Tesla: When Just GAAP Revenues Are Not Enough, Unleash The Non-GAAP

Tyler Durden's picture

The reason why Tesla is soaring currently after hours, is because this momo story stock just unveiled the next chapter of its carefully spun story. To wit:

The first Model S deliveries to China are scheduled for this spring. We plan to make substantial investments in China this year as we add new stores, service centers and a Supercharger network. Already, the Beijing store is our largest and most active retail location in the world.


We expect to deliver over 35,000 Model S vehicles in 2014, representing a 55+% increase over 2013. Production is expected to increase from 600 cars/week presently to about 1,000 cars/week by end of the year as we expand our factory capacity and address supplier bottlenecks. Battery cell supply will continue to constrain our production in the first half of the year, but will improve significantly in the second half of 2014.


First quarter production is expected to be about 7,400 vehicles, which is significantly higher than the prior quarter production of 6,587 cars. However, as the number of cars in transit to Europe and Asia must grow substantially to support those markets, we plan to deliver approximately 6,400 vehicles in Q1. Deliveries will grow dramatically in future quarters as the logistics pipeline fills.


This year, we expect automotive gross margin to increase to about 28% (non-GAAP and GAAP) in Q4 through a series of small design improvements, better supplier prices and economies of scale. Q1 gross margin should increase very slightly from Q4. For the remainder of the year, gross margin should improve at a faster pace.


Very shortly, we will be ready to share more information about the Tesla Gigafactory. This will allow us to achieve a major reduction in the cost of our battery packs and accelerate the pace of battery innovation. Working in partnership with our suppliers, we plan to integrate precursor material, cell, module and pack production into one facility. With this facility, we feel highly confident of being able to create a compelling and affordable electric car in approximately three years. This will also allow us to address the solar power industry’s need for a massive volume of stationary battery packs.

In other words: lots of bleary-eyed optimism about the elimination of production bottlenecks in "the second half of 2014", about US consumers who will be undeterred by new and some would say far "cooler" competitive EV offerings by such brands as BMW, and instead keep buying a car which roughly every month has to fight another flaming car PR disaster in the media, and about the future in general. And of course - China, because other luxury retailers have been doing so great in the country in recent months.

It remains to be seen just how much of this "story" pans out. In the meantime, we focus on the topic we touched on in November, namely the company's desire to make up not only its EPS line as a non-GAAP line time (everyone else does it, so it must be ok), but that starting in Q2 2013, the company also announced non-GAAP revenues. Below are the thoughts of Bloomberg's Jon Weil which we paraphrased at the time:

Most companies that play the non-GAAP game goose their numbers by excluding expenses. Tesla does this, too. It backs out stock-based compensation, for example. But the biggest kick to its non-GAAP earnings comes from an increase in top-line revenue.


The company reported third-quarter non-GAAP revenue of $602.6 million, which was about 40 percent more than its GAAP revenue. It achieved such a boost by transforming $171.2 million of liabilities into sales.


Here’s how it worked. In April, Tesla started a new financing program under which customers have the option to sell their vehicles back to the company after three years for guaranteed minimum amounts. The accounting rules say Tesla can’t recognize all of the revenue immediately in those instances and must account for such transactions as leases. So after Tesla takes customers’ cash, it records liabilities for “deferred revenue” and “resale value guarantee” on its balance sheet.


Mahoney noted two main problems with including so much of those amounts in non-GAAP revenue. Some customers wouldn’t have chosen Tesla cars were it not for the financing program. So the non-GAAP revenue isn’t comparable to Tesla’s sales before the program began, and it may overstate the true growth and demand. Plus, by adding back the resale-value guarantee, the company “assumes that nobody is going to return the vehicle, for purposes of the non-GAAP revenue,” he said.


Lots of companies use gimmicky benchmarks in their earnings releases. What makes Tesla special is that it behaves as if it doesn’t know the proper way to present its non-GAAP numbers. In an ironic twist, two attorneys at Wilson Sonsini Goodrich & Rosati, which helped take Tesla public in 2010, penned a lengthy article in 2008 explaining the legal requirements and best practices for earnings releases; it’s still on the law firm’s website.


GAAP comparison numbers in an earnings release must be set forth with equal or greater prominence to the non-GAAP numbers,” attorneys Steven Bochner and Richard Cameron Blake wrote. “For instance, if an issuer announces GAAP and non-GAAP earnings per share in its press release, it should report the GAAP earnings per share prior to the non-GAAP earnings per share.”


The bigger concern here should be what some investors call the “cockroach theory": Where there is one problem, there probably are more. Tesla has disclosed compliance failures before. In March, its management concluded that Tesla’s ‘‘internal control over financial reporting was ineffective as of Dec. 31, 2012.’’ Its auditor, PricewaterhouseCoopers LLP, concurred. In a related matter, Tesla had to restate its cash-flow numbers for much of 2011 and 2012. In its latest quarterly report, filed last week, Tesla said its controls still weren’t effective as of Sept. 30.

And the conclusion:

None of these flubs has been especially damaging. Yet taken together, they suggest a company that lacks basic skills in accounting and disclosure, which could be a serious problem for a young manufacturer with a $17 billion stock-market value that loses money and trades for 9.5 times its revenue for the past four quarters. The next time Tesla messes up because of poor controls, the consequences could be worse.


As Tesla said in its latest annual report: ‘‘If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our common stock.’’

So while everyone else focuses on the seemingly infinite upside that a company which in a priced to perfection world will deliver 35,000 Model S cars (10,000 less than the number of F-150s Ford sold in January) , we care more about far simpler, grassroots concepts. Like unfudged revenues and earnings.

Here they are.





In summary: non-GAAP P/E of 259x, and GAAP P/E of Div/0, as GAAP Market Cap/Sales is a "conservative" 12.4x. Good luck with that growth. You are going to need it.

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johnQpublic's picture

long fire extinguishers

Soul Glow's picture

Who does their books?  Aurthor Anderson?

They must be busy, being the Fed's bookies as well.

flacon's picture

I'm losing faith in "efficiant markets". Let's get this shit-show on the road already! (pun intended)

NoDebt's picture

Efficient doesn't imply intelligence.  Just stay away from Tesla.  Let the owners and shareholders be the ones burnt to a crisp.  You don't have to join them.

Boris Alatovkrap's picture

GAAP or No-GAAP, AmeriKa sheeple is was never so good at mathematical computation. Change number, change divisor, remove significant factor from calculation, whatever it is to take to obfuscate truth in pursuit of agenda. Who is it that say, "there is lie, damn lie, and statistic"...?

AvoidingTaxation's picture

Boris you're progressing with your English! Cheers from St Petersburgh! Dasvidania Drug

TruthInSunshine's picture

Apple will merge with Tesla soon and so Tesla's current P/E ratio of 202,809 is probably just shy of FMV.

Apple is gaining lots of experience as a maker of generic commodities and has an absolutely sky high, overflowing stash of lithium ion batteries sitting around, so that should come in handy.

Spastica Rex's picture

iCar sounds sexy and premium.

Kind of like LeCar.

Boris Alatovkrap's picture

iCar is to LeCar as is iPad to Tampon? Or is it "napkin"?

Freddie's picture

BMW already has that locked up.  The i3 and i8.  They will be out this year.  The i8 towards the end of the year.  There is also supposedly an i5 in  development.

PT's picture

Tepple?  Tapple?
Apple sauce?  Apple Pie? 

aVileRat's picture

Nah, merge with Sodastream, then do a buyout of HLF. Then do a share buyback with a bond offering. then merge with APPL and FB. Then buy Amazon.

Call the company

The AMZ'ing Bubbly Apple-life: Tesla Boogaloo

market the equity as an 'lifestyle platform' where every "like" can buy you 100 Zuck-coins that become car fuel. Have it replace 40% of the market-cap of the DJA.

I will take my customary 3% advisory fee and shit, throw in some broker warrants and a Mary Meeker board seat.

On a more serious note, TSLA is pricing in the Chinese market which is beyond most sell side reporting estimates due to the inability for a BAML analyst to read chinese let alone figure out the backorder demand for the cars in China. The reason for the demand in china ? If you want to own a car (and everyone does over there) the average wait list for a  set of plates is 4 years. If you buy a tesla ? 2 months.

That magic market General Motors & Toyota want to unload last years inventory into ? it just went foof.

THIS BEING SAID: Do not fucking buy-into some MOMO technical chart bottom. This is not anywhere close the time to get into this story, it's either going to be the new Delorian or the new GM. binary option play at this point. You either believe Chinese are going to buy this with the rabid ferocity of Samsung knockoffs or not. If not, there is a great deal on Irish automotive plants and 4x P/E gold miners. Only invest in what you are comfortable taking home to mother (or your LP/myRA account holders).




Smegley Wanxalot's picture

Burst'em Young .... a subsidiary of Ernst & Young.

Freddie's picture

When the SHTF - these will be cool.  Any libs and elites driving them will be prime targets for a Molotov.   They will be able to take out a city block.

Freddie's picture

This is Worldcomm and Enron accounting.  What BS.

X_mloclaM's picture

"we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our common stock"

They must've meant over a long-haul average...




Sudden Debt's picture

my ass will be fried at open... my god...

stupid lemmings who actually buy this crap...

ebworthen's picture

Sorry for your loss.

Those lemmings are dumb as rocks but they have sharp teeth and the FED herding them.

johnQpublic's picture

but they just had six people on CNBC pimping this ?

what could possibly go wrong?

with the stock that is

the cars are gonna burn in place but the stock should be fine

wallstreetaposteriori's picture

I wonder if Fonestar ever got his Tesla...... with all those diminished bitcoin profits?  If he did then you can definetly short TSLA.

slotmouth's picture

I'm pretty sure most of the buying pressure comes from covering short sellers. This is a toy for traders and HFT, if you can't watch your screen 24/7 you shouldn't touch this stock long or short.

silverserfer's picture

diddn't you JUST buy those puts? 

skwid vacuous's picture

bought a few too it was hard to resist, i had visions of this opening down like $75... oh well

GooseShtepping Moron's picture

Don't worry, the 2014 Model S's will come with flux capacitors factory standard, so you can go back in time and nix that trade. That is, if the battery can supply the 1.21 gigawatts. In any case, it's not a far cry from how this company seems to operate.

On a more serious note, the Tesla story is the biggest crock of shit I've seened all day. CNBC scewed the release and made it appear as if the stock was up on a top line miss and an EPS beat. Given my work history, I am hypersensative to the signs of a company gone catabolic and I wondered how in the hell this could be good news. Then they edited their story and filled in the missing (non-GAAP) data. Something still seems pretty shady.

ejhickey's picture


Freddie's picture

Something still seems pretty shady.

Ya think?  This is an O company with an O CEO and it will be protected at all costs.

Groundhog Day's picture

I was hoping for you SD,  I feel your pain....been their just too many times.  Maybe they will fuck up the conference call and you will be able to reduce the damage

TheRideNeverEnds's picture

Hey man, they didn't lose as much as they were expected to lose.  Totally justifies the stock going up another 10%+ from all time highs after being up 70% this quarter. 


Gotta do something with all that money from the sidelines and I see green shoots!


Wait till you see what the stock does should they ever get to break even!  What do you think, print 300 by next cycle? 

johnQpublic's picture

is green a cop?

i mean, green keeps shooting.....

skwid vacuous's picture

Still calling for 1900 ES by Friday at 4pm?

ebworthen's picture

Stationary battery packs for the solar power industry?

Sales of Tesla in struggling China?

Sounds like a Solyndra/Foxconn hybrid.

Winston Churchill's picture

Pushing warranty claims forward three years, and booking
them as sales now.
Trying to work out how much they actually losing per car
sold, is as easy as deciphering FOMC minutes.
Never mind ,they will make it up on the quantity. Ovey.

vote_libertarian_party's picture

Non-GAAP my trading profits are $100000000000000000000000000000000000000000000000 per quarter

DavrosoftheDaleks's picture

Amazing gross margins.  CHINA will be their biggest market as they don't have to deal with the bullshit dealership situation like they do in the US.  They also are priced competitively in CHINA unlike the US.  I wouldn't short this, TWTR on the other hand....


J Pancreas's picture

I remember looking at shares of TSLA at $30 and thinking that was crazy expensive compared to their production value and capex needed to expand the brand. Here we are over $200 and I feel this market is Still drunk on The Full-Retard Yellen Energy Drink.

Yen Cross's picture

   I saved this article from the other day, and this looks like the perfect time to post it. I wouldn't be surprised to see similar articles about Tesla in the next few years.

    Court clears sale of hybrid car maker Fisker to China's Wanxiang | Reuters

ebworthen's picture

Fisker?  They make scissors, right?

Yen Cross's picture

  Scissors and Road Flares. :-)

Ness.'s picture

I thought they made cat food, no?

dexter_morgan's picture

What should be up is down - what should be down is up! Put it all in a lockbox.

Can tell that count Algore is involved with this company. They're all just numbers Jerry..............

ejhickey's picture

Stupid me!  for all these years, i have been asking dor a raise based on what i HAVE DONE, you know those accomplishments that have ACTUALLY taken place.

NO MORE!   i realize all of those things i did are just HISTORY, DRY, DUSTY HISTORY.   from now on i am taking my cue from Tesla and am asking for a raise based on what i EXPECT  to accomplish BEFORE  i do it.  that way i can get the money now when i want it.   i just hope we have a change in management before next year rolls around or that my anticipated performance review somehow gets lost.

LawsofPhysics's picture

I remember when ZH was shocked that 58 billion was huge for a reverse repo.  Shit, the Fed repo for today was 83 billion.

NOTaREALmerican's picture

iPad, iPod, iPhone, iPc, iCar...   What's next  iHouse?  

Al Huxley's picture

Facebook just dumped $3 in after-hours.  They just bought WhatsApp.  Nice, too bad if you're long and don't have access to outside-market trading.  Sorry for anybody dumb enough to buy or sell at market first thing tomorrow.  What a fucking joke.

TruthInSunshine's picture

Facebook turning into "Grandparents Connection" and is being abandoned at light speed by all the kewl kids.

RaceToTheBottom's picture

Do MBA schools even teach GAAP anymore?  Why?

It only produces bad news, why produce it then?