The credit crunch era has brought some extraordinary events but yesterday was right up there with them. Let me jump to the consequence highlighted by City-AM.
Bitcoin is extending its gain this morning, hitting a new record high of $48,216 during late afternoon trading in Asia.
We have got used to price surges and less frequently drops in this instrument as we immediately mull whether it is an asset,money or both? Actually is we know switch to the US Securities and Exchange Commission it looks as though someone else has been doing that too.
We hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.
That was from the car manufacturer Tesla and there was more.
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.
Boom! And indeed as we noted at the opening the Bitcoin price has done exactly that so well done to anyone reading this who has some. But for Tesla there are more than a few issues and as I am not a lawyer I will simply say I am curious about the Ultra Vires issue. There are others.
Tesla
The issue of Tesla and cash is a complex one as the SEC filing points out elsewhere.
There is no guarantee that we will have sufficient cash flow from our business to pay our substantial indebtedness or that we will not incur additional indebtedness.
So you are substantially in debt but you are now punting a risky asset? How much are you in debt?
As of December 31, 2020, we and our subsidiaries had outstanding $10.57 billion in aggregate principal amount of indebtedness .
Indeed the debt could restrict the business.
Our debt agreements contain covenant restrictions that may limit our ability to operate our business.
Also Tesla has a high degree of currency risk.
We transact business globally in multiple currencies and have foreign currency risks related to our revenue, costs of revenue, operating expenses and localized subsidiary debt denominated in currencies other than the U.S. dollar, currently primarily the Chinese yuan, euro, Canadian dollar and British pound.
They also have expenses in Yuan and Japanese Yen. So apparently the solution to a risky business model is to add even more. The stock price has been extremely volatile to say the least as it is.
Our common stock has experienced over the last 52 weeks an intra-day trading high of $900.40 per share and a low of $70.10 per share, as adjusted to give effect to the reflect the five-for-one stock split effected in the form of a stock dividend in August 2020 (the “Stock Split”)
As ever with Tesla the position is highly complex. We start from a share price which has soared and is US $863 as I type this. So it could presumably raise cash easily and in fact did so at the end of last year.
Tesla unveiled a $5 billion capital raise, its second such move in three months……..With Tesla’s market capitalization at $598 billion, the new offering represents less than 1% of the company’s value. ( CNBC 8th December)
It keeps raising capital which is fine if it keeps growing. But the optics of raising money and then buying Bitcoin with some of it are again awkward. Actually the market capitalisation is now US $828 billion which is great on the way up but as the SEC filing pointed out the share price has been more than ten times lower quite recently.
I see the issue of accepting Bitcoin as payment as just a distraction here as Tesla could have done that at any time. On fact I take the opposite view to CNBC here.
The $1.5 billion worth of bitcoin will give Tesla liquidity in the cryptocurrency once it starts accepting it for payments.
Er it would have liquidity in the cryptocurrency once buyers pay for cars in Bitcoin. Holding even more just increases the risk.
Is this a distraction?
Tesla was facing some bad news as reported by the Wall Street Journal.
The State Administration for Market Regulation, China’s top market regulator, said Monday that it and four other regulators had instructed Tesla to abide by Chinese laws and regulations and strengthen internal management to ensure the quality and safety of its products.
Also following Elon Musk’s drone footage showing the new Gigafactory in Germany there have been stories that progress has been much slower and there will be delays.
What about the environment?
This is an issue that arises as for example the German Tesla factory required the chopping down of part of a forest. But Bitcoin is very energy intensive.
Exciting news for #bitcoin
fans – it’s overtaken the Netherlands and UAE and is closing in on Argentina (in energy use, that is) ( @ruskin147 )
According to Cambridge University it is using just under 112 Terawatt hours per year or around 0.5% of the world’s electricity. Such numbers have led various wags to wonder if you could use a Tesla to mine Bitcoin? It also seems to have touched a raw nerve somewhere.
XPRIZE Carbon Removal is aimed at tackling the biggest threat facing humanity — fighting climate change and rebalancing Earth’s carbon cycle. Funded by Elon Musk and the Musk Foundation, this $100M competition is the largest incentive prize in history, an extraordinary milestone.
Comment
Now we can switch to a version of the moral maze Elon Mucl style. For example it was not long ago he was telling us this.
‘Bitcoin is almost as bs as fiat money,’ CEO said in December. ( Wall Street Journal)
Was he talking down the price then? If so did he buy and did he buy for himself as well as Tesla and very importantly in what order? After all he has had problems with his moral radar in the past.
Most notably, the SEC charged Musk with fraud in 2018 for his tweets about taking the company private at $420 per share.
Musk ultimately settled with the SEC, and was forced to give up his role as chairman of the company’s board and pay a $20 million fine on top of another $20 million fine for the company itself. ( CNBC )
Now we find he is playing what looks like a very familiar game.
Get long $DOGE tweet about it, Get long #Bitcoin
tweet about it, Feels so wrong if you have that much influence on social media. ( @bc_bitcoin)
This is a complex issue as some will front run the price to attract in the unwary who will see the surge and think it is safe to join in when in fact it is not. So far it has worked for Bitcoin investors but can even it withstand this?
Also there the whole subject of Dodgecoin where Elon has previously claimed his tweets are a joke. Indeed Dodgecoin was invented as a joke. I wonder when all this is over who the joke will be on?
Notayesmanseconomics's Blog 
Hello Shaun,
re “he solution to a risky business model is to add even more.”
But isnt this the business model for the TBTF Banks? Tesla is just following the trend……. and maybe they’ll get to be TBTF and get bailed out too.
Actually that sounds like a plan!
Forbin
Hi Forbin
With all the various subsidies that the operations of Elon Musk have received has he been at that sort of game from the beginning?
“Tesla is set to receive a single-digit billion euro amount in funding from the German government and Brandenburg state government, according to Business Insider.
The financial aid to Tesla is for setting up a battery cell factory near Berlin.” ( Seeking Alpha)
As I never tire of repeating on here, this problem and all the others of asset bubbles mis-allocation of resources and insolvent companies share prices going into the stratosphere are all the direct or indirect result of Fed policies. Musk’s Tesla has never made a profit and just keeps tapping shareholders for more money, and yet the share price just keeps going up ensuring more money can be raised. None of the above wold be possible without Fed policies and interventions and manipulations in financial markets, these interventions can now never stop or the entire US stockmarket, bond market and economy would implode, and yet the higher they go the more damage will ultimately be done, perhaps the eventual bust will be so enormous that everyone will become dependent on the state – coincidentally predicted by Claus Schwab and the WEF – “you will own nothing and you’ll be happy”, makes you think it’s all being done deliberately and is part of the plan doesn’t it?
Hello Kevin,
in answer to your lottery reply yesterday – yes people like to dream.
for a long time British politicians would avoid a lottery , then Labour introduced it to us again, gambling only favours the house.
I lifted this peice from Peter Bradshaw of the Gruniad ( all rights reserved ) published 2015 but still on hte ball.
“George Orwell wrote this in his novel 1984: “The Lottery, with its weekly payout of enormous prizes, was the one public event to which the proles paid serious attention … Winston had nothing to do with the Lottery, which was managed by the Ministry of Plenty, but he was aware (indeed everyone in the party was aware) that the prizes were largely imaginary. Only small sums were actually paid out, the winners of the big prizes being nonexistent persons.”
Of course, lottery prizes in 2015 are not an Orwellian scam … are they?
Our chances are tiny but not zero … aren’t they?
Well, a mathematician described to me the concept of a number that is “vanishingly small”: each individual punter’s lottery chances are so minuscule they are for all practical purposes nothing, like being struck by lightning”
https://www.theguardian.com/commentisfree/2015/jun/25/george-orwell-winning-lottery-imaginary
Forbin
and
“.Heavy physical work, the care of home and children, petty quarrels with neighbors, films, football, beer and above all, gambling filled up the horizon of their minds.
To keep them in control was not difficult.”
Hi Forbin,
Yes bread and circuses have been replaced with takeaways and TV, re the lottery, I remember Branson being interviewed back in the day after his bid to run it was rejected in favour of Camelot, he described being openly bribed by Guy Snowden of GTech the company supplying the terminals and software for the UK operators to step aside in the bidding process.The question as to why GTech would have any preference as to got to eventually run it was never divulged, but it does make you think that the whole lottery isn’t exactly as people would like it to be since Branson wanted to run it for zero profit.
I believe all large lotteries and even the Premium Bond system should be regularly audited – with regular spot checks to prevent fraud, especially claiming jackpot prizes being paid out, I am absolutely convinced Premium Bonds are just such a fraud, after all nobody I know has ever heard of anyone winning the £million jackpot, and it has been supposedly been paid out every month for the last thirty or forty years!
http://news.bbc.co.uk/1/hi/uk/52787.stm
What’s the point of a lottery if you are happy owning nothing?
“You’ll own nothing, and you’ll be happy”.
They claim they are aiming for “equal outcome” — not equal opportunity. Unfortunately a totalitarian communist government is the only known way to accomplish that. These equal outcomes will certainly not apply to Klaus Schwab and the rest of his elite cronies at Davos — they will not be giving up their wealth, because they will be the ones who own everything. …
if you let them
Kevin,
Tesla is an interesting one on the one hand it looks like an asset bubble but so OCADO looked on over a year ago was one of the biggest shorted stocks the last 10 years, but now looks like its going to reach profitability soon,
However Tesla has more problems as highlighted by Shaun Chineese regulators looking at quality and safety issues, as outlined in the link below and as more manaufactureres improve battery technology and more models come onto stream, Tesla may see more problems down the line.
https://www.bbc.co.uk/news/business-55990821
As for Bitcoin, these crypto currencies should have bene made illegal some time ago but I suspect the UK GOV or indeed others dont want to interfere now, if they did they could be blamed for a major crash.
I think a crash will come in due course but I dont know how long it will take.
I also happen to think the world is in a dangerous stage due to all the money printing apart from crypto currencies and this cannot go on forever I think there will be a major crash far worse than happened in 2008.
In fact but for all the interventions due to the covid pandemic had there not been GOV and state interventions, the markets looked like there would have been meltdonw and also riots on the streets.
I think its quite sad that Joe Public are piling money into cryptocurrencies, they dont fuilly understand what investing is all about and have become gamblers in risky assets.
Peter, the interventions will just make the bust bigger and the pain and losses that much worse, the riots and the meltdown will then be that much worse again, so intervening will not prevent it – it will just delay the inevitable and make the outcome much worse, the thing is the politicians and officials in office at the time never want to have such an apocalyptic event on their watch as they will always be remembered for it and possibly blamed for it as well, so they all just keep kicking the can down the road, I don’t know how much more kicking the can will take.
You are probably correct I think it may be a little too late for an intervention but if we do get a ,major collapse there may be one furher down the road after markets get rocked.
“I think its quite sad that Joe Public are piling money into cryptocurrencies, they dont fuilly understand what investing is all about and have become gamblers in risky assets.”
Yeah, this has actually been really bugging me lately. What I find particularly disturbing is how it seems to have completely distorted the way a lot of people think about “investing”. A lot of young, educated, professional people ask me for advice because they know I’m relatively experienced and my portfolio gives me a good degree of financial security. Their first question is generally “should I invest in bitcoin or stocks?” as if bitcoin is the mainstream kind of asset that you can or should base a retirement plan around, on par with bonds, equities or property – and as if I am the kind of psychic or sage who knows which bubbles are going to keep expanding and which are going to burst! Probably 10-20 years ago, they’d have asked whether they should invest in buy-to-let versus stocks, since BTL was the “get rich quick” story that newspapers were full of at the time. But though a lot of people got burned after overextending themselves, found being a part-time landlord more time-consuming and expensive than they’d accounted for, or didn’t realise that the tax and regulatory regime might change in ways that disadvantage them, at least real estate is return-generating asset, albeit illiquid and “lumpy”. Bitcoin, in contrast, is pure speculation in the hope of achieving capital gains.
Their second question is generally “how much can I make?” If I say a diversified equity portfolio can go dramatically up and down, but if you are willing to leave it for a decade or so, preferably longer, it’s not unreasonable to get an average annual return in the 5-10% region, then their usual response is that’s far too low a return and achieved on far too long a time-scale. They see bitcoin returns of hundreds of percent achieved in months and think that’s somehow “normal”. What they don’t seem to grasp is that even a 50% annual return – if guaranteed long-term – is just crazy money, and anyone promising it to you is an idiot or more likely a fraudster. Suppose at 21 you had the choice of putting £10,000 from your parents into buying a new car or a Master’s degree or alternatively plugging it into this crazy scheme. If you did the latter, you’d have about £3 million by the age of 35 and could buy any car you want. And by the age 51 you’d have about £2 billion and could buy a small car manufacturer (Stroll’s Aston Martin investment valued the firm at about £1 billion, I think). By 61, you’d have well over £100 billion, be one of the richest people on the planet, and could start thinking about preparing your bid for GM or Ford…
The fact that saving a few quid in your twenties doesn’t make us all multi-billionaires come retirement age ought to be a clue that you can’t reasonably expect these kind of returns, long-term. But anything less than these absurd returns being on offer seems to be a grave disappointment to people. In fact headlines like “teacher makes £10,000 a month from Bitcoin” miss off completely that there’s a percentage return on money put at risk, or that to get twice the reward you need to put twice the investment in. So people ask me “but what do I need to do just to get an extra couple of hundred pounds income per month?” without thinking that they need to tie more capital (they probably don’t have) up in whatever investment they’re planning. They just think a few hundred pound seems “reasonable” – after all, it’s less than their salary, and isn’t the many thousands of pounds that fraudsters advertise, so it must be “easy”, right? And I emphasise that these were all intelligent, educated, professional people. Young however – certainly not old enough that they’ve ever looked up the capital needed to buy an annuity providing £400 a month. They don’t like me telling them, but my suggestion has always been that if they really want the extra income coming in, they’d be best to see if their job offers overtime, or whether they can do a few nights doing bar or restaurant work, some supermarket or warehouse shifts, teach a few music lessons a week, or whatever…. what they almost certainly shouldn’t be doing is piling their life savings into cryptocurrencies, or start leveraged day-trading in things they don’t understand using money they can’t afford to lose. In terms of investments, their best possible one (especially while young and have time to benefit from it professionally) is likely to be in their own human capital. A career shift or a few promotions can work wonders for the bank balance.
Re ” is likely to be in their own human capital. A career shift or a few promotions can work wonders for the bank balance.”
Sound advice but as we all know good advice is often given , seldom acted on.
my additions would be to get debt free, no mortgage or credit cards debts is a freedom money CAN buy (!!) … ehehe
Lottery or shares , well we can see why bricks and mortar are popular and with BoE policy , has not been a loser yet. yet that is.
people always want a get rich quick scheme and little understanding that anyone who did get one wasn’t going to share it – defeats the object doesn’t – here buy my book on how I got rich ( by selling books )
Kults of celebs doesnt help , who reads the papers? well look at all those wealthy people in Dubia on holiday, cool , can we all have some ?
sure just shut your eyes and click your heels together
Truly its a sad , sad, world….. or sick sad world
hahaha, thel ine goes ” sick sad world , people just like you , only more pathetic ”
err
I’ll just pour me another double single malt….
( hic)
Forbin
Shaun,
Zerohedge hinting Apple about to join the Bitcoin party ! Looking for some inflation hedge against holding too many $s perhaps ?
Hi Chris
I did not know that so thank you. I guess rumours like that have added to the price gains today. Some seem to have been taking them to the nax.
I guess that Tesla and Bitcoin have some things in common:
1. No one has a clue what they are worth
2. They are valued extremely highly
3. They are not as environmentally sound as you’d expect
4. They don’t like regulators telling them what to do
5. No one has a clue what they will be worth in a week’s time, let alone a year
I’m probably just bitter as I do not own either, but I cannot quite believe that either or both will crash and burn.
Hi James
That is not a bad summary. I cam see the attraction of Bitcoin in these times although at this price? Tesla though has an enormous amount of Hopium in the price. Perhaps the plan is to get it to be too large it to will be TPTB.
Interesting read:
By Geoffrey Smith
Investing.com –” Tesla’s move to buy $1.5 billion of Bitcoin ought to raise more red flags in financial markets than a Communist Party rally in Beijing. Instead, it’s fuelling a speculative mania in an asset that is trading more feverishly than ever before on the Greater Fool principle.
If Elon Musk wishes to speculate on Bitcoin, of course he’s perfectly entitled to. Lots of other people are doing the same, so there are plenty of reasons to believe that he can sell his Bitcoin on at a profit in future.
But there is no need to do it with Tesla (NASDAQ:TSLA) shareholders’ money. If they want to bet on Bitcoin, there is nothing to stop them doing so. However, Tesla investors have bought – albeit at an excruciatingly high price – rights on the future cash flows of a carmaker.
You can argue that there is no inherent conflict there, and it’s true that there may be a substantial overlap between those who believe in Bitcoin and those who believe in Tesla. Certainly, there appears to be a big overlap in mindset, in as much as both are convinced that both will revolutionize and then dominate their respective spheres in future. The fact remains that Tesla shareholders wanted to speculate on Bitcoin, they have every opportunity to do so themselves without needing Elon Musk to do it for them.
Many Tesla investors will trust any bet that Musk makes, owing to his force of personality. That’s their right, too. Still, now seems as good a moment as any to remind people that Musk is due to face trial in March on charges of breaching his fiduciary duty when he bailed out his cousins’ failing SolarCity business with $5.6 billion of Tesla’s money back in 2016. Tesla’s other directors have already paid $60 million plus legal costs to settle those claims.
What Tesla announced on Monday has nothing to do with making or selling electric cars. It is simply a bet on a speculative asset whose only intrinsic utility is to make untraceable transactions in illegal goods and services. The claim that the move is a diversification of its corporate treasury assets is a stretch: the aim of diversification is to spread risk, not magnify it (albeit the risk is small relative to Tesla’s balance sheet: the $1.5 billion spent is less than 10% of the cash held by the company at year-end).
But if the claim of diversification is a stretch, the claim that Tesla will accept Bitcoin as payment for its cars is simply eyewash, as neither the customer nor any company would want to set its prices in a currency that can rise or fall by 10% in a day. Tesla’s unit of account will remain the dollar for any meaningful timeframe. The fact that Tesla has resorted to such specious arguments should make one instantly suspicious of its real motivation.
It’s hard to shake the suspicion that the main aim of this move is to generate paper profits out of thin air the way that the company has so far done with emissions credits, which are on a long-term downward trend. Both have the effect of masking the reality that the underlying car business can never be profitable enough to justify the business’s current valuation (over 1,700 times trailing earnings and 26 times 2020 sales, in case anyone cares).
The leverage that Musk has over financial markets via his fan base makes it risky to bet against Monday’s move, but it is not a healthy sign for markets in general, and for Tesla in particular.”
Yes “paper profts out of thin air” is aboit it really Joe Publi is investign in an illusion which can vanish like smoke on a windy day.
As someone who invests largely via index funds, in search of high diversification at low cost, there are a couple of companies now getting included in the indices which I’d much rather didn’t! Tesla’s inclusion in the S&P500 is one that I’m especially unhappy about – the problem with such bubbly valuations is that Tesla is going to get given a large weighting in my funds.
“Quos Deus vult perdere prius dementat.”
Hi Mike
You may well be right ( and yes I did have to look it up as it has been a long time since I studied any Latin).
“But I don’t want to go among mad people,” Alice remarked.
“Oh, you can’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.”
“How do you know I’m mad?” said Alice.
“You must be,” said the Cat, “or you wouldn’t have come here.”
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and now they both are off the race
Hi Babri and welcome to my corner of the online world.
Awesome read! Can’t wait to see what you write next!