Will Tesla Stock Split? I think YES and here is why!

So what is a stock split? A stock split is simply the company changing the number of shares that are outstanding, either increasing that number of shares or decreasing the number of shares outstanding.

And so there are two basic types of a stock split.

One is a forward split and the other is a reverse split.

With a forward split, the company is increasing the number of shares that are outstanding.

And that is usually the case when the price of the stock has gone up so much that it's become more expensive for investors to get into the stock.

And so the company would want to split that into many shares so that more investors can afford to buy the stock.

now when you do that or when a company does that it doesn't really increase the market cap or doesn't change the market value of the company the market value or the market capitalization of the company is the same it's all a matter of perception so the company share here and the example that we have is apple in 2014 has done a 7 for 1 stock split which means that each share that was valid at the time for 656 They split that one share into seven shares.

Each one is valued at $93.

And so when you own one share of 656 and suddenly you have seven shares, it doesn't mean that you own more of the company.

You still have the same ownership in the company, which is one share, but now you have it in the form of seven shares.

Now compare this scenario here with a reverse split and this usually takes place with a company that has a declining stock price and the perception of the public or the investors that the stock has become dangerously low priced and so in this example that we have here is Priceline in 2003 and that was fresh out of the dot-com bubble of 2000 where the stock has been declining and reaching almost single digits, actually went into single digit territory and reached almost a dollar per share.

And so the company wanted to consolidate.

And so a reverse split, what it is, is a consolidation of multiple shares to make one share.

In this case, it's a one for six.

So this is a one for six split, which means if you own six shares of Priceline, now this consolidated into one share and now you own one share.

Again, the same as with forward split, it doesn't change the value of the company and it doesn't change the percentage that you own in that company.

All it does is that it changes the perception.

Most companies will do it for the perception of the investor, whether in this case, do you want to inflate that perception of a stock price? or here reduce the entry level or the entry price for investors so that more investors can get into the stock and in some cases and rarely a company would do a stock split or reverse split to stay listed on a certain exchange because some exchanges will have a threshold or a limit on the price that the company stock price cannot go under that threshold to stay listed within that exchange and so the solution if your stock price has been declining so much as a company is to do a reverse split and consolidate multiple shares into one share again doesn't change your ownership in the company it's only the perception of the stock price okay so now that we talked about the definition of a stock split and we talked about a couple different examples from the past such as apple and priceline i want to use that knowledge and jump into tesla's case here and talk about why i think tesla will have a stock split in 2020 in the later half of the year and the way i lay this out is talking about the argument uh for uh stock split and then the argument against the stock split So let's begin by looking at the argument for a stock split and the first point that I got is regarding the age of the investors and just reading through investor forums and reading the commentary on Tesla videos and articles it's becoming more and more clear to me that the age of the investors or the people who are investing in the stock that there is a big chunk of the younger generation that's invested in Tesla stock and as long as the price per share is so high as it is today which is at the time of filming this video is about fifteen hundred dollars this is a very expensive price to get into for the younger generation so the perception of owning one share it's a very high price and that's uh one thing that elon and the board of directors uh must realize know that if they lower the price or go through a stock split they will make the stock more accessible to more of the younger generation because obviously the younger you are the less access to capital you have and the lower income generally and so you want to have the stock price go down so that more people can be invested in the stock And the second point that I got here is regarding Elon Musk himself.