Queen Nwabueze
In a strategic move to attract more investors to Tesla, shares of the electric vehicle maker dropped at the opening bell on Thursday as the company’s 3:1 stock split went into effect.
Join our WhatsApp ChannelThe electric car company completed a 3-for-1 stock split after the closing bell on Wednesday so one share now costs a third of what it did a day ago. Tesla closed around $891 on Wednesday, which paved way for its opening around $300 Thursday morning.
Tesla first announced the proposed 3:1 stock split in June as a way to make the nearly $900 stock more affordable; based on today’s closing price the new share price would be just under $300 per share.
Though the stock is down roughly 25% this year amid the wider market selloff, billionaire Elon Musk’s electric vehicle maker has still seen its shares surge roughly 200% since the last stock split in August 2020.
Reportedly, stock splits don’t impact a company’s market value, but evidence suggests that by making shares more affordable to retail investors, the move does often provide a short-term boost to share price.
Tesla shares are up roughly 25% since announcing the 3:1 split in early June, while news of Tesla’s 5:1 stock split roughly two years sent shares over 70% higher in the 20 days following the announcement.
“When stocks trade in a so-called comfortable range, everyday investors can more easily afford a piece of the company,” according to Lindsey Bell, Ally’s chief money & markets strategist. “That drives more interest in the shares and more interest means more people trading the stock.”
The only thing that the stock split changed is that existing investors now own three times as many shares of Tesla trading at one third of the price they ended at on Wednesday.
That includes Musk, the world’s richest person with a net worth of about $264 billion, according to Forbes. Musk still owns approximately 15% of Tesla’s common stock.
Companies with high share prices often split their stocks to make the cost of one share more affordable for individual investors. The rationale is that some investors might be more inclined to buy a stock if it is trading at a lower price.
Amazon, Shopify, Google owner Alphabet and meme stock GameStop have all done splits in the past few months.
