Tesla always seems to be in the news and is easily one of the most talked-about stocks in the entire world. With a potential EV (electric vehicle) market of $1,108 Billion (yes, over a trillion) by 2030, it’s no wonder that the largest maker in the world is so renowned. Retail and institutional investors alike have flocked to the company, looking for 10x profits or more, partially drawn by the charisma of the CEO (Elon Musk) and the strong financial outlook of the company. For anyone holding shares in Tesla, understanding what’s going on with those shares is important. In light of a recent stock split in August, it’s probably time to understand exactly what a stock split is! Today, we are going to do just that, only we are going to cover it from a Tesla-centric point of view. Let’s get started!
What is a Stock Split?
Simply put, a stock split is when a company announces that it will be changing the number of available stocks according to a certain ratio. For example, in a 2-for-1 stock split, anyone holding 10 shares would have 20 shares after the split, with each share being valued at half of the price before the split.
The primary way that a company performs a stock split is through the issuance of new shares to the current shareholders while at the same time decreasing the value of each share by a proportional amount. In a 20-for-1 stock split, a shareholder with have 20x the stock, but each one would be worth 1/20th of the price before the split.
Generally speaking, a stock split doesn’t really change things for people holding the stock since the total value of their shares doesn’t change. The primary thing that a split does is increase the “liquidity” of the stock, meaning it’s more readily and easily traded on the open market. In other terms, the stock is more affordable for people without the company losing any value. This reduction in price makes buying a standard trading unit of 100 shares (known as a “board lot”) easier to acquire, more people could potentially invest and add make trading easier.
When has Tesla’s Stock Split?
Tesla has had two stock splits since it IPOed (initial public offering) a few years ago.
The first split for Tesla happened on August 31st, 2020, and was a 5-for-1 split. This essentially means that everyone was issued five shares of Tesla for every one share that they owned, with each one being 1/5th as valuable.
The second split for Tesla happened on August 25th, 2022, almost exactly two years later. This much more recent split was a 2-for-1, meaning shareholders had their number of shares doubled, with each share being worth half as much.
Total Shares Now vs. Its IPO
Since Tesla has only had two stock splits, it’s pretty easy to calculate things in retrospect.
After both splits, Tesla currently has 3.16 billion shares available. Before the most recent 2-for-1 split, there would have been around 1.58 billion shares available. Taking it a step further, we can divide that number by five and see that there were initially 316,000,000 (316 million) outstanding shares when Tesla first came on the market.
Using similar math, we can actually see what the price of Tesla’s stock today would have been pre-splits. Today, Tesla is floating around $222, meaning that prior to the 2-for-1 this August, the share price would have been ~$444. Prior to the very first split, the share price would currently be at ~$2,220. Keep in mind this value is still present, but it’s just spread out across more shares.
Again, using the same math, some other fun calculations can be done. We can determine that the ATH (all-time high) for Tesla is currently listed at around $407. Multiplying it by two and again by 5, we can see that the highest Tesla stock has ever reached would have been around $4,070 without any splits. At its IPO, it would have been worth around $12.80 pre-split, showing just how much the value has increased since 2010 when it was listed.
A Green Light For Retail Investors
There is often a lot of mystery surrounding the decisions that the higher-ups at Tesla are making, but they have been quite clear in their intentions for the stock splits: they want more retail investors. A retail investor is an investor that isn’t associated with an institution and generally plays with much, much less capital. Still, there are a LOT more retail investors than there are institutions, and retail investors have been playing a more significant role in recent years, especially when it comes to Tesla.
In fact, there are some estimations that place retail ownership of Tesla above 75%, whereas other US automakers are somewhere around 50% institutionally owned. Tesla has, historically, taken pride in its retail investors and the charisma surrounding Elon Musk (the CEO of Tesla) has only spurred individual shareholders to up their ante in the company.
Since a stock split reduces the cost of a single share, Tesla’s second split is a clear decision to make its stock more approachable for “regular” people to buy into. $200 for a share is much more approachable than nearly $500 or $2,000 a share when your access to capital is limited. In fact, that’s pretty much what Tesla executives said when the split was announced:
“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. In addition, as retail investors have expressed a high level of interest in investing in our stock, we believe the stock split will also make our common stock more accessible to our retail shareholders.”SEC
What a Tesla Stock Split Means for Shareholders
Overall, the Tesla stock split doesn’t mean much for anyone already holding Tesla shares as their position shouldn’t change in value.
Still, there are some advantages for people with less access to capital (retail investors) now that the stock has been split. Instead of shelling out $400-$800 for a single share of Tesla, a much more reasonable $200 is all that’s required. As a shareholder, nothing much changes besides a potentially cheaper way to increase your holdings in Tesla even further.
The image featured at the top of this post is ©Valeriya Zankovych/Shutterstock.com.