From a recent video from Farzad Mesbahi, we've seen a good argument that Tesla stock will split multiple times this decade. Why will this happen? We'll answer that below now.
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Tesla Stock Will Split Multiple Times This Decade
Tesla stock is around $1,065 at the time of writing this article. There are many brokerages that do not allow you to buy fractional shares of stock - where you can buy a portion of a stock. There's a lot of regulation around that still in the markets.
There is also something called the Employee Stock Purchase Plan. This is a program where an employee that works for a company can buy its stock at a discount each quarter.
The employee can take a percentage of their after tax income and put it in a sort of savings account, which accrues and can then be used to buy stock at an interval of time, say 6 months. The company typically offers a discount on the stock of around 15%.
If the stock of Tesla ranges from $900 to $1,200 over the next 6 months, an employee can buy Tesla stock at around $765 a share (15% of the lowest price, in this case, $900). There is 1 primary reason will split their stock, let's go over that now.
The Main Reason Tesla Will Split Their Stock
The main reason Tesla will split their stock is because the stock price will get too high for most of its factory workers to buy stock. If an average employee makes $55,000, that employee will have to pay taxes on that money. The employee may have $300 each month to accumulate. At the end of 6 months, that employee could buy only 1 share of Tesla stock - even at a discount.
Tesla is successful because it has a huge number of employees who are motivated and working together to change the world. But each of us as humans has our own self interest that needs to be satisfied.
If Tesla does not split, it's going to keep going up in price in the thousands and potentially tens of thousands of dollars over the coming decade or two. An employee would be priced out of buying Tesla stock if the company does well and that is no good.
Tesla will have to split the stock in order to stop this from happening. Another benefit from splitting the stock is you have more shares in circulation. This allows for a broader number of shares that can be distributed among more employees or other investors.
Tesla windows of time for employee purchases of stock last 6 months, according to Farzad Mesbahi. With so many employees at Tesla being factory workers, and salaries of factory workers not likely being in the 6 figures, Tesla will need to split their stock because it will be more and more expensive for employees to buy stock.
It will be interesting to see if Tesla keeps doing a 5 to 1 stock split or another type of split. A 20 to 1 split may send a message that Tesla is over confident in its stock growth and price appreciation. A low split may signal lack of confidence. I think Tesla will continue with a 5 to 1 split, which sends a message of reasonable expectations for the future.
How many splits do you think Tesla stock will have this decade? Is it mainly for the employee purchase program? Do you think Elon Musk buys shares of Tesla stock using the ESPP (employee stock purchase plan)?
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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.
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