All the hype about Tesla made me curious, so I did what apparently no one else has thought to do, and looked at their books.
A few things you should know about TSLA:
1) If you take the company’s own reporting at face value, the stock is good for – maybe – $1.50. And oh since $200 million of their “net worth” is tied up in inventories at the moment, realistically the stock is worth $0.00. Remind me what the long term value of unsold car inventories is again…
Clearly this is about the earnings. I guess if TSLA can sell like the wind, it will more than compensate, and build some value here.
Too bad…
2) The company’s earnings aren’t believable.
TSLA claims it booked half a billion in revenue last quarter. Alright, so I mosey on down to the cash flow section.
Someone show me where any of those numbers adds to half a billion? Hell, even their financing isn’t showing evidence of any “gimmick” cash flow. So they did half a billion dollars last quarter without half a billion dollars ever changing hands…um, anywhere. (Oops that’s embarrassing. That’ll teach me for writing quickly and not proofreading. Ottnot pointed out why that was clearly wrong – hat tip. I’m caught red handed here. What I was attempting to look for was where the financing for vehicles was going – but it’s run through BAC and another bank so it wouldn’t even show up on their report. Duh)
(That being said, this is a car company that still hasn’t made any money selling cars, as easily witnessed below)
Buried deep in the report is this paragraph:
“Significant operating cash inflows were comprised primarily of automotive sales of $555.2 million, an $18.2 million decrease in inventory and operating lease vehicles, $6.6 million of development services revenue and a $4.1 million net increase in deferred revenue associated with various vehicle service plans introduced in March 2013. Significant operating cash outflows for the three months ended March 31, 2013 were primarily related to $465.5 million of cost of revenues, $101.9 million of operating expenses, a $26.6 million decrease in accounts payable and accrued liabilities primarily due to the timing of vendor payments, an $8.1 million net decrease in customer deposits as a result of the sales of Model S and a $2.6 million increase in prepaid expenses and other current assets.”
That’s funny: 466 + 102 + 27 + 8 + 3 = a number that is definitely greater than 555. It sounds like Tesla didn’t make any money selling these $555 million worth of cars that don’t appear on their primary cash flow statements.
So I push down into their report and find this gem:
“We recognize revenue when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) fees are fixed or determinable; and (iv) collection is reasonably assured.”
I’m thinking that “and” there before point iv should actually be an “or”; as in, “if we think maybe we really actually are going to sell a car then we just count it right then, rather than, you know, using the same standard of ‘revenue’ as every other person on this planet uses”.
“And – Or” all those other definitions of revenue. Follow?
And someone tell me what this means:
“5. Customer Deposits
Customer deposits consist of payments that allow potential customers to make an advance payment for the future purchase of a Model S, Model X or Tesla Roadster. These amounts are recorded as current liabilities until the vehicle is delivered. We require full payment of the purchase price of the vehicle only upon delivery of the vehicle to the customer. Amounts received by us as customer deposits are generally not restricted as to their use by us. Upon delivery of the vehicle, the related customer deposits are applied against the customer’s total purchase price for the vehicle and recognized in automotive sales as part of the respective vehicle sale.
Historically, we have referred to such customer deposits as reservation payments and these initial reservation payments have been fully refundable until such time that the customer selected the vehicle specifications and entered into a purchase agreement. We recently eliminated the reservation process for Model S in North America as vehicle production became more reliable and customer wait times decreased. Customers now initiate their purchase by ordering their customized Model S rather than placing a generic reservation in queue. As a result of this transition away from reservations, we have renamed the “reservation payments” caption on our condensed consolidated financial statements to “customer deposits.” “
All in all, I very much question whether Tesla sold any real cars. There are only something like 40 servicing stations in their entire network. They’re hoping to double that, but still, not exactly a huge target market here.
I think what Tesla really did was sold options to sell cars. Refundable options…
Which is why their cash flow sucks.
On the plus side, they also don’t seem to have any off balance sheet entities – I was shocked by that. But I guess you don’t need to when the government is handing you hundred million dollar loans.
But other than that, the prospect for high end electric vehicles is pretty much what it’s been since the 90’s…terrible.
If this is really going to take off, the infrastructure for refueling needs to be there, and I doubt Tesla can pull that off on their own.
I’ll leave you with these disclaimers, which were absolutely SUNK in the dark nether regions of their filing:
“If we are unable to adequately reduce the manufacturing costs of Model S or otherwise control the costs associated with operating our business, our business, financial condition, operating results and prospects will suffer. “
“The range and power of our electric vehicles on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase our vehicles. “
“We are dependent upon our loan facility from the United States Department of Energy. “
“Our distribution model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating our business, operating results and future prospects difficult. “
“Reservations for Model S and Model X are fully refundable to customers, and significant cancellations could harm our financial condition, business, prospects and operating results. “
“We have very limited experience servicing our vehicles and we are using a different service model from the one typically used in the industry. If we are unable to address the service requirements of our existing and future customers our business will be materially and adversely affected. “
“Regulators could review our practice of taking reservation and deposit payments and, if the practice is deemed to violate applicable law, we could be required to pay penalties, refund the payments stop accepting additional payments, and restructure certain aspects of our sales program. “
“We are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock. “
“Mr. Musk borrowed funds from an affiliate of our underwriter in our public offering in 2011 and pledged shares of our common stock to secure this borrowing. The forced sale of these shares pursuant to a margin call could cause our stock price to decline and negatively impact our business. “
_____________________________________
Sorry, the amateurish cash flow point not withstanding, this is a very expensive car company, particularly if they can’t get costs down.
And I still can’t help but think maybe the (now announced) secondary offering wasn’t perhaps a little in mind when “sales” were being transacted this quarter…
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I assure you, there are many tesla’s on the road. I live in San Francisco and see at least 5 a day.
Many? Half a billion’s worth?
I live in the auto capital of the world and see none.
San Francisco, California is their only market
It doesn’t take many $70k vehicles to add up to $500 million.
The company’s filings report delivery of 7500 Model S vehicles to date and a first quarter production rate at or above 400 per week. That’s close to $400 million worth per quarter.
The issues with “their books” that you highlight are normal accounting and routine listing of risks. Every company looks bad in the risk section.
IMO, the only legitimate concern you raise is the size of the potential market for Tesla’s vehicles.
Even charging infrastructure doesn’t matter at the moment, because Tesla buyers will charge at home or at work and own additional vehicles that they can use for long drives.
The hubris of Tesla has always been that tech entrepreneurs can show the auto companies how to reinvent car design/manufacture/production/servicing/etc. Tech is accustomed to improving capabilities by orders of magnitude, but the physics of moving thousands of pounds of metal around stands in the way of similar advances in automobiles. The tech benefits apply only to the margins of performance.
I don’t think that the backers of Tesla fully appreciated the mechanical, thermal, and chemical complexity of mating battery technology to the demands of automobiles. Technology brings the ability to sense and measure and optimize the interaction of batteries, motor, and driving needs, but does not bring any substantial advances in battery technology. Without great advances there, Tesla’s costs will remain high and the vehicles will remain a specialty item.
Your takedown of poseiden cocepts
saved me a a ton.Looks like
$TSLA is a no go as well.
Nobodydoes this better than you Mr.Thaler
Thks
Thank you.
As usual, I don’t know what TSLA is going to, in the stock market. The company obviously has government backing.
But I don’t want to get tangled with this lot. No good can come of it.
Wonderful post. San Fran is a meaningless market. Lots of credit extended young foolish dot commies. Those that buy this on lease, etc and quickly disappear when the bullshit company that makes trinkets closes shop.
I live near downtown Houston, Oil capital of the world, and see them regularly.
And Houston definitely isn’t full of “Young foolish dot commies”.
How are the refueling stations / arrangements?
Look, I’d be open to this if someone could point me to the infrastructure. I don’t just want to smack around TSLA – but I’m not going to sit down at the table and start spooning literal shit into my mouth either.
These numbers would make Jeff Skilling proud.
I work in Healthcare IT here in Seattle – quite a few of the doctors here have Tesla’s. One of them has the roadster (which is pretty badass looking). We’ve had a refueling station here at the hospital for the last 2 years as well. With that said, I’ve never seen a Tesla anywhere else in the city.
I live in Seattle also and see about 3 a day. Granted I hardly ever drive.
That last paragraph alone would keep me away.
Cain, with respect to their revenue recognition standards, the language they use is standard GAAP fare under ASC 605: http://www.grantthornton.com/staticfiles/GTCom/Audit/Assurancepublications/New%20Development%20Summaries/NDS%202010/Revenue-Recognition-2010.pdf
If you’re concerned with channel stuffing on their part based upon customer deposits, they’re just not benefitting from the dealership arrangements all of the major automakers have in place. The big boys get to recognize revenue based upon shipments to dealerships, even though they ultimately have to provide subsidies or rebates on models that remain unsold for too long. Tesla seems to be playing this same game in a roundabout manner. It’s clear that their customer deposits provide a natural reserve, as they’re (appropriately) held as current liabilities. I agree with your analysis concerning the viability of the business long term, but I think from an accounting perspective, they’re generally sound. It’s very difficult to commit too much accounting fraud in a manufacturing operation that’s undergone a Big 4 audit outside of channel stuffing, and even that’s highly tested these days.
Yep. And Tesla’s business structure is so simple that there isn’t any way to hide any significant amount of money unless you are outright lying about shipments (an easily audited fact) and the justification for recognizing revenue. While the justification for recognizing revenue can be somewhat difficult to audit, that isn’t the case for Tesla. The number of unit sales is so low that an auditor can easily test a significant sample of those sales to determine if there is a likelihood of improper recognition.
I admit, I definitely forgot about all the channel stuffing the other major autocompanies have been doing.
That being said, please note that Tesla basically admits it isn’t keeping track of what cash on their books is deposits, and if refunds hit them quickly, they may actually have already spent it.
They’re not doing so explicitly (though my experience with Treasury departments would indicated that they in fact are internally), and holding all deposits in offsetting contra-account short term liabilities serves as a reserve for that cash. Could they face near-term liquidity constraints in the event of a massive flight on behalf of waiting customers? Sure, but any event that would drive that would hamstring the P&L before it destroyed the balance sheet, in which case, they’d already be toast.
Also, there’s this again:
“Regulators could review our practice of taking reservation and deposit payments and, if the practice is deemed to violate applicable law, we could be required to pay penalties, refund the payments stop accepting additional payments, and restructure certain aspects of our sales program. “
Clearly TSLA’s own executives feel their method of selling vehicles may be just a little bit different from what everyone else is doing
Sorry but I disagree. I just tore back through TSLA’s filing – nothing in there about vehicles delivered. They talk about production increasing, and also about net dollar numbers, but I couldn’t find anything about actual vehicles sold and paid for.
I’m not accusing TSLA of fraud, I’m accusing them of being dumb. They got $65 million of “deposits” and they’re booking it at half a billion in revenue with zero cashflow or deliveries to back it up.
good for you. poor accounting usually hides something. if they had truly great numbers they would easily be more clear and definite.
should have listened to you, on Psn.to
“…I just tore back through TSLA’s filing – nothing in there about vehicles delivered.”
Page 1 of their investor presentation for the Q1 call (5/8/13) says “4900 vehicles delivered.” Is that not what you were looking for?
I dont think you understand what’s really at hand here. Step back and look at the big picture. The market is inherently forward looking and is currently pricing in steady growth in sales and a gradual reduction in production costs which will eventually lower the price of the vehicle and make it more widely available. I like your work but you missed the mark on this one buddy. Cheers 🙂
Sorry all i got to tell you is that TSLA is the future of all automobiles. I believe this company will be valued at 50-100 billion in the next 3-8 years.
One last comment: I think most market participants are putting the cart before the horse in the electric car realm. Will we see a proliferation of electric vehicles over the next several decades? Sure. What we don’t yet have, however, is adequate battery technology to ensure vehicle longevity, an electrical grid capable of supporting electric vehicle ubiquity, or a power source clean enough to substantiate the environmental arguments behind plug-in autos. Until we see a massive nuclear revolution in this country, the electric car is just an indirect coal-burner. TSLA has NOT made a better battery, and until they do, they’re just selling the Mercedes of Nissan Leafs. Musk is an excellent PR guy, however, and he’s got most of the “educated” (read: Apple fanboys) of the world convinced that he somehow invented the electric car and the space shuttle. Gotta hand it to him; that sort of influence is an asset in and of itself.
LOL
Watch and learn young’n
As others have remarked, I don’t see anything wrong with TSLA’s accounting. I could be convinced, but only if I saw evidence that their revenue recognition policies were different from how F/GM/TM/etc. recognize revenue for vehicles that are heavily in demand before shipment. Also, you claim they sold $555 BILLION of cars at one point (right before “so i push down…”).
Disclosure: no position in TSLA, no opinion on future of electric vehicles.
Oh crap, thanks for the catch
I am in Tucson and randomly saw a Model S yesterday.
Cain, you are missing the plain English and you clearly have no understanding of what the numbers mean on the financial statements. This is the wrong sort of post for you to try to write.
First, the plain English.
You wrote: “I just tore back through TSLA’s filing – nothing in there about vehicles delivered.”
The filing has several references to deliveries, but this one sentence should suffice:
“Automotive sales revenue of $555.2 million increased $536.0 million from the three months ended March 31, 2012, primarily driven by Model S deliveries in North America which commenced in June 2012, regulatory credit sales and powertrain component sales to Toyota for the Toyota RAV4 EV.”
Elsewhere in the filing, they note that they have delivered over 7500 Model S vehicles to date.
Regarding your lack of understanding of the financial statements:
You complain that the half billion in revenue doesn’t show up in the cash flow section. Of course it doesn’t. Revenue appears on the income sheet.
The net of revenue and expenses appears on the cash flow sheet as “Net Income (Loss)”. The cash flow sheet then adjusts that net income number to reconcile income with cash flow from operations. The adjustments include such things as changes in A/R, A/P, and inventory. You’ll note on the sheet that the adjustments are minor relative to $500 million.
Any concern about the $200 million in inventory would be minimized by considering how it relates to revenue. From the breakdown of inventory, it appears to me that Tesla has less than 20 days production of finished goods and less than 60 days worth of raw materials and work in process.
Your complaints about the accounting for customer deposits is just nutty. The amount involved is clearly listed on the balance sheet: $131 million, down $8 million during the quarter. Most companies would be thrilled to have customers willing to put deposits down on future deliveries, so I’m not sure why you are so concerned with Tesla’s deposits.
You claim that Tesla’s cash flow sucks, but the company had positive cash flow of $12.5 million last quarter. None of that was from new debt and the company obtained only $18 million in stock sales.
You might do better to pose your concerns as questions (“Does Tesla’s cash flow look right for a company that claims $550 million in revenue?”) rather than as claims.
Ottnot, are you a CPA as well? You beat me to the cf comment.
Not a CPA, but will take that as a compliment. I passed all the exams some years back, but found other employment before embarking on a job search in the field.
We often read about accounting tricks, etc., but, for companies like Tesla that have a very straightforward corporate structure and an easy-to-understand business, the big secret about audited financial statements is how hard it is to hide anything of substance for more than a few quarters without relying on outright fraud.
In my experience the major fraud risks almost always lie in debt covenant violations, complex derivatives (anything level 3), and off balance sheet vehicles. Very difficult to get much past a seasoned auditor otherwise, and most cfos wouldn’t risk their balls in that sort of roulette, especially in the post-Enron world.
So, in other words TSLA had to dilute its equity holders to generate cash? I understand your points and they are all correct but I think you’re missing the connection with the underlying business. If you claim $500mm in sales you should not have to sell stock to post a modest increase in cash.
I don’t know the company well and haven’t looked at it’s financials but how many cars must they produce before cash flows match earnings/sales growth? They rightfully should be spending cash to grow but how much will all this growth cost? Are they really dependent on tapping capital markets to prevent a cash burn? The financial statements are probably fine but I think the actual business has a ways to go.
In regards to the deposits, I don’t think it’s normal practice to take deposits from customers and then commingle them with their own cash (this is what Cain meant, or am I misunderstanding?). The issue with this is what happens if these customers call back their orders? TSLA has already shown they need to sell stock to generate $18mm in cash and as I understand the arent tracking these deposits so whose to say what’s readily available. In this situation, TSLA would likely have to go into the capital markets to either sell stock or bonds to return cash which dilutes shareholder value.
Just my opinion.
Tesla didn’t make any stock offerings during the quarter, so the stock sales likely represented exercise of options granted to employees or early investors.
Many (most?) businesses that are ramping up operations have negative cash flow. This is especially true of businesses that manufacture tangible products.
Tesla spent $58 million on new equipment and facilities in the last quarter. If they weren’t trying to expand their business, that expense would have been much lower and the company likely would have had positive cash flow even without any cash from stock sales.
We don’t know if the cash from deposits is commingled or not, but I don’t think there is anything improper about doing so unless the terms of the agreement with the customer put restrictions on the funds held. In that case, the deposits should be reported as restricted cash and reported as such. There is about $22 million of restricted cash on the books, but most of that is set aside for their next payment to US DOE. I wouldn’t be surprised if there is also some restricted cash related to the work the company is doing for Mercedes and Toyota.
Deposits for cars not yet counted as “sold” is accounted for as a liability, and reported as a line item on the balance sheet. This treatment is similar to the treatment for items the company has purchased, but hasn’t yet paid for. The Liabilities section of the balance sheet has a line item for “Accounts Payable”. We wouldn’t say that an equivalent amount of Tesla’s cash actually belongs to the vendors.
This is what happens when I try to make an argument without looking at the financials. I misunderstood Cain’s commentary and was unaware the stock sales were as you said. You obviously know the financials better than me, so hat tip to you, sir.
I think this really boils down to how much cash these cars can generate and how long cash flows will lag sales/earnings growth. I imagine the operating leverage is immense but I remain skeptical on the cash potential.
Spending refundable deposits bothers me greatly.
So does the pestering question of whose deposits those were.
Refundable deposits are held in a restricted account. They become spendable when the associated cars are delivered.
“Amounts received by us as customer deposits are generally not restricted as to their use by us.”
No, they aren’t. But they should be.
Oh shit duh. I can’t believe I did that. What I was trying to do was spot the financing for the vehicles trading hands, but obviously a quick check shows that isn’t handled by Tesla…like every other car company on this planet.
Homage has been paid. Nice catch.
Pure IBC gold.
All I can make out from this article is: “If bad things happen to this company, it will go bust!”
Well thanks a bunch for that amazing insight. Welcome to business.
No, what you should make out from it is “if you stand under steel mills, don’t bitch when your head gets smashed in”.
i’m going to invest popcorn in TSLA for now. I see this monster already has a fanbase. the next AAPL like co.
Despite the debate on numbers, this post is clearly on-topic given the current state of company and interest in the chart on this site. Too little of this type conversation occurs in general. I admit to trading on chart’s with little interest in the company beyond a cursory glance so thanks for raising a spotlight.
I live in Cambridge, work in Boston, and definitely see them on the road, and in people’s driveways. Not a large number, for sure, but these would probably be considered “early adopters” anyway. (Disclosure: I have a very small long position in the stock.)
I know nothing about accounting.
On the concept side, I think it is more efficient use of fuel to explode it where you push the car, rather than go through multiple conversions.
It is true that hydro or solar is an attractive clean source of the energy, provided the collateral back stories are not examined. But oil and natural gas is a huge headache as well…. got shale oil in your backyatd?
Unless the original source can be clean, and the conversions can be improved, I think electric cars are just feel good B.S. for people who ignore the back story reality.
Ever watched cows and looked a few in the face?
If you want to analyze Tesla like a steel company or something you miss the point. And making a big deal of standard ‘cover your butt’ disclosures is also misleading.
Those are not all the disclosures. I cherry picked the ones that frightened me the most.
Tesla sales are the strongest in their segment.
I have to add an engineering perspective on Tesla cars. From a design and reliability viewpoint, they are very low volume production, no previous history, with a lot of unusual technology in a demanding environment (IMO, cars are only one step below combat). How many people worked on the design of the first Taurus? IIRC it was over 1000.
My past experience with exotic cars has not been good. What happens to the pretty display in five years after driving in Arizona or Alaska? What is the life of the motor control systems? How much does this stuff cost to replace? $5k? $10k? The batteries and motors don’t worry me, they are pretty rugged. But I would be really concerned about the rest of the electronics.
There are a bunch around here (central NJ), and they are very nice looking to my eye. Interesting idea in this area of short distance but time-consuming commutes. We’ll see if they are still around in a few years.
Terrific work, Cain. Great post.
Every financial issue he raised was phony.
Other than that…
“Significant operating cash inflows were comprised primarily of automotive sales of $555.2 million, an $18.2 million decrease in inventory and operating lease vehicles, $6.6 million of development services revenue and a $4.1 million net increase in deferred revenue associated with various vehicle service plans introduced in March 2013. Significant operating cash outflows for the three months ended March 31, 2013 were primarily related to $465.5 million of cost of revenues, $101.9 million of operating expenses, a $26.6 million decrease in accounts payable and accrued liabilities primarily due to the timing of vendor payments, an $8.1 million net decrease in customer deposits as a result of the sales of Model S and a $2.6 million increase in prepaid expenses and other current assets.”
Umm, I’m not disputing your ability to cut and paste from the quarterly.
I’m referring to the issues you raise, such as:
–calling the sales a ruse
–your mostly uncorrected claim that Tesla “got $65 million of ‘deposits’ and they’re booking it at half a billion in revenue with zero cashflow or deliveries to back it up”
–your strange notion that the $200 million in inventory is worthless: “since $200 million of their ‘net worth’ is tied up in inventories at the moment, realistically the stock is worth $0.00”
–your claim that “Tesla basically admits it isn’t keeping track of what cash on their books is deposits”, when there is a line item for deposits if you look in the right section, along with additional text explaining how deposits are handled
–your concern that Tesla may have spent the deposits, when the cash on hand exceeds the total deposits, among your other misunderstanding of the implications of the deposits for investors
–your repeated claim that the company didn’t report any actual vehicle deliveries
There may be more, but there’s no value in chasing them down.
1) they claim they book revenue in full as they get deposits. I don’t buy for a second they didn’t put their best foot forward to announce this secondary, since they need the money to stay in business.
2) I don’t doubt they’re making cars. I would like to know which agency is buying them.
3) Who said the $200 million is worthless? I said if you even impair it in the slightest, any equity easily goes away.
4) Tesla says right in their fucking quarterly they are spending deposits. Guess if they never get hit with cancellations, that’ll go just fine for them.
5) The company doesn’t report deliveries. All of you are wrong. http://www.extremetech.com/extreme/155897-tesla-model-s-is-now-the-best-selling-luxury-car-with-an-asterisk
Buy some Tesla, ottnott. Their earnings this quarter were complete garbage and that company is trading at stupid valuations. Which was the whole point. This was all about getting suckers to load up on a secondary. The company lost money on every vehicle made.
I don’t have a link, but just saw:
In another demonstration that the United States is no longer the Land of the Free, the Department of Homeland Security has just seized the US bank accounts belonging to Mt. Gox, the world’s largest Bitcoin exchange.
I would need a link
Look everyone – if you hate what I said there’s a sure fire way to resolve this.
Buy some TSLA.
I’m just correcting a lot of false and inaccurate statements. Doesn’t mean I want to buy Tesla.
The EUO which I’m long looks more like a bulltard position than a hedge. Fucking crazy. Also short oil here and that to looks like a possible bullish position. Would love to here more of your thoughts on the two.
Thanks for the summary Cain, nice to see a fundy pro at work.
I’ll tell you what I’m seeing here, Cain. Your lack of understanding of the financial statements, combined with some careless reading, led you to conclude that Tesla booked a bunch of revenue for vehicles they hadn’t truly sold and delivered (hence the “Tesla Sales Are A Ruse” title for your post.
You backed off a little (on the cash flow issue), but now are defensively doubling down on your errors.
Shall we walk through them again?
“1) they claim they book revenue in full as they get deposits.”
No, that isn’t what they do. Customer payment of a deposit does not meet either the GAAP standards or Tesla’s self-described standards for revenue recognition. Deposits often are placed months in advance, and cancellations are expected to occur (especially with fully refundable deposits, which is the case with Tesla) and routinely do so.
With a few exceptions, if there is a customer deposit on the books, there has not yet been any revenue recognized for that customer. Tesla says that a deposit remains booked as a liability until the customer takes delivery, so there may be a few cases at any given point in time where the standard for revenue recognition has been met before actual delivery takes place. Only in such cases would you have revenue recognized while there is still an associated deposit on the books.
We recognize revenue when: (i) persuasive evidence of an arrangement exists
“3) Who said the $200 million is worthless? I said if you even impair it in the slightest, any equity easily goes away.”
You’d have to write inventory down by 70% to wipe out equity. Slight impairment is in another galaxy.
You claimed that such a large impairment was realistic:
“And oh since $200 million of their ‘net worth’ is tied up in inventories at the moment, realistically the stock is worth $0.00.”
How so? The inventory is for a product currently being ordered, produced, and delivered at near full plant capacity.
It’s a $90 stock that has barely $1 in book value. It’s worth $0 now.
Oh, but they have a bunch of machinery to make cars that no one else makes with no track record.
This is an earnings play. If the earnings don’t pan out, the stock gets destroyed.
“4) Tesla says right in their fucking quarterly they are spending deposits.”
No, they don’t. They say that they are free to do so. Given that cash on hand at both the start and end of the quarter exceeded deposits by tens of millions, you can’t really say that Tesla spent any of the deposit money.
And don’t forget that some portion of Tesla’s spending is on the materials and labor to produce vehicles for customers who have made deposits.
Look, I understand the potential risk represented by the large amount of customer deposits held as cash available for use by the company. The cash doesn’t belong to Tesla, and, until the new offering goes through, the company would be in a tough spot if customers cancelled a large portion of the orders and reclaimed their deposits.
In such an event, however, the existence of a large amount of deposits doesn’t really matter. If Tesla’s best fans, those willing to plunk down $5000 and wait for months to get a vehicle, start turning away from Tesla in droves, the company is dead. It won’t die because its cash is flying back home to the customers, but because the company’s products have become unwanted.
So, I see little downside risk presented by the customer deposits. The potential upside, though is large. If the deposits average $5000, and 50% of them are converted to vehicle sales at an average $70,000 price, that would bring in another $845 million in cash and $910 million in revenue.
“5) The company doesn’t report deliveries. All of you are wrong.”
I’ll refer you to a bullet point from the top of Tesla’s First Quarter 2013 Shareholder Letter, filed in a Form 8-K with the SEC on May 8:
“• 4,900 vehicles delivered”
Oh, wait, the real number was even higher:
“We recognized 4,900 vehicles as revenue, exceeding our initial Q1 guidance of 4,500, despite physically delivering a higher number of vehicles, as the standard for revenue recognition was extremely high.”
http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001193125%2D13%2D207910%2Etxt&FilePath=%5C2013%5C05%5C08%5C&CoName=TESLA+MOTORS+INC&FormType=8%2DK&RcvdDate=5%2F8%2F2013&pdf=
True, there is no exact number reported for deliveries, only a floor. However, if you are now quibbling that we don’t know exactly how many more than 4900 vehicles Tesla delivered during the quarter, your “Tesla Sales Are A Ruse” thesis is a sad pile of ash.
Nope, I’ll back off some more. However, 4900 vehicles at a, what would you say, $70,000 sticker price, still only gets you to $343 million.
There’s another ~3000 vehicles there to go, or some combination of vehicles and other revenue streams.
“Buy some Tesla, ottnott.”
No thank you. I anticipate that battery technology will keep Tesla’s vehicle prices too high for high-volume markets in the near term. Meanwhile,
“Their earnings this quarter were complete garbage”
Unless I missed something, you’ve based this claim on your faulty understanding of and incomplete reading of Tesla’s filings.
“and that company is trading at stupid valuations.”
That’s an opinion, and not a crazy one, but also not one of much value if it is supported only by your misunderstanding of the quarterly numbers and your certainty that Tesla is materially misleading investors.
Take a good look at your treatment of Tesla’s statement on revenue recognition. You note that the statement uses “and” in the list, but stubbornly insist that it should be an “or”, a change that leads to a far looser standard for revenue recognition. You are, in effect, editing the filing for Tesla and then evaluating the company’s numbers as if Tesla was taking advantage of your looser standard.
It strikes me that you are trying really hard to bend reality to fit your beliefs.
In my opinion, Tesla shows no sign of struggling. Barring any widespread technical failure in the vehicles it is producing, it looks as though it could run a couple of years at least at the current unit sales level without exhausting the market for Model S capabilities at the Model S price.
I have no doubt that the quarter’s results were polished up for the offering, but only in small ways. I don’t see any merit in the concerns you raised.
Going over the filing for these comments, I saw a couple items that I’d pay attention to if I were considering Tesla shares.
First, there’s a substantial negative. You missed this one, Cain. The average revenue per vehicle sold was much higher than the cost of even the high-end Model S cars. This is true even after I subtract out the $14 million for electric powertrain sales to Toyota. After some more scanning, I saw that the company’s automobile sales revenue included a whopping $85 million for sales of “regulatory credits”. Almost $68 million of those were for California zero-emissions vehicle credits. Apparently, this came up in a conference call and Musk said that the ZEV credits would drop a little in Q2, drop a lot in Q3, and disappear in Q4. That’s a big loss of very high-margin revenue.
Second is a potential positive of unknown magnitude – the development work for Daimler and Toyota, and the powertrain sales to Toyota. I don’t know any more about those relationships than the few sentences in the 10Q, but I wonder if there is good potential for Tesla to sell licenses for that technology much as Toyota does with its hybrid technology. I wouldn’t put any current value on the possibility, but it bears watching.