Understanding Tesla stock splits: What you need to know

A stock split is when a company decides to increase the number of its shares by splitting each existing share into several new shares. It is usually done to boost the stock's liquidity and make it more attractive to individual investors, as a stock split reduces the price of each share.

Like a pizza 🍕: more and smaller slices, but the same pie

To understand a stock split, think of a pizza: you have a pie with 8 large slices. But you want all your friends to get a slice, so you cut each one into two, making 16 smaller slices. The pie is still the same size, but now split into more pieces. Now everyone's happy (although maybe left a little hungry)!

The same way, when a company splits its stock, its overall value remains the same, but it is split into more pieces. There are more shares, with each representing a smaller value than before.

Stock splits increase the total number of shares, without affecting the company’s market value. So far, Tesla stock (TSLA) has gone through with 2 stock splits since 2010, when it was listed on the Nasdaq stock exchange. 

Check out the following table for more details on previous Tesla stock splits:

At the time of the 3-for-1 split in August 2022, investors were allocated 3 new Tesla shares for each share they held at that time. The value of each share decreased from around $900 to $300.

As a general rule, the value of an investor's overall holding does not change when a stock split takes place.

So if you previously had 10 Tesla shares worth $900 each, after the split you would have 30 shares, worth $300 each: the total would remain $9,000.

The chart below shows the TSLA share price for the past 12 months.

On the long run, share price is driven by fundamentals. So in case of a stock split you would not see any major change on this chart regarding the long-term trend.

Also, you would not see the pre- and post-split price changes as these charts are adjusted for splits. I.e., if you look at the price for the last split of August 2022 in the longer-term view, it will show as $300 and not $900.

When a stock split happens, the number of Tesla shares you own increases, but the total value remains the same. In this way, it can impact how your brokerage account displays your holdings.

Apart from the change in the number of shares and how they're displayed in your brokerage account, there usually isn't any other impact.

Typically you won't need to pay more fees just because you have more shares after a stock split.

Fees are usually charged for trading, when you buy or sell shares, rather than the number of shares you hold. So a split itself shouldn't directly increase your fees.

There might be some exceptions, as certain brokers calculate trading fees based on the number of shares.

There is no definitive answer as to whether you should buy Tesla stock before or after it splits its stock.

A stock split does not in itself have any impact on a company's fundamentals. In general, stock splits are a neutral event that do not have a significant effect on the long-term financial performance or overall value of a company.

In some cases, however, the hype following a the announcement itself of a stock split by a company has resulted in a quick rise in its stock price. Also, stock splits can lead to higher liquidity and trading volume, which could make it easier for investors to buy or sell shares after a stock split.

As it is uncertain when (or if) Tesla will decide on another stock split, you should not base your decision on whether to buy or sell Tesla on this. Generally, Tesla may consider a split if its stock price becomes too high for individual investors. Instead, focus more on your research and analysis of the company's financial health, performance and growth potential.

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