TSLA Tesla Inc

By Caitlin Ostroff and Rebecca Elliott 

Tesla Inc. said Monday that it bought $1.5 billion in bitcoin, a disclosure that follows Chief Executive Elon Musk's promotion of the cryptocurrency and other digital-currency alternatives on Twitter.

The electric-vehicle company also said it expects to start accepting bitcoin as payment for its products soon. Bitcoin prices jumped more than 10% after the announcement, according to cryptocurrency research and news site CoinDesk.

Tesla disclosed the bitcoin purchase in its latest annual report, saying the move aims to "diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity." Tesla said a board committee had approved changes to company rules on investments, adding that it can also invest cash in gold bullion and gold exchange-traded funds among other assets.

The bitcoin purchase, likely among the largest by a public company, comes after a rally in 2020 when the price more than quadrupled. The cryptocurrency continues to experience big swings.

Tesla said it would account for its bitcoin holdings as long-term intangible assets but warned that its exposure to bitcoin could make its financial reports more volatile. The company will analyze its holdings in the cryptocurrency each quarter to see whether impairments are warranted based on bitcoin prices, it said in the report.

Bitcoin recently traded Monday at $43,602.68, according to CoinDesk. In January, its price averaged $34,730.12. The current price is more than eight times higher than bitcoin's 2020 low, which was a little under $5,000.

Mr. Musk has shown interest in bitcoin, including by changing his Twitter biography last month to "#bitcoin," which sent prices for it higher, before removing that reference.

"I think bitcoin is really on the verge of getting broad acceptance by sort of the conventional finance people," he said last week on the social-networking app Clubhouse. Mr. Musk said he needed to be cautious with his public statements about cryptocurrencies because "some of these things can really move the market."

Tesla didn't immediately respond to a request for comment.

"He's already telegraphed it to the market," said Meltem Demirors, chief strategy officer at London-based asset management firm CoinShares, referring to when Mr. Musk mentioned bitcoin in his Twitter biography. "One of the world's largest corporations doing this -- I think it opens the floodgates."

Tesla has previously struggled to maintain cash while ramping up vehicle production. But the company's shares soared some 480% in the year ended Friday as investors piled into electric-vehicle makers and Tesla reported a string of quarterly profits. Tesla took advantage of that surge by selling billions of dollars in new stock, shoring up its cash position. The company's cash holdings totaled around $19.4 billion at the end of last year, up from around $6.3 billion at the end of 2019.

Mr. Musk's tweets have drawn regulatory and legal scrutiny. A British spelunker sued Mr. Musk over one post, accusing the billionaire of defamation. A jury cleared Mr. Musk, who had deleted the tweet and apologized.

The Securities and Exchange Commission took issue with tweets Mr. Musk posted in 2018 saying he had secured funding to take Tesla private. Mr. Musk and the SEC later settled in a deal requiring the company to sign off on any written statements Mr. Musk made that could be deemed material.

The businessman has since used Twitter to mock the regulator.

Tesla didn't immediately respond to a request for comment about whether Mr. Musk had sought approval for his bitcoin commentary.

The SEC is unlikely to challenge Mr. Musk over his bitcoin tweets, said John Coffee Jr., a Columbia University law professor who specializes in securities law, especially after a federal judge rebuked the commission when it sought to hold the CEO in contempt in 2019.

"I don't think the commission would dare push it that far," he said.

Recently, Mr. Musk's tweets about dogecoin, a cryptocurrency started in 2013 as a joke, have helped drive up that virtual currency's price.

Mr. Musk's online comments can move markets. After saying in January that he liked online shopping site Etsy Inc., where he said he had bought a cap for his dog, the stock rose more than 8% on the open. Shares in CD Projekt SA, the maker of the troubled Cyberpunk 2077 game, rose more than 15% after Mr. Musk gave the game a shout-out. Both stocks retreated later.

Last year, Mr. Musk tweeted that he thought Tesla's share price was too high. The market agreed, and the stock fell before recovering.

An affinity for bitcoin is a seeming natural fit for Mr. Musk, who has at times bristled at government constraints. In addition to sparring with the SEC, last year he battled local authorities in California that ordered his lone U.S. car plant closed as part of broader measures to curb the pandemic. Mr. Musk reopened the facility after several weeks, daring authorities to arrest him. They didn't.

Mr. Musk tweeted in early 2018 that he didn't own cryptocurrency other than a quarter of a bitcoin that a friend had given him. At today's valuation, that would be worth more than $10,000.

Part of bitcoin's appeal for some holders is that it isn't circulated or controlled by a government or nation. Unlike opening up a bank account to store dollars, euros or yen, starting a bitcoin account does require providing identifying information. Bitcoin is effectively anonymous, and law enforcement can't freeze a bitcoin account as they could a bank account.

Tesla is joining a handful of other companies that have disclosed bitcoin holdings. Software company MicroStrategy Inc. acquired about $425 million worth of bitcoin last summer, and its CEO, Michael Saylor, has become an outspoken proponent.

Payments company Square Inc., which shares bitcoin advocate Jack Dorsey as its CEO with Twitter Inc., acquired about $50 million worth for its corporate treasury in October. Massachusetts Mutual Life Insurance Co. acquired $100 million worth in December to hold in its general investment account.

Bitcoin remains prone to sharp changes in its valuation, which might be why companies have acquired millions, rather than billions, of dollars' worth of the cryptocurrency, said Michel Rauchs, founder of Luxembourg-based digital-assets consulting firm Paradigma Sarl. "It is definitely greater risk but greater reward there."

Companies might have grown more optimistic about bitcoin after the March 2020 selloff, when it recovered faster than the broader stock market, said Joel Kruger, a currency strategist at LMAX Group.

The added wrinkle with Tesla is the plan to accept bitcoin from customers. Few companies now accept bitcoin directly as payment; Overstock.com Inc. is among the few that do. A number of large companies experimented with bitcoin payments in 2014 and 2015, like Dell Technologies Inc. and Expedia Group Inc., but most later dropped it for lack of use.

Now, bitcoin is becoming more accessible to the public through companies -- such as PayPal Holdings Inc. -- that enable users to directly buy and sell bitcoin and other cryptocurrencies for their digital wallets. Square also allows users to buy bitcoin through its Cash App.

For Tesla, accepting bitcoin would dovetail with the wider trend of using cryptocurrencies to fund large purchases -- and serve as something of a status symbol. For example, a luxury auto dealer in Las Vegas regularly accepts bitcoin as payment for clients buying high-end sports cars like Bugattis.

While Tesla's move would be high profile, a more substantial development is expected later this year, when PayPal plans to allow its customers to use their bitcoin holdings for payments.

"Bitcoin sentiment has already shifted so dramatically over the last year, but over the last three months that's only accelerated," Ms. Demirors said.

Mr. Musk has past ties to the financial-services industry. During the 1990s dot-com boom, he and his brother Kimbal started an internet business called Zip2, which helped newspapers go online. In 1999, they sold it to Compaq Computer Corp., enabling Mr. Musk to walk away with $22 million at age 27. He spent $1 million on a McLaren F1 supercar and bet the rest on his next startup, X.com, which became PayPal.

EBay Inc. bought PayPal for $1.4 billion in 2002. As the largest shareholder, Mr. Musk collected more than $100 million. He was 31.

He used the money to start Tesla and Space Exploration Technologies Corp., or SpaceX, the rocket company he also runs, as well as solar-cell company SolarCity, now part of Tesla.

Micah Maidenberg and Paul Vigna contributed to this article.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Rebecca Elliott at rebecca.elliott@wsj.com

(END) Dow Jones Newswires

February 08, 2021 14:41 ET (19:41 GMT)

Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Mar 2024 to Apr 2024

Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Apr 2023 to Apr 2024