In early 2021, Tesla (NASDAQ: TSLA) CEO Elon Musk identified as “a supporter of Bitcoin”. A month later, Tesla announced it would accept the world’s largest cryptocurrency as a method of payment for its electric vehicles. By the end of the year, Tesla held approximately £1.5bn of the digital currency, according to its recent SEC filing. Cryptocurrencies are novel, volatile assets that have attracted both excitement and criticism. Indeed, Warren Buffett derided Bitcoin as a “delusion” that “attracts charlatans”. With these contrasting views in mind, let’s explore what having a Bitcoin bull as CEO means for the Tesla share price going forwards.
Tesla and Bitcoin: the good, the bad, and the uncertain
The 43,200 Bitcoins that Tesla holds, following a $1.5bn investment in Q1 2021, currently represents around 10% of the company’s liquid assets. Tesla recently championed “the long-term potential of digital assets”, stating Bitcoin offered the company “more flexibility to further diversify and maximise returns on [its] cash”. Tesla is now the second-largest owner of Bitcoin, second only to data analytics firm MicroStrategy and eclipsing the holdings of Block and Coinbase.
However, Elon Musk’s enthusiasm for cryptocurrency has not always been steadfast. Only a few months after announcing its acceptance of Bitcoin as a payment method, Tesla suspended this policy, citing environmental concerns associated with the carbon emissions generated by Bitcoin mining. Given the nature of its business, Tesla’s ESG credentials often come under scrutiny, which perhaps makes Musk’s decision unsurprising and Tesla’s relationship with Bitcoin potentially turbulent in the future. Holding Bitcoin has also hit Tesla’s balance sheet, with the company logging a $101m crypto-related impairment loss in 2021.
‘Big Short’ investor Michael Burry is not alone to point to a developing correlation between the value of Bitcoin and Tesla’s share price. One Bitcoin currently hovers at around £31,000, marking a decline of 11% over the past 12 months. Although early adopters and long-term holders can point to five-year returns in excess of 3,200%, the cryptocurrency has a history of violent crashes and extreme volatility. Tesla has stated it will adjust its digital currency holdings at any time, but if the stock’s fate is intertwined with the story of Bitcoin, only time will tell whether the Tesla share price will end up going to the Moon or come crashing back down to Earth.
Tesla: beyond Bitcoin
There is more to Tesla’s business than its cryptocurrency holdings. The company is the most valuable automotive company in the world with a market capitalisation of around £655bn. Electric vehicles and clean energy technologies remain at the heart of the corporation’s earnings. In this light, Elon Musk’s bullishness on Bitcoin may just constitute a clever marketing ploy to boost the popularity and reputation of Tesla products among crypto-enthusiasts; a theory supported by YouGov polling research.
Today, Tesla’s share price is up 8% over the past 12 months after recently coming down sharply from its 52-week high of $1243.39 per share. Tesla’s five-year return of just under 1,500% is certainly impressive. Is Bitcoin part of the answer to ensuring the next five years are equally profitable for Tesla? Elon Musk seems to think so.