Tesla (TSLA) is expected to split its stock 3-for-1 on August 24th, and trading on a split-adjusted basis will commence on August 25th. Shareholders as of August 17th will receive two additional shares for each share that they own. On March 28th, 2022, when Tesla announced its intention to split stocks, its share price traded for more than $1000 a share.
The last time Tesla split its stock was on the 31st of August 2020. Following the announcement of a 5-for-1 split on August 11th up until its implementation, shares rose by an incredible 81%. The previous split caused investors to pile in and buy up $209.3 million worth of shares. (Source:Barron’s)
What is a Stock Split?
Stock splits divide a company’s shares into more shares, lowering the share’s price and increasing the number of available shares, giving shareholders additional shares for every share they already hold. A company may choose to engage in a stock split when the stock price gets too high for retail investors or when a company wants to increase the amount of shares in the market, making the stock more accessible. Stock splits don't necessarily make a company more valuable; rather, they make the stock more affordable and accessible to a wider range of investors.
Following the Leaders?
Over the past few months both Amazon and Alphabet split their stocks 20-for-1. Both companies’ share prices have hiked since their splits in June and July respectively, by 9% and nearly 1.8% respectively. Despite this share price bump, both Amazon (AMZN) and Alphabet (GOOG), each experiencing its own challenges, have suffered total declines of around 20% so far this year. The broad-based drop in tech stocks seen so far this year, as well as streaming competition from Walmart (WMT), may have been a contributing factor.
Pleasant Earnings Surprise
In July, Tesla released a better-than-expected set of Q2 2022 results, with total revenue growing by 42% and its earnings per share (EPS) up by 57% as compared to last year. This good news for investors and traders alike comes despite the significant challenges posed by the COVID-19 pandemic rearing its head yet again in China as well as persistent supply chain issues. Since Tesla announced the upcoming stock split, its share price has mostly been on an upward trajectory, trading above its 50-day moving average on July 8th for the first time since early May. (Source:Nasdaq)
Upcoming Price Hike
Unlike its shares, Tesla cars are about to get more expensive. Following the apparent increase in abilities, Tesla announced that it will raise the price of its FSD driver assistance software in the U.S. to $15,000 starting September 5th (a 25% increase), all prior orders will be honoured and sold at the previous price of $12,000. Tesla has continuously increased the price of its FSD software since it was released, following the rationale that as the software becomes more advanced and valuable, it’s logical that the price would go up
While the prevailing economic climate can be characterised by significant levels of volatility, Tesla’s stock split could reflect its top executives’ optimism regarding the firm’s near-term trajectory. Some analysts even put the odds of Tesla shares hitting an uptrend at better than even. However, as savvy traders have internalised by now, even the most strongly-based predictions can go awry when it comes to the markets.