What Tesla’s stock split means for shareholders

If you thought Tesla shares at $864 were a good investment, how about shares at a third of that price?

Of course, Tesla shares don’t magically get cheaper – the 3-for-1 stock split was one of several measures approved at the company’s August 4 shareholder meeting. (You can read Fortune’s explanation of stock splits here.) This follows on Tesla’s first stock split in August 2020 – which was a 5-to-1 split. don’t actually influence share value, they increase liquidity, and Tesla’s split was overwhelmingly supported by shareholders. Despite the fact that stock splits are largely superficial, tech companies that have seen stock prices soar are counting on them to make trading expensive stocks accessible to retail investors. “I think Tesla wants to keep its stock price lower so that a single stock is more affordable for retail investors. That was probably the driver of the 2020 split and the split to come,” the lender explained. Morningstar Senior Equity Analyst Seth Goldstein.

Tesla announced in a press release on Aug. 5 that the split would go into effect later that month. Tesla shareholders will receive a dividend of two additional common shares to be distributed after the close of trading on August 24, 2022. Trading on the new adjusted stock split price will begin on August 25.

Interestingly, stock splits were much more common than they are today, with some analysts saying the rise of split trading has made them somewhat useless since through Robinhood or Schwab you can just buy a fraction of a Tesla share if you don’t. have more than 800 dollars. As Fortune’s Anne Sraders previously reported, when a company splits its shares, “The cost per share is lower, but the valuation hasn’t changed, so it’s not cheap – meaning that it doesn’t automatically become undervalued, it has the same measures of value as it did before,” said CFRA’s Sam Stovall Fortune. The result is that “it’s more psychological. People prefer to buy and sell an even number of stocks, and they like to pay within a particular range if possible,” Stovall said.

Other Tesla shareholder proposals have been rejected

Tesla investors erupted in joy when top CEO Elon Musk took the stage Thursday night at their annual shareholder meeting, also known as Cyber ​​Roundup, at the Austin-based gigafactory, in Texas. Still, the most important decisions of the evening had largely been voted on in a preliminary fashion by the time Musk spoke at the event around 6:15 p.m. ET. Shareholders voted broadly on the board’s recommendations, approving an early stock split and broadly rejecting investor proposals to bolster corporate accountability in the racism and sexism allegations Tesla has faced over the year. last.

The vote follows Musk’s continued entanglement with his now rescinded bid to buy Twitter and a disappointing quarter for the company. Tesla stock is down 12% year-to-date.

Two members of Tesla’s board of directors, Ira Ehrenpreis and Kathleen Wilson-Thompson, were on the ballot at that shareholder meeting and won re-election. Institutional Shareholder Services advised shareholders to vote against them because of the amount of borrowing Musk and other board members are taking as collateral for Tesla stock. The ISS argued that the pledging of company shares by directors poses a risk to outside shareholders.

Investors also considered a series of shareholder proposals that Tesla encouraged them to vote against. Proposals focused on improving corporate governance, including shareholder proposals to require Tesla board diversity reporting and mandatory political lobbying disclosure, have not been met. adopted. Other investor proposals not supported by Tesla’s board of directors, including allowing employees to form a union, requiring Tesla to report on its progress in eliminating racial and gender discrimination, and disclosing related risks in the water, all failed. These shareholder proposals follow Tesla’s removal from the S&P 500 ESG Index in May. Tesla lost its place in the index, which lists companies that meet the bar of responsible environmental, social and governance practices, largely due to allegations of racism at Tesla’s gigafactories. In February 2022, the California Department of Fair Employment and Housing filed a lawsuit against Tesla for racial discrimination and harassment at the company’s California factory.

A failed outside proposal would have allowed shareholders who held 3% or more of Tesla stock for at least three years to have a say in director nominations. Despite the discouragement of the board, shareholders adopted a proposal to increase the power of investors in the appointment of directors to the board. Shareholder proposals to allow board directors to serve two-year terms and eliminate supermajority voting requirements were not adopted.

As Musk interacted with the crowd like a true entertainer, he teased shareholders that he might be able to announce the location of a new gigafactory later this year. As audience members shouted suggesting various states and countries, Musk jokingly responded. “Canada?” he said. “I’m half Canadian, so maybe. Tesla currently has factories in California, Berlin and Shanghai.

Musk said his goal was to produce 2 million vehicles a year and he reiterated his long-term vision for Tesla to produce fully self-driving cars. Morningstar’s Tesla analyst note projects that Musk’s goals are within reach: “During the earnings call, management confirmed our view for the year that the Austin and Berlin were ramping up production, and it aims to have all plants operating at an annual production rate of over 2 million vehicles by the end of 2022. We believe this is achievable, which would allow deliveries to Tesla to reach approximately 1.5 million vehicles in 2022 and grow to over 2 million in 2023.”

Musk also argued that despite Tesla’s competitiveness against other electric vehicle producers, all electric vehicles are taking market share from gasoline-powered cars, noting that all major automakers are now shifting to electric vehicles. Musk also boasted that Tesla hit the milestone of manufacturing its 3 millionth vehicle last week to applause from shareholders in the crowd.

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