The Truth About Cars » SEC The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Wed, 23 Jul 2014 18:25:17 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » SEC Tesla Loses $38 Million In Q3 Wed, 06 Nov 2013 11:00:22 +0000 teslamodelx-450x270

After reporting a net loss of $38 million in its Q3 filings earlier today, Tesla suffered a loss of over 12% in afterhours trading. The stock, which has grown nearly 80% since the beginning of the year shot down almost $22 since the markets closed on November 5th.

In my last look at Tesla in Q1 of 2013, the company had posted its first net income, a tidy $11 million. However, analysis revealed that the company’s profitability, which garnered praise from across the industry, could not be attributed to the OEM’s main objective, the production and subsequent sales of its automobiles. Rather, Tesla’s profit was derived from “Other Income,” which is accounting jargon for money that is made outside of the scope of the company’s normal operations.

Two fiscal quarters later, and the profitability structure of Tesla is steadily improving, with Tesla exhibiting signs of strong operational profitability. This is attributable to Tesla’s increase in gross margin to 24%, from 17% at the beginning of the year. The company reported a gross profit of about $103 million for the quarter. What this means is that by simply taking all of Tesla’s sales, less the costs of goods sold,  the company is in the black. Contrast that from a year ago, when Tesla’s gross loss was almost $9 million.

This is quite an encouraging figure, especially considering the steady decline of ZEV credit revenues. Back in Q1, ZEV credits were responsible for 12% of Tesla’s revenue, while it now equates to about 2% of total sales. Additionally, Tesla’s Statement of Cash Flows reports positive cash flows from operations of $102 million.

One thing that has not changed for the company is its struggle to manage its operating expenses. With a total of $133 million for the quarter, Tesla’s fixed costs effectively wipe out any profitability achieved on the top line. For the past two quarters, Tesla’s operating expenses equaled about 30% of sales. While gross margin has improved, there is simply not enough unit contribution to cover the remaining costs when costs of sales are 86% of revenue. The recipe to profitability is simple. Tesla must either bring down its fixed costs, or continue to improve its margins. A combination of both is the best case scenario.

In its letter to shareholders, Tesla remarks that R&D costs are up due to work on a right hand drive configuration for the Model S, and development work on the Model X. Selling General and Admin (SG&A) also increased, as the company is pushing its global expansion and growing its Supercharger network. Both of these expenses are key to Tesla’s future success. Continued development and innovation of new and existing technologies is essential for the electric automaker to diversify its product offerings while also continuing to make them more practical and accessible to the larger population. As a result, a reduction in operating expenses seems unlikely in the near future.

One of the primary responsibilities of any publicly traded company is to deliver value to its shareholders. With an earnings per share figure of $-2.09, Tesla has not done a great job of doing so to date. While it is still too early to tell whether the hype is real for Tesla, it is clear that after today’s results, some of the luster has been lost. I am no investment advisor, but I am a fan of history, and historically, Tesla’s poor profitability has remained a constant.

All figures taken from Tesla’s SEC Filing

Graeme Kreindler is an HBA Candidate at the Richard Ivey School of Business at The University of Western Ontario. 

]]> 20
Politically Connected EV Startup GreenTech Automotive Subject of SEC Investigation Sat, 03 Aug 2013 22:02:42 +0000 – Richmond, VA News

Electric car startup GreenTech Automotive, which set up a factory in Horn Lake, Mississippi to manufacturer their low speed neighborhood EV called MyCar, is being investigated by the U.S. Securities and Exchange Commission for the way it solicited foreign investors. GreenTech Automotive was co-founded by Virginia gubernatorial candidate Terry McAuliffe, who is a former chairman of the Democratic National Committee. McAuliffe resigned as chairman of GreenTech in late 2012 when he started his campaign.


According to the Washington Post, the SEC subpoenaed documents relating to GreenTech and Gulf Coast Funds Management, a sister company that shares a McLean, Virginia address with GreenTech. Gulf Coast Funds is run by Anthony Rodham, whose sister, is former U.S. senator and secretary of state, Hillary Rodham Clinton. The Commission is looking into allegations that the company guaranteed returns to foreign investors that GreenTech sought out by using the federal EB-5 program that will grant foreigners visas to the United States if they invest half a million dollars or more to create jobs in this country. GreenTech has a strategic partnership with China’s JAC Motors.


SEC officials declined comment and a spokesman for McAuliffe’s campaign said he “has no knowledge of any investigation.” GreenTech and Gulf Coast representatives confirmed the subpoenas and said the companies would cooperate with the SEC investigation. The investigation came to light when internal Department of Homeland Security documents and emails were obtained by Sen. Charles Grassley (R-Iowa), a critic of the EB-5 visas. Some of the documents raised the possibility of “fraud”.

McAuliffe originally said he would build a factory “right in the heart of Virginia,” but after getting incentives from state and local governments in Mississippi, GreenTech located their factory in Horn Lake. Republican Gov. Haley Barbour attended the July 2012 ribbon cutting ceremony, along with McAuliffe’s close friend, former president Bill Clinton.


When he was still with the company, McAuliffe said last that GreenTech could build 10,000 cars in 2013 and that the factory would be hundreds of people at their Mississippi factory. Actual production has been much smaller, as has hiring. GreenTech won’t release any production figures but Autoblog reported that 2012 production would be closer to 1% of that figure vehicles, 110 vehicles earmarked for Denmark.


One former employee at the Horn Lake plant told the NBC affiliate in Richmond, Virginia that it was all for show. “They would take everybody and put them out on the line and we would stand over the car with tools in our hand and look like we were doing something to the car, but we wasn’t doing anything.” A company spokesman denied that and described the activities there as “a training build”. A neighbor recently said that the plant is quiet and that nobody he knew who applied there had gotten jobs.

Memphis, Tennessee’s WMC-TV Action News 5 (auto start video) says they’ve found no evidence of significant car production at the Mississippi facility. GreenTech allowed WMC-TV cameras in the factory but wouldn’t let them close to the production line.

]]> 26
SEC Inquiry Into Fisker Fundraisers Tue, 13 Mar 2012 14:00:35 +0000

The U.S. Securities and Exchange Commission is investigating the principals of a private equity firm that has raised a significant amount of the private financing for Fisker Automotive, says Crain’s Chicago Business. Though nothing on the public record has tied the investigation with Fisker, the National Legal and Policy Center, a politically right of center think tank, points out that the commission has recommended administrative proceedings “in connection with a private offering in 2009″. Advanced Equities has been raising private investment funds for Fisker since at least 2009. They established Clean Tech LLC in 2010, which is 40% invested in Fisker, and in Feb. 2011, they invested an additional $150 million in the automaker.

Advanced Equities Inc.’s founders Keith Daubenspeck and Dwight Badger were served by the SEC with so-called Wells Notices in January. A Wells Notice indicates that the recipient is under investigation by the SEC, it informs them of the preliminary results of the investigation, and indicates that a full hearing before the commission is likely. It also gives the subjects of the investigation an opportunity to respond to the preliminary report before a formal hearing takes place. In nearly identical disclosures, Badger and Daubenspeck each said, “I am addressing the (SEC) staff’s concerns, and I am prepared to aggressively defend myself should it become necessary”.

It’s not known if there’s a connection to the SEC investigation, but in February, Fisker and Advanced Equities were sued by an investor, Daniel Wray, for fraud and failure to act as a fiduciary should. Wray says that he bought $210,000 worth of preferred Fisker stock between 2009 and 2001, through Advanced Equities. His lawsuit claims that in January of 2012, around the time that Fisker’s fiscal situation started to deteriorate due to loans that the Dept. of Energy froze, the EV maker and Advanced Equities demanded from him an additional $83,000 “due to Fisker’s urgent need for equity capital”. Wray alleges that he was threatened with dilution of his stock value and the loss of other privileges due to early investors if he didn’t pony up the additional investment.

]]> 4
SEC Seeks Three-Year Securities Work Ban On Rattner Wed, 02 Jun 2010 15:03:18 +0000

Somewhere under a “Mission Accomplished” banner on an aircraft carrier, former car czar Steve Rattner is starting to get a bit lonely. Reuters reports that the Securities and Exchange Commission is seeking a three year ban on Rattner that would prevent him from working in the securities field. The ban stems from a recently-settled investigation into kickback allegations at Rattner’s former investment firm Quadrangle Group (involving a distribution deal for his brother’s low-budget movie “Chooch,” no less).

Quadrangle has admitted that it engaged in inappropriate quid-pro-quo kickbacks in order to land a $100m investment from New York’s state pension fund. Quadrangle has publicly “disavowed” Rattner’s role in that scheme, indicating that (non-admission of guilt settlement aside) the illegal kickbacks were his work. If approved, the ban would prevent Rattner from managing New York City Mayor Michael Bloomberg’s fortune. Luckily, Rattner is far too busy patting himself on the back for his auto bailout brainchild to be bothered with such trivialities, although according to Reuters, Rattner has “fiercely resisted” the SEC ban.

]]> 1