Will Tesla Lose Big On Bitcoin?

2021 energy May 30, 2021

Published by Anthony Di Pizio

In January this year, Tesla announced it had acquired $1.5 billion worth of Bitcoin. In the very same quarter, it disposed of a portion of that holding, which accounted for over 27% of the company's total net income for the period. The saga drew mountains of criticism, mainly around the volatile cryptocurrency's potential impact on Tesla's earnings. As an early stage manufacturer that still struggles to make money selling cars, investors are rightly concerned about disruption to the company's financial stability. 

Elon Musk recently expressed concerns about Bitcoin's carbon footprint, telling the public that Tesla would no longer be accepting it from customers as payment. Mining the cryptocurrency is estimated to generate almost 37 megatons of carbon each year, which is more than some entire countries. Musk has since tried to spark a movement towards 'clean' Bitcoin mining, at which time Tesla could reconsider its utility as a medium of exchange.

(A Lack Of) Earnings

Tesla is valued at over $600 billion, a number that is hotly debated among analysts and the broader investment community. In the first quarter, the company delivered $1.05 billion in net income for the first time ever, and revenues are climbing at a respectable pace.

Metric

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Revenue (billions)

$5.9

$6.0

$8.7

$10.7

$10.4

Data: Tesla filings

Despite the rosy picture, the composition of Tesla's earnings are a source of deep concern. It derived about half of its net income from the sale of regulatory credits, and a over quarter from the sale of Bitcoin, as we mentioned. For a company that delivered almost 185,000 cars in Q1, it generates a surprisingly small amount of profits from manufacturing and selling them. 

The company faces some challenges. The revenue drop in Q1 (versus Q4 2020) was caused by a 13% reduction in the average sale price of its vehicles, and growing competition might make it hard to expand its global footprint, as every major car manufacturer is quickly bringing EVs to market. 

The Bitcoin Dilemma

According to regulatory filings, Tesla still held $1.331 billion of ''digital assets'' (known to be Bitcoin) on March 31. That represents the company's cost base, but the actual value on that date was $2.48 billion. This may have changed since, but if not, the value of those holdings are likely down significantly.

On March 31, Bitcoin traded at about $58,900. At the time of writing this, it's at $34,600 -- a fall of over 41%. 

Applying that to Tesla's holding, it would now have a value of about $1.463 billion - a drawdown of over a billion dollars. 

But what happens if the cryptocurrency experiment fails completely? If Bitcoin went to zero, Tesla's $1.331 billion total loss would be enough to plunge it into a full quarterly loss (based on recent results). Investors bought into an electric vehicle manufacturer -- not a crypto fund -- so it would likely trigger some dissatisfaction among Tesla bulls.

The recent plunge in cryptocurrencies highlights the risk of big company's holding them, and the volatility they may cause for earnings.  

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