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1) Apparently there& #39;s some kind of nonsensical paper floating around claiming $TSLA& #39;s warranty reserve is *conservative* relative to claims. Here& #39;s some VERY back-of-the-envelope math explaining why I believe that& #39;s nonsense....
2) Including 30,000 cars from Q3 that might& #39;ve been on the road long enough to be eligible for warranty claims, Tesla has delivered around 670,000 cars since inception. If we assume 90% were sold (not leased, for which warranty work is expensed not reserved), it delivered 603,000
3) Of those 603,000 let& #39;s assume 95% haven& #39;t been totaled, meaning $TSLA had 573,000 cars actively using warranty repairs when it set its Q3 reserve. And remember, these cars get an 8-yr battery/motor warranty so EVERY car sold (except the rare Roadster) is still under warranty.
4) Q3 $TSLA warranty cost= $59M. Let& #39;s say 95% of that was for cars (not solar)= $56M. As we *know* it calls a lot of warranty work "goodwill" to avoid incurring the cost, let& #39;s say that was $2M in Q3 so actual costs incurred were $58M for 573,000 cars= $101/car
5) $101/car x 32 quarters of warranty= $3232 of lifetime expense. Facing $3232 of typical lifetime warranty expense, $TSLA instead provisioned $138M. Let& #39;s say 95% of that was for cars (not solar) = $131M for 88,100 non-leased cars = $1487/car.
6) So $TSLA provisioned $1487/car= $131M for lifetime warranty expense when- based on this analysis- it *should* have provisioned 88,100 x $3232= $285M, thus falsely adding $154M to Q3 "earnings." Additionally, it removed $37M from PREVIOUS provisions, adding THAT to "earnings."
7) I fully admit this is VERY back-of-the-envelope stuff (and feel free to poke meaningful holes in it!), but it& #39;s clear that grotesque warranty under-reserve significantly falsifies $TSLA& #39;s gross margin and earnings EVERY QUARTER.
