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Tesla (TSLA) announced on Aug. 4 that shareholders agreed to a 3-1 stock split for the company’s shares.

Even though the stock split was expected, Tesla’s stock, valued at $933 during yesterday’s opening bell, opened with a nearly 2.6% drop the following morning.

For the most part, shareholders love the idea of ​​stock splits. It’s nice to have at least the perception of getting something for nothing. But a stock split doesn’t necessarily mean that anyone’s getting anything of additional value with their money.

Tesla Shareholders Approve 3-1 Stock Split

Tesla shareholders approved the new stock split at the annual shareholder meeting in Austin, Texas. The company first announced the proposed split several months ago via a March 28 tweet.

TSLA stock has been on an upswing since last month, posting its biggest gains since October 2021, and the announcement of the stock split does not take effect immediately. The Texas-headquartered company has not specified the actual date of the stock split.

This will also be the electric vehicle maker’s second stock split in less than two years. The company’s last split, a 5-1 split, was in August 2020. Following that split, Tesla’s stock price surged 60% from the day of the announcement until its execution.

The company in its 2022 Proxy Statement, dated June 6, says: “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, all of which, in our view, may help maximize stockholder value. In addition, as retail investors have expressed a high level of interest in investing in our stock, we believe the stock split will also make our common stock more accessible to our retail shareholders.”

While stock splits do not influence a company’s value, it makes it more affordable to retail investors. Stock splits increase the number of outstanding shares while simultaneously decreasing the cost of each share.

When a company’s stock splits, each existing share gets divided into the corresponding number of split shares.

When Tesla’s stock split goes into effect, each shareholder who currently owns one share will own three in the $300 range.

Other notable stock splits include Amazon’s 20-1 stock split in June and Alphabet’s (GOOGL) stock split in July. In the case of Amazon (AMZN), before the stock split, one Amazon share was worth more than $2,400. Following the split, the adjusted share price fell to around $124 per share, a comparable share price to other Dow Jones Industrial Average (DJIA) companies.

Why Tesla Is Splitting Its Shares?

Many experts assume the Tesla split will make the company’s stock more affordable to retail investors.

But even after approving the 3-1 proposal, Tesla’s stock is still down more than 28% year to date. This is roughly in line with the broader market, and the Nasdaq Composite index, which Tesla is on, is down 20% year to date.

The 3-1 split comes on the heels of even more good news for Tesla shareholders. With Sen. Joe Manchin (DW.Va) onboard with the US Senate’s Inflation Reduction Act of 2022, the significant tax credits could be available to Tesla car buyers. The existing credit was phased out after a carmaker sold 200,000 electric vehicles. But this bill would make the credit available to qualifying Tesla and General Motors (GM) vehicles.

Tesla’s Split Should Make It More Affordable

With its stock price approaching $1,000 per share, Tesla has had a hefty price tag for most retail investors for quite some time.

The 3-1 stock split should change all that, and it could spur more retail investment in the company.

Regarding institutional ownership, the stock is currently held by a wide range of different funds. At the time of this writing, Vanguard owned more than 65 million shares and Blackrock owned over 55 million, to name a couple of large institutional holders. In fact, more than 3,000 institutions own shares in Tesla.

This kind of ownership is good for the company’s existing shareholders, but it doesn’t help new investors get a slice of the Tesla pie.

A 3-1 stock split could ensure more mom-and-pop investors can own a piece of the electric vehicle giant.


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