How Tesla and Bitcoin is forming the new economy Dogecoin

How Tesla and Bitcoin are forming the new economy

It is official. Tesla just invested/bought (it is hard to tell the difference today) USD$1.5B in Bitcoin and plans to accept it as payment. Just a few days ago, CEO Elon Musk tweeted positive messages around digital currency especially for Bitcoin and Dogecoin. While the intention of his Dogecoin tweet is still unclear, his tweet has send Dogecoin’s prices through the roof/moon/mars (it is hard to keep up with the terms anymore).

How Tesla and Bitcoin is forming the new economy Dogecoin

How Tesla and Bitcoin are forming the new economy Dogecoin

Disclaimer: No vested interest in Bitcoin/Dogecoin/Tesla.

In this article, I will attempt to explain what good and what not good will happen from this move and potential series of events that might unfold. If you are new to Tesla and Bitcoin, I would encourage you to read about my previous Bitcoin article: Is it too late to invest in Bitcoin?

 

Tesla’s Current Brilliant Capital Moves

One thing for sure. Elon Musk sure knows how to raise capital or get his hands on money. Previously, Tesla raised USD$5 billion from stock offering. The question had that time was do they really need the cash? It turns out that his timing was excellent. By selling shares at an expensive price, Tesla’s existing shareholder was not affected much by dilution. Effectively, he is raising capital from the equity market and still “protecting” his existing shareholder. I feel that it was a wonderful move.

Secondly, Tesla’s income comes from selling regulatory zero emission credits to other carmakers. Tesla would have noted a net loss for 2020 if it had not relied on this USD$1.6billion sale. To help build a sustainable economy, carmakers have to manage their pollution levels and have to buy green credits or face hefty fines or have their business licenses revoked. Selling of the zero emission credits is probably a 100% profit margin (there is no COGS). I feel this is pretty smart too as Tesla is selling something that is technically “free”. This will impact them once the other carmakers are more serious about their carbon emission.

 

Tesla Next Capital Move: Bitcoin

As of 27 Jan 2021 Motley Fool’s article, Tesla ended the year with a cash war chest of USD$19.4B. This already includes the $10B raised through stocks offering in 2020. With the purchase of USD$1.5B worth of Bitcoin, around 7% of the Balance Sheet (cash and equivalent) has been converted into Bitcoin. When you are investing in Tesla, you are now “investing” in Bitcoin.

How Tesla and Bitcoin is forming the new economy

How Tesla and Bitcoin are forming the new economy

Of course, Bitcoin surge > 20% to reach a new highs of USD$44,000.

In a official filing with the Securities and Exchange Commission, the company said it bought the bitcoin for “more flexibility to further diversify and maximize returns on our cash.” With the limited use of Bitcoin at the moment, I believe Bitcoin is another investment vehicle for Tesla. In this, I feel that Tesla would be able to “sell” Bitcoin when the time is right to edge up their quarterly results. However, this could impact them if Bitcoin prices fluctuate much.

 

Tesla and Bitcoin: The New Economy

You might be wondering why I named the article “The New Economy” by now. I would like to present a thesis of what potentially can happen and the likely impacts of it.

  • An Alternative Investment / Store of Value

This is the one that I like the most. Although it is known that Warren Buffett does not invest directly into Gold, he is invested into Barrick Gold, an Gold Mining company. Gold by itself doesn’t not have any utility. Barrick Gold offers a balance sheet, income sheet etc. Most people believe that it is hedge against the USD.

Similarly, what Elon Musk might be trying to do is to hedge against the USD. Think about it, 20% of all USD are printed in 2020 during the COVID-19 crisis. The value of USD might be compromised and this is where it gets exciting.

If the crisis isn’t managed well and the value of USD continues to crumble, Bitcoin might then be a good store of value. Bitcoin will then become the new worldwide accepted currency. Hence, the new economy.

  • Increase adoption of Bitcoin

In my previous article about Bitcoin, I questioned about the “lack of adoption” of bitcoin. There seemed to be a HODL attitude on diamond hands. As Tesla cars gets traction in the world, they could really start to accept Bitcoin for their goods or service all over the world. As the velocity of Bitcoin transaction circulates more and more around the world, people will eventually have to use Bitcoin in their everyday transaction. It will give birth to a new worldwide accepted currency.

The question remains if people would actually want to use Bitcoin for transactions with the increasing Bitcoin prices.

 

Final Thoughts By Wealthdojo

Elon Musk decisions usually leave people feeling awe or just confused. Certainty, he already has raving fan base to help him push prices to wherever he wants it to be via a tweet. I can only say he is a good marketer, a great business man and definitely an excellent story teller.

Till next time!

 

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Is Tesla in trouble Why is Tesla raising $5 billion now Impact

Tesla just raised $5 billion from stock offering. Are they really in need of cash?

On 1 Sept 2020, Tesla (TSLA) announced a $5 billion capital raise through equity distribution agreement. I thought it was a brilliant move as written in my previous article. (Is Tesla in trouble? Why is Tesla raising $5 billion now?). Just when the world just began to understand the news, they completed the deal on the 4th Sept 2020. Do they really need the money that urgently?

Tesla just raised $5 billion from stock offering Are they really in need of cash.

Tesla just raised $5 billion from stock offering. Are they really in need of cash?

 

I never expect to write this article that quickly. In any case, this presents my thoughts on why TSLA is doing this so quickly.

 

Non-inclusion into the S&P 500 Index

Previously, I speculated that the equity raise was to give more liquidity to prepare for the inclusion in the S&P 500 Index. However, that idea was snubbed out when TSLA were passed over for inclusion. Instead, Etsy, Catalent and Teradyne was included into the Index as part of the portfolio re-balancing.

The reason remains unknown. Personally, I feel that whoever is making this decision wants to make the S&P 500 Index less speculative in nature. TSLA has a relatively higher short ratio as compared to the other companies. An inclusion of TSLA might make the S&P 500 “correct” more often. (Donald Trump won’t want that to happen).

TSLA Short Ratio

TSLA Short Ratio

 

Buy Low. Sell High.

In any case, TSLA isn’t doing any buying. They are merely issuing out new shares. The best way to get more bang for its’ buck is to sell it at a higher price. We all know that TSLA YTD is around 325%. This is perhaps the best to time to “sell high” for whatever purpose they want to use the money for.

With regards to dilution, it is roughly around 1% dilution.

You can view their SEC Filing Form 8-K here.

 

Final Thoughts

This is not a buy/sell recommendation. Personally, I still think that Elon Musk is an expert in raising capital. I like his vision but have trouble understanding the valuation of TSLA. I have no positions in TSLA nor do I intend to start a position soon.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

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Is Tesla in trouble Why is Tesla raising $5 billion now Impact

Is Tesla in trouble? Why is Tesla raising $5 billion now?

On 1st September, Tesla (TLSA) announces $5 billion capital raise through equity distribution agreement (selling more shares possibly dilution?). CEO Elon Musk previously mentioned that the company wasn’t interested in a new capital raise as he believed that TSLA was capable to finance its ambitious growth through its operations. WHY then did they want to raise money?

Is Tesla in trouble? Why is Tesla raising $5 billion now?

Is Tesla in trouble Why is Tesla raising $5 billion now

Is Tesla in trouble? Why is Tesla raising $5 billion now?

 

What happened on 1st September 2020?

Before we look at the possible impact, it is important to know what happen during the announcement.

Tesla announced today a $5 billion capital raise:

On September 1, 2020, Tesla, Inc. (“Tesla”) entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Goldman Sachs & Co. LLC, BofA Securities, Inc., Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, SG Americas Securities, LLC, Wells Fargo Securities, LLC and BNP Paribas Securities Corp., as sales agents (each, a “Sales Agent” and collectively, the “Sales Agents”), to sell shares of common stock (A), par value $0.001 per share, of Tesla (the “Common Stock”) having aggregate sales proceeds of up to $5.0 billion (the “Shares”), from time to time, through an “at-the-market” offering program (B) (the “Offering”).

We currently intend to use the net proceeds from this offering to further strengthen our balance sheet (C), as well as for general corporate purposes.

Is Tesla in trouble Why is Tesla raising $5 billion now Impact

Is Tesla in trouble Why is Tesla raising $5 billion now Impact

 

What does it mean?

This means that TSLA intends to sell shares (A) at their desired price level (B) until $5 Billion worth is taken up. They intend to use the money to pay off their long term debts (C). The above banks will be helping them sell their sales.

TSLA is current priced at $407. IF they plan to sell it today, they can sell approximately 12.285 million of shares. HOWEVER, they need not do so. They can wait until their desired price level (B) before selling

For example, if their desired price level is $1000, they will be selling 5 million worth of shares. Notice that they sell less shares for the same amount ($5 billion) when they wait for their desired price level to be sold. ($1000 is an illustration)

 

What about dilution problems?

When Tesla announced the capital raise, it was trading at almost $500 billion, $5 billion was roughly a 1% dilution. I do not think it is a major issue for shareholders.

 

Between the lines

Let me refer it back to desired price level (B). This means the TSLA can choose to sell at any time or even choose NOT to sell. This is like a free line of credit to them! It is as if it is an option to raise funds from the stock market without incurring debt (no interest). Personally, I think this is a greatest win to the announcement.

On a side note, it is normal for companies to raise funds from equity or debt instruments for expansion (example: build more gigafactories to increase production)

On a more speculative view, it will help with the inclusion of TSLA into the S&P500 by having more liquidity.

 

Final Thoughts

This is not a buy/sell recommendation. Personally, I think that Elon Musk is an expert in raising capital. I like his vision but have trouble understanding the valuation of TSLA. TSLA quick ratio is 0.92 (04 Sept 2020), I would prefer for it to be better. I have no positions in TSLA nor do I intend to start a position soon.

Thank you Investing Always for your contributions. If you like this article, do comment before and leave a message for me or Investing Always.

 

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