In Tesla’s Earnings Report, GAAP Measures Gain New Prominence

  • SEC has voiced concern that adjusted figures mislead investors
  • Change comes as car maker faces regulatory scrutiny over crash

Tesla Forecast Eases 2Q Loss Sting

When Tesla Motors Inc. reported its latest earnings on Wednesday, there was a notable twist to its financials. It wasn’t just that the company failed to hit analysts’ estimates again but that it emphasized conventional financial measures.

The format is a reversal from how Tesla has presented its results. In every report since 2012, it has discussed its so-called adjusted figures before those that complied with Generally Accepted Accounting Principles, known as GAAP.

The shift comes as the U.S. Securities and Exchange Commission is voicing concern that public companies may be misleading investors by putting too much emphasis on their non-GAAP results, and it has warned them to clean up their act.

These adjusted measures are allowed and are used by many companies to strip out all sorts of business costs, like one-time merger expenses, litigation charges and stock-based pay. They can also mask recurring problems.

To read about the SEC’s scrutiny of Valeant Pharmaceuticals’ use of adjusted financial numbers, click here.

A Tesla spokeswoman, Khobi Brooklyn, when asked about the change, said the company always emphasizes its GAAP figures.

In the financial results section of its latest earnings release, the Palo Alto, California, maker of electric cars provided its GAAP figures before presenting its non-GAAP results for its revenue, gross margin and net loss.

The differences are substantial. Using conventional accounting, Tesla lost $293 million. On the basis of its adjusted figures, it lost barely half as much, or $150 million. That was after stripping away the cost of stock-based compensation and non-cash interest expenses related to convertible notes and other borrowing.

In terms of earnings, however, Tesla’s adjusted income missed analysts’ estimates by even more than its GAAP result. Its adjusted loss of $1.06 per share missed analysts’ estimates by 77 percent. Its GAAP loss of $2.09 was 39 percent below Wall Street expectations.

SEC Guidance

SEC officials have called for companies to prominently display standard performance numbers under GAAP. Those figures are calculated the same way for companies across industries and can be an important tool for comparing investments.

Tesla, a perennial media fixation led by the technology entrepreneur Elon Musk, was already in the spotlight for its financial reporting after reports last month that the SEC was investigating whether it withheld material information about a fatal crash in Florida.

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