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Can You Trust Tesla's Numbers When Inventory Looks So Suspicious?

Tesla stated it had much lower inventory numbers than it truly does: why? 106 photos
Photo: Tesla
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The slow(ing) sales of battery electric vehicles (BEV) made the blogs that defend them react. Some of them argue that this is not on the product but rather on the companies that fail to deliver what people want at the prices they want to pay. The ones that do that right are flourishing! Check BYD! Check Tesla! The Chinese company really seems to be doing well. The American one is hard to tell: can you trust its numbers? Profits were already strange, but there's another one that is pretty suspicious.
I have recently written about Tesla profits, and I did several calculations that prove they do not add up. The issue is that the BEV maker may try to refute these calculations because they involve the cost of goods sold (COGS), carbon credits, and a bunch of other technicalities that may help it justify its financial results. Not that Tesla cared to address anything, but we can always hope for that.

Anyway, while I was working on that series of stories, I mentioned how the inventory numbers were weird. Even a financial analyst – Dan Levy from Barclay's – talked about them in April. He calculated that Tesla had around 75,000 unsold cars in that last quarter, considering production and delivery numbers from Q3 2022 until that point. I also did the math, and the exact figure was 74,449 BEVs.

In Q3 2022, Tesla made 365,923 BEVs and delivered 343,830, which translates into 22,093 vehicles waiting for a new owner. In Q4 2022, production hit 439,701 units. Sadly for the company, it handed only 405,278 BEVs, generating an excess of 34,423 in that quarter alone. At that point, we were talking about 56,516 undelivered BEVs.

Tesla ships Giga Shanghai production
Photo: Tesla
Check Q1 2023. Tesla manufactured 440,808 cars and delivered 422,875. That's 17,933 more BEVs than it managed to put in customers' hands, making the inventory jump to the number Levy mentioned in April. Now, let's analyze the inventory values.

Tesla submits Forms 10-Q and 10-K to the Securities and Exchange Commission (SEC). They mention that inventory comprises raw materials, work in progress, finished goods, and service parts. The finished goods include not only undelivered cars but also "vehicles in transit to fulfill customer orders, new vehicles available for sale, used vehicles and energy products available for sale."

The Q3 2022 Form 10-Q disclosed $10.327 billion, of which $2.067 billion corresponded to finished goods. Divide that by 22,093 BEVs, and you'll have $93,559 per unit. The Q4 2022 Form 10-K stated an inventory value of $12.839 billion, with $3.475 billion in finished goods, but we already had 56,516 BEVs still looking for an owner. The division of the value per the number of undelivered units is $61,487. We're in front of a cat's cradle, but why would the inventory value per unit drop so much? There's no reason for that.

Tesla still claims to be profitable in Q3 2023, but it is hard to believe its numbers
Photo: Tesla/edited by autoevolution
Of the 22,093 undelivered BEVs in Q3 2022, only 1,263 were Model S or Model X units. Although the Plaid versions of each car already had respectively $135,990 and $138,990 price tags, the average inventory value could not be so high. In Q4 2022, there were 3,466 more Model S/X units, leading to 4,729 high-end BEVs among the 56,516 unsold ones. It is a higher percentage of the more expensive Teslas around from Q3 2022 (5.7%) to Q4 2022 (8.4%). Yet, the unitary inventory value for finished goods dropped 34.3%. Why?

In Q1 2023, massive price cuts started. Inventory value was $14.375 billion, but finished goods contributed only $4.591 billion. Divide that by the number of vehicles yet to sell (74,449 BEVs), and the value per unit is $61,666. The Model S and Model X unsold units were 8,742 – or 48.8% of the 17,933 Tesla failed to sell in that quarter. The total of unsold vehicles reaches 74,449, of which 12,208 are Model Ss or Model Xs (16.4%). A higher percentage of expensive cars, yet a lower share of finished goods inventory costs. It makes no sense. The Q2 2023 numbers made that even worse.

In that quarter, the American company made 479,700 vehicles and shipped 466,140. The spare 13,560 units should be added to the 74,449 BEVs that have accumulated since Q3 2022, leading to an inventory of 88,009 BEVs. Tesla said in its Form 10-Q that the inventory value was at $14.356 billion at that point, with finished goods accounting for $5.193 billion. That's $59,005 per unit, and Tesla still made more Model S and Model X units than it managed to deliver (264}.

Tesla Giga Shanghai
Photo: Tesla
If Tesla includes "vehicles in transit to fulfill customer orders, new vehicles available for sale, used vehicles and energy products available for sale" among finished goods, shouldn't the inventory value per unsold unit be much lower than those I had calculated from the start, increasing when quarters passed? Why has the inventory cost per unit dropped when Tesla had a higher share of more expensive unsold vehicles? Again, finished goods is a cat's cradle, but these variations are hard – perhaps impossible – to explain. Without more transparent reporting, it is hard to grasp what is going on at the company.

As an attentive reader told me, Tesla could be increasing the value of its inventory to reduce the COGS and present higher profit margins. It could also be reporting higher production numbers than it actually achieved, which would explain why Tesla does not talk about these almost 90,000 unsold cars. I'd ask the company about all of this if it had a press department, but it doesn't. Even when it had one, it often left some inquiries hanging – especially sensitive ones like this. If profits and inventory seem so problematic, why would anyone trust anything else Tesla reports in these forms? What if it just wants to make people believe that it is doing much better than it actually is? This is the core issue here: credibility.

Tesla Model X
Photo: Tesla
These numbers give its advocates and even people unaware of these inaccuracies arguments to say that the BEV industry is doing just fine, thank you. It is legacy companies – who have made cars for more than a hundred years – who have no idea how to manufacture one with a massive battery pack. Tell me another…

What about BYD? It may be doing well because it produces everything, including its own LFP batteries. Another explanation for its growing sales is that it is aggressively entering new markets, some of which have only a few electric cars for sale – if any. These new markets will probably take a while to reach a sales plateau when it comes to BEVs. In Norway, where BYD has already sold for a while, sales have not increased recently. That may change when the Dolphin and the Seal are also offered there, but we're yet to confirm that.

Trying to ignore the demand drop for BEVs while using Tesla as an example of a successful company is tricky. Again, can you trust its numbers? If you can, what happened to the inventory numbers? Or those involving profits? Why do the inventory costs per unit change so much? No discount can justify why these values drop so sharply in each quarter – when inventory value should have increased proportionately. It would be great to hear from the company or to learn that its shareholders demand an explanation. I'll wait.
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Editor's note: This text has been corrected on November 6 because it took the values on Form 10-Q and Form 10-K for inventory as units, not for billions of dollars. As that mistake did not invalidate the argument, the necessary corrections have been made. Hat tip to Claus Moeller for point out the problem.

About the author: Gustavo Henrique Ruffo
Gustavo Henrique Ruffo profile photo

Motoring writer since 1998, Gustavo wants to write relevant stories about cars and their shift to a sustainable future.
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