Morningstar

Tesla Panders With 5-1 Stock Split Announcement

Retail investors will find shares more attractive after this move, though it doesn't affect the intrinsic value of the company.

Securities In This Article
Tesla Inc
(TSLA)
Apple Inc
(AAPL)

The Tuesday announcement of Tesla’s TSLA 5-1 stock split seems to be an effort to make its stock more accessible to retail investors—and does nothing to change the intrinsic value of the company.

Shareholders on record at Aug. 21 will receive four additional shares via a stock dividend for each one share already owned in this stock split.

The company announced in a release that the split is being done to “make stock ownership more accessible to employees and investors.” Since the coronavirus pandemic caused a rise in day trading, fractional shareownership might be on the board’s mind.

Shares will be distributed after the market closes on Aug. 28, and the stock will trade split adjusted on Aug. 31. Because of this, we will likely set our split adjusted fair value estimate on Aug. 31 at about $145. This value reflects the split, time value of money since our last update, and a higher share count to incorporate the 207 million presplit diluted share count at June 30. Our post-split share count will be 1.035 billion.

We think a split is unnecessary but given Apple’s AAPL recent 4-1 split announcement and tech companies having a history of splitting, going up, and then splitting again, it’s not shocking to see Tesla take this path. CEO Elon Musk also said on May 1 via Twitter, on the same day that he tweeted that he was selling almost all his physical possessions and homes, that he felt Tesla’s stock price was too high. The stock opened at $755 that day and has more than doubled since then before coming back down in recent days, a downward trend the split news will now likely conveniently stop. In theory, Tesla’s stock should not go up on this news, but its rise after hours supports our point that retail investors will find the shares more attractive at the lower price.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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