Fresh off a week ban for making the mistake of responding to a GME post in the main thread! Our mods were a little trigger happy and left me a wonderful message of how I repeatedly went off topic in main yet provided no warnings or deletions leading up to the ban. Sorry for the delay in this response! Tesla deciding to disclose premium connectivity or FSD as a separate line item will ultimately come down to the materiality of those revenues relative to rest of business. With a potential monthly subscription option and hopefully higher take rates, there likely will be a point that they start to disclose it as a separate line item, but I personally don’t expect to see it for at least a couple years. As an example, I believe Apple only started disclosing services as a separate revenue item in the last 2-3 years. On your second question, I can’t see the costs relating to continued development of FSD ever moving off of the R&D line. One of the reasons that software services have such high margins is that they don’t have high costs of sales/services (COS), since all of the engineering related to their development were flowing through R&D over several years and are rarely capitalized to balance sheet and subsequently amortized as a component of COS. The core logic would be that the continued R&D has nothing to do with the current release of FSD, which is what the revenues ultimately relate to. So, the COS have to be matched to the current revenues, which again would have very limited incremental costs if any.
Thanks for setting out your view on this - very helpful. I guess I have been thinking of this too much in terms of the (internal) management accounting I have been used to seeing to justify ongoing R&D (development) expenditure on building/enhancing software products. Thanks again
Tesla Valuation Allowance (VA) from the 2020 10-K: tsla-10k_20201231.htm "As of December 31, 2020, we recorded a valuation allowance of $2.93 billion for the portion of the deferred tax asset that we do not expect to be realized. The valuation allowance on our net deferred taxes increased by $974 million, increased by $150 million, and decreased by $38 million during the years ended December 31, 2020, 2019 and 2018, respectively. The changes in valuation allowance are primarily due to additional U.S. deferred tax assets and liabilities incurred in the respective year. We have net $260 million of deferred tax assets in foreign jurisdictions, which management believes are more-likely-than-not to be fully realized given the expectation of future earnings in these jurisdictions. We did not have material release of valuation allowance for the years ended December 31, 2020, 2019 and 2018. We continue to monitor the realizability of the U.S. deferred tax assets taking into account multiple factors, including the results of operations and magnitude of excess tax deductions for stock-based compensation. We intend to continue maintaining a full valuation allowance on our U.S. deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Given the improvement in our operating results and depending on the amount of stock-based compensation tax deduction available in the future, we may release the valuation allowance associated with the U.S. deferred tax assets in the next few years. Release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded." Sounds like Elon's CEO compensation plan is generating sufficient tax deductions to obviate the need to claim the VA at this point. It has now grown to $2.93B (and will be claimed when needed). Sweet. Cheers!
So as soon as Tesla’s market cap stops skyrocketing and Elon is not getting paid, then a huge chunk will be released and make the price skyrocket again. So no downside?
Projecting the current trend forward (5-wks since peak SP), TSLA 6-Mth closing average SP could reach a near-term peak at ~$600M in about mid-April (subject to extrapolation issues projecting 6 wks on 5 wk trnd) Were that to occur, presumably some adjustment would be made to SG&A expenses for Elon's 12th tranche ($650B level). However since this is a small amount relative to the 11 tranches previously incurred over the previous 10 months, I don't think the adjustment will have substantial consequences for SG&A. Further, it would almost currently amount to a slight delay since clearly the Mkt Cap to TSLA will far exceed those levels over the next 5 years (here's a summary of the terms of the package): Tesla Announces New Long-Term Performance Award for Elon Musk | Jan 23, 2018 Cheers!
Tesla only accrues expenses for tranches deemed achieved or probable. So far there are 7 such tranches which correspond to market caps from 100b to 400b. Stock price movements above 400b have no effect on Musk's stock comp expense. In fact I don't think any stock move can affect Q1, though I'll defer to @The Accountant on that.