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Tesla Proposes to Split Current Stocks in Three With the Excuse of Making Them Cheaper

Tesla did not become a $1 trillion carmaker – and lost that title – progressively. Until 2019, it had been a $50 billion company for some years already, more precisely since the Model 3 presentation. What changed from that point on was Giga Shanghai and the promise of 1 million robotaxis on the streets by 2020. That led to a market cap of $465.2 billion at a share price of $2,213. The 5-to-1 split on August 31, 2020, led them to be worth $498.32 at the close that day. Market cap continued to rise as if each fraction had to cost the same as the stock was worth before the split.
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Even if it didn’t, Tesla achieved a market cap of $1.23 trillion in November 2021, with its shares beating the $1,200 mark. From then on, the company’s valuation dropped continuously, increasing again only around April 2022, but that did not last for long. The $1-trillion-company title had vanished by the end of that month. Tesla is now a $677-billion automaker, still the most valuable in the world by market cap. Despite the value drop, Tesla wants to repeat the stock split: now 3-to-1. The reasons for that are under debate.

This proposal is the fourth one Tesla plans to discuss with its stockholders on August 4. They are included in its schedule 14A information to the U.S. Securities and Exchange Commission (SEC). In it, Tesla said it wants to increase the number of authorized shares from 2 million to 6 million.

In its explanation to do that, the EV maker states that its “success depends on attracting and retaining excellent talent,” something Tesla has not been particularly good at in the last few years. The company lost vital executives such as Jérôme Guillen, Jim Keller, Al Prescott, Valerie Capers Workman, and many others. Musk’s recent email ending remote work in a “take it or leave it” fashion must not have helped much either. But the rest of the explanation is even more intriguing.

The company said it attracts good professionals “not only through providing a respectful, safe, inclusive and equitable workplace.” That is not what the multiple racism, sexual harassment, and retaliation lawsuits tell us about the company. Even California’s Department of Fair Employment and Housing (DFEH) decided to sue the company due to “systematic racial discrimination and harassment.” The DFEH said it received “hundreds of complaints about working conditions at Tesla." The company is also famous for aggressively curbing unionizing initiatives.

The stock split fits in the next bit of the excuse for it: “offering outstanding benefits and highly competitive compensation packages.” Tesla brags about offering “every employee the option of receiving equity.” It justifies how good that is because share prices have risen 43.5% since the last stock split. And even here, the excuse has issues.

Several former Tesla employees complain that they get fired months or even days from being entitled to get their stock options, making the promise a carrot they can never grab. Apart from that, the situation is opposite to that in which the first stock split happened.

After April 2022, Tesla’s shares only dropped in value, with very punctual recoveries that did not last. From $1,145, they are now at around $650 a pop and still falling. No talent would feel tempted to join a company to receive depreciating assets unless the trick to make it go up is precisely the stock split.

This is what Tesla short-sellers and other critics believe the move is about: pumping the stock. They even gave Elon Musk a new nickname after he sold so many Tesla stocks – which also helped stock price dip: Pumpty Dumpty. By making shares cheaper, Tesla can appeal to investors with less money. With access to these new investors, the shares would recover value despite the bad news the company is collecting. The latest one is the engineering analysis the National Highway Traffic Safety Administration (NHTSA) has against Autopilot and FSD. This is the last step before a recall.

Tesla does not deny this is one of its goals. In the document to SEC, it said “the stock split would help reset the market price of our common stock” and “make our common stock more accessible to our retail shareholders.” The EV maker frames it as something that “may help maximize stockholder value.” Offering better and more products with more stringent quality control would probably do the same.



 Download attachment: Tesla's Schedule 14A Information (PDF)

 
 
 
 
 

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