Tesla could post an accounting loss of nearly half a billion dollars stemming from its investment in bitcoin for the three months ended June 30 due to the cryptocurrency’s crash in recent months, becoming yet another major tech company to see profits wiped out by risky investments which is not related to its core business.
In early 2021, Tesla bought bitcoin for $1.5 billion as a confirmation of founder Elon Musk’s belief in cryptocurrencies. Since then, bitcoin’s dollar value has fallen more than 30 percent, translating into a bump of $460 million, or $0.40 per share, in Tesla’s quarterly earnings report, which is expected to be released on July 20, according to Barclays.
Barclays estimates Tesla bought 42,000 bitcoins at a price between $32,000 and $33,000 in early 2021. At one point in the first quarter of that year, Tesla sold 10 percent of that stake after bitcoin rose above $50,000. Net proceeds from the transaction, $101 million, accounted for nearly a quarter of Tesla’s profit for that quarter. Musk so the sale was only to “prove [the] liquidity of bitcoin as an alternative to keeping cash on the balance sheet” and promised his company would not sell more bitcoin.
It is not unusual for large companies to invest in assets that have no direct relation to their main businesses in order to diversify risks and exploit potential outsized gains. But some companies’ aggressive bets on risky assets, such as cryptocurrencies and startup stocks, are proving to be a profit killer in a year marked by increased market volatility.
Amazon posted its first loss in years due to its Rivan investment
In April, Amazon posted its first quarterly loss in eight years, not because of its e-commerce or cloud business, but its investment in Rivian, an electric vehicle startup. Rivian’s shares lost half their value in the first quarter of 2022, resulting in an accounting loss of $7.8 billion for Amazon, which owns 18 percent of the company.
Tesla’s bitcoin holdings didn’t show much of a negative impact last quarter, as their value remained relatively stable. But the cryptocurrency began to fall rapidly in late March. In the three-month period ending June 30, bitcoin was down 55 percent, erasing all of its gains in 2021.
Fintech companies Coinbase and Block (formerly Square) are among the listed technology companies with similarly large crypto holdings. Block, run by Musk’s friend Jack Dorsey, bought $220 million worth of bitcoin in 2020. Dorsey cold the investment portion of the company’s “ongoing commitment to bitcoin.”
Coinbase, which facilitates trading of bitcoin and other cryptocurrencies, had crypto assets worth $696 million as investments, including $266 million in bitcoin, at the end of 2021, the company revealed in its annual report.
Both Block and Coinbase are expected to deliver second quarter earnings in early August.
Acknowledging the impact of bitcoin, many Tesla analysts still expect the electric car maker to post a profit for the latest quarter. Analysts polled by FactSet forecast second-quarter net income of $1.82 per share on $16.54 billion in revenue, representing a 25 percent jump from a year ago.
