On August 4, Tesla (NASDAQ: TSLA) declared that its shareholders had approved a 3-1 stock split for its shares.
While the news of the Tesla stock split has been anticipated by shareholders, the shares fell 2.6% lower during the first trading session after the announement.
Shareholders generally support the concept of stock splits; It’s nice to have at least the impression of getting something for nothing.
A stock split, however, does not always imply that investors would receive better value for their money. Tesla’s shareholders approved the revised stock split during the annual shareholder meeting in Austin, Texas.
The firm initially disclosed the potential split in a tweet on March 28.
The stock split does not take effect immediately, and the Texas-based business hasn’t disclosed the precise day of the stock split.
TSLA stock has been rising since last month, registering its largest gains since October 2021.
Five Things to Know about Tesla Stock Split
A company may split its stock if it feels that the price of its shares has risen to the point where an average investor cannot buy them.
As a consequence of the stock split for Tesla Corp, current shareholders will own more shares at a lower price per share.
1. Tesla’s Stock Split Will Make it More Affordable
For most individual investors, Tesla has long carried a heavy price tag, with its stock price approaching $1,000 per share.
The 3-1 stock split will change all that and spur more retail investment in the company.
In terms of institutional ownership, many different funds own Tesla shares. Vanguard and Blackrock, which hold more than 65 million and 55 million shares, respectively, are two of the largest of 3,000 institutions that own Tesla’s shares.
This type of ownership benefits the company’s current shareholders but does little to encourage new investors to buy into Tesla.
A 3-1 stock split can ensure that more mom-and-pop investors can own a portion of the electric vehicle giant.
2. Why is Tesla Stock Splitting?
According to several experts, the Tesla split will increase the stock’s availability for regular investors.
However, Tesla’s stock is still down more than 28% year-to-date even after the 3-1 plan was approved. It is in line with the general market, and the Nasdaq Composite index that Tesla is on has lost 20% this year.
The 3-1 split follows the announcement of even more good news for Tesla shareholders. When Senator Joe Manchin supports the U.S. Senate’s Inflation Reduction Act of 2022, Tesla car customers may be eligible for sizable tax credits.
3. Tesla Stock Split History
The history of Tesla stock splits only reveals one instance of a split for Tesla. The last Tesla split happened on August 31, 2020 – it was a 5-1 split, which implied that shareholders now held five shares in Tesla instead of the pre-split number of shares. For instance, a 1000 share position before the split became a 5000 share after the split.
However, Tesla has made other attempts to make its stock more available to smaller investors besides the decision to split its shares.
In 2015, Tesla attempted a 1-10 reverse stock split. However, the move led to a massive backlash and a decision to withdraw the plan.
Nevertheless, Tesla’s move to do a stock split again this time is more likely to be successful. It is because smaller investors will now spend less to buy shares than before since the company’s stock has increased significantly since the previous effort.
4. Why is the Tesla Stock Split of Interest to Investors?
An increasing stock price for a company is a sign of success, and it is helpful, but it also suggests that it will now be difficult for investors to buy the rising shares. Firms may split their shares to cut the price and make the stock more appealing to private investors.
When a stock price starts to rise and looks expensive, it is common to divide it, making it look more attractive from a per-share price point of view to encourage buying shares.
Even if stock splits don’t affect a company’s value, they make it more accessible for retail investors. Stock splits lower the price per share while increasing the number of outstanding shares.
Each existing share of a company’s stock is divided into the specified number of split shares when the stock splits.
Each shareholder who currently holds one share of Tesla will have three shares worth around $300 with the implementation of the stock split.
5. Implications of the Tesla Stock Split
Without question, Tesla has experienced rapid expansion. It hasn’t been immune to the latest market correction, though. Furthermore, the back-and-forth between Twitter and Elon Musk has raised stock volatility.
However, there will be a need for electric vehicles and Tesla has also been a leader in developing the technology required to make electric cars competitively priced. UBS and CFRA Research have recently upgraded several stocks.
Before the Tesla Corporation stock split, CFRA Research set a price target of $1,200 per share based on the company’s potential for long-term growth.
Although the company’s growth trajectory has remained solid, it is improbable that it will see the same rate of expansion as it did in the previous two to three years. Most businesses experience this trend, particularly in the technology sector. They develop swiftly initially, but growth slows as more rivals enter the market.
But even moderate growth counts as growth, and most analysts agree that Tesla is still well-positioned to grow in the long run. However, investors should be prepared for a few hurdles if the company’s past is any indication.
Tesla investors are hoping that this stock split will have the same impact as the one completed in 2020, as stock splits have traditionally been beneficial for businesses that have completed them.
The stock split intends to increase Tesla shares’ accessibility to regular investors, increasing market liquidity and thus strengthening the stock.
Tesla shares have outshone the broader market for the past two years. However, that has meant that the stock has witnessed a much steeper fall than others since the selloff began in 2022.
Because of this, Tesla no longer has to split its stock, albeit doing so at current levels might still make the stock more accessible.
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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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This post was produced and syndicated by Tim Thomas / Timothy Thomas Limited.
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