, 21 tweets, 3 min read
1/ Much of our attention this weekend is on Musk’s embarrassing depositions, as it should. But before the Q comes out enabling all of us to dig in with relish, I wanted to post an excellent and handy summary of Tesla’s results from a friend who is also a professional analyst.
2/ She’s not in Wall Street, but industry, which makes her impressions to me most interesting, because Street analysts have a tendency to react similarly. That an industry analyst was focused on the same games as we were was telling. These are her words:
3/ "I don’t look at Tesla from the lens of a Silicon Valley startup that should be valued as a software company and should get extra credit for saving the world. I look at cold, hard accounting. This is my analysis through that lens:"
4/ "The company miraculously posted a net profit, yet revenues are down. Average sales price is down, but somehow gross margins improved. The math isn’t adding up but I can’t provide further details until the 10-Q comes out."
5/ "Automotive revenues are down 12% YOY. Total revenues down 8% YOY. This is a “growth” stock with a unicorn valuation showing revenue declines. Average sales price is down, yet gross margin up QoQ. That does not make sense. "
6/ "Most likely they achieved this through financial tricks: reducing warranty reserves, capitalizing costs they used to expense, recognizing deferred revenue, and including non-ZEV special (GHG) credits without noting it in the earnings release."
7/ "Still unclear if vendors are temporarily offering reduced prices and/or claw backs."

(My comment: this is the likeliest cause of the margin improvement. Browbeaten vendors.)
8/ "Solar installations down 83% since 4Q2015. Yet company says Energy (solar and battery) will eclipse automotive."
9/ "Sales, general and administrative (SGA) is down to 9% of revenues with customers complaining of lack of service. This is a vertically integrated company that services their own cars. They opened 13 new service centers this quarter. How on earth did they reduce SGA costs?"
10/ "R&D is down to 5% of revenues while developing Model Y, new Roadster, Semi, Cyber Truck, and full-self driving. Are they capitalizing R&D costs?"

(ed. comment: Yes, they are)
11/ "No restructuring charges this quarter, yet had $300MM of restructuring charges over the last 5 quarters."
12/ "$85M gain from “other." Foreign exchange rates worked against them, so I don’t understand how they had a gain in “other." This is usually a suspicious category since there aren’t many disclosures about what constitutes as “other.”
13/ "Beware of “adjusted” EPS. Adjusted for what? The EPS you quoted was not GAAP. GAAP diluted EPS was $0.78."
14/ "They showed positive cash flow from operations and cash generation. Over $5B cash on the balance sheet. However, accounts payable days creeping back up. Did they generate cash because they didn’t pay their bills?"

(ed: Yes, they always stiff vendors.)
15/ "Inventory up, yet stated they “sold everything they produced”. I have absolutely no explanation for this."
16/ "Capex is less than depreciation and appreciation. That means they are not spending to maintain the factories, and no spending on growth. Yet, they are increasing capacity, building out Shanghai and starting up Model Y line. Where is the capex?"
17/ "No mention of how the $700M investment from the Chinese government is being run through the financials (appears that it isn’t). Who owns this factory? Tesla? The Chinese government? How will sales be run through the income statement if owned by China?"

(Ed: see ASC 842.)
18/ "To quote a dear friend and UCLA Anderson accounting professor after reading the earnings report, 'Well, I have been in this business for a long time, and I have seen just about everything. But I don’t think I have ever seen a large-scale, or even a medium-scale,
19/ manufacturing entity demonstrate this kind of quarter-on-quarter turnaround, a dramatic increase in gross margin %s, while experiencing materially lower average sales prices and a less favorable product mix. Never.'"
20/ "Later today Tesla will be debuting the solar roof tile. It’s three years overdue, but will put to rest the claim that it’s vaporware. Simultaneously, Tesla shareholders are suing the company for acquiring SolarCity by pitching vaporware solar tiles."
End her comments. This is a good summary that will help you focus on the parts of the Q worth examining. I for one can't wait to see this one. Especially with the deposition color now in focus. We know what Elon is all about and the lengths they go to color earnings.
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