esla, the auto company led by Elon Musk, has missed out on a potential profit of over $300 million due to its sales of Bitcoin. Despite liquidating 70% of its Bitcoin portfolio, Tesla has shown caution in letting go of its remaining holdings.
Tesla's Bitcoin Investment Strategy
Tesla's involvement with Bitcoin began in February 2021 when the company made a groundbreaking investment of $1.5 billion in cryptocurrency. At that time, the price of Bitcoin was around $36,000. However, since then, Tesla's stock price has declined by approximately 40% compared to Bitcoin.
In March 2021, Tesla sold about 10% of its Bitcoin holdings, followed by approximately 75% of its reserves in the second quarter of 2022. The purpose of these sales, as stated by Elon Musk, was to demonstrate Bitcoin's liquidity and strengthen Tesla's balance sheet during uncertain financial periods.
Had Tesla held onto its entire Bitcoin investment, the company could have potentially gained a profit of over $300 million, considering the current value of Bitcoin, which is approximately $41,500. However, Tesla has chosen to retain approximately 9,720 BTC, reflecting a more conservative approach.
Tesla's Cash Flows and Bitcoin Sales
Interestingly, Tesla's previous Bitcoin sales coincided with weaker free cash flows. Free cash flows represent the cash a company generates after deducting expenses required to maintain or grow its business operations.
For example, in the first quarter of 2021, Tesla's sale of Bitcoin accounted for a staggering 93% of the company's free cash flows during that period, amounting to $272 million. Similarly, in the second quarter of 2022, Tesla's reduction in free cash flows by 73% aligned with its Bitcoin sales.
Elon Musk relied on Bitcoin to bolster Tesla's finances during tighter cash periods. However, given the increasing free cash flows throughout 2023, Musk may not need to employ the same strategy anymore.
The Future of Bitcoin and Tesla's Approach
Numerous analysts forecast a rise in Bitcoin's value in 2024, citing the approval of spot Bitcoin exchange-traded funds in the United States and the anticipated impact of the upcoming Bitcoin halving event as key drivers behind their predictions. These factors could potentially affect Tesla's Bitcoin holdings and the overall profitability of its investment.
