Tesla's Non-GAAP Earnings Boosted 12% by Excluding Crypto Losses

Tesla, the electric vehicle manufacturer, recently released its worst quarterly financial report in years. However, the company's "non-official" earnings metric received a boost from the exclusion of losses from its cryptocurrency holdings. This move increased Tesla's non-GAAP net income by approximately 12%. Additionally, by excluding larger stock-based compensation costs, Tesla reported a non-GAAP net income of around $9 billion, more than double its GAAP net income of approximately $4 billion.

The amount of cryptocurrency losses excluded from Tesla's non-GAAP earnings was $97 million. Digital assets are not a core part of Tesla's operations. Tesla's CEO, Elon Musk, announced in 2021 that the company would purchase cryptocurrency, but by the following year, Tesla had sold most of its digital assets.

The Securities and Exchange Commission (SEC) reviews supplementary earnings metrics used by companies to ensure they are not overly optimistic and has taken action against similar practices in the past. In April 2024, the SEC called out Bitcoin mining company Marathon Digital Holdings for excluding the increase in cryptocurrency value from its non-GAAP earnings. Marathon agreed to comply with SEC regulations in the future.

The SEC typically focuses on the consistency of how companies use supplementary earnings metrics. At the end of 2024, when the value of cryptocurrency assets rose, Tesla reported approximately $6 billion in gains, which were included in its non-GAAP earnings. Accounting analyst Olga Usvyatsky noted that if the price of Bitcoin surges in the next quarter, the SEC might scrutinize how Tesla presents this gain in its financial reports. She stated, "If they suddenly stop making this adjustment during a quarter when Bitcoin prices are rising, that would be a dangerous signal."

Companies can use non-GAAP metrics to help investors better understand their core business performance, such as by excluding one-time costs or unusual expenses. However, these metrics should not deviate too far from GAAP standards. The SEC frequently warns companies against presenting what critics call "earnings before bad stuff," which excludes all negative factors.

In December 2023, the Financial Accounting Standards Board (FASB) issued a regulation requiring companies that hold cryptocurrency to report their tokens at fair value, a method aimed at reflecting the price fluctuations of these highly volatile assets.

Tesla did not immediately respond to a request for comment. During a conference call with analysts on Tuesday, Tesla's Chief Financial Officer, Vaibhav Taneja, acknowledged that the new accounting standards have impacted the company's earnings. He stated, "As Bitcoin adopts the new fair value measurement standard, we expect the volatility of other income, excluding foreign exchange equivalents, to increase."