A few quick comments on the $TSLA accounting change. 1/n

2/n ASU 2020-06 relates to how companies account for convertible debt and its impact on diluted earnings per share.

3/n ASU 2020-06 is NOT optional. For large public companies it is mandated that it is adopted for fiscal 2022 (if on a calendar FY).

4/n However, companies can CHOOSE to adopt ASU 2020-06 early, for fiscal 2021 (if on a calendar year).

5/n Apart from the choice to adopt a year early or not, the other choice is how the transition to ASU 2020-06 is handled. There are two ways - simply "full" or modified - full is basically restating prior periods with the new rules - pain in the ass...

6/n Second is "modified", where the company adjusts the opening balance of retained earnings at the date of adoption of the standard, along with disclosure on the impact of its adoption.

7/n For Tesla the impact of this adjustment was a net interest expense reduction of $145M goosing earnings by $0.15 per share in Q1.

8/n There will be similar disclosures in future quarters, however presumably the analysts will incorporate the reduced pro-forma interest expense in their numbers. Q1 consensus interest expense was $190M per Bloomberg vs. the actual $99M reported.

9/n There was zero disclosure on the accounting change on the Apr 26 30-page financial release, and no questions taken on the matter on the conference call. Very dirty IMO. This was even larger than their bitcoin windfall and a massive % of reported earnings.

10/n Analysts didn't seem to pick up on it much, probably as they were focused on margins and operating income. Goldman has now plugged in $100M even for interest expense next 3 quarters. Gary Black was expecting $140M in interest expense in Q1 FYI.

11/11 In summary: 1) Tesla had to make this change, 2) They chose to do it a year early 3) Didn't tell anyone they were making the change early 4) didn't disclose this on the 4/26 release 5) Didn't discuss on the call. I put this in the "legal but very greasy" category.

12/11 Deloitte discussion here https://dart.deloitte.com/USDART/home/publications/deloitte/heads-up/2020/fasb-asu-convertible-instruments

13/10 Important addendum (h/t to @jordan_mcrae_ for pointing out) https://twitter.com/Keubiko/status/1387516867070279680?s=20