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.
Despite weaker-than-expected auto sales and rising operating costs, Tesla managed to post decent earnings for Q4 2023, largely thanks to a technicality involving Bitcoin.
The electric car maker reported a net income of $2.3 billion according to GAAP (Generally Accepted Accounting Principles), with earnings per share (EPS) of $0.73 on a non-GAAP basis. However, a closer examination reveals that a significant portion of Tesla’s earnings were driven by a one-time accounting adjustment related to its Bitcoin holdings.
According to financial analyst Gordon Johnson, about 17 cents of Tesla’s reported non-GAAP EPS came from marking up the value of their Bitcoin holdings, which amounted to roughly 23%. This adjustment was triggered by a new rule from the Financial Accounting Standards Board (FASB), stipulating that digital assets should be valued at market prices each quarter.
1/3 ~$600mn, or 17c of the 73c $TSLA reported in Q4 came from the marking up the value of their #Bitcoin (NOT selling it, but, rather, marking it up). And, that ~$600mn carried with it 100% net margins. So, excluding an accounting parlor trick, or looking at $TSLA's core…
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This essentially meant that Tesla could finally report the true value of its Bitcoin holdings in its financials, as the asset rallied during the quarter. At the time, one Bitcoin was valued at around $105,000. Stripping out this adjustment, Tesla’s non-GAAP EPS would have been closer to $0.53, falling short of the consensus estimate of $0.77.
For context, non-GAAP EPS adjusts for certain items like stock-based compensation and can include unrealized Bitcoin gains. But unrealized crypto gains or losses are not included in reported EPS as per GAAP accounting rules, which is why Tesla’s GAAP EPS stood at $0.66. This figure provides a better indication of the company’s core performance.
Gordon also highlighted that Tesla has been aggressively cutting vehicle prices to sustain demand, but this strategy is eroding profitability. The company has historically relied on selling regulatory credits to boost margins, but excluding those credits, Tesla’s automotive gross margins (as a percentage of revenue) continue to shrink. This suggests that Tesla is struggling to maintain pricing power, indicating increasing pressure on the company’s core automotive business. But for now, Bitcoin is temporarily padding Tesla’s earnings.
