Tesla's accounting questioned, $1.4 billion gap in balance sheet

A new report from the Financial Times shows that Tesla's accounting practices have raised alarms, with a $1.4 billion hole discovered on the company's balance sheet. Many Tesla short sellers and detractors have questioned the company's accounting for years, but until now, those doubts have received little traction.

However, a new report from the Financial Times points to an asset gap of $1.4 billion: Comparing Tesla’s capital expenditures in the last six months of 2024 with the valuation of the assets it invested in, $1.4 billion appears to be unaccounted for.

The article pointed out that Tesla reported that in the second half of 2024, the company spent $6.3 billion on "property, plant and equipment" (PP&E), while property, plant and equipment increased by only $4.9 billion during the same period.

Accounting experts agree that in most cases, the amount of capital expenditures is closely related to the growth of total PP&E, but some factors can have an impact: sales or impairments of assets, foreign exchange, etc.

However, Tesla did not report any significant changes to justify this difference.

The report also pointed to other red flags, such as Tesla claiming to be sitting on $37 billion in cash but issuing $6 billion in new debt last year.

While it's not uncommon for companies with large cash reserves to borrow, that's less than ideal in the current environment.

Finally, the Financial Times report also pointed out that although Tesla claimed to have $15 billion in operating cash flow last year, which was higher than its capital expenditures, it did not provide share repurchases or dividends. This is rare for large companies, making Tesla part of a very small club that includes other companies like Temu.

In 2022, Tesla CEO Elon Musk said that he would push Tesla to use part of its cash to repurchase shares, but this never materialized.

Jacek Welc, professor of corporate finance at SRH Berlin University of Applied Sciences, compared these red flags to recent corporate finance scandals, such as those at Wirecard and NMCHealth.