Bitcoin didn’t save Tesla — It just delayed the bigger problem

Bitcoin’s price surge helped Tesla mask deeper struggles, adding $600M to its earnings. But behind the numbers, falling demand, price cuts, and squeezed margins tell a different story.

Bitcoin, the saviour

Tesla’s latest earnings report on Jan. 29 was widely expected to disappoint. Auto sales had slowed, revenue came in below expectations, and operating costs continued to climb.

But just as investors braced for weak results, an unexpected factor gave Tesla’s financials a sudden lift — Bitcoin (BTC).

Thanks to a newly implemented accounting rule, Tesla’s Bitcoin holdings received a substantial revaluation, adding an eye-catching $600 million to the company’s net income.

Previously, accounting standards required companies to report Bitcoin at its lowest value during ownership, regardless of any recovery in price.

However, in December, the Financial Accounting Standards Board introduced a new rule allowing digital assets to be valued at market prices each quarter.

The timing couldn’t have been better for Tesla. Bitcoin’s surge in Q4 meant the company could finally reflect the true value of its holdings — just as the asset rallied.

Decoding the reasons behind Tesla’s income boost

Tesla’s Q4 earnings paint the picture of a company under growing financial strain. Revenue for the quarter came in at $25.71 billion, a modest 2% increase from the previous year but well below analyst expectations of $27.22 billion.

Meanwhile, operating expenses surged 9% from the previous quarter to $2.59 billion, further squeezing profitability. But then came Bitcoin.

By the end of Q3, Tesla had reported its Bitcoin holdings at $184 million, even though their actual market value exceeded $1 billion at the time.

The old accounting rules forced companies to record Bitcoin at its lowest valuation, ignoring any price recovery. However, Bitcoin’s sharp rally in Q4, coupled with the FASB’s new rule, meant Tesla could now revalue its Bitcoin holdings based on market prices.

This adjustment added $589 million to Tesla’s balance sheet, bolstering its reported earnings. Despite weak auto sales, the Bitcoin-driven revaluation helped Tesla post a GAAP net income of $2.3 billion, with $600 million of that coming directly from Bitcoin.

Investors responded negatively to the announcement, causing Tesla’s stock to drop more than 3% over two days, trading at $385 as of Jan. 30.

The story beyond the facade

At first glance, Tesla’s Q4 earnings seemed decent, with non-GAAP earnings per share of $0.73. However, financial analyst Gordon Johnson quickly pointed out that this figure didn’t tell the full story.

A closer look revealed that 17 cents of the reported non-GAAP EPS — or roughly 23% — came from Tesla’s $600 million Bitcoin revaluation gain.

This gain was purely on paper, meaning Tesla didn’t sell its Bitcoin; it simply recorded the increase in value due to Bitcoin’s price rally, which had surged to around $105,000 by January 30.

Stripping out this adjustment, Tesla’s actual non-GAAP EPS would have been closer to $0.53, which is 27% lower than the reported figure. More importantly, this fell short of the consensus estimate of $0.77, missing expectations by about 31%.

For clarity, non-GAAP EPS adjusts for items like stock-based compensation and, in Tesla’s case, includes unrealized Bitcoin gains.

However, under GAAP accounting rules, unrealized crypto gains or losses don’t impact reported EPS, which is why Tesla’s GAAP EPS stood at $0.66 — a more accurate reflection of its core performance.

Beyond the accounting effects, Johnson also highlighted that Tesla has been aggressively cutting vehicle prices to sustain demand, but this strategy is squeezing profitability.

The company has historically relied on selling regulatory credits to boost margins, but as those margins (excluding credits) shrink, it suggests Tesla is struggling to maintain pricing power, reflecting increasing pressure on Tesla’s core automotive business, even as Bitcoin temporarily pads its earnings.

Tesla: Automaker, fintech player, or something else?

Tesla’s Bitcoin-driven earnings boost reflects a broader trend of public companies integrating Bitcoin into their balance sheets. As of Jan. 30, 78 publicly traded companies collectively hold over 3 million BTC, representing approximately 14.3% of Bitcoin’s total 21 million supply.

MicroStrategy remains the largest corporate Bitcoin holder, with 471,101 BTC valued at approximately $49.5 billion.

MicroStrategy’s aggressive Bitcoin accumulation strategy propelled it to the second-best performer in the Nasdaq 100 as of Jan. 29, surpassing major tech giants like Meta, Netflix, and NVIDIA. However, by Jan. 30, it had slipped to fifth place.

Other major corporate Bitcoin holders include Marathon Digital, with 44,893 BTC worth around $4.7 billion, and Riot Platforms, holding 17,722 BTC valued at nearly $1.9 billion.

Meanwhile, as of Jan. 30, Tesla holds 9,720 BTC, making it the sixth-largest public Bitcoin holder, according to Bitcoin Treasuries. However, this is just a fraction of what the company originally owned.

Tesla initially purchased nearly 43,000 BTC in early 2021 but later sold 75% of its holdings in July 2022, liquidating 30,000 BTC for $936 million. Had Tesla retained its full Bitcoin position, its Q4 financial boost would have been even more pronounced.

While Tesla faces financial pressures, Elon Musk has been expanding his focus on digital finance. His social media platform, X, announced on Jan. 30 a partnership with Visa to launch a digital wallet and peer-to-peer payment service.

The X Money Account will enable users to transfer funds between traditional bank accounts and digital wallets, positioning X as a direct competitor to fintech giants like Zelle and Venmo.

Meanwhile, Musk’s Department of Government Efficiency (DOGE), an agency established under the Trump administration, has recently spotlighted inefficiencies in U.S. coin production.

According to DOGE, the U.S. Mint spends three cents to produce each one-cent penny, costing taxpayers $179 million in fiscal year 2023 alone.

A closer look at Musk’s latest moves suggests a larger strategy at play. As Bitcoin’s presence in corporate treasuries grows, the boundaries between corporate finance, government influence, and digital assets are becoming increasingly blurred.

If Tesla’s margins continue to erode and Bitcoin’s price fluctuations keep shaping its financials, what happens when the numbers no longer align with the story?

Does Tesla remain an automaker, or is it transforming into something else entirely — a company whose fate is tied not just to production lines but to digital assets, accounting manoeuvres, and Musk’s increasingly unpredictable ambitions?