Tesla wants to make its stock market more accessible

Posted on June 22, 2022



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The electric vehicle manufacturer Tesla has indicated that it wants to split the nominal value of its shares (split stock) of 3 to 1. The resolution will be proposed at the general meeting of shareholders on August 4.

In the document submitted to the SEC on June 10, we can read that:

  1. Tesla’s success depends on its ability to attract and retain talent through an attractive compensation system.
  2. Unlike its competitors, Tesla offers its employees the possibility of receiving shares.
  3. Since the last split of the share in August 2020, it appreciated by 43.5% on June 6, 2022.
  4. the split of the action will reset the share price in order to allow employees to have more flexibility in the management of the share.
  5. Accessibility for retail investors (whose interest in the stock is high) will be enhanced.

All in all, nothing too shocking. A company can completely remunerate its employees in shares, except that this operation raises two questions: why a split ? And why now?

In August 2020, Tesla stock was listed at $2,200 ($440 after the split). It now costs $650. The benefit of performing a split at the current price therefore seems less obvious than two years ago. What if it was simply the belief that the announcement of a split is perceived as a bullish signal that would have partly motivated Elon Musk’s decision, thinking he was benefiting from a windfall effect? Indeed, the announcement of split in August 2020 (5 to 1) led to a 13% increase in the stock price.

A little fuel that Tesla would need to regain some height on the stock market, the title showing a drop of -45% since the beginning of the year.

The stock is under pressure with:

  1. Rising interest rates resulting in a compression of valuation multiples.
  2. Production concerns in China following repeated confinements.
  3. Elon Musk’s Twitter raid (and the question of its funding).

However, the current situation is different from August 2020. At the time, the market attributed a higher stock value to companies performing splits. Which makes no sense because whether you cut a pizza in half or in six, its size will remain the same. The same is true for the value of a company on the stock market.

The announcement of the new split caused Tesla stock to rise just 1%. Could this be a sign of a return to some normality? In this case, it will take more to Elon Musk (yet a goldsmith in terms of storytelling) to convince investors to take an interest in Tesla stock.

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