One prominent Wall Street analyst is questioning how Tesla may be allocating its expenses across different businesses.

Bernstein reiterated its market perform rating on Tesla shares, citing its concerns over the electric car maker's declining profit margin in its "Services and Other" business segment.

"Tesla reports revenues and gross margins each quarter for its 'Automotive' and 'Services and Other' segments. Interestingly, 'Services and Other' gross margins have steeply plunged in recent quarters," analyst Toni Sacconaghi said in a note to clients Friday entitled "Services margins are plummeting… does this mean automotive gross margins could be overstated?" "The worry/key question, of course, is whether COGs that should be (or historically have been) booked in the Automotive Segment are now being booked in the 'Services and Other' reporting segment, given that investors focus nearly exclusively on Automotive GMs & generally disregard 'Services and Other' GMs [gross margins]."

The analyst reaffirmed his $265 price target for Tesla shares, representing 24 percent downside to Thursday's close.

Sacconaghi noted how Tesla's gross profit margin for its Services and Other segment declined to a negative 45 percent in its first-quarter 2018 results from a positive 5 percent in its third-quarter 2016 report.

"Specifically, our guesses would be that (1) some portion of warranty expenses are being accrued in 'Services and Other', though we note that TSLA's overall warranty accruals appear generous vs. other manufacturers, and the company states that it includes all warranty expense in its Automotive segment; (2) post warranty work is high and being done for free, resulting in limited Services revenues but escalating COGS; or (3) there is some other incremental service cost associated with Model 3 (given that Service revenues and COGs appeared to diverge at the time of Model 3 ramp)," he said.

Tesla shares declined 3 percent Friday after the report.



When asked for comment, a Tesla spokesperson pointed to sections in the company's first-quarter shareholder letter that said increased costs in the Services and Other segment were due to a build-out of its mobile service infrastructure. Here is the full part from that letter::