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1/ $TSLA earnings tomorrow. Time to brush off the cobwebs. The company has produced just two profitable quarters in its history, 3q16 and 3q18. Many in $TSLAQ believe the Immaculate Quarters were driven by questionable sources. I concur.
2/ In 3q16 Tesla reported: record Model S deliveries (which have not been surpassed since); a drop in SG&A to 15% of sales (the lowest ever recorded at that time by 600 basis points); R&D at historically low levels (9% of sales).
3/ In the six quarters before 3q16, SG&A as a % of sales averaged 23.9%. In 3q16 it was 14.65%. In the six quarters after, it jumped back up to 20.7% ave. In 3q18, the 2nd Immaculate Quarter, SG&A as a % of sales dropped to 10.7%. Hmmm.
4/ In 3q16, R&D as a % of sales was 9.3%. In the six quarters prior, it averaged 17.09%. In the six quarters after, it averaged 11.18%. In 3q18, R&D as a % sales dropped to 5.14%, substantially lower than even the 1st Immaculate Quarter, and the lowest ever recorded.
5/ SG&A is less of a discretionary expense than R&D, but still has discretionary elements. Hint, hint. . .
6/ In a litany of important contributions to $TSLAQ, perhaps @TeslaCharts most important was identifying the contribution impact from Model 3 in the 2nd Immaculate Quarter.
7/ In the six quarters prior to the 3q18, automotive contribution (sales – COGS) averaged $478mm. In the 2nd Immaculate quarter, auto contribution jumped to $1.43bil.
8/ In other words, each Model 3 sold in 3q18 generated $25k in contribution margin per car. This from a vehicle with an average selling price of $55k-ish. When consolidated COGS is 75% of auto revenue. Can you say “capitalized expenses?”
9/ There are also issues with deposits, PPE, inventory (new and used), cap leases, warranty expense, contingent liabilities, SBC, cap raises from SBC, deferred revenue from vaporware. So many one needs an org chart of expense items. It’s like a dysfunctional family tree.
10/ Gross PP&E was $5.8 billion at the end of 2q17. Now it is $12 billion. $3 bil of that increase is from CIP being put into service, but the other $4 bil was additional capex that started AFTER 6/30/17 (post bond deal).
11/ So on the one hand Tesla becomes the most profitable auto manufacturer in terms of gross profit, but among the least efficient in terms of capital spending? How does that happen *cough* capitalized expenses *cough cough*
12/ Cap leases have jumped. That allows for capitalizing operating expenses and such expenditures also have the added benefit of not showing up on the cash flow statement. If one is inclined to push opex into capex, aggressive use of cap leases is your roadmap.
13/ So do new vehicle launches offer similar opportunities to deceive. It’s like acquisitions in any other industry: you need to read every line in the 8k to back out the detail and normalize operations. But that analysis would require an actual 8k. . .
14/ I believe Tesla’s reported results to be fraudulent. Musk presents numbers he thinks the street needs to see, whether it be exaggerated cash balances or higher than industry average margins.
15/ Read last qtr’s investor letter. Musk specifically mentioned how cash was driven not from balance sheet moves but from operations because Musk knows $TSLAQ's focus has been on the non-sustainable levers he has pulled previously to buttress reported cash.
Who knows what this q will bring. Lots to focus on. Probably will be exhausting. Will most likely need a vacation in Curacao to recover. h/t to @james_loca for help in compiling the data we use in our Tesla models.
