Have you been wondering what Tesla‘s August 2022 3-for-1 stock split could mean for your portfolio? As an experienced data analyst and long-time Tesla observer, let me walk you through everything significant regarding this corporate action. By the end, you‘ll understand exactly how the split could impact your strategy as an existing or prospective Tesla investor.
We‘ll analyze the stock split‘s effects on valuation, trading dynamics, retail participation, risks, and past precedents. You‘ll get the veteran insights needed to appraise if Tesla still makes fiscal sense for you at current levels. No finance background required!
Here‘s What We‘ll Cover:
- Stock Split Mechanics Refresher
- Tesla‘s Stock Price History & Previous Splits
- Trading Volume & Liquidity Impacts
- Lowering Barriers for Retail Investors
- Valuation Considerations vs. Auto Peers
- Production Risks & Macro Challenges
- Future Split Prospects
- What Should You Do Now?
Sound good? Great! Let‘s dive in…
Stock Splits 101
Before analyzing this specific split‘s impact, a quick refresher on what a stock split actually means…
A stock split refers to when a company decides to increase total shares available by subdividing each current share into multiple shares. Take the recent 3-for-1 split as an example:
| Action | # of Shares | Price per Share | Total Value |
|---|---|---|---|
| Pre-Split | 100M | $900 | $90 billion |
| Post-Split | 300M | $300 | Still $90 billion! |
So Tesla took each prior share and made it 3 shares at 1/3rd the price.
- Overall company value stays the same
- Shareholders have more shares at lower nominal price
- Per share percentage drops & gains shrink
Companies split stocks to:
- Improve trading liquidity
- Make shares affordable for more investors
- Bring extremely high prices back to normal levels
The lower nominal price also introduces some changes worth discussing…
Tesla‘s Share Price & Previous Splits
As a public company, Tesla has achieved staggering returns:
- IPO Price in 2010: Split-adjusted $17
- All-time high pre-split: Over $1,200!
Rapid price surges led management to conduct two prior splits:
| Split Date | Ratio | Price Pre-Split | Why? |
|---|---|---|---|
| Aug. 2020 | 5:1 | $1,374 | Lower Cost for Investors |
| Aug. 2022 | 3:1 | $900 | Further Improve Accessibility |
This split history shows a precedent for conducting splits after huge share price leaps. With the context established, let‘s analyze the impact!
Higher Liquidity & Volume Expected
According to historical data, stock splits cause noticeable spikes in shares traded:
| Avg Daily Volume | 1 Month Pre-Split | 1 Month Post-Split | % Change |
|---|---|---|---|
| Aug. 2020 Split | 30M shares | 60M shares | +100% increase |
| Aug 2022 Split | 70M shares | 110M shares* | +57% increase |
*still early data, but clear uptrend visible
More shares outstanding facilitates larger trades with less price impact. Higher volume allows easier entries and exits for investors.
Increased liquidity also ensures bid-ask spreads remain tight – critical for large institutions transacting blocks of shares.
Reducing Hurdles for Consumer Investors
But what does the split actually mean for shareholders?
For existing owners, share count rises but total value held stays constant. However, higher liquidity makes adding to or trimming positions easier.
For investor wannabes on the outside looking in, the ~$300 share price drastically improves accessibility.
Consider that retail investors allocation toward Tesla stock has quintupled in recent years:
The split should continue enticing capital inflows from consumer traders given the lower nominal cost basis now. Compared to share prices exceeding $1,000 pre-split, $300 seems reasonably within reach for many fans of Musk and EVs.
The psychological impact of a sub-$1,000 stock can really accelerate herd behavior. And that retail-driven enthusiasm has self-fulfilling impacts; more buying pressure boosts shares further!
Valuation Still Demandsperfection
Before chasing performance, let‘s check if today‘s pricing aligns with fundamentals.
Here‘s how Tesla stacks up against legacy automakers on typical valuation yardsticks:
| Company | P/E Ratio | P/S Ratio |
|---|---|---|
| Tesla | 90x | 13x |
| Ford | 6x | 0.3x |
| GM | 6x | 0.4x |
With a >90 P/E ratio, Tesla‘s valuation requires flawless execution to justify. And competitors like Ford and GM trade at fractions of the multiples with their electric efforts still ramping up.
Justifying Tesla‘s roughly $900 billion market value demands effectively cornering the future electric car & solar markets given margins today significantly trail luxury brands like Mercedes and BMW.
And risks like production bottlenecks or demand pullbacks can‘t be fully dismissed either…
Macro Risks Remain Elevated
Rattling off potential pitfalls for Tesla could span pages and pages! I‘ll focus on a few key vulnerability areas here:
- Inflation/Rates – Less discretionary income for car buyers if macro conditions stay challenging
- Competition – Nearly all automakers going electric with hundreds of new models coming
- Execution – Continued capacity expansion critical to meet growth expectations
Any major whiffs in the points above could deflate shares considerably given the steep valuation premium priced in already.
And that‘s exactly why Tesla‘s trading likely stays volatile even after this latest split.
Will Tesla Split Again in the Future?
Given two splits in as many years, shareholders now wonder if another lies ahead.
Splits ultimately come down to share price levels. While no guarantee by any means, management has shown a willingness to split proactively during past rapid ascents.
Here‘s a look at tech peer‘s split decisions over recent decades:
| Company | # of Splits | Years Between Splits |
|---|---|---|
| Apple | 4 | ~5-7 years average |
| Alphabet | 2 | 6 years |
| Amazon | 0 | n/a |
Tesla actually splits more frequently than Big Tech stalwarts! The young company likely continues utilizing splits as a tool for optimizing share price and liquidity in the future if exponential gains continue.
The Bottom Line − What Should You Do?
For current Tesla investors, hold tight and enjoy the extra shares. Consider adding on temporary price dips if still bullish on exponential growth continuing.
For those considering starting a position, ask yourself two questions:
- Does today‘s valuation align with my risk tolerance?
- Am I comfortable with potential heavy volatility?
If you answered "yes" to both, the lower nominal share price now presents a more appealing entry point.
But if you require steadier, more mature businesses, perhaps watch from the sidelines as the EV story continues playing out.
And if you made it this far still wondering whether to buy Tesla‘s stock, at least you now have the core facts and perspectives needed to decide!
Let me know if you have any other questions in the comments section below.
