Tesla has announced a 5 for 1 stock split after market close today, sending its stock (TSLA) jumping as much as 8% in after-hours trading.
The automaker made the announcement via its investor website on Tuesday:
Tesla, Inc. (‘Tesla’) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.
In short, it means that each Tesla shareholder will see their number of shares held increase by a factor of 5, but the value of the share will be adjusted accordingly.
This aims to reduce the price per share and as Tesla put it: “make stock ownership more accessible to employees and investors.”
The stock split will happen on Friday, August 28, and the stock will resume trading the following Monday.
After the announcement, Tesla’s stock price (TSLA) jumped by as much as 8% before settling down up 6% at ~$1,450.
Stock prices have been known to go up after a stock split is announced even though it doesn’t really affect the actual value of the company.
If Tesla’ stock price was to remain the same until the end of the month, it will be trading at around $290 per share after the stock split.
This is a bit of an overreaction in the stock aftermarket.
It’s not usual. Apple recently announced a split and it saw a bump from it, but much less than 6%.
For most shareholders, it really doesn’t change anything at all.
Institutional shareholders don’t care about the price of a stock per share, and for individual investors, services like Robinhood (You can use this link to sign up and get a free stock) offer to buy fractional shares of a company like Tesla, rendering stock splits useless.
However, as Tesla mentions, it can make a difference for employees.
Tesla offers stock options for employees throughout the entire organization, and for employees who are on the lower levels of the pay scale, it can only mean a few stocks when it trades at $1,400+ per share.
If the company can’t issue fractional shares, it makes for big rounding differences and a lower price per share will fix that.
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