On Wednesday (July 20), Tesla CEO Elon Musk — who is the world’s richest person (with an estimated net worth of $235.8 billion as of 20 July 2021) according to Forbes — explained why his company decided to sell most of its crypto holdings in Q2 2022.
As you may remember, on 8 February 2021, announced in a U.S. Securities and Exchange (SEC) filing that it had bought $1.5 billion of Bitcoin. The relevant section of Tesla annual report stated:
The relevant section of the annual report reads:
“We hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.
“In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future. Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.“
Well, yesterday, according to Seeking Alpha’s transcript of Tesla’s Q2 2022 Earnings Conference Call, Musk and Tesla CFO Zachary Kirkhorn talked about Tesla’s cryptocurrency sales in the quarter.
“Within operating expenses, Boston and Berlin-related startup costs have wound down as these factories have moved into production and their costs are now reflected in automotive COGS. Additionally, we converted a majority of our Bitcoin holdings to Fiat for a realized gain, offset by impairment charges on the remainder of our holdings, netting a $106 million cost to the P&L included within restructuring and other. We also incurred restructuring charges related to targeted staffing reductions.“
Musk then added:
“Yes, actually, it should be mentioned that the reason we sold a bunch of our Bitcoin holdings was that we were uncertain as to when the COVID lockdowns in China would alleviate. So it was important for us to maximize our cash position, given the uncertainty of the COVID lockdowns in China. We are certainly open to increasing our Bitcoin holdings in future. So this should not be taken as some verdict on Bitcoin. It’s just that we were concerned about overall liquidity for the company given COVID shutdowns in China. And we have not sold any of our Dogecoin.“
Tesla’s “Q2 2022 Update” stated in the financial summary section (under cash):
“Quarter-end cash, cash equivalents and short-term marketable securities increased sequentially by $902M to $18.9B in Q2, driven mainly by free cash flow of $621M, partially offset by debt repayments of $402M. As of the end of Q2, we have converted approximately 75% of our Bitcoin purchases into fiat currency. Conversions in Q2 added $936M of cash to our balance sheet.“