A side view of the Model 3. (credit: Megan Geuss)
Tesla launched its low-cost Model 3 last week, and customers responded with a plethora of pre-orders. CEO Elon Musk has been tweeting updates on the early interest since, and here's the latest missive available at press time:
276k Model 3 orders by end of Sat
— Elon Musk (@elonmusk) April 3, 2016
Each of these pre-orders come with a $1,000 down payment. Do the math, and you'll find that Tesla is collecting something on the order of $300 million in pre-order commitments for a product not slated for delivery until the second half of 2017. How will Tesla's accountants handle this cash influx in the face of potential cancellations and refunds?
Deferred revenues
Pre-order accounting is not a hard science. Tesla's accountants and CFO Jason Wheeler have some options on how to treat this incoming cash. For example, it could be recorded as revenue up front and then held in a firm escrow account until actual products are delivered. This way, the pre-order cash would be barred from taking any part in Tesla's business other than collecting some interest.
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