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The Tesla stock split has lowered the barrier of entry to investing in the company. The previously high price of its stock prevented numerous investors from owning a share of the world’s largest electric vehicle company.
After the stock split, the share price of Tesla Inc. (NASDAQ: TSLA) became more affordable to numerous investors. This move has garnered a lot of interest from retail investors seeking to buy shares in the company. The latest stock split is the second time that the company has changed the dynamics of investing in it.
Let’s explore Tesla’s timeline to detail what happened during its stock split and how it affects investors.
What Happened During the Tesla Stock Split?
Tesla’s board of directors approved a 3-for-1 split stock on Aug. 4, 2022. A stock split increases a company’s number of outstanding shares by issuing new shares to existing shareholders. After the stock split, Tesla investors owned two additional shares for each share held.
Although investors received more shares, the old stock price was divided by three. An investor’s share value remained the same after the stock split — they held more shares but at a lower stock price.
A stock split does not affect a company’s market capitalization, but a company usually splits its stock to increase its value.
Why Did Tesla Split Its Stock?
Tesla stated that the reason for the stock split was to reset the market price and enable every employee to own equity in the company, regardless of when they joined.
Tesla’s market reset of the price enabled more investors and employees to buy shares in the company. The company also stated that the split would enable employees to have more management flexibility in their equity, maximizing shareholder value.
Splitting its stock enabled Tesla to offer its shares at a lower price to investors who previously could not afford them.
How Did Tesla Perform After Its First Stock Split?
The first stock split the company held was in August 2020. The board had voted on a 5-for-1 stock split. Before the split, Tesla’s share was valued at $2,230. The stock split on Aug. 31, 2020, gave investors four additional shares but also lowered the stock’s price to $446.
Tesla’s share price gained just over 80% in value since the announcement of the split until the day of the split. That outpaced the 11% return the Nasdaq 100 index provided during the same month.
The lower price resulted in higher demand for the company’s shares. After the stock split, Tesla’s share price increased a further 43.5% until June 2022.
Where to Buy and Sell Tesla Stock
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What Does the Tesla Stock Split Mean for You?
Tesla’s stock split enables you to buy the company’s shares at a lower price. That makes it more affordable, but a stock split doesn’t guarantee a share’s appreciation even though more investors may be interested in the stock.
A stock becomes more liquid when more people trade it, but it doesn’t necessarily result in a significant price change. Before Tesla’s stock split on Aug. 24, 2022, its share was valued at $891. The 3-for-1 stock split valued the share price at $302 when the market opened the following day.
But on Aug. 26, 2022, Tesla’s share price had decreased to $288, proving that a stock split doesn’t always result in higher returns. A stock split garners attention from investors and may have a short-term impact on the share price.
A lower stock price may be less intimidating for many investors, but the returns a company provides for long-term investment will be determined by its performance and macroeconomic factors.
