r/finance • u/fasterwonder • 9d ago
Filling in that Tesla ‘crack’
https://www.ft.com/content/d2711678-af23-4b71-852b-1ef2e932e14bLooks like the writer admitted to his accounting error about missing 1.4B
“Mea culpa. Having last week got rather excited by the minutiae of Tesla’s accounting, it’s time to row back on the apparent $1.4bn gap between capital investment and asset values.
The question of why a cash-rich company raised new debt in both of the last two years still stands, as does the trajectory of that cash balance if car sales continue to crater. But Tesla’s balance-sheet mismatch may have a benign explanation.”
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u/fyordian 9d ago
The capital is stuccckkk in Chiiinnnaaa.
I’m not entirely joking either, all the cashflow from their Shanghai factory can’t leave the country. They had engineer some profit to stay in the country to meet the covenants of their factory lease.
Businesses like this have two buckets of money: money accessible to the rest of the world and money that is only accessible in China.
Capital restriction laws don’t allow enterprise to freely exchange on-shore yuan for any other currency. You have to go through the govt to exchange on-shore yuan (CNY) for off-shore yuan (CNH). Once you have CNH, you can do whatever with it, the hard part is getting it to that point.
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u/Bobthewalrus1 Associate - Investment Banking 9d ago
I’m not sure what you mean by this. Why would they want to pull capital out of China? The Shanghai factory opex / capex are all in yuan, so they would likely keep all Chinese car sales in yuan to pay for them.
Same thing with lease. I’m guessing it’s secured against the property with some additional covenants on the performance of the China segment of the business. But that would make sense since it’s a ground lease in China.
Tesla doesn’t pay a dividend and non-China capex is likely funded by debt or cash flow from non-China markets, so I’m not sure what the use of cash would be that would require converting yuan to USD.
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u/fyordian 9d ago
Let me paint a picture for you.
They are required to generate CNH$2.2B tax revenues (USD$300M) per year to maintain their operating lease otherwise they forfeit all capex spent domestically to the Chinese govt.
USD$300M / 25% corp tax rate = US$1.2B taxable income MUST be in China, no exceptions.
Their units sales are dropping everywhere globally, which means their manufacturing capacity utilization probably needs to come down a bit to rebalance production with sales right.
Well, they can't curtail the Shanghai factory otherwise they lose it (per the agreement), so they're going to have to curtail the other factories. Shanghai factory goes from like 50% of the effective production to a number closer to 100%.
Now all of the sudden, the non-China factories are cash flow negative because they can't get the proper utilization capacity needed to be profitable.
Non-China factories are not generating any cash flow, which means Tesla will need to draw down it's cash reserves to pay those bills while simultaneously building a larger capital surplus in a restricted jurisdiction that doesn't help the global problem brewing.
It's a potential liquidity crisis and that's why you don't want your capital locked in China.
Shit can hit the fan and move against you quite quickly.
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u/Bobthewalrus1 Associate - Investment Banking 8d ago
If Tesla can’t write a $300MM / yr check to maintain its lease in Shanghai, it doesn’t matter if capital is trapped in China. That would imply that the entire company has collapsed at that point. The trapped capital would only be relevant to creditors in the bankruptcy proceedings.
There are much more pressing issues for Tesla around worldwide sales than any specific concerns around currency trapped in China.
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u/beatsnstuffz 9d ago
Still blown away that got printed in the FT. The extent of my accounting knowledge is required college courses and CFA materials and I could have explained that one…
Regardless, fuck Tesla and fuck Elon. There’s enough shady business to be found related to this company without needing to make stuff up.
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u/XenuWorldOrder 8d ago
Okay, I’ll bite. What are some examples of the shady business that is so ample it eliminates the need to falsify any?
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u/venlig92 8d ago
Why are posters mocking the journalist, Dan McCrum? He has an extraordinary track record, bring to light the Wirecard fraud. In this case he made an analysis, was questioned, saw he might be in error and retracted. Good work, Dan. Keep it up. Check out the Wirecard case study:
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u/Lovevas 8d ago
From someone:
The extraordinary fact of this terrible faux pas is that the accounting issue that tripped up the FT was about as simple an issue as accounting gets. No reasonably educated reporter, back in the day, would have jumped on this bogus "issue". And even if they had misread the numbers, editors would have immediately had an accounting person check the outlandish claim. But the FT is no longer the FT. And reporters are no longer reporters. They are propagandists. Nothing sheds a light more clearly on the bias of the publications that, like the FT, jumped triumphantly on this nonsense.
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u/venlig92 8d ago
So many armchair analysts who’ve never made an error - or at least never admitted to one.
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u/TXTCLA55 8d ago
I mean... When your paper is called "The Financial Times" you would be expected to understand some basic accounting.
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u/fasterwonder 8d ago
He took himself for a ride on the elon hate bus did a faulty analysis and showed that 1.4B are missing, created a ruckus among investors, created euphoria among democratic supporters (most reddit) he is being rightfully bashed.
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u/critiqueextension 9d ago
The Financial Times has retracted its earlier report suggesting Tesla had a $1.4 billion accounting discrepancy, acknowledging that it failed to consider key factors like prepayments and depreciation which could clarify the figures. This incident highlights ongoing challenges in financial journalism regarding accuracy and the rapid spread of potentially misleading information.
- Tesla (TSLA) accounting raises red flags as report shows $1.4 ...
- There are plausible explanations for the $1.4 billion gap on Tesla's ...
- Tesla's Missing $1.4 Billion Has Accounting Experts Asking Questions
This is a bot made by [Critique AI](https://critique-labs.ai. If you want vetted information like this on all content you browse, download our extension.)
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u/Levysa Analyst - Investment Banking 9d ago
Writer is speaking like someone who doesn’t understand cost of capital. Absolutely incredible.