D.he manufacturer of electric cars is currently celebrating one stock market success after another and is now demonstrating its strength with the announcement of a stock split. Anyone who is a Tesla shareholder on August 21st should receive four more shares for each share held. These will be paid out a week later, on August 28th, after the regular end of trading. The company announced on Tuesday, which caused the share price to rise by more than 7 percent after the start of American stock market trading on Wednesday.
Trading in the split shares is scheduled to start on August 31. At the moment of the split, the course will be reduced by 80 percent, but it is only a purely visual consequence. The splitting of the existing shares in a ratio of one to five changes neither the value of the share blocks of the investors nor the market value of the company. What is the purpose of the measure then?
Tesla wants to make its shares more accessible to employees and investors through the split, according to the company’s announcement. The stock will look far cheaper after the split than it did before. The decisive factor is that the more manageable denominations make it easier for small investors to diversify their manageable portfolio because the minimum amount for their investment is reduced.
That plays an important role in the Tesla case, after all, the price had passed the mark of $ 1,600 per share in July – which is a high absolute amount compared to many other stocks. As a rule, only whole shares can be acquired on the stock exchange, although some traders also offer trading in fractions. Anyone who has so far shied away from joining Tesla due to the high prices alone was able to invest in the company with mini amounts even before the share split. This worked with share savings plans, in which fixed sums, for example from 50 euros, are paid in every month. With this type of investment, the acquisition of fractions of shares is part of the system.
Apple also wants to split
Investors can see stock splits as a sign of the company’s strength. Only issuers whose prices have risen sharply over a long period of time dare to take such a step. The technology group Apple, which is popular with investors, recently announced a stock split. Ailing companies, on the other hand, are unlikely to want to push their share prices, which have come under pressure, even further down through splits. On the other hand, wobbly candidates tend to opt for the opposite step of the reverse stock split. In doing so, they reduce the number of their shares in a fixed ratio.
For example, Commerzbank, which was then severely affected by the consequences of the financial and sovereign debt crisis, merged its shares in 2013 at a ratio of one to ten. This should prevent the price from falling below the one euro per share mark. The example also shows that splitting or merging stocks makes it difficult to compare current and historical prices of a company.