{"id":106778,"date":"2021-02-11T06:51:16","date_gmt":"2021-02-11T06:51:16","guid":{"rendered":"https:\/\/fin2me.com\/?p=106778"},"modified":"2021-02-11T06:51:16","modified_gmt":"2021-02-11T06:51:16","slug":"analysis-investors-lukewarm-on-teslas-1-5-billion-bitcoin-splurge","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/analysis-investors-lukewarm-on-teslas-1-5-billion-bitcoin-splurge\/","title":{"rendered":"Analysis: Investors lukewarm on Tesla's $1.5 billion bitcoin splurge"},"content":{"rendered":"

(Reuters) – Investors in high-flying electric carmaker Tesla Inc are questioning whether Elon Musk\u2019s $1.5 billion outlay into bitcoin will be as good for the company as it has been for the cryptocurrency.<\/p>

FILE PHOTO: Representations of virtual currency Bitcoin are seen in front of Tesla logo in this illustration taken, February 9, 2021. REUTERS\/Dado Ruvic\/Illustration\/File Photo<\/figcaption>

Tesla\u2019s disclosure on Monday that it had moved nearly 8% of its reserves into bitcoin sent the price of the cryptocurrency to all-time highs, up more than 16% this week, while Tesla\u2019s shares are down nearly 6%. Others may follow Tesla\u2019s lead, with Twitter Inc\u2019s chief financial officer telling CNBC that the company has considered adding bitcoin to its balance sheet.<\/p>\n

Shareholders voiced concern that the investment by Tesla, which recently joined the benchmark S&P 500 stock index, could fuel more gyrations in the company\u2019s shares.<\/p>\n

\u201cIt will add volatility to the stock due to exposure to bitcoin,\u201d said King Lip, chief strategist at Baker Avenue Wealth Management, whose firm has owned Tesla shares since 2015. \u201cThis is better for bitcoin than it is for Tesla.\u201d<\/p>\n

Gary Black, former chief executive of Aegon Asset Management and now a private investor who has been bullish on Tesla since 2019, on Monday announced here on Twitter that he had sold his Tesla shares. He cited the absence of a 2021 delivery target and the company’s riskier capital allocation strategy, among other reasons.<\/p>\n

Black also tweeted here on Monday: “$TSLA has always been higher risk, but investing $1.5B in #Bitcoin makes it more risky.” He did not respond to a request for comment.<\/p>\n

The difficulty of valuing the notoriously volatile cryptocurrency over the long term was also a cause for concern to investors.<\/p>\n

\u201cElon Musk has exposed Tesla to immense mark-to-market risk,\u201d Peter Garnry, head of equity strategy at Saxo Bank, wrote in a research note, referring to an accounting method designed to measure the fair value of accounts — assets and liabilities — in order to provide a measure of current financial performance.<\/p>\n

Tesla did not respond to a request for comment.<\/p>\n

Garnry also wrote that investors with concentrated positions in Tesla, such as ARK Invest, are at risk. Tesla is the top holding of the flagship ARK Innovation Fund ark-funds.com\/arkk#holdings, representing 8.75% of the portfolio.<\/p>\n

Brett Winton, ARK\u2019s director of research, said Tesla\u2019s bitcoin investment was an \u201cappropriate use of cash\u201d and it did not change the firm\u2019s outlook on the carmaker.<\/p>\n

\u201cWe are comfortable with the way in which we are forecasting the positions we are putting our clients in front of,\u201d he said.<\/p>\n

On the fixed-income side, investors had mixed views on the impact of the bitcoin investment.<\/p>\n

Tom Graff, head of fixed income at Brown Advisory, who holds Tesla\u2019s asset-backed securities tied to the company\u2019s auto leasing business but does not own its corporate bonds, said while bitcoin can be easily converted into cash, \u201cyou don\u2019t know what kind of value you would get or how quickly you could realize that value.\u201d<\/p>\n

\u201cIf I were an unsecured bond holder, I would be very unhappy about this,\u201d said Graff.<\/p>\n

Another fixed-income investor, who requested anonymity because of a position in Tesla\u2019s bonds, said the volatility would matter more for equity holders as Tesla has sufficient money to pay out its bondholders. Tesla last year raised cash, partly to ease future debt pressures.<\/p>\n

Musk, Tesla\u2019s chief executive, holds the greatest portion of outstanding Tesla shares, according to Refinitiv data, followed by Capital World Investors, The Vanguard Group Inc, Baillie Gifford & Co and BlackRock Institutional Trust Inc. Vanguard declined to comment, while Capital World Investors and BlackRock did not respond to inquiries.<\/p>\n

Baillie Gifford partner James Anderson told The Times here that he was content with the purchase, but his firm would discuss setting limits on how much could be put into the asset. Baillie Gifford declined comment.<\/p>\n

Still, investors in Tesla have been rewarded for sticking with one of Wall Street\u2019s most controversial stocks. Over the past 12 months shares have risen 422%.<\/p>\n

Indeed, the popularity of Musk\u2019s outsized public persona may mean that many longtime investors are ultimately inclined to view the move positively.<\/p>\n

\u201cI\u2019ve been following this company a long time and \u2026 they make the big decisions right,\u201d said Graham Tanaka, president and chief investment officer of Tanaka Capital Management, which holds Tesla shares.<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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