Electric vehicle (EV) maker Tesla announced a 3-for-1 common stock split in its Notice of 2022 Annual Meeting of Stockholders — reports Tesla North.
However, the company requires shareholder approval to authorize additional common stock before it can go ahead with a split. Tesla is planning a shareholder vote at the annual meeting to increase the number of authorized shares of its common stock from 2,000,000,000 to 6,000,000,000 to facilitate the stock split.
“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”),” reads the notice filed on Friday after trading hours.
“As of June 6, 2022, we have 1,036,390,569 shares of common stock outstanding, and the current number of authorized shares of our common stock is 2,000,000,000, which is insufficient to effectuate the Stock Split. Our Board intends to approve the Stock Split, subject to and contingent upon stockholder approval of the Authorized Shares Amendment.”
A stock split increases the number of shares a company has floating in the market without diluting the equity of existing shareholders. In this case, each existing shareholder will have the total number of Tesla shares they own tripled.
Stock splits also cut down a company’s share price (in this case, each Tesla share will be worth one-third its pre-split value afterwards) without affecting its total market capitalization.
Think of it as owning a whole pizza. Instead of selling the whole pie for $10, if you cut it into four slices at $2.50 each, it will attract more buyers at the lower price point. But the overall pizza value remains at $10.
“We believe the Stock Split would help reset the market price of our common stock so that our employees will have more flexibility in managing their equity, all of which, in our view, may help maximize stockholder value,” Tesla said.
The company also hopes the lower share price will minimize the barrier to entry for retail investors. “We believe the Stock Split will also make our common stock more accessible to our retail shareholders,” the automaker added.
Tesla’s last stock split was a 5-for-1 split back in August 2020. The company’s annual general meeting of shareholders is slated for August 4, 2022, at Gigafactory Texas.
Tesla stock has taken a beating so far this year as part of a larger downtrend in global markets. However, the carmaker’s operations are better than they’ve ever been. Company CEO Elon Musk said last month that Tesla may have to limit orders or stop taking them altogether because demand greatly exceeds production at this time.
