Earlier this week Tesla submitted their quarter three 2021 financial statements to the SEC. Cryptocurrency enthusiasts and sceptics alike held their breath once again following Tesla’s previous purchase of 43,200 Bitcoins, or 0.3% of available supply, earlier this year. An investment at the time of some $1.5 billion.
Since this initial bullish step Elon Musk and Tesla rapidly U-turned on Bitcoin despite during the first quarter of 2021 having, ‘accepted bitcoin as a payment for sales of certain of our [Tesla’s] products in specified regions’. The poor environmental sustainability record of Bitcoin and its community of miners being cited for this pause in corporate adoption. Nonetheless, this standpoint is supported by The University of Cambridge’s Bitcoin Energy Consumption Index (CBECI) which at the time of writing reports that 0.5% of global electricity is now consumed by Bitcoin alone. This is an amount equivalent to powering all of the fridges in the U.S.!
Such poor green credentials were previously reasoned by Tesla back in May-21 as their justification to U-turn on their original decision to allow their customers to pay in Bitcoin, in line with their mission statement – ‘to accelerate the world’s transition to sustainable energy‘. This is despite Bitcoin’s aggregate global energy consumption being up almost 50% year-on-year.
However, this moral perspective seemingly does not extend to buying Bitcoin themselves and holding it on their balance sheet as a treasury reserve asset. In fact, when you buy Tesla equity stock today you are in fact buying 99.8% Tesla along with 0.2% Bitcoin, given Tesla’s circa $1 trillion market capitalisation.
Digging in to Tesla’s third quarter results we can see that the world’s premier electrical vehicle manufacturer has held, or HODL’d, most of their original Bitcoin with limited impact on the company’s quarter three profitability. The only deviation from this strategy being their sale of $270m of Bitcoin in March 2021, to ‘test the liquidity of the market’. This disposal generated a realised gain of $128 million, compared with year-to-date impairment losses of $101 million in 2021 with respect to the remaining Bitcoin held by the company. These latter losses are where the market value of Bitcoin had fallen below the original purchase price prior to possible disposal.
However, the key word here is ‘HAD’. In the 4 weeks since the end-of-September 2021 Bitcoin is up almost 50% on the US dollar. This means that presently Tesla is likely sat on an unrealised gain of circa US$600m for this month of October alone.
But, is there another U-turn on the horizon?
In the same submission to The SEC, Tesla explains that, ‘we may in the future restart the practice of transacting in digital assets for our products and services’. Tesla’s digital assets are valued at $1.26 billion mark-to-market at quarter end September 2021.
In summary, Tesla is doing (very!) well out of Bitcoin. Tesla’s Bitcoin gains for the calendar year 2021 may exceed their global research and development spend of $969 million in prior year, 2020. It is perhaps therefore unsurprising that they continue to be cautiously optimistic on Bitcoin’s future, putting their money where their mouth is and holding the cryptocurrency as a treasury reserve asset.
What Tesla may do next is unknown but holding Bitcoin on behalf of their shareholders whilst simultaneously preventing their customers from buying with bitcoin has been argued as hypocritical but is nonetheless undeniably profitable for Elon Musk and Tesla’s shareholders.