Tesla 5-1 Stock Split (opens in new tab)

You are not alone. Regular (non-tech) stock market analysts are comparing current valuations with the dot-com bubble.

But there is no TINA ( https://www.investopedia.com/terms/t/tina-there-no-alternati... ).

The money needs to go somewhere.

I honestly don't know. I owned it briefly a while ago and got scared off, only to buy back in recently... and watch it double. Right now Tesla is priced as if it was the most successful auto company in the world. I'm a little skeptical they are going to get much bigger than VW is so it's tough to see them doubling again, but maybe? I think after the split plays out, I'll likely trim my position back a bit.

I will say Tesla seems to have a pretty large competitive advantage (and perception advantage) in the market right now. It also seems like they are paying quite a bit less for batteries at the moment than anyone else.

Most Tesla competitors are announcing future vehicles with pricing and range competitive with Tesla's current vehicles, which suggests to me those same competitors are about 18-36 months behind Tesla still.

It seems clear to me anyhow that in next 20 years most new cars will be electric. How big a chunk of the market can Tesla carve out before the rest of the competition finally catches up?

Definitely my most speculative non-options stock.

I don't think that Tesla is a bubble, more like gambling.

Tesla right now clearly isn't worth $1T, but it is definitely on something big. Electric cars look well set to be the future, and so are the batteries that go with them. And currently, Tesla is a leader in both these fields. Furthermore, Tesla is creating an ecosystem not unlike Apple with its cars, it includes their supercharger network and all their software. And we all see how successful Apple is.

So yeah, huge potential. However, it is all speculation. Maybe traditional car manufacturers will wake up and offer decent electric cars. Maybe their ecosystem will fail to capture their market. If that happens, even if Tesla stays profitable, its value will crash. That's because Tesla will stop being a bet on the future and become just another mid-rank car manufacturer.

Personally, I am not into gambling, so I won't buy and I won't short.

my context: I've bought and hodl'd TSLA since the day of the IPO @ ~$19.

I agree with you I have no idea why it is valued the way it is. My original thought for getting on at the IPO was that since they were one of the first big electric car players, they would get a patent portfolio that would be worth a lot in the future even if they failed as a car manufacturer. Of course, that logic went out the window when Elon promised to license the patents freely to anyone who wanted to build electric cars a number of years ago.

I can understand people valuing TSLA at more than, say, Ford, because of their future prospects and because they aren't burdened with legacy issues like worker pensions, but it's hard to believe it should be worth 10x. It also isn't clear to me how TSLA went down ~10% over the past 5 days but is right back up there on news of the split.

You're not alone.

I wouldn't buy it at these levels (or even close to), but I wouldn't short it either.

(paraphrasing C.Munger)

I think a lot of people share it, that's why they shorted Tesla stock before the last quarterly report. This only made the problem worse though as the brrr agency didn't want to let the price go down so it went up in a short squeeze. We'll end up with either a big burst in a few months, or inflation. But it'll take at least until the election.

Yes, I feel the same way. I’m not too hot on them being added to the S&P 500 index, which they technically qualify for now. It remains to be seen when it will be added.

I’m not short TSLA, FWIW.

Tesla was undervalued. Stocks aren't priced what they are because of how well the company is doing today, but how well investors believe it will be doing tomorrow.

Think about it - the world has been screaming for green this and that and electric vehicles are one of the biggest pieces of a such a world. Tesla and no other company is synonymous with this kind of technology. When you think electric cars, "Tesla" is the first brand in your head, in anyone's head, without fail. That is an extremely powerful position to be in.

Yes and no. My sense is the market will be speculative no matter what. In the past, that speculation was on the negative side, and now it's on the positive side.

I can see Tesla rivaling Toyota in revenue in the next five to ten years given how slowly they and others have moved on EVs. But I could also see Tesla running into trouble if they screw up their expansion or if another large manufacturers bets the farm on EVs.

On HN and elsewhere, I had same reactions. There’s not a lot of rational debate. Stock is mainly driven by short-term OTM options.

I mean, even Elon Musk seems to agree with you based on his tweets.

If they can successfully enable fully automated self driving cars, then I think the value is entirely justified. See FaceBook.

Disclaimer: I bought Tesla calls today and now assume I’m rich so your opinion may differ

I'm longterm bullish on Tesla, even if I think that in the short run the stock is overvalued. Take a look at the Tesla Semi, for example. This thing is going to change road based logistics big time. More energy efficient. Wired in for full self-driving once the AI gets there. Once those things start coming off the line they're going to disrupt an entire global industry. That's just one of their vehicles.

Tesla is in bed with China, a country deadly serious about electric vehicles. Plus, many of the other car manufacturers buy electric parts for their own EVs from Tesla.

The worldwide initiative in this direction is strong, so the projected valuation could be just about right. Tesla is part of a global bet.

I'm a bit bitter that I sold my five shares at break-even in March after having been down for a year. But then I just think of all the people who sold more shares after holding it for far longer right before the insane growth.

> I don't want to debate it

Kind of sounds like you do want to debate it. I have no idea if it is or is it a it overvalued but plenty of people do share you view, and they lost a lot of money betting against Musk.

we are in global pandemic, were a lot of people lost jobs, or quality of life decreased.

Despite this stock market is doing well.

The only conclusion I can see is that the stock market is completely decoupled from real life. Biggest parties participating in it are completely unaffected by reality of majority of population.

The same people who are rabidly shouting bitcoin is a pyramid scheme are buying stock of companies not because they trust its a good business model, but because its a a unicorn that will 2x in value for quick sale profit.

Exactly what ISN'T a bubble? Countries, empires, worlds, galaxies, rise and fall all the time.

Matt Levine made me notice that there's still an effect of stock splits on making options more accessible i.e. there are brokers for fractional shares, but not options on fractional shares/fractional options.

I am pretty sure this is irrelevant, but it's interesting.

Apple is in the DOW and the DOW is a stupidly weighted index where share price affects what percentage of the index that company holds. Right now a 1% increase in Apple pushes the DOW up 10 times more than a 1% increase in Cocoa Cola.

Companies in the DOW tend to have share prices below $500/ share and most are under $200 and the DOW won't add companies with high stock values as a result (Apple was added only after their last split).

It's likely being in the DOW bolsters and stabilizes stock prices as a lot of indexes are based on a the DOW. It also brings a company a certain prestige.

Whether any of this affects the Apple board's decision to split the stock or not is entirely speculation... it just seems a far more likely reason than the idea that they are splitting to make it accessible to people with $500 they want to invest.

They have 4.2B shares outstanding with 64% being held by institutions. 700k people owning shares is a drop in the bucket.

https://www.nasdaq.com/market-activity/stocks/aapl/instituti...

Robinhood lets users buy fractional shares [1]. What's the average and median share holding per user?

1. https://robinhood.com/us/en/support/articles/fractional-shar...

It's probably one of the top stocks held on any platform

“Accessibility” is always a bogus reason nowadays. Stock commissions are dirt cheap so there is little reason to buy in lot sizes anymore. If you have $320,000 in your account you can buy a single share of Berkshire Hathaway for less than a $10 commission.

Stock splits are just a low grade attempt to pump up the stock price.

One thing it can impact is derivatives trading. A standard option contract controls 100 shares, which can be quite a large amount of $ if each individual share is priced highly (likewise affects the effective granularity of the common option strike prices in the market)

Update: For something like TSLA which may have some psychological "Bitcoin-like" speculation going on among retail investors, I suppose the big number could reduce the desire to buy since "it can't go much higher" in some people's head, I guess.

There are weird incentives for this.

In US the tick size for any stock is always $0.01. So a stock with a price of say $1 has a minimum bid ask spread of 1%, which is a lot.

On the contrary, if one share is too expensive, it limits liquidity in a stock. This is usually bad, though Berkshire Hathaway voting shares are deliberately kept expensive to stave off speculators.

This then get meta-player. A split suggests the company expects a price increase, and vice versa (reverse splits area thing too).

Liquidity rules are the main reason. Even Berkshire Hathaway had to give in and create the Class B shares in response to pressure from institutional investors constrained by liquidity requirements. Brokerages are also less willing to allow margin trading on equities with low liquidity because of the risk that a customer will be unable to sell their assets to cover margin calls.

As for fractional shares, keep in mind that these are a creation of brokerages, they are not universally available, and they create complications with shareholder rights (e.g. voting).

It's also generally considered a positive signal, that management is confident that nothing is going materially, negatively impact the stock price moving forward.

there was a time when you couldn't buy fractions of a share. Then it made sense to keep shares "lower" for smaller increments of share purchases. But now, most exchanges that I'm aware of allow fractional share purchases. Fractional share ownership may affect voting rights. I too would like to know "why" Tesla would opt for this... seems like they have more important things to do.

Matt Levine (as usual) has some good explanations for the value (or lack thereof) of stock splits, as well as some historical context, as seen via the lens of the recent Apple split: https://www.bloomberg.com/opinion/articles/2020-07-31/apple-... (Bloomberg has a pretty aggressive paywall, but usually a new incognito tab will bypass it).

"A company should be a thing, and people should be able to own a portion of its equity, and the portion that each person owned would be expressed as an arbitrarily precise percentage of the total...The “stock price” would be what we now call the “market cap”: The market would place a value of $X on the company as a whole, and if I wanted to buy another 0.01429% I would pay 0.01429% of $X....

The traditional, 19th-century answer to how many shares a company should have was that stocks should have a normal price, they should cost like $40 to $100...This was so standard that, when Charles Dow created a stock index in 1884, he just averaged the dollar stock prices of a bunch of stocks...because the stocks had normal prices.

There is an argument that high-priced stocks reduce liquidity because traders have less incentive to post quotes. It is good for a stock to trade at a bid/ask spread of a couple of “ticks,” the minimum price increment for trading. If a stock is worth $50 and trades at a bid/ask spread of $49.99/$50.01, a trader who posts a bid to buy at $49.99 will be able to buy from anyone who wants to sell immediately. If it’s worth $500 and trades at $499.90/$500.10, a trader who posts a bid to buy at $499.90 might lose out to a trader who bids $499.91. You can’t reliably earn a “normal” spread by trading the stock, so your incentive to provide liquidity is lower. Nasdaq published a paper arguing this point

At the time of Apple’s last split, in 2014, one popular explanation was that Apple was trying to get into the Dow Jones Industrial Average, which is still price-weighted and so still has an old-fashioned fondness for normal-priced stocks, but that worked and now it’s in the Dow so that’s no reason to split again"

To entice retail investors to dump money in, brokered by Robinhood, one share at a time (in TSLAs case)

I’m on the fence about TSLA, their value is based on their perceived lead on autonomous driving, which is questionable. Their accounting practices are a bit shady as well. I’m not looking forward to it’s inclusion to the S&P 500.

Stock splits can also be used for companies with values too low (A reverse split) . These companies split to increase the value of stocks in order to prevent delisting from exchanges.

I think I prefer stock splits over dealing with fractional shares.

Fractional shares are already a thing on many brokerage platforms.

Yes, and also finer grained control in general even for larger portfolios. Almost like increasing the resolution.

Also makes the perception of the stock being cheaper. I can't tell you how many times I heard someone say company X stock is cheaper than company Y becausetthey compare nominal price.

About $6 trillion was "created out of thin air" in the S&P 500 since mid March. But don't confuse value with output or wealth. The market is forward looking and valuations are pretty unstable long term.