Cashing out $936 million, why did Tesla, once a "diamond hand", sell off Bitcoin?

What is the purpose of Tesla's massive reduction in Bitcoin holdings? In addition, what impact will this "withdrawal" action have on the cryptocurrency circle?

Author: Ivans

Produced by: Gyro Finance Original title and link: "Withdrawing 936 million, is Tesla no longer optimistic about Bitcoin? "

Editor's note: Tesla's "cash withdrawal" action may be the beginning of a process for companies holding digital assets to cash out large amounts of digital assets and use them to maintain their own cash flow.

Musk once said that Tesla would not sell any Bitcoin. This sentence is still fresh in our minds, but Tesla finally withdrew its money from the cryptocurrency circle.

Tesla released its second-quarter financial report in the early morning of July 21, Beijing time.

Tesla’s Bitcoin holdings are the most noteworthy factor in the financial report, considering that it was the second largest listed company holding Bitcoin and the recent negative events in the currency market. It is understood that the company reduced its Bitcoin holdings by 75% in the second quarter, which added $936 million in cash to its balance sheet.

Last year, in Tesla's latest 10-K annual report filed with the SEC, Tesla claimed that in the year ending December 31, 2021, it had recorded impairment losses of approximately US$101 million due to changes in the book value of the company's Bitcoin.

What is the purpose of Tesla's massive reduction in Bitcoin holdings? In addition, what impact will this "withdrawal" action have on the cryptocurrency circle?

After cashing out 936 million from Bitcoin, how much digital currency does Tesla have left?

On July 21, Tesla released its second quarter financial report for 2022. The report showed that Tesla Motors' second quarter revenue was US$16.934 billion, a 42% increase from US$11.958 billion in the same period last year; net profit was US$2.269 billion, exceeding Wall Street expectations.

It is worth noting that in the second quarter, Tesla converted approximately 75% of its Bitcoin holdings into fiat currency, with the average selling price of a single Bitcoin being approximately US$29,000, thereby adding US$936 million in cash to its balance sheet.

Source: sec.gov

Tesla has invested a total of $1.5 billion in Bitcoin and said in April last year that it had sold 10% of its Bitcoin assets.

How much is Tesla's digital currency worth today?

The financial report shows that Tesla's digital assets as of June 30 this year were $218 million, while the first three quarters were $1.26 billion. The digital assets in the same period last year were $1.311 billion. Tesla said that the digital assets have shrunk to $218 million, and the depreciation of Bitcoin has affected its profitability in the second quarter.

Source: sec.gov

In the earnings call, Musk pointed out that Tesla sold Bitcoin to improve its cash situation, and Tesla is open to increasing its holdings of Bitcoin in the future. Musk also said that Tesla did not sell Dogecoin.

Automotive business growth is weak, Shanghai factory drags down production capacity

Tesla claims that the improvement in its cash situation may be highly related to its main automobile business.

Tesla's adjusted net profit in the second quarter was US$2.62 billion, a year-on-year increase of 52%, but a month-on-month decrease of 29.87%, and its profitability slowed significantly. The year-on-year growth rate in the previous quarter was as high as 255%.

In the second quarter, the adjusted earnings per share (EPS) under non-GAAP standards was $2.27, a year-on-year increase of 57%, higher than the $1.83 expected by analysts, but 246% lower than the record high EPS growth of $3.22 in the first quarter of this year. Thus, Tesla ended the momentum of three consecutive quarters of record-breaking revenue and five consecutive quarters of record-breaking EPS.

What is worth paying attention to is the company's automotive business and gross profit margin.

In the second quarter, Tesla's automotive business gross profit was $4.081 billion, a year-on-year increase of 41%, a significant decline compared to the first quarter. In the second quarter, the GAAP automotive business gross profit margin was 27.9%, which was lower than the analyst expectation of 26.9%, lower than the 32.9% in the first quarter and 28.4% in the second quarter of last year. This is also the first time in the past four quarters that Tesla's automotive business gross profit margin has been below 30%.

Source: sec.gov

In fact, before the second-quarter report was released, some analysts predicted that Tesla's second quarter might be very difficult due to continued supply chain disruptions and factory shutdowns related to the epidemic.

The financial report shows that Tesla produced only 258,580 vehicles in the second quarter, while the first two quarters were more than 300,000. The financial report also mentioned that the Shanghai factory was completely shut down for most of the second quarter, but at the end of the quarter after the lockdown, the output still set a record. At the same time, recent equipment upgrades will enable Tesla to continue to further improve productivity.

According to the China Passenger Car Association, Tesla's Shanghai Gigafactory produced 178,887 electric vehicles in the first quarter of this year, but only 44,301 electric vehicles in April and May. This has also caused Tesla's order volume to continue to pile up. According to a report from China Business News, even if the factory is fully operational in June, the monthly production capacity will not exceed 80,000 vehicles.

Although the Shanghai Super Factory increased its production after the lockdown, as Tesla's current highest-capacity super factory with an annual production capacity of more than 750,000 vehicles, a two-month suspension of production will inevitably cause significant losses to Tesla's production and delivery volumes, and it may take until the next quarter to resume its previous high production levels.

Summarize

Musk said that it is important for us to maximize Tesla's cash position, and it is still possible to increase Bitcoin holdings in the future. This sell-off should not be regarded as a judgment on the direction of Bitcoin.

But this explanation does not seem reasonable, because as of June 30, Tesla's cash and cash equivalents were still worth more than US$18.3 billion, and the cash out of US$936 million seems to be a drop in the bucket.

Tesla's reduction of Bitcoin holdings is more like a timely avoidance of large asset impairment losses before the financial report, thereby maintaining the stability of the stock price. However, it also proves that virtual currency, as a hedge investment for listed companies, is so volatile that it can easily cause significant changes in the asset value of listed companies.

However, as the second largest listed company holding Bitcoin, Tesla's "withdrawal" action may be the beginning of a large number of digital assets being liquidated by companies holding Bitcoin to maintain their cash positions. Will Micro Strategy, Block Inc and other listed companies holding Bitcoin take measures like Tesla when they are "short of money"?

References:

【1】Financial report released! Tesla's second quarter gross profit fell, Musk: I want to lower prices

【2】Tesla’s “delayed” by epidemic prevention

【3】Tesla’s second quarter 2022 financial report