Last night Tesla released earnings which showed a massive gamble in Bitcoin has payed big, but what does SEC think? Self proclaimed “technoking” and CEO of Tesla Elon Musk is no stranger to scandals and troubles with SEC (Securities and Exchange Commission). Originally promising to take Tesla private at $420 back in 2019, Musk was sued by SEC for market manipulation, settled for a staggering $40 million in penalties (water under the bridge for the richest man in the world).
Dogecoin and Bitcoin Twitter Manipulation
In his latest stunt, last nights earnings showed a massive $101 Million Dollars (USD) profit in the sale of Bitcoin. At the beginning of the year we saw Tesla buying up BTC by the bundle, reporting to SEC it had purchased a breathtaking $1.5 Billion Dollars (USD) in the Cryptocurrency. Tesla also announced it would start accepting Bitcoin as payments.
Since then we have seen a barrage of Tweets and media coverage from the ‘Technoking’ himself about Bitcoin, Dogecoin and all things Cryptocurrency. In fact he’s dedicated his entire Twitter and self-image into a walking meme around Crypto, Doge and GameStop stock.
It’s no surprise that Bitcoin and Cryptocurrencies in generally have again reached new highs in the past few months. This second tweet I want to highlight the statement “Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat currency” This has been a trial for the company as they explore the use of corporate Bitcoin ownership on their balance sheet. “So far, it has proven to be a good decision, a good place to place some of our cash that’s not immediately being used for daily operation,” CFO Zach Kirkhorn (Master of Coin). In a stunt to prove liquidity to investors, Tesla unloaded 10% of their Cryptocurrency Portfolio resulting in the massive $101 million profit.
So what can SEC do about Cryptocurrency? Nothing! Although a highly debated topic the SEC has ruled that the two largest cryptocurrencies; Bitcoin and Ethereum, are not securities, as they are decentralized with no person or company in control of them. So although it is arguable that Musk’s involvement in Crypto has quite likely manipulated the prices, it is unlikely the SEC can take action. Although the $101 million profit bitcoin profit will be labeled on their financial statements as a new “restructuring and other costs” line, Which Tesla will have to explain to SEC.
Recently we wrote an article about the advancements of Crypto and its growing use business. Tesla has taken this to the next level. We expect this to be widely adopted in the coming future.
Tesla’s Earnings Beat
No surprise Tesla’s earnings beat expectations, turning a first-quarter profit of $438 Million Dollars, and an EBITDA of $1.8 Billion Dollars (USD). This is from an impressive $10.4 Billion in revenue, up 74% YOY. Given them an EPS 93 cents, far above the 75-80 cents expected by wall street. We can see the entire announcement here.
During this period Tesla received Regulatory Credit Sales of $511 Million. These credits are energy offsets that the company receives for producing zero-emission cars. To me this highlights one massive flaw. Without Bitcoin and Regulatory Credits Tesla is not Profitable. Each quarter Tesla just scrapes by into the profitable territory. Without profits Tesla will be dropped from the rankings of the S&P 500. According to Standard and Poor’s for inclusion “the most recent quarter’s earnings and the sum of it’s trailing four consecutive quarter’s earnings must be positive” View their inclusion criteria here. This would obviously be very controversial for the company.
Tesla’s Share Price Technical Analysis
Tesla is currently trading at a share price of $738.20 USD. This gives it a market cap of $706 Billion. Shares have traded relatively flat despite the earnings beat, closing up only 1.21% for the day. As we said earlier the stock has an EPS of 93 cents. Giving it a PE of 1139. Keep in mind the average PE is around 15-20%. Tesla has assets of $52.9 Billion and liabilities of $28.5 Billion. In every metric, Tesla is overpriced. However over the past year, the share price has quite literally gone to the moon, up a massive 409%. Investor returns have been nothing short of impressive. With the hype and the invaluable asset that is Elon Musk, it is hard to rationalize traditional accounting methods to value the company.
Tesla continues to deliver impressive revenue growths and promises to deliver. “Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries”. With $17.1 Billion Cash-in-hand Tesla is well positioned to continue its bull run in car sales and keep investors happy. The company is set to continue down the crypto route with CFO Zachary Kirkhorn stating “So we do believe long term in the value of bitcoin. So it is our intent to hold what we have long term and continue to accumulate bitcoin from transactions from our customers as they purchase vehicles.”
By all traditional methods of valuation Tesla is overpriced. Yet here we are. Tesla has continued to make investors impressive returns. Going forward we see a very positive outlook for Tesla. We give Tesla a BUY rating. For help in valuing stocks and all things getting started in the stock market, check out our eBook here.
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