Tesla Writes Down $170M in Bitcoin Impairment Charges in Q2

Electric carmaker Tesla recorded a $170 million impairment charge against the carrying value of its bitcoin assets.

The company also recorded gains of $64 million from some of its bitcoin sales in a filing with the Securities and Exchange Commission on Monday, July 25, 2022.

The 10-Q filing is a more complete version of the quarterly earnings filing lodged with the SEC.

According to guidelines published by the Association of International Certified Professional Accountants, crypto assets are indefinite-lived intangible assets. Companies must write down the value of an asset that has dipped below its purchase price, taking an impairment loss, depending on the outcome of an impairment test. An impairment test checks an asset to see whether the fair market value, the price it could be sold for on the open market, is less than its carrying value. For digital assets, carrying value is the same as the purchase price.

When it purchased its bitcoin last year, Tesla said it would examine its bitcoin holdings every quarter to check for impairments.

Any gains can only be recorded once appreciated digital assets have been sold.

Tesla sells 75% of bitcoin holdings

Tesla sold $936 million worth of bitcoin last week to bolster its cash position in the wake of the shutdown of its Shanghai factory as China deals with surging Covid-19 cases. The sale represents roughly 75% of its $1.5 billion cryptocurrency stash, which the company began accumulating in Q1 2021. The company did not disclose when it sold its bitcoin.

The bitcoin sale did not appreciably affect Tesla’s free cash flow. Investors had raised a concern that the sale had boosted Tesla’s free cash flow, the difference between money from operations and capital spending, to $621 million. But the reduction of free cash flow from $2.1 billion in Q1 came about because of Shanghai lockdowns.

Tesla not shunning bitcoin, says Musk

CEO Elon Musk said that the sale does not indicate a broader shunning of bitcoin. The company still holds Dogecoin among its remaining $218 million worth of cryptocurrencies. He still personally has bitcoin, Dogecoin, and ether, according to a tweet in March of this year.

Tesla briefly accepted bitcoin payments but stopped in May 2021 because of Musk’s concerns regarding bitcoin’s environmental footprint.

Musk was subpoenaed by the SEC on June 13, 2022, for a 2018 tweet saying he had arranged funding to take Tesla private. An agreement with the SEC in 2018 mandated that a committee vet Musk’s tweets before they are sent.

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