#TSLA (Tesla Motors Inc.) Short Sellers: Mind the GAAP

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Tesla-logo-2This is a deep-dive followup to the recent article “Tesla Resale Value Guarantee Disappears.”

While hopefully of general interest, this is of particular importance to investors in Tesla Motors Inc. (NASDAQ: TSLA) stock.

In summary: From Q3 2016 earnings, Tesla’s GAAP financials as reported via SEC filings, shareholders letters, earnings calls, and earnings reports will far more closely resemble Tesla’s far more attractive non-GAAP financials, simply as a function of a Tesla policy decision to move on from offering “Resale Value Guarantees” with its vehicle sales. Here’s why:

Subject to the perceived importance to new vehicle customers (probably less than none at all), the replacement of Tesla’s RVG backing for vehicle finance loans with ordinary open-market resale values attained by Tesla vehicles and recorded by Kelley Blue Book, Edmunds, Glass’s Guide, etc. will have the all-else-being-equal effect of updating a core (and somewhat dispiriting) TSLA investment thesis expectation set by Elon Musk in 2015 for GAAP profitability likely no sooner than 2020.

The improvement in GAAP financials will be very significant unless overwhelmed by accelerated preparations for the Model 3 from Q4 2016 through 2018. It would be hard, though, to imagine consistent GAAP profitability not being advanced by at least two years as a result of this move, from 2020 to 2018.

In any case, Tesla’s GAAP financial results will improve radically in the absence of RVG-backed loan sales when compared with the familiar pattern of deep GAAP losses since Q2 2013. This news is critically important to market perceptions surrounding TSLA stock and directly addresses the image of the company as “exciting — but loss making” or “cult stock — burning cash,” the latter by those hoping that the recipient of such messaging is spooked for want of a working knowledge of accounting.

Also, by bringing GAAP profitability much closer to non-GAAP, it will help hasten the end of the excuse used by large automakers that Tesla is an example of how one can’t make money selling electric cars. Apparently, auto executives don’t understand accounts either — or hope that regulators don’t. You see, the making or losing of money and making GAAP profits or GAAP losses are not one and the same. A GAAP loss has little or nothing to do with burning cash, as any (simultaneously competent and honest) accountant will explain. Occasionally, it is not even close. Tesla’s significant GAAP losses over and above its non-GAAP losses was one of those occasions, and that has a lot to do with the Tesla Resale Value Guarantee.

What is GAAP? GAAP stands for Generally Accepted Accounting Principles as set by the FASB (Financial Accounting Standards Board). This is the US standard for reporting financials to the SEC (the US Securities and Exchange Commission). It’s the official common accounting framework and set of principles for communicating with public stock investors.

Deviation from GAAP standards in financial reporting is widely frowned upon, most especially in light of the fact that collusion between Arthur Andersen (former auditors) and Enron (former oil company) to go off the GAAP reservation resulted in one of the most infamous investor deception scandals in history.

GAAP is supposed to be a level playing field, and when business models are ordinary, it is just that. However, when business models are anything but ordinary, especially new business models that were not contemplated by the FASB when developing GAAP standards, most notably amongst which is SolarCity, then sometimes the best company is not the company with the best GAAP financials. Novel business models that are totally alien to anything GAAP was designed to deal with can create an apples and oranges comparison despite two companies reporting their accounts side by side under GAAP standards. SolarCity compared with a fossil fuel utility is an extreme example, but to a lesser but still significant extent, Tesla Motors Inc. Resale Value Guarantees are (or were) a square peg in a round hole when it comes to GAAP. Certainly, that is true when compared with any other automaker, and that is not because established automakers are objectively better businesses.

In my opinion, the misfit with GAAP (that will be explained in this piece) has done more to reduce transparency of Tesla’s business performance and to increase market chaos around the TSLA stock than anything else.

As a side note concerning SolarCity: The total misfit of the SolarCity business model with GAAP forces just about everything financially positive that SolarCity does to be reported to the markets as a GAAP loss. This has helped to make SolarCity a bargain for Tesla acquisition.

GAAP is internally inconsistent when assessing a SolarCity customer and SolarCity itself back to back. GAAP will gladly confirm that a SolarCity customer owes SolarCity money, ample for healthy profits per installation after all costs (including the cost of solar bond financing), while at the same time reporting SolarCity is a GAAP basket case. This comes as a result of failure to report customer revenues that SolarCity is contracted to receive. It does not add up and the FASB knows it.

New GAAP rules go into effect in January 2017. They are likely to substantially alter that picture by capturing fair estimates of lifetime value creation rather than waiting for 20 years for GAAP to finally concur that the cash flow positive installation of a panel is a money-making proposition — not just a dead loss until proven otherwise. Hence, Tesla acting now to acquire SolarCity, before the GAAP rule change, is not a bad idea at all. That is in addition to all the other good reasons why SolarCity is a good idea. Perhaps most notably amongst these is seamless internet of things (IoT) systems integration from photon to wheel, and the imminent opening of a rather large and advanced SolarCity panel factory in Buffalo, NY. Meanwhile for SCTY, stock market bears hold sway largely because GAAP lends an air of officialdom to the GAAP basket case thesis, which is on a first-principles basis bunk. Nobody ever went bust as a result of a GAAP paper loss that missed the entire point of a business.

Back on topic. The vast majority of Tesla’s GAAP losses reported quarterly are GAAP artefacts that have nothing to do with any money made or lost. Many TSLA stock commentators, I suspect, understand this completely and have used that information advantage as a stick to beat TSLA stock sentiment unfairly; others may simply be confused.

The decision by Tesla to end Resale Value Guarantees from July 1st, 2016, removes the GAAP artefacts by ending the applicability of GAAP Lease Accounting. With RVGs, GAAP Lease Accounting has applied to approximately 1/3 of Tesla’s sales.

This piece aims to illustrate a comprehensive understanding of what the Tesla Resale Value Guarantee was, why it was necessary at the time it was implemented, what effect that has had on TSLA financials and market perceptions of the same, and what exactly will change now that the RVG is no longer required — and to explain all of this in language that is accessible without any need for a formal accounting background.

First up: The main purpose of the Tesla Resale Value Guarantee, or “RVG” for short, was to give vehicle loan finance companies (starting with US Bank and Wells Fargo) reliable three-year residual value numbers that they could plug into vehicle loan financing calculations at a time when the 2013 Tesla Model S was still too new and too uncharacterised as a technology premise to have an externally auditable resale value at 3 years of age. The only way a bank could lend on those early vehicles was to take Tesla’s word for it that both the cars and the company would be worth the paper they were written on 3 years later. That was the banking proposition when considering the 2013 Model S as self-contained collateral for lending in 2013.

The price to the consumer of a vehicle loan starts with the cost of the money to the lending bank (some base or inter-bank rate of interest) plus something for the risk of the customer defaulting despite best efforts at credit scoring. After costing the risk of all that plus any contingencies and taxes, the lending bank wants a profit — and it also wants to be paid back its loan capital faster than the vehicle depreciates, so that it is never exposed to a loan that repossessing the vehicle and auctioning it can’t cover.

Now, if the residual value of the car (or the market value depreciation profile) is a total unknown — as it was at the time with the 2013 Tesla Model S — that car loan is going to be uncompetitively priced to cover the out-sized risk of the security.

The converse of this dilemma is what Tesla is talking about when reportedly stating that it is ending the RVG to come up with better loan and lease deals. How? Because the RVG is now proven to have been an artificially low water mark for residual value assessment. There is now higher confidence that less value will be lost over 3 years, and thus there is less for customers to pay each month for finance.

There is no clear benefit to Tesla to raise the RVG amount on new sales in order to compete as a buyer in the used car market, and apparently the company has decided that it is better for lenders to compete for the business of lending and for Tesla to step back from promoting special arrangements with a small number of RVG-tied banks. In this way, the most competitive lender will become first in line for a customer’s business rather than the 2013 situation where the only banks that would routinely provide vehicle finance would be those banks that recognised the RVG from Tesla that was underwritten by Elon Musk.

Back in 2013, Elon Musk basically had to backstop the Tesla RVGs with a personal guarantee. Tesla alone wasn’t good enough because Tesla the company at that time was also too new and too financially unstable to be a credible guarantor. Particularly, a technological or market failure of the Model S that necessitated Tesla to buy back its own cars well above the prevailing market price would have collapsed Tesla likely before it could make good on the arrangement. Musk’s guarantee was symbolic of his confidence that Tesla’s newly introduced Model S cars would in fact be built and warranty-serviced to retain their value and that Musk himself would stand by his company and his product to make sure of it. The latter is effectively how Tesla described it at the time, and while it was true, it wasn’t really the most significant feature of the arrangements. The most significant was arranging customer access to competitive vehicle finance, which helped to drive conversion from Model S reservations to Model S ownership.

As I wrote about this back in 2013: “Tesla is not a company with an ordinary limited liability risk profile, it is a company personally guaranteed to succeed by its Chairman, Product Architect, CEO and largest shareholder Elon Musk.

Underwriting the Tesla RVG was actually one of Musk’s boldest and most under-appreciated moves of all time. [Editor’s note: I still distinctly recall how Elon talked about this on a quarterly conference call. There was a lot of emotion in his speech as he tried to impress upon anyone listening that this was a very big deal — that he was confidently putting his own fortune on the table due to his belief in the product.] It was at least on a par with putting the last drop of his PayPal wealth into Tesla and SpaceX in 2008. By underwriting the Tesla RVG, Musk effectively put up his majority share in SpaceX and his share in SolarCity and everything else he owned at total risk of being forced personally to buy around 1/3 of the Tesla Model S cars ever built in the event of a cascade corporate failure resulting from the failure of the Model S. The value of Musk’s Tesla shares were naturally on the line by default.

Incidentally, the courage to do either of these things (2008 and 2013) in the realm of business and finance almost certainly defies parallel in all of human history, especially on that $100 million to $billion+ dollar scale. Certainly, there is no all-or-nothing parallel that I can bring to mind at this scale concerning a single private individual.

In any case, low-cost vehicle finance was a key to ensuring the long-term success of the Model S program, and the only way to get it was to do what Elon Musk did. Scroll forwards to 2016 and it is no longer necessary for Musk or Tesla to backstop consumer vehicle finance — or indeed to provide abnormal reassurances to consumers that the cars will retain their value. They have now proven to retain value in the market and there is the hard data to back up that assertion at levels that are an improvement on the amounts offered by the Tesla Resale Value Guarantee. Watershed crossed.

However, the Tesla Resale Value Guarantee came at a strange price. Under the prevailing GAAP rules for financial reporting, a controversial rule known as GAAP Lease Accounting insisted that (a) issuing a Tesla vehicle customer with a promise that he/she could sell the car back to Tesla for a specified price after 3 years be treated as the same idea for GAAP accounting purposes as (b) an ordinary lease. Under GAAP accounting, with an ordinary lease, the leasing company still owns the car and the customer has the option to buy the leased vehicle at a specified price after, let’s say, 3 years of leasing it.

Quite naturally, GAAP is clear about the fact that a leasing company cannot claim that its customers will buy a leased vehicle at the end of their lease term (and so record the transaction as a sale) — not until and unless those customers actually decided to buy their leased car.

In the case of Tesla’s sales that are packaged with a Resale Value Guarantee, the customer owns the car, not Tesla, but nevertheless, GAAP effectively forces Tesla to record the mirror image of speculating that a lease customer will buy a car at the end of a lease by speculating that the vehicle owner will sell his car back to Tesla years later.

Moreover, the speculation is unbalanced because GAAP does not take into account that what is at stake is a transaction of cash for car, not a refund. For GAAP, that does not matter because revenues are sales revenues and reversing sales revenues from the customer regardless of what is gained in return is a negative in terms of revenues and profits. For perceptions, this disconnect with business reality matters a lot.

Considering GAAP effectively speculates on the customer cashing in the RVG but does not speculate on the value of receiving the car in trade for the RVG liability, GAAP definitely does not take into account that 98% of Tesla vehicle owners who decide to trade in their car would most likely be trading in their car for a new Tesla car, so on and so forth.

This is, I think, a good description of why Accounts don’t normally get involved in the business of speculation. Accounts normally deal with recorded historical facts, while leaving negative speculation about the future to short sellers. This, anyway, is the dramatized description of the GAAP treatment for RVGs.

What GAAP actually does with the RVG is simply declare that, from a GAAP Revenue perspective, the car is not sold. Instead, approximately half of the car is not sold at all and the other half is leased while waiting to find out. This is the GAAP method of finding a way to record the money amount of the promise to buy back the car as an undischarged liability of the business to the customer. It has created untold confusion around the state of the Tesla business and hence the value of the TSLA stock because, legally and operationally, the GAAP version of events is not true. Legally, the car is sold — it is simply sold with a Resale Value Guarantee. The only risk to the business, and hence its investors, is the marginal risk of whether the RVG will prove to be more or less than the market value of the cars in three years time. GAAP has no leg to stand on to claim otherwise.

To put this another way: If Tesla was to claim that it owned a customer’s car and presented GAAP rules as the evidence of its claim, GAAP rules would be laughed out of the courtroom.

This is GAAP Lease Accounting and this where GAAP falls to bits in the face of the Tesla business model.

The upshot of this is that, under GAAP rules, despite the fact that Tesla has been paid cash in full, in exchange for handing over the keys and the ownership documents to the new owner, approximately half of the sale value corresponding to the RVG (according to GAAP) is value that never changed hands. GAAP Treats this half of the car as never sold.

Three years are then allowed to pass for the customer to make up her/his mind if she/he really wanted to buy that half of the car. Only then, if the customer does keep the car past 39 months, is the sale recorded. But it is recorded then, not in the financial quarter that the car was delivered to the customer.

Next, considering the customer can’t borrow half of a car without taking the rest of it with him, he is deemed to be leasing the other half. This means that the value amounting to roughly the other half of the sale is deemed not to have been sold either. Hence, a car sold by Tesla with an RVG, according to GAAP, was never sold at all.

So, according to GAAP, the value of this other half of the car (the net RVG sales price) needs to be metered out in a straight line over an imaginary 36 months of lease installments.

Even worse than that, considering the car is deemed not to have been sold, according to GAAP, Tesla supposedly still has the car on its books in Operating Lease inventory. The lending banks would disagree.

Then, for the final insult: Considering, according to GAAP, that the car was never sold, the money that the customer paid for that car cannot be recorded as GAAP sales revenues. So, failing that, the customer’s payment is recorded by GAAP as a loan. A debt owed by Tesla to the customer.

So, in summary, instead of recording a nice sensible sale in the quarter that the car is delivered to its new owner, under GAAP rules, simply performing the same sale with a Resale Value Guarantee results in Tesla’s GAAP financials ignoring the sales invoice for revenue purposes and instead recording the customer payment as a debt Tesla owes to the customer. At a maximum, Tesla can hope to record positive revenues amounting to 3 month’s worth of lease payments assuming the car is delivered at the stroke of 00:00 h0urs at the beginning of a financial quarter.

Remove the RVG and allow the open market to set CPO purchase values and, according to GAAP, the nice sensible sale instantly snaps back into view, along with 100’s of millions of quarterly revenues that in the previous quarters GAAP had literally hidden from investors — or more pertinently — GAAP had hidden from TSLA short sellers.

Operationally, from the perspective of Tesla, nothing changes between GAAP making nonsense and GAAP making sense. It’s exactly the same business without the GAAP Lease Accounting artefact.

From reporting GAAP sales revenues on 2/3 of the vehicles sold and deducting 1/3 of them as though Tesla was buying its own cars for a lease fleet, Tesla switches to reporting sales revenues on 3/3 cars sold. Big difference.

This GAAP view of events is so alien to what is happening on the ground that GAAP has under-declared the vehicle sales revenue performance of the business to the TSLA shareholder by $100s of millions every quarter. GAAP has also accumulated, correspondingly, $billions in supposedly unsold Operating Lease Assets that do not exist and corresponding $billions in debts owed to customers that does not exist either.

To put it mildly, if GAAP Lease Accounting was a tax loophole for under-declaring sales and corporation tax (which it isn’t), it would be a black hole for hiding money that could swallow the sun (not literally, of course). The IRS would definitely not fall for it, but ~30 million TSLA shares sold short, largely on the basis of artificially abysmal GAAP results, certainly suggests somebody has.

Before getting into the math of what this is all about, it is probably worth addressing a misperception about accounting in general and GAAP accounting in particular because it is very different from the ordinary experience of buying something for $10, selling it for $12, and counting that as a simple 20% profit (=good) — or selling it for $9 and counting that as a 10% loss (=bad).

The thing about GAAP, which is an accrual accounting methodology, is that it is not a cash accounting methodology: Revenues and profits don’t necessarily follow the money. Many a GAAP-profitable business has gone bust waiting for its customers to pay.

Hence, GAAP is not very useful for managing a company or understanding a business process. Instead, it seeks to speak for business ownership value, effectively by presenting a snapshot of what a business would look like if it was frozen in time. Then, it simply adds up everything the company is currently owed, everything it owns, and everything it owes and ignores the value of every dynamic of how those things are handled by the business in real life.

So, for example, with a solar panel: According to current GAAP rules, there is no such thing as net present value of a 20-year contract — there is only the customer’s money owed on her/his latest energy and system leasing bill. In this way, the entire business case of installing solar panels is invisible to GAAP except for the 5 or 10 years’ worth of debt outstanding that was used to finance a cash flow positive panel installation. It’s GAAP-loss-making activity. Except, there is no activity at all in GAAP. It’s a freeze frame.

So, with that said… here is an illustration of the principles surrounding Tesla’s GAAP Lease Accounting in using the following round numbers:

Cost to build a Tesla car — $75,000

Other approximate Tesla business running costs per car, including the cost of projects not directly associated with trying to make and sell cars: $26,000

Sale price of a Tesla car: $100,000  (Note, this is not a debate about ASPs, it is just a number).

An ordinary Tesla vehicle sale would thus look like this in the quarter it takes place:

Costs to the business $26,000 of overheads + $75,000 marginal cost of goods sold = $101,000.  

Revenues from the customer = $100,000

Net result = 0.99% loss (call it 1% loss).

This makes common sense right? This is representative of the Tesla Non-GAAP picture of selling cars with or without an RVG-backed customer vehicle loan.

13 quarters later, the Non-GAAP view of the RVG if it is exercised looks basically like this:

Value of the customer car received by Tesla = $X

Amount Tesla pays for the car = $Y

Win or lose, the Non-GAAP accounts will report the outcome as another ordinary purchase and sale transaction of a CPO (Certified Pre Owned) vehicle. In this transaction, Tesla is the customer and the vehicle owner is the seller.

According to GAAP, a Tesla vehicle sale with an RVG is very, very different.

It looks something approximately like this (in the quarter it is “sold”):

(This illustration assumes that the customer has owned the car for one full quarter. This is treated by GAAP as the first 3 months of a lease. RVG is set to 50% of the purchase price for simplicity).

Costs to the business (accounted for in the quarter the car is delivered):

$26,000 of overhead + (50% of $75,000?) half the cost of making the car + (3/36 months x 50% of $75,000) three months worth of the remaining cost of making the car.

Total costs accounted for in the first quarter “sold” = $66,625 unless 50% of the costs are also deferred, in which case the costs accounted for are $29,125 — please note both of these possibilities are subject to a debate that hinges on whether something called “salvage value” is the strict accounting term for scrap value or whether it is the RVG percentage after 3 years net of depreciation. Honestly, considering that the RVG scheme has expired, it isn’t worth any additional effort to find out. Accounting experts disagree with one another on the topic, and from the perspective of an investor, all one really needs to know is Tesla’s GAAP to Non-GAAP reconciliation. This is perfectly adequate so long as one is philosophically willing to accept that the GAAP version is bunk and the reconciliation to Non-GAAP is describing the total amount of GAAP bunk that is distorting the GAAP figures.

Next: Revenues from the customer.

This comprises imaginary lease payments to Tesla from the customer (the car in reality is bought and paid for in full with full ownership documents transferred to the customer). So, anyway:

3/36 months * (50% of $100,000) = $4,170

Remaining loan from the customer (GAAP treats the customer’s money he paid for his car as a debt owed by Tesla to the customer until the RVG business is settled one way or another 13 quarters later):

33/36 months x $100,000 = $91,670 of debt outstanding owed by Tesla to the customer.

Asset value of phantom operating lease fleet inventory:

$75,000 less something for depreciation of the imaginary asset — call it $1,000, so net $74,000. (Tesla does not own the car; the customer does and has the papers to prove it, and so does Tesla — just not according to GAAP).

Best guess at the net outcome considering accounting professionals cannot agree upon it:

Costs including the $26,000 for overheads: $66,625, or maybe $29,125 for un-deferred cost of goods sold.

Outstanding Loan Liabilities $91,670

Subtotal of GAAP losses: -$158,300 or  -$120,800

Net Operating Lease Assets gained: $74,000

Customer Lease revenues: $4,170

Subtotal of gains: +$78,170

Net loss: 50.61%, or maybe 35.29%

It is highly likely that someone will have a strong alternative opinion of both of these — but that is the whole point. This is a completely opaque and nonsensical method of communicating with investors.

GAAP, under a quasi-religious banner of infallibility, has made an absolute dog’s breakfast out of a simple trade or a possible pair of trades, and on the face of it is telling us that it is a very bad idea to sell cars for $100,000 that cost $75,000 to build — to the point of suggesting the more Tesla sells, the more it loses, at the rate of somewhere between $35,290 and $50,610 per car for 1/3 of the cars sold. Even if that isn’t precisely correct, nobody has a better idea that all can agree upon.

Good job that this only afflicts 1/3 of Tesla’s vehicle deliveries.

Deep breath.

The good news (aka, TSLA Short Sellers: Mind the GAAP):

From July 1, 2016, to September 30th, 2016, will be the first full quarter’s vehicle sales without GAAP Lease Accounting for RVGs. This is Tesla’s Q3 2016 ER. This marks the decommissioning of the #1 weapon of mass deception that has availed itself to the malicious TSLA short seller: headline-grabbing bogus and exaggerated GAAP loses. To the extent TSLA shorts and Tesla naysayers have pinned their flag to GAAP, such persons will find themselves in a world of hurt as the GAAP to Non-GAAP gap closes like the iron jaws of a proverbial bear trap.

Last point, to round this off:

There were two main line items separating Tesla’s Non-GAAP from GAAP. One was the GAAP Lease Accounting for RVGs that has been discussed here at length and is now retired. Unless Tesla also retires Non-GAAP as a result of getting rid of RVGs, one major line item separating GAAP from Non-GAAP will remain, and that is non-cash options incentives.

This is to say, stock options issued to Tesla management and staff in addition to basic cash salaries. Personally, I think this method of incentives and reward for employment (a roundabout way of having percentage of shareholder dilution in a rising stock attract and retain world-class talent and to align incentives with adding shareholder value both short and long term — working for a rising stock, essentially) is great. This is particularly good for a rapidly growing company.

Ardent opinions may vary. However, non-cash options incentives are traditionally reversed out of the Non-GAAP sections of shareholder’s letters (of many companies) for a very good reason. They also remain as a cost item in GAAP accounts for very good reason.

From the perspective of external shareholders who are chiefly interested in the market face value of shares they hold, Non-GAAP treatment of non-Cash Share Options Incentives is highly appropriate because the face value of each share in the market already accounts for the stock dilution effects of non-cash options incentives.

The GAAP accounts view presents this cost again to the shareholder as though the business has also paid the value of the options incentives in addition to the dilution. This is not correct. From the perspective of the external shareholder, this is double counting. For the shareholder, the Non-GAAP view is correct.

From the perspective of an auditor or some other non-shareholder, such as perhaps an entity contemplating buying the whole company, then the GAAP view of non-cash options incentives is more appropriate. Without experiencing dilution of an existing shareholding, there is no complete record of that mechanism for paying the people to work and no record of how much value is involved if, say, they wanted to buy the company and pay the same staff in cash instead of options.

For the non-shareholder, then, the GAAP view of non-cash stock options is more appropriate. GAAP Lease Accounting for something that isn’t a lease is just bad science no matter how you look at it — unless, perhaps, the company was in liquidation. Nobody is paying upwards of $200 per share for TSLA hoping for a piece of Tesla’s assets in liquidation after all the creditors are settled. Anyone of that mindset is not a shareholder and, in this regard, GAAP is rabidly looking out for the interests of a contingent of shareholders that by definition do not exist. In reality, GAAP painting a picture of Tesla in liquidation has led to a chaotic market in TSLA stock and repeatedly lured short sellers to their undoing.

There is, however, a between-the-stools perspective (between GAAP and Non-GAAP) that is, in my opinion, legitimately useful for shareholders, and that is the reconciliation between the two which summarizes and quantifies the GAAP artefacts and permits visibility of non-cash stock options incentives. Getting rid of Lease Accounting with the expiry of the RVG program will unclutter that picture and add to transparency.

Finally: In my opinion, the ideal standard for shareholder comprehension of the Tesla business performance is invariably the Non-GAAP metrics, bolstered by the reconciliation to the GAAP metrics. Non-GAAP describes the business performance, and the reconciliation highlights for consideration the kinds of business risks that GAAP is designed to reveal.

Tesla has always reported its financials in this manner — GAAP and Non-GAAP side by side with a reconciliation — while GAAP was just doing its day job by highlighting the existence of the RVG sales.

Apparently, such a rational perspective was too much to expect from those who revelled in the narrative of insanely distorted GAAP headline figures. Huge imaginary losses! Loss-making Tesla in huge imaginary trouble! Tesla loses $19,000 per car sold! Yeah, right.

You see, for the most part, these huge imaginary GAAP losses existed only paper.

As of July 1st, Tesla just tore out that page.


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