Tesla Reports 3Q2019 Net Profit – But Hold the Champagne

Perhaps not precisely every minute, but often enough to 

fulfill demand for "wise" investors

The market is abuzz with comments like “Tesla Shares Soar After Crushing Third Quarter Earnings” and “Tesla Wows Analysts with Quarterly Net Profit”.

So how excited is Abu Arqala?  Not much.

Has AA changed his view on Tesla?  No.

Why?

First, let’s look at Tesla’s 3Q2019 “performance”.

Reported GAAP net income is USD 143 million.

Sales of regulatory credits are USD 134 million.

That USD 134 million is 94% of the quarter’s net profit.   It has nothing to do with Tesla’s fundamental businesses making a profit.  Rather it is (another) gift from Uncle Sugar.  Corporate welfare.  See my earlier post.

Excluding that amount Tesla’s automobile and other businesses generated a “massive” net profit of USD 9 million in 3Q19.   AA is suitably un-wowed.

And of course there are likely to be other non-automotive regulatory credits sold, e.g., by Solar City.

On a simple proforma basis, that’s USD 36 million a year from the businesses.  An amount so large that in order to calculate it, AA had to employ both the supercomputer and electron microscope he used to calculate Saudi investment banking fees for an earlier post.  Saudi investment banking fees were much larger.

Net income for the first nine months is a loss of USD 967 million.  Excluding regulatory credit sales, the net loss is USD 1.428 billion.

AA thinks it’s interesting that regulatory credit sales were not mentioned in the breathless hype over Tesla’s “crushing” or “wowing” earnings. Are our financial journalists reading more than the press releases?  Do they understand the importance of regulatory credit sales to Tesla's business.  One (that would be AA) sure hopes so.

And a bonus link on an accounting change adopted in 2019 that makes Tesla look better on paper.

"Better" is a relative term -- as in USD 967 million in losses is "better" than USD 1.428 million.