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Comment by 11thEarlOfMar | Hacker News Reader

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11thEarlOfMar

The biggest news in this release is gross margin.

Gross Margin Jumped from 26.7% in Q2 to 33.2% in Q3.

For reference, MRQ,

GM gross margin: 13.9%

Toyota: 23.6%

VW: 19.9%

Granted, those are not luxury auto makers, but Tesla is more profitable on a gross margin basis. That margin fuels everything from cash flow to R&D spending. 33% for an automaker is huge.

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Yup, and as battery prices drop those margins are going to get even better(although I doubt we'll see the same level on the Model 3).

Only if they can sustain prices as competition comes online from other makers.

It is going to take about 3 years for competition to reach where Tesla is right now with regards to range and charging networks.

Charging networks maybe, but range no. The Chevy Bolt that will start selling in a couple of months has 238 miles range.

GM doesn't have the superchargers, but they can afford to price these cars with zero profit for a while, if they want to undercut Tesla.

But who would drive a Chevy Bolt if they could drive a Tesla? Even if the Bolt is a better car, Tesla has the better brand name for now.

My point was that the two are important together. A 240 mile range without a supercharger network is still a car that will not be particularly useful for a long trip (2+ hour drive).

Is the federal EV tax credit a component of the margin calculations?

No, the EV tax credit never goes to Tesla it goes to the consumer. The figures also exclude the CARB ZEV credits.

Doesn't the credit go to Tesla when it is leased?

It goes to the bank that handles the lease.

I guess that is my confusion, I thought Tesla was originating the lease.

Tesla sells the car to a bank, and the bank leases it to the customer. For leases done through Tesla directly, Tesla just talks to the bank for you.

Sorry, not trying to be difficult, but this doesn't clear things up for me. Are you saying that Tesla does not lease directly to the consumer?

Yes, that's right. They present it as if it were direct, but they're really just acting as a front for a third-party bank. They don't have their own finance arm.

Ok, got it now, thanks.

Any idea why they have to list automotive leasing as a separate line item on their report? If they are selling it to a bank who is then responsible for the lease, why list it separately?

Good question! I went poking around and turned up this article:

http://seekingalpha.com/amp/article/3988503-gaaps-treatment-...

If I understand it correctly (probability: moderate?) then it's basically an accounting artifact. The fact that Tesla arranges the lease means they have to book the revenue differently. Somehow....

Nice find, that helps. My reading is that it's slightly more than an artifact: Tesla is guaranteeing a residual, so the sale to the bank is conditional and so cannot be recorded as a simple sale.

GAAP strikes me as a set of things that, alone, are good intentions but combined are more confusing than they need to be.

Makes sense. And thanks for your persistent questioning, I learned some new stuff!

Thanks for your patience :) I learned some new stuff too!

>GAAP strikes me as a set of things that, alone, are good intentions but combined are more confusing than they need to be.

That's probably reasonably accurate. GAAP is intended to prevent various accounting reporting practices that, historically, were sometimes used to obscure material aspects of a company's financial position. However, GAAP numbers may also present a company's numbers in ways that aren't the most meaningful or "fair"--at least in the eyes of the company. That's one reason that companies often present both GAAP and non-GAAP results.

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