Tesla Announces 5 for 1 Stock Split

Rob Maurer

Tesla has announced a 5 for 1 stock split, causing TSLA's share price to rise by as much as 8% in after-hours trading shortly after the announcement.

Here is the announcement in full:

"Tesla announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020."

After trading on Friday, August 28, four shares will be added for each outstanding TSLA share meaning the total share count will be five times higher than it is prior to the split. At the beginning of trading on August 31, TSLA's share price will reflect the new share count, meaning the share price of one share will be divided into five parts to account for the new shares. For example, someone holding one share worth a hypothetical $1,500 on August 28 would then own five shares priced at $300 per share, for an equivalent $1,500 total value after the split takes place.

Options contacts will be similarly split. For example, one contract for the rights to 100 shares with a $2,000 strike price will become five contracts, each with the rights to 100 shares, with $400 strike prices.

For more analysis on TSLA's stock split, please see the included video.

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Disclosure: Rob Maurer is long TSLA stock and derivatives.

Comments (1)
No. 1-1
HadynUK
HadynUK

Sorry to trouble you.

In their press release, Tesla announce a Dividend, being a 4 for 1 Stock Split for all existing stock holders of record on August 21, 2020.

I'm struggling to find anyone here who can answer the following questions and wondered if you could please help?

Questions: 

  1. Is the 4 for one stock dividend the same animal as the Stock Split or a bonus for existing stock holders?

If it's not a Bonus, then why the August 21 deadline?

  1. If someone BUYS 1 Tesla share between August 21 and August 28, do they still get 4 shares for every share held or do they need to sell before close on 28 August to avoid having that 1 share reduce in value by one fifth when the split happens?

Example A

Allen owns 50 shares on August 21, priced at $2000 each or $100,000

If Allen still has those 50 shares on August 28, he gets a dividend of 4 new shares for every share held.

Allen now has 250 shares at $2000 each or $500,000 (assuming no change in share price)

After the Stock Split on August 31, Allen now has 1250 shares at $500,000 or $400 per share.

Example B

Bernie buys 50 shares at $2000 each on August 25, value $100,000

Bernie still holds the Stock on August 31.

Bernie didn't hold that stock on August 21, so he doesn't benefit from the 4 for 1 Stock Split (the dividend).

The share value after August 31 is $400, so Bernie's 50 shares are only worth $20,000

I hope the above makes sense.

Kindest regards

H

Hadyn Wood (MD)

The Sound Foundation

+44 (0) 7973 559 203