The quarterly sales total was a large number and higher than in the past, which generated some concern among analysts. GLJ Research analyst Gordon Johnson, for instance, believes the company pulled forward credit sales to earn a profit, qualifying the company for inclusion in the S&P 500.
The 10Q doesn’t indicate that Tesla pulled forward sales, but it does show that company did recognize $140 million in deferred sales of regulatory credits during the quarter. The deferred-revenue balance was $140 million as of March 31, but it fell to zero as of the end of June. Tesla has said in recent filings that it expected to recognized the deferred revenue in 2020. It appears to have recognized it during the second quarter.
Sometimes accounting rules require companies to defer sales because, essentially, the transactions aren’t complete, even if cash has come in the door. When revenue is deferred, it doesn’t hit the income statement right away. Sales, of course, generate earnings that increase shareholders’ equity.
Deferred sales become a liability, offsetting cash coming in the door, essentially because a company still has to do something before the money can hit the income statement. Assets always match the sum of liabilities plus shareholders equity.
Less difficult to understand is a comment from CFO Zachary Kirkhorn on the second-quarter conference call. He said regulatory credit sales should double in 2020 from the 2019 level. That implies another $226 million will be recognized in 2020, totaling about $113 million per quarter. The number is lower than in the first and second quarters, but not too different from past levels.
Warranty spending and expenses—figures that indicate how much of sales are going out the door again to service vehicles with problems—are another area where regulatory filings have much better detail than typical quarterly earnings news releases.
Accounting rules require companies to reflect warranty-related expenses in their accounts when they sell a car. The actual spending on repairs happens later, as vehicles age.
In the case of Tesla, warranty spending is trending lower—adjusted for the size of the company. That’s a good thing. Quarterly spending remains below quarterly warranty expenses, adjusted for car sales. That’s to be expected since all warranty expenses don’t show up at once.
The figures need to be adjusted for sales or deliveries because Tesla is growing rapidly.
All large, publicly traded firms make regular SEC filings. They usually come and go without much fanfare. But everything for Tesla is magnified these days because the car company has become such a controversial stock.
A few metrics highlight the divergence in analysts’ views of Tesla. For starters, analysts’ price targets range from roughly $300 to $2,300 a share—a $2,000 spread that is more than 100% of the current stock price. The gap is roughly three times as wide as the average bull-bear spread for stocks in the Dow Jones Industrial Average.
What is more, more analysts rate shares the equivalent of Sell than Buy. That is unusual, given that the average Buy-rating ratio for stocks in the Dow is about 55%. Typically, eight analysts rate an average Dow stock Buy for every one that rates it Sell.
Investors, too, have some beef with Tesla’s valuation. About 9% of shares available for trading have been borrowed and sold by bearish investors betting on share-price declines. That is about four times the average short-interest ratio for stocks in the Dow.
Year to date, Tesla shares are up about 250%, far exceeding the performance of other car companies, the S&P 500, and the Dow.
Write to Al Root at email@example.com