Electric car producer used non-GAAP metrics in its quarterly reports that were prohibited by SEC as potentially misleading for investors.
Tesla Motors (NASDAQ: Tesla Motors [TSLA]) was heavily criticized by the Securities and Exchange Commission for including forbidden accounting metrics in its quarterly reports presented to the investors. The Wall Street Journal got access to the letters SEC exchanged with Tesla over some weeks in September and October, where the commission was warning the EV maker about its accounting practices. According to the correspondence, SEC said that Tesla used "individually tailored" metrics like non-GAAP in its August earnings report that were prohibited by SEC already in May this year.
Interestingly, last quarter Tesla did not use non-GAAP metrics in its earnings report, what the WSJ attributed to the multiple warnings the company received from SEC. More specifically, the commission criticized Tesla for not providing a substantial argument for presenting non-GAAP financial results to the investors, as the company previously told SEC that non-GAAP information was only distributed internally. In one of the letters, SEC said that the guidance required “a statement disclosing the reason why you believe that the presentation of a non-GAAP financial measure provides useful information to investors…not how your management uses the information.”
"The main differences in Tesla’s GAAP and non-GAAP accounting was the exclusion of stock-based compensation from the results, which is widespread in the industry, and the appropriation of cars sold with the resale value guarantee under a lease accounting standard," wrote Electrek.
MarketWatch adds that the documents related to this matter were held private for 40 days after the conflict was resolved while the normal "waiting" period before disclosing such correspondence to the public is normally not more than 20 days. Therefore, most investors remained unaware about the conflict over non-GAAP metrics between Tesla and SEC at the time Tesla's impressive Q3 results were published. The dispute between the EV producer and the commission is important for investors as the company hasn't generated positive operating cash flows in the last 2 fiscal years.
Anyway, the dispute between SEC and Tesla was resolved back in October, according to one of the letters, and there are currently no real consequences for Tesla. As of writing, TSLA is down 1.66% at $192.86.