Posted on June 22, 2022
The electric vehicle manufacturer Tesla has indicated that it wants to split the nominal value of its shares (split stock) of 3 to 1. The resolution will be proposed at the general meeting of shareholders on August 4.
In the document submitted to the SEC on June 10, we can read that:
- Tesla’s success depends on its ability to attract and retain talent through an attractive compensation system.
- Unlike its competitors, Tesla offers its employees the possibility of receiving shares.
- Since the last split of the share in August 2020, it appreciated by 43.5% on June 6, 2022.
- the split of the action will reset the share price in order to allow employees to have more flexibility in the management of the share.
- Accessibility for retail investors (whose interest in the stock is high) will be enhanced.
All in all, nothing too shocking. A company can completely remunerate its employees in shares, except that this operation raises two questions: why a split ? And why now?
In August 2020, Tesla stock was listed at $2,200 ($440 after the split). It now costs $650. The benefit of performing a split at the current price therefore seems less obvious than two years ago. What if it was simply the belief that the announcement of a split is perceived as a bullish signal that would have partly motivated Elon Musk’s decision, thinking he was benefiting from a windfall effect? Indeed, the announcement of split in August 2020 (5 to 1) led to a 13% increase in the stock price.
A little fuel that Tesla would need to regain some height on the stock market, the title showing a drop of -45% since the beginning of the year.
The stock is under pressure with:
- Rising interest rates resulting in a compression of valuation multiples.
- Production concerns in China following repeated confinements.
- Elon Musk’s Twitter raid (and the question of its funding).
However, the current situation is different from August 2020. At the time, the market attributed a higher stock value to companies performing splits. Which makes no sense because whether you cut a pizza in half or in six, its size will remain the same. The same is true for the value of a company on the stock market.
The announcement of the new split caused Tesla stock to rise just 1%. Could this be a sign of a return to some normality? In this case, it will take more to Elon Musk (yet a goldsmith in terms of storytelling) to convince investors to take an interest in Tesla stock.