What Would Tesla Stock Be Worth if It Never Split?

As we delve into the world of Tesla's stock performance and value, an interesting question arises: what would be the stock price if Tesla had never implemented stock splits? Let's explore the history, economics, and market dynamics surrounding this fascinating topic.

A Bit of History

Tesla has only undergone two stock splits in its history, both significant ones: a 5:1 split in August 2020 and a 3:1 split in November 2021. These splits were implemented to make the stock more accessible to a wider range of investors. But what if Tesla had never split its stock? If we were to reverse engineer the value, we would need to multiply today's Tesla stock price by 5 (the factor of the 2020 split). This means that if Tesla's stock is trading at $183 today, it would hypothetically be trading at around $915 per share without the split.

Understanding the 2020 Split

The 2020 split was a 5-for-1 split, resulting in a price increase of five times. So, if Tesla's stock is currently trading at $183, the price would be about $915 if it had never split. But as historians remind us, counterfactual history is often riddled with uncertainties and biases. Market sentiment, behavioral economics, and external factors can significantly alter stock prices even in the absence of splits. For instance, a high point in history could see a consensus forming that the stock is overvalued, leading to a price drop. Therefore, predicting the exact stock value without splits is nearly impossible.

The Essence of Stock Splits

Stock splits do not change the intrinsic value of the company. They merely make the stock more accessible to a broader range of investors. For example, if you owned 10 shares worth $2500 each, after a 5-for-1 split, you would have 50 shares worth $500 each. Your net value remains the same, around $25,000. The stock market value is influenced by supply and demand, investor sentiment, economic conditions, and company performance. Tesla's intrinsic value remains constant regardless of the number of shares outstanding.

Market Dynamics and Theoretical Value

The value of Tesla's stock is driven by a myriad of factors, including market sentiment, production capacity, and consumer demand. Several factors contributed to the increase in Tesla's stock value in the lead-up to its splits. News of the upcoming splits would often generate positive sentiment, leading to increased interest among small investors as well as large institutions. This anticipation of increased demand can temporarily skew market values, leading to a higher-than-expected stock price.

Long-Term Outlook on Tesla's Value

Eric recalled, “Tesla has a remarkable track record. They continue to produce and sell cars at a higher rate than their competitors. New models like the Model Y and Cybertruck have generated immense interest with over a million pre-orders for the Cybertruck alone. High production rates at Giga factories in various locations, along with continuous technological advancements, suggest a positive long-term outlook for Tesla’s value.”

While the stock market can be volatile in the short term, the underlying value of a company like Tesla is influenced by its ability to sustain and expand its business. Despite market fluctuations, the company's solid financial position and growing market share support a long-term investment perspective. Additionally, holding onto stocks during market downturns can present excellent opportunities to purchase more shares, which can increase in value as the market recovers.

Eric’s conclusion that the value of Tesla stocks will steadily increase over time is aligned with the company’s strong fundamentals. By maintaining a long-term view, investors can benefit from the intrinsic value of Tesla, even in uncertain market conditions.

Conclusion

While it's impossible to predict exactly what Tesla's stock value would be without splits, the historical context and market dynamics provide insights into the theoretical value. Tesla's intrinsic value remains unchanged regardless of the number of shares outstanding. The stock market's intrinsic value is driven by supply, demand, and investor sentiment, which are influenced by various factors. Understanding these dynamics can help investors make informed decisions.