share, Tesla stock is too expensive for many retail portfolios.

In a separate announcement, Telsa said that it would suspend production at its Shanghai factory due to the lockdown in the city.

Fears about lockdowns in China have already put material pressure on commodity markets, and it remains to be seen whether the factory will be able to get back to work this week as such a decision would depend on the coronavirus situation in the area.

What’s Next For Tesla Stock?

Tesla’s stock split proposal must be approved by the board and the shareholders at the company’s annual meeting, but there is little doubt that it would face any problems.

Analysts expect that Tesla will report earnings of $10.61 per share in the current year and $12.92 per share in the next year, so the stock is trading at 84 forward P/E for 2023.

It should be noted that analyst estimates have been moving higher in recent weeks despite supply chain problems and the recent rally in commodity markets. Meanwhile, the stock rallied from the $700 to the $1100 level, and the stock split news served as an additional positive catalyst for the strong rally.

Tesla stock has historically traded at high P/E multiples, so traders will likely ignore valuation concerns and focus on the upcoming stock split and the dynamics of demand for riskier assets.

The recent rally in Treasury yields did not put any pressure on Tesla stock, but higher yields may ultimately serve as a negative catalyst for growth stocks, so traders should keep a close eye on the developments in U.S. government bond markets.

For a look at all of today’s economic events, check out our economic calendar.