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Bryce_in_TX

Bryce_in_TX
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  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    I try to deal with facts as best I can. My posts look like I am bashing Tesla at times. At other times it looks like I favor Tesla (the fire debate for example). I do hope the company succeeds, but there are accounting techniques being used (non-GAAP) that I could never agree with based on real world experience. They are clearly under a lot of pressure to meet expectations.
    Oct 27, 2014. 06:44 PM | 1 Like Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    "Davewmart - As a businessman, I've learned that any risk analysis should include ALL relevant factors. Otherwise, the risk analysis is worthless. I doubt that very many readers will agree that the guaranteed residual value is high risk now that they know you're not willing to consider all relevant factors in your risk analysis. "

    It appears to me that Tesla is the one who has not considered all relevant risks, since they have made no accruals for returns under non-GAAP.
    Oct 27, 2014. 06:21 PM | 1 Like Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    "In a world where most car companies are run by accountants and in which virtues are only those things that show directly on a spreadsheet, Tesla's approach appears to be high risk. In the real world, the companies who depend on financial engineering rather than on the real kind are in the 'risky business'."

    Not accruing for returns is foolish and aggressive. My statement is based on real world accounting experience and the knowledge accumulated over decades of seeing other companies also do foolish things with their accounting because they were under pressure to meet analyst and investor expectations. I stand by what have said.

    I view the non-accruals as foolish as not accruing for warranties of products. If no Teslas are returned under the buyback guarantee, I will be very surprised.
    Oct 27, 2014. 06:11 PM | 1 Like Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    "I expect by 2017 the lease/loan buyback program will have ended, since traditional leases are already becoming available."

    I would view that as a wise move by Tesla. However, the time that has already passed are now "historical" periods and what happens in 2017 won't change the fact that if just 5% of lessees that took out a lease in the first 6 months of 2014 return their cars, for whatever reason, the non-GAAP Net Income faces the risk of being materially wrong.
    Oct 27, 2014. 06:05 PM | 1 Like Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    "Bryce - It sounds like you are assuming that the lease cars "will not" sell for more than the guaranteed value of the return. "

    What I said initially was: "The resale price of these non-AWD Teslas will have to be lower due to obsolescence.

    It will be interesting to see how the resale value of these older, less advanced Teslas holds up under the new scenario of more advanced Teslas being produced. "

    I don't know how the resale value is going to hold up under the new scenario of more advanced Model S cars being produced. I did make am assumption that it would have to be lower than it would be without the new, more advanced models to come out. If that doesn't hold up, it seems to me to go against common sense.

    If just 5% of teslas sold under lease contracts in the first 6 months of 2014 are returned under the buyback guarantee, for whatever reason, then it looks to me like the non-GAAP Net Income reported for that period of time will be on the border line of being materially wrong. Tesla is making no accruals that I am aware of under non-GAAP for any returns whatsoever. Even if the resale holds up, what if some of these very well to do lessees decide to use the buyback guarantee to simply avoid the "trouble" of selling the older model themselves, and give the car back to Tesla in order to upgrade to the more advanced Model? Not accruing for returns does seem foolish and aggressive to me for several reasons. I certainly don't view it as being conservative in principle.

    I agree with the author on his statements:
    "You see, Tesla has sold a great many S60, S85, S85P and S85P+ cars, in many cases to owners who do or would like to drive in the snow. Just think about all those Teslas that have been sold in Norway. Many of these Tesla owners are going to flip their existing RWD Model S cars to get an AWD P85D, or perhaps early next year go for an S85D or even an S60D replacement. This is bound to glut the market for used Teslas. Tesla made a residual value guarantee to banks and to Tesla owners who financed their cars and this guarantee is about to come back and bite the company, the shareholders and perhaps even Elon Musk."

    If wealthy lessees don't want to deal with the hassle of selling their older Model S themselves in order to upgrade to the new, more advanced Model, and simply use the buyback guarantee to get the new Model, then Tesla's non-GAAP accounting faces the risk of being materially wrong. That is what I am saying. I am simply agreeing with the author's statements. The non-GAAP accounting looks very aggressive to me, and Tesla has already been told to change how they report non-GAAP information by the SEC.

    Perhaps the author could go into more detail as to how he came to the conclusions that he did in the above statements. I certainly agree with them based upon what I have already explained.
    Oct 27, 2014. 05:52 PM | 1 Like Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    JRP3,

    Accounting deals with historical periods of sets of time, the first six months of 2014, in this instance, not "Tesla's Net Income in 2017 is going to be far greater, so it will have no material effect on the company." If the return rate on lease vehicle contracts signed in the first 6 months of 2014 exceeds 5%, then, IMO, Tesla's non-GAAP Net Income, for that specific period of time, will be materially distorted.

    I would also anticipate that by 2017, the guaranteed buyback amount for that time period will be significantly greater than $109 million. Again, I would rather see numbers that can be verified, rather than unsubstantiated statements to make your points.

    "That's only if you buy into your scenario that the buy back will only be a drain on Tesla and ignore the fact that those cars are valuable assets that will be sold again."

    I already said that accounting deals with historical time periods, not the future. However do check out my post here: http://seekingalpha.co....

    "It is in fact a small percentage."

    As I said, it is about 10% of cars sold. For accounting, something that is considered material starts at about 5%.

    "Companies and their auditors generally adopt the rule of thumb that anything under 5 percent of net income is considered immaterial."

    I'd suggest reading the entire section on "Materiality constraint", starting on page 57.

    http://bit.ly/1zdaPlo
    Oct 26, 2014. 09:41 PM | 1 Like Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    Answered my own question: under GAAP, the cost of a Tesla is depreciated fully over 36 months as an operating lease. So, for example, if it costs $80,000 to produce a Tesla (cost and not revenue), then that $80,000 less salvage value is depreciated over 36 months. So, selling that Tesla back to the company for the buyback guarantee makes the car's book value pretty cheap. Looking over the car, making any necessary maintenance, then reselling the car as a "certified pre-owned" vehicle makes the gross margin per car higher than the GM on a new Tesla, IMO, a lot higher. But, it also makes it necessary that Tesla sell most of these cars in order to realize a profit from the initial lease plus the re-sale. Else they lose money on just the initial lease.

    "Under the program, Model S customers have the option of selling their vehicle back to us during the period of 36 to 39 months after delivery for a pre-determined resale value. We account for transactions under the resale value guarantee program as operating leases and accordingly, we defer and amortize to automotive sales revenue the initial purchase consideration less resale value guarantee amount on a straight-line basis, over the contractual term of the guarantee program. Similarly, we capitalize and depreciate the cost of the respective operating lease vehicles less expected salvage value to cost of automotive sales over the same period. If a customer decides not to sell their vehicle back to us by the end of the resale value guarantee term, the amount of the
    resale value guarantee and operating lease vehicle net book value are then recognized in automotive sales and cost of automotive sales, respectively."

    Page 24 of 2nd Qtr, 201410-Q.
    Oct 26, 2014. 08:54 PM | 4 Likes Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    Making no predictions, just agreeing with the author that Tesla faces risks with its buyback guarantee. And not accruing for returns is plain foolish and too aggressive accounting, IMO. It's not one item that generally makes financial statements materially "off", "distorted", or "wrong". Generally, it's more than one item, which makes the failure to make accruals even more egregious. The non-GAAP accounting tells me that Tesla is under significant pressure to keep things going their way.

    You aren't going to believe me, but I like Tesla, but I am not invested in it in anyway. Pointing out what I consider weaknesses. You won't hear a squeak of any type of weakness, generally, from the bulls and those who own a Tesla.
    Oct 26, 2014. 08:33 PM | 1 Like Like |Link to Comment
  • Gulf Arab states face cutbacks on oil price drop [View news story]
    Took out call options on schlumberger, which don't expire for over a year, when it was around $90 per share. Keeping my fingers crossed.
    Oct 26, 2014. 08:24 PM | Likes Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    Not accruing for returns is plain foolish.
    Oct 26, 2014. 03:15 AM | 1 Like Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    About 10% of Tesla's were "leased" in the first 6 months of 2014. That is a material amount, even if you call it a small percentage.

    Tesla non-GAAP Net Income for the same time frame was was $33.16 million. $109 million in buyback guarantees was included in that non-GAAP Net Income as best as I can determine. So, a return rate of just 30% (30% OF $109 MILLION) would ESSENTIALLY wipe out all n0n-GAAP Net Income, if you don't count stock based compensation, and a return rate of just 5% (5% of $109 million) would make the non-GAAP Net Income materially distorted.

    Please use numbers to support your argument, not unsubstantiated statements.
    Oct 26, 2014. 03:11 AM | Likes Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    From the article:
    " Another Revenue Stream

    Cars.com Manager of Advertiser Insights David Greene echoed similar sentiments to Feinseth, saying that Tesla has to do something with cars that come back from leasing and buyback guarantee programs.

    “A certified pre-owned program will boost profit margins for every vehicle resold, and pre-owned vehicles traditionally have higher margins than new sale,” he told Benzinga.

    In general, a CPO program both helps to support new car prices, and creates a second market for used models, AutoTrader Group Director of Automotive Relations Michelle Krebs told Benzinga.

    “In Tesla’s case, it has an extra benefit because they reap the profits of those vehicle sales because they don’t have dealers,” she said."

    What they don't mention is that used Teslas returned to Tesla for the buyback guarantee money have already been counted as "sold" under their non-GAAP numbers. Any returns like this makes that "revenue" a liability, and not revenue. If this happens, Tesla's current practice of not accruing for returns (accruing more expense) will look as it is, foolish and very aggressive accounting. They will need boosted profit margins for resold vehicles to make up for the inaccurate and probably material overstatement of revenue under non-GAAP. My question is: how do obsolescing, less advanced cars demand a higher profit margin?
    Oct 25, 2014. 08:23 PM | 1 Like Like |Link to Comment
  • Tesla's 'D', A Disappointment And Huge Financial Risk [View article]
    " Those who already owned the model s can now buy a better version, pay Tesla (and us stockholders) and sell the old one back to tesla and the certified pre-owned division will get started!!"

    If it is the case of large sales of used Teslas back to the company, then the non-GAAP numbers being put out each quarter are likely materially overstating revenue. Instead of non-GAAP revenue, that cash will be paid back to the lessee = a liability to be paid and not revenue.

    The resale price of these non-AWD Teslas will have to be lower due to obsolescence.

    It will be interesting to see how the resale value of these older, less advanced Teslas holds up under the new scenario of more advanced Teslas being produced.
    Oct 25, 2014. 08:09 PM | Likes Like |Link to Comment
  • Gulf Arab states face cutbacks on oil price drop [View news story]
    We are seeing $2.69/avg prices today in Wichita falls, TX. $70 oil would yield $2.40 per gallon, or there about.

    http://bit.ly/1wsllla
    Oct 25, 2014. 07:48 PM | 3 Likes Like |Link to Comment
  • Fracking study blames poor well construction for tainted water [View news story]
    I did not say fracking causes the earthquakes. I said it appears that the disposal of the waste water associated with fracking is causing them, and causing significant damage. I have misinterpreted nothing. You said: "With respect to the fracking induced Earthquakes... come on, really! When I was in graduate school for Geology, we had a seismograph in the department, and every time the University bus drove by it went off. So yes, a bus also can cause an "Earthquake".

    You implied that I was saying that fracking itself induced the earthquakes. Wrong, I never said that or implied it. What I said was: "If you update your knowledge of what is happening today, versus prior to 2008, you will see that scientists are more and more of the opinion that the increase in quakes in states where fracking has increased significantly since 2008 is due in large part to the disposal of the huge amounts of waste water from the fracking."

    The article is about what is causing the contamination of ground water, true. I was trying to bring up the point that the disposal of waste water, associated with the huge increase in fracking in the last 6 years appears to be a bigger problem. The data is pointing to the huge increase in earthquakes as being caused by the disposal of waste water associated with fracking.

    Drilling for oil and gas and the use of electricity from these sources is not the problem, clearly. It is the disposal of the waste water associated with fracking that is. Your last comment is simply ridiculous. You don't appear concerned about the increase in quakes at all and this comment proves it: "Furthermore, this is a financial forum, not a place to vent your concerns about world order, the environment, your dog, hot dogs, corn dogs... whatever."

    My comments have to do with the financial costs to energy companies of having to change their way of disposing of the waste water and of respecting the rights of cities in regards to where the waste water may be disposed. Those are legitimate items to be discussed on a financial forum.

    I am not someone opposed to fracking or drilling for oil and gas, as long as it doesn't infringe on the legitimate rights of others by causing damage to their property.
    Oct 22, 2014. 02:50 PM | Likes Like |Link to Comment
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