Tesla : Buys $1.5 Billion in Bitcoin -- 2nd Update

By Caitlin Ostroff, Rebecca Elliott

Tesla Inc. on Monday said it bought $1.5 billion in bitcoin, a purchase that comes after Chief Executive Elon Musk has promoted 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 filed on Monday, saying the move aims to "diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity." Tesla said the purchase came after a board committee 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 during which 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 if impairments are warranted based on bitcoin prices, it said in the annual report.

Bitcoin recently traded Monday at $43,602.68, according to CoinDesk. In January, its price averaged $34,730.12.

Mr. Musk has shown he is interested in bitcoin. Last month, he changed his Twitter biography to "#bitcoin," a move that sent prices for it higher, though the mention has since been removed.

"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 also acknowledged he needed to be cautious about 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, a reference to when Mr. Musk added bitcoin to his Twitter biography. "One of the world's largest corporations doing this -- I think it opens the floodgates."

Tesla in the past has struggled to maintain cash as it ramped up electric-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 in new stock, helping to bolster 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, in the past, have drawn regulatory and legal scrutiny. The Securities and Exchange Commission took issue with tweets he made in 2018 in which the Tesla boss said he had secured funding to take Tesla private. Mr. Musk and the SEC later settled with a deal intended to limit his Twitter use, though the businessman has since used the platform to mock the regulator. Later, a British spelunker sued Mr. Musk over one of his tweets, accusing the billionaire of defamation. A jury cleared Mr. Musk, who had deleted the tweet and apologized.

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

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 of dollars worth, rather than billions of dollars, 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."

But companies may have become more optimistic on bitcoin following the March 2020 selloff, when bitcoin 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. A number of large companies experimented with bitcoin for payment 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.

Bitcoin for Tesla would dovetail with the wider trend of using cryptocurrencies to fund large purchases, and 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. "From here it only accelerates."

Mr. Musk has past ties to the financial-services industry. During the 1990s dot-com boom, Mr. Musk and his brother Kimbal started an internet business called Zip2, which helped newspapers go online. In 1999, they sold the business 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 [e-mail] and Rebecca Elliott at [e-mail]

(END) Dow Jones Newswires

02-08-21 1151ET