As Tesla’s car sales and share price plummet in response to Elon Musk’s political and physical stances, we would like to draw readers’ attention to something puzzling in the group’s accounts.
Compare Tesla’s capital expenditure in the last six months of 2024 to its valuation of the assets that money was spent on, and $1.4bn appears to have gone astray.
The sum is big enough to matter even at Tesla, and comes at a moment when attention is returning to the group’s underlying numbers, now that its fully diluted stock market valuation has crashed from $1.7tn to below $800bn.
A closer look at Tesla’s cash flow statement may also prompt investors to ask other questions, such as why a business with a $37bn cash pile raised $6bn of new debt last year?
First, consider the apparent anomaly. Tesla is investing heavily, particularly in AI infrastructure. It intends to spend at least $11bn in each of the next few years, aiming to take advantage of opportunities in robots, computing and batteries.
Looking at last year, in the third and fourth quarter combined, Tesla spent $6.3bn on “purchases of property and equipment excluding finance leases, net of sales” according to its cashflow statements.
Over on the balance sheet, however, the gross value of property, plant and equipment rose by only $4.9bn in that period, to $51bn. Note seven to the financial statements has the breakdown:
(Edited to fit on page, zoomable fuller version here.)
We’d expect the numbers to tally. General Motors, for instance, spent $30bn on capex over the past three years, disposed of $14bn of assets, and so reported a $16bn rise in the gross value of property, plant & equipment to $88.7bn at the end of last year.
Luzi Hail, professor of accounting at the Wharton School, told us:
The reasons for why the reported numbers will not fully add up in most cases is that we only see the net changes in these accounts (i.e., PP&E and the associated Accumulated Depreciation accounts) but do not have all the detailed transactions that were going on. Maybe they sold off some PP&E and we do not know what the net book value (the respective gross amounts) were. Other things that will make an exact reconciliation impossible are M&A transactions and foreign currency transactions. So, in most cases, the capex number will give you a good approximation for the increase in gross PP&E but there could be other reasons going on for why in a particular case this might not be the case.
Tesla reports the gross figures and the accumulated depreciation, so we can see how the net figure is arrived at. It didn’t disclose any sales or “material” asset impairments that would account for the missing $1.4bn, and we’re sure auditors PWC would be alive to the important signal such declarations of mal-investment would send.
Foreign exchange seems unlikely to explain the gap either. Tesla makes cars in the US, China, and Germany, and while the euro did weaken against the dollar in the periods, four-fifths of Tesla’s “long-lived assets” are in America. See note 17, for those reading along:
(Edited to fit on page, fuller zoomable version here.)
Tesla’s gap is also unusual by its own standards. Here’s a chart of capital expenditure on PP&E vs the change in gross value of those assets for every quarter since the start of 2019:
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A positive number indicates that the balance sheet value of assets rose by more than capex. Aside from 2021, when there was a $1.3bn rise in the value of the assets, the variance has tended to even out and has not approached the scale of the last quarter.
Such anomalies can be red flags, potentially indicative of weak internal controls. Aggressive classification of operating expenses as investment can be used to artificially boost reported profits.
Tesla did not respond to requests for comment.
Perhaps the assets will show up next quarter. It’s also possible the recent presidential endorsement will boost sales, and that some would-be buyers are waiting for an updated Model Y to hit showrooms.
If not, the question of what Tesla is doing with its cash, and where the money is held, may become more pertinent.
Last year the group generated $15bn of operating cashflow. It invested $11bn into its businesses, and didn’t pay a dividend or buy back shares with its large cash pile (putting Tesla in a very select club of large companies that do not, along with mysterious Temu owner PDD).
Yet Tesla also raised a net $3.9bn in new finance, on top of the $2.6bn raised in 2023.
A combination of excess cash flow and ongoing capital raising is another red flag that can signal accounting misstatements. Jacek Welc, professor of corporate finance at the SRH Berlin University of Applied Sciences, has examined 17 such examples including Germany’s Wirecard, the US-listed but Chinese-based Longtop Financial Technologies, and the FTSE-listed hospital chain NMC Health.
He says in those cases “allegedly healthy (but in reality inflated) operating cash flows tend to be matched by significantly positive financing cash flows (and a seeming “cash cow” appears to require large amounts of new debt and/or new equity financing).”
Tesla may of course be opportunistically managing its balance sheet, given its plans for substantial further capital investment.
The group sometimes has to manage short-term cash needs. Last year rising inventories soaked up $1.5bn in the first quarter. With thieves now targeting car parks holding spare vehicles and dealerships attracting protests, this year’s figure could be significantly higher.
Related links:
— What is cockroach theory? (Investopedia)
— Tesla’s departure from reality, in one chart (FTAV)
— Tesla is nuts, will it ever crash? (FTAV, 2020)
