Tag Archives: TSLA

Best Low Price Stocks To Watch For 2018

A few days ago, an article about Nike (NYSE:NKE) argued that “Nike’s shares aren’t priced to buy.” The reasoning was that “Nike is, at best, fairly valued. And it certainly isn’t trading hands at fire-sale prices.” The question is: should you expect (and wait for) fire-sales prices? Most value investors know the maxim that it is better to buy a great business at a fair price than to buy a mediocre business at low price. We think that Nike is a great business at a fair price. We have been waiting for Nike’s price to come down for a long time and meanwhile, we have sold PUT options, though unfortunately these options have never been exercised (but we cashed-in premiums). Today, we bought the stock.

Reasons to avoid the stock

We invest with a long-term view and therefore we ask long-term questions:

Has the management of Nike changed its strategy? Is Nike’s long-term strategy ultimately going to fail? Is there anything that can or has damaged the Nike brand?

Of course, competition is there, but is there any industry where there is no long-term competition? Under Armour (NYSE:UAA), Adidas (OTCQX:ADDDF), Lululemon (NASDAQ:LULU) are all good companies, but they have always been there. Under Armour and Lululemon are perceived as new entrants, but they were actually founded 20 years ago (in 1996 and 1998), Adidas is almost a century old, while Nike is “only” 52-years old. So, what has changed? These industries move in waves, but the quality of the Nike brand, its management, and innovation have been a constant. In sum, if your answer to any of the previous questions is YES, then you should reconsider our investment thesis. If it is NO, then we can move on to the next paragraph.

Best Low Price Stocks To Watch For 2018: Suncor Energy Inc.(SU)

Advisors’ Opinion:

  • [By ]

    Suncor Energy Inc. (SU) – “We expect modestly below-consensus results driven by
    downtime and the ramp costs at Fort Hills. We still see a robust second-half 2018 and 2019 free cash flow story and would recommend investors look through any near-term
    noise.”

  • [By Tyler Crowe]

    I don’t know if you have noticed, but oil prices have been on the rise lately, which has done miraculous things for the bottom lines at oil and gas companies. The same can be said for Suncor Energy (NYSE:SU), which was able to post a rather healthy earnings per share number considering one of its major oil sands facilities was shut down in the most recent quarter.

  • [By Tyler Crowe, Reuben Gregg Brewer, and Travis Hoium]

    Clearly, investors should be at least looking at stocks in this industry, so we asked three of our investing contributors to each highlight a great company in the industry to help you get started. Here’s why they picked Baker Hughes, a GE Company (NYSE:BHGE), Suncor Energy (NYSE:SU), and Total (NYSE:TOT).

Best Low Price Stocks To Watch For 2018: Fidelity Southern Corporation(LION)

Advisors’ Opinion:

  • [By Max Byerly]

    ValuEngine cut shares of Fidelity Southern (NASDAQ:LION) from a strong-buy rating to a buy rating in a research note published on Wednesday morning.

Best Low Price Stocks To Watch For 2018: Tesla Motors, Inc.(TSLA)

Advisors’ Opinion:

  • [By ]

    But what should investors do with the stocks of Facebook, Amazon and Tesla (TSLA) , three market darlings that fell out of favor this month? Cramer weighed in with his opinions.

  • [By ]

    Tesla (TSLA) CEO Elon Musk looked dead tired and in need of a sandwich in a new CBS interview that filled up Twitter feeds over the weekend. It’s great to see Musk allegedly sleeping in an office on the production floor – not many CEOs of companies with a market cap of more than $50 billion would do the same in an effort to drive desired performance.

  • [By ]

    At this rate, ‘Jolt’ will become nothing more than a morning Tesla (TSLA) blog that so happens to be delivered straight to your email inbox. Keeping up with the daily news flow on Elon Musk’s car creation is becoming darn near impossible. There is around-the-clock speculation on production goals. People hop into chat rooms to complain about Model 3 build quality and factory working conditions. Musk always looms large on Twitter. There are YouTube videos of people passing parking lots filled with just produced Model 3s.

  • [By ]

    Perhaps it’s maneuvering in a traffic jam or maybe it’s engaging Autopilot on a Tesla Inc (TSLA) Model S. (Although, this program has been basting in controversy as of late).

Tesla, Inc. (TSLA) Stake Lowered by D.A. Davidson & CO.

D.A. Davidson & CO. trimmed its holdings in shares of Tesla, Inc. (NASDAQ:TSLA) by 26.9% during the first quarter, according to its most recent 13F filing with the Securities and Exchange Commission (SEC). The firm owned 2,624 shares of the electric vehicle producer’s stock after selling 966 shares during the period. D.A. Davidson & CO.’s holdings in Tesla were worth $698,000 at the end of the most recent reporting period.

Several other hedge funds and other institutional investors have also added to or reduced their stakes in TSLA. Truewealth LLC bought a new stake in shares of Tesla during the 4th quarter worth $102,000. Jacobi Capital Management LLC raised its stake in shares of Tesla by 154.4% during the 1st quarter. Jacobi Capital Management LLC now owns 430 shares of the electric vehicle producer’s stock worth $109,000 after purchasing an additional 261 shares during the period. Avestar Capital LLC bought a new stake in shares of Tesla during the 4th quarter worth $144,000. Dynamic Advisor Solutions LLC bought a new stake in shares of Tesla during the 1st quarter worth $201,000. Finally, FDx Advisors Inc. bought a new stake in shares of Tesla during the 4th quarter worth $203,000. Institutional investors own 57.92% of the company’s stock.

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In other Tesla news, CEO Elon Musk acquired 33,000 shares of the business’s stock in a transaction dated Monday, May 7th. The stock was bought at an average price of $298.50 per share, with a total value of $9,850,500.00. The purchase was disclosed in a legal filing with the Securities & Exchange Commission, which is available at this link. Also, VP Eric Branderiz sold 401 shares of the business’s stock in a transaction dated Monday, February 26th. The stock was sold at an average price of $353.50, for a total value of $141,753.50. Following the transaction, the vice president now directly owns 1,248 shares of the company’s stock, valued at approximately $441,168. The disclosure for this sale can be found here. Insiders have sold 3,728 shares of company stock valued at $1,172,762 in the last three months. 22.80% of the stock is owned by insiders.

Shares of NASDAQ TSLA opened at $286.48 on Thursday. Tesla, Inc. has a 12 month low of $281.73 and a 12 month high of $286.71. The company has a quick ratio of 0.44, a current ratio of 0.74 and a debt-to-equity ratio of 1.65. The stock has a market cap of $49.57 billion, a PE ratio of -24.95 and a beta of 1.11.

Tesla (NASDAQ:TSLA) last issued its quarterly earnings data on Wednesday, May 2nd. The electric vehicle producer reported ($3.35) EPS for the quarter, missing the Thomson Reuters’ consensus estimate of ($2.40) by ($0.95). Tesla had a negative return on equity of 40.72% and a negative net margin of 18.77%. The business had revenue of $3.41 billion for the quarter, compared to analysts’ expectations of $3.30 billion. During the same period in the previous year, the firm posted ($1.33) EPS. The firm’s revenue for the quarter was up 26.4% compared to the same quarter last year. sell-side analysts anticipate that Tesla, Inc. will post -10.94 EPS for the current year.

A number of research firms have recently commented on TSLA. BidaskClub upgraded Tesla from a “sell” rating to a “hold” rating in a research note on Wednesday, January 31st. Vetr lowered Tesla from a “hold” rating to a “sell” rating and set a $341.15 price objective for the company. in a report on Monday, February 26th. Zacks Investment Research lowered Tesla from a “hold” rating to a “sell” rating in a report on Saturday, January 20th. KeyCorp reissued a “hold” rating on shares of Tesla in a report on Tuesday, March 13th. Finally, Morgan Stanley set a $379.00 price objective on Tesla and gave the stock a “neutral” rating in a report on Thursday, February 8th. Thirteen research analysts have rated the stock with a sell rating, eleven have issued a hold rating and eleven have assigned a buy rating to the company. Tesla currently has a consensus rating of “Hold” and an average target price of $301.70.

Tesla Profile

Tesla, Inc designs, develops, manufactures, and sells electric vehicles, and energy generation and storage systems in the United States, China, Norway, and internationally. The company operates in two segments, Automotive, and Energy Generation and Storage. The Automotive segment offers sedans and sport utility vehicles.

Institutional Ownership by Quarter for Tesla (NASDAQ:TSLA)

Vivint Solar Is Already Falling Behind in Energy Storage

Vivint Solar (NYSE:VSLR) has spent the past year cleaning up its house in residential solar after the company’s sale to SunEdison fell through. Now, operations are steadily improving. Vivint has also been one of the beneficiaries of Tesla’s (NASDAQ:TSLA) decision to shrink its solar business, and it has made a relatively quick transition to selling solar systems rather than financing them and then leasing to customers. That’s the good news.

What hasn’t been going so well for the company is its launch of energy-storage products. A partnership with Mercedes-Benz recently went up in smoke after the automaker decided to focus its efforts on large-scale installations, and its effort to go head to head against Tesla’s Powerwall apparently hasn’t been as successful as the company had expected. This leaves Vivint Solar without its key energy storage partner, and no obvious path to becoming a leader in the rapidly growing energy-storage market.

LG Chem energy storage system in a garage.

LG Chem energy storage system in a garage. Image source: Vivint Solar.

Mercedes-Benz abandons Vivint Solar

In May 2017, Vivint Solar and Mercedes-Benz forged an alliance to bring energy storage to the residential solar market. Mercedes-Benz’ supplied the battery units; each one had a 2.5 kW-hr capacity, and up to eight could be strung together in a storage system, enough to power the average U.S. home for about 16 hours.

Now, the two companies are going their separate ways. Vivint Solar has already replaced Mercedes-Benz’ batteries with LG Chem batteries on its website, but Greentech Media is reporting that LG batteries are only available in Utah, and won’t be rolled out to larger markets like California until later this year.

It’s likely that more than one fatal flaw contributed to thepartnership’s collapse. The requirements an automaker has for an electric vehicle battery don’t entirely translate to what’s needed for one being installed in the home, so there could have been some issues with fit. Also, its batteries individually had far less capacity than Tesla’s 14 kW-hr Powerwall 2. Finally, Vivint Solar was relatively opaque on pricing, but Electrek has reported that the cost of a Mercedes-Benz energy storage system was between $5,000 and $13,000, which may not have been a compelling deal compared to the Powerwall, priced at $5,900 plus installation.

Replacing Mercedes-Benz batteries with LG Chem should help lower costs and bring a company more focused on what the home market needs in energy storage, so there are some positives to bringing LG Chem onboard and it’s probably the right move short-term. But it doesn’t help at all with differentiating Vivint Solar’s product in the marketplace. LG Chem is also partnering with the biggest residential solar installer in the U.S.,Sunrun (NASDAQ:RUN), meaning Vivint Solar is only catching up to, not surpassing, the competition.

The next big growth market in residential energy

How Vivint Solar fares in the energy storage business could be key to its future prospects. Despite being small potatoes today, solar plus storage installations are expected to grow into a huge market within the next five years, and solar installers will be the primary sales point for those systems. According to GTM Research, just 16.7 megawatts (MW) of residential energy storage was installed in 2017 — that figure is forecast to explode to around 1,000 MW in 2023. In dollar figures, the residential energy storage market is expected to surpass $1 billion by 2022.

Solar installers are the best-positioned players to sell and install home energy storage. If Vivint Solar doesn’t get its strategy right, it could be left in the dust.

What I worry about from an investment perspective is that Vivint Solar is commoditizing itself. It already installs commodity solar panels and inverters; loan financing is a commodity being done by third parties; and now, energy storage systems (at least the ones it’s offering) look like a commodity as well. It’s hard to build a sustainably profitable business when your products are exactly the same as those of many of your rivals. But that’s the situation Vivint Solar finds itself in today.

More Big Companies Beat Projections, But Wall Street Appears To Still Struggle

Companies keep churning out impressive earnings, but the market doesn’t seem to give them much credit. Instead, fear and caution remain the watchwords as the Dow Jones Industrial Average ($DJI) enters Wednesday on a five-session losing streak.

Morning Earnings Wrap

Boeing Co (NYSE: BA) became the latest member of the $DJI 30 to smash Wall Street analysts’ projections early Wednesday, firing up earnings per share of $3.64 vs. analysts’ consensus of $2.56. Revenue of $23.38 billion was more than $1 billion ahead of the $22.2 billion analysts had expected, and the company also raised its outlook. Strength in the commercial air division helped BA project a healthy sales picture.

Also on the earnings front, Twitter Inc. (NYSE: TWTR) topped analysts’ earnings projections and reported the second profitable quarter in the company’s history. It also handed out some bullish guidance and said daily active users grew 10 percent. The tech reporting season continues after the close when Facebook (FB) presents its Q1 results and tomorrow with Amazon.com, Inc. (NASDAQ: AMZN) and Microsoft Corporation (NASDAQ: MSFT).

It’s unclear whether any of the earnings momentum will spill into stocks today as the futures market came under pressure before the opening bell. Stocks overseas followed the U.S. lower after Tuesday’s big sell-off, with a key European index down about 1 percent.

Market Psychology Ruling the Day?

The hunt for 3 percent ended Tuesday as the 10-year yield reached that benchmark level. Soon after, stocks started to take a beating and sharply reversed early gains. At one point, the $DJI stumbled more than 600 points before recovering about one-third of those losses by the end of the day. Concerns about higher borrowing costs and rising commodity prices may be playing into the pressure.

Wall Street also appears to be grappling with a few psychological issues. Most notably, there’s trepidation around that 3 percent yield number, which didn’t hold for long Tuesday but remains within close range.  It definitely seems to be hurting the home builders, whose shares sold off despite strong housing and consumer confidence data this week. The fear is that some people might hear about higher rates and decide not to buy a house after all. Home builders are dealing with something that’s more of a psychological factor than a reality factor, as “3 percent” was made out to be the boogeyman of the markets. Historically, though, it’s not all that high.

Another psychological element is the idea touted by some analysts about earnings starting to peak. This might have been exacerbated by Dow component Caterpillar Inc. (NYSE: CAT) post-earnings conference call in which executives described the Q1 as a “high water mark.” Despite what some analysts called “phenomenal” earnings from the big machine maker, CAT shares fell more than 6 percent. Here we see the power of a conference call. This stock was higher before the call, but the remark led to immediate selling as some investors seemed to interpret the language as CAT saying it can’t get any better than this. However, the remark might not have come out as the company had intended.

More proof that one negative metric can hold back a big company’s stock surfaced with Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) Tuesday. Though the company reported a powerful quarter, the stock got stuffed as investors and analysts seemed focused more on higher-than-expected capital expenditures.

The "P" and the "E" in P/E

What it all comes down to is a certain level of confusion, which could hang around for a while. There seems to be a repricing of equities going on and despite this being an incredible earnings season so far, stock prices keep going down. The price-to-earnings (P/E) multiple remains a key factor to watch. “E” keeps getting higher and “P” keeps getting lower. People just don’t seem to be inclined to pay the same “P” any longer. It’s unclear where this might go, and sometimes these things take six to 12 months to sort themselves out. We’re right in the middle of it now.

Anyone looking for a silver lining might want to check out how VIX, the market’s most closely watched volatility indicator, acted during the last hours of the day. If you look closely, you’d see that it pulled back a bit in the last part of the session from intraday highs above 19.

Next Up: Autos

Attention could shift to the automotive sector when Ford Motor Company (NYSE: F) reports after the close today and General Motors Company (NYSE: GM) issues results before the open Thursday. There’s a truckload (pardon the expression) of things to consider ahead of not just these two behemoths but also Tesla Inc. (NASDAQ: TSLA), which according to the company’s web site reports May 2.

First, Ford is embarking on a huge program to save $14 billion, but, like all car companies, faces pressure to ignite its research and development (R&D) efforts to keep up with advances in electric and autonomous cars. At this point, F, which has lower margins than GM, is actually spending more money on R&D than its Detroit counterpart. Anyone who’s long F should consider listening to the company’s earnings call to see if there’s more clarity on where those savings might come from, and what they’re going to chop if it’s not R&D. At this point, one school of thought suggests that F is spending too much and not getting enough bang for its buck, but perhaps we’ll learn more Wednesday.

A question for GM, and maybe the U.S. auto industry as a whole, is what’s happening in China. Not long ago, 50 percent of GM’s revenue came from China, but now that’s below 40 percent. The company has closed some plants there. Is the Chinese market not growing at the pace we thought, or is Buick getting less popular over there? It seems unlikely that the latter would be true, so perhaps there’s something about the former that GM might address in its call, and, if that’s the case, might be something other U.S. car companies also have to address.

TSLA doesn’t report until next week, but there may be questions for the company about its own R&D after an analyst note came out recently speculating about TSLA’s development costs. Some analysts doubt if TSLA can achieve the Model 3 production it’s promised in the time frame the company has forecast. TSLA announced two temporary Model 3 plant shutdowns last week but said the shutdowns had been planned.

Though TSLA’s cars don’t need it, crude oil comes under a microscope this week as President Trump holds meetings in the White House with French President Emmanuel Macron. The Iran nuclear agreement is a key topic.

chart_4_251.jpg FIGURE 1: HOW THINGS CHANGE. The tech sector (candlestick) and financial sector (purple line), mapped here over the last year, led the charge through much of 2017 and right into the first month of 2018. Since then, these two former leaders have seemed to lose their way, and that’s one possible reason the market lacks direction.  Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Buyers Pay Up in Chicago

Some call Chicago, “The most American city.” That may or may not be the case, but the city’s real estate market in March seemed to reflect some of the broader American trends in housing. Existing home prices rose more than 5 percent nationwide last month, and in the city of Chicago prices hit an all-time high median of $314,000, according to Illinois Association of Realtors. That was up more than 6 percent from a year earlier. However, total sales around the country fell more than 1 percent year-over-year, and Chicago’s market also saw less turnover, with the number of sales falling more than 10 percent. In sum, Chicago seemed to be a microcosm of a housing market characterized by rising prices and falling supplies. That might sound like a good opportunity for home builders, but rising mortgage rates raise question marks.

ECB Up Next

One thing that’s arguably helped hold back U.S. yields is lower yields in Europe and Japan. However, the European Central Bank (ECB) has been removing some stimulus and meets again this week. An update is due Thursday morning. The Bank of Japan (BOJ) seems inclined to stay put with its current accommodation, BOJ Governor Haruhiko Kuroda told CNBC in a recent interview, saying “risks are skewed to the downside” in Japan’s economy. 

GDP Time Already?

Earnings grab most of the headlines this week, but don’t forget to watch Friday for the government’s first read on Q1 gross domestic product. The report is due out before the opening bell and could give investors a sense of whether the economy continued its solid run that started in Q2 of last year. The consensus among analysts is that things slowed down a bit between January and March, to around 2.1 percent, Briefing.com said. That’s down from the final Q4 read of 2.9 percent, which marked the third-consecutive quarter of growth around 3 percent. Typically, GDP is closely watched but doesn’t tend to move the market unless it comes in well above or below expected levels. The government does get two more cracks at the ball, so this isn’t the final word.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

For Tesla, Less Is More

Page 14 of Tesla’s (NASDAQ:TSLA) 2017 10-K states:

Segment Information

We operate as two reportable segments: automotive and energy generation and storage.

The automotive segment includes the design, development, manufacturing, and sales of electric vehicles. The energy generation and storage segment includes the design, manufacture, installation, and sale or lease of stationary energy storage products and solar energy systems, and sale of electricity generated by our solar energy systems to customers.

As stated, Tesla has two reportable business segments, the automotive segment and the energy generation and storage segment.

What does “Full Disclosure” mean to the SEC and to the Financial Accounting Standards Board (FASB, which governs the accounting standards that public companies must comply with)? It is a basic Generally Accepted Accounting Principle (GAAP). As stated on page 1,314 of “Intermediate Accounting by Kieso, Weygandt, and Warfield, 2010:

The full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader.”

The same page also states:

For example, recently the SEC required companies to provide expanded disclosures about their contractual obligations. In light of the off-balance sheet accounting frauds at companies like Enron, the benefits of these expanded disclosures seem fairly obvious to the investing public.”

I’ve stated it a number of times and I’ve seen other posters on SA state the same thing, and that is that Tesla does not seem transparent enough with its financial reporting. That thought came into focus when I thought about the company’s reportable business segments. I knew there was a specific standard or two that governed segment reporting. So, I decided to research the matter and see what information was required to be reported and then compare that with what Tesla reported, as well as what other companies, with more than one reportable segment reported.

The accounting standard governing business segment reporting is Statement of Financial Accounting Standards (SFAS) 131: Disclosures About Segments of an Enterprise and Related Information. SFAS 131 replaced SFAS 14: Financial Reporting for Segments of a Business Enterprise in 1997. The reason for the updated standard on business segment reporting was because financial analysts found SFAS 14 inadequate. (See paragraphs 42 and after of the Standard). They wanted financial statement data to be disaggregated to a greater degree than required by SFAS 14.

With FASB changing over to the accounting standards codification (ASC), this standard is now ASC 280: Segment Reporting, but it’s the same content as SFAS 131. Because the content is identical, I will refer to text from SFAS 131, instead of ASC 280. The codification is harder to access because you have to register at FASB’s website, so I can’t link to the text with it, whereas SFAS 131’s text is readily accessible.

SFAS 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that’s evaluated regularly by the chief operating decision maker (CODM) in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments.

The reason that SFAS 131 was created was to:

Better understand the enterprise’s performance through expanded disclosures. Better assess its prospects for future net cash flows. Make more informed judgments about the enterprise as a whole.

It appears that Tesla meets the technical requirements of SFAS 131: Disclosures About Segments of an Enterprise and Related Information, but has failed to comply with the spirit of the standard. That’s my opinion after researching this subject.

SFAS 131 requires that a public business enterprise report a measure of profit or loss, certain specific revenue and expense items, and assets by segment. It also requires reconciliations of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts in the enterprise’s general-purpose financial statements. Information about the revenues derived from the enterprise’s products or services, about the countries in which the enterprise earns revenues and hold assets, and about major customers also is required to be reported, regardless of whether that information is used in making operating decisions.

An operating segment of an enterprise is defined by SFAS 131, paragraph 10 as:

10 …a component of an enterprise:

a. That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise).

b. Whose operating results are regularly reviewed by the enterprise’s CODM to make decisions about resources to be allocated to the segment and assess its performance, and

c. For which discrete financial information is available.”

Then paragraph 12 states:

12. The term chief operating decision maker identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the segments of an enterprise.”

This means that the CODM, as defined in the previous paragraph, may be a group of persons and not just one person.

The following defines what a “reportable business segment” is which requires disaggregated segment reporting:

Quantitative Thresholds

18. An enterprise shall report separately information about an operating segment that meets any of the following quantitative thresholds:

a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all reported operating segments.

b. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of (1) the combined reported profit of all operating segments that did not report a loss or (2) the combined reported loss of all operating segments that did report a loss.

c. Its assets are 10 percent or more of the combined assets of all operating segments.

So, now we know what business segments are and which business segments must be reported separately from consolidated amounts.

I’m including here the SEC’s explanation of why it changed its guidance to conform to SFAS 131.

Let’s now examine, from SFAS 131, what is required to be disclosed by reported operating segments:

Disclosures

25. An enterprise shall disclose the following:

a. General information as described in paragraph 26

b. Information about reported segment profit or loss, including certain revenues and expenses included in reported segment profit or loss, segment assets, and the basis of measurement, as described in paragraphs 27-31

c. Reconciliations of the totals of segment revenues, reported profit or loss, assets, and other significant items to corresponding enterprise amounts as described in paragraph 32

d. Interim period information as described in paragraph 33.

26. An enterprise shall disclose the following general information:

a. Factors used to identify the enterprise’s reportable segments, including the basis of organization (for example, whether management has chosen to organize the enterprise around differences in products and services, geographic areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated).

b. Types of products and services from which each reportable segment derives its revenues.”

Information about Profit or Loss and Assets

27. An enterprise shall report a measure of profit or loss and total assets for each reportable segment. An enterprise also shall disclose the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker:

a. Revenues from external customers

b. Revenues from transactions with other operating segments of the same enterprise

c. Interest revenue

d. Interest expense

e. Depreciation, depletion, and amortization expense

f. Unusual items as described in paragraph 26 of APB Opinion No. 30, Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions

g. Equity in the net income of investees accounted for my the equity method

h. Income tax expense or benefit

i. Extraordinary items

j. Significant noncash items other than depreciation, depletion, and amortization expense.

28. An enterprise shall disclose the following about each reportable segment if the specified amounts are included in the determination of segment assets reviewed by the chief operating decision maker:

a. The amount of investment in equity method investees.

b. Total expenditures for additions to live-lived assets other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets.

Now we come to a very important part of the standard. It’s this paragraph that seems to be a loophole for Tesla to circumvent what was intended by SFAS 131.

Measurement

29. The amount of each segment item reported shall be the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing an enterprise’s general-purpose financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that’s used by the chief operating decision maker. Similarly, only those assets that are included in the measure of the segment’s assets that’s used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss or assets, those amounts shall be allocated on a reasonable basis.”

Are you still with me? It is a lot to digest. There is more, but I want to stop here and begin the analysis of Tesla’s disclosures. Tesla reports its business segment information under Note 23 of the 2017 10-K, pages 117 and 118:

Note 23 Segment Reporting and Information about Geographic Areas

We have two operating and reportable segments: (i) automotive and (ii) energy generation and storage. The automotive segment includes the design, development, manufacturing and sales of electric vehicles. Additionally, the automotive segment is also comprised of services and other, which includes after-sales vehicle services, used vehicle sales, powertrain sales and services by Grohmann. The energy generation and storage segment includes the design, manufacture, installation and sales of solar energy generation and energy storage products. Our CODM does not evaluate operating segments using asset or liability information. The following table presents revenues and gross margins by reportable segment (in thousands):”

Note on page 117 that Tesla’s “measure of profit or loss” which they use “for purposes of making decisions about allocating resources to the segment and assessing its performance” is Gross Profit.

At this point I have to ask: Really? You mean to say that Mr. Musk and Mr. Ahuja, or whoever the CODM is, meet with the people responsible for the two business segments to review operating performance and the only measure of profit or loss that they review is Gross Profit? Are you serious?

I mean, you have business segment operating expenses like:

Payroll for design, development, manufacturing, and sales. SG&A for both operating segments, like utilities, telephones both stationary and mobile, internet usage charges, and general office supplies for administrative employees and sales employees. Depreciation for general purpose office equipment like computers, printers, telephones, desks, chairs. Depreciation on the buildings that house administrative and sales employees. Amortization on computer software used to manage both segments. Marketing costs Other things I have not mentioned or thought of.

All of these costs can be easily identified with either the Automotive segment or the Energy Generation and Storage segment. I am certain that Tesla’s CODM reviews these business segment costs and reviews operating income or loss by business segment in order to assess operating performance for each segment. But, SFAS 131 doesn’t define what the term “a measure of profit or loss” is. Therefore, the Standard provides Tesla with a loophole whereby they are not required to disclose operating income or loss by business segment. As a consequence, in Tesla’s case the new Standard provides a loophole whereby less disaggregated financial information may be disclosed than the old one. That’s exactly the opposite of what was intended with the issuance of the new Standard.

To support my claim that Tesla’s CODM looks at details of operating performance on a segment level basis that go well beyond the Gross Profit level, Take a look at this article from October 25, 2017.

” Tesla said at the time of the acquisition it would cut costs by $150 million in the first full year after closing the deal, which will occur November 21, 2017. SolarCity cofounders Peter and Lyndon Rive have both left the company since it was acquired by Tesla. The Rives are cousins of Tesla CEO Elon Musk. “

The word “synergies,” however, means cost cutting, and at least some of the cost cutting will come in the form of layoffs.

Like all companies, Tesla conducts an annual performance review during which a manager and employee discuss the results that were achieved, as well as how those results were achieved, during the performance period. This includes both constructive feedback and recognition of top performers with additional compensation and equity awards, as well as promotions in many cases. As with any company, especially one of over 33,000 employees, performance reviews also occasionally result in employee departures. Tesla is continuing to grow and hire new employees around the world.”

SFAS 131 provides an example of Segment Information to be reported, in paragraph 122:

Diversified Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses and foreign exchange gains and losses.”

Did you get that? The example in SFAS 131, itself, uses what to evaluate performance? Operating Income or Loss.

The example company also has a finance segment that meets the reportable segment criteria. Tesla has a finance division in its Auto Segment. That division doesn’t meet the reportable segment criteria? Interesting. Very interesting.

IMO, Tesla does, in fact, assess business segment performance at the operating income or loss level. My own accounting work experience tells me that. Common sense tells you that. I was born at night, but not last night. So, even though Tesla meets the technical requirements of SFAS 131, by reporting “a measure of profit or loss,” the company fails to comply with the very intent of the standard, in my opinion.

There’s another matter, also, the reporting of segment assets. Tesla doesn’t report their assets by segment, but only by a consolidated total. Again, it appears that Tesla meets the technical requirements of SFAS 131, but fails to comply with its spirit. Within Note 23 of the 2017 10-K, on page 117, Tesla states: Our CODM does not evaluate operating segments using asset or liability information.

Paragraph 29 of the standard states: “The amount of each segment item reported shall be the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance. “

So, with Tesla’s statement, they comply with the technical requirements of the standard since, according to the company, the CODM doesn’t evaluate operating segments using asset or liability information.

But, is it really true that Tesla doesn’t evaluate segment operating performance or the allocation of resources (assets) using asset information? Has Tesla consolidated SolarCity and reduced the amount of assets under its management, as a result? Yes, they have. Does Tesla continue to monitor and manage the amount of its assets, company wide? Obviously, they do. And what about “capex?” So if this isn’t reviewing resource allocation (assets) and making decisions about resource allocation (assets), then I’m from Mars. I think any public company manages the allocation of resources using asset information, as can readily be seen by the asset information provided by other enterprises with more than one segment. Ford (NYSE:F), GM (NYSE:GM), John Deere (NYSE:DE), GE (NYSE:GE), Johnson & Johnson (NYSE:JNJ), Caterpillar (NYSE:CAT), and every other company that I’ve researched, that has more than one business segment, provides operating income, asset information, depreciation, and other information by segment. But not Tesla. I find it hard to believe that Tesla doesn’t review and evaluate operating performance or resource allocation with asset information.

Let’s go on, now, and review a few other paragraphs of the standard.

32. An enterprise shall provide reconciliations of all of the following:

a. The total of the reportable segment’s revenues to the enterprise’s consolidated revenues.

b. The total of the reportable segments’ measures of profit or loss to the enterprise’s consolidated income before income taxes, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles.

c. The total of the reportable segments’ assets to the enterprise’s consolidated assets.

d. The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding consolidated amount.

All significant reconciling items shall be separately identified and described. For example, the amount of each significant adjustment to reconcile accounting methods used in determining segment profit or loss to the enterprise’s consolidated amounts shall be separately identified and described.

Tesla includes a reconciliation of its reportable segment revenues to consolidated revenues. But I don’t see a reconciliation of the reportable segments’ profit or loss to the consolidated income or loss before income taxes, extraordinary items, etc. And a reconciliation of the reportable segments’ assets to consolidated assets is missing.

Then there’s paragraph 38 about reporting revenues from external customers by geographic region, and long-lived assets by geographic region. Tesla complies with this.

Then there’s paragraph 39:

Information about Major Customers

39. An enterprise shall provide information about the extent of its reliance on its major customers. If revenues from transactions with a single external customer amount to 10 percent or more of an enterprise’s revenues, the enterprise shall disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The enterprise need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer.

Tesla doesn’t provide any information in this regard, so, apparently it doesn’t derive at least 10 percent of its revenues from just one customer.

So, that’s the standard and you can review it at FASB’s website here.

Let’s further evaluate the adequacy of Tesla’s disclosures about its business segments by revealing what was intended when SFAS 131 replaced SFAS 14.

First, let’s review the statements of the sole FASB Board Member (there are seven board members) who dissented from the issuance of SFAS 131:

This Statement was adopted by the affirmative votes of six members of the Financial Accounting Standards Board. Mr. Leisenring dissented.

Mr. Leisenring dissents from the issuance of this Statement because it does not define segment profit or loss and does not require that whatever measure of profit or loss is reported be consistent with the attribution of assets to reportable segments.

By not defining segment profit or loss, this Statement allows any measure of performance to be displayed as segment profit or loss as long as that measure is reviewed by the chief operating decision maker. Items of revenue and expense directly attributable to a given segment need not be included in the reported operating results of that segment, and no allocation of items not directly attributable to a given segment is required. As a consequence, an item that results directly from one segment’s activities can be excluded from that segment’s profit or loss. Mr. Leisenring believes that, minimally, this Statement should require that amounts directly incurred by or directly attributable to a segment be included in that segment’s profit or loss and that assets identified with a particular segment be consistent with the measurement of that segment’s profit of loss.

Mr. Leisenring supports trying to assist users as described in paragraph 3 of this Statement but believes it is very unlikely that will be accomplished, even with the required disclosures and reconciliations to the entity’s annual financial statements, because of the failure to define profit or loss and to impose any attribution or allocation requirements for the measure of profit or loss.

Mr Leisenring supports the management approach for defining reportable segments and supports disclosure of selected segment information in condensed financial statements of interim periods issued to shareholders. Mr. Leisenring believes, however, that the definitions of revenues, operating profit or loss, and identifiable assets in paragraph 10 of Statement 14 should be retained in this Statement and applied to segments identified by the management approach.

I concur with Mr. Leisenring. Without defining profit or loss, companies like Tesla can skirt the spirit and intent of the new standard, as we see being done in Tesla’s 10-K, in my opinion.

So, I have a question. Is there any “material” information which Note 23 of Tesla’s financials discloses that isn’t contained within its Consolidated Income Statement? Very little, in my opinion. The intent of SFAS 131 was that MORE disaggregated financial data would be disclosed than was disclosed under SFAS 14. That isn’t the case with Tesla.

Here is the intent of the new Standard, in paragraphs 42 through 45:

Background Information

42. FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise, was issued in 1976. That Statement required that business enterprises report segment information on two bases: By industry and by geographic area. It also required disclosure of information about export sales and major customers.

43. The Board concluded at the time it issued Statement 14 that information about components of an enterprise, the products and services that it offers, its foreign operations, and its major customers is useful for understanding and making decisions about the enterprise as a whole……

44. In its 1993 position paper, Financial Reporting in the 1990s and Beyond, the Association for Investment Management and Research (AIMR) said:

(Segment data) is vital, essential, fundamental, indispensable, and integral to the investment analysis process. Analysts need to know and understand how the various components of a multifaceted enterprise behave economically. One weak member of the group is analogous to a section of blight on a piece of fruit – it has the potential to spread rot over the entirety. Even in the absence of weakness, different segments will generate dissimilar streams of cash flows to which are attached disparate risks and which bring about unique values. Thus, without disaggregation, there is no sensible way to predict the overall amounts, timing, or risks of a complete enterprise’s future cash flows. There is little dispute over the analytic usefulness of disaggregated financial data. (Pages 59 and 60).

45. Over the years, financial analysts consistently requested that financial statement data be disaggregated to a much greater degree than it is in current practice. Many analysts said that they found Statement 14 helpful but inadequate. In its 1993 position paper, the AIMR emphasized that:

There is no disagreement among AIMR members that segment information is totally vital to their work. There also is general agreement among them that the current segment reporting standard, Financial Accounting Standard No. 14, is inadequate.

Then, paragraph 93 of SFAS 131 states:

Although this Statement requires disclosure of more information about an individual operating segment than Statement 14 required for an industry segment, ….”

Clearly, what was intended with the new Standard was more disaggregated data, not less. But, with Tesla, less is more. I give Tesla a grade of F for this section of their 10-K. Their Business Segments are something of a “black box” due to the lack of disclosure about them.

In Contrast, I present John Deere’s Disclosure Note on Reported Segments. It’s three pages long:



I’ll wrap up the article with this. Where’s the beef? When businesses become materially diversified, investors and investment analysts want more information about the details behind the consolidated financial statements. In particular, they want Income Statement, Balance Sheet, and Cash Flow information on the individual segments that compose the total income or loss figures.

Much information is hidden in the consolidated numbers. If an investor or an analyst has only the consolidated figures, he or she cannot tell the extent to which differing product lines contribute to the company’s profitability (or lack of), risk and growth potential. Earnings of the individual segments enable investors and the analyst to evaluate the differences between segments in growth rate, risk, and profitability, and to forecast consolidated profits. SFAS 14 was written to better serve the investor and analysts by requiring segmented information be made available, including operating income or loss and the assets contributing to that income or loss. SFAS 131 replaced SFAS 14 so that even more and better segmented data would be made available. Tesla defeats the purpose for which SFAS 131 was issued, since it provides less information about operating income and assets (no data) than it would have been required to report under SFAS 14.

In short, take away Note 23 of Tesla’s 10-K and little material information has been omitted, meaning Note 23 tells us little more about the business segments than if the Note were not present.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may buy puts on Tesla when and if the price reaches $350
It is highly risky to short this stock. Please understand the risks fully before doing so.