Tesla (NASDAQ:TSLA) is yet again turning heads with its Q1 2021 results. The company achieved record production, deliveries, and an increase in demand. This is a time of year that usually sees a decline in demand, so the uptick was particularly welcome. Best of all, Tesla surpassed $1 billion in non-GAAP net income for the first time. During Q1, Tesla produced over 180,000 vehicles and delivered 184,800 cars.
Tesla earnings call Q1 – is a stock split on the cards?
Tesla’s fluctuating share price
Despite these significant results, analyst expectations were not quite met, and the share price began to fall after hours.
Tesla is a stock that’s had its fair share of ups and downs over the years. In 2020 it soared 720% but year-to-date it’s only up 1%. After the excitement of last year, caution seems to be the order of the day.
Tesla share price chart 1 year $TSLA
But that could all change at any moment. Musk concluded that the earnings call was not the place for a major product announcement so nothing new on that front. But Tesla bulls are ever optimistic, and it wouldn’t take much to send the share price soaring once more.
So, in the event circumstances did lead it to shoot up past $1,000 a share again, would this cause Tesla to consider another stock split? It’s certainly a possibility.
What is a stock split?
At the end of August last year, Tesla carried out a 5-for-1 stock split. Designed to bring the share price down to more affordable levels, it gave existing shareholders four additional shares for every one that they held.
It was a popular decision that caused the Tesla share price to soar an additional 40% after the announcement.
While it may seem like a fantastic chance to get a bigger holding in your favourite stock, that’s not how a stock split works. Technically, it doesn’t give investors a bigger share in the company and doesn’t add capital to Tesla. In this instance it simply divides one share into five.
Top companies choosing to split stock
It’s a technique that Apple (NASDAQ:AAPL) has also used to its advantage on a number of occasions. Five times in fact, during 1987, 2000, 2005, 2014 and 2020. And Apple didn’t wait for its share price to reach $1,000.
In a Jim Cramer interview last year, he said “Apple cares about the little guy” and noted that Apple CEO Tim Cook said its latest stock split was to entice “more people in the stock”.
Microsoft (NASDAQ:MSFT) is another that has successfully implemented stock splits. It performed no less than eight stock splits prior to 1999.
And to illustrate why it’s a good idea to encourage more people into the stock, Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A) paints an interesting picture. Berkshire’s class A shares, have never split and today trade at a phenomenal $408,100 each. That’s clearly going to cause liquidity issues as most people cannot afford that kind of investment.
Of course, nowadays there are apps such as Robinhood that allow investors to buy fractional shares, but these come with their own set of problems. And it’s not something that institutional investors choose to do.
Highlights and challenges of Tesla’s first quarter
After market on Monday, Tesla posted revenues of $10.39 billion for Q1, slightly disappointing Wall Street analysts who had been hoping for $10.5 billion. The story was the same with net earnings, which came in at $438 million, when analysts were anticipating $509 million.
During the quarter, Tesla Model 3 beat the BMW 3 Series by becoming the best-selling luxury sedan of any kind in the world. It sells around half a million a year. This gives Musk hope that its Model Y will become the best-selling car or vehicle of any kind in the world within the next year. There’s no shortage of confidence in his aspirations.
Tesla Model 3 best selling luxury sedan
The company also continues to build new factories, with both Texas and Berlin progressing well. Production is expected to start there next year.
Full autonomous driving is still proving a challenging task to master, but Musk assures investors it’s making great progress. Making headway depends largely on solving real-world artificial intelligence problems on an entirely new scale.
The global chip shortage has created supply chain problems for Tesla in Q1. This is an ongoing issue but was compounded by Covid-19 restrictions preventing Tesla from sending critical engineers into China. Not to solve the chip shortage, but to scale its production there. Combined, these issues created the most challenging production backdrop Tesla has ever had to face.
Musk is hopeful the production problems will soon be solved. But supply chain issues are likely to continue.
Tesla sold 10% bitcoin for profit
The company somewhat surprised investors by confirming it sold 10% of the $1.5 billion bitcoin it purchased earlier in the year. The reason for this is to prove to shareholders, bitcoin can work as an alternative to holding cash on the balance sheet. And in this instance added a $101 million profit to the quarter.
The US Security and Exchange Commission (SEC) is already investigating “the facts and circumstances” of Tesla’s bitcoin-buy. Particularly as Musk is known for ‘pumping’ crypto via Twitter including Bitcoin and Dogecoin.
Doug Davison, a former branch chief of the SEC’s division of enforcement, said:
It would not be surprising – given the focus on the chief executive’s tweets, bitcoin pricing and recent dramatic market moves – for the SEC to ask questions about the facts and circumstances here.
Although Q1 results were mixed, there’s clear progress being made and reasons for optimism to continue. A lull in shareholder enthusiasm could be the pefect time to implement a stock split to raise investor interest and build momentum.