Tesla Stock Split
Jun 24,2022 | Chloe Lacour
Investors now need to know about the split at the electric car manufacturer
Tesla boss Elon Musk wants to carry out a three-for-one stock split. Why that would make the stock more attractive to retail investors.
It has been known for a few months that the electric car manufacturer Tesla is flirting with a share split. Last Friday, after the market closed, Elon Musk's company announced more concrete plans for the project: the board of directors approved a stock split at a ratio of 3:1. Before this can be carried out, the shareholders still have to approve it at the Annual General Meeting in August.
However, the news did not trigger any price fireworks on the stock exchange. Since Thursday, the stock has lost almost 6.9 percent in value and was last listed at $696. The details of the share split simply cannot compensate for the negative market environment. The new US inflation data were released last week: Prices rose by 8.6 percent in May. The high inflation rates are putting pressure on the US Federal Reserve to raise interest rates further - and that would have negative consequences for the stock market. Concerns about interest rates are and will remain the dominant topic in the markets.
Many investors are nevertheless watching the planned share split at Tesla with hope. What are the advantages of a stock split for investors - and is it worth investing in Tesla shares after the stock split? The most important answers at a glance.
What is a stock split - and what exactly is Tesla planning?
A stock split allows companies to increase the number of shares they hold. However, the company no longer issues share certificates for this but shares the existing ones. For a stock split with a ratio of 20:1, for example, this means that anyone who currently has a single share in their portfolio will hold 20 after the split. The value of all 20 shares together then corresponds to the value of the original share, so the total value of the portfolio changes as a result of the split itself Nothing. The online giant Amazon recently announced such a stock split.
It has been known since Friday that Tesla intends to carry out its 3:1 stock split. The electric car manufacturer wants to pay out the additional shares in the form of a stock dividend. In the case of a scrip dividend, investors receive additional share certificates instead of cash. So if Tesla does a 3-for-1 split, shareholders will receive a stock dividend of two shares for every Tesla share in their portfolio.
Investors don't have to do anything about it. After the share split, the additional share certificates resulting from the split are automatically posted to your securities account.
When will the 2022 Tesla stock split take place?
Shareholders have yet to approve the Tesla board of directors' plans at this year's annual general meeting. The Annual General Meeting will take place on August 4, 2022. A date for the share split has not yet been set.
What advantages would the stock split have for Tesla and investors?
With the stock split, the price of a single Tesla share would fall without changing the company's market value. The advantage: This lowers the barrier to entry for investors at the same time. With a price of currently 696 dollars, the share is visually expensive. This makes it difficult for many private investors to buy a single Tesla share. Even a single share certificate could represent a concentration of risk in the portfolio for many.
Tesla hopes the stock split will make the stock more attractive to investors. The price would then deter fewer private investors.
What are the consequences of the stock split for the Tesla share price?
The trend is that stock splits stimulate prices. Prices surge right after the announcement. When Tesla had already announced a 5:1 share split on August 11, 2020, the price promptly rose. The rally was not short-lived. As a result, the share price rose by a good half within six weeks.
The same can be observed for other stocks. To what extent the now planned share split will boost Tesla shares cannot of course be predicted. In addition, a split must have a certain justification – simply increasing the number of shares and lowering the price over and over again makes no sense when the share price is already low.
Is Tesla stock a good investment?
The stock market year 2022 has been bad for Tesla so far. The prospect of rising interest rates had added to the growth title. Despite economic worries in the wake of the Ukraine war, the US Federal Reserve is turning interest rates in the fight against inflation. Away from the macroeconomic imponderables, however, things went well for Tesla.
Tesla has been making profits for the last year. Most recently, the Silicon Valley e-car maker reported a profit of $2.3 billion on sales of $17.7 billion for the fourth quarter of 2021. As a result, sales and profits continue to grow steadily. Estimates assume a further growth trend.
But these developments are already priced into the Tesla share price. The stock market values Tesla at $721.8 billion. Even the notoriously optimistic analysts are divided as to how lucrative a Tesla investment is. Most recently, investors have been punished with severe losses: those who entered in November last year are now a good 40 percent in the red.
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