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.
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 billion 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. “