Tesla sube un 400% en cuatro meses: ¿un nuevo Apple o una vieja burbuja?
Of course, this brings us to Tesla (TSLA).2 A couple years ago, Elon Musk engaged in the
most blatant securities manipulation in recent memory. In response, the SEC slapped him on the wrist with a trivial fine and SEC Chairman Clayton declared:
It often is the case that the interests of ordinary shareholders – who had no
involvement in the misconduct – are intertwined with the interests of offending
officials and the company. For example, corporate fines often are financed with
funds that could otherwise benefit shareholders, and the skills and support of certain
individuals may be important to the future success of a company [emphasis added].
The potential shareholder loss due to TSLA unravelling is substantially larger today than
when Clayton said this.
There are so many examples of TSLA abusing its stakeholders that we could write about
them for pages every quarter. For the sake of space, we will talk about just one that has not received a lot of attention.
There have been more than a hundred documented incidents where drivers have reported
that Teslas have sudden unintended acceleration (SUA). It is generally believed that SUA
results from driver error for most cars. However, according to a study by Dr. Ronald A.
Belt, there is a problem with how a Tesla’s braking system interacts with its battery
regeneration system. The result is that, in certain instances, pressing the brake pedal causes the vehicle to accelerate, and the harder the driver presses the brake, the faster it accelerates.
In January, the National Highway Traffic Safety Administration (NHTSA) announced it
would investigate the SUA complaints. TSLA, as per custom, denies there is a problem. The reality is that the more technologically sophisticated products become, with complex,
intertwined hardware and software systems, the more difficult it is to design them for
universal adoption in real-world large scale deployments. The issue may be that the
combined software/hardware problem may not be easily fixable. In a way, it’s a similar
problem to what Boeing encountered with its new 737 MAX. And as Boeing showed, doing the right thing and recalling a defective product can be financially ruinous to the company and career-ending for management. TSLA’s management cannot be trusted to do this on their own. Rather, it is up to the NHTSA to perform its statutory mandate and order a recall of any Teslas that have safety-related defects.
The latest driver of TSLA’s parabolic move is speculation about its inclusion in the S&P
500 index. By rule, until a company is profitable for a year, including in its most recent
quarter, it isn’t eligible to be in the S&P 500. Through what appears to be sheer abuse of the accounting rules, TSLA has now contrived reported profits to make it technically eligible.
In addition to its routinely questionable accounting maneuvers,4 Tesla appeared to defer
employee compensation, depreciation expense on its new plant in China, and research and development spending.
However, the most notable development in the last two quarters came from the enormous increase in sales of regulatory credits. Historically, TSLA’s accounting for regulatory credits included the following sentence:
We recognize revenue on the sale of automotive regulatory credits at the time control
of the regulatory credits is transferred to the purchasing party [emphasis added] as
automotive revenue in the consolidated statement of operations.
However, in the Q1 ’20 10-Q, Tesla removed this language.
In both the March and June quarters, TSLA sharply increased its recognition of regulatory
credits. The company reported regulatory credit sales of $782 million in the first half of
2020, compared to $594 million in all of 2019. Historically, TSLA received cash for
regulatory credit sales, but this year they have piled up in accounts receivable. TSLA’s
primary customer for these credits (and exclusive customer in Europe, where most of the
credits are generated) is Fiat Chrysler (FCA), yet TSLA’s recognition of regulatory credits
seems inconsistent with FCA’s recognition of expenses for regulatory credits – FCA
recognized €327 million (around $370 million) of regulatory credits in the first half of 2020, or less than half of TSLA’s total. Historically, FCA’s accruals closely matched TSLA’s
revenue recognition. Moreover, the increase was in the face of TSLA delivering far fewer
cars in Europe in the first half of 2020. TSLA reported total GAAP earnings of $120 million
so far in 2020, which would have surely been negative without the regulatory credit overaccrual.
We question whether TSLA’s accounting, which does not appear to correspond to the
creation of regulatory credits through auto sales, transfers of those credits to a counterparty nor payment for those credits, conforms to GAAP accounting.
We suspect that TSLA changed its accounting policy during a non-audited quarter to
manipulate eligibility in the S&P 500 index. The consensus is that S&P will add TSLA to
the S&P 500 index at the next opportunity with a large weighting, forcing millions of passive investors to sell the other 499 stocks to make room for TSLA at whatever the price du jour.
We think the S&P 500 Index Committee has a tough decision to make as to how to respond to being gamed like this.
As with WDI and the DAX, we expect the TSLA parabola to end around the speculated
inclusion in the prestigious S&P 500 index.
