Ugly turns uglier as a Tesla filing shows results were goosed by a surge in credits

Tesla’s financial results released last week didn’t mention that the automaker’s revenue included $200 million collected from regulatory credits. When Chief Executive Elon Musk answered questions from analysts, he didn’t point that out, either.

The number was buried in the official government filing known as Form 10-Q that Tesla filed Monday with the Securities and Exchange Commission. Without the revenue spike – which is unlikely to be repeated, analysts say – the company’s first-quarter loss would have been much deeper than the $702 million that Tesla reported. Gross margins on Tesla’s cars, a key measure of manufacturing profitability and efficiency, would have taken a significant hit.

Bernstein analyst Toni Sacconaghi’s reaction? “Egad,” he said in a note to investors.

Tesla’s shares fell 1.2% to $238.69 on Tuesday. The $235.14 closing price Friday was its lowest in more than two years.

The new data add to Tesla’s already bleak financial picture. The $702-million loss followed a $139-million profit in the previous quarter. Sales fell sharply. Automotive revenue plunged 41%, to $3.7 billion from $6.3 billion in the previous quarter, as vehicle deliveries dropped to 63,000 from 90,700 the previous quarter.

Operating cash flow turned negative — a net $640 million going out the door over the three months compared to a positive $1.23 billion in the previous period. Cash on hand dropped from $3.69 billion at the end of last quarter to $2.2 billion, including $920 million to pay off convertible bonds.

The fall in gross margins was “the largest decline in Tesla’s history,” Sacconaghi said in his note. And, he warned, it is likely that Tesla’s average selling price will fall as cheaper Model 3s come online.

Asked about gross margins, a Tesla spokesman pointed to an investor letter the company published last week: “We have refocused on operational efficiency of these businesses and are targeting gross margin improvements throughout this year.”

The fact that Tesla did not report the $200 million of credit revenue last week and Musk did not raise it in the analyst call “is likely to raise further eyebrows among investors,” Sacconaghi wrote. Tesla always saved reporting of those credits for the 10-Q, Sacconaghi said, but he noted that the current amount is unusually high.

Musk blamed falling auto sales in part on difficulties the company encountered shipping cars to Europe and China. (Tesla broke off relations with its main European logistics contractor earlier this year; mislabeled Model 3s were held up at customs in China.) Musk told analysts Wednesday the company will deliver at least 90,000 cars in the second quarter, although it will continue to lose money until the third quarter.

Tesla did reveal a portion of its credit revenue last week, $15 million in Zero Emission Vehicle credits sold to other automakers as part of a California scheme to reduce pollution from internal combustion engines. Because Tesla’s all-electric offerings emit no tailpipe gases, the company earns credits it can sell to other automakers.

It’s the “non-ZEV” credits that Tesla didn’t report until Monday. The company didn’t go into detail on where that money came from, but in the past it has sporadically reported non-ZEV credits “generally in the range of $15 million to $30 million, about $1,000 per car,” Sacconaghi said.

The far higher figure, he speculated, may have come from an “emissions pooling” deal Tesla recently struck to help Fiat-Chrysler meet greenhouse gas regulations in Europe. The $200 million amounts to $3,000 per car, he said.

Tesla is struggling on a number of fronts. Total solar installations have been declining since Tesla bought Solar City in November 2016 – a business founded by Musk’s cousins. Tesla assumed Solar City’s heavy debt.

The New York Times reported Tuesday that Tesla plans to cut solar prices in an attempt to boost sales and profits. Any price cuts could also attract new orders and deposits, which could boost much-needed cash flow for Tesla.

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Twitter: @russ1mitchell