Tesla Profits From Bitcoin Sale, But Its Long-Term Prospects Aren’t So Strong

Tesla purchased $1.5 billion worth of Bitcoin earlier in 2021 and started accepting vehicle sales in the crypto. The move caused a surge in demand for Bitcoin, and the price of this volatile crypto soared to around $70,000 by November 2021 before taking a steep nosedive.

Around April of the same year, the electric carmaker declared readiness to sell up to 10% of its BTC tokens. The decision came as the company looked to boost Q1 revenues by $101 million. Citing Elon Musk on a Twitter post, “Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on the balance sheet.”

Tesla’s CFO, Zachary Kirkhorn, told investors that Tesla was committed to holding what they have for the long term. He added that the company would continue accumulating BTC from transactions around their signature electric car sales.

The electric car CEO also explained that he did not sell any of his Bitcoin collection, underscoring his bullish commitment and belief in the flagship cryptocurrency. Although the value of Bitcoin rallied north in 2021, the currency experienced a sizeable fall this year, dropping far below $50,000 to around $20,153 on CoinGecko at press time.

From as early as April 2021, Elon Musk appeared to be signaling investors. His decision to accept BTC in exchange for Tesla vehicles signaled that Bitcoin is more than just a speculative investment. Rather, it can serve the same way as cash. From that moment on, only time would tell whether the strategy would prove successful in the long term. For the remainder of the year, Tesla was in a rather positive state, with BTC sales upscaling its success.

Global Shortage In Microchips

However, production decreased due to a global shortage of electric cars manufacturing microchips. With this shortage, Tesla endured what Musk termed ‘insane difficulties’. Quoting the CEO on a call, he said, “We have had some of the most difficult supply-chain challenges like never before in the existence of Tesla.”

Interestingly, the BTC plan seems to have paid off, as the company continues to profit from Bitcoin sales. The carmaker achieved significant liquidity during times of need. It remains unknown, however, whether that will be the case for Tesla’s long-term prospects with indications of weaker times ahead.

Tesla Sells 75% Of Its Bitcoin Holdings.

Tesla made headlines in 2021 with the revelation of a huge BTC investment and the subsequent sale of 10% of its Bitcoin. The electric carmaker made waves for the second time in July. This happened after selling most of its Bitcoin holdings, up to 75%.

By the end of 2021, the 75% in BTC holding that Tesla sold would have amounted to approximately $2 billion. However, with the recent market crash, the value of Bitcoin has dropped by almost 50%, and the company is now backing away.

According to reports, Tesla acquired traditional currency with $936 million from its BTC sales. The sale helped the carmaker jump over its quarterly finish line to meet its expectations for the second quarter. With this leap, Tesla investors speculated revenue as high as $16.88 billion.

Reportedly, Tesla is already feeling the pinch from different sources. Musk is on record raging about issues to do with supply, which prompted him to lay off a significant number of company employees. An analyst’s estimates reveal that Tesla may have lost almost $500 million from its BTC investments.

In 2022, the company’s stock is already down by more than 30%, which is to some extent influenced by the decision by Elon Musk to bid on Twitter.

The relationship between Elon Musk and cryptocurrencies has been rather complicated. The doge father has been reported on several instances confessing his love for meme coins such as Dogecoin. On the other hand, he disregards BTC as a “sideshow.”

There is no doubt, however, that Tesla’s decision to sell off its BTC holdings will not help the crypto’s struggling year, as has been seen so far. Bitcoin has already slid by -5.5% over the last 24 hours.

Tesla’s Phase of Rapid Expansion, Is It over or Just Getting Started?

Shares of Tesla Inc. started trading on a split-adjusted basis in August, with sell-side experts on both sides of the spectrum adjusting their price targets on the company’s stock. Daniel Ives, an analyst with Wedbush Securities, squared off with GLJ Research’s Gordon Johnson. Ives has always been bullish on Tesla, while Johnson is a never-ending bear.

On the argument of supply versus demand, Ives proposed that Tesla is experiencing the “high-quality problem” of demand outperforming supply. Per the analyst, the electric carmaker will step into 2023 with the potential of 2 million Tesla deliveries. In Ives’ opinion, production is driving up the price in China, with Austin and Berlin-based Gigafactories barely recording any increases. The analysts also added that the supply issue might soon be corrected.

Countering Daniel Ives, Johnson opined that most people fail to recognize that Tesla’s phase of rapid expansion is over. The Tesla bear added that the company now values more than the total market cap of thirteen of the biggest car manufacturers in the world despite selling barely 3% of its cars.

Tesla Stocks Analysis

The growth of Tesla stocks started slowing down in April, even before the closing of factories across China. The trend declined during Q2. Analysts suggest that the lead times were falling before the company’s most recent outlets started to deliver results.

The price fall may be attributed to growing competition among electric vehicles (EVs). Rivaling companies continue to emerge with cars with much better interiors than Tesla and with longer ranges.

With such intense competition, Tesla’s share in the Chinese market dropped from 11% during Q1 to 9% in Q2. The situation was worse in the U.S and Europe, which recorded 63% and 8%, down from72% and 18% respectively.

Tesla’s stock prices began to rally north around July before reaching the apex at the close of the month. The situation was corrected at the onset of August 2022. This was when investors realized that the company’s stocks would witness a lot of pressure.

Despite the challenges during Q1, analysts expect that Tesla will close the year with up to 1.4 million units in sales. They also speculate deliveries to 2 million within 2023. This comes in light of speculations of significant margin boosts from surging sales in software.

Conclusion

The electric automaker is always anxious about what comes next, as demand for Tesla continues to outperform supply. If Tesla can develop its market share across the Chinese, U.S, and European markets, then the bearish theory will be rendered null and void.