Tesla disclosed on Monday that the electric vehicle maker has bought $1.5 billion worth of bitcoin as part of a new investment policy and seeks to start accepting the digital currency as a form of payment for its products in the near future.
Bitcoin prices surged around 10% following the Tesla (TSLA) disclosure and the EV maker’s stock advanced 1.7% in Monday’s morning trading. The move comes as the leading cryptocurrency has been breaching new records in past weeks and Tesla’s billionaire founder Elon Musk recently expressed his support of bitcoin, saying that the digital currency was “on the verge of of getting broad acceptance by conventional finance people.”
“In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity,” Tesla stated in an SEC filing. “We believe our bitcoin holdings are highly liquid. However, digital assets may be subject to volatile market prices, which may be unfavorable at the time when we want or need to liquidate them.”
Additionally, the EV maker announced that as part of its investment policy, the company may invest in certain alternative reserve assets including gold bullion, gold exchange-traded funds and other assets in the future.
“If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed,” Tesla warned, adding that digital asset prices “may continue to be highly volatile” due to associated risks and uncertainties.
Wedbush analyst Daniel Ives argues that Tesla’s policy change to invest in alternative assets is a “major move that will have a ripple effect across corporations” and called the acceptance of bitcoin as a form of payment for its cars in the future “a potential game changing move from a transactional perspective.”
“From a stock perspective, as we have seen with Microstrategy (and Saylor), this move could put more momentum into shares of Tesla as more investors start to value the company’s bitcoin/crypto exposure as part of the overall valuation,” Ives wrote in a note to investors. “Ultimately, investors and other industry watchers will be watching this closely to see if other corporations follow the lead of Tesla on this crypto path or on the other hand does it remain a contained few names that make this strategic jump around bitcoin.”
The analyst has a Hold rating on the stock with a $950 price target (11.5% upside potential). That’s after Tesla shares popped 102% over the past three months and skyrocketed 452% over the past year as demand for EVs is on the rise and the stock was included in the benchmark S&P 500 Index. (See Tesla stock analysis on TipRanks)
In line with Ives’ outlook, the rest of Wall Street analysts are mostly sidelined on the stock with a Hold consensus rating. Meanwhile, the average analyst price target of $596.60 implies 30% downside potential lies ahead over the coming 12 months.
On TipRanks’ Smart Score tool, Tesla gets a 9 out of 10, suggesting that the stock has strong potential to outperform market expectations.
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