After Issuing Its First Stock Split in 2020, Tesla Took Just 2 Years to Issue Its Second Split. Could a Third Stock Split Come in 2026?

Although Tesla (NASDAQ: TSLA) has proven willing to split its stock in recent years when such a move made sense, conditions in 2026 don't resemble those that prevailed ahead of its two prior splits.

Why shareholders cheer stock splits

Fundamentally, a stock split doesn't do anything to enhance a company's value. For example, if a stock gets split 5-for-1 (as Tesla stock did back in 2020), each investor sees the number of shares they own quintuple, but their ownership stake in the company stays the same. A single pre-split share priced at $1,000 is the same as five post-split shares priced at $200,

Yet there are a couple of reasons why some shareholders want to see stock splits. The first relates to investor psychology: A split makes the stock appear to have a more favorable entry price. The hope is that the lower face value will attract more retail investors. And people may feel they are getting more for their money when they are able to own more shares.

There is also research suggesting that splits can help boost stock prices. Data published by Statista, sourced from Bank of America's Research Investment Committee, revealed that, over 40 years, companies that split their stocks saw average total returns of more than 25% in the 12 months following the announcement of a pending split. But companies generally only conduct splits after the stock price has risen significantly, and when management expects further strong business performances in the future.

With that context in mind, here are the key price points connected to previous Tesla stock splits.

Tesla's stock-split history

When Tesla management previously chose to split its stock, its shares were at much higher prices than they are currently. On Aug. 11, 2020, when Tesla announced a 5-for-1 stock split, shares were trading at a bit under $1,400, and they shot up to above $2,200 before the split.

On Aug. 5, 2022, Tesla announced its second split ever, a 3-for-1. The day before that split, shares were trading at nearly $900.

The stock is far from that level now, trading at around $375 on Thursday.

The likelihood of a Tesla stock split in 2026

Based on the prices the stock traded at before its previous splits, it's improbable that Tesla will conduct one in 2026. History suggests that shares would need to nearly triple before such an action would even be considered.

Also, in the past, companies often chose to split their shares when they grew to prices that made them difficult for retail investors to purchase. But as fractional share investing is now available through most brokerages, companies may not see the need, even when shares reach unwieldy values. Instead, a higher stock price may be viewed as a strength, as it highlights investor demand.

For anyone considering investing in Tesla, its efforts in robotics, autonomous vehicles, robotaxis, and energy storage will be more important to the company's long-term returns on investment than any stock split.

Bank of America is an advertising partner of Motley Fool Money. Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.