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Tesla's Annual Report

Feb. 11, 2021 11:52 AM ETTesla, Inc. (TSLA)
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Ruerd Heeg's Blog
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Tesla (TSLA) filed its annual report or 10-K a couple of days ago, on 8 February 2021. It filed earlier than in previous years, much earlier than required by the SEC. That is strange because if you do not respect the SEC why would you file so early?

Why Tesla filed early

In 2020 it filed the 10-K already early on 13 February. I suspect the company filed early in 2020 because it needed to raise cash to prevent insolvency. The management saw the stock price going up and must have already heard about the new coronavirus. It did not want to spoil the opportunity, not knowing how crazy markets would behave during the rest of 2020.

Now Tesla raised another $10 billion in the second half of 2020 I do not expect it to raise even more anytime soon. So what else could have been the reason for Tesla filing the 10-K  early? Tesla might have done it to create a better opportunity for insiders to sell. Maybe Elon Musk is going to sell. But even more so Larry Ellison would be a fool if he did not sell know. For his great oversight of management, in particular its stock pumping and accounting, Antonio J Gracias cashed about 150k options netting him over $100 million. Also Elon's brother, Kimbal Musk sold more than 20k shares. Both directors sold on 10 February 2020, so 2 days after Tesla filed the 10-K.

Finished goods inventory

See also my post about Tesla's earnings announcement earlier this year. For many years Tesla was criticized because of its accounting. This accounting became more suspect now it turns out many items do not scale with deliveries. In my previous post I mentioned that this was not the case for accounts payables, accounts receivables and inventory. Now Tesla has filed the 10-K it also turns out that finished goods inventory does not scale with deliveries. At the end of 2018, 2019 and 2020 finished goods inventory was $1.581, $1.356 and $1.666 billion.

Our car manufacturing magician Elon does not open a new factory very often, or expand production capacity in existing factories. But when he does he always takes care finished goods inventory hardly increases no matter how many extra cars he produces. Even if he also starts producing a new model (model Y).

Purchase obligations

Over 2020 Tesla reported $5.7 billion of purchase obligations to suppliers. Certain short sellers suspect Tesla delays payments to large suppliers like Panasonic. The new 10-K would confirm this: for 2021 Tesla reports $10.5 billion of purchase obligations. That is about twice as much as over 2020. I do not find it very suspicious because production has almost doubled as well.

But it implies Tesla has to keep delivering nearly 200k cars per quarter, twice as much as a year ago. If demand for model 3 in Europe and the US keeps decreasing and demand in China disappoints Tesla may have a problem. So I think Tesla raised $10 billion of cash just to avoid financial distress from purchase obligations.


Tesla uses the same auditor already since 2005. In other countries, often with better functioning stock markets, a company can use the same auditor for at most 10 consecutive years. That is for instance the case in many countries in the EU.

China regulatory issues (again)

Chinese regulators have spoken with Tesla about "abnormal acceleration" and "battery fires." Without admitting anything Tesla told the regulators they are going to seriously look into them. I think Tesla has always denied sudden unintended acceleration occurred with its cars.

It is important for Tesla to find fixes for these issues very soon because otherwise the Chinese are going to repeat what they did with the Boeing 737-MAX. With an increasing number of Teslas on Chinese roads battery fires, suspension issues and unintended sudden acceleration are going to occur more frequently.

Hedging with Tesla out-of-the-money options

Are you worried about the general market? If you invest about 3-5% of your portfolio in long dated out-of-the-money options of Tesla I expect you to be flat when the market corrects with 30-50%. Moreover even if the market does not correct the share price may still crash resulting in these options to break even or even fully pay out. Therefore I think such options are one of the best possibilities to hedge your portfolio. See also this great article from Atlas Research.

Bottom line

My opinion on the stock is still strong sell.

Global Deep Value Stocks is a long only newsletter. I do not publish research on stocks like Tesla in Global Deep Value Stocks. See here for examples of what I do at Global Deep Value Stocks. For more information you can take a free trial here or send me a DM.

Analyst's Disclosure: I am/we are short TSLA.

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