Supercharging letter from Tesla 8-13-2015

[cpa]

The Supercharger dashboard shows 500kWh per car per year on average. That would put it at $50 per year minimum on average already - and this is before Supercharging is even available to everyone. (From smac's original post on this again.)

Upping the reserve from $25 to $50 or even $75 per car isn't that big a deal. Let's say an extra $1000 to $1500 per car over 20 years.

However, overstating income in an SEC filing is somewhat frowned upon.

So either Tesla would have to fix the reality to match the filing, or they would have to do a retroactive correction for the filing - which isn't going to make them popular in the press. Or say nothing and hope nobody notices or cares enough to report them to the SEC. It's not like Tesla has any enemies, right?

I am decades removed from auditing and expressing opinions on financial statements. I know enough today that some of what I learned has changed slightly; also, SEC reporting has slightly different rules from private companies in selected areas.

The only two situations that I can recall when financial statements must be restated is when the company (or the auditors) discover the dread "correction of an error." This leads to massive disclosures and restatement of prior periods as if the error was accounted for correctly in the proper accounting period. The second situation concerns adopting the obsolete "pooling of interests" method for accounting for business combinations.

Next up is the "change in accounting method" from one acceptable method to another. This could be for the change in depreciation method to/from declining balance to straight-line, LIFO/FIFO for inventory, and others. When this occurs, the cumulative effect going back to day 1 is calculated and presented/disclosed in the financial statements as a current period expense or benefit.

Finally we have the "change in accounting estimate," which is what the Supercharger liability accrual is considered. Financial statements are full of estimates. When circumstances change, or hard data prove that the calculations are materially incorrect, then the change is a current period item, and prior years are not restated. If the dollar amount is material, Tesla likely would disclose in a footnote (or management discussion) something like, "Supercharger usage over the past twelve months has exceeded our estimates by approximately $X per Model S sold. Accordingly, we have revised our revenue deferral per unit sold from $Y to $Z. We charged to operations approximately $AB,CDE,GHI in the current period to reflect this change in estimate."

Whether their "estimates" could run afoul of SEC requirements and invite scrutiny by their staff is something that I have no experience with in my professional career.

 

[smac]

Finally we have the "change in accounting estimate," which is what the Supercharger liability accrual is considered. Financial statements are full of estimates. When circumstances change, or hard data prove that the calculations are materially incorrect, then the change is a current period item, and prior years are not restated. If the dollar amount is material, Tesla likely would disclose in a footnote (or management discussion) something like, "Supercharger usage over the past twelve months has exceeded our estimates by approximately $X per Model S sold. Accordingly, we have revised our revenue deferral per unit sold from $Y to $Z. We charged to operations approximately $AB,CDE,GHI in the current period to reflect this change in estimate."

Whether their "estimates" could run afoul of SEC requirements and invite scrutiny by their staff is something that I have no experience with in my professional career.

Am I correct in assuming you think this is the likely outcome? (Assuming of course there is a mismatch!) I hope this came across as my working assumption here. I didn't intend to say there was an "error" in the accounting, or they have changed an accounting basis. Only the assumptions used to form the estimates have potentially been proven wrong as the available data has started becoming more statistically significant.

If this is the case, and the "change in accounting estimate" for period X to reflect the issue, wouldn't this by necessity be required to be considered in future casting of estimates?
(This is a genuine question, we operate under FRS right now, and I know there are differences between GAAP, UK GAAP and FRS)

I'm also intrigued to know your opinion on how you would forward cast these changes. My experience of deferred revenue is such that we don't have any exposure that runs over more than 12 months. So would you represent them as a singular one off correction in this year, or try to spread these corrections over future years?

BTW I'm lead to believe there are changes coming which mean both UK and US companies, floated or non-floated are all going onto IFRS. It will certainly help me when I try to reconcile personal experience of an SME to how listed firms run... Who know's I might learn some tricks

 

[TexasEV]

Bingo. It does not benefit Tesla, nor the community to have a clearly defined policy. The reason is there is so many gray areas to take into account of that it's impossible to have it be clear cut. Just trying to come up with an algorithm already shows this. The good thing about "soft" measures like the letter is that the consequences are low when you get things wrong (some owners got pissed off, but there was no disruption to their use of superchargers). When the time comes for a policy, it would have to be really well written to accomplish the given goals. Given how Tesla messed up something relatively simple as this letter, I have doubts it'll be done right. The other issue is that Tesla's goal is not to ban all use of supercharger networks for local charging, I think Tesla is perfectly fine with occasional use and a soft measure lets them allow for that.

I also agree with this and the post by Letsgofast that this was replying to. If there was a written policy regarding supercharger use, it would have the opposite effect of encouraging some people to increase their use of superchargers right up to the limit, to "get their money's worth". Better to ask people to use them responsibly and trust that will cause people to think twice about using local superchargers when they don't need to. Most owners will try to do the right thing and Tesla can deal with the small number of abusers individually. Bottom line is:
1. Don't use a local supercharger regularly as a substitute for charging at home, if you can reasonably charge at home.
2. Move the car soon after you get the charge you need.

I think almost everyone would agree with those two broad guidelines, even if a written policy can't cover every situation, and I think if owners followed these two broad guidelines, however you interpret it for yourself, Tesla would be satisfied.

 

[dsm363]

I do agree with starting to charge people per minute after charge complete after a short grace period. It would still be free charging but would encourage people to move their car at least.

 

[LetsGoFast]

2. Move the car soon after you get the charge you need.

Even that is sort of variable. I once allowed the car to charge to like 99% because I was literally the only Tesla at the supercharger and I wasn't done eating. In that scenario, I don't actually see a problem with staying connected. Virginia superchargers are very lightly used...

 

[smac]

I do agree with starting to charge people per minute after charge complete after a short grace period. It would still be free charging but would encourage people to move their car at least.

I agree it would help. But getting back to the thrust of the letter, it is aimed far more at not using Supercharger's at all.

Let's disect it a little:
It starts off with some waffley PR spin to remind you how good Tesla are as a business, then get's into a very strong selling message for home charging. Then we have a relatively small portion that has caused offence being somewhat accusatory (or indeed the idea here was to highlight how you personally might be "lucky" to have had this pointed out to you) immediately after it tries to soften this with an appeal to your conscious about common good of all users.

However it then gets straight back onto the sell side message of home charging. Finally attempting to clinch the deal with a a call to action. (I.e. click here for special home charging offers)

It's classic classic classic sales pitch/presentation strategy.

Maybe they got an intern to write the mailshot selection query, but the content and structuring of the letter itself was obviously written by someone that knew exactly what they were doing, and what they were trying to sell. In this case they are selling overall usage reduction not congestion reduction.

 

[PaulusdB]

...In this case they are selling overall usage reduction not congestion reduction.

And/or Home Chargers.

 

[bonnie]

And/or Home Chargers.

Yeah. That's definitely a profit center for them.

 

[smac]

Yeah. That's definitely a profit center for them.

Is it not outsourced in the U.S.? (It certainly is here)

 

[Scotty]

I see several different directions that this thread is heading.

Tesla changing it's tune about supercharging, after selling quite a few MS with no implicit limits on supercharging use. Before ordering my MS, my contact at the Rocklin Center promoted using the SC when it's convenient to me.

EM stating that there are 'ABUSERS' of SC's. No, while I heavily use the SC network, I have a HPWC, and ordered my MS with dual on-board chargers. However, I do not subscribe to limping back home to plug in overnight, and waking up in the morning to a 'charged' MS. That assumes that after arriving home, I won't need to use my MS again until the morning. This is another usage for the term 'Ludicrous'. Charging on AC at 80 Amps at 240 VAC is a whole different ballgame than DC fast charging at a SC at 375 Volts at 325 Amps. I am a 'USER' of SC's, not an 'ABUSER'. Is this analogous to the other team trying to change the rules of the game in the 7th inning, 3rd period, or 4th quarter?

Poor communications and misguided policy abounds. Collision repair prices, minimal-to-no support of salvage titled Tesla's, no direct parts sales, no service manuals, no diagnosis equipment/tools available, no right to repair (except in MA), convoluted ESA (different from other luxury car ESA's), now the 'SC Abuser' letter.

Maybe Tesla is taking the Consumer Reports Car Satisfaction Poll for granted. Do you wish to alienate your fan base? It's up to you.... you may reap what you sow.

Finally, I'm getting more and more concerned. Any talk of tiers or fee for charging is against what I signed up for, when Tesla and I agreed on me buying this MS. I have always been concerned about expanding the SC network. One only has to look at fossil fuel stations to know that the proliferation of EV's will MANDATE the proliferation of rapid charging solutions.

Yeah, I'm fired up about this letter. I don't care if the algorithm is flawed or not; I received the email, and I'm not conceding that Tesla and I agreed on SC limitations, or that using certain 'local' SC's regularly makes me an abuser. The closest SC to me is 43 miles away, but I do quite a few miles, and extensively use the SC network (10 months and 37,000 miles)

Scotty

 

[dsm363]

EM stating that there are 'ABUSERS' of SC's. No, while I heavily use the SC network, I have a HPWC, and ordered my MS with dual on-board chargers. However, I do not subscribe to limping back home to plug in overnight, and waking up in the morning to a 'charged' MS. That assumes that after arriving home, I won't need to use my MS again until the morning.

Are you saying when you get home you don't plug in? If you plug in when you get home and use the Supercharging network when you need it then I doubt Tesla considers that a problem. Your HPWC can fully charge your car in under 5 hours so easily overnight.

 

[stopcrazypp]

In this case they are selling overall usage reduction not congestion reduction.

I thought the gist was that both is required to keep the network sustainable. And by usage reduction it's the reduction of users offsetting home charging by using local superchargers. The main goal of the network from the start was to enable trips that otherwise would not be possible in an EV. Thus Tesla is very clearly not targeting long distance trips for usage reduction, as the superchargers are necessary for that. Even the city chargers are about necessity (people who have no choice but to use superchargers for daily charging). But the home charging offsetting Tesla obviously would want to reduce if not eliminate.

 

[arnolddeleon]

I also agree with this and the post by Letsgofast that this was replying to. If there was a written policy regarding supercharger use, it would have the opposite effect of encouraging some people to increase their use of superchargers right up to the limit, to "get their money's worth". Better to ask people to use them responsibly and trust that will cause people to think twice about using local superchargers when they don't need to. Most owners will try to do the right thing and Tesla can deal with the small number of abusers individually. Bottom line is:
1. Don't use a local supercharger regularly as a substitute for charging at home, if you can reasonably charge at home.
2. Move the car soon after you get the charge you need.

I think almost everyone would agree with those two broad guidelines, even if a written policy can't cover every situation, and I think if owners followed these two broad guidelines, however you interpret it for yourself, Tesla would be satisfied.

Behavioral Economics: http://freakonomics.com/2013/10/23/what-makes-people-do-what-they-do/

arnold

 

[PaulusdB]

Yeah. That's definitely a profit center for them.

Hello. I'm not the summer intern that wrote the letter.

 

[tinm]

I do agree with starting to charge people per minute after charge complete after a short grace period. It would still be free charging but would encourage people to move their car at least.

I would go another route. I would provide positive reinforcement for people who do the right thing, and provide a Hall of Fame on the Tesla Site for people who are best at doing the right thing.

For example:

Every time you charge at a supercharger, you're rewarded for the shortest amount of time it takes from the time the charge is done (hits the charge limit you've set) and the time it takes for you to actually pull the charger out of the chargeport, return it to its supercharger tower, get in your car and clear out of there so the space is available to someone else. (It might also factor in that you didn't charge to the max, that you had the Trip Calculator active and so the car knows roughly how much you need to charge plus a safety buffer and you kept to that.)

If you do this, the car or the app or Tesla via email could send you a message congratulating you and thanking you for a quick turnaround. And maybe you get points for how fast you do the turnaround. If you're slow, you get no points. If you're pretty fast you get "Sport" points. If you're really fast you get "Insane" points. If you're (you know where this is going) ridiculously fast, you get "Ludicrous" points.

Then each time you do good at a supercharger, you keep rackin' up more points. Perhaps if a supercharger site is very busy like San Juan Capistrano, and every stall is in use, there's even a "bonus" multiplier factored into your score.

Perhaps for privacy's sake, Tesla keeps the score tallies private until you get to a top-ten spot, when it invites you to share publicly via social media your achievement, and it also asks permission to include your name or your My Tesla screen name in the hall of fame list.

Bottom line, make this whole ugly scold-the-hoggers approach go away and replace it with something positive -- a praise-the-courteous approach -- that also increases engagement with the car, the website, the app, your friends and family, and the brand, and is fun to boot. I have a hunch would be pretty cool for everyone.

 

[jerry33]

Bottom line, make this whole ugly scold-the-hoggers approach go away and replace it with something positive -- a praise-the-courteous approach -- that also increases engagement with the car, the website, the app, your friends and family, and the brand, and is fun to boot. I have a hunch would be pretty cool for everyone.

That is one really good suggestion. They might even add a t-shirt for the top ten people each month.

 

[tinm]

That is one really good suggestion. They might even add a t-shirt for the top ten people each month.

Bingo. Exactly.

We all know who'd have the most t-shirts. He makes lots of YouTube videos and he lives in Scandinavia but hey, more power to him!

 

[smac]

I thought the gist was that both is required to keep the network sustainable. And by usage reduction it's the reduction of users offsetting home charging by using local superchargers. The main goal of the network from the start was to enable trips that otherwise would not be possible in an EV. Thus Tesla is very clearly not targeting long distance trips for usage reduction, as the superchargers are necessary for that. Even the city chargers are about necessity (people who have no choice but to use superchargers for daily charging). But the home charging offsetting Tesla obviously would want to reduce if not eliminate.

I'm not arguing about the intention of the network, and in fact I think you are right that the intention was to remove the EV stigma of inability to make such trips, but I thought I was clear in the dissection of the message....

Tesla are clearly targeting more home charging, presumably to take off SpC load (Though I admit there is a slim chance Bonnie and PaulusdB are right and it's just Tesla drumming up HPWC sales).

TBH this hasn't changed. When I picked my car up it's exactly what the DS said. "Home charging is best". Maybe this message hasn't been re-iterated to newer customers. Maybe the mix of people buying Model S's has changed to those doing >30k per year to justify the savings, maybe...

The point I was making is the "sell" wasn't towards not parking in a SpC bays and causing congestion, which is where I replied to.. If it was the message would have been different if that was the goal.

IOW Tesla are selling "Don't use superchargers, use home charging". not "Don't leave your car in a Supercharger stall"

 

[TexasEV]

Is it not outsourced in the U.S.? (It certainly is here)

Something is missing in the translation from English to English. Bonnie was being sarcastic when she said "Yeah, that's definitely a profit center for them". Meaning it's not a profit center.

- - - Updated - - -

Even that is sort of variable. I once allowed the car to charge to like 99% because I was literally the only Tesla at the supercharger and I wasn't done eating. In that scenario, I don't actually see a problem with staying connected. Virginia superchargers are very lightly used...

I don't think anyone would see a problem with that. That's an example of why I said guidelines, not hard rules of a written policy. We're expected to use common sense as well as courtesy.

 

[Spidy]

EM stating that there are 'ABUSERS' of SC's. No, while I heavily use the SC network, I have a HPWC, and ordered my MS with dual on-board chargers. However, I do not subscribe to limping back home to plug in overnight, and waking up in the morning to a 'charged' MS. That assumes that after arriving home, I won't need to use my MS again until the morning.

Are you saying when you get home you don't plug in? If you plug in when you get home and use the Supercharging network when you need it then I doubt Tesla considers that a problem. Your HPWC can fully charge your car in under 5 hours so easily overnight.

I think he meant that if could make it home, but would arrive on a very low charge, he rather charge up at a supercharger on the way home so the car is still ready in the evening in case something comes up, worst case maybe a emergency.