The Three-for-One Stock Split of Tesla Happens Today: What It Means for Shareholders

As the world’s most valuable automaker seeks to make its stock more accessible to investors, Tesla, which manufactures electric vehicles, saw its shares rise in after-hours trading on Wednesday as the company’s 3:1 stock split went into effect. This was the company’s second move of this kind in approximately two years.

Following the conclusion of trade on Wednesday, Tesla’s stock began trading on a split-adjusted basis for the first time. As a result of the most recent stock split, which was authorized by shareholders earlier this month, each investor received around two more shares.

Tesla initially announced the proposed 3:1 stock split back in June as a way to make the nearly $900 stock more affordable. Based on today’s closing price, the new share price would be just under $300 per share; if the split were to take place, however, the stock would remain at nearly $900 per share.

The electric vehicle manufacturer owned by billionaire Elon Musk has seen its shares increase over 200% since the company’s last stock split in August of 2020, despite the fact that the stock has down approximately 25% this year due to the larger market selloff.

A stock split does not have an effect on the market value of a firm; nevertheless, there is evidence to suggest that the move does frequently provide a short-term lift to share price. This is because the move makes shares more affordable to individual investors.

Since the announcement of the 3:1 split in early June, Tesla share prices have increased by approximately 25%. In comparison, the announcement of Tesla’s 5:1 stock split approximately two years ago caused share prices to increase by over 70% in the 20 days after the announcement.

The stock of Google’s parent company, Alphabet, split 20:1 in February, and Amazon’s stock split 20:1 one month later. Both of these stock splits caused a rise in the price of the firms’ shares. Several other large technology companies have announced stock splits this year.
According to Lindsey Bell, Ally’s chief money and markets strategist, “when stocks trade in a so-called comfortable range, everyday investors may more readily purchase a piece of the company” when stock prices are stable within that range. This results in increased interest in the shares, and increased interest results in an increase in the number of persons trading the stock.

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Last month, Tesla revealed results for the second quarter that were mixed, but they mostly beat the forecasts of experts. The company was impacted by ongoing supply chain disruptions as well as a factory closure in China that was due to Covid-related government lockdowns, both of which caused production to take a hit, which worried analysts. Additionally, the factory closure in China was the cause of the production drop. Tesla’s quarterly revenue of $16.9 billion increased by 42% from the same period a year ago, but it decreased from a record high of $18.7 billion in the previous quarter, bringing an end to the company’s streak of record earnings. Following the release of the earnings report, a Wedbush analyst named Dan Ives stated that “in a nutshell, the quarter was better than feared with healthy outlook” for the remainder of the year. This expectation “look[s] doable with no margin for error,” Ives added.
Citi analysts, who have a “sell” rating on the company and have a price target of $424, believe that Tesla shares are expensive and that they could decline by more than 50 percent. “The current valuation remains challenging,” especially when taking into consideration the fact that the few other companies that achieved a similar market cap did so by generating on average around $100 billion in annualized gross profit, whereas Tesla’s annualized profit was only $20 billion in the first half of the year, the company notes. “The current valuation remains challenging,” the firm adds.

According to a recent survey, Elon Musk, CEO of Tesla, has a net worth that is estimated to be 263.4 billion dollars. He is the wealthiest individual in the entire world.

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