NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.
Among the posts this past week were items about Tesla's SEC filings and the jobs report.
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Something Fishy in Tesla's Warranty Reserves
Yesterday's "How I Shorted Tesla and Survived" described my short selling journey in Tesla ( TSLA).
This morning I wanted to do a deeper dive on some recent SEC filings at Tesla -- namely the Nov. 8, 2013 Form 10-Q (quarterly report) and the Feb. 26, 2014 Form 10-K (annual report).
Tesla's accounting has long been controversial.
In a prior post, I characterized Tesla's reported profits as EBBS (earnings before B.S.).
What got my attention this time at Tesla was the release of warranty reserves that provided a nonoperating, one-time $10.2 million boost to Tesla's most recent quarterly earnings.
For all of 2013 Tesla reduced it's warranty reserve nearly $2.1 million, a sharp reversal from the nearly $8.1 million increase through the first three quarters of the year. In other words, in the fourth quarter alone, Tesla reduced its warranty reserve by a hefty $10.2 million, a gain that flowed directly into its income statement and boosted reported margins from 23.5% to 25% (exactly what Tesla had guided to) and earnings by an extra $0.07-$0.08 a share.
Given the early state of Tesla's automobile production cycle, it is highly unconventional and unclear to me why the company went from $8 million under accrual for prior year warranties for the nine-month period and then in the next quarter decide that it has actually over-accrued for the year by $2 million, serving to unwind the reserves (and then some, $2 million) from the first three quarters of the year.