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Bryce_in_TX

Bryce_in_TX
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  • Two Good Signs For Tesla At CES This Week [View article]
    cparmerlee wrote:

    " So it seems to me we need to fully understand what the article is saying. The idea of a leasing company could be completely consistent with Lucky's initial report. That is, Tesla formed a leasing entity (remember Enron) and recorded sales to this leasing company. And that leasing company proceeded to register the vehicles although they will not be delivered to retail customers until some time in 2015."

    The article states that Tesla founded their own German leasing company. However, it doesn't appear to me to be an independent entity, but a subsidiary of Tesla. My guess is the German location is a branch of Tesla Finance which was established in April, 2014. (See page 24 of Tesla 3rd Qtr 10-Q, 3rd paragraph from the bottom)

    With Enron, the special purpose entities (SPEs) were separate from
    Enron but were noted in Enron's SEC reports under "Related Party Transactions" because Enron set them up. However, they were separate entities and their accounting was separate from Enron, so Enron's financials didn't include any of their assets, Liabilities, Revenues or Expenses. Enron recorded revenues from these entities when they sold assets to them. (Illegal because the entities were not really independent and the "revenues" were really loans.)

    With Tesla, there are no separate entities that have been set up. Tesla reports no related parties in their "Off-Balance Sheet Arrangement" section of their SEC reports. You are really offbase, out there on this.

    Number 1: Any leasing revenue would be included in Tesla's financials because Tesla Finance is part of Tesla. There is no hint of a related party leasing company that Tesla has setup to sell cars to in order to record illegitimate revenues. None.

    Number 2: Leased vehicle revenue is recognized ratably, month by month, over the life of the lease, not all at once. Only $1.3 million of lease revenue has been recorded from Tesla Finance over the first 9 months of 2014. (See page 29 of Tesla 3rd Qtr 10-k)

    Number 3: Enron's fraud involved GAAP accounting. I don't see that with Tesla. I don't see anything with Tesla that is comparable to Enron, nothing.

    You said:
    " The issue as of today is that there are vehicles registered in Germany, giving the impression of a sales uptick, when in fact those vehicles aren't sold to end users."

    I think you, and solucky, have misinterpreted the article. Here is the translation from two different interpreters:

    First translation:
    "We are very contented with the distribution during the past months, says Schröder. ' The fourth quarter was ours best generally up to now. ' Nevertheless, these sold cars would be delivered only in some months. Till then the licensing figures would not strongly rise."

    Second translation:
    "We are very pleased with the sales in recent months , says Schroeder. "The fourth quarter was our best ever so far . " However, this would be shipped selling car in a few months. Until then, the registration numbers would not rise far ."

    Both translations say that until a future events occurs (the delivery of the cars) that the registrations would not increase much. It doesn't sound to me as if the registration of the cars has occurred yet. It sounds to me that he is saying that commitments have been made to buy the cars, therefore they are sold, but that the registrations have not yet occurred, and neither has revenue been recorded.
    Jan 10, 2015. 07:08 PM | Likes Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    "I'm not as pessimistic as you with respect to EV adoption, assuming prices of the car falls materially. Combined with a more robust charging network, I see material market share on the horizon (3-6 years down the road) for EVs in warm weather states such as the 3 major coastal metro areas of California."

    Get the price down to $30K, and make a pickup, and you got a customer. Increase the range to 400 miles on a single charge and I'll buy both a car and a truck.
    Jan 10, 2015. 06:24 PM | 1 Like Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    A four year payback period would be okay with me.
    Jan 10, 2015. 06:18 PM | 2 Likes Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    A customer can have purchased a vehicle, and therefore the car can be "sold", but if the car has not yet been delivered (shipped from US to Germany) it can not be recorded as revenue, IMO. I think what we may be talking about in the German news article is a difference between the definition of "sold" and "revenue". The commitment or cash from the sale of the car can not be recorded as revenue until the car is delivered to the customer, IMO. That is the way I understand the article. If Tesla is recording as revenue the commitments or cash for the sale of vehicles before they are delivered, then I think Tesla has got a GAAP reporting problem. But, that's not how I interpret the article.
    Jan 9, 2015. 11:40 AM | Likes Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    "SO let's say there is a sham leasing company -- or even a legitimate one that really intends to operate like a proper leasing company, not just as a structure to falsify revenues -- then you agree Tesla is likely to claim those "sales" in their non-GAAP accounting?"

    I know of no leasing company other than Tesla itself. As stated in Tesla's SEC reports, there are no unconsolidated entities which Tesla has set up for any reason.

    Tesla was told by the SEC to stop emphasizing non-GAAP results over GAAP in a Dec 2013 communique'. Jonathan Weil, of Bloomberg News, wrote an article about "Cockroaches" at Tesla in Nov of 2013. So, Musk is under some pressure to deliver results. At present it appears the questionable accounting is relegated to non-GAAP data. The auditors required Tesla to state in its 2012 SEC reports that its internal controls over financial reporting were inadequate. It doesn't add up that they would then turn around and okay the "cooking of the books" for the benefit of Tesla.

    Sarbanes-Oxley instituted a lot of safeguards to try and prevent another Enron and make financial reporting more reliable, to include taking away the self-governance of the accounting profession which it enjoyed for a century. The auditors would have to be absolute idiots, IMO, to acquiesce to pressure from Tesla to violate GAAP standards.

    There are so many differences between Enron and Tesla, one of them being that Enron had the money to pay Arthur Andersen a lot of money, not only for the audit but for consulting as well. Those consulting fees are largely stopped under Sarbanes-Oxley. The financial incentive is not as great, IMO, both because of Sarbanes Oxley and because Tesla is basically a start up company, not an established one like Enron was.

    Other facts to know about Enron and why it is different from Tesla:
    (1) Andy Fastow, the Chief of Financial Officer for Enron, was in control of the off balance sheet entities (special purpose entities or SPEs) which Enron used to record fake revenues (it was really loans to Enron) and hide debt off of Enron's books.

    (2) Such conflict of interest of managing SPEs (which had a financial interest contrary to Enron) was prohibited by Enron's code of conduct. It took a Board of Director approval for Fastow to be able to control the off balance sheet entities (SPEs).

    (3) Fastow made some $30 million from the SPEs. He had a financial interest to screw Enron on the deals that were made with Enron, even though he was Enron's Chief Financial Officer.

    (4) Fastow's management of the SPEs was stated in Enron's SEC reports (allbeit ambiguously), as were the SPEs, under "Related Party Transactions".

    (5) The auditors had to okay the monkey business with the SPEs.

    There is no off balance sheet financing for Tesla, according to their SEC reports. (See Notes to Financial Statements under "Off-Balance Sheet Arrangements".) There is no conflict of interest I am aware of.

    I see no evidence for Tesla doing off balance sheet monkey business through structured finance vehicles. Tesla states there are no unconsolidated entities it is doing business with. Leasing company? Where? Who?

    http://bit.ly/1tTc1JZ
    Jan 9, 2015. 11:06 AM | 5 Likes Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    cparmerlee,

    "There you go again talking about this audit stuff. At this stage (December 9) no auditor has had to approve anything. Musk has some time to do something with this before the annual audit is completed. The issue as of today is that there are vehicles registered in Germany, giving the impression of a sales uptick, when in fact those vehicles aren't sold to end users. Whether or not Musk is able to slip this through audit is a secondary concern. He may be a lot more concerned with the PR factor of the German market that had essentially no sales during 2014. We don't know whether or not they are actually trying to reports this as sales on the annual report."

    If you are referring to solucky's post, I provided my own interpretation of what was stated in the German news article. It doesn't appear to me (based on the translation I used) that revenue has been recognized. As stated in Tesla's SEC reports, revenue is recognized when delivery takes place, in accordance with US GAAP.

    Show me evidence, not unsupported claims, of a related party transaction (s) where Tesla is recording revenue before a true delivery takes place with a sham or legitimate leasing company they have set up. No related party transactions are listed in the SEC reports.

    In regards to what Tesla's accounting staff are doing, the top management are CPAs and risk losing their license over such nonsense as you suspect. I don't believe what you claim is occurring. I think your thinking has become very distorted and out of touch with reality. There is a huge difference between GAAP and non-GAAP presentation of numbers. There are no standards for non-GAAP, and the auditors don't issue opinion on non-GAAP, so that gives Tesla leeway on non-GAAP to present numbers as favorably as possible. Agreed that musk is under a lot of pressure, but I don't think the CPAs who work for him would be so stupid to violate US GAAP in the basic recording of revenues. And how do they adjust it, if they did, so that it would pass an audit which starts in the next few weeks? Just doesn't add up.

    "History is littered with examples of shenanigans exactly like this one appears to be. Would that be right and ethical? No, of course not. But these things happen. All the time. "

    These things happen, but not all the time, no. I have worked with auditors and can tell you they have ethical standards. I have no clue what David Duncan, the lead Author Andersen auditor for Enron, was thinking nor Richard Causey, Enron's controller. But I do know that Duncan misled the Arthur Andersen home office.
    Jan 9, 2015. 08:36 AM | 2 Likes Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    cparmerlee,

    "The question is delivered to whom? They may have physically delivered the vehicles to the (legitimate or sham -- we don't know yet) leasing company. In that case, they very likely would have recorded it as a sale on Tesla's books. I mean, why go through all that if the intent isn't to cook the books? What legitimate business reason could there possibly be for doing the transaction this way?"

    As I stated to you in another post, leasing revenue is recognized ratably over the lease term, except for the resale guarantee amount which isn't recognized until the customer decides to keep the car, after the lease is over.

    In regards to a leasing company, there is NO related party transactions mentioned in their SEC reports, so I will ask you to show evidence to the contrary to support your thinking (distorted as I pointed out in another thread) that Tesla and the auditors are in collusion to "cook the books". I think you are way off on your thinking in this regard.
    Jan 9, 2015. 08:19 AM | 3 Likes Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    solucky,

    they can collect the money upfront, overtime, whatever, but it is not earned and recorded as revenue until the car is delivered, whatever delivered means, IMO. The car may be "sold" but until delivery takes place I don't see how revenue would be allowed to be recognized.
    Jan 9, 2015. 08:11 AM | Likes Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    cparmerlee wrote:

    "The idea of a leasing company could be completely consistent with Lucky's initial report. That is, Tesla formed a leasing entity (remember Enron) and recorded sales to this leasing company. And that leasing company proceeded to register the vehicles although they will not be delivered to retail customers until some time in 2015."

    If Tesla formed a leasing company I would think that should show up as a special purpose entity (SPE) in their 10-Q. That is how Enron did it. No off balance sheet financing existed in the 3rd qtr. 2014 or all of 2013, so I think you are out of luck. See page 38 in first and 90 in second link:

    "Off-Balance Sheet Arrangements

    During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes."

    http://1.usa.gov/1zZjvrm

    http://1.usa.gov/10qx4j9

    Comparing Tesla to Enron seems ridiculous to me. Enron created SPEs to record illegitimate revenues and hide debt, over 800 of them, and they (SPEs) were recorded in their SEC reports. This is very extreme thinking, IMO.

    For leasing, Tesla states their policy for revenue recognition in their SEC reports. Leasing revenues are recognized ratably over the life of the lease, not all at once, and the resale guarantee amount is not recognized until the customer keeps the car, after the end of the lease.

    You are on another planet (transalaton: deranged), IMO, if you think auditors would okay such monkey business after the auditing fiascos in recent history.
    Jan 9, 2015. 06:24 AM | 5 Likes Like |Link to Comment
  • Two Good Signs For Tesla At CES This Week [View article]
    solucky said:

    "Translated it means they sold and registered cars that will be delivered over the next months.....

    Maybee they use this strategy in more than one market ? At sample denmark instead 30 also over 100 registered....

    For me that might be legal but again misleading investors."

    Yes, but the cars are not yet delivered, meaning (IMO) that Tesla has not recorded the "sale" in revenue yet. They may be "sold" but where does it say Tesla has recorded the "sales" in revenue for cars not yet delivered?

    Here is the translation I get:

    "We are very contented with the distribution during the past months, says Schröder. ' The fourth quarter was ours best generally up to now. ' Nevertheless, these sold cars would be delivered only in some months. Till then the licensing figures would not strongly rise."

    The "sold" cars would be delivered, as you say, "over the next months". But it appears the licensing or registration doesn't happen until they are delivered ("Till then the licensing figures would not strongly rise.")

    According to SFAC 5 (see paragraph 84) and SEC Bulletin 104, revenue is not earned until delivery has been made. I have very, very serious doubts the auditors would allow recognition of revenue if it violated US GAAP.

    http://bit.ly/1zZjwLS

    http://1.usa.gov/1zZjwLW

    Furthermore, Tesla states on page 8 of their 3rd qtr, 2014 10-Q that they recognize revenue when delivery has occurred. For leased vehicles, they defer revenue recognition for the entire amount and recognize revenue as earned over the life of the least, except for the resale guarantee which is not recognized until after the lease period has ended and the customer decides to keep the car.

    http://1.usa.gov/1zZjvrm
    Jan 9, 2015. 06:09 AM | 2 Likes Like |Link to Comment
  • The Truth About Tesla's Gross Margin [View article]
    Steve,

    "I managed a profit center at a major assembly plant and when we put equipment in for a new product program, the engineering time to install that equipment was capitalized. "

    I would ask that you show me where, under current GAAP, the capitalization you describe is allowed. What guidance allows it? See pages 8-10 in link. Are we talking about R&D costs or something else? And are we talking about a U.S. company under U.S. GAAP or a foreign company under IFRS (even if it has a plant in the U.S.)?

    http://bit.ly/1xyhlDK

    SFAS 2 governs research and development costs under US GAAP. Note in paragraph 11.(b) [Elements of Costs to be Identified with Research and Development Activites], on Page 6 of SFAS 2, that it states:

    "b. Personnel. Salaries, wages, and other related costs of personnel engaged in research and development activities shall be included in research and development costs."

    Then Note paragraph 12 it states:

    "12. All research and development costs encompassed by this Statement shall be charged to expense when incurred."

    http://bit.ly/1sSgfes

    This says to expense all labor. I would hope the auditors would catch any material misclassification, as you are suggesting.

    An exception is when there is R&D labor to build a capital asset and the asset has alternative future uses. The asset may be capitalized, including the labor.

    Other than that, I would ask you, or anyone else, to show the FASB guidance that allows capitalization of R&D costs under US GAAP. I would also be curious to know how the accountants for your company viewed the costs you speak of. In your case, could the costs have been viewed not as R&D but as part of the cost of commercial operation?

    My accounting experience does not include working for an auto company or having much experience with cost accounting. (Note: a blanket disregard of what I have stated because of this paragraph will not be considered credible unless you can show me FASB guidance that over rules what I have presented.)
    Jan 8, 2015. 05:01 PM | 2 Likes Like |Link to Comment
  • Update: Linn Energy's Distribution Cut Hurts, But Its New 11% Yield Is Nothing To Whine About [View article]
    "They all done a bad job so far. "

    Can you be specific on Edward Jones and back it up with some data? I have a favorable opinion of them. I would agree that no really knows where oil is headed in the next 12 months. However, how is it that Jones "has done a bad job so far"?
    Jan 7, 2015. 10:53 AM | 1 Like Like |Link to Comment
  • Update: Linn Energy's Distribution Cut Hurts, But Its New 11% Yield Is Nothing To Whine About [View article]
    I agree that it may be too low. However, in talking with my local Edward Jones Rep. today, he said their target is $60 by the end of 2015.
    Jan 6, 2015. 06:11 PM | 1 Like Like |Link to Comment
  • The Truth About Tesla's Gross Margin [View article]
    "That could be $100M expensed that should have been capitalized."

    You mention the IRS, but tax accounting doesn't exist for accurately measuring revenues and expenses, nor matching them, so you are way off in expecting that from tax accounting. Tax accounting is a hodge podge of regulations, created by congress and the IRS, for bringing in revenue to the federal government. The 179 deduction is a good example of how its regulations fail to match revenue with the expenses that created that revenue. Other examples are writing off warranty expense as it occurs under tax accounting versus accruing for estimated expense under accrual accounting (expensing it as it occurs fails to match the expense up with the revenue generated from a sale. For example, selling a car battery in year 201X, then the battery failing and being returned in the year following the sale), or writing off a bad debt when it occurs versus accruing for bad debts on an annual basis, receiving prepayments before services are rendered which are recorded as revenue under tax accounting versus a liability under accrual accounting.

    Second, FASB standards require all R&D to be expensed as incurred under SFAS 2. That isn't a shortcoming of Tesla, that is a requirement under GAAP. All US manufacturers are under the same requirement. Manufacturers outside the U.S. follow a different standard (IAS 38) which allows capitalization of development costs. You seem to be saying the auditors don't know what they are doing. I respectfully disagree. So, I don't follow your argument.

    Would a better classification of most of the R&D be to put it under Cost of Sales? Probably. But current accounting standards allow it to be classified as a period cost, rather than a manufacturing cost. That is how it was taught up to at least 2003. It appears the tide is changing and that costs that can be identified with a specific project may be classified as a manufacturing cost in the future under FASB, but the guidance to date doesn't require it, just the opposite in fact. Daimler still classifies non-capitalized R&D as a period cost, broken out separately and not a part of Cost of Sales. So, I'm still not sure what you are trying to say.
    Jan 6, 2015. 05:41 PM | 1 Like Like |Link to Comment
  • The Truth About Tesla's Gross Margin [View article]
    "And as I see it, everything having to do with Tesla, the company, is a mess. The car seems to work OK. "

    OK? lol OK.
    Jan 5, 2015. 11:46 PM | 1 Like Like |Link to Comment
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