- Elon Musk’s vision to usher in a utopia powered by Tesla robotaxis and the company’s humanoid robot, Optimus, will likely take significant cash. Tesla spent $6.3 billion in capital expenditures during the second half of last year, but the gross value of the company’s relevant assets increased only by $4.9 billion. Those numbers should tally for domestic companies without any major asset sales or impairments, but other factors are at play for Tesla.
Tesla is making big bets on AI, attracting attention to its financial statements. The Financial Times first noted a $1.4 billion discrepancy between the firm’s capital expenditures and the valuation of the assets that cash was spent on, but the publication rowed back its initial story after originally failing to account for several possible explanations.
An accounting expert had previously told Fortune that there were plausible justifications for the variance that might not show up on Tesla’s financial statements. You would expect the relevant numbers to add up for a domestic company with no big asset sales or impairments, said Tim Morrison, an accounting professor at Notre Dame and former audit partner at Ernst & Young. Tesla, of course, sells cars around the world and has factories on three continents. PwC has audited Tesla’s financial statements since 2005.
“If they had the numbers incorrect, then that would be a red flag related to controls,” said Morrison, who worked primarily with multinational manufacturing companies and led internal inspections to assess audit quality at EY.
But Morrison said it was not possible to make that claim just by looking at Tesla’s financial statements, and the Financial Times later acknowledged the $1.4 billion gap could have a “benign explanation.” This wasn't the first time Tesla’s accounting practices had been questioned, noted Garrett Nelson, a vice president and senior equity analyst at CFRA Research.
“We’ll have to see whether PwC or the company provide clarification,” he wrote in an email to Fortune after the first story from the Financial Times.
Tesla and the Big Four firm did not respond to a request from Fortune for comment.
Tesla shares have dropped roughly 40% from their post-election high near the $490 mark in December. The company has shed more than $600 billion in market cap amid plummeting sales and fears Musk’s work with President Donald Trump’s White House is damaging the brand and distracting him from his role as CEO of Tesla.
The stock rallied Friday, though, after Musk held an emergency all-hands meeting with employees. Bullish investors believe Tesla will be much more than an EV and battery-storage company, citing Musk’s vision of using AI to usher in a utopia powered by Tesla robotaxis and the company’s humanoid robot, Optimus.
Executing that plan will presumably require significant investment. On the company’s latest earnings call in January, CFO Vaibhav Taneja said Tesla’s $11.3 billion in annual capex—up $2.4 billion from 2023—should remain flat this year. The company’s cumulative AI-related spend, he noted, had just surpassed the $5 billion mark.
“Capex efficiency is something we are extremely focused on,” Taneja said. “While we have invested in AI-related initiatives, we have done so in a very targeted manner to utilize the spend to get immediate benefits.”
Accounting for a $1.4 billion mystery
That spending shows up on the annual statement of cash flows as purchases of property, plant, and equipment, or PP&E. In the second half of last year, that amount grew by $6.3 billion, the same value for capex that Tesla reported in its slide deck for investors.
But the gross value of the company’s PP&E, or its worth before accounting for depreciation, increased only $4.9 billion in that span. Again, for a domestic company, you would expect those numbers to tally.
There’s no evidence any PP&E was sold, Morrison confirmed, and the company did not recognize any impairments to its “long-lived assets,” which Tesla expects to use for more than one year.
Foreign currency changes, however, can throw everything off. If the euro weakens relative to the dollar, as it did during the period in question, Morrison explained, assets at the company’s facilities in Germany are marked down.
“You’re not going to see [it] anywhere else on the financial statements,” he said.
While the Financial Times originally said foreign exchange appeared “unlikely to explain the gap,” citing that four-fifths of Tesla’s long-lived assets are in the U.S., Morrison said it could still explain a significant chunk.
“Foreign currency can do lots of weird things,” he said, “and it's really hard to fully track that.”
Finally, he also noted Tesla could have gotten rid of assets that had reached the end of their useful lives, in which case it would make sense if they are no longer on the books.
“If the fully depreciated asset is disposed of, the asset’s value and accumulated depreciation will be written off from the balance sheet,” according to an explanation from the Corporate Finance Institute. By comparing the depreciation expense Tesla accrued during the second half of last year with the change in accumulated deprecation during that span, the updated story from the Financial Times pegged that number at $270 million. It could be higher, the publication said, if one includes the disposal of assets close to their fully-depreciated value.
While offering a mea culpa, the publication also cited an additional factor: payments for PP&E that had already been purchased on credit. Tesla paid down $689 million of those liabilities during the period in question.
In short, it doesn't appear investors should sound an alarm about Tesla’s capex. Between the asset disposals and payments on already-purchased equipment, the Financial Times noted, the $1.4 billion variance is reduced to just $463 million. That gap could be filled by foreign exchange changes, as well as asset write-offs auditors deemed to be non-material.
As the Financial Times noted, it may seem odd Tesla felt the need to raise $3.9 billion in new debt last year, given the company is sitting on a $36.5 billion cash pile and doesn’t pay a dividend. Still, that sort of behavior may be reasonable for a company banking on future growth, Morrison said.
Despite the stock’s recent decline, Tesla shares still trade at roughly 100 times the company’s projected earnings for the next 12 months, according to S&P Cap IQ estimates. To put it mildly, bulls better believe Musk’s investments will pay off in a big way.
Update: This story was updated throughout to reflect that the Financial Times rowed back its initial story about a $1.4 billion gap between Tesla's capital expenditures and the valuation of the assets that cash was spent on. This included a change in the headline to this story. Along with plausible explanations originally cited with the help of an accounting expert, the updated version of this story also notes that a significant component of the variance appears to be accounted for by payments for plant, property, and equipment that was originally purchased on credit. Statistics about Tesla's stock were also updated.
