Tesla in grip of Bitcoin fever

That Tesla chief Elon Musk would, one way or another, place his trust in Bitcoin was to be expected. He had already stated his interest and his enthusiasm for the cryptocurrency many times in the past and had previously considered switching the whole of his corporate financing to this digital money format. Words turned to action, with Tesla investing USD 1.5 billion in bitcoins.

Although the value per unit at the time of investment was still under USD 37,000, the value jumped to over USD 50,000, allowing the total valuation to grow meanwhile to over USD 1 trillion. U.S. treasury secretary Yellen is not so convinced. Her lack of approval points toward some form of regulation in the future. I mention all this because it shows the kind of influence that Elon Musk exerts on his millions of fans and followers on Twitter and the like, and the consequences that his behavior can have. It’s not a healthy situation in my opinion, since he is the only person who is capable of influencing the progression of this cryptocurrency at the moment.

Another point to mention is that the trading and creation of bitcoins require enormous amounts of energy, as is true for all other cryptocurrencies, and with Tesla’s production of battery-powered automobiles it begs the question whether all of that is actually sensible and sustainable in the long run or if indeed it is a contradiction in terms.

I’d like to highlight something else, though: Tesla has so far been making profits primarily from selling regulatory credits for zero-emission vehicles – around USD 1.4 billion alone in 2020. A total of USD 1.1 billion is still expected to be generated in this way for 2021. This leaves me wondering whether bitcoin trading and the trading profits that result will now give Tesla a second revenue stream instead of relying on the sale of vehicles and artificial intelligence software to generate profit.

Taking a wander through the chat rooms, Elon Musk devotees are now mostly bent on bitcoin profits which could theoretically be in excess of USD 1 billion in just the first quarter of 2021. In some discussions on U.S. television, e.g. MSNBC and Bloomberg, irritation has already been spreading among analysts and fund managers whose share purchases or placements are supplying Tesla with the capital for growth, not for stock market speculation. That’s what Elon Musk can do with his own private capital but not with his company’s cash, was one of many assertions heard on TV.

It’s worth bearing in mind that the new factory in Austin, Texas, costs money. The gigafactory in Grünheide near Berlin also still needs a great deal of investment. And not forgetting the planned construction of a manufacturing operation in India which will consume further billions. According to Tesla’s own estimates, investment over the next two years is likely to be over USD 10 billion. That being the case, the hitherto USD 19 billion in liquid assets doesn’t now seem all that much. Will the stock market simply continue putting up with additional share placements via ATM programs?

In addition to all of this comes the enormously high number of obligations, in my opinion, that result from the investment in raw materials for battery production, be it purchase obligations, the direct participation in mines or the forward purchase of large quantities of batteries from companies such as Panasonic, CATL and LG. What happens if these commitments can’t be met because the demand isn’t there? Penalties?

I have vivid memories of Solarworld which thought it was being really clever by securing large volumes of silicon for the production of photovoltaic cells on a forward basis but then was unable to pay. And we know how that tale ends: bankruptcy. In my view, the procurement of raw materials for battery manufacturing, regardless of automaker, gets problematic if you include the carbon dioxide emissions generated by the material’s extraction, by the logistics involved as well as by the value and delivery chain as a whole. And that’s where hydrogen increasingly pitches up as a competing technology, assuming that the hydrogen is green, available in sufficient quantities and priced attractively, that is.

Profit versus sales figures

In the press conference on financial year 2020 i.e., the fourth quarter, CEO Musk admitted that the number of vehicle units sold is more important to him than making money from their sale – or words to that effect. By way of explanation it should be pointed out that the company is reaching this goal, with just shy of 500,000 units sold in 2020 – the exact figure was around 499,600 – albeit helped by discounting. And now sales are rapidly heading toward the 1 million threshold and it’s predicted that as many as 20 million units will retail in 2030.

However, the numbers for the fourth quarter were not convincing despite revenue rising to USD 10.7 billion. That gives a below-the-line profit of USD 0.80 per share whereas USD 1.03 per share had been anticipated. It was only this quarter’s USD 401 million in regulatory credits that saw the company into profit.

I remain extremely skeptical as the competition is certainly not resting on its laurels. 2021 should see over 250 battery models coming onto the market in Europe alone. And startups such as Fisker, Lucid and NIO are doing all they can to rival Tesla. Apple Inc. also springs to mind; I wouldn’t put it past them to develop their own fuel cell hybrid vehicle. Last but not least, the Chinese group Huawei has signaled its intention to enter the electric car business, and this is one of the market leaders in 5G. Two words for you: autonomous vehicles.

While all the major carmakers are busy working on autopiloting solutions, Google’s Waymo, Mobileye, Apple and the like are grappling with artificial intelligence. As such, Tesla’s unique selling points are dwindling. Then there are the recalls relating to the large touchscreen, for example, in some of its luxury cars. Plus, the expiry date on the 8-year battery warranty for certain Tesla vehicles is drawing ever closer.

The market is getting increasingly jittery, as evidenced by the daily fluctuations (see Feb. 23, 2021, and March 9, 2021) in stock price of over USD 100, which works out at over USD 100 billion on just one day’s trading. Die-hard Tesla fans, like ARK Invest, are continuing to buy and are not shy to admit it. For me this is the first sign of a changing price trend and a turnaround in the valuation of the business.

Chartists are seeing the danger of a major price slump after the stock price broke downward through important support lines. Think back to February 2020 when the price fell from USD 800 to below USD 400. At the moment the stock is resting at nearly USD 700, which following the 5:1 split works out at USD 3,500. It would then follow that the price ought to shift to USD 350, or USD 1,750 respectively, if 2020 is anything to go by. All purely theoretical – for now.

Risk warning

Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.

Author: Sven Jösting, written March 20th, 2021

2 thoughts on “Tesla in grip of Bitcoin fever

  1. Hello Franziska, Your article is dated 2021-Apr-14 — I just got around to reading it. Thank you for your detailed writing and hard work.

    I believe the Bitcoins that Elon Musk bought started at $37,000 each and grew to $50,000 each. That works out to a growth rate of 35.1%. For an investment of $1.5 billion it would have grown to $2.03 billion, not 1 trillion dollars. If I misunderstood the figures, then please tell me where I can invest at those rates of return !

    But everything has changed with Elon’s bitcoin interest. The Bitcoin system requires way too much electrical power for his taste (and mine).

    Best of luck to you and
    Warm regards from,

    Bill Kitchen
    Electronics consultant
    On an island in the Pacific ocean, near Vancouver, Canada

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