Did Tesla Make More From Bitcoin Than Car Sales in 2020?

Originally published 2021-02-23.

Photo: PA Images

Did Tesla really earn more from bitcoin than from selling cars? Not quite. In February 2021 a Wall Street analyst estimated that Tesla’s $1.5 billion bitcoin purchase had risen in value by roughly $1 billion within a few weeks. That figure was larger than Tesla’s full-year 2020 net income of $721 million, which is where the eye-catching comparison came from. But the bitcoin number was an unrealised, on-paper gain at one moment in a volatile market, while the $721 million was audited profit for a whole year. The two are not the same kind of money.

Below is what happened, why the comparison spread so quickly, what it left out, and how the story ended once Tesla actually sold most of its coins.

What Tesla bought, and when

Tesla disclosed the purchase in its annual report filed on 8 February 2021: $1.5 billion invested in bitcoin, along with a plan to start accepting the cryptocurrency as payment for its cars. The announcement itself moved the market. Bitcoin traded around $44,000 that day, and on 16 February it crossed $50,000 for the first time. You can read our earlier coverage of how the price reacted to Tesla’s $1.5 billion buy.

By the time the profit headlines appeared, one bitcoin was changing hands for about $56,000, a record at that point, and the total value of all bitcoin in circulation had passed the symbolic $1 trillion mark. Tesla’s own share price had also climbed so far that its market value briefly exceeded that of payment giants such as Visa and Mastercard.

Elon Musk defended the move on Twitter, writing that holding some bitcoin is “simply a less dumb form of liquidity than cash” and is “adventurous enough for an S&P500 company.” In other words, he framed it as a treasury decision, a place to park spare cash, rather than a bet the company depended on.

Where the “more than car sales” claim came from

The comparison traces back to Dan Ives, an equity analyst at Wedbush Securities. His team calculated that the rising price had added about $1 billion to the value of Tesla’s holdings in roughly a month, and that the company was on course to “make more from its Bitcoin investments” than from selling cars in 2020, as reported by Business Insider. Ives also called the investment a side show for Tesla, while predicting that other listed companies might copy it over the following year or two.

Some versions of the story that circulated online said Tesla had earned only about $72 million from car sales in 2020. That figure is wrong. Tesla’s results, published on 27 January 2021, showed net income of $721 million for 2020, its first profitable full year, on deliveries of 499,550 vehicles. The missing digit made the bitcoin gain look more than ten times larger than the company’s yearly profit instead of slightly larger.

Crypto-market commentators added to the excitement. Simon Peters, an analyst at the trading platform eToro, told The Independent that the $1 trillion milestone showed bitcoin’s growing power to disrupt traditional finance, despite critics calling it a bubble.

Paper gains versus profit: why the comparison misleads

A paper gain is the difference between what you paid for an asset and what it would fetch if you sold it right now. Nothing has been banked. If the price falls tomorrow, the gain shrinks or disappears. Comparing that snapshot with a year of reported earnings mixes two different measurements, and it needs consistent dates and definitions to mean anything.

Accounting rules made the gap wider still. Under the US rules that applied in 2021, companies holding bitcoin treated it as an intangible asset: they had to write the value down when the price dropped, but could not record increases as profit until they actually sold. So a rising bitcoin price did not show up as earnings in Tesla’s accounts at all, while dips could. The headline profit existed only in analysts’ spreadsheets.

There is a second twist that the viral comparison skipped. Tesla’s 2020 profit itself leaned on sales of regulatory credits, government-issued emissions credits that other carmakers buy to meet their targets. Tesla sold about $1.58 billion of these in 2020, more than twice its net income. That says more about how young Tesla’s profitability was in 2020 than about bitcoin.

What happened next: the price swings of 2021 and 2022

Bitcoin kept climbing for a while, reaching about $64,800 in mid-April 2021. Then the mood turned. On 12 May 2021, only 49 days after it started taking bitcoin for cars, Tesla suspended those payments, citing concern about the fossil fuels used in bitcoin mining. The price fell about 12% the next day and dropped to around $30,000 within a week, amid new Chinese restrictions on crypto activity. It recovered to new highs above $66,000 in October 2021, then slid hard through 2022, falling below $18,000 in June that year.

Anyone who had treated February’s paper profit as money in the bank would have seen it vanish and reappear several times within eighteen months. That volatility is the main reason analysts and accountants separate market value from realised profit.

Tesla sold most of its bitcoin in 2022

The question of what Tesla “made” was finally answered in its second-quarter 2022 earnings report, published on 20 July 2022. The company said it had converted about 75% of its bitcoin purchases into regular currency, adding $936 million in cash to its balance sheet. On the earnings call Musk explained that Tesla wanted to maximise its cash while it was unsure when Covid lockdowns in China would ease, and said the sale should not be read as a verdict on bitcoin.

Musk also described bitcoin, when asked whether it hedges against inflation, as “a sideshow to a sideshow”, a phrase that echoed Ives’s view of the investment eighteen months earlier.

Lessons for anyone reading crypto headlines

• Check whether a gain is realised. “Made a profit” in a headline often means “holds an asset that is worth more today”.
• Compare like with like. A gain over a few weeks and a profit over twelve months answer different questions.
• Verify the numbers. The $72 million versus $721 million slip shows how easily one error can travel through dozens of re-posts.
• Remember the timing. Bitcoin roughly halved within three months of the February 2021 headlines, and fell much further the following year.
• Look for the follow-up. Company filings, not social media posts, eventually show what was sold, when and for how much.

Tesla’s bet did turn into real cash in the end, and it drew enormous attention to corporate crypto holdings. It simply was not the overnight windfall that early 2021 headlines suggested.

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Sources: UNILAD (original report); Business Insider: Wedbush estimate; The Independent; The Drive: Tesla’s first full-year profit; Wikipedia: History of bitcoin; SiliconANGLE, 20 July 2022.