Tesla's $1.5 billion investment in Bitcoin may be good for Elon Musk, but it's definitely risky for the company that made him the world's richest man, according to investors, analysts and money managers at some of the country's largest banks.
As a standard bearer for the consumer electric vehicle industry and the broader climate tech movement rallying around it, Tesla's bet to go all in on crypto could damage its climate bona fides and its reputation with customers even as other automakers pour in to the EV market.
Given Bitcoin's current environmental footprint, the deal flies in the face of Tesla's purported interest in moving the world to cleaner sources of energy and commerce.
Until the energy grid decarbonizes in places like Russia and China, mining bitcoin remains a pretty dirty business (from an energy perspective), according to some energy investors who declined to be identified because they were not authorized to speak about Musk's plans.
"We were talking about people doing this in Russia back in 2018 and how they were tapping coal power to run their mining operations," one investor said. "The cost per transaction from an energy intensity standpoint has only gotten more intense. I don’t see how those things coalesce, climate and crypto."
The stake makes Tesla one of the largest corporate hodlers of Bitcoin but represents a massive portion of the company's $19 billion in cash and cash equivalents on hand.
"Given the size of their treasury it feels irresponsible, IMO," wrote one investor whose firm backed Tesla from its earliest days. The company's move could be seen as another example of the absurdity of U.S. capital markets in today's investment climate -- and the underlying cynicism of some of its biggest beneficiaries.
Meanwhile, Bitcoin investors welcomed the move, which sent the value of their holdings rocketing up by roughly 18% over the course of the day.
"The announcement that Tesla has diversified its treasury through the addition of bitcoin is not surprising, nor is the assuredness implied by an 8% allocation of cash-on-hand. Equal to Tesla’s R&D expenditure for 2020, this investment is significant to the Company and shows a commitment to maximizing shareholder returns," wrote Stillmark founding partner Alyse Killeen. "Elon Musk has a long history of operating at the precipice of what’s possible technically and setting the trend of what’s to later become common operationally. I suspect the same will be true here, and that Tesla is the first of a larger cohort of publicly-traded companies that will aim to optimize the returns of their cash via bitcoin."
Industry observers on Wall Street also criticized the company's big bet on Bitcoin.
"Tesla buying $1.5 billion in BTC is interesting. Am assuming they haven't hedged it, so they will either be cash rich in the future or have a hole in the balance sheet. Elon Musk stays wild," wrote one capital planning executive at a major Wall Street bank who declined to be identified because they were not authorized to speak to the press. "[It's] not dissimilar from a large company throwing cash into a wildly volatile emerging market currency."
Still, in the short term, the deal is showing dividends. The price of bitcoin has risen nearly $8,000, or 18.73%, over the course of the day since Tesla made its announcement.
But the investment represents the equivalent of the company's entire research and development budget, as Killeen noted. That's... something. There's also the question is whether any regulator will step in to punish Musk.
Musk has been tweeting his support for Bitcoin and other, more arcane (or useless) cryptocurrencies like Dogecoin for the past several weeks, in what seems to be a violation of his agreement with the Securities and Exchange Commission.
The world's richest man has previously been fined by regulatory agencies for his tweeting habits. Back in 2018, the SEC charged Musk with fraud for tweets about privatizing the electric vehicle company at $420 per share.
Musk eventually settled with the SEC, at the price of his role as chairman of Tesla's board and a $20 million personal fine -- with Tesla paying out another $20 million to the SEC.
The volatility of the cryptocurrency could impact more than just Tesla's bottom line, but also hit its customers should they use the currency to buy cars.
“Bitcoin jumped over 15% to a new high of $44,000 on Monday. This sort of hype-based price power should be worrying to investors and consumers alike - especially if this is to be used as medium of exchange," wrote GlobalData analyst Danyaal Rashid, head of Thematic Research at GlobalData.
"If Elon Musk can help dictate the price of this asset with a tweet or large order, the same could happen to send the price back down. The task of purchasing a vehicle should not be speculative. Consumers who may have thought of buying bitcoin to use as a substitute for fiat – could very easily end up with more or less than they bargained for."