Tesla’s Bitcoin Investment: Was It Profitable?

Tesla, a manufacturer of electric vehicles, sold off 75% of its bitcoin (BTC) holding in the second quarter for “a realized gain,” sparking questions about the profitability of the company’s investment. The sale is thought to have occurred at a cost of about USD 29,000, above the lows experienced during the quarter.

In an earnings report issued on Wednesday, Tesla disclosed that during the second quarter, it sold bitcoin valued around USD 936 million. The corporation now has digital assets worth USD 218 million, with the majority of those probably being bitcoin.

 Tesla’s chief financial officer Zachary Kirkhorn said during the earnings call:

“[…] we converted a majority of our Bitcoin holdings to Fiat for a realized gain, offset by impairment charges on the remainder of our holdings, netting a USD 106 million cost to the [profit & loss],”

Tesla sold the bitcoin for more than it paid for it, which is what is meant by “a realized gain.”

Some internet observers continued to claim that the bitcoin was probably sold at a loss. However, taking into account a profit from a bitcoin sale Tesla made earlier, the entire outcome might be more or less flat.

As of the beginning of the second quarter, Tesla possessed approximately 42,000 BTC, according to various estimates. In such situation, after selling 75% of that, the company’s funds would likely contain about BTC 10,000. Additionally, the USD 936 million in sales revenue suggests that the selling price per bitcoin was roughly USD 29,000.

Tesla initially introduced bitcoin to its financial sheet in February 2021 when it purchased the virtual currency for USD 1.5 billion. BTC was trading between USD 30,000 and 40,000 at the moment. Tesla, however, sold 10% of its BTC holdings in the first quarter of 2021, indicating that it intended to use BTC to increase liquidity as and when necessary.

Because bitcoin is not treated as a mark-to-market asset by the corporation, changes in its value only have an impact on earnings when it is bought or sold.

Elon Musk informed the market on the earnings call that the sale was driven by a need for additional funding rather than a decline in confidence in the digital currency. Musk claimed that Tesla’s Shanghai production closures due to COVID had raised company uncertainty and that a better liquidity position was required.

Tesla is “certainly open,” he continued, to re-increasing its exposure to bitcoin in the future. Due to COVID shutdowns in China, he explained, “we were just concerned about overall liquidity for the company.”

Nevertheless, some believe that Musk had further motivations for parting with some of the sizable BTC holdings of the business.

Notably, Musk added that the business has not sold any of its dogecoin during the earnings call.

While Tesla has never publicly admitted to buying DOGE, it is known that the company does so in exchange for certain of its products. Exactly how much DOGE Tesla holds is yet unknown.

When the information about Tesla’s bitcoin sale was made public on Wall Street on Wednesday after market hours, BTC decreased. The coin’s price had dropped 4.3% during the previous 24 hours as of the time of publication to USD 22,951.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Patrick

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