The beginning of the matter seemed like a reckless bet. At the beginning of this year, Elon Musk used Tesla’s $1.5 billion in cash to buy Bitcoin, and the value of his holdings rose by more than $1.3 billion from the time of purchase.
But if Bitcoin is far below $30,000, Tesla will suffer huge losses, and the profits from the production and sales of electric cars for several quarters will be wiped out.
When rising, people generally think: “Hey, the Bitcoin market looks crazy, but this guy is a genius-Tesla made billions of dollars on Bitcoin!” When it fell, public opinion became: “No People know how the Bitcoin market develops, and if it collapses, it is equivalent to hiding a grenade in Tesla.”
The risk that Bitcoin poses to Tesla caused panic on Wall Street.
”Many investors would rather Musk have never touched Bitcoin.” Wedbush Securities analyst Daniel Ives said. “The focus should be on delivery, the global wave of electric vehicles, and solving the problem of chip shortages. But now people are paying too much attention to Bitcoin.” He added that what is particularly frustrating is that Musk has been very aggressive in recent months. The attitude of praised Bitcoin has been reversed, and it has also impacted Tesla’s stock price.
”It’s like setting fire to your own house.” He said, “The Bitcoin incident has clouded Tesla’s story, and it’s all asking for trouble.”
The details provided in Tesla’s first quarter report can be estimated, especially Sla holds approximately 42,100 bitcoins. Tesla bought bitcoin at an average price of $32,000, and by the end of the first quarter the price was nearly $59,000.
At the beginning, investing in Bitcoin looked like a big success. Excluding the sale of carbon credits to competitors during the quarter, Tesla’s pre-tax profit was only $15 million. From this perspective, buying and selling Bitcoin boosted company performance.
However, the first quarter report mentioned content that few people paid attention to, indicating the situation in the second quarter and the possibility of greater problems in the subsequent quarters. According to the classification of the Financial Accounting Standards Board of the United States, cryptocurrencies are “intangible assets with uncertain maturity”, and companies have great freedom in how to deal with crypto assets in the balance sheet. In order to avoid losses, Musk may break his promise to sell Bitcoin to fill in the hole.
Since Musk is an opinion leader in the Bitcoin circle, a large-scale sell-off may trigger panic among fans, which will further promote Bitcoin’s dive. Imagine that the price returns to $25,000 at the beginning of December 2020, and Tesla’s loss will reach $278 million. What if it falls to $20,000? At that time, Tesla’s once “profitable” investment of US$1.3 billion will lose US$484 million.
Keep in mind that in the past four quarters, after deducting sales of carbon credits, Tesla suffered a pre-tax loss of US$127 million. Musk also admitted that sales of carbon credits will rapidly decrease. If Bitcoin suffers a huge loss, it may wipe out all the profits from selling cars and batteries in 2021 or even longer.
However, the real problem is that Bitcoin’s price trend has always been ups and downs and extremely difficult to judge, and Tesla’s already unpredictable future earnings are becoming more and more suspicious. The most indispensable thing for Tesla today is uncertainty. Musk chooses to bet on today’s most varied assets and can only add variables to the variables.
