Tesla CEO Elon Musk expects the company to report earnings on GAAP basis in Q3FY16
Tesla Motors Inc (NASDAQ:TSLA) has been a loss-making, cash-burning electric vehicle (EV) company since it went public in June 2010, as it has been continuously expanding its operation globally and increasing production capacity. Though, the automaker surprisingly made a profit on GAAP basis in the first quarter of fiscal year 2013 (Q1FY13), due to sale of ZEV credits to other automakers.
After more than three years, Tesla CEO Elon Musk expects his automobile company does the same in the current quarter. At the end of last week, an extract of his email to Tesla employees was obtained by Bloomberg, in which he urged to reduce costs and increase deliveries to generate positive cash flow with profit.
Now the complete email is available in which Mr. Musk noted that Tesla could produce earnings on GAAP basis in Q3FY16. The automaker reports its quarterly financial numbers on non-GAAP accounting basis, which excludes one time, big gains or losses. Its GAAP loss amount is usually far more than the non-GAAP.
Mr. Musk wrote in the email:
“Right now, we are tracking to be a few percentage points negative on cash flow and GAAP profitability, but this is a small number, so I’m confident that we can rally hard and push the results into positive territory.”
The CEO wants to zip the lips of Tesla bears who keep saying that the company will never be profitable with its accelerating pace of spending. According to Electrek, the non-GAAP account stand is mainly used by the company because of its leasing account under its Resale Value Guarantee (RVG), which was discontinued from July 1 in North America. The publication expects the program discontinuation to reduce the gap between GAAP and non-GAAP numbers in the third quarter.
Tesla explains that the vehicles sold under RVG do not affect its liquidity and cash flows in the short term; though, it requires costs and revenue deferrals in the future, as they are categorized as “leases” for accounting purposes.
Last time when Tesla produced a profit, its stock price went skyrocketing over $100 for the first time, which allowed it to tap the market for more funds. This is exactly what Mr. Musk is trying to do this time. The company plans to go for another round of funding by the end of this year, and Q3FY16 will be the only quarter to convince investors for more capital.