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Inside Tesla treasury’s Bitcoin moves

How should corporate treasurers view cryptocurrencies? That is a question that is increasingly being asked, as some companies are beginning to add crypto to their balance sheets. Indeed, just last week CTMfile published a piece from Neo's CEO and co-founder Laurent Descout looking at whether crypto can become a viable payment alternative for corporates.

One of the headline grabbers in the corporate crypto space has been Elon Musk's electric car and clean energy company Tesla. Back in February 2021, Tesla invested US$1.5bn into Bitcoin, and then subsequently sold a 10% stake in that. The company also allows customers to make vehicle deposits and final vehicle purchases using Bitcoin.

A short-term cash investment haven?

Speaking on the company's Q1 2021 earnings call this week, Zachary Kirkhorn, CFO at Tesla revealed that the firm landed on the cryptocurrency as they had been looking for a place to store cash that wasn’t being immediately used, where they could get some level of return but also preserve liquidity.

"Particularly as we look forward to the launch of [new factories in] Austin and Berlin, and uncertainty that’s happening with semiconductors and port capacity, being able to access that cash very quickly is super important to us right now," Kirkhorn said. "And there aren’t many traditional opportunities to do this or, at least, that we found and in talking to others that we could get good feedback on, particularly with yields being so low and without taking on addition risk or sacrificing liquidity."

As such, the company came to view Bitcoin as a good place to place some of its cash that is not immediately being used for daily operations.

Kirkhorn added: "... one of the key points that I want to make about our experiences in the digital currency space is that there’s a lot of reasons to be optimistic here. We are certainly watching it very closely at Tesla, watching how the market develops, listening to what our customers are saying."

Corporate treasury implications

For treasurers, the uncertain and volatile reputation that cryptocurrencies have seems to go against the core principle of the function in terms of preserving the organisation's capital. However, Tesla's CFO was upbeat on the experience his treasury has had following the decision to invest in Bitcoin.

"Thinking about it from a corporate treasury perspective, we have been quite pleased with how much liquidity there is in the Bitcoin market," Kirkhorn explained. "So our ability to build our first position happened very quickly. When we did the sale later in March, we also were able to execute on that very quickly. And so as we think about kind of global liquidity for the business and risk management, being able to get cash in and out of the markets is something that I think is exceptionally important for us."

The 10% sale of Tesla's Bitcoin holdings had a US$101m positive impact on the firm's Q1 2021 profitability, according to the slide deck published by company in conjunction with its earning call for the quarter.

Looking ahead

Another firm that has been bullish on Bitcoin is business intelligence company MicroStrategy. Back in February, Michael Saylor, MicroStrategy's chairman and CEO told CNBC's Squawk Box: "Bitcoin's not for spending, it's not really a currency... Bitcoin is for saving. Bitcoin has a compound annual growth rate of nearly 200% for the past decade, and so if you want to save your money for the next decade it is logical to do one transaction - put all your money in Bitcoin and wait for a decade for it to go up."

This view on the long-term value of Bitcoin is also held by Kirkhorn:

"We do believe long-term in the value of Bitcoin," he commented. "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. Specifically, with respect to things we may do, there are things that we are constantly discussing... we are watching this space closely."

This story is purely looking at the impact Bitcoin may have on corporate treasury, although the environmental considerations of the cryptocurrency are also worth noting. Research by the University of Cambridge Centre for Alternative Finance (CCAF) reported by the BBC calculates that Bitcoin's total energy consumption is somewhere between 40 and 445 annualised terawatt hours (TWh), with a central estimate of just over 130 terawatt hours. For comparison, the UK's electricity consumption slightly more than 300 TWh a year. The CCAF team also surveys the people who manage the Bitcoin network around the world on their energy use and found that about two-thirds of it is from fossil fuels. Quite how a clean energy company squares away that equation is a question for another day.

Back to corporate treasury, and while some treasurers may remain skeptical or even worried about the prospect of adding cryptocurrencies to their balance sheet, the success that Tesla has so far found with the digital currency shows it is certainly an area to further explore and test against existing treasury policies around cash and risk management.

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