Tesla's dismal results draw the shorts, and the tipsters, back out of the shadows
There are also renewed calls for the SEC to go tougher on Tesla's accounting. Don't count on it any time soon.
Five days ago, July 24, Barron's reporter Al Root spared no feelings for Tesla in reporting its 2Q results:
After a better-than-feared first-quarter earnings report, Tesla delivered a worse-than-expected second-quarter result.
The 2Q bad news follows the company's 55 percent drop in profit and 9 percent decline in revenue in the first quarter of 2024.
The consecutive downward slide has sparked hope, again, in the Tesla short crowd. Brad Munchen, Motorhead on Substack:
Outlook is More Negative Than Before
Aside from the fact that Tesla’s brand is tarnished by Musk’s endorsement of Donald Trump for President (California sales were down 24% YoY in Q2; see details here), the old age of Tesla’s fleet is becoming increasingly problematic.
This won’t change with little “tweaks” to the existing Model 3 and Y platforms. Little “tweaks” like those conducted on the Models S/X/3 have all ended in failure (massive price cuts and lower sales). And the “new models” that Tesla eagerly discussed in their Q1 Shareholder Deck (but skipped commenting on in the Q2 Deck), seem to be modified versions of the Model 3 and the Model Y in a cheaper format.
Such minor changes don’t lead to higher sales for old models in the auto industry, so it’s hard to see how Tesla avoids massive cash burn from here on.
There are also renewed calls for the SEC to go tougher on Tesla’s accounting. The day after 2Q earnings were announced, CNBC tech reporter Lora Kolodny reminded Bluesky social media app users that the SEC is ignoring some Tesla whistleblowers she wrote about in October 2023.
Key points from Kolodny's Oct 2023 article:
· In 2021, a Tesla employee and a tech industry researcher filed a whistleblower complaint to the SEC with concerns that Elon Musk’s car company may have violated securities law and flouted accounting standards.
· The complaint contained detailed allegations about Tesla’s financials and business practices, including that it improperly categorized repairs and had poor control over internal systems used to capture data that later rolled up to financial reports.
· The SEC assigned one person to look at one portion of the complaint [related to Tesla auditor PwC], then closed that ticket a few months later, according to records.
· The SEC never spoke to the whistleblowers nor followed up on their offers to look at more than 18,000 files detailing the allegations, they say.
· The SEC declined to comment on the existence or nonexistence of the complaint, but said the agency evaluates all tips that are submitted.
It's a shame that the SEC has apparently never interviewed these whistleblowers or reviewed the documents that support their whistleblower tip. Tesla's accounting for warranty expenses, and its accounting for scrap and the accuracy of its disclosures of deliveries — also mentioned in the whistleblower's tip to the SEC — are tricky topics. It should be impossible for the SEC to accurately evaluate the tip without talking to them, reviewing their stuff, and therefore learning if the tipsters can provide a new view into the sufficiency of the support for the final numbers in Tesla financial statements.