In an effort to make up for the stock’s poor performance so far this year, which has been compounded by problems related to Autopilot that seem to be piling up, Tesla is working to rekindle the momentum engine that drove over 1,700 percent gains the last time the company went for a stock split. Their goal is to compensate for the stock’s poor performance.
To wit, Tesla has stated, in a Form PRE 14A that was just moments ago filed with the SEC, that it will seek shareholder approval at the next annual meeting to expand the number of authorized common shares for the company from 2 billion to 6 billion:
“The Authorized Shares Amendment provides for an increase in the number of authorized shares of Tesla’s common stock from 2,000,000,000 shares to 6,000,000,000 shares.”
The file continues with the following notes:
“The primary purpose of the Authorized Shares Amendment is to facilitate a 3-for-1 split of our common stock in the form of a stock dividend (the “Stock Split”).”
To review, a stock split occurs when a firm awards its existing owners extra shares based on a pre-approved multiple. These new shares increase the total number of shares they own. In this scenario, existing owners will receive three more shares for every Tesla share that they now own as a result of a 3-to-1 stock split. At the same time, the stock price is modified in such a way that the overall value of the position held by investors is not impacted.
Therefore, on a conceptual level, the value of an investor’s portfolio is unaffected by a stock split. The transaction merely entails incidental benefits, such as an increase in liquidity, although this is not the case in practice. Recent anecdotal data, on the other hand, reveals that stock splits are, in fact, harbingers of substantial stock price rises. [Citation needed]
After the most recent stock split was announced by Tesla, the company’s shares recorded increases of more than 300 percent between the time of the announcement and when new shares were issued. The price of the shares was brought down to $442 after it had been split five times to one. Nevertheless, the price of Tesla shares continued to climb even after the completion of this transaction. By November 2021, the company’s stock had reached an all-time high of $1,243.49, which was equivalent to a price of $6,217 in terms of the price before the stock was divided. Gains totaling 1,776.11 percent were to be found throughout this entire voyage.
Naturally, the market was in a secular bull period the last time Tesla did a stock split, but this time around, the market is in a secular bear phase. The Nasdaq 100 index is currently experiencing a bear market at this time. The hawkish stance taken by the Federal Reserve, in addition to intrinsic factors, such as Elon Musk’s takeover bid for Twitter, which raises the specter of unbridled stock liquidation from the CEO of Tesla in order to finance this gamble, have both played a role in driving down the price of Tesla shares, which have fallen by more than 40 percent since the beginning of this year.
Obviously, the difficulties that Tesla is experiencing with Autopilot are not helping the situation. As an illustration, the NHTSA has recently increased the scope of its continuing study of Tesla’s native advanced driver assistance system (ADAS), which goes by the name Autopilot. Specifically, the agency has transitioned from a preliminary evaluation to an engineering analysis.
The news that Tesla is in the process of negotiating a deal with Samsung to purchase 5-megapixel cameras for its Autopilot system is another significant advance in this area. This is significant since Elon Musk has expressed trust on many occasions in the 1.2-megapixel cameras that are already installed in Tesla vehicles.
Will Tesla’s most recent stock split maneuver prove to be a harbinger of big gains or be labeled as a fizzle instead? Share your opinions with us in the box provided below for comments.