Why Tesla wants shareholders to approve a 3-for-1 stock split

Tesla Inc. said it will ask shareholders to approve a 3-for-1 stock split at their August annual meeting, according to a proxy statement filed Friday after the market close.

The stock jumped 1.9 percent in postmarket trading on the news. The proposed split in the form of a dividend comes amid a sharp selloff in Tesla, which saw its shares underperform broad markets. The stock is down nearly 35 percent this year, compared with a 18 percent drop for the S&P 500.

The company also said Larry Ellison will step down from the board. Ellison, the 11th richest person in the world worth about $87 billion, originally made his fortune as the co-founder of the software company Oracle Corp., and first joined Tesla’s board in December 2018. As of June 30, Ellison held a 1.5 percent stake in the EV maker, according to Bloomberg data.

Elon Musk‘s EV company first announced its plan for a stock split on March 28 via a tweet that lacked further details. The shareholder meeting will be held on Aug. 4 both virtually and in Austin, Texas, where the company is based.

If approved, this will be Tesla’s second split in less than two years. The company executed a five-for-one stock split in 2020, leading to a 60 percent surge in the share price from the day of the announcement to the execution date. The EV maker is clearly hoping that will happen again, as having the shares trade at a lower price could entice its strong fan base among individual investors.

Still, anyone betting on a repeat of 2020’s success might want to temper those expectations, as the market environment may not be as welcoming for this strategy as it once was. Alphabet Inc. and Amazon.com Inc. unveiled 20-for-1 stock splits in February and March, respectively, and both shares are down about 20 percent since the announcements, well underperforming the S&P 500.

And the steady erosion of Tesla’s stock over the past few months suggests its big and loyal following among retail traders may not be able to counteract the overall souring in investor sentiment on the company, especially with risk-appetite generally low. The company also recently lost its top spot at the flagship fund of one its most ardent backers, Cathie Wood, as it was replaced by Zoom Video Communications Inc.