Tesla Bets Big on Bitcoin, Starves its 401k Plan

Tesla is bullish on Bitcoin, but not so much on its own 401k plan, apparently.

Tesla made headlines Monday when it was revealed the company has purchased $1.5 billion worth of Bitcoin (news which also pushed Bitcoin to record levels near $44,000 Monday). Elon Musk’s electric vehicle company also announced it would begin accepting the cryptocurrency as a form of payment from customers in the future, making it the first automaker to do so.

In Tesla Inc.’s SEC Form 10-K filing, the company stated on page 22 that it bought the Bitcoin for “more flexibility to further diversity and maximize returns on our cash.”

Elon Musk. Image credit: © Hutchinsphoto | Dreamstime.com

Tesla said it “may acquire and hold digital assets from time to time or long-term. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.”

You might think such a high-profile, forward-thinking company with stock that grew almost 8x last year, from around $90 per share at the beginning of 2020 to $863.42 as of Feb. 8, would offer its employees a stellar 401k plan designed to attract and retain the best of the best. You would be mistaken. But there is a caveat.

Buried on page 104 of the 126-page 10-K is a section called “Note 19 – Defined Contribution Plan. That section states plainly: “We did not make any contributions to the 401(k) savings plan during the years ended December 31, 2020, 2019 and 2018 (other than employee deferrals of eligible compensation). That’s right, no company match.

In fact, the Tesla 401k plan, with more than 40,000 active participants and over $633 million in plan assets, has a very pedestrian BrightScope Rating of 68. Participants have a paltry average account balance of $17,000. The plan is rated average for fees, participation rate and salary deferrals, and poor for account balances and company generosity.

That 68 BrightScope Rating ranks below average in its peer group (average rating of 77), while the highest plan in its peer group has a rating of 89 and the lowest comes in at 43.

But about that aforementioned caveat…

According to Electrek, a news and commentary site that tracks and analyzes the transition from fossil-fuel transport to electric transport, Tesla offers stock options and grants included in its compensation packages for employees, as is common in tech companies. But unlike other automakers, the company offers stock compensations for all employees in the organization (roughly 48,000)—including sales staff and production associates—a rare thing in the auto industry.

And with the surge in Tesla stock price, a new generation of “Tesla millionaires” has emerged, and even the lower-paid employees have enjoyed huge gains in the value of those stock options. Do Tesla employees care about a 401k match if they have Tesla stock? Electrek reported that new hires are generally given between $20,000 and $40,000 of restricted stocks, which vest after three years, starting one year after they start their time at Tesla.

Tesla is already an important part of many people’s retirement portfolio, and is a perennial favorite of self-directed 401k participants. Schwab data shows the No. 1 equity holding among self-directed Millennial 401k participants is Tesla, with an average 11% portfolio allocation. That compares to an allocation of just over 6% for all self-directed 401k participants.

But of course, self-directed participants aren’t the only ones with retirement money invested in Tesla. As Bret Arends noted in an opinion piece on MarketWatch in late December about Tesla joining the S&P 500, “Your S&P 500 or ‘large cap’ index fund now has nearly as much of your retirement money invested in Tesla [roughly 1.7%] as it does in real estate or energy stocks.”

On Jan. 8, 2021, Reuters reported that Tesla’s market capitalization topped $800 billion for the first time ever, and vaulted Musk past Amazon’s Jeff Bezos as the world’s richest person.

While Electrek applauded Musk and Tesla’s policy of awarding equity to everyone and not just engineers and executives, giving them opportunities to make money in those big TSLA runs, it is also noted that the thing with stock options is that the price needs to keep going up.

While that was certainly the case in 2020 and so far in 2021, there’s no guarantee Tesla stock will keep rising. And it could fall off a cliff.

This is something Musk is keenly aware of. In a Dec. 1, 2020 email to all Tesla employees as reported by Inc., Musk wrote:

“At a time like this, when our stock is reaching new highs, it may seem as though spending carefully is not as important. This is definitely not true.

“When looking at our actual profitability, it is very low at around 1% for the past year. Investors are giving us a lot of credit for future profits, but if, at any point, they conclude that’s not going to happen, our stock will immediately get crushed like a soufflé under a sledgehammer!”

While that would be potentially devastating to stockholders, it could have an outsized negative impact on Tesla employees, who have counted on those stock options typically in lieu of higher salaries and a 401k match.

All Tesla workers also get stock, so their compensation increased proportionately. You are a modern day moron.

— Elon Musk (@elonmusk) September 9, 2020

With its now-demonstrated belief in Bitcoin, perhaps Tesla’s defined contribution plan will look into becoming a Bitcoin 401k plan?

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