Tesla $1.5bn bitcoin purchase triggers new record high – as it happened

You can forget sometimes that Tesla was facing serious cash flow problems less than two years ago, but it managed to walk the tight rope through production problems.

During 2020 it was gripped by an investor mania that has pushed its value to more than $800bn - bigger than the next nine carmakers combined (when we ran the numbers last week). That share price increase allowed it to raise billions of dollars by issuing new stock to be snapped up by retail investors.

Tesla trades at an astonishing price to earnings ratio of more than 1,300, suggesting that it either has to grow sales by an order of magnitude or expand its business model.

“Tesla is a bubble investing in another bubble,” said Glen Goodman, an author of a book on cryptocurrency trading. Tesla is unlikely to invest much more of its cash reserves in bitcoin because of its volatility, he added.

As a bitcoin and crypto investor, I’m happy obviously but - as in 2017 - at some point I will have to get out as another almighty crash begins.

Tesla’s bitcoin purchase has sent the cryptocurrency world into ecstasies.

Tesla’s regulatory disclosure points out even more problems for the company: it could depress the company’s profits. Every time the value of bitcoin falls the company will have to make a provision in its financial results, but it won’t be able to book any profits until it actually sells it, under accounting rules.

There are also risks of “security breaches, cyberattacks or other malicious activities, as well as human errors or computer malfunctions that may result in the loss or destruction of private keys needed to access such assets”.

Just ask the guy who ended up searching a dump for an old hard drive with his old bitcoin wallet.

On it goes: bitcoin is now up 17% through the $44,000 mark and hitting $44,868.98.

That is a new record. Tesla’s purchase is generating fortunes across the world.

The Tesla bitcoin purchase really raises a whole host of questions, but here are two of the most pressing: will Tesla’s investors appreciate their stock being exposed to the wild movement of bitcoin? Can Elon Musk legally tweet bitcoin memes when pumping the price will increase the value of the company he runs?

Musk recently replaced his Twitter biography with “#bitcoin”, but had not previously revealed any holdings.

For some large institutions the bitcoin holding could cause significant problems: volatility in the cryptocurrency’s price could depress fund managers’ returns.

Neil Wilson, chief market analyst for Markets.com, an online trading website, said:

It raises a real question about possible market manipulation. Musk’s tweeting record is chequered to say the least and he has had his knuckles rapped by the SEC in the past. The filing simply says that the investment policy was updated in January 2021 and ‘thereafter’ the company invested an aggregate $1.5bn in Bitcoin. Timing would appear critical.

Tesla also says it may acquire and hold other digital assets. The move will also raise questions for fund managers who may not want to invest in a company with this kind of risk on its balance sheet – we know bitcoin is very volatile – this is normal FX risk x100. Tesla is now starting to take on big FX risk – this may not worry a lot of investors, but some conservative types might be concerned.

Expect this story to run and run.

Mike Ashley’s Frasers Group has offloaded its 25% stake in French Connection after the fashion retailer’s share price shot up on hopes of a bid.

Frasers sold its 24.1m shares for up to £3.8m on Thursday 4 February when French Connection’s shares surged by more than a third at one point.

The unusual stock movement forced the company to announce it had received offers from two interested party on the Friday. Shares in the company then surged by another 90% that day so that Frasers missed out on about £3.4m in additional gains.

John Stevenson, an analyst at Peel Hunt, said that French Connection was another example of where Ashley’s stock market investments had “not gone brilliantly” with the fashion group’s share price now lower than it was five years ago when he first built up the stake.

The number of shoppers visiting UK retailers rose by 7% last week compared to the week before, the third week of rising footfall in a row, despite the continuing national lockdown.

The rising footfall may indicate “lockdown fatigue”, according to Springboard, which compiled the data - although it acknowledged that the rollout of coronavirus vaccines may also have contributed to increased consumer confidence.

Footfall is still two-thirds lower than it was at the same time last year - hardly a surprise when non-essential shops are closed - but the gap with previous sales levels is narrowing.

Footfall rose by a sixth week-on-week in the West Midlands, and by about 10% in London and the South West.

Diane Wehrle, insights director at Springboard, said:

Whilst large city centres have taken the biggest hit, footfall still rose in marginally regional cities and by double digits in Central London. With shopper activity increasing for the past three weeks despite all but essential stores remaining closed, the results are delivering ever more compelling evidence of escalating lockdown fatigue.

The UK’s accelerated vaccination drive could well be driving additional consumer confidence, however, we must remember that it is still only the elderly and vulnerable who have had their vaccinations, and they are typically the least likely to be making trips.

A mid-morning check-in on the FTSE 100: London’s benchmark index is ticking along nicely, up 0.7%, or about 48 points, at 6,536 points.

It’s the miners and the oil companies who are providing most of the impetus for the index.

Miner Anglo American gained 4.2%, BHP gained 3%, and Evraz and Antofagasta both rose by 2.7% - all of them miners who will benefit from increased demand if the US does pass a mammoth $1.9 trillion (£1.4 trillion) stimulus package.

At the other end of the spectrum, Rolls-Royce is the biggest loser, after the embattled company confirmed it will shut its jet engine factories for two weeks to try to save costs.

Apple and Hyundai are no longer in talks about a potential deal to build electric cars, according to a statement from the South Korean carmaker that punctured its share price on Monday.

Shares in Hyundai fell by 6.2% on Monday and Kia, its partner through cross-shareholdings, also lost 15%. Kia had been reported as the likely manufacturer of the Apple cars.

The share price moves represented £6.2bn in lost value, Reuters reported, reflecting the excitement that had gripped investors about the possibility of an Apple car. The talks sent shivers through a car industry wary of the entrant of the US’s biggest listed company.

Hyundai’s statement said:

We are receiving requests for cooperation in joint development of autonomous electric vehicles from various companies, but they are at early stage and nothing has been decided.

We are not having talks with Apple on developing autonomous vehicles.

SoftBank made gains of £9.6bn on its investments in technology companies such as taxi app Uber and food delivery company DoorDash during the last three months of 2020, as the surge in valuations in the second half of the year made up for the Japanese conglomerate’s previous struggles.

The huge gains have come amid historically low interest rates, huge quantitative easing injections of money into the economy, and the pandemic-driven reliance on internet technology. Those forces have combined to push tech company valuations through the roof.

SoftBank, which made much of its money through rights to selling Apple’s iPhone in Japan, in 2019 and early 2020 struggled with dud investments such as WeWork, the office leasing company that overextended even before the pandemic. Its “vision fund” is controversially backed by Saudi Arabia.

Masayoshi Son, SoftBank’s unusually outspoken boss, likened himself to the goose that lays the golden eggs, according to Reuters:

SoftBank Group Corp chief executive Masayoshi Son boasted of delivering “golden eggs” on Monday.

“Our vision never changed,” Son told a news conference in Tokyo after his company announced its latest results. “Golden eggs are not produced by chance,” he added, returning to a favoured analogy that describes SoftBank as a goose that backs fast-growing companies such as Alibaba that are its golden eggs. [...]

The $100bn Vision Fund’s 82 investments were valued at $90bn, compared with their purchase price of $76.3bn. The fund has also recorded $20.4bn in gross gains since inception.

Oil prices have bumped a bit higher: Brent crude hit highs of $60.27 per barrel, and futures are now trading at $60.10, a gain of 1.3% today.

West Texas Intermediate is up by 1.2%, at $57.55 per barrel.

Another interesting story to note involving BP this morning: the oil company plans to use autonomous vehicles on its refineries this year, after tests with Oxbotica, a startup working on the technology.

The companies have carried out an autonomous vehicle trial at BP’s Lingen refinery in Germany.

The vehicle was able to travel “over 180km fully autonomously, safely navigating the extensive and complex environment of the BP refinery”, BP said. That included “busy junctions, narrow paths, railway crossings, and multiple terrains, during both day and night and in unpredictable weather conditions”.

Companies around the world are investing billions of pounds in developing autonomous capability, although the prospect of cars being able to fully drive themselves on roads is thought to be several years away by many analysts. However, in more controlled off-road environments self-driving vehicles could be useful sooner - they are already used in factories.

BP’s venture capital arm has invested $13m (£9.5m) in Oxbotica, which was spun out of Oxford University, alongside other investors including Chinese technology group Tencent.

The Queen’s financial interests have been under more scrutiny in the last 24 hours than Buckingham Palace would usually care for.

First off, the Guardian revealed that the Queen successfully lobbied the government to change a draft law in order to conceal her “embarrassing” private wealth from the public.

This morning we have more information on future earnings, with the revelation that the crown estate, the Queen’s property manager, will earn £879m a year for up to a decade from the sale of plots for offshore wind.

British oil company BP, German generator RWE and French oil company Total are among the companies who put in winning bids in the auction. The wind farms built on the plots could generate enough electricity to power 7m homes, writes the Guardian’s Jillian Ambrose, who first revealed the massive windfall for the crown estate.

The developers will effectively pay the crown estate “rent” on the option to develop the area each year until the project can agree to a permanent lease.

You can read the full story here:

There might be hopes of a big stimulus bump coming through from the US, but economists still expect a long road ahead for the global economy. There was a reminder of that earlier from German industry, where production was unchanged in December, after seven months of gains.

The flat performance came after an upwardly revised increase of 1.5% in November, according to Germany’s federal statistics office.

That meant that production was still 1% lower than the same point in the previous year, according to ING, an investment bank.

Production in January was probably further dented by lockdown measures, said Andrew Kenningham, chief Europe economist at Capital Economics, a consultancy. The recovery has been losing momentum as output has approached pre-pandemic level, he said - although semiconductor shortages hitting the global car industry may also have been an issue.

However, he believes a much stronger recovery will start the second quarter - albeit reliant on a successful vaccination programme - closing the gap between expectations and reality.

Carsten Brzeski, ING’s global head of macro, said:

It currently looks unlikely that the manufacturing sector will save the German economy from contraction once again. Production expectations have recovered somewhat since November but are still below their summer levels. At the same time, the inventory reduction of the second half of 2020 seems to have come to an end at the turn of the year.

The FTSE 100 has opened higher on Monday morning: London’s blue-chip stocks rose by 0.6%, a gentle 35-point gain, to reach 6,521 points.

It was a similar story across Europe. Germany’s Dax index, stuffed full of exporters, gained 0.7%, and France’s Cac 40 rose by 0.5%.

The Euro Stoxx index - which measures shares across all those markets and more - rose by 0.5%.