Tesla’s Bitcoin Policy Comes With Headaches

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Live by the bitcoin, take impairment charges by the bitcoin.

Wall Street can be a funny place – funny peculiar, not funny ha-ha. Valuation of a company pivots off of reading financial statements, from assigning multiples to things like net income, operating income or even balance sheet items.

We’re being a bit simplistic here, but you get the picture. There are many ways to look at a company, and many ways to parse the data. For Tesla, the focus may be on the cutting-edge vehicles, but the side story (or the sideshow?) is tied to bitcoin. Because while Elon Musk is at the helm of the firm that aims to bring us to the rides of the future (on land and in space), he also is part of the vanguard that helps stoke the fires for bitcoin and cryptocurrency in general.

Tesla’s latest earnings results show the ways in which the volatility of bitcoin, and cryptos in general, can impact financial statements – and the optics, at least, of a company’s fortunes.

The company’s June quarter statements show that a $23 million impairment charge dinged its operating income, just a bit.  That’s pretty inconsequential next to the $1.3 billion in operating income that was reported in the quarter.  But the impairment stands in contrast to the more than $100 million boost to profits from bitcoin sales seen in the first quarter.

Volatility and Ripple Effects 

The volatility of bitcoin’s price swings all through this year – where the zenith has been about $65,000, the recent nadirs below $30,000 and the recent pricing coming in at a bit above $38,000 – has had a ripple effect on financial statements.

It’s important to note that the ripple effect comes here and there, when and if Tesla sells those holdings. And in the latest earnings release, where no transactions (buys or sales) were explicitly announced, the digital assets (that would be bitcoin) listed on the balance sheet were steady at $1.3 billion, about the same as the March quarter. In the most recent period, Musk and other participants on the earnings call did not mention bitcoin at all.

Musk, of course, said not all that long ago that the company would not sell its bitcoin, but has been on-again and off-again about whether the company will accept the digital offering as payment. Now it’s on again, it seems. Earlier in the month, he said Tesla will “most likely” begin accepting bitcoin as payment. If and when that happens, the impact would be felt on the income statement (in sales, filtering down into operating income). Musk has said that bitcoin paid to the company will be retained in bitcoin, not converted into fiat. That seems to imply that the payments/proceeds would ultimately settle on the balance sheet.

The wild swings of crypto, combined with the accounting rule that impairment charges must be taken on intangible assets when recent prices fall below carrying value, have an impact on earnings. In the end, the seesaw nature of bitcoin and its brethren may distract from the core business, and/or make it harder to value the company.

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