Tesla uses money from Nevada casinos to increase its results

Given Elon Musk's questionable track record for reaching his goals, it may be a dice throw if Tesla's CEO makes a profit this year. Its success will depend in part on the money of the Nevada casinos.

Since 2015, his company Palo Alto has increased its results by selling tax credits to casinos such as the MGM Grand.

The casinos use the credits, bought at a reduced price, to reduce the gambling fees that they pay in the state. Tesla uses the product to mitigate its losses or increase its profits.

Musk told investors on June 5 that "it looks like" the company will be profitable later this year.

Tesla has sold $ 131 million in casino loans and has reserved $ 163 million in anticipation of more sales soon.

Millions of others will likely be used in the quarters ending in September and December. This could be enough to make a profit to the company.

Nevada has attracted the giant Tesla lithium-ion battery plant to a site outside Reno, promising $ 1.3 billion in incentives. Most of these measures take the form of tax exemptions: Tesla does not have to pay taxes on sales and use, property taxes and general business taxes for 10 years. at 20 years.

But the state also gave Tesla $ 195 million in transferable tax credits, which the company can not use unless it sells them.

There is another $ 32 million of unsold and unreserved tax credits. A spokesman for Tesla said that only $ 10 million of this "likely" will be used to increase profits in the third and fourth quarters, although $ 17 million will be available at Tesla from July 1. the next financial year.

With Tesla accumulating $ 2.2 billion in losses last year on sales of $ 11.8 billion, $ 17 million in casino cash could almost be considered a rounding error. Nevada's credit sales "will not even have a significant impact on our profitability," Tesla's spokesman said.

But it could be enough money to boost Tesla from a quarterly loss to a quarterly gain. The company has lost more than $ 5 billion in its 15 years of existence and has only recorded two quarterly profits: $ 15 million in the first quarter of 2018 and $ 22 million in the third quarter of 2016.

The casino's cash "can technically push them beyond the limit" for a quarterly profit, said analyst Efraim Levy at CFRA. This might cheer some Tesla enthusiasts, he said, but "other investors will say" exclude spot items from the total ". and see how sustainable his profits are.

Tesla could use some positive news as it struggles to produce its "make-or-break" product, the Model 3 sedan. The problems in Tesla's automotive assembly plant at Fremont are so severe that the company has installed a third assembly line under a tent-like temporary structure. The partially constructed models 3 are lifted from the building and sent through the tent.

Musk is committed to achieving a production rate of 5,000 Model 3s per week by the end of June, although it has not said whether this was sustainable.

Analysts say the company must raise billions of dollars from here next year to survive, which could prove difficult for Musk if losses continue.

That's why Musk's promise to offer two profitable quarters this year puts the company under strong pressure. This month, Tesla announced the layoff of 3,600 workers, or 9% of its workforce, which should reduce costs.

Nevada's tax credits are part of a "kitchen sink" items that Tesla could use to make a quarterly profit, Levy said. This also includes revenue from the sale of zero emission credits that Tesla receives from California as part of an air purification program. The company has accounted for more than $ 1 billion of credits since 2014. Nevada's tax credits are issued as Tesla reaches its goals in terms of capital expenditures and hiring of workers residing in the country. Nevada.

In its filings with the Securities and Exchange Commission, Tesla never revealed exactly how much credit it has applied in a given quarter, whether in terms of operating expenses or capital increase. In its annual reports, the company uses general terms to describe when cash is recognized. "We are recording these credits as earned when we have evidence that there is a market for their sale," Tesla said in its 10-K 2017 report.

The first $ 20 million was sold to MGM Resorts International, according to reports published in the Las Vegas Review-Journal and the ThisIsReno news site. Since then, buyers have been kept secret, but state records show that all Tesla credit sales were purchased by casinos to lower their tax on monthly gambling revenue. MGM had no comments.

Russ Mitchell is a writer of the Los Angeles Times.