Through the course of this article, we will understand all about the Tesla stock split and what this entails for investors in the stock market.
Tesla Inc. (TSLA), the world’s most valuable automaker, designs, manufactures and sells fully electric vehicles (EVs) and energy generation and storage technologies. Vehicle service centers, body shops, and charging stations are all available through the company. Tesla manufactures and sells mid-size sedans, full-size sedans, and small and mid-size SUVs.
Martin Eberhard, J.B. Straubel, Marc Tarpenning, Ian Wright, and Elon Musk created Tesla Motors in 2003. The company began as a manufacturer of electric vehicles and associated systems, but it has since expanded to encompass energy generating and storage. On June 29, 2010, Tesla went public in an initial public offering (IPO).
During its 2021 shareholders’ meeting, Tesla said that it would relocate its headquarters from Palo Alto, California, to Austin, Texas. Tesla’s chief executive officer is Elon Musk (CEO).
The company operates mainly in the automotive industry and is categorized as a consumer discretionary company. Mainstream manufacturers such as Ford Motor Co. (F) and General Motors Co. (GM) and emerging, fast-growing electric car manufacturers such as China-based NIO Inc. are among Tesla’s key competitors.
Tesla earned $862 million in net income in the fiscal year 2020, which concluded on December 31, 2020, on total revenues of $31.5 billion. Tesla had surpassed the market capitalization of the next five largest automakers as of October 9 October 2021.
What Does Tesla Stock Split Mean?
For some weeks, the stock market has been in recovery mode, with signals pointing to further moderate rises for major market benchmarks. Futures on the Nasdaq Composite (IXIC 0.00 percent ) were up 14 points to 14,769 at 7:30 a.m. ET, erasing earlier losses as investors maintained the index’s positive trend.
The Nasdaq was helped by significant news from Tesla (TSLA -0.51%), which joined a few of its Nasdaq counterparts in announcing plans to alter its share price drastically. Meanwhile, a much smaller company released information that was far more relevant to its long-term economic prospects, and its stock price soared significantly.
Tesla’s stock increased by over 6% in premarket trading on Monday. The move came amid news that should have had no bearing on the stock’s valuation but was invariably interpreted positively in practice.
Tesla filed a statement with the Securities and Exchange Commission, stating that it intends to request an increase in the number of authorized shares of common stock allowed under its charter of incorporation. That proposal will be discussed during Tesla’s annual shareholder’s meeting in 2022, the date of which has yet to be determined.
The boost in shares will allow Tesla to pay existing shareholders a stock dividend to complete a stock split. That’s the same arrangement Tesla utilized for its 5-for-1 Tesla stock split in August 2020, which paid a stock dividend of four more shares for every one share owned by Tesla shareholders previous to the split.
Tesla did not specify the split ratio it planned to adopt this time around in its announcement.
The action follows similar moves by other of Tesla’s Nasdaq counterparts. Both Amazon and Alphabet recently revealed 20-for-1 stock splits, bringing their share prices below four digits.
With so many brokers providing fractional shares, the Tesla stock split is unlikely to help small investors gain access. Nonetheless, the move is in line with Tesla’s prior moves, and investors are reacting with the same bullishness they had shown in the past when the company divided its stock.
How Many Times Has Tesla Stock Split?
Tesla announced on Monday that it would split its stock for the second time in two years. Even though not yet formal, the Tesla stock split would result in a reduced price for Tesla shares due to the increased number of shares in circulation.
Though the idea is unlikely to face much opposition, the firm will need shareholder approval before paying share dividends to aid the split.
We have no idea what Tesla’s split ratio will be or when it will happen. But, if history is any guide, it might happen soon after the company’s annual shareholder meeting, which is expected to happen in early June.
Tesla’s stock would split for the second time in two years, which is a rare occurrence. Microsoft’s series of tiny splits in the 1990s and Amazon’s three splits in 1998 and 1999 may be the most comparable examples. However, as compared to Tesla’s previous split, those series had lower split percentages.
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So, Why Is There A Tesla Stock Split Right Now?
Tesla has yet to make an official announcement about a stock split. To support a planned split, the corporation simply asks shareholders to authorize the issuance of new shares.
We don’t even know when the corporation plans to make this change, let alone the split ratio. More details will be revealed as the firm releases its official proxy materials for the annual meeting, which will be followed by a shareholder vote and, finally, a formal declaration of a Tesla stock split.
Again, none of this has much bearing on your existing or future Tesla investments, and Tesla will simply slice the same ownership chunk into many smaller pieces.
The total amount will remain the same, and each of your present Tesla shares will be converted into five or ten stubs with the same overall market value. This exercise aims to pull share prices down from their current high of about $1,100.
In the summer of 2020, the Tesla stock split for the first and only time. Stock prices soared between the announcement and the ultimate five-for-one split at the end of August. After that, investors realized that the split had made no difference, and some of Tesla’s inflated market value began to trickle down.
How Will Tesla’s Stock Split?
Tesla and its shareholders will have to undergo a few extra procedures for this stock split compared to the last time, when the board merely announced its decision on August 11, 2020, and the stock was quickly split on August August 31, 2020.
The Securities and Exchange Commission (SEC) sets a limit on how many shares a public company can have in circulation. Since the last split and public offering (in December 2020), Tesla is nearing its maximum and can only issue a 2-to-1 split without shareholder approval under present rules. This indicates that Tesla will announce a larger multiplier.
Following that, the board of directors will vote to pass a Tesla stock split, which will almost certainly be announced soon after. The stockholders will receive a share dividend to finalize the Tesla stock split.
For example, if the split is again 5-to-1, you’ll receive four additional shares on the day of the Tesla stock split for each share you own by the cutoff date. It’s vital to remember that this is a one-time share dividend, as opposed to the recurring cash dividends that many investors are used to.
What are your thoughts on the Tesla stock split, which is set to take place in the latter part of 2022? Use the comment box to express your views and ideas.