Did Tesla release an unfinished Smart Summon just to pull an accounting trick?

On October 23, Tesla surprised investors by posting a $143 million profit for its third quarter. During the accompanying public call with investors, both CEO Elon Musk and Chief Financial Officer Zach Kirkhorn emphasized the release of its self-driving Smart Summon feature as a major contributing factor to that profit.

Tesla released Smart Summon on September 26 — just before the end of its third financial quarter — as part of a far-ranging software update named Software Version V10 or simply V10. The feature allows owners to beckon their car to drive to them autonomously from up to 200 feet away in a private parking lot or driveway.

However, since its release, this self-driving feature has collected an outsized amount of criticism for causing accidents and is now being looked into by federal transportation authorities for the dangers it may pose to the public at large. The controversy has some speculating that Tesla pushed it out early, before it was ready for the public, in order to show a larger profit on the company’s balance sheet.

Tesla

“The question is, did they release it too early?” Gene Munster, managing partner of Loup Ventures, told Digital Trends. “If you take Apple or a traditional car company as a comparison, the release was too early. But Tesla prefers to release and improve by evolution rather than revolution.”

The V10 update was pushed to Tesla vehicles on September 26, and the quarter ended for the company on September 30. In other words, the company released V10 on the last weekend possible for it to record the revenue in its upcoming report to investors.

During the Q3 earnings call with investors, company leaders called out $30 million of the $143 million profit recorded was due to the release of Smart Summon on September 26. Every Tesla buyer can pay $6,000 for the ability to add self-driving to their vehicles — and many did: The company has collected roughly $500 million in total from customers for self-driving features.

But because no Tesla is actually fully autonomous yet, the company cannot, under general accounting rules and practices, count all of that money as revenue. Instead, it must hold those monies in a special accounting category called “deferred revenue.” As portions of the self-driving functionality are released, they can release a portion of the money and count it as revenue.

Ross Gerber, president and CEO of Gerber Kawasaki Wealth and Investment Management and a Tesla investor, highlighted the timing: “By releasing Smart Summon on the last weekend of the quarter, Musk was able to realize some of that deferred revenue,” Gerber told Automotive News shortly after Tesla’s earnings report. Essentially, releasing the feature allowed them to unlock some of that Self Driving revenue and put it on their balance sheet.

“Tesla has a team of certified accountants that have mapped out how much money they can recognize for each feature they complete as it relates to Auto Pilot,” he told Digital Trends. “This is why Elon is pushing so hard for Auto Pilot completion.”

Upon the release of Smart Summon, reports began to flood Tesla forums, Reddit, and YouTube with examples of crashes, fender benders, and near misses linked to Smart Summon. Consumer Reports, Forbes, Wired, and others have all labeled the feature as not ready for public release and a possible safety hazard. “I tried using it in a parking lot today and it immediately started to drive forward into the parking curb + wall” is not an uncommon story. Comments like, “I tested it out and it wanted to split 2 parked cars where I couldn’t discern if it was going to hit anything or not,” and “This wasn’t user error, it’s the software that isn’t ready” are common throughout Reddit and forum threads on Smart Summon.

The National Highway Traffic Safety Administration (NHTSA) is even looking into Smart Summon, and had this to say when reached for comment:

“NHTSA is aware of reports related to Tesla’s Summon feature. We are in ongoing contact with the company and we continue to gather information. Safety is NHTSA’s top priority and the agency will not hesitate to act if it finds evidence of a safety-related defect.”

Other investors do not agree with the assertion that Smart Summon was released purely for financial gain, however. “The timing has nothing to do with forcing deferred revenue recognition.” said Galileo Russell, a closely watched investor and YouTuber. “It was only $30M. Wouldn’t have moved the needle either way. Even without recognizing it, Tesla would have crushed Wall Street estimates by a massive margin.”

Tesla did not respond to our request for comment about Smart Summon’s release. During the Q3 investor call, the company reported that Smart Summon had already been used 1 million times. Tesla has already had to publish several updates to the Smart Summon feature since September 26, with more updates expected over the coming months.

“Revenue recognition is an art,” added Munster. Indeed, many accounting procedures have a logic all their own that can run counter to public expectations. What remains to be seen is if Tesla’s release of Smart Summon, and the subsequent accidents, will have a negative impact that outshines the revenue recorded by its release.

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