Tesla Motors announced a stock split of 5:1 on Tuesday, August 11, to make shares available for individual investors who dabble around in small investments. This decision from its board of directors caused the stock price to rise by 7% in extended trade.
Tesla Inc., with its “soaring” stock, is one of the valuable companies in the world today. It has seen a 200% surge in stock price this year and was trading at $1,475 after the stock-split announcement. All investors on the Tesla roster on August 21 are due to receive four additional shares for every share they own. These shares will be credited to them at the close of trading on August 28 and will be up for trade on August 31.
Stock splits are used by corporations to attract and enthuse small-time investors by making shares readily available. This is because it causes a decrease in the price of individual shares. However, this move is not frequently used by large companies. The last one to do so was Apple in July this year when it announced a 4:1 stock split. The S&P 500 index, which tracks 500 large USA listed companies, saw only 3 stock-splits in 2020, with the average being 10 every year.
While Tesla has made profits in Q2 2020 despite the California factory staying closed for two months, institutional investors have avoided its stock due to a lack of consistent profitability. However, Tesla stock has been taken up by individual investors. This explains the company’s decision to announce a 5:1 stock-split.