Oh man. Someone pointed out this is probably why they moved the EC date up. I totally buy that.

Also explains why the CC was so somber.

But this is the FBI probe of the fake 2017 numbers, NOT the FBI probe of elon's tweets, OR the FBI probe of the fake Q3 numbers that is probably just starting. They will need a whole floor at FBI headquarters pretty soon. Just lol/

I actually had more typed out but I'll give the TLDR.

1. My posts were focused on "funding secured."
2. Even this model 3 production number investigation is probably nothing. I always said DOJ would keep the Musk/TSLA file open but as it stands the DOJ is unlikely to be filing a criminal case that will go to trial. Short of a smoking gun email from Musk saying the projected numbers are impossible, the DOJ would have a hard time proving the Model 3 projections were outright lies.

This whole thing strikes me as a bit weird. TSLA deserves some heightened attention for obvious reasons but ongoing investigations really aren't unusual at all. Most Fortune 500 companies have dedicated office space for investigators from SEC/FTC/IRS/EPA/Some other agency to work onsite because there is always some investigation/request for information going on.

A news article suggesting "criminal probe intensifying" DOES move the Bayesian needle in the direction that DOJ has some smoking gun and is getting ready for trial but not that much. Big picture is still SEC and DOJ are looking at Tesla but probably aren't ready/willing to go to trial.

There are multiple smoking guns that Musk lied about current Model 3 production numbers as well as Model 3 projections. You either haven't read the evidence or have nothing to do with the law if you think this isn't a very strong case that has a good faith belief in the chance of conviction.

Yeah, it's not like there's a concurrent civil case involving over a dozen former employees including VP level execs who informed Elon that his M3 projections were impossible, but Elon went forward with them anyway.

Oh wait....



That being said, TSLA is the only stock in history that could close green in the face of a massive down market and an FBI investigation for fraud.

The current production (amount + type) that he lied about is the "smoking gun". He said stuff that he knew to be false and that was completely false and extremely misleading material information just before a $1.8 billion bond sale. He also said on the January 2018 conference call about how it was impossible to do volume because of issues with the battery production, which he knew would take 6 to 9 months. He's hung by his own words.

It also helps establish that the projections were lies with all the other evidence.

just some funny observation i wanted to share:
this self-described 'growth company' hat growth capex of 7m$, or 0,1% of revenue, this quarter.

Despite the fact that grizy can never resist opining on tsla legal issues I am pretty sure he is in business not law (and a recent mba grad at that?)


The hand-waving away of all the probes and lawsuits with the ol' every company has a drawer full of investigations, no big deal is especially dishonest.

It is the consensus on situation among lawyers. I am sure you don’t have to look too hard to find lawyers that basically say:

DOJ will be around Tesla for a while, it will be annoying but chances are no charges will be filed. I never said it will just go away. I said there probably won’t be a trial and the investigations will serve to keep Tesla on its toes. The class action suits like Wochos are basically why courts kept hiking pleading and causation standards. They got sick of dealing with shareholder derivative lawsuits where the complaint basically amounts to: stock went down and management lied/made a mistake about something. It’s just not enough anymore.

I really don’t know why you’d cite a case that couldn’t get past dismissal. If anything, that case supports my point Musk/Tesla’s behavior, while shady and probably immoral, is probably not going to be proven as illegal under current law.

I have a JD and I still work more with the law.

damn looks like musk has made toothsayer look very silly indeed

let this serve as a lesson: try not to be so heavily guided by emotion when making your analysis

This time frame keeps appearing for how long now?
Shorts seems to be as emotional about this as the longs if not more in some cases.

Depends on demand too.

Every short knew this was the best Q for awhile. However the total decoupling of opex and margins with little to no explanstion was definitely unexpected

The 6 months covers the January and March debt payments. If they are so massively cash flow positive these payments will be easy without any new fundraise or refinance.

Narrator: They aren't.

Every, I am sure. And it will be obvious in their letters to investors.

So a simple example.

You sell $100/week of product, which requires $70 of raw materials bought in advance per each $100 of final product. There's a 3 week holding period before delivery, so that's $210 in raw materials that needs to be held.

You increase your production/sales 50% Q/Q and cut a week off your holding time. You now sell $150/week but only need two weeks of raw materials at $105/week = $210.

Inventory/raw materials stays the same while revenue goes up a week's worth. Where does this come through to the income statement?? This is hidden by non-increasing inventory and comes through as FCF, no? And Opex stays the same despite greatly increased production, which is exactly what happened with Tesla this quarter.

https://www.youtube.com/watch?v=Cmc-gzC0Pkk

then

https://www.youtube.com/watch?v=DvW_w5EL9cw

Let's say this is basically what happened. Maybe I'm a complete idiot, but I don't understand why this happening should have much of an effect on the bull or bear thesis. It's not something that can continually be improved by a week at a time. It should be hard-capped at not being able to deliver a car before it's made, and I don't see the mainstream audience willing to pay in full further and further before the car even starts production which is what it would take to keep this "adjustment" going in perpetuity.

Each marginal week of holding a Model 3 before delivery is less than $100 in interest payments even if it's loaned at 10%. This just can't possibly be a make or break difference between any sane number of weeks held. If they're selling cars at a reasonable margin, the market reasonably expects them to do so in the future, and they would be FCF+ this quarter if their hold time had always been 0 days, they're obviously always getting the money to facilitate sales. If they're not selling cars at a reasonable margin or that can't continue, they're going broke whether they get one more infusion or not.

That's the point. If markets were efficient the published results would correctly been seen as basically meeting analyst estimates rather than the blowout EPS it was taken as. The guidance given is straight bull**** because they used all their accounting tricks in Q3 and high end M3 sales are dead. Elon knows this but the bulls are buying it.

I mean I'm not an accountant but this seems like what is occurring to me. They basically had the breakeven quarter that everyone predicted thanks to exhausting high end high margin backlogged sales.

If you have to pay a supplier 10 days later ($750 million less at Deepak's statement about $75 million/day) while getting the same revenues at day 0, that's $750 million in FCF, which is what they did. Opex is flat and inventory is flat despite 50% increase in M3 production. In a steady state this would show up as a decline but because production increased it merely shows as oddly flat.

Add in stuff like one time supplier cashback rebates (that Musk was oddly begging for a few months ago), not refunding deposits, selling cars and bizarrely not delivering/changing VINs (possibly because of reselling), and it's one time huge boost to cash engineered for a single quarter.

Thanks.

Even bearish analysts revised targets upwards.

The analysts already had accounting "tricks" built in expecting more FCF from working capital improvements. What they got was something significantly better than expected.

Even if this weren't a blowout, it was near the top of the range of probable outcomes.

Pretty much agree


One other thing i learned is Tesla uses specific identification for inventory. Meaning each car has a spcific cost to it. The changing of VINs could very well be because the same car came through with lower costs allocated to it in an effort to push every margin $ tbrough P&L and would explain a lot of the decoupling/ large inventory balance.


The other side of this is it means you have very expensive cars in inventory (expensive to TeslA)

I have a feeling they have been doing this for a while considering how much inventory they are carrying.


Inventory write down only occurs if the net realizeable value is less than book value.


NRV is sales price less selling costs. So they very likely have been accumulating "expensive cars" in inventory ie. any requiring rework or have been sitting in dusty lots. Selling costs assumed is 100% a gamed metric and probably very low and definitely doesnt account for rework or if it does a very small amount.

It also explains why their margin got crushed that quarter when the drew down on inventory (4q17 i think)

Very interesting if true. This alone of course doesn't mean anything, but I'm still curious where this information comes from. Do you have any source?

The accounting scheme you describe would ceteris paribus drive up inventory though, right? If this made any difference, pretty much their entire inventory would have to be those "expensive cars" by now and everything else sold off, given they managed to keep inventory flat despite increased sales. Which means we should see the effect of this already next quarters, if true.