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They made $331M in “profit” on $397M in carbon credit sales at 100% margin...meaning their core business still loses money. Also they have $14.5B in cash but o

by xoxoy 6y ago

They made $331M in “profit” on $397M in carbon credit sales at 100% margin...meaning their core business still loses money. Also they have $14.5B in cash but only reporting $6M in interest income. Weird.

m463 6y ago
They probably left it sitting in checking. I'm surprised their bank isn't calling them to upgrade their account. ;)
- xoxoy 6y ago
  They had $8M in interest income on $8.6B in cash last quarter lol.
vikramkr 6y ago
5 billion of the cash was from a recent capital raise. Those numbers give you a roughly .2% annualized interest rate, which doesn't seem unreasonable for the current environment.
- xoxoy 6y ago
  it is for a corporate treasury.
bryanlarsen 6y ago
> They made $331M in “profit” on $397M in carbon credit sales at 100% margin...meaning their core business still loses money. In the last quarterly update Elon said that his goal was to have a profit margin of 1-2% with the rest going to R&D and expansion. So as long as carbon credit sales are more than 2% of revenue, we'll hear the same complaint.
marvin 6y ago
Well, even accepting that premise, there's the small matter of the ~$500 million share issue constituting Musk's milestone payment. This drags the profit down a bit. Surely they won't repeat a payment like that every quarter from now on. And of course, running the biggest growth business on Earth at a significant profit probably isn't the wisest decision.
- adventured 6y ago
  > And of course, running the biggest growth business on Earth at a significant profit probably isn't the wisest decision. That depends on how easily the growth is achieved, and whether growth is well-served by shoving more margin at it. For a time Facebook was the fastest growth business on Earth, and they were carrying 50% operating income margins, because their growth didn't require them to cut into their profitability to accomplish it. Facebook increased sales 91 fold in ten years, from $777m to $70.7 billion. At their peak of profitability in 2017 (prior to the big spending expansion for network control & monitoring purposes) they had a 55% operating income margin. The growth came so easily their margin just kept expanding as they went. Before Facebook, Google and Microsoft both accomplished something similar along their growth paths (before eventually sprawling and becoming obese). Those beautiful software margins.
Hypx 6y ago
A long running problem with Tesla. Their accounting has always smelled, and this has only gotten worse with every passing quarter.
- edmundsauto 6y ago
  I'm not much of a financial guy, could you spell out the specifics in their accounting that smell? And whether this is a standard practice?
  - Hypx 6y ago
    A large number of "this doesn't quite add up" type of problems, as well as quarter to quarter inconsistencies. For instance, accounts receivables goes up basically every quarter, but the reason for it always changes. People suspect large-scale fleet sales are being hidden in this term. Plus their general dishonesty in how they are presenting numbers. They're greatly downplaying how all profits are coming from credit sales, and use an unusual definitions of "gross margin" which doesn't include R&D and sales related costs.
    - edmundsauto 6y ago
      Is it dishonesty in the sense of “this is not an accepted accounting practice”? Or is it more “I don’t think this should be acceptable as an accounting practice”? Genuinely curious, not much of a finance person.
      - Hypx 6y ago
        The central point of proper accounting is that it prevents frauds, scams, Ponzi schemes, or other nonsensical companies from existing. Companies that feel free to abandon those principles are inviting the possibility of becoming one of those kinds of companies. In other words, it's a purely utilitarian argument. If Tesla is abandoning basic honesty in its accounting, then it's likely that there will come a day where, almost out of nowhere, the company collapses. We saw this with Wirecard recently, so this is not a unrealistic claim. This is arguably the worse possible outcome of an investment. My own views are very much secondary to what could happen if this continues. You should view this problem entire on the premise of what the real-world risks are, and how it could affect investors.
colechristensen 6y ago
But... so what? They made money doing a thing, and subsequently got to sell their product at a lower cost just as any competitors are able to do. People keep saying this like it’s some kind of cheating.
- xoxoy 6y ago
  the credits are forecasted to get much smaller in 2021/2022 and will go to $0 in next few years as more manufacturers roll out their own EVs...so if investors are excited by the profitability these credits afford Tesla then they better move on figuring out how to make their stock appealing even without them.
  - mikelyons 6y ago
    Mission accomplished? (Accelerating the transition)
  - mrkstu 6y ago
    There are plenty of manufacturers behind the curve that will be buying credits for the foreseeable future.
    - marvin 6y ago
      The irony is that some of them will go bankrupt because they're unable to compete once electric vehicles become the obviously best option. So no more credits maybe, but also less competition.
      - rightbyte 6y ago
        When the battery supply is running smoothly it wont be hard making EVs. ICE vehicles are harder to make.
        marvin 6y ago
        Everyone assumes that cheap and reliable electric drivetrains and battery packs will shortly be a commodity, available to anyone in the 100 TWh/year volumes that are required to cover the world's road transportation needs. I'm betting that this won't be the case until about two decades from now. Battery cell & pack production will be a strategic requirement for any vehicle manufacturer that wants to produce in volumes > 100,000 vehicles/year. Also, the goal posts aren't fixed -- if your commodity battery packs cost 10% more than those the competition have access to, but are still expensive enough that they make up a substantial portion of the total vehicle cost, you won't be able to compete. So even though battery cells will eventually reach a point where it's "easy" to make an EV, there will already be enough competitors that make it economically impossible for new entrants to compete.
pedalpete 6y ago
Yes, but that's only $397M on $7.6B automotive revenue, and down 8% from the previous quarter. I take this as a good sign. The carbon credits will slowly reduce as other auto manufacturers introduce more electric vehicles, as long as Tesla's growth out paces that reduction. Based on current numbers, they reduced carbon credit sales by 8% while increasing automobile sales revenue by 45% (can somebody check my numbers). For the long game, that seems fine to me. Good in fact.
nickik 6y ago
While this is true, even if you exclude that the numbers are quite good. You are also not talking about operational profit, growth in that is often the preferred number to look at. And because of the amazing stock growth a huge amount of stock options had to be payed. This was a p eak payment and will go down again next quarter. A 20%+ margin on automotive without credits is quite fantastic actually, and that really is the core buissness people should be paying attention to. What you mention as 'core buissness' includes building multiple new factories at the same time, its not really comparable with other companies in this buissness. With Q4 we are looking at a further increase in overall sales, only slightly growing operational spending, and a drop in SGA. Q4 will finally stop the 'its only credits' storyline. That said, even years after people said credits will soon be over, the reality is that they are gone continue to increase as Tesla delivers more vehicles they actually get more credits, even when the value per credit goes down. We have been hearing the 'credit end next year' story so often that its almost a meme now. With auto makers continuing to go into SUV and Europe, China and California making pushing up requirements, there is little indication that every car maker will always manage to balance their fleet.
- zhaphod 6y ago
  >>the reality is that they are gone continue to increase as Tesla delivers more vehicles they actually get more credits, People completely miss this point (some deliberately so). At least in Europe, as each year progresses, the number of grams/km allowed will keep going down. It is 95g/km for this year. Thos who miss will have to pay a fine. FCA is pooling with Tesla to avoid this. Ford will miss due to fire hazard debacle. So on. Now even if the ICE makers are able to meet 95 gms/kms now, next year it will become harder. ICE innovation is not fast enough to keep up with regulation. Only way to avoid fines is to accelerate the EV+ICE mix. Some will do this not all. And this will hit their profitability. They have huge sunk cost on ICE side. They can't willy nilly junk that investment and move over to EVs. This mostly implies the legacy car makers will have to keep paying fines to EU or to pool with Tesla and subisidies the competitors growth. Win win for Tesla.
DarmokJalad1701 6y ago
Wrong. They made $874 million in profits out of which $543 went into stock based compensation, a non-cash expense. This happened because Musk became eligible for two tranches of compensation based on market cap + profitability. > meaning their core business still loses money Wrong. Even a cursory look at their earnings report would have told you so. They made 23% gross margin on automotive revenue excluding credits. How is making 23% gross margin "losing money"? The typical automaker makes single digit gross margins on their products. And they did all this while building out factories on three continents.
- zhaphod 6y ago
  Thanks for this. I don't know why people make easily disprovable statements. Do they think their ability to mislead is greater than peoples ability to read financial statements? Furtermore, CNBC brought on the "biggest" bear Gordon Johnson. He used the same technique to mislead. He used Tesla's update that they are now at 840K installed capacity, to claim that they have always been at that capacity and since guidance is to hit 500K, there is a drop in demand. This was a galling attempt to mislead and to prop up his own analysis.
deleted 6y ago
[deleted]
bryanlarsen 6y ago
Core business profit, AKA excluding non-recurring items: $331M GAAP - $397M credit sales + $280M Musk non-recurring non-cash option award => $214M core business profit.

by xoxoy 6y ago

m463 6y ago

They probably left it sitting in checking. I'm surprised their bank isn't calling them to upgrade their account. ;)

xoxoy 6y ago
They had $8M in interest income on $8.6B in cash last quarter lol.

vikramkr 6y ago

5 billion of the cash was from a recent capital raise. Those numbers give you a roughly .2% annualized interest rate, which doesn't seem unreasonable for the current environment.

xoxoy 6y ago
it is for a corporate treasury.

bryanlarsen 6y ago

> They made $331M in “profit” on $397M in carbon credit sales at 100% margin...meaning their core business still loses money. In the last quarterly update Elon said that his goal was to have a profit margin of 1-2% with the rest going to R&D and expansion. So as long as carbon credit sales are more than 2% of revenue, we'll hear the same complaint.

marvin 6y ago

Well, even accepting that premise, there's the small matter of the ~$500 million share issue constituting Musk's milestone payment. This drags the profit down a bit. Surely they won't repeat a payment like that every quarter from now on. And of course, running the biggest growth business on Earth at a significant profit probably isn't the wisest decision.

adventured 6y ago
> And of course, running the biggest growth business on Earth at a significant profit probably isn't the wisest decision. That depends on how easily the growth is achieved, and whether growth is well-served by shoving more margin at it. For a time Facebook was the fastest growth business on Earth, and they were carrying 50% operating income margins, because their growth didn't require them to cut into their profitability to accomplish it. Facebook increased sales 91 fold in ten years, from $777m to $70.7 billion. At their peak of profitability in 2017 (prior to the big spending expansion for network control & monitoring purposes) they had a 55% operating income margin. The growth came so easily their margin just kept expanding as they went. Before Facebook, Google and Microsoft both accomplished something similar along their growth paths (before eventually sprawling and becoming obese). Those beautiful software margins.

Hypx 6y ago

A long running problem with Tesla. Their accounting has always smelled, and this has only gotten worse with every passing quarter.

edmundsauto 6y ago
I'm not much of a financial guy, could you spell out the specifics in their accounting that smell? And whether this is a standard practice?
- Hypx 6y ago
  A large number of "this doesn't quite add up" type of problems, as well as quarter to quarter inconsistencies. For instance, accounts receivables goes up basically every quarter, but the reason for it always changes. People suspect large-scale fleet sales are being hidden in this term. Plus their general dishonesty in how they are presenting numbers. They're greatly downplaying how all profits are coming from credit sales, and use an unusual definitions of "gross margin" which doesn't include R&D and sales related costs.
  - edmundsauto 6y ago
    Is it dishonesty in the sense of “this is not an accepted accounting practice”? Or is it more “I don’t think this should be acceptable as an accounting practice”? Genuinely curious, not much of a finance person.
    - Hypx 6y ago
      The central point of proper accounting is that it prevents frauds, scams, Ponzi schemes, or other nonsensical companies from existing. Companies that feel free to abandon those principles are inviting the possibility of becoming one of those kinds of companies. In other words, it's a purely utilitarian argument. If Tesla is abandoning basic honesty in its accounting, then it's likely that there will come a day where, almost out of nowhere, the company collapses. We saw this with Wirecard recently, so this is not a unrealistic claim. This is arguably the worse possible outcome of an investment. My own views are very much secondary to what could happen if this continues. You should view this problem entire on the premise of what the real-world risks are, and how it could affect investors.

colechristensen 6y ago

But... so what? They made money doing a thing, and subsequently got to sell their product at a lower cost just as any competitors are able to do. People keep saying this like it’s some kind of cheating.

xoxoy 6y ago
the credits are forecasted to get much smaller in 2021/2022 and will go to $0 in next few years as more manufacturers roll out their own EVs...so if investors are excited by the profitability these credits afford Tesla then they better move on figuring out how to make their stock appealing even without them.
- mikelyons 6y ago
  Mission accomplished? (Accelerating the transition)
- mrkstu 6y ago
  There are plenty of manufacturers behind the curve that will be buying credits for the foreseeable future.
  - marvin 6y ago
    The irony is that some of them will go bankrupt because they're unable to compete once electric vehicles become the obviously best option. So no more credits maybe, but also less competition.
    - rightbyte 6y ago
      When the battery supply is running smoothly it wont be hard making EVs. ICE vehicles are harder to make.
      - marvin 6y ago
        Everyone assumes that cheap and reliable electric drivetrains and battery packs will shortly be a commodity, available to anyone in the 100 TWh/year volumes that are required to cover the world's road transportation needs. I'm betting that this won't be the case until about two decades from now. Battery cell & pack production will be a strategic requirement for any vehicle manufacturer that wants to produce in volumes > 100,000 vehicles/year. Also, the goal posts aren't fixed -- if your commodity battery packs cost 10% more than those the competition have access to, but are still expensive enough that they make up a substantial portion of the total vehicle cost, you won't be able to compete. So even though battery cells will eventually reach a point where it's "easy" to make an EV, there will already be enough competitors that make it economically impossible for new entrants to compete.

pedalpete 6y ago

Yes, but that's only $397M on $7.6B automotive revenue, and down 8% from the previous quarter. I take this as a good sign. The carbon credits will slowly reduce as other auto manufacturers introduce more electric vehicles, as long as Tesla's growth out paces that reduction. Based on current numbers, they reduced carbon credit sales by 8% while increasing automobile sales revenue by 45% (can somebody check my numbers). For the long game, that seems fine to me. Good in fact.

nickik 6y ago

While this is true, even if you exclude that the numbers are quite good. You are also not talking about operational profit, growth in that is often the preferred number to look at. And because of the amazing stock growth a huge amount of stock options had to be payed. This was a p eak payment and will go down again next quarter. A 20%+ margin on automotive without credits is quite fantastic actually, and that really is the core buissness people should be paying attention to. What you mention as 'core buissness' includes building multiple new factories at the same time, its not really comparable with other companies in this buissness. With Q4 we are looking at a further increase in overall sales, only slightly growing operational spending, and a drop in SGA. Q4 will finally stop the 'its only credits' storyline. That said, even years after people said credits will soon be over, the reality is that they are gone continue to increase as Tesla delivers more vehicles they actually get more credits, even when the value per credit goes down. We have been hearing the 'credit end next year' story so often that its almost a meme now. With auto makers continuing to go into SUV and Europe, China and California making pushing up requirements, there is little indication that every car maker will always manage to balance their fleet.

zhaphod 6y ago
>>the reality is that they are gone continue to increase as Tesla delivers more vehicles they actually get more credits, People completely miss this point (some deliberately so). At least in Europe, as each year progresses, the number of grams/km allowed will keep going down. It is 95g/km for this year. Thos who miss will have to pay a fine. FCA is pooling with Tesla to avoid this. Ford will miss due to fire hazard debacle. So on. Now even if the ICE makers are able to meet 95 gms/kms now, next year it will become harder. ICE innovation is not fast enough to keep up with regulation. Only way to avoid fines is to accelerate the EV+ICE mix. Some will do this not all. And this will hit their profitability. They have huge sunk cost on ICE side. They can't willy nilly junk that investment and move over to EVs. This mostly implies the legacy car makers will have to keep paying fines to EU or to pool with Tesla and subisidies the competitors growth. Win win for Tesla.

DarmokJalad1701 6y ago

Wrong. They made $874 million in profits out of which $543 went into stock based compensation, a non-cash expense. This happened because Musk became eligible for two tranches of compensation based on market cap + profitability. > meaning their core business still loses money Wrong. Even a cursory look at their earnings report would have told you so. They made 23% gross margin on automotive revenue excluding credits. How is making 23% gross margin "losing money"? The typical automaker makes single digit gross margins on their products. And they did all this while building out factories on three continents.

zhaphod 6y ago
Thanks for this. I don't know why people make easily disprovable statements. Do they think their ability to mislead is greater than peoples ability to read financial statements? Furtermore, CNBC brought on the "biggest" bear Gordon Johnson. He used the same technique to mislead. He used Tesla's update that they are now at 840K installed capacity, to claim that they have always been at that capacity and since guidance is to hit 500K, there is a drop in demand. This was a galling attempt to mislead and to prop up his own analysis.

deleted 6y ago

[deleted]

bryanlarsen 6y ago

Core business profit, AKA excluding non-recurring items: $331M GAAP - $397M credit sales + $280M Musk non-recurring non-cash option award => $214M core business profit.