Elon Musk Dumped 75% of Tesla's Bitcoin Last Quarter, and Wants Out of His Deal to Buy Twitter. Plunging Asset Prices and Recession Fears May Explain Why
The Tesla CEO is also trying to renege on his $44 billion agreement to buy Twitter.
Elon Musk, who's currently trying to back out of buying Twitter, revealed on Wednesday that Tesla dumped 75% of its bitcoin holdings last quarter. The mercurial tech billionaire has offered excuses, but it seems likely that plunging asset prices and a bleak economic backdrop played a role in both decisions.
Musk has accused Twitter of massively understating the number of bots on its platform, refusing to provide the data he needs to assess the scale of the problem himself, and allowing key executives to leave since he made a $44 billion offer to buy the social-media company in April. Twitter is suing Musk to enforce the binding merger agreement he signed, and the two parties are poised to face off in court within months.
Meanwhile, Musk said Tesla disposed of $936 million worth of bitcoin to shore up its cash reserves, as COVID-19 lockdowns continue to disrupt its Shanghai factory. While the Tesla CEO noted his electric-vehicle company hasn't sold any of its dogecoin, he and emphasized Tesla's focus is on shifting the world towards sustainable energy sources, and described cryptocurrencies as a "sideshow to the sideshow" and "not something we think about a lot."
Perhaps Musk has truly soured on his Twitter deal because he's worried about its bots, despite making their removal a key element of his plan to revitalize the business. Maybe he did fear a cash crunch at Tesla, and rushed to swap its bitcoin for dollars, even though his company's operating cash flow grew by 11% year-on-year to $2.4 billion last quarter, and it ended the period with over $18 billion in cash and cash equivalents.
Yet it's easy to imagine the 22% drop in Twitter stock since Musk first disclosed a stake in the company in early April, and the 32% slump in Tesla stock over the same period, factored into his thinking. After all, his offer for Twitter now represents a hefty 30% premium to its current market value, and buying it will eat up a much larger proportion of his fortune today than before his Tesla shares tanked in value.
Meanwhile, bitcoin has tumbled by roughly a third since Tesla first purchased it in early 2021, and plunged by about 57% last quarter alone. While Musk said Tesla was open to boosting its bitcoin holdings in the future, and its disposals shouldn't be taken as a verdict on the coin's prospects, the timing of the sales is hard to ignore.
The declines in Tesla, Twitter, and bitcoin this year are undoubtedly tied to the US economic outlook. Inflation has spiked to 40-year highs in recent months, spurring the Federal Reserve to rapidly hike interest rates and shrink its balance sheet. Coupled with Americans feeling the pain of higher food, fuel, and housing costs, several experts are bracing for weaker consumer demand, pressure on corporate profits, and a potential recession.
Indeed, Musk proclaimed last month that a recession was "inevitable" at some point, and probable in the near term. The capricious executive also announced a roughly 10% reduction to Tesla's workforce over three months or so, as the company has hired too aggressively in some areas.
Musk may have moved to scrap his Twitter takeover, and taken a knife to Tesla's bitcoin stash, for precisely the reasons he's outlined. But it's notable that he offered to buy Twitter and invested in bitcoin when asset prices were much higher, market sentiment was far more speculative and carefree, and the economic outlook was rosier.
Now that Tesla, Twitter, and bitcoin have slumped in price, and there's a recession looming, Musk may be retrenching and attempting to reverse some of his wilder moves as a gloomier reality sets in.
Tesla didn't immediately respond to a request for comment from Insider.
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