When there are endless permutations possible, one of them would give some leeway to Tesla on when to "take the actions necessary to make revenue recognizable". To give an extremely simple and crude mechanism - the deal might say - Tesla has to send the total number of cars sold (and their configuration or in which countries sold etc) in writing to FCA, then FCA will acknowledge the number and only then will FCA be obligated to pay. Tesla can decide when exactly they send the letter and how many cars they include.
I spent sometime to compile the below. As you can see Reg Credits and EU sales have little correlation. Infact the correlation comes to 0.284. The reg credits seem to be somewhat flat through out a year - irrespective of the delivery numbers.
In Q2 '20 The sales went down from 23k to 14k - but the credits actually increased from 354M to 428M. Then in Q3, sales jumped to 27K - but the credits went down to 397M !
View attachment 659000
What you’ve described would leave PwC and FCA accusing Tesla of committing fraud, and should FCA be aware of those actions they’d likely have reason to sue.
Why would they condone the party they are relying on for credits from withholding information and why would Tesla WANT to slow down their profits? If anything Tesla would have incentive to overstate and accelerate recognition, which again would be fraudulent.
Remember FCA is benefited from this deal, as the amount they pay for credit is cheaper than the penalty itself. So withholding that information would likely be a breach of contract and have caused commercial harm to FCA. Realistically, the agreement would stipulate exact timing or mechanism of information relaying between parties. Moreover, one or both parties would likely require a special audit report specific to any financial information tied to that contract, in order to attempt to prevent what you’re describing.
If anything you seem to want to believe that Tesla is being fraudulent. It’s perplexing.
I also re-read the 2019 Q1 10-Q note disclosure it’s pretty clear that the $140M is not related to the FCA deal. The language doesn’t speak to having been prepaid an amount for future deliveries. The $140M is more likely related to another earn and trade jurisdiction. This is reinforced by the fact that the note also says they intended to recognize it over 2-3 years, but recognized it within 12 months. That recognition just doesn’t follow a prepayment fact pattern, but does fit an earn and trade system (which the EU is not).
We also know about the VW China deal. You could assume 3000 yuan (~450 USD) per credit, with anywhere from 4-5 credits earned per vehicle (I’ve seen conflicting statements on the amount of credits generated per vehicle). What we don’t know is if any 2020 quarters would have had the same deal, likely at least Q4, but possibly even further back.
Maybe if you adjust for those two things, you may see a different correlation. I would reduce Q2 2020 by $140M (since that amount is unlikely to be related to EU) and also back out VW deal from Q4 2020 and Q1 2021. You would likely see much stronger correlation.
What the trend does seem to tell me is that the credits are front loaded to cars delivered in Q1 of the year. The latter makes commercial sense as I assume the penalty calculations are back loaded to Q4 where the pool members have a pretty good sense of what their penalty exposure is and may want more flexibility in pricing for credits in later quarters.
