Tesla Motors Inc. shareholders have had much to fret about lately, from a nosebleed valuation and sagging stock price to periodic YouTube videos of exploding Tesla electric cars. Here’s another one for the list: Sometimes Tesla acts like it doesn’t know what it’s doing when it comes to financial reporting.
Consider Tesla’s news release last week disclosing its third-quarter financial results. The headline said Tesla had “Net income (non-GAAP) of $16 million.” Tesla spent parts of the first three pages discussing this and other nonstandard metrics that don’t comply with generally accepted accounting principles.
It wasn’t until the bottom of the third page that Tesla began citing its GAAP quarterly results. Tesla waited until page four to mention that it had a third-quarter net loss of $38 million under GAAP. It didn’t show a table reconciling its GAAP and non-GAAP numbers until several pages later.
That practice of accentuating the positive and downplaying the negative seems to fly in the face of Securities and Exchange Commission rules that say companies must give “equal or greater prominence” to GAAP numbers when they present their financial results. The SEC passed those rules a decade ago in response to widespread abuses of non-GAAP measurements. The regulations apply to companies’ regular SEC filings, as well as earnings releases that companies furnish to the SEC as exhibits.
“We comply fully with all legal obligations regarding each earnings release and 10Q,” Tesla spokeswoman Elizabeth Jarvis-Shean said in an e-mail. When I asked her to explain how the presentation in last week’s release complied with the SEC’s rules, she declined.
To make sure I wasn’t missing something, I asked Dan Mahoney, who heads the accounting-research firm CFRA in New York, to review Tesla’s release. He reached the same conclusion I did. “Page three is less prominent than page one,” as he put it. “The number-one thing is that the headlines have the non-GAAP numbers and not the GAAP numbers.”
Most companies that play the non-GAAP game goose their numbers by excluding expenses. Tesla does this, too. It backs out stock-based compensation, for example. But the biggest kick to its non-GAAP earnings comes from an increase in top-line revenue.
The company reported third-quarter non-GAAP revenue of $602.6 million, which was about 40 percent more than its GAAP revenue. It achieved such a boost by transforming $171.2 million of liabilities into sales.