Elon Musk just spent $1.5 billion of Tesla’s precious $19 billion-plus in cash on bitcoin, and in the process may have it made it more difficult for investors to properly assess the company’s fair market value.
“In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, we may invest a portion of such cash in certain specified alternative reserve assets. Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy,” the company wrote in a 10-K filing with the the U.S. Securities Exchange and Commission (SEC) on Monday. The filing added that the company expects to begin accepting bitcoin as a form of payments for its pricey electric cars “in the near future.”
Even by Musk’s standards, the move to buy up bitcoin with Tesla’s money is a bit surprising.
While Musk is a long-time fan of crypto (especially dogecoin, which he recently dubbed the people’s crypto), to use Tesla’s cash in this manner opens the company up to fresh regulatory scrutiny, experts say. Further, it could be perceived by regulators that the company is trying to replace the U.S. dollar by accepting bitcoin as payment for its cars.
Moreover, it may damage Tesla’s balance sheet should bitcoin lose value.
And therein lays the new issue, explains TD Ameritrade Chief Strategist JJ Kinahan. Should Tesla be viewed as an investment on the future of bitcoin? Does the stock deserve to trade lower if bitcoin has a bad day? Should the stock solely trade on Tesla’s outlook for auto production volumes? Is Tesla a budding payments company like Square and PayPal? Is it a hodgepodge of all these things, thus requiring a completely new financial model by the analyst community?
“Let’s face it, one of the big issues [with Tesla] we’ll say that many people had going into this was should I trade Tesla as a technology company? Should I trade it as an automobile company? How should I think of this going forward, now as a bitcoin investment?” explained Kinahan on Yahoo Finance Live. For his part, Kinahan has long thought of Tesla as a tech company because of its superior battery technology.
“I think it will take a little while to figure out,” Kinahan says on how investors should view Tesla.
At least for today, investors are seeing Tesla as a play on bitcoin. Tesla’s stock rose nearly 2% in early Monday afternoon trading, while bitcoin rose 13% to more than $43,000.