Deferred FSD Revenue Recognition May Have Boosted Q1 Profits Significantly
Tesla’s Q1 revenues missed by 2.3% and non-GAAP EPS was 8.2% below estimates (see Figure 3). This was not as bad as had been feared and the stock ripped upwards by 13.3% in after-hours trading.
Despite continued price cuts, a one-month shutdown of production at their German factory, and 20% lower deliveries than in Q4 2023, Tesla somehow managed to eke out roughly flat Automotive gross margins of 18.5% in Q1 versus 18.9% in Q4 2023. Imagine having flat gross margins despite 20% lower volumes and roughly 5% lower prices.
This sounded alarm bells in my head and it turns out to be the biggest takeaway from the Q1 results: deferred FSD revenue recognition must have been huge. While Tesla noted in their Shareholder Deck that they recognized deferred FSD revenues in Q1, they did not provide a number and none of the analysts on the earnings call asked about it.
A few facts about Tesla’s FSD deferred revenue recognition:
- Deferred FSD revenue recognition is only disclosed in Tesla’s 10-Qs and they are booked within Automotive Revenues. This means we won’t know the amount booked in Q1 until next week when the 10-Q is released.
- Contribution to profits is substantial as these revenues have nearly 100% profit margins. They also boost average revenue/unit calculations unless stripped out.
- Only the full-year numbers are audited.
- Deferred revenues are a non-cash item so do not impact cash flows.
- Tesla clearly uses these deferred revenues to prop up profits during weak quarters. Figure 1 shows that the highest bookings (highlighted in red) were made during the weakest quarters of the past 3 years.
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