Stock-Split: Tesla
Recent developments in Tesla
Tesla has had a rocky 2022, seeing its share price fall 42% since the start of 2022, starting the year strong at $1199.78 but plummeting to $696.69 as of 10th June 2022. Part of this has been driven by the takeover of Twitter leading the news recently along with the zero-Covid policy in China, which has affected the supply chain.
Now Tesla has proposed a 3-for-1 stock split, to be approved in the August annual shareholder meeting. Pending approval of an increase in number of authorised shares, the stock split will be enacted.
Timeline
29 June 2010
TSLA launches IPO
Share price at IPO is $17
31 August 2020
TSLA enacts 5-for-1 stock split
Share price before - $2,213.40
Share price after - $442.68
10 June 2022
Proxy filing reveals plans for a 3-for-1 stock split
TSLA briefly jumped 2.2% in post-market trading
TSLA expected to rise on opening on Monday 13 June 2022
4 August 2022
Annual Tesla shareholder meeting to seek approval for share increase
Expect share price to fall to similar level to 31 August 2020 following the split, roughly $450
Why Do a Stock Split Now?
Stock splits are an indicator for investors of prosperity and growth potential. Simply put, a stock split is when instead of holding 1 £1 coin, you exchange it for 4 25p coins. Your total wealth is the same, but the segmentation is higher. A 3-for-1 stock split means for every share owned, an investor receives 2 additional shares. The total value of their holding is the same, and so with the same company valuation, but more shares outstanding, the share price must fall.
Stock splits are enacted usually when the share price has grown significantly high, and provide positive psychological benefits. The stock also is more affordable, improving accessibility, both working to increase liquidity for the firm. This is why post-split, firms usually experience higher share prices, as seen with TSLA which saw a 43% rise in the period August 2020 to June 2022.
The split will allow for a 'reset' so to say for Tesla, and so comes at the right time, having crawled through a period of unrest.
What Does it Mean for Tesla?
The announcement comes following Amazon and Alphabet both announcing 20-for-1 stock splits of their own, all signalling potential growth for the future. After a period of TSLA sell-off, following the battle for Twitter, whereby TSLA price closed more than 12% on 26 April 2022 (of course not all attributed directly to the approval of takeover), it comes at a relief that a stock split may provide Tesla a bounce-back it needs.
The stock did not increase as much as when it did upon announcement of the 5-for-1 2020 stock split, suggesting TSLA investors are more cautious and less optimistic, there was still a jump and is expected to jump following markets opening on 13 June, which does indicate some prosperity and comfort.