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Tesla Might Report Its First Quarterly Loss In 3 years As The Company’s Bitcoin Holding Goes Down 32%

In the past 6 months, bitcoin is down 67% with 16% of the fall coming in the past 48 hours. And as the cryptocurrency has gone lower, Tesla is down 32% in its bitcoin holdings. This coupled with production disruption in Giga Shanghai is making it increasingly likely Tesla will post a quarterly loss in Q2.

Back in February 2021, Tesla announced that it had bought $1.5 billion dollar worth of bitcoin. At the time, Tesla did not disclose the exact price it paid for each Bitcoin however estimates put it around $34,000.

After Tesla announced its bitcoin purchase, the cryptocurrency’s value shot up sharply reaching $58,000 in a few weeks. For the next several months, Bitcoin continued its rally reaching an all-time high of $69,000 in November 2021.

At its peak, the value of Tesla’s Bitcoin holdings had reached around $2.6 billion. That is even after subtracting 10% as the EV maker sold a portion of its Bitcoin holdings to show that it can easily be converted to cash.

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Throughout 2021, as Bitcoin’s price kept climbing, Tesla’s bitcoin purchase was lauded by most as a brilliant move. However, since November 2021, Bitcoin together with Tesla’s stock has been on a decline.

Tesla’s stock in the last 6 months is down 47% and Bitcoin is also down 67% in the same time frame. A 67% decline amounts to a $1.7 billion dollar loss for Tesla. That is a theoretical loss assuming Tesla selling its bitcoin at the exact peak.

However, leaving bitcoin’s peak price aside, the EV maker is still down on the remaining $1.32 billion worth of bitcoin it is still holding. After a sharp 15% decline in the past couple of days, Bitcoin is currently trading at around $23,000.

This means considering Tesla’s original purchase price of around $34,000, The EV make is down 32% in its bitcoin holdings. In dollar amount, Tesla’s Bitcoin holding has shrunk from $1.32 billion to around $880 million.

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And according to accounting rules, digital currencies are classified as "indefinite-lived intangible assets." This means, that when Tesla reports quarterly numbers, even if the EV maker doesn’t sell the bitcoin its holding and locks in the losses, if the price of Bitcoin falls below its original purchase price of around $34,000 then the EV maker will need to report the difference as a quarterly loss.

Considering Bitcoin’s price remains at the $23,000 level by the time the EV maker reports Q2 earnings, then Tesla will have to report $440 million in losses just from its bitcoin holdings.

Last quarter Tesla reported a GAAP net income of $3.6 billion. Given the size of this number, the relatively small $440 million bitcoin loss wouldn’t be enough to turn the entire quarter negative.

However, due to a surge in COVID-19 cases, for the first month of the quarter, Tesla has been forced to shut down its plant in Shanghai, China. Even after restarting production, Giga Shanghai has been forced to operate in a closed loop system meaning, employees are required to live inside the factory.

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With the full month of production loss in addition to decreased output in another month, it is estimated Tesla has lost half the production capacity of Giga Shanghai in Q2. Or about 100,000 vehicle sales.

And once we add the negative impact to Tesla’s financials from the Giga Shanghai shut down and approximately $400 million losses from the fall in Bitcoin price, it’s increasingly likely Tesla will post a quarterly loss after an impressive 11 straight quarterly profit run.

If Tesla indeed posts a loss in Q2 then that will undoubtedly affect its stock price. However, what investors should keep in mind is that these are one-time hindrances unconnected to Tesla’s core performance.

Tesla’s main operation however remains strong with the EV maker posting auto industry-leading operating margins of 19.2%. Tesla is also currently ramping Model Y production at 2 new factories on 2 continents; the company’s full self-driving software is making incredible progress; last but not least, Tesla has paid all its debt and currently has more than $18 billion in its balance sheet.

And if you put all this together, Q2 will likely be a bleep in Tesla’s long-term story. As of now, it’s impossible to predict how Q2 earnings will affect Tesla’s stock price however, we will be sure to keep you updated as we get further information.

Until then, make sure to visit our site torquenews.com/Tesla regularly for the latest updates.

So what do you think? Should Tesla have sold some of its bitcoin when it made over a billion dollars in profit? Also, what is your expectation for Tesla’s Q2 earnings? Let me know your thoughts in the comments below.

Image: Courtesy of Tesla

For more information check out: Tesla Is Delivering the Giga Texas Model Y to Customers

Tinsae Aregay has been following Tesla and The evolution of the EV space on a daily basis for several years. He covers everything about Tesla from the cars to Elon Musk, the energy business, and autonomy. Follow Tinsae on Twitter at @TinsaeAregay for daily Tesla news.

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