Tesla production, delivery number is changed several times between archiving

Tesla, Inc. publishes updated car production and delivery data more than once at the end of each quarter, and these numbers change frequently and question the quality of the company's accounting function amidst a wave of revenue in the department. [19659002] The shifting figures also allow electric car dealers and directors to act in advance on material information that often moves the stock price, an expert said.

Tesla

TSLA, + 4.64%

issues a press release immediately after the end of each quarter with a brief update of the number of cars produced and delivered during the previous three months. This press release also describes the number of cars in transit to customers and often cumulative totals for these key statistics on an annual basis.

When Tesla later formally announces quarterly revenues, usually one month after the end of the quarter, previous manufacturing and delivery numbers were announced, often changing, sometimes increasing and sometimes decreasing, but rarely conforming to previous announcements.

For example, on January 2, 2019, Tesla issued a press release for the fourth quarter production and Delivery Update which announced that 245,240 cars were delivered in 2018. Tesla also gave a breakdown for total model 3s delivered in 2018 – 145.846 – and total model S and X vehicles delivered – 99,394.

The January 2 press release broke out the 2018 deliveries by model, but these figures highlighted the delivery of 236 more model 3s and 84 more model Ss and Xs for the year than had been reported cumulatively throughout the year 244,920.

When the fourth quarter 2018 result expired on January 30, the total model S and X cars were delivered in 2018 higher again, now 99,475, or 81 cars more than what was published on January 2.

Tesla's 2018 10-K with the auditor's opinion was not filed with SEC until February 19, almost three weeks after the unaudited fourth quarter and the full-year result was announced. The 10-K has a new, new total end date, the total number of deliveries, higher than what was announced on January 2 with 266 cars and 32 more than when the earnings were announced, for a new sum of 245,506.

See also: Tesla short sellers continue to doubt, but the numbers back up earnings

That type of change has also occurred in other periods, as the chart shows.

The majority of Tesla's car sales revenue is recognized when control is transferred on delivery to customers. At an average price of $ 57,000 for model 3 and $ 72,750 for model ss and xs, this difference corresponds to about $ 19.5 million more revenue for 2018 announced on January 2 than what was cumulatively announced for each of those four quarters throughout the year.

The additional $ 19.5 million in revenue is just 0.11% of $ 17.6 billion in car revenue Tesla would continue to report for the full year 2018. That's much less than the "rule of thumb" 5% of revenue that can considered a significant difference for investors.

But the numbers are important if investors think they are – and Tesla shares often respond to news from the company.

Joseph Schroeder, assistant professor of accounting at Indiana University, told MarketWatch: "Information is important if there is a significant likelihood that an inexpensive person considers it important. Even though the delivery volume differences cannot be in themselves, be quantitative material in the accounts, each part of Tesla news often seems to be of great importance to the investor's perceptions of the company's future. "

A Tesla spokesman told MarketWatch that the company's Production / Delivery press release notes that the figures are subject to minor changes.

The spokesman said the company did not believe that these differences were a matter of control, but rather of final validation of all paperwork, and the differences were negligible. The supplier figures may vary somewhat, he told MarketWatch.

Schroeder told MarketWatch: "Companies make rounding numbers for filing and press releases, but to the extent that the differences accumulate at year-end to something more significant, they have the potential to change the interpretation of the information by users. Therefore, it is important that companies like Tesla invest in strengthening the controls on reporting and supplying important data to ensure consistent financial reporting. "A close successor of the company said that Tesla stands for production and delivery differently from other car manufacturers. [19659002] "There is growing evidence that Tesla does not follow the production and delivery tracking and reporting standards common to major manufacturers, providing maximum flexibility for Tesla during this development stage as an industrial player," said EW Niedermeyer, senior editor of mobility technology at TheDrive. .com

Niedermeyer told MarketWatch that since Tesla is a new car company, it may feel obligated to provide detailed updates on production and delivery progress.

"Tesla wanted to show that they could rake up production on model 3 the beginning in 2017. This is never a problem when the major car manufacturers introduce a new model. They do not provide much more information on vehicle delivery, and periodic production data at model level has anything but disappeared, says Niedermeyer.

CEO Elon Musk and Tesla are bound by an agreement with the SEC in September 2018 CEO and Company to allegedly make false and misleading statements about a possible transaction to take Tesla privately via tweet.

Musk again grabbed the SEC's attention in February 2019 for inefficiently controlling the material's non-public information, including production and delivery data. After the markets closed on February 19, Musk managed an apparent update to car production guidance:

A few hours later, Musk published another tweet to correct the former:

SEC staff asked Musk and Tesla again to confirm if Musk's new February 19 had tweets met the Tesla pre-approval procedures required by the decision in September 2018 Lawyers for both Musk and Tesla confirmed that Musk's tweeted information on the production number was not pre-approved by the company's lawyers.

In a revision to the original September 2018, April 27, Judge Alison Nathan ordered Musk and Tesla to obtain prior approval from an experienced securities lawyer employed by Tesla for any written communications containing information on several financial topics, including "Production Numbers or sales or delivery numbers (either actual, forecasted or projected) that have not previously been published through pre-approved written communications "issued by Tesla or which depart from previously published official company guidance.

Tesla has also had significant sales in the most important accounting and financial positions over the past three years. Dave Morton, the company's chief accountant, joined the company on September 4 after just one month at work. Morton was allegedly interested in taking over for Deepak Ahuja as CFO, according to CNBC.com.

According to the company's applications, Ahuja returned to the CFO position in 2017 after going in 2015 and then announced in January that he would retire. Tesla is named Zachary Kirkhorn, who has been with Tesla since 2010 and was executive vice president for finance, financial planning and business since December of December, as finance director in March. Vaibhav Taneja, formerly the company's business manager, was also called Tesla's new accountant.

Tesla's insider trading policy, which is described in its latest proxy, gives no detail on its trade restrictions during dark periods. A Tesla spokesman said that Tesla has blackout periods that occur before the delivery is released and that lasts after income. Like many public companies, he said that Tesla is trading blackout periods that are enforced and its executives may also have pre-determined 10b5-1 plans.

A rule 10b5-1 plan is a written plan for trading securities that, if established in good faith when that person was unaware of substantial non-public information, gives the manager or director a defense against insider dealing charges . It is true even if the actions are done while the individual may be aware of material, non-public information.

Read: Leaders and directors are insider dealing with auditing knowledge, new studies find

Indiana University's Schroeder, co-author of the new working paper, "audit process, private information, and insider trading, told MarketWatch: "To the extent that Tesla's production and sales reports are material information, it is important that important insiders refrain from acting before the release of this information. These reports come out shortly after the end of the quarter, so insiders need to be sure that trades made before the quarter do not violate trade bans on non-public public information.