Tesla Chairwoman Denies Purchase of Nvidia Chips
This denial differs from Musk's explanation in his June 4th tweet
A quick comment on the Nvidia chip scandal at Tesla as its Chairwoman, Robyn Denholm, appeared on a CNBC live interview yesterday and flat-out denied that Tesla had purchased any Nvidia chips. A transcript of the interview was added to Tesla’s proxy statement and the denial of the chip order is on page 34 (link here).
The June 4th scoop by CNBC’s Lora Kolodny reported that Tesla had diverted a $500 million Nvidia chip order from Tesla to Twitter (X). The article (here) quotes an internal email at Nvidia from last December which said:
“Elon prioritizing X H100 GPU cluster deployment at X versus Tesla by redirecting 12k of shipped H100 GPUs originally slated for Tesla to X instead.”
After first calling Lora Kolodny, “Laura [sic] Lying Kolodny” in a tweet, Musk’s response to the CNBC article was this:
Before going into Denholm’s denial of the chip purchase, here are a few important points regarding Musk’s weak excuse:
Doubtful if Twitter Could Drum Up $500 Million: Tesla had to have paid for the order (more on that below), as Twitter likely doesn’t have $500 million to spare. Before Musk took over at Twitter in late 2022, the last consensus estimates for Twitter were a 2022 net loss of $1.6 billion and negative free cash flow (FCF) of $1.5 billion. Last November, Fidelity’s Blue Chip Growth Fund wrote down their Twitter investment by 72%, meaning earnings and FCF must be much worse.
No Disclosure of Related Party Transaction: If Tesla did purchase the Nvidia chips and shifted them to Twitter, there should have been a disclosure about it in Tesla’s financials. However, in both its 2023 10-K and Q1 2024 10-Q, Tesla states that related party transactions did not and will not have a material impact on its consolidated financial statements. $500 million was 22% of Tesla’s Q4 2023 capex and would’ve boosted its Q4 FCF of $2.06 billion by 24% had it not been spent on Nvidia chips. This sounds pretty material to me.
No Space for Storage Excuse is Lame: The fact that Tesla wrote a $500 million check to Nvidia without realizing it had no space at its Texas factory for the purchased chips is laughable. It begs the question of whether Tesla has any serious internal controls.
Denholm’s Denial Has Holes In It
On a CNBC interview yesterday, Robyn Denholm said that the allegations that Tesla diverted their Nvidia chip order to Twitter were “not true” (key points of her explanation highlighted in Figure 1 below).
Right from the start, she makes a critical mistake by saying that Tesla “lowered [its] CapEx guide for the fiscal year of 24” on the Q1 earnings call. Not only was there nothing of the sort said on the Q1 call, but in its Q1 10-Q, Tesla specifically reiterated its original guidance from January that it would have capex “in excess of $10 billion” this year.
The fact that the Chairwoman of Tesla doesn’t even know what capex guidance is or what was said on a recent earnings call is embarrassing.
Figure 1: Transcript of Denholm Denying Nvidia Chip Order
Denholm’s spin on why CNBC’s chip scandal scoop was “wrong” essentially boils down to the following two points:
Tesla had originally ordered Nvidia chips for the full year but now has pushed out part of those orders to next year as the data center under construction at the Austin factory won’t be complete until August.
So, when this “push out” of orders happened, the $500 million chip order was still at Nvidia, not at Tesla (implying that Twitter jumped the queue and bought the chips themselves).
This is completely different from the explanation that Musk tweeted on June 4th and sounds like it was crafted over the two days between the CNBC scoop and yesterday’s live interview.
Finally, these are the three main concerns that Denholm’s excuse raised:
She talks about 2024 in the interview, whereas the Nvidia email quoted above is from December 2023. And it said that the 12,000 “shipped” GPUs should be redirected “from Tesla to X instead”. If they were shipped and being redirected, Tesla had to have paid for the chips. As mentioned above, it’s doubtful that Twitter could afford a chip order of this size.
Notice how she doesn’t doesn’t mention “X” (Twitter) once in her explanation despite the interviewer asking her about the related party transactions.
Denholm says that the chip order was supposed to be for the “whole year” in 2024, but is now slated for “later this year” after the data center is built in August. This is an 8 to 9-month delay. What kind of company writes a $500 million check for chips and then realizes that they can’t use them for close to another year?
Note: Nothing in this report is investment advice.
The best that one can say, is that the whole thing absolutely stinks to high heaven. For those that think that this company is the next Enron (but much bigger) here is further evidence.
Isn’t there a word for when someone buys something and another person takes it? Oh, right. Stealing.