If you’re looking to buy Tesla stock or already invest in the company, take note that share prices could plummet in the near future. That’s because the electric carmaker announced a 3-for-1 stock split in its latest regulatory filing.
Tesla will ask its investors to approve the split at its annual meeting in August. The company had initially announced plans for the split back in March, but did not offer any details about the ratio or timing until this new filing.
If the measure at Tesla goes through, shareholders will get three shares of company stock for each share they own. As with any stock split, the value of investors’ stakes in the company will remain the same, but the price of an individual share will fall.
Tesla is one of the most valuable public companies in the world, with a market capitalization of more than $670 billion. Its stock was trading at $648.60 per share on the Nasdaq exchange on Monday morning, down from $696.69 at market close on Friday after the split was announced.
That dip was part of a larger decline across the stock market on Monday. Some of the biggest losses concentrated in the tech-heavy Nasdaq, which was down more than 3.5% by midday on Monday.
Some experts have suggested that Tesla's poor performance may be connected to CEO Elon Musk's ongoing bid to buy Twitter. "Running a fast-growing business is a difficult job, and such distractions could harm Tesla," Georgetown University finance professor George Angel previously told Money.
What does the Tesla stock split mean for investors?
In its proxy statement, Tesla said it expects the split to “reset” the price of its common stock, which has surged more than 43% since the company’s last stock split (at a ratio of 5:1) in August 2020. This will give employees, all of whom are eligible for stock benefits, more flexibility when it comes to their equity compensation, the company said.
Tesla also said the split will make its stock more accessible to retail investors. If Tesla shares remain stable at around $650, a 3-for-1 stock split would reduce the price of a share to about $217.
But remember: “This does not mean that the stock has become cheaper,” Morningstar Senior Editor Ruth Saldanha wrote in a research note earlier this year. “The fundamentals of the company and the stock price have not changed.”
The price of Tesla shares soared after the company's last stock split, but there's no guarantee that will happen again. Finance pros expect continued volatility for stocks this year, and it's generally a bad idea for investors to react and buy or sell based on the market's latest ups and downs or an announcement made in a company's quarterly report.
What's more, retail investors looking for a piece of the action without buying a full share of Tesla don't need to wait for the split to be approved in August. Brokerages like Fidelity and Schwab already offer ways to buy fractional shares of publicly traded companies.