INSIGHTS ON TESLA’S STOCK SPLIT

Two simple questions :

1. Why did TSLA split its stock 5:1 ?

2. Why do it now ?

The answers to both questions are actually very simple and have one common thread

- because of its employees

1. Tesla employees are allowed to set aside up to 15% of their salary to buy new-issue shares in the company through Tesla’s Employee Stock Purchase Plan ESPP

An ESPP is a company-run program in which participating employees can purchase company stock at a discounted price

Employees contribute to the plan through payroll deductions

They are issued the new shares under a fixed protocol, but only whole shares are issued

When the stock price was down around $200~300 per share this worked pretty well and gave good access for the employees

But as the stock price climbed to $1,500 and beyond it became increasingly difficult for smaller purchases to participate

Splitting the stock 5:1 has improved the threshold for employee access to new shares

2. The ESPP program works on the basis of six-month periods

Payroll deductions allow employees to set aside Cash for their share purchases during the six months

And then on the “settlement day” after the end of the six-month period their new shares are issued

The current six-month period started on 1 March 2020 and ends today on 31 August 2020

So completing the split ahead of the settlement day of 1 September 2020 basically dictated the timing for this last weekend

The employees get to buy those shares based on the lowest market price during the six-month accumulation period, adjusted for splits

And that market price is then further discounted by 15% to set the issuing price for settlement on 1 September 2020