Goodwill repairs made by Tesla could be a way for the automaker to avoid lemon laws, lawyers say.
Lawyers and consumer protection organizations are worried Tesla may be using the practice of lemon laundering to hide defective vehicles from the public.
InsideEVs spoke with different sources including Bernard Brown, an expert in consumer law about Tesla labelling warranty repairs goodwill so they don’t go into the books against revenue.
To sum it up, when an automaker labels a warranty repair as goodwill, the expense doesn’t go into the cost of revenue and therefore doesn’t impact profit. Goodwill is usually labeled as an asset in the financial statements while the cost of warranty repairs are an expense.
As for the term lemon laundering, it’s essentially a way to hide the fact that a vehicle is a lemon. Again according to InsideEVs, many automakers such as GM and Chrysler were caught doing it in the past, but now Tesla may be using the same strategy.
Lemon laws apply when a vehicle doesn’t perform to the standards set in a given state or country. Usually, there’s a number of repairs that need to happen to a vehicle before it can be deemed a lemon. Once that happens, the automaker is usually forced to buy the vehicle back from the client.
By not booking warranty repairs where they need to go, it’s difficult to determine if a given vehicle is a lemon or not.
The financial statement manipulation is the basis for numerous short selling strategies on Tesla stock, although these strategies have not panned out in recent months.
Tesla has had numerous quality problems on its vehicles since launch, and it continues to this day with the Tesla Model 3. We invite you to check out the full article on InsideEVs. It’s in-depth and gives you options if you believe you may be a victim of lemon laundering.