ESG investing has gained a lot of traction recently. Companies are becoming more conscious of the impact that it can have on performance and also on investor perception. With some investors actually wanting to exclude non-ESG-friendly stocks from their portfolios, avoiding ESG could even be damaging to the share price. With this in mind, how should I view Tesla (NASDAQ:TSLA) shares after the recent news regarding Bitcoin?
What has happened?
Last Thursday, Elon Musk tweeted that Tesla would be halting purchases of cars using Bitcoin. This comes as a complete reversal of the announcement earlier this year when the company said that people could use the cryptocurrency to buy cars. Tesla shares fell in the immediate aftermath of the tweet, as did Bitcoin.
For those with little knowledge of Bitcoin, the link between it and ESG concerns might not be immediately apparent. But Bitcoin is a digital asset, and uses computers to process transactions, mine for other coins and store associated data. As a result, it uses an enormous amount of fossil fuels in order generate the power needed.Â
Despite Musk’s personal interest in cryptocurrency in general, the Bitcoin story never quite slotted in comfortably with Tesla as a business. Tesla shares have gained in value over the years, partly because it’s an electric car company. It’s seen as the future, for the environment, as well as for other reasons. So to be so focused on ESG-positive elements, and yet push power-hungry Bitcoin was always a slight conflict.
Should I buy Tesla shares?
Even though Tesla shares fell on the initial tweet, I think this is good news in the longer term. Tesla is an electric car company and is now pivoting to growth after years of losses. For example, in Q1 of this year, it set a new record for car deliveries at 184,800. Profit came in at $438m.
So from my point of view, the outlook regarding the core operations of the business is positive. In fact, the company is aiming for 50% annual growth in car deliveries this year. Therefore I think Bitcoin is a distraction that unnecessarily hampers the share price. Musk and Co are good at what they do, so why complicate things?
Hopefully, the news around Tesla and Bitcoin dies down, and Tesla shares can trade closer to the underlying performance of the business. It’ll also allow more ESG funds to hold Tesla as a stock. Private investors should also feel more comfortable with buying shares as well.
The risk to my view is the unpredictability of Elon Musk. Given the control he still has, I wouldn’t be surprised if he tweets next week that Tesla is now accepting Dogecoin! His actions in general cause high volatility for Tesla shares, and make it hard to accurately make an informed decision.
As a result, although I think the recent news will attract more ESG investors, I don’t trust Elon Musk enough to invest my money right now.