Tesla (TSLA) Stock Split by 3:1: What Does This Mean For Investors?

YEREVAN(CoinChapter.com) – Tesla, the world’s most prominent electric vehicle manufacturer saw its Tesla stock (TSLA) price go from $891 on Aug 24 to just under $300 on Aug 25. However, the reason behind the rapid drop is not a demand shortage but a planned 3 to1 stock split.

Tesla stock split 2022

Tesla approved the split in June, its second such split in the past two years. The latest 5 to1 Tesla stock split came in 2020. As a result, TSLA, which debuted at $17 in 2010, rose to more than $1,200 after the stock split in 2020 and took the company’s market cap above $1 trillion in late 2021.

Callie Cox, an analyst at trading and investment platform eToro, commented on Tesla shares.

Tesla knows it needs to retain its clout with the retail crowd, especially after this past year-plus of retail investors flexing their muscles.

said the analyst.

Some researchers believe that investors tend to drastically scale back purchases of splitting stocks in the weeks ensuing the effective split date, causing price momentum to slow. However, to better understand the Tesla stock split, a closer look at the phenomenon is warranted.

What are stock splits?

Stock splits don’t change the company’s value and don’t harm the shareholders. They happen when a company increases the number of its shares to boost the stock’s liquidity. Thus, the number of shares outstanding increases, but the total dollar value of all outstanding shares remains the same.

Typically, to achieve a stock split, the company issues additional shares to shareholders, increasing the total by the specified ratio based on the shares they held previously. Companies often choose to split their stock to lower their trading price to a more comfortable range.

Tesla stock split was not an exception as the investors now own three times the number of shares they owned previously. Additionally, new investors might find the slashed price per share more affordable.

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Notably, Tesla is still worth more than $930 billion after the split. Shares continue to trade at over 70 times 2022 earnings forecasts — a huge premium to the valuations of traditional auto companies like Ford, GM, Volkswagen, and Toyota.