Tesla has announced a new five-way stock split to take effect on August 28th, which will make the company’s shares cheaper for buyers.
The electric car maker’s stock closed on Tuesday at $1,374.39 a share, close to its July all-time high and at a total market valuation of more than $256 billion. But at prices that high, it’s difficult for individuals — especially retail traders using platforms like Robinhood — to own more than fractional share of the company.
When Is The Stock Split Scheduled
If you own Tesla stock by August 21st, you’ll receive four additional shares of common stock on the date of the split. Starting August 31st, Tesla says it will begin trading on a split-adjusted basis.
The move was geared to “make stock ownership more accessible to employees and investors,” the company said. Tesla TSLA, -3.11% shares have more than tripled so far this year.
Each shareholder of record as of Aug. 21 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after the close on Aug. 28, Tesla said.
Stock Splits and Why Companies Use Them
Stock splits are typically neutral events for investors — you used to own one share and now you own five, but the value remains the same. However, the split makes it easier for individuals — such as those Robinhood-using retail investors that love to get in on fast-growing tech stocks — to become official shareholders. For Tesla, it helps defend against claims its stock price is inflated by reducing the total cost of one share by 80 percent and giving the company the appearance of having more affordable and accessible shares.
There are also plenty of other, somewhat arbitrary reasons why a company, like Apple or Tesla, may want to split their stock, as laid out in this explainer by Bloomberg’s Matt Levine. Some reasons include not being able to move fractional shares between brokerages as easily as full ones and concerns that a high-priced stock may reduce liquidity. But in some cases, it’s just good for appearances to have a lower-priced, more accessible stock, especially when it’s easier than ever for your average smartphone owner to throw some money into Robinhood and start trading.
Tesla’s Stock Performance
Tesla in July posted a second-quarter profit as cost cuts and strong deliveries helped offset coronavirus-related factory shutdowns, clearing a hurdle that could lead to the carmaker’s inclusion in the S&P 500 index.
While many institutional investors have avoided Tesla’s stock in recent years due to a lack of consistent profitability, the company has a strong following among individual investors.
Over the past 30 days, Tesla was second only to Apple as the most popular stock on the Robinhood trading app, according to Robintrack, a website that tracks Robinhood holdings.
Tesla’s stock has surged over 200% this year, while shares of General Motors and Ford Motor declined on fallout from the coronavirus pandemic
Tesla shares have gained 229% this year, compared with gains around 3% for the S&P 500 SPX, -0.79% , and are up 485% in the past 12 months, compared with a 14% advance for the S&P in the same period.
The shares have hit a string of closing records, most recently July 10’s $1,544.65 close.
Tesla twice this year surprised investors with a quarterly profit when Wall Street called for a loss; its second-quarter earnings, its fourth consecutive quarter of GAAP profit, put it on track to join the S&P 500.
The inclusion, expected to happen within a few months, would unleash a torrent of new money from countless exchange-traded funds, and be followed by pension, mutual and other actively managed funds in the U.S. and overseas, that track the large-cap benchmark or have size or other restrictions on which stocks to add to their holdings.
Besides Tesla’s profitability, several analysts have praised Tesla’s cash reserves, the continued strong demand for its electric vehicles, its new factories being built in Texas and in Germany, and a “battery day” scheduled for Sept. 15 as well as the expected launch of the Cybertruck, its electric pickup.