After beating analysts' expectations and seeing its first profitable quarter earlier this year, Tesla is reporting another strong, surprising quarter.
In a letter to shareholders, Tesla CEO Elon Musk reported a second quarter income increase of 70 percent, to $26 million, over last quarter. The only problem? That's not using the Generally Accepted Accounting Principles required in earnings reports. Using the GAAP method, the company lost $30.5 million.
What gives? Matthew Yglesias explains at Slate:
The basic issue is that Tesla's cars are near-universally praised but also very expensive. So to help put people in cars, Tesla rolled out an innovative loan/purchase/buyback scheme that lets people basically lease the cars but with Tesla getting all the money up front via a financing arrangement with Wells Fargo or US Bank. GAAP rules, however, require Tesla to account for this like a lease with money coming in dribs and drabs over the course of the three-year term covered by the buyback guarantee. Measured in those GAAP terms, Tesla lost money.
Their preferred non-GAAP measure asks a bit more simplistically "did we add more money to the bank account by selling cars than we spent building cars?" and the answer is "yes."
But while it might seem like fuzzy math, it's not necessarily a "red flag" according to Yglesias. And it certainly doesn't seem to be to investors. As of this writing, Tesla stock has soared to record numbers and is, so far, up more than 16 percent.
That's helped by other positives signs from the company, including:
- Record sales of 5,150 Model S vehicles in North America;
- A production rate that grew 25 percent this quarter;
- Expansion in Europe and Asia;
- Estimated annual sales of the Model S at 40,000 by 2014;
- News that the Model X will be delivered by late next year; and
- A possible $35,000 car could come after the Model X.
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