On February 2021, Tesla announced that it had invested 1,5 Bln USD in bitcoin (which amounted to less than 8% of the 19,4 Bln USD the company had in "Cash and Cash Equivalents" on 31/dec/2020). The company did not announce the average price at which it bought bitcoin. However, judding by the timing, it can be inferred that it was around 40,000 USD.
The bitcoin price went up for a while (arguably due to Tesla's bitcoin purchases themselves, as they created a significant buzz), having surpassed 60,000 USD on March/April 2021 and again later on October/November 2021. However, it fell sharply after that, having reached levels below 20,000 USD in June 2022.
According to the company's fillings, by 30/Jun/2023, the company had reduced its exposure in digital assets (I assume that the large majority of it was bitcoin) to only 218 Mln USD, and made further reductions after that.
I cannot find exact information on how much Telsa lost with this investment. However, according to the 1Q23 earnings release, in 2022, the company lost roughly 204 Mln USD, having recovered 64 Mln USD through trading, ending up with a net loss of 140 Mln USD.
Since, in 2022, the company's EBITDA and Net Income were over 19,2 Bln USD and 12,6 Mln USD, respectively, a 140 Mln loss is not exactly life-changing for Tesla. Nonetheless, it is still significant, and makes us think about the logic and legitimacy of such investment: does it make sense for a automaker to invest 1,5 Bln USD in a highly-speculative and alternative asset?
First of all, it is important to mention that decision makers abided to rules and to the desires of the Board of Directors. Indeed, said investments were made only after the Board of Directors and the Audit Committee approved a new Investment Policy that allowed investing a portion of surplus cash in certain alternative reserve assets including digital assets, gold bullion and gold exchange-traded funds.
I would also highlight that Tesla was transparent about its actions, as it announced the changes made in its investment policy, and the investment itself.
Nonetheless, it is not clear whether shareholders (other than Elon Musk, who is Tesla's CEO and likely the main person in favor of investing in bitcoin) enjoyed this decision. In fact, it is hard to imagine an investor who decided to allocate capital in an automaker feeling happy to know that its investment suddenly became exposed to a volatile cryptocurrency. In addition, it is not common for companies to invest surplus cash in high-risk financial instruments (and many people, including myself, are against it).
That being said, companies' management teams change strategy, make capex decisions and buy/sell businesses and other assets all the time. If a certain shareholder is unhappy with some decision, it can always protest and/or divest. And, if such feeling is shared by the majority of shareholders, they can pressure the management team to revert the decision (maybe that is what happened at Tesla?).
Comments
Post a Comment