When is Tesla stock splitting and what does it mean for investors?

Tesla Inc.

TSLA -2.28%

will split its shares this week, the latest megacap company to split high-priced shares this year in an effort to make them more affordable for investors.

Stock splits have declined in popularity over the years, but Amazon.com Inc. and Google parent Alphabet Inc.

They also split their shares in 2022. Investors often interpret such plans as signs of confidence from management.

Shares of Tesla have risen about 25% since the electric vehicle company announced plans on June 10 to split its shares. Shareholders cleared the way for the stock split at the Aug. 4 annual shareholder meeting, and the automaker disclosed the terms of the split on Aug. 5.

Despite the rally, Tesla shares have fallen about 18% this year, struggling amid a broader market downturn as rising interest rates have investors taking another look at value-rich growth companies.

Tesla closed at $869.74 per share on Monday.

What does Tesla’s 3-for-1 stock split mean for investors?

Tesla will split its stock on August 24. Shareholders from August 17 will receive a dividend of two additional shares for each share they own. Trading will begin on a division-adjusted basis on August 25.

For example, an investor who owned 10 shares of Tesla before the split would own 30 shares after, with the share price divided by three.

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Today, investors can also trade a few shares of expensive stocks. Charles Schwab clients Corp.

for example, he can buy a fraction of a share of S&P 500 companies for as little as $5.

Does this make Tesla more valuable?

No, stock splits do not affect a company’s total market capitalization because the price of each share will reflect the split. Tesla’s market value topped $908 billion as of Monday’s close.

However, brief spikes in stock price performance historically accompany splits. Since 1980, stocks that have broken up have typically gained about 25% a year after the move, compared with the broader market’s 9% gain, according to a Bank of America Corp.

analysis from March.

Has Tesla split its stock before?

Yes. Tesla instituted a 5-for-1 stock split about two years ago—and investors immediately piled in. As of Aug. 31, 2020, when shares began trading on an adjusted basis, investors bought a net $209.3 million of its shares, up from $156.5 million in the previous session, according to VandaTrack data.

What about option bets?

Option contracts held at the time of the split are recalculated through a process known as “rolling out”. Options Clearing Corp. has rules and procedures for amending contracts so that the holder is not affected by the split. The contract is adjusted to reflect the new price and number of shares, but its value remains the same.

What does this mean for the stock market?

The S&P 500 is weighted by the market value of companies, so a split would not directly affect Tesla’s weighting in the index.

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This explanatory article may be updated periodically.

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