Tesla records $23 million impairment linked to Bitcoin in Q2 2021

Tesla records $23 million impairment linked to Bitcoin in Q2 2021

American electric vehicle and clean energy company, Tesla, Inc., recently reported that a $23 million bitcoin-related impairment dragged down its quarterly operating profitability this year. Tesla only cited bitcoin or crypto once in its 2nd quarter earnings report, after CEO Elon Musk went back and forth on whether the company would accept the digital currency for vehicle purchases.

Earlier in February, Tesla had announced that it had purchased bitcoin for $1.5 billion, which was more than its entire quarterly research and development budget, and that it may continue to invest in cryptocurrencies.

The company said its investment was worth $2.48 billion as of the end of March, based on the rising trend in bitcoin in the first quarter.

Notably, Tesla reported a net profit of $101 million from bitcoin sales in the first quarter, helping the company set a new high for net profits.

The gain appeared on the company's statement of operations as a reduction in operating expenses, implying that it sold some of its bitcoin holdings during the quarter. However, since the price of bitcoin tumbled by more than 40% in the second quarter, Tesla's holdings would be worth much less than they were at the end of the first quarter.

In April, the cryptocurrency peaked at $63,000 before falling below $30,000 earlier this month. The price of bitcoin is currently hovering around $40,000.

Tesla doesn't consider bitcoin as a mark-to-market asset, which means it only sees an earnings benefit if it sells to lock in gains. As a result, the reduction in bitcoin's value shouldn't impact profitability as long as Tesla hasn't liquidated any of its holdings.

Despite the bitcoin charge, Tesla's operating income quadrupled to $1.3 billion from the same quarter a year ago.

Tesla's stock jumped 1.4 percent to $666.59 in after-hours trading recently. The stock, which had been one of the most outstanding performers in recent years, has plunged more than 25% since January.

Source Credit - https://www.cnbc.com/2021/07/26/tesla-records-23-million-in-bitcoin-related-impairments-in-q2.html