Is Tesla Motors Inc. Sandbagging or Just Bad at Math?

Something isn’t adding up with Tesla's delivery numbers.

Jan 30, 2014 at 7:32AM

As a big fan of Tesla (NASDAQ:TSLA) the company, as well as Tesla the stock, I tend to give the electric-car company the benefit of the doubt (even if, in general, that's a dangerous move in the stock market). Tesla has built a solid reputation for under-promising and over-delivering, and it has been very accurate in the ways it reports. Yet, despite that transparent accuracy, there is one puzzling disclosure from the company that I just can't seem to get out of my head.

The 6,900 deliveries
On Jan. 14, Tesla announced that with its quarterly earnings release in February it expects to report that almost 6,900 vehicles had been delivered. This number is a new record "by a significant margin" in the company's history and was also substantially higher than it guided for, a beat of prior guidance by 20% according to the press release.

Tesla credited the beat to higher than expected production from its team, as well as higher than expected supply for key parts, most notably Panasonic's lithium-ion-battery supply. As usual, all that Tesla produces that is available for delivery turns immediately into a sale because demand continues to vastly outstrip what the company can supply.

The problem
The head scratcher here is simple. The "prior guidance" Tesla gave for deliveries was for "slightly under 6,000" vehicles. Therefore 6,900 deliveries are not 20% higher than 6,000; they are actually only 15% higher. While 15% is still quite impressive, it implies that either the 20% figure in the press release is wrong, the company is sandbagging and will report an even higher number that hits that 20% mark (which would be closer to 7,200 vehicles), or I have it all wrong and the definition of "slightly under 6,000" was really 5,750. If the company really meant 5,750, then 6,900 deliveries is indeed 20% higher.

I don't think I had it wrong
If you look at the prior quarters, Tesla reported deliveries of 4,900, 5,150, and 5,500 in the first, second, and third quarters, respectively. This adds up to a total of 15,550 for the first nine months of the year. Tesla then guided for 21,500 in total for the full year 2013 which, if you do a little algebra, comes out to 5,950 for the fourth quarter as "slightly under 6,000."

The number 6,900 is 16% higher than 5,950. Still quite impressive, but it's not 20%. Why Tesla didn't say 16% instead of 20% remains a mystery.

In an interview with CNBC later on Jan. 14, CEO Elon Musk referred to the number as "almost 20%." Now we may be getting somewhere. One could arguably describe a 16% rise as "almost 20%," though it still seems a bit misleading in official company communications. When Musk was called out during the interview and asked where the 20% figure comes from, he paused and literally scratched his head. He then gave a non-answer about how it is a one-product company, which didn't explain the discrepancy. In Musk's defense, he seemed tired in the interview so he may simply not have understood the question.

Foolish final thoughts
Tesla does not have a history of exaggerating, so if it was doing so with the inflated 20% figure it would certainly be out of character. We will know for sure when the upcoming earnings report is released. Whether Tesla was sandbagging to be conservative as it finalizes its numbers, or whether it made a mistake (either intentionally or by accident), it will be a key item to note going into this quarter's earnings results.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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