Tesla released a statement late yesterday afternoon detailing its third-quarter earnings, which again utilize non-GAAP (Generally Accepted Accounting Principles) calculations. Compared to last quarter, Tesla recorded a greater loss on higher revenue. While Tesla reports to its shareholders a $16 million net income on $603 million in revenue using its own math, GAAP calculations show a $38 million loss on $431 million in revenue according to Automotive News.
Why the massive discrepancy? Tesla uses non-GAAP financials “because they align with the underlying cash flow activity and timing of vehicle deliveries.”
The main reason has to do with the way Tesla conducts its leasing, which is how about half of U.S. deliveries were financed in the third quarter of 2013. Tesla’s unique leasing system, which allows customers to resell their vehicles back to the automaker after three years, yields non-GAAP revenue from monthly payments. Deferred revenues, which include the full value of cars sold with resale value guarantees, are also counted as non-GAAP income.
The lease-to-own financing has been particularly popular because it is possible to claim significant tax incentives that were previously only available to customers who bought the car outright.
Sales of the Tesla Model S reached record levels this past quarter, delivering 5500 units worldwide. Producing 550 cars per week to meet high demand, with most customers anteing up for the priciest 85 kWh model, Tesla plans to further increase production. The automaker recently updated its battery-production agreement with Panasonic, which will provide Tesla with more than three times more lithium-ion battery cells — at least 1.8 billion cells over four years.
Tesla has also invested significantly in customer service, opening now over 100 service centers worldwide. New staffing, training, and service strategies have begun to pay off, according to Tesla, and the company will soon announce a “new approach to vehicle servicing” that it claims will revolutionize customer experience.
Although revenue from sales may continue to rise, Tesla faces other internal hurdles. While Tesla gained $51 million in the second quarter from trading zero-emission vehicle credits to other automakers, that profit went down to just $10 million last quarter. If that number continues to plummet, costs could potentially prove insurmountable.
Research and development costs are expected to increase 25 percent next quarter, with selling and administrative expenses expected to jump 20 percent. As retail expenses continue to rise and Tesla ramps up development of the Model X SUV, the financial hole continues to deepen.
Despite the growing demand for Tesla’s Model S, these growing expenses have discouraged Wall Street investors; Tesla shares dropped 9 percent in after hours trading yesterday according to Automotive News. Settling at $160.88 per share, Tesla still has a lot of work to do to justify its profitability in the face of many analysts who have deemed its gains over the last few months overvalued.