Tesla's Proposed 3-for-1 Stock Split: What You Need to Know

Tesla's (NASDAQ: TSLA) proposed 3-for-1 stock split is another step to make shares more affordable to retail investors and give employees more flexibility in managing their capital. We will help you figure out what that means.

In March, Tesla announced its intentions to carry out a stock split, after which everyone expected further clarification of the details. This month, the manufacturer filed documents with the Securities and Exchange Commission (SEC), confirming that it intends to carry out a 3-for-1 stock split. The company invited investors to vote on this at its annual shareholder meeting in August.

March 28, 2022: Tesla submitted Form 8-K to the SEC announcing its intention to split the stock.
June 6, 2022: All shareholders at the close of business on this date were invited to participate in the annual shareholders' meeting virtually.
June 10, 2022: Tesla filed documents with the SEC announcing plans for a 3-for-1 stock split.
August 4, 2022: Shareholders to vote for a 3-for-1 share split at the 2022 Annual Meeting of Shareholders.

For new investors, stock splits can be a confusing process, so we will try to explain how it works. For your peace of mind, you should know that Tesla is no longer a newbie to this. In August 2020, the company went through a 5-to-1 stock split that went very smoothly and even pushed the share price to over $2,000 per share (before the split). Keep in mind that this does not mean that a new stock split will necessarily cause the value of shares to rise this time as well.

If the proposed stock split occurs, which is the most likely scenario, each shareholder will receive 3 shares for each 1 share held. Meanwhile, the value of each share will be equal to 1/3 of the value of the share at the moment when the changes take effect. In fact, the shareholder will receive a larger number of shares, the total value of which will be the same as their smaller number before the split.

However, this split is positive for future investors who can afford to buy a whole share at a lower price. People are more likely to buy stocks when they can afford to buy the whole share rather than just part of it. In addition, stock splits give employees who receive stock option awards greater flexibility in managing their capital.

© 2022, Eva Fox | Tesmanian. All rights reserved.

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This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.