What is the reason behind Bitcoin becoming the only factor dragging down Tesla's performance?

On July 26, electric car maker Tesla delivered a very impressive second-quarter financial report. Major indicators were all on the rise, but there was only one indicator that dragged down Tesla and became the only fly in the ointment in Tesla's financial report this quarter, and that was Bitcoin.

As we all know, Tesla announced in the first quarter of this year that it had purchased $1.5 billion worth of Bitcoin as a way to allocate the company's excess cash. At that time, the market had mixed opinions on Tesla's move. Many people believed that Tesla actually tied its stock price trend to Bitcoin. This statement is reasonable to a certain extent, and the subsequent high correlation between Tesla's stock price trend and Bitcoin also confirms this view.

However, the most direct impact of Bitcoin on Tesla is reflected in its financial statements. According to the provisions of the US Generally Accepted Accounting Principles, digital currency assets such as Bitcoin need to be identified as intangible assets in financial statements, and the usual accounting treatment of intangible assets is to conduct impairment tests in each financial quarter and directly record the corresponding impairment amount in the income statement.

So in the second quarter financial report, we can clearly see that Tesla made an impairment of $23 million on Bitcoin, and the corresponding value of digital currency assets in Tesla's balance sheet fell from $1.331 billion at the end of the first quarter to $1.311 billion at the end of the second quarter.

In comparison, we can see from Tesla’s first quarter financial report that Tesla sold the $1.5 billion worth of Bitcoin it purchased and made a profit of $101 million.

Therefore, according to this accounting method, unless Tesla actually sells Bitcoin, the best result for Bitcoin under intangible assets is that the value remains unchanged, and it is likely that corresponding impairment will need to be made every quarter. This is why Bitcoin will only drag down Tesla's financial report as long as it exists in its account for one day.

But another advantage of doing this is that a sharp drop in the price of Bitcoin in the market will not bring about a corresponding change in the Bitcoin assets held by Tesla. For example, during this quarter, Bitcoin fell from a high of $60,000 in April to a low of $30,000. Tesla does not need to take into account this drop in the price of Bitcoin.

In terms of its main business, Tesla set several new records this quarter, such as more than 200,000 electric vehicle deliveries and a net profit of more than $1 billion in a single quarter for the first time. At the same time, profitability has increased significantly, with operating profit margin reaching 11%, the highest in recent years. Another point worth mentioning is that Tesla's performance has gradually decreased its reliance on carbon emission indicator revenue. In absolute terms, this part of revenue in the second quarter was $354 million, down 17% from the same period last year. In relative terms, carbon emission indicator revenue accounted for less than 3% of Tesla's total revenue this quarter, while it accounted for more than 7% in the same period last year.