Tesla Inc’s TSLA investment in Bitcoin price (BTC) is a sign that the automaker has “run out of viable internal uses” of its capital, according to GLJ Research analyst Gordon Johnson.
The Tesla Analyst: Johnson kept his Sell rating on Tesla’s stock and maintained his price target of $67 on the stock.
The Tesla Thesis: Johnson, a long-term Tesla bear, came down heavily on the Elon Musk-led company for its $1.5 billion dollar investment in BTC.
“TSLA took a large chunk of the cash (i.e., $1.5bn, or ~12.2% of the ~$12bn in equity raised in three offerings in 2020) generated from three secondary equity offerings in 2020, and invested it in a highly volatile and allegedly manipulated crypto currency,” wrote Johnson.
The analyst said the company had run out of viable internal uses of capital as it did not invest it in research and development or capital expenditure. As per Johnson, the Bitcoin news was released at a time when the company is facing “negative business developments” and is a distraction.
The GLJ Research note pointed to declining car sales in China, quality control issues, delay in the German factory, and the inability to obtain the full $1.2 billion in subsidies in that country as the negative factors.
The analyst said in his view BTC is an “environmental disaster” as it consumers as much power as the entire country of Switzerland.
GLJ noted the potential regulatory pitfalls of the Bitcoin purchase, which they admitted were unlikely.
“We see this as a sign of desperation from a CEO whose company is facing real competition for the first time ever,” said the analyst — adding that even if Tesla were to sell its BTC holdings today, it would pocket up to $200 million in profits “that fall 100% to the bottom line, offsetting any losses in its core business of selling cars.”
Tesla Price Action: Tesla shares closed nearly 1.3% higher at $863.42 on Monday and fell 0.56% in the after-hours session.
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