Stock Split or Not: 3 Reasons To Buy Tesla

Tesla (TSLA) seems to give investors a constant stream of news flow, but a Securities and Exchange Commission (SEC) filing this morning seemed to take many by surprise. Less than two years after the company announced a 5-for-1 stock split, it’s preparing for another potential split. The company said…

in its filing it plans to ask shareholders to approve an increase in shares “in order to enable a stock split of the Company’s common stock in the form of a stock dividend.” Whether or not another one gets announced, here are three other reasons to buy the stock now, too.

1. Production is accelerating

Stock splits don’t fundamentally change anything about the company’s valuation or its underlying business. But they can be a sign of management’s confidence. And that translates into stock gains in many cases. Tesla stock has gained nearly 300% since it announced its last stock split in August 2020. But that came mainly because of the business, not the stock split.

Tesla approached the 1 million vehicle delivery mark in 2021, almost double the previous year’s total. But with demand remaining strong and the company opening new factories in Texas and Germany this year, it’s possible Tesla will be producing at a 2 million vehicle per year run rate by the end of 2022.

2. Sales will keep soaring

That production has plenty of customers waiting for it, too. With the head start Tesla has had for electric vehicle production in the U.S., it might not be a surprise that its models held four of the top five spots for top-selling electric cars in 2020.

In 2021, the company not only exceeded $50 billion in total revenue but it also generated net income of about $5.5 billion.

3. It’s growing more profitable

It’s not hard to see how the company generated that profit, either. Tesla has been steadily improving its gross margin over the last three years.

The combination of strong demand and Tesla’s dominating market share should also lead to continued improvement of profitability, too. Tesla has pricing power. So while many companies are struggling to offset increasing raw material and transportation costs, Tesla already has announced price increases in both the U.S. and China. In fact, it has increased some vehicle prices twice just this month.

Whether the company gets approval to increase its share count or not, there are plenty of good things happening under the hood. While another stock split might drive shares higher in the short term, it’s the business itself that will determine the long-term returns. With its production set to…

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