Tesla Backs Away from Non-GAAP Metrics after SEC Letters

Automobile manufacturer Tesla Motors is dropping the use of some non-GAAP financial measures in its earnings releases after receiving several letters from the Securities and Exchange Commission criticizing the practice.

The SEC chided the Palo Alto, California-based electric car maker for employing “individually tailored” metrics in an earnings release this past August and has raised the issue with the company in four separate letters between mid-September and mid-October, according to The Wall Street Journal. In October, Tesla announced it would stop using non-GAAP measures in its releases.

Tesla defended its actions. "Tesla responded promptly to the SEC’s May guidance," said a Tesla spokesperson in a statement emailed to Accounting Today. "When Tesla announced its Q2 earnings, it stated that it was evaluating the SEC’s guidance and was determining whether any changes should be made. When the SEC then asked Tesla about this as part of its review of the SolarCity acquisition, Tesla told the SEC that it had decided to make changes. These changes were reflected in its Q3 earnings, which was just one quarter after the SEC provided its new guidance."

The SEC has been prodding companies to highlight the GAAP numbers in their earnings releases and not to feature non-GAAP measures as prominently. Since the SEC released guidance on the use of non-GAAP measures in May, over 25 percent of S&P 500 companies have begun to put the GAAP figures at the head of their earnings releases. The SEC has also doubled the percentage of comment letters criticizing companies for using non-GAAP measures since last year from 14 to 28 percent, according to the research firm Audit Analytics.