Bitcoin Didn’t Boost Tesla’s Cash Flow, and What Else the EV Maker Disclosed in Its 10-Q

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Tesla disclosed in its 10-Q that the Bitcoin conversion to cash didn’t impact second-quarter free cash flow.

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First came deliveries, then second-quarter earnings and now the 10-Q. For Tesla , each release always seems to hold new information for both bulls and bears to latch onto and debate. That’s the case again with the 10-Q quarterly report, filed on Monday.

A 10-Q, or just the Q in Wall Street parlance, is essentially the much more detailed version of a quarterly earnings release that gets filed with the Securities and Exchange Commission, typically days or weeks after a quarterly earnings report.

This particular Q disclosed some good news and not so good news to investors. First the bad news.

Tesla received another subpoena from the Securities and Exchange Commission on June 13, in connection with Elon Musk’s 2018 tweet that he was considering taking Tesla private with “funding secured.” This isn’t the first subpoena in connection with that event and, based on history, won’t be the last. It doesn’t appear to change much for the company, or Musk, who has been battling with the SEC for months over the 2018 agreement that required some of Musk’s tweets to be vetted by a board committee before being sent.

The better news for investors is the Bitcoin conversion to cash didn’t impact second-quarter free cash flow. It shouldn’t, but there was a small concern that Tesla’s free cash flow — reported at about $621 million — was inflated by trading about $900 million worth of Bitcoin for cash.

Free cash flow is typically a company’s cash from operations minus its capital spending.

Tesla’s total Bitcoin impairment in the quarter was $170 million. It also recognized a gain on sale of Bitcoin assets of about $64 million. That adds up to the $106 million Chief Financial Officer Zach Kirkhorn talked about on the company’s second-quarter earnings conference call.

Tesla’s free cash flow in the first half of 2022 amounted to roughly $2.7 billion, with $2.1 billion generated in the first quarter and $600 million plus in the second. Tesla’s second-quarter free cash flow was impacted by Covid-19 lockdowns in China with reduced production from its Shanghai plant.

Tesla investors also got details about warranty expenses and spending. Tesla’s warranty provision — -the amount set aside to settle future claims which all auto makers do — came in about at about $319 million, up from about $275 million a year ago. Warranty spending came in at about $187 million in the quarter, up from about $125 million a year ago.

When a company is growing, warranty provisions should be growing and actual spending should stay below the new provision. Something other than that pattern would be a red flag for investors.

Tesla also disclosed in its report that capital spending should be about $6 billion to $8 billion a year in 2022, and each of the coming couple of years. Tesla spent about $7.7 billion in 2021.

Now with the 10-Q out, next up is Tesla’s Aug. 4 annual meeting of shareholders. A proposal there to increase the authorized number of shares outstanding should pave the way for another stock split.

Tesla stock was up 1.2% in premarket trading. If Tesla can close higher it will be the ninth consecutive gain for shares. S&P 500 and Dow Jones Industrial Average futures both rose about 0.5%.

Write to Al Root at allen.root@dowjones.com