The News Radar

Timely links to external news and articles, usually valuation related, with occasional commentary.


Originally posted Sunday, 24 July 2022
Tesla’s Bitcoin Dump Leaves Accounting Mystery in Its Wake

Tesla Inc. made waves this week when it announced that it had dumped the bulk of its Bitcoin stash. Selling 75% of its cryptocurrency gave the company a one-time cash infusion, Elon Musk’s electric car company said, but the battered value of its remaining Bitcoin also dinged profits.

Exactly how crypto helped and hurt Tesla’s bottom line is difficult to disentangle, however, based on what it told the public on earnings day. Current accounting rules—or lack thereof—play a big role.

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“I’m anxious to see the actual filings—to see if they disclose the date that they sold, the price that they sold at,” said Aaron Jacob, head of accounting solutions at TaxBit, a cryptocurrency software company. “They may not disclose any of that.”

Tesla isn’t compelled to do so. No part of US generally accepted accounting principles spells out how companies must account for cryptocurrency or other digital assets, nor do they mandate the type of information companies must reveal in their footnote disclosures.

These kinds of gaps in reporting standards seem like exceptionally ripe territory for earnings manipulation, which is generally aligned with lower long-term value.

Tesla in February 2021 announced that it had bought $1.5 billion worth of crypto and that it would accept Bitcoin as payment for cars. Two months later, it sold 10% of its stake, generating $101 million from the sale. CEO Musk has touted the value of Bitcoin and cryptocurrency in general.

“This should not be taken as some verdict on Bitcoin,” Musk told analysts on Wednesday. “It’s just that we were concerned about overall liquidity of the company given the Covid shutdowns in China.”

It is absolute malpractice on the part of corp FP&A and Treasury to invest cash long-term and then need to pull it a year later due to highly-foreseeable liquidity issues. To have invested that cash into the most volitile possible asset class is unthinkable. This should have been sitting in a money market fund. Shareholders would riot about this at any other company.