Why Tesla Shares Are So Much Cheaper


Tesla’s stock price is down, but not because of anything Elon Musk tweeted about electric vehicle demand, ‘full self-driving’ features, SpaceX updates, silly memes or the legal battle with Twitter .

The electric car company completed a 3-for-1 stock split after the closing bell on Wednesday. So a share now costs a third of what it did the day before.

Tesla ( TSLA ) closed around $891 on Wednesday, meaning it was trading just under $300 on Thursday.

Tesla approved the split in June, the second such split in the past two years. But before you start celebrating how Tesla stock is now “cheaper,” keep in mind that nothing changes with Tesla’s valuation.

The company is still worth more than $930 billion after the split. Shares continue to trade at a lofty multiple of more than 70 times 2022 earnings forecasts — a huge premium to the valuations of traditional auto companies like Ford ( F ), GM ( GM ), Volkswagen ( VLKAF ) and Toyota (TM).

And the stock is still down about 15% this year, as investors worry about increased competition in the electric vehicle market from traditional automakers, as well as Musk’s many potential distractions.

The only thing the stock split changed is that existing investors now own three times as much Tesla stock at a third of the price at which they closed on Wednesday.

That includes Musk, the world’s richest man with a net worth of about $264 billion, according to Forbes. Musk still owns roughly 15% of Tesla’s common stock.

Companies with high share prices often split their shares to make the cost of a share more affordable for individual investors. The reason is that some investors may be more inclined to buy a stock if it is trading at a lower price.

Amazon ( AMZN ) , Shopify ( SHOP ) , Google owner Alphabet ( GOOGL ) and meme stock GameStop ( GME ) have split over the past few months.

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