Thread by @PlugInFUD

Elmer Terminal wow-its-been-a-while-since-a **CONSPIRACY THREAD** thread

Were Tesla's reported Q1 results **worse** than they should have been??

Or,

Is Tesla unwinding some accounting fraud?

Into the bag-hole we go.

$tsla $tslaq

So, some accounting background:

When you're a manufacturer like Tesla, there's an accounting concept called standard costs. It is the bane of many sophomore accounting students existence as they work to pass cost accounting I and II.

For the uninitiated, to put it in layman's terms, basically you figure out what you think a product is going to cost to make, and set the standard based on that.

So (and these numbers are NOT meant to be real), but for ex., if you were going to make up standard costs for a $50k AWD Model 3, it would be something like:

- Parts: $30k
- Labor: 100 hours @ $50/hr = $5k
- Overhead (plant, electricity, depr., etc) = $5k
- Total = $40k @ std.

But, as they say, the best laid plans of mice and cave divers often go awry. Parts cost more than you expect. It takes ppl longer to make the stuff.

These are called **variances** to standard.

They can be favorable or unfavorable.

this site is a pretty good, relatively plain english primer on cost accounting: accountingcoach.com/standard-costi….

basically, the idea, as is the case in all of acctg, is that all activity within a period should be captured in that period.

So, when you have variances in a period, apply them to that periods activity - some will get capture in cost of sales, some will be in ending inventory.

but, we're talking about Elon and Tesla here. the rules may not apply. so if they wanted to get creative, what could perhaps be done differently?

lets take a step back to the 30,000 ft view (i love business cliches).

If elon was trying to window dress the business, what might he done?

my baggy conspiracy theory of the week: he window dressed Q3 in order to preserve the Model 3 story.

$tsla $tslaq

Some context:

For forever and ever, Elon promised that the Model 3 program would eventually achieve a 25% gross margin (despite the S/X barely achieving that, while selling for 2x the ASP). See quarterly letter example attached.

Into the bag-hole we descend:

What if, in mid-2019, Elon realized they'd never get there, but needed to try to keep the story alive?

Two things happened in Q3-18: a massive surprising jump in GM%, and a similar yuge jump in fin. goods inventory not attributed 2 cars in transit.

Lets be real: the Q3 margins jump surprised everyone, including $tslaq. We saw the lathrop lemons. We saw the piling up inventory. They were building cars in a f'in tent. How could margins have risen so dramatically??

Well, margins can rise that bigly if you don't count all of the costs you've incurred.

If Tesla decided to bend the rules, and report Q3 (and Q4) GM using its ideal-world standard costs, while hanging up unfavorable variances in inventory... we'd get what we got.

in a fully GAAP compliance company, the effect would not be so dramatic, as the in-period cars sold outnumber the ending inventory cars, thus most of the variances are captured in period.

But if Tesla decided to hang up variances in inv, it could generate this kind of result.

So, potentially, theoretically, baggily - Tesla may have kept some unfavorable variances (labor, scrap, tent costs, etc.) safely in inventory in Q3 and Q4 while reporting great GM on cars sold. Hence both the dramatic margin improvement AND yuge mystery inventory balance.

OK, now to Q1. boy this thread is getting long.

So Q1 margins were awful, even beyond the expectations of $tslaq, and in a way that didnt make sense.

Per Tesla, Model 3 GM was mostly stable at 20%.

Yet overall GM, less credits, fell from 22.8% to 15.6%.

Now for some bag-ception within the bag-hole:

i maintain that the Q1-17 WIP inventory balance is the most sus number ever published on a $tsla balance sheet.

not only is it the same as a prior quarter (impossible) and the same as the median impossible)...

it is also at least about $120m lower than would be expected based on a continuation of the 11% WIP as a % of total ratio we've seen over the past two years.

so why would this balance be low?

Because it's time to unwind the accounting fraud that was hanging up of variances into inventory during H2-18.

When you've lost $500m, does it really make a difference if you lose $700m?

Clearly not, given $tsla just raised $2b on the back of an awful quarterly print,

And now for a baggy prediction:

Elon surprised the world and baffled the analyst community by forecasting a Q2 loss despite the expected >90k cars sold.

Analysts were like... how sway? when you sold 90k in Q3, you made a buttload of money?

Elon and zach had no real explanation...

...because...

... i think they're planning to further unwind the H2-18 shenanigans to try to get back to a (relatively) clean slate.

$tsla $tslaq

The recent capital raise further bolsters this possibility, imo. with a fresh $2b of cash on the balance sheet, there's never been a better time to take a few hundred million dollar loss or writedown on "obsolete" inventory that's actually just accounting BS.

Elon is riding high with the capital markets still providing him a massive line of credit in the currency that matters the most - faith in Elon.

He has pivoted the story from "profitable car company" to "robo taxi company soonish" - so Q2 sins will be ignored and absolved.

So, that's about all I have on this topic. Q1-19 $277,155 balance will go down as being fraudulent once this is all over. Reverse-engineering it, I think a possible explanation is P&L management in H2-18 being unwound in H1-19.

We shall see. $tsla $tslaq fin

(addendum 0)

this thread, sponsored by jim beam, has not been proofread, so:

1) excuse wordiness
2) as always, let me know if there are questions or comments

mid 2018**

should have clarified my baggy theory here:

$tsla could b unwinding the variances in inventory, and didnt know which act to flow it through. Elon said, lets do it through WIP, no one will care. so they used the random num generator to arrive at the sus figure, reversing ~$150m.

got dammit... q1-19... so many typos in here. the highlights hopefully indicate what i was getting at.

pls fix's:

- "into the bag-hole" - should say q1-18 rather than 19
- "now for some bag-ception" - should say Q1-19 rather than q1-17

those are the only 2 that bother me. misc other typos and bad grammer throughout but hey thats the Elmer Terminal for you.