Tesla Inc. : With a price divided by 3, Tesla shares must become more accessible to investors and employees

(BFM Bourse) – Despite the recent decline in its stock on Wall Street, Tesla is preparing to make its share more widely available by dividing its nominal value by 3. The electric vehicle manufacturer is following in the footsteps of Amazon, which proceeded last Monday to a division by twenty of its share to bring its price to a more reasonable level, without penalizing the existing shareholders.

After Amazon, it’s Tesla’s turn to prepare a split stock, equivalent in French to a division of the nominal value of its share. Despite a sharp 42% decline in its share price since January, the electric vehicle manufacturer intends to divide the price of its stock by three in order to make it more accessible to investors.

Friday evening, Tesla announced in its annual report, transmitted to the American stock market authorities, of its intention to divide by three the par value of its action without giving indications on the timetable for the operation. The project will be submitted for shareholder approval at the annual general meeting on August 4th. This split stock is not a surprise in itself. Last March Tesla had warned that it would ask its next annual meeting for approval for such an operation intended “to make their ownership more accessible to employees and investors.”

The company led by Elon Musk is not at its first attempt, Tesla had already divided its share by five at the end of August 2020 to make it accessible to as many people as possible. Tesla’s price was indeed close to 2,200 dollars during the first split stock of the stock market history of the group which began in 2010 on Wall Street.

Elon Musk’s company is following in the footsteps of other American tech heavyweights, such as Amazon, which divided its share price by 20 last Monday. Alphabet, the parent company of Google whose price exceeds 2,200 dollars will also proceed to a division by 20 of its shares on July 1st.

The sign of a long-term stock market dynamic

For the shareholder, the operation is completely transparent. For future investors, this puts the title within reach of a greater number of people and makes it possible to split their orders more finely if necessary. But nevertheless a split stock is not a non-event: it is above all an indicator of strong stock market vigour.

In itself, a stock split is perceived as a bullish signal, which studies tend to confirm (see Ikenberry, Rankine and Stice, What do stock splits really signal? in the Journal of Financial and Quantitative Analysis). An index, the 2-for-1 Index, was developed in the 1990s to demonstrate the outperformance of a basket of stocks that had recently experienced a split relative to the rest of the market. Until 2017, an ETF even made it possible to bet directly on this index.

Sabrina Sadgui – ©2022 BFM Bourse

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