When it comes to covering up key risks in their P&L or balance sheet, the current crop of tech names are without equal: whether it involves excluding stock-based compensation from cash flow calculations in the case of Twitter and Facebook, or building a mountain in off-balance sheet debt, as Netflix has done with its nearly $9 billion in off-balance sheet liabilities, in the form of unfunded content costs, it is remarkable how effective the extended FAANG family has been in fooling almost all of the analysts (and investors), most of the time.
Now, according to an analysis released today, one more company has managed to sneak through billions in contractual obligations between the cracks: the company is Tesla, and according to Vertical Group’s Gordon Johnson, the electric vehicle makes has $2.1 billion in Unpaid PP&E/Deferred CAPEX Coming Due, of which $1.4 billion is “Due Imminently.”
Johnson explains his calculation as follows:
Unlike anything we’ve ever seen in GAAP accounting, when TSLA orders equip., or invests to construct a building, a portion of the associated CAPEX is deferred, a large chunk of which seems to coincide w/ the start of Model 3 production.
TSLA accounts for this as an “Accrued Purchases”, overstating/understating free-cashflow/ expenses.
Once the equip. is installed and functioning, the accrued purchase reverses & moves into accounts payable.
So how big a risk is this? Well, as detailed in Ex. 2, applying our approach to estimate deferred CAPEX, beginning in ’13, taking the difference in TSLA’s annual purchase of PP&E and cash payment for PP&E, we arrive at the increase/(decrease) in unpaid PP&E (i.e., deferred CAPEX); then, taking the cumulative of this number ’13-‘17, we arrive at $2.518bn in aggregate TSLA unpaid PP&E/deferred CAPEX.
When comparing this figure to the cumulative ’13-’17 supplemental non-cash item “Acquisition of Property & Equip. included in Accrued Liabilities” that appears on TSLA’s cash flow statement (i.e., the actual unpaid PP&E/deferred CAPEX balance) of $2.138bn, we note the numbers are quite similar (Ex. 3).
Thus, taking the $2.138bn figure exiting 4Q17, & subtracting TSLA’s reported “Accrued Purchases” of $753mn in 4Q17 – these purchases represent the liabilities, or what we see as essentially debt, on TSLA’s unpaid PP&E CAPEX which have not yet hit the threshold necessary to be converted into payables – we arrive at payables due on deferred CAPEX for TSLA as of 12/31/17 of $1.385bn. …read more