Tesla Ing (NASDAQ: TSLA) continued its recovery from Tuesday morning’s low, but the share remains about 14.8% lower since announcing the company had bought 0.5 billion from the country. Bitcoin (CRYPTO: BTC) on February 8th.
Some traders are now concerned that Bitcoin prices are mainly determining the direction of Tesla’s share price, but DataTrek Research founder Nicholas Colas said on Wednesday there is another phenomenon currently weighing Tesla.
Bitcoin prices that do not harm Tesla: Colas said the relatively small $ 1.5 billion Bitcoin investment does not pose a significant risk to Tesla’s balance sheet, as Tesla reported approximately $ 19.4 billion in cash by the end of 2020. Colas estimates that cash will give Tesla a two-year cushion, even if its auto business is completely shut down.
On the contrary, what probably weighs Tesla’s shares is the fact that visionary CEO Elon Musk is investing Tesla’s cash outside the electric vehicle space for the first time.
“Tesla has a great valuation because investors are excited about Musk’s vision of a green and possibly autonomous transportation future,” Colas said. “The moment a company starts investing outside of its core competency, investors need to consider what valuation multiple the new investment deserves.”
Related Link: Long Bitcoin and Short Tesla? Here’s why Elon Musk ‘essentially’ made the case
Questions for capital allocation: Historically, Colas has said the market does not value financial speculation much.
Tesla’s share price may not be driven by the company’s Bitcoin position. Instead, the sell-out is likely to respond to Musk’s decisions on allocating capital.
Colas said Musk has a proven track record of convincing the market that he is making decisions that will ultimately result in big, long-term valuations. At this point, however, Bitcoin does not yet have that consensus reputation on Wall Street.
Benzinga’s name: Colas had earlier discussed the valuation problem of the conglomerate that Tesla created to diversify investments of EVs and cryptocurrencies. Underperforming businesses and investments in a conglomerate drag the average valuation of the conglomerate because cash flow from successful businesses is ultimately used to support the underprivileged.
Musk’s Bitcoin investment tells investors that he believes Bitcoin is a better investment than Tesla’s EV business is currently, or that Bitcoin will outweigh the long – term valuation of Tesla’s EV business if the cryptocurrency underperforms in the coming years.
Photo credit: Public domain.
Latest ratings for TSLA
|
February 2021 |
Morgan Stanley |
Maintain |
Overweight |
|
|
February 2021 |
Piper Sandler |
Maintain |
Overweight |
|
|
Jan 2021 |
Deutsche Bank |
Maintain |
Buy |
View more analysis grades for TSLA
Check out the latest analytics ratings
See more from Benzinga
© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.