OK here is my take on the problem from an accountancy POV.
Having already used the data points in the SEC filings to take into account how Tesla are treating the future liability incurred through SpC, one thing I found very interesting was they used a deferred income method to represent this rather than a provision for the future cost liability.
It is pretty clear from the two filings where SpC's have been included, the set aside is $500 and drawn down over 20 years.
So what does this mean?
For every car sold (Tesla don't seem to have excluded non SpC'd S60s) $500 goes into a "future pot", and $500 is removed from this years revenue. A portion (1/20th) of this "pot" is drawn down every subsequent year, to recognize Tesla have delivered more of their obligations on the original sale.
In year 1, the revenue is: number of cars sold in yr1 * (average selling price - $500 deferral).
In year 2, the revenue is: number of cars sold in yr2 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1)
In year 3, the revenue is: number of cars sold in yr3 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1 + yr2)
In year 4, the revenue is: number of cars sold in yr4 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1 + yr2 + yr3)
In year 5, the revenue is: number of cars sold in yr5 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1 + yr2 + yr3 + yr4)
In year 6, the revenue is: number of cars sold in yr6 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1 + yr2 + yr3 + yr4 + yr5)
.....
etc. etc.
This is great. In an ideal world Tesla should be building a base revenue stream, even if they didn't sell a car. (OK a small one relative to vehicles prices themselves, but it's gravy)
However now let's look at the flip side of this on the cost side
Year 1, the expenses side is: total cars sold yr1 * average build cost
Year 2, the expenses side is: total cars sold yr2 * average build cost + average cost supercharging per car * (number of cars sold in yr1)
Year 3, the expenses side is: total cars sold yr3 * average build cost + average cost supercharging per car * (number of cars sold in yr1 + yr2)
Year 4, the expenses side is: total cars sold yr4 * average build cost + average cost supercharging per car * (number of cars sold in yr1 + yr2 + yr3)
Year 5, the expenses side is: total cars sold yr5 * average build cost + average cost supercharging per car * (number of cars sold in yr1 + yr2 + yr3 + yr4)
Year 6, the expenses side is: total cars sold yr6 * average build cost + average cost supercharging per car * (number of cars sold in yr1 + yr2 + yr3 + yr4 +yr5)
IOW Every year there is additional cost burden from cars already on the road, however we should be seeing more revenue to cover it, as our deferred income pot keeps getting added to right?
So what happens if average cost supercharging per car is > $25 per year (1/20th $500). Hmm... Houston we have a problem.
As you can hopefully see from the above, unless average usage across the fleet goes down, Tesla are incurring a bigger and bigger head wind on gross margins for every year that passes. So while we may see Tesla have made a great GM on the cars in the early years, it gets harder and harder as time goes by because they have ALREADY overstated the profit. It's really not helped because there is simply no way to bound the potential future costs.
I know this is boring geeky accountancy analysis (and maybe should go somewhere else?) but this is why I _personally_ think Tesla are trying to address the situation, and why I think they have been motivated to send the letter.
(N.B. there is a whole heap of other stuff I've ignored/simplified here, for example I've completely ignored inflation on electricity prices, the fact that a portion of SpC will become due in year of manufacture, etc. etc. I simply trying to illustrate a point that is probably very subtle in layman's terms of what is considered profit)
Having already used the data points in the SEC filings to take into account how Tesla are treating the future liability incurred through SpC, one thing I found very interesting was they used a deferred income method to represent this rather than a provision for the future cost liability.
It is pretty clear from the two filings where SpC's have been included, the set aside is $500 and drawn down over 20 years.
So what does this mean?
For every car sold (Tesla don't seem to have excluded non SpC'd S60s) $500 goes into a "future pot", and $500 is removed from this years revenue. A portion (1/20th) of this "pot" is drawn down every subsequent year, to recognize Tesla have delivered more of their obligations on the original sale.
In year 1, the revenue is: number of cars sold in yr1 * (average selling price - $500 deferral).
In year 2, the revenue is: number of cars sold in yr2 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1)
In year 3, the revenue is: number of cars sold in yr3 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1 + yr2)
In year 4, the revenue is: number of cars sold in yr4 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1 + yr2 + yr3)
In year 5, the revenue is: number of cars sold in yr5 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1 + yr2 + yr3 + yr4)
In year 6, the revenue is: number of cars sold in yr6 * (average selling price - $500 deferral) + (1/20th * $500) * (number of cars sold in yr1 + yr2 + yr3 + yr4 + yr5)
.....
etc. etc.
This is great. In an ideal world Tesla should be building a base revenue stream, even if they didn't sell a car. (OK a small one relative to vehicles prices themselves, but it's gravy)
However now let's look at the flip side of this on the cost side
Year 1, the expenses side is: total cars sold yr1 * average build cost
Year 2, the expenses side is: total cars sold yr2 * average build cost + average cost supercharging per car * (number of cars sold in yr1)
Year 3, the expenses side is: total cars sold yr3 * average build cost + average cost supercharging per car * (number of cars sold in yr1 + yr2)
Year 4, the expenses side is: total cars sold yr4 * average build cost + average cost supercharging per car * (number of cars sold in yr1 + yr2 + yr3)
Year 5, the expenses side is: total cars sold yr5 * average build cost + average cost supercharging per car * (number of cars sold in yr1 + yr2 + yr3 + yr4)
Year 6, the expenses side is: total cars sold yr6 * average build cost + average cost supercharging per car * (number of cars sold in yr1 + yr2 + yr3 + yr4 +yr5)
IOW Every year there is additional cost burden from cars already on the road, however we should be seeing more revenue to cover it, as our deferred income pot keeps getting added to right?
So what happens if average cost supercharging per car is > $25 per year (1/20th $500). Hmm... Houston we have a problem.
As you can hopefully see from the above, unless average usage across the fleet goes down, Tesla are incurring a bigger and bigger head wind on gross margins for every year that passes. So while we may see Tesla have made a great GM on the cars in the early years, it gets harder and harder as time goes by because they have ALREADY overstated the profit. It's really not helped because there is simply no way to bound the potential future costs.
I know this is boring geeky accountancy analysis (and maybe should go somewhere else?) but this is why I _personally_ think Tesla are trying to address the situation, and why I think they have been motivated to send the letter.
(N.B. there is a whole heap of other stuff I've ignored/simplified here, for example I've completely ignored inflation on electricity prices, the fact that a portion of SpC will become due in year of manufacture, etc. etc. I simply trying to illustrate a point that is probably very subtle in layman's terms of what is considered profit)
