That supports the idea that Tesla should trade at significantly higher price-to-sales and price-to-earnings multiples than the auto industry stalwarts. However, just how much of a premium it deserves is the question that investors will have to weigh. A regulatory filing made by Tesla (TSLA 0.66%) at the end of March revealed that the electric vehicle (EV) leader plans to carry out another stock split. Exact details about the plan were scarce, but the filing did indicate that the move would pave the way for CEO Elon Musk’s company to begin paying a dividend.
Effectively, this would reduce the company’s share price to a third of its current value while increasing the company’s outstanding share count by a factor of three. At the August 4 shareholder meeting, Tesla’s shareholders voted to approve the company’s proposed split. Tesla shareholders approved the new stock split at the annual shareholder meeting in Austin, Texas. The company first announced the proposed split several months ago via a March 28 tweet. Investors received four additional shares for every one share held in their portfolio. From the time of the stock split announcement on Aug. 11 to the 5-for-1 stock split on Aug. 31, Tesla’s stock price soared 80%.
Compared to most other EV offerings, the power, range, and capacity offered by Tesla’s batteries are superior. This is what’s helped create such incredible demand for the company’s EV lineup. Aside from the fact that no other auto company built itself from the ground up to mass production in over five decades, Tesla could reach an important psychological milestone this year. Even with COVID-19 lockdowns hurting production at the Shanghai gigafactory, the company looks to be well on its way to reaching 1 million EVs produced and delivered in 2022.
Tesla Stock Split: Everything You Need to Know About the Upcoming Split
You’ll note that Tesla’s market cap doesn’t change despite the share price and outstanding share count being adjusted. Think of stock splits as nothing more than window dressing that allows companies to make their shares more accessible for retail investors. It’s also a way of encouraging higher average trading volume, which CEOs like Elon Musk understand can keep Tesla at the heart of the https://www.fx770.net/ conversation on online message boards and within investing communities. Conversely, Tesla’s share price will be reduced by a third following its August 24 close. Shareholders of Tesla, Inc. (TSLA) approved a 3-for-1 split of the company’s common stock at its annual meeting held after the close of the markets on Aug. 4, 2022, according to a preliminary tally announced at the meeting.
- Michael holds a master’s degree in philosophy from The New School for Social Research and an additional master’s degree in Asian classics from St. John’s College.
- As I’ve previously highlighted, Musk’s promises to put 1 million robotaxis on the road, deliver higher-level full self-driving, and bring the Cybertruck and Tesla Semi into production, have all been pushed back one or more years.
- The company’s impending stock split won’t change the fact that shares are quite pricey, either.
- Shares, however, usually rise over the year following a split, according to a study conducted by Nasdaq.
- When you purchase stock in a company, you are essentially buying a piece of the business, so you want to make sure the business can attract profits in the future.
The company’s impending stock split won’t change the fact that shares are quite pricey, either. With the vast majority of auto stocks valued at a single-digit forward-year price-to-earnings (P/E) multiple, Tesla stands out like a sore thumb with its forward P/E ratio of 56. Even with Tesla diversifying some of its sales into energy storage and solar panel installation, this is a nosebleed premium bestowed by the investing community.
Tesla’s shares are still incredibly pricey
When a company announces a stock split, all shareholders on the books before the cutoff date will receive more shares of the company’s stock. Although this may sound like a win for investors, it’s only a cosmetic change. The company is just slicing every share in your portfolio into smaller pieces.
While a stock split theoretically should not alter the valuation of all shares outstanding, lowering the price per share may attract more potential buyers, boosting the stock’s aggregate valuation somewhat. Like most auto stocks, Tesla is contending with semiconductor chip shortages and generalized parts shortages predominantly caused by the COVID-19 pandemic. In particular, lockdowns in various parts of China have curtailed production at Tesla’s Shanghai gigafactory. Despite this turmoil, investors have a natural tendency to seek out Wall Street’s silver lining. Since the beginning of the year, dozens of companies have announced and/or enacted stock splits.
But a stock split doesn’t necessarily mean that anybody’s getting anything of additional value with their money. A stock split will make Tesla’s four-figure stock price more affordable for the average investor. After the stock split, all investors can buy a whole share of Tesla for a cheaper price. If the company pursues a 5-for-1 stock split again, you’ll have 10 shares valued at $200 each if the stock price remains the same. Demand for Tesla’s vehicles has been strong, and it’s posting margins that are fantastic for its industry. Tesla’s operating margin leads the pack among major automakers, and the company is poised to expand in high-margin categories including battery technology and self-driving software licensing.
After the 3-to-1 split, Tesla’s shares were trading at about $302, a third of where they stood prior to market open. He’s researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world’s major financial publications, including Kiplinger, U.S. News and World Report, The Motley Fool and more. Michael holds a master’s degree in philosophy from The New School for Social Research and an additional master’s degree in Asian classics from St. John’s College.
Wall Street and the investing community have been dealt a difficult hand in 2022.
The fourth thing to note, following the completion of the Tesla stock split, is that the company remains exceptionally expensive, compared to legacy auto stocks. The fourth thing to know about Tesla’s Aug. 25 stock split is that it’ll have absolutely no impact on the company’s day-to-day operations. That means it won’t impact the competitive advantages Tesla has ridden to one of the largest corporate valuations in the world. Based on Tesla’s closing price of $919.69 on August 16, a 3-for-1 stock split would reduce its share price to around $306.56 a share. Perhaps the most pertinent piece of data for investors to know is when, exactly, Tesla’s stock split will take place.
It also won’t hide the company’s longer-term risks
The Tesla stock split doesn’t change the fact that Musk’s empty promises could come back to bite shareholders. There’s no question that retail investors, who’ve played a big role in pushing Tesla’s valuation to nearly $1 trillion, are the biggest winners of the company’s pending stock split. Keep in mind that it can sometimes take stock quote providers and online brokerages a few hours to a full day to recognize that a stock split has taken place. It also indicates confidence that the share price will eventually rise to a level near or surpassing where it stood before the split. When a company’s stock splits, each existing share gets divided into the corresponding number of split shares.
There’s also CEO Elon Musk, who the retail investor community has largely come to embrace as a visionary. Musk has overseen the introduction of four currently sold EV models, and has helped diversify his company to include energy storage products and solar panel installation. In addition to production advantages, Tesla’s batteries continue to be a bright spot in an increasingly crowded industry.
The cherry on top is the Federal Reserve is aggressively hiking rates into a steeply correcting market for the first time ever. With the Tesla stock split now complete, here are five things investors should know following this much-anticipated split. The second important tidbit of information Tesla’s current and prospective investors should know is the magnitude of the forward stock split. Investors who held Tesla stock on Aug. 17 will be eligible to receive the additional shares. The stock split has largely fallen out of fashion in corporate America. Shares, however, usually rise over the year following a split, according to a study conducted by Nasdaq.
Why Tesla Wanted a Stock Split
Tesla published its first-quarter earnings results earlier this month, and the business delivered another period of impressive growth. Automotive revenue surged by roughly 87% year over year to $16.86 billion, and its net cash flow from operating activities surged by 143% to nearly $4 billion. The EV leader produced 305,407 vehicles in the quarter and delivered 310,048, performance that represented year-over-year jumps of roughly 69% and 68%, respectively. Tesla’s annual meeting also had votes on eight proposals submitted by shareholders.
The 3-1 split comes on the heels of even more good news for Tesla shareholders. Senate’s Inflation Reduction Act of 2022, the significant tax credits could be available to Tesla car buyers. The existing credit was phased out after a carmaker sold 200,000 electric vehicles. But this bill would make the credit available to qualifying Tesla and General Motors (GM) vehicles. It’s nice to have at least the perception of getting something for nothing.