What does Tesla's upcoming stock split mean for investors?
Posted On August 24, 2022
Tesla (NASDAQ:TSLA) shares are about to look a whole lot cheaper, but don’t just look at the ticker tape. The electric vehicle maker’s stock is set to be chopped into three after the close of trading today, though the total value of a shareholder’s holdings will remain unchanged, as well as the company’s market capitalization (meaning its S&P 500 weighted value will remain the same). As of Wednesday morning, TSLA’s market price stood at $889, meaning a 3-for-1 split would leave shares at around $290.
Snapshot: While Tesla’s (TSLA) decision doesn’t affect any fundamentals, it does make the stock (or options contracts) more affordable for retail investors or those that don’t want such a holding to be a large portion of their portfolios. The company even alluded to these benefits when announcing the move back in June. “We believe the stock split would help reset the market price of our common stock so that our employees will have more flexibility in managing their equity and make our common stock more accessible to our retail shareholders.”
This isn’t the first time Tesla has split its shares, and likely won’t be the last. In fact, the company executed a 5-for-1 transaction back in August 2020 (shares have doubled since that date). Amazon and Alphabet, the parent of Google, also split their stock 20-for-1 in the past few months, while e-commerce giant Shopify completed a 10-for-1 split on June 28.
Next catalyst? While Tesla (TSLA) is up about 30% since the electric vehicle maker announced plans to split its stock in June, it’s still off 26% YTD. Some have pointed to recent catalysts like the Inflation Reduction Act, which renews a $7,500 tax credit for Americans to purchase EVs, though several of its models will not qualify given the price ceiling of $55,000 for sedans and $80,000 for SUVs (think Long Range and Performance Model 3s, and Model S and X). Things are also complicated given the requirements to domestically source “critical materials” for batteries, though the company is likely to recover production this quarter after COVID lockdowns hampered output in Shanghai.