TSLA - Tesla Motors

[SHDL]

Re: depreciation

 

The wording in their 10-K is somewhat ambiguous (what's included in "overhead"?) but AFAIK manufacturing firms normally put the depreciation of their factories in cogs, not opex.  So if a normal auto company produces more cars per factory then yes it can get an improvement in gross margins through (what is economically equivalent to) operating leverage.  There's a limit to how much of that you can get though because you will sooner or later need more/bigger factories if you want to produce more cars.

 

But this is Tesla, who, among other things, (a) seem to be quite "flexible" with regard to choosing which expense item goes where on the income statement, and (b) now seem to have mastered the art of producing cars in tents.  So I don't know, maybe the normal rules don't apply to them. 

[John Hjorth]

SHDL,

 

Are you intoxicated, or what? -I've never seen anything like this here on CoBF on a technical matter related to an investment.

 

- - - o 0 o - - -

 

I was just trying to provide some accounting help here.

 

Please just consider me out of this topic again now. Waste of time for me.

[Grant]

I agree the margins themselves aren't a red flag. The flag is the magnitude of the margin increase, combined with potentially large and unmentioned supplier rebates. The 10-Q should be illuminating.

[SHDL]

SHDL,

 

Are you intoxicated, or what? -I've never seen anything like this here on CoBF on a technical matter related to an investment.

 

- - - o 0 o - - -

 

I was just trying to provide some accounting help here.

 

Please just consider me out of this topic again now. Waste of time for me.

 

Yes I’m intoxicated. Not stoned though.

 

No but more seriously, and it’s hard to do this over the internet because I can’t see your face and tell if you’re genuinely offended or not, what you said about gross margin increases not necessarily being a red flag is absolutely valid.

 

Please accept my apologies if my post somehow offended you.

[John Hjorth]

SHDL,

 

Accepted. - Friends, right? - That'll do us both best going forward. Please forget my harsh comments here. Please get back to me, if you want to discuss the accounting technicals here.

 

Peace.

 

- - - o 0 o - - -

 

Back to Tesla.

[SHDL]

SHDL,

 

Accepted. - Friends, right? - That'll do us both best going forward. Please forget my harsch comments here. Please get back to me, if you want to discuss the accounting technicals here.

 

Peace.

 

- - - o 0 o - - -

 

Back to Tesla.

 

Likewise.

[SHDL]

John,

 

Now that I’m back home let me add a few more things to explain the post that apparently offended you.

 

The first paragraph was purely about facts regarding accounting and economics, and I hope you did not have any issues with anything I wrote there.  But if you do, feel free to let me know.

 

The second paragraph was partly a joke, although not a pointless one.

 

Joke #1 was in reference to the following:

 

https://www.cnbc.com/2018/10/19/cnbcs-lora-kolodny-elon-musks-extreme-micro-management-has-wasted-time-and-money-at-tesla-insiders-say.html

 

The thing to note here is that apparently Tesla is willfully manipulating its books by booking an assembly worker’s hours, which should belong to COGS, as training/R&D. I brought this up because if the company is really doing that (which as I understand is borderline fraudulent), then all discussions regarding their gross margins become pretty meaningless.

 

Joke #2 was in reference to:

 

https://www.bloomberg.com/news/articles/2018-06-25/the-future-of-tesla-hinges-on-this-gigantic-tent

 

I brought this up because if the company can really pull this off successfully, then that is actually a perfectly valid — though completely unorthodox and probably unprecedented — way of boosting gross margins (via lower depreciation).

 

Anyway:

 

1. If you’re new to following Tesla and didn’t catch either reference above, I don’t blame you. This is all highly unusual.

2. One thing I’ve noticed over the years is that humor doesn’t always translate well (i.e., what is a joke in one culture sometimes turns into an insult in another). I will therefore, going forward, be more careful than usual when posting something when you are involved.

 

Finally, like you said, peace.

[Grant]

I missed this story, which claims Tesla was seeking capex rebates: https://www.bloomberg.com/news/articles/2018-07-23/tesla-s-call-for-suppliers-to-refund-cash-reeks-of-desperation

 

I now have much less confidence in my COGS rebate hypothesis. Where would capex rebates show up on income and cash flow statements? On the earnings call, Deepak says there were one-time items which reduced opex by $71M, but don't have any details on them.

[Spekulatius]

I missed this story, which claims Tesla was seeking capex rebates: https://www.bloomberg.com/news/articles/2018-07-23/tesla-s-call-for-suppliers-to-refund-cash-reeks-of-desperation

 

I now have much less confidence in my COGS rebate hypothesis. Where would capex rebates show up on income and cash flow statements? On the earnings call, Deepak says there were one-time items which reduced opex by $71M, but don't have any details on them.

 

I would think that a Capex rebate would  flow though the income statement as a one of Gain and as such it typically wouldn’t be added to the gross margin, also it would show up as cash flow for sure.

 

TSLA next 10-q should be interesting material for sure.

[SHDL]

Where would capex rebates show up on income and cash flow statements?

 

I don’t know the answer to this.

 

In terms of the underlying economics, if I buy a factory “worth” $1.5 bn and get a $.5 bn “rebate” from the seller that’s economically no different than if I just bought the factory for $1 bn to begin with.  So I would expect the accounting rules to reflect this and require a $1 bn addition to capex, a $1 bn addition to PP&E, and something like 1/20th of the $1 bn show up as depreciation in COGS on an annual basis. 

 

But I have never really asked an accounting expert this exact question. 

 

[Spekulatius]

Where would capex rebates show up on income and cash flow statements?

 

I don’t know the answer to this.

 

In terms of the underlying economics, if I buy a factory “worth” $1.5 bn and get a $.5 bn “rebate” from the seller that’s economically no different than if I just bought the factory for $1 bn to begin with.  So I would expect the accounting rules to reflect this and require a $1 bn addition to capex, a $1 bn addition to PP&E, and something like 1/20th of the $1 bn show up as depreciation in COGS on an annual basis. 

 

But I have never really asked an accounting expert this exact question.

 

Yes, but when the rebate occurs retroactively, then the company would theoretically have to restate all their financial filings from the purchase date to the date the rebate was received, which seems onerous. I think in that cause a one time restatement would be more straightforward.

[SHDL]

Where would capex rebates show up on income and cash flow statements?

 

I don’t know the answer to this.

 

In terms of the underlying economics, if I buy a factory “worth” $1.5 bn and get a $.5 bn “rebate” from the seller that’s economically no different than if I just bought the factory for $1 bn to begin with.  So I would expect the accounting rules to reflect this and require a $1 bn addition to capex, a $1 bn addition to PP&E, and something like 1/20th of the $1 bn show up as depreciation in COGS on an annual basis. 

 

But I have never really asked an accounting expert this exact question.

 

Yes, but when the rebate occurs retroactively, then the company would theoretically have to restate all their financial filings from the purchase date to the date the rebate was received, which seems onerous. I think in that cause a one time restatement would be more straightforward.

 

That is true.

[John Hjorth]

IAS 16:

 

...15 An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.

 

Elements of cost

 

16 The cost of an item of property, plant and equipment comprises:

 

(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

© the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. ...

 

So CAPEX rebates hit the P/L in the future from point in time of acquisition/going into production environment over the planned depreciation period, as reduction in depreciations. In the cash flow statements they are deducted in CAPEX net.

[SHDL]

John:  Nice - thanks for the reference. 

[gfp]

Former Tesla CEO Elon Musk bought $10million worth of shares in the market in addition to the $20million direct purchase from the company that he had announced.

 

https://www.sec.gov/Archives/edgar/data/1318605/000149473018000006/xslF345X03/edgardoc.xml

[Jurgis]

Former Tesla CEO Elon Musk

 

What did I miss?  ::)

[gfp]

Check his twitter...  He has relinquished all his titles at Tesla to "see what happens" but then learned that three titles were mandatory at corporations so is apparently now the President of Tesla after being the "Nothing" of Tesla for a week or so...

 

You know - standard leadership stuff

 

 

Former Tesla CEO Elon Musk

 

What did I miss?  ::)

[Jurgis]

So funny.

 

Can I be "Nothing at Tesla"? Or at least "Nothing at CoBF"?  8)

[SmallCap]

So funny.

 

Can I be "Nothing at Tesla"? Or at least "Nothing at CoBF"?  8)

 

Check my profile

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pnnt-pennantpark/50/

[John Hjorth]

Where would capex rebates show up on income and cash flow statements?

 

I don’t know the answer to this.

 

In terms of the underlying economics, if I buy a factory “worth” $1.5 bn and get a $.5 bn “rebate” from the seller that’s economically no different than if I just bought the factory for $1 bn to begin with.  So I would expect the accounting rules to reflect this and require a $1 bn addition to capex, a $1 bn addition to PP&E, and something like 1/20th of the $1 bn show up as depreciation in COGS on an annual basis. 

 

But I have never really asked an accounting expert this exact question.

 

Yes, but when the rebate occurs retroactively, then the company would theoretically have to restate all their financial filings from the purchase date to the date the rebate was received, which seems onerous. I think in that cause a one time restatement would be more straightforward.

 

Ref. my post #2564, IRL you're forced to use accrual accounting on that matter.

 

Please post if you want elaboration. It's quite complicated [and yet not, based on common sense].

[A Dhandho Investor]

Panasonic Wednesday reported a 15 percent fall in second-quarter operating profit, missing analyst estimates.

 

It is currently running a loss in its Energy business and plans to minimize the impact of US tariffs by "negotiating with its customers".

 

Will certainly have an impact on Tesla.

 

Panasonic_Q3_Energy.jpg_large

[A Dhandho Investor]

"We believe delivering vehicles to the front door of a customer’s house or office is superior from both a cost and customer satisfaction perspective"

Tesla_delivery_experience.jpg_large

[DooDiligence]

"We believe delivering vehicles to the front door of a customer’s house or office is superior from both a cost and customer satisfaction perspective"

 

What is the source for this?

 

My Dad has been extolling the virtues of Musk/Tesla & I've been telling him everything you guys have been discussing here (good & bad with an admitted bias towards bad.)

 

He holds around 50 different stocks on the recommendation of a UBS broker & I told him that this seems like the shotgun strategy of someone who has NO good ideas (he, personally, can't tell me a single thing about ANY of the companies except for Tesla, and what he says about them is all promotional nonsense IMO.)

 

Is there a reliable source with more anecdotal info like this one?

 

---

 

The good news is that I finally talked him into $ cost averaging into Berkshire.

 

I'm sure that the, extremely charismatic, young gent at UBS will be overjoyed.

[A Dhandho Investor]

What is the source for this?

 

My Dad has been extolling the virtues of Musk/Tesla & I've been telling him everything you guys have been discussing here (good & bad with an admitted bias towards bad.)

 

He holds around 50 different stocks on the recommendation of a UBS broker & I told him that this seems like the shotgun strategy of someone who has NO good ideas (he, personally, can't tell me a single thing about ANY of the companies except for Tesla, and what he says about them is all promotional nonsense IMO.)

 

Is there a reliable source with more anecdotal info like this one?

 

---

 

The good news is that I finally talked him into $ cost averaging into Berkshire.

 

I'm sure that the, extremely charismatic, young gent at UBS will be overjoyed.

 

The most reliable source with anecdotal information is the Teslamotorsclub forum:

https://teslamotorsclub.com/tmc/

 

There you can find issues Tesla buyers are having with ordering, deliveries, built quality, etc.

 

[bookie71]

DooDiligence:

There must be a reason that they are called "brokers".

:D