Tesla’s stock price is unstoppable. At the time of writing, anyone who wants to buy one share has lost about $ 2,277. That makes the stock less accessible to young investors, so it is split up. How that works, Nu.nl explains.
The value of a Tesla stock will drop by 80 percent on Friday evening. Not because the company is in trouble. On the contrary, things are going well and the market value is going through the roof. The decrease in value is purely the result of Tesla’s decision to split its shares. Investors receive four more for each share on Friday evening. Why is CEO Elon Musk doing this? And can the decision also have a negative impact?
Cut your shares into five pieces; why is Tesla doing this?
Earlier this month, the Tesla stock price rose above $ 2,000, an unusually high price for a stock. Meanwhile, the rate is even higher, at an amount of about 2,200 dollars (about 1,680 euros). “As a result, the share is affordable for fewer and fewer investors,” says investment strategist Judith Sanders of ABN AMRO.
“Tesla is also popular with the somewhat younger investor. But they often have less deep pockets than the older investor. $ 2,000 for a share is quite a considerable amount for many people. To ensure that the less wealthy investor still has shares. Tesla can buy, the company has decided to split the shares. “
Bob Homan of ING agrees. He also sees it as a gesture that evokes sympathy in the market and among the smaller investor. “On some platforms you can buy fractions of shares. But in most places one share is the minimum and then 2,000 dollars is a considerable amount. And you still want your share to remain attractive to a relatively wide audience. Otherwise the price will rise so much. high that there are few investors left who can still buy your share. That also puts pressure on the price. “
It is also nice for companies if there is variation among the owners of their share, he thinks. “If your shares are in the hands of a few large investors and one gets out, you immediately see that this has a depressing effect on the price.”
Is Tesla the first company to take such a step?
No, Tesla is certainly not the first company to decide to split its shares. Apple has done this several times in the past, and last month announced it would chop up its shares for the fifth time. That split took place earlier this week.
“Even in the time of the internet bubble at the beginning of this century, it was common for companies to split their shares,” says Sanders. It is therefore not completely unusual. However, for Tesla it is the first time that it has chopped up its shares.
Could the decision also have a negative effect on Tesla?
That is not the expectation. As mentioned earlier, the number of investors who can now buy a share is only increasing. “This can increase demand for the stock and drive the price,” explains Sanders.
Nevertheless, this probably will not cause too great a jump in the price in the coming week. The moment a split is announced, the demand for the share will already increase. A significant portion of the Tesla share price gain is therefore likely to have been booked shortly after the August 11 announcement. Homan thinks that too. “After Friday the race will have to do it on its own again.”
Tesla’s share price has attracted a lot of attention in recent months. In June we wrote that the value of the stock had reached $ 1,000, but now it is already worth more than double.