Unpacking Tesla’s CAPEX accounting: Reflecting on FT's "mea culpa"

The FT does get full credit for asking great questions. We ask a few more about CAPEX and the gap in US GAAP.

This is a collaborative effort, co-authored with Deep Quarry, the newsletter from Olga Usvyatsky. If you value our work, please subscribe!

On March 25, 2025, the FT published a “mea culpa” piece by Dan McCrum, retracting the original FT article that discussed Tesla’s gap between cash CAPEX-related spending and changes in PPE on the balance sheet.

According to FT, the mismatch between the cash spent and the balance sheet may stem from timing differences between purchases and payments of the PPE and disposals of the depreciated equipment:

Two things help to reconcile the numbers: payments for assets already purchased, and the possible disposal of depreciated property.

Francine and I discussed these explanations in our Tesla piece as the types of events and disclosures that would help explain the gap:

Conceptually, we are looking for the following patterns:

• Non-cash transactions that decrease PPE balances and do not affect the cash flow, such as impairments;

• Disposals that may involve cash changing hands and non-cash gain or loss compared to the book value of the asset, but that’s not material enough, in Tesla’s opinion, to be identified specifically in the financial statements or disclosures;

• Timing differences between the PPE-related cash flow and recording of PPE on the balance sheet.”

We are grateful to the FT for acknowledging our work and linking to our The Dig piece. However, we would also like to give Dan McCrum full credit for asking these great questions and identifying several financial reporting issues at Tesla. The piece was thought-provoking and, without the urge from FT, neither Francine nor I would have made the time to dig deep into Tesla’s PPE footnote and CAPEX spending.

The FT piece also raised a more general issue of the quality of CAPEX information available to US investors. In contrast to IFRS, the US GAAP does not require a detailed reconciliation of changes in PPE, making the analysis difficult for all CAPEX-intensive companies, including the Magnificent 7 and Tesla specifically.

Our own analysis identified an inconsistency in how companies disclose CAPEX-related accounts payable, with only three of eight companies in our sample providing the required disclosure in the supplemental cash flow section on the face of the Statement of Cash Flow. If this information is important to investors, why only three companies prominently disclosed? All in all, are there any across-the-board financial reporting issues that the regulators should address?

Finally, as reported by the FT, there are still open questions about the composition of Tesla’s PPE and liquidity strategy:

In the meantime, those fascinated by accounting minutiae still have plenty to hold their interest, as Tesla invests heavily in AI infrastructure and has almost $7bn worth of assets under construction. Cash generation and debt issuance remain areas of interest.

Francine and I can be safely assigned to the category of those “fascinated by accounting minutiae”, and we expect to write more about complex accounting issues that would be of interest to investors. Call, email, or DM us to compare notes.

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© Francine McKenna, The Digging Company LLC, 2025

Editor’s note: I was once alone in the elevator with Dave Navarro at the W Union Square NY.