Whoever rewrote the noticed about the place there’s smoke there’s fireplace into “the place there’s smoke, there’s typically a smoke-making machine” (John F. Kennedy typically will get the credit score), there’s little query that one of many prime smoke-making machines in American life proper now’s Elon Musk.

Think about Musk’s newest vaporous cloud — the announcement on Feb. 8 that his Tesla electrical automobile firm had made a $1.5-billion funding within the cryptocurrency Bitcoin beginning in January.

That’s greater than Tesla has spent on analysis and improvement in any of the previous three years.

Tesla has proven respect for the potential of the Chinese language market, however not the identical stage of respect is given to Chinese language customers.

International Occasions

The announcement helped ship the worth of Bitcoin up by as a lot as 25% in a day, although it appeared to have the other impact on Tesla shares, which have misplaced about 4% since then. Bitcoin reached a file $47,698 on Feb. 8 earlier than falling again to about $45,000 by midweek, in accordance with Coinbase.

The entire episode provides simply extra muddle to the enduring query of whether or not Tesla is grossly overvalued, particularly because it has but to show a web revenue from promoting vehicles.

The corporate’s market capitalization of $780 billion far outstrips the mixed valuation of Normal Motors and Ford (about $125 billion), despite the fact that Tesla offered 500,000 autos final 12 months and the opposite two corporations greater than 10 million, mixed.

Tesla’s Bitcoin announcement occurred to coincide with a few doses of unhealthy information for the corporate.

One was a Feb. 6 report within the International Occasions, an English-language publication of the Chinese language Communist Occasion, that the Chinese language authorities had upbraided Tesla for lapses in high quality management and shopper relations in China. That’s a priority as a result of Tesla has loved a really favorable relationship with the Chinese language authorities, up to now.

“Tesla has proven respect for the potential of the Chinese language market, however not the identical stage of respect is given to Chinese language customers,” the publication reported, citing “analysts.”

The second was a report from German sources that the corporate’s German automobile and battery factories had been dealing with months of building delays, in addition to decreased authorities subsidies for the battery plant.

Musk, who has been accustomed to traders’ shopping for into his enthusiasms and elevating Tesla’s inventory worth, might have appreciated the extent to which commentary about Tesla centered on its Bitcoin journey somewhat than its ground-level points with Chinese language regulators and European building.

When issues are going nicely, Musk promotes the excellent news relentlessly. Once they’re going not so nicely, there are many sideshows within the offing to distract followers from Tesla’s backside line.

In recent times, these sideshows have included Musk’s public toying with taking Tesla personal, an journey that yielded a punitive response from the Securities and Alternate Fee; Musk’s warfare with short-sellers; his advertising of flamethrowers; and his public spat with a rescue knowledgeable who had dismissed Musk’s effort to assist save a gaggle of Thai college students trapped in a cave.

Essentially the most constant misdirection Tesla engages in applies to its disclosures of income. On the floor, these have been a brilliant spot.

In actuality, in nearly each quarter and all through 2020, Tesla’s income have been depending on the gross sales of regulatory credit to different corporations — with out them, Tesla would have been within the purple. Final 12 months, for instance, Tesla reported $721 million in web earnings and gross sales of regulatory credit, that are pure revenue, of $1.6 billion.

Essentially the most bewildering facet of Tesla’s Bitcoin funding is the risk it poses to Tesla’s profit-and-loss assertion. In disclosing the funding, Tesla stated its Bitcoin can be carried on its books as “indefinite-lived intangible property.”

In accordance with accounting guidelines, these property should be evaluated each quarter; Tesla should report a loss any time the worth of its Bitcoin falls beneath its buy worth. However Tesla isn’t permitted to acknowledge a achieve, even when the worth rises, until and till it sells its Bitcoin.

Clearly, this unbalances the Bitcoin accounting towards a loss. If Bitcoin rises, Tesla might promote its Bitcoin at any time and acknowledge the achieve.

However given how a lot Bitcoin rose on the information that Elon Musk had purchased in, are you able to think about how a lot it’d fall on the information that “Elon Musk is promoting his Bitcoin”? To place it one other manner, Tesla’s funding could also be nearly as a lot of a threat for Bitcoin holders as it’s for Tesla; Bitcoin followers higher pray that Musk doesn’t cool on the crypto.

The opposite facet of Tesla’s announcement that helped gasoline Bitcoin’s rise was the suggestion that Tesla would possibly begin accepting Bitcoin as fee for its vehicles “within the close to future,” albeit “initially on a restricted foundation.”

That spurred a surge of hypothesis about whether or not Tesla’s resolution would possibly set the stage for wider business acceptance of Bitcoin as fee for items and companies. The overall conclusion amongst specialists is that it received’t, for a number of causes.

For one factor, transaction charges for changing currencies into and out of Bitcoin could be steep, making the cryptocurrency uneconomical for small purchases.

Furthermore, Bitcoin is so hellishly risky that retailers can’t be certain from one second to the subsequent what it’s value, and due to this fact how a lot they’ve offered their merchandise for — Bitcoin can fall or rise by 20% in a matter of hours.

Tesla acknowledged that actuality by disclosing that the Bitcoin it acquired for its vehicles “we might or might not liquidate upon receipt.” That additionally means that the corporate doesn’t essentially plan to construct up its hoard of Bitcoin by holding onto no matter it receives from prospects.

Musk’s obvious fascination with Bitcoin can be perplexing. As my colleague Russ Mitchell identified following the corporate’s funding disclosure, Bitcoin is an odd funding for a corporation that presents itself as an ecological hero as a result of the cryptocurrency is the antithesis of a “inexperienced” commodity.

“Mining” Bitcoin — the strictly managed course of by which the availability of Bitcoin is augmented — requires electrical energy on an infinite scale to run the computer systems concerned. As Mitchell reported, cryptocurrency mining produced emissions of carbon dioxide equal to that produced by greater than 4 million gas-powered vehicles a 12 months.

In different phrases, what Elon Musk is giving the world by producing electrical autos, he’s serving to to remove by collaborating within the Bitcoin ecosystem.

The remaining thriller is what Musk actually thinks about Bitcoin and different cryptocurrency. He has typically portrayed himself as an fanatic of the idea, which tracks with his persona as an entrepreneurial iconoclast.

However he has additionally been dismissive, as he was as just lately as Dec. 20, when he tweeted, “Bitcoin is nearly as bs as fiat cash.” His reference was to central-bank-linked currencies, which Bitcoin followers sometimes denigrate as fiat cash as a result of their provide could be expanded or shrunk as governments want.

Barely a month later, Tesla was leaping into the pool.