Tesla: bitcoin and credits drive profits at electric car company
Tesla’s financial results are as unpredictable as temperamental boss, Elon Musk. The highs are high: electric vehicle deliveries more than doubled in the first quarter of 2021 to a new record. The lows are low: the average vehicle sales price is falling as competitors gain impetus.
The real head scratcher is profits. A lack of these was a big barrier to Tesla’s entry to the S&P 500 in spite of rapid stock price gains. It finally joined in December as the sixth-biggest company on the benchmark index. Since then, its share price has lagged behind giants such as Apple. Still, after years of annual losses, Tesla can boast seven consecutive quarters of positive net income.
It is just a shame those profits do not come from car sales. Tesla is selling more vehicles but is cutting prices to compete in an increasingly busy market. Net income of $438m in the last quarter was supported by cryptocurrency trades. Selling about a tenth of the $1.5bn of the bitcoins it bought in February made the company $101m, which it reported as a reduction in operating expenses.
Bitcoin is a “liquid market”, according to chief financial officer (aka Master of Coin) Zachary Kirkhorn. That liquidity may have been helped by Musk’s public support for the cryptocurrency. Two weeks before Tesla announced that it had purchased bitcoin, Musk added #bitcoin to his Twitter profile, something his 52m followers were quick to notice. Regulators are likely to be watching too.
You need to add $101m from bitcoin to $518m in cost-less revenue from credits sold to other vehicle makers otherwise unable to comply with emissions regulations. Together, they covered Tesla’s rising overheads and price cuts that reduced the average sale price of an electric car. Revenues rose 74 per cent to $10.4bn amid high Chinese demand.
Do not expect the pattern of Tesla’s earnings to change in the near term. Cash and equivalents of $17bn plus supportive investors will keep expansion plans ticking over and R&D costs rising. Credits and cryptos, not cars, will continue to underpin profits.
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