The Tesla Files Unveil More Accounting Fraud Than Imagined

The recent filing in the "Greenspan v. Musk et al" lawsuit reads like a great crime novel. But it's all likely real based on Tesla's internal data

I was preparing my usual Tesla Weekly until Aaron Greenspan dropped his explosive filing on Wednesday against Musk and Tesla, which highlighted loads of details from the “Tesla Files” on their egregious accounting frauds.

Lots of topics to cover this week aside from the headline story, but here is the breakdown for today’s Tesla Weekly:

1. Bombshell Complaint Filed Against Musk & Tesla—The Main Story Of This Report: An amended complaint in the Greenspan v. Musk et al trial was filed on Wednesday with damning internal data from Tesla highlighting a vast array of accounting fraud. It’s an explosive report, which is why it is the focus of today’s Tesla Weekly.

2. Trading Thoughts: Tesla is down 6.4% on the week through yesterday on lower-than-average volumes. Break outs to the upside were swiftly sold down, but there was an effort to keep the stock above $203, its 200-day moving average.

3. China Weekly Sales Suddenly Dropped Last Week: Despite 0% loans from Tesla and $2,800 incentives from the PRC, Tesla’s sales last week dropped by 17% YoY. This is odd given the low hurdle from Q3 2023.

4. European BEV Sales Tanked in July: While hybrid electric vehicle (HEV) sales in Europe surged by 24% YoY in July, battery electric vehicle (BEV) sales fell by 6% YoY. BEV adoption in Europe appears to be stalling amid weaker demand and affordability. Tesla’s sales were down by 15% YoY.

5. Tesla Asks Canada for “Mercy” on 100% Import Tariff: Canada announced in June that it would impose a 100% import tariff on China-made cars from October 1st (following America’s footsteps). Reuters reported that Tesla approached the Canadian government to ask for a lower duty. No statement yet from Ottawa.

Internal Tesla Files Reveal Blatant Fraud

PlainSite owner Aaron Greenspan submitted an amended complaint to the Northern District Court of California on Wednesday in his lawsuit against Musk, Tesla, and others.

This amended complaint includes damning internal data from Tesla unveiled by Lukasz Krupski, an ex-Tesla technician, who last month was granted official whistleblower status by the Norwegian Court, thereby overturning Tesla’s injunction against him (details here). My understanding is that Tesla tried to settle with Krupski several times before placing its injunction.

There are nearly 500 gigabytes of data in the so-called “Tesla Files” that Krupski left with when he quit Tesla (see my May 2023 summary of the excellent Handelsblatt scoop about it here).

While I’ve only examined a small portion of the files related to safety issues so far (see my most recent report on it here), Greenspan lays out a vast array of examples of financial fraud based on his analysis of the Tesla Files (document link here). While it is exhaustive in detail (but worth every minute of reading), I paraphrase the points that I find most intriguing below.

But I stress: all of these shenanigans were elaborately carried out so that Tesla’s market value would rise above $650 billion, which would in turn, trigger the final milestone for Musk to receive his $55.6 billion bonus award. In the process, it also enriched Tesla’s Board of Directors and financiers.

The points I chose to highlight below show how Tesla’s market cap went from $50 billion in 2018 to as high as $1.24 trillion in 2021 due to how artfully Tesla crafted its numbers.

Details are paraphrased by me based on what the Greenspan v. Musk et al filing sourced from the so-called “Tesla Files”, unveiled by Lukasz Krupski last year.

• 110—Stealing Customer Funds Via Mobile App: Tesla was so desperate for cash by 2020 that it began “hyper-sensitizing” (my use of words) its mobile app to take orders for its $7,000 Full Self-Driving (FSD) option from unknowing customers. Famous people like Nassim Taleb, the renown philosopher/mathematician, got their money back by tweeting complaints directly to Musk. Most others weren’t as lucky.

• 112—Booking Them As “Revenue”: Up until October 2021, these were all booked as “OTA Upgrade Revenue”, and ever since then, as “FSD Revenue-Subscription”.

• 114—FSD Refunds Surged in 2021: By August 2021, the refund rate for “FSD Subscription” upgrades was 27%. [Tesla doesn’t disclose its FSD revenues, but they do report the recognition of “deferred FSD revenues” and how much they expect to book from their unrecognized balances over the next 12 months. In their 2021 10-K, Tesla said they recognized $312 million of deferred FSD revenues that year and would recognize $962 million over the next 12 months (they only recognized $472 million in 2022)].

• 117—FSD YouTubers Told Not to Show Mistakes: Tesla influencers like Galileo Russell and Omar Qazi (who were compensated and/or given special treatment by Tesla and Musk) were discouraged from showing FSD making mistakes in their YouTube videos (copy of such guidelines on page 32 of the amended complaint link above). Here is an epic example of the two clowns accidentally breaking those clauses by uploading what Tesla didn’t want anyone to see regarding FSD accidents (link).

• 146—Tesla Has 2-3x Lemon Lawsuits Than Normal: Tesla performed a larger than normal amount of repairs on their bad cars on a “goodwill” basis, i.e. out of their own pocket rather than out of the customers’ pockets or Tesla’s warranty reserves. This is fraudulent because it inflates future profits and PlainSite’s records regarding “lemon lawsuits” (which are triggered after multiple flaws are reported) show that Tesla had roughly 2 to 3 times the amount that GM, Ford, or Toyota did.

• 188—CFO Refuses To State True Cash Balances: While not from the Tesla Files, Greenspan shrewdly pulls out a reply from Tesla’s CFO to a question regarding Tesla’s true cash balances on an earnings call in January 2021. Everyone—including me—has had their doubts about whether Tesla’s quarter-end cash balances are real (their interest income is not in synch with interest rates). The below line from Greenspan’s complaint is masterful: it proves that the CFO at the time—Zach Kirkhorn, who I believe was fired in August 2023—was guilty of either gross negligence or fraud:

• 223-225—Used Cars Booked As “Deliveries”: Tesla knowingly booked used car sales as new car sales via internal systems they created to allow it when needed.

• 231—233—Booking the Same Car as a Sale Multiple Times: Tesla’s internal data shows that they booked cars returned for repairs as “new sales” upon returning the fixed car to its owner. This was possibly done because they saved money by cutting costs during the Model 3 “production hell” and wanted to make more profits by re-booking the same car as a “sale”. I’ve seen self-registration scandals before, but this is absurd in this day and time.

• 244-Proof of Overstated “Deliveries” Via Google Invoice: According to Google’s monthly invoices to Tesla for licensing fees from Google Maps, Tesla only sold 660,600 new vehicles between July 2018 and June 2020 while Tesla reported 734,550 in “deliveries” during that time—a difference of 73,950 vehicles, or 11.2% (at an average price of $50,233 for Tesla cars sold during that time, revenues and profits were likely inflated by $3.72 billion. Tesla’s GAAP net losses of $5.9 billion between Q3 2018 and Q2 2020 would’ve been 63% higher at -$9.65 billion, which would’ve likely prevented them from raising $3.1 billion of funds from the public markets during that time).

The internal data in the Tesla Files that Krupski holds runs through the end of Q1 2022, when Tesla had a market cap of $852 billion (today, it’s at $659 billion after having peaked at $1.24 trillion in November 2021) .

The above accounting shenanigans which Greenspan masterfully outlines started at full steam around 2018, when the Model 3 was in “production hell” and led Tesla to be nearly “one month from bankruptcy”, according to a November 3, 2020 tweet from Musk.

He raised $12.5 billion in equity and debt in 2020: $7.5 billion before that tweet and another $5 billion roughly 4 weeks later on December 8, 2020.

Conclusions on The Tesla Files

While many people still think that Musk is a “genius”, he’ll likely wind up being history’s biggest fool, in my opinion: he literally left a trail of breadcrumbs on social media and his internal systems that will ultimately lead to his demise. And his recent hurling of insults at leaders of US allied countries on Twitter is proof of that (see Figure 1 below, a tweet from a crazed Tesla cultist warning Musk to “calm down”).

Figure 1: Musk Knows He’s A Wanted Man

Tesla Trading Thoughts This Week

• Tesla was down 6.4% for the week as of yesterday, versus the Nasdaq 100 index falling by 2.0% and the Magnificent 7’s drop of 2.8%. The fact that Tesla fell more than the Mag-7 despite Nvidia’s plunge is a bad sign for Tesla bulls.

• Tesla felt top-heavy all week but saw some heavy lifting by dip-buyers as it almost fell below its 200-day moving average of $203 both on Wednesday and Thursday.

• Interestingly, call option volumes were down by a whopping 16.4% versus last week, while put option volumes were up by 2.9%.

• I was tempted to short more yesterday while the stock was up over 2% intraday, but decided to be disciplined this week and stick to my RSI rule: if the 14 day RSI is above 70, short in size. If it’s below 30, cover. As of yesterday, the RSI was at 45. Sit and watch is all I can do.

• Xpeng was up 12.3% this week due to its new Mona M03 electric sedan priced at roughly $20,000 receiving 30,000 orders in 48 hours. It boasts one of the best aerodynamics in its class and a range of 620 Km (388 miles) per charge. It was dubbed a “Tesla Model 3 Killer” and the Hong Kong-listed shares were up 8.3% overnight on huge volumes. Xpeng was down 46% YTD due to its weak China sales and global expansion, so this news was a good catalyst for dip-buyers. I wouldn’t touch it with a ten-foot pole.

• BYD was up 6.6% this week with most of its gains coming after Thursday’s Q2 results in Hong Kong last night, where the shares were up 6%. While the results were lower than consensus but in line with buyside expectations, the stock likely had a relief rally last night (same goes for Li Auto, which had even less spectacular results). Despite the price wars in China, BYD generated 1H 2024 Auto gross margins of 23.9% (versus Tesla’s 1H Automotive gross margins of 23.8%, or 15.9% ex-regulatory credits), but said that overseas gross margins remain high at 31.4%, which is definitely higher than Tesla. While BYD is an “EV juggernaut” that is in the process of leap-frogging Tesla in terms of volumes, its disclosures are still weak, especially the fact that there was no Q2 earnings call. Its PER has dropped from over 30x in 2022 to roughly 14x 2025 consensus estimates now. This is not expensive if one assumes that BYD grows everywhere outside of North America and, one day, the 100% tariffs there are removed.

Figure 2: Price Changes For Major Auto Stocks (Ranked by Week)

Source: Bloomberg.

China Sales Fell Hard Last Week Despite Easy Hurdles

Local Tesla sales in China for the week of August 19th to the 25th suddenly dropped by 16.5% YoY. Sales so far this quarter had been powerful, spiking by 12.2% versus the same period last quarter.

This also helped Tesla’s year-over-year growth rate improve from -6% YoY in the 1H of 2024 to almost flat year-to-date as of this quarter. Here are the concerning points:

• Low Q3 hurdle: The year-on-year hurdle for this quarter is low given that Tesla had idled the Model 3 production line in Shanghai in Q3 2023 for retooling ahead of the launch of its “refreshed” version in October (only to be discounted soon after its debut due to no real change in looks).

• Lower prices & aggressive incentives: Not only is the entry-level Model Y price 5% lower now versus Q3 2023 (the Model 3’s price is flat), but Tesla is running a “0% interest for 5 years” loan program on both models for all of Q3 versus only for one month in Q2. The average car loan in China is between 8% and 12%, so this is a huge incentive and should be a big blow to profits in China.

• Beijing doubles EV incentives: It should also be noted that the Chinese government doubled the incentive to those who trade in petrol vehicles for EVs from 10,000 yuan ($1,409) in April to 20,000 yuan ($2,818) on July 25th. This is likely due to EV penetration in China being lower than the CPCA’s target of 50% for 2024 (only 41% through July).

• Even if Q3 volumes grow in China, profitability will be weak: Despite all of these incentives, last week’s drop was in Tesla’s China sales was odd although it could simply be a one-off. But even if growth resumes from this week onward, the profitability of Tesla’s Q3 sales should be much weaker than Q2 due to the 5-year, 0% loan program. While low-interest rate loans usually hit costs, Figure 3 shows the gap between growth of quarterly China deliveries versus that of revenues. China is the worst market for Tesla to be in right now.

Figure 3: Tesla’s China Revenues Lag Volume Growth

Source: CPCA & Tesla

Europe Is Becoming A Bigger Risk For Tesla

Sales of BEVs in Europe last month dropped by 6% YoY while hybrid (HEV) sales surged by 24% YoY. Tesla sales in July were down 15% YoY. The huge growth in affordable HEVs versus more pricey BEVs this year in the EU is a bad sign for EV adoption there. And it doesn’t look good for Tesla’s 2-year-old factory in Brandenburg, which has yet to operate over 50% capacity.

The 9% tariff on Teslas imported from China (in addition to the 10% import duty) will crimp profit margins further on sales in the EU given that Tesla only raised Model 3 prices by 3%. The Shanghai factory made most of its profits from exports to the EU through 2023. Not anymore. Figure 4 is a sign of the times for EV adoption in the EU when affordability is a problem, protectionism is rife, and inflation is sticky.

Figure 4: So Much for BEV Adoption in the EU—HEVs Dominate

Source: ACEA

Canadian Tariffs of 100% Kick in From October

Reuters reported that Tesla approached the Canadian government to ask for lower tariffs than Ottawa’s planned 100% duty on cars imported to Canada from China. There was no statement from Ottawa about this and Reuters reported that Tesla didn’t ask again (according to their sources).

• Tesla sold 43,657 cars in Canada last year, with 18,120 in the 1H of 2023 and 29,195 in the 2H of 2023 when Tesla ramped up its low-cost exports from China to Canada (I view Canada as one of Tesla Shanghai’s largest “dumping grounds” along with Australia and Asia due to the EU’s tariffs on China-made cars crunching exports there from Shanghai).

• The 1H of 2024 is roughly flat with last year’s 18,120 vehicles, but Q3 looks set to fall and if the Canadian government doesn’t cave in like the EU did (dropping Tesla’s import duties from China from 31% to 9% recently), Q4 exports from China to Canada could drop dramatically. Q4 2023 Tesla sales in Canada were 19,006 units.

• Given weak demand for Tesla vehicles in the US, it’s a no-brainer that Tesla could fill the gap by supplying Canadian demand with exports from its US factories, which are seeing lower capacity utilization due to Tesla’s deteriorating brand value.

• The fact that Tesla asked the Canadian government to give them “special treatment” is due to the fact that Tesla is the number one EV brand in Canada and makes profits more from shipping low-cost cars from China to Canada rather than from the US.

• So what happens? Tough to tell at the moment. On the one hand, Canada tends to follow the US when it comes to foreign policy (they have many US and Japanese car factories on their East Coast), but on the other hand, Canada might be more motivated than the US to spur EV adoption.

• My gut feeling is that Canada wants to protect their ICE vehicle factory workers and will hold their ground on the 100% tariffs on China imports.

• The desire to switch to EVs in Canada is much lower than the US. And after all, if Canada’s tariff is 100% for China-made cars, why not ship them from Tesla’s idle Fremont and Austin factories given the scarred relations between Canada and China?

Figures 5 & 6 show how Tesla is egregiously overvalued versus auto rivals and its six rivals in the “Magnificent 7”. No matter how you slice it, Tesla is insanely overvalued.

I’d cover my short at $20 because it would be 1x my 2025 book value/share estimate plus a 20% premium (it’s now at $210, so you can see how little fundamentals work).

Figure 5: Tesla’s Valuations & Returns vs Rivals (Ranked by 2025 Pre-Tax Margins)

Source: Bloomberg & MH estimates

Figure 6: Tesla’s Valuations & Returns vs the Magnificent 6 (Ranked by PEG Ratio)

Source: Bloomberg & MH estimates

Note: Nothing in this report is investment advice.