When Will Tesla Stock Split Again?

Stock splits are catalysts for excitement but they don’t fundamentally change anything – not the company’s market capitalization nor its fundamentals. You don’t own any more or less of the company.

So, why do companies like Tesla (TSLA) split their stock so often? 

What Is a Stock Split?

Stock splits are merely a way for companies to raise or lower the current number of outstanding shares – the split doesn’t inherently change the market value of the company or its market capitalization.

For instance, when a company doubles shares by performing a 2 for 1 stock split, shareholders will each own double the number of shares they did before the split, but the value of total shares remains the same because the share price is cut in half.

What’s the Purpose of a Stock Split?

A primary reason companies perform stock splits is to temporarily reduce the per-share price, effectively making shares less expensive and more desirable for smaller investors. 

These days it’s possible to purchase fractions of a shares but a decade or so ago a stock split served a valuable purpose to management teams who wanted to make their share prices more affordable to retail investors.

Splits also helps to reduce the price of derivatives after a split. While the overall value doesn’t change – for stocks or their derivatives – a split certainly can raise or lower a stock’s overall share price in the days, weeks and months following the split.

What Happens When a Stock Splits?

When any company decides to split its stock, the market cap remains the same – shareholders may own more shares but each share is worth less relative to the ratio of the split. This lower per-share price that typically attracts more investors.

This increased demand can cause share prices to rise which, in turn, raises the overall market capitalization after the split.

This isn’t always the case, however, because there are many variables at play, namely the company’s underlying fundamentals.

Pros and Cons of a Stock Split

When a company splits its stock, there can be several advantages and disadvantages that follow.

For instance, the pros of a stock split include:

Enhances Liquidity

As a stock becomes more and more expensive, trading volume slows.

Using a stock split to increase the outstanding share count improves liquidity. This typically narrows the space between bidding and asking price, allowing an investor to get a better deal when trading.

With a lower price per share, shareholders can potentially benefit from an easier share sale because there’s a higher volume of shareholders on the other side of the position who may wish to buy those shares being sold.

Can Increase Share Prices

This is maybe the best reason of all for companies to split stocks – share prices tend to rise.

In a study analyzing companies with large market capitalizations, companies that split stocks saw an average price gain of 2.5 percent.

In the same study, it was discovered that the average stock split saw companies outperforming the market over one year by almost five percent.

These are fantastic benefits – but what are the possible drawbacks of a stock split?

Potential for increased volatility

Sometimes, a stock split can increase market volatility because the new stock price is lower. This means an influx of new investors, investing because of the affordability. This can cause the stock’s new price to fluctuate wildly depending on certain factors, such as investor reactions and price speculation.

It’s typically an inexperienced investor who mistakenly thinks a stock split is inherently a good thing. Inexperienced investors tend to confuse correlation with causation.

If a company is successful, a stock split is thought to be almost inevitable because book values grow over time, as do dividends usually. If an inexperienced investor witnesses this pattern enough, he or she may inextricably confuse the two terms. There are always exceptions to the rule, like Berkshire Hathaway (BRK.B), which has a share price trading in the hundreds of thousands of dollars per share.

Just because it splits doesn’t mean the price will increase.

If you’ve been investing for a long time, you know this. You know that sometimes a company will reverse split its stock if it’s performing so badly it’s in danger of delisting.

The reverse stock split is much like a merger – a regular stock split divides a stock into more shares, whereas a reverse stock split merges two or more shares into one share.

Sometimes a stock price will rise after a reverse split, but typically it doesn’t and sometimes it even takes the stock some time before it fully recovers.

Tesla Stock Split History

Tesla stock has only split once since its IPO.

When Did Tesla Stock Last Split?

Tesla split its stock on August 31, 2020.

The split was a 5 for 1, meaning every share owned at the time became five shares. An investor holding 1,000 shares of Tesla stock on August 30 became the owner of 5,000 shares on August 31.

When Will Tesla Stock Split Again?

When a stock’s price is inching higher, it can be a sign that it may split soon. For instance, shares of TSLA were around $850, then $950, then as much as $1200 per share. The stock corrected a bit when Musk stated he would stop selling shares. 

Does this mean Tesla stock is ready for another split?

There’s talk of a Tesla stock split on December 9, 2021. But is this just speculation based on some pretty potent yet random tweets?

Grammy Award-nominated Rob Graves unrolled quite the thread on November 17. But Elon Musk is like that – he likes leaving random breadcrumbs for those smart enough to pick up on them.

Three times in November, Musk sold 934,091 shares. Is this significant?

934,091 x 3 = 2,802,273 total shares sold. Want to go down the rabbit hole, as Meet Kevin did in his YouTube video on the subject?

The first four numbers of the total shares sold figure equal 12.

The last three numbers equal 12.

Is Musk pointing to a stock split on December 12? Or is it December 9, as many are speculating?

Take the date, December 9, 2021, and write it out as a number: 12,092,021.

If you divide that figure by the recurrent number of shares Musk sold three times (934,091), you get 12.9 plus a few trailing decimal points. What do you make of it?

What Happened the Last Time Tesla Stock Split?

After Tesla’s stock split in August 2020, it immediately – within the same day – had an 87 percent run. It then dipped a bit and sat flat for over 2.5 months before it ticked up again.

Right after Tesla split, the entire tech sector experienced a massive selloff of shares. Knowing this, would that make you better prepared for a December Tesla stock split this time around?

Maybe Musk is giving the stock world a Christmas present early?

Will Tesla Stock Go Up After It Splits?

In May 2020, Musk tweeted that he thought Tesla’s stock was priced too high and it immediately fell by $70.

To the average person, especially newbie investors, Musk is enigmatic. He has a way of influencing shareholders and potential investors alike with his charismatic approach to just about everything.

People tend to do what Musk directs them to do and in this case, if investors think the stock will split that’s an invitation to buy – and buy, they will.

How much Tesla (TSLA) will rise after its next split remains to be seen. At its current price, it would have to see around a 30+/- percent increase to reap the same benefits as last time around.

Is Tesla a Good Buy After It Splits?

Tesla could indeed be a great grab if the stock were to split again. Some analysts think that because Tesla (TSLA) was one of the first to go to market in the EV space, it will continue to reap a vast share of the market – even in the face of fellow competitors.

But in coming years, the EV giant will not only have its current rivals but new upstarts joining the EV race. What will it look like when traditional car makers begin producing electric vehicles, too?

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.