Last year, Tesla took a massive financial hit after investing in Bitcoin and ultimately lost $140 million. In a SEC filing, Tesla revealed that it took an impairment charge of $204 million while gaining only $64 million from converting its Bitcoin holdings into fiat.
It is essential to know that an impairment charge is a reduction or decrease in the worth of an asset. This can be triggered by different economic situations, like the Terra Luna crash in May 2022, which caused a widespread market panic.
Tesla revealed its annual disclosure to the SEC barely a week after its quarterly report, which displayed no signs of Bitcoin transactions and suffered a $43 million loss in the last four months of 2022.
Tesla’s Bitcoin loss
In early 2021, Tesla made headlines when it invested about $1.5 billion in Bitcoin, taking second place to only MicroStrategy in terms of the biggest companies holding the cryptocurrency. At the time of purchase, BTC was worth $46,364. By November 10, 2021, that price had rocketed to an all-time high of $69,044, according to CoinGecko.
Unfortunately, the good times did not last long. In 2022, Bitcoin and the entire cryptocurrency market crashed hard. On January 31, 2023, Bitcoin was trading at around $23,051—a significant drop from 2021 when it had skyrocketed to over double that amount. Tesla’s losses also increased as it reported in its SEC filing for 2021 an impairment loss of $101 million on digital assets and gains of only $128 million after selling off some of its Bitcoins.
In October 2022, Tesla disclosed to investors that after offloading most of its Bitcoin holdings worth $936 million in July, it held a staggering amount of over $218 million.
As with any investment and consistent with how we manage fiat-based cash and cash-equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of the market and environmental conditions.Tesla
In its filing, Tesla defines its Bitcoin holdings as indefinite-lived intangible assets. Regularly, Tesla evaluates if the value of its BTC holdings on its balance sheet surpasses the fair market value. As expressed by Tesla in its filing, the impairment cost may influence further investments in Bitcoin.
The company highlighted that any digital assets currently held or acquired in the future might lead to a decrease in profits during periods when impairments are incurred, regardless of whether the overall market values increase.
The quarterly earnings report and SEC filing did not mention any digital assets other than Bitcoin. It is assumed, however, that the company also owns Dogecoin since it allows this meme-coin as payment for its services. Furthermore, CEO Elon Musk personally declared himself a big supporter of Dogecoin.