Tesla Inc’s stock fell on Thursday after the world’s most valuable automaker announced a three-for-one stock split to entice retail investors.
Elon Musk’s electric-car company’s stock opened at $302 and fell to $293 in early trading.
Tesla’s stock split is the second in as many years, following those of other high-growth companies such as Amazon.com and Google parent Alphabet, and highlights the growing need to diversify investor bases.
Stock splits “certainly have a higher appeal to retail investors, as well as making their options more affordable,” according to Art Hogan, chief market strategist at B. Riley.
“Retail investors are a critical group for Tesla, and today’s stock split essentially acknowledges that fact.”
Tesla, based in Austin, debuted at $17 in 2010 and shares skyrocketed to more than $2,000 at their peak, making it one of the most expensive stocks on Wall Street and making it difficult for small investors to bet on the high-growth stock.
In August 2020, the company decided to split its stock five-for-one, and the company’s market capitalization surpassed $1 trillion in 2021.
Before the three-for-one split, the stock closed at $891.29 on Wednesday.
According to Howard Silverblatt, senior index analyst for the S&P and Dow Jones indices, the EV maker is the sixth company in the S&P 500 index to have split its shares this year.
On social media stocktwits.com, Tesla’s ticker was trending, indicating increased chatter among individual investors.
The stock has dropped about 11% since the company announced plans to increase its share count in March.
“In typical buy-the-rumor, sell-the-news fashion, investors tend to drastically reduce purchases of splitting stocks in the weeks leading up to the effective split date, causing price momentum to slow,” Vanda Research analysts wrote in a note.
A stock split has no effect on a company’s fundamentals, but it makes it easier for individual investors to make small trades. However, the benefits of stock splits are becoming less clear as brokerages allow customers to purchase fractional shares of a company’s stock.
Tesla’s stock has dropped about 16% this year as investors fear aggressive interest rate hikes in the United States and geopolitical uncertainty.
The most recent three-for-one split means that stockholders will receive two additional shares for each share they owned on August 17.
