Key Takeaways
  • Tesla announced the board of director’s acceptance of a stock split proposal on June 10, 2022. 
  • Although the board of directors has accepted this proposal, the shareholders have the final say regarding this matter. They will vote on it during their annual shareholder meeting in August.
  • Tesla’s reasoning behind a possible stock split is to reduce the share price and make it more affordable for retail investors.
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On June 10, 2022, Tesla announced their board of directors had accepted a proposal for a three-to-one stock split. Though major stakeholders have approved this arrangement, it will be brought up at Tesla’s annual shareholder meeting in August and taken to a vote. If the majority of the shareholders vote in favor of the stock split, it will then be initiated and executed. 

 

How Does a Stock Split Work?

 

For some companies, there comes a time when their share price becomes too expensive. At that point, some investors may struggle with purchasing the whole stock and settle for a fractional share instead. Therefore, when this issue arises, the company’s board of directors will make a formal announcement outlining the details of the proposed stock split
 

They will discuss the conversion rate in their proposal, which discloses how many new shares each current outstanding share will be separated into. Additionally, the proposal will discuss when a shareholder must be in possession of outstanding shares to be part of the stock split. Lastly, the proposal will announce the official date on which the stock split will take place. After all this information has been brought to light, the shareholders will vote on the proposal at their annual shareholder meeting. 

 

Reasons Behind Tesla’s Stock Split

 

The board of directors wrote the following statement regarding their intentions for the stock split: “While this value appreciation has led to our employees benefiting enormously through the years, we want to make sure all employees, no matter when they join, have access to the same advantages. 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.” 

 

The quote sheds light on Tesla’s main objective with the latest stock split, which is to allow its employees to financially benefit from their tenure at the electronic vehicle company. By issuing more shares, their employees will have more options regarding how they wish to utilize their stock options

Image Credit: Arcansel / Shutterstock.com

 

Tesla’s previous stock split was in August 2020, where shareholders received four additional shares for every outstanding share. Before the split in August 2020, their stock price was around $2,213. However, not all investors have this large sum of money liquid in their investment accounts; thus, a split took place to make it more affordable for the average person. 

 

As mentioned earlier, the purpose of a stock split is to make the common stock more accessible to retail shareholders. Currently, Tesla is trading at around $667 as of June 16, 2022, and this high price can make it financially challenging for prospective investors to retain equity in Tesla. Therefore, the stock split would help reset the market price and make it more affordable for both Tesla employees and investors. 

 

The Money Wrap-Up

 

Tesla's CEO Elon Musk's previous and latest run-ins with the United States Securities and Exchange Commission (SEC) make it difficult to determine whether Tesla's share price will continue to soar. Although he is a generational entrepreneur, with many of his current and previous business ventures being successful, his public tactics have proven to cause issues with the stock of the companies he runs or is associated with. 

 

On the other hand, numbers show that since the August 2020 stock split, Tesla shares have risen by 43.5%. One of the main reasons behind their continued stock price surge is Tesla's hype and technological advancements in the electronic vehicle industry. However, with more competition entering the electronic vehicle space, the stock split could prove beneficial in more ways than one. 

 

 


Disclaimer: The mentioned remarks regarding Elon Musk are not considered financial advice. Should you invest in any companies in which Elon Musk is involved, do your due diligence prior to investing. CapWay is not liable for any losses made from investments based on the above information.

 

Main Image Credit: xalien / Shutterstock.com

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