How Tesla Managed to Survive Despite the Losses
The ability of the company to continue with operations despite the losses can be looked at from two perspectives. The first viewpoint is the performance. A review of the income statement shows that sales are growing at a tremendous rate, especially the sale of zero-emissions vehicle tax credits. The gross margin is also growing at a high rate. Also, the company has also been able to access debt and paid-in capital to finance the operations.
Further, Tesla Motors Inc. is new, it went public in 2010, and the management and investors are optimistic about future performance. The company has also continued to produce high-quality vehicles. Their products and services have received positive ratings in the industry. Also, there has been growth in the production capacity over the years. This shows that the entity is responding to the growth in demand. The second aspect looks at the use of non-GAAP accounting principles. It is worth mentioning that the most widely used and accepted accounting standard in the US is GAAP. However, Tesla Motors Inc. emphasizes the use of non-GAAP. This has sparked a major controversy because some analysts view it as an attempt to pull countless bookkeeping levers to make the results look good.
The non-GAAP measures basically align the recognition of costs and revenues with the point when customers take delivery of a car, and they are billed. This approach is different from GAAP, which recognizes revenue when a car is sold to the dealership and not to end customers. Also, the non-GAAP approach leaves out stock-based compensation and non-cash interest expenses from the expense and per share information. The main reason why Tesla Motors Inc. keeps on referring to the non-GAAP measures is that the business is planned and managed using these measures. As mentioned above, the company is located in the US market, which extensively makes use of GAAP. Therefore, this is an important disclosure for all users.