Tesla 5:1 Stock Split, How it Impacts Existing and Future TSLA Investors
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Key Takeaways
- On Tuesday 8/11/2020 Tesla announced a 5:1 stock split.
- The stock split will go into effect on Monday 8/31/2020 after the close of trading.
- A more affordable stock price may attract smaller retail investors.
- The stock price will still predominantly be influenced by institutional investors.
- Stock split impacts are minimized by a growing number of fractional-share trading platforms.
What Does a 5:1 TSLA Stock Split Mean?
A 5:1 stock split increases the number of outstanding TSLA shares 5x while decreasing the stock price by 5x.
For example (hypothetically) let’s say that TSLA stock is trading at $1,500 per share at the time of the split and you own 10 shares.
When the stock splits 5:1 the stock price will drop to $300 per share ($1,500/5), but you will now own 50 shares (10×5).
The market value of your stock position will remain constant ($15,000 in this example).
Example Scenario
A stock split does not change the fundamentals of a stock, nor does it directly impact the overall valuation of the company.
It is common for a company to split the stock to make the stock more affordable and accessible to smaller traders with less money to invest.
Stocks prices typically see a large upward movement pre-split as institutional investors add to their positions in anticipation of smaller investors buying the stock post-split.
Impact to Existing TSLA Stock Owners
On Monday 8/31/2020 after the close of trading TSLA stock owners will see their quantity of shares multiply by a factor of 5x.
This increase in number of shares is paired with a stock price decrease by a factor of 5x.
Existing TSLA stock owners will hold a position with an equivalent market value post-split.
Impact to Future TSLA Stock Owners
For those interested in purchasing TSLA stock, it will now be 5x more affordable.
The 5:1 stock price decrease will make shares of TSLA more accessible to smaller investors with less buying power.
Summary
The 5:1 TSLA stock split will allow smaller investors to purchase the stock at a lower price and will likely introduce newer investors to the stock.
On Wednesday 8/12/2020 the stock price increased 13.12% from $1,374.39 to $1,554.76.
It will be interesting to see how to stock price changes pre and post split.
Only one year ago the TSLA stock price was under $220 per share.
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