Why Tesla’s Stock Split May Be a Good (or Bad) Time to Invest

In March, Tesla (TSLA) announced a potential shake-up of its stock that could go into effect later this year. The carmaker hasn’t announced details of a stock split yet, but it’s likely to put the final authorization of a split to a vote by shareholders in June.

Tesla began trading on the Nasdaq Stock Market in 2010 and is led by Elon Musk, who has been CEO since 2008. Musk has been a controversial figure over the years because of his tweets influencing the stock market, his plans for Tesla, or his investments outside of his Tesla role.

Your decision to invest and hope to earn wealth from Tesla shares may be clouded by additional attention on Musk or his business plans outside of the carmaker. The billBefore you make the decision to pick up some shares of TSLA, here are a few things to consider.

What you could have made on TSLA

Before deciding if Tesla’s stock has a spot in your portfolio, let’s look at what you could have made — or lost — if you had already invested in the electric carmaker.

Tesla’s share price was around $700 for one share a year ago in 2021, compared with around $875 in April of 2022. So if you bought $1,000 worth of Tesla a year ago, which would’ve been a little more than one share, that position would be worth around $1,250 today.

But what would $1,000 be worth today if you had bought Tesla at the beginning? The company went public on June 29, 2010, at $17 a share. That would be $5.16 adjusted for the company stock splits over the years. If you bought $1,000 of shares on the day of Tesla’s initial public offering (IPO), those shares would be worth around $169,000 today.

So what does the future hold for Tesla after a stock split, especially with regard to your portfolio? Here are some things to review.

The stock split factor

On March 28, Tesla announced that it was planning a stock split later this year. The final plan, including when the stock will be split and how many shares it will be split into, still needs to get approval from Tesla shareholders. The last time the stock was split was in 2020 in a 5-for-1 split.

So what does it mean when a stock splits? When a company splits its outstanding shares owned by shareholders, it leaves the shareholder with the same amount of money invested in the company but more shares in their portfolio.

If you own $1,000 of Tesla stock before the split, for example, you’re still going to own $1,000 of stock right after the split. The number of shares, however, will change. If the past is any indication, a 5-for-1 split would mean you would still have $1000, but you would own five shares for every one share you had before the split.

So why did Tesla decide to split its shares if the amount of money invested by shareholders is the same? One reason may be the cost of a single share. One share of Tesla closed at $1,065.10 on March 28, the day the split was announced. A price like that for just one share could be too high for the average investor, so splitting the stock could make it more attractive — and more affordable — to potential new investors.

Another reason to split a stock may be to help with liquidity. Tesla could create a larger number of shares without having to change the valuation of the company. Increasing the number of shares means the company might also increase its liquidity, which is its ability to convert its stocks into cash.

A stock split announcement could also give a bump to the price for a share. In Tesla’s case, it did see a rise in its stock price in the initial days after the announcement.

However, news in early April that CEO Musk was trying to buy Twitter may have dampened enthusiasm for the stock. Reports suggest that his $44 billion offer for Twitter may include the need to use $12.5 billion in Tesla shares for acquiring a loan to complete the transaction.

Should you buy TSLA and when?

If you’re thinking about how to invest money, picking up Tesla shares may or may not be a good move, depending on the market as well as your own portfolio. Research the stock and how it may fit into your portfolio to see if it works for you.

One factor in your decision may be the volatility of Tesla’s stock price. The price may bounce around more than a typical stock, partially due to comments Musk makes or business decisions about Tesla as well as news from other companies he owns, including aerospace manufacturer SpaceX.

Another issue to consider is the recent news about Musk’s purchase of Twitter. Even though it’s a social media company separate from Tesla, it has become intertwined with Musk’s business portfolio. The news about his involvement with Twitter has made some investors skittish. On April 26, the day after it was announced that Twitter’s board approved the purchase of Twitter by Musk, Tesla stocks tanked 12.2% in trading. That meant the company lost $126 billion in stock value in one day.

You also may want to remember that while the stock rallied in March after news of the future split was announced, TSLA shares are still in the red for 2022. The overall Nasdaq Composite Index is also in negative territory for the year, so Tesla’s downturn could simply be a reflection of the market.

Bottom line

Before you buy Tesla stock, do some research on the company and decide whether it would be a good fit in your portfolio. If you do decide to go forward, look into some of the best brokerage accounts that can help you best manage your investments.

If you’re investing in Tesla because you believe in electric power, you should know there are other ways to invest in renewable energy. And remember that with all stock market investments, you are taking a risk, and stocks could rise and fall depending on a number of market factors (the wealthiest have been successful at balancing risk),

FinanceBuzz is not an investment advisor. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.

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