With new regulations on safety and vehicle emissions, technological advances and ever-changing customer expectations, the electric vehicles market is growing rapidly. Tesla’s recent market performance is giving a boost to the growth of the EV market while supercharging competition. With its unique business model, the company is already revolutionizing the industry. Now it is allowing customers to buy Tesla cars using bitcoin. Last month, CEO Elon Musk announced that Tesla will accept bitcoin as payment for all models of its cars in the U.S. What does it mean for the industry at large?
Tesla’s business strategy is not clandestine to anyone. The company operates direct sales and service, instead of franchised dealerships. To establish itself in the market, Tesla took a unique approach. Rather than trying to build a relatively affordable car that it could mass produce and market, the company took the opposite approach, focusing instead on building a compelling car that would create a demand for electric vehicles.
Tesla Purchases US$1.5 Billion in Bitcoin
Tesla’s purchase of US$1.5 billion worth of bitcoin will give the company liquidity in the cryptocurrency once it starts accepting it for payments. In a Securities and Exchange Commission (SEC) filing, Tesla said that it bought the bitcoin for more flexibility to further diversify and maximize returns on its cash. As per its most recent filing, the company had more than US$19 billion in cash and cash equivalents on hand at the end of 2020.
Since Tesla has allowed customers to pay for their electric vehicles in bitcoin, the automaker giant will use BTC as crypto, and not convert it to fiat. It will increase the company’s sizable cryptocurrency holdings. Announcing on Twitter, the company CEO said that Tesla operates Bitcoin blockchain nodes directly using internal and open-source software.
The idiosyncrasies of bitcoin make it difficult to capitalize on this option for users. To buy Tesla vehicles, customers must have completed bitcoin transactions within a certain time period, or else the price in bitcoin expires and the buyer must ask for a new price, as per the company’s Bitcoin Payment Terms and Conditions. According to a Tesla representative, buyers will have about 30 minutes to make a payment. This could be challenging given to BTC’s infamous volatility – depending on which direction the price moves, either the car buyer or Tesla could get hosed by a wide swing. Thus, it accentuates that even in a thriving market, cryptocurrency still struggles to gain widespread acceptance as a payment method.
To purchase something from Tesla, buyers first need a “Bitcoin wallet”, a device, platform, app, or software that supports Bitcoin transfers. Tesla will give buyers its Bitcoin wallet “address” in both an alphanumeric code and QR code to enter into their Bitcoin wallet so it knows where to transfer the Bitcoin. However, Tesla will not be responsible when payments are sent to an incorrect alphanumeric address.
Tesla’s announcement can be game-changing for bitcoin. Following the announcement, bitcoin prices surged to new heights, reaching nearly US$44,200. However, the company’s bitcoin-related moves could dissuade other companies from following. This is mainly because of bitcoin’s volatility, high transaction fees, and e-wallet regulation.