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$TSLAQ we have had an interesting week in the $TSLA vortex with a driverless death, the unexpected Consumer Reports takedown of FSD (astoundingly brutal) and China taking the lead on consumer protection for $TSLAQ products (really happened). (1/23)
With the earnings call this afternoon, I wanted to review one of the more fascinating replicating accounting anomalies within $TSLAQ: PPE capitalization vs reported expenditures and sales. Sounds boring? Then stop reading and move on because this is long thread. (2/23)
This is journal entry for the purchase of a fixed asset: (3/23)
This is the journal entry for the sale of a fixed asset: (4/23)
This journal entry resolves an additional accounting wrinkle due to the new leasing standard. (5/23)
For simplicity, these have been combined into this journal entry: (6/23)
These are the sources within the financials for each journal entry: (7/23)
These are the spreadsheets for collected data for the beginning/ending balances, depreciation expense, cash purchases, purchases with liabilities and the net losses. Each image is a year. Blue are starting or unusable due standard change. (8/23)
Once the data is collected and placed into journal entries, the plug – historical cost of PPE sales is then subtracted from purchases and compared to the difference between the total historical costs of PPE between quarters. (9/23)
This reconciles the reported change in PPE in the balance sheet to the sales and purchases reported in the cash flow & income statements. If the difference is reasonably close to zero, good. Anything consistently large, bad. (10/23)
Here are the results, year by year starting with 2017. Look at the yellow cell. The accumulated depreciation associated with asset sales is a credit. This is a basic bookkeeping error or something more nefarious. Look at the bottom line over/under capitalization. (11/23)
2018: (12/23)
2019: The Leasing Standard (ASC 842) changed which makes the composition & totals of PPE non-comparable from 12/31/18 to 3/31/19 to calculate the changes. But, look at the other three quarters. (13/23)
2020: (14/23).
For Q1 of 2018 & 2020 they undercapitalize PPE. For all other quarters except Q1 2019 (which cannot be calculated), they over-capitalize each quarter. The only impairment reported across these quarters is inventory & it’s only in the cash flow statement. (15/23)
At this point, $TSLAQ you might wonder where the credit went to offset the capitalized costs. It’s either cash, A/P or an accrued liability. Please feel free to theorize what the real expenditures were. But, it’s the negative accrual quarters that cranks my tractor. (16/23)
The journal entry for impairment of a fixed asset is attached. Where is the offsetting debit? It’s not in the cash flow statement as an impairment and a $250m charge isn't in the income statement. They most likely just credit the the overcapitalized PPE assets. (17/23)
I have shown/discussed this with QC (quality control) partners & managers of public accounting firms. We believe it’s a clean-up from the annual audit. But not in the period of the audit and in no way impacts the income statement. (18/23)
Just using the Q1 2020 adjustment, it would be the profitability for Q1 & Q2 plus $30m of Q3. So materiality is not theoretical. These were the profit quarters needed for S&P inclusion. (19/23)
We also have two of theories of the delayed correction. One is to dare PwC to withhold their opinion by announcing earnings early and promise corrections. Q4 earnings release dates have accelerated from 2/7 in 2017 to 1/27 in 2021. (20/23)
The second theory is that they just make an agreement to fix it in Q1 of the following year and let things fly. (21/23)
Disclosure: I currently have no position in $TSLA and will not open one in the next 48 hours. I have been short via puts and long via calls and common stock in the last 24 months. The long was much better than short. Big shout out to Fred Lambert's leaked emails. (22/23)
Addendum: Without the details in the 2021 Q1, it will be at least a month until I collect the data and expand to 2021 to see if the overcapitalization and decapitalization patterns continue. (23/23)
