In recent weeks there have been several companies announcing stock splits. First, there are the big tech giants such as Alphabet (GOOGL), Amazon (AMZN), and now Tesla has jumped up to make their announcement of a stock split, the second stock split in two years. Tesla has not announced the split ratio yet but will do so after shareholder approval.

You may be wondering why these mega-cap tech companies are doing so many stock splits. These companies use stock splits in many ways. For example, they use stock splits to get into a different Index like the Dow 30, which is based on the stock price. Or they may be trying to get a lower share price to entice retail investors to invest.

Many of these companies stocks have gotten a little expensive for retail investors. They could easily buy more shares through fractional shares, which can be purchased through some investing apps. However, the appeal of buying cheaper shares may bring in more retail investors to hold whole shares of a company.

The EV Market Impact

There are many reasons why Tesla could be doing a stock split, but one of the biggest reasons is its control over the electric vehicle (EV) market.

With the growing inflationary prices of gasoline and petrol worldwide, people are looking for other options to combat these prices. One way is to drive less, but in a car-centered culture like the USA, that is not an option taken very seriously. The second option would be to drive an EV.

In the 4th quarter of 2021, car buyers bought 21% fewer vehicles. However, the vehicles shoppers did buy were EVs, and sales boomed 72% higher than usual in the US. EV car sales usually make up 1% - 2% of the car sales, but between October and December of 2021, EV car sales made up 4.5% - 5% of all car sales.

Out of around 148,000 EV cars sales reported in the US in the 4th quarter of 2021, 72% came from Tesla. Of course, many companies besides Tesla are making EVs, but Tesla has been innovating and marketing continuously, allowing the company to remain the market leader.

The Expansion of Tesla

Tesla is in a growth phase with many people purchasing their vehicles; they see the high demand. Consequently, the company is opening a new Tesla factory in Germany to provide over 500,000 Teslas to Europe. In addition, Tesla is about to open a new factory in Austin, Texas.

With the opening of the new factories, you can see that demand is increasing for EVs and especially Tesla cars. People want a vehicle that can save them money. Tesla vehicles are answering the call of consumers.

Why is Tesla Splitting Their Stock

The year 2022 seems to be the year for stock splits, and almost every mega-cap tech company is starting to do it. Since Tesla is once again splitting its stock, here are some reasons they may be doing so.

To Help Retail Investors

As you may have noticed, their company is doing well on all the fundamentals. They are producing quality products and dominating the sector; revenue and earnings are increasing. With the rise in popularity of Tesla and its vehicles, more retail investors would like to own this company.

At more than $1,000 per share, the stock price is still too steep for most regular retail investors. Of course, they could buy a diversified S&P 500 Index fund or ETF like SPY or VOO, but it is not like holding whole shares of Tesla.

Splitting the stock allows average retail investors to purchase shares at a lower price in the stock market and be a part of this significant growth.

Adding Value to the Price

Announcing a stock split doesn't happen often. For example, Amazon did a few of them from 1997 to 1999 and has not split the stock again until 2022.

Tesla is doing it for the second time in 2 years, and the last time they split the stock, the price rose to $2,000 per share. After this most recent announcement, the price went up 8% on March 29th when it was announced the split would happen.

Teslas added $84 billion to its market capitalization in that one day alone. That is approximately the market cap of Volvo. Think about that. The value of Telsa has gained so much. They want the company not to be just owned by their employees but allow the retail investors to have more ownership of the company.

As that happens, the value of the company will continue to rise.

Become Competitive for Employees

Another reason for the stock split could be the employee stock options. Many employees have stock options, and with the high prices of the stock, it can be challenging to exercise some of these options without having significant tax implications.

With a lower price, the employees can have an opportunity to exercise some of their options and continue to diversify their wealth and portfolio allocations.

With many other tech giants doing the same, Tesla creates a more competitive atmosphere in retaining good employees.

Nicholas Colas, a co-founder of DataTrek Research, said, "A lower-priced stock makes it easier for employees with equity as part of their compensation to sell a more specific amount to satisfy tax liabilities and manage their personal wealth,"

After one company starts doing stock splits, many others will do the same to compete or retain similar talent. So it is not just a competition over the market cap in the stock; it is a competition over the best talent to create a thriving company.

What Should You Do?

There are many options that you could do. Stock splits are happening more often now than they have in recent years. Many companies are growing in market cap higher than they had ever imagined. For instance, Apple (APPL) became a $3 trillion stock earlier this year. You could start by buying some of these companies' stocks or keep it simple and invest in a nice index fund that holds these companies.

If you are a retail investor, then the news of stock splits can be good news. You can add more shares of your favorite companies to your portfolio at a lower price per share.

Author Bio: Dividend Power is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, FXMag, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 1.2% (98 out of over 8,252) of financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

Disclaimer: Dividend Power is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.