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

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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  • Report this Comment On January 30, 2014, at 11:33 AM, AverageDummy wrote:

    As always, it's important to get straight what is being measured. The news release on Tesla's website says:

    TESLA REVENUE EXPECTED TO EXCEED GUIDANCE BY 20% IN FOURTH QUARTER

    So, that's revenue that's growing by 20%, not production. The opening of the press release is unclear, leading someone who had not read the headline to possibly construe production rather than revenue as the growth measure:

    Tesla (NASDAQ: TSLA) sales in the fourth quarter of 2013 were the highest in company history by a significant margin. With almost 6,900 vehicles sold and delivered, Tesla exceeded prior guidance by approximately 20%. A higher than expected number of cars was manufactured as a result of an excellent effort by the Tesla production team and key suppliers, particularly Panasonic."

    Confusing as the wording is, the growth is being measured in revenue, not production. The really good news is that a 12-15% growth in sales generated a 20% growth in profit. Something is happening there with achieving economies of scale.

  • Report this Comment On January 30, 2014, at 12:21 PM, Arone wrote:

    really??? seriously ? is that you got ???

    you should try harder and be a conspiracy theorist.

    your attempts are pretty weak."you should say i love tesla "than "giving the befit of doubt ".after reading this people may think you are the "gud" guy and you got some marvelous insight. thank you fool for your well articulated ,lets say "article"

  • Report this Comment On January 30, 2014, at 12:33 PM, teslaman wrote:

    Revenue and Model S production are not necessarily a linear relationship.

    For instance, Model S production could be up only 16% from 5950 but if the average price paid rises 3.3% - from $90,000 to $93,000 - then revenues could be up a full 20% when production volume only rises 16%.

    With the first full quarter of European sales being taken into account for the first time, it is not unrealistic to think that European consumers may simply opt for a more expensive Tesla than do American consumers.

    Also, the Model S is NOT Tesla's only product. They are providing powertrains and technology to Toyota and Mercedes in addition to providing backup batteries to Solar City. All three of these products could result in significant revenue for Tesla.

  • Report this Comment On January 30, 2014, at 1:06 PM, pondee619 wrote:

    Nickey:

    Did you not read the headline, ignore the headline or decide that the headline did not help your story? If the comment by AverageDummy is accurate, I must seriously doubt your reading comprehension and how that failure may impinge upon the credibility your future works.

  • Report this Comment On January 30, 2014, at 1:59 PM, AverageDummy wrote:

    My comment above was my 1st on Motley Fool. I certainly didn't mean to imply that Nickey was deficient - we all make mistakes and Tesla's opening sentence left a wide margin for understanding. Are comments and responses always this vehement? Yikes. Or maybe I'm just dumber or more naive than I thought.

  • Report this Comment On January 30, 2014, at 2:04 PM, Jim5437532 wrote:

    Tesla is known for using fraudulent math and being misleading. It does so even in regards of safety. By trying to portray the Tesla model S. as having a 5.4 star safety rating, when well-known legitimate ratings only go to 5 stars.

    Tesla and their minions are less then truthful with safety statistics. I think the Tesla model S. is fairly safe, but not as safe as Tesla and their minions of spammers portrays it to be. Many including myself, think Tesla's hyping of safety statistics is false advertising. Typical corporate greed and disregard for public safety.

    "IT IS MY OPINION THAT, TESLA IS FRAUDULENTLY MISREPRESENTING STATISTICS AND THE SAFETY OF ITS VEHICLES. IT IS MY OPINION, IT IS FALSE ADVERTISING AGAIN. AFTER THE FIRST TESLA BATTERY FIRE ON OCTOBER 1, 2013: ON OCTOBER 4, 2013 ELON MUSK & TESLA MOTORS CLAIMED "YOU ARE 5 TIMES MORE LIKELY TO EXPERIENCE A FIRE IN A CONVENTIONAL GASOLINE CAR THAN A TESLA!" AFTER THE THIRD TESLA BATTERY FIRE ON NOVEMBER 19, 2013: ON DECEMBER 23, 2013 TESLA MOTORS CLAIMED "TESLA VEHICLE IS OVER FIVE TIMES LESS LIKELY TO EXPERIENCE A FIRE THAN THE AVERAGE GASOLINE CAR" I THINK TESLA MOTORS IS YET AGAIN USING FUNKY STATISTICS TO MISREPRESENT AND OVERSTATE THE SAFETY WORTHINESS OF ITS VEHICLES. AFTER THE THIRD TESLA BATTERY FIRE, TESLA WAS AND IS STILL USING STATISTICS THAT SEEMINGLY ONLY FIGURED ON ONE TESLA BATTERY FIRE, RATHER THAN ALL THREE."

    http://www-odi.nhtsa.dot.gov/owners/SearchResults?searchType...

    "AFTER THE FIRST TESLA BATTERY FIRE ON OCTOBER 1, 2013: ON OCTOBER 4, 2013 ELON MUSK & TESLA MOTORS CLAIMED "YOU ARE 5 TIMES MORE LIKELY TO EXPERIENCE A FIRE IN A CONVENTIONAL GASOLINE CAR THAN A TESLA!""

    http://www.teslamotors.com/blog/model-s-fire

    "AFTER THE THIRD TESLA BATTERY FIRE ON NOVEMBER 19, 2013: ON DECEMBER 23, 2013 TESLA MOTORS CLAIMED "TESLA VEHICLE IS OVER FIVE TIMES LESS LIKELY TO EXPERIENCE A FIRE THAN THE AVERAGE GASOLINE CAR""

    http://www.teslamotors.com/about/press/releases/nhtsa-reaffi...

    If we assume the base statistics are accurate, if we add in the 2 newer Tesla battery fires, if my math is right the second figure should be Tesla vehicle is over 1.666 times less likely to experience a fire than the average gasoline car. That's significantly less than what Tesla and their minions of spammers claims.

    Teslas are rather new vehicles. If gasoline vehicles of the same age range as Tesla's vehicles are compared to Tesla, gasoline vehicles MIGHT be less likely to catch fire than a Tesla.

    The greedy haters will probably attack my posts as usual. They can't handle the facts, intellect, free speech, free press and logical thinking.

  • Report this Comment On January 30, 2014, at 3:02 PM, nickeyfriedman wrote:

    Telsa never gave a revenue guidance. It gave a delivery guidance.

    Musk specifically said "we are a one product company" in regards to the 20% beat implying that revenue came only from the delivery of vehicles and nothing else yet.

    Musk said in the CNBC interview "we exceeded our guidance by 20%, delivering 6,900 cars"

    There was no revenue guidance. There was a delivery guidance. 6,900 deliveries is not exceeding any guidance by 20%. You cannot make up a prior revenue guidance that doesn't exist.

    Use the second video in this link:

    http://www.cnbc.com/id/101323468

    CNBC said, "People don't remember seeing a revenue projection."

    Musk responded, "For us, deliveries and revenue are very, very similar things, there's not a meaningful difference between the two."

    All of the comments here are trying to argue otherwise. Elon Musk disagrees.

  • Report this Comment On January 30, 2014, at 3:06 PM, nickeyfriedman wrote:

    In short, since "deliveries and revenue are very, very similar things" according to Musk, the company can't possibly have a 20% beat on revenue when it doesn't have a 20% beat on deliveries.

    Either Tesla is sandbagging and deliveries will be higher, Tesla is bad at math, or it is not true that deliveries and revenue are very, very similar things in which case Musk is bad at math.

    Pick one. The explanations don't fly that claim that Tesla was referring to revenue guidance that doesn't exist and should have been "very very similar" to deliveries.

  • Report this Comment On January 30, 2014, at 3:30 PM, teslaman wrote:

    Nicky, if Europeans are ordering more expensive versions of the Model S than have been ordered in North America, and the fourth quarter was the first quarter that those more expensive Tesla's were accounted for, then revenues COULD be up over 20% with deliveries only being up 16%.

    For this to happen, the European vehicles would only need to cost about $3,000.00 each more than the North American deliveries.

    And yes, I'm with Dummy...I wasn't implying your work was deficient. As I recall, Tesla gave production guidance, but not revenue guidance. With only a single product, many analysts and writers could have inferred revenue guidance easily, and from there, it became gospel.

    I think its just like you said, Musk was tired and misspoke. Revenues are probably up 20%+ while deliveries are only up 16%. Musk was too tired to explain the discrepancy, it was nearing the end of the interview, and he probably figured many people wouldn't notice anyway.

    That, and the fact that, as you pointed out, it COULD be argued that 16% is almost 20% in any case. He had that base somewhat covered.

    More expensive European Deliveries. Therein lies the explanation.

  • Report this Comment On January 30, 2014, at 3:49 PM, nickeyfriedman wrote:

    That's a great theory, and you could be right, however, in the last conference call Musk specifically stated he expected the average sales price of the fourth quarter to be similar to that of the third quarter. In the CNBC interview, he implied this as well by specifically stating, when asked where the 20% came from, that revenue and deliveries were "very, very similar things."

    If the average selling price in the fourth quarter rose by a material amount when compared to the third quarter, then Musk was not accurate when he forecasted the same selling price in the fourth quarter, and he was not accurate with his explanation of a 20% beat was that sales were very, very similar to deliveries. This is why CNBC questioned him on that.

    By the way, if I recall correctly, the deliveries to Europe were to be similar in number to that of the third quarter so your explanation doesn't seem to work.

    As for the rest of your comment, I covered that in my article itself that perhaps 16% is "almost 20%" and he was tired as you said. Here is the section:

    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.

  • Report this Comment On January 30, 2014, at 3:49 PM, pondee619 wrote:

    Jim5437532:

    Whose "opinion" is being offered in your first selection? What qualifications does that person have to make such an opinion be worthwhile? Your copy quote is the unattributed opinion of an unknown person making a complaint. What were the results of any investigation of this complaint?

    " if my math is right" Please show you math and we would be able to tell if it is correct.

  • Report this Comment On January 30, 2014, at 5:05 PM, Jim5437532 wrote:

    @ pondee619

    If you don't understand that there is a problem with using the same statistics for the first battery fire, after the third battery fire. Then you aren't in a position to be giving math advice or scrutinizing other people's expertise.

    Enough of the math is shown. You need an education. Are you really that stupid, or are you just a troll?

  • Report this Comment On January 30, 2014, at 5:56 PM, 68surfer wrote:

    @jim5437532

    Looks to me like you are the troll in these comments since all you can do is copy and paste the same FUD over and over again. Try to write something original next time. BTW maybe you have not realized yet that not one single person has been seriously injured or killed in a Tesla accident and I doubt very much any other car maker can make this claim for a new car or used for that matter. Cheers!

  • Report this Comment On January 31, 2014, at 9:19 AM, Jim5437532 wrote:

    @ 68surfer

    Looks to me that you are a troll shilling for a greedy corporation that is fraudulently representing safety statistics to sell unsafe and defective products.

    Statistically the Tesla is more likely to catch fire and explode than other EVs. Statistically I suspect the Tesla is more likely to catch fire and explode then the Ford Pinto. The NHTSA has found enough cause of danger to warrant an investigation into the Tesla battery fires and explosions. I doubt the NHTSA would give the Tesla model S. battery fires a clean bill of health unless NHTSA is paid off or otherwise biased.

    NHTSA and Tesla have found enough of a fire hazard to spend millions recalling about 30,000 Tesla model S' for faulty charger adapters.

    If Tesla wasn't so dangerous, then it wouldn't feel the need to fraudulently represent safety.

    The facts prove that Tesla is unsafe.

  • Report this Comment On January 31, 2014, at 9:53 AM, pondee619 wrote:

    Jim5437532 :

    I learned a long time ago when in an argument, if the facts of the case are against you, argue the law: If the law is against you, argue the facts: If the facts and the law are against you, attack your adversary.

    Your personal attack simply show that you have neither the facts nor the law or your side.

    Please show your math. Please show your cite your authority for stating that a recall was as a result of a "fire hazzard" with the model S. Show your "facts" or please just remain quiet. Thanks

  • Report this Comment On January 31, 2014, at 10:54 AM, Jim5437532 wrote:

    @ pondee619

    Are you a troll playing stupid, or are you really that stupid. The math is in my OP. The facts and law are against you. You're just making personal attacks.

  • Report this Comment On January 31, 2014, at 12:39 PM, pondee619 wrote:

    "If we assume the base statistics are accurate, if we add in the 2 newer Tesla battery fires, if my math is right the second figure should be Tesla vehicle is over 1.666 times less likely to experience a fire than the average gasoline car. That's significantly less than what Tesla and their minions of spammers claims."

    I see an assumption (no base statistics shown), your question about your math(no equation shown) and a conclusion. Please highlight where you show your work. Yet, you are still safer in a Tesla. Let's no longer argue about degree.

    If you can't make an argument without insults, your argument can't be made.

    BTW. who is that person whose opinion you quoted in you OP? What are that persons qualifications to express such an opinion? How many "complaints" were filed?

    Thanks

  • Report this Comment On January 31, 2014, at 1:01 PM, teslaman wrote:

    @Jim5437532

    I hate to enter this squabble, but Jim, if Tesla is claiming that their cars are 5 times less likely to experience a fire, and you are estimating that a Tesla is 1,666 less likely to experience a fire, then aren't your numbers going in the wrong direction?

    Okay, I mean if the car was 1,666 times "less safe" than what Tesla is claiming, then they would be "lying."

    But if, as you say, the car was 1,666 time "more safe," than what Tesla is reporting, then I hardly think people would say that they are "lying."

    Rather, I'd think they'd be guilty of a good thing, which is "being conservative" with their estimates.

  • Report this Comment On January 31, 2014, at 1:22 PM, teslaman wrote:

    By the way, I'm neutral on the argument, but I agree with pondee that actually showing your math would strengthen your case.

    Can we see the math?

  • Report this Comment On February 01, 2014, at 10:36 PM, Jim5437532 wrote:

    @ pondee619 & teslaman

    You seem to be trolls and/or in need of elementary education.

    The math has been there all the time. Simply divide Tesla's final number by three, so they reflect all three crashes.

    5/3=1.666

    @ teslaman

    Not only were you not able to follow the elementary logic or math. If you couldn't tell the difference between a decimal and a comma, you probably need glasses.

  • Report this Comment On February 03, 2014, at 4:25 AM, Jim5437532 wrote:

    Alleged Uncommanded Tesla Model S. Acceleration

    A complaint was filed with the NHTSA, that a allegedly a customer had uncommanded accelerations in cold conditions. Allegedly the vehicle was taken in for service in part for uncommanded acceleration, allegedly the uncommanded accelerations continued after the vehicle was serviced by authorized Tesla service.

    http://www-odi.nhtsa.dot.gov/owners/SearchResults?searchType...

  • Report this Comment On February 03, 2014, at 9:35 AM, pondee619 wrote:

    Jim:

    Perhaps, someday, you can engage in a conversation without being insulting. Perhaps not, and that is just your personality.

    So just by adding the two newer accidents, relying solely of Musk's statement of stats, which you dispute, without comparing Tesla stats with the stats of ICE, you believe that Tesla cars are ONLY one and two thirds as safe as ICE vehicles.

    And here I thought you were bring something new to the conversation. You weren't. have a good day.

  • Report this Comment On February 04, 2014, at 9:06 AM, pondee619 wrote:

    You see Jim, I thought you were going to provide us with something like this:

    How many car fires occur in the US every day?

    according to the NFPA, 33 car fires are reported every hour across the country, with one person per day dying in a car fire accident in the years between 2002 and 2005. There is a vehicle fire every 96 seconds in the United States. Have a great day

    http://www.chacha.com/question/how-many-car-fires-occur-in-t...

    ICE 33 fires PER HOUR, one DEATH PER DAY.

    Tesla, 3 fires, NO DEATHS since inception.

    5 times safer seems like a severe under estimation.

  • Report this Comment On April 18, 2014, at 2:41 AM, Arone wrote:

    is that you really got? you meaning less nut case??

    perverting the actual content in favor of your interest ?? do you got any credibility ?? you meaningless raccoon

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