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Thursday, December 19, 2019 1:00:27 PM
By: Financial Times | December 19, 2019
In November Elon Musk decided to reignite his feud with Greenlight Capital’s David Einhorn, after the hedge fund manager accused the Tesla chief of “significant fraud” in his latest letter to investors.
Clearly giddy on Tesla’s excellent third-quarter results, Musk posted this on Twitter, in response to a ZeroHedge article citing Einhorn’s note:
Einhorn, never one to shrink from confrontation (judging by his long-running battle with Allied Capital), responded with this:
The letter carries quite the insinuation, in Alphaville’s view, so let’s take a look at Einhorn’s point about Tesla’s accounts receivable balance in more detail to see if the fund manager has a point.
A quick primer first for those not familiar with the term: accounts receivable are an asset listed on balance sheet that reflect sales where the money has yet to be collected.
For instance, if a customer buys a $100 widget but agrees to pay in 30 days, the transaction is booked and a corresponding accounts receivable asset of $100 appears on the balance sheet. Once the payment is made a month later, the $100 of accounts receivable becomes $100 of cash.
Sleuthing investors often look out for a bulging accounts receivable balance as it reflects sales without cash being collected — which may mean the company is giving more generous terms to customers, or in the worst case, like with Greek jewellery company Folli Follie, the sales don’t actually exist. (There is nothing to suggest this is the case here, before we get accused of anything.)
However, Tesla’s accounts receivable balance, since the first quarter of 2014 has been largely hovering around 20 per cent of quarterly sales, give or take five percentage points:
Einhorn, however, zero’d in the receivables balance from 2018’s third quarter, which grew 102.7 per cent quarter-on-quarter to $1.16bn — a bigger jump than the comparable sales growth of 70.5 per cent.
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