Investor euphoria after split: Tesla shares ignite the turbo again

A year ago, Tesla shares – including the most recent stock split – were available for around $ 40. They are currently trading at a good $ 490. Tesla boss Musk knows how to drive the course up. And uses the stock market rally to get fresh capital.

Elon Musk has apparently succeeded in another coup with his share split. The 5: 1 division announced on August 11th caused the price of Tesla shares to shoot up another twelve percent on Monday. In the three weeks before, the market had already responded to the news with a price explosion of an incredible 70 percent. And it seems there is still room for improvement.

The idea behind share splits is simple, basically it is a clever marketing trick used by companies: The price of a paper is made visually cheaper by dividing it. This is how the companies hope to attract new investors. Because small investors in particular shy away from spending several hundred dollars or euros for a single share. A Tesla paper was due for $ 2,300 before the split. Shareholders who claim to mix up their portfolios logically buy only a few papers from such a heavyweight. Experience shows that if the prices are lower, they tend to afford more. So it's mainly a psychological effect.

Especially since the Tesla split has not changed anything on the asset side: investors were only booked four new shares for each old share in the depots. After the split, all five stocks together were worth as much as one old stock. The company's market capitalization remained unchanged.

Chipped the short sellers?

It is difficult to say where the stock market euphoria at Tesla comes from. According to the US financial agency Bloomberg, investors in the new US trading app Robinhood have recently stocked up on a large scale. As of July, nearly 40,000 account holders are said to have bought Tesla shares in just four hours. But not only in the USA are investors flying for the electric car pioneer. South Korean private investors are also said to have become noticeably active this year. You should now hold around one percent of the car maker.

Short sellers could also play a role in the recent price explosion. At Tesla you have always relied heavily on falling prices. In the past, they had to buy back millions of shares at a higher rate, rather than the designated rate, to close their failed bets. The problem with this: With their purchases, they drive the price upwards. The loss from their open bets is getting bigger.

However, it cannot be said with any certainty whether the most recent price jump is a short squeeze, as the experts call it. Numbers on this are not circulating. "But there are certainly still various buyers on the way who have to stock up on Tesla shares due to contractual constellations. Nevertheless, there are also many investors who are betting on further price increases at Tesla," says Frank Schwope from NordLB ntv.de.

It remains to be seen whether private investors will have more access to the stock split and Tesla's share price will continue to rise as a result. At the start of trading on Tuesday, investors are initially holding back. Meanwhile, Tesla is waiting for the next news relevant to the stock exchange: the company intends to raise up to five billion dollars by selling new shares, as the automaker announced to the US Securities and Exchange Commission. Tesla apparently wants to use the rally to get fresh capital in the current rally.

Investment advisor Adrian Roestel from Vermögensberatung Huber, Reuss und Kollegen warns of hypes relating to splits. He advises private investors not to buy stocks for this reason alone. "That would be a casino and has nothing to do with long-term investments," said Roestel of the "Süddeutsche Zeitung". "Instead, investors should consider the substance of companies and their long-term opportunities."

"Launched like a SpaceX rocket"

The NodLB refers to Tesla's exorbitant market capitalization of around 412 billion dollars and therefore urges caution. The company is "currently more expensive than all European, all American and almost all Japanese automobile manufacturers (with the exception of Toyota) combined," writes analyst Frank Schwope. Anyone who thinks that Tesla is worth more than BMW, Daimler, Volkswagen, PSA, Renault, Fiat Chrysler, Ford, GM, Mazda, Mitsubishi, Nissan, Subaru and Suzuki combined, should hold or even buy the share. "However, we believe that Tesla stock is overvalued."

The share had taken off like a SpaceX rocket in the past few months, "but the sales figures for electric cars remained on the ground; the profit figures from car sales were even subterranean." The analysts assume "that auto production and sales in 2020 will collapse globally by 15% – 25% compared to 2019". NordLB advises investors to sell Tesla papers. Including the stock split, the new short target is $ 130 per share.

Independent Research is similarly negative. The analysis house has lowered the price target on the occasion of the stock split from 540 to 109 dollars. The electric car maker undoubtedly has a very strong brand. However, since the competition is likely to increase, the price level is not justified. Another event may already cast its shadow: Tesla is about to be included in the US S&P 500 index. Investment funds that track the index will then be forced to buy Tesla shares. If investors speculate on rising demand, they will push the price further up. Either way, Musk should be satisfied for now. After the split, he is now even richer than Facebook boss Mark Zuckerberg.