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Model 3 FSD Conspiracy Theory

Discussion in 'Autopilot & Autonomous/FSD' started by MXWing, Aug 18, 2019.

  1. Eno Deb

    Eno Deb Active Member

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    I think the situation is far less clear-cut than you present it. If you use the original definition from 2018, there is no mention of the "FSD computer" and only a very vague description of the functionality. For example, on the original ordering page when it first opened the description of FSD said "In the future, Model 3 will be capable of conducting trips with no action required by the person in the driver's seat". You could make a claim that NoA meets this definition, because "trips" isn't clearly defined and the car can drive by itself for a while on carefully selected highway segments. IMO if Tesla wanted to, they could absolutely claim that they have delivered this simply because it is so vaguely defined.

    If, on the other hand, you use the definition of FSD today, which explicitly includes NoA, you could make a claim that it has at least partially been delivered, which means they could recognize at least part of the revenue right now.

    Bottom line is that after all the broken promises and general wishy-washy-ness and goal-post-moving around FSD, I have zero trust that Tesla will follow through.
     
  2. TIppy

    TIppy Active Member

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    From what I can tell, the rationale for deferred revenue is that there is a contractual agreement for delivered goods such that if you don't deliver or the order is cancelled, the revenue must be returned to the purchaser. So until the contract is fulfilled, the seller doesn't have complete control of the revenue. In this case, Tesla has never said they will return the fsd revenue for lack of fulfillment, so the money is theirs as soon as they receive it. Therefore, from a p & l standpoint, it is not a loophole. They really do have the money for good and should book it. Otherwise, it is a huge loophole from the tax liability perspective.
     
  3. TIppy

    TIppy Active Member

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    The article linked earlier in this thread said Tesla doesn't explicitly spell out deferred fsd revenue. They made some assumptions to come up with their approximation.
     
  4. EVNow

    EVNow Well-Known Member

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    Yes, they don't break it down or say how much - but they explicitly state that they defer revenue from FSD.
     
  5. EVNow

    EVNow Well-Known Member

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    As I stated above in one of the posts, there is definitely some judgement involved from both Tesla and auditors.

    You say that that they won't ever upgrade to HW3 ?

    We can revisit this in a few months and I'm sure you will have to eat humble pie.
     
  6. tander

    tander Active Member

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    In the big picture they are a slave to regulatory approval and insurance liability too right?
     
  7. TIppy

    TIppy Active Member

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    #67 TIppy, Aug 22, 2019
    Last edited: Aug 22, 2019
    So it could be something as small as when there is a risk of a refund, seven days past the end of their fiscal year. Or would it be ever quarter?
     
  8. EVNow

    EVNow Well-Known Member

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    What refund ? We are not talking about the 7 day return policy.

    I'm talking specifically about FSD. You do need to read the 10Q pages I referred to earlier.
     
  9. Daniel in SD

    Daniel in SD Active Member

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    Really?
    :rolleyes:
     
  10. TIppy

    TIppy Active Member

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    If you buy fsd, there is a risk for seven days that you return the car. If that happens, Tesla would have to refund fsd, so would never recognize the revenue. After seven days, they make no mention of refunds.

    I will read the 10Q pages.
     
  11. willow_hiller

    willow_hiller Active Member

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    Accounting for returned vehicles brings up an entirely different financial can of worms, but I doubt it affects Tesla's bottom line too much. The return rate has got to be pretty low.
     
  12. sixela

    sixela Active Member

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    #72 sixela, Aug 22, 2019
    Last edited: Aug 22, 2019
    I wouldn't have liked to have to defend that rather peculiar view to an auditor (I was in presales for 18 years and I can assure you that recognizing revenue is not that simple -- it's not a matter of "I didn't specifically tell you I could have to refund the money". In fact we were often told in no uncertain terms not to make any promises that would entail any delivery of services or goods in future, or risk deferred revenue recognition).

    In the industry I worked in, with the auditors my erstwhile employer had, even things like the due bills that Tesla creates when the cars are not in an impeccable condition at delivery would have deferred revenue recognition until all items on the due bill were addressed.

    It's a matter of law that if you don't deliver features someone pays for, even though you have "the money for good", you also have a contract, and if you don't deliver the goods you are in breach of contract. To think that you would not have to refund the money if you are in breach of contract is not a view auditors will look upon charitably; a breach of contract would usually be even more costly.
     
  13. Eno Deb

    Eno Deb Active Member

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    No. What I'm saying is that I wouldn't be surprised if they tried to weasel out of it.
     
  14. TIppy

    TIppy Active Member

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    #74 TIppy, Aug 22, 2019
    Last edited: Aug 22, 2019
    It depends on what language the contract contains. If there are substantial penalties or it states you forfeit your payments if you cancel your order prematurely, and you agree to those terms, then no you won't get your money back.

    They have sold you some hardware they claim will someday provide fsd. When are they in breach? They have given some nebulous conditions of when they are feature complete and regulatory approval has been received. They've given no time limit for these things to happen. So if regulatory approval doesn't come until 2050, they are not in breach? Since it's completely open ended, they won't have to return your money. You knew these terms when you purchased.

    There have been plenty of people who leased cars for three years and got nothing from the fsd option they paid for.
     
  15. EVNow

    EVNow Well-Known Member

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    Dude, it has nothing to do with refunds. It has to do with "goods not yet delivered".

    I'm done explaining this ….
     
  16. TIppy

    TIppy Active Member

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    When a company uses the accrual accounting method, revenue is only recognized as earned when money is received from a buyer, and the goods or services are delivered to the buyer. When a company accrues deferred revenue, it is because a buyer or customer paid in advance for a good or service that is to be delivered at some future date.


    The payment is considered a liability because there is still the possibility that the good or service may not be delivered, or the buyer might cancel the order. In either case, the company would repay the customer, unless other payment terms were explicitly stated in a signed contract.

    If there is no possibility that you have to repay the customer, the income is not deferred.
     
  17. Daniel in SD

    Daniel in SD Active Member

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    But there is always a possibility that a company might not be able deliver.
     
  18. sixela

    sixela Active Member

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    Welcome to fantasyland where contract law does not apply. Of course I am only familiar with Belgian and German contract law, but I have a hard time believing that US contract law in some states allows you to defraud customers...as long as you do not deliver there is a risk you would need to refund, regardless of what the contract says, and as long as that risk exists no sane auditor will allow you to recognize revenue.

    Not a single auditor I have ever encountered espouses your view. But I'll join others in saying I'm done discussing it.
     
  19. Big Dog

    Big Dog Member

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    That's incorrect. Tesla makes it clear that the FSD payments are non-refundable.

    The issue with Deferred in that the money is not yet earned. By taking in FSD monies, Elon still has an obligation to install HWx, and produce and release software; cash payments for FSD are only deposits right now and as such, not revenue.

    The handling of Deferred for FSD is no different than the 400,000 line waiters and Depositors on Day 1 for model 3. In that case, the deposits were refundable, but still, the cash in the bank was unearned by Tesla (since the company had not delivered anything).

    To be booked as Revenue, the money must be earned per GAAP. TLSA needs to start delivering on FSD promises to start to book those FSD payments are Revenue.
     
  20. TIppy

    TIppy Active Member

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    I guess I see that this could be a non-refundable deposit, but I don't know who would back out of a deal that had a 100% non-refundable deposit. What would be the point? So I think it's more than just earnest money.

    The question remains as to when has tesla breached the contract as far as performance? They mention it is not complete until regulatory approval has been obtained. That seems like a pretty open ended time frame. Are they off the hook past their stated eight year life time of the car.
     

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