Tesla has decided to go in for a 5-1 stock split. These latest changes would be effective from August 28. Ultimately, this move would ensure that buyers purchase more shares as their prices would go down. On Tuesday, Tesla had put up the same announcement on its investor website. The message read as follows:
“Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.”Source
On Tuesday, the automaker’s stock closed in at $1,374.39 per share. It was pretty much close to its highest stock-closing price in July. Also, Tuesday’s stock had a total market value of more than $256 billion. However, such sky-rocketing rates make it difficult for stock-buyers, especially retail traders who take the help of platforms such as Robinhood, to purchase shares. They would be able to afford to buy only small portions of these shares.
People who end up buying Tesla stock by August 21 would be receiving four more shares of common stock on the day the split stock comes into effect. Come August 31, and Tesla would begin its trade based on a 5-1 stock split.
A stock-split eventually does not affect the stock value, deeming the entire thing as neutral for investors. Each Tesla shareholder would witness an increase in the number of shares held by a factor of 5. However, the split would be more useful for retail investors on the Robinhood platform to become official shareholders as they would be able to buy fast-growing tech stocks. Moreover, the stock-split would reduce the total price of a single share by about 80%, which means Tesla can state that its shares are more affordable, thereby negating the claim that the automaker’s shares are high-priced.
There could be a few more factors for organizations like Apple and Tesla to split their stocks, notes Bloomberg based Matt Levine. One of the reasons could be that it would be difficult to switch over partial shares from one brokerage to another. On the contrary, one can easily move total shares in between brokerages. Secondly, a stock that is highly-priced may bring down its liquidity value. In simple terms, it is always good for organizations to have lower-priced and affordable shares. It would be very good for a retail investor who can invest some money into Robinhood and trade.
According to Tesla, stock splits matter a lot for employees, all of whom have the option of stock trading. It implies that employees who are having lower pay scales will not be able to afford many stocks when the price per share is above $1400. If the company issues stocks on a split basis, all of its employees would be able to purchase its stock. Following Tesla’s statement with regards to stock-split, the organization’s stock price rose by about 8% before finally landing up to 6% at ~$1,450.