Some Monday morning humor.
Einhorn: Tesla has been "abusing its stakeholders"
Einhorn also discussed Tesla (NASDAQ:
TSLA), which he said has been "abusing its stakeholders" so much that he could write pages about it every quarter. This time he talked about once instance involving sudden unintended acceleration in Tesla vehicles.
He cited a study conducted by Dr. Ronald A. Belt which found an issue with how the Tesla braking system interacts with the battery regeneration system. The result is that in some situations, pressing the brake causes the vehicle to accelerate, and the harder the driver presses the brake, the faster in accelerates.
The National Highway Traffic Safety Administration said in January that it will investigate the complaints, although Tesla denies there is a problem. Einhorn said the more technologically complex products become with "intertwined hardware and software systems, the more difficult it is to design them for universal adoption in real-world large scale deployments.
He believes the combined software and hardware problem might be easily fixable and compared it to Boeing's issues with the 737 MAX. Einhorn added that a massive recall on a defective product can financially ruin a company and end management's career, but Tesla can't be trusted to do it on its own. He added that it will be up to the NHTSA to order a recall of Tesla vehicles with safety-related defects.
Einhorn also noted that there is speculation about Tesla
joining the S&P 500, but he believes the company has been abusing the accounting rules.
"Through what appears to be sheer abuse of the accounting rules, TSLA has now contrived reported profits to make it technically eligible [to enter the S&P 500]," he wrote. In addition to its routinely questionable accounting maneuvers, Tesla appeared to defer employee compensation, depreciation expense on its new plant in China, and research and development spending."
He also called attention to the sharp increase in sales of regulatory credits in the automaker's latest earnings report. The company previously included a statement that it recognizes revenue on the sale of credits at the time control of the credits is transferred to the purchasing party.
However, Tesla sharply increased its recognition of regulatory credits sharply in the first and second quarters. Einhorn said that in the past, Tesla received cash for sales of regulatory credits, but this year they have "piled up in accounts receivable."
Further, he said Fiat Chrysler (
FCAU) is the company's primary customer for those credits, and Tesla's recognition of the revenue from those credits isn't consistent with Fiat Chrysler's recognition of expenses for those credits. He questions whether Tesla's accounting and the way it handles the transfer of regulatory credits and payment for them conform to GAAP accounting.
"We suspect that TSLA changed its accounting policy during a non-audited quarter to manipulate eligibility in the S&P 500 index," Einhorn wrote. "The consensus is that S&P will add TSLA to the S&P 500 index at the next opportunity with a large weighting, forcing millions of passive investors to sell the other 499 stocks to make room for TSLA at whatever the price du jour. We think the S&P 500 Index Committee has a tough decision to make as to how to respond to being gamed like this."
