Tesla (NASDAQ:TSLA) Q-3 Earnings Follow Up Scrutiny

Tesla (NASDAQ:TSLA) Q-3 Earnings Follow Up Scrutiny

Tesla (NASDAQ:TSLA) Q-3 Earnings Follow Up Scrutiny


  • The Zombie Element (ZEV Credits) undermines Tesla’s Earnings

Tesla (NASDAQ:TSLA) beat The Street expectations for Q-3, posting a significant profit on revenue of nearly $7-B.

Recall Tesla’s only other profitable Quarter, that being Q-3 of Y 2016, analysts focused on something outside the business of selling all electric cars.

That something is called “non-ZEV” credits, and Tesla sold $137% for the Quarter. These credits are earned by Tesla outside the Zero Emissions Vehicle regime that is followed by California and 9 other states. But like ZEV credits, Tesla can sell them at any time, and automakers who do not produce enough vehicles to meet regulatory requirements have to buy them.

  • Tesla sold a large number of ZEV and non-ZEV credits in its profitable Q-3.
  • Tesla earns these credits because it sells only all-electric vehicles.
  • Tesla has sold credits every year to automakers who fail to meet regulatory stipulations.

The Key to Tesla’s blow out Quarter is that it marked it ZEV credit sales. And the argument is that Tesla cannot really post steady profits without that help.

Tesla has also been a very cagey about revealing its non-ZEV sales. The problem here is that because Tesla sells only EV, it builds up a massive number of ZEV and non-ZEV credits. They are, in a sense, a bonus payment for Tesla’s shouldering the risk of being the only all-electric carmaker in the US.

Tesla can also sell these credits whenever it wants.

Consequently, they should be thought of as the opposite of unexpected. As long as they are around, Tesla can tap them as a revenue stream.

“The help from other EV credits in Q-3 highlights that underlying operations were not as strong as the original earning’s release implied, and increases my thesis that Tesla’s Q-4 results will decline despite higher car sales.

Taking out credit sales, Tesla still posted a 0.55/share profit, according to UBS’s analysis. So even if Q-4 comes in around that level, Mr. Musk never said Tesla would run  profits through the roof in 2-H of Y 2018, he only said that Tesla would stop losing money.

So, looking at Tesla as I and other T-Bears do: Tesla lives and dies by ZEV and non-ZEV credits.

Tesla uses other cagey things to masks its reporting, and expect them to be in the SEC and FBI’s coming reports.

And the new Chairman

Whoever takes over as board chair must be tough as nails to stand up to Mr. Musk. The board needs to start showing some true corporate governance and look out for the best interests of all stakeholders, not just that of Mr. Musk. That will be a huge task as  Mr. Musk is an iconoclastic entrepreneur convinced he knows better than anyone what should be done to meet the future head on, even if his future are the Zombies he created.

Symbol Last Trade Date Change Open High Low Volume
NASDAQ:TSLA 341.4 5 November 2018 -5.01 340.5 343.955 330.14 7,831,000
HeffX-LTN Analysis for RACE: Overall Short Intermediate Long
Bullish (0.25) Neutral (0.23) Bullish (0.46) Neutral (0.06)

Stay tuned…

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