Losing Money By Selling Cars, Tesla Turns To Gambling At The Crypto Casino
Tesla's valuation is completely unhinged. Wall Street doesn't care.
Last Monday Tesla announced their earnings and revealed that the business had posted a record quarterly net profit of $438 million. At first blush, the numbers sound very positive and make for impressive headlines, but under the hood, there’s some weird-ass stuff going on that has my eyebrows well and truly raised.
Right off the bat let’s get something on the table: Tesla is losing money making and selling cars. Where is Tesla making money? For a start, Tesla has long boosted its profits by selling excess regulatory tax credits to its rivals. These competitors buy these credits to make up for shortfalls in their own zero-emissions vehicle sales…
In California, and at least 13 other states, any auto manufacturer who wants to sell their cars into that state must sell a certain amount of electric, hybrid electric or other zero emission vehicles (or ZEVs). Auto makers who are not selling these vehicles yet, or not selling many of them anyway, will buy credits from someone who is for compliance. Since Tesla only sells ZEVs, it doesn’t need to keep the credits that it earns and can sell them before they expire - CNBC
In the most recent quarter, these tax credit sales generated $518 million for Tesla. Technically there’s nothing wrong here and this is real money, but what happens when the competing automakers get their houses in order and finish their pivot to electric vehicles?
In February of this year, Tesla bought $1.5 billion worth of Bitcoin. Fortune estimates that they bought at roughly $34,700 per Bitcoin. The current price of Bitcoin is hovering around $57k which means Tesla has $1 billion+ in unrealised gains from Bitcoin.
On top of the tax credits, Tesla pulled a new manoeuvre to juice this earnings report: It sold about 10% of its Bitcoin holdings generating $101 million of income. That contributed about 25 cents to Teslas adjusted earnings of 93 cents a share. Wall Street’s average estimate for EPS was 80 cents so this Bitcoin sale directly allowed Tesla to beat the expectations of the market.
Even with this sale Tesla still has just shy of a billion dollars worth of unrealised Bitcoin profits that it can turn into cash money any time it wants to juice earnings reports (assuming Bitcoin doesn’t crash). What’s crazy is how corporate Bitcoin accounting works: When your Bitcoins go up, you don’t book a gain, but when they go down you do book a loss. The only way to book a gain on Bitcoin is to sell them.
It's notable then that the CEO of Tesla, a man who literally calls himself the “Technoking” and has over 52 million followers is able to manipulate the price of crypto assets with the stroke of his keyboard. In January this year Musk changed his Twitter bio to “#bitcoin” this caused the price of Bitcoin to shoot up nearly 20% almost instantaneously.
In December 2020 Musk tweeted one word: “Doge”. Lennart Ante of the Blockchain Research Lab in Germany charted the result…
“The average trading volume of DOGE/USDT in the 30 minutes before the event was about $1,942 per minute with an average of 9 trades per minute. During the 30 minutes after the [Doge] tweet, the average trading volume per minute was about $299,330 with 775 trades per minute.”
Let’s talk valuation. Tesla has a trailing-twelve-month P/E of 151.91X compared to the Automotive - Domestic industry's P/E of 15.65X. Price to Earnings Ratio or P/E is price/earnings. It is the most commonly used metric for determining a company's value relative to its earnings. Put simply, Tesla’s valuation is straight-up comedic. I’m starting to feel like Frank Grimes from The Simpsons.
Tesla is a car business that loses money on its cars, that makes its money selling excess government tax credits and that boosts its earnings reports by gambling on crypto assets that its CEO can manipulate on a whim. I’m not saying that Tesla isn’t an innovative business that’s leading the market and producing great cars, I’m just saying I’m not going anywhere near it.
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