Tesla buys $1.5 billion in bitcoin, plans to accept it as payment

Tesla announced Monday it has bought $1.5 billion worth of bitcoin.

In a filing with the Securities and Exchange Commission, the company said it bought the bitcoin for “more flexibility to further diversify and maximize returns on our cash.”

Tesla also said it will start accepting payments in bitcoin in exchange for its products “subject to applicable laws and initially on a limited basis.” That would make Tesla the first major automaker to do so. The $1.5 billion worth of bitcoin will give Tesla liquidity in the cryptocurrency once it starts accepting it for payments.

Tesla’s move into bitcoin represents an investment of a significant percentage of its cash in the investment. The company had more than $19 billion in cash and cash equivalents on hand at the end of 2020, according to its most recent filing.

The moves raise questions around CEO Elon Musk’s recent behavior on Twitter, where he has been credited for increasing the prices of cryptocurrencies like bitcoin and dogecoin by posting positive messages that have encouraged more people to buy the digital currencies.

Two weeks ago, the billionaire Tesla owned added the hashtag #bitcoin to his Twitter bio, a move that helped to briefly push up the price of the cryptocurrency by as much as 20%. Two days later, he said on the social medial chat site Clubhouse: “I do at this point think bitcoin is a good thing, and I am a supporter of bitcoin.”

Tesla buys $1.5 billion in bitcoin: SEC filing

Bitcoin prices surged to new highs Monday following Tesla’s announcement, reaching a price of at least $44,200. Tesla shares were up more than 2% Monday morning. In its SEC filing, Tesla warned investors of the volatility of bitcoin’s price.

Musk has gotten into trouble for his market moving tweets in the past, but it’s unclear how that applies to his tweets about cryptocurrencies. Most notably, the SEC charged Musk with fraud in 2018 for his tweets about taking the company private at $420 per share.

Musk ultimately settled with the SEC, and was forced to give up his role as chairman of the company’s board and pay a $20 million fine on top of another $20 million fine for the company itself.

Tesla said Monday that a $23 million bitcoin-related impairment caused some drag on its quarterly operating income.

The electric auto company only referred to bitcoin or crypto one time in its second-quarter announcement, after CEO Elon Musk went back and forth on whether Tesla would accept the digital currency for vehicle purchases. The subject didn’t come at all on Tesla’s conference call with investors and analysts.

In February, Tesla announced a $1.5 billion purchase of bitcoin – more than its entire quarterly research and development budget – and said it may continue investing in cryptocurrencies. As of the end of March, the company said its investment was worth $2.48 billion, based on the surge in bitcoin in the first quarter.

Tesla reported a net gain of $101 million from sales of bitcoin during the first quarter, helping to boost its net profits to a record high. On the company’s statement of operations, that gain shows up as a reduction in operating expenses, suggesting that it flipped some of its holdings as bitcoin prices rose that quarter.

But the price of bitcoin plunged more than 40% in the second quarter, so Tesla’s holdings would be worth much less than at the end of the first quarter. The cryptocurrency peaked above $63,000 in April, and then dropped below $30,000 earlier this month. Bitcoin is currently trading just shy of $40,000.

Tesla doesn’t account for bitcoin as a mark-to-market asset, meaning it only recognizes an earnings benefit if it sells to lock in the gains. Therefore, the drop in the value of bitcoin shouldn’t affect earnings as long as Tesla hasn’t divested of any of its holdings.

That’s a different way of reporting investments than companies that back tech start-ups through their venture arms. In those instances, companies typically mark their holdings every quarter based on the market price, determining the value by a follow-on financing round or a public stock price.

Despite the bitcoin expense, Tesla’s operating income quadrupled to $1.3 billion from the same period a year earlier. Revenue of $11.96 billion and earnings per share of $1.45 both topped analysts’ estimates, according to Refinitiv.

Shares of Tesla rose 1.4% in after-hours trading Monday to $666.59. The stock, among the best market performers in recent years, has dropped more than 25% since January.

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