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A Tesla car in Germany in 2015.
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The day has arrived. Stock in the electric-vehicle pioneer Tesla is splitting 5 for 1 after the market closes for trading.
Tesla (ticker: TSLA) shares will open on Monday at roughly $450—one-fifth of where the stock currently trades. Stock-split math and figures associated with it generally don’t amount to much, but Tesla is the exception.
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With Tesla stock, the numbers are always part of the story.
The shares were up 958% over the past year as of Thursday’s closing price. The stock has gained about 430% year to date—crushing comparable gains of the S&P 500 and Dow Jones Industrial Average and leaving the company with a market capitalization of more than $417 billion.
Since the split was announced, Tesla shares have gained 61%. That gain makes this week’s 8% jump look small. (Tesla shares were up another 1.9% in late morning trading on Friday trading, but closed down 1.1%.) The numbers since the split announcement are amazing to behold. Tesla might appear to be worth about $160 billion more because it trades at a lower absolute price.
That logic strains credulity.
It isn’t all the stock split, though. Estimates of Tesla’s earnings and analysts’ forecasts for the stock price are rising. Investors are optimistic about Sept. 22, when Tesla will devote a day to explaining developments in battery technology. Investors are hoping for word on costs, how far Tesla might be able to extend the range its vehicles can travel on a single charge, and how long its batteries will last.
The battery day is the next big factor following the split that could move the stock. What happens after the split itself is anyone’s guess.
Few pundits predicted a gain of more than 60% in the aftermath of the Aug. 11 stock-split news. Investors might have been piling into Tesla shares before the split in anticipation of higher demand from individual investors Monday.
If the demand materializes, Tesla shares could pop next week. If the pop doesn’t happen and traders get out of recent positions, then shares could fall.
Another wild card for Tesla stock traders is the shares’ potential inclusion in the S&P 500. After Tesla reported a profit under generally accepted accounting principles in its most recent quarter, the stock qualified for the Index.
Tesla bears have questioned the quality of Tesla earnings. They point out that selling regulatory credits—earned by producing more electric vehicles than regulators require, to auto makers who producer fewer—led to the reported profitability. It’s true, but everyone who follows Tesla knows that it sells credits. And the profit was posted during the pandemic, when U.S. auto sales were plunging.
This bearish argument, at this point, feels like spitting into the wind. The S&P Index committee probably doesn’t care about the regulatory-credit debate. If they do, investors won’t hear about it. The decision whether to include Tesla is completely discretionary.
Tesla is most likely going into the index. It is the seventh most valuable company in America. Thursday, Tesla surpassed Visa (V) in terms of market capitalization. Next up is Berkshire Hathaway (BRK. B).
Passing Berkshire would be quite a coup for Tesla bulls. Value investors such as Berkshire’s Warren Buffett struggle with Tesla’s valuation. Tesla bulls think the company is a so-called platform company with new technology and plenty of scope for earnings growth.
Platform companies are those like Apple (AAPL) or Amazon.com (AMZN), with multiple businesses that enable third parties to thrive using their technology. In the case of Tesla, that includes solar power and energy storage. Down the road, robotaxis could join the list.
Eclipsing Buffett would be another feather in the bulls’ cap.
Write to Al Root at allen.root@dowjones.com