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Wednesday, November 30, 2022

Why Tesla holding $2 billion in Bitcoin is ‘a distraction and sideshow’: Analyst

As detailed in a broad SEC filing this week, Tesla gave investors an update on its Bitcoin holdings. Parsing through the disclosure, it boils down to this:

  • Tesla bought around $1.5 billion in bitcoin (BTC-USD) in the early part of 2021;

  • realized a gain of $128 million on a sale of some of its stake earlier in 2021;

  • has now taken a $101 million impairment on the holding as bitcoin’s value has diminished; and

  • currently Tesla’s bitcoin stake has a market value of nearly $2 billion, and a ‘carrying value’ of $1.26 billion

Recall that back in the early days of 2021 when Tesla revealed its investment in Bitcoin, it also started accepting Bitcoin as payment for new Tesla cars. CEO Elon Musk then backtracked on that initiative only a few days later, claiming that Tesla was “concerned” about the energy needs of mining and transacting Bitcoin with fossil fuels.

Musk, a noted crypto enthusiast, has espoused his love for other cryptocurrencies like Dogecoin, and Tesla now accepts Dogecoin for certain merchandise on its website. Tesla also added the title of “Master of Coin” to CFO Zach Kirkhorn in a regulatory filing last year, possibly in reference to the company’s bitcoin holdings.

While Tesla’s support of crypto in general may be something the company thinks will be the future of currency and transacting, the question for some is does this fascination with cryptocurrency take its eye off the ball so to speak when so much is transforming in the EV space.

“Tesla is doubling down on its Bitcoin strategy despite volatility and investor concerns,” Wedbush analyst Dan Ives tells Yahoo Finance. “It remains a distraction and sideshow from the core Tesla story in our opinion during this risk-off backdrop.”

For Ives, this sentiment is nothing new. Back in May of 2021 Ives echoed a similar tone in a research note on Tesla’s focus on Bitcoin and backtracking on accepting it for payment:

For Tesla and the stock, not accepting Bitcoin does not change the thesis or growth trajectory for the EV story, however it does add to the noise and volatility around the name at a time in which risk assets are under enormous selling pressure on the Street with Tesla leading the charge.

What Ives, and many other Tesla analysts like Adam Jonas at Morgan Stanley are more concerned with, is the ‘green tidal wave’ as they are calling it, which is the massive transformation of the auto industry from a ICE (internal combustion engine) powertrain structure to pure electric – motors, inverters, and batteries.

“We’re seeing, it’s a $5 trillion market opportunity in terms of EV and it’s the biggest transformation to the auto industry since the 1950s,” Ives told Yahoo Finance last month.

Ives is more concerned about how Tesla can get more cars into the hands of potential buyers, which he says is the company’s real challenge.

‘They’ve got a supply issue’

“[Tesla] had about 309,000 in terms of vehicles sold in the quarter, that would have been about 35,000 higher if not for chip shortage. So if you look right now, it’s about a 10% to 15% headwind in terms of where numbers could truly be,” Ives told Yahoo Finance following Tesla’s Q4 earnings report.

“They don’t have a demand issue, they’ve got a supply issue — and again, I view that as a high-class problem. And that’s something that Musk should talk about,” he says.

Ives’s message to “Musk & Co,” as he likes to call them, is clear: Forget about the “distraction” of bitcoin and crypto and focus on the supply problem.

But as many commentators, fans, and critics have noted in past, good luck telling Elon Musk what to do.

Tesla shares are higher today, but the stock is down 9% so far this year. Bitcoin is also trading higher today, but it too is down 8% thus far, in 2022.

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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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