What does Tesla’s 3-for-1 stock split mean for investors?

Posted on September 09, 2022 by Peter McGuthrie

With Tesla’s 3-for-1 stock split hitting the market, many are wondering what impact it could have on the company’s shares. Following an unprecedented few years for Tesla’s stock, and an array of external political and social factors affecting the market, it’s worth questioning the split’s impact from the perspective of old and prospective new investors alike.

Above: A Tesla vehicle's cockpit from the front driver-side window. Photo: David von Diemar / Unsplash

Tesla’s 3-for-1 stock split recently went into effect, representing the automaker’s second time splitting shares for its investors. In a report, Forbes detailed what the split could mean for investors, evaluating whether it changes Tesla’s value or not.

While many experts argue that a stock split doesn’t influence too much, it can make shares look more attainable for retail investors. A company’s value still depends primarily on cash flow and revenue, in addition to a handful of other macroeconomic factors.

For investors, the stock split immediately increases the number of shares held, but it doesn’t change the value of your holdings. For example, if you owned one share at $900 before the split, you now own three shares, each worth $300.

Amazon, Alphabet and Shopify are among the other companies that approved a stock split this year, showing the strategy’s popularity. Like with any stock, there’s no guarantee that shares will go up. However, the vote to approve Tesla’s stock split marks a vote of confidence from the board of directors that the stock could go up in the future if it can attract new investors. In August 2020, Tesla voted to approve a 5-for-1 stock split.

Tesla will also reset the stock’s market price and offer employees new equity options, as detailed in a proxy filing with the Securities and Exchange Commission (SEC). This could lead to old investors and employees adding to their previously held shares in Tesla.

In the filing, Tesla wrote, “Since our stock split in August 2020 to June 6, 2022, our stock price has risen 43.5 percent. While this value appreciation has led to our employees benefiting enormously through the years, we want to make sure all employees, no matter when they join, have access to the same advantages.”

Tesla’s stock split went into effect immediately after the market closed on August 24, with pre-split shares worth $891.29 and post-split shares trading around $302. Tesla’s stock closed at $288.98 on August 26. Tesla is currently the world’s sixth-largest company and is the largest EV automaker, though bulls and bears still disagree about the stock’s long-term value.

At the time of writing, Tesla’s shares were trading at $278.52 (+$4.10), up 1.49 percent from the day’s market open.

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Source: Forbes / SEC