THE MOMENT TESLA BECOMES PROFITABLE IS CLOSER THAN YOU THINK

[roblab]

Actually, what you lay out are beliefs.... It is VERY early in the overall move to electrics and in fact no - it is not economically better to choose a New EV over a New gas car.... I believe and always have believed in slow, steady adoption rates.

In USA... many people live paycheck to paycheck and such decisions MUST be affordable.

OK, so your beliefs are different than mine. Personally, I feel that when you take in more than just the cost of the car and fuel, the EV wins. I also feel that most people drive gas cars because it's what they know, what they're familiar with, and what is at the dealer's when they are in the market.

As to the paycheck to paycheck comment, yeah. That says volumes about how people are not able to think, not able to plan. I was taught early on that education is the key to making it out of that trap, and I firmly believe that still. People who invest in education do better. But aside from that, you are perhaps not noticing that the large majority of Teslas are registered in California? Are these people all richer? Have bigger paychecks? Smarter? Or is access and popularity of Tesla greater? Seems to me that with internet, everyone has access. Seems that most people buy what they want. But when a Tesla sits in the drive down the street, and the owner has let me drive it, all of a sudden my goals change. Maybe I don't need a 60" TV or a pool or a second pickup. Hmmmmm.

Affordable is not the same for everybody. Sure, some can't afford a Tesla. And some can't afford a Honda.

 

[cpa]

@jstoneman I am not convinced that the Supercharger network is going to generate a significant profit for Tesla. If you had numbers to back up your assertions it would be more compelling. Tesla has said in the past that the cost to build and operate the Supercharger network is so relatively small that they don't break it out separately in their public financial reports.

The Model 3 and the future Model Y may well result in the Supercharger network being profitable. How significant those profits will be is an open question at this point. Many people charge at home and rarely make long trips. Many people cannot charge at home for various reasons and will need to charge somewhere else. In the future workplaces that offer charging for employees may become much more common. As wind and solar drive down electrical costs, selling electricity may become less profitable (in some places in the Midwest electrical rates at night have dropped to zero). There are a lot of variable here that are hard to model and predict trends over the next decade.

If the Supercharger network just breaks even that will be a tremendous accomplishment for Tesla. It remains a significant competitive advantage that is not generally appreciated.

I agree with Fan in this regard. The Supercharger network will in all likelihood be a loss leader for Tesla. It makes buying their brand more compelling than competitors' brands. Besides the trivial cost of electricity that will be collected from those who do not have "free, unlimited Supercharging," there is the maintenance and repairs, unsecured property taxes on the equipment, and lease costs at selected locations. The cash collected will merely defray a percentage of the total operating costs exclusive of depreciation.

I think in Tesla, profit is just a matter of manipulating the number.

Tesla demonstrated that it could report a quarterly profit if it wants to.

It is a matter of whether you want to invest in growth or not.

Tam, since I am an accountant, your suggestion makes me wince. (No offense, please!) Words like manipulate are anathema to us, and make us double down when we perform attest work. Moreover, any licensee or CFO associated with financial statements of publicly traded companies that have been "manipulated" will have their licenses revoked and be banished from ever working in any company subject to the SEC reporting requirements.

I do submit that when it comes to reporting results of operations, there is a lot of leeway (cf "Management's use of estimates; actual results could vary materially....) for the amounts that appear on the income statement.

When we perform attest work, we are first supposed to assess the client for bias--are they tax biased, profit/loss biased, loan covenant biased, incentive biased, etc. and adjust our audit testing accordingly. Moreover, since all the bad actors in the past like WorldCom and Enron fleeced so many people with fraudulent financial statements, we accountants are now under the microscope for fraud detection.

We may not be held responsible for the larcenous bookkeeper that embezzles $25,000 in a fraudulent vendor scheme, but we are sure as hell going to be liable for management's materially misleading financial statements.

So, I do not think that Tesla will be cooking the books to show or not show a profit.

 

[MarcusMaximus]

Tam, since I am an accountant, your suggestion makes me wince. (No offense, please!) Words like manipulate are anathema to us, and make us double down when we perform attest work. Moreover, any licensee or CFO associated with financial statements of publicly traded companies that have been "manipulated" will have their licenses revoked and be banished from ever working in any company subject to the SEC reporting requirements.

I do submit that when it comes to reporting results of operations, there is a lot of leeway (cf "Management's use of estimates; actual results could vary materially....) for the amounts that appear on the income statement.

When we perform attest work, we are first supposed to assess the client for bias--are they tax biased, profit/loss biased, loan covenant biased, incentive biased, etc. and adjust our audit testing accordingly. Moreover, since all the bad actors in the past like WorldCom and Enron fleeced so many people with fraudulent financial statements, we accountants are now under the microscope for fraud detection.

We may not be held responsible for the larcenous bookkeeper that embezzles $25,000 in a fraudulent vendor scheme, but we are sure as hell going to be liable for management's materially misleading financial statements.

So, I do not think that Tesla will be cooking the books to show or not show a profit.

I could be wrong, but I read that as implying they could easily post a quarterly profit by ceasing investment in future growth(infrastructure and R&D), not by lying about their numbers.

 

[bonaire]

I could be wrong, but I read that as implying they could easily post a quarterly profit by ceasing investment in future growth(infrastructure and R&D), not by lying about their numbers.

The primary manipulation that user 'cpa' might comment on is on future guidance. What is it when a number is stated to the press numerous times about what is to come - and the number is missed, and yet that number is used to get new financing from the wall street banks? When in 2014, a company says that a convertible bond issued for nearly 2.8 Billion will "pay for" a factory (ie. GF1) that in the mean time uses up the money for operations, goes back to wall street again to continue construction? Or "500,000 cars in 2018" over and over to the press and they repeat it. or "100,000 to 200,000 Model 3 in 2nd half of 2017". That isn't financial manipulation in terms of stated fact numbers, it is arbitrary louder-sounding future guidance that is incapable of being met - for reasons to get future monies from investment banks. Not sure which is "worse" - but I know which one is more morally wrong. Lying about capability is so commonplace. Look at 7-page resumes of people with 6 years of experience. Look at social media. We make crazy promises that we break often. I don't think this is right nor but it sure brings a lot of financing hoping that the numbers are "hit" and even when they are not, there is no recourse.

100,000 Class 8 trucks per year - in 4 years. Ok, who's agreeing that this is "going to happen"?

 

[cpa]

The primary manipulation that user 'cpa' might comment on is on future guidance. What is it when a number is stated to the press numerous times about what is to come - and the number is missed, and yet that number is used to get new financing from the wall street banks? When in 2014, a company says that a convertible bond issued for nearly 2.8 Billion will "pay for" a factory (ie. GF1) that in the mean time uses up the money for operations, goes back to wall street again to continue construction? Or "500,000 cars in 2018" over and over to the press and they repeat it. or "100,000 to 200,000 Model 3 in 2nd half of 2017". That isn't financial manipulation in terms of stated fact numbers, it is arbitrary louder-sounding future guidance that is incapable of being met - for reasons to get future monies from investment banks. Not sure which is "worse" - but I know which one is more morally wrong. Lying about capability is so commonplace. Look at 7-page resumes of people with 6 years of experience. Look at social media. We make crazy promises that we break often. I don't think this is right nor but it sure brings a lot of financing hoping that the numbers are "hit" and even when they are not, there is no recourse.

100,000 Class 8 trucks per year - in 4 years. Ok, who's agreeing that this is "going to happen"?

Auditors are after-the-fact types. Forward-looking statements like those you mentioned are not part of our drill unless we are specifically engaged to examine proforma financial statements for a date in the future. I do not believe that Tesla (I have no way of knowing of course) will engage their auditors to examine any sort of forward-looking financial statements.

The auditors do examine all loans for covenants, conditions, restrictions, or other non-financial terms and evaluate if the company is in compliance. They tricky part is that cash is fungible. I have not seen Tesla's trial balance or general ledger. There might be accounts that are not part of the company's overall cash receipts and disbursements system that must be used for specific purposes. (Again, I have not looked at Tesla's 10K.)

Other statements like 100,000 Class 8 trucks per year to me are just marketing hype. Management (Elon Musk) has to answer to those claims. And as long as Tesla has Elon Musk with his P. T. Barnum charisma and as long as Tesla is the darling of Wall Street, the money will continue. It will be interesting to see what happens as interest rates rise.

Unfortunately, Bonaire, hyperbole, dissembling of facts, and outright lying about certain items has been commonplace in our capitalistic society. The tobacco companies lied for decades. Companies promote their products with spurious research claims--remember POM Wonderful pomegranate juice as being "heart healthy?" The Resnicks cashed in on zillions in sales of pomegranate juice. Finally, they had to change their hype about their product.

Yes, it is morally wrong. But capitalism frequently ignores the moral ground in pursuit of the almighty dollar.

 

[cpa]

I could be wrong, but I read that as implying they could easily post a quarterly profit by ceasing investment in future growth(infrastructure and R&D), not by lying about their numbers.

You may very well be right, Marcus. But a word like manipulate is more inflammatory in this usage that other words that might have been chosen!

Investment in future growth would not necessarily hit the bottom line if the expenditures are for property, plant, and equipment acquisitions (depreciation and amortization notwithstanding.) Rents would of course. But there are changes afoot that might require real estate leases to be capitalized like equipment leases are currently. Still work to be ironed out in that regard.

Research and development brings to light an interesting conundrum. Yes, they are period costs. But if R&D expenditures suddenly declined by 50-60% over the previous quarter/period, you can bet that fact would be pursued to determine why and for how long. Accountants who perform attest services are in a unique situation. While our "client" is the company that pays us for our work, our responsibility is to the users of the financial statements: the shareholders, the bankers, or anyone else who will be relying upon our work to make decisions regarding the company. (Hence the term public in our license.)

If we assume that this reduction is material, you can bet that there would be a lot of disclosure in the footnotes and in management's letter. If R&D expenses picked up substantially after period end but before the release of the financial statements, there would be a subsequent event footnote indicating as much.

 

[bonaire]

Auditors are after-the-fact types. Forward-looking statements like those you mentioned are not part of our drill unless we are specifically engaged to examine proforma financial statements for a date in the future. I do not believe that Tesla (I have no way of knowing of course) will engage their auditors to examine any sort of forward-looking financial statements.

The auditors do examine all loans for covenants, conditions, restrictions, or other non-financial terms and evaluate if the company is in compliance. They tricky part is that cash is fungible. I have not seen Tesla's trial balance or general ledger. There might be accounts that are not part of the company's overall cash receipts and disbursements system that must be used for specific purposes. (Again, I have not looked at Tesla's 10K.)

Other statements like 100,000 Class 8 trucks per year to me are just marketing hype. Management (Elon Musk) has to answer to those claims. And as long as Tesla has Elon Musk with his P. T. Barnum charisma and as long as Tesla is the darling of Wall Street, the money will continue. It will be interesting to see what happens as interest rates rise.

Unfortunately, Bonaire, hyperbole, dissembling of facts, and outright lying about certain items has been commonplace in our capitalistic society. The tobacco companies lied for decades. Companies promote their products with spurious research claims--remember POM Wonderful pomegranate juice as being "heart healthy?" The Resnicks cashed in on zillions in sales of pomegranate juice. Finally, they had to change their hype about their product.

Yes, it is morally wrong. But capitalism frequently ignores the moral ground in pursuit of the almighty dollar.

Anything from "tomorrow" onward is protected by the Safe Harbor clause of the financial statements.
The gamble is what level you believe in it. As you mentioned, marketing hype. There has been a lot of it. It sure helps create a frenzy in the stock market along with hurt for "bears" pushed up upon by "bulls" who use it to their advantage. The more marketing hype, the higher a stock can be pushed up through financial measures, especially in a "bull" market.
Someone saying this:
Tesla eyes annual sales of 10,000 cars in Germany, Musk says
will easily say this and want lots of media to "build" behind the hype:
Tesla May Build 200,000 Model 3 Cars By End Of 2017 | Gas 2
Tesla puts pedal to the metal, 500,000 cars planned in 2018
Tesla Semi aims to manufacture 100,000 electric trucks per year, say Elon Musk

Safe Harbor says "you cannot complain about this"
One financial analyst (Gerber) says:
Several holders of Tesla shares shrugged off the miss, with Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, noting that “Elon’s never made a number, ever.”
“Coming up short is what we expect of him,” he said.

In four years, I expect Tesla either to produce 5000 trucks in 2022 or perhaps zero trucks waiting for some next-factory to be built (or for other reasons).