• Wed. Sep 28th, 2022

Tesla split: Why the electric vehicle maker’s shares are cheaper today

ByRandall B. Phelps

Aug 25, 2022

Tesla’s share price was expected to fall at the opening bell on Thursday, but not because of anything Elon Musk tweeted about demand for electric vehicles, “fully autonomous driving” featuresSpaceX updates, silly memes or his legal battle with Twitter.

The electric car company achieved a 3 for 1 stock split after the closing bell on Wednesday. Thus, an action now costs a third of what it cost a day ago. Tesla closed around $891 on Wednesday, meaning it was trading just under US$300 on Thursday.

You’re here approved the split in June, his second such split over the past two years. But before you start cheering that a Tesla stock is now “cheaper,” keep in mind that nothing changes with Tesla’s valuation.

The company is still worth more than $930 billion after the split. Shares continue to trade at a high multiple of more than 70 times 2022 earnings forecast – a huge premium to the valuations of traditional automakers like Ford, GM, Volkswagen and Toyota.

And the stock is still down about 15% this year as investors worry about growing competition in the electric vehicle market from traditional automakers as well as Musk’s many possible distractions. (SpaceX. The Boring Company. The Twitter takeover soap opera. The list continues.)

The only thing the stock split has changed is that existing investors now own three times as many shares of Tesla trading at a third of the price they ended on Wednesday.

This includes Musk, the richest person in the world with a net worth of around $264 billion, according to Forbes. Musk still owns about 15% of Tesla common stock.

Companies with high stock prices often split their shares to make the cost of a share more affordable for individual investors. The reasoning is that some investors might be more inclined to buy a stock if it is trading at a lower price.

Amazon, Shopify, Google owner Alphabet, and GameStop meme store have all makes divisions in the these last months.