Tesla's Early Bitcoin Sales Cost It Over $300M in Potential Profits
Summary:
Tesla missed out on potential profits of over $300 million due to early Bitcoin sales. The company, which made a hefty $1.5 billion investment in Bitcoin in February 2021, sold about 10% of its holdings in March 2021, and around 75% in Q2 2022. Despite this sell-off, Tesla still has about 9,720 BTC in its reserves. These sales occurred in quarters where Tesla's free cash flows were weaker, suggesting the company used Bitcoin sale to enhance its financial performance during lean periods. As Tesla's free cash flow has improved significantly, future Bitcoin sales seem less likely.
Tesla has missed the boat on a profit margin over $300 million as it chose not to "hodl" its early Bitcoin (BTC) sales. Tesla made waves in the crypto marketplace by making a massive investment of $1.5 billion in Bitcoin in February 2021, when the cryptocurrency was valued around $36,000. Despite a nearly 40% drop in TSLA’s value against BTC since then, the value of Bitcoin in USD terms witnessed a rise of 7.3%. Interestingly, rather than holding onto this promising asset, Tesla sold nearly 10% in March 2021, followed by 75% of its Bitcoin reserves in the second quarter of 2022. Tesla CEO, Elon Musk justified these sales noting it was to establish Bitcoin's liquidity and strengthen Tesla's financial positioning amid economic turbulences. If Tesla had kept its entire Bitcoin stash, the current market rate of around $41,500 a unit would have given the company a potential profit of over $300 million. However, Tesla's residual Bitcoin assets, around 9,720 BTC, have been static over the recent periods, which suggests a more guarded strategy in an expected optimistic year for Bitcoin.
In addition, there's been a pattern of Tesla selling Bitcoin in quarters where the company's free cash flows were lower. Free cash flow is essentially the cash a business generates after expenditure for maintaining or expanding its operations. In Q1 of 2021, Tesla's Bitcoin sale provided a staggering 93% of the company's free cash flows. Similarly, in Q2 of 2022, a 73% decrease in Tesla's free cash flows coincided with a wave of Bitcoin sales. However, with a strengthened flow of free cash in 2023, Musk may not need Bitcoin to solidify Tesla's finances. With Tesla's free cash flow at a healthy $2.1 billion in Q4 of 2023, and a cumulation of $4.4 billion for that entire year, the need for Bitcoin sales appears less immediate.
Discussion about Bitcoin’s future value in 2024 often points to growth, with analysts basing their optimistic forecasts on potential approval of US spot Bitcoin ETFs and the possible impact of the next Bitcoin halving event. However, note that trading and investing involve risk, so individual research is key for decision-making.
Published At
1/27/2024 2:20:00 PM
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