Tesla 5:1 Stock Split, How it Impacts Existing and Future TSLA Investors

Tesla announced a 5:1 stock split on Tuesday evening which goes in effect on August 31st, 2020, creating an opportunity for small investors.

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

Pre-Split Stock Price
$1,500
Post-Split Stock Price
$300
Pre-Split Number of Shares
10
Post-Split Number of Shares
50
Pre-Split Position Market Value
$15,000
Post-Split Position Market Value
$15,000

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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