NEW YORK (AP) — Unlike its cars, Tesla stock will soon become less expensive.
Tesla is splitting its shares 3-for-1, so after the close of trading on Tuesday, investors will receive two additional Tesla shares for every one they owned as of August 17. In theory, that should reduce Tesla’s stock price by about two-thirds before trading begins on Wednesday.
Crushing a stock does not make a company more valuable or profitable. This year, Tesla joined the likes of Amazon and Google in splitting their expensive stock. Even meme stock darling GameStop has done a stock split.
WHY DO A DEAL OF STOCKS?
Stock splits are used by companies when their stock price becomes too high for retail investors to buy individual shares, or when the company wants to get more shares on the market to make them easier to trade.
Employees who hold company stock can also benefit if new investors drive up the price. Lower prices should also make it easier to sell stocks.
When the company announced its intention to split shares in March, Tesla shares were worth more than $1,000. That’s a bit steep for most retail investors. Some brokerages allow investors to buy shares, but not all.
According to a BofA Global Research report published in March, companies that split their stock tend to outperform the broader market in the three-, six- and 12-month periods following the split announcement. Since 1980, the 12-month performance of companies that have split their stock has more than doubled that of the S&P 500 index.
HOW DID TESLA SHARE DO?
Tesla shares closed Tuesday at $889.36, down about 16% for the year. A price of around $296, while not exactly cheap, could encourage more investors to buy the stock.
Any investor in Tesla is partially betting on the company’s CEO, Elon Musk, who has managed to make Tesla the world’s most valuable automaker and himself the world’s richest person, according to Forbes.
But the ride could get bumpy with Musk behind the wheel. In April, Musk struck a deal to buy social media platform Twitter. Some Tesla investors sold their shares, worried that Musk would be distracted from running Tesla if the deal goes through. In late May, the stock fell to $620.
Musk has since turned around and wants out of the deal. In October, the dispute goes to court. Tesla shares started to recover in July, boosted by better-than-expected second-quarter earnings and a general upward trend in the stock market.
HAVE OTHER WELL-KNOWN COMPANIES SPLIT THEIR STOCK?
Over the past few months, Amazon and Alphabet, the parent of Google, have split their shares 20-to-1. After the initial shock caused by the pandemic, both companies have benefited from a broad rally in the stocks of major technology companies, and their shares have soared north of $2,000.
Alphabet shares are up 2% since the stock split took effect on July 18, but are still down about 20% for the year. Google had the slowest revenue growth two years later in the second quarter, a sign that the tailwinds driving big tech companies during the pandemic have shifted in a challenging new direction.
Amazon shares have risen nearly 9% since the split, which took effect June 6, but so has Alphabet the company ran into problems and its shares have fallen nearly 20% since the start of the year. Consumers have changed their behavior and started spending more on services and less on goods. Like many companies, Amazon has seen significant increases in its own costs.
Even GameStop, the so-called meme stock that soared to ridiculous heights last year before coming back down a bit, decided to do a stock split. Although in GameStop’s case, it was retail investors that drove the stock up in the first place.
Shares of GameStop closed Tuesday at $33.56, down about 6% since the split, partly reflecting the market’s decline over the past few days.
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