...The $14 million in currency hedges is repeatable if the U.S. dollar strengthens. If the dollar doesn’t strengthen then the currency hedge doesn’t increase, but then, the effect that the currency hedge is put in place to counter-act also doesn’t happen. I haven’t calculated which is better, but likely a weaker dollar would help overseas sales, so I bet Tesla would take the weaker dollar and not have the gain from the currency hedge. If the dollar weakens, then the cost of goods sold drops anyways....
Good analysis of the meanings of these three items. Your take on this middle one, however - the currency hedge - is dodgy, I fear.
{Skip to final paragraph for the meat of this post; the rest is just me being pedantic} The reason is that you play a hedge for
some time period. I can look at what my expected sales in countries A, B and C are going to be over the next Y period, and what my costs from countries B, C and D are likely to be over that same period, and place my hedges accordingly.
Then, one can minimize my FX risk
AND reward by selling dollars forward, buying yen forward, and so on...
OR if one calculates that the USD will be (falling/rising) against JPY but acting differently against the EUR...and using the corporate exposure to enhance that effect. NOW....if it
is the latter, then I as a shareholder am furious, as I do not hold TSLA shares (nor those of any other company) as a proxy for playing in the FX market, which is what that second scenario is in my opinion. I do know, however, that some corporations' treasury departments do indeed veer from being currency neutral and, in my experience, eventually they get their comeuppance. Usually that ends with a couple of high executives getting nice fat severance bonuses as they decide to pursue a new career where they can spend more time with their families. How nice.
All right, back to Tesla. I have stated that my desire and expectation is to have Tesla pre-sell and -buy forward the appropriate amount of currencies so that, over the given time period, their exposure to those currencies' fluctuations against the home currency - USD - will not affect Tesla's bottom line. Because Tesla plays both in an SEC-regulated
and a US public capital markets-dominated world,
usually that time period is a three-month quarter (it doesn't have to be a quarter but that's the time period for which results mostly are shown. The specific time period is not otherwise truly important).
HOWEVER....in a real-world situation, it is vanishingly unlikely that one can predict with perfection exactly how many widgets one buys and wadgets one sells from and to those particular currencies over a hedge's time period. That being the case, in some quarters one will zig with the market, in other quarters one will zag.
THAT, and not whether the USD fell or rose against this or that currency, will determine whether one sees a $14mm gain in COGS, or a loss of $8mm, or all is washed.
