NEW YORK — Unlike its cars, Tesla stock is about to get cheaper.
Tesla is splitting its stock 3 for 1, so after the close of trading on Tuesday, investors will receive two additional Tesla shares for each they owned starting August 17. In theory, that should lower Tesla’s stock price by about two-thirds before trading begins on Wednesday.
Stock splits do not make a company more valuable or profitable. Tesla joins stock market heavyweights Amazon and Google parent Alphabet in splitting their expensive shares this year. Even meme-stock darling GameStop has done a stock split.
WHY A STOCK SPLIT?
Stock splits are used by companies when their stock price becomes too high for retail investors to buy individual shares, or when a company wants more shares in the market to make them easier to trade.
Employees who hold shares of a company can also benefit if new investors drive the price up. The lower prices should also make the shares easier to sell.
Tesla shares traded for more than $1,000 when the company announced in March its intention to split its shares. That’s a bit steep for most retail investors. Some brokers allow investors to buy fractions of a share, but not all of them.
Companies that split their stocks tend to outperform the broader market in the three-, six- and 12-month periods following the announcement of a split, according to a BofA Global Research report released in March. Since 1980, the 12-month performance of companies that split their shares, the S . more than doubled&P500s.
HOW’S IT DOING WITH TESLA’S STOCK?
Tesla shares closed at $889.36 on Tuesday and are down about 16% this year. A price around $296, while still not exactly cheap, could entice more investors to buy the stock.
Every investor in Tesla is betting in part on the company’s mercurial CEO, Elon Musk, who has managed to make Tesla the world’s most valuable automaker and himself the richest man in the world, according to Forbes.
But the ride can get bumpy with Musk at the wheel. In April, Musk struck a deal to buy social media platform Twitter. Some Tesla investors sold their shares, fearing that Musk would be distracted from running Tesla if the deal went through. Shares fell to $620 in late May.
Musk has since made a U-turn and wants out of the deal. The dispute will go to court in October. Tesla stock started to recover in July, boosted by better-than-expected second-quarter results and a general uptrend in the stock market.
HAVE OTHER KEY COMPANIES SPLIT THEIR STOCK?
Amazon and Alphabet, Google’s parent company, have each split their shares 20-for-1 in recent months. Both companies were swept into a broad rally for major tech stocks after the initial shock of the pandemic, with their shares soaring north of $2,000.
Shares of Alphabet are up 2% since the stock split took effect on July 18, but are still down about 20% this year. Google had its slowest revenue growth in two years in the second quarter, a sign that the tailwind that propelled major tech companies during the pandemic has taken a challenging new direction.
Amazon shares are up nearly 9% since the split took effect on June 6, but like Alphabet, the company has faced challenges and its shares are down nearly 20% so far. Consumers have changed their behavior and are spending more on services and less on goods. Like many companies, Amazon has also seen its own costs rise significantly.
Even GameStop, the so-called meme stock that shot to ridiculous heights last year before falling back slightly, decided to do a stock split. Although in GameStop’s case, it had been the small investors who drove the stock up in the first place.
GameStop shares closed at $33.56 on Tuesday and are down about 6% since the split took effect, partly due to the market’s decline in recent days.
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