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Bryce_in_TX

Bryce_in_TX
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  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "It really does not matter that the 2013 revenues start to be added back by 2016. In 2016 the business is doubtless selling in the order of 100,000 units or more. In 2013 only 20,000 units. The contribution from a part of that 20,000 will have a very small positive affect on the accounts in 2016, but selling more vehicles in 2016 will cause a disproportionately large GAAP lease accounting deduction not to be returned to the books in full until 2019 - and so on."

    You are making an argument for why the lease accounting will become less relevant as time passes, not more relevant. In 2013, tesla sold 5,179 vehicles with the resale value guarantee. In 2014, they sold 5,224 vehicles under the same program, a 1% increase. Those are the facts. In 2013, Tesla's total revenue was $2.013 billion, in 2014 it was $3.198 billion. Total revenues grew by 158% while revenues from the resale value guarantee rose hardly at all. 2015 is projected to be around $6 billion. If the increase in sales from the resale value guarantee program continue at the pace of 2014, by 2018 the sales will be immaterial to revenues, and deferred revenues from 2013 to 2015 will begin to be added back, further lessening the impact of any deferred revenues in 2018. By 2018 or 2019, the sales from this program might not even be material to economic net income, assuming Tesla is still in business, since prior years deferred revenue will be added to GAAP revenue for the year.

    "Luckily it looks like this BS will stop in 2017 when the new GAAP rules come into effect. That will be interesting to see Tesla suddenly seem to earn an extra $2 billion of GAAP revenues in January 2017 out of thin air without a penny of it arriving in the bank (just as not a penny is deducted for this in 2015). It's a complete crock from all angles and should be nerfed. "

    You show a complete lack of respect for GAAP and a complete lack of sense of risk for Tesla to remain in business. As for whether the new revenue recognition rules to be applied to customer contracts will apply to Tesla is yet to be determined, as Tesla states in the 2014 10-K.
    Mar 31, 2015. 05:26 PM | 1 Like Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    "Nobody cares abut the nit picking on the order of a sentence for goodness sake - and if the big boys from Goldman Sachs etc talk about non-GAAP that is perhaps because they have a better grasp of the situation that you do perhaps - not because they were somehow hoodwinked by sentence construction - just at a guess."

    I refer you to what the lawyers who helped take Tesla public said, once again:

    "Item 10(e)(1)(i) requires that the GAAP comparison numbers in an earnings release must be set forth with equal or greater prominence to the non-GAAP numbers. For instance, if an issuer announces GAAP and non-GAAP earnings per share in its press release, it should report the
    GAAP earnings per share prior to the non-GAAP earnings per share. The issuer also should avoid highlighting non-GAAP achievements in the title or subtitle to its press release (e.g., “Company Achieves Record Non-GAAP Earnings”). "

    Tesla is in clear violation of said regulation with every shareholder newsletter that they release. Goldman Sachs has NO AUTHORITY in what the SEC establishes as the law. Tesla would be wise, for the sake of its shareholders, to pay heed to the law. I have shown where Annaly Captial Management and Realty Income Trust, as examples, abide by it.

    BTW, the stockbased compensation is a real expense, not imaginary. I will debate that with anyone, including the most senior exec from Goldman Sachs.

    So, the non-GAAP is not entirely accurate, IMO. It fails to accrue for returns on guaranteed resale value sales, fails to take into account the risk of Tesla not being profitable and remaining in business (Enron like in this regard), and fails in regard to not accepting the stock based compensation as a legitimate expense.
    Mar 31, 2015. 04:51 PM | 4 Likes Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    ""sold but not yet delivered"


    OK that is out of order. As you well know Tesla has a tight definition of sales."

    It's not "Tesla's definition" but GAAP's and that definition I was not referring to obviously. The car had been ordered by a specific individual, the deposit made and, in good faith, Tesla was shipping the car to be picked up by the customer. It was out for delivery. That is what I meant by sold but not yet delivered.
    Mar 31, 2015. 04:33 PM | 3 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    "You are a knowledgeable, if somewhat irritable, bean counter, aren't you? "

    No, I have a degree in business admin with a major in accounting and a minor in econ, with experience in doing accounting for both publicly held and private businesses that I helped manage.

    "you were debating Cecil's assertion that GAAP and cash must converge as a general rule, not that it will not happen for TSLA. "

    I was refuting Cecil's assertion that the guaranteed resale sales will continue anywhere near close to a 50% annual increase, which would be necessary for his example to hold up, and I cited 2014's sales as proof of that assertion. It is my assertion, not Cecil's, that GAAP and cash accounting are essentially the same over time, the difference being the timing of transactions, not the amounts.
    Mar 31, 2015. 04:22 PM | Likes Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    "This is owing to the fact that both of those items which in the case of Tesla create large distortions under plain-vanilla GAAP are disconnected and materially at odds with Tesla's bank balance as well as disconnected from relevance to any decision making relating to managing business opportunity and risk (including identical decision making processes relating to investing and valuation)."

    Materially at odds with Tesla's bank balance, yes, but so are accounts receivable and payable not yet collected. Stock based compensation does not create a distortion and I have explained in detail why that is so. Musk is only paid in stock compensation. You want to argue his services have no economic value, then you have an argument, otherwise you don't. And that compensation factors in to company valuation.

    On the guaranteed resale value sales, Musk is essentially using the value of the company to insure the resale value for customers. It is far from certain whether Tesla will remain a viable company and remain in business. So, there is business risk involved. I don't agree with your logic.

    "There is no need to imagine that Tesla's non-GAAP exists for some nefarious purpose. A risk of loss stated as 100.000% likely by GAAP that in reality is 99.999% unlikely to be true for this business is false information pure and simple and that serves no-one when only thing that matters to a market of both bulls and bears is to be able to make an informed decision. Bad information is simply unhelpful to all. It is not as though Tesla does not present fully compliant GAAP accounts to compare with the reality-adjusted non-GAAP picture."

    GAAP is conservative, and in this case, rightfully so. You state that the risk of loss concerning the resale value holding up is .00001%, but if Tesla, which is cash flow negative at the moment and either slightly unprofitable or about break even profit wise and making some very substantial capital outlays, fails, those guarantees will be worthless and the resale value of the cars will drop. False information, no, just conservative. GAAP has served investors well and will continue to do so because it has a governing board interested in the welfare of investors, creditors and other general purpose financial statement users. If you read any good books on investing, you'll come across topics on non-GAAP, some of it stating that company managements oftentimes use it to cherry pick the numbers to put their company in the best light. Tesla is no different.

    "@Bryce has been through all this from the opposite end and arrived at a technical proof that basically amounts to IFRS (generally accepted international accounting principles) disagreeing with GAAP and showing Tesla in profit in 2013 and 2014 - by allocating non-cash stock options to R&D spread over the life of the products that R&D helped build"

    It's not only stock based compensation in R&D. You are painting only a partial picture of what I have said, so it fits your distorted logic better.

    "It is clear that in the financial section starting on Page 7, GAAP accounts are indeed presented prior to a non-GAAP reconciliation that appears on pages 10 and 11 at the end."

    The non-GAAP reconciliation is a requirement of the SEC, not something Tesla has put together or decided to present itself. See page 4 in link:

    "Any public financial disclosure by a public company that includes a non-GAAP number, be it oral or written, is now subject to the requirement of Regulation G (Reg G) that such non-GAAP number be accompanied by and reconciled to the most closely comparable GAAP number."

    http://bit.ly/189OE5p

    So, both Page 7 and the non-GAAP reconciliation are SEC mandated items, and not Tesla's discretionary items. Your argument here is without merit.

    "It is nit-picking in extremis to quibble the fact that in the opening discussion non-GAAP numbers are compared with GAAP numbers in that order in the text and side by side on the same graph. It is far from a stretch of the imagination that the whole format has been developed and approved in conjunction with the regulators."

    Wrong on all counts. I refer you to an article written by two attorneys at Wilson Sonsini Goodrich & Rosati, which helped take Tesla public in 2010, pages 4 and 5:

    "Item 10(e)(1)(i) requires that the GAAP comparison numbers in an earnings release must be set forth with equal or greater prominence to the non-GAAP numbers. For instance, if an issuer announces GAAP and non-GAAP earnings per share in its press release, it should report the
    GAAP earnings per share prior to the non-GAAP earnings per share. The issuer also should avoid highlighting non-GAAP achievements in the title or subtitle to its press release (e.g., “Company Achieves Record Non-GAAP Earnings”). "

    http://bit.ly/189OE5p

    See where it says the company should report GAAP before non-GAAP? And see where it says the company should avoid highlighting non-GAAP achievements in the title or subtitle of its press release? Tesla is still violating both of these. Nitpicking? Nupe.

    "When taken to extremes and applied by fanatics, rules can often be counterproductive. That is self-evidently the case here. There is no natural justification or merit for the misleading and disinformative to be given prominence over the transparent when it comes to financial information."

    I think the accountants and rationally minded are chuckling at this point. You, sir, are the fanatic.

    "In the case of Tesla there is not even a justification based on equality of unfair treatment. There is barely if any other case (none that I am aware of) of a business in which GAAP works so hard to distort the financial picture from correct to incorrect in the absence of forensic accounting. FASB, the body that sets GAAP standards would agree."

    GAAP doesn't "work hard" to distort the financial picture of any company. Just the opposite. FASB and GAAP work hard to establish a broad set of rules so that economic information fairly reflects the underlying economic reality. You are twisting things to fit your distorted, emotionally charged argument.

    "As previously confirmed in discussion, the FASB has already ruled to amend GAAP itself to correct exactly this situation in upcoming versions of GAAP and it cannot have escaped the knowledge of the regulators that this is indeed the case."

    Not confirmed, but in a discussion with me, which I voluntarily offered. FASB has issued a new revenue recognition standard for contracts with customers that will become effective after Dec. 15, 2016. It was not issued specifically in regard to Tesla's situation. Tesla says in its SEC reports that it has not yet determined how this standard will impact Tesla. If you read the SEC reports, you would understand that.

    "Unfortunately GAAP (temporarily until fixed) contains an artefact that is so large (accounting for operating lease liabilities) that under these circumstances it essentially forces a slightly profitable company to continually report headlines of a technical loss - inflaming debate and speculation that the company is failing while nothing could be further from the truth."

    Tesla is in the growth stage of its development. Whether it succeeds is a matter of opinion, as is whether GAAP is wrong or not.
    Mar 31, 2015. 01:28 PM | 1 Like Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    @Davewmart,

    "I would be grateful for your lights on what I perceive to be a dangerous catastrophic cascade potential due to this self insurance."

    Your comments have reminded me of a similar situation with another company now bankrupt and out of business, Enron.

    Enron self insured itself from potential losses with using its own stock as a hedge. This looks similar with Tesla. So, there is definitely potential danger, the question is will Tesla find itself in dire need of cash and/or go bankrupt, making the guarantees worthless. So, there is more danger than I realized with the guarantees.
    Mar 31, 2015. 12:23 PM | 3 Likes Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    "I don't see why a delay in selling the cars is material information requiring an SEC investigation."

    Because it was a material number of cars which Tesla said was in transit for delivery, i.e. sold but not yet delivered. AS it turns out, they were, in fact, not sold. Because it is a material amount, not clarifying the situation in the SEC reports seems to be a material omission to me.

    But there are other factors as well, like the emphasis of non-GAAP over GAAP, in violation of SEC law.

    I think the SEC needs to sit down with Musk and his CFO, face to face, and straighten a few things out, since writing them has not done any good.

    I didn't mean investigation. I meant inquiry.
    Mar 31, 2015. 12:17 PM | 3 Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    @Mark Alexander,

    "You made a theoretic/academic point - that GAAP and cash must converge at some point. Cecil pointed out that this is only true if a steady state is eventually reached. Your original point was not rooted common sense. It was an abstract point, and the response was similarly abstract."

    My original point is rooted in my knowledge of GAAP and my work experience with it. What background in accounting, and work experience in the field do you have?

    Here is one of Cecil's posts:

    "In the case of Tesla under current GAAP rules it can most certainly defer all of its GAAP profits every quarter for 10 years straight at 50% CAGR because the deferred profits credited to GAAP accounts in each quarter will always be a trivial percentage of the new profits deducted and deferred under GAAP."

    The above assumes that the resale value guarantee sales will increase at a similar rate as total sales. That is an academic/theoretical argument that has already failed and will fail every year going forward. The resale value guarantee sales increased 1% in 2014. Going forward it appears they will be less and less a factor of revenue. That was my argument. That normal revenues, recognized the same under GAAP and non-GAAP, will over whelm the guaranteed resale value sales, making them less and less a factor in Tesla's revenue and Net Income or Loss picture. So, I contend that Cecil's posts about this subject are without knowledge or experience, as is yours here, based on an overly optimistic scenario of Tesla's growth, and specifically, Tesla's growth in guaranteed resale value sales.

    How do you achieve a 50% per year growth in guaranteed resale value sales, given that 2014 only saw a 1% increase in those sales?

    Given your posts on this thread, I'm not expecting a rational answer.
    Mar 31, 2015. 11:59 AM | Likes Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    Davewmart,

    Musk said in the 4th Qtr conference call that a product unveiling, in regards to the Tesla home battery, would be in the next month or two.

    "Yes, but we’re going to do -- we’re going to unveil the Tesla home battery [indiscernible] consumer battery that will be for use in and people’s houses or businesses, fairly soon. We have the design done and it should start going into production probably about six months or so. We probably got a date to have sort of product unveiling, it’s probably in the next month or two. It’s really great. I’m really excited about it."

    http://seekingalpha.co...
    Mar 31, 2015. 11:32 AM | Likes Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    @Davewmart,

    Good post on GAAP vs non-GAAP and about trust. It is as of yet unknown if the resale value of the Model S will hold up to equal to or greater than the guarantee. But, at this point, it appears that the non-GAAP, for that specific item, will be more accurate based upon the resale value of the Model S holding up thus far. But I agree with your argument about trust and that Tesla's approach doesn't instill it.
    Mar 31, 2015. 11:09 AM | 2 Likes Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    "But you have no evidence that Tesla hid huge numbers of cancelled orders, because you don't know when they were cancelled. "

    Well, from Musks' own comments about the situation, we won't ever know and it won't ever be reported in the 10-Ks, I'd have to assume. BTW, they need to find someone who can better translate the earnings conference calls into transcripts, OMG, the transcript is terrible.

    "But this whole China thing has been blown way out of portion. We didn’t execute people well on China last year, but it didn’t really matter or people couldn’t quite get that, like it’s not like the all these extra cars we could have produced and it’s only we’d had bunch more customers in China, we could have [indiscernible] those cars."

    http://seekingalpha.co...

    It doesn't matter, so it won't ever be in the SEC reports, I have to assume.
    Mar 31, 2015. 11:01 AM | Likes Like |Link to Comment
  • Tesla's: Marketing Machine Continues To Deflect Demand Discussion [View article]
    @David_RG,

    Take any foreign car maker, such as BMW:

    "Capitalized development costs comprise all expenditure that can be attributed directly to the development process, including development-related overheads. Capitalised development costs are amortised systematically over the estimated product life (usually four to eleven years) following start of production." (Page 100 in link)

    http://bit.ly/1CEUzL3

    I was thinking 5 to 10 years which is close to what is stated above.
    Mar 30, 2015. 07:27 PM | Likes Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    "Upon conversion, we will deliver cash and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of such shares of our common stock), as described in this prospectus supplement"

    I am not disputing how Tesla may settle the conversion. I am disputing "who" may convert. It is the bondholder's option to convert, as I see it, not Tesla's option.
    Mar 30, 2015. 07:01 PM | 1 Like Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    ""You are misinterpreting the convertible notes (debt). It is the holders of the notes who have the right to convert the notes into cash and common stock or cash, not Tesla."

    Wrong. I have the bond prospectus and Tesla has retained that right as a condition of sale. There is Tesla's right to issue cash compensation and a formula in relation to share value accrual over and above the conversion price.

    In this case your assertion is nonsense. If necessary I'll dig up the paragraph to prove it. "

    See page 79 and 80 of link:

    http://1.usa.gov/1GDd6Jo

    "Holders of the 2018 Notes may convert their 2018 Notes at their option on or after March 1, 2018. Further, holders of the 2018 Notes may convert their 2018 Notes at their option prior to March 1, 2018, only under the following circumstances: (1) during any fiscal quarter beginning after the fiscal quarter ending September 30, 2013, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;"

    Note it says, "at their (bondholder) option".

    "During the fourth quarter of 2014, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20 of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes may convert their notes during the first quarter of 2015. "

    The way I interpret this is the bondholders may, at their option, convert the notes at any time in the 1st Quarter of 2015. Nonsense?
    Mar 30, 2015. 06:56 PM | 3 Likes Like |Link to Comment
  • Elon Musk's Statement On Chinese Scalpers Contradict Tesla Spokesman [View article]
    Davewmart,

    "In a nutshell though you have summed up the basis of much of what those with severe reservations, the 'bears', have been arguing."

    The problem I have with bulls and bears is that legitimate arguments are discarded for bias.

    An example on the bears side is taking GAAP, unadjusted, as gospel because the GAAP results support their side. That isn't credible.
    Mar 30, 2015. 06:44 PM | 1 Like Like |Link to Comment
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