Tesla has made $1 billion on bitcoin in less than a month
Tesla's recent investment in bitcoin is already paying off big time for Elon Musk's car company. With the price of the cryptocurrency hitting a record high on Sunday, the electric vehicle maker's holdings have risen $1.1 billion in the past month alone. That's more than Tesla earned in profits selling cars in 2020.
Tesla disclosed in a securities filing earlier this month that it had bought $1.5 billion worth of bitcoin. It did not disclose the date of the purchase, however, making it impossible to know exactly how much the company has made on the investment. Bitcoin was trading at just under $33,300 a month ago, while on Sunday the price topped $58,000, up 75%.
It's worth noting those gains amount to "paper profits" for Tesla, with no indications the company has sold any bitcoin. Meanwhile, the extreme volatility of bitcoin means that returns could be fleeting (or go even higher). By Monday afternoon, the price of a bitcoin had tumbled over $5,000 to $52,295, reducing Tesla's unrealized gains on its cryptocurrency investment to under $900 million.
That's still a tidy return. More specifically, it's nearly 10 times the $95 million the car company made each month in the second half of 2020 and more than its $690 million in profits for all of last year.
Tesla has indicated that it plans to keep a portion of its money in bitcoin for now. Last week, replying to criticism of the investment, Musk tweeted that Tesla's purchase didn't reflect his personal views on the digital currency, which he characterized as "simply a less dumb form of liquidity than cash."
Tesla’s action is not directly reflective of my opinion. Having some Bitcoin, which is simply a less dumb form of liquidity than cash, is adventurous enough for an S&P500 company.
— Elon Musk (@elonmusk) February 19, 2021
It's also unclear how much of Tesla's bitcoin gains will translate into better returns for the company's faithful shareholders. Accounting rules force companies to value their bitcoin holdings at the cost they paid for them. That means Tesla's bitcoin stake will likely remain valued at $1.5 billion on its accounting statement no matter how much higher the currency climbs.
Wedbush Securities analyst Dan Ives, who noted Tesla's bitcoin bonanza, rated its shares a "hold." In a research note on Monday, he called the company's bitcoin investment a "sideshow" for investors, while predicting that other big companies could follow Tesla's lead by moving to invest in bitcoin.
Of course, Wall Street is more focused on things like how many vehicles Tesla is selling and the pace of its expansion in China than its bitcoin holdings. On that front, the trend in Tesla sales — particularly of its lower-priced Model 3 — is less certain this year, Ives wrote. Indeed, Tesla's shares dropped $40, or 5%, on Monday to just over $740.
"After a bull run for the ages, Tesla's stock could continue to be range bound," Ives wrote in his note Monday.