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UNITEDSTATES
SECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549

FORM10K
(MarkOne)

ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
ForthefiscalyearendedDecember31,2013
OR

TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
Forthetransitionperiodfromto
CommissionFileNumber:00134756

TeslaMotors,Inc.
(Exactnameofregistrantasspecifiedinitscharter)

Delaware

(Stateorotherjurisdictionof

912197729
(I.R.S.Employer

incorporationororganization)

IdentificationNo.)

3500DeerCreekRoad
PaloAlto,California

94304

(Addressofprincipalexecutiveoffices)

(ZipCode)

(650)6815000
(Registrantstelephonenumber,includingareacode)

SecuritiesregisteredpursuanttoSection12(b)oftheAct:

Titleofeachclass

Nameofeachexchangeonwhichregistered

CommonStock,$0.001parvalue

TheNASDAQStockMarketLLC

SecuritiesregisteredpursuanttoSection12(g)oftheAct:
None
Indicatebycheckmarkwhethertheregistrantisawellknownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesNo
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13or15(d)oftheAct.YesNo
Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934(ExchangeAct)during
thepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes
No
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedand
postedpursuanttoRule405ofRegulationSTduringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).Yes
No
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationSK(229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,to
thebestofregistrantsknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10KoranyamendmenttothisForm10K.
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anonacceleratedfilerorasmallerreportingcompany.Seethedefinitionsoflarge
acceleratedfiler,acceleratedfiler,andsmallerreportingcompanyinRule12b2oftheExchangeAct:

Largeacceleratedfiler

Acceleratedfiler

Nonacceleratedfiler

(Donotcheckifasmallerreportingcompany)

Smallerreportingcompany

Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b2oftheExchangeAct).YesNo
Theaggregatemarketvalueofvotingstockheldbynonaffiliatesoftheregistrant,asofJune30,2013,thelastdayofregistrantsmostrecentlycompletedsecondfiscalquarter,
was$9,911,123,918(basedontheclosingpriceforsharesoftheregistrantsCommonStockasreportedbytheNASDAQGlobalSelectMarketonJune30,2013).SharesofCommon
Stockheldbyeachexecutiveofficer,director,andholderof5%ormoreoftheoutstandingCommonStockhavebeenexcludedinthatsuchpersonsmaybedeemedtobeaffiliates.
Thisdeterminationofaffiliatestatusisnotnecessarilyaconclusivedeterminationforotherpurposes.
AsofJanuary31,2014,therewere123,191,938sharesoftheregistrantsCommonStockoutstanding.
DOCUMENTSINCORPORATEDBYREFERENCE
PortionsoftheregistrantsProxyStatementforthe2014AnnualMeetingofStockholdersareincorporatedhereinbyreferenceinPartIIIofthisAnnualReportonForm10Ktothe
extentstatedherein.SuchproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionwithin120daysoftheregistrantsfiscalyearendedDecember31,2013.

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TESLAMOTORS,INC.
ANNUALREPORTONFORM10KFORTHEYEARENDEDDECEMBER31,2013
INDEX

Page

PARTI.

Item1.

Business

RiskFactors

23

UnresolvedStaffComments

58

Properties

58

LegalProceedings

59

Item1A.
Item1B.
Item2.
Item3.

PARTII.

Item5.

MarketforRegistrantsCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities

60

SelectedFinancialData

62

ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations

65

Item6.
Item7.

Item7A.

QuantitativeandQualitativeDisclosuresAboutMarketRisk

87

FinancialStatementsandSupplementaryData

89

ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure

124

ControlsandProcedures

124

OtherInformation

125

Item8.
Item9.
Item9A.
Item9B.

PARTIII.

Item10.

Directors,ExecutiveOfficersandCorporateGovernance

126

ExecutiveCompensation

126

SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters

126

CertainRelationshipsandRelatedTransactions,andDirectorIndependence

126

PrincipalAccountantFeesandServices

126

Item11.
Item12.
Item13.
Item14.

PARTIV.

Item15.

ExhibitsandFinancialStatementSchedules

126

134

Signatures

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ForwardLookingStatements
ThediscussionsinthisAnnualReportonForm10Kcontainforwardlookingstatementsreflectingourcurrentexpectationsthatinvolverisksanduncertainties.These
forwardlookingstatementsinclude,butarenotlimitedto,statementsconcerningourstrategy,futureoperations,futurefinancialposition,futurerevenues,projectedcosts,
profitability,expectedcostreductions,capitaladequacy,expectationsregardingdemandandacceptanceforourtechnologies,growthopportunitiesandtrendsinthemarketin
whichweoperate,prospectsandplansandobjectivesofmanagement.Thewordsanticipates,believes,estimates,expects,intends,may,plans,projects,will,
wouldandsimilarexpressionsareintendedtoidentifyforwardlookingstatements,althoughnotallforwardlookingstatementscontaintheseidentifyingwords.Wemaynot
actuallyachievetheplans,intentionsorexpectationsdisclosedinourforwardlookingstatementsandyoushouldnotplaceunduerelianceonourforwardlookingstatements.
Actualresultsoreventscoulddiffermateriallyfromtheplans,intentionsandexpectationsdisclosedintheforwardlookingstatementsthatwemake.Theseforwardlooking
statementsinvolverisksanduncertaintiesthatcouldcauseouractualresultstodiffermateriallyfromthoseintheforwardlookingstatements,including,withoutlimitation,the
riskssetforthinPartI,Item1A,RiskFactorsinthisAnnualReportonForm10KandinourotherfilingswiththeSecuritiesandExchangeCommission.Wedonotassumeany
obligationtoupdateanyforwardlookingstatements.

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PARTI

ITEM1.

BUSINESS

Overview
Wedesign,develop,manufactureandsellhighperformancefullyelectricvehiclesandadvancedelectricvehiclepowertraincomponents.Wehaveestablishedourownnetwork
ofsalesandservicecentersandSuperchargerstationsgloballythuscreatingauniquebusinessmodelintheautomobileindustry.Wehaveoperationallystructuredourbusinessina
mannerthatwebelievewillenableustorapidlydevelopandlaunchadvancedelectricvehiclesandtechnologies.Webelieveourvehicles,electricvehicleengineeringexpertise,and
operationalstructuredifferentiatesusfromincumbentautomobilemanufacturers.
Wearecurrentlyproducingandsellingoursecondvehicle,theModelSsedan.ModelSisafourdoor,fivepassengerpremiumsedanthatoffersexceptionalperformance,
functionalityandattractivestyling.TheModelSinheritedmanyoftheelectricpowertraininnovationsweintroducedwithourfirstvehicle,theTeslaRoadsterwhichwaslaunchedin
2008andwasthefirstcommerciallyproducedandfederallycompliantEVintheUnitedStates.Wecompletedproductionofapproximately2,500TeslaRoadstersinJanuary2012and
begandeliveriesofModelSinJune2012.AsofDecember31,2013,wehavedeliveredover25,000ModelSvehiclesinNorthAmericaandEurope.In2014,weexpecttogrowour
presenceinseveralinternationalmarketswithdeliveriestocommenceinChina,Japan,theUnitedKingdomandAustralia.Sinceitslaunch,ModelShaswonseveralawards,including
theprestigiousMotorTrendCaroftheYearfor2013.InNovember2013,ModelSreceived99outof100inanownersurveyconductedbyConsumerReports,thehighestcustomer
satisfactionscoreofanycarintheworld.Ourgoalistodeliverthehighestpossiblelevelofownershipsatisfactionineveryway.
WeareadaptingtheplatformarchitectureofModelStodevelopourModelXcrossover.Thisuniquevehiclehasbeendesignedtofillthenichebetweentheroominessofa
minivanandthestyleofanSUV,whilehavinghighperformancefeaturessuchasadualmotorallwheeldrivesystem.WerevealedaprototypeofModelXinFebruary2012.We
currentlyexpecttohaveproductiondesignModelXprototypesontheroadbyendofyearandbeginvolumedeliveriestocustomersinthespringof2015.Wehavealsopublicly
announcedourintenttodevelopathirdgenerationelectricvehicle,towhichwereferasGenIII,whichweintendtoofferatalowerpricepointandproduceathighervolumesthan
ourModelSinapproximatelythreeyears.
WearealsobuildinganetworkofSuperchargersintheUnitedStatesandEuropetoenablefreeandconvenientlongdistancedriving.SuperchargersallowModelSownersto
replenish50%ofthebatterypackinaslittleas20minutes.SuperchargerstationsarestrategicallyplacedalongwelltravelledhighwaystoallowModelSownerstoenjoylong
distancetravelwithconvenient,minimalstops.AsofFebruary19,2014,wehad90SuperchargerstationsopeninNorthAmericaandEurope.Weplantocontinuetoopen
SuperchargerstationsintheseregionsaswellasinAsiaduring2014andexpecttotripleourSuperchargerstationsduring2014.WeexpectthatModelXandourfuturecarswillbe
abletousethisnetwork.
WesellandserviceourelectricvehiclesthroughourcompanyownedsalesandservicenetworkinNorthAmerica,EuropeandAsia.Ourintentistoofferacompellingcustomer
experiencewhilegatheringrapidcustomerfeedbackandachievingoperatingefficiencies,bettercontroloverthecostsofinventory,warrantyservice,pricing,andthedevelopmentof
theTeslabrand.OurTeslastoresdonotcarrylargevehicleinventoriesand,asaresult,donotrequirecorrespondinglargefloorspaces.Webelievethebenefitswereceivefrom
distributionownershipwillenableustoimprovethespeedofproductdevelopmentandimprovethecapitalefficiencyofourbusiness.Webelievethatthisapproachprovidesuswitha
competitiveadvantageascomparedtoincumbentautomobilemanufacturers.
Inadditiontodevelopingourownvehicles,weprovideservicesforthedevelopmentoffullelectricpowertrainsystemsandcomponents,andsellelectricpowertrain
componentstootherautomotivemanufacturers.WehaveprovideddevelopmentservicesandpowertraincomponentstoDaimlerAG(Daimler)foritsSmartfortwo,AClass,andB
Classelectricvehicles.Wealsohavedevelopedafullelectricpowertrainsystemfor

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ToyotaMotorCorporation(Toyota)foruseinitsRAV4EVandbeganshippingproductioncomponentstoToyotain2012.Wealsoplantostartsellingstationaryenergystorage
productsforuseinhomes,commercialsites,andutilities.Theapplicationsforthesebatterysystemsincludebackuppower,peakdemandreduction,demandresponse,andwholesale
electricmarketservices.
WeconductourpowertrainandvehiclemanufacturingandassemblyoperationsattheTeslaFactory,ourintegratedmanufacturingfacilityinFremont,California,andatour
facilityinTilburg,Netherlands.WehaverecentlyindicatedourintentiontobuildtheTeslaGigafactory,afacilityintheUnitedStateswhereweintendtomanufacturecellsandbattery
packsforourvehiclesandourstationarystorageapplications.
Ourfullyelectricvehiclescombinezerotailpipeemissions,marketleadingrangeonasinglecharge,impressiveacceleration,andpricingcompetitivewithothervehiclesin
theirclasses.Forexample,ourModelSacceleratesfromzeroto60milesperhourinaslittleas4.2secondsandhasarangeonasinglechargeofupto265miles.WeofferModelSwith
60kWhand85kWhbatterypackoptions.ModelShasaneffectivebasepriceof$62,400and$72,400intheUnitedStatesforthe60kWhand85kWhoptions,respectively,assuming
andaftergivingeffecttothecontinuationofaUnitedStatesfederaltaxcreditof$7,500forthepurchaseofalternativefuelvehicles.Evenwithoutthetaxcredit,webelieveourlist
pricesarecompetitivefromapricingperspectivewithotherpremiumvehicles.WebelievethatModelSdemonstratesourabilitytoproduceincreasinglyaffordableelectricvehicles
thatofferlongrangecapabilitiesanduncompromisedperformance,energyefficiency,convenienceanddesign.
Thecommercialproductionofahighwaycapable,fullyelectricvehiclethatmeetsconsumersrangeandperformanceexpectationsrequiressubstantialdesign,engineering,and
integrationworkonalmosteverysystemofourvehicles.OurrootsinSiliconValleyhaveenabledustorecruitengineerswithstrongskillsinelectricalengineering,powerelectronics
andsoftwareengineering.Wehavecomplementedthistalentbasewithautomotiveengineerswithsubstantialexpertiseinvehicleengineeringandmanufacturing.Ourabilityto
combineexpertiseinelectricpowertrainandvehicleengineeringprovidesabroadcapabilityinelectricvehicledesignandsystemsintegration.Webelievethesecapabilities,coupled
withourfocussolelyonelectricvehicletechnologyaswellasourstronginhouseengineeringandhighlyverticalmanufacturingcapacity,willenableustosustaintheelectricvehicle
industryleadershipwecreatedthroughtheproductionoftheTeslaRoadsterandModelS.
Ourbatterypackandelectricpowertrainsystemhasenabledustodelivermarketleadingrangecapabilityonourvehiclesatwhatwebelieveisacompellingbatterycostper
kilowatthour.Ourbatterypacksusecustomelectricvehiclelithiumionbatterycellsandcontaintwotothreetimestheenergyofanyothercommerciallyavailableelectricvehicle
batterypack,therebysignificantlyincreasingtherangecapabilitiesofourvehicles.Designinganelectricpowertrainandavehicletoexploititsenergyefficiencyhasrequired
extensivesafetytestingandinnovationinbatterypacks,motors,powertrainsystemsandvehicleengineering.Ourproprietarytechnologyincludescoolingsystems,safetysystems,
chargebalancingsystems,batteryengineeringforvibrationandenvironmentaldurability,customizedmotordesignandthesoftwareandelectronicsmanagementsystemsnecessaryto
managebatteryandvehicleperformanceunderdemandingreallifedrivingconditions.Thesetechnologyinnovationshaveresultedinanextensiveintellectualpropertyportfolioas
ofDecember31,2013,wehad203issuedpatentsandmorethan280pendingpatentapplicationswiththeUnitedStatesPatentandTrademarkOfficeandinternationallyinabroad
rangeofareas,includingthebatterypackandothertechnologies.
Wearedesigningourvehiclestoenablethecosteffectivedevelopmentofourfuturevehicles.Forexample,wehavedesignedModelSwithaplatformarchitecture,which
compactlypositionsthebatterypack,motorandotherelementsofourpowertrainwithintheframeofthevehicle.Webelievethisarchitecturemayformthebasisofseveralfuture
vehicles,includingourplannedModelX,andenableustoefficientlyandcosteffectivelylaunchthesenewvehiclemodelsinthefuture.
Ourdesignandvehicleengineeringcapabilities,combinedwiththetechnicaladvancementsofourpowertrainsystem,haveenabledustodesignanddevelopzerotailpipe
emissionvehiclesthatwebelieve

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overcomethedesign,styling,andperformanceissuesthatwebelievehavehistoricallylimitedbroadconsumeradoptionofelectricvehicles.Asaresult,webelieveourcustomers
enjoyseveralbenefits,including:

LongRangeandRechargingFlexibility.Ourvehiclesofferrangesthatareoverdoubletherangeofanyothercommerciallyavailableelectricvehicle.Inaddition,our
vehiclesincorporateourproprietaryonboardchargingsystem,permittingrechargingfromalmostanyavailableelectricaloutlet.OurModelSvehiclesalsoofferfast
chargingcapabilityfromourSuperchargernetwork.Webelievethelongrangeandchargingflexibilityofourvehicleswillhelpreduceconsumeranxietyoverrange,
alleviatetheneedforexpensive,largescalecharginginfrastructure,anddifferentiateourvehiclesascomparedtoourcompetitorscurrentlyannouncedelectricvehicle
productofferings.

EnergyEfficiencyandCostofOwnership.Webelieveourvehiclesofferconsumersanattractivecostofownershipwhencomparedtosimilarinternalcombustionengine
orhybridelectricvehicles.Usingonlyasingleelectricpowertrainenablesustocreatealighter,moreenergyefficientvehiclethatismechanicallysimplerthancurrently
availablehybridorinternalcombustionenginevehicles.Wecurrentlyestimatethatthecosttofuelourvehiclesisapproximatelyonefifththatofcomparableinternal
combustionvehiclesintheUnitedStates,andevenlessinternationallywheregasolinepricesaretypicallyhigher.Wealsoexpectourelectricvehicleswillhavelower
relativemaintenancecoststhanhybrid,pluginhybrid,orinternalcombustionenginevehiclesduetofewermovingpartsandtheabsenceofcertaincomponents,
includingoil,oilfilters,sparkplugsandenginevalves.Additionally,governmentincentivesthatarecurrentlyavailablecanreducethecostofownershipevenfurther.

HighPerformanceWithoutCompromisedDesignorFunctionality.Webelievewehavebeenabletosuccessfullyovercomethedesignandperformancetradeoffissues
thatencumberedmostearlyelectricvehicledesigns.Webelieveourvehiclesdeliverunparalleleddrivingexperienceswithinstantaneousandsustainedacceleration
throughanextendedrangeofspeed.Inaddition,ourModelSseatsfiveadults,providesbestinclassstorageinthetrunkandhoodwhileofferingdesignand
performancecomparableto,orbetterthan,otherpremiumsedans.

OurVehiclesandProducts
Wecurrentlydesign,develop,manufactureandsellfullyelectricvehiclesandelectricpowertraincomponents.WearecurrentlysellingprimarilytheModelS.
ModelS
ModelSisafullyelectric,fourdoor,fiveadultpassengersedanthatofferscompellingrangeandperformancewithzerotailpipeemissions.Webegancustomerdeliveriesin
June2012.AsofDecember31,2013,wehaddeliveredover25,000ModelSvehicles.
ModelSoffersarangeonasinglechargeofupto265miles.Tocomplementthisrange,wealsoofferthecapabilitytofastchargeModelSatourSuperchargerfacilities.In
addition,wedesignedModelStoincorporateamodularbatterypackinthefloorofthevehicle,enablingittoberapidlyswappedoutatcertainofourservicecentersandspecialized
commercialbatteryexchangefacilitiesthatweanticipatemaybeavailableinthefuture.
WebelieveModelSoffersauniquecombinationoffunctionality,convenience,safetyandstylingwithoutcompromisingperformanceandenergyefficiency.Withthebattery

packinthefloorofthevehicleandthemotorandgearboxinlinewiththerearaxle,ModelSprovidesbestinclassstoragespaceof31.6cubicfeet,includingstorageunderboththe
tailgateandthehood.Bywayofcomparison,thisstoragespaceexceedstheapproximately14cubicfeetofstorageavailableinthe2014BMW5Seriessedanandtheapproximately
18cubicfeetofstorageavailableinthe2014CadillacXTS.Inaddition,wehavedesignedModelStoincludeathirdrowwithtworearfacingchildseats,allowingustoofferseating
forfiveadultsandtwochildren.ModelSisalsoavailablewithpremiumluxuryfeatures,includinga17inchtouchscreendriverinterface,advanced

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wirelessconnectivity,suchas3Gconnectivity,anddrivercustomizationoftheinfotainmentandclimatecontrolsystemsofthevehicle.WedesignedModelStobeincorporatenew
functionalitythroughwirelessupdates,whichallowsustocontinuallyimproveModelSovertime.ModelShasalsoachievedafivestarsafetyrating.Webelievethecombinationof
performance,safety,styling,convenienceandenergyefficiencyofModelSpositionsitasacompellingalternativetoothervehiclesintheluxuryandperformancesegments.
The60kWhand85kWhbatterypackoptionsofModelShaveaneffectivebasepriceof$62,400,and$72,400,respectively,intheUnitedStates,assumingandaftergiving
effecttothecontinuationofaUnitedStatesfederaltaxcreditof$7,500forthepurchaseofalternativefuelvehicles.WealsoofferaperformanceversionofModelSforaneffective
basepriceof$85,900.
WehavedesignedModelStoprovidealowercostofownershipascomparedtoothervehiclesinitsclass.Weconsiderthepurchaseprice,costoffuelandthecostof
maintenanceoverasixyearownershipperiodinthiscalculation.Weassumecomparableresidualvalues,warranties,insurancecostsandpromotionsandassumethatcurrently
availableconsumerincentivesarestillavailableatthetimeofaModelSpurchase.InadditiontothecompetitivepricingofModelSrelativetootherpremiumvehicles,weestimate
thatcustomersofelectricvehicleswillenjoylowerfuelcosts.Forexample,assuminganaverageof15,000milesdrivenperyear,anaverageelectricitycostof11.8centsperkilowatt
hourandanaveragegasolinepriceof$3.24pergallonoverthefullownershipofthevehiclewhichweretheaverageelectricitycostandgasolinepriceintheUnitedStates,
respectively,forDecember2013,andbasedonourestimateoftheenergyefficiencyofModelS,weestimatethatourModelScouldsaveapproximately$1,800peryearlessinfuel
coststhanacomparablepremiuminternalcombustionenginesedan.Ininternationalmarkets,wheregasolinepricescanbe23timesthoseoftheUnitedStates,thesavingsaregreater.
Furthermore,weexpectModelSwillhavelowermaintenancecoststhancomparablepremiuminternalcombustionenginesedansduetofewermovingpartsandtheabsenceofcertain
components,includingoil,oilfilters,sparkplugsandenginevalves.
WehavedesignedModelSwithanadaptableplatformarchitectureandcommonelectricpowertrainthatweintendtoleveragetocreatefutureelectricvehiclemodels,
includingourModelX.Inparticular,bydesigningourelectricpowertrainwithinthechassistoaccommodatedifferentvehiclebodystyles,webelievethatwecansavesignificanttime
infuturevehicledevelopment.Inaddition,webelieveourstrategyofusingcurrentlyavailablebatterycellswillenableustoleverageimprovementsincellchemistriesandrapidly
introduceplannedvehicleswithdifferentrangeoptions.
TheTeslaRoadster
Ourfirstvehicle,theTeslaRoadster,isthefirsthighperformanceelectricsportscar.Thetwoseat,convertibleTeslaRoadsterhasacombinationofrange,style,performanceand
energyefficiencythatwebelieveisunmatchedinthemarkettoday.Itcanacceleratefromzeroto60milesperhourinaslittleas3.7secondsandhasamaximumspeedof
approximately120milesperhour.TheTeslaRoadsteralsohasarangeof245milesonasinglecharge,asdeterminedusingtheUnitedStatesEPAscombinedtwocyclecity/highway
test.Wehavesoldapproximately2,500TeslaRoadsterstocustomersinover30countries,predominatelyinNorthAmericaandEurope.WeconcludedtheproductionrunoftheTesla
RoadsterinJanuary2012.
ModelX
InFebruary2012,werevealedanearlyprototypeoftheModelXcrossoverasthefirstvehicleweintendtodevelopbyleveragingtheModelSplatform.Thisuniquevehicle
hasbeendesignedtofillthenichebetweentheroominessofaminivanandthestyleofanSUV,whilehavinghighperformancefeaturessuchasadualmotorallwheeldrivesystem.
ModelXwillseatsevenadults.WeanticipatethatwewillmakeModelXavailablewith60kWhand85kWhbatterypackoptions,withpricingofeachversionsimilartothoseofa
comparablyequippedModelS.Wecurrentlyintendtotargetaninitialannualproductionrateofapproximately20,000vehiclesperyearfromourTeslaFactory.Weexpecttohave
productiondesignModelXprototypesontheroadbyendof

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2014andbeginvolumedeliveriestocustomersinthespringof2015.AfteritsinitiallaunchintheUnitedStates,ModelXwillbesoldinallthemarketswhereModelSisavailable
includinginAsiaandEurope.
GenIII
Wehavealsopubliclyannouncedourintenttodevelopathirdgenerationelectricvehicle,towhichwereferasGenIII,tobeproducedattheTeslaFactory.Weintendtooffer
thisvehicleatalowerpricepointandexpecttoproduceitathighervolumesthanourModelS.Weexpectthatthisvehiclewillbeproducedinapproximatelythreeyears.
PowertrainDevelopmentandSales
Inadditiontoourownvehicles,wealsodesign,develop,manufactureandselladvancedelectricvehiclepowertraincomponentstootherautomotivemanufacturers.
WehaveprovideddevelopmentservicesandfullpowertrainsystemsandcomponentstoDaimlerforitsSmartfortwo,AClass,andBClasselectricvehicles.FromMay2009
throughDecember2012,weprovidedapproximately2,700batterypacksandchargersfortheSmartfortwoandAClassvehicles.Wehavecompletedtheseprogramsandarenow
providingdevelopmentservicestoDaimlerforitsBClasselectricvehicle.WealsohavedevelopedafullelectricpowertrainsystemforToyotaforuseinitsRAV4EVandbegan
shippingproductionsystemstoToyotain2012.AsofDecember31,2013wehaveshippedover1,600units.
WearecontinuingtoperformourelectricpowertraincomponentandsystemssalesandmarketingactivitiesprincipallyoutofourPaloAltofacility.Thisfacility,whichalso
servesasourcorporateheadquarters,housesourresearchanddevelopmentservices,includingcellandcomponenttestingandprototyping,aswellasmanufacturingofpowertrain
componentsforsalestothirdparties.ManufacturingofourpowertraincomponentsisperformedattheTeslaFactory.
StationaryEnergyStorageApplications
In2013,wedevelopedstationaryenergystorageproductsforuseinhomes,commercialsitesandutilities.Theapplicationsforthesebatterysystemsincludebackuppower,
peakdemandreduction,demandresponseandwholesaleelectricmarketservices.Weplantorampsalesoftheseproductsin2014.
Technology
Webelievethecorecompetenciesofourcompanyarepowertrain,vehicleengineeringandinnovativemanufacturing.Ourcoreintellectualpropertyiscontainedwithinour
electricpowertrainandtheabilitytodesignavehiclewhichcapitalizesontheuniquenessofanelectricpowertrain.Ourelectricpowertrainconsistsofthefollowing:batterypack,
powerelectronics,motor,gearboxandthecontrolsoftwarewhichenablesthecomponentstooperateasasystem.WedesignedeachofthesemajorelementsforourTeslaRoadsterand
ModelSandplantousemuchofthistechnologyinModelX,GenIII,ourfutureelectricvehiclesandpowertraincomponentsthatwebuildforothermanufacturers.Ourpowertrainand
batterypackhaveamodulardesign,enablingfuturegenerationsofelectricvehiclestoincorporateasignificantamountofthistechnology.Further,ourpowertrainisverycompactand
containsfarfewermovingpartsthantheinternalcombustionpowertrain.Thesefeaturesenableustoadaptitforavarietyofapplications,includingourfuturevehiclesandany
powertraincomponentswebuildforothermanufacturers.
BatteryPack
Wedesignourbatterypackstosafelystoresignificantamountsofenergyandtohavelonglives.Forexample,wehavedesignedourTeslaRoadsterbatterypackstostore53

kilowatthoursofusefulenergyandto

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haveanestimatedlifeofover100,000milesorsevenyears.Inaddition,wehavedesignedourbatterypackstobemodularsothatwecanleveragetechnologydevelopmentsacrossour
differentvehiclesandproducts.Ourproprietarytechnologyincludescoolingsystems,safetysystems,chargebalancingsystems,batteryengineeringforvibrationandenvironmental
durability,roboticmanufacturingprocesses,customizedmotordesignandthesoftwareandelectronicsmanagementsystemsnecessarytomanagebatteryandvehicleperformance
underdemandingreallifedrivingconditions.Wehavesignificantexperienceandexpertiseinthesafetyandmanagementsystemsneededtoworkwithlithiumioncellsinthe
demandingautomotiveenvironment.Webelievetheseadvancementshaveenabledustoproduceabatterypackatalowcostperkilowatthour.
Webelieveoneofourcorecompetenciesisthedesignofourcompletebatterypacksystem.Wehavedesignedourbatterypacksystemtopermitflexibilitywithrespectto
batterycellchemistry,formfactorandvendorthatweadoptforbatterycellsupply.Insodoing,webelievethatwecanleveragethesubstantialbatterycellinvestmentsand
advancementsbeingmadegloballybybatterycellmanufacturerstocontinuetoimprovethecostperkilowatthourofourbatterypack.Wemaintainaninternalbatterycelltestinglab
andanextensiveperformancedatabaseofthemanyavailablelithiumioncellvendorsandchemistrytypes.Weintendtoincorporatethebatterycellsthatprovidethebestvalueand
performancepossibleintoourbatterypacks,andweexpectthistocontinueovertimeasbatterycellscontinuetoimproveinenergystoragecapacity,longevity,powerdeliveryand
cost.Webelievethisflexibilitywillenableustocontinuetoevaluatenewbatterycellsastheybecomecommerciallyviable,andtherebyoptimizebatterypacksystemperformance
andcostforourcurrentandfuturevehicles.Webelieveourabilitytochangebatterycellchemistriesandvendorswhileretainingourexistinginvestmentsinsoftware,electronics,
testingandvehiclepackaging,willenableustoquicklydeployvariousbatterycellsintoourproductsandleveragethelatestadvancementsinbatterycelltechnology.
Therangeofourelectricvehiclesonasinglechargedeclinesprincipallyasafunctionofusage,timeandchargingpatterns.CustomersuseoftheirTeslavehicleaswellasthe
frequencywithwhichtheychargethebatteryoftheirTeslavehiclecanresultinadditionaldeteriorationofthebatterysabilitytoholdacharge.Forexample,wecurrentlyexpectthat
theTeslaRoadsterbatterypackwillretainapproximately70%ofitsabilitytoholditsinitialchargeafterapproximately100,000milesorsevenyears,whichwillresultinadecreaseto
thevehiclesinitialrange.IncomparisonwiththeRoadsterbatterypack,weexpectthattheretentionrateoftheModelSbatterypackisgreater,duetoimprovementsatthebatterycell
andpacklevel.Inaddition,basedoninternaltesting,weestimatethattheModelSwouldhaveanapproximate510%reductioninrangewhenoperatedcontinuouslyin0C
temperatures.
Todate,wehavetestedhundredsofbatterycellsofdifferentchemistries,formfactorsanddesigns.Basedonthisevaluation,wearepresentlyusinglithiumionbatterycells
basedonthe18650formfactorinallofourbatterypacks.WeintendtousethesamebatterycellformfactorinModelX.WeenteredintoasupplyagreementwithPanasonic
Corporation(Panasonic)fortheuseofPanasonicsbatterycellsinModelSandModelX.Weexpectthesebatterycellstoexhibitbetterperformanceandlongerlifetimesthanthe
batterycellsusedintheTeslaRoadster.
PowerElectronics
Thepowerelectronicsinourelectricpowertraingoverntheflowofelectricalcurrentthroughoutthecar,primarilythecurrentthatflowsintoandoutofthebatterypack.The
powerelectronicshavetwoprimaryfunctions,thecontroloftorquegenerationinthemotorwhiledrivingandthecontrolofenergydeliverybackintothebatterypackwhilecharging.
Thefirstfunctionisaccomplishedthroughthedriveinverter,whichconvertsdirectcurrent(DC)fromthebatterypackintoalternatingcurrent(AC)todriveourthreephase
inductionmotors.ThedriveinverteralsoconvertstheACgeneratedbyregenerativebrakingbackintoDCforelectricalstorageinthebatterypack.Thedriveinverterperformsthis
functionbyusingahighperformancedigitalsignalprocessorwhichrunssomeofthemostcomplicatedanddetailedsoftwareinthevehicle.Insodoing,thedriveinverterisdirectly
responsiblefortheperformance,highefficiencyandoveralldrivingexperienceofthevehicle.

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Thesecondfunction,chargingthebatterypack,isaccomplishedbythecharger,whichconvertsalternatingcurrent(usuallyfromawalloutletorotherelectricitysource)into
directcurrentthatcanbeacceptedbythebattery.TeslavehiclescanrechargeonavarietyofACelectricaloutlets,fromacommonoutletof15ampsand120voltsuptoahighpower
circuitof80ampsand240volts,whichprovidesfasterrecharging.Themostcommonhomechargingsystemusesa1450typeoutletat40ampsand240voltstorechargeatanEPA
equivalentrateof29milesperhourofchargetime.
IntheUnitedStates,ModelSvehiclesaredeliveredwithanSAE1772industrystandardadapterthatenablespublicACchargingatthousandsofstations.TheEuropean
versionofModelShasanindustrystandardvehicleinletconnectorthatisalsocompatiblewithpublicchargestationsaroundEurope.VehiclesinboththeUnitedStatesandEurope
alsocomewiththeTeslaMobileConnectorwhichenableschargingfromavarietyofdifferentoutletsforcustomerswhowantaportablesolutionwithmaximumflexibility.Forthe
fastestpossiblecharging,weofferahighvoltage,directcurrentoptionforModelSthatenablesthevehicletochargefromTeslasSuperchargernetwork.Superchargersareableto
replenish50%ofthebatterypackinaslittleas20minutesofchargetime.Thisflexibilityinchargingprovidescustomerswithadditionalmobility,whilealsoallowingthemto
convenientlychargethevehicleovernightathome.
VehicleControlandInfotainmentSoftware
Theperformanceandsafetysystemsofourvehiclesandtheirbatterypacksrequiresophisticatedcontrolsoftware.Therearenumerousprocessorsinourvehiclestocontrolthese
functions,andwewritecustomfirmwareformanyoftheseprocessors.Theflowofelectricitybetweenthebatterypackandthemotormustbetightlycontrolledinordertodeliverthe
performanceandbehaviorexpectedinthevehicle.Forexample,softwarealgorithmsenablethevehicletomimicthecreepfeelingwhichdriversexpectfromaninternalcombustion
enginevehiclewithouthavingtoapplypressureontheaccelerator.Similaralgorithmscontroltraction,vehiclestabilityandthesustainedaccelerationandregenerativebrakingofthe
vehicle.Softwarealsoisusedextensivelytomonitorthechargestateofeachofthecellsofthebatterypackandtomanageallofitssafetysystems.Driversusetheinformationand
controlsystemsinourvehiclestooptimizeperformance,customizevehiclebehavior,managechargingmodesandtimesandcontrolallinfotainmentfunctions.Wedevelopalmostall
ofthissoftware,includingmostoftheuserinterfaces,internally.
VehicleDesignandEngineering
Inadditiontothedesign,developmentandproductionofthepowertrain,wehavecreatedsignificantinhousecapabilitiesinthedesignandengineeringofelectricvehicles
andelectricvehiclecomponentsandsystems.Wedesignandengineerbodies,chassis,interiors,heatingandcoolingandlowvoltageelectricalsystemsinhouseandtoalesserextent
inconjunctionwithoursuppliers.Ourteamhascorecompetenciesincomputeraideddesignandcrashtestsimulationswhichweexpecttoreducetheproductdevelopmenttimeof
newmodels.
Severaltraditionalautomotivesubsystemsrequiredsubstantialredesignandcustomoptimizationtointegratewiththepowertrainofanelectricvehicle.Forexample,we
redesignedtheheating,ventilationandairconditioning(HVAC)systemtointegratewiththebatterythermalmanagementsystemandtooperatewithouttheenergygeneratedfroman
internalcombustionengine.Inaddition,lowvoltageelectricsystemswhichpowerfeaturessuchastheradio,powerwindows,andheatedseatsalsoneededtobedesignedspecifically
foruseinanelectricvehicle.Wehavedevelopedexpertiseinintegratingthesecomponentswiththehighvoltagepowersourceinthevehicleandindesigningcomponentsthat
significantlyreducetheirloadonthevehiclebatterypack,therebymaximizingtheavailablerangeofthevehicle.
Additionally,ourteamhasexpertiseinlightweightmaterials,averyimportantcharacteristicforelectricvehiclesgiventheimpactofmassonrange.TheTeslaRoadsterisbuilt
withaninternallydesignedcarbonfiberbodywhichprovidesabalanceofstrengthandmass.ModelSisbuiltwithalightweightaluminumbodyandchassiswhichincorporatesa
varietyofmaterialsandproductionmethodsthathelpoptimizetheweightofthevehicle.

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SalesandMarketing
CompanyOwnedStoresandGalleries
Wemarketandsellcarsdirectlytoconsumersthroughaninternationalnetworkofcompanyownedstoresandgalleries.OurTeslastoresandgalleriesarehighlyvisible,
premiumoutletsinmajormetropolitanmarkets,someofwhichcombineretailsalesandservice.Wehavealsofoundthatopeningaservicecenterinanewgeographicareacanincrease
demand.Asaresult,wehavecomplementedourstorestrategywithsalesfacilitiesandpersonnelinservicecenterstomorerapidlyexpandourretailfootprint.Werefertotheseas
ServicePluslocations.IncludingourServicePluslocations,wenowoperateanetworkofover80salesandgallerylocationsinNorthAmerica,EuropeandAsia.Includingallofour
salesandservicefacilities,wecurrentlyoperate116locations.Weintendtogrowoursalesandservicenetworkbyapproximately75%duringtheyearendingDecember31,2014.
Webelievethatbyowningourownsalesandservicenetworkwecanofferacompellingcustomerexperiencewhileachievingoperatingefficienciesandcapturingsalesand
servicerevenuesincumbentautomobilemanufacturersdonotenjoyinthetraditionalfranchiseddistributionandservicemodel.OurcustomersdealdirectlywithourownTesla
employedsalesandservicestaff,creatingwhatwebelieveisadifferentiatedbuyingexperiencefromthebuyingexperienceconsumershavewithfranchisedautomobiledealersand
servicecenters.Webelievewewillalsobeabletobettercontrolcostsofinventory,managewarrantyserviceandpricing,maintainandstrengthentheTeslabrand,andobtainrapid
customerfeedback.Further,webelievethatbyowningoursalesnetworkwewillavoidtheconflictofinterestinthetraditionaldealershipstructureinherenttomostincumbent
automobilemanufacturerswherethesaleofwarrantypartsandrepairsbyadealerareakeysourceofrevenueandprofitforthedealerbutoftenareanexpenseforthevehicle
manufacturer.
TeslaSuperchargerNetwork
Wearebuildinganetworkofupto120kWhfastchargingequipment,eachcalledaTeslaSupercharger,throughoutNorthAmericaandEuropeforfastchargingofModelS.The
TeslaSuperchargerisanindustrialgrade,highspeedchargerdesignedtoreplenish50%ofthebatterypackinaslittleas20minutes.Superchargerstationsarestrategicallyplaced
alongwelltravelledhighwaystoallowModelSownerstoenjoylongdistancetravelwithconvenient,minimalstops.AsofFebruary19,2014,wehave90Superchargerstationsopen
inNorthAmericaandEurope.IntheUnitedStates,wehaveimplementedSuperchargersacrossamajortranscontinentalroute,aswellasalongkeyroutesintheEastandWestCoasts.
InEurope,SuperchargersenablelongdistancetravelalongkeyroutesinNorway,theNetherlands,Germany,SwitzerlandandAustria.AccesstotheSuperchargernetworkiscurrently
availablefreeofchargetoownersofModelSvehicleswiththe85kWhbatterypackoptionsandwhenpurchasedasanupfrontoptionfor60kWh.Weareplanningtomethodically
expandtheSuperchargernetworkoverthenextfewyearsintheUnitedStates,EuropeandAsia.
DepositsandReservations
WetypicallycarryalimitedinventoryofourModelSvehiclesatourTeslastores.Whilesomecustomersmaypurchasetheirvehiclesfromthisinventory,mostofourcustomers
choosetocustomizetheappearanceoftheirvehicle.Werequirearefundable$2,500depositfortheseordersofourModelSvehicles,whichiscollectedoncethecustomerhasselected
thevehiclespecificationsandhasenteredintoapurchaseagreement.Therefundabledepositbecomesnonrefundableaftertwoweeks.Werequirefullpaymentofthepurchasepriceof
thevehicleonlyupondeliveryofthevehicletothecustomer.
ForModelX,whichiscurrentlynotinproduction,werequireaninitialrefundablereservationpaymentofatleast$5,000.Reservationpaymentsanddepositsareusedbyusto
fund,inpart,ourworkingcapitalrequirementsandhelpustoalignproductionwithdemand.

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Marketing
Ourprincipalmarketinggoalsareto:

generatedemandforourvehiclesanddriveleadstooursalesteams

buildlongtermbrandawarenessandmanagecorporatereputation

manageourexistingcustomerbasetocreateloyaltyandcustomerreferralsand

enablecustomerinputintotheproductdevelopmentprocess.

Historically,wehavebeenabletogeneratesignificantmediacoverageofourcompanyandourvehicles,andwebelievewewillcontinuetodoso.Todate,mediacoverageand
wordofmouthhavebeentheprimarydriversofoursalesleadsandhavehelpedusachievesaleswithouttraditionaladvertisingandatrelativelylowmarketingcosts.Wealsouse
traditionalmeansofadvertisingincludingproductplacementinavarietyofmediaoutletsandpayperclickadvertisementsonwebsitesandapplicationsrelevanttoourtarget
demographics.
Ourmarketingeffortsincludeeventswhereourvehiclesaredisplayedanddemonstrated.Theseeventsrangefromwidelyattendedpublicevents,suchastheDetroit,Los
Angeles,andFrankfurtautoshows,tosmallereventsorientedtowardssales,suchasprivatedriveevents.
ServiceandWarranty
Service
Weprovideserviceforourelectricvehiclesatourcompanyownedservicecenters,atourServicePluslocationsor,incertainareasforanadditionalcharge,throughTesla
Rangermobiletechnicianswhoprovideservicesthatdonotrequireavehiclelift.Weownandoperateover70servicelocationsasofFebruary19,2014.Wearecontinuingourplanto
buildanumberofadditionalservicecentersinseveralmarketsworldwide.
TeslaRoadsterownerscanuploaddatafromtheirvehicleandsendittousonamemorycardandModelSisdesignedwiththecapabilitytowirelesslyuploadthedatatousvia
anonboardGSMsystem,allowingustodiagnoseandremedymanyproblemsbeforeeverlookingatthevehicle.Whenmaintenanceorserviceisrequired,acustomercanschedule
servicebycontactingoneofourTeslaservicecenters.OurTeslaRangerscanalsoperformanarrayofservicesthatdonotrequireavehicleliftfromtheconvenienceofacustomers
homeorotherremotelocation.
WebelievethatourcompanyownedservicecentersenableourtechnicianstoworkcloselywithourengineersandresearchanddevelopmentteamsinSiliconValleytoidentify
problems,findsolutions,andincorporateimprovementsfasterthanincumbentautomobilemanufacturers.

NewVehicleLimitedWarranty,MaintenanceandExtendedServicePlans
ForourModelScustomers,weprovideafouryearor50,000mileNewVehicleLimitedWarrantywitheveryModelS,subjecttoseparatelimitedwarrantiesforthe
supplementalrestraintsystemandbattery.TheNewVehicleLimitedWarrantyalsocoversthebatteryforaperiodofeightyearsor125,000milesorunlimitedmiles,dependingonthe
sizeofthevehiclesbattery,althoughthebatteryschargingcapacityisnotcovered.
InadditiontotheNewVehicleLimitedWarranty,weofferacomprehensivemaintenanceprogramforModelS,whichincludesplanscoveringmaintenanceforuptoeightyears
orupto100,000milesandanExtendedServicePlan.Themaintenanceplanscoverannualinspections,24hourroadsideassistanceandthereplacementofwearandtearparts,
excludingtiresandthebattery,witheitherafixedfeepervisitforTeslaRangerserviceorunlimitedTeslaRangervisitsforahigherinitialpurchaseprice.TheExtendedServicePlan

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coverstherepairorreplacementofModelSpartsforanadditionalfouryearsoruptoanadditional50,000milesaftertheNewVehicleLimitedWarranty.
ForourRoadstercustomers,weprovidedathreeyearor36,000mileNewVehicleLimitedWarrantywitheveryTeslaRoadster,whichweextendedtofouryearsor50,000miles
forthepurchasersofour2008TeslaRoadster.CustomershavetheopportunitytopurchaseanExtendedServicePlanfortheperiodaftertheendoftheNewVehicleLimitedWarranty
tocovertherepairorreplacementofRoadsterpartsforuptoanadditionalthreeyearsor36,000miles,providedtheyarepurchasedwithinaspecifiedperiodoftime.Wehave
previouslyprovidedourTeslaRoadstercustomerswithabatteryreplacementoptiontoreplacethebatteryintheirvehiclesatanytimeaftertheexpirationoftheNewVehicleLimited
Warrantybutbeforethetenthanniversaryofthepurchasedateoftheirvehicles.
OurNewVehicleLimitedWarrantiesandExtendedServiceplansaresubjecttocertainlimitations,exclusionsorseparatewarranties,includingcertainwearitems,suchastires,
brakepads,paintandgeneralappearance,andbatteryperformance,andareintendedtocoverpartsandlabortorepairdefectsinmaterialorworkmanshipinthebody,chassis,
suspension,interior,electronicsystems,battery,powertrainandbrakesystem.Inaddition,allplansmustbepurchasedwithinaspecifiedperiodoftimeaftervehiclepurchase.
FinancialServices
WeofferfinancialproductsthroughvariousfinancialinstitutionsintheUnitedStates,EuropeandAsia.IntheUnitedStatesandCanada,weoffercustomerloansthrough
specifiedcommercialbankingpartners.Inconnectionwithcertainoftheseloans,weofferaresalevalueguaranteetoallcustomerswhopurchasedaModelSandfinancedtheir
vehicle.Undertheprogram,ModelScustomershavetheoptionofsellingtheirvehiclebacktousduringtheperiodof36to39monthsfollowingdeliveryforapredeterminedresale
value.ThisstructureallowsthecustomertoenjoythebenefitsofModelSownershipwithoutconcernforitsresalevalue.
Manufacturing
WeconductourpowertrainandvehiclemanufacturingandassemblyoperationsattheTeslaFactory,ourintegratedmanufacturingfacilityinFremont,California,andatour
facilityinTilburg,Netherlands.
WemanufactureModelSandcertaincomponentsthatarecriticaltoourintellectualpropertyandqualitystandardsforModelSattheTeslaFactory.TheTeslaFactorycontains
severalmanufacturingoperations,includingstamping,machining,casting,plastics,bodyassembly,paintoperations,finalvehicleassemblyandendoflinetesting.Inaddition,we
manufacturelithiumionbatterypacks,electricmotors,gearboxesandcomponentsbothforourvehiclesandforouroriginalequipmentmanufacturercustomersattheTeslaFactory.
SeveralmajorcomponentsystemsofourvehiclesarepurchasedfromsuppliershoweverwehaveahighlevelofverticalintegrationinourmanufacturingprocessesattheTesla
Factory.WealsointendtoproducetheModelXandourGenIIIvehicleattheTeslaFactory.
WecontinuetorampproductionattheTeslaFactoryandbelievethatwewillbeabletocontinuetoincreaseitsproductioncapacitythroughadditionalcapitalspendingaswell
asbychangingoperatingpatternsandaddingadditionalshifts.In2014,weintendtocreatenewassemblyandbodyshoplineswhichwehavedesignedtomanufacturebothModelS
andModelX.
ForourvehiclesdeliveredintotheEuropeanUnion,weconductsignificantvehicleassemblyandtestingatourfacilitiesinTilburg,Netherlands.Thisfacilityalsoservesasa
panEuropeanpartswarehouseandregionalcustomerservicecenter.
WehaverecentlyindicatedourintentiontobuildtheTeslaGigafactory,afacilitywhereweintendtoworktogetherwithoursupplierstointegratebatteryprecursormaterial,
cell,moduleandbatterypackproductionin

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onelocation.Whilewehavenotidentifiedafinalsiteforthisfacility,wecurrentlyexpectthatitwillbelocatedinoneofthefollowingstates:Arizona,Nevada,NewMexicoorTexas.
Wecurrentlyexpectthefacilitytobebuiltonalotbetween500and1,000acresinsize,withuptoapproximately10millionsquarefeetofproductionspacewithoneortwolevels.At
fullimplementation,theTeslaGigafactoryisexpectedtohave6,500dedicatedTeslaandproductionpartneremployees.Wecurrentlyplantocommencesupplyingbatterypacks
manufacturedattheTeslaGigafactoryforourvehicles,includingtheGenIIIvehicle,andstationarystorageapplications,inapproximatelythreeyears.TheTeslaGigafactoryis
currentlyexpectedtoattainfullproductioncapacityin2020,whichisanticipatedtobesufficientfortheproductionofapproximately500,000vehiclesannuallyandstationary
storageapplications.
WebelievethattheTeslaGigafactorywillallowustoachieveamajorreductioninthecostofourbatterypacksofgreaterthan30%onaperkWhbasisbytheendofthefirst
yearofvolumeproductionofGenIII.ThetotalcapitalexpendituresassociatedwiththeTeslaGigafactorythrough2020areexpectedtobe$45billion,ofwhichapproximately$2
billionisexpectedtocomefromTesla.
SupplyChain
ModelSusesover2,000purchasedpartswhichwesourcegloballyfromover300suppliers,themajorityofwhomarecurrentlyoursinglesourcesuppliersforthese
components.Wehavedevelopedcloserelationshipswithseveralkeysuppliersparticularlyintheprocurementofcellsandcertainotherkeysystemparts.Whileweobtaincomponents
frommultiplesourceswheneverpossible,similartootherautomobilemanufacturers,manyofthecomponentsusedinourvehiclesarepurchasedbyusfromasinglesource.
Todate,wehavenotqualifiedalternativesourcesformostofthesinglesourcedcomponentsusedinourvehiclesandwegenerallydonotmaintainlongtermagreementswith
oursuppliers.Whilewebelievethatwemaybeabletoestablishalternatesupplyrelationshipsandcanobtainorengineerreplacementcomponentsforoursinglesourcecomponents,
wemaybeunabletodosointheshorttermoratallatpricesorcoststhatarefavorabletous.Forexample,whileseveralsourcesofthebatterycellwehaveselectedforourbattery
packsareavailable,wehavefullyqualifiedonlytwocellsfromonesupplierforthesecells.Anydisruptioninthesupplyofeitherbatterycellscouldtemporarilydisruptproductionof
thevehiclesuntilsuchtimeasadifferentcellisfullyqualifiedandtherecanbenoassurancethatwewouldbeabletosuccessfullyretainalternativesourcesofsupplyonatimely
basis.Moreover,batterycellmanufacturersmaynotsupplyusatreasonablepricesoronreasonabletermsormaychoosetorefusetosupplyelectricvehiclemanufacturerstotheextent
theydeterminethatthevehiclesarenotsufficientlysafe.
Weusevariousrawmaterialsinourbusinessincludingaluminum,steel,nickelandcopper.Thepricesfortheserawmaterialsfluctuatedependingonmarketconditionsand
globaldemandforthesematerials.Webelievethatwehaveadequatesuppliesorsourcesofavailabilityoftherawmaterialsnecessarytomeetourmanufacturingandsupply
requirements.Therearealwaysrisksanduncertainties,however,withrespecttothesupplyofrawmaterialsthatcouldimpacttheiravailabilityinsufficientquantitiesorreasonable
pricestomeetourneeds.
QualityControl
Ourqualitycontroleffortsaredividedbetweenproductqualityandsupplierquality,bothofwhicharefocusedondesigningandproducingproductsandprocesseswithhigh
levelsofreliability.Ourproductqualityengineersworkwithourengineeringteamandoursupplierstohelpensurethattheproductdesignsmeetfunctionalspecificationsand
durabilityrequirements.Oursupplierqualityengineersworkwithoursupplierstoensurethattheirprocessesandsystemsarecapableofdeliveringthepartsweneedattherequired
qualitylevel,ontime,andonbudget.

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CustomersandSelectedRelationships
Wecurrentlysellourcarsprimarilytoindividualcustomers.WehavestrategicorcommercialrelationshipswithDaimler,Toyota,andPanasonic.
DaimlerAG
Beginningin2008,wecommencedeffortsonapowertraindevelopmentarrangementwithDaimler.InMay2009,weenteredintoadevelopmentagreementwithDaimlerunder
whichwehaveperformedspecifiedresearchanddevelopmentservicesforthedevelopmentofabatterypackandchargerforDaimlersSmartfortwoelectricdrive.Alldevelopment
workrelatedtothedevelopmentagreementhadbeencompletedasofDecember31,2009.ThroughDecember2011,wehadsoldover2,100batterypacksandchargersfortheSmart
fortwoelectricdriveprogram.Inthefirstquarterof2010,DaimlerengagedustoassistwiththedevelopmentandproductionofabatterypackandchargerforapilotfleetofitsAClass
electricvehiclestobeintroducedinEuropeduring2011.AformalagreementforthisarrangementwasenteredintowithDaimlerinMay2010.InOctober2010,wecompletedthe
developmentoftheAClassbatterypackandchargerandbeganshippingproductionpartsinFebruary2011.ThroughDecember2011,wesoldover500batterypacksandchargersfor
theAClassEVprogram.Inthefirstquarterof2010,wecompletedthedevelopmentandsaleofmodularbatterypacksforelectricdeliveryvansforFreightliner,anaffiliateofDaimler.
Freightlinerplanstousetheseelectricvansinalimitednumberofcustomertrials.
Inthefirsthalfof2012,wereceivedtwopurchaseordersfromDaimlerrelatedtothedevelopmentofafullelectricpowertrainfortheBClassMercedesBenzvehicle.During
thefourthquarterof2012,weenteredintoafinaldevelopmentagreementfortheBClass,whichincludescertaindevelopmentmilestonesandrelatedpayments.Weenteredintoan
agreementforproductionpartsforthisBClassprograminJuly2013.Wecurrentlyexpecttosubstantiallycompleteourdevelopmentservicesunderthisprograminearly2014andto
commenceproductionofelectricpowertrainsandbatterypackstoDaimlershortlythereafter.
Inadditiontotheseagreements,BlackstarlnvestcoLLC(Blackstar),anaffiliateofDaimler,beneficiallyowned4,867,929sharesofourcommonstockasofDecember31,2013.
ToyotaMotorCorporation
InMay2010,weandToyotaannouncedourintentiontocooperateonthedevelopmentofelectricvehicles,andforustoreceiveToyotassupportwithsourcingpartsand
productionandengineeringexpertiseforModelS.InJuly2010,weenteredintoanearlyphaseagreementtodevelopanelectricpowertrainfortheToyotaRAV4.Withanaimby
ToyotatomarkettheelectricvehicleintheUnitedStatesin2012,prototypeswouldbemadebycombiningtheToyotaRAV4modelwithaTeslaelectricpowertrain.Webegan
developinganddeliveringprototypestoToyotaforevaluationinSeptember2010.
InOctober2010,weenteredintoacontractservicesagreementwithToyotaforthedevelopmentofavalidatedpowertrainsystem,includingabattery,powerelectronics
module,motor,gearboxandassociatedsoftware,whichwillbeintegratedintoanelectricvehicleversionoftheToyotaRAV4.Wecompletedallofthedevelopmentservicesforthe
RAV4EVinthefirstquarterof2012.
Additionally,inJuly2011,weenteredintoanagreementtosupplyToyotawithelectricpowertrainsystemfortheRAV4EV.WebegandeliveryofthesesystemstoToyotafor
installationintotheToyotaRAV4EVinthefirsthalfof2012.Ourproductionactivitiesunderthisprogramareexpectedtocontinuethrough2014.Weexpecttocompleteshipping
electricpowertrainsforthecurrentRAV4modelbytheendofthisyear.
Inadditiontotheseagreements,inJuly2010,wesold2,941,176sharesofourcommonstocktoToyotaatourIPOpriceof$17.00pershare.

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Panasonic
Panasonicisasupplierofbatterycellsforourbatterypacks.InJanuary2010,weannouncedthatwewerecollaboratingwithPanasoniconthedevelopmentofnextgeneration
electricvehiclecellsbasedonthe18650formfactorandnickelbasedlithiumionchemistry.InOctober2011,wefinalizedasupplyagreementforthesebatterycells.Theagreement
suppliesuswithbatterycellstobuildmorethan80,000vehiclesoverthenextfouryears.InOctober2013,weenteredintoanamendmenttothesupplyagreementto,amongother
things,provideforthelongtermpreferentialpricesandaminimumof1.8billionlithiumionbatterycellsthatweintendtopurchasefromPanasonicfrom2014through2017.
InNovember2010,wesold1,418,573sharesofourcommonstocktoanentityaffiliatedwithPanasonicCorporationatapriceof$21.15pershare.
GovernmentalPrograms,IncentivesandRegulations
FullRepaymentofUnitedStatesDepartmentofEnergyLoans
InMay2013,wepaid$451.8milliontosettlealloutstandingloanamountsdueunderaloanfacilitywehadenteredintowiththeFederalFinancingBank(FFB)andtheUnited
StatesDepartmentofEnergy(DOE),undertheDOEsAdvancedTechnologyVehiclesManufacturingLoanProgram,assetforthinSection136oftheEnergyIndependenceand
SecurityActof2007(ATVMProgram).WerefertotheloanfacilitywiththeDOEastheDOELoanFacility.
UndertheDOELoanFacility,theFFBhadmadeavailabletoustwomultidrawtermloanfacilitiesinanaggregateprincipalamountof$465.0millionbeginningon
January20,2010.AsofAugust31,2012,wehadfullydrawndowntheaforementionedfacilities.OnMay22,2013,wepaid$451.8milliontofullyretireourobligationsunderthe
DOELoanFacility.
InconnectionwiththeclosingoftheDOELoanFacility,wehadalsoissuedawarranttotheDOEtopurchaseupto9,255,035sharesofourSeriesEconvertiblepreferredstock
atanexercisepriceof$2.51pershare.UponthecompletionofourinitialpublicofferingonJuly2,2010,thispreferredstockwarrantbecameawarranttopurchaseupto3,090,111
sharesofcommonstockatanexercisepriceof$7.54pershare.AsaresultofourrepaymentofalloutstandingprincipalandinterestundertheDOELoanFacilityandtheterminationof
theDOELoanFacilityinMay2013,theDOEwarrantexpired.Additionally,weamortizedallremainingunamortizeddebtissuancecostsrelatedtotheDOELoanFacility.
CaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthorityTaxIncentives
InDecember2009,wefinalizedanarrangementwiththeCaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthority(CAEATFA)thatresultedinan
exemptionfromCaliforniastatesalesandusetaxesfor$320millionofmanufacturingequipment.AstheequipmentpurchasedwouldotherwisehavebeensubjecttoCaliforniastate
salesandusetax,webelievethisincentiveresultedintaxsavingsbyusofapproximately$31millionovertheperiodstartinginDecember2009andendinginDecember2013.The
equipmentpurchaseswereusedonlyforthreepurposes:(i)toestablishourproductionfacilityforModelSinCalifornia,(ii)toupgradeourPaloAltopowertrainproductionfacility,
and(iii)toexpandourcurrentTeslaRoadsterassemblyoperationsatourMenloParkfacility.InJanuary2012,wefinalizedanadditionalagreementwithCAEATFAthatwillresultin
anexclusionfromCaliforniastatesalesandusetaxesforupto$292millionofmanufacturingequipment.Totheextentallofthisequipmentispurchasedandwouldotherwisebe
subjecttoCaliforniastatesalesorusetax,webelievethisincentivewouldresultintaxsavingsbyusofuptoapproximately$24millionovertheperiodstartinginDecember2011
andendinginDecember2015.Theequipmentpurchasesmaybeusedonlyfortwopurposes:(i)todevelopModelXanditsproductioncapacityinCaliforniaand,(ii)tofurther
upgradeourpowertrainproductionfacilitiesinCalifornia.InDecember2013,weexhaustedallfundsfromtheDecember2009approvedexemptionfromCaliforniastatesalesanduse
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$320millionofmanufacturingequipment.AlsoinDecember2013,wefinalizedanadditionalagreementwithCAEATFAthatwillresultinanexclusionfromCaliforniastatesalesand
usetaxesforupto$415millionofmanufacturingequipment.TotheextentallofthisequipmentispurchasedandwouldotherwisebesubjecttoCaliforniastatesalesorusetax,we
believethisincentivewouldresultintaxsavingsbyusofuptoapproximately$35millionovertheperiodstartinginDecember2013andendinginDecember2016.Theequipment
purchasesmaybeusedonlyforthreepurposes:(i)toexpandModelSmanufacturingcapacityinCalifornia,(ii)toexpandelectricvehiclepowertrainproductioninCalifornia,and
(iii)ModelSfutureelectricvehicledevelopment.
RegulatoryCredits
Inconnectionwiththeproduction,deliveryandplacementintoserviceofourzeroemissionvehiclesinglobalmarkets,wehaveearnedandwillcontinuetoearnvarious
tradableregulatorycreditsthatcanbesoldtoothermanufacturers.
UnderCaliforniasZeroEmissionVehicleRegulationsandthoseofstatesthathaveadoptedtheCaliforniastandards,vehiclemanufacturersarerequiredtoensurethataportion
ofthevehiclesdeliveredforsaleinthosestatesduringeachmodelyeararezeroemissionvehiclesandpartialzeroemissionvehicles.Currently,thestatesofArizona,California,
Connecticut,Maine,Maryland,Massachusetts,NewJersey,NewMexico,NewYork,Oregon,RhodeIslandandVermonthavesuchlawsineffect.Theselawsprovidethata
manufacturerofmayearncredits,referredtoasZEVcredits,iftheyproducemorezeroemissionvehiclesthantheminimumquantityrequiredbythoselaws.Thosemanufacturerswitha
surplusofcreditsmaysellthoseexcesscreditstoothermanufacturerswhocanthenapplysuchcreditstocomplywiththeregulatoryrequirements,includingmakingupfordeficits.As
amanufacturerofsolelyofzeroemissionvehicles,wehavenominimumrequirement,andasaresult,weearnZEVcreditsoneachvehicledeliveredandplacedintoserviceinsuch
states.WehaveenteredintoagreementswithotherautomobilemanufacturerstoselltheZEVcreditsthatweearn.Recently,CaliforniapassedamendmentstotheZEVmandatethat
wouldrequirealllargevolumemanufacturers(thosemanufacturersselling20,000ormorevehiclesinCaliforniain2018)toincreasethenumberofzeroemissionvehiclessoldstarting
in2018.Underthenewrequirements,by2025upto15.4%ofeachlargevolumemanufacturersfleetmustbemadeofzeroemissionvehicles.Allstatesthathaveadoptedthe
CaliforniaprogramwillamendtheirprogramstoconformtothenewCaliforniastandards.
Additionally,undertheEnvironmentalProtectionAgencys(EPA)nationalgreenhousegas(GHG)emissionstandardsandsimilarstandardsadoptedbytheCanadian
government,vehiclemanufacturersarerequiredtomeetfleetwideaveragecarbondioxideemissionsstandardsforcarsandtrucks.Thosemanufacturerswhosefleetwideaveragefails
tomeetsuchstandardshaveadeficitintheiremissionprofile.Thosemanufacturerswhosefleetwideaverageperformsbetterthansuchstandardsmayearncredits.Manufacturersmay
sellexcesscreditstoothermanufacturerswhocanapplysuchcreditstocomplywiththeseregulatoryrequirements.Asamanufacturersolelyofzeroemissionvehicles,weearnthefull
amountofGHGcreditsestablishedbythestandardsoneachvehiclesold.Wehaveenteredintoagreementswithanotherautomobilemanufacturertosellthecreditsthatweearn.
UndertheNationalHighwayTrafficSafetyAdministrations(NHTSA)CorporateAverageFuelEconomy(CAFE)standards,vehiclemanufacturersarerequiredtomeetfleet
wideaveragefueleconomystandardsforcarsandtrucks.Thosemanufacturerswhosefleetwideaveragefailstomeetsuchstandardshaveadeficitintheirfueleconomyprofile.Those
manufacturerswhosefleetwideaverageperformsbetterthansuchstandardsmayearncredits.Manufacturersmaysellexcesscreditstoothermanufacturerswhocanapplysuchcredits
tocomplywiththeseregulatoryrequirements.Wehaveenteredintoagreementstosellthecreditsthatweearn.
Wehaveenteredintocontractsforthesaleofregulatorycreditswithseveralautomotivemanufacturers.FortheyearsendedDecember31,2013,2012,and2011,weearned
revenuefromthesaleofregulatorycreditsof$194.4million,$40.5million,and$2.7million,respectively.WeearnedrevenuefromthesaleofZEVcreditsspecificallyoverthesame
timeperiodsof$129.8million,$32.4million,and$2.7million.

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RegulationVehicleSafetyandTesting
Ourvehiclesaresubjectto,andtheTeslaRoadstercomplieswith,orisexemptfrom,numerousregulatoryrequirementsestablishedbytheNationalHighwayTrafficSafety
Administration(NHTSA),includingallapplicableUnitedStatesfederalmotorvehiclesafetystandards(FMVSS).TheModelSfullycomplieswithallFMVSSswithouttheneedfor
anyexemptions.Asamanufacturer,wemustselfcertifythatavehiclemeetsorotherwiseobtainanexemptionfromallapplicableFMVSSs,aswellastheNHTSAbumperstandard,
beforethevehiclecanbeimportedintoorsoldintheUnitedStates.TherearenumerousFMVSSsthatapplytoourvehicles.Examplesoftheserequirementsinclude:

Crashworthinessrequirementsincludingapplicableandappropriatelevelofvehiclestructureandoccupantprotectioninfrontal,sideandinteriorimpactsincluding
throughuseofequipmentsuchasseatbeltsandairbagswhichmustsatisfyapplicablerequirements

Crashavoidancerequirementsincludingappropriatesteering,brakingandequipmentrequirements,suchas,headlamps,taillamps,andotherrequiredlamps,allof
whichmustconformtovariousphotometricandperformancerequirements

Electricvehiclerequirementslimitationsonelectrolytespillage,batteryretention,andavoidanceofelectricshockfollowingspecifiedcrashtests

Windshielddefrostinganddefoggingdefinedzonesofthewindshieldmustbeclearedwithinaspecifiedtimeframeand

Rearviewmirrorrequirementsrearwardareasthatmustbevisibletothedriverviathemirrors.

DuetothelimitednumberofRoadstersoriginallyproduced,weappliedfor,andweregranted,exemptionsfromcertainadvancedairbagandelectronicstabilitycontrol
requirements,whichappliedtoTeslaRoadstersmanufacturedthroughNovember7,2011.ForModelS,wehavecertifiedthevehicleascompliantwithallU.S.safetystandardswithout
exemptions.UnderU.S.law,wearerequiredtocertifycompliancewith,orobtainexemptionfromallapplicablefederalmotorvehiclesafetystandardsandwehavedonesowith
respecttoeachvehiclewehaveofferedforsaleintheUnitedStates.Basedontesting,engineeringanalysis,andotherinformation,wehavecertifiedthattheTeslaRoadstercomplies
with,orisexemptfromallapplicableNHTSAstandardsineffectatthetimeofmanufacturebyaffixingacertificationlabeltoeachTeslaRoadstersold.Basedontesting,engineering
analysisandotherinformationwehavecertifiedtheModelSascomplyingwithallapplicableNHTSAstandardsineffectatthetimeofmanufacturebyaffixingacertificationlabelto
eachModelSsold.
WearealsorequiredtocomplywithotherrequirementsoffederallawsadministeredbyNHTSA,includingtheCorporateAverageFuelEconomystandards,TheftPrevention
Actrequirements,consumerinformationlabelingrequirements,earlywarningreportingrequirementsregardingwarrantyclaims,fieldreports,deathandinjuryreportsandforeign
recalls,andownersmanualrequirements.
OurvehiclessoldinEuropearesubjecttoEuropeanUnionsafetytestingregulations.Manyofthoseregulations,referredtoasEuropeanUnionWholeVehicleTypeApproval

(WVTA),aredifferentfromthefederalmotorvehiclesafetystandardsapplicableintheUnitedStatesandmayrequireredesignand/orretesting.ForModelS,wesuccessfullycompleted
fullEUWVTAhomologationandreceivedapprovallastyearbytheRDW,theDutchtypeapprovalauthority.DuetoreciprocityagreementsinplacethroughouttheEuropeanUnion,
RDWstypeapprovalisvalidintheentireEU.WehavealsosoughtandreceivedtypeapprovalfornonEUEuropeancountries,includingSwitzerland,Iceland,andNorway.Wealso
plantointroduceModelSvehiclesinothermarketssuchasChina,Japan,andAustralia.Wesuccessfullydemonstratedandreceivedtypeapprovalfordeliveryof85kWhequipped
ModelSvehiclestoChina.Plansarecurrentlyunderwaytoobtaintypeapprovalforthe60kWhequippedModelSvehicleinChinaandbothbatterypackvariantsformarketsin
JapanandAustralia,includingaforthcomingrighthanddriveversion.

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TheAutomobileInformationandDisclosureActrequiresmanufacturersofmotorvehiclestodisclosecertaininformationregardingthemanufacturerssuggestedretailprice,
optionalequipmentandpricing.Inaddition,theActallowsinclusionofcityandhighwayfueleconomyratings,asdeterminedbyEPA,aswellascrashtestratingsasdeterminedby
NHTSAifsuchtestsareconducted.
RegulationEPAEmissions&CertificateofConformity
TheCleanAirActrequiresthatweobtainaCertificateofConformityissuedbytheEPAandaCaliforniaExecutiveOrderissuedbytheCaliforniaAirResourcesBoard(CARB)
withrespecttoemissionsforourvehicles,includingModelS.TheCertificateofConformityisrequiredforvehiclessoldinstatescoveredbytheCleanAirActsstandardsandboththe
CertificateofConformityandtheExecutiveOrderisrequiredforvehiclessoldinstatesthathavesoughtandreceivedawaiverfromtheEPAtoutilizeCaliforniastandards.The
CaliforniastandardsforemissionscontrolforcertainregulatedpollutantsfornewvehiclesandenginessoldinCaliforniaaresetbyCARB.StatesthathaveadoptedtheCalifornia
standardsasapprovedbyEPAalsorecognizetheExecutiveOrderforsalesofvehicles.
RegulationBatterySafetyandTesting
Ourbatterypackconformswithmandatoryregulationsthatgoverntransportofdangerousgoodsthatmaypresentariskintransportation,whichincludeslithiumion
batteries.Thegoverningregulations,whichareissuedbythePipelineandHazardousMaterialsSafetyAdministration(PHMSA)arebasedontheUNRecommendationsontheSafe
TransportofDangerousGoodsModelRegulations,andrelatedUNManualTestsandCriteria.Theregulationsvarybymodeoftransportationwhentheseitemsareshippedsuchasby
oceanvessel,rail,truck,orbyair.
WehavecompletedtheapplicabletransportationtestsforourprototypeandproductionbatterypacksdemonstratingourcompliancewiththeUNManualofTestsandCriteria,
including:

Altitudesimulationsimulatingairtransport

Thermalcyclingassessingcellandbatterysealintegrity

Vibrationsimulatingvibrationduringtransport

Shocksimulatingpossibleimpactsduringtransportand

Externalshortcircuitsimulatinganexternalshortcircuit.

WealsosubjectourbatterypackstotheappropriatetestsspecifiedintheSocietyofAutomotiveEngineers(SAE)J2464andJ2929whichincludefurthertestssuchas

immersion,humidity,andexposuretofire.
Weuselithiummetaloxidecellsinourbatterypacks.Thecellsdonotcontainanylead,mercury,cadmium,orotherhazardousmaterials,heavymetals,oranytoxicmaterials.
Ourbatterypacksincludecertainpackagingmaterialswhichcontaintraceamountsofvarioushazardouschemicalswhoseuse,storageanddisposalisregulatedunderfederallaw.We
currentlyhaveanagreementwithathirdpartybatteryrecyclingcompanytorecycleourbatterypacks.Ifacustomerwishestodisposeofabatterypackfromoneofourvehicles,we
anticipateacceptingthedepletedbatteryfromthecustomerwithoutanyadditionalcharge.
AutomobileManufacturerandDealerRegulation
Statelawregulatesthemanufacture,distributionandsaleofautomobiles,andgenerallyrequiresmotorvehiclemanufacturersanddealerstobelicensed.Totheextentpossible,
weplantosecuredealerlicenses(ortheequivalentofadealerlicense)andengageinactivitiesasamotorvehicledealerinsofaraswearepermittedtodosoasweopenadditional
Teslastoresandservicecenters.Somestatesdonotpermitautomobilemanufacturerstobelicensedasdealersortoactinthecapacityofadealer.Tosellvehiclestoresidentsofstates

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wherewearenotlicensedasadealer,totheextentpermittedbylocallaw,boththeactualsalewouldgenerallyhavetooccuroutofstate.Inthisscenario,itispossiblethatactivities
relatedtomarketing,advertising,takingorders,takingreservationsandreservationpayments,anddeliveringvehiclescouldbeviewedbyastateasconductingunlicensedactivitiesin
thestateorotherwiseviolatingthestatesmotorvehicleindustrylaws.Regulatorsinthesestatesmayrequireustoholdandmeettherequirementsofappropriatedealerorother
licensesand,instatesinwhichmanufacturersareprohibitedfromactingasdealers,mayotherwiseprohibitorimpactourplannedactivities.
InjurisdictionswherewedonothaveaTeslastore,acustomermaytrytopurchaseourvehiclesovertheinternet.However,somestateshavelawsprovidingthatamanufacturer
cannotdeliveravehicletoaresidentofsuchstateexceptthroughadealerlicensedtodobusinessinthatstatewhichmaybeinterpretedtorequireustoopenastoreinsuchstatein
ordertosellvehiclestoitsresidents.Insomestateswherewehaveopenedaviewinggallerythatisnotafullretaillocation,itispossiblethatastateregulatorcouldtaketheposition
thatactivitiesatourgalleryconstituteanunlicensedmotorvehicledealershipandtherebyviolatesapplicablemanufacturerdealerlaws.Althoughwewouldpreferthatastate
regulatoraddressanyconcernsbydiscussingsuchconcernswithusandrequestingvoluntarycompliance,astatecouldalsotakeactionagainstus,includinglevyingfinesorrequiring
thatwerefrainfromcertainactivities.Inaddition,somestateshaverequirementsthatservicefacilitiesbeavailablewithrespecttovehiclessoldinthestate,whichmaybeinterpreted
toalsorequirethatservicefacilitiesbeavailablewithrespecttovehiclessoldovertheinternettoresidentsofthestatetherebylimitingourabilitytosellvehiclesinstateswherewedo
notmaintainservicefacilities.
Theforegoingexamplesofstatelawsgoverningthesaleofmotorvehiclesarejustsomeoftheregulationswefaceaswesellourvehicles.Inmanystates,theapplicationofstate
motorvehiclelawstoourspecificsalesmodelislargelywithoutprecedent,particularlywithrespecttosalesovertheinternet,andwouldbedeterminedbyafactspecificanalysisof
numerousfactors,includingwhetherwehaveaphysicalpresenceoremployeesintheapplicablestate,whetherweadvertiseorconductotheractivitiesintheapplicablestate,howthe
saletransactionisstructured,thevolumeofsalesintothestate,andwhetherthestateinquestionprohibitsmanufacturersfromactingasdealers.Asaresultofthefactspecificand
untestednatureoftheseissues,andthefactthatapplyingtheselawsintendedforthetraditionalautomobiledistributionmodeltooursalesmodelallowsforsomeinterpretationand
discretionbytheregulators,statelegalprohibitionsmaypreventusfromsellingtoconsumersinsuchstate.
Moreover,asweexpandourfootprintintheUnitedStates,DealerAssociationshavebeenbringinglitigationchallengingthelegalityofouroperations,aswellastryingtouse
administrativeandlegislativeprocessestoshutdownourabilitytoexpandandeventhreateningexistingoperations.Althoughwehaveprevailedineverylawsuitbroughtbythese
DealerAssociationsinMassachusetts,NewYorkandOhio,weexpectthatadditionalchallengeswillbebrought.Inaddition,DealerAssociationsareactivelylobbyingGovernorsand
legislatorstointerpretlawsorenactnewlawsnotfavorabletoTeslasownershipandoperationofitsownretailandservicelocations.
Furthermore,whilewehaveperformedananalysisoftheprincipallawsintheEuropeanUnionrelatingtoourdistributionmodelandbelievewecomplywithsuchlaws,we
havenotperformedacompleteanalysisinallforeignjurisdictionsinwhichwemaysellvehicles.Accordingly,theremaybelawsinjurisdictionswehavenotyetenteredorlawswe
areunawareofinjurisdictionswehaveenteredthatmayrestrictourvehiclereservationpracticesorotherbusinesspractices.Evenforthosejurisdictionswehaveanalyzed,thelawsin
thisareacanbecomplex,difficulttointerpretandmaychangeovertime.
Inadditiontolicensinglaws,specificlawsandregulationsineachofthestates(andtheirinterpretationbyregulators)maylimitordeterminehowwesell,market,advertise,
andotherwisesolicitsales,takeorders,takereservationsandreservationpayments,deliver,andservicevehiclesforconsumersandengageinotheractivitiesinthatstate.Whilewe
haveperformedananalysisoflawsincertainjurisdictionsinwhichwehaveTeslastores,wehavenotperformedacompleteanalysisinalljurisdictionsinwhichwemaysellvehicles.
Accordingly,there

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maybelawsinjurisdictionswehavenotyetenteredthatmayrestrictourvehiclereservationpracticesorotherbusinesspractices.
Competition
Competitionintheautomotiveindustryisintenseandevolving.Webelievetheimpactofnewregulatoryrequirementsforoccupantsafetyandvehicleemissions,
technologicaladvancesinpowertrainandconsumerelectronicscomponents,andshiftingcustomerneedsandexpectationsarecausingtheindustrytoevolveinthedirectionof
electricbasedvehicles.Webelievetheprimarycompetitivefactorsinourmarketsincludebutarenotlimitedto:

technologicalinnovation

productqualityandsafety

serviceoptions

productperformance

designandstyling

brandperception

productpriceand

manufacturingefficiency.

Webelievethatourvehiclescompeteinthemarketbothbasedontheirtraditionalsegmentclassificationaswellasbasedontheirpropulsiontechnology.Withintheelectric
basedvehiclesegment,therearethreeprimarymeansofpowertrainelectrificationwhichwilldifferentiatevariouscompetitorsinthismarket:

ElectricVehiclesarevehiclespoweredcompletelybyasingleonboardenergystoragesystem(batterypackorfuelcell)whichisrefueleddirectlyfromanelectricity

source.BoththeTeslaRoadsterandModelSareexamplesofelectricvehicles.

PluginHybridVehiclesarevehiclespoweredbybothabatterypackwithanelectricmotorandaninternalcombustionenginewhichcanberefueledbothwith
traditionalpetroleumfuelsfortheengineandelectricityforthebatterypack.Theinternalcombustionenginecaneitherworkinparallelwiththeelectricmotortopower
thewheels,suchasinaparallelpluginhybridvehicle,orbeusedonlytorechargethebattery,suchasinaseriespluginhybridvehicleliketheChevroletVolt.

HybridElectricVehiclesarevehiclespoweredbybothabatterypackwithanelectricmotorandaninternalcombustionenginebutwhichcanonlyberefueledwith
traditionalpetroleumfuelsasthebatterypackischargedviaregenerativebraking,suchasusedinahybridelectricvehicleliketheToyotaPrius.

Theworldwideautomotivemarket,particularlyforalternativefuelvehicles,ishighlycompetitivetodayandweexpectitwillbecomeevenmoresointhefuture.Priortothe
introductionoftheNissanLeafinDecember2010,nomassproducedperformancehighwaycapableelectricvehicleswerebeingsoldintheUnitedStates.InJapan,Mitsubishihas
beensellingitselectriciMiEVsinceApril2010.Weexpectadditionalcompetitorstoenterthealternatefuelvehiclemarketwithinthenextseveralyears,andastheydoso,weexpect
thatwewillexperiencesignificantcompetition.Inaddition,wecurrentlyfacestrongcompetitionfromexistingautomobilemanufacturersintheextremelycompetitivepremiumsedan
market,includingAudi,BMW,LexusandMercedes.
Manyestablishedandnewautomobilemanufacturershaveenteredorhaveannouncedplanstoenterthealternativefuelvehiclemarket.InadditiontotheNissanLeaf,Fordhas
introducedthefullyelectricFordFocus,RenaulthasintroducedthefullyelectricRenaultFluence,andFiathasintroducedtheFiat500e,amongothers.MoreoverBMW,Daimler,
Lexus,Audi,Fiat,Renault,VolkswagenandVolvoarealsodevelopingelectric

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vehicles.Forexample,BMWplanstointroduceitsi3citycarandi8sportscarinthesecondquarterof2014andVolkswagenplanstointroduceitsfullyelectriceGolfin2014.
Severalnewstartupshavealsoannouncedplanstoenterthemarketforperformanceelectricvehicles,althoughnoneofthesehaveyetcometomarket.Finally,electricvehicleshave
alreadybeenbroughttomarketinChinaandotherforeigncountriesandweexpectanumberofthosemanufacturerstoentertheUnitedStatesmarketaswell.
Inaddition,severalmanufacturers,includingGeneralMotors,Toyota,Ford,andHonda,areeachsellinghybridvehicles,andcertainofthesemanufacturershaveannounced
pluginversionsoftheirhybridvehicles.Forexample,inDecember2010,GeneralMotorsintroducedtheChevroletVolt,whichisapluginhybridvehiclethatoperatespurelyon
electricpowerforalimitednumberofmiles,atwhichtimeaninternalcombustionengineengagestorechargethebattery.
Mostofourcurrentandpotentialcompetitorshavesignificantlygreaterfinancial,technical,manufacturing,marketingandotherresourcesthanwedoandmaybeableto
devotegreaterresourcestothedesign,development,manufacturing,distribution,promotion,saleandsupportoftheirproducts.Virtuallyallofourcompetitorshavemoreextensive
customerbasesandbroadercustomerandindustryrelationshipsthanwedo.Inaddition,almostallofthesecompanieshavelongeroperatinghistoriesandgreaternamerecognition
thanwedo.Ourcompetitorsmaybeinastrongerpositiontorespondquicklytonewtechnologiesandmaybeabletodesign,develop,marketandselltheirproductsmoreeffectively.
Webelieveourexclusivefocusonelectricvehiclesandelectricvehiclecomponents,aswellasourhistoryofvehicledevelopmentandproduction,arethebasisonwhichwecan
competeintheglobalautomotivemarketinspiteofthechallengesposedbyourcompetitionhowever,wehavealimitedhistoryofoperations.
IntellectualProperty
Oursuccessdepends,atleastinpart,onourabilitytoprotectourcoretechnologyandintellectualproperty.Toaccomplishthis,werelyonacombinationofpatents,patent
applications,tradesecrets,includingknowhow,employeeandthirdpartynondisclosureagreements,copyrightlaws,trademarks,intellectualpropertylicensesandothercontractual
rightstoestablishandprotectourproprietaryrightsinourtechnology.AsofDecember31,2013,wehad203issuedpatentsandmorethan280pendingpatentapplicationswiththe
UnitedStatesPatentandTrademarkOfficeandinternationallyinabroadrangeofareas.Ourissuedpatentsstartexpiringin2026.Weintendtocontinuetofileadditionalpatent
applicationswithrespecttoourtechnology.Wedonotknowwhetheranyofourpendingpatentapplicationswillresultintheissuanceofpatentsorwhethertheexaminationprocess
willrequireustonarrowourclaims.Evenifgranted,therecanbenoassurancethatthesependingpatentapplicationswillprovideuswithprotection.
SegmentInformation
Wehavedeterminedthatweoperateasonereportingsegment,whichisthedesign,development,manufacturingandsalesofelectricvehiclesandelectricpowertrain
components.Forinformationregardingfinancialdatabygeographicareas,seeNote10toourConsolidatedFinancialStatementsincludedinthisAnnualReportonForm10Kunder
Item8.FinancialStatementsandSupplementaryData.
Employees
AsofDecember31,2013,wehad5,859fulltimeemployees.Noneofouremployeesarecurrentlyrepresentedbylaborunionsorarecoveredbyacollectivebargaining
agreementwithrespecttotheiremployment.Todate,wehavenotexperiencedanyworkstoppages,andweconsiderourrelationshipwithouremployeestobegood.
AvailableInformation
Wefileorfurnishperiodicreportsandamendmentsthereto,includingourAnnualReportsonForm10K,ourQuarterlyReportsonForm10QandCurrentReportsonForm8K
proxystatementsandotherinformationwiththe

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SecuritiesandExchangeCommission(SEC).Suchreports,amendments,proxystatementsandotherinformationmaybeobtainedbyvisitingthePublicReferenceRoomoftheSECat
100FStreet,NE,Washington,D.C.20549.InformationontheoperationofthePublicReferenceRoomcanbeobtainedbycallingtheSECat1800SEC0330.Inaddition,theSEC
maintainsawebsite(www.sec.gov)thatcontainsreports,proxyandinformationstatements,andotherinformationregardingissuersthatfileelectronically.Ourreports,amendments
thereto,proxystatementsandotherinformationarealsomadeavailable,freeofcharge,onourinvestorrelationswebsiteatir.teslamotors.comassoonasreasonablypracticableafterwe
electronicallyfileorfurnishsuchinformationwiththeSEC.TheinformationpostedonourwebsiteisnotincorporatedbyreferenceintothisAnnualReportonForm10K.

ITEM1A.

RISKFACTORS

Youshouldcarefullyconsidertherisksdescribedbelowtogetherwiththeotherinformationsetforthinthisreport,whichcouldmateriallyaffectourbusiness,financial
conditionandfutureresults.Therisksdescribedbelowarenottheonlyrisksfacingourcompany.Risksanduncertaintiesnotcurrentlyknowntousorthatwecurrentlydeemtobe
immaterialalsomaymateriallyadverselyaffectourbusiness,financialconditionandoperatingresults.
RisksRelatedtoOurBusinessandIndustry
WemaybeunabletosustainourcurrentlevelofproductionanddeliveriesofModelSorincreaseproductionanddeliveriesinlinewithourplans,bothofwhichcouldharmour
businessandprospects.
WebeganmanufacturinganddeliveringModelSinJune2012.Wehavelimitedexperiencetodateinhighvolumemanufacturingofourelectricvehiclesasweonlyrecently
reachedfullproductionofModelSfortheU.S.marketandhavejustrecentlybegunproductionofModelSfortheEuropeanandAsianmarkets.Ourabilitytofurtherrampuphigh
volumeModelSproductionwilldependuponanumberoffactors,includingoursuppliersabilitytodeliverqualitypartstousinatimelymanner,ourabilitytouseour
manufacturingprocessesasplannedforvolumeproductionwhilemaintainingourdesiredqualitylevelsandefficientlymakingdesignchangestoensureconsistentlyhighquality.The
ModelSisanallnewvehiclewhichweareproducingwithnewemployeesusingnewequipmentandthereforeourproductionprocessesarestillmaturing.Toproduceavehiclethat
meetsourqualitystandardsrequiresustocarefullyanalyzeeachstepofourproductionplan,improvetheefficiencyofourmanufacturingprocessesandcontinuetotrainour
employees.Oursuppliersalsomustproducenewproductsinsufficientquantitiesandqualitylevelstomeetourdemand.Certainsuppliershaveexperienceddelaysinmeetingour
demandorhavesoughttorenegotiatethetermsofthesupplyarrangements,andwecontinuetofocusonsuppliercapabilitiesandconstraints.Anydisruptioninmaintainingour
productionlevelofModelScouldmateriallydamageourbrand,business,prospects,financialconditionandoperatingresults.
WehaveonlyrecentlyincreasedourModelSdeliveryratesintheUnitedStatestomatchourcurrentandanticipatedModelSproductioncapacity.Wehavelimitedexperience
inthehighvolumedeliveryofourModelSvehicles.WehavegraduallyrampedproductionofModelSandweintendtocontinuetoincreasetheproductionratesignificantlyoverthe
nextseveralquarters.Furthermore,wehaveonlyrecentlycommenceddeliveriesinEuropeandhavenotdeliveredModelSvehiclesoutsideofNorthAmericaandEuropeinvolume
thuswemayfacedifficultiesmeetingourdeliveryandgrowthplansinAsiaandotherrighthanddrivemarketslaterthisyear,whichmayimpactourabilitytoachieveourworldwide
deliverygoals.IfweareunabletoincreasetheproductionrateandincreaseourweeklydeliveryratetomatchourproductionrateofModelS,rampupdeliveriesinEuropeandAsia
andsustainahighlevelofweeklyModelSdeliveriesthroughouttheyear,thiscouldresultinnegativepublicity,damageourbrandandhaveamaterialadverseeffectonourbusiness,
prospects,financialconditionandoperatingresults.
Inaddition,forModelSwehaveintroducedanumberofnewmanufacturingtechnologiesandtechniques,suchasaluminumspotweldingsystems,whichhavenotbeenwidely
adoptedintheautomotiveindustry,andModelShasanumberofnewanduniquedesignfeatures,suchasa17inchdisplayscreen,newlydesignedretractableexteriordoorhandles
andapanoramicroof,eachofwhichposesuniquemanufacturingchallenges.ModelSproductionand

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deliverieswillcontinuetorequiresignificantresourcesandwemayexperienceunexpecteddelaysordifficultiesthatcouldharmourabilitytomaintainfullmanufacturingcapacityfor
ModelS,orcauseustomissplannedproductiontargets,anyofwhichcouldhaveamaterialadverseeffectonourfinancialconditionandoperatingresults.Additionally,sustaining
highvolumeproductionanddoingsoinamannerthatavoidssignificantcostoverruns,includingasaresultoffactorsbeyondourcontrolsuchasproblemswithsuppliersand
vendors,maybedifficult.
OurabilitytosustainandgrowvolumeproductionanddeliveriesforModelSissubjecttocertainrisksanduncertainties,including:

thatoursupplierswillbeableandwillingtodelivercomponentsonatimelybasisandinthenecessaryquantities,qualityandatacceptablepricestoproduceModelSin
volumeandreachourfinancialtargets

thatwewillbeabletocompleteanynecessaryadjustmentstothevehicledesignormanufacturingprocessesofModelSinatimelymannerthatmeetsourproduction
planandallowsforhighqualityvehicles

thatwewillbeabletocommenceandexecutethelaunchandrampofModelSinAsiapursuanttoourcurrenttimeline

thatwewillbeabletoadequatelyrespondinatimelymannertoanyproblemsthatmayarisewithourvehicles

thatwewillbeabletoscheduleandcompletedeliveriesatourplannedhighervolumeproductionlevels

thattheequipmentortoolingwhichwehavepurchasedorwhichweselectwillbeabletoaccuratelymanufacturethevehiclewithinspecifieddesigntolerances,andwill
notsufferfromunexpectedbreakdownsordamagewhichcouldnegativelyaffecttherateneededtoproducevehiclesinvolume

thatwewillbeabletocomplywithenvironmental,workplacesafety,customsandsimilarregulationsrequiredtooperateourmanufacturingfacilities

thatwewillbeabletomaintainandimprovequalitycontrolsaswetransitiontoahigherlevelofinhousemanufacturingprocessand

thattheinformationtechnologysystemsthatwearecurrentlyexpandingandimprovinguponwillbeeffectivetomanagehighvolumeproduction.

Finally,detailedlongtermtestingofquality,reliabilityanddurabilitytestingofModelS,areongoingandanynegativeresultsfromsuchtestingcouldcauseproductionor
deliverydelays,costincreasesorlowerqualityofourModelSvehicles.
Wearedependentonoursuppliers,thevastmajorityofwhicharesinglesourcesuppliers,andtheinabilityofthesesupplierstocontinuetodeliver,ortheirrefusaltodeliver,
necessarycomponentsofourvehiclesinatimelymanneratprices,qualitylevels,andvolumesacceptabletouswouldhaveamaterialadverseeffectonourfinancialcondition
andoperatingresults.
ModelScontainsnumerouspurchasedpartswhichwesourcegloballyfromover300directsuppliers,themajorityofwhomarecurrentlysinglesourcesuppliersforthese
components.Whileweobtaincomponentsfrommultiplesourceswheneverpossible,similartootherautomobilemanufacturers,themajorityofthecomponentsusedinourvehiclesare
purchasedbyusfromsinglesources.Todatewehavenotqualifiedalternativesourcesformostofthesinglesourcedcomponentsusedinourvehiclesandwedonotmaintainlong
termagreementswithanumberofoursuppliers.
Whilewebelievethatwemaybeabletoestablishalternatesupplyrelationshipsandcanobtainorengineerreplacementcomponentsforoursinglesourcecomponents,wemay
beunabletodosointheshortterm,oratall,atpricesorcoststhatarefavorabletous.Inparticular,whilewebelievethatwewillbeabletosecurealternate

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sourcesofsupplyformostofoursinglesourcedcomponentsinarelativelyshorttimeframe,qualifyingalternatesuppliersordevelopingourownreplacementsforcertainhighly
customizedcomponentsofourvehiclesmaybetimeconsuming,costlyandmayforceustomakeadditionalmodificationstoavehiclesdesign.
ThissupplychainexposesustomultiplepotentialsourcesofdeliveryfailureorcomponentshortagesforModelS,aswellasforourpowertraincomponentsalesactivities.For
example,earthquakessimilartotheonethatoccurredinJapaninMarch2011couldnegativelyimpactoursupplychain.Wehaveinthepastexperiencedsourcedisruptionsinour
supplychains,includingthoserelatingtoourslowerthananticipatedrampinourModelSproductiongoalsfor2012.Wemayexperienceadditionaldelaysinthefuturewithrespect
toModelSandanyotherfuturevehiclewemayproduce.Inaddition,becausewehavewrittenagreementsinplacewiththemajority,butnotallof,oursuppliers,thismaycreate
uncertaintyregardingcertainsuppliersobligationstous,includingbutnotlimitedto,thoseregardingwarrantyandproductliability.Changesinbusinessconditions,wars,
governmentalchangesandotherfactorsbeyondourcontrolorwhichwedonotpresentlyanticipate,couldalsoaffectoursuppliersabilitytodelivercomponentstousonatimely
basis.Furthermore,ifweexperiencesignificantlyincreaseddemand,orneedtoreplacecertainexistingsuppliers,therecanbenoassurancethatadditionalsuppliesofcomponentparts
willbeavailablewhenrequiredontermsthatarefavorabletous,atall,orthatanysupplierwouldallocatesufficientsuppliestousinordertomeetourrequirementsorfillourordersin
atimelymanner.Inthepast,wehavereplacedcertainsuppliersbecauseoftheirfailuretoprovidecomponentsthatmetourqualitycontrolstandards.Thelossofanysingleorlimited
sourcesupplierorthedisruptioninthesupplyofcomponentsfromthesesupplierscouldleadtodelaysinvehicledeliveriestoourcustomers,whichcouldhurtourrelationshipswith
ourcustomersandalsomateriallyandadverselyaffectourfinancialconditionandoperatingresults.
Changesinoursupplychainhaveresultedinthepast,andmayresultinthefuture,inincreasedcostanddelay.Wehavealsoexperiencedcostincreasesfromcertainofour
suppliersinordertomeetourqualitytargetsanddevelopmenttimelinesaswellasduetodesignchangesthatwemade,andwemayexperiencesimilarcostincreasesinthefuture.
Additionally,wearenegotiatingwithexistingsuppliersforcostreductions,seekingnewandlessexpensivesuppliersforcertainparts,andattemptingtoredesigncertainpartstomake
themcheapertoproduce.Ifweareunsuccessfulinoureffortstocontrolandreducesuppliercosts,ouroperatingresultswillsuffer.Additionally,costreductioneffortsmayinterruptor
harmournormalproductionprocesses,therebyharmingModelSqualityorreducingModelSproductionoutput.
Furthermore,afailurebyoursupplierstoprovidethecomponentsinatimelymanneroratthelevelofqualitynecessarytomanufactureourperformanceelectricvehiclessuch
asModelScouldpreventusfromfulfillingcustomerordersinatimelyfashionwhichcouldresultinnegativepublicity,damageourbrandandhaveamaterialadverseeffectonour
business,prospects,financialconditionandoperatingresults.
Finally,inOctober2013,weenteredintoanamendmenttoourexistingsupplyagreementwithPanasonicCorporationinordertoaddressouranticipatedshorttomediumterm
lithiumionbatterycellneeds.Whileweexpectthatthissupplyagreement,asamended,willprovideuswithsufficientcellsforthenextfewyears,wemaynotbeabletomeetourlong
termneeds,includingforourthirdgenerationelectricvehicle,whichwereferasGenIII,andotherprogramswemayintroduce,withoutsecuringadditionalsuppliersorothersources
forcells.Ifwecannotsecuresuchadditionalsuppliersorsources,wecouldexperienceproductiondelays,whichcouldhaveamaterialadverseeffectonourfinancialconditionand
operatingresults.
IfweareunabletoadequatelyreducethemanufacturingcostsofModelSorotherwisecontrolthecostsassociatedwithoperatingourbusiness,ourfinancialconditionand
operatingresultswillsuffer.
OurproductioncostsforModelSwerehighinitiallyduetostartupcostsattheTeslaFactory,manufacturinginefficienciesincludinglowabsorptionoffixedmanufacturing
costs,higherlogisticscostsduetotheimmaturityofoursupplychain,andhigherinitialpricesforcomponentpartsduringtheinitialperiodafterthelaunchandrampofModelS.As
wehavegraduallyrampedproductionofModelS,manufacturingcostsper

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vehiclehavefallen.Whileweexpectfurthercostreductioneffortsundertakenbybothusandoursupplierswillcontinuetoreducecostsduringthenextseveralquarters,thereisno
guaranteethatwewillbeabletoachieveplannedcostreductionsfromourvariouscostsavingsinitiatives,andthefailuretoachievesuchsavingswouldnegativelyaffectourability
toreachourgrossmarginandprofitabilitygoals.
Weincursignificantcostsrelatedtoprocuringtherawmaterialsrequiredtomanufactureourhighperformanceelectriccars,assemblingvehiclesandcompensatingour
personnel.WemayalsoincursubstantialcostsorcostoverrunsinincreasingtheproductioncapabilityofModelSandpowertrainmanufacturingfacilitiesandtheplannedlaunchin
Asiainthespringof2014.Furthermore,ifweareunabletoproduceModelXpursuanttoourplanduetocostoverrunsorotherunexpectedcosts,wemaynotbeabletomeetourgross
margintargets.
Additionally,inthefuturewemayberequiredtoincursubstantialmarketingcostsandexpensestopromoteourvehicles,includingthroughtheuseoftraditionalmediasuchas
television,radioandprint,eventhoughourmarketingexpensestodatehavebeenrelativelylimitedaswehavetodaterelieduponunconventionalmarketingefforts.Ifweareunable
tokeepouroperatingcostsalignedwiththelevelofrevenueswegenerate,ouroperatingresults,businessandprospectswillbeharmed.Furthermore,manyofthefactorsthatimpact
ouroperatingcostsarebeyondourcontrol.Forexample,thecostsofourrawmaterialsandcomponents,suchaslithiumionbatterycellsoraluminumusedtoproducebodypanels,
couldincreaseduetoshortagesasglobaldemandfortheseproductsincreases.Indeed,ifthepopularityofelectricvehiclesexceedscurrentexpectationswithoutsignificantexpansion
inbatterycellproductioncapacityandadvancementsinbatterycelltechnology,shortagescouldoccurwhichwouldresultinincreasedmaterialcoststousorpotentiallylimitour
abilitytoexpandproduction.
Ourlongtermsuccesswillbedependentuponourabilitytodesign,buildandachievemarketacceptanceofnewvehiclemodels,specificallyModelSandnewvehiclemodels
suchasModelXandGenIII,intheU.S.andabroad.
OurlongtermsuccessisdependentonmarketacceptanceoftheModelSsedanandfutureelectricvehiclesweintroduce.IntheUnitedStates,thereisnoguaranteethatModel
Swillcontinuetobesuccessfullyacceptedbythegeneralpublic,especiallyinthelongterm.AsweexpandinEuropeandenterintoAsia,thereisnoguaranteethatcustomersinthese
marketswillembraceourvehiclesandiftheydonot,demandforourvehiclescouldbelowerthanourexpectations.Forexample,wehaveexperiencedgreaterinitialsuccessinselling
ModelSvehiclesinNorwaythanintherestofEurope.
Moreover,therecanbenoassurancethatwewillbeabletodesignfutureelectricvehiclesthatwillmeettheexpectationsofourcustomersorthatourfuturemodels,including
theModelXcrossover,willbecomecommerciallyviable.Todate,wehavepubliclyrevealedonlyanearlyprototypeoftheModelX.TotheextentthatwearenotabletobuildModel
Xtotheexpectationscreatedbytheearlyprototypeandourannouncedspecifications,customersmaycanceltheirreservations,ourfuturesalescouldbeharmedandinvestorsmay
loseconfidenceinus.
Inaddition,wehavealsoannouncedourintenttodevelopGenIIIwhichweexpecttoproduceattheTeslaFactoryaftertheintroductionofModelX.Weintendtoofferthis
vehicleatalowerpricepointandexpecttoproduceitathighervolumesthanourModelS.Importantly,weanticipateproducingourGenIIIvehicleforthemassmarketandthuswe
willneedahighvolumesupplyoflithiumioncellsatreasonableprices.WhileourplanistoattempttoproducelithiumioncellsandfinishedbatterypacksforourGenIIIvehiclesat
anewTeslaGigafactory,ourplansforsuchproductionareataveryearlystageandwehavenotyetselectedasitefortheconstructionoftheTeslaGigafactorynorcompletedafactory
design.Inaddition,wehavenoexperienceintheproductionoflithiumioncells,andaccordinglyweintendtoengagepartnerswithsignificantexperienceincellproductionandto
datewehavenotformalizedsuchpartnerships.Inaddition,thecostofbuildingandoperatingtheTeslaGigafactorycouldexceedourcurrentexpectationsandtheTeslaGigafactory
maytakelongertobringonlinethanweanticipate.IfweareunabletobuildtheTeslaGigafactoryinatimelymannertoproducehighvolumesofqualitylithiumioncellsforGenIII
atreasonablepricesandthusareforcedtorelyonothersto

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supplyuswithlithiumioncellsforGenIII,ourabilitytoproduceourGenIIIvehiclesatapricethatallowsustosellGenIIIprofitablycouldbeconstrained.Finally,wehavevery
limitedexperienceallocatingouravailableresourcesamongthedesignandproductionofmultiplemodelsofvehicles,suchasModelS(includinganyvariantswemayintroducesuch
asrighthanddrive),ModelXandGenIII.Whileweintendeachofourproductionvehiclesandtheirvariantstomeetadistinctsegmentoftheautomotivemarket,ourvehiclesmay
endupcompetingwitheachotherwhichmaydelaysalesandassociatedrevenuetofutureperiods.Also,ifwefailtoaccuratelyanticipatedemandforeachofourvehicles,thiscould
resultininefficientexpendituresandproductiondelays.Furthermore,historically,automobilecustomershavecometoexpectnewandimprovedvehiclemodelstobeintroduced
frequently.Inordertomeettheseexpectations,wemayinthefutureberequiredtointroduceonaregularbasisnewvehiclemodelsaswellasenhancedversionsofexistingvehicle
models.Astechnologieschangeinthefutureforautomobilesingeneralandperformanceelectricvehiclesspecifically,wewillbeexpectedtoupgradeoradaptourvehiclesand
introducenewmodelsinordertocontinuetoprovidevehicleswiththelatesttechnologyandmeetcustomerexpectations.Todate,wehavelimitedexperiencesimultaneously
designing,testing,manufacturing,upgrading,adaptingandsellingourelectricvehicles.
Ourfuturegrowthisdependentuponconsumerswillingnesstoadoptelectricvehicles.
Ourgrowthishighlydependentupontheadoptionbyconsumersof,andwearesubjecttoanelevatedriskofanyreduceddemandfor,alternativefuelvehiclesingeneraland
electricvehiclesinparticular.IfthemarketforelectricvehiclesintheU.S.,EuropeandAsiadoesnotdevelopasweexpectordevelopsmoreslowlythanweexpect,ourbusiness,
prospects,financialconditionandoperatingresultswillbeharmed.Themarketforalternativefuelvehiclesisrelativelynew,rapidlyevolving,characterizedbyrapidlychanging
technologies,pricecompetition,additionalcompetitors,evolvinggovernmentregulationandindustrystandards,frequentnewvehicleannouncementsandchangingconsumer
demandsandbehaviors.
Otherfactorsthatmayinfluencetheadoptionofalternativefuelvehicles,andspecificallyelectricvehicles,include:

perceptionsaboutelectricvehiclequality,safety(inparticularwithrespecttolithiumionbatterypacks),design,performanceandcost,especiallyifadverseeventsor
accidentsoccurthatarelinkedtothequalityorsafetyofelectricvehicles,suchasthoserelatedtotheChevroletVoltbatterypackfiresorrecentincidentsinvolving
ModelS

perceptionsaboutvehiclesafetyingeneral,inparticularsafetyissuesthatmaybeattributedtotheuseofadvancedtechnology,includingvehicleelectronicsand
regenerativebrakingsystems

negativeperceptionsofelectricvehicles,suchasthattheyaremoreexpensivethannonelectricvehiclesandareonlyaffordablewithgovernmentsubsidies

thelimitedrangeoverwhichelectricvehiclesmaybedrivenonasinglebatterychargeandtheeffectsofweatheronthisrange

thedeclineofanelectricvehiclesrangeresultingfromdeteriorationovertimeinthebatterysabilitytoholdacharge

variedcalculationsfordrivingrangesachievablebyEVs,whichisinherentlydifficultgivennumerousfactorsaffectingbatteryrange

ourcapabilitytorapidlyswapouttheModelSbatterypackandourplanstodevelopspecializedpublicfacilitiestoperformsuchswapping

concernsaboutelectricgridcapacityandreliability,whichcouldderailourpastandpresenteffortstopromoteelectricvehiclesasapracticalsolutiontovehicleswhich
requiregasoline

concernsbypotentialcustomersthatiftheirbatterypackisnotchargedproperly,itmaybecomeunusableandmayneedtobereplaced

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theavailabilityofalternativefuelvehicles,includingpluginhybridelectricvehicles

improvementsinthefueleconomyoftheinternalcombustionengine

theavailabilityofserviceforelectricvehicles

consumersdesireandabilitytopurchasealuxuryautomobileoronethatisperceivedasexclusive

theenvironmentalconsciousnessofconsumers

volatilityinthecostofoilandgasoline

consumersperceptionsofthedependencyoftheUnitedStatesonoilfromunstableorhostilecountries

governmentregulationsandeconomicincentivespromotingfuelefficiencyandalternateformsofenergyaswellastaxandothergovernmentalincentivestopurchase
andoperateelectricvehicles

accesstochargingstations,standardizationofelectricvehiclechargingsystemsandconsumersperceptionsaboutconvenienceandcosttochargeanelectricvehicle
and

perceptionsaboutandtheactualcostofalternativefuel.

Inaddition,reportshavesuggestedthepotentialforextremetemperaturestoaffecttherangeorperformanceofelectricvehicles,andbasedonourowninternaltesting,we
estimatethatourvehiclesmayexperienceamaterialreductioninrangewhenoperatedinextremelycoldtemperatures.Totheextentcustomershaveconcernsaboutsuchreductionsor
thirdpartyreportswhichsuggestreductionsinrangegreaterthanourestimatesgainwidespreadacceptance,ourabilitytomarketandsellourvehicles,particularlyincolderclimates,

maybeadverselyimpacted.
Additionally,wewillbecomesubjecttoregulationsthatrequireustoalterthedesignofourvehicles,whichcouldnegativelyimpactconsumerinterestinourvehicles.For
example,ourelectricvehiclesmakelessnoisethaninternalcombustionvehicles.Duetoconcernsaboutquietvehiclesandvisionimpairedpedestrians,inJanuary2011,Congress
passedandthePresidentsignedthePedestrianSafetyEnhancementActof2010.ThenewlawrequiresNHTSAtoestablishminimumsoundsforelectricvehiclesandhybridelectric
vehicleswhentravellingatlowspeeds.NHTSAissuedanoticeofproposedrulemakingin2013andplanstofinalizearuleassoonassometimein2014withaneffectivedatethat
couldbeimplementedbySeptember1,2015.Thiswillbeginathreeyearphaseinscheduleforestablishingtheseminimumsoundsinallelectricandhybridelectricvehicles.Adding
thisartificialnoisemaycausecurrentorpotentialcustomersnottopurchaseourelectricvehicles,whichwouldmateriallyandadverselyaffectourbusiness,operatingresults,financial
conditionandprospects.
Ifwefailtomanagefuturegrowtheffectivelyaswerapidlygrowourcompany,especiallyinternationally,wemaynotbeabletoproduce,market,sellandserviceourvehicles
successfully.
Anyfailuretomanageourgrowtheffectivelycouldmateriallyandadverselyaffectourbusiness,prospects,operatingresultsandfinancialcondition.Wecontinuetoexpand
ouroperationssignificantlyintheU.S.aswellasinEuropeandAsia.Ourfutureoperatingresultsdependtoalargeextentonourabilitytomanagethisexpansionandgrowth
successfully.Risksthatwefaceinundertakingthisglobalexpansioninclude:

findingandtrainingnewpersonnel,especiallyinnewmarketssuchasEuropeandAsia

controllingexpensesandinvestmentsinanticipationofexpandedoperations

establishingorexpandingsales,serviceandSuperchargerfacilitiesinatimelymanner

adaptingourproductstomeetlocalrequirementsincountriesaroundtheworldand

implementingandenhancingmanufacturing,logisticsandadministrativeinfrastructure,systemsandprocesses.

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Weintendtocontinuetohireasignificantnumberofadditionalpersonnel,includingmanufacturingpersonnel,designpersonnel,engineersandservicetechniciansforour
performanceelectricvehicles.Becauseourhighperformancevehiclesarebasedonadifferenttechnologyplatformthantraditionalinternalcombustionengines,wemaynotbeableto
hireindividualswithsufficienttraininginperformanceelectricvehicles,andwewillneedtoexpendsignificanttimeandexpensetrainingtheemployeeswedohire.Competitionfor
individualswithexperiencedesigning,manufacturingandservicingelectricvehiclesisintense,andwemaynotbeabletoattract,assimilate,trainorretainadditionalhighlyqualified
personnelinthefuture,thefailureofwhichcouldseriouslyharmourbusiness,prospects,operatingresultsandfinancialcondition.
Ourlimitedexperiencewithourproductofferingsmakesevaluatingourbusinessandfutureprospectsdifficult.
WewereformedinJuly2003andbegandeliveringourfirstvehicle,theTeslaRoadster,inearly2008.Weonlybeganproducingoursecondelectricvehicle,ModelS,inJune
2012andourproductionprocessescontinuetomature,especiallythoseproductionprocessesrelatedtoourModelSdeliveriesinEuropeandourplanneddeliveriesinAsia,suchas
forrighthanddriveModelS.ModelSbecametheprimarycontributortoourrevenuestartinginthefourthquarterof2012.Weintendinthelongertermtoderivesubstantialrevenues
fromthesalesofModelS,ModelX,GenIIIandfutureelectricvehicles.Further,wehaveonlyproducedanearlyprototypeoftheModelXcrossoverandhaveonlyrecentlystarted
productionofModelSforAsia.Ourvehicledesignandourengineering,manufacturingandcomponentsupplyplansforModelSmaycontinuetobeadjusted.
Inaddition,ourpowertraincomponentsales,developmentservicesrevenueandpowertrainresearchanddevelopmentcompensationhavebeenalmostentirelygeneratedunder
arrangementswithDaimlerAG(Daimler)andToyotaMotorCorporation(Toyota),andthereisnoguaranteethatwewillbeabletoenterintofutureagreementswiththeseorother
companiesonfavorabletermsormanufactureanddeliverpowertraincomponentsinamannerthatiscosteffectivetous.
Finally,itisdifficulttopredictourfuturerevenuesandappropriatelybudgetforourexpenses,andwehavelimitedinsightintotrendsthatmayemergeandaffectourbusiness.
Intheeventthatactualresultsdifferfromourestimatesorweadjustourestimatesinfutureperiods,ouroperatingresultsandfinancialpositioncouldbemateriallyaffected.
Wemayfailtomeetourpubliclyannouncedguidanceorotherexpectationsaboutourbusiness,whichwouldcauseourstockpricetodecline.
Weoccasionallyprovideguidanceregardingourexpectedfinancialandbusinessperformance,suchasprojectionsregardingthenumberofvehicleswehopetosellorproduce
infutureperiodsandanticipatedfuturerevenues,grossmargins,profitabilityandcashflows.Correctlyidentifyingthekeyfactorsaffectingbusinessconditionsandpredictingfuture
eventsisinherentlyanuncertainprocess.Ourguidanceisbasedinpartonassumptionswhichinclude,butarenotlimitedto,assumptionsregarding:

ourabilitytoachieveanticipatedproductionandsalesvolumesandprojectedaveragesalespricesforModelSintheU.S.,EuropeandAsia

supplierandcommodityrelatedcostsand

plannedcostreductions.

Suchguidancemaynotalwaysbeaccurateormayvaryfromactualresultsduetoourinabilitytomeetourassumptionsandtheimpactonourfinancialperformancethatcould
occurasaresultofthevariousrisksanduncertaintiestoourbusinessassetforthintheseriskfactors,orbecauseofthewaythatapplicableaccountingrulesrequireustotreatnew

productandserviceofferingsthatwemayoffer.Weoffernoassurancethatsuchguidancewillultimatelybeaccurate,andinvestorsshouldtreatanysuchguidancewithappropriate
caution.Ifwefailtomeetourguidanceorifwefinditnecessarytorevisesuchguidance,evenifsuchfailureorrevisionis

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seeminglyinsignificant,investorsandanalystsmayloseconfidenceinusandthemarketvalueofourcommonstockcouldbemateriallyandadverselyaffected.
Ourvehiclesmakeuseoflithiumionbatterycells,whichhavebeenobservedtocatchfireorventsmokeandflame,andsucheventshaveraisedconcerns,andfutureeventsmay
leadtoadditionalconcerns,aboutthebatteriesusedinautomotiveapplications.
ThebatterypackintheTeslaRoadsterandModelSmakesuseoflithiumioncells.Wealsocurrentlyintendtomakeuseoflithiumioncellsinbatterypacksthatwesellto
ToyotaandDaimleraswellasanyfuturevehicleswemayproduce.Onrareoccasions,lithiumioncellscanrapidlyreleasetheenergytheycontainbyventingsmokeandflamesina
mannerthatcanignitenearbymaterialsaswellasotherlithiumioncells.Extremelyrareincidentsoflaptopcomputers,cellphonesandelectricvehiclebatterypackscatchingfire
havefocusedconsumerattentiononthesafetyofthesecells.
Theseeventshaveraisedconcernsaboutthebatteriesusedinautomotiveapplications.Toaddressthesequestionsandconcerns,anumberofcellmanufacturersarepursuing
alternativelithiumionbatterycellchemistriestoimprovesafety.Wehavedesignedthebatterypacktopassivelycontainanysinglecellsreleaseofenergywithoutspreadingto
neighboringcells.However,wehavedeliveredonlyalimitednumberofTeslaRoadstersandModelSsedanstocustomersandhavelimitedfieldexperiencewithourvehicles,
especiallyModelS.WehavealsoonlydeliveredalimitednumberofbatterypackstoToyotaandDaimler.Accordingly,therecanbenoassurancethatafieldortestingfailureofour
ModelSorotherbatterypacksthatweproducewillnotoccur,whichcoulddamagethevehicleorleadtopersonalinjuryordeathandmaysubjectustolawsuits.Wemayhaveto
recallourvehiclesorparticipateinarecallofavehiclethatcontainsourbatterypacks,andredesignourbatterypacks,whichwouldbetimeconsumingandexpensive.Also,negative
publicperceptionsregardingthesuitabilityoflithiumioncellsforautomotiveapplicationsoranyfutureincidentinvolvinglithiumioncellssuchasavehicleorotherfire,evenif
suchincidentdoesnotinvolveus,couldseriouslyharmourbusiness.
Inaddition,westoreasignificantnumberoflithiumioncellsatourmanufacturingfacility.Anymishandlingofbatterycellsmaycausedisruptiontotheoperationofour
facilities.Whilewehaveimplementedsafetyproceduresrelatedtothehandlingofthecells,therecanbenoassurancethatasafetyissueorfirerelatedtothecellswouldnotdisruptour
operations.Suchdamageorinjurywouldlikelyleadtoadversepublicityandpotentiallyasafetyrecall.Moreover,anyfailureofacompetitorselectricvehicle,especiallythosethat
useahighvolumeofcommoditycellssimilartotheTeslaRoadsterorModelS,maycauseindirectadversepublicityforusandourelectricvehicles.Suchadversepublicitywould
negativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.
Ifourvehiclesorvehiclesthatcontainourpowertrainsfailtoperformasexpected,orifwesufferproductrecallsforModelS,ourabilitytodevelop,marketandsellourelectric
vehiclescouldbeharmed.
OurvehiclesorvehiclesthatcontainourpowertrainssuchastheToyotaRAV4EVortheupcomingMercedesBenzBClassEVmaycontaindefectsindesignandmanufacture
thatmaycausethemnottoperformasexpectedorthatmayrequirerepair.Forexample,ourvehiclesuseasubstantialamountofsoftwarecodetooperate.Softwareproductsare
inherentlycomplexandoftencontaindefectsanderrorswhenfirstintroduced,andchangestosoftwaremayhaveunexpectedeffects.ModelSissuesexperiencedbycustomersinclude
thoserelatedtothesoftwareforthe17inchdisplayscreen,thepanoramicroofandthe12voltbattery.AlthoughweareattemptingtoremedytheModelSissuesexperiencedbyour
customersinarapidmannerbyexpandingourservicecentersandpersonnel,sucheffortsmaynotbetimelyoruptothesatisfactionofourcustomers.
Whilewehaveperformedextensiveinternaltesting,wecurrentlyhavealimitedframeofreferencebywhichtoevaluatethelongtermperformanceofourbatterypacks,
powertrainsandvehicles.Specifically,wehaveonlyalimitedamountofdatabywhichtoevaluateModelS,uponwhichourbusinessprospectsdepend,duetothefactthatweonly
recentlybeganproductioninJune2012.Therecanbenoassurancethatwewillbeabletodetectandfixanydefectsinthevehiclespriortotheirsaletoconsumers.

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Wehaveexperiencedproductrecalls,includinginMay2009,October2010,andJune2013,allofwhichwereunrelatedtoourelectricpowertrain.InMay2009,weinitiateda
productrecallafterwedeterminedthataconditioncausedbyinsufficienttorquingoftherearinnerhubflangeboltexistedinsomeofourTeslaRoadsters,asaresultofamissed
processduringthemanufactureoftheTeslaRoadsterglider,whichisthepartiallyassembledTeslaRoadsterthatdoesnotcontainourelectricpowertrain.InOctober2010,weinitiated
aproductrecallafterthe12volt,lowvoltageauxiliarycableinasinglevehiclechafedagainsttheedgeofacarbonfiberpanelinthevehiclecausingashort,smokeandpossiblefire
behindtherightfrontheadlampofthevehicle.InJune2013,weinitiatedarecallofslightlymorethanathousandModelSvehiclestoinspectandrepairrearseatstrikersthatmay
havebeencompromisedduringtheassemblyprocess.Rearseatstrikersareusedtoretaintherearseatbacksinanuprightposition.Failureofthiscomponentmayhaveresultedinthe
collapseoftherearseatbackduringacrash.Althoughthecostofthisrecallwasnotmaterial,andlimitedtoasmallnumberoftotalModelSsproduced,wemayexperienceadditional
recallsinthefuture,whichcouldadverselyaffectourbrandinourtargetmarkets,aswellasourbusiness,prospectsandresultsofoperations.
Moreover,inJanuary2014weimplementedafirmwareupdatetoaddressissueswithcertainUniversalMobileConnectorNEMA1450adapters,whicharepartofthecharging
unitsandarenotpartofthevehiclesthemselves,potentiallyoverheatingduringcharging.WefurtherannouncedthatwewillprovideupgradedNEMA1450adapterstoourcustomers
asanadditionalsafeguard.Ifsuchmeasuresdonotadequatelyaddresstheunderlyingconcerns,however,orifthepublicperceivessuchstepstobeanindicationofsafetyconcerns
aboutthevehicles,ourbusiness,prospectsandresultsofoperationscouldbeharmed.
Ourelectricvehiclesmaynotperformconsistentwithcustomersexpectationsorconsistentwithothervehiclescurrentlyavailable.Forexample,ourelectricvehiclesmaynot
havethedurabilityorlongevityofcurrentvehicles,andmaynotbeaseasytorepairasothervehiclescurrentlyonthemarket.Additionally,whileModelSrecentlyachievedan
overallfivestarsafetyratingbyNHTSA,suchratingisnotaguaranteeofsafeproductdesignorthatanyindividualvehiclewillbefreeofanydefectorfailure.Anyproductdefectsor
anyotherfailureofourperformanceelectricvehiclestoperformasexpectedcouldharmourreputationandresultinadversepublicity,lostrevenue,deliverydelays,productrecalls,
productliabilityclaims,harmtoourbrandandreputation,andsignificantwarrantyandotherexpenses,andcouldhaveamaterialadverseimpactonourbusiness,financialcondition,
operatingresultsandprospects.
Wehaveahistoryoflossesandhavetodeliversignificantcostreductionstoachievesustained,longtermprofitabilityandlongtermcommercialsuccess.
WehavehadnetlossesonaGAAPbasisineachquartersinceourinception,exceptforthefirstquarterof2013.EvenifweareabletosuccessfullymaintainourcurrentModelS
productionlevels,therecanbenoassurancethatitwillbecommerciallysuccessful.Inordertomaintainprofitabilityaswellaslongtermcommercialsuccess,wemustcontinueto
achieveourplannedcostreductionsandcontrolouroperationalcostswhileproducingqualityModelSvehiclesatvolume,maintainandincreaseourModelSdeliveryratestomatch
ourcurrentandanticipatedModelSproductioncapacity,maintainstrongdemandforModelSintheU.S.,andgrowdemandforModelSabroadinEuropeandAsia.Failuretodoone
ormoreofthesethingscouldpreventusfromachievingsustained,longtermprofitability.
Theintroductionofourresalevalueguaranteemayresultinlowerrevenuesandprofitsandexposesustoresalerisktotheextentmanycustomerselecttoreturntheirvehiclesto
usandtheresidualvaluesofthesecarsarebelowtheguaranteedvalue.
WerecentlybeganofferingaresalevalueguaranteetoallcustomerswhopurchasedaModelSintheUnitedStatesandCanadaandfinancedtheirvehiclethroughoneofour
specifiedcommercialbankingpartners.Undertheprogram,ModelScustomershavetheoptionofsellingtheirvehiclebacktousduringtheperiodof36to39monthsfollowing
deliveryforapredeterminedresalevalue.Asaresultofthisresalevalueguaranteeandcustomershavingtheoptionofsellingtheirvehiclestous,weapplyleaseaccountingtosuch
purchases,which

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deferstherecognitionoftheassociatedrevenuesovertimeinsteadoffullrecognitionatvehicledelivery.Duringthefourthquarterof2013,weprovidedtheresalevalueguaranteeto
approximately40%ofModelSdeliveriesintheUnitedStatesandweexpectthepenetrationratetoincreasewiththeexpansionofourfinancingprogramsinadditionalstatesinthe
UnitedStatesandininternationalmarkets.Althoughtheresalevalueguaranteedoesnotimpactourcashflowsandliquidityatthetimeofvehicledelivery,asignificantuptakeunder
thisprogramcouldhaveasignificantadverseimpactonourneartermGAAPrevenuesandoperatingresults.Furthermore,whilewedonotassumeanycreditriskrelatedtothe
customer,weareexposedtotheriskthatthevehiclesresalevaluemaybelowerthanourestimatesandthevolumeofvehiclesreturnedtousmaybehigherthanourestimates,which
couldimpactourfuturecashflowsand/orprofitability.Currently,thereisonlyaverylimitedsecondarymarketforourelectricvehiclesinparticular,andelectricvehiclesingeneral,
onwhichtobaseourestimates,andsuchasecondarymarketmaynotdevelopinthefuture.Ourresidualvalueandreturnvolumeestimatescouldprovetobeincorrect,eitherofwhich
couldharmourfinancialconditionandoperatingresults.
Increasesincosts,disruptionofsupplyorshortageofrawmaterials,inparticularlithiumioncells,couldharmourbusiness.
Wemayexperienceincreasesinthecostorasustainedinterruptioninthesupplyorshortageofrawmaterials.Anysuchincreaseorsupplyinterruptioncouldmateriallyand
negativelyimpactourbusiness,prospects,financialconditionandoperatingresults.Weusevariousrawmaterialsinourbusinessincludingaluminum,steel,nickelandcopper.The
pricesfortheserawmaterialsfluctuatedependingonmarketconditionsandglobaldemandforthesematerialsandcouldadverselyaffectourbusinessandoperatingresults.For
instance,weareexposedtomultiplerisksrelatingtolithiumioncells.Theserisksinclude:

theinabilityorunwillingnessofcurrentbatterymanufacturerstobuildoroperatebatterycellmanufacturingplantstosupplythenumbersoflithiumioncellsrequiredto
supportthegrowthoftheelectricorpluginhybridvehicleindustryasdemandforsuchcellsincreases

disruptioninthesupplyofcellsduetoqualityissuesorrecallsbybatterycellmanufacturers

anincreaseinthecostofrawmaterials,suchasnickelusedinlithiumioncells,oraluminumusedinthebodyofModelSand

fluctuationsinthevalueoftheJapaneseyenagainsttheU.S.dollarasourbatterycellpurchasesarecurrentlydenominatedinJapaneseyen.

Ourbusinessisdependentonthecontinuedsupplyofbatterycellsforourvehiclesbatterypacksaswellasforthebatterypacksweproduceforotherautomobile
manufacturers.Whilewebelieveseveralsourcesofthebatterycellsareavailableforsuchbatterypacks,wehavefullyqualifiedonlyonesupplierforthecellsusedinsuchbattery
packsandhaveverylimitedflexibilityinchangingcellsuppliers.AnydisruptioninthesupplyofbatterycellsfromsuchvendorscoulddisruptproductionofModelSandofthe
batterypacksweproduceforotherautomobilemanufacturersuntilsuchtimeasadifferentsupplierisfullyqualified.Furthermore,fluctuationsorshortagesinpetroleumandother
economicconditionsmaycauseustoexperiencesignificantincreasesinfreightchargesandrawmaterialcosts.Substantialincreasesinthepricesforourrawmaterialsorprices
chargedtous,suchasthosechargedbyourbatterycellmanufacturers,wouldincreaseouroperatingcosts,andcouldreduceourmarginsifwecannotrecouptheincreasedcosts
throughincreasedelectricvehicleprices.Therecanbenoassurancethatwewillbeabletorecoupincreasingcostsofrawmaterialsbyincreasingvehicleprices.Anyattemptsto
increaseModelSpricesinresponsetoincreasedrawmaterialcostscouldbeviewednegativelybyourcustomers,resultincancellationsofModelSreservationsandcouldmaterially

andadverselyaffectourbrand,image,business,prospectsandoperatingresults.

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Oursuccesscouldbeharmedbynegativepublicityregardingourcompanyorourproducts,particularlyModelS.
Occasionally,thirdpartiesevaluateorpublishstoriesregardingourvehicles.Forexample,in2013theNewYorkTimespublishedareviewoftheModelSandourSupercharger
networkonaroutefromWashington,D.C.toBoston.Despiteinstructionstothecontrary,thereporterdidnotfollowallrecommendations,includingfailingtofullyrechargethe
vehicleatoneofthetwoSuperchargerlocationsalongtheroute.Asaresult,theModelSfailedtocompletethejourneyunderitsownpowerandtheNYTimesreporterpublisheda
negativereview.WhilethereweresubsequentcorrectionsbytheNYTimesPublicEditorregardingthereportersfailuretoconformtoallTeslarecommendations,aswellasproblems
withprecisionandjudgment,theoriginalstorystillcreatedanegativepublicperceptionaboutModelS,itscapabilitiesandtheSuperchargernetwork.Suchcommentscananddid
negativelyimpactsalesinthatregion.Inaddition,citationtotheoriginalNYTimesarticlehascontinuedlongafteritspublication.Totheextentthatthesecommentsarebelievedby
thepublic,thismaycausecurrentorpotentialcustomersnottopurchaseourelectricvehicles,includingModelSandModelX,whichcanmateriallyandadverselyaffectourbusiness,
operatingresults,financialconditionsandprospects.
Ourdistributionmodelisdifferentfromthepredominantcurrentdistributionmodelforautomobilemanufacturers,whichmakesevaluatingourbusiness,operatingresultsand
futureprospectsdifficult.
Ourdistributionmodelisnotcommonintheautomobileindustrytoday,particularlyintheUnitedStates.Weplantocontinuetosellourperformanceelectricvehiclesin
companyownedTeslastoresandovertheinternet.Thismodelofvehicledistributionisrelativelynewandunproven,especiallyintheUnitedStates,andsubjectsustosubstantialrisk
asitrequires,intheaggregate,asignificantexpenditureandprovidesforslowerexpansionofourdistributionandsalessystemsthanmaybepossiblebyutilizingamoretraditional
dealerfranchisesystem.Forexample,wewillnotbeabletoutilizelongestablishedsaleschannelsdevelopedthroughafranchisesystemtoincreaseoursalesvolume,whichmayharm
ourbusiness,prospects,financialconditionandoperatingresults.Moreover,wewillbecompetingwithcompanieswithwellestablisheddistributionchannels.
WehaveopenedTeslastoresintheUnitedStates,EuropeandtheAsiaPacificRegion,manyofwhichhavebeenopenforonlyashortperiodoftime.Wehaverelativelylimited
experiencedistributingandsellingourperformancevehiclesthroughourTeslastores.Oursuccesswilldependinlargepartonourabilitytoeffectivelydevelopourownsaleschannels
andmarketingstrategies.Implementingourbusinessmodelissubjecttonumeroussignificantchallenges,includingobtainingpermitsandapprovalsfromlocalandstateauthorities,
andwemaynotbesuccessfulinaddressingthesechallenges.Theconceptandlayoutofourinteractivestores,whicharetypicallylocatedinhighprofileretailcenters,isdifferentthan
whathaspreviouslybeenusedinautomotivesales.Wedonotknowwhetherourstorestrategywillcontinuetobesuccessful.Wemayincuradditionalcostsinordertoimproveor
changeourretailstrategy.
Otheraspectsofourdistributionmodelalsodifferfromthoseusedbytraditionalautomobilemanufacturers.Forexample,wedonotanticipatethatwewillevercarrya
significantamountofModelSinventoryatourstoresandcustomersmayneedtowaituptoafewmonthsfromthetimetheyplaceanorderuntilthetimetheyreceivetheirvehicle.
ThistypeofcustommanufacturingisunusualinthepremiumsedanmarketintheUnitedStatesanditisunprovenwhethertheaveragecustomerwillbewillingtowaitthisamountof
timeforsuchavehicle.Ifcustomersdonotembracethisorderingandretailexperience,ourbusinesswillbeharmed.
Wemaybecomesubjecttoproductliabilityclaims,whichcouldharmourfinancialconditionandliquidityifwearenotabletosuccessfullydefendorinsureagainstsuch
claims.
Wemaybecomesubjecttoproductliabilityclaims,whichcouldharmourbusiness,prospects,operatingresultsandfinancialcondition.Theautomobileindustryexperiences
significantproductliabilityclaimsandwefaceinherentriskofexposuretoclaimsintheeventourvehiclesdonotperformasexpectedormalfunctionresultinginpersonalinjuryor
death.Ourrisksinthisareaareparticularlypronouncedgiventhelimitednumber

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ofvehiclesdeliveredtodateandlimitedfieldexperienceofthosevehicles,includingModelS.Asuccessfulproductliabilityclaimagainstuscouldrequireustopayasubstantial
monetaryaward.Moreover,aproductliabilityclaimcouldgeneratesubstantialnegativepublicityaboutourvehiclesandbusinessandinhibitorpreventcommercializationofother
futurevehiclecandidateswhichwouldhavematerialadverseeffectonourbrand,business,prospectsandoperatingresults.Weselfinsureagainsttheriskofproductliabilityclaims.
Anylawsuitseekingsignificantmonetarydamagesmayhaveamaterialadverseeffectonourreputation,businessandfinancialcondition.Wemaynotbeabletosecureadditional
productliabilityinsurancecoverageoncommerciallyacceptabletermsoratreasonablecostswhenneeded,particularlyifwedofaceliabilityforourproductsandareforcedtomakea
claimundersuchapolicy.
Wearecurrentlyexpandingandimprovingourinformationtechnologysystems.Iftheseimplementationsarenotsuccessful,ourbusinessandoperationscouldbedisruptedand
ouroperatingresultscouldbeharmed.
Wearecurrentlyexpandingandimprovingourinformationtechnologysystems,includingimplementingnewinternallydevelopedsystems,toassistusinthemanagementof
ourbusiness.Inparticular,ourvolumeproductionofModelSintheU.S.andabroadnecessitatescontinueddevelopment,maintenanceandimprovementofourinformation
technologysystems,whichincludeproductdatamanagement,procurement,inventorymanagement,productionplanningandexecution,sales,serviceandlogistics,dealer
management,financial,taxandregulatorycompliancesystems.ThesesystemssupportouroperationsandenableustoproduceModelSinvolume.Theimplementation,maintenance
andimprovementofthesesystemsrequiresignificantmanagementtime,supportandcost.Moreover,thereareinherentrisksassociatedwithdeveloping,improvingandexpandingour
coresystemsaswellasimplementingnewsystems,includingthedisruptionofourdatamanagement,procurementprocesses,manufacturingexecution,finance,supplychainandsales
andserviceprocessesthatmayaffectourabilitytomanageourdataandinventory,procurepartsorsuppliesormanufacture,sell,deliverandservicevehicles,orachieveandmaintain
compliancewith,orrealizeavailablebenefitsunder,taxlawsandotherapplicableregulations.Wecannotbesurethattheseexpandedsystemsortheirrequiredfunctionalitywillbe
fullyoreffectivelyimplementedonatimelybasis,ifatall,ormaintained.Ifwedonotsuccessfullyimplement,improveormaintainthesesystems,ouroperationsmaybedisruptedand
ouroperatingresultscouldbeharmed.Inaddition,thesesystemsortheirfunctionalitymaynotoperateasweexpectthemto,andwemayberequiredtoexpendsignificantresourcesto
correctproblemsorfindalternativesourcesforperformingthesefunctions.
WemaynotrealizethebenefitsofourSuperchargernetwork,whichcouldharmourbusiness,brandandoperatingresults.
WehaveonlyrecentlystartedtodeployTeslaSuperchargersintheUnitedStatesandEurope.TeslaSuperchargersareanetworkofchargingstationsdesignedtoprovidefast
chargecapabilitytoownersofModelSvehicleswiththeSuperchargingoption.WeintendtoexpandtheTeslaSuperchargernetworkthroughouttheU.S.,Canada,EuropeandAsia,
butwemaybeunabletodosoduetoanumberoffactors,includingtheinabilitytosecure,ordelaysinsecuring,suitablelocationsandpermits,problemsnegotiatingleaseswith
landownersorobtainingrequiredpermitsforsuchlocations,difficultiesininterfacingwiththeinfrastructuresofvariousutilitycompaniesandgreaterthanexpectedcostsand
difficultiesofinstalling,maintainingandoperatingthenetwork.
WemayalsobeunabletoexpandtheSuperchargernetworkasfastasweintendorasthepublicexpects,ortoplacethechargingstationsinplacesourcustomersbelievetobe
optimal.Furthermore,evenwhereSuperchargersexist,theincreasingnumberofModelSvehiclesmayoversaturatetheavailablechargingbaysatsuchSuperchargers,leadingto
increasedwaittimesanddissatisfactionforcustomers.Inaddition,aswehaveannouncedthatwewillnotbechargingourcustomerstoaccessthisnetworkinadditiontowhatthey
havealreadypaidfortheirvehicles,anysignificantunexpectedcoststhatweencounterwillentirelybebornebyusandmayharmouroperatingresults.AlthoughourSupercharger
networkisintendedtoaddresscustomerconcernsregardinglongdistancetravel,thisnetworkmaynotresultinincreasedreservationsorsalesofModelS

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orfuturevehicles.IfourSuperchargernetworkisnotexpandedascurrentlyplannedorasquicklyasplanned,wemaynotrealizethebenefitsofourSuperchargernetworkandour
businessandoperatingresultscouldbemateriallyaffected.
Ifweareunabletodesign,develop,marketandsellnewelectricvehiclesthataddressadditionalmarketopportunities,ourbusiness,prospectsandoperatingresultswillsuffer.
Wemaynotbeabletosuccessfullydevelopnewelectricvehicles,addressnewmarketsegmentsordevelopasignificantlybroadercustomerbase.In2012,wepubliclyrevealed
anearlyprototypeoftheModelXcrossoverasthefirstvehicleweintendtodevelopbyleveragingtheModelSplatform.WehavealsoannouncedourintenttodevelopGenIIIbased
onasmallerplatformthantheModelSwhichweexpecttoproduceattheTeslaFactoryaftertheintroductionofModelX.TheGenIIIiscurrentlyplannedtobealowercost,smaller
sedandesignedforthemassmarket.Therefore,weintendtothemanufactureGenIIIinsignificantlyhighervolumesthanModelSandtherecanbenoassurancewecansuccessfully
scaleourbusinessaccordingly.Inaddition,wehavenotyetfinalizedthedesign,engineeringorcomponentsourcingplansforGenIIIandtherearenoassurancesthatwewillbeable
tobringthisvehicletomarketatthepricepointandinthevolumethatwecurrentlyintend,ifatall.ThemarketforvehiclesinthepricerangeweexpectforGenIIIismuchmore
competitivethanforModelsSandX,andthereforemarginsarelikelytobelowercomparedtoModelSmargins.OureffortstomanufactureandsellasufficientlyprofitableGenIII
maynotbeassuccessful,andthereforeourbusiness,prospectsandoperatingresultsmaysuffer.Ourfailuretoaddressadditionalmarketopportunitieswouldharmourbusiness,
prospects,financialconditionandoperatingresults.
Wemayexperiencesignificantdelaysinthedesign,manufactureandlaunchofModelXwhichcouldharmourbusinessandprospects.
WeexpecttohaveModelXprototypeswithproductiondesignontheroadbytheendof2014andbeginvolumedeliveriestocustomersinthespringof2015.Anysignificant
delayinthedesign,manufactureandlaunchofModelXcouldmateriallydamageourbrand,business,prospects,financialconditionandoperatingresults.Automobilemanufacturers
oftenexperiencedelaysinthedesign,manufactureandcommercialreleaseofnewvehiclemodels.WeexperiencedsignificantdelaysinlaunchingtheTeslaRoadster,whichresulted
inadditionalcostsandadversepublicityforourbusiness.In2012,wealsoexperienceddelaysintherampofModelS.WemayexperiencefurtherdelaysinlaunchingModelXwhich
mayresultincostoverrunsandadversepublicity.WeareinthedesignanddevelopmentstagesofModelX.Furthermore,wehavenotyetevaluated,qualifiedorselectedallofour
suppliersfortheplannedproductionofModelX.Wemaynotbeabletoengagesuppliersforthecomponentsinatimelymanner,atanacceptablepriceorinthenecessaryquantities.
WewillalsoneedtodoextensivetestingtoensurethatModelXisincompliancewithapplicableNHTSAsafetyregulationsandobtainEPAandCARBcertificationtoemission
regulationspriortobeginningvolumeproductionanddeliveryofthevehicles.Inaddition,wehavelimitedresourcesand,totheextentthatsuchengineeringandmanufacturing
resourcesaredevotedtoModelSorareotherwiseengagedsuchasindevelopmentservicesactivities,wemayhavedifficultydesigninganddeliveringModelXinatimelymanner.If
wearenotabletomanufactureanddeliverModelXinatimelymannerandconsistentwithourproductiontimeline,budgetandcostprojections,ourbusiness,prospects,operating
resultsandfinancialconditionwillbenegativelyimpactedandourabilitytogrowourbusinesswillbeharmed.
Theautomotivemarketishighlycompetitive,andwemaynotbesuccessfulincompetinginthisindustry.Wecurrentlyfacecompetitionfromnewandestablishedcompetitors
andexpecttofacecompetitionfromothersinthefuture.
Theworldwideautomotivemarket,particularlyforalternativefuelvehicles,ishighlycompetitivetodayandweexpectitwillbecomeevenmoresointhefuture.Other
automobilemanufacturersenteredtheelectricvehiclemarketattheendof2010andweexpectadditionalcompetitorstoenterthismarket.WithrespecttoModelS,weface
competitionfromexistingandfutureautomobilemanufacturersintheextremelycompetitivepremiumsedanmarket,includingAudi,BMW,LexusandMercedes.

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Manyestablishedandnewautomobilemanufacturershaveenteredorhaveannouncedplanstoenterthealternativefuelvehiclemarket.Mitsubishihasbeensellingitsfully
electriciMiEVinJapansinceApril2010andNissanhasbeensellingthefullyelectricNissanLeafsinceDecember2010.Inthepastfewyears,Fordhasintroducedthefullyelectric
FordFocus,RenaulthasintroducedthefullyelectricRenaultFluence,andFiathasintroducedtheFiat500e,amongothers.Moreover,BMWintendstointroducethefullyelectric
BMWi3inthesecondquarterof2014andVolkswagenplanstointroduceitsfullyelectriceGolfandin2014.Inaddition,severalmanufacturers,includingGeneralMotors,Toyota,
Ford,andHonda,areeachsellinghybridvehicles,andcertainofthesemanufacturershaveannouncedpluginversionsoftheirhybridvehicles.Forexample,inDecember2010,
GeneralMotorsintroducedtheChevroletVolt,whichisapluginhybridvehiclethatoperatespurelyonelectricpowerforalimitednumberofmiles,atwhichtimeaninternal
combustionengineengagestorechargethebatterypack.
Moreover,ithasbeenreportedthatmanyoftheotherlargeOEMs,suchasDaimler,LexusandAudi,arealsodevelopingelectricvehicles.Severalnewstartupshavealso
enteredorannouncedplanstoenterthemarketforperformanceelectricvehicles.Finally,electricvehicleshavealreadybeenbroughttomarketinChinaandotherforeigncountries
andweexpectanumberofthosemanufacturerstoentertheUnitedStatesmarketaswell.
Mostofourcurrentandpotentialcompetitorshavesignificantlygreaterfinancial,technical,manufacturing,marketingandotherresourcesthanwedoandmaybeableto
devotegreaterresourcestothedesign,development,manufacturing,distribution,promotion,saleandsupportoftheirproducts.Virtuallyallofourcompetitorshavemoreextensive
customerbasesandbroadercustomerandindustryrelationshipsthanwedo.Inaddition,almostallofthesecompanieshavelongeroperatinghistoriesandgreaternamerecognition
thanwedo.Ourcompetitorsmaybeinastrongerpositiontorespondquicklytonewtechnologiesandmaybeabletodesign,develop,marketandselltheirproductsmoreeffectively.
Additionally,wehavenotinthepast,anddonotcurrently,offercustomarydiscountsonourvehicleslikemostofourcompetitorsdo.
Weexpectcompetitioninourindustrytointensifyinthefutureinlightofincreaseddemandforalternativefuelvehicles,continuingglobalizationandconsolidationinthe
worldwideautomotiveindustry.Factorsaffectingcompetitionincludeproductqualityandfeatures,innovationanddevelopmenttime,pricing,reliability,safety,fueleconomy,
customerserviceandfinancingterms.Increasedcompetitionmayleadtolowervehicleunitsalesandincreasedinventory,whichmayresultinafurtherdownwardpricepressureand
adverselyaffectourbusiness,financialcondition,operatingresultsandprospects.Ourabilitytosuccessfullycompeteinourindustrywillbefundamentaltoourfuturesuccessin
existingandnewmarketsandourmarketshare.Therecanbenoassurancesthatwewillbeabletocompetesuccessfullyinourmarkets.Ifourcompetitorsintroducenewcarsorservices
thatcompetewithorsurpassthequality,priceorperformanceofourcarsorservices,wemaybeunabletosatisfyexistingcustomersorattractnewcustomersatthepricesandlevels
thatwouldallowustogenerateattractiveratesofreturnonourinvestment.Increasedcompetitioncouldresultinpricereductionsandrevenueshortfalls,lossofcustomersandlossof
marketshare,whichcouldharmourbusiness,prospects,financialconditionandoperatingresults.
Demandintheautomobileindustryishighlyvolatile,whichmayleadtolowervehicleunitsalesandadverselyaffectouroperatingresults.
Volatilityofdemandintheautomobileindustrymaymateriallyandadverselyaffectourbusiness,prospects,operatingresultsandfinancialcondition.Themarketsinwhichwe
currentlycompeteandplantocompeteinthefuturehavebeensubjecttoconsiderablevolatilityindemandinrecentperiods.Forexample,accordingtoautomotiveindustrysources,
salesofpassengervehiclesinNorthAmericaduringthefourthquarterof2008wereover30%lowerthanthoseduringthesameperiodintheprioryear.Demandforautomobilesales
dependstoalargeextentongeneral,economic,politicalandsocialconditionsinagivenmarketandtheintroductionofnewvehiclesandtechnologies.Asanewautomobile
manufacturerandlowvolumeproducer,wehavelessfinancialresourcesthanmoreestablishedautomobilemanufacturerstowithstandchangesinthemarketanddisruptionsin
demand.Asourbusinessgrows,economicconditionsandtrendsinothercountriesandregionswherewecurrentlyorwillsell

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ourelectricvehicles,suchasEuropeandAsia,willimpactourbusiness,prospectsandoperatingresultsaswell.Demandforourelectricvehiclesmayalsobeaffectedbyfactors
directlyimpactingautomobilepriceorthecostofpurchasingandoperatingautomobiles,suchassalesandfinancingincentives,pricesofrawmaterialsandpartsandcomponents,cost
offuelandgovernmentalregulations,includingtariffs,importregulationandothertaxes.Volatilityindemandmayleadtolowervehicleunitsalesandincreasedinventory,whichmay
resultinfurtherdownwardpricepressureandadverselyaffectourbusiness,prospects,financialconditionandoperatingresults.Theseeffectsmayhaveamorepronouncedimpacton
ourbusinessgivenourrelativelysmallerscaleandfinancialresourcesascomparedtomanyincumbentautomobilemanufacturers.
Ourfinancialresultsmayvarysignificantlyfromperiodtoperiodduetotheseasonalityofourbusiness,fluctuationsinouroperatingcostsandotherfactors.
Ouroperatingresultsmayvarysignificantlyfromperiodtoperiodduetomanyfactors,includingseasonalfactorsthatmayhaveaneffectonthedemandforourelectric
vehicles.Demandfornewcarsintheautomobileindustrytypicallydeclinesoverthewinterseason,whilesalesaregenerallyhigherduringthespringandsummermonths.Salesofthe
TeslaRoadsterfluctuatedonaseasonalbasiswithincreasedsalesduringthespringandsummermonthsinoursecondandthirdfiscalquartersrelativetoourfourthandfirstfiscal
quarters.Wenotethat,ingeneral,automotivesalestendtodeclineoverthewinterseasonandweanticipatethatoursalesofModelSandfuturemodelsmayhavesimilarseasonality.
However,ourlimitedoperatinghistorymakesitdifficultforustojudgetheexactnatureorextentoftheseasonalityofourbusiness.Also,anyunusuallysevereweatherconditionsin
somemarketsmayimpactdemandforourvehicles.Ouroperatingresultscouldalsosufferifwedonotachieverevenueconsistentwithourexpectationsforthisseasonaldemand
becausemanyofourexpensesarebasedonanticipatedlevelsofannualrevenue.
Inaddition,weexpectourperiodtoperiodoperatingresultstovarybasedonouroperatingcostswhichweanticipatewillincreasesignificantlyinfutureperiodsaswe,among
otherthings,design,developandmanufactureModelXandfutureproducts,increasetheproductioncapacityatourmanufacturingfacilitiestoproducevehiclesathighervolumes,
developtheTeslaGigafactory,opennewTeslaservicecenterswithmaintenanceandrepaircapabilities,opennewSuperchargerlocations,increaseoursalesandmarketingactivities,
andincreaseourgeneralandadministrativefunctionstosupportourgrowingoperations.Asaresultofthesefactors,webelievethatquartertoquartercomparisonsofouroperating
results,especiallyintheshortterm,arenotnecessarilymeaningfulandthatthesecomparisonscannotberelieduponasindicatorsoffutureperformance.Moreover,ouroperating
resultsmaynotmeetexpectationsofequityresearchanalystsorinvestors.Ifanyofthisoccurs,thetradingpriceofourcommonstockcouldfallsubstantially,eithersuddenlyorover
time.
Ifweareunabletoestablishandmaintainconfidenceinourlongtermbusinessprospectsamongconsumers,analystsandwithinourindustry,thenourfinancialcondition,
operatingresults,businessprospectsandstockpricemaysuffermaterially.
Ourvehiclesarehighlytechnicalproductsthatrequiremaintenanceandsupport.Ifweweretoceaseorcutbackoperations,evenyearsfromnow,buyersofourvehiclesfrom
yearsearliermighthavemuchmoredifficultyinmaintainingtheirvehiclesandobtainingsatisfactorysupport.Asaresult,consumersmaybelesslikelytopurchaseourvehiclesnowif
theyarenotconvincedthatourbusinesswillsucceedorthatouroperationswillcontinueformanyyears.Similarly,suppliersandotherthirdpartieswillbelesslikelytoinvesttime
andresourcesindevelopingbusinessrelationshipswithusiftheyarenotconvincedthatourbusinesswillsucceed.Ifwearerequiredtocurtailourexpansionplansinthefutureaswe
havedoneinthepast,thismayresultinnegativeperceptionsregardingourlongtermbusinessprospectsandmayleadtocancellationsofModelSorModelXordersandreservations.
Accordingly,inordertobuildandmaintainourbusiness,wemustmaintainconfidenceamongcustomers,suppliers,analystsandotherpartiesinourliquidityandlongterm
businessprospects.Incontrasttosomemore

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establishedautomakers,webelievethat,inourcase,thetaskofmaintainingsuchconfidencemaybeparticularlycomplicatedbyfactorssuchasthefollowing:

ourlimitedoperatinghistory

unfamiliaritywithoruncertaintyaboutModelX

uncertaintyaboutthelongtermmarketplaceacceptanceofalternativefuelvehiclesgenerally,orelectricvehiclesspecifically

theperceivedprospectthatwewillneedongoinginfusionsofexternalcapitaltofundourplannedoperations

thesizeofourexpansionplansincomparisontoourexistingcapitalbaseandscopeandhistoryofoperationsand

theprospectoractualemergenceofdirect,sustainedcompetitivepressurefrommoreestablishedautomakers,whichmaybemorelikelyifourinitialeffortsareperceived
tobecommerciallysuccessful.

Manyofthesefactorsarelargelyoutsideourcontrol,andanynegativeperceptionsaboutourlongtermbusinessprospects,evenifexaggeratedorunfounded,wouldlikely
harmourbusinessandmakeitmoredifficulttoraiseadditionalfundswhenneeded.
Wemayneedorwanttoraiseadditionalfundsandthesefundsmaynotbeavailabletouswhenweneedthem.Ifwecannotraiseadditionalfundswhenweneedorwantthem,
ouroperationsandprospectscouldbenegativelyaffected.
Thedesign,manufacture,saleandservicingofautomobilesisacapitalintensivebusiness.Weexpectthatourprincipalsourcesofliquiditywillprovideusadequateliquidity
basedonourcurrentplans.However,untilweareconsistentlygeneratingpositivefreecashflows,ifthecostsfordevelopingandmanufacturingModelXexceedourexpectationsorif
weincuranysignificantunplannedexpensesorembarkonoracceleratenewsignificantstrategicinvestments,suchastheTeslaGigafactory,wemayneedtoraiseadditionalfunds
throughtheissuanceofequity,equityrelatedordebtsecuritiesorthroughobtainingcreditfromgovernmentorfinancialinstitutions.Thiscapitalwillbenecessarytofundour
ongoingoperations,continueresearchanddevelopmentprojects,includingthoseforourplannedModelXcrossoverandGenIIIvehicle,establishsalesandservicecenters,buildand
deploySuperchargersandtomaketheinvestmentsintoolingandmanufacturingcapitalrequiredtointroduceModelX.Wecannotbecertainthatadditionalfundswillbeavailableto
usonfavorabletermswhenrequired,oratall.Ifwecannotraiseadditionalfundswhenweneedthem,ourfinancialcondition,resultsofoperations,businessandprospectscouldbe
materiallyadverselyaffected.
Wehavelimitedexperienceservicingourvehiclesandweareusingadifferentservicemodelfromtheonetypicallyusedintheindustry.Ifweareunabletoaddresstheservice

requirementsofourexistingandfuturecustomers,ourbusinesswillbemateriallyandadverselyaffected.
Ifweareunabletosuccessfullyaddresstheservicerequirementsofourexistingandfuturecustomersandmeetcustomerexpectationsregardingservice,ourbusinessand
prospectswillbemateriallyandadverselyaffected.Wehavelimitedexperienceservicingourvehicles.Servicingelectricvehiclesisdifferentthanservicingvehicleswithinternal
combustionenginesandrequiresspecializedskills,includinghighvoltagetrainingandservicingtechniques.Ifweareunabletosatisfactorilyserviceourcustomersandthevarious
servicerelatedissuesthattheyarefacingandmayfaceinthefuture,ourabilitytogeneratecustomerloyalty,growourbusinessandselladditionalModelSvehiclescouldbe
impaired.
WeserviceourperformanceelectricvehiclesthroughourcompanyownedTeslaservicecenters,certainofourstores,andthroughourmobileservicetechniciansknownasthe
TeslaRangers.However,certainservicecentershavebeenopenforshortperiods,andtodatewehaveonlylimitedexperienceservicingourperformancevehiclesattheselocations.We
willneedtoopennewstandaloneservicecentersandhireandtrainsignificantnumbersofnew

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employeestostafftheseservicecentersandactasTeslaRangers,inordertosuccessfullymaintainourfleetofdeliveredperformanceelectricvehicles.WeonlyimplementedourTesla
RangersprograminOctober2009andhavelimitedexperienceindeployingthemtoserviceourcustomersvehicles.Therecanbenoassurancethattheseservicearrangementsorour
limitedexperienceservicingourvehicleswilladequatelyaddresstheservicerequirementsofourcustomerstotheirsatisfaction,orthatwewillhavesufficientresourcestomeetthese
servicerequirementsinatimelymannerasthevolumeofvehiclesweareabletodeliverannuallyincreases.
WedonotexpecttobeabletoopenTeslaservicecentersinallthegeographicareasinwhichourexistingandpotentialcustomersmayreside.Inordertoaddresstheservice
needsofcustomerswhoarenotingeographicalproximitytoourservicecenters,weplantoeithertransportthosevehiclestothenearestTeslastoreorservicecenterforservicingor
deployourmobileTeslaRangerstoservicethevehiclesatthecustomerslocation.Thesespecialarrangementsmaybeexpensiveandwemaynotbeabletorecoupthecostsof
providingtheseservicestoourcustomers.Inaddition,anumberofpotentialcustomersmaychoosenottopurchaseourvehiclesbecauseofthelackofamorewidespreadservice
network.Ifwedonotadequatelyaddressourcustomersserviceneeds,ourbrandandreputationwillbeadverselyaffected,whichinturn,couldhaveamaterialandadverseimpacton
ourbusiness,financialcondition,operatingresultsandprospects.
TraditionalautomobilemanufacturersintheUnitedStatesdonotprovidemaintenanceandrepairservicesdirectly.Consumersmustratherservicetheirvehiclesthrough
franchiseddealershipsorthroughthirdpartymaintenanceserviceproviders.Wedonothaveanysucharrangementswiththirdpartyserviceprovidersanditisunclearwhenoreven
whethersuchthirdpartyserviceproviderswillbeabletoacquiretheexpertisetoserviceourvehicles.Atthispoint,weanticipatethatwewillbeprovidingsubstantiallyallofthe
serviceforourvehiclesfortheforeseeablefuture.Asourvehiclesareplacedinmorelocations,wemayencounternegativereactionsfromourconsumerswhoarefrustratedthatthey
cannotuselocalservicestationstothesameextentastheyhavewiththeirconventionalautomobilesandthisfrustrationmayresultinnegativepublicityandreducedsales,thereby
harmingourbusinessandprospects.
Inaddition,themotorvehicleindustrylawsinmanystatesrequirethatservicefacilitiesbeavailablewithrespecttovehiclesphysicallysoldfromlocationsinthestate.
Whethertheselawswouldalsorequirethatservicefacilitiesbeavailablewithrespecttovehiclessoldovertheinternettoconsumersinastateinwhichwehavenophysicalpresenceis
uncertain.WhilewebelieveourTeslaRangerprogramandourpracticeofshippingcustomersvehiclestoournearestTeslastoreforservicewouldsatisfyregulatorsinthese
circumstances,withoutseekingformalregulatoryguidance,therearenoassurancesthatregulatorswillnotattempttorequirethatweprovidephysicalservicefacilitiesintheirstates.
Further,certainstatefranchiselawswhichprohibitmanufacturersfrombeinglicensedasadealeroractinginthecapacityofdealeralsorestrictmanufacturersfromprovidingvehicle
service.Ifissuesariseinconnectionwiththeselaws,certainaspectsofTeslasserviceprogramwouldneedtoberestructuredtocomplywithstatelaw,whichmayharmourbusiness.
WemaynotsucceedinmaintainingandstrengtheningtheTeslabrand,whichwouldmateriallyandadverselyaffectcustomeracceptanceofourvehiclesandcomponentsand
ourbusiness,revenuesandprospects.
Ourbusinessandprospectsareheavilydependentonourabilitytodevelop,maintainandstrengthentheTeslabrand.Anyfailuretodevelop,maintainandstrengthenourbrand
maymateriallyandadverselyaffectourabilitytoselltheModelS,ModelX,GenIIIandotherfutureplannedelectricvehicles,andsellourelectricpowertraincomponents.Ifwedo
notcontinuetoestablish,maintainandstrengthenourbrand,wemaylosetheopportunitytobuildacriticalmassofcustomers.Promotingandpositioningourbrandwilllikely
dependsignificantlyonourabilitytoprovidehighqualityelectriccarsandmaintenanceandrepairservices,andwehaveverylimitedexperienceintheseareas.Anyproblems
associatedwiththeToyotaRAV4EVthatusesaTeslapowertrain,theMercedesBenzBClassEVthatwilluseaTeslapowertrainortheModelXmayhurttheTeslabrand.

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Inaddition,weexpectthatourabilitytodevelop,maintainandstrengthentheTeslabrandwillalsodependheavilyonthesuccessofourmarketingefforts.Todate,wehave
limitedexperiencewithmarketingactivitiesaswehavereliedprimarilyontheinternet,wordofmouthandattendanceatindustrytradeshowstopromoteourbrand.Tofurther
promoteourbrand,wemayberequiredtochangeourmarketingpractices,whichcouldresultinsubstantiallyincreasedadvertisingexpenses,includingtheneedtousetraditional
mediasuchastelevision,radioandprint.Theautomobileindustryisintenselycompetitive,andwemaynotbesuccessfulinbuilding,maintainingandstrengtheningourbrand.Many
ofourcurrentandpotentialcompetitors,particularlyautomobilemanufacturersheadquarteredinDetroit,JapanandtheEuropeanUnion,havegreaternamerecognition,broader
customerrelationshipsandsubstantiallygreatermarketingresourcesthanwedo.Ifwedonotdevelopandmaintainastrongbrand,ourbusiness,prospects,financialconditionand
operatingresultswillbemateriallyandadverselyimpacted.
Ifourvehicleownerscustomizeourvehiclesorchangethecharginginfrastructurewithaftermarketproducts,thevehiclemaynotoperateproperly,whichcouldharmour
business.
Automobileenthusiastsmayseektohackourvehiclestomodifyitsperformancewhichcouldcompromisevehiclesafetysystems.Also,weareawareofcustomerswhohave
customizedtheirvehicleswithaftermarketpartsthatmaycompromisedriversafety.Forexample,somecustomershaveinstalledseatsthatelevatethedriversuchthatairbagandother
safetysystemscouldbecompromised.Othercustomershavechangedwheelsandtires,whileothershaveinstalledlargespeakersystemsthatmayimpacttheelectricalsystemsofthe
vehicle.Wehavenottested,nordoweendorse,suchchangesorproducts.Inaddition,customeruseofimproperexternalcablingorunsafechargingoutletscanexposeourcustomers
toinjuryfromhighvoltageelectricity.Suchunauthorizedmodificationscouldreducethesafetyofourvehiclesandanyinjuriesresultingfromsuchmodificationscouldresultin
adversepublicitywhichwouldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.
OurdepositsforModelSandreservationsforModelXmayberefundabletocustomers,andsignificantcancellationscouldharmourfinancialconditionandbusiness
prospects.
AsofDecember31,2013,wehad$163.2millionincustomerdeposits,primarilyforModelSandModelX.ModelSdepositsaregenerallysubjecttocancellationbythe
customerandfullyrefundableupuntiltwoweeksafterplacingtheorder.ModelXreservationsarefullyrefundableuntilsuchtimewhencustomersbegintoconfiguretheirvehiclesfor
delivery.Wehaveexperiencedordercancellationsforourvehiclesandhavehadtorefundtherelateddeposits,andcancellationsmaycontinue.
GiventheleadtimesthatwehavehistoricallyexperiencedbetweencustomerreservationanddeliveryontheTeslaRoadsterandonModelSandthatweexpecttoexperience
onModelX,thereisriskthatcustomerswhohaveplacedordersormadereservationsforourvehiclesmaycancelsuchordersorreservationsandnotultimatelytakedeliveryon
vehiclesduetopotentialchangesincustomerpreferences,competitivedevelopmentsandotherfactors.
Additionally,ifweencounterdelaysinourplannedlaunchandrampinAsia,orfurtherdelaysintheintroductionofModelX,asignificantnumberofourcustomerscould
similarlycanceltheirordersorreservationsanddemandrefundsoftheirdeposits.Asaresult,noassurancecanbemadethatordersandreservationswillnotbecancelledandwill
ultimatelyresultinthefinalpurchase,delivery,andsaleofthevehicle.
OurplantoexpandournetworkofTeslastores,servicecentersandSuperchargerswillrequiresignificantcashinvestmentsandmanagementresourcesandmaynotmeetour
expectationswithrespecttoadditionalsalesofourelectricvehicles.Inaddition,wemaynotbeabletoopenstoresorservicecentersincertainstatesorSuperchargersin
desiredlocations.
OurplantoexpandournetworkofTeslastores,servicecentersandSuperchargerswillrequiresignificantcashinvestmentsandmanagementresourcesandmaynotmeetour

expectationswithrespecttoadditionalsales

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ofourelectricvehicles.Thisongoingglobalexpansionmaynothavethedesiredeffectofincreasingsalesandexpandingourbrandpresencetothedegreeweareanticipating.
Furthermore,therecanbenoassurancesthatwewillbeabletoexpandonthebudgetortimelinewehaveestablished.Wewillalsoneedtoensureweareincompliancewithany
regulatoryrequirementsapplicabletothesaleandserviceofourvehiclesinthosejurisdictions,whichcouldtakeconsiderabletimeandexpense.Ifweexperienceanydelaysin
expandingournetworkofTeslastores,servicecentersandSuperchargers,thiscouldleadtoadecreaseinsalesofourvehiclesandcouldnegativelyimpactourbusiness,prospects,
financialconditionandoperatingresults.WehaveopenedTeslastoresandservicecentersinmajormetropolitanareasthroughoutNorthAmerica,EuropeandAsia,andweplanto
openadditionalstoresandservicecentersworldwidetosupportourongoingworldwideModelSrollout.WehavealsorapidlyexpandedourSuperchargernetworkintheU.S.and
Europe.However,wemaynotbeabletoexpandatasufficientrateandourplannedexpansionwillrequiresignificantcashinvestmentandmanagementresources,aswellasefficiency
intheexecutionofestablishingtheselocationsandinhiringandtrainingthenecessaryemployeestoeffectivelysellandserviceourvehicles.
Furthermore,certainstatesandforeignjurisdictionsmayhavepermitrequirements,franchisedealerlawsorsimilarlawsorregulationsthatmayprecludeorrestrictourabilityto
openstoresorsellvehiclesoutofsuchstatesandjurisdictions.Anysuchprohibitionorrestrictionmayleadtodecreasedsalesinsuchjurisdictions,whichcouldharmourbusiness,
prospectsandoperatingresults.SeeRiskFactorWemayfaceregulatorylimitationsonourabilitytosellvehiclesdirectlyorovertheinternetwhichcouldmateriallyandadversely
affectourabilitytosellourelectricvehicles.Additionally,wemayfacepotentialdifficultiesinfindingsuitableSuperchargersitesindesiredlocations,negotiatingleasesor
obtainingrequiredpermitsforsuchlocations.
Wefacerisksassociatedwithourinternationaloperations,includingunfavorableregulatory,political,taxandlaborconditionsandestablishingourselvesinnewmarkets,all
ofwhichcouldharmourbusiness.
Wefacevariousrisksassociatedwithourinternationaloperations.WecurrentlyhaveinternationaloperationsandsubsidiariesinvariouscountriesandjurisdictionsinEurope
andAsiathataresubjecttothelegal,political,regulatoryandsocialrequirementsandeconomicconditionsinthesejurisdictions.Additionally,aspartofourgrowthstrategy,wewill
continuetoexpandoursales,maintenance,repairandSuperchargerservicesinternationally,particularlyinChina.However,wehavelimitedexperiencetodatesellingandservicing
ourvehiclesinternationallyandsuchexpansionrequiresustomakesignificantexpenditures,includingtheestablishmentoflocaloperatingentities,hiringoflocalemployeesand
establishingfacilities,inadvanceofgeneratinganyrevenue.Wearesubjecttoanumberofrisksassociatedwithinternationalbusinessactivitiesthatmayincreaseourcosts,impact
ourabilitytosellourelectricvehiclesandrequiresignificantmanagementattention.Theserisksinclude:

conformingourvehiclestovariousinternationalregulatoryandsafetyrequirementswhereourvehiclesaresold,orhomologation

difficultyinestablishing,staffingandmanagingforeignoperations

difficultiesattractingcustomersinnewjurisdictions

foreigngovernmenttaxes,regulationsandpermitrequirements,includingforeigntaxesthatwemaynotbeabletooffsetagainsttaxesimposeduponusintheUnited
States,andforeigntaxandotherlawslimitingourabilitytorepatriatefundstotheUnitedStates

fluctuationsinforeigncurrencyexchangeratesandinterestrates,includingrisksrelatedtoanyinterestrateswaporotherhedgingactivitiesweundertake

ourabilitytoenforceourcontractualandintellectualpropertyrights,especiallyinthoseforeigncountriesthatdonotrespectandprotectintellectualpropertyrightsto
thesameextentasdotheUnitedStates,JapanandEuropeancountries,whichincreasestheriskofunauthorized,anduncompensated,useofourtechnology

UnitedStatesandforeigngovernmenttraderestrictions,customsregulations,tariffsandpriceorexchangecontrols

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foreignlaborlaws,regulationsandrestrictions

preferencesofforeignnationsfordomesticallyproducedvehicles

changesindiplomaticandtraderelationships

politicalinstability,naturaldisasters,waroreventsofterrorismand

thestrengthofinternationaleconomies.

Additionally,aswehaveexpandedintonewinternationalmarkets,wehavefacedchallengeswithensuringthatourchargingequipmentworkssuccessfullywiththecharging
infrastructureinsuchmarkets.Forexample,wehaveencounteredsuchchallengesinNorway.Thesetypesofissuescouldalsoariseasweenterintoothernewmarkets,suchasChina.If
customersexperienceproblemswiththewayourchargingequipmentworkswiththelocalcharginginfrastructure,orweareunabletoadaptourequipmenttoresolvesuchproblems,
thentheviabilityandacceptanceofourvehiclesinsuchmarketscouldbemateriallyandadverselyaffected.
Ifwefailtosuccessfullyaddresstheserisks,ourbusiness,prospects,operatingresultsandfinancialconditioncouldbemateriallyharmed.
ForeigncurrencymovementsrelativetotheU.S.dollarcouldharmourfinancialresults.
Ourrevenuesandcostsdenominatedinforeigncurrenciesarenotcompletelymatched.Aportionofourcostsandexpenseshavebeenandweanticipatewillcontinuetobe
denominatedinforeigncurrencies,includingtheJapaneseyen,theeuro,theChineseyuanandtheBritishpound.Ifwedonothavefullyoffsettingrevenuesinthesecurrenciesandif
thevalueoftheU.S.dollardepreciatessignificantlyagainstthesecurrencies(especiallyagainsttheJapaneseyen),ourcostsasmeasuredinU.S.dollarsasapercentofourrevenueswill
correspondinglyincreaseandourmarginswillsuffer.Asaresult,ouroperatingresultscouldbeadverselyaffected.AswedramaticallyincreaseModelSdeliveriesoverseasduring
2014andbeyond,aswellasbegindeliveringpowertrainunitstoDaimler,wemayhavegreaterrevenuesthancostsdenominatedinothercurrencies,inwhichcaseastrengtheningof
thedollarwouldtendtoreduceourrevenuesasmeasuredinU.S.dollars.
Developmentsinalternativetechnologiesorimprovementsintheinternalcombustionenginemaymateriallyadverselyaffectthedemandforourelectricvehicles.
Significantdevelopmentsinalternativetechnologies,suchasadvanceddiesel,ethanol,fuelcellsorcompressednaturalgas,orimprovementsinthefueleconomyofthe
internalcombustionengine,maymateriallyandadverselyaffectourbusinessandprospectsinwayswedonotcurrentlyanticipate.Anyfailurebyustodevelopneworenhanced
technologiesorprocesses,ortoreacttochangesinexistingtechnologies,couldmateriallydelayourdevelopmentandintroductionofnewandenhancedelectricvehicles,which
couldresultinthelossofcompetitivenessofourvehicles,decreasedrevenueandalossofmarketsharetocompetitors.

Theunavailability,reductionoreliminationofgovernmentandeconomicincentivescouldhaveamaterialadverseeffectonourbusiness,financialcondition,operatingresults
andprospects.
Anyreduction,eliminationordiscriminatoryapplicationofgovernmentsubsidiesandeconomicincentivesbecauseofpolicychanges,thereducedneedforsuchsubsidiesand
incentivesduetothecustomerbaseofourelectricvehicles,fiscaltighteningorotherreasonsmayresultinthediminishedcompetitivenessofthealternativefuelvehicleindustry
generallyorourelectricvehiclesinparticular.Thiscouldmateriallyandadverselyaffectthegrowthofthealternativefuelautomobilemarketsandourbusiness,prospects,financial
conditionandoperatingresults.
Ourgrowthdependsinpartontheavailabilityandamountsofgovernmentsubsidiesandeconomicincentivesforalternativefuelvehiclesgenerallyandperformanceelectric
vehiclesspecifically.Forexample,we

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currentlybenefitfromexemptionsfromCaliforniastatesalesandusetaxesforpurchasesofupto$707millionofmanufacturingequipmentfromourarrangementswiththeCalifornia
AlternativeEnergyandAdvancedTransportationFinancingAuthority.TotheextentallofthisequipmentispurchasedandwouldotherwisebesubjecttoCaliforniastatesalesanduse
tax,webelievethisincentivewouldresultintaxsavingsbyusthroughDecember2016.ThisexemptionisonlyavailableforequipmentthatwouldotherwisebesubjecttoCalifornia
salesandusetaxesandthatwouldbeusedonlyforspecifiedpurposes.Ifwefailtomeettheseconditions,wewouldbeunabletotakefulladvantageofthistaxincentiveandour
financialpositioncouldbeharmed.
Inaddition,certainregulationsandlawsthatencouragesalesofelectriccarsthroughtaxcreditsorothersubsidiescouldbereduced,eliminatedorappliedinawaythatcreates
anadverseeffectagainstourvehicles,eithercurrentlyoratanytimeinthefuture.Forexample,whilethefederal,stateandforeigngovernmentshavefromtimetotimeenactedtax
creditsandotherincentivesforthepurchaseofalternativefuelcars,fundingfortheseprogramsislimitedandthereisnoguaranteethatourvehicleswillbeeligiblefortaxcreditsor
otherincentivesprovidedtoalternativefuelvehiclesinthefuture.Thiswouldputourvehiclesatacompetitivedisadvantage.Asanexampleatthestatelevel,Californiarenewedthe
CleanVehicleRebateProgram,arebateprogramforthepurchaseofqualifiedalternativetechnologyvehiclesfor2013.Suchfunds,however,mayrunoutorbelimitedinwaysthat
wouldbeadversetopurchasersofourvehicles.Subsequentpurchaserscouldfaceadelayinreceivingrebatessincetheywouldhavetowaituntilthenextfiscalyearsfundingbecame
availableorbeunabletoobtainarebateatall.Moreover,asmoreandmoreeligibleEVsareproduced,Californiawillneedtofindadditionalsourcesoffundingforthisprogramor
implementotheroptionsforremovingeligibilityforvehiclesbasedonMSRPorcustomerincomelevels.Thesemeasureswouldalmostcertainlyimpactusinanadversemannerby
makingeitherourvehiclesorcustomersineligibleforrebates.Asanadditionalexample,thereisconsiderablediscussionatthefederallevelovertaxreform.Discussionshaveincluded
reducingoreveneliminatingthecurrent$7,500taxcreditavailabletopurchasersofqualifiedalternativefuelvehicles,includingModelS.
Also,governmentprogramshavebeenenactedinEuropefavoringthepurchaseofelectricvehicles,includingdisincentivesthatdiscouragetheuseofgaspoweredvehicles.In
Norway,forexample,thepurchaseofelectricvehiclesisnotcurrentlysubjecttoimporttaxes,taxesonnonrecurringvehiclefees,orthe25%valueaddedtaxorotherpurchasetaxes
thatapplytothepurchaseofgaspoweredvehicles.Intheeventthatsuchgovernmentprogramsarereducedoreliminated,ortheavailablebenefitsthereunderareexhaustedearlier
thananticipated,salesofelectricvehicles,includingourModelS,couldbeadverselyaffected.
OurrelationshipwithDaimlerissubjecttovariousriskswhichcouldadverselyaffectourbusinessandfutureprospects.
OurrelationshipwithDaimlerposesvariousriskstous,includingpotentiallossofaccesstopartsthatDaimlerisprovidingforModelSandpotentiallossofbusinessand
adversepublicitytoourbrandimageiftherearedefectsorotherproblemsdiscoveredwithourelectricpowertraincomponentsthatDaimlerhasincorporatedintotheirvehicles.The
occurrenceofanyoftheforegoingcouldadverselyaffectourbusiness,prospects,financialconditionandoperatingresults.
Theoperationofourvehiclesisdifferentfrominternalcombustionenginevehiclesandourcustomersmayexperiencedifficultyoperatingthemproperly,includingdifficulty
transitioningbetweendifferentmethodsofbraking.
Wehavedesignedourvehiclestominimizeinconvenienceandinadvertentdriverdamagetothepowertrain.Incertaininstances,theseprotectionsmaycausethevehicleto
behaveinwaysthatareunfamiliartodriversofinternalcombustionvehicles.Forexample,weemployregenerativebrakingtorechargethebatterypackinmostmodesofvehicle
operation.Ourcustomersmaybecomeaccustomedtousingthisregenerativebrakinginsteadofthewheelbrakestoslowthevehicle.However,whenthevehicleisatmaximumcharge,
theregenerativebrakingisnotneededandisnotemployedbythevehicle.Accordingly,ourcustomersmayhavedifficultyshiftingbetweendifferentmethodsofbraking.Inaddition,
weusesafetymechanismstolimitmotortorquewhenthe

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powertrainsystemreacheselevatedtemperatures.Insuchinstances,thevehiclesaccelerationandspeedwilldecrease.Finally,ifthedriverpermitsthebatterypacktosubstantially
depleteitscharge,thevehiclewillprogressivelylimitmotortorqueandspeedtopreservethechargethatremains.Thevehiclewilllosespeedandultimatelycoasttoastop.Despite
severalwarningsaboutanimminentlossofcharge,theultimatelossofspeedmaybeunexpected.Therecanbenoassurancethatourcustomerswilloperatethevehiclesproperly,
especiallyinthesesituations.Anyaccidentsresultingfromsuchfailuretooperateourvehiclesproperlycouldharmourbrandandreputation,resultinadversepublicityandproduct
liabilityclaims,andhaveamaterialadverseeffectonourbusiness,prospects,financialconditionandoperatingresults.Inaddition,ifconsumersdislikethesefeatures,theymay
choosenottobuyadditionalcarsfromus,whichcouldalsoharmourbusinessandprospects.
Ifweareunabletokeepupwithadvancesinelectricvehicletechnology,wemaysufferadeclineinourcompetitiveposition.
Wemaybeunabletokeepupwithchangesinelectricvehicletechnologyand,asaresult,maysufferadeclineinourcompetitiveposition.Anyfailuretokeepupwith
advancesinelectricvehicletechnologywouldresultinadeclineinourcompetitivepositionwhichwouldmateriallyandadverselyaffectourbusiness,prospects,operatingresultsand
financialcondition.Ourresearchanddevelopmenteffortsmaynotbesufficienttoadapttochangesinelectricvehicletechnology.Astechnologieschange,weplantoupgradeor
adaptourvehiclesandintroducenewmodelsinordertocontinuetoprovidevehicleswiththelatesttechnology,inparticularbatterycelltechnology.However,ourvehiclesmaynot
competeeffectivelywithalternativevehiclesifwearenotabletosourceandintegratethelatesttechnologyintoourvehicles.Forexample,wedonotmanufacturebatterycells,which
makesusdependentuponothersuppliersofbatterycelltechnologyforourbatterypacks.
Ifweareunabletoattractand/orretainkeyemployeesandhirequalifiedmanagement,technical,vehicleengineeringandmanufacturingpersonnel,ourabilitytocompete
couldbeharmedandourstockpricemaydecline.
Thelossoftheservicesofanyofourkeyemployeescoulddisruptouroperations,delaythedevelopmentandintroductionofourvehiclesandservices,andnegativelyimpact
ourbusiness,prospectsandoperatingresultsaswellascauseourstockpricetodecline.Inparticular,wearehighlydependentontheservicesofElonMusk,ourChiefExecutive
Officer,ProductArchitectandChairmanofourBoardofDirectors,andJBStraubel,ourChiefTechnicalOfficer.Noneofourkeyemployeesisboundbyanemploymentagreementfor
anyspecificterm.Therecanbenoassurancethatwewillbeabletosuccessfullyattractandretainseniorleadershipnecessarytogrowourbusiness.Ourfuturesuccessdependsupon
ourabilitytoattractandretainourexecutiveofficersandotherkeytechnology,sales,marketing,engineering,manufacturingandsupportpersonnelandanyfailuretodosocould
adverselyimpactourbusiness,prospects,financialconditionandoperatingresults.Wehaveinthepastandmayinthefutureexperiencedifficultyinretainingmembersofoursenior
managementteamaswellastechnical,vehicleengineeringandmanufacturingpersonnelduetovariousfactors,suchasaverycompetitivelabormarketfortalentedindividualswith
automotiveexperience.Inaddition,wedonothavekeypersonlifeinsurancepoliciescoveringanyofourofficersorotherkeyemployees.
CurrentlyinNorthernCalifornia,thereisincreasingcompetitionfortalentedindividualswiththespecializedknowledgeofelectricvehicles,softwareengineers,manufacturing
engineersandotherskilledemployeesandthiscompetitionaffectsbothourabilitytoretainkeyemployeesandhirenewones.Ourcontinuedsuccessdependsuponourcontinued
abilitytohireandretainemployees.Additionally,wecompetewithmanymatureandprosperouscompaniesinNorthernCaliforniathathavefargreaterfinancialresourcesthanwedo
andthuscanoffercurrentorperspectiveemployeesmorelucrativeincentivepackagesthanwecan.Anydifficultiesinretainingcurrentemployeesorrecruitingnewoneswouldhave
anadverseeffectonourperformance.

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WearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer.
WearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer,ProductArchitect,ChairmanofourBoardofDirectorsandlargeststockholder.Although
Mr.MuskspendssignificanttimewithTeslaandishighlyactiveinourmanagement,hedoesnotdevotehisfulltimeandattentiontoTesla.Mr.MuskalsocurrentlyservesasChief
ExecutiveOfficerandChiefTechnicalOfficerofSpaceExplorationTechnologies,adeveloperandmanufacturerofspacelaunchvehicles,andChairmanofSolarCity,asolar
equipmentinstallationcompany.
Wearesubjecttovariousenvironmentalandsafetylawsandregulationsthatcouldimposesubstantialcostsuponusandnegativelyimpactourabilitytooperateour
manufacturingfacilities.
Asanautomobilemanufacturer,weandouroperations,bothintheUnitedStatesandabroad,aresubjecttonational,state,provincialand/orlocalenvironmental,healthand
safetylawsandregulations,includinglawsrelatingtotheuse,handling,storage,disposalandhumanexposuretohazardousmaterials.Environmentalandhealthandsafetylawsand
regulationscanbecomplex,andweexpectthatourbusinessandoperationswillbeaffectedbyfutureamendmentstosuchlawsorothernewenvironmentalandhealthandsafetylaws
whichmayrequireustochangeouroperations,potentiallyresultinginamaterialadverseeffectonourbusiness.Theselawscangiverisetoliabilityforadministrativeoversightcosts,
cleanupcosts,propertydamage,bodilyinjuryandfinesandpenalties.Capitalandoperatingexpensesneededtocomplywithenvironmental,healthandsafetylawsandregulations
canbesignificant,andviolationsmayresultinsubstantialfinesandpenalties,thirdpartydamages,suspensionofproductionoracessationofouroperations.
Contaminationatpropertiesformerlyownedoroperatedbyus,aswellasatpropertieswewillownandoperate,andpropertiestowhichhazardoussubstancesweresentbyus,
mayresultinliabilityforusunderenvironmentallawsandregulations,including,butnotlimitedtotheComprehensiveEnvironmentalResponse,CompensationandLiabilityAct
(CERCLA),whichcanimposeliabilityforthefullamountofremediationrelatedcostswithoutregardtofault,fortheinvestigationandcleanupofcontaminatedsoilandgroundwater,
forbuildingcontaminationandimpactstohumanhealthandfordamagestonaturalresources.Thecostsofcomplyingwithenvironmentallawsandregulationsandanyclaims
concerningnoncompliance,orliabilitywithrespecttocontaminationinthefuture,couldhaveamaterialadverseeffectonourfinancialconditionoroperatingresults.Wemayface
unexpecteddelaysinobtainingthenecessarypermitsandapprovalsrequiredbyenvironmentallawsinconnectionwithourmanufacturingfacilitiesthatcouldrequiresignificanttime
andfinancialresourcesandnegativelyimpactourabilitytooperatethesefacilities,whichwouldadverselyimpactourbusinessprospectsandoperatingresults.
NewUnitedMotorManufacturing,Inc.(NUMMI)haspreviouslyidentifiedenvironmentalconditionsattheTeslaFactorywhichcouldaffectsoilandgroundwater,andhas
undertakeneffortstoaddresstheseconditions.AlthoughwehavebeenadvisedbyNUMMIthatithasdocumentedandmanagedtheenvironmentalissuesattheFremontsite,we
cannotcurrentlydeterminewithcertaintythetotalpotentialcoststoremediatepreexistingcontamination,andwemaybeexposedtomaterialliabilityasaresultoftheexistenceof
anyenvironmentalcontaminationattheFremontsite.
AstheowneroftheFremontsite,wemayberesponsibleunderfederalandstatelawsandregulationsfortheentireinvestigationandremediationofanyenvironmental
contaminationattheFremontsite,whetheritoccurredbeforeorafterthedatewepurchasedtheproperty.WehavereachedanagreementwithNUMMIunderwhich,overatenyear
period,wewillpaythefirst$15.0millionofanycostsofanygovernmentallyrequiredremediationactivitiesforcontaminationthatexistedpriortotheclosingofthepurchaseforany
knownorunknownenvironmentalconditions(RemediationActivities),andNUMMIhasagreedtopaythenext$15.0millionforsuchRemediationActivities.Ouragreement
provides,inpart,thatNUMMIwillpayuptothefirst$15.0milliononourbehalfifsuchexpensesareincurredinthefirstfouryearsofouragreement,subjecttoourreimbursementof
suchcostsonthefourthanniversarydateoftheclosing.

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Onthetenyearanniversaryoftheclosingorwhenever$30.0millionhasbeenspentonRemediationActivities,whichevercomesfirst,NUMMIsliabilitytouswithrespectto
RemediationActivitiesceases,andweareresponsibleforanyandallenvironmentalconditionsattheFremontsite.Atthatpointintime,wehaveagreedtoindemnify,defend,and
holdharmlessNUMMIfromallliability,includingattorneyfees,oranycostsorpenaltiesitmayincurarisingoutoforinconnectionwithanyclaimrelatingtoenvironmental
conditionsandwehavereleasedNUMMIforanyknownorunknownclaimsexceptforNUMMIsobligationsforrepresentationsandwarrantiesundertheagreement.Asof
December31,2013,wehaveaccrued$5.5millionrelatedtotheseenvironmentalliabilities.
TherearenoassurancesthatNUMMIwillperformitsobligationsunderouragreementandNUMMIsfailuretoperformwouldrequireustoundertaketheseobligationsata
potentiallysignificantcostandrisktoourabilitytoincreasetheproductioncapacityof,andoperate,ourTeslaFactory.AnyRemediationActivitiesorotherenvironmentalconditions
attheFremontsitecouldharmouroperationsandthefutureuseandvalueoftheFremontsiteandcoulddelayourproductionplansforModelS.
Ourbusinessmaybeadverselyaffectedbyunionactivities.
Althoughnoneofouremployeesarecurrentlyrepresentedbyalaborunion,itiscommonthroughouttheautomobileindustrygenerallyformanyemployeesatautomobile
companiestobelongtoaunion,whichcanresultinhigheremployeecostsandincreasedriskofworkstoppages.Ouremployeesmayjoinorseekrecognitiontoformalaborunion,or
wemayberequiredtobecomeaunionsignatory.OurautomobileproductionfacilityinFremont,CaliforniawaspurchasedfromNUMMI.PrioremployeesofNUMMIwereunion
membersandourfutureworkforceatthisfacilitymaybeinclinedtovoteinfavorofformingalaborunion.Wearealsodirectlyorindirectlydependentuponcompanieswith
unionizedworkforces,suchaspartssuppliersandtruckingandfreightcompanies,andworkstoppagesorstrikesorganizedbysuchunionscouldhaveamaterialadverseimpactonour
business,financialconditionoroperatingresults.Ifaworkstoppageoccurs,itcoulddelaythemanufactureandsaleofourperformanceelectricvehiclesandhaveamaterialadverse
effectonourbusiness,prospects,operatingresultsorfinancialcondition.Themerefactthatourlaborforcecouldbeunionizedmayharmourreputationintheeyesofsomeinvestors
andtherebynegativelyaffectourstockprice.Consequently,theunionizationofourlaborforcecouldnegativelyimpactthecompanyshealth.
Wearesubjecttosubstantialregulation,whichisevolving,andunfavorablechangesorfailurebyustocomplywiththeseregulationscouldsubstantiallyharmourbusinessand
operatingresults.
Ourperformanceelectricvehicles,thesaleofmotorvehiclesingeneralandtheelectroniccomponentsusedinourvehiclesaresubjecttosubstantialregulationunder
international,federal,state,andlocallaws.Wehaveincurred,andexpecttoincurinthefuture,significantcostsincomplyingwiththeseregulations.
Regulationsrelatedtotheelectricvehicleindustryandalternativeenergyarecurrentlyevolvingandwefacerisksassociatedwithchangestotheseregulations,suchasinthe
UnitedStates:

theimpositionofacarbontaxortheintroductionofacapandtradesystemonelectricutilitiescouldincreasethecostofelectricity

increasinglystringentCleanAirActemissionregulationsaffectingpowerplantsusedtogenerateelectricitycouldincreasethecostofelectricity

changestotheregulationsgoverningtheassemblyandtransportationoflithiumionbatterypacks,suchastheUNRecommendationsoftheSafeTransportofDangerous
GoodsModelRegulationsorregulationsadoptedbytheU.S.PipelineandHazardousMaterialsSafetyAdministration(PHMSA)couldincreasethecostoflithiumion

batterypacksorrestricttheirtransport

theamendmentorrescissionofthefederallawandregulationsmandatingincreasedfueleconomyintheUnitedStates,referredtoastheCorporateAverageFuel
Economy(CAFE)standards,couldreducenewbusinessopportunitiesforourpowertrainsalesanddevelopmentactivities

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theamendmentorrescissionoffederalgreenhousegastailpipeemissionregulationsadministeredbyEPAundertheauthorityoftheCleanAirActcouldreducenew
businessopportunitiesforourpowertrainsalesanddevelopmentactivities

theamendmentorrescissionofCaliforniaszeroemissionvehicleregulationsadministeredbytheCaliforniaAirResourcesBoardundertheCaliforniaHealth&Safety
Codecouldreducenewbusinessopportunitiesforourpowertrainsalesanddevelopmentactivities,aswellasourabilitytomonetizeZEVcreditsnotonlyinCalifornia,
butalsointheelevenadditionalstatesthathaveadoptedtheCaliforniaprogram

increasedsensitivitybyregulatorstotheneedsofestablishedautomobilemanufacturerswithlargeemploymentbases,highfixedcostsandbusinessmodelsbasedonthe
internalcombustionenginecouldleadthemtopassregulationsthatcouldreducethecompliancecostsofsuchestablishedmanufacturersormitigatetheeffectsof
governmenteffortstopromotealternativefuelvehiclesand

changestoregulationsgoverningtheexportofourproductscouldincreaseourcostsincurredtodeliverproductsoutsidetheUnitedStatesorforceustochargeahigher
priceforourvehiclesinsuchjurisdictions.

Inaddition,astheautomotiveindustrymovestowardsgreateruseofelectronicsforvehiclesystems,NHTSAandotherregulatorybodiesmayinthefutureincreaseregulation
fortheseelectronicsystemsasconcernsaboutdistracteddrivingincrease.SuchconcernscouldaffectelectronicsystemsinModelS,includingthoseusedwiththe17inchdisplay
screeninModelS,whichcouldreducetheappealofModelSorrequireadjustmentstothedisplayscreensfunctionality.
AswearecurrentlydeliveringvehiclesinEuropeandaswebegintodelivervehiclesinAsia,wealsobecomesubjecttoadditionallawsandregulationsapplicabletothe
import,saleandserviceofautomobilesinthoseregions,withwhichwehavelittleornoexperiencecomplying.
Totheextentthelawschange,someorallofourvehiclesmaynotcomplywithapplicableinternational,federal,stateorlocallaws,whichwouldhaveanadverseeffectonour
business.Compliancewithchangingregulationscouldbeburdensome,timeconsuming,andexpensive.Totheextentcompliancewithnewregulationsiscostprohibitive,our
business,prospects,financialconditionandoperatingresultswillbeadverselyaffected.
Weretaincertainpersonalinformationaboutourcustomersandmaybesubjecttovariousprivacyandconsumerprotectionlaws.
Weuseourvehicleselectronicsystemstologinformationabouteachvehiclescondition,performanceanduseinordertoaidusinprovidingcustomerservice,including
vehiclediagnostics,repairandmaintenance,aswellastohelpuscollectdataregardingourcustomerschargetime,batteryusage,mileageandefficiencyhabitsandtoimproveour
vehicles.Wealsocollectinformationaboutourcustomersthroughourwebsite,atourstoresandfacilities,andviatelephone.Ourcustomersmayobjecttotheprocessingofthisdata,
whichmaynegativelyimpactourabilitytoprovideeffectivecustomerserviceanddevelopnewvehiclesandproducts.Collectionanduseofourcustomerspersonalinformationin
conductingourbusinessmaybesubjecttofederaland/orstatelawsandregulationsintheUnitedStatesandforeignjurisdictionsincluding,inparticular,variousjurisdictionsin
Europe,andsuchlawsandregulationsmayrestrictourprocessingofsuchpersonalinformationandhinderourabilitytoattractnewcustomersormarkettoexistingcustomers.Wemay

incursignificantexpensestocomplywithprivacy,consumerprotectionandsecuritystandardsandprotocolsimposedbylaw,regulation,industrystandardsorcontractualobligations.
Althoughwetakestepstoprotectthesecurityofourcustomerspersonalinformation,wemayberequiredtoexpendsignificantresourcestocomplywithdatabreachrequirementsif
thirdpartiesimproperlyobtainandusethepersonalinformationofourcustomersorweotherwiseexperienceadatalosswithrespecttocustomerspersonalinformation.Amajor
breachofournetworksecurityandsystemscould

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haveseriousnegativeconsequencesforourbusinessesandfutureprospects,includingpossiblefines,penaltiesanddamages,reducedcustomerdemandforourvehicles,andharmto
ourreputationandbrand.
Wemaybecompelledtoundertakeproductrecallsortakeotheractions,whichcouldadverselyaffectourbrandimageandfinancialperformance.
Anyproductrecallinthefuturemayresultinadversepublicity,damageourbrandandadverselyaffectourbusiness,prospects,operatingresultsandfinancialcondition.We
previouslyexperiencedproductrecallsinMay2009,October2010andJune2013,noneofwhichwasrelatedtoourelectricpowertrain.InApril2009,wedeterminedthatacondition
causedbyinsufficienttorquingoftherearinnerhubflangeboltexistedinsomeofourTeslaRoadsters,asaresultofamissedprocessduringthemanufactureoftheTeslaRoadster
glider.InOctober2010,weinitiatedaproductrecallafterthe12volt,lowvoltageauxiliarycableinasinglevehiclechafedagainsttheedgeofacarbonfiberpanelinthevehicle
causingashort,smokeandpossiblefirebehindtherightfrontheadlampofthevehicle.InJune2013,weinitiatedarecallofslightlymorethanonethousandModelSvehiclesto
inspectandrepairrearseatstrikersthatmayhavebeencompromisedduringtheassemblyprocess.Rearseatstrikersareusedtoretaintherearseatbacksinanuprightposition.Failure
ofthiscomponentmayhaveresultedincollapseoftherearseatbackduringacrash.Finally,inJanuary2014,weimplementedafirmwareupdatetoaddressissueswithcertain
UniversalMobileConnectorNEMA1450adapters,whicharepartofthechargingunitsandarenotpartofthevehiclesthemselves,potentiallyoverheatingduringcharging.Inthe
future,wemayatvarioustimes,voluntarilyorinvoluntarily,initiatearecallifanyofourvehicles,includingModelS,orourelectricpowertraincomponentsprovetobedefectiveor
noncompliantwithapplicablefederalmotorvehiclesafetystandards.Forexample,inNovember2013NHTSAinitiatedapreliminaryevaluationwithrespecttotworecentincidentsin
whichModelSvehiclescollidedwithroaddebrisathighwayspeeds.AlthoughwebelievethatNHTSAshouldclosethepreliminaryevaluationwithoutafindingofdefect,itis
possiblethatNHTSAcouldfindthatthereisadefectandorderModelStoberecalled.Suchrecalls,voluntaryorinvoluntary,involvesignificantexpenseanddiversionof
managementattentionandotherresources,andcouldadverselyaffectourbrandimageinourtargetmarkets,aswellasourbusiness,prospects,financialconditionandresultsof
operations.
Ourcurrentandfuturewarrantyreservesmaybeinsufficienttocoverfuturewarrantyclaimswhichcouldadverselyaffectourfinancialperformance.
Ifourwarrantyreservesareinadequatetocoverfuturewarrantyclaimsonourvehicles,ourbusiness,prospects,financialconditionandoperatingresultscouldbemateriallyand
adverselyaffected.Weprovideathreeyearor36,000mileNewVehicleLimitedWarrantywitheveryTeslaRoadster,whichweextendedtofouryearsor50,000milesforthepurchasers
ofour2008TeslaRoadster.Inaddition,customershavetheopportunitytopurchaseExtendedServiceplansfortheperiodaftertheendoftheNewVehicleLimitedWarrantyforthe
TeslaRoadstertocoveradditionalservicesforuptoanadditionalthreeyearsor36,000miles,providedtheyarepurchasedwithinaspecifiedperiodoftime.Subjecttoseparate
limitedwarrantiesforthesupplementalrestraintsystemandbattery,weprovideafouryearor50,000mileNewVehicleLimitedWarrantyforthepurchasersofModelS.TheNew
VehicleLimitedWarrantyforModelScoversthebatteryforaperiodofeightyearsor125,000milesorunlimitedmiles,dependingonthesizeofthevehiclesbattery,althoughthe
batteryschargingcapacityisnotcoveredundertheNewVehicleLimitedWarrantyoranyExtendedServiceplan.Inaddition,customershavetheopportunitytopurchaseanExtended
ServiceplanfortheperiodaftertheendoftheNewVehicleLimitedWarrantyforModelStocoveradditionalservicesforanadditionalfouryearsor50,000miles,provideditis
purchasedwithinaspecifiedperiodoftime.TheNewVehicleLimitedWarrantyandExtendedServiceplansfortheTeslaRoadsterandModelSaresubjecttocertainlimitations,
exclusionsorseparatewarranties,includingcertainwearitems,suchastires,brakepads,paintandgeneralappearance,andbatteryperformance,andisintendedtocoverpartsand
labortorepairdefectsinmaterialorworkmanshipinthevehicleincludingthebody,chassis,suspension,interior,electronicsystems,powertrainandbrakesystem.Wehavepreviously
providedourTeslaRoadstercustomerswithabatteryreplacementoptiontoreplacethebatteryintheirvehiclesatanytimeaftertheexpirationoftheNewVehicleLimitedWarranty
butbeforethetenthanniversaryofthepurchasedateoftheirvehicles.

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Werecordandadjustwarrantyreservesbasedonchangesinestimatedcostsandactualwarrantycosts.Fornewvehiclesinparticular,werecordwarrantyreservesbasedon
managementsbestestimateofprojectedwarrantyexperienceuntiladequatehistoricaldataisaccumulatedoveraperiodoftime,generallyafewquarters.Aswehavelimitedoperating
experiencewithModelS,andthereforelittleexperiencewithwarrantyclaimsforthisvehicle,reservesthatwerecordedforModelSmaybeinsufficienttocoverallfuturewarranty
claims.Additionally,in2013,aspartofourongoingeffortstoimprovethecustomerownershipexperience,weexpandedthebatterypackwarrantyandalsoeliminatedtheannual
servicerequirementthatwasneededtokeeptheNewVehicleLimitedWarrantyineffect.Shouldthischangeinwarrantycoverageleadtoanincreaseinwarrantyclaims,wemayneed
torecordadditionalwarrantyreserveswhichwouldnegativelyaffectourprofitability.
Sincewebeganinitiatingsalesofourvehicles,wehavecontinuedtorefineourwarrantyreservesbasedonouractualwarrantyclaimexperienceandwemayberequiredto
undertakefurtherchangesinthefuture.AsofDecember31,2013,wehadwarrantyreservesof$53.2million,andsuchreserveamountwillincreasesignificantlyinthefutureasour
productofferingsandsalesgrow.Wecouldinthefuturebecomesubjecttoasignificantandunexpectedwarrantyexpense.Therecanbenoassurancesthatourcurrentlyexistingor
futurewarrantyreserveswillbesufficienttocoverallclaimsduetopotentialhigheraveragewarrantyexpensesovertheproductlifecycleorthatourlimitedexperiencewithwarranty
claimswilladequatelyaddresstheneedsofourcustomerstotheirsatisfaction.
Unauthorizedcontrolormanipulationofourvehiclessystemsmaycausethemtooperateimproperlyornotatall,orcompromisetheirsafetyanddatasecurity,whichcould
resultinlossofconfidenceinusandourvehiclesandharmourbusiness.
Therehavebeenreportsofvehiclesofotherautomobilemanufacturersbeinghackedtograntaccessandoperationofthevehiclestounauthorizedpersonsandwouldbe
thieves.Ourvehicles,andinparticularModelS,aretechnologicallyadvancedmachinesrequiringtheinteroperationofnumerouscomplexandevolvinghardwareandsoftware
systems.Subjecttoourcustomersabilitytooptoutpursuanttoourprivacypolicy,ModelSisdesignedwithbuiltindataconnectivitytoacceptandinstallperiodicremoteupdates
fromustoimproveorupdatethefunctionalityofthesesystems.Althoughwehavedesigned,implementedandtestedsecuritymeasurestopreventunauthorizedaccesstoourvehicles
andtheirsystems,ourinformationtechnologynetworksandcommunicationswithourvehiclesmaybevulnerabletointerception,manipulation,damage,disruptionsorshutdowns
duetoattacksbyhackersorbreachesduetoerrorsbypersonnelwhohaveaccesstoournetworksandsystems.Anysuchattacksorbreachescouldresultinunexpectedchangestoour
vehiclesfunctionality,userinterfaceandperformancecharacteristics.Hackersmayalsousesimilarmeanstogainaccesstodatastoredinorgeneratedbythevehicle,suchasits
currentgeographicalposition,previousandstoreddestinationaddresshistoryandwebbrowserfavorites.Anysuchunauthorizedcontrolofvehiclesoraccesstoorlossof
informationcouldresultinlegalclaimsorproceedingsandnegativepublicity,whichwouldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionand
operatingresults.
Therangeandpowerofourelectricvehiclesonasinglechargedeclinesovertime,andthismaynegativelyinfluencepotentialcustomersdecisionswhethertopurchaseour
vehicles.
Therangeandpowerofourelectricvehiclesonasinglechargedeclinesprincipallyasafunctionofusage,timeandchargingpatternsaswellasotherfactors.Howacustomer
usestheirTeslavehicle,thefrequencyofrechargingthebatterypackatalowstateofchargeandthemeansofchargingcanresultinadditionaldeteriorationofthebatterypacks
abilitytoholdachargeoverthelongterm.Forexample,wecurrentlyexpectthatourbatterypackfortheTeslaRoadsterwillretainapproximately70%ofitsabilitytoholditsinitial
chargeafterapproximately100,000milesorsevenyears,whichwillresultinadecreasetothevehiclesinitialrangeandpower.DeteriorationoftheModelSbatterypackisexpected
tobelessthantheRoadster,however,suchbatterypackdeteriorationandtherelateddecreaseinrangeandpowerovertimeaswellasanyperceiveddeteriorationorfluctuationin
rangemaynegativelyinfluencepotentialcustomerdecisionswhethertopurchaseourvehicles,whichmayharmourabilitytomarketandsellourvehicles.

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Wemayfaceregulatorylimitationsonourabilitytosellvehiclesdirectlyorovertheinternetwhichcouldmateriallyandadverselyaffectourabilitytosellourelectricvehicles.
WesellourvehiclesfromourTeslastoresaswellasovertheinternet.WemaynotbeabletosellourvehiclesthroughthissalesmodelineachstateintheUnitedStatesasmany
stateshavelawsthatmaybeinterpretedtoprohibitinternetsalesbymanufacturerstoresidentsofthestateortoimposeotherlimitationsonthissalesmodel,includinglawsthat
prohibitmanufacturersfromsellingvehiclesdirectlytoconsumerswithouttheuseofanindependentdealershiporwithoutaphysicalpresenceinthestate.Incertainstatesinwhich
wearenotabletoobtaindealerlicenses,wehaveworkedwithstateregulatorstoopengalleries,whicharelocationswherepotentialcustomerscanviewourvehiclesbutarenotfull
retaillocations.Itispossiblethatastateregulatorcouldlaterdeterminethattheactivitiesatourgalleryconstituteunlicensedsalesofmotorvehicles.
Inmanystates,theapplicationofstatemotorvehiclelawstoourspecificsalesmodelislargelyuntestedunderstatemotorvehicleindustrylawsandisbeingdeterminedbya
factspecificanalysisofnumerousfactors,includingwhetherwehaveaphysicalpresenceoremployeesintheapplicablestate,whetherweadvertiseorconductotheractivitiesinthe
applicablestate,howthesaletransactionisstructured,thevolumeofsalesintothestate,andwhetherthestateinquestionprohibitsmanufacturersfromactingasdealers.Asaresultof
thefactspecificandlargelyuntestednatureoftheseissues,andthefactthatapplyingtheselawsintendedforthetraditionalautomobiledistributionmodeltooursalesmodelallows
forsomeinterpretationanddiscretionbytheregulators,themannerinwhichtheapplicableauthoritiesareapplyingtheirstatelawstoourdistributionmodelcontinuestobedifficult
topredict.Lawsinsomestateshavelimitedourabilitytoobtaindealerlicensesfromstatemotorvehicleregulatorsandmaycontinuetodoso.
Inaddition,decisionsbyregulatorspermittingustosellvehiclesmaybesubjecttochallengesastowhethersuchdecisionscomplywithapplicablestatemotorvehicleindustry
laws.Forexample,inOctober2012,vehicledealerassociationsinNewYorkandMassachusettsfiledlawsuitstorevokethedealerlicenseissuedtoTeslaMotorsNewYorkinNew
YorkandtolimitthebusinessactivityofTeslaMotorsMA,Inc.inMassachusetts.Theselawsuitshavebeendismissed,reinforcingourcontinuingbeliefthatstatelawswerenot
designedtopreventourdistributionmodel.AsimilarlitigationwasrecentlyfiledinthestateofOhio.Possibleadditionalchallengesinotherstates,ifsuccessful,couldrestrictor
prohibitourabilitytosellourvehiclestoresidentsinsuchstates.Insomestates,therehavealsobeenlegislativeeffortsbyvehicledealerassociationstoproposebillsthat,ifenacted,
wouldpreventusfromobtainingdealerlicensesintheirstatesgivenourcurrentsalesmodel.
WearealsoregisteredasbothamotorvehiclemanufactureranddealerinCanada,Australia,andJapan,andhaveobtainedlicensestosellvehiclesinotherplacessuchasHong
KongandChina.Furthermore,whilewehaveperformedananalysisoftheprincipallawsintheEuropeanUnionrelatingtoourdistributionmodelandbelievewecomplywithsuch
laws,wehavenotperformedacompleteanalysisinallforeignjurisdictionsinwhichwemaysellvehicles.Accordingly,theremaybelawsinjurisdictionswehavenotyetenteredor
lawsweareunawareofinjurisdictionswehaveenteredthatmayrestrictoursalesorotherbusinesspractices.Evenforthosejurisdictionswehaveanalyzed,thelawsinthisareacanbe
complex,difficulttointerpretandmaychangeovertime.
Regulatorylimitationsonourabilitytosellvehiclescouldmateriallyandadverselyaffectourabilitytosellourelectricvehicles.
Wemayneedtodefendourselvesagainstpatentortrademarkinfringementclaims,whichmaybetimeconsumingandwouldcauseustoincursubstantialcosts.
Companies,organizationsorindividuals,includingourcompetitors,mayholdorobtainpatents,trademarksorotherproprietaryrightsthatwouldprevent,limitorinterfere
withourabilitytomake,use,develop,sellormarketourvehiclesorcomponents,whichcouldmakeitmoredifficultforustooperateourbusiness.Fromtimetotime,wemayreceive
inquiriesfromholdersofpatentsortrademarksregardingtheirproprietaryrights.Companiesholdingpatentsorotherintellectualpropertyrightsmaybringsuitsalleginginfringement
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rightsorotherwiseasserttheirrightsandseeklicenses.Inaddition,ifwearedeterminedtohaveinfringeduponathirdpartysintellectualpropertyrights,wemayberequiredtodoone
ormoreofthefollowing:

ceaseselling,incorporatingorusingvehiclesorofferinggoodsorservicesthatincorporateorusethechallengedintellectualproperty

paysubstantialdamages

obtainalicensefromtheholderoftheinfringedintellectualpropertyright,whichlicensemaynotbeavailableonreasonabletermsoratallor

redesignourvehiclesorothergoodsorservices.

Intheeventofasuccessfulclaimofinfringementagainstusandourfailureorinabilitytoobtainalicensetotheinfringedtechnologyorotherintellectualpropertyright,our
business,prospects,operatingresultsandfinancialconditioncouldbemateriallyadverselyaffected.Inaddition,anylitigationorclaims,whetherornotvalid,couldresultin
substantialcostsanddiversionofresourcesandmanagementattention.
Wemayalsofaceclaimsthatouruseoftechnologylicensedorotherwiseobtainedfromathirdpartyinfringestherightsofothers.Insuchcases,wemayseekindemnification
fromourlicensors/suppliersunderourcontractswiththem.However,indemnificationmaybeunavailableorinsufficienttocoverourcostsandlosses,dependingonouruseofthe
technology,whetherwechoosetoretaincontroloverconductofthelitigation,andotherfactors.
Ourbusinesswillbeadverselyaffectedifweareunabletoprotectourintellectualpropertyrightsfromunauthorizeduseorinfringementbythirdparties.
Anyfailuretoadequatelyprotectourproprietaryrightscouldresultinweakeningorlossofsuchrights,whichmayallowourcompetitorstooffersimilaroridenticalproducts
oruseidenticalorconfusinglysimilarbranding,potentiallyresultinginthelossofsomeofourcompetitiveadvantage,adecreaseinourrevenueandanattributionofpotentially
lowerqualityproductstous,whichwouldadverselyaffectourbusiness,prospects,financialconditionandoperatingresults.Oursuccessdepends,atleastinpart,onourabilityto
protectourcoretechnologyandintellectualproperty.Toaccomplishthis,werelyonacombinationofpatents,patentapplications,tradesecrets,includingknowhow,employeeand
thirdpartynondisclosureagreements,copyrightprotection,trademarks,intellectualpropertylicensesandothercontractualrightstoestablishandprotectourproprietaryrightsinour
technology.Wehavealsoreceivedfromthirdpartiespatentlicensesrelatedtomanufacturingourvehicles.
Theprotectionprovidedbythepatentlawsisandwillbeimportanttoourfutureopportunities.However,suchpatentsandagreementsandvariousothermeasureswetaketo
protectourintellectualpropertyfromusebyothersmaynotbeeffectiveforvariousreasons,includingthefollowing:

ourpendingpatentapplicationsmaynotresultintheissuanceofpatents

ourpatents,ifissued,maynotbebroadenoughtoprotectourcommercialendeavors

thepatentswehavebeengrantedmaybechallenged,invalidatedorcircumventedbecauseofthepreexistenceofsimilarpatentedorunpatentedtechnologyorforother
reasons

thecostsassociatedwithobtainingandenforcingpatents,confidentialityandinventionagreementsorotherintellectualpropertyrightsmaymakeaggressive
enforcementimpracticable

currentandfuturecompetitorsmayindependentlydevelopsimilartechnology,duplicateourvehiclesordesignnewvehiclesinawaythatcircumventsourintellectual
propertyand

ourinlicensedpatentsmaybeinvalidatedortheholdersofthesepatentsmayseektoterminateormodifyourlicensearrangements.

Existingtrademarkandtradesecretlawsandconfidentialityagreementsaffordonlylimitedprotection.Inaddition,thelawsofsomeforeigncountriesdonotprotectour
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lawsoftheUnitedStates,andpolicingtheunauthorizeduseofourintellectualpropertyisdifficult.Unauthorizeduseorinfringementofourtrademarksincountrieswhichhavea
firsttofilesystemcouldaffectourabilitytosuccessfullygrowourbusinessinternationally.
Ourpatentapplicationsmaynotresultinissuedpatents,whichmayhaveamaterialadverseeffectonourabilitytopreventothersfromcommerciallyexploitingproducts
similartoours.
Thestatusofpatentsinvolvescomplexlegalandfactualquestionsandthebreadthofpatentedclaimsisuncertain.Wecannotbecertainthatwearethefirstcreatorof
inventionscoveredbypendingpatentapplicationsorthefirsttofilepatentapplicationsontheseinventions,norcanwebecertainthatourpendingpatentapplicationswillresultin
issuedpatentsorthatanyofourissuedpatentswillaffordsufficientprotectionagainstacompetitorwithsimilartechnology.Inaddition,patentapplicationsfiledinforeigncountries
aresubjecttolaws,rulesandproceduresthatdifferfromthoseoftheUnitedStates,andthuswecannotbecertainthatforeignpatentapplicationsrelatedtoissuedU.S.patentswill
resultinissuedpatentsinthoseforeignjurisdictions.Furthermore,evenifthesepatentapplicationsdoresultinissuedpatents,someforeigncountriesprovidesignificantlyless
effectivepatentenforcementthanintheUnitedStates.Inaddition,patentsissuedtousmaybeinfringeduponordesignedaroundbyothersandothersmayobtainpatentsthatweneed
tolicenseordesignaround,eitherofwhichwouldincreasecostsandmayadverselyaffectourbusiness,prospects,financialconditionandoperatingresults.
Ourtrademarkapplicationsincertaincountriesremainsubjecttooutstandingoppositionproceedings.
WecurrentlysellandmarketourproductsandservicesinvariouscountriesunderourTeslamarks.WehavefiledtrademarkapplicationsforourTeslamarksandopposition
proceedingstotrademarkapplicationsofthirdpartiesinvariouscountriesinwhichwecurrentlysellandplantosellourproductsandservices.Certainofourtrademarkapplications
aresubjecttooutstandingoppositionproceedingsbroughtbyownersorapplicantsallegingprioruseofsimilarmarks.Ifwecannotresolvetheseoppositionsandtherebysecure
registeredrightsinthesecountries,ourabilitytochallengethirdpartyusersoftheTeslamarkswillbereducedandthevalueofthemarksrepresentingourexclusivebrandnamein
thesecountrieswillbediluted.Inaddition,thereisariskthatthepriorrightsownerscouldinthefuturetakeactionstochallengeouruseoftheTeslamarksinthesecountries.Such
actionscouldhaveasevereimpactonourpositioninthesecountriesandmayinhibitourabilitytousetheTeslamarksinthesecountries.IfwewerepreventedfromusingtheTesla
marksinanyorallofthesecountries,wewouldneedtoexpendsignificantadditionalfinancialandmarketingresourcesonestablishinganalternativebrandidentityinthesemarkets.
Ourfacilitiesoroperationscouldbedamagedoradverselyaffectedasaresultofdisastersorunpredictableevents.
OurcorporateheadquartersinPaloAltoandTeslaFactoryinFremontarelocatedinNorthernCalifornia,aregionknownforseismicactivity.Ifmajordisasterssuchas
earthquakes,fires,floods,hurricanes,wars,terroristattacks,computerviruses,pandemicsorothereventsoccur,orourinformationsystemorcommunicationsnetworkbreaksdownor
operatesimproperly,ourheadquartersandproductionfacilitiesmaybeseriouslydamaged,orwemayhavetostopordelayproductionandshipmentofourproducts.Inaddition,our
leaseforourPaloAltofacilitypermitsthelandlordtoterminatetheleasefollowingacasualtyeventiftheneededrepairsareinexcessofcertainthresholdsandwedonotagreetopay
foranyuninsuredamounts.Wemayincurexpensesrelatingtosuchdamages,whichcouldhaveamaterialadverseimpactonourbusiness,operatingresultsandfinancialcondition.
Ifoursuppliersfailtouseethicalbusinesspracticesandcomplywithapplicablelawsandregulations,ourbrandimagecouldbeharmedduetonegativepublicity.
Ourcorevalues,whichincludedevelopingthehighestqualityelectricvehicleswhileoperatingwithintegrity,areanimportantcomponentofourbrandimage,whichmakes
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allegationsofunethicalbusinesspractices.Wedonotcontrolourindependentsuppliersortheirbusinesspractices.Accordingly,wecannotguaranteetheircompliancewithethical
businesspractices,suchasenvironmentalresponsibility,fairwagepractices,appropriatesourcingofrawmaterials,andcompliancewithchildlaborlaws,amongothers.Alackof
demonstratedcompliancecouldleadustoseekalternativesuppliers,whichcouldincreaseourcostsandresultindelayeddeliveryofourproducts,productshortagesorother
disruptionsofouroperations.
ViolationoflabororotherlawsbyoursuppliersorthedivergenceofanindependentsupplierslabororotherpracticesfromthosegenerallyacceptedasethicalintheUnited
Statesorothermarketsinwhichwedobusinesscouldalsoattractnegativepublicityforusandourbrand.Thiscoulddiminishthevalueofourbrandimageandreducedemandforour
performanceelectricvehiclesif,asaresultofsuchviolation,weweretoattractnegativepublicity.Ifwe,orothermanufacturersinourindustry,encountersimilarproblemsinthe
future,itcouldharmourbrandimage,business,prospects,financialconditionandoperatingresults.
Weareobligatedtodevelopandmaintainproperandeffectiveinternalcontroloverfinancialreporting.Wemaynotcompleteouranalysisofourinternalcontroloverfinancial
reportinginatimelymanner,ortheseinternalcontrolsmaynotbedeterminedtobeeffective,whichmayadverselyaffectinvestorconfidenceinourcompanyand,asaresult,the
valueofourcommonstock.
Wearerequired,pursuanttoSection404oftheSarbanesOxleyAct,tofurnishareportbymanagementon,amongotherthings,theeffectivenessofourinternalcontrolover
financialreporting.Thisassessmentincludesdisclosureofanymaterialweaknessesidentifiedbyourmanagementinourinternalcontroloverfinancialreporting,aswellasastatement
thatourindependentregisteredpublicaccountingfirmhasissuedanattestationreportontheeffectivenessofourinternalcontroloverfinancialreporting.
ComplyingwithSection404requiresarigorouscomplianceprogramaswellasadequatetimeandresources.Asaresultofdeveloping,improvingandexpandingourcore
informationtechnologysystemsaswellasimplementingnewsystemstosupportoursales,engineering,supplychainandmanufacturingactivities,allofwhichrequiresignificant
managementtimeandsupport,wemaynotbeabletocompleteourinternalcontrolevaluation,testingandanyrequiredremediationinatimelyfashion.Additionally,ifweidentify
oneormorematerialweaknessesinourinternalcontroloverfinancialreporting,wemaybeunabletoassertthatourinternalcontrolsareeffective.Forexample,ourmanagement
concludedthatourinternalcontroloverfinancialreportingwasineffectiveasofDecember31,2012becauseamaterialweaknessexistedinourinternalcontroloverfinancial
reportingrelatedtothepresentationanddisclosureofnoncashcapitalexpendituresinourconsolidatedstatementsofcashflows.Ifweareunabletoassertthatourinternalcontrol
overfinancialreportingiseffective,orifourindependentregisteredpublicaccountingfirmisunabletoexpressanopinionontheeffectivenessofourinternalcontrols,wecouldlose
investorconfidenceintheaccuracyandcompletenessofourfinancialreports,whichwouldhaveamaterialadverseeffectonthepriceofourcommonstock.
Servicingourconvertibleseniornotesrequiresasignificantamountofcash,andwemaynothavesufficientcashflowfromourbusinesstopayoursubstantialdebt.
Weincurred$660.0millioninaggregateprincipalamountofseniorindebtednessinMay2013whenweissuedpursuanttoregisteredpublicofferings1.50%convertiblesenior
notesdue2018(theNotes).Ourabilitytomakescheduledpaymentsoftheprincipalof,topayintereston,makepaymentsuponconversionortorefinancetheNotes,dependsonour
futureperformance,whichissubjecttoeconomic,financial,competitiveandotherfactorsbeyondourcontrol.Ourbusinessmaynotcontinuetogeneratecashflowfromoperationsin
thefuturesufficienttosatisfyourobligationsundertheNotesandanyfutureindebtednesswemayincurandtomakenecessarycapitalexpenditures.Ifweareunabletogeneratesuch
cashflow,wemayberequiredtoadoptoneormorealternatives,suchasreducingordelayinginvestmentsorcapitalexpenditures,sellingassets,refinancingorobtainingadditional
equitycapitalontermsthatmaybeonerousorhighlydilutive.OurabilitytorefinancetheNotesorfutureindebtednesswilldependonthecapitalmarketsandourfinancialcondition
atsuchtime.Wemaynotbeabletoengageinanyoftheseactivitiesorengageintheseactivitiesondesirableterms,whichcouldresultinadefaultontheNotesorfutureindebtedness.

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Pursuanttotheirterms,holdersmayconverttheirNotesattheiroptionatanytimepriortothecloseofbusinessonthebusinessdayimmediatelyprecedingMarch1,2018only
undercertaincircumstances.Forexample,holdersmayconverttheirNotesattheiroptionduringanyquartercommencingafterthethirdquarterof2013(andonlyduringsuchquarter)
ifthelastreportedsalepriceofourcommonstockforatleast20tradingdays(whetherornotconsecutive)duringaperiodof30consecutivetradingdaysendingonthelasttrading
dayoftheimmediatelyprecedingquarterisgreaterthanorequalto130%oftheconversionpriceforsuchseriesofnotesoneachapplicabletradingday.Thisconditionwasmetinthe
thirdquarterof2013,andconsequentlytheNoteswereconvertiblebytheirholdersduringthefourthquarterof2013.However,thesalespriceconditionwasnotmetinthefourth
quarterof2013and,therefore,theNotesarenotconvertibleduringthefirstquarterof2014butmaybeconvertibleinfutureperiods.Shouldsuchsalespriceconditionbemetinany
futurequarter,theNoteswillagainbeconvertiblebytheirholdersduringtheimmediatelyfollowingquarter.UponconversionoftheNotes,wewillbeobligatedtomakecash
paymentsinrespectoftheprincipalamountsthereof,andwemayalsohavetodelivercashand,ifapplicable,sharesofourcommonstock,inrespectofsuchNotes.Anyconversionof
theNotespriortotheirmaturity,oraccelerationoftherepaymentoftheNotesorfutureindebtednessafteranyapplicablenoticeorgraceperiodscouldhaveamaterialadverseeffecton
ourbusiness,resultsofoperationsandfinancialcondition.EvenifholdersdonotelecttoconverttheirNotes,iftheNotesbecomeconvertiblewecouldberequiredunderapplicable
accountingrulestoreclassifyalloraportionoftheoutstandingprincipaloftheNotesasacurrentratherthanlongtermliability,whichwouldresultinamaterialadverseimpacton
ourreportedfinancialresults.
Inaddition,holdersoftheNoteswillhavetherighttorequireustopurchasetheirNotesupontheoccurrenceofafundamentalchangeatapurchasepriceequalto100%ofthe
principalamountoftheNotes,plusaccruedandunpaidinterest,ifany,to,butnotincluding,thefundamentalchangepurchasedate.However,wemaynothaveenoughavailablecash
orbeabletoobtainfinancingatthetimewearerequiredtomakepurchasesofNotessurrenderedtherefororNotesbeingconverted.Inaddition,ourabilitytopurchasetheNotesorto
paycashuponconversionsoftheNotesmaybelimitedbylaw,byregulatoryauthorityorbyagreementsgoverningourfutureindebtedness.OurfailuretopurchaseNotesatatime
whenthepurchaseisrequiredbytheindentureortopaycashpayableonfutureconversionsoftheNotesasrequiredbytheindenturewouldconstituteadefaultundertheindenture.If
therepaymentoftherelatedindebtednessweretobeacceleratedafteranyapplicablenoticeorgraceperiods,wemaynothavesufficientfundstorepaytheindebtednessandpurchase
theNotesormakecashpaymentsuponconversionsthereof.
Wemaystillincursubstantiallymoredebtortakeotheractions,whichwouldintensifytherisksdiscussedabove.
Weandoursubsidiariesmaybeabletoincursubstantialadditionaldebtinthefuture.WearenotrestrictedunderthetermsoftheindenturegoverningtheNotes,orthe
indenture,fromincurringadditionaldebt,securingexistingorfuturedebt,recapitalizingourdebtortakinganumberofotheractionsthatarenotlimitedbythetermsoftheindenture
thatcouldhavetheeffectofdiminishingourabilitytomakepaymentsontheNoteswhendue.
TheclassificationofourNotesmayhaveamaterialeffectonourreportedfinancialresults.
HoldersmayconverttheirNotesattheiroptionatanytimepriortothecloseofbusinessonthebusinessdayimmediatelyprecedingMarch1,2018onlyundercertain
circumstances.Forexample,holdersmayconverttheirNotesattheiroptionduringanyquartercommencingafterthethirdquarterof2013(andonlyduringsuchquarter)ifthelast
reportedsalepriceofourcommonstockforatleast20tradingdays(whetherornotconsecutive)duringaperiodof30consecutivetradingdaysendingonthelasttradingdayofthe
immediatelyprecedingquarterisgreaterthanorequalto130%oftheconversionpricefortheNotesoneachtradingday.Thisconditionwasmetinthethirdquarterof2013,and
consequentlytheNoteswereconvertiblebytheirholdersduringthefourthquarterof2013.However,thesalespriceconditionwasnotmetinthefourthquarterof2013and,therefore,
theNotesarenotconvertibleduringthefirstquarterof2014butmaybeconvertibleinfutureperiods.IftheNotesbecomeconvertiblepriortoMarch1,2018,wewouldberequiredto
reclassifyourNotesandtherelateddebtissuancecostsascurrentliabilitiesandcertainportionsofourequityoutsideofequityto

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TableofContents
mezzanineequity,whichwouldhaveanadverseimpactonourreportedfinancialresultsforsuchquarter,andcouldhaveanadverseimpactonthemarketpriceofourcommonstock.
RisksRelatedtotheOwnershipofourCommonStock
Concentrationofownershipamongourexistingexecutiveofficers,directorsandtheiraffiliatesmaypreventnewinvestorsfrominfluencingsignificantcorporatedecisions.
AsofDecember31,2013,ourexecutiveofficers,directorsandtheiraffiliatesbeneficiallyowned,intheaggregate,approximately28.4%ofouroutstandingsharesofcommon
stock.Inparticular,ElonMusk,ourChiefExecutiveOfficer,ProductArchitectandChairmanofourBoardofDirectors,beneficiallyownedapproximately27.0%ofouroutstanding
sharesofcommonstockasofDecember31,2013.Asaresult,thesestockholderswillbeabletoexerciseasignificantlevelofcontroloverallmattersrequiringstockholderapproval,
includingtheelectionofdirectors,amendmentofourcertificateofincorporationandapprovalofsignificantcorporatetransactions.Thiscontrolcouldhavetheeffectofdelayingor
preventingachangeofcontrolofourcompanyorchangesinmanagementandwillmaketheapprovalofcertaintransactionsdifficultorimpossiblewithoutthesupportofthese
stockholders.
Thetradingpriceofourcommonstockislikelytocontinuetobevolatile.
OursharesofcommonstockbegantradingontheNasdaqGlobalSelectMarketonJune29,2010and,therefore,thetradinghistoryforourcommonstockhasbeenlimited.In
addition,thetradingpriceofourcommonstockhasbeenhighlyvolatileandcouldcontinuetobesubjecttowidefluctuationsinresponsetovariousfactors,someofwhicharebeyond
ourcontrol.Ourcommonstockhasexperiencedanintradaytradinghighof$259.20pershareandalowof$33.80pershareoverthelast52weeks.
Inaddition,thestockmarketingeneral,andthemarketfortechnologycompaniesinparticular,hasexperiencedextremepriceandvolumefluctuationsthathaveoftenbeen
unrelatedordisproportionatetotheoperatingperformanceofthosecompanies.Broadmarketandindustryfactorsmayseriouslyaffectthemarketpriceofcompaniesstock,including
ours,regardlessofactualoperatingperformance.Thesefluctuationsmaybeevenmorepronouncedinthetradingmarketforourstockduringtheperiodfollowingasecuritiesoffering.
Inaddition,inthepast,followingperiodsofvolatilityintheoverallmarketandthemarketpriceofaparticularcompanyssecurities,securitiesclassactionlitigationhasoftenbeen
institutedagainstthesecompanies.Forexample,ashareholderlitigationlikethishasrecentlybeeninstitutedagainstus.Whilewedonotbelievethatithasmerit,thislitigationor
otherslikeitcouldresultinsubstantialcostsandadiversionofourmanagementsattentionandresources.
Asubstantialportionofourtotaloutstandingsharesareheldbyasmallnumberofinsidersandinvestorsandmaybesoldinthenearfuture.Thelargenumberofshareseligible
forpublicsaleorsubjecttorightsrequiringustoregisterthemforpublicsalecoulddepressthemarketpriceofourcommonstock.
Themarketpriceofourcommonstockcoulddeclineasaresultofsalesofalargenumberofsharesofourcommonstockinthemarketinthefuture,andtheperceptionthat
thesesalescouldoccurmayalsodepressthemarketpriceofourcommonstock.Stockholdersowningasubstantialportionofourtotaloutstandingsharesareentitled,undercontracts
providingforregistrationrights,torequireustoregistersharesofourcommonstockownedbythemforpublicsaleintheUnitedStates,subjecttotherestrictionsofRule144.In
addition,wehaveregisteredsharespreviouslyissuedorreservedforfutureissuanceunderourequitycompensationplansandagreements,aportionofwhicharerelatedtooutstanding
optionawards.Subjecttothesatisfactionofapplicableexerciseperiodsand,incertaincases,lockupagreements,thesharesofcommonstockissueduponexerciseofoutstanding
optionswillbeavailableforimmediateresaleintheUnitedStatesintheopenmarket.Salesofourcommonstockasrestrictionsendorpursuanttoregistrationrightsmaymakeitmore
difficultforustosellequitysecuritiesinthefutureatatimeandatapricethatwedeemappropriate.Thesesalesalsocouldcauseourstockpricetofallandmakeitmoredifficultto
sellsharesofourcommonstock.

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TableofContents
ConversionoftheNotesmaydilutetheownershipinterestofexistingstockholders,includingholderswhohadpreviouslyconvertedtheirNotes,ormayotherwisedepressthe
priceofourcommonstock.
TheconversionofsomeoralloftheNoteswilldilutetheownershipinterestsofexistingstockholderstotheextentwedeliversharesuponconversionofanyoftheNotes.As
describedintheRiskFactorServicingourconvertibleseniornotesrequiresasignificantamountofcash,andwemaynothavesufficientcashflowfromourbusinesstopayour
substantialdebt,theNoteswereconvertiblebytheirholdersduringthefourthquarterof2013,andwhiletheyarenotconvertibleduringthefirstquarterof2014,theymayagain
becomeconvertibleinfutureperiodsifaconditiontoconversionfortheNotesismet.Anysalesinthepublicmarketofthecommonstockissuableuponsuchconversioncould
adverselyaffectprevailingmarketpricesofourcommonstock.Inaddition,theexistenceoftheNotesmayencourageshortsellingbymarketparticipantsbecausetheconversionofthe
Notescouldbeusedtosatisfyshortpositions,oranticipatedconversionoftheNotesintosharesofourcommonstockcoulddepressthepriceofourcommonstock.
TheconvertiblenotehedgeandwarranttransactionsweenteredintoinconnectionwiththeissuanceofNotesmayaffectthevalueoftheNotesandourcommonstock.
InconnectionwiththeissuanceoftheNotes,weenteredintoconvertiblenotehedgetransactionswiththehedgecounterparties.Theconvertiblenotehedgetransactionscover,
subjecttocustomaryantidilutionadjustments,thenumberofsharesofourcommonstockthatinitiallyunderlaytheNotes.Theconvertiblenotehedgetransactionsareexpectedto
reducethepotentialdilutionand/oroffsetpotentialcashpaymentswearerequiredtomakeinexcessoftheprincipalamountuponconversionoftheNotes.Wealsoenteredinto
warranttransactionswiththehedgecounterpartiesrelatingtothesamenumberofsharesofourcommonstock,subjecttocustomaryantidilutionadjustments.However,thewarrant
transactionscouldseparatelyhaveadilutiveeffectonourcommonstocktotheextentthatthemarketpricepershareofourcommonstockexceedstheapplicablestrikepriceofthe
warrantsontheapplicableexpirationdates.
Inaddition,thehedgecounterpartiesortheiraffiliatesmaymodifytheirhedgepositionsbyenteringintoorunwindingvariousderivativeswithrespecttoourcommonstock
and/orpurchasingorsellingourcommonstockorothersecuritiesofoursinsecondarymarkettransactionspriortothematurityoftheNotes(andarelikelytodosoduringany
observationperiodrelatedtoaconversionofNotes).ThisactivitycouldalsocauseorpreventanincreaseoradecreaseinthemarketpriceofourcommonstockortheNotes.
Wedonotmakeanyrepresentationorpredictionastothedirectionormagnitudeofanypotentialeffectthatthetransactionsdescribedabovemayhaveonthepriceofthe
Notesorthesharesofourcommonstock.Inaddition,wedonotmakeanyrepresentationthatthehedgecounterpartieshaveengagedorwillengageinthesetransactionsorthatthese
transactions,oncecommenced,willnotbediscontinuedwithoutnotice.
Mr.Muskborrowedfundsfromaffiliatesofcertainunderwritersinourpublicofferingsand/orprivateplacementsin2011and2013andhaspledgedsharesofourcommon
stocktosecuretheseborrowings.Theforcedsaleofthesesharespursuanttoamargincallcouldcauseourstockpricetodeclineandnegativelyimpactourbusiness.
BeginninginJune2011,GoldmanSachsBankUSA,anaffiliateofGoldman,Sachs&Co.,hasmadeextensionsofcreditintheaggregateamountof$275milliontoElonMusk
andtheElonMuskRevocableTrustdatedJuly22,2003,ortheTrust,aportionofwhichMr.MuskusedtopurchasesharesofcommonstockinourpublicofferinginMay2013and
privateplacementsinJune2011andJune2013.Interestontheloanaccruesatmarketrates.GoldmanSachsBankUSAreceivedcustomaryfeesandexpensereimbursementsin
connectionwiththeseloans.Asaregulatedentity,GoldmanSachsBankUSAmakesdecisionsregardingmakingandmanagingitsloansindependentofGoldman,Sachs&Co.
Mr.MuskandGoldmanhavealongstandingrelationshipofalmostadecade.Inaddition,MorganStanleySmithBarneyLLC,anaffiliateofMorganStanley&Co.LLC,hasmadea
loantoMr.Muskintheaggregateamountof$25million.Interestonthisloanaccruesatmarketrates.MorganStanleySmithBarneyLLCreceivedcustomaryfeesandexpense
reimbursementsinconnectionwiththisloan.

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TableofContents
Wearenotapartytotheseloans,whicharefullrecourseagainstMr.MuskandtheTrustandaresecuredbypledgesofaportionoftheTeslacommonstockcurrentlyownedby
Mr.MuskandtheTrustandothersharesofcapitalstockofunrelatedentitiesownedbyMr.MuskandtheTrust.ThetermsoftheseloanswerenegotiateddirectlybetweenMr.Musk
andGoldmanSachsBankUSAandMorganStanleySmithBarneyLLC.
Ifthepriceofourcommonstockdeclines,Mr.MuskmaybeforcedbyGoldmanSachsBankUSAand/orMorganStanleySmithBarneyLLCtoprovideadditionalcollateralfor
theloansortosellsharesofTeslacommonstockinordertoremainwithinthemarginlimitationsimposedunderthetermsofhisloans.TheloansbetweenGoldmanSachsBankUSA
andMorganStanleySmithBarneyLLContheonehand,andMr.MuskandtheTrustontheotherhand,prohibitthenonpledgedsharescurrentlyownedbyMr.MuskandtheTrust
frombeingpledgedtosecureanyotherloans.ThesefactorsmaylimitMr.MusksabilitytoeitherpledgeadditionalsharesofTeslacommonstockorsellsharesofTeslacommonstock
asameanstoavoidorsatisfyamargincallwithrespecttohispledgedTeslacommonstockintheeventofadeclineinourstockpricethatislargeenoughtotriggeramargincall.Any
salesofcommonstockfollowingamargincallthatisnotsatisfiedmaycausethepriceofourcommonstocktodeclinefurther.
Antitakeoverprovisionscontainedinourcertificateofincorporationandbylaws,theprovisionsofDelawarelaw,andthetermsofourconvertiblenotescouldimpaira
takeoverattempt.
Ourcertificateofincorporation,bylaws,DelawarelawandthetermsofourNotescontainprovisionswhichcouldhavetheeffectofrenderingmoredifficult,delayingor
preventinganacquisitiondeemedundesirablebyourboardofdirectors.Ourcorporategovernancedocumentsincludeprovisions:

creatingaclassifiedboardofdirectorswhosemembersservestaggeredthreeyearterms

authorizingblankcheckpreferredstock,whichcouldbeissuedbytheboardwithoutstockholderapprovalandmaycontainvoting,liquidation,dividendandother
rightssuperiortoourcommonstock

limitingtheliabilityof,andprovidingindemnificationto,ourdirectorsandofficers

limitingtheabilityofourstockholderstocallandbringbusinessbeforespecialmeetings

requiringadvancenoticeofstockholderproposalsforbusinesstobeconductedatmeetingsofourstockholdersandfornominationsofcandidatesforelectiontoour
boardofdirectors

controllingtheproceduresfortheconductandschedulingofboardandstockholdermeetingsand

providingtheboardofdirectorswiththeexpresspowertopostponepreviouslyscheduledannualmeetingsandtocancelpreviouslyscheduledspecialmeetings.

Theseprovisions,aloneortogether,coulddelayorpreventhostiletakeoversandchangesincontrolorchangesinourmanagement.
AsaDelawarecorporation,wearealsosubjecttoprovisionsofDelawarelaw,includingSection203oftheDelawareGeneralCorporationlaw,whichpreventssome
stockholdersholdingmorethan15%ofouroutstandingcommonstockfromengagingincertainbusinesscombinationswithoutapprovaloftheholdersofsubstantiallyallofour
outstandingcommonstock.
AnyprovisionofourcertificateofincorporationorbylawsorDelawarelawthathastheeffectofdelayingordeterringachangeincontrolcouldlimittheopportunityforour
stockholderstoreceiveapremiumfortheirsharesofourcommonstock,andcouldalsoaffectthepricethatsomeinvestorsarewillingtopayforourcommonstock.
Inaddition,thetermsoftheconvertiblenotesrequireustorepurchasetheconvertiblenotesintheeventofafundamentalchange.Atakeoverofourcompanywouldtriggeran
optionoftheholdersoftheconvertiblenotestorequireustorepurchasetheconvertiblenotes.Thismayhavetheeffectofdelayingorpreventingatakeoverofourcompanythat
wouldotherwisebebeneficialtoourstockholdersorinvestorsintheconvertiblenotes.

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TableofContents
ThefundamentalchangerepurchasefeatureoftheNotesmaydelayorpreventanotherwisebeneficialattempttotakeoverourcompany.
ThetermsoftheNotesrequireustorepurchasetheNotesintheeventofafundamentalchange.AtakeoverofourcompanywouldtriggeranoptionoftheholdersoftheNotes
torequireustorepurchasetheNotes.Thismayhavetheeffectofdelayingorpreventingatakeoverofourcompanythatwouldotherwisebebeneficialtoourstockholdersorinvestors
intheNotes.
Ifsecuritiesorindustryanalystspublishingresearchorreportsaboutus,ourbusinessorourmarketchangetheirrecommendationsregardingourstockadverselyorceaseto
publishresearchorreportsaboutus,ourstockpriceandtradingvolumecoulddecline.
Thetradingmarketforourcommonstockwillbeinfluencedbytheresearchandreportsthatindustryorsecuritiesanalystsmaypublishaboutus,ourbusiness,ourmarketorour
competitors.Ifanyoftheanalystswhomaycoveruschangetheirrecommendationregardingourstockadversely,orprovidemorefavorablerelativerecommendationsaboutour
competitors,ourstockpricewouldlikelydecline.Ifanyanalystwhomaycoverusweretoceasecoverageofourcompanyorfailtoregularlypublishreportsonus,wecouldlose
visibilityinthefinancialmarkets,whichinturncouldcauseourstockpriceortradingvolumetodecline.
Wedonotexpecttodeclareanydividendsintheforeseeablefuture.
Wedonotanticipatedeclaringanycashdividendstoholdersofourcommonstockintheforeseeablefuture.Consequently,investorsmayneedtorelyonsalesoftheircommon
stockafterpriceappreciation,whichmayneveroccur,astheonlywaytorealizeanyfuturegainsontheirinvestment.Investorsseekingcashdividendsshouldnotpurchaseour
commonstock.

ITEM1B.

UNRESOLVEDSTAFFCOMMENTS

None.

ITEM2.

PROPERTIES

OurcorporateheadquartersisbasedinPaloAlto,California.WehavealeasewithStanfordUniversityfor350,000squarefeetwhichexpiresinJanuary2020.InMay2010,we
enteredintoanagreementtopurchaseanexistingautomobileproductionfacilitylocatedinFremont,CaliforniafromNUMMI,whichisajointventurebetweenToyota,andMotors
LiquidationCompany,theownerofselectedassetsofGeneralMotors.InOctober2010,wecompletedthepurchaseandreceivedtitletothefacilityandland(theTeslaFactory).The
totalcashpaidwas$42.0million.Thepurchasetotaled210acres,orapproximately55%ofthelandatthesite,andincludedallofthemanufacturingfacilitieslocatedthereontotaling
approximately5.4millionsquarefeet.WearerequiredtocomplywithenvironmentalregulationsinconnectionwithourTeslaFactoryinFremont,California.InOctober2010,weand
NUMMIamendedtheMay2010purchaseagreementtoincludethetransfertousofcertainoperatingpermits,oremissioncredits,foradditionalconsiderationof$6.5million.We
completedthetransferofthesepermitsinOctober2010.WecommencedtheproductionofourModelSvehicleandpowertraincomponentsandsystemsinJune2012attheTesla
Factory.WealsointendtobuildourfuturevehiclesattheTeslaFactory.InJuly2013,wecompletedthepurchaseofapproximately31acresoflandlocatedinFremont,Californiathat
isadjacenttotheTeslaFactoryforpotentialfutureexpansion.Wepaid$18.5millionrelatedtothispurchase.OutsideofourTeslaFactory,wedonotcurrentlyownanyofour
facilities.

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TableofContents
Thefollowingtablesetsforththelocation,approximatesizeandprimaryuseofourprincipalleasedfacilities:

Location(1)

PaloAlto,California

Approximate

Lease

Size(Building)

Expiration

inSquareFeet

350,000

203,772

132,250

8,870

8,190

Tilburg,Netherlands

Hawthorne,California

Maidenhead,UnitedKingdom
Beijing,China

(1)

Administration,engineeringservicesandpowertrain
developmentservices
Administration,engineeringservices,powertraindevelopment
services,partswarehousing,finalvehicleassemblyandvehicle
service

Date

January2020

November2023

December2022

PrimaryUse

Vehicleengineeringanddesignservices

November2015

Administration,sales,serviceandmarketingservices

November2017

Administration,salesandmarketingservices

WealsoleaseanumberofpropertiesinNorthAmerica,EuropeandAsiaforourretailandservicelocationsaswellasSuperchargersites.

Wecurrentlyintendtoaddnewfacilitiesorexpandourexistingfacilitiesasweaddemployeesandexpandournetworkofstoresandgalleries,servicelocationsand
Superchargersites.Webelievethatsuitableadditionaloralternativespacewillbeavailableinthefutureoncommerciallyreasonabletermstoaccommodateourforeseeablefuture
expansion.

ITEM3.

LEGALPROCEEDINGS

SecuritiesLitigation
InNovember2013,aputativesecuritiesclassactionlawsuitwasfiledagainstTeslainU.S.DistrictCourt,NorthernDistrictofCalifornia,allegingviolationsof,andseeking
remediespursuantto,Sections10(b)and20(a)oftheSecuritiesExchangeActof1934andRule10b5.TheclaimswereoriginallyassertedbyplaintiffRobertRahimi,againstTesla
andtwoofitsexecutiveofficers,ElonMuskandDeepakAhuja.OnFebruary14,2014,theCourtgrantedthemotionofKazimAcartoserveasleadplaintiff,andgavehimleavetofile
anamendedcomplaintwithin60days.Thecurrentcomplaintseeksdamages,attorneyfeesandotherrelief,andalleges,amongotherthings,thatTeslamadefalseand/ormisleading
representationsandomissionsincludingwithrespecttothesafetyoftheModelSvehicleandTeslasabilitytomeetpublicexpectationswithrespecttoitsfinancialperformance.The
currentcomplaintisbroughtonbehalfofaputativeclassconsistingofallpersonsotherthanDefendantswhopurchasedTeslassecuritiesbetweenMay10,2013andNovember6,
2013,inclusive.Itispossibletheamendedcomplaintwillmodifytheclassortheclassperiod.Webelievethislawsuitiswithoutmeritandintendtodefendagainstitvigorously.

OtherMatters
Fromtimetotime,wearesubjecttovariousotherlegalproceedingsthatarisefromthenormalcourseofbusinessactivities.Inaddition,fromtimetotime,thirdpartiesmay
assertintellectualpropertyinfringementclaimsagainstusintheformoflettersandotherformsofcommunication.Ifanunfavorablerulingweretooccur,thereexiststhepossibilityof
amaterialadverseimpactonourresultsofoperations,prospects,cashflows,financialpositionandbrand.

59

TableofContents
PARTII

ITEM5.

MARKETFORREGISTRANTSCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOFEQUITYSECURITIES

MarketInformation
OurcommonstockhastradedonTheNASDAQGlobalSelectMarketunderthesymbolTSLAsinceitbegantradingonJune29,2010.Ourinitialpublicofferingwaspriced
at$17.00pershareonJune28,2010.Thefollowingtablesetsforth,forthetimeperiodindicated,thehighandlowclosingsalespriceofourcommonstockasreportedonThe
NASDAQGlobalSelectMarket.

FirstQuarter

2013
High

Low

2012

High

Low

$ 39.48

$ 32.91

$37.94

$22.79

110.33

40.50

38.01

27.56

193.37

109.05

35.96

26.10

193.00

120.50

35.28

27.33

SecondQuarter
ThirdQuarter
FourthQuarter

Holders
AsofJanuary31,2014,therewere699holdersofrecordofourcommonstock.Asubstantiallygreaternumberofholdersofourcommonstockarestreetname,orbeneficial,
holders,whosesharesareheldbybanks,brokersandotherfinancialinstitutions.
DividendPolicy
Wehaveneverdeclaredorpaidcashdividendsonourcommonstock.Wecurrentlydonotanticipatepayinganycashdividendsintheforeseeablefuture.Anyfuture
determinationtodeclarecashdividendswillbemadeatthediscretionofourboardofdirectors,subjecttoapplicablelaws,andwilldependonourfinancialcondition,resultsof
operations,capitalrequirements,generalbusinessconditionsandotherfactorsthatourboardofdirectorsmaydeemrelevant.
StockPerformanceGraph
ThisperformancegraphshallnotbedeemedfiledforpurposesofSection18oftheSecuritiesExchangeActof1934,asamended(theExchangeAct),orincorporatedby
referenceintoanyfilingofTeslaMotors,Inc.undertheSecuritiesActof1933,asamended,ortheExchangeAct,exceptasshallbeexpresslysetforthbyspecificreferenceinsuch

filing.
ThefollowinggraphshowsacomparisonfromJune29,2010throughDecember31,2013,ofthecumulativetotalreturnforourcommonstock,theNASDAQCompositeIndex,
andagroupofallpubliccompaniessharingthesameSICcodeasuswhichisSICcode3711,MotorVehiclesandPassengerCarBodies(MotorVehiclesandPassengerCarBodies
PublicCompanyGroup).Suchreturnsarebasedonhistoricalresultsandarenotintendedtosuggestfutureperformance.DataforTheNASDAQCompositeIndexandtheMotor
VehiclesandPassengerCarBodiesPublicCompanyGroupassumesaninvestmentof$100onJune29,2010andreinvestmentofdividends.Wehaveneverdeclaredorpaidcash
dividendsonourcapitalstocknordoweanticipatepayinganysuchcashdividendsintheforeseeablefuture.

60

TableofContents

UnregisteredSalesofEquitySecurities
None.
PurchasesofEquitySecuritiesbytheIssuerandAffiliatedPurchasers
None.

61

TableofContents
ITEM6.

SELECTEDFINANCIALDATA

ThefollowingselectedconsolidatedfinancialdatashouldbereadinconjunctionwithManagementsDiscussionandAnalysisofFinancialConditionandResultsof
OperationsandourconsolidatedfinancialstatementsandtherelatednotesincludedelsewhereinthisAnnualReportonForm10K.
Thefollowingselectedconsolidatedfinancialdataalsoreflectsthe1for3reversestocksplitofouroutstandingcommonstockeffectedinMay2010.

YearEndedDecember31,
2013

2012

2011

2010

2009

(inthousands,exceptshareandpersharedata)

ConsolidatedStatementsofOperationsData:

Revenues:
Automotivesales

1,997,786

385,699

148,568

97,078

$ 111,943

15,710

27,557

55,674

19,666

2,013,496

413,256

204,242

116,744

111,943

Developmentservices

Totalrevenues
Costofrevenues(1):

Automotivesales

1,543,878

371,658

115,482

79,982

102,408

13,356

11,531

27,165

6,031

1,557,234

383,189

142,647

86,013

102,408

Developmentservices

Totalcostofrevenues

Grossprofit

456,262

30,067

61,595

30,731

9,535

Operatingexpenses(1):

Researchanddevelopment(netofdevelopmentcompensationof
$23,249fortheyearendedDecember31,2009)

231,976

273,978

208,981

92,996

19,282

285,569

150,372

104,102

84,573

42,150

517,545

424,350

313,083

177,569

61,432

(61,283)

(394,283)

(251,488)

(146,838)

(51,897)

189

288

255

258

159

(32,934)

(254)

(43)

(992)

(2,531)

22,602

(1,828)

(2,646)

(6,583)

(1,445)

(71,426)

(396,077)

(253,922)

(154,155)

(55,714)

2,588

136

489

173

26

(74,014)

(396,213)

(254,411)

(154,328)

(55,740)

(0.62)

(3.69)

(2.53)

(3.04)

(7.94)

119,421,414

Lossfromoperations
Interestincome
Interestexpense(2)
Otherincome(expense),net(3)

Lossbeforeincometaxes
Provisionforincometaxes

Netloss

Netlosspershareofcommonstock,basicanddiluted(4)

Weightedaveragesharesusedincomputingnetlosspershareof
commonstock,basicanddiluted(4)

Includesstockbasedcompensationexpenseasfollows:

Totaloperatingexpenses

Selling,generalandadministrative

(1)

107,349,188

100,388,815

50,718,302

7,021,963

Costofrevenues

2012

2011

$ 9,071

$ 2,194

35,494

26,580

39,090

$83,655

Selling,generalandadministrative

Total

62

Researchanddevelopment

YearEndedDecember31,
2013

670

2010

2009

243

61

13,377

4,139

376

21,371

15,372

16,774

997

$50,145

$29,419

$21,156

$1,434

TableofContents
(2)

(3)

(4)

InMay2013,weissued$660.0millionaggregateprincipalamountof1.50%convertibleseniornotesdueJune2018(Notes)inapublicoffering.Weincurred$12.0millionof
debtissuancecostsinconnectionwiththeissuanceoftheNoteswhichwerecordedinotherassetsandareamortizingtointerestexpenseusingtheeffectiveinterestmethod
overthecontractualtermoftheNotes.TheinterestundertheNotesisfixedat1.50%perannumandispayablesemiannuallyinarrearsonJune1andDecember1ofeachyear,
commencingonDecember1,2013.DuringtheyearendedDecember31,2013,werecognized$1.2millionofinterestexpenserelatedtotheamortizationofdebtissuancecosts
and$5.9millionofcouponinterestexpense.Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoption
associatedwiththeNotesfromthehostdebtinstrumentandrecordedtheconversionoptionof$82.8millioninequity.TheresultingdebtdiscountontheNotesisbeing
amortizedtointerestexpenseataneffectiveinterestrateof4.29%overthecontractualtermoftheNotes.DuringtheyearendedDecember31,2013,werecognized$9.1million
ofinterestexpenserelatedtotheamortizationofthedebtdiscount.InMay2013,weusedaportionoftheNotesofferingproceedstorepayalloutstandingloanamountsunder
theDepartmentofEnergy(DOE)LoanFacility.DuringtheyearendedDecember31,2013,werecordedtotalinterestexpenseof$17.8millionrelatedtotheearlyrepaymentfee,
couponinterestexpenseandtheamortizationoftheremainingloanoriginationcostsontheDOELoanFacility.Asaresultoftheextinguishmentofourloans,unamortized
loanoriginationcostsassociatedwiththeDOELoanFacilityof$5.6millionwerechargedtointerestexpense.
InJanuary2010,weissuedawarranttotheDOEinconnectionwiththeclosingoftheDOELoanFacilitytopurchasesharesofourSeriesEconvertiblepreferredstock.This
convertiblepreferredstockwarrantbecameawarranttopurchasesharesofourcommonstockupontheclosingofourinitialpublicoffering(IPO).Thewarrantprovidedthat
beginningonDecember15,2018anduntilDecember14,2022,thesharessubjecttopurchaseunderthewarrantwouldbecomeexercisableinquarterlyamountsdependingon
theaverageoutstandingbalanceoftheDOELoanFacility,ifany,duringthepriorquarter.Sincethenumberofsharesofcommonstockultimatelyissuableunderthewarrant
wouldvary,thiswarranthadbeencarriedatitsestimatedfairvaluewithchangesinthefairvalueofthiscommonstockwarrantliabilityreflectedinotherincome(expense),net,
untilitsexpirationorvesting.WeenteredintoanamendmentwiththeDOEeffectiveMarch1,2013.Weagreedamongotherthingsto:(i)modifycertainfuturefinancial
covenants(ii)acceleratethematuritydateoftheDOELoanFacilitytoDecember15,2017(iii)createanobligationtorepayapproximately1.0%oftheoutstandingprincipal
undertheDOELoanFacilityonorbeforeJune15,2013and(iv)createadditionalcontingentobligationsbasedonexcesscashflowthatcouldhaveresultedinaccelerated
repaymentoftheDOELoanFacilitystartingin2015.Accordingly,theDOEwarrantswerenolongerexpectedtovestandwethereforerecognizedaonetimenoncashgainof
$10.7millionfromtheeliminationofthiswarrantliabilityinthequarterendedMarch31,2013.Asaresultofourrepaymentofalloutstandingprincipalandinterestunderthe
DOELoanFacilityandtheterminationoftheDOELoanFacilityinMay2013,theDOEwarrantexpired.
Dilutednetlosspershareofcommonstockiscomputedexcludingcommonstocksubjecttorepurchase,and,ifdilutive,potentialsharesofcommonstockoutstandingduring
theperiod.Potentialsharesofcommonstockconsistofstockoptionstopurchasesharesofourcommonstock,theconversionofourconvertibleseniornotes(usingthetreasury
stockmethod),warrantstopurchasesharesofourcommonstockissuedinconnectionwithour1.50%convertibleseniornotesdue2018(usingthetreasurystockmethod),
warrantstopurchasesharesofourconvertiblepreferredstock(usingthetreasurystockmethod)andtheconversionofourconvertiblepreferredstockandconvertiblenotes
payable(usingtheifconvertedmethod).Forpurposesofthesecalculations,potentialsharesofcommonstockhavebeenexcludedfromthecalculationofdilutednetlossper
shareofcommonstockastheireffectisantidilutivesincewegeneratedanetlossineachperiod.

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AsofDecember31,
2013

2012

2011

2010

2009

ConsolidatedBalanceSheetData:

$ 845,889

201,890

$ 255,266

$ 99,558

69,627

25,061

3,012

19,094

23,476

73,597

738,494

552,229

298,414

114,636

23,535

590,779

(14,340)

181,499

150,321

43,070

2,416,930

1,114,190

713,448

386,082

130,424

1,734

10,692

8,838

6,088

12,855

9,965

2,830

496

800

586,119

71,828

Cashandcashequivalents
Shorttermmarketablesecurities
Restrictedcashcurrent(1)
Property,plantandequipment,net(2)
Workingcapital(deficit)
Totalassets
Convertiblepreferredstockwarrantliability(3)
Commonstockwarrantliability(3)
Capitalleaseobligations,lesscurrentportion
Convertibledebt,lesscurrentportion(4)
Longtermdebt,lesscurrentportion(5)
Convertiblepreferredstock

401,495

268,335

667,120

Totalstockholdersequity(deficit)

(1)

(2)
(3)
(4)
(5)

124,700

224,045

319,225

207,048

(253,523)

UponthecompletionofourIPOandconcurrentToyotaprivateplacementinJuly2010,wesetaside$100.0milliontofundarestricteddedicatedaccountasrequiredunderthe
provisionsofourDOEloanfacility.Thisdedicatedaccounthasbeenusedbyustofundanycostoverrunsforourprojectsandusedasamechanismtodeferadvancesunderthe
DOEloanfacility.Dependingonthetimingandmagnitudeofourdrawdownsandthefundingrequirementsofthededicatedaccount,thebalanceofthededicatedaccounthas
fluctuatedthroughouttheperiodinwhichwemadedrawdownsundertheDOEloanfacility.UponcompletionofourfinaladvanceundertheDOEloanfacilityinAugust2012,
thebalanceinthededicatedaccounthadbeenfullytransferredoutofthededicatedaccount.Wehadutilizedthededicatedaccounttoprefundourplannedloanrepaymentsas
requiredbytheDOEloanfacility.UponterminationoftheDOELoanFacilityinMay2013,allremainingbalanceheldinthisdedicatedaccountwasreleasedbytheDOE.
InOctober2010,wecompletedthepurchaseofourTeslaFactoryandcertainofthemanufacturingassetslocatedthereon.
InJanuary2010,weissuedawarranttotheDOEinconnectionwiththeclosingofourDOEloanfacilitytopurchasesharesofourSeriesEconvertiblepreferredstock.This
convertiblepreferredstockwarrantbecameawarranttopurchasesharesofourcommonstockupontheclosingofourIPOinJuly2010.
InMay2013,weissued$660.0millionaggregateprincipalamountofNotesinapublicoffering.Inaccordancewithaccountingguidanceonembeddedconversionfeatures,we
valuedandbifurcatedtheconversionoptionassociatedwiththeNotesfromthehostdebtinstrumentandinitiallyrecordedtheconversionoptionof$82.8millioninequity.
InJanuary2010,weclosedourDOEloanfacilityandbeganmakingdrawdownsundertheloanfacility.AsofAugust31,2012,wehadfullydrawndownour$465.0million
DOEloanfacility.InMay2013,weusedaportionoftheNotesofferingproceedstorepayalloutstandingloanamountsundertheDOELoanFacility.

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ITEM7.

MANAGEMENTSDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS

ThefollowingdiscussionandanalysisshouldbereadinconjunctionwithourconsolidatedfinancialstatementsandtherelatednotesthatappearelsewhereinthisAnnualReporton
Form10K.
Overviewand2013Highlights
Wedesign,develop,manufactureandsellhighperformancefullyelectricvehiclesandadvancedelectricvehiclepowertraincomponents.Wearecurrentlyproducingand
sellingoursecondvehicle,theModelSsedan.ModelSisafourdoor,fivepassengerpremiumsedanthatoffersexceptionalperformance,functionalityandattractivestyling.The
ModelSinheritedmanyoftheelectricpowertraininnovationsweintroducedwithourfirstvehicle,theTeslaRoadster.TheTeslaRoadsterwaslaunchedin2008andwasthefirst
commerciallyproducedandfederallycompliantEVintheUnitedStates.WecommenceddeliveriesofModelSinJune2012anddelivered22,477vehiclesin2013.InFebruary2012,
werevealedanearlyprototypeofourModelXcrossovervehicle.WecurrentlyexpecttohaveproductiondesignModelXprototypesontheroadbytheendof2014andbeginvolume
deliveriestocustomersinthespringof2015.
Wesellourvehiclesthroughourownsalesandservicenetwork.WearealsobuildinganetworkofSuperchargersintheUnitedStates,Europeandotherinternationalmarketsto
allowModelSownerstohavetheabilitytotravellongdistanceswithoutalimitationonrangebychargingtheircarsataveryfastrateforfree.
DuringtheyearendedDecember31,2013,werecognizedtotalrevenuesof$2.01billion,anincreaseof$1.60billionovertotalrevenuesof$413.3millionfortheyearended
December31,2012,primarilydrivenbytherampupinModelSdeliverieswhichcommencedinNorthAmericainJune2012andthelaunchofEuropeanModelSdeliverieswhich
commencedinAugust2013,regulatorycreditsalesandpowertraincomponentsalestoToyotaMotorCorporation(Toyota)fortheToyotaRAV4EVpartiallyoffsetbyadecreasein
developmentservicesactivityrelatedtotheDaimlerAG(Daimler)MercedesBenzBClassEVprogram.
GrossmarginfortheyearendedDecember31,2013was22.7%,asignificantincreasefrom7.3%fortheyearendedDecember31,2012.Weexperiencedsignificantearlystage
perunitcostinefficienciesduringtheproductionrampofModelSfromJunetoDecember2012asaresultoflowerfixedcostabsorption,manufacturinginefficienciesassociatedwith
theinitialproductionrampandhigherlogisticscostsasoursupplychainprocesseswerematuring.Wealsohadhighercomponentpricesasmanyvendorssuppliedpartsatproduction
priceslaterthanplannedduetotheirownmanufacturinginefficienciesandproductionramps.Asaresultofhighervehicleproductionvolume,manufacturingandsupplychain
efficienciesandongoingcomponentcostreductions,weachievedtotalandautomotivegrossmarginsof25.5%and25.7%,respectively,duringthefourthquarterof2013.Regulatory
creditssales,higheraveragesellingpriceduetothestartofEuropeanSignatureSeriesdeliveriesinAugust,andastrongmixof85kWhbatterypacksandotheroptionsinallmarkets
alsocontributedtohighergrossmarginin2013.
Researchanddevelopment(R&D)expensesfortheyearendedDecember31,2013were$232.0million,adecreasefrom$274.0millionfortheyearendedDecember31,2012.
R&Dexpensesin2013reflectedouractivitiesonmanufacturingprocessimprovements,ModelScostreductions,therighthanddriveModelSandlocalizationeffortsforforeign
markets,aswellasdevelopmentworkonModelX.R&Dexpensesin2012includedexpensesrelatedtoourModelSpreproductionactivities,includingmanufacturingpreparedness,
processvalidation,prototypebuildsandextensivetestingatboththevehicleandcomponentlevelsdevelopmentoftheTeslaFactorydevelopmentandtestingofModelSandother
researchanddevelopmentactivities.UntilModelSproductionstartedintheTeslaFactoryin2012,ModelSrelatedmanufacturingcosts,includinglaborcosts,manufacturing
overheadandlogistics,werenolongercapturedinR&Dexpensesbutinsteadfullyreflectedincostofautomotivesales.
During2013,wecontinuedtoexpandoursalesandservicefootprintbothinNorthAmericaandEurope,aswellasopenedourfirststoreinChina.Withthehigherexpenses
associatedwiththeglobalexpansionofour

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customerinfrastructureandthebusinessingeneral,includingourinformationtechnologyinfrastructure,selling,generalandadministrativeexpenseswere$285.6millionfortheyear
endedDecember31,2013,comparedto$150.4millionfortheyearendedDecember31,2012.
Weendedtheyearwith$848.9millionincashandcashequivalents,andcurrentrestrictedcash,asignificantincreasefromcashheldattheendof2012.
InMay2013,weissued$660.0millionaggregateprincipalamountof1.50%convertibleseniornotesdue2018(Notes).Thenetproceedsfromtheoffering,afterdeducting
transactioncosts,wereapproximately$648.0million.Weincurred$12.0millionofdebtissuancecostsinconnectionwiththeissuanceoftheNoteswhichwerecordedinotherassets
andareamortizingtointerestexpenseusingtheeffectiveinterestmethodoverthecontractualtermoftheNotes.UnderthetermsoftheNotes,1.50%couponinterestperannumonthe
principalamountoftheNotesispayablesemiannuallyinarrearsonJune1andDecember1ofeachyear,commencingonDecember1,2013.Approximately$450millionofthe
offeringproceedswereusedtorepayallofouroutstandingDepartmentofEnergy(DOE)loanprincipalandinterest,includinga$10.8millionearlyrepaymentfee.
InconnectionwiththeofferingoftheNotes,weenteredintoconvertiblenotehedgetransactionswherebywehavetheoptiontopurchaseupto5.3millionsharesofour
commonstockatapriceofapproximately$124.52pershare.Thecostoftheconvertiblenotehedgetransactionswas$177.5million.Inaddition,wesoldwarrantswherebytheholders
ofthewarrantshavetheoptiontopurchaseuptoapproximately5.3millionsharesofourcommonstockatapriceof$184.48pershare.Wereceived$120.3millionincashproceeds
fromthesaleofthesewarrants.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedtooffsetanyactualdilutionfromtheconversionofthe
Notesandtoeffectivelyincreasetheoverallconversionpricefrom$124.52to$184.48pershare.FormoreinformationontheNotes,convertiblenotehedgeandwarranttransactions,
seeNote6toourConsolidatedFinancialStatementsincludedinthisAnnualReportonForm10KunderItem8.FinancialStatementsandSupplementalData.
ConcurrentwiththeexecutionoftheNotesandrelatedtransactions,wealsocompletedapublicofferingofcommonstockandsoldatotalof3,902,862sharesofourcommon
stockfortotalcashproceedsofapproximately$355.1million(whichincludes487,857sharesor$45.0millionsoldtoElonMusk,ourChiefExecutiveOfficerandcofounder(CEO)),
netofunderwritingdiscountsandofferingcosts.Wealsosold596,272sharesofourcommonstocktoourCEOandreceivedtotalcashproceedsof$55.0millioninaprivateplacement
atthepublicofferingprice.
Weexpectthatourcurrentsourcesofliquiditytogetherwithourcurrentprojectionsofcashflowfromoperatingactivities,willprovideusadequateliquiditybasedonour
currentplans.However,ifmarketconditionsarefavorable,wemayevaluatealternativestoopportunisticallypursueliquidityoptions.
ManagementOpportunities,ChallengesandRisks
DuringtheyearendedDecember31,2013,wemadesignificantprogressinincreasingproductionaidedbymanufacturing,designandqualityimprovements,butalsothrough
strongeffortsfromoursupplychain.Weexpectproductiontoincreasefrom600vehiclesperweekpresentlytoabout1,000vehiclesperweekbytheendof2014asweexpandour
factorycapacityandaddresssupplierbottlenecks.Batterycellsupplywillcontinuetoconstrainourproductionduringthefirsthalfof2014,butshouldsignificantlyimproveinthe
secondhalfoftheyearasourcellsupplierbringsnewproductioncapacityonline.Basedonourhigherproductionlevel,wecurrentlyexpecttodeliverover35,000ModelSvehicles
in2014,representingamorethan55%increaseover2013.
In2013,ModelSwasthetopsellingvehicleinNorthAmericaamongcomparablypricedvehicles.Nonetheless,webelievethereisroomtoimprovein2014aswecompletethe
SuperchargernetworkandexpandthenetworkofservicecentersinNorthAmerica.GiventhepotentialweseeinEuropeandAsia,weexpectsalesinthoseregionscombinedto
comprisealmosttwicethatofNorthAmericabytheendof2014.

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Throughthefirsthalfof2013,wehaddeliveredModelSvehiclessolelytocustomersinNorthAmerica.InAugust2013,westartedEuropeandeliveriesofModelS.Similarto
theinitiallaunchofModelSintheUnitedStatesandinCanada,weexperiencedanincreaseinouraveragesellingpriceduringthethirdquarterof2013duetothestartofdeliveryof
EuropeanSignatureSeriesvehicles,andahighermixof85kWhvehiclesandotheroptionsinallmarkets.
WeintendtocommencedeliveriesintoChinainthespringof2014.WerecentlyannouncedthatthepriceforaModelSinChinawillbethesameasthepriceforaModelSin
theUnitedStates,withtheadditionofonlyunavoidabletaxes,customsdutiesandtransportationcosts.Whilewebelievethatthisisconsistentwithourobjectiveofoffering
transparentandfairpricingineverymarket,thispricingstrategyiscountertoprevailingautoindustrypractices.Assuch,ModelSinChinawouldbepricedcomparabletoamidsized
premiumvehicleinChinainsteadofalargeluxuryvehicle.
Expansionintotherighthanddrivemarkets,suchastheUnitedKingdom,Japan,HongKongandAustraliawilloccurgraduallyovertheyearstartingthisspring.Wehavenot
deliveredModelSvehiclesoutsideofNorthAmericaandEuropeinvolumethus,wemayfacedifficultiesmeetingourdeliveryplansinAsiaandotherrighthanddrivemarketslater
thisyear,whichmayimpactourabilitytoachieveourworldwidedeliverygoals.
InApril2013,webeganofferingaresalevalueguaranteetoallcustomerswhopurchasedaModelSintheUnitedStatesandfinancedtheirvehiclethroughoneofourspecified
commercialbankingpartners,andinOctober2013,weintroducedthisprograminCanada.Undertheprogram,ModelScustomershavetheoptionofsellingtheirvehiclebacktous
duringtheperiodof36to39monthsafterdeliveryforapredeterminedresalevalue.Weaccountfortransactionsundertheresalevalueguaranteeprogramasoperatingleasesand
accordingly,wedeferandamortizetoautomotivesalesrevenuetheinitialpurchaseconsiderationlessresalevalueguaranteeamountonastraightlinebasis,overthecontractualterm
oftheguaranteeprogram.Similarly,wecapitalizeanddepreciatethecostoftherespectiveoperatingleasevehicleslessexpectedsalvagevaluetocostofautomotivesalesoverthe
sameperiod.Ifacustomerdecidesnottoselltheirvehiclebacktousbytheendoftheresalevalueguaranteeterm,theamountoftheresalevalueguaranteeandoperatingleasevehicle
netbookvaluearethenrecognizedinautomotivesalesandcostofautomotivesales,respectively.
TheresalevalueguaranteeamountrepresentsmanagementsbestestimateastotheresalevalueoftheModelSvehicleandrelatedvehicleoptionsduringthe36to39month
periodafterdelivery.Wearedepreciatingouroperatingleasevehiclestoexpectedsalvagevalueofouroperatingleasevehiclesattheendoftheireconomicusefullife(i.e.,theendof
theirexpectedoperatingleaseterm),andwewilladjustourdepreciationestimatesasneedediftheexpectedsalvagevaluedecreasesinfutureperiods.Asweaccumulatemoreactual
datarelatedtotheresaleexperienceofModelS,wemayberequiredtomakesignificantchangestoourestimates.
In2013,weprovidedtheresalevalueguaranteetoapproximately5,200ModelSdeliveriesinNorthAmerica.Duringthefourthquarterof2013,weprovidedtheresalevalue
guaranteetoapproximately40%ofModelSdeliveriesinNorthAmerica.Weexpectthepenetrationrateoftheresalevalueguaranteetoremainatthecurrentlevelinthenearterm.
ModelSdeliverieswiththeresalevalueguaranteecurrentlydonotimpactourcashflowsandliquidity,sincewereceivethefullamountofcashforthevehiclesalespriceatdelivery.
However,thisprogramhasadverselyimpactedour2013revenuesandoperatingresultsbyrequiringtheamortizationofrevenuesandcostsunderleaseaccounting,andwillcontinue
toadverselyimpactourfuturerevenuesandoperatingresults,basedontheleaseaccountingtreatmentappliedtothisprogram.Furthermore,whilewedonotassumeanycreditrisk
relatedtothecustomer,weareexposedtotheriskthatthevehiclesresalevaluemaybelowerthanourestimatesandthevolumeofvehiclesreturnedtousmaybehigherthanour
estimateswhichcouldadverselyimpactourgrossmargin.
InGermanyandotherEuropeanmarkets,werecentlyannouncednewleasingandfinancingoptionsincollaborationwithanumberofglobalfinancialpartners.Ifcustomer
interestintheseoptionsissignificant,wemaybedirectlyorindirectlysubjecttoresalevaluerisksfortheModelS.Wearecurrentlyevaluatinganumberofothercustomerfinancing
products,includingdirectsmallbusinessleases,asawaytobetterserveourgrowingcustomerbase.

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InadditiontosalesofModelS,wecontinuetorecognizeautomotivesalesfromoursupplyofpowertrainsystemstoToyotafortheToyotaRAV4EV.However,Toyotais
expectedtoendthecurrentRAV4EVmodelthisyear.
In2012,webeganworkonafullelectricpowertrainundertheMercedesBenzBClassEVprogramandin2013,wecontinuedtoprovidedevelopmentservicesanddeliver
prototypesamplestoDaimler.Wecurrentlyexpecttosubstantiallycompleteourdevelopmentservicesunderthisprograminearly2014andcommenceproductionofelectric
powertrainsandbatterypacksshortlythereafter.Similartoourpreviousdevelopmentservicesagreements,duetotimingdifferencesthatmayarisebetweentherecognitionof
milestonerevenuesandtheunderlyingcostsofdevelopmentservices,thegrossmarginfromourdevelopmentservicesactivitiesmayvaryfromperiodtoperiod.
Wealsoplantorampupsalesofstationaryenergystorageunitsforuseinhomes,commercialsitesandutilities.Theapplicationsforthesebatterysystemsincludebackup
power,peakdemandreduction,demandresponseandwholesaleelectricmarketservices.However,wehavenotyetenteredintoasignificantnumberofagreementsthrough
December31,2013.
SignificantproductioncostimprovementsforModelSwereachievedin2013,includingpartcostreductionsaswellasmanufacturingefficiencies.Weexpectsomeofthese
trendstocontinueasweexecuteonourroadmapofachievingfurthercomponentcostreductionsandbenefitfromeconomiesofscale.Wethereforeexpectourautomotivegrossmargin
toincreasetoabout28%inthefourthquarterof2014,excludingpotentialzeroemissionvehicle(ZEV)creditsalesandassumingaloweroptiontakerateaswegettoamore
mainstreammarketandfewerpeopletakethehighperformanceoptionsonModelS.Ifwearenotabletoachievetheplannedcostreductionsfromourvariouscostsavingsandprocess
improvementinitiatives,ourabilitytoreachourgrossmargingoalswouldbenegativelyaffected.
InOctober2013,weenteredintoanamendmenttoourexistingsupplyagreementwithPanasonicCorporation(Panasonic)to,amongotherthings,extendthetermofthe
agreementbytwoyearsuntilDecember31,2017andprovideforthelongtermpreferentialpricesandaminimumof1.8billionlithiumionbatterycellsthatwewillpurchasefrom
Panasonicfrom2014through2017.
Werecognized$129.8millioninZEVcreditsalesin2013whichcontributedtoourgrossmargin.AlthoughZEVcreditrevenuewasstrongfortheyear,over90%ofZEVcredit
saleswererecognizedduringthefirsthalfof2013.WeexpectthecontributionofZEVcreditrevenuetoremainlowinthefuturerelativetoourautomotivesalesaswecontinuetogrow
oursalesoutsidetheUnitedStates.WhilewewillpursueopportunitiestomonetizeZEVcreditsweearnfromthesalesofourvehicles,wedonotplantorelyonthesesalestobea
contributortogrossmargin.OurbusinessmodelandfinancialplanisnotpredicatedonsuchZEVcredits.Otherregulatorycreditsalesrecognizedduring2013were$64.7million.
InFebruary2012,werevealedanearlyprototypeoftheModelXcrossoverasthefirstvehicleweintendtodevelopbyleveragingtheModelSplatform.Wecontinuetowork
onthedesignandengineeringworkonModelXandexpecttohaveproductiondesignModelXprototypesontheroadbytheendof2014andbeginvolumedeliveriestocustomers
inthespringof2015.OurabilitytolaunchtheModelXprogramontimeandcostefficientlyisdependentuponavarietyoffactors,includingsupplierreadiness,engineering
completionandtesting.
Wecontinuedtoexpandourstoresandserviceinfrastructureduring2013inordertoexpandourgeographicalpresenceandtoprovidebetterserviceinareaswithahigh
concentrationofModelScustomers.Tohelpdrivedemandinnewgeographicareas,wehavealsobeguncomplementingourstorestrategywithsalescapabilitywithinservicecenters
tomorerapidlyandefficientlyexpandourretailfootprint.Asoftheendoftheyear,wehadstores,galleriesandservicecentersinover110locationsaroundtheworld,andplanto
openmanyadditionalstores,galleriesandservicecentersin2014,includinggrowingrapidlyinmultipleregionsinChina.Wecontinuetobuildserviceinfrastructureinadvanceof
demandtoensurethataftersaleservicesareavailablewhenandwhereneeded,andtohelpcreatefurtherdemand.

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AttheendofMay2013,weannouncedthesignificantexpansionofourSuperchargernetworkaswellasplanstoreducechargingtimeatourSuperchargers.Sincethetimeof
ourannouncement,wehavebeeninstallingSuperchargersatanacceleratingpace.AsofFebruary19,2014,wehad90Superchargerstationsopenandarecontinuingtoexpandour
networkinbothNorthAmericaandEurope.During2014,wealsointendtoestablishaSuperchargernetworkinChina,JapanandHongKong.Ifweexperiencedifficultiesinfinding
suitablesites,negotiatingleasesorobtainingrequiredpermitsforsuchlocations,ourplannedexpansionofsuchSuperchargerscouldbedelayed.
Operatingexpenseandcapitalexpendituresareexpectedtosignificantlyincreaseinabsolutetermsin2014,asweplantoinvestinthelongtermgrowthofthecompany.In
2014,weplantosignificantlyexpandproductioncapacityforModelSandModelX,investinourcustomersupportinfrastructure,completethedevelopmentofModelXandstart
earlydesignworkonourthirdgenerationvehicle,whichwerefertoasGenIII.Ourresearchanddevelopmentexpensesinparticularareexpectedtoincreaseasdesignand
engineeringworkacceleratesonModelX.Ourselling,generalandadministrativeexpenseswillcontinuetogrowinabsolutetermsasweexpandourcustomerandcorporate
infrastructureglobally.
WehaverecentlyindicatedourintentiontobuildtheTeslaGigafactory,afacilitywhereweintendtoworktogetherwithoursupplierstointegratebatteryprecursormaterial,
cell,moduleandbatterypackproductioninonelocation.Whilewehavenotidentifiedafinalsiteforthisfacility,wecurrentlyexpectthatitwillbelocatedinoneofthefollowing
states:Arizona,Nevada,NewMexicoorTexas.Wecurrentlyexpectthefacilitytobebuiltonalotbetween500and1,000acresinsize,withuptoapproximately10millionsquare
feetofproductionspacewithoneortwolevels.Atfullimplementation,theTeslaGigafactoryisexpectedtohave6,500dedicatedTeslaandproductionpartneremployees.We
currentlyplantocommencesupplyingbatterypacksmanufacturedattheTeslaGigafactoryforourvehicles,includingtheGenIIIvehicle,andstationarystorageapplications,in
approximatelythreeyears.TheTeslaGigafactoryiscurrentlyexpectedtoattainfullproductioncapacityin2020,whichisanticipatedtobesufficientfortheproductionof
approximately500,000vehiclesannuallyandstationarystorageapplications.
WebelievethattheTeslaGigafactorywillallowustoachieveamajorreductioninthecostofourbatterypacksofgreaterthan30%onaperkWhbasisbytheendofthefirst
yearofvolumeproductionofGenIII.ThetotalcapitalexpendituresassociatedwiththeTeslaGigafactorythrough2020areexpectedtobe$45billion,ofwhichapproximately$2
billionisexpectedtocomefromTesla.
WhileourplanistoattempttoproducelithiumioncellsandfinishedbatterypacksforourGenIIIvehiclesatanewTeslaGigafactory,ourplansforsuchproductionareata
veryearlystage.Wehavenoexperienceintheproductionoflithiumioncells,andaccordinglyweintendtoengagepartnerswithsignificantexperienceincellproductionandtodate
wehavenotformalizedsuchpartnerships.Inaddition,thecostofbuildingandoperatingtheTeslaGigafactorycouldexceedourcurrentexpectationsandtheTeslaGigafactorymay
takelongertobringonlinethanweanticipate.
Duringthethirdquarterof2013,certainconditionswithrespecttotheclosingpricesofourcommonstockinaccordancewiththetermsofourNotesweremetandaccordingly,
theNoteswereconvertibleattheholdersoptionduringthefourthquarterof2013.Althoughtheseconditionswerenotmetduringthefourthquarterof2013andthereforetheNotes
arenotconvertibleduringthefirstquarterof2014,shouldsuchclosingpriceconditionsbemetinafuturequarter,theNoteswillbeconvertiblebytheirholdersduringthe
immediatelyfollowingquarter.UponconversionoftheNotes,wewillbeobligatedtopaycashfortheprincipalamountoftheconvertedNotesandwemayalsohavetodelivershares
ofourcommonstockinrespectofsuchconvertedNotes.AnyconversionoftheNotespriortotheirmaturityoraccelerationoftherepaymentoftheNotescouldhaveamaterialadverse
effectonourcashflows,business,resultsofoperationsandfinancialcondition.

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CriticalAccountingPoliciesandEstimates
OurconsolidatedfinancialstatementsarepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates.Thepreparationoftheseconsolidated
financialstatementsrequiresustomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenues,costsandexpensesandrelateddisclosures.Webase
ourestimatesonhistoricalexperience,asappropriate,andonvariousotherassumptionsthatwebelievetobereasonableunderthecircumstances.Changesintheaccountingestimates
arereasonablylikelytooccurfromperiodtoperiod.Accordingly,actualresultscoulddiffersignificantlyfromtheestimatesmadebyourmanagement.Weevaluateourestimatesand
assumptionsonanongoingbasis.Totheextentthattherearematerialdifferencesbetweentheseestimatesandactualresults,ourfuturefinancialstatementpresentation,financial
condition,resultsofoperationsandcashflowswillbeaffected.Webelievethatthefollowingcriticalaccountingpoliciesinvolveagreaterdegreeofjudgmentandcomplexitythan
ourotheraccountingpolicies.Accordingly,thesearethepolicieswebelievearethemostcriticaltounderstandingandevaluatingourconsolidatedfinancialconditionandresultsof
operations.
RevenueRecognition
AutomotiveSales
WerecognizeautomotivesalesrevenuefromsalesofModelS,includingvehicleoptions,accessoriesanddestinationcharges,vehicleserviceandsalesofregulatorycredits,
suchasZEVandgreenhousegasemission(GHG)credits.Wealsorecognizeautomotivesalesrevenuefromthesalesofelectricvehiclepowertraincomponentsandsystems,suchas
batterypacksanddriveunits,toothermanufacturers.Werecognizerevenuewhen(i)persuasiveevidenceofanarrangementexists(ii)deliveryhasoccurredandthereareno
uncertaintiesregardingcustomeracceptance(iii)feesarefixedordeterminableand(iv)collectionisreasonablyassured.
ModelSrevenueisgenerallyrecognizedwhenallrisksandrewardsofownershiparetransferredtoourcustomers.Incertaincircumstances,wemaydeliveravehicletoa
customerwithoutalloftheoptionsorderedbythecustomeriftheoptionsdonotlimitthefunctionalityofthevehicle.Insuchcases,wewillcontinuetodefertherelatedrevenue
basedontheundelivereditemsfairvalue,asevidencedbythecontractualpriceoftheoptioninstandalonetransactions,whereavailable,orusingthesellingpricehierarchywhere
suchpricesdonotexist.Additionally,ifacustomerpurchasesavehicleoptionthatrequiresustoprovideservicesinthefuture,wewilldefertherelatedrevenuebasedonthe
undelivereditemsfairvalueandrecognizetheassociatedrevenueoverourexpectedperformanceperiod.Whilethesesalesmaytakeplaceseparatelyfromavehiclesale,theyare
oftenpartofasinglevehiclesalesagreementresultinginmultipleelementarrangements.
Formultipledeliverablerevenuearrangements,weallocaterevenuetoeachelementbasedonasellingpricehierarchy.Thesellingpriceforadeliverableisbasedonitsvendor
specificobjectiveevidence(VSOE)ifavailable,thirdpartyevidence(TPE)ifVSOEisnotavailable,orestimatedsellingpriceifneitherVSOEnorTPEisavailable.Todate,wehave
generallybeenabletoestablishthefairvalueforeachofthedeliverableswithinmultipleelementarrangementsbecauseweselleachofthevehicles,vehicleaccessoriesandoptions
separately,outsideofanymultipleelementarrangements.Todeterminetheappropriateaccountingforrecognitionofourrevenue,weconsiderwhetherthedeliverablesspecifiedinthe
multipleelementarrangementshouldbetreatedasseparateunitsofaccounting,and,ifso,howthepriceshouldbeallocatedamongtheelements,whentorecognizerevenueforeach
element,andtheperiodoverwhichrevenueshouldberecognized.Wealsoevaluatewhetheradelivereditemhasvalueonastandalonebasispriortodeliveryoftheremainingitems
bydeterminingwhetherwehavemadeseparatesalesofsuchitemsorwhethertheundelivereditemsareessentialtothefunctionalityofthedelivereditems.Further,weassesswhether
weknowthefairvalueoftheundelivereditems,determinedbyreferencetostandalonesalesofsuchitems.Aseachoftheseitemshasstandalonevaluetothecustomer,revenuefrom
salesofvehicleaccessoriesandoptionsarerecognizedwhenthosespecificitemsaredeliveredtothecustomer.

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ResaleValueGuarantee
InApril2013,webeganofferingaresalevalueguaranteetoallcustomerswhopurchasedaModelSintheUnitedStatesandfinancedtheirvehiclethroughoneofourspecified
commercialbankingpartners,andinOctober2013,weintroducedthisprograminCanada.Undertheprogram,ModelScustomershavetheoptionofsellingtheirvehiclebacktous
duringtheperiodof36to39monthsafterdeliveryforapredeterminedresalevalue.Althoughwereceivethefullamountofcashforthevehiclesalespriceatdelivery,weaccountfor
transactionsundertheresalevalueguaranteeprogramasoperatingleases.Accordingly,wedeferandamortizetoautomotivesalesrevenuetheinitialpurchaseconsiderationlessresale
valueguaranteeamountonastraightlinebasis,overthecontractualtermoftheguaranteeprogram(i.e.theproxyoperatingleaseterm).Similarly,wecapitalizeanddepreciatethecost
oftherespectiveoperatingleasevehicleslessexpectedsalvagevaluetocostofautomotivesalesoverthesameperiod.Ifacustomerdecidesnottoselltheirvehiclebacktousbythe
endoftheresalevalueguaranteeterm,theamountoftheresalevalueguaranteeandoperatingleasevehiclenetbookvalueisthenrecognizedinautomotivesalesandcostof
automotivesales,respectively.
Weestimatedtheexpectedresidualvaluebasedonanevaluationofmarketindicators,competitivefactorsaswellasathirdpartyvaluationstudy.Wewilladjustour
depreciationestimatesasneeded,iftheexpectedsalvagevalueisprojectedtobelowerinfutureperiods.AsweaccumulatemoreactualdatarelatedtotheresaleexperienceofModel
S,wemayberequiredtomakesignificantchangestoourestimates.
RegulatoryCreditSales
Californiaandcertainotherstateshavelawsinplacerequiringvehiclemanufacturerstoensurethataportionofthevehiclesdeliveredforsaleinthatstateduringeachmodel
yeararezeroemissionvehicles.Theselawsandregulationsprovidethatamanufacturerofzeroemissionvehiclesmayearnregulatorycredits,andmaysellexcesscreditstoother
manufacturerswhoapplysuchcreditstocomplywiththeseregulatoryrequirements.SimilarregulationsexistatthefederallevelwhichrequirecompliancerelatedtoGHGemissions
andalsoallowforthesaleofexcesscreditsbyonemanufacturertoothermanufacturers.Asamanufacturersolelyofzeroemissionvehicles,wehaveearnedregulatorycredits,suchas
ZEVandGHGcreditsonvehicles,andweexpecttocontinuetoearnthesecreditsinthefuture.Sinceourcommercialvehiclesareelectric,wedonotreceiveanycompliancebenefit
fromthegenerationofthesecredits,andaccordinglylooktosellthemtoothervehiclemanufacturers.Inordertofacilitatethesaleofthesecredits,weenterintocontractualagreements
withthirdpartiesrequiringthemtopurchaseourregulatorycreditsatpredeterminedprices.Werecognizerevenueonthesaleofthesecreditsatthetimelegaltitletothecreditsare
transferredtothepurchasingpartybythegovernmentalagencyissuingthesecredits.
MaintenanceandServicePlans
WeofferaprepaidmaintenanceprogramforModelS,whichincludesplanscoveringmaintenanceforuptoeightyearsorupto100,000miles,providedtheseservicesare
purchasedwithinaspecifiedperiodoftime.Themaintenanceplanscoverannualinspectionsandthereplacementofwearandtearparts,excludingtiresandthebattery,witheithera
fixedfeepervisitforTeslaRangerserviceorunlimitedTeslaRangervisitsforahigherinitialpurchaseprice.Paymentscollectedinadvanceoftheperformanceofserviceareinitially
recordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesaswefulfillourperformanceobligations.
Wealsoofferanextendedserviceplan,whichcoverstherepairorreplacementofModelSpartsforanadditionalfouryearsoruptoanadditional50,000miles,aftertheendof
ourinitialNewVehicleLimitedWarranty,providedtheyarepurchasedwithinaspecifiedperiodoftime.ForcustomersthatarenotcoveredbyourNewVehicleLimitedWarrantiesor
ourextendedserviceplans,weofferTeslaRangerserviceatahighercost.Paymentscollectedinadvanceoftheperformanceofserviceareinitiallyrecordedindeferredrevenuesonthe
consolidatedbalancesheetsandrecognizedinautomotivesalesratablyovertheservicecoverageperiods.

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WeprovidedTeslaRoadstercustomerswiththeopportunitytopurchaseanextendedwarrantyplanfortheperiodaftertheendofourinitialNewVehicleLimitedWarrantyto
coveradditionalservicesforanadditionalthreeyearsor36,000miles.WerefertothisprogramasourExtendedServiceplan.Amountscollectedonthesesalesareinitiallyrecordedin
deferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesovertheextendedwarrantyperiod.
Additionally,wehavepreviouslyprovidedcustomersofourTeslaRoadsterswithaonetimeoptiontoreplacethebatterypacksintheirvehiclesatanytimeaftertheexpiration
oftheNewVehicleLimitedWarrantybutbeforethetenthanniversaryofthepurchasedateoftheirvehicles.WerefertothisprogramasourBatteryReplacementprogram.Amounts
collectedonthesesalesareinitiallyrecordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesaswefulfillourobligationtoreplacethe
batterypacks.
DevelopmentServices
Revenuefromdevelopmentservicesarrangementsconsistofrevenueearnedfromthedevelopmentofelectricvehiclepowertraincomponentsandsystemsforotherautomobile
manufacturers,includingthedesignanddevelopmentofbatterypacks,driveunitsandsamplevehiclestomeetacustomersspecifications.Revenueisrecognizedasadevelopment
arrangementisfinalized,theperformancerequirementsofeachdevelopmentarrangementaremetandcollectionisreasonablyassured.Wheredevelopmentarrangementsinclude
substantiveatriskmilestones,revenueisrecognizedbasedupontheachievementofthecontractuallydefinedmilestones.Amountscollectedinadvanceofmeetingalloftherevenue
recognitioncriteriaarenotrecognizedintheconsolidatedstatementofoperationsandareinsteadrecordedasdeferredrevenueontheconsolidatedbalancesheet.Increased
complexitytoourdevelopmentagreementsorchangesinourjudgmentsandestimatesregardingapplicationoftheserevenuerecognitionguidelinescouldresultinachangeinthe
timingoramountofrevenuerecognizedinfutureperiods.
Costsofdevelopmentservicesareexpensedasincurred.Costsofdevelopmentservicesincurredinperiodspriortothefinalizationofanagreementarerecordedasresearchand
developmentexpensesonceanagreementisfinalized,thesecostsarerecordedincostofdevelopmentservices.
InventoryValuation
Wevalueourinventoriesatthelowerofcostormarket.Costiscomputedusingstandardcost,whichapproximatesactualcostonafirstin,firstoutbasis.Werecordinventory
writedownsforestimatedobsolescenceorunmarketableinventoriesbaseduponassumptionsaboutfuturedemandforecasts.Ifourinventoryonhandisinexcessofourfuturedemand
forecast,theexcessamountsarewrittenoff.
Wealsoreviewinventorytodeterminewhetheritscarryingvalueexceedsthenetamountrealizableupontheultimatesaleoftheinventory.Thisrequiresustodeterminethe
estimatedsellingpriceofourvehicleslesstheestimatedcosttoconvertinventoryonhandintoafinishedproduct.
Onceinventoryiswrittendown,anew,lowercostbasisforthatinventoryisestablishedandsubsequentchangesinfactsandcircumstancesdonotresultintherestorationor
increaseinthatnewlyestablishedcostbasis.
Inventoryamountsarebasedonourcurrentestimatesofdemand,sellingpricesandproductioncosts.Shouldourestimatesoffuturesellingpricesorproductioncostschange,
materialchangestothesereservesmayberequired.Further,asmallchangeinourestimatesmayresultinamaterialchargetoourreportedfinancialresults.
Warranties

Weaccruewarrantyreservesatthetimerevenueisrecognizedforthesaleofavehicleorpowertraincomponent.Warrantyreservesincludemanagementsbestestimateofthe
projectedcoststorepairortoreplace

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anyitemsunderwarranty,basedonactualwarrantyexperienceasitbecomesavailableandotherknownfactorsthatmayimpactourevaluationofhistoricaldata.Wereviewour
reservesatleastquarterlytoensurethatouraccrualsareadequateinmeetingexpectedfuturewarrantyobligations,andwewilladjustourestimatesasneeded.Initialwarrantydatacan
belimitedearlyinthelaunchofanewvehicleorpowertraincomponentandaccordingly,theadjustmentsthatwerecordmaybematerial.
Itislikelythatasweselladditionalvehiclesandpowertraincomponentsandaswerepairorreplaceitemsunderwarranty,wewillacquireadditionalinformationonthe
projectedcoststoserviceworkunderwarrantyandmayneedtomakeadditionaladjustments.Further,asmallchangeinourwarrantyestimatesmayresultinamaterialchargetoour
reportedfinancialresults.
ValuationofStockBasedAwardsandWarrants
StockBasedCompensation
Weusethefairvaluemethodofaccountingforourstockoptionsandrestrictedstockunits(RSUs)grantedtoemployeesandourEmployeeStockPurchasePlan(ESPP)which
requireustomeasurethecostofemployeeservicesreceivedinexchangeforthestockbasedawards,basedonthegrantdatefairvalueoftheawards.Thefairvalueofstockoptions
andESPPareestimatedonthegrantdateandofferingdateusingtheBlackScholesoptionpricingmodel.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosing
fairmarketvalueofourcommonstock.Theresultingcostisrecognizedovertheperiodduringwhichanemployeeisrequiredtoprovideserviceinexchangefortheawards,usually
thevestingperiodwhichisgenerallyfouryearsforstockoptionsandRSUsandsixmonthsfortheESPP.Stockbasedcompensationexpenseisrecognizedonastraightlinebasis,net
ofestimatedforfeitures.
ThefairvalueofstockoptionsandtheESPPwereestimatedonthegrantdatefortheperiodsbelowusingtheBlackScholesoptionpricingmodelandthefollowing
assumptions.

YearEnded

December31,
2013

2012

2011

Riskfreeinterestrate:

1.3%

1.0%

2.0%

0.1%

0.2%

0.2%

Stockoptions
ESPP
Expectedterm(inyears):
Stockoptions

6.1

5.9

6.0

ESPP

0.5

0.5

0.5

Expectedvolatility:

57%

63%

70%

43%

51%

59%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

Stockoptions
ESPP
Dividendyield:
Stockoptions
ESPP

Ifinthefuturewedeterminethatanothermethodforcalculatingthefairvalueofourstockbasedawardsismorereasonable,orifanothermethodforcalculatingtheabove
inputassumptionsisprescribedbyauthoritativeguidance,thefairvaluecalculatedforourstockbasedawardscouldchangesignificantly.
TheBlackScholesoptionpricingmodelrequiresinputssuchastheriskfreeinterestrate,expectedtermandexpectedvolatility.Further,theforfeitureratealsoaffectsthe
amountofaggregatecompensation.Theseinputsaresubjectiveandgenerallyrequiresignificantjudgment.

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TheriskfreeinterestratethatweuseisbasedontheUnitedStatesTreasuryyieldineffectatthetimeofgrantforzerocouponUnitedStatesTreasurynoteswithmaturities
approximatingeachgrantsexpectedlife.Givenourlimitedhistorywithemployeegrants,weusethesimplifiedmethodinestimatingtheexpectedtermforouremployeegrants.The
simplifiedmethod,aspermittedbytheSEC,iscalculatedastheaverageofthetimetovestingandthecontractuallifeoftheoptions.
Ourexpectedvolatilityisderivedfromourimpliedvolatilityandthehistoricalvolatilitiesofseveralunrelatedpubliccompanieswithinindustriesrelatedtoourbusiness,
includingtheautomotiveOEM,automotiveretail,automotivepartsandbatterytechnologyindustries,becausewehavelimitedtradinghistoryonourcommonstock.Whenmaking
theselectionsofourpeercompanieswithinindustriesrelatedtoourbusinesstobeusedinthevolatilitycalculation,wealsoconsideredthestageofdevelopment,sizeandfinancial
leverageofpotentialcomparablecompanies.Ourhistoricalvolatilityandimpliedvolatilityareweightedbasedoncertainqualitativefactorsandcombinedtoproduceasingle
volatilityfactor.
Weestimateourforfeitureratebasedonananalysisofouractualforfeituresandwillcontinuetoevaluatetheappropriatenessoftheforfeitureratebasedonactualforfeiture
experience,analysisofemployeeturnoverbehaviorandotherfactors.Quarterlychangesintheestimatedforfeitureratecanhaveasignificanteffectonreportedstockbased
compensationexpense,asthecumulativeeffectofadjustingtherateforallexpenseamortizationisrecognizedintheperiodtheforfeitureestimateischanged.Ifarevisedforfeiture
rateishigherthanthepreviouslyestimatedforfeiturerate,anadjustmentismadethatwillresultinadecreasetothestockbasedcompensationexpenserecognizedintheconsolidated
financialstatements.Ifarevisedforfeiturerateislowerthanthepreviouslyestimatedforfeiturerate,anadjustmentismadethatwillresultinanincreasetothestockbased
compensationexpenserecognizedintheconsolidatedfinancialstatements.
Asweaccumulateadditionalemployeestockbasedawardsdataovertimeandasweincorporatemarketdatarelatedtoourcommonstock,wemaycalculatesignificantly
differentvolatilities,expectedlivesandforfeiturerates,whichcouldmateriallyimpactthevaluationofourstockbasedawardsandthestockbasedcompensationexpensethatwewill
recognizeinfutureperiods.Stockbasedcompensationexpenseisrecordedinourcostofrevenues,researchanddevelopmentexpenses,andselling,generalandadministrative
expenses.
InAugust2012,ourBoardofDirectorsgranted5,274,901stockoptionstoourCEO(2012CEOGrant).The2012CEOGrantconsistsoftenvestingtrancheswithavesting
schedulebasedentirelyontheattainmentofbothperformanceconditionsandmarketconditions,assumingcontinuedemploymentandservicetousthrougheachvestingdate.
Eachofthevestingtranchesrequiresacombinationofoneofthetenpredeterminedperformancemilestonesoutlinedbelowandanincrementalincreaseinourmarket
capitalizationof$4.0billion,ascomparedtotheinitialmarketcapitalizationof$3.2billionmeasuredatthetimeofthe2012CEOGrant.

SuccessfulcompletionoftheModelXEngineeringPrototype(Alpha)

SuccessfulcompletionoftheModelXVehiclePrototype(Beta)

CompletionofthefirstModelXProductionVehicle

SuccessfulcompletionoftheGenIIIEngineeringPrototype(Alpha)

SuccessfulcompletionoftheGenIIIVehiclePrototype(Beta)

CompletionofthefirstGenIIIProductionVehicle

Grossmarginof30%ormoreforfourconsecutivequarters

Aggregatevehicleproductionof100,000vehicles

Aggregatevehicleproductionof200,000vehiclesand

Aggregatevehicleproductionof300,000vehicles.

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Thetermofthe2012CEOGrantistenyears,soanytranchesthatremainunvestedattheexpirationofthe2012CEOGrantwillbeforfeited.Inaddition,unvestedoptionswill
beforfeitedifourCEOisnolongerinthatrole,whetherforcauseorotherwise.Basedonourcurrentmarketvaluationandoperatingplans,webelievethatuptothefirstthreetranches
ofthe2012CEOGrant(allrelatingtoModelX)willvestduring2014.
Wemeasuredthefairvalueofthe2012CEOGrantusingaMonteCarlosimulationapproachwiththefollowingassumptions:riskfreeinterestrateof1.65%,expectedtermof
tenyears,expectedvolatilityof55%anddividendyieldof0%.
Stockbasedcompensationexpenseassociatedwiththe2012CEOGrantisrecognizedforeachpairofperformanceandmarketconditionsoverthelongeroftheexpected
achievementperiodoftheperformanceandmarketconditions,beginningatthepointintimethattherelevantperformanceconditionisconsideredprobableofbeingmet.
AsofDecember31,2013,themarketconditionsforthreevestingtrancheswereachievedandthefollowingthreeperformancemilestoneswereconsideredprobableof
achievement.

SuccessfulcompletionoftheModelXEngineeringPrototype(Alpha)

SuccessfulcompletionoftheModelXVehiclePrototype(Beta)

CompletionofthefirstModelXProductionVehicle.

Noneofthestockoptionsgrantedunderthe2012CEOGranthasvestedastheperformancemilestoneshavenotyetbeenachievedasofDecember31,2013.However,asthe
abovethreeperformancemilestoneswereconsideredprobableofachievement,werecordedstockbasedcompensationexpenseof$14.5millionand$1.3millionfortheyearsended
December31,2013and2012,respectively.
Additionally,nocashcompensationhasbeenreceivedbyourCEOforhisservicestotheCompany.
IncomeTaxes
Werecordourprovisionforincometaxesinourconsolidatedstatementsofoperationsbyestimatingourtaxesineachofthejurisdictionsinwhichweoperate.Weestimateour
actualcurrenttaxexposuretogetherwithassessingtemporarydifferencesarisingfromdifferingtreatmentofitemsrecognizedforfinancialreportingversustaxreturnpurposes.In
general,deferredtaxassetsrepresentfuturetaxbenefitstobereceivedwhencertainexpensespreviouslyrecognizedinourconsolidatedstatementsofoperationsbecomedeductible
expensesunderapplicableincometaxlaws,orlossorcreditcarryforwardsareutilized.Valuationallowancesarerecordedwhennecessarytoreducedeferredtaxassetstotheamount
expectedtoberealized.
Significantmanagementjudgmentisrequiredindeterminingourprovisionforincometaxes,ourdeferredtaxassetsandliabilitiesandanyvaluationallowancerecorded
againstournetdeferredtaxassets.Wemaketheseestimatesandjudgmentsaboutourfuturetaxableincomethatarebasedonassumptionsthatareconsistentwithourfutureplans.As

ofDecember31,2013,wehadrecordedafullvaluationallowanceonournetU.S.deferredtaxassetsbecauseweexpectthatitismorelikelythannotthatourU.S.deferredtaxassets
willnotberealizedintheforeseeablefuture.Shouldtheactualamountsdifferfromourestimates,theamountofourvaluationallowancecouldbemateriallyimpacted.
Furthermore,significantjudgmentisrequiredinevaluatingourtaxpositions.Intheordinarycourseofbusiness,therearemanytransactionsandcalculationsforwhichthe
ultimatetaxsettlementisuncertain.Asaresult,werecognizetheeffectofthisuncertaintyonourtaxattributesbasedonourestimatesoftheeventualoutcome.Theseeffectsare
recognizedwhen,despiteourbeliefthatourtaxreturnpositionsaresupportable,webelievethatitismorelikelythannotthatthosepositionsmaynotbefullysustaineduponreview
bytaxauthorities.WearerequiredtofileincometaxreturnsintheUnitedStatesandvariousforeignjurisdictions,

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whichrequiresustointerprettheapplicabletaxlawsandregulationsineffectinsuchjurisdictions.Suchreturnsaresubjecttoauditbythevariousfederal,stateandforeigntaxing
authorities,whomaydisagreewithrespecttoourtaxpositions.Webelievethatouraccountingconsiderationisadequateforallopenaudityearsbasedonourassessmentofmany
factors,includingpastexperienceandinterpretationsoftaxlaw.Wereviewandupdateourestimatesinlightofchangingfactsandcircumstances,suchastheclosingofataxaudit,the
lapseofastatuteoflimitationsoramaterialchangeinestimate.Totheextentthatthefinaltaxoutcomeofthesemattersdiffersfromourexpectations,suchdifferencesmayimpact
incometaxexpenseintheperiodinwhichsuchdeterminationismade.Theeventualimpactonourincometaxexpensedependsinpartifwestillhaveavaluationallowancerecorded
againstourdeferredtaxassetsintheperiodthatsuchdeterminationismade.
ResultsofOperations
Thefollowingtablesetsforthourconsolidatedstatementsofoperationsdatafortheperiodspresented(inthousands,exceptpersharedata):

YearEndedDecember31,
2013

2012

2011

Revenues

$ 1,997,786

385,699

148,568

15,710

27,557

55,674

2,013,496

413,256

204,242

Automotivesales
Developmentservices

Totalrevenues

Costofrevenues

Automotivesales

1,543,878

371,658

115,482

13,356

11,531

27,165

1,557,234

383,189

142,647

Developmentservices

Totalcostofrevenues

Grossprofit

456,262

30,067

61,595

Operatingexpenses

Researchanddevelopment

231,976

273,978

208,981

285,569

150,372

104,102

517,545

424,350

313,083

(61,283)

(394,283)

(251,488)

189

288

255

(32,934)

(254)

(43)

22,602

(1,828)

(2,646)

(71,426)

(396,077)

(253,922)

2,588

136

489

(74,014)

Selling,generalandadministrative

Totaloperatingexpenses

Lossfromoperations
Interestincome
Interestexpense
Otherincome(expense),net

Lossbeforeincometaxes
Provisionforincometaxes

Netloss

$ (396,213)

$ (254,411)

Revenues
AutomotiveSales
Automotivesales,whichincludevehicle,optionsandrelatedsales,andpowertraincomponentandrelatedsales,consistedofthefollowingfortheperiodspresented(in
thousands):

Vehicle,optionsandrelatedsales

YearEndedDecember31,
2013

2012

2011

$ 1,952,684

$ 354,344

$ 101,708

$ 1,997,786

Powertraincomponentandrelatedsales

Totalautomotivesales

76

45,102

31,355

$ 385,699

46,860

$ 148,568

TableofContents
AutomotivesalesfortheyearendedDecember31,2013were$2.0billion,anincreasefrom$385.7millionfortheyearendedDecember31,2012.Vehicle,optionsandrelated
salesprimarilyrepresentrevenuesrelatedtodeliveriesofModelS,includingvehicleoptions,accessoriesanddestinationcharges,vehicleserviceandsalesofregulatorycreditsto
otherautomotivemanufacturers.Powertraincomponentandrelatedsalesrepresentthesalesofelectricvehiclepowertraincomponentsandsystems,suchasbatterypacksanddrive
units,toothermanufacturers.
Vehicle,optionsandrelatedsalesduringtheyearendedDecember31,2013were$1.95billion,anincreasefrom$354.3millionfortheyearendedDecember31,2012.The
significantincreaseinvehicle,optionsandrelatedsaleswasprimarilydrivenbythedeliveryof22,477ModelSvehiclesfortheyear,includingthecommencementofEuropean
deliveriesinAugust2013.FortheyearendedDecember31,2012,wehaddeliveredabout2,650ModelSvehiclesfollowingthecommencementofourModelSdeliveriesinJune
2012.Theincreasealsoresultedfromhighersalesofregulatorycreditsincluding$129.8millioninZEVcreditsalesfortheyearendedDecember31,2013,comparedto$32.4million
fortheyearendedDecember31,2012.
InApril2013,webeganofferingaresalevalueguaranteetoallcustomerswhopurchasedaModelSintheUnitedStatesandfinancedtheirvehiclethroughoneofourspecified
commercialbankingpartners,andinOctober2013,weintroducedthisprograminCanada.Undertheprogram,ModelScustomershavetheoptionofsellingtheirvehiclebacktous
duringtheperiodof36to39monthsforapredeterminedresalevalue.Weaccountfortransactionsundertheresalevalueguaranteeprogramasoperatingleasesand,accordingly,we
deferandamortizetorevenuestheinitialpurchaseconsiderationlessresalevalueguaranteeamountonastraightlinebasis,overthecontractualtermoftheguaranteeprogram.Ifa
customerdecidesnottoselltheirvehiclebacktousbytheendoftheresalevalueguaranteeterm,theamountoftheresalevalueguaranteeisthenrecognizedinautomotivesales.
ThroughDecember31,2013,wedeliveredapproximately5,200ModelSvehiclesundertheresalevalueguaranteeprogram.AsofDecember31,2013,werecorded$230.9millionin
deferredrevenuesand$236.3millioninresalevalueguaranteerelatedtoModelSdeliverieswiththeresalevalueguarantee.FortheyearendedDecember31,2013,werecognized
revenueof$29.1millioninautomotivesalesrelatedtothisprogram.
PowertraincomponentandrelatedsalesfortheperiodspresentedwererelatedtopowertraincomponentsalestoToyotaundertheRAV4EVsupplyandservicesagreement
whichcommencedinMarch2012.PowertraincomponentandrelatedsalesfortheyearendedDecember31,2013were$45.1million,anincreasefrom$34.1millionfortheyearended
December31,2012.
AutomotivesalesfortheyearendedDecember31,2012were$385.7million,anincreasefrom$148.6millionfortheyearendedDecember31,2011.
Vehicle,optionsandrelatedsalesfortheyearendedDecember31,2012were$354.3million,anincreasefrom$101.7millionfortheyearendedDecember31,2011.The
increaseinvehicle,optionsandrelatedsaleswasprimarilyattributabletothecommencementofModelScustomerdeliveriesinJune2012andsubsequentrampaswellassalesof
regulatorycredits,partiallyoffsetbyadecreaseinthenumberofTeslaRoadsterssoldaswecompletedproductionoftheTeslaRoadsterinJanuary2012andweresellingour
remaininginventoryprimarilyinEuropeandAsia.
Vehicle,optionsandrelatedsalesfortheyearendedDecember31,2012includedregulatorycreditsalesof$40.5millioncomparedtoregulatorycreditsalesof$2.7millionfor
theyearendedDecember31,2011.ThesignificantincreaseinproductionanddeliveryofvehiclesintheUnitedStatesallowedustosellmoreregulatorycreditstootherautomotive
manufacturers.
PowertraincomponentandrelatedsalesfortheyearendedDecember31,2012were$31.4million,adecreasefrom$46.9millionfortheyearendedDecember31,2011.The
decreaseinpowertraincomponentandrelatedsaleswasprimarilyduetofewershipmentsofbatterypacksandchargerstoDaimler.Productionforboth

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theDaimlerSmartfortwoandAClassEVprogramswassubstantiallycompletedasofDecember31,2011.DuringthethreemonthsendedMarch31,2012,webegansupplying
powertrainsystemstoToyotaundertheRAV4EVsupplyandservicesagreementandrecognized$29.1millionfortheyearendedDecember31,2012.
DevelopmentServices
Developmentservicesrepresentarrangementswherewedevelopelectricvehiclepowertraincomponentsandsystemsforotherautomotivemanufacturers,includingthedesign
anddevelopmentofbatterypacks,driveunitsandchargerstomeetcustomersspecifications.
DevelopmentservicesrevenuefortheyearendedDecember31,2013was$15.7million,adecreasefrom$27.6millionfortheyearendedDecember31,2012.Development
servicesrevenuefortheyearendedDecember31,2012was$27.6million,adecreasefrom$55.7millionfortheyearendedDecember31,2011.
Duringthefourthquarterof2011,DaimlerengagedustoassistwiththedevelopmentofafullelectricpowertrainforaDaimlerMercedesBenzBClassEVvehicle.In2012,we
receivedtwopurchaseordersfromDaimlertobegindevelopmentworkandalsoenteredintoaseparatedevelopmentagreementunderwhichwewouldcompletevariousmilestones
anddeliverprototypesamples.DuringtheyearsendedDecember31,2013and2012,werecognizedatotal$15.7millionand$15.9millionindevelopmentservicesrevenue,
respectively,relatedtothisprogram.
InJuly2010,weenteredintoanagreementwithToyotatoinitiatedevelopmentofanelectricpowertrainfortheToyotaRAV4.UnderthisPhase0developmentagreement,
prototypesweremadebyusbycombiningtheToyotaRAV4modelwithaTeslaelectricpowertrain.InOctober2010,weenteredintoaPhase1contractservicesagreementwithToyota
forthedevelopmentofavalidatedpowertrainsystem,includingabatterypack,powerelectronicsmodule,motor,gearboxandassociatedsoftware,whichwouldbeintegratedintoan
electricvehicleversionoftheToyotaRAV4.DuringtheyearendedDecember31,2011,wecompletedvariousmilestonesanddeliveredseveralsamplesunderthePhase1agreement
anddeliveredalldevelopmentservicesunderthePhase0agreement.DuringthethreemonthsendedMarch31,2012,wecompletedourremainingmilestonesanddeliveredsamples
underthePhase1agreement.DevelopmentservicesrevenueunderthesearrangementswithToyotafortheyearsendedDecember31,2012and2011was$10.7millionand$55.0
million,respectively.
CostofRevenuesandGrossProfit
Costofrevenuesincludescostofautomotivesalesandcostsrelatedtoourdevelopmentservices.
CostofautomotivesalesfortheyearendedDecember31,2013was$1.54billion,anincreasefrom$371.7millionfortheyearendedDecember31,2012.Costofautomotive
salesincludesdirectparts,materialandlaborcosts,manufacturingoverhead,includingamortizedtoolingcosts,royaltyfees,shippingandlogisticcostsandreservesforestimated
warrantyexpenses.Costofautomotivesalesalsoincludesadjustmentstowarrantyexpenseandchargestowritedownthecarryingvalueofourinventorywhenitexceedsitsestimated
netrealizablevalueandtoprovideforobsoleteandonhandinventoryinexcessofforecasteddemand.TheincreaseincostofautomotivesaleswasdrivenprimarilybyModelS
deliveries,includingthecommencementofEuropeandeliveriesinAugust2013,aswellasdeliveriesofelectricpowertraincomponentandsystemstoToyotaundertheToyotaRAV4
EVsupplyandservicesagreement.
InApril2013,webeganofferingaresalevalueguaranteetoallcustomerswhopurchasedaModelSintheUnitedStatesandfinancedtheirvehicleandvehicleoptionsthrough
oneofourspecifiedcommercialbankingpartners,andinOctober2013,weintroducedthisprograminCanada.Undertheprogram,wecapitalizethecostofModelSintooperating
leasevehiclesanddepreciatetherespectiveoperatingleasevehicleslessexpectedsalvagevaluetocostofautomotivesalesonastraightlinebasis,overthecontractualtermofthe
guarantee

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program.Ifacustomerdecidesnottoselltheirvehiclebacktousbytheendoftheresalevalueguaranteeterm,theremainingoperatingleasevehiclenetbookvalueisthenrecognized
inautomotivesales.AsofDecember31,2013,werecorded$377.0millioninoperatingleasevehicles,net,relatedtoModelSdeliverieswiththeresalevalueguarantee.Fortheyear
endedDecember31,2013,werecognized$19.4millionincostofautomotivesalesrelatedtovehicledepreciationunderthisprogram.Ourwarrantyreservesdonotincludeprojected
warrantycostsassociatedwithourresalevalueguaranteevehiclesassuchactualwarrantycostsareexpensedasincurred.FortheyearendedDecember31,2013,warrantycosts
incurredforourresalevalueguaranteevehicleswere$1.6million.
GrossprofitfortheyearendedDecember31,2013was$456.3million,anincreasefrom$30.1millionfortheyearendedDecember31,2012.Thisincreasewasdrivenprimarily
byModelSdeliverieswhichbeganinJune2012inNorthAmericaandinAugust2013inEuropeandthesalesofregulatorycreditswhichcarrynoassociatedcostofrevenues.The
increasewasalsoattributabletoourcontinuingcostreductioneffortsincludingprocessefficienciesinmanufacturingandsupplychain,designimprovements,aswellasreductionof
wasteinthesupplychain.
CostofautomotivesalesfortheyearendedDecember31,2012was$371.7million,anincreasefrom$115.5millionfortheyearendedDecember31,2011.Theincreaseincost
ofautomotivesaleswasdrivenprimarilybythecommencementofModelSdeliveriesinJune2012aswellaselectricpowertraincomponentandsystemssalestoToyotaaswebegan
todeliverundertheToyotaRAV4EVsupplyandservicesagreement,partiallyoffsetbyadecreaseinthenumberofTeslaRoadsterdeliveriesandbatterypacksandchargersdelivered
toDaimler.
CostofdevelopmentservicesfortheyearendedDecember31,2012was$11.5million,adecreasefrom$27.2millionfortheyearendedDecember31,2011.Costof
developmentservicesincludesengineeringsupportandtesting,directparts,materialandlaborcosts,manufacturingoverhead,includingamortizedtoolingcosts,shippingandlogistic
costsandotherdevelopmentexpensesthatweincurintheperformanceofourservicesunderdevelopmentagreements.Thedecreaseincostofdevelopmentserviceswasdriven
primarilybyouractivitiesfortheToyotaRAV4EVprogramwhichwesubstantiallycompletedduringthethreemonthsendedMarch31,2012,partiallyoffsetbycostsassociatedwith
developmentactivitiesrelatedtotheMercedesBenzBClassEVprogramwhichwecommencedin2012.
GrossprofitfortheyearendedDecember31,2012was$30.1million,adecreasefrom$61.6millionfortheyearendedDecember31,2011.Thedecreasefortheyearended
December31,2012,comparedtotheyearendedDecember31,2011,wasdrivenprimarilybythecommencementofModelSdeliveriesandtheassociatedearlystagecost
inefficienciesincludinglowerfixedcostabsorption,manufacturinginefficienciesrelatedtoproductionramp,higherinitialpartscostsandhigherlogisticscostsasoursupplychain
tooktimetomatureaswellaslowersalesoftheTeslaRoadster,partiallyoffsetbythesalesofregulatorycreditswhichcarrynoassociatedcostofrevenues.
Weexpectourdevelopmentservicesgrossprofitandgrossmarginmayfluctuateinfutureperiodsasthetimingofrevenuerecognitionmaynotcoincidewiththeperiodin
whichthecorrespondingcostofrevenuesisrecognized.
ResearchandDevelopmentExpenses
Researchanddevelopment(R&D)expensesconsistprimarilyofpersonnelcostsforourteamsinengineeringandresearch,supplychain,quality,manufacturingengineering
andmanufacturingtestorganizations,prototypingexpense,contractandprofessionalservicesandamortizedequipmentexpense.OverheadcostsrelatedtotheTeslaFactorypriorto
thestartofproductionofModelSarealsoincludedinR&Dexpenses.AlsoincludedinR&Dexpensesaredevelopmentservicescoststhatweincur,ifany,priortothefinalizationof
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notassured.Developmentservicescostsincurredafterthefinalizationofanagreementarerecordedincostofrevenues.
R&DexpensesfortheyearendedDecember31,2013were$232.0million,adecreasefrom$274.0millionfortheyearendedDecember31,2012.R&Dexpensesdecreaseddue
tosignificantdevelopment,prototypingandtestingexpensesrelatedtotheModelSlaunchin2012,partiallyoffsetbyanincreaseinsimilarcostsin2013forModelXandrighthand
driveModelSandotherprograms.The$42.0milliondecreaseinR&DexpensesduringtheyearendedDecember31,2013consistedprimarilyofan$18.2milliondecreasein
expensedmaterials,an$8.5milliondecreaseinemployeecompensationexpenses,a$7.8milliondecreaseincostsrelatedtoModelSengineering,designandtestingactivities,a$6.6
milliondecreaseinshippingchargesforModelSprototypematerialsanda$4.9milliondecreaseinoffice,informationtechnologyandfacilitiesrelatedcosts.Thedecreasewas
partiallyoffsetbya$5.0millionincreaseinstockbasedcompensationexpenserelatedtoalargernumberofoutstandingequityawardsduetoadditionalheadcountandgenerallyan
increasingcommonstockvaluationappliedtonewgrants.
ResearchanddevelopmentexpensesfortheyearendedDecember31,2012were$274.0million,anincreasefrom$209.0millionfortheyearendedDecember31,2011.The
$65.0millionincreaseinresearchanddevelopmentexpensesduringtheyearendedDecember31,2012consistedprimarilyofa$54.3millionincreaseinemployeecompensation
expensesfromhigherheadcount,a$23.1millionincreaseinoffice,informationtechnologyandfacilitiesrelatedcoststosupportthegrowthofourbusiness,a$15.1millionincrease
instockbasedcompensationexpenserelatedtoalargernumberofoutstandingequityawardsduetoadditionalheadcountandgenerallyanincreasingcommonstockvaluation
appliedtonewgrants,anda$3.3millionincreaseinshippingchargesforprototypematerialsincurredinthefirsthalfof2012.Theincreasewaspartiallyoffsetbya$30.9million
decreaseinmaterialsandprototypingexpensesprimarilytosupportourModelSbetaandreleasecandidatebuildsaswellaspowertraindevelopmentactivities.
Selling,GeneralandAdministrativeExpenses
Selling,generalandadministrative(SG&A)expensesconsistprimarilyofpersonnelandfacilitiescostsrelatedtoourTeslastores,marketing,sales,executive,finance,human
resources,informationtechnologyandlegalorganizations,aswellaslitigationsettlementsandfeesforprofessionalandcontractservices.
SG&AexpensesfortheyearendedDecember31,2013were$285.6million,anincreasefrom$150.4millionfortheyearendedDecember31,2012.SG&Aexpensesincreased
primarilyfromhigherheadcountandcoststosupportanexpandedretail,serviceandSuperchargerfootprintaswellasthegeneralgrowthofthebusiness.The$135.2millionincrease
inourSG&AexpensesduringtheyearendedDecember31,2013consistedprimarilyofa$62.8millionincreaseinemployeecompensationexpensesrelatedtohighersalesand
marketingheadcounttosupportsalesactivitiesworldwideandhighergeneralandadministrativeheadcounttosupporttheexpansionofthebusiness,a$36.8millionincreaseinoffice,
informationtechnologyandfacilitiesrelatedcoststosupportthegrowthofourbusinessaswellassalesandmarketingactivitiestohandleourexpandingmarketpresence,a
$17.8millionincreaseinstockbasedcompensationexpenserelatedtoalargernumberofoutstandingequityawardsduetoadditionalheadcountandgenerallyanincreasingcommon
stockvaluationappliedtonewgrantsanda$17.2millionincreaseinprofessionalandoutsideservicescosts.
SG&AexpensesfortheyearendedDecember31,2012were$150.4million,anincreasefrom$104.1millionfortheyearendedDecember31,2011.The$46.3millionincrease
inourselling,generalandadministrativeexpensesduringtheyearendedDecember31,2012consistedprimarilyofa$24.3millionincreaseinemployeecompensationexpenses
relatedtohighersalesandmarketingheadcounttosupportsalesactivitiesworldwideandhighergeneralandadministrativeheadcounttosupporttheexpansionofthebusiness,a$9.4
millionincreaseinoffice,informationtechnologyandfacilitiesrelatedcoststosupportanexpandedstoreandservicenetworkandthegrowthofourbusinessingeneral,a$6.0
millionincreaseinstockbasedcompensationexpenserelatedtoalargernumberofoutstandingequityawardsduetoadditionalheadcountand

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generallyanincreasingcommonstockvaluationappliedtonewgrants,anda$6.0millionincreaseinprofessionalandoutsideservicescosts.
InterestExpense
InterestexpensefortheyearendedDecember31,2013was$36.4million,anincreasefrom$7.9millionfortheyearendedDecember31,2012.Historically,weincurredinterest
expenseprimarilyfromourloansundertheDOELoanFacilityandcapitalizedinteresttoassetsunderconstructionrelatedtosignificantassetconstruction.Fortheyearended
December31,2013and2012,wecapitalized$3.5millionand$7.6millionofinterestexpensetoconstructioninprogress,respectively.
InMay2013,weissued$660.0millionaggregateprincipalamountofNotes.Thenetproceedsfromtheoffering,afterdeductingtransactioncosts,wereapproximately$648.0
million.Weincurred$12.0millionofdebtissuancecostsinconnectionwiththeissuanceoftheNoteswhichwehaverecordedinotherassetsandareamortizingtointerestexpense
usingtheeffectiveinterestmethodoverthecontractualtermoftheNotes.UnderthetermsoftheNotes,1.50%couponinterestperannumontheprincipalamountoftheNotesis
payablesemiannuallyinarrearsonJune1andDecember1ofeachyear,commencingonDecember1,2013.FortheyearendedDecember31,2013,werecognized$1.2millionof
interestexpenserelatedtotheamortizationofdebtissuancecostsand$5.9millionofcouponinterestexpense.
Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththeNotesfromthehostdebt
instrumentandrecordedtheconversionoptionof$82.8millioninequity.TheresultingdebtdiscountontheNotesisbeingamortizedtointerestexpenseataneffectiveinterestrateof
4.29%overthecontractualtermoftheNotes.FortheyearendedDecember31,2013,werecognized$9.1millionofinterestexpenserelatedtotheamortizationofthedebtdiscount.
InMay2013,weusedaportionoftheNotesofferingproceedstorepayouroutstandingDepartmentofEnergy(DOE)loanprincipalof$439.6million,a$10.8millionearly
repaymentfeeandaccruedinterestof$1.4million.Asaresultoftheextinguishmentofourloans,unamortizedloanoriginationcostsassociatedwiththeDOELoanFacilityof$5.6
millionwerechargedtointerestexpense.FortheyearendedDecember31,2013,werecordedtotalinterestexpenseof$17.8millionrelatedtotheearlyrepaymentfee,accruedinterest
andtheamortizationoftheremainingloanoriginationcostsontheDOELoanFacility.
InterestexpensefortheyearendedDecember31,2012and2011was$7.9millionand$5.1million,respectively,incurredprimarilyfromourloansundertheDOELoanFacility
tofundourModelSandpowertrainactivities,andasofAugust2012,wehadfullydrawndownontheDOELoanFacility.DuringtheyearsendedDecember31,2012and2011,we
capitalized$7.6millionand$5.1millionofinterestexpensetoconstructioninprogress,respectively.
OtherIncome(Expense),Net
Otherincome(expense),net,consistsprimarilyofthechangeinthefairvalueofourDOEcommonstockwarrantliabilityandforeignexchangegainsandlossesrelatedtoour
foreigncurrencydenominatedassetsandliabilities.Weexpectourforeignexchangegainsandlosseswillvarydependinguponmovementsintheunderlyingexchangerates.Priorto
theexpirationoftheDOEwarrantinMay2013,theDOEwarranthadbeencarriedatitsestimatedfairvaluewithchangesinitsfairvaluereflectedinotherincome(expense),net.
Otherincome,net,fortheyearendedDecember31,2013was$22.6million,anincreaseinincomecomparedtootherexpense,net,of$1.8millionfortheyearended
December31,2012.Theincreaseinotherincome,net,wasprimarilyduetothereductioninfairvalueofourDOEcommonstockwarrantliabilityof$10.7millionfortheyearended
December31,2013.InMarch2013,weenteredintoafourthamendmenttotheDOELoanFacilitywhich,amongotherthings,acceleratedthematuritydateofourDOEloansto
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therefore,theDOEwarrantwasnolongerexpectedtovest.Theincreaseinotherincome,net,wasalsoattributabletothefavorableforeigncurrencyexchangeimpactfromourforeign
currencydenominatedliabilitiesduringtheyearendedDecember31,2013,especiallyrelatedtotheJapaneseyen.
Otherexpense,net,fortheyearendedDecember31,2012was$1.8million,adecreaseinexpensecomparedtootherexpense,net,of$2.6millionfortheyearended
December31,2011.ThedecreaseinexpensefortheyearendedDecember31,2012wasprimarilyduetoafavorableforeigncurrencyexchangeimpactfromourforeigncurrency
denominatedliabilities,partiallyoffsetbythefairvaluechangeinourcommonstockwarrantliabilityduringtheyearendedDecember31,2012resultingfromahigherstockprice.
ProvisionforIncomeTaxes
OurprovisionforincometaxesfortheyearendedDecember31,2013was$2.6million,comparedto$0.1millionfortheyearendedDecember31,2012.Theincreaseforthe
yearendedDecember31,2013wasdueprimarilytotheincreaseintaxableincomeinourinternationaljurisdictionsaswecommencedEuropeandeliveriesofModelSinAugust2013.
OurprovisionforincometaxesfortheyearendedDecember31,2012was$0.1million,adecreasefrom$0.5millionfortheyearendedDecember31,2011.Thedecreasewas
dueprimarilytothedecreaseintaxableincomeinourinternationaljurisdictionsasweconcludedsalesoftheTeslaRoadster.
LiquidityandCapitalResources
SinceinceptionandthroughtheyearendedDecember31,2013,wehadaccumulatednetoperatinglossesof$1.14billionandhaveused$466.7millionofcashinoperations.
AsofDecember31,2013,wehad$845.9millioninprincipalsourcesofliquidityavailablefromourcashandcashequivalentsincluding$460.3millionofmoneymarketfunds.
OthersourcesofcashincludecashfromourdeliveriesofModelS,customerdepositsforModelSandModelX,salesofregulatorycredits,cashfromtheprovisionof
developmentservices,andsalesofpowertraincomponentsandsystems.Intheshortterm,weexpectthatourcurrentsourcesofliquidity,includingcashandcashequivalents,together
withourcurrentprojectionsofcashflowfromoperatingactivities,willcontinuetoprovideuswithadequateliquiditybasedonourcurrentplans.Thesecapitalsourceswillenableus
tofundourongoingoperations,continueresearchanddevelopmentprojects,includingthoseforourplannedModelXcrossoverandcertainfutureproducts,establishandexpandour
stores,servicecentersandSuperchargernetworkandtomaketheinvestmentsintoolingandmanufacturingcapitalrequiredtointroduceModelXandtocontinuetorampup
productionofModelS.Wemayseekadditionalcapitalsourcestopartiallyfundcertainlongtermgrowthinitiatives,suchastobuildtheTeslaGigafactoryandforfutureproducts
suchasourthirdgenerationvehicle.
DuringtheyearendedDecember31,2013,weincreasedthenumberofSuperchargerstonearly90locationsinNorthAmericaandinEurope.Weexpecttocontinuemaking
investmentsintheSuperchargernetworkin2014,includinginChina.
Ifmarketconditionsarefavorable,wewillcontinuallyevaluatealternativestoopportunisticallypursueliquidityoptions.Also,shouldprevailingeconomicconditionsand/or
financial,businessorotherfactorsadverselyaffecttheestimatesofourfuturecashrequirements,wecouldberequiredtofundourcashrequirementsthroughadditionaloralternative
sourcesoffinancing.Wecannotbecertainthatadditionalfundswillbeavailabletousonfavorabletermswhenrequired,oratall.
Wecurrentlyanticipatemakingaggregatecapitalexpendituresofbetween$650millionand$850millionduringtheyearendingDecember31,2014.

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1.50%ConvertibleSeniorNotesandBondHedgeandWarrantTransactions
InMay2013,weissued$660.0millionaggregateprincipalamountof1.50%convertibleseniornotesdue2018(theNotes)inapublicoffering.Thenetproceedsfromthe
offering,afterdeductingtransactioncosts,wereapproximately$648.0million.Weincurred$12.0millionofdebtissuancecostsinconnectionwiththeissuanceoftheNoteswhichwe
haverecordedinotherassetsandareamortizingtointerestexpenseusingtheeffectiveinterestmethodoverthecontractualtermoftheNotes.TheinterestundertheNotesisfixedat
1.50%perannumandispayablesemiannuallyinarrearsonJune1andDecember1ofeachyear,commencingonDecember1,2013.
Each$1,000ofprincipaloftheNoteswillinitiallybeconvertibleinto8.0306sharesofourcommonstock,whichisequivalenttoaninitialconversionpriceofapproximately
$124.52pershare,subjecttoadjustmentupontheoccurrenceofspecifiedevents.HoldersoftheNotesmayconverttheirNotesattheiroptiononorafterMarch1,2018.Further,
holdersoftheNotesmayconverttheirNotesattheiroptionpriortoMarch1,2018,onlyunderthefollowingcircumstances:(1)duringanyfiscalquarterbeginningafterthefiscal
quarterendingSeptember30,2013,ifthelastreportedsalepriceofourcommonstockforatleast20tradingdays(whetherornotconsecutive)duringthelast30consecutivetrading
daysoftheimmediatelyprecedingfiscalquarterisgreaterthanorequalto130%oftheconversionpriceoneachapplicabletradingday(2)duringthefivebusinessdayperiod
followinganyfiveconsecutivetradingdayperiodinwhichthetradingpricefortheNotesislessthan98%oftheaverageoftheclosingsalepriceofourcommonstockforeachday
duringsuchfivetradingdayperiodor(3)ifwemakespecifieddistributionstoholdersofourcommonstockorifspecifiedcorporatetransactionsoccur.Uponconversion,wewould
paytheholdersincashfortheprincipalamountoftheNoteand,ifapplicable,sharesofourcommonstock(subjecttoourrighttodelivercashinlieuofalloraportionofsuchshares
ofourcommonstock)basedonacalculateddailyconversionvalue.Ifafundamentalchangeoccurspriortothematuritydate,holdersoftheNotesmayrequireustorepurchaseallora
portionoftheirNotesforcashatarepurchasepriceequalto100%oftheprincipalamountoftheNotes,plusanyaccruedandunpaidinterest.Inaddition,ifspecificcorporateevents
occurpriortothematuritydate,wewillincreasetheconversionrateforaholderwhoelectstoconvertitsNotesinconnectionwithsuchacorporateeventincertaincircumstances.
InconnectionwiththeofferingoftheNotes,weenteredintoconvertiblenotehedgetransactionswherebywehavetheoptiontopurchaseupto5.3millionsharesofour
commonstockatapriceofapproximately$124.52pershare.Thecostoftheconvertiblenotehedgetransactionswas$177.5million.Inaddition,wesoldwarrantswherebytheholders
ofthewarrantshavetheoptiontopurchaseuptoapproximately5.3millionsharesofourcommonstockatapriceof$184.48pershare.Wereceived$120.3millionincashproceeds
fromthesaleofthesewarrants.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedtooffsetanyactualdilutionfromtheconversionofthe
Notesandtoeffectivelyincreasetheoverallconversionpricefrom$124.52to$184.48pershare.
Duringthefourthquarterof2013,theclosingpriceofourcommonstockdidnotmeetorexceed130%oftheapplicableconversionpriceofourNotesonatleast20ofthelast
30consecutivetradingdaysofthequarterfurthermore,nootherconditionsallowingholdersoftheNotestoconverthavebeenmetasofDecember31,2013.Therefore,theNotesare
notconvertibleduringthefirstquarterof2014andareclassifiedaslongtermdebt.Shouldtheclosingpriceconditionsbemetinthefirstquarterof2014orafuturequarter,theNotes
willbeconvertibleattheirholdersoptionduringtheimmediatelyfollowingquarter.
FormoreinformationontheNotes,seeNote6toourConsolidatedFinancialStatementsincludedinthisAnnualReportonForm10KunderItem8.FinancialStatementsand
SupplementaryData.
CommonStockOfferingandConcurrentPrivatePlacement
ConcurrentwiththeexecutionoftheNotesandrelatedtransactionsinMay2013,wealsocompletedapublicofferingofcommonstockandsoldatotalof3,902,862sharesof
ourcommonstockfortotalcashproceedsofapproximately$355.1million(whichincludes487,857sharesor$45.0millionsoldtoourChief

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ExecutiveOfficer(CEO)),netofunderwritingdiscountsandofferingcosts.Wealsosold596,272sharesofourcommonstocktoourCEOandreceivedtotalcashproceedsof$55.0
millioninaprivateplacementatthepublicofferingprice.
CustomerDeposits
CustomerdepositsconsistofpaymentsthatallowpotentialcustomerstoplaceanorderforthefuturepurchaseofaModelSorModelX.Theseamountsarerecordedascurrent
liabilitiesuntilthevehicleisdelivered.Werequirefullpaymentofthepurchasepriceofthevehicleonlyupondeliveryofthevehicletothecustomer.Amountsreceivedbyusas
customerdepositsaregenerallynotrestrictedastotheirusebyus.Upondeliveryofthevehicle,therelatedcustomerdepositsareappliedagainstthecustomerstotalpurchasepricefor
thevehicleandrecognizedinautomotivesalesaspartoftherespectivevehiclesale.
Historically,wehavereferredtosuchcustomerdepositsasreservationpaymentsandtheseinitialreservationpaymentshavebeenfullyrefundableuntilsuchtimethatthe
customerselectedthevehiclespecificationsandenteredintoapurchaseagreement.WehaveeliminatedthereservationprocessforModelSinNorthAmericaandinmostofour
marketsinEurope,asvehicleproductionbecamemorereliableandcustomerwaittimesdecreased.CustomersnowinitiatetheirpurchasebyorderingtheircustomizedModelSrather
thanplacingagenericreservationinqueue.Asaresultofthistransitionawayfromreservations,wehaverenamedthereservationpaymentscaptiononourconsolidatedfinancial
statementstocustomerdeposits.CustomerdepositsrelatedtoModelXstillrepresentfullyrefundablereservations.AsofDecember31,2013,weheldcustomerdepositsof$163.2
million.
SummaryofCashFlows

Netcashprovidedby(usedin)operatingactivities

YearEndedDecember31,
2013

2012

2011

$ 257,994

$ (266,081)

$ (128,034)

(249,417)

(206,930)

(162,258)

635,422

Netcashusedininvestingactivities
Netcashprovidedbyfinancingactivities

419,635

446,000

CashFlowsfromOperatingActivities
Ourcashflowsfromoperatingactivitiesaresignificantlyaffectedbyourcashinvestmentstosupportthegrowthofourbusinessinareassuchasmanufacturing,researchand
developmentandselling,generalandadministrative.Ouroperatingcashflowsarealsoaffectedbyourworkingcapitalneedstosupportgrowthandfluctuationsininventory,
personnelrelatedexpenditures,accountspayableandothercurrentassetsandliabilities.
Netcashprovidedbyoperatingactivitieswas$258.0millionduringtheyearendedDecember31,2013netofadjustmentsfornoncashitemssuchasdepreciationand
amortizationof$106.1million,$80.7millionrelatedtostockbasedcompensationexpense,inventorywritedownsof$8.9million,$5.6millionrelatedtotheamortizationofall

remainingDOEloanoriginationcostsasaresultoftherepaymentofouroutstandingloansundertheDOELoanFacilityand$9.1millionrelatedtotheamortizationofdebtdiscount
onourNotes,partiallyoffsetbyotherincomeassociatedwiththereductioninfairvalueoftheDOEcommonstockwarrantliabilityof$10.7million.Significantoperatingcash
inflowswerecomprisedprimarilyofautomotivesalesof$2.00billion,a$537.4millionnetincreaseindeferredrevenue,resalevalueguaranteeandotherlongtermliabilitiesprimarily
associatedwithModelSdeliverieswiththeresalevalueguarantee,$15.7millionofdevelopmentservicesrevenueanda$24.2millionnetincreaseincustomerdeposits,partially
offsetbya$21.9millionincreaseinaccountsreceivableduetoregulatorycreditsalesrecognizedattheendofthefourthquarterandreceivablesfromourfinancingpartners.

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SignificantoperatingcashoutflowsfortheyearendedDecember31,2013wereprimarilyrelatedto$1.56billionofcostofrevenues,a$463.3millionincreaseininventoryand
operatingleasevehicles,$517.5millionofoperatingexpenses,anda$17.5millionincreaseinprepaidexpensesandothercurrentassets,partiallyoffsetbya$66.3millionincreasein
accountspayableandaccruedliabilitiesprimarilyduetothetimingofvendorpayments.
Netcashusedinoperatingactivitieswas$266.1millionduringtheyearendedDecember31,2012.Thelargestcomponentofourcashusedduringthisperiodrelatedtoournet
lossof$396.2million,whichincludednoncashchargesof$50.1millionrelatedtostockbasedcompensationexpense,$28.8millionrelatedtodepreciationandamortizationand
$4.9millionrelatedtoinventorywritedownsandadversepurchasecommitments.Significantoperatingcashoutflowswereprimarilyrelatedto$424.4millionofoperatingexpenses,a
$194.7millionincreaseininventoryandoperatingleasevehiclesand$383.2millionofcostofrevenues,partiallyoffsetbya$197.4millionincreaseinaccountspayableandaccrued
liabilities,anda$1.1milliondecreaseinprepaidexpensesandothercurrentassets.
InventoryincreasedtomeetourplannedproductionrequirementsforModelSandpowertraincomponentandsystemsaleswhilethenetincreaseinaccountspayableand
accruedliabilitieswasduetoboththegrowthofourbusinessandthetimingofvendorpayments.
SignificantoperatingcashinflowsfortheyearendedDecember31,2012werecomprisedprimarilyofautomotivesalesof$385.7million,a$47.1millionnetincreasein
customerdepositsand$27.6millionofdevelopmentservicesrevenue.
Netcashusedinoperatingactivitieswas$128.0millionfortheyearendedDecember31,2011.Thelargestcomponentofourcashusedduringthisperiodrelatedtoournetloss
of$254.4million,whichincludednoncashchargesof$29.4millionrelatedtostockbasedcompensationexpense,$16.9millionrelatedtodepreciationandamortizationand
$2.8millionrelatedtothefairvaluechangeinourwarrantliability.Significantoperatingcashoutflowswereprimarilyrelatedto$313.1millionofoperatingexpenses,$142.6million
ofcostofrevenuesanda$13.6millionincreaseininventoryandoperatingleasevehicles,partiallyoffsetbya$30.5millionincreaseinaccountspayableandaccruedliabilities,anda
$2.6millionincreaseinotherlongtermliabilities.InventoryincreasedtomeetourproductionrequirementsfortheTeslaRoadsterasweplannedforthefinalproductionoftheTesla
Roadsterandpowertraincomponentsalesaswellasleasingactivities.Theincreaseinaccountspayableandaccruedliabilitieswasduetoboththegrowthofourbusinessandthe
timingofvendorpayments.
SignificantoperatingcashinflowsduringtheyearendedDecember31,2011werecomprisedprimarilyofautomotivesalesof$148.6million,$55.7millionofdevelopment
servicesrevenueanda$61.0millionnetincreaseincustomerdeposits,partiallyoffsetbya$2.8millionincreaseinaccountsreceivableanda$1.9milliondecreaseindeferred
revenue.TheincreaseinaccountsreceivablewasrelatedprimarilytoreceivablesfromToyotaforshipmentsofpowertraincomponentsundertheToyotaRAV4EVPhase1contract
servicesagreementandshipmentsofbatterypacksandchargerstoDaimlerundertheDaimlerSmartfortwoandAClassEVprograms.
CashFlowsfromInvestingActivities
Cashflowsfrominvestingactivitiesprimarilyrelatetocapitalexpenditurestosupportourgrowthinoperations,includinginvestmentsinModelSmanufacturingandour
stores,serviceandSuperchargernetworkinfrastructure,aswellasrestrictedcashthatwewererequiredtomaintaininrelationtoourDOELoanFacility,facilityleaseagreements,
equipmentfinancing,andcertainvendorcreditpolicies.
Netcashusedininvestingactivitieswas$249.4millionduringtheyearendedDecember31,2013primarilyrelatedto$264.2millioninpurchasesofcapitalequipmentand
toolingtosupportourmanufacturingfacilityandexpandourstore,serviceandaSuperchargernetwork,including$18.5millionrelatedtothepurchaseof

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additionallandatourFremontfactoryanda$14.8millionnettransferoutofourdedicatedDOEaccountasaresultoftheterminationofourDOELoanFacility.
Netcashusedininvestingactivitieswas$206.9millionduringtheyearendedDecember31,2012primarilyrelatedto$239.2millioninpurchasesofcapitalequipmentand
tooling,partiallyoffsetbya$25.0millioninmaturitiesofshorttermmarketablesecuritiesandan$8.6millionnettransferofcashoutofourdedicatedDOEaccountinaccordance
withtheprovisionsoftheDOELoanFacility.
Netcashusedininvestingactivitieswas$162.3millionduringtheyearendedDecember31,2011primarilyrelatedto$184.2millioninpurchasesofcapitalequipmentand
$65.0millioninpurchasesofshorttermmarketablesecurities,partiallyoffsetby$50.1millionofnettransfersoutofourdedicatedDOEaccountinaccordancewiththeprovisionsof
theDOELoanFacilityand$40.0millionfromthematurityofshorttermmarketablesecurities.Theincreaseincapitalpurchaseswasprimarilyduetosignificantdevelopmentand
constructionactivitiesattheTeslaFactoryaswellaspurchasesofModelSrelatedmanufacturingequipmentandtooling.
CashFlowsfromFinancingActivities
Netcashprovidedbyfinancingactivitieswas$635.4millionduringtheyearendedDecember31,2013andwascomprisedprimarilyof$660.0millionfromourNotesoffering
inMay2013,$415.0millionreceivedfromourpublicofferingofcommonstockandconcurrentprivateplacementcompletedinMay2013,$120.3millionfromthesaleofwarrantsas
partofourbondhedgeandwarranttransactionsexecutedinMay2013,and$95.3millionreceivedfromtheexerciseofcommonstockoptionsbyemployeesandthepurchaseof
commonstockunderouremployeestockpurchaseplanpartiallyoffsetby$452.3millionrelatedtoourrepaymentofalloutstandingloanprincipalundertheDOELoanFacility,
$177.5millionrelatedtothepurchaseofconvertiblenotehedgesaspartofourbondhedgeandwarranttransactionsexecutedinMay2013,$16.9millionofNotesandcommonstock
issuancecostsand$8.4millionrelatedtoprincipalpaymentsonourcapitalleases.
Netcashprovidedbyfinancingactivitieswas$419.6millionduringtheyearendedDecember31,2012andwascomprisedprimarilyof$221.5millionreceivedfromour
followonpublicofferingcompletedinOctober2012,$188.8millionreceivedfromourdrawdownsundertheDOELoanFacilityand$24.9millionreceivedfromtheexerciseof
commonstockoptionsbyemployeesandthepurchaseofcommonstockunderouremployeestockpurchaseplan,partiallyoffsetby$12.7millionrelatedtoourfirstquarterly
repaymentofprincipalrelatedtoourloansundertheDOELoanFacility,and$2.8millionrelatedtoprincipalrepaymentsoncapitalleases.
Netcashprovidedbyfinancingactivitieswas$446.0millionduringtheyearendedDecember31,2011andwascomprisedprimarilyof$231.5millionreceivedfromour
followonpublicofferingandconcurrentprivateplacementscompletedinJune2011,$204.4millionreceivedfromourdrawdownsundertheDOELoanFacilityand$10.5million
receivedfromtheexerciseofcommonstockoptionsbyemployeesandthepurchaseofcommonstockunderouremployeestockpurchaseplan.
ContractualObligations
Thefollowingtablesetsforth,asofDecember31,2013certainsignificantcashobligationsthatwillaffectourfutureliquidity(inthousands):

YearEndedDecember31,

2018and

Operatingleaseobligations

Total

$ 161,488

2014

$ 27,004

2015

$ 27,372

2016

$ 26,621

2017

24,706

thereafter

55,785

Capitalleaseobligations

21,790

8,927

7,752

4,512

595

704,536

10,102

9,897

9,897

9,897

664,743

$ 887,814

$ 41,030

35,198

720,532

Convertibledebt

Total

86

$ 46,033

$ 45,021

TableofContents
InOctober2010,wecompletedthepurchaseofourTeslaFactorylocatedinFremont,CaliforniafromNewUnitedMotorManufacturing,Inc.(NUMMI).NUMMIhaspreviously
identifiedenvironmentalconditionsattheFremontsitewhichcouldaffectsoilandgroundwater,andiscurrentlyundertakingeffortstoaddresstheseconditions.Althoughwehave
beenadvisedbyNUMMIthatithasdocumentedandmanagedtheenvironmentalissues,wecannotdeterminewithcertaintythepotentialcoststoremediateanypreexisting
contamination.Basedonmanagementsbestestimate,weestimatedthefairvalueoftheenvironmentalliabilitiesthatweassumedtobe$5.3million.AsNUMMIcontinueswithits
decommissioningactivitiesandaswecontinuewithourconstructionandoperatingactivities,itisreasonablypossiblethatourestimateofenvironmentalliabilitiesmaychange
materially.
WereachedanagreementwithNUMMIunderwhich,overatenyearperiod,wewillpaythefirst$15.0millionofanycostsofanygovernmentallyrequiredremediation
activitiesforcontaminationthatexistedpriortothecompletionofthefacilityandlandpurchaseforanyknownorunknownenvironmentalconditions,andNUMMIhasagreedtopay
thenext$15.0millionforsuchremediationactivities.Ouragreementprovides,inpart,thatNUMMIwillpayuptothefirst$15.0milliononourbehalfifsuchexpensesareincurredin
thefirstfouryearsofouragreement,subjecttoourreimbursementofsuchcostsonthefourthanniversarydateoftheclosing.ThroughDecember312013,remediationcostsof$2.1
millionhadbeenincurredbyNUMMItherefore,weclassified$2.1millionof$5.5millionenvironmentalliabilitiestoaccruedliabilitiesonourconsolidatedbalancesheetasof
December31,2013.AsofDecember31,2013and2012,weaccruedatotalof$5.5millionand$5.3millionrelatedtotheseenvironmentalliabilities,respectively.
Onthetenyearanniversaryoftheclosingorwhenever$30.0millionhasbeenspentontheremediationactivities,whichevercomesfirst,NUMMIsliabilitytouswithrespect
toremediationactivitiesceases,andweareresponsibleforanyandallenvironmentalconditionsattheFremontsite.Atthatpointintime,wehaveagreedtoindemnify,defend,and
holdharmlessNUMMIfromallliabilityandwehavereleasedNUMMIforanyknownorunknownclaimsexceptforNUMMIsobligationsforrepresentationsandwarrantiesunderthe
agreement.
OffBalanceSheetArrangements
Duringtheperiodspresented,wedidnothaverelationshipswithunconsolidatedentitiesorfinancialpartnerships,suchasentitiesoftenreferredtoasstructuredfinanceor
specialpurposeentities,whichwouldhavebeenestablishedforthepurposeoffacilitatingoffbalancesheetarrangementsorothercontractuallynarroworlimitedpurposes.

ITEM7A.

QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK

ForeignCurrencyRisk
Ourrevenuesandcostsdenominatedinforeigncurrenciesarenotcompletelymatched.WecommenceddeliveriesofModelSinJune2012tocustomersinNorthAmericaand
toEuropeancustomersinAugust2013.ThroughDecember31,2013,amajorityofourrevenueshavebeendenominatedinU.S.dollars,withagrowingexposuretoeuroand
Norwegiankronahowever,aportionofourcostsandexpensesduringtheyearendedDecember31,2013wasdenominatedinforeigncurrencies,includingtheJapaneseyen,euroand
Britishpound.Accordingly,ifthevalueoftheU.S.dollardepreciatessignificantlyagainstcurrencieswherewehaveanetshortexposure,ourcostsasmeasuredinU.S.dollarsasa
percentofourrevenueswillcorrespondinglyincreasewhichmayadverselyimpactouroperatingresults.WeplantostartAsiandeliveriesin2014.AswecontinuetolaunchModelS
overseas,wemayhavegreaterrevenuesthancostsdenominatedinothercurrencies,inwhichcaseastrengtheningofthedollaragainstsuchcurrencieswouldtendtoreduceour
revenuesasmeasuredinU.S.dollars.
Asaresultofafavorableforeigncurrencyexchangeimpactfromforeigncurrencydenominatedliabilities,especiallyrelatedtotheJapaneseyen,werecordedgainsof$11.9
milliononforeignexchangetransactionsinotherincome(expense),net,fortheyearendedDecember31,2013.

87

TableofContents
InterestRateRisk
Wehadcashandcashequivalentstotaling$845.9millionasofDecember31,2013.Asignificantportionofourcashandcashequivalentswereinvestedinmoneymarket
funds.Cashandcashequivalentsareheldforworkingcapitalpurposes.Wedonotenterintoinvestmentsfortradingorspeculativepurposes.Webelievethatwedonothaveany
materialexposuretochangesinthefairvalueasaresultofchangesininterestratesduetotheshorttermnatureofourcashequivalents.
AsofDecember31,2013,wehad$660.0millionaggregateprincipalamountofconvertibleseniornotesoutstandingandcapitalleaseobligationsof$20.6million,allofwhich
arefixedrateinstruments.Therefore,ourresultsofoperationsarenotsubjecttofluctuationsininterestrates.

88

TableofContents
ITEM8.

FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA
IndextoConsolidatedFinancialStatements

Page

90

91

92

93

94

95

96

ReportofIndependentRegisteredPublicAccountingFirm
ConsolidatedBalanceSheets
ConsolidatedStatementsofOperations
ConsolidatedStatementsofComprehensiveLoss
ConsolidatedStatementsofStockholdersEquity
ConsolidatedStatementsofCashFlows
NotestoConsolidatedFinancialStatements

89

TableofContents
ReportofIndependentRegisteredPublicAccountingFirm
TotheBoardofDirectorsandStockholdersofTeslaMotors,Inc.
Inouropinion,theaccompanyingconsolidatedbalancesheetsandtherelatedconsolidatedstatementsofoperations,ofcomprehensiveloss,ofstockholdersequity(deficit)
andofcashflowspresentfairly,inallmaterialrespects,thefinancialpositionofTeslaMotors,Inc.anditssubsidiariesatDecember31,2013and2012,andtheresultsoftheir
operationsandtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,2013inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesof
America.Alsoinouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2013,basedoncriteria
establishedinInternalControlIntegratedFramework(1992)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).TheCompanys
managementisresponsibleforthesefinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternal
controloverfinancialreporting,includedinManagementsReportonInternalControloverFinancialReportingappearingunderItem9A.Ourresponsibilityistoexpressopinionson
thesefinancialstatementsandontheCompanysinternalcontroloverfinancialreportingbasedonourintegratedaudits.Weconductedourauditsinaccordancewiththestandardsof
thePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhetherthe
financialstatementsarefreeofmaterialmisstatementandwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditsofthefinancial
statementsincludedexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements,assessingtheaccountingprinciplesusedandsignificant
estimatesmadebymanagement,andevaluatingtheoverallfinancialstatementpresentation.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstanding
ofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrol
basedontheassessedrisk.Ourauditsalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditsprovideareasonable
basisforouropinions.
Acompanysinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparation
offinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompanysinternalcontroloverfinancialreportingincludesthose
policiesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthe
company(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccounting
principles,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompanyand(iii)provide
reasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompanysassetsthatcouldhaveamaterialeffectonthefinancial
statements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenessto
futureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmay
deteriorate.
/s/PricewaterhouseCoopersLLP
SanJose,California
February26,2014

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TeslaMotors,Inc.
ConsolidatedBalanceSheets
(inthousands,exceptshareandpersharedata)

December31,

2013

December31,

2012

Assets

Currentassets
Cashandcashequivalents

845,889

201,890

3,012

19,094

49,109

26,842

340,355

268,504

27,574

8,438

1,265,939

524,768

382,425

10,071

738,494

552,229

Restrictedcash
Accountsreceivable
Inventory
Prepaidexpensesandothercurrentassets

Totalcurrentassets

Operatingleasevehicles,net
Property,plantandequipment,net

Restrictedcash

6,435

5,159

23,637

21,963

$ 2,416,930

Otherassets

Totalassets

$ 1,114,190

LiabilitiesandStockholdersEquity
Currentliabilities
Accountspayable

303,969

303,382

108,252

39,798

91,882

1,905

7,722

4,365

163,153

138,817

182

50,841

675,160

539,108

10,692

12,855

9,965

181,180

3,060

Accruedliabilities
Deferredrevenue
Capitalleaseobligations,currentportion
Customerdeposits
Convertibledebt,currentportion
Longtermdebt,currentportion

Totalcurrentliabilities
Commonstockwarrantliability
Capitalleaseobligations,lesscurrentportion
Deferredrevenue,lesscurrentportion

Convertibledebt,lesscurrentportion

586,119

236,299

401,495

58,197

25,170

1,749,810

989,490

Resalevalueguarantee
Longtermdebt,lesscurrentportion
Otherlongtermliabilities

Totalliabilities

Commitmentsandcontingencies(Note12)
Stockholdersequity:
Preferredstock$0.001parvalue100,000,000sharesauthorizednosharesissuedandoutstanding

123

115

1,806,617

1,190,191

(1,139,620)

(1,065,606)

$ 2,416,930

Commonstock$0.001parvalue2,000,000,000sharesauthorizedasofDecember31,2013and2012,respectively123,090,990and
114,214,274sharesissuedandoutstandingasofDecember31,2013and2012,respectively
Additionalpaidincapital
Accumulateddeficit

Totalstockholdersequity

Totalliabilitiesandstockholdersequity

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

91

667,120

124,700

$ 1,114,190

TableofContents
TeslaMotors,Inc.
ConsolidatedStatementsofOperations
(inthousands,exceptshareandpersharedata)

YearEndedDecember31,
2013

2012

2011

Revenues

Automotivesales

1,997,786

385,699

148,568

15,710

27,557

55,674

2,013,496

413,256

204,242

Developmentservices

Totalrevenues
Costofrevenues

Automotivesales

1,543,878

371,658

115,482

13,356

11,531

27,165

1,557,234

383,189

142,647

456,262

30,067

61,595

Developmentservices

Totalcostofrevenues
Grossprofit
Operatingexpenses

Researchanddevelopment

231,976

273,978

208,981

285,569

150,372

104,102

517,545

424,350

313,083

(61,283)

(394,283)

(251,488)

189

288

255

(32,934)

(254)

(43)

22,602

(1,828)

(2,646)

(71,426)

(396,077)

(253,922)

2,588

136

489

(74,014)

(396,213)

(254,411)

(0.62)

(3.69)

(2.53)

119,421,414

Selling,generalandadministrative

Totaloperatingexpenses

Lossfromoperations
Interestincome
Interestexpense
Otherincome(expense),net

Lossbeforeincometaxes
Provisionforincometaxes

Netloss

Netlosspershareofcommonstock,basicanddiluted

Weightedaveragesharesusedincomputingnetlosspershareofcommonstock,basicanddiluted

107,349,188

100,388,815

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

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TeslaMotors,Inc.
ConsolidatedStatementsofComprehensiveLoss
(inthousands)

Netloss

YearEndedDecember31,
2013

2012

2011

$ 74,014

$ 396,213

$ 254,411

(3)

Othercomprehensiveincome(loss),netoftax:
Unrealizednetlossonshorttermmarketablesecurities

(3)

$ 74,014

Reclassificationadjustmentforgainincludedinnetloss

Othercomprehensiveincome(loss)

Comprehensiveloss

$ 396,210

$ 254,414

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

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TeslaMotors,Inc.
ConsolidatedStatementsofStockholdersEquity
(inthousands,exceptshareandpersharedata)

Accumulated

CommonStock

Additional
PaidIn

Shares

Amount

Accumulated

Capital

Deficit

Other
Comprehensive

Loss

Total
Stockholders

Equity

BalanceasofDecember31,2010

94,908,370

95

621,935

(414,982)

207,048

6,095,000

172,403

172,409

2,053,475

59,056

59,058

1,250,002

6,642

6,643

223,458

3,882

3,882

29,419

29,419

IssuanceofcommonstockinJune2011publicofferingat$28.76pershare,netofissuancecostsof$305

IssuanceofcommonstockinJune2011concurrentprivateplacementsat$28.76pershare

Issuanceofcommonstockuponexerciseofstockoptions,netofrepurchases

Issuanceofcommonstockunderemployeestockpurchaseplan

Stockbasedcompensation

Comprehensiveloss:

Netloss

(254,411)

(254,411)

(3)

(3)

(254,414)

Unrealizedlossonshorttermmarketablesecurities,net

Totalcomprehensiveloss

BalanceasofDecember31,2011

104,530,305

104

893,337

(669,393)

(3)

224,045

7,964,601

221,483

221,491

1,345,842

16,498

16,500

373,526

8,388

8,389

50,485

50,485

IssuanceofcommonstockinOctober2012publicofferingat$28.25pershare,netofissuancecostsof$584

Issuanceofcommonstockuponexerciseofstockoptions,netofrepurchases

Issuanceofcommonstockunderemployeestockpurchaseplan

Stockbasedcompensation

Comprehensiveloss:

Netloss

(396,213)

(396,213)

(396,210)

114,214,274

115

1,190,191

(1,065,606)

124,700

3,902,862

353,629

353,632

596,272

55,000

55,001

82,842

82,842

(177,540)

(177,540)

120,318

120,318

3,852,673

82,570

82,573

Unrealizedlossonshorttermmarketablesecurities,net

Totalcomprehensiveloss

BalanceasofDecember31,2012

IssuanceofcommonstockinMay2013publicofferingat$92.20pershare,netofissuancecostsof$6,367

IssuanceofcommonstockinMay2013concurrentprivateplacementsat$92.20pershare

Conversionfeatureofconvertibleseniornotesdue2018

Purchaseofbondhedges

Salesofwarrant

Issuanceofcommonstockuponexerciseofstockoptions

Issuanceofcommonstockuponreleaseofrestrictedstockunits,netofshareswithheldforemployeetaxes

6,166

(1,116)

(1,116)

518,743

13,848

13,849

86,875

86,875

(74,014)

(74,014)

123,090,990

123

$ 1,806,617

(1,139,620)

667,120

Issuanceofcommonstockunderemployeestockpurchaseplan

Stockbasedcompensation

Netloss

BalanceasofDecember31,2013

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

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TeslaMotors,Inc.
ConsolidatedStatementsofCashFlows
(inthousands)

YearEndedDecember31,
2013

2012

2011

CashFlowsFromOperatingActivities

Netloss

(74,014)

(396,213)

(254,411)

Adjustmentstoreconcilenetlosstonetcashprovidedby(usedin)operatingactivities:

Depreciationandamortization

106,083

28,825

16,919

80,737

50,145

29,419

9,143

8,918

4,929

1,828

5,558

(10,692)

1,854

2,750

3,611

1,560

233

3,655

Stockbasedcompensation

Amortizationofdiscountonconvertibledebt

Inventorywritedowns

WriteoffofDepartmentofEnergy(DOE)loanoriginationcosts

ChangeinfairvalueofDOEwarrantliability

Othernoncashoperatingactivities

Foreigncurrencytransactiongain

Changesinoperatingassetsandliabilities

Accountsreceivable

(21,917)

(17,303)

(2,829)

(463,270)

(194,726)

(13,638)

(17,466)

1,121

(248)

(342)

(482)

(288)

(243)

187,821

19,891

66,567

9,603

10,620

268,153

(526)

(1,927)

24,243

47,056

61,006

236,299

32,971

10,255

2,641

257,994

(266,081)

(128,034)

Inventoriesandoperatingleasevehicles

Prepaidexpensesandothercurrentassets

Otherassets

Accountspayable

Accruedliabilities

Deferredrevenue

Customerdeposits

Resalevalueguarantee

Otherlongtermliabilities

Netcashprovidedby(usedin)operatingactivities

CashFlowsFromInvestingActivities

Purchasesofpropertyandequipmentexcludingcapitalleases

(264,224)

(239,228)

(184,226)

14,752

8,620

50,121

55

(1,330)

(3,201)

WithdrawalsoutofourdedicatedDepartmentofEnergyaccount,net

(Increase)decreaseinotherrestrictedcash

Purchasesofmarketablesecurities

(14,992)

(64,952)

40,000

40,000

(249,417)

(206,930)

(162,258)

Maturitiesofshorttermmarketablesecurities

Netcashusedininvestingactivities

CashFlowsFromFinancingActivities

Proceedsfromconvertibledebt

660,000

360,000

221,496

172,410

120,318

95,307

24,885

10,525

55,000

59,058

(452,337)

(12,710)

(177,540)

(16,901)

(8,425)

(2,832)

(416)

188,796

204,423

635,422

419,635

446,000

Proceedsfromissuanceofcommonstockinpublicoffering

Proceedsfromissuanceofwarrants

Proceedsfromexerciseofstockoptionsandotherstockissuances

Proceedsfromissuanceofcommonstockinprivateplacement

PrincipalpaymentsonDOEloans

Purchaseofconvertiblenotehedges

Commonstockandconvertibledebtissuancecosts

Principalpaymentsoncapitalleasesandotherdebt

ProceedsfromDOEloans

Netcashprovidedbyfinancingactivities

Netincrease(decrease)incashandcashequivalents

643,999

(53,376)

155,708

201,890

255,266

99,558

845,889

201,890

255,266

Cashandcashequivalentsatbeginningofperiod

Cashandcashequivalentsatendofperiod

SupplementalDisclosures

Interestpaid

9,041

6,938

3,472

257

117

282

15,592

Incometaxespaid

Supplementalnoncashinvestingactivities

Acquisitionofpropertyandequipment

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

95

38,789

44,890

TableofContents
TeslaMotors,Inc.
NotestoConsolidatedFinancialStatements
1.OverviewoftheCompany
TeslaMotors,Inc.(Tesla,we,usorour)wasincorporatedinthestateofDelawareonJuly1,2003.Wedesign,develop,manufactureandsellhighperformancefullyelectric
vehiclesandadvancedelectricvehiclepowertraincomponents.WehavewhollyownedsubsidiariesinNorthAmerica,EuropeandAsia.Theprimarypurposeofthesesubsidiariesisto
market,manufacture,selland/orserviceourvehicles.
2.SummaryofSignificantAccountingPolicies
BasisofConsolidation
TheconsolidatedfinancialstatementsincludetheaccountsofTeslaanditswhollyownedsubsidiaries.Allsignificantintercompanytransactionsandbalanceshavebeen
eliminatedinconsolidation.
UseofEstimates
ThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericarequiresmanagementtomakeestimates
andassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentliabilitiesatthedateofthefinancialstatements,andreportedamountsof
expensesduringthereportingperiod,includingrevenuerecognition,residualvalueofoperatingleasevehicles,inventoryvaluation,warranties,fairvalueoffinancialinstrumentsand
stockbasedcompensation.Actualresultscoulddifferfromthoseestimates.
RevenueRecognition
WerecognizerevenuesfromsalesofModelSandtheTeslaRoadster,includingvehicleoptionsandaccessories,vehicleserviceandsalesofregulatorycredits,suchaszero
emissionvehicle(ZEV)andgreenhousegasemission(GHG)credits,aswellassalesofelectricvehiclepowertraincomponentsandsystems,suchasbatterypacksanddriveunitsand
salesofservicesrelatedtothedevelopmentofthesesystems.Werecognizerevenuewhen:(i)persuasiveevidenceofanarrangementexists(ii)deliveryhasoccurredandthereareno
uncertaintiesregardingcustomeracceptance(iii)feesarefixedordeterminableand(iv)collectionisreasonablyassured.
Formultipledeliverablerevenuearrangements,weallocaterevenuetoeachelementbasedonasellingpricehierarchy.Thesellingpriceforadeliverableisbasedonitsvendor
specificobjectiveevidence(VSOE)ifavailable,thirdpartyevidence(TPE)ifVSOEisnotavailable,orestimatedsellingpriceifneitherVSOEnorTPEisavailable.

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AutomotiveSales
Automotivesalesconsistedofthefollowingfortheperiodspresented(inthousands):

Vehicle,optionsandrelatedsales

YearEndedDecember31,
2013

2012

2011

$ 1,952,684

$ 354,344

$ 101,708

$ 1,997,786

Powertraincomponentandrelatedsales

Totalautomotivesales

45,102

31,355

$ 385,699

46,860

$ 148,568

AutomotivesalesconsistprimarilyofrevenueearnedfromthesalesoftheModelS,TeslaRoadster,vehicleservice,andvehicleoptions,accessoriesanddestinationchargesas
wellassalesofregulatorycredits.Automotivesalesalsoconsistofrevenueearnedfromthesalesofelectricvehiclepowertraincomponentsandsystems,suchasbatterypacksand
driveunits,tootherautomotivemanufacturers.Salesorotheramountscollectedinadvanceofmeetingalloftherevenuerecognitioncriteriaarenotrecognizedintheconsolidated
statementsofoperationsandareinsteadrecordedasdeferredrevenueontheconsolidatedbalancesheets.
InregardstothesaleofModelSandtheTeslaRoadster,revenueisgenerallyrecognizedwhenallrisksandrewardsofownershiparetransferredtoourcustomers.Incertain
circumstances,wemaydeliveravehicletoacustomerwithoutalloftheoptionsorderedbythecustomeriftheoptionsdonotlimitthefunctionalityofthevehicle.Insuchcases,we
willcontinuetodefertherelatedrevenuebasedontheundelivereditemsfairvalue,asevidencedbythecontractualpriceoftheoptioninstandalonetransactions,whereavailable,or
usingthesellingpricehierarchywheresuchpricesdonotexist.Additionally,ifacustomerpurchasesavehicleoptionthatrequiresustoprovideservicesinthefuture,wewilldefer
therelatedrevenuebasedontheundelivereditemsfairvalueandrecognizetheassociatedrevenueoverourexpectedperformanceperiod.
Whilethesaleofvehicleoptionmaytakeplaceseparatelyfromavehiclesale,theyareoftenpartofasinglevehiclesalesagreementresultinginmultipleelement
arrangements.Todeterminetheappropriateaccountingforrecognitionofourrevenue,weconsiderwhetherthedeliverablesspecifiedinthemultipleelementarrangementshouldbe
treatedasseparateunitsofaccounting,and,ifso,howthepriceshouldbeallocatedamongtheelements,whentorecognizerevenueforeachelement,andtheperiodoverwhich
revenueshouldberecognized.Wealsoevaluatewhetheradelivereditemhasvalueonastandalonebasispriortodeliveryoftheremainingitemsbydeterminingwhetherwehave
madeseparatesalesofsuchitemsorwhethertheundelivereditemsareessentialtothefunctionalityofthedelivereditems.Further,weassesswhetherweknowthefairvalueofthe
undelivereditems,determinedbyreferencetostandalonesalesofsuchitems.Todate,wehavegenerallybeenabletoestablishthefairvalueforeachofthedeliverableswithinthese
multipleelementarrangementsbecauseweselleachofthevehicles,vehicleaccessoriesandoptionsseparately,outsideofanymultipleelementarrangements.Aseachoftheseitems
hasstandalonevaluetothecustomer,revenuefromsalesofvehicleaccessoriesandoptionsarerecognizedwhenthosespecificitemsaredeliveredtothecustomer.Inthecaseof
accesstoourSuperchargernetworkandconnectivity,weuseourbestestimateofsellingpriceandTPE,respectively,toallocatefairvaluetothedeliverablestoberecognizedoverour
expectedperformanceperiod.AsofDecember31,2013,wehaddeferred$10.3millionrelatedtoaccesstoourSuperchargernetworkand$0.7millionrelatedtoconnectivity.

ResaleValueGuarantee
InApril2013,webeganofferingaresalevalueguaranteetoallcustomerswhopurchasedaModelSintheUnitedStatesandfinancedtheirvehiclethroughoneofourspecified
commercialbankingpartners,andinOctober2013,weintroducedthisprograminCanada.Undertheprogram,ModelScustomershavetheoptionofsellingtheirvehiclebacktous
duringtheperiodof36to39monthsafterdeliveryforapredeterminedresalevalue.Althoughwereceivethefullamountofcashforthevehiclesalespriceatdelivery,weaccountfor
transactionsundertheresalevalueguaranteeprogramasoperatingleases.Accordingly,wedeferandamortizeto

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automotivesalesrevenuetheinitialpurchaseconsiderationlessresalevalueguaranteeamountonastraightlinebasis,overthecontractualtermoftheguaranteeprogram(i.e.,the
proxyoperatingleaseterm).Similarly,wecapitalizeanddepreciatethecostoftherespectiveoperatingleasevehicleslessexpectedsalvagevaluetocostofautomotivesalesoverthe
sameperiod.Ifacustomerdecidesnottoselltheirvehiclebacktousbytheendoftheresalevalueguaranteeterm,ortheresalevalueguaranteeisforfeited,anyunamortizeddeferred
revenue(includingtheamountoftheresalevalueguarantee)andoperatingleasevehiclenetbookvalueisthenrecognizedinautomotivesalesandcostofautomotivesales,
respectively.
TheresalevalueguaranteeamountrepresentsmanagementsbestestimateastotheresalevalueoftheModelSvehicleandrelatedvehicleoptionsduringthe36to39month
periodafterdelivery.Sincewearedepreciatingouroperatingleasevehiclestotheresalevalueguaranteeamount,whichapproximatestheexpectedsalvagevalueofouroperating
leasevehiclesattheendoftheireconomicusefullife(i.e.theendoftheirexpectedoperatingleaseterm),wewilladjustourdepreciationestimatesasneeded,iftheexpectedsalvage
valueisprojectedtobelowerinfutureperiods.AsweaccumulatemoreactualdatarelatedtotheresaleexperienceofModelS,wemayberequiredtomakesignificantchangestoour
estimates.
Accountactivityrelatedtoourresalevalueguaranteeprogramconsistedofthefollowingfortheperiodpresented(inthousands):

Yearended

December31,2013

396,361

17,171

2,211

376,979

259,962

Operatingleasevehiclesundertheresalevalueguaranteeprogrambeginningofperiod
Increaseinoperatingleasevehiclesundertheresalevalueguaranteeprogram
Depreciationexpenserecordedincostofautomotivesales
Additionaldepreciationexpenserecordedincostofautomotivesalesasaresultofearlycancellationofresalevalueguarantee

Operatingleasevehiclesundertheresalevalueguaranteeprogramendofperiod

Deferredrevenuerelatedtotheresalevalueguaranteeprogrambeginningofperiod
IncreaseindeferredrevenuerelatedtoModelSdeliverieswithresalevalueguarantee
Amortizationofdeferredrevenuerecordedinautomotivesales

27,654

1,452

230,856

237,620

1,322

236,298

Additionalrevenuerecordedinautomotivesalesasaresultofearlycancellationofresalevalueguarantee

Deferredrevenuerelatedtotheresalevalueguaranteeprogramendofperiod

Resalevalueguaranteeliabilitybeginningofperiod
Increaseinresalevalueguarantee
Additionalrevenuerecordedinautomotivesalesasaresultofearlycancellationofresalevalueguarantee

Resalevalueguaranteeliabilityendofperiod

RegulatoryCreditsSales
Californiaandcertainotherstateshavelawsinplacerequiringvehiclemanufacturerstoensurethataportionofthevehiclesdeliveredforsaleinthatstateduringeachmodel
yeararezeroemissionvehicles.Theselawsandregulationsprovidethatamanufacturerofzeroemissionvehiclesmayearnregulatorycredits,andmaysellexcesscreditstoother
manufacturerswhoapplysuchcreditstocomplywiththeseregulatoryrequirements.SimilarregulationsexistatthefederallevelthatrequirecompliancerelatedtoGHGemissionsand
alsoallowforthesaleofexcesscreditsbyonemanufacturertoothermanufacturers.Asamanufacturersolelyofzeroemissionvehicles,wehaveearnedemissioncredits,suchasZEV
andGHGcreditsonvehicles,andweexpecttocontinuetoearnthesecreditsinthefuture.Sinceallofourcommercialvehiclesareelectric,wedonotreceiveanycompliancebenefit
fromthegenerationofthesecredits,andaccordinglylooktosellthemtoothervehiclemanufacturers.Inordertofacilitatethesaleofthesecredits,weenterintocontractualagreements
withthird

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partiesrequiringthemtopurchaseourregulatorycreditsatpredeterminedprices.Werecognizerevenueonthesaleofthesecreditsatthetimelegaltitletothecreditsistransferredto
thepurchasingpartybythegovernmentalagencyissuingthecredits.Revenuefromthesaleofregulatorycreditstotaled$194.4million,$40.5millionand$2.7millionfortheyears
endedDecember31,2013,2012and2011,respectively.
MaintenanceandServicePlans
WeofferaprepaidmaintenanceprogramforModelS,whichincludesplanscoveringmaintenanceforuptoeightyearsorupto100,000miles,providedtheseservicesare
purchasedwithinaspecifiedperiodoftime.Themaintenanceplanscoverannualinspectionsandthereplacementofwearandtearparts,excludingtiresandthebattery,witheithera
fixedfeepervisitforTeslaRangerserviceorunlimitedTeslaRangervisitsforahigherinitialpurchaseprice.Paymentscollectedinadvanceoftheperformanceofserviceareinitially
recordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesaswefulfillourperformanceobligations.
Wealsoofferanextendedserviceplan,whichcoverstherepairorreplacementofModelSpartsforanadditionalfouryearsoruptoanadditional50,000miles,aftertheendof
ourinitialNewVehicleLimitedWarranty,providedtheyarepurchasedwithinaspecifiedperiodoftime.ForcustomersthatarenotcoveredbyourNewVehicleLimitedWarrantiesor
ourextendedserviceplans,weofferTeslaRangerserviceatahighercost.Paymentscollectedinadvanceoftheperformanceofserviceareinitiallyrecordedindeferredrevenuesonthe
consolidatedbalancesheetsandrecognizedinautomotivesalesratablyovertheservicecoverageperiods.
AsofDecember31,2013,wehaddeferred$24.9millionrelatedtoourmaintenanceandserviceplans.DuringtheyearendedDecember31,2013,werecognizedrevenueof
$0.6millionrelatedtotheseplans.
WeprovidedTeslaRoadstercustomerswiththeopportunitytopurchaseanextendedwarrantyplanfortheperiodaftertheendofourinitialNewVehicleLimitedWarrantyto
coveradditionalservicesforanadditionalthreeyearsor36,000miles.WerefertothisprogramasourExtendedServiceplan.Amountscollectedonthesesalesareinitiallyrecordedin
deferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesovertheextendedwarrantyperiod.AsofDecember31,2013and2012,wehaddeferred$1.4
millionand$1.5million,respectively.DuringtheyearsendedDecember31,2013and2012,werecognizedrevenueof$0.4millionand$0.1millionrelatedtothisprogram,
respectively.
Additionally,wehavepreviouslyprovidedcustomersofourTeslaRoadsterswithaonetimeoptiontoreplacethebatterypacksintheirvehiclesatanytimeaftertheexpiration
oftheNewVehicleLimitedWarrantybutbeforethetenthanniversaryofthepurchasedateoftheirvehicles.WerefertothisprogramasourBatteryReplacementprogram.Amounts
collectedonthesesalesareinitiallyrecordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesaswefulfillourobligationtoreplacethe
batterypacks.AsofDecember31,2013and2012,wehaddeferred$1.3millionand$1.2million,respectively,relatedtotheBatteryReplacementprogramandhavenotyet
recognizedanyrelatedrevenues.
DevelopmentServicesRevenue
Revenuefromdevelopmentservicesarrangementsconsistofrevenueearnedfromthedevelopmentofelectricvehiclepowertraincomponentsandsystemsforotherautomobile
manufacturers,includingthedesignanddevelopmentofbatterypacks,driveunitsandsamplevehiclestomeetacustomersspecifications.Revenueisrecognizedastheperformance
requirementsofeachdevelopmentarrangementaremetandcollectionisreasonablyassured.Wheredevelopmentarrangementsincludesubstantiveatriskmilestones,revenueis
recognizedbasedupontheachievementofthecontractuallydefinedmilestones.Amountscollectedinadvanceofmeetingalloftherevenuerecognitioncriteriaarenotrecognizedin
theconsolidatedstatementofoperationsandareinsteadrecordedasdeferredrevenueontheconsolidatedbalancesheets.Costsofdevelopmentservicesare

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expensedasincurred.Whendevelopmentservicesarrangementshavemultipleelements,weevaluatetheseparabilityofthevariousdeliverablestoensureappropriaterevenue
recognition.Costsofdevelopmentservicesincurredinperiodspriortothefinalizationofanagreementarerecordedasresearchanddevelopmentexpensesonceanagreementis
finalized,thesecostsarerecordedincostofrevenues.
CashandCashEquivalents
Allhighlyliquidinvestmentswithanoriginalorremainingmaturityofthreemonthsorlessatthedateofpurchaseareconsideredtobecashequivalents.Wecurrentlyinvest
excesscashprimarilyinmoneymarketfunds.
MarketableSecurities
Marketablesecuritieshavehistoricallybeencomprisedofcommercialpaperandcorporatedebtandarealldesignatedasavailableforsaleandreportedatestimatedfairvalue,
withunrealizedgainsandlossesrecordedinaccumulatedothercomprehensivelosswhichisincludedwithinstockholdersequity.Realizedgainsandlossesonthesaleofavailable
forsalemarketablesecuritiesarerecordedinotherincome(expense),net.Thecostofavailableforsalemarketablesecuritiessoldisbasedonthespecificidentificationmethod.
Interest,dividends,amortizationandaccretionofpurchasepremiumsanddiscountsonourmarketablesecuritiesareincludedinotherincome(expense),net.Availableforsale
marketablesecuritieswithmaturitiesgreaterthanthreemonthsatthedateofpurchaseandremainingmaturitiesofoneyearorlessareclassifiedasshorttermmarketablesecurities.
Wheretemporarydeclinesinfairvalueexist,wehavetheabilityandtheintenttoholdthesesecuritiesforaperiodoftimesufficienttoallowforanyanticipatedrecoveryinfairvalue.
Whenheld,weregularlyreviewallofourmarketablesecuritiesforotherthantemporarydeclinesinfairvalue.Thereviewincludesbutisnotlimitedto(i)theconsiderationof
thecauseoftheimpairment,(ii)thecreditworthinessofthesecurityissuers,(iii)thelengthoftimeasecurityisinanunrealizedlossposition,and(iv)ourabilitytoholdthesecurityfor
aperiodoftimesufficienttoallowforanyanticipatedrecoveryinfairvalue.
RestrictedCashandDeposits
Wemaintaincertaincashamountsrestrictedastowithdrawaloruse.Wemaintainedtotalrestrictedcashof$9.4millionand$24.3millionasofDecember31,2013and2012,
respectively.RestrictedcashasofDecember31,2012primarilyrepresentedcashheldinseparatededicatedaccountsrequiredunderourDepartmentofEnergy(DOE)loanfacility(see
Note6)andwasusedasamechanismtodeferadvancesundertheDOEloanfacilityaswellastoprefundplannedloanrepayments.UponterminationoftheDOEloanfacilityinMay
2013,$29.3millionheldinthesededicatedaccountswerereleasedbytheDOE.CurrentandnoncurrentrestrictedcashasofDecember31,2013wascomprisedprimarilyofsecurity
depositsheldbyvendorsaspartofthevendorsstandardcreditpolicies,securitydepositsrelatedtoleaseagreementsandequipmentfinancing,andcertainrefundablecustomer
depositssegregatedinaccordancewithstateconsumerprotectionregulations.
AccountsReceivableandAllowanceforDoubtfulAccounts
Accountsreceivableprimarilyincludeamountsrelatedtosalesofpowertrainsystemsandregulatorycreditstootherglobalautomotivemanufacturers(OEMs).Incircumstances
whereweareawareofaspecificcustomersinabilitytomeetitsfinancialobligationstous,weprovideanallowanceagainstamountsreceivabletoreducethenetrecognized
receivabletotheamountwereasonablybelievewillbecollected.Wetypicallydonotcarryaccountsreceivablerelatedtoourvehicleandrelatedsalesascustomerpaymentsaredue
priortovehicledelivery,exceptfortheamountsduefromcommercialfinancialinstitutionsforapprovedfinancingarrangementsbetweenourcustomersandthefinancialinstitutions.

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ConcentrationofRisk
CreditRisk
Financialinstrumentsthatpotentiallysubjectustoaconcentrationofcreditriskconsistofcash,cashequivalents,restrictedcashandaccountsreceivable.Ourcashequivalents
areprimarilyinvestedinmoneymarketfundswithhighcreditqualityfinancialinstitutionsintheUnitedStates.Attimes,thesedepositsandsecuritiesmaybeinexcessofinsured
limits.Weinvestcashnotrequiredforuseinoperationsinhighcreditqualitysecuritiesbasedonourinvestmentpolicy.Ourinvestmentpolicyprovidesguidelinesandlimits
regardingcreditquality,investmentconcentration,investmenttype,andmaturitythatwebelievewillprovideliquiditywhilereducingriskoflossofcapital.Historically,whenheld,
investmentswereofashorttermnatureandincludedinvestmentsincorporatedebtsecurities.
AsofDecember31,2013and2012,ouraccountsreceivablewerederivedprimarilyfromsalesofregulatorycredits,aswellasthedevelopmentandsalesofpowertrain
componentsandsystemstoOEMs.Accountsreceivablealsoincludedamountstobereceivedfromcommercialfinancialinstitutionsforapprovedfinancingarrangementsbetweenour
customersandthefinancialinstitutions.
ThefollowingsummarizestheaccountsreceivablefromourOEMcustomersinexcessof10%ofourtotalaccountsreceivable:

December31,

CustomerA

2013

December31,

2012

30%

56%

9%

15%

CustomerB

SupplyRisk
Althoughtheremaybemultiplesuppliersavailable,manyofthecomponentsusedinourvehiclesarepurchasedbyusfromasinglesource.Ifthesesinglesourcesuppliersfail
tosatisfyourrequirementsonatimelybasisatcompetitiveprices,wecouldsuffermanufacturingdelays,apossiblelossofrevenues,orincurhighercostofsales,anyofwhichcould
adverselyaffectouroperatingresults.
InventoriesandInventoryValuation
Inventoriesarestatedatthelowerofcostormarket.Costiscomputedusingstandardcost,whichapproximatesactualcostonafirstin,firstoutbasis.Werecordinventory
writedownsbasedonreviewsforexcessandobsolescencedeterminedprimarilybyfuturedemandforecasts.Wealsoadjustthecarryingvalueofourinventorieswhenwebelievethat
thenetrealizablevalueislessthanthecarryingvalue.Thesewritedownsaremeasuredasthedifferencebetweenthecostoftheinventory,includingestimatedcoststocomplete,and
estimatedsellingprices.Onceinventoryiswrittendown,anew,lowercostbasisforthatinventoryisestablished,andsubsequentchangesinfactsandcircumstancesdonotresultin
therestorationorincreaseinthatnewlyestablishedcostbasis.
Property,PlantandEquipment

Property,plantandequipmentarerecognizedatcostlessaccumulateddepreciation.Depreciationisgenerallycomputedusingthestraightlinemethodovertheestimated
usefullivesoftherelatedassetsasfollows:

Computerequipmentandsoftware

3years

3to12years

30years

Officefurniture,machineryandequipment
Buildingandbuildingimprovements

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Depreciationfortoolingiscomputedusingtheunitsofproductionmethodwherebycapitalizedcostsareamortizedoverthetotalestimatedproductivelifeoftherelatedassets.
DuringtheyearendedDecember31,2013,weincreasedtheestimatedproductivelifefortoolingfrom125,000vehiclesto150,000vehiclesbasedonourcurrentestimatesof
production.
Leaseholdimprovementsareamortizedonastraightlinebasisovertheshorteroftheirestimatedusefullivesorthetermoftherelatedlease.
Upontheretirementorsaleofourproperty,plantandequipment,thecostandrelatedaccumulateddepreciationareremovedfromthebalancesheetandtheresultinggainor
lossisreflectedinoperations.Maintenanceandrepairexpendituresareexpensedasincurred,whilemajorimprovementsthatincreasefunctionalityoftheassetarecapitalizedand
depreciatedratablytoexpenseovertheidentifiedusefullife.Landisnotdepreciated.
Interestexpenseonoutstandingdebtiscapitalizedduringtheperiodofsignificantcapitalassetconstruction.Capitalizedinterestonconstructioninprogressisincludedin
property,plantandequipment,andisamortizedoverthelifeoftherelatedassets.
OperatingLeaseVehicles
Vehiclesdeliveredunderourresalevalueguaranteeprogram,vehiclesthatareleasedaspartofourleasingprogramaswellasanyvehiclesthataresoldwithasignificantbuy
backguaranteeareclassifiedasoperatingleasevehiclesastherelatedrevenuetransactionsaretreatedasoperatingleases.Operatingleasevehiclesarerecordedatcostless
accumulateddepreciation.Depreciationiscomputedusingthestraightlinemethodovertheexpectedoperatingleaseterm.Thetotalcostofoperatingleasevehiclesrecordedinthe
consolidatedbalancesheetsasofDecember31,2013and2012was$401.9millionand$13.4million,respectively.Accumulateddepreciationrelatedtoleasedvehiclesasof
December31,2013and2012was$19.5millionand$3.3million,respectively.
IntangibleAssets
Intangibleassetswithfiniteusefullivesareamortizedovertheirestimatedusefullives.AsofDecember31,2013and2012,intangibleassetswerecomprisedofemission
permitsrelatedtoourTeslaFactory.AlthoughtheseemissionpermitshavealongerusefullifethantheTeslaFactory,theyarerelatedtotheoperationofourTeslaFactoryand
therefore,areamortizedoverthesameusefullife.
LonglivedAssets
Weevaluateourlonglivedassets,includingintangibleassets,forindicatorsofpossibleimpairmentwheneventsorchangesincircumstancesindicatethecarryingamountof
anasset(orassetgroup)maynotberecoverable.Impairmentexistsifthecarryingamountsofsuchassetsexceedtheestimatesoffuturenetundiscountedcashflowsexpectedtobe
generatedbysuchassets.Shouldimpairmentexist,theimpairmentlosswouldbemeasuredbasedontheexcesscarryingvalueoftheassetovertheassetsestimatedfairvalue.Asof
December31,2013and2012,wedidnotrecordanymaterialimpairmentlossesonourlonglivedassets.
ResearchandDevelopmentCosts
Researchanddevelopmentcostsareexpensedasincurred.Researchanddevelopmentexpensesconsistprimarilyofpayroll,benefitsandstockbasedcompensationofthose
employeesengagedinresearch,designanddevelopmentactivities,costsrelatedtodesigntools,licenseexpensesrelatedtointellectualproperty,suppliesandservices,depreciation
andotheroccupancycosts.Alsoincludedinresearchanddevelopmentaredevelopmentservicescostsincurred,ifany,priortothefinalizationofagreementswithourdevelopment

servicescustomersasreachingafinalagreementandrevenuerecognitionisnotassured.Developmentservicescostsincurredafterthefinalizationofanagreementarerecordedincost
ofrevenues.

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AdvertisingandPromotionCosts
Advertisingandsalespromotioncostsareexpensedasincurred.DuringtheyearsendedDecember31,2013,2012and2011,advertising,promotionandrelatedmarketing
expenseswere$9.0million,$3.9millionand$2.9million,respectively.
ShippingandHandlingCosts
Amountsbilledtocustomersrelatedtoshippingandhandlingareclassifiedasrevenue,andrelatedshippingandhandlingcostsareincludedincostofrevenues.
IncomeTaxes
Incometaxesarecomputedusingtheassetandliabilitymethod,underwhichdeferredtaxassetsandliabilitiesaredeterminedbasedonthedifferencebetweenthefinancial
statementandtaxbasesofassetsandliabilitiesusingenactedtaxratesineffectfortheyearinwhichthedifferencesareexpectedtoaffecttaxableincome.Valuationallowancesare
establishedwhennecessarytoreducedeferredtaxassetstotheamountexpectedtoberealized.
Werecordliabilitiesrelatedtouncertaintaxpositionswhen,despiteourbeliefthatourtaxreturnpositionsaresupportable,webelievethatitismorelikelythannotthatthose
positionsmaynotbefullysustaineduponreviewbytaxauthorities.Accruedinterestandpenaltiesrelatedtounrecognizedtaxbenefitsareclassifiedasincometaxexpense.
StockbasedCompensation
Werecognizecompensationexpenseforcostsrelatedtoallsharebasedpayments,includingstockoptions,restrictedstockunits(RSUs)andouremployeestockpurchaseplan
(theESPP).ThefairvalueofstockoptionsandtheESPPareestimatedonthegrantdateandofferingdateusinganoptionpricingmodel,respectively.ThefairvalueofRSUsis
measuredonthegrantdatebasedontheclosingfairmarketvalueofourcommonstock.Stockbasedcompensationexpenseisrecognizedonastraightlinebasisovertherequisite
serviceperiod,netofestimatedforfeitures.
Weaccountforequityinstrumentsissuedtononemployeesbasedonthefairvalueoftheawards.Thefairvalueoftheawardsgrantedtononemployeesisremeasuredasthe
awardsvestandtheresultingchangeinfairvalue,ifany,isrecognizedintheconsolidatedstatementsofoperationsduringtheperiodtherelatedservicesarerendered.
Forperformancebasedawards,stockbasedcompensationexpenseisrecognizedovertheexpectedperformanceachievementperiodofindividualperformancemilestoneswhen
theachievementofeachindividualperformancemilestonebecomesprobable.
Forperformancebasedawardswithavestingschedulebasedentirelyontheattainmentofbothperformanceandmarketconditions,thestockbasedcompensationexpenseis
recognizedforeachpairofperformanceandmarketconditionsoverthelongeroftheexpectedachievementperiodoftheperformanceandmarketconditions,beginningatthepointin
timethattherelevantperformanceconditionisconsideredprobableofbeingmet(seeNote8).
ForeignCurrencyRemeasurementandTransactions
Foreachofourforeignsubsidiaries,thefunctionalcurrencyistheU.S.Dollar.Fortheseforeignsubsidiaries,monetaryassetsandliabilitiesdenominatedinnonU.S.currencies
areremeasuredtoU.S.Dollarsusingcurrentexchangeratesineffectatthebalancesheetdate.NonmonetaryassetsandliabilitiesdenominatedinnonU.S.currenciesaremaintained
athistoricalU.S.Dollarexchangerates.RevenuesandexpensesareremeasuredataverageU.S.Dollarmonthlyrates.

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Foreigncurrencytransactiongainsandlossesarearesultoftheeffectofexchangeratechangesontransactionsdenominatedincurrenciesotherthanthefunctionalcurrency.
Transactiongainsandlossesarerecognizedinotherincome(expense),net,intheconsolidatedstatementsofoperations.FortheyearendedDecember31,2013,werecordedforeign
currencytransactiongainsof$11.9million.FortheyearsendedDecember2012and2011,foreigncurrencytransactiongainsandlosseswerenotsignificant.
ComprehensiveLoss
Comprehensivelossiscomprisedofnetlossandothercomprehensiveincome(loss).Othercomprehensiveincome(loss)consistsofunrealizedgainsandlossesonour
availableforsalemarketablesecuritiesthathavebeenexcludedfromthedeterminationofnetloss.
Warranties
Weprovideawarrantyonallvehicle,productionpowertraincomponentsandsystemssales,andweaccruewarrantyreservesatthetimeavehicleorproductionpowertrain
componentorsystemisdeliveredtothecustomer.Warrantyreservesincludemanagementsbestestimateoftheprojectedcoststorepairortoreplaceanyitemsunderwarranty,based
onactualwarrantyexperienceasitbecomesavailableandotherknownfactorsthatmayimpactourevaluationofhistoricaldata.Fornewvehicles,warrantyreservesarebasedon
managementsbestestimateofprojectedwarrantyexperienceuntiladequatehistoricaldataisaccumulated.Ourwarrantyreservesdonotincludeprojectedwarrantycostsassociated
withourresalevalueguaranteevehiclesassuchactualwarrantycostsareexpensedasincurred.FortheyearendedDecember31,2013,warrantycostsincurredforourresalevalue
guaranteevehicleswas$1.6million.Wemayhavematerialchangesasweaccumulatemoreactualdataandexperience.Wereviewourreservesatleastquarterlytoensurethatour
accrualsareadequateinmeetingexpectedfuturewarrantyobligations,andwewilladjustourestimatesasneeded.Warrantyexpenseisrecordedasacomponentofcostofrevenuesin
theconsolidatedstatementsofoperations.Theportionofthewarrantyprovisionwhichisexpectedtobeincurredwithin12monthsfromthebalancesheetdateisclassifiedascurrent,
whiletheremainingamountisclassifiedaslongterm.
WebeganrecordingwarrantyreserveswiththecommencementofTeslaRoadstersalesin2008.Initially,TeslaRoadstersweresoldwithawarrantyofthreeyearsor36,000
miles,whichweextendedtofouryearsor50,000milesforthepurchasersofour2008TeslaRoadster.TeslaRoadstercustomershadtheopportunitytopurchaseanExtendedService
planfortheperiodaftertheendoftheNewVehicleLimitedWarrantytocoveradditionalservicesforanadditionalthreeyearsor36,000miles,providedtheyarepurchasedwithina
specifiedperiodoftime.
InJune2012,wecommenceddeliveriesofModelS.ForourModelScustomers,weprovideafouryearor50,000milesNewVehicleLimitedWarranty,subjecttoseparate
limitedwarrantiesforthesupplementalrestraintsystemandbattery.TheNewVehicleLimitedWarrantyalsocoversthebatteryforaperiodofeightyearsor125,000milesorunlimited
miles,dependingonthesizeofthevehiclesbattery,althoughthebatteryschargingcapacityisnotcovered.ModelScustomersalsohavetheopportunitytopurchaseanExtended
ServiceplanfortheperiodaftertheendoftheNewVehicleLimitedWarrantytocoveradditionalservicesforanadditionalfouryearsor50,000miles,providedtheyarepurchased
withinaspecifiedperiodoftime.ThebatterypackschargingcapacityisnotcoveredundertheNewVehicleLimitedWarrantyoranyExtendedServiceplan.Accruedwarrantyactivity
consistedofthefollowingfortheperiodspresented(inthousands):

Accruedwarrantybeginningofperiod

YearEndedDecember31,
2013

$ 13,013

2012

$ 6,315

2011

$ 5,417

Warrantycostsincurred

(19,160)

(3,424)

(2,750)

(2,072)

61,401

10,122

3,648

$ 53,182

$13,013

$ 6,315

Netchangesinliabilityforpreexistingwarranties,includingexpirations
Provisionforwarranty

Accruedwarrantyendofperiod

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EnvironmentalLiabilities
Wearesubjecttofederalandstatelawsandregulationsfortheprotectionoftheenvironment,includingthoserelatedtothedischargeofhazardousmaterialsandremediationof
contaminatedsites.InOctober2010,wecompletedthepurchaseofourTeslaFactorylocatedinFremont,CaliforniafromNewUnitedMotorManufacturing,Inc.(NUMMI).NUMMI
haspreviouslyidentifiedenvironmentalconditionsattheFremontsitewhichcouldaffectsoilandgroundwater.AstheowneroftheFremontsite,wemayberesponsiblefortheentire
investigationandremediationofanyenvironmentalcontaminationattheFremontsite,whetheritoccurredbeforeorafterthedatewepurchasedtheproperty.Uponthecompletionof
thepurchaseinOctober2010,werecordedthefairvalueoftheenvironmentalliabilitiesthatweestimatedtobe$5.3million.Thefairvalueoftheseliabilitieswasdeterminedbased
onanexpectedvalueanalysisoftherelatedpotentialcoststoinvestigate,remediateandmanagevariousenvironmentalconditionsthatwereidentifiedaspartofNUMMIsfacility
decommissioningactivitiesaswellasourowndiligenceefforts.Estimatedpotentialcostsarenotdiscountedtopresentvalueasthetimingofpaymentscannotbereasonably
estimated.Weassessadequacyofouraccruedenvironmentalliabilitiesforinvestigationandremediationofanyenvironmentalcontaminationatleastquarterlyandadjustour
estimatesasappropriate.AsofDecember31,2013and2012,weaccruedatotalof$5.5millionand$5.3millionrelatedtotheseenvironmentalliabilities,respectively(seeNote12).
NetLossperShareofCommonStock
Ourbasicanddilutednetlosspershareofcommonstockiscalculatedbydividingnetlossbytheweightedaveragesharesofcommonstockoutstandingfortheperiod.
Potentiallydilutiveshares,whicharebasedonthenumberofsharesunderlyingoutstandingstockoptionsandwarrantsaswellasourNotes,arenotincludedwhentheireffectis
antidilutive.
Thefollowingtablepresentsthepotentialweightedcommonsharesoutstandingthatwereexcludedfromthecomputationofbasicanddilutednetlosspershareofcommon
stockfortheperiods,relatedtothefollowingsecurities:

Stockoptions

2012

2011

13,881,355

25,007,776

15,806,663

411,560

23,296

59,763

39,131

224

1,061,439

2,342,353

2,220,617

Employeestockpurchaseplan
Restrictedstockunits

Commonstocksubjecttorepurchase

2013

Convertibleseniornotes

DOEwarrant

YearEndedDecember31,

278

Sincewewillsettletheprincipalamountofour1.50%convertibleseniornotes(seeNote6)incash,weusethetreasurystockmethodforcalculatinganypotentialdilutive
effectoftheconversionspreadondilutednetincomepershare,ifapplicable.Theconversionspreadwillhaveadilutiveimpactondilutednetincomepershareofcommonstockwhen
theaveragemarketpriceofourcommonstockforagivenperiodexceedstheconversionpriceof$124.52pershare.
3.BalanceSheetComponents
Inventory
AsofDecember31,2013and2012,ourinventoryconsistedofthefollowing(inthousands):

December31,

December31,

2013

2012

Rawmaterials

$ 184,665

$ 163,637

42,500

24,535

69,324

62,559

43,866

17,773

$ 340,355

Finishedgoods
Serviceparts

Total

105

Workinprocess

$ 268,504

TableofContents
Wewritedowninventoryasaresultofexcessandobsolescence,orwhenwebelievethatthenetrealizablevalueofinventoriesislessthanthecarryingvalue.Duringtheyears
endedDecember31,2013,2012and2011,werecordedwritedownsof$8.9million,$5.0millionand$1.8million,respectively,incostofautomotivesales.
Property,PlantandEquipment
AsofDecember31,2013and2012,ourproperty,plantandequipment,net,consistedofthefollowing(inthousands):

December31,

Machinery,equipmentandofficefurniture

2013

December31,

2012

$ 322,394

$ 223,745

230,385

172,584

94,763

39,224

67,707

50,574

45,020

26,391

42,073

22,125

76,294

75,129

878,636

609,772

(140,142)

(57,543)

$ 738,494

$ 552,229

Tooling
Leaseholdimprovements
Buildingandbuildingimprovements
Land
Computerequipmentandsoftware
Constructioninprogress

Less:Accumulateddepreciationandamortization

Total

ConstructioninprogressiscomprisedprimarilyofassetsrelatedtothemanufacturingofourModelS,includingbuildingimprovementsatourTeslaFactoryinFremont,
Californiaaswellastoolingandmanufacturingequipmentandcapitalizedinterestexpense.Depreciationoftheseassetsbeginswhentheyarereadyfortheirintendeduse.Interest
expenseonoutstandingdebtiscapitalizedduringtheperiodofsignificantcapitalassetconstruction.Capitalizedinterestonconstructioninprogressisincludedinproperty,plantand
equipment,andisamortizedoverthelifeoftherelatedassets.DuringtheyearsendedDecember31,2013and2012,wecapitalized$3.5millionand$7.6millionofinterestexpense,
respectively.
DepreciationandamortizationexpenseduringtheyearsendedDecember31,2013,2012and2011were$83.9million,$25.3millionand$14.6million,respectively.Total
propertyandequipmentassetsundercapitalleaseasofDecember31,2013and2012were$23.3millionand$8.1million,respectively.Accumulateddepreciationrelatedtoassets
undercapitalleaseasofthesedateswere$5.0millionand$1.0million,respectively.
OtherAssets
AsofDecember31,2013and2012,ourotherassetsconsistedofthefollowing(inthousands):

December31,

Emissionpermits

2013

December31,

2012

$ 13,930

$ 14,267

7,315

5,759

2,392

1,937

$ 23,637

Debtissuancecosts,net
Loanfacilityissuancecosts,net
Other

Total

$ 21,963

EmissionpermitsarerelatedtotheoperationofourTeslaFactorytherefore,weamortizetheemissionpermitsoverthesameusefullife.Debtissuancecostsarerelatedtothe
1.50%convertibleseniornotes(Notes)issuedinMay2013(seeNote6).LoanfacilityissuancecostsassociatedwithourDOEloanfacility(seeNote6)werewrittenofftointerest
expenseduringtheyearendedDecember31,2013upontheextinguishmentofourDOEloanfacilityinMay2013.

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AccruedLiabilities
AsofDecember31,2013and2012,ouraccruedliabilitiesconsistedofthefollowing(inthousands):

December31,

2013

Taxespayable

December31,

2012

$ 38,067

9,710

26,535

15,525

19,917

3,056

19,023

10,334

2,132

2,578

1,173

$ 108,252

Payrollandrelatedcosts
Accruedwarranty,currentportion
Accruedpurchases
Environmentalliabilities,currentportion
Other

Total

$ 39,798

OtherLongTermLiabilities
AsofDecember31,2013and2012,ourotherlongtermliabilitiesconsistedofthefollowing(inthousands):

December31,

Accruedwarranty,lesscurrentportion
Deferredrentliability

2013

December31,

2012

$ 33,265

9,957

6,075

9,886

Deferredtaxliabilities

6,821

330

3,364

5,300

4,861

3,508

$ 58,197

Environmentalliabilities,lesscurrentportion
Other

Total

$ 25,170

4.FairValueofFinancialInstruments
Thecarryingvaluesofourfinancialinstrumentsincludingcashequivalents,marketablesecurities,accountsreceivableandaccountspayableapproximatetheirfairvaluedue
totheirshorttermnature.Asabasisfordeterminingthefairvalueofcertainofourassetsandliabilities,weestablishedathreetierfairvaluehierarchywhichprioritizestheinputsused
inmeasuringfairvalueasfollows:(LevelI)observableinputssuchasquotedpricesinactivemarkets(LevelII)inputsotherthanthequotedpricesinactivemarketsthatare
observableeitherdirectlyorindirectlyand(LevelIII)unobservableinputsinwhichthereislittleornomarketdatawhichrequiresustodevelopourownassumptions.Thishierarchy
requiresustouseobservablemarketdata,whenavailable,andtominimizetheuseofunobservableinputswhendeterminingfairvalue.Ourfinancialassetsthataremeasuredatfair
valueonarecurringbasisconsistofcashequivalentsandmarketablesecurities.Ourliabilitiesthataremeasuredatfairvalueonarecurringbasishaveconsistedhistoricallyofour
commonstockwarrantliability.
Allofourcashequivalentsandcurrentrestrictedcash,whicharecomprisedprimarilyofmoneymarketfunds,areclassifiedwithinLevelIofthefairvaluehierarchybecause
theyarevaluedusingquotedmarketpricesormarketpricesforsimilarsecurities.Ourcommonstockwarrantliability(seeNote6)wasclassifiedwithinLevelIIIofthefairvalue
hierarchy.
AsofDecember31,2013and2012,thefairvaluehierarchyforourfinancialassetsandfinancialliabilitiesthatarecarriedatfairvaluewasasfollows(inthousands):

FairValue

Moneymarketfunds
Commonstockwarrantliability

December31,2013

December31,2012

LevelII

LevelIII

FairValue

LevelI

LevelII

$460,313

$460,313

$60,272

$60,272

$10,692

$10,692

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LevelIII

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Thechangesinthefairvalueofourcommonstockwarrantliabilitywereasfollows(inthousands):

2013

2012

$ 10,692

$ 8,838

(10,692)

$ 10,692

Fairvalue,beginningofperiod
Changeinfairvalue

Fairvalue,endofperiod

YearEndedDecember31,

1,854

TheestimatedfairvalueofourNotesbasedonamarketapproachwasapproximately$914.9million(parvalueof$660.0million)asofDecember31,2013,andrepresentsa
LevelIIvaluation.TheestimatedfairvalueofourDOEloansbasedonamarketapproachwasapproximately$366.9million(parvalueof$452.3million)asofDecember31,2012,
andrepresentedLevelIIvaluations.Whendeterminingtheestimatedfairvalueofourlongtermdebt,weusedacommonlyacceptedvaluationmethodologyandmarketbasedrisk
measurementsthatareindirectlyobservable,suchascreditrisk.
5.CustomerDeposits
CustomerdepositsconsistofpaymentsthatallowpotentialcustomerstoplaceanorderforthefuturepurchaseofaModelSorModelX.Theseamountsarerecordedascurrent
liabilitiesuntilthevehicleisdelivered.Werequirefullpaymentofthepurchasepriceofthevehicleonlyupondeliveryofthevehicletothecustomer.Amountsreceivedbyusas
customerdepositsaregenerallynotrestrictedastotheirusebyus.Upondeliveryofthevehicle,therelatedcustomerdepositsareappliedagainstthecustomerstotalpurchasepricefor
thevehicleandrecognizedinautomotivesalesaspartoftherespectivevehiclesale.
Historically,wehavereferredtosuchcustomerdepositsasreservationpaymentsandtheseinitialreservationpaymentshavebeenfullyrefundableuntilsuchtimethatthe
customerselectedthevehiclespecificationsandenteredintoapurchaseagreement.WehaveeliminatedthereservationprocessforModelSinNorthAmericaandinmostofour
marketsinEurope,asvehicleproductionbecamemorereliableandcustomerwaittimesdecreased.CustomersnowinitiatetheirpurchasebyorderingtheircustomizedModelSrather
thanplacingagenericreservationinqueue.Asaresultofthistransitionawayfromreservations,wehaverenamedthereservationpaymentscaptiononourconsolidatedfinancial
statementstocustomerdeposits.CustomerdepositsrelatedtoModelXstillrepresentfullyrefundablereservations.
AsofDecember31,2013and2012,weheldcustomerdepositsof$163.2millionand$138.8million,respectively.
6.ConvertibleNotesandLongtermDebtObligations
1.50%ConvertibleSeniorNotesandBondHedgeandWarrantTransactions
InMay2013,weissued$660.0millionaggregateprincipalamountofNotesinapublicoffering.Thenetproceedsfromtheoffering,afterdeductingtransactioncosts,were

approximately$648.0million.Weincurred$12.0millionofdebtissuancecostsinconnectionwiththeissuanceoftheNoteswhichwerecordedinotherassetsandareamortizingto
interestexpenseusingtheeffectiveinterestmethodoverthecontractualtermoftheNotes.TheinterestundertheNotesisfixedat1.50%perannumandispayablesemiannuallyin
arrearsonJune1andDecember1ofeachyear,commencingonDecember1,2013.DuringtheyearendedDecember31,2013,werecognized$1.2millionofinterestexpenserelatedto
theamortizationofdebtissuancecostsand$5.9millionofcouponinterestexpense.
Each$1,000ofprincipaloftheNoteswillinitiallybeconvertibleinto8.0306sharesofourcommonstock,whichisequivalenttoaninitialconversionpriceofapproximately
$124.52pershare,subjecttoadjustmentupontheoccurrenceofspecifiedevents.HoldersoftheNotesmayconverttheirNotesattheiroptiononorafter

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March1,2018.Further,holdersoftheNotesmayconverttheirNotesattheiroptionpriortoMarch1,2018,onlyunderthefollowingcircumstances:(1)duringanyfiscalquarter
beginningafterthefiscalquarterendingSeptember30,2013,ifthelastreportedsalepriceofourcommonstockforatleast20tradingdays(whetherornotconsecutive)duringthelast
30consecutivetradingdaysoftheimmediatelyprecedingfiscalquarterisgreaterthanorequalto130%oftheconversionpriceoneachapplicabletradingday(2)duringthefive
businessdayperiodfollowinganyfiveconsecutivetradingdayperiodinwhichthetradingpricefortheNotesislessthan98%oftheaverageoftheclosingsalepriceofourcommon
stockforeachdayduringsuchfivetradingdayperiodor(3)ifwemakespecifieddistributionstoholdersofourcommonstockorifspecifiedcorporatetransactionsoccur.Upon
conversion,wewouldpaytheholdersincashfortheprincipalamountoftheNotesand,ifapplicable,sharesofourcommonstock(subjecttoourrighttodelivercashinlieuofallora
portionofsuchsharesofourcommonstock)basedonacalculateddailyconversionvalue.Ifafundamentalchangeoccurspriortothematuritydate,holdersoftheNotesmayrequire
ustorepurchasealloraportionoftheirNotesforcashatarepurchasepriceequalto100%oftheprincipalamountoftheNotes,plusanyaccruedandunpaidinterest.Inaddition,if
specificcorporateeventsoccurpriortothematuritydate,wewillincreasetheconversionrateforaholderwhoelectstoconvertitsNotesinconnectionwithsuchacorporateeventin
certaincircumstances.
WevaluedandbifurcatedtheconversionoptionassociatedwiththeNotesfromthehostdebtinstrumentandrecordedtheconversionoptionof$82.8millioninstockholders
equity.TheresultingdebtdiscountontheNotesisbeingamortizedtointerestexpenseataneffectiveinterestrateof4.29%overthecontractualtermoftheNotes.Duringtheyear
endedDecember31,2013,werecognized$9.1millionofinterestexpenserelatedtotheamortizationofthedebtdiscount.AsofDecember31,2013,thenetcarryingvalueoftheNotes
was$586.3million.
InconnectionwiththeofferingoftheNotes,weenteredintoconvertiblenotehedgetransactionswherebywehavetheoptiontopurchaseupto5.3millionsharesofour
commonstockatapriceofapproximately$124.52pershare.Thecostoftheconvertiblenotehedgetransactionswas$177.5million.Inaddition,wesoldwarrantswherebytheholders
ofthewarrantshavetheoptiontopurchaseuptoapproximately5.3millionsharesofourcommonstockatapriceof$184.48pershare.Wereceived$120.3millionincashproceeds
fromthesaleofthesewarrants.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedtooffsetanyactualdilutionfromtheconversionofthe
Notesandtoeffectivelyincreasetheoverallconversionpricefrom$124.52to$184.48pershare.Asthesetransactionsmeetcertainaccountingcriteria,theconvertiblenotehedges
andwarrantsarerecordedinstockholdersequityandarenotaccountedforasderivatives.Thenetcostincurredinconnectionwiththeconvertiblenotehedgeandwarranttransactions
wasrecordedasareductiontoadditionalpaidincapitalintheconsolidatedbalancesheetasofDecember31,2013.
Duringthefourthquarterof2013,theclosingpriceofourcommonstockdidnotmeetorexceed130%oftheapplicableconversionpriceofourNotesonatleast20ofthelast
30consecutivetradingdaysofthequarterfurthermore,nootherconditionsallowingholdersoftheNotestoconverthavebeenmetasofDecember31,2013.Therefore,theNotesare
notconvertibleduringthefirstquarterof2014andareclassifiedaslongtermdebt.Shouldtheclosingpriceconditionsbemetinthefirstquarterof2014orafuturequarter,theNotes
willbeconvertibleattheirholdersoptionduringtheimmediatelyfollowingquarters.
FullRepaymentofDepartmentofEnergyLoanFacility
InMay2013,inconnectionwiththeclosingofourofferingsofcommonstockandNotes,wepaid$451.8milliontosettlealloutstandingloanamountsof$441.0million,
includingprincipalandinterest,aswellasanearlyrepaymentpenaltyof$10.8millionwhichwasrecordedininterestexpensefortheyearendedDecember31,2013.Upon
terminationoftheDOELoanFacility,$29.3millionheldinthisdedicatedaccountwasreleasedbytheDOE.
OnJanuary20,2010,weenteredintoaloanfacilitywiththeFederalFinancingBank(FFB),andtheDOE,pursuanttotheAdvancedTechnologyVehiclesManufacturing
(ATVM)IncentiveProgram.ThisloanfacilitywasamendedinJune2011toexpandourcashinvestmentoptions,inFebruary2012tomodifythetimingof

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certainfuturefinancialcovenantsandfundingofthedebtservicereserveaccount,andinJuneandDecember2012toallowustoeffectcertaininitiativesinourbusinessplan.In
September2012,weenteredintoanamendmentwiththeDOEtoremoveourobligationtocomplywiththecurrentratiofinancialcovenantasofSeptember30,2012andamendthe
timingofprefundingtheprincipalpaymentdueinJune2013.WeenteredintoanotheramendmentwiththeDOEinMarch2013that,amongotherthings,modifiedcertainfuture
financialcovenants,acceleratedthematuritydateoftheDOELoanFacilitytoDecember15,2017,createdanobligationtorepayapproximately1.0%oftheoutstandingprincipal
undertheDOELoanFacilityonorbeforeJune15,2013,andcreatedadditionalcontingentobligationsbasedonexcesscashflowsthatmayresultinacceleratedrepaymentoftheDOE
LoanFacilitystartingin2015.TheoriginalamortizationschedulefortheDOELoanFacilitywasnotaffectedbythisamendment,andsothedebtservicepaymentsremainedthesame
untilthenewmaturitydatewhenalloutstandingloansundertheDOELoanFacilityweretoberepaid.WerefertotheloanfacilitywiththeDOE,asamended,astheDOELoan
Facility.UndertheDOELoanFacility,theFFBmadeavailabletoustwomultidrawtermloanfacilitiesinanaggregateprincipalamountof$465.0million.AsofAugust31,2012,we
hadfullydrawndowntheaforementionedfacilities.
AlloutstandingamountsundertheDOELoanFacilitywererepayableinquarterlyinstallments,whichcommencedonDecember15,2012andwouldbedueonthematurity
dateofDecember15,2017.AllobligationsundertheDOELoanFacilityweresecuredbysubstantiallyallofourproperty.
TheDOELoanFacilitydocumentscontainedcustomarycovenantsthatincluded,amongothers,arequirementthattheprojectsbeconductedinaccordancewiththebusiness
planforsuchproject,compliancewithallrequirementsoftheATVMProgram,andlimitationsonourandoursubsidiariesabilitytoincurindebtedness,incurliens,makeinvestments
orloans,enterintomergersoracquisitions,disposeofassets,paydividendsormakedistributionsoncapitalstock,payindebtedness,paymanagement,advisoryorsimilarfeesto
affiliates,enterintocertainaffiliatetransactions,enterintonewlinesofbusiness,andenterintocertainrestrictiveagreements,ineachcasesubjecttocustomaryexceptions.TheDOE
LoanFacilitydocumentsalsocontainedcustomaryfinancialcovenantsrequiringustomaintainaminimumratioofcurrentassetstocurrentliabilities,and(i)alimitoncapital
expenditures,(ii)fromDecember31,2013,amaximumleverageratio,aminimuminterestcoverageratio,aminimumfixedchargecoverageratio,and(iii)fromMarch31,2014,a
maximumratiooftotalliabilitiestoshareholderequity.WewereincompliancewithourcurrentapplicablefinancialcovenantsasofMarch31,2013.TheDOELoanFacility
documentsalsocontainedcustomaryeventsofdefault,subjectinsomecasestocustomarycureperiodsforcertaindefaults.Inaddition,eventsofdefaultincludedafailureofElon
Musk,ourChiefExecutiveOfficer(CEO),andcertainofhisaffiliates,atanytimepriortooneyearafterwewouldcompletetheprojectrelatingtotheModelSFacility,toownatleast
65%ofcapitalstockheldbyMr.MuskandsuchaffiliatesasofthedateoftheDOELoanFacility.AspartoftheamendmenttotheDOELoanFacilityinMarch2013,weagreedto,
amongotherthings,(i)makeanearlypaymentofapproximately1.0%oftheoutstandingprincipalundertheDOELoanFacilityonorbeforeJune15,2013,(ii)makeadditional
quarterlyprepaymentsequalto:20%ofourexcesscashflowforeachquarteroffiscal2015and35%ofourexcesscashflowforeachquarteroffiscal2016and2017.
UndertheDOELoanFacility,wehadagreedtoprefundadedicateddebtservicereserveaccountwithourplannedloanrepaymentsasrequiredbytheDOEloanfacility.Asof
December31,2012,$14.9millionwasheldinthisdedicatedaccountandclassifiedthiscashascurrentrestrictedcashontheconsolidatedbalancesheet.
DOEWarrantExpiration
InconnectionwiththeclosingoftheDOELoanFacility,weissuedinJanuary2010awarranttotheDOEtopurchaseupto9,255,035sharesofourSeriesEconvertible
preferredstockatanexercisepriceof$2.51pershare.UponthecompletionofourinitialpublicofferingonJuly2,2010,thispreferredstockwarrantbecameawarranttopurchaseup
to3,090,111sharesofcommonstockatanexercisepriceof$7.54pershare.Sincethenumberofsharesultimatelyissuableunderthewarrantswouldvarydependingontheaverage
outstandingbalanceoftheloanduringthecontractualvestingperiod,anddecisionstoprepaywouldbeinfluencedbyour

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futurestockpriceaswellastheinterestratesonourloansinrelationtomarketinterestrates,wehadhistoricallymeasuredthefairvalueofthewarrantusingaMonteCarlosimulation
approach.TheMonteCarloapproachsimulatesandcapturestheoptimaldecisionstobemadebetweenprepayingtheDOEloanandthecancellationoftheDOEwarrant.Forthe
purposesofthesimulation,theoptimaldecisionrepresentsthescenariowiththelowesteconomiccosttous.Thetotalwarrantvaluewouldthenbecalculatedastheaveragewarrant
payoffacrossallsimulatedpathsdiscountedtoourvaluationdate.TheprepaymentfeaturewhichallowedustoprepaytheDOELoanFacility,andconsequentlyaffectedthenumberof
sharesultimatelyissuableundertheDOEwarrant,wasdeterminedtorepresentanembeddedderivative.Thisembeddedderivativewasinherentlyvaluedandaccountedforaspartof
thewarrantliabilityonourconsolidatedbalancesheets.Changestothefairvalueoftheembeddedderivativewerereflectedaspartofthewarrantliabilityremeasurementtofairvalue
ateachbalancesheetreportingdate.Thewarrantwasrecordedatitsestimatedfairvaluewithchangesinitsfairvaluereflectedinotherincome(expense),net,untilitsexpirationor
vesting.AsofDecember31,2012,thefairvalueoftheDOEwarrantwas$10.7million.DuringtheyearsendedDecember31,2012and2011,werecognizedexpenseforthechangein
thefairvalueoftheDOEwarrantintheamountof$1.9millionand$2.8millionthroughotherincome(expense),net,intheconsolidatedstatementsofoperations,respectively.The
fairvalueofthewarrantatissuancewas$6.3million,andalongwiththeDOELoanFacilityfeeof$0.5millionandotherdebtissuancecostsof$0.9million,representedacostof
closingtheloanfacilityandwasbeingamortizedtointerestexpenseovertheexpectedtermoftheDOELoanFacility.DuringtheyearsendedDecember31,2012and2011,we
amortized$0.6milliontointerestexpense,respectively.
AsaresultofourrepaymentofalloutstandingprincipalandinterestundertheDOELoanFacilityandtheterminationoftheDOELoanFacilityinMay2013,theDOEwarrant
expired.Assuch,werecognizedotherincomeforthechangeinthefairvalueoftheDOEwarrantintheamountof$10.7millionfortheyearendedDecember31,2013.Additionally,
weamortizedallremainingunamortizeddebtissuancecostsof$5.8millionrelatedtotheDOELoanFacilitytointerestexpensefortheyearendedDecember31,2013.
7.CommonStock
InJune2011,wecompletedafollowonofferingofcommonstockinwhichwesoldatotalof6,095,000sharesofourcommonstockandreceivedcashproceedsof$172.7
millionfromthistransaction,netofunderwritingdiscounts.Concurrentwiththisoffering,wealsosold1,416,000sharesofourcommonstocktoourCEOand637,475sharesofour
commonstocktoBlackstarInvestcoLLC,anaffiliateofDaimlerandreceivedtotalcashproceedsof$59.1millionintheprivateplacements.Nounderwritingdiscountsor
commissionswerepaidinconnectionwiththeseprivateplacements.
InOctober2012,wecompletedafollowonofferingofcommonstockinwhichwesoldatotalof7,964,601sharesofourcommonstockandreceivedcashproceedsof$222.1
million(whichincluded35,398sharesor$1.0millionsoldtoourCEO)fromthistransaction,netofunderwritingdiscountsandofferingcosts.
InMay2013,wecompletedapublicofferingofcommonstockandsoldatotalof3,902,862sharesofourcommonstockfortotalcashproceedsofapproximately$355.1
million(whichincluded487,857sharesor$45.0millionsoldtoourCEO),netofunderwritingdiscountsandofferingcosts.Wealsosold596,272sharesofourcommonstocktoour
CEOandreceivedtotalcashproceedsof$55.0millioninaprivateplacementatthepublicofferingprice.Concurrentwiththeseequitytransactions,wealsoissued$660.0million
principalamountof1.50%convertibleseniornotesinapublicofferingandreceivedtotalcashproceedsofapproximately$648.0million,netofunderwritingdiscountsandoffering
costs(seeNote6).
8.EquityIncentivePlans
InJuly2003,weadoptedthe2003EquityIncentivePlan.ConcurrentwiththeeffectivenessofourregistrationstatementonFormS1onJune28,2010,weadoptedthe2010
EquityIncentivePlan(thePlan)andallremainingcommonsharesreservedforfuturegrantorissuanceunderthe2003EquityIncentivePlanwere

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addedtothe2010EquityIncentivePlan.ThePlanprovidesforthegrantingofstockoptions,RSUsandstockpurchaserightstoouremployees,directorsandconsultants.Options
grantedunderthePlanmaybeeitherincentiveoptionsornonqualifiedstockoptions.Incentivestockoptionsmaybegrantedonlytoouremployeesincludingofficersanddirectors.
Nonqualifiedstockoptionsandstockpurchaserightsmaybegrantedtoouremployeesandconsultants.Generally,ourstockoptionsandRSUsvestoverfouryearsandareexercisable
overaperiodnottoexceedthecontractualtermoftenyearsfromthedatethestockoptionsaregranted.Continuedvestingtypicallyterminateswhentheemploymentorconsulting
relationshipends.AsofDecember31,2013,23,318,526sharesofcommonstockwerereservedforissuanceunderthePlan.
ThefollowingtablesummarizesstockoptionandRSUactivityunderthePlan:

OutstandingStockOptions

OutstandingRSUs

Weighted
Weighted

SharesAvailable

Numberof

forGrant

Options

Balance,December31,2010

AverageGrant

Average

Number

ExercisePrice

DateFair

ofRSUs

Value

9,407,975

13,738,122

8.62

3,796,342

(4,011,973)

4,011,973

27.49

(1,216,669)

5.41

726,763

(726,763)

15.26

9,919,107

15,806,663

13.35

1,064,046

(11,854,941)

11,854,941

31.18

Additionaloptionsreserved
Granted
Exercised
Cancelled

Balance,December31,2011
Additionaloptionsreserved
Granted

Exercised

Cancelled

(1,312,439)

12.52

1,341,319

(1,341,389)

25.51

469,531

25,007,776

21.20

3,426,428

(3,345,899)

2,643,821

74.17

702,078

155.51

(3,852,673)

21.42

1,170,445

(1,157,982)

36.47

(12,463)

154.92

(12,031)

160.98

1,720,505

22,640,942

26.70

677,584

155.41

Balance,December31,2012
Additionaloptionsreserved
Granted
Exercised
Cancelled
Released

Balance,December31,2013

InadditiontostockoptionsissuedfromthePlan,therewere33,333stockoptionsasofDecember31,2011,thatwehadpreviouslygrantedtononemployeesoutsideofthe
Plan.Theseoutstandingnonemployeeoptionshadaweightedaverageexercisepriceof$1.80asofDecember31,2011.DuringtheyearendedDecember31,2012,thesestockoptions
werefullyexercised.

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AdditionalinformationregardingallstockoptionsoutstandingandexercisableasofDecember31,2013issummarizedbelow:

OptionsOutstanding

OptionsExercisable

Weighted
Average
Weighted

Remaining

Average
Exercise

RangeofExercisePrice

$0.15$6.15

Number

Price

Average
Weighted

Remaining

Contractual

Average

Contractual

Life(in

Exercise

years)

Number

Price

Life(in

523,182

3.16

516,728

3.16

7,096,725

6.63

7,093,020

6.63

2,266,058

22.08

1,302,499

19.70

2,136,721

29.48

864,050

29.24

5,715,734

31.17

91,541

31.17

2,288,998

32.07

707,052

31.98

2,266,350

60.57

127,674

45.62

252,945

147.31

11,542

147.38

18,975

160.70

75,254

179.72

$6.63$6.63
$9.96$28.35
$28.43$31.07
$31.07$31.07
$31.49$34.00
$34.57$141.60
$144.70$147.38
$160.70$160.70
$179.72$179.72

Weighted

years)

22,640,942

26.70

6.37

10,714,106

12.37

4.01

AdditionalinformationregardingallstockoptionsoutstandingandexercisableasofDecember31,2012issummarizedbelow:

OptionsOutstanding

OptionsExercisable

Weighted

Weighted

Average

RangeofExercisePrice

$0.15$6.15

Number

Average

Weighted

Remaining

Weighted

Remaining

Average

Contractual

Average

Contractual

Exercise

Life(in

Price

years)

Exercise

Number

Price

Life(in

1,037,664

$ 3.08

924,801

2.98

7,475,413

6.63

6,456,263

6.63

2,682,735

19.00

1,446,362

17.98

2,522,885

28.18

801,246

28.30

1,680,276

30.14

158,300

30.36

5,865,560

31.17

19,524

31.17

2,686,684

31.80

318,914

31.51

390,314

33.29

103,184

33.22

475,275

34.57

1,750

34.57

190,970

36.01

1,549

36.01

25,007,776

21.20

10,231,893

11.07

$6.63$6.63
$9.96$25.27
$27.25$29.12
$29.25$31.07
$31.17$31.17
$31.49$33.15
$33.22$34.00
$34.57$34.57
$36.01$36.01

6.99

years)

5.35

Theaggregateintrinsicvaluerepresentsthetotalpretaxintrinsicvalue(i.e.,thedifferencebetweenourcommonstockpriceandtheexerciseprice,multipliedbythenumberof
inthemoneyoptions)thatwouldhavebeenreceivedbytheoptionholdershadalloptionholdersexercisedtheiroptions.Theaggregateintrinsicvalueofoptionsoutstandingasof
December31,2013and2012was$2.80billionand$317.7million,respectively.Theintrinsicvalueofoptionsexercisablewas$1.48billionand$233.3million,andtheintrinsic

valueofoptionsvestedandexpectedtovestwas$2.80billionand$280.7millionasofDecember31,2013and2012,respectively.Thetotalintrinsicvalueofoptionsexercisedwas
$294.0millionand$35.1millionfortheyearsendedDecember31,2013and2012,respectively.TheaggregateintrinsicvalueofRSUsoutstandingasofDecember31,2013was
$101.9million.

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FairValueAdoption
Weutilizethefairvaluemethodinrecognizingstockbasedcompensationexpense.Underthefairvaluemethod,weestimatedthefairvalueofeachoptionawardandtheESPP
onthegrantdategenerallyusingtheBlackScholesoptionpricingmodelandtheweightedaverageassumptionsnotedinthefollowingtable.

YearEndedDecember31,
2013

2012

2011

Riskfreeinterestrate:

1.3%

1.0%

2.0%

0.1%

0.2%

0.2%

Stockoptions
ESPP
Expectedterm(inyears):
Stockoptions

6.1

5.9

6.0

0.5

0.5

0.5

ESPP
Expectedvolatility:

57%

63%

70%

43%

51%

59%

0.0%

0.0%

Stockoptions
ESPP
Dividendyield:
Stockoptions

0.0%

ESPP

0.0%

0.0%

0.0%

TheweightedaveragegrantdatefairvalueforoptionawardsgrantedduringtheyearsendedDecember31,2013,2012and2011was$40.72,$16.37and$17.43pershare,
respectively.TheweightedaveragegrantdatefairvalueforESPPgrantedduringtheyearsendedDecember31,2013,2012and2011was$19.22,$8.99and$7.52pershare,
respectively.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfairmarketvalueofourcommonstock.
PerformanceBasedStockOptions
InDecember2009,ourBoardofDirectorsapprovedanoptiongranttoourCEOrepresenting4%ofourfullydilutedsharebasepriortosuchgrantasofthegrantdate,or
3,355,986stockoptions,with1/4thofthesharesvestingimmediately,and1/36thoftheremainingsharesscheduledtovesteachmonthoverthreeyears,assumingcontinued
employmentthrougheachvestingdateinrecognitionofhisandourcompanysachievementsandtocreateincentivesforfuturesuccess.Inaddition,tocreateincentivesforthe
attainmentofclearperformanceobjectivesaroundakeyelementofourbusinessplanthesuccessfullaunchandcommercializationofModelStheBoardofDirectorsapprovedan
additionaloptiongranttoourCEOtotalinganadditional4%ofourfullydilutedsharespriortosuchgrantasofthegrantdate,or3,355,986stockoptions,withavestingschedule
basedentirelyontheattainmentofperformanceobjectivesasfollows,assumingourCEOscontinuedemploymentandservicetousthrougheachvestingdate:

1/4thofthesharessubjecttotheoptionarescheduledtovestuponthesuccessfulcompletionofModelSEngineeringPrototype

1/4thofthesharessubjecttotheoptionarescheduledtovestuponthesuccessfulcompletionofModelSValidationPrototype

1/4thofthesharessubjecttotheoptionarescheduledtovestuponthecompletionofthefirstModelSProductionVehicleand

1/4thofthesharessubjecttotheoptionarescheduledtovestuponthecompletionofthe10,000thModelSProductionVehicle.

ThroughDecember31,2013,allperformancemilestoneswereachieved.StockbasedcompensationexpenserelatedtothisgranttoourCEOwas$0.4million,$4.2millionand
$6.3millionfortheyearsendedDecember31,2013,2012and2011,respectively.

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OurBoardofDirectorsalsoapprovedoptiongrantsinJuneandSeptember2010topurchaseourcommonstockof666,300and20,000,respectively,tovariousmembersofour
seniormanagementwithavestingschedulebasedentirelyontheattainmentofthesameperformanceobjectivesasthoseoutlinedforourCEOabove.Duringtheyearsended
December31,2013,2012and2011,werecognized$0.8million,$1.4millionand$4.9million,respectively,ofstockbasedcompensationexpenserelatedtotheattainmentofthese
performanceobjectives.
InAugust2012,ourBoardofDirectorsgranted5,274,901stockoptionstoourCEO(2012CEOGrant).The2012CEOGrantconsistsoftenvestingtrancheswithavesting
schedulebasedentirelyontheattainmentofbothperformanceconditionsandmarketconditions,assumingcontinuedemploymentandservicetousthrougheachvestingdate.
Eachofthevestingtranchesrequiresacombinationofoneofthetenpredeterminedperformancemilestonesoutlinedbelowandanincrementalincreaseinourmarket
capitalizationof$4.0billion,ascomparedtotheinitialmarketcapitalizationof$3.2billionmeasuredatthetimeofthe2012CEOGrant.

SuccessfulcompletionoftheModelXEngineeringPrototype(Alpha)

SuccessfulcompletionoftheModelXVehiclePrototype(Beta)

CompletionofthefirstModelXProductionVehicle

SuccessfulcompletionoftheGenIIIEngineeringPrototype(Alpha)

SuccessfulcompletionoftheGenIIIVehiclePrototype(Beta)

CompletionofthefirstGenIIIProductionVehicle

Grossmarginof30%ormoreforfourconsecutivequarters

Aggregatevehicleproductionof100,000vehicles

Aggregatevehicleproductionof200,000vehiclesand

Aggregatevehicleproductionof300,000vehicles.

Thetermofthe2012CEOGrantistenyears,soanytranchesthatremainunvestedattheexpirationofthe2012CEOGrantwillbeforfeited.Inaddition,unvestedoptionswill
beforfeitedifourCEOisnolongerinthatrole,whetherforcauseorotherwise.
Wemeasuredthefairvalueofthe2012CEOGrantusingaMonteCarlosimulationapproachwiththefollowingassumptions:riskfreeinterestrateof1.65%,expectedtermof
tenyears,expectedvolatilityof55%anddividendyieldof0%.
Stockbasedcompensationexpenseassociatedwiththe2012CEOGrantisrecognizedforeachpairofperformanceandmarketconditionsoverthelongeroftheexpected
achievementperiodoftheperformanceandmarketconditions,beginningatthepointintimethattherelevantperformanceconditionisconsideredprobableofbeingmet.
AsofDecember31,2013,themarketconditionsforthreevestingtrancheswereachievedandthefollowingthreeperformancemilestoneswereconsideredprobableof
achievement:

SuccessfulcompletionoftheModelXEngineeringPrototype(Alpha)

SuccessfulcompletionoftheModelXVehiclePrototype(Beta)

CompletionofthefirstModelXProductionVehicle.

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Noneofthestockoptionsgrantedunderthe2012CEOGranthasvestedthusfarastheperformancemilestoneshavenotyetbeenachievedasofDecember31,2013.However,
astheabovethreeperformancemilestoneswereconsideredprobableofachievement,werecordedstockbasedcompensationexpenseof$14.5millionand$1.3millionfortheyears
endedDecember31,2013and2012,respectively.
Additionally,nocashcompensationhasbeenreceivedbyourCEOforhisservicestothecompany.
SummaryStockBasedCompensationInformation
Thefollowingtablesummarizesthestockbasedcompensationexpensebylineitemintheconsolidatedstatementsofoperations(inthousands):

Costofsales

YearEndedDecember31,
2013

2012

2011

$ 9,071

$ 2,194

35,494

26,580

13,377

39,090

21,371

15,372

$ 83,655

$ 50,145

$ 29,419

Researchanddevelopment
Selling,generalandadministrative

Total

670

Werealizednoincometaxbenefitfromstockoptionexercisesineachoftheperiodspresentedduetorecurringlossesandvaluationallowances.Asrequired,wepresentexcess
taxbenefitsfromtheexerciseofstockoptions,ifany,asfinancingcashflowsratherthanoperatingcashflows.
AsofDecember31,2013,wehad$227.3millionoftotalunrecognizedcompensationexpense,net,ofestimatedforfeitures,thatwillberecognizedoveraweightedaverage
periodof5.2years.
EmployeeStockPurchasePlan
Employeesareeligibletopurchasecommonstockthroughpayrolldeductionsofupto15%oftheireligiblecompensation,subjecttoanyplanlimitations.Thepurchaseprice
ofthesharesoneachpurchasedateisequalto85%ofthelowerofthefairmarketvalueofourcommonstockonthefirstandlasttradingdaysofeachsixmonthofferingperiod.
DuringtheyearsendedDecember31,2013and2012,518,743and373,526shareswereissuedundertheESPPfor$13.8millionand$8.4million,respectively.Atotalof3,615,749
sharesofcommonstockhavebeenreservedforissuanceundertheESPP,andtherewere2,500,022sharesavailableforissuanceundertheESPPasofDecember31,2013.
9.IncomeTaxes

Aprovisionforincometaxesof$2.6million,$0.1millionand$0.5millionhasbeenrecognizedfortheyearsendedDecember31,2013,2012and2011,respectively,related
primarilytooursubsidiarieslocatedoutsideoftheUnitedStates.OurnetlossbeforeprovisionforincometaxesfortheyearsendedDecember31,2013,2012and2011wereasfollows
(inthousands):

Domestic

2012

2011

$ 75,279

$ 396,549

$ 254,761

(3,853)

$ 71,426

$ 396,077

Lossbeforeincometaxes

116

International

YearEndedDecember31,
2013

(472)

(839)

$ 253,922

TableofContents
ThecomponentsoftheprovisionforincometaxesfortheyearsendedDecember31,2013,2012and2011,consistedofthefollowing(inthousands):

2013

YearEndedDecember31,
2012

23

29

2,349

282

437

2,527

305

466

2011

Current:
Federal
State
Foreign

Totalcurrent

178

Deferred:
Federal

61

(169)

23

61

(169)

23

$2,588

$ 136

$489

State
Foreign

Totaldeferred

Totalprovisionforincometaxes

Deferredtaxassets(liabilities)asofDecember31,2013and2012consistedofthefollowing(inthousands):


December31,

2013

December31,

2012

Deferredtaxassets:

$ 341,172

$ 365,472

32,175

21,427

166

120

42,491

719

23,260

8,272

68

74

27,663

18,135

22,930

21,795

5,314

511,720

419,533

(472,375)

(403,006)

Netoperatinglosscarryforwards
Researchanddevelopmentcredits
Othertaxcredits
Deferredrevenue
Inventoryandwarrantyreserves
Depreciationandamortization
Stockbasedcompensation
Convertibledebt
Accrualsandothers

Totaldeferredtaxassets
Valuationallowance

Deferredtaxassets,netofvalutaionallowance

39,345

Deferredtaxliabilities:

Section481(a)andothers

16,527

(39,244)

(15,961)

(39,244)

(16,361)

Depreciationandamortization

Totaldeferredtaxliabilities
Deferredtaxassets,netofvaluationallowanceanddeferredtaxliabilities

101

(400)

166

WehaverevisedourdeferredtaxassetsasofDecember31,2012tocorrectimmaterialerrors.Suchrevisionsdidnotchangetheamountofdeferredtaxassets,netofvaluation
allowanceanddeferredtaxliabilitiespresentedintheprioryear.

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ReconciliationofstatutoryfederalincometaxestooureffectivetaxesfortheyearsendedDecember31,2013,2012and2011isasfollows(inthousands):

Taxatstatutoryfederalrate

YearEndedDecember31,
2013

2012

2011

$ (25,001)

$ (134,702)

$ (86,333)

178

(12,580)

733

9,897

(253)

262

(56)

(6,682)

(2,785)

(5,049)

525

1,589

32,296

139,519

87,714

Statetax,netoffederalbenefit
Nondeductibleexpenses
Foreignincomeratedifferential
U.S.taxcredits
Otherreconcilingitems
Changeinvaluationallowance

Provisionforincometaxes

1,317

2,588

136

(8,118)

10,742

489

Managementbelievesthatbasedontheavailableinformation,itismorelikelythannotthatthedeferredtaxassetswillnotberealized,suchthatafullvaluationallowanceis
requiredagainstallU.S.deferredtaxassets.
AsofDecember31,2013,wehadapproximately$1.13billionoffederaland$663.5millionofCaliforniaoperatinglosscarryforwardsavailabletooffsetfuturetaxable
income,$246.0millionofwhichisassociatedwithwindfalltaxbenefitsthatwillberecordedasadditionalpaidincapitalwhenrealized.Thesecarryforwardswillexpireinvarying
amountsbeginningin2024forfederaland2019forstateifunused.Additionally,wehaveresearchanddevelopmenttaxcreditsofapproximately$23.5millionand$26.1millionfor
federalandstateincometaxpurposes,respectively.Ifnotutilized,thefederalcarryforwardswillexpireinvariousamountsbeginningin2019.However,thestatecreditscanbecarried
forwardindefinitely.
Wehaveindefinitelyreinvested$5.1millionofundistributedearningsofourforeignoperationsoutsideofourU.S.taxjurisdictionasofDecember31,2013.Nodeferredtax

liabilityhasbeenrecognizedfortheremittanceofsuchearningstotheUnitedStatessinceitisourintentiontoutilizetheseearningstofundfutureforeignexpansionsincludingbut
notlimitedto,hiringofadditionalpersonnel,capitalpurchases,expansionintolargerfacilities,andpotentialnewdealerships.
Federalandstatelawscanimposesubstantialrestrictionsontheutilizationofnetoperatinglossandtaxcreditcarryforwardsintheeventofanownershipchange,asdefined
inSection382oftheInternalRevenueCode.Weperformedastudyandhaddeterminedthatnosignificantlimitationwouldbeplacedontheutilizationofournetoperatinglossand
taxcreditcarryforwardsasaresultofpriorownershipchanges.
UncertainTaxPositions
TheaggregatechangesinthebalanceofourgrossunrecognizedtaxbenefitsduringtheyearsendedDecember31,2013,2012and2011wereasfollows(inthousands):

December31,2010

16,393

1,037

17,430

18,070

(7,802)

3,102

$13,370

Increasesinbalancesrelatedtotaxpositionstakenduringcurrentyear

December31,2011
Increasesinbalancesrelatedtotaxpositionstakenduringcurrentyear

December31,2012
Decreasesinbalancesrelatedtoprioryeartaxpositions
Increasesinbalancesrelatedtocurrentyeartaxpositions

December31,2013

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ThedecreasesinourgrossunrecognizedtaxbenefitduringtheyearendedDecember31,2013primarilyrelatedtoprioryearerrorsidentifiedinthecurrentyear.Accrued
interestandpenaltiesrelatedtounrecognizedtaxbenefitsareclassifiedasincometaxexpenseandwasimmaterial.AsofDecember31,2013,unrecognizedtaxbenefitsof$11.8
million,ifrecognized,wouldnotaffectoureffectivetaxrateasthetaxbenefitswouldincreaseadeferredtaxassetwhichiscurrentlyfullyoffsetwithafullvaluationallowance.Wedo
notanticipatethattheamountofexistingunrecognizedtaxbenefitswillsignificantlyincreaseordecreasewithinthenext12months.WefileincometaxreturnsintheUnitedStates,
California,variousstatesandforeignjurisdictions.Taxyears2003to2012remainsubjecttoexaminationforfederalpurposes,andtaxyears2003to2012remainsubjectto
examinationforCaliforniapurposes.AllnetoperatinglossesandtaxcreditsgeneratedtodatearesubjecttoadjustmentforU.S.federalandCaliforniapurposes.Taxyears2007to
2012remainopenforexaminationinotherU.S.stateandforeignjurisdictions.
10.InformationaboutGeographicAreas
Wehavedeterminedthatweoperateasonereportablesegmentwhichisthedesign,development,manufacturingandsalesofelectricvehiclesandelectricvehiclepowertrain
components.
Thefollowingtablessetforthrevenuesandlonglivedassetsbygeographicarea(inthousands).
Revenues

NorthAmerica

YearEndedDecember31,
2013

2012

2011

$ 1,545,413

$ 355,325

$ 109,233

467,079

50,318

84,397

1,004

7,613

10,612

$ 2,013,496

Europe
Asia

Total

$ 413,256

$ 204,242

DuringtheyearsendedDecember31,2013,2012and2011,werecognizedrevenuesof$1.5billion,$341.5millionand$103.9millionintheUnitedStates,respectively.
DuringtheyearendedDecember31,2013,werecognizedrevenuesof$217.1millioninNorway.
LonglivedAssets

December31,

December31,

UnitedStates

2013

2012

$ 1,091,487

552,302

29,432

9,998

$ 1,120,919

562,300

International

Total

11.StrategicPartnerships
DaimlerAG
DaimlerMercedesBenzEVProgram
Duringthefourthquarterof2011,DaimlerengagedustoassistwiththedevelopmentofafullelectricpowertrainforaDaimlerMercedesBenzBClassEVvehicle.In2012,we
receivedtwopurchaseordersfromDaimlertobegindevelopmentworkandalsoenteredintoaseparatedevelopmentagreement.Pursuanttothedevelopmentagreement,Daimler
wouldpayusupto$33.2millionforthesuccessfulcompletionofcertainatriskdevelopmentmilestonesandthedeliveryofprototypesamples.DuringtheyearsendedDecember31,
2013and2012,wecompletedvariousmilestonesanddeliveredprototypesamplesandrecognized$15.7millionand$15.9millionindevelopmentservicesrevenue,respectively.

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ToyotaMotorCorporation
ToyotaRAV4Program
InJuly2010,weandToyotaenteredintoaPhase0agreementtoinitiatedevelopmentofanelectricpowertrainfortheToyotaRAV4.Underthisearlyphasedevelopment
agreement,prototypesweremadebyusbycombiningtheToyotaRAV4modelwithaTeslaelectricpowertrain.
DuringtheyearendedDecember31,2011,werecognized$7.6millionindevelopmentservicesrevenue.AsofDecember31,2011,wehaddeliveredallprototypestherefore,
noadditionalPhase0revenuewasrecognizedduringtheyearsendedDecember31,2013and2012.
InOctober2010,weenteredintoaPhase1contractservicesagreementwithToyotaforthedevelopmentofavalidatedpowertrainsystem,includingabatterypack,power
electronicsmodule,motor,gearboxandassociatedsoftwaretobeintegratedintoanelectricvehicleversionoftheToyotaRAV4.Toyotapaid$60.1millionforthesuccessful
completionofcertainatriskdevelopmentmilestonesandthedeliveryofprototypesamples,includinga$5.0millionupfrontpaymentthatwereceivedupontheexecutionofthe
agreement.DuringtheyearsendedDecember31,2012and2011,wecompletedvariousmilestonesandalongwiththeamortizationofourupfrontpaymentandthedeliveryofcertain
prototypesamples,werecognized$10.7millionand$47.4millionindevelopmentservicesrevenue,respectively.AsofMarch31,2012,alldevelopmentmilestonesunderthePhase1
agreementhadbeencompletedtherefore,noadditionalrevenuewasrecognizedduringtheyearendedDecember31,2013.
InJuly2011,weenteredintoasupplyandservicesagreementwithToyotaforthesupplyofavalidatedelectricpowertrainsystem,includingabatterypack,chargingsystem,
inverter,motor,gearboxandassociatedsoftware,whichwillbeintegratedintoanelectricvehicleversionoftheToyotaRAV4.Additionally,wewillprovideToyotawithcertain
servicesrelatedtothesupplyoftheelectricpowertrainsystem.DuringthethreemonthsendedMarch31,2012,webegandeliveringelectricpowertrainsystemstoToyota.Duringthe
yearsendedDecember31,2013and2012,werecognizedrevenueof$42.9millionand$29.1millioninautomotivesalesrelatedtothesesales,respectively.Ourproductionactivities
underthisprogramareexpectedtocontinuethrough2014.
12.CommitmentsandContingencies
OperatingLeases
OurcorporateheadquartersandpowertrainproductionoperationsarebasedinPaloAlto,Californiawherewehaveleasedafacilityconsistingof350,000squarefeet.Thislease
expiresinJanuary2020.Wehaveleaseda203,772squarefeetmanufacturingfacilityinTilburg,NetherlandsthroughNovember2023.Wehavealsoleasedanumberofpropertiesin
NorthAmerica,EuropeandAsiaforouroffice,retailandservicelocationsaswellasSuperchargersitesundernoncancelableoperatingleaseswithvariousexpirationdatesthrough
December2022.
RentexpensefortheyearsendedDecember31,2013,2012and2011was$21.5million,$12.1millionand$8.6million,respectively.
CapitalLeases
Wehaveenteredintovariousagreementstoleaseequipmentundercapitalleasesovertermsbetween36and60months.Theequipmentundertheleasesarecollateralforthe
leaseobligationsandareincludedwithinproperty,plantandequipment,net,ontheconsolidatedbalancesheetsunderthecategoriesofcomputerequipmentandsoftwareandoffice
furnitureandequipment.

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FutureminimumcommitmentsforleasesasofDecember31,2013areasfollows(inthousands):

Operating

2014

Leases

Capital

Leases

$ 27,004

8,927

27,372

7,752

26,621

4,512

24,706

595

55,785

$ 161,488

20,585

$ 12,862

2015
2016
2017
2018andthereafter

Totalminimumleasepayments

Less:Amountsrepresentinginterestnotyetincurred

Presentvalueofcapitalleaseobligations
Less:Currentportion

Longtermportionofcapitalleaseobligations

21,790

1,205

7,723

EnvironmentalLiabilities
InMay2010,weenteredintoanagreementtopurchaseanexistingautomobileproductionfacilitylocatedinFremont,CaliforniafromNewUnitedMotorManufacturing,Inc.
(NUMMI).NUMMIhaspreviouslyidentifiedenvironmentalconditionsattheFremontsitewhichcouldaffectsoilandgroundwater,anduntilrecently,wereundertakingeffortsto

addresstheseconditions.TheseconditionsarenowbeingaddressedbyusandNUMMI.AlthoughwehavebeenadvisedbyNUMMIthatithasdocumentedandmanagedthe
environmentalissuesandwecompletedareasonablelevelofdiligenceonsuchenvironmentalissuesatthetimewepurchasedthefacility,wecannotdeterminethepotentialcoststo
remediateanypreexistingcontaminationwithanycertainty.Basedonmanagementsbestestimate,atthetimeofthefacilitypurchase,weestimatedthefairvalueofthe
environmentalliabilitiesthatweassumedtobe$5.3million.Thefairvalueoftheseliabilitieswasdeterminedbasedonanexpectedvalueanalysisoftherelatedpotentialcoststo
investigate,remediateandmanagevariousenvironmentalconditionsthatwereidentifiedaspartofNUMMIsfacilitydecommissioningactivitiesaswellasourowndiligenceefforts.
WereachedanagreementwithNUMMIunderwhich,overatenyearperiod,wewillpaythefirst$15.0millionofanycostsofanygovernmentallyrequiredremediation
activitiesforcontaminationthatexistedpriortothecompletionofthefacilityandlandpurchaseforanyknownorunknownenvironmentalconditions,andNUMMIhasagreedtopay
thenext$15.0millionforsuchremediationactivities.Ouragreementprovides,inpart,thatNUMMIwillpayuptothefirst$15.0milliononourbehalfifsuchexpensesareincurredin
thefirstfouryearsofouragreement,subjecttoourreimbursementofsuchcostsonthefourthanniversarydateoftheclosing.ThroughDecember312013,remediationcostsof$2.1
millionhadbeenincurredbyNUMMItherefore,weclassified$2.1millionofour$5.3millionenvironmentalliabilitiestoaccruedliabilitiesonourconsolidatedbalancesheetasof
December31,2013.
Onthetenyearanniversaryoftheclosingorwhenever$30.0millionhasbeenspentontheremediationactivities,whichevercomesfirst,NUMMIsliabilitytouswithrespect
toremediationactivitiesceases,andweareresponsibleforanyandallenvironmentalconditionsattheFremontsite.Atthatpointintime,wehaveagreedtoindemnify,defend,and
holdharmlessNUMMIfromallliabilityandwehavereleasedNUMMIforanyknownorunknownclaimsexceptforNUMMIsobligationsforrepresentationsandwarrantiesunderthe
agreement.AsofDecember31,2013and2012,weaccruedatotalof$5.5millionand$5.3millionrelatedtotheseenvironmentalliabilities,respectively.Aswecontinuewithour
constructionandoperatingactivities,itisreasonablypossiblethatourestimateofenvironmentalliabilitiesmaychangematerially.
Fromtimetotime,wearesubjecttovariouslegalproceedingsthatarisefromthenormalcourseofbusinessactivities.Inaddition,fromtimetotime,thirdpartiesmayassert
intellectualpropertyinfringementclaims

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againstusintheformoflettersandotherformsofcommunication.Ifanunfavorablerulingweretooccur,thereexiststhepossibilityofamaterialadverseimpactonourresultsof
operations,prospects,cashflows,financialpositionandbrand.
InNovember2013,aputativesecuritiesclassactionlawsuitwasfiledagainstTeslainU.S.DistrictCourt,NorthernDistrictofCalifornia,allegingviolationsof,andseeking
remediespursuantto,Sections10(b)and20(a)oftheSecuritiesExchangeActof1934andRule10b5.TheclaimswereoriginallyassertedagainstTeslaandtwoofitsexecutive
officers.Thecurrentcomplaintseeksdamages,attorneyfeesandotherrelief,andalleges,amongotherthings,thatTeslamadefalseand/ormisleadingrepresentationsandomissions
includingwithrespecttothesafetyoftheModelSvehicleandTeslasabilitytomeetpublicexpectationswithrespecttoitsfinancialperformance.Thecurrentcomplaintisbrought
onbehalfofaputativeclassconsistingofallpersonsotherthanDefendantswhopurchasedTeslassecuritiesbetweenMay10,2013andNovember6,2013,inclusive.Webelieve
thislawsuitiswithoutmeritandintendtodefendagainstitvigorously.Aswearecurrentlyunabletopredicttheoutcomeofthislawsuit,itisnotpossibleforustodeterminewhether
thereisareasonablepossibilitythatalosshasbeenincurrednorcanweestimatetherangeofanypotentialloss.
13.SubsequentEvents
PerformancebasedStockOptionGrant
InJanuary2014,tocreateincentivesforcontinuedlongtermsuccessbeyondtheModelSprogramandtocloselyalignexecutivepaywithourstockholdersinterestsinthe
achievementofsignificantmilestonesbyourcompany,theCompensationCommitteeofourBoardofDirectorsgrantedstockoptionstocertainemployeestopurchase782,500shares
ofourcommonstock.Eachsuchgrantconsistsoffourvestingtrancheswithavestingschedulebasedentirelyontheattainmentoffutureperformancemilestones,assumingcontinued
employmentandservicetousthrougheachvestingdate.

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstModelXProductionVehicle

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievingaggregatevehicleproductionof100,000vehiclesinatrailing12monthperiod

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstGenIIIProductionVehicleand

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievementofannualizedgrossmarginofgreaterthan30.0%inanythreeyears.

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14.QuarterlyResultsofOperations(Unaudited)
ThefollowingtableincludesselectedquarterlyresultsofoperationsdatafortheyearsendedDecember31,2013and2012(inthousands,exceptpersharedata):

March31

Threemonthsended

June30

September30

December31

$561,792

$ 405,139

$ 431,346

$ 615,219

96,320

100,483

102,868

156,590

11,248

(30,502)

(38,496)

(16,264)

0.10

(0.26)

(0.32)

(0.13)

0.00

(0.26)

(0.32)

(0.13)

2013
Totalrevenues
Grossprofit
Netincome(loss)
Netincome(loss)pershare,basic
Netincome(loss)pershare,diluted

2012

$ 30,167

$ 26,653

50,104

$ 306,332

10,210

(8,761)

23,857

(89,873)

(105,603)

(110,804)

(89,932)

Totalrevenues
Grossprofit(loss)
Netloss
Netlosspershare,basicanddiluted

(0.86)

4,762

(1.00)

(1.05)

(0.79)

Netlosspershare,basicanddilutedforthefourquartersofeachfiscalyearmaynotsumtothetotalforthefiscalyearbecauseofthedifferentnumbersofsharesoutstanding
duringeachperiod.

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ITEM9.

CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGANDFINANCIALDISCLOSURE

Notapplicable.

ITEM9A.

CONTROLSANDPROCEDURES

EvaluationofDisclosureControlsandProcedures
WeconductedanevaluationasofDecember31,2013,underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficerandChief
FinancialOfficer,oftheeffectivenessofthedesignandoperationofourdisclosurecontrolsandprocedures.Baseduponthatevaluation,ourChiefExecutiveOfficerandChief
FinancialOfficerconcludedthat,asofDecember31,2013,ourdisclosurecontrolsandprocedureswereeffectivetoprovidereasonableassurance.
ManagementsReportonInternalControloverFinancialReporting
Ourmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.Internalcontroloverfinancialreportingisaprocess
designedby,orunderthesupervisionof,ourChiefExecutiveOfficerandChiefFinancialOfficertoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthe
preparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciplesandincludesthosepoliciesandproceduresthat(1)pertaintothe
maintenanceofrecordsthatinreasonabledetailaccuratelyandfairlyreflectthetransactionsanddispositionsofourassets(2)providereasonableassurancethattransactionsare
recordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatourreceiptsandexpendituresarebeingmade
onlyinaccordancewithauthorizationsofourmanagementanddirectorsand(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,
useordispositionofourassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,weconductedanevaluationofthe
effectivenessofourinternalcontroloverfinancialreportingbasedoncriteriaestablishedinInternalControlIntegratedFramework(1992)issuedbytheCommitteeofSponsoring
OrganizationsoftheTreadwayCommission(COSO).OurmanagementconcludedthatourinternalcontroloverfinancialreportingwaseffectiveasofDecember31,2013.
Ourindependentregisteredpublicaccountingfirm,PricewaterhouseCoopersLLP,hasauditedtheeffectivenessofourinternalcontroloverfinancialreportingasof
December31,2013asstatedintheirreportwhichisincludedherein.
RemediationofPreviouslyReportedMaterialWeakness
Amaterialweaknessisadeficiency,oracombinationofdeficiencies,ininternalcontroloverfinancialreporting,suchthatthereisareasonablepossibilitythatamaterial
misstatementofourannualorinterimfinancialstatementswillnotbepreventedordetectedonatimelybasis.FortheyearendedDecember31,2012,itwasconcludedthatamaterial
weaknessexistedinourinternalcontroloverfinancialreportingrelatedtothepresentationanddisclosureofnoncashcapitalexpendituresinourconsolidatedstatementsofcash
flows.Specifically,wedidnotdesigneffectivecontrolstodetermineandreviewthetotalunpaidamountsrelatedtocapitalexpendituresthatshouldhavebeenexcludedfrom
operatingandinvestingactivitiesinthecashflowstatementanddisclosedasnoncashitems.
ThismaterialweaknessresultedinanauditadjustmentrelatedtononcashcapitalexpendituresfortheyearendedDecember31,2012,arestatementofourcondensed
consolidatedstatementsofcashflowsfortheperiodsendedMarch31,2012,June30,2012andSeptember30,2012includingtheircomparativeperiodsfor2011,andarevisionofour
consolidatedfinancialstatementsfortheyearendedDecember31,2011.

124

TableofContents
Inresponsetothematerialweaknessdescribedabove,ourfinancialreportingreviewprocessnowincludes,adeterminationandreviewof(i)totalunpaidamountsrelatedto
capitalexpendituresthatshouldbeexcludedfromoperatingandinvestingactivitiesintheconsolidatedstatementofcashflowsand(ii)thetotalunpaidamountsrelatedtocapital
expendituresthatshouldbedisclosedasnoncashitemsintheconsolidatedstatementofcashflows.
Basedonthemeasurestakenandimplemented,managementhastestedthenewlyimplementedcontrolactivitiesandfoundthemtobeeffectiveandhasconcludedthatthe
materialweaknessdescribedabovehasbeenremediatedasofDecember31,2013.
LimitationsontheEffectivenessofControls
Becauseofinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatementsandprojectionsofanyevaluationofeffectivenesstofuture
periodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
ChangesinInternalControloverFinancialReporting
TherewasnochangeinourinternalcontroloverfinancialreportingwhichoccurredduringthefourthfiscalquarteroftheyearendedDecember31,2013whichhasmaterially
affected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.

ITEM9B.

OTHERINFORMATION

InJanuary2014,tocreateincentivesforcontinuedlongtermsuccessbeyondtheModelSprogramandtocloselyalignexecutivepaywithourstockholdersinterestsinthe
achievementofsignificantmilestonesbyourcompany,theCompensationCommitteeofourBoardofDirectorsgrantedstockoptionstopurchaseourcommonstockof782,500shares
tocertainemployeesofourcompany,includingDeepakAhuja,ourChiefFinancialOfficer,JeffreyB.Straubel,ourChiefTechnicalOfficer,GregReichow,ourVicePresidentof
ProductionandJeromeGuillen,ourVicePresidentofServiceandSalesOperations,eachofwhomisanofficerofourcompanywithreportingobligationsunderSection16ofthe
SecuritiesExchangeActof1934,asamended.Eachsuchgrantconsistsoffourvestingtrancheswithavestingschedulebasedentirelyontheattainmentofthefollowingfuture
performancemilestonesand,assumingcontinuedemploymentandservicetousthrougheachvestingdate.

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstModelXProductionVehicle

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievingaggregatevehicleproductionof100,000vehiclesinatrailing12monthperiod

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstGenIIIProductionVehicleand

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievementofannualizedgrossmarginofgreaterthan30.0%inanythreeyears.

Thefollowingtablesetsforththesefutureperformancebasedstockoptiongrants:

Numberof
Shares
Dateof

Name

DeepakAhuja

Grant

Price

($)

1/13/2014

45,000

139.34

1/13/2014

220,000

139.34

1/13/2014

65,000

139.34

1/13/2014

55,000

139.34

GregReichow
JeromeGuillen

Thetermofeachgrantwillbetenyears,sothatifanyvestingtranchesremainunvestedafterexpirationofthegrant,theywillbeforfeited.
125

Option

JeffreyB.Straubel

Exercise

Underlying

TableofContents
PARTIII

ITEM10.

DIRECTORS,EXECUTIVEOFFICERSANDCORPORATEGOVERNANCE

TheinformationrequiredbythisItem10ofForm10Kwillbeincludedinour2014ProxyStatementtobefiledwiththeSECinconnectionwiththesolicitationofproxiesfor
our2014AnnualMeetingofStockholders(2014ProxyStatement)andisincorporatedhereinbyreference.The2014ProxyStatementwillbefiledwiththeSECwithin120daysafter
theendofthefiscalyeartowhichthisreportrelates.

ITEM11.

EXECUTIVECOMPENSATION

TheinformationrequiredbythisItem11ofForm10Kwillbeincludedinour2014ProxyStatementandisincorporatedhereinbyreference.

ITEM12.

SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS

TheinformationrequiredbythisItem12ofForm10Kwillbeincludedinour2014ProxyStatementandisincorporatedhereinbyreference.

ITEM13.

CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTORINDEPENDENCE

TheinformationrequiredbythisItem13ofForm10Kwillbeincludedinour2014ProxyStatementandisincorporatedhereinbyreference.

ITEM14.

PRINCIPALACCOUNTANTFEESANDSERVICES

TheinformationrequiredbythisItem14ofForm10Kwillbeincludedinour2014ProxyStatementandisincorporatedhereinbyreference.
PARTIV

ITEM15.

EXHIBITSANDFINANCIALSTATEMENTSCHEDULES

1.

FinancialStatements.SeeIndextoConsolidatedFinancialStatementsinPartII,Item8ofthisAnnualReportonForm10K.

2.

Allfinancialstatementscheduleshavebeenomitted,sincetherequiredinformationisnotapplicableorisnotpresentinamountssufficienttorequiresubmissionofthe
schedule,orbecausetheinformationrequiredisincludedintheconsolidatedfinancialstatementsandnotesthereto.

3.

Exhibits.TheexhibitslistedintheaccompanyingIndextoExhibitsarefiledorincorporatedbyreferenceaspartofthisAnnualReportonForm10K.

126

TableofContents
INDEXTOEXHIBITS

Exhibit
Number

IncorporatedbyReference

Filed

Herewith

ExhibitDescription

Form

3.1

AmendedandRestatedCertificateofIncorporationoftheRegistrant

S1

333164593

3.1

January29,2010

3.2

AmendedandRestatedBylawsoftheRegistrant

S1

333164593

3.2

January29,2010

4.1

SpecimencommonstockcertificateoftheRegistrant

S1/A

333164593

4.1

May27,2010

FifthAmendedandRestatedInvestorsRightsAgreement,datedasof S1
August31,2009,betweenRegistrantandcertainholdersofthe
Registrantscapitalstocknamedtherein

AmendmenttoFifthAmendedandRestatedInvestorsRights
S1/A
Agreement,datedasofMay20,2010,betweenRegistrantandcertain
holdersoftheRegistrantscapitalstocknamedtherein

AmendmenttoFifthAmendedandRestatedInvestorsRights
AgreementbetweenRegistrant,ToyotaMotorCorporationand
certainholdersoftheRegistrantscapitalstocknamedtherein

AmendmenttoFifthAmendedandRestatedInvestorsRights
S1/A
Agreement,datedasofJune14,2010,betweenRegistrantandcertain
holdersoftheRegistrantscapitalstocknamedtherein

AmendmenttoFifthAmendedandRestatedInvestorsRights
Agreement,datedasofNovember2,2010,betweenRegistrantand
certainholdersoftheRegistrantscapitalstocknamedtherein

WaivertoFifthAmendedandRestatedInvestorsRightsAgreement,
datedasofMay25,2011,betweenRegistrantandcertainholdersof
theRegistrantscapitalstocknamedtherein

4.2

4.2A

4.2B

4.2C

4.2D

4.2E

S1/A

127

November4,2010

4.2E

June15,2010

4.1

333174466

May27,2010

4.2C

00134756

May27,2010

4.2B

333164593

January29,2010

4.2A

333164593

FilingDate

4.2

333164593

8K

Exhibit

333164593

S1/A

FileNo.

June2,2011

TableofContents
Exhibit
Number

IncorporatedbyReference

Filed

Herewith

ExhibitDescription

AmendmenttoFifthAmendedandRestatedInvestorsRights
8K
Agreement,datedasofMay30,2011,betweenRegistrantandcertain
holdersoftheRegistrantscapitalstocknamedtherein

SixthAmendmenttoFifthAmendedandRestatedInvestorsRights
Agreement,datedasofMay15,2013amongTeslaMotors,Inc.,the
ElonMuskRevocableTrustdatedJuly22,2003andcertainother
holdersofthecapitalstockofTeslaMotors,Inc.namedtherein.

WaivertoFifthAmendedandRestatedInvestorsRightsAgreement,
datedasofMay14,2013,betweenTeslaMotors,Inc.andcertain
holdersofthecapitalstockofTeslaMotors,Inc.namedtherein.

Indenture,datedasofMay22,2013,byandbetweenTeslaMotors,
Inc.andU.S.BankNationalAssociation.

FirstSupplementalIndenture,datedasofMay22,2013,byand
betweenTeslaMotors,Inc.andU.S.BankNationalAssociation.

Formof1.50%ConvertibleSeniorNoteDueJune1,2018(included
inExhibit4.4).

FormofIndemnificationAgreementbetweentheRegistrantandits
directorsandofficers

10.2

2003EquityIncentivePlan

S1/A

333164593

10.2

May27,2010

10.3

FormofStockOptionAgreementunder2003EquityIncentivePlan

S1

333164593

10.3

January29,2010

GrantNoticeandStockOptionAgreementbetweentheRegistrant
andElonMusk

AmendedandRestated2010EquityIncentivePlan

4.2F

4.2G

4.2H

4.3
4.4
4.5
10.1

10.3A
10.4

Form

8K
8K
8K
S1/A

S1/A
10Q

128

June15,2010

10.3A

333164593

May22,2013

10.1

333164593

May22,2013

4.3

333164593

May22,2013

4.2

00134756

May20,2013

4.1

00134756

May20,2013

4.2

00134756

June1,2011

4.1

00134756

FilingDate

4.1

00134756

8K

Exhibit

00134756

8K

FileNo.

March29,2010

10.4

August2,2012

TableofContents
Exhibit

IncorporatedbyReference

Number

ExhibitDescription

10.5

FormofStockOptionAgreementunder2010EquityIncentivePlan S1/A

FormofRestrictedStockUnitAwardAgreementunder2010Equity S1/A
IncentivePlan

2010EmployeeStockPurchasePlan

S1/A

FormofPurchaseAgreementunder2010EmployeeStockPurchase S1/A
Plan

OfferLetterbetweentheRegistrantandElonMuskdatedOctober
13,2008

OfferLetterbetweentheRegistrantandDeepakAhujadatedJune
13,2008,andamendedJune4,2009

RelocationAgreementbetweentheRegistrantandDeepakAhuja
effectiveOctober31,2008andamendedJune4,2009

OfferLetterbetweentheRegistrantandJeffreyB.Straubeldated
May6,2004

CommercialSingleTenantLeasebetweentheRegistrantandJames S1
R.HulldatedAugust16,2006

LicenseAgreementbetweentheRegistrantandMSKearny
NorthropAvenue,LLCdatedJuly23,2009

CommercialLeasebetweentheRegistrantandTheBoardof
S1
TrusteesofTheLelandStanfordJr.UniversitydatedAugust6,2009

SupplyAgreementbetweenEberspacher(UK)Ltd.andthe
RegistrantdatedSeptember1,2006

SupplyAgreementbetweenPereiGroup(UK)Ltd.andthe
RegistrantdatedSeptember1,2006

SupplyAgreementbetweenBurgaflex(UK)Ltd.andtheRegistrant
datedSeptember1,2006

10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16

10.17
10.18

Form

FileNo.

333164593

333164593
333164593

S1

S1/A

S1/A
S1/A

January29,2010

March29,2010

10.25

March29,2010

10.26

January29,2010

10.24

333164593

January29,2010

10.22

333164593

January29,2010

10.21

333164593

January29,2010

10.19

333164593

January29,2010

10.12

333164593

January29,2010

10.11

333164593

June15,2010

10.10

333164593

May27,2010

Filed
Herewith

10.9

333164593

S1

10.7

March29,2010

March29,2010

10.8

333164593

S1

FilingDate

10.6

333164593

S1

10.5

333164593

S1

Exhibit

March29,2010

129

TableofContents
Exhibit
Number

IncorporatedbyReference

ExhibitDescription

SupplyAgreementbyandamongSanyoElectricCo.Ltd.Mobile S1
EnergyCompany,SanyoEnergy(USA)Corporationandthe
RegistrantdatedFebruary1,2007

AmendmentNo.1toSupplyAgreementbyandamongSanyo
ElectricCo.Ltd.MobileEnergyCompanyandSanyoEnergy
(USA)CorporationandtheRegistranteffectiveasofFebruary1,
2007

SupplyAgreementbyandbetweenTaiwayLtd.andthe
RegistrantdatedFebruary12,2007

SupplyAgreementbetweenChromaATEInc.andtheRegistrant
datedApril19,2007

SupplyAgreementbetweenPolytecHoldenLtd.andthe
RegistrantdatedApril13,2007

ModificationtoTermsandConditionsbetweenBorgWarner
S1
TorqTransferSystemsInc.andtheRegistrantdatedSeptember22,
2008

ZEVCreditsAgreementbetweenAmericanHondaMotorCo.,Inc. S1/A
andtheRegistrantdatedFebruary12,2009

AddendumtoZEVCreditsAgreementbetweenAmericanHonda
MotorCo.,Inc.andtheRegistrantdatedFebruary20,2009

SupplementalZEVCreditsAgreementbetweenAmericanHonda
MotorCo.,Inc.andtheRegistrantdatedMarch20,2009

SecondSupplementalZEVCreditsAgreementbetweenAmerican S1/A
HondaMotorCo.,Inc.andtheRegistrantdatedFebruary8,2010

10.19

10.19A

10.20
10.21
10.22
10.23

10.24
10.24A
10.24B
10.24C

Form

FileNo.

333164593

S1

333164593

S1
S1/A
S1/A

S1/A
S1/A

130

May27,2010

10.32C

May27,2010

10.32B

333164593

May27,2010

10.32A

333164593

January29,2010

10.32

333164593

March29,2010

10.31

333164593

March29,2010

10.30

333164593

March29,2010

10.29

333164593

January29,2010

10.28

333164593

Filed
Herewith

January29,2010

10.27A

333164593

FilingDate

10.27

Exhibit

May27,2010

TableofContents
Exhibit
Number

IncorporatedbyReference

ExhibitDescription

SupplyAgreementbyandamongPanasonicIndustrialCompany,
PanasonicCorporation,actingthroughEnergyCompany,andthe
RegistrantdatedJuly21,2009

ExclusivityandIntellectualPropertyAgreementbetweenDaimler
NorthAmericaCorporationandtheRegistrantdatedMay11,2009

SideAgreementbetweentheRegistrantandBlackstarInvestCo
LLCdatedMay11,2009

LetterAgreementbetweentheElonMuskRevocableTrustdated
July22,2003andBlackstarInvestCoLLC,datedMay11,2009

DevelopmentContractbetweenDaimlerAGandTeslaMotorsLtd.
datedMay10,2010

SettlementAgreementbetweentheRegistrantandentitiesaffiliated S1/A
withValorEquityPartnersdatedMay20,2010

LetterAgreementbetweentheRegistrantandNewUnitedMotor
Manufacturing,Inc.datedMay26,2010

AmendmentNo.1totheLetterAgreementbetweentheRegistrant
andNewUnitedMotorManufacturing,Inc.datedJune15,2010

AmendmentNo.2totheLetterAgreementbetweentheRegistrant
andNewUnitedMotorManufacturing,Inc.datedOctober1,2010

AmendmentNo.3totheLetterAgreementbetweentheRegistrant
andNewUnitedMotorManufacturing,Inc.datedOctober8,2010

10.25

10.26
10.27
10.28
10.29
10.30
10.31
10.31A
10.31B
10.31C

Form

S1

FileNo.

333164593

S1/A

333164593

S1
S1
S1/A

10Q
10Q
10Q

131

May27,2010

10.3

November12,2010

10.4

November12,2010

10.5

00134756

May27,2010

10.45

00134756

May27,2010

10.44

00134756

January29,2010

10.43

333164593

333164593

S1/A

January29,2010

10.36

333164593

March29,2010

10.35

333164593

Filed
Herewith

January29,2010

10.34

333164593

FilingDate

10.33

Exhibit

November12,2010

TableofContents
Exhibit
Number

IncorporatedbyReference

ExhibitDescription

AmendmentNo.4totheLetterAgreementbetweentheRegistrant 10Q
andNewUnitedMotorManufacturing,Inc.datedOctober13,
2010

AmendmentNo.5totheLetterAgreementbetweentheRegistrant 10Q
andNewUnitedMotorManufacturing,Inc.datedOctober15,
2010

AmendmentNo.6totheLetterAgreementbetweentheRegistrant 10Q
andNewUnitedMotorManufacturing,Inc.datedOctober19,
2010

SaleandPurchaseAgreementbetweenRegistrantandNewUnited 10Q
MotorManufacturing,Inc.,datedAugust13,2010

AddendumNo.1totheSaleandPurchaseAgreementbetween
RegistrantandNewUnitedMotorManufacturing,Inc.,dated
September23,2010

Phase1ContractServicesAgreementbetweenRegistrantand
ToyotaMotorCorporationdatedOctober6,2010

SupplyandServicesAgreementbetweenToyotaMotor
Engineering&ManufacturingNorthAmerica,Inc.andthe
RegistrantdatedJuly15,2011

SupplyAgreementbetweenPanasonicCorporationandthe
RegistrantdatedOctober5,2011

10.31D

10.31E

10.31F

10.32
10.32A

10.33
10.34

10.35
10.35A

Form

10K

November12,2010

March3,2011

10.1

00134756

November12,2010

10.47

00134756

10.2

00134756

10Q

November12,2010

10.1

00134756

November14,2011

10.50

Herewith

November12,2010

10.8

00134756

Filed

November12,2010

10.7

00134756

FilingDate

10.6

00134756

10K

Exhibit

00134756

10Q

FileNo.

February27,2012

AmendmentNo.1toSupplyAgreementbetweenPanasonic
CorporationandtheRegistrantdatedOctober29,2013

10.36

FormofCallOptionConfirmation.

8K

00134756

10.1

May22,2013

10.37

FormofWarrantConfirmation.

8K

00134756

10.2

May22,2013

132

TableofContents
Exhibit

Number

ExhibitDescription

12.1

IncorporatedbyReference

Form

FileNo.

Exhibit

FilingDate

Filed

Herewith

StatementregardingComputationofRatioofEarningstoFixed
Charges

ConsentofPricewaterhouseCoopers,IndependentRegisteredPublic
AccountingFirm

Rule13a14(a)/15(d)14(a)CertificationofPrincipalExecutive
Officer

31.2

Rule13a14(a)/15(d)14(a)CertificationofPrincipalFinancialOfficer

32.1*

Section1350Certifications

101.INS**

XBRLInstanceDocument

101.SCH**

XBRLTaxonomyExtensionSchemaDocument

101.CAL** XBRLTaxonomyExtensionCalculationLinkbaseDocument.

101.DEF**

23.1
31.1

XBRLTaxonomyExtensionDefinitionLinkbaseDocument

101.LAB** XBRLTaxonomyExtensionLabelLinkbaseDocument

101.PRE** XBRLTaxonomyExtensionPresentationLinkbaseDocument

*
Furnishedherewith
**
XBRL(ExtensibleBusinessReportingLanguage)informationisfurnishedandnotfiledorapartofaregistrationstatementorprospectusforpurposesofsections11or12of
theSecuritiesActof1933,isdeemednotfiledforpurposesofsection18oftheSecuritiesExchangeActof1934,andotherwiseisnotsubjecttoliabilityunderthesesections.

Confidentialtreatmenthasbeenrequestedforportionsofthisexhibit

133

TableofContents
SIGNATURES
PursuanttotherequirementsofSection13or15(d)theSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,
thereuntodulyauthorized.

Date:February26,2014

TeslaMotors,Inc.
/s/ElonMusk
ElonMusk
ChiefExecutiveOfficer
(PrincipalExecutiveOfficer)

PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacities
andonthedatesindicated.

Title

Date

Signature

/s/ElonMusk
ElonMusk

ChiefExecutiveOfficerandDirector(Principal
ExecutiveOfficer)

/s/DeepakAhuja
DeepakAhuja

ChiefFinancialOfficer(PrincipalFinancialOfficerand
PrincipalAccountingOfficer)

/s/BradBuss
BradBuss

/s/IraEhrenpreis
IraEhrenpreis

/s/AntonioGracias
AntonioGracias

/s/StephenJurvetson
StephenJurvetson

February26,2014

February26,2014

Director

February26,2014

Director

February26,2014

Director

February26,2014

Director

February26,2014

/s/HaraldKroeger
HaraldKroeger

Director

/s/KimbalMusk
KimbalMusk

February26,2014

Director

February26,2014

134

Exhibit10.35A
ConfidentialTreatmentRequestedbyTeslaMotors,Inc.

October30,2013

To:

Mr.ShinsukeNakahori
Director,PortableRechargeableBatteryBusinessDivision
SANYOElectricCo.,Ltd.2221,Kaminaizen,SumotoCity,Hyogo5658555,Japan
Mr.JosephHowell
PanasonicIndustrialDevicesSalesCompanyofAmerica
PanasonicCorporationofNorthAmerica
TwoRiverfrontPlaza,7thFloor,Newark,NJ071025490

Thisamendment(Amendment)isenteredintobyandbetweenTeslaMotors,Inc.(Tesla)andPanasonicIndustrialDevicesSalesCompanyofAmericaf/k/aPanasonicIndustrial
Company,divisionofPanasonicCorporationofNorthAmerica,andSANYOElectricCo.,Ltd.actingthroughPortableRechargeableBatteryBusinessDivision,theassigneeofthe
AgreementfromPanasonicCorporation,actingthroughEnergyCompany(collectively,Panasonic)(TeslaandPanasonicarereferredtocollectivelyastheParties)asofthedate
setforthaboveinconnectionwiththePartiesSupplyAgreementdatedOctober5,2011(asamended,theAgreement).Alltermsusedbutnototherwisedefinedhereinshallhave
themeaningsassignedtosuchtermsintheAgreement.Inconsiderationofthemutualpromisesandmutualcovenantssetforthbelowandothergoodandvaluableconsideration,the
receiptandsufficiencyofwhichareherebyacknowledged,thePartiesherebyagreetoamendtheAgreementasfollows:

1.

InSection2(b)(Term)oftheAgreement,thephraseDecember31,2015isdeletedfromthefirstsentenceandreplacedwithDecember31,2017.

2.

ForpurposesofSection3(ForecastandOrders),TeslassubsidiariesandaffiliatesmayissueOrderspursuanttotheAgreement,andsuchOrdersshallbedeemedtobe
validandbindingOrdersbytheissuingentityandtheissuingentityshallberesponsibleforpaymenttherefor.Iftheissuingentityfailstopayamountsduepursuantto
anacceptedOrderbytheapplicablepaymentdate,PanasonicshallnotifyTeslaandTeslashallberesponsibleforsuchpayment.ItemsorderedpursuanttosuchOrders
shallcountagainstTeslasoverallpurchasecommitmentshereunder.

3.

Section6(c)oftheAgreementisamendedtoincludethefollowingadditionalsentence:SellershalluseabondedcarrierfromtheU.S.portofentrytoTeslas
designatedfacilityforeachdeliveryhereunder,unlessTeslahasgivenexpress,priorwrittenwaiverofthisrequirementforaparticulardelivery.

4.

Section7oftheAgreementisamendedtoincludethefollowingadditionalsection:(e)Inconnectionwiththeforegoing,thePartieshaveagreedtotheProcessand
ProceduresforDamagedGoodsArrivingatTeslaMotorsdatedJune22,2012,whichisherebyincorporatedbyreferenceintotheAgreement.

5.

ThelastsentenceofSection8(a)oftheAgreementisherebydeletedinitsentiretyandreplacedwiththefollowing:Panasonicmay,forgoodcause,proposeachangeto
thepaymenttermsand/oramountordurationofcreditextendedtoTeslahereunder,andthePartiesshalldiscussanysuchproposalingoodfaith.Notwithstandingthe
foregoing,Panasonicreservestherightatanytime,butonlyafteragoodfaithdiscussionwithTesla,[***].

AmendmenttoTeslaPanasonicSupplyAgreement

Page1of

5
[***]InformationhasbeenomittedandfiledseparatelywiththeSecuritiesandExchangeCommission.ConfidentialTreatmenthasbeenrequestedwithrespecttotheomitted

portions.

ConfidentialTreatmentRequestedbyTeslaMotors,Inc.

6.

ThefollowingisaddedasanewSection9(i):
(i)If,withrespecttoItems,Modulesand/orFinishedProducts,[***],Panasonicshallbeliableforthe[***].Notwithstandingtheforegoing,Panasonicshall
notbeliableunderthisparagraphtotheextentthat[***].Tothemaximumextentpermittedbylaw,PanasonicsliabilitytoTeslapursuanttothisSection9(i)
shallnot[***].PanasonicsliabilitysetforthaboveshallbeTeslassoleremedyincaseof[***]andinnoeventshallPanasonicbeliableforanylostgoodwill,
profit,revenueorsavingsinconnectionwith[***].Totheextentpermittedbyapplicablelaw,Teslashall(a)notifyPanasonicpromptlyafterbecomingaware
of[***]and[***]inconnectionwith[***],totheextentrelatedtotheItems,(b)consultwithPanasonicingoodfaithregarding[***],and(c)providesuch
informationasreasonablyrequestedbyPanasonicfromtimetotimewithrespectto[***].

7.

InSection11(Indemnification)oftheAgreement,subsection(c)isherebyrenumberedassubsection(d)andthefollowingisaddedattheendofthesubsection:The
indemnifyingPartymaynot[***].

8.

InSection11(Indemnification)oftheAgreement,anewsubsection(c)isaddedasfollows:

(c)InfringementIndemnitybyPanasonic.AtanytimeduringthetermofthisAgreementandthereafter,PanasonicshallindemnifyandholdtheTeslaParties
harmlessfromandagainstanyandallClaimsarisingoutofanyactualorallegedinfringementormisappropriationofthepatent,trademark,copyright,trade
secretorotherintellectualorindustrialpropertyrightsofanythirdpartywithrespecttotheextentcausedbyPanasonicand/ortheItemsasdeliveredby
Panasonicprovided,however,thattheforegoingindemnityshallnotapplywithrespecttoClaimstotheextent[***].

9.

Section12(a)isamendedandrestatedinitsentiretyasfollows:
(a)LimitationofLiability.
(i)TOTHEMAXIMUMEXTENTPERMITTEDBYAPPLICABLELAWANDEXCEPTFOR(1)[***],(2)EACHPARTIESOBLIGATIONSSET
FORTHINSECTION11,(3)[***],(4)TESLASOBLIGATIONSSETFORTHINSECTION12(d),AND(5)[***],NEITHERPARTYSHALLBE
LIABLEORRESPONSIBLETOTHEOTHERPARTYFORANYSPECIAL,INDIRECT,INCIDENTAL,EXEMPLARY,CONSEQUENTIALOR
PUNITIVEDAMAGESARISINGOUTOFORINCONNECTIONWITHTHISAGREEMENT,INCLUDING,WITHOUTLIMITATION,ANY
WORKDELAYS,LOSTGOODWILL,PROFIT,REVENUEORSAVINGS,LOSSOFUSE,COSTOFCAPITAL,COSTOFSUBSTITUTE
EQUIPMENT,FACILITIESORSERVICES,ORDOWNTIMECOSTS,EVENIFSUCHPARTYHASBEENADVISEDORISAWAREOFTHE
POSSIBILITYOFSUCHDAMAGES,ANDNEITHERPARTYSLIABILITYFORMONETARYDAMAGESTOTHEOTHERPARTYUNDER
THISAGREEMENTSHALLEXCEED[***].[***]MEANSANAMOUNTEQUALTO[***].
(II)TESLASLIABILITYTOPANASONICRESULTINGFROM[***]SHALLNOTEXCEED[***].
(III)THEPARTIESAGREETHATDAMAGESINCURREDDUETO[***],WILLBECONSIDEREDDIRECTDAMAGES.

AmendmenttoTeslaPanasonicSupplyAgreement

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[***]InformationhasbeenomittedandfiledseparatelywiththeSecuritiesandExchangeCommission.ConfidentialTreatmenthasbeenrequestedwithrespecttotheomitted

portions.

ConfidentialTreatmentRequestedbyTeslaMotors,Inc.

10.

ThecurrentversionAttachment1oftheAgreementisnolongerineffectandisherebyreplacedinitsentiretybyAttachment1A,attachedhereto.

11.

ThisAmendment,togetherwiththeAgreement(includinganyopenpurchaseorders),constitutestheentireagreementbetweenthePartiesandsupersedesallprior
agreementsandunderstandings,bothoralandwritten,betweentheParties.ThisAmendmentmaybeexecutedincounterparts,eachofwhichwhensoexecutedand
deliveredwillbedeemedanoriginal,andallofwhichtakentogetherwillconstituteoneandthesameinstrument.

Iampleasedthatwehavereachedthispointandlookforwardtoacontinuingproductiverelationshipwithyou.PleaseconfirmSellersagreementwiththeforegoingbysigninga
copyofthisletterwhereindicatedbelowandreturningittome.

Sincerely,

/s/JBStraubel

JBStraubel
ChiefTechnologyOfficer
TeslaMotors,Inc.
3500DeerCreekRoad
PaloAlto,CA94304
AgreedtobyPanasonicIndustrialDevicesSalesCompanyofAmerica,divisionofPanasonicCorporationofNorthAmerica

By:

/s/KazutoNezu

Name:

KazutoNezu

Title:

Director,PanasonicIndustrialDevicesSalesCompanyofAmerica,divisionofPanasonicCorporationofNorthAmerica

AgreedtobySANYOElectricCo.,Ltd.actingthroughPortableRechargeableBatteryBusinessDivision

By:

/s/ShinsukeNakahori

Name:

ShinsukeNakahori

Title:

Director,SANYOElectricCo.,Ltd.actingthroughPortableRechargeableBatteryBusinessDivision

AmendmenttoTeslaPanasonicSupplyAgreement

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[***]InformationhasbeenomittedandfiledseparatelywiththeSecuritiesandExchangeCommission.ConfidentialTreatmenthasbeenrequestedwithrespecttotheomitted

portions.

ConfidentialTreatmentRequestedbyTeslaMotors,Inc.

Attachment1A
ListofItems,PricingMechanism

1.

PricingforCellsDeliveredThroughDecember31,2013
[***].

2.

PricingforCellsDeliveredAfterJanuary1,2014

(a)

CellPricing.

20142015

PriceforLiIonCell[***](TeslaPartNo.[***])1
Quantity(millions)

1Q14

2Q14*

3Q14*

4Q14*

1Q15*

2Q15*

3Q15*

4Q15*

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

20162017

PriceforLiIonCell[***](TeslaPartNo.[***])1
Quantity(millions)

1Q16*

2Q16*

3Q16*

4Q16*

1Q17*

2Q17*

3Q17*

4Q17*

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

Thepricingsetforthaboveisbasedonthefollowing[***].ThePartiesshallworktogetheronanongoingbasisandingoodfaithto[***],thePartiesshalljointlydetermine
theamountof[***]ingoodfaith[***]followinganysuchmeeting,and[***]shallbereflectedin[***]pricingunderthisAttachment1Aasfollows:[***].

20142015

[***]costpercell

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]costpercell
[***]costpercell
[***]costpercell

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

ThePartiesmayalsoagreetomodifythetypesofItemseligibleforpurchaseunderthisAgreement(e.g.bysubstitutinglaterversionsofearliercells),andpurchasesofsuch
ItemshereundershallbedeemedtosatisfyanyapplicablepurchasecommitmentshereunderandthepriceforsuchItemsshallbenegotiatedingoodfaithbytheParties.
Thepricessetforthaboveare[***],andthePartiesshallrecalculatethe[***]ingoodfaith[***].

AmendmenttoTeslaPanasonicSupplyAgreement

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[***]InformationhasbeenomittedandfiledseparatelywiththeSecuritiesandExchangeCommission.ConfidentialTreatmenthasbeenrequestedwithrespecttotheomitted

portions.

ConfidentialTreatmentRequestedbyTeslaMotors,Inc.

(b)

PriceAdjustments.Thepricessetforthaboveshallbeadjusted[***]foradjustmentsinpricesforthe[***]materialssetforthbelow,inaccordancewiththeadjustment
mechanismprocesssetforthinExhibit1([***]).Thefollowingassumptionsshallapplyforpurposesofthepriceadjustmentmechanism:

BaselineCommodityAssumption

[***]Content(g)
[***]Price(USD/kg)
[***]Content(g)
[***]Price(USD/kg)
[***]Content(g)
[***]Price(USD/kg)
[***]Content(g)
[***]Price(USD/kg)
Exchangerate(Yen/$)

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

Forpurposesofthisadjustment,the[***]materialspricesshallbeconvertedfromUnitedStatesDollars(USD)intoJapaneseYen(JPY)usingthe[***]andthe[***]forthe
applicable[***]periodsetforthbelow:

[***]
[***]
[***]

[***]

[***]

[***]
[***]
[***]

[***]

[***]

[***]

Attachment2totheAgreementisherebydeleted.

2.

PanasonicsInvestment.

(a)

PanasonicwillmakecertaincapitalinvestmentstoenableproductionofcellsforTeslaundertheAgreementatPanasonicsfactoriesat[***],Japan,consistingof[***]
(thecostoftheforegoinginvestmentsistheInvestmentCost).PanasonicwillusereasonableeffortstolimittheamountoftheInvestmentCost,andtheInvestment
Costshallnot[***].

(b)

TeslacommitsthatPanasonicwillrecovertheInvestmentCostfromTesla[***]foratleast1.836billionItems(cells)[***]provided,however,that[***].

AmendmenttoTeslaPanasonicSupplyAgreement

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[***]InformationhasbeenomittedandfiledseparatelywiththeSecuritiesandExchangeCommission.ConfidentialTreatmenthasbeenrequestedwithrespecttotheomitted

portions.

ConfidentialTreatmentRequestedbyTeslaMotors,Inc.

Exhibit1
MaterialAdjustmentCalculator
[***]

[***]InformationhasbeenomittedandfiledseparatelywiththeSecuritiesandExchangeCommission.ConfidentialTreatmenthasbeenrequestedwithrespecttotheomitted
portions.

ConfidentialTreatmentRequestedbyTeslaMotors,Inc.
TeslaPanasonicConfidential

June22,2012
ProcessandProceduresforDamagedGoodsArrivingatTeslaMotors
ProcessincorporateslanguageofSection7ofSupplyAgreementbetweenTeslaMotorsandPanasonicIndustrialCompanyandPanasonicCorporationdatedOct.5,2011(the
Agreement)1

1.

Teslawillinspectshipmentspromptlyupondelivery:within[***]ofreceiptattheDAPPoint[***].InspectionwillbetodetermineifItemsconformtomutuallyagreedupon
inspectionspecificationsandtodetermineifItemsaredamaged.Testswillinclude:

a.

OCVmeasurements

b.

Impedancemeasurements

c.

[***]

2.

TeslamustnotifyPanasonicofdamageorothernonconformitywithin[***]ofdeliverytotheDAPPoint.Thisnoticemustbeinwriting.

3.

IfPanasonicdoesnotreceiveanoticeofdamageornonconformitywithin[***]afterdeliverytotheDAPPoint,theItemswillbedeemedtobeacceptedforpurposesof
payment.

4.

Ifdamageoranonconformityisfoundoralleged:

a.

Teslawillsendwrittennoticeto[***]ofPanasonicassoonaspossibleafterdiscoveryofdamageornonconformity.TeslawillsupplyPanasonicdetailedfacts
andsupportingevidence(suchastestresults)regardingthedamageornonconformity.

b.

Assoonaspractical,[***]willtraveltoTeslasite(FremontorPaloAlto)toinspecttheaffectedItemsandtakephotos.

c.

Onthesamedayoftheinspection,[***]willemailphotostothePanasonicfactory(representedby[***])forreview.

d.

Assoonaspractical,[***]willrespondto[***]withadeterminationastowhethertheItems:(i)areusable(ii)shouldbesubjecttoadditionalinspection
(iii)shouldbereturnedtothePanasonicfactoryor(iv)shouldbedestroyed.

Thisdocumentisnotintendedto,andshallnot,modifytheAgreementorotherwisewaiveormodifythepartiesrightsandobligationsthereunder.

TeslaPanasonicProcessforDamagedGoods

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2
[***]InformationhasbeenomittedandfiledseparatelywiththeSecuritiesandExchangeCommission.ConfidentialTreatmenthasbeenrequestedwithrespecttotheomitted

portions.

ConfidentialTreatmentRequestedbyTeslaMotors,Inc.
TeslaPanasonicConfidential

5.

IfItemsaredeterminedtobeusable,thePanasonicfactorywillsendawrittenreportto[***]thatcanbesubmittedtoTeslacertifyingthattheItemsareokaytouse(i.e.,theyare
freefromdamageandconformtotheagreedspecifications).

6.

IfthePanasonicfactorydeterminesthattheItemsmustleavetheTeslasiteforfurtherinvestigation:

a.

TeslawillarrangeforpickupoftheallegedlydamagedornonconformingItemsandtransporttoamutuallyagreedupondesignatedlocationatTeslas
expenseand

b.

OnceItemsareatthedesignatedlocation,Panasonicorthepartiesselectedthirdpartyservicewillpromptlybegintheadditionalinspection(including
technicalevaluationofcells)todeterminewhethercellsareusable.ThisadditionalinspectionwillbeconductedatTeslasexpense.

7.

IfthecauseofthedamageornonconformityisdeterminedtobesolelyattributabletoPanasonic(i.e.,cellsweredamagedornonconformingupondeliverytoTesla),
Panasonicshall:

a.

ReplacetheaffectedItems.[***]

b.

ReimburseTeslaforthereasonablecostsoftransportingtheItemstoPanasonicoranalternatedesignatedlocationforinspectionandtesting(iftransportwas
conductedatTeslaexpense)and

c.

ReimburseTeslaforthereasonablecostsofinspectionandtesting(iftheywereconductedbyathirdpartyatTeslasexpense).

8.

If,basedonthefindingsofPanasonicsinvestigation,PanasonicdeterminesthattheItemsmustbereturnedtothePanasonicfactoryinJapan,Panasonicwillarrangeforpickup
andshippingofthegoodstothefactoryatPanasonicsexpense.

a.

[***]willworkwithPanasonicOperationstocompleteaReturnMaterialAuthorizationform(RMA).[***]willissueanRMAnumbertoTeslaassoonas
practical.

b.

TheRMAnumbermustbeissuedbeforeTeslatransportstheItemseithertothePanasonicfactory,ortoanalternatedesignatedlocation.

c.

TheRMAnumbermustbereferencedonshippingdocumentation.

9.

IfPanasonicinstructsTeslainwritingtodestroythedamagedornonconformingItems,PanasonicshallreimburseTeslaforthereasonablecostofsuchdestruction.

TeslaPanasonicProcessforDamagedGoods

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2
[***]InformationhasbeenomittedandfiledseparatelywiththeSecuritiesandExchangeCommission.ConfidentialTreatmenthasbeenrequestedwithrespecttotheomitted

portions.

EXHIBIT12.1
RatioofEarningstoFixedCharges
Theratioofearningstofixedchargesforeachoftheperiodsindicatedisasfollows.

Ratioofearningstofixedcharges(1)

2013

YearEndedDecember31,
2012 2011 2010

2009

(1)

Forthepurposeofcalculatingsuchratios,earningsconsistofincomefromcontinuingoperationsbeforeincometaxesplusfixedchargesandfixedchargesconsistof
interestexpense(netofcapitalizedportion),capitalizedinterest,amortizationofdebtdiscountandtheportionofrentalexpenserepresentativeofinterestexpense.Earnings
wereinadequatetocoverthefixedchargesby$73.5million,$403.3million,$259.0million,$155.0millionand$55.7millionfortheyearsendedDecember31,2013,2012,
2011,2010and2009,respectively.

EXHIBIT23.1
CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
WeherebyconsenttotheincorporationbyreferenceintheRegistrationStatementsonFormS8(No.333183033,No.333187113,andNo.333167874),andintheRegistration
StatementonFormS3(No.333188625)ofTeslaMotors,Inc.ofourreportdatedFebruary26,2014relatingtothefinancialstatementsandtheeffectivenessofinternalcontrolover
financialreporting,whichappearsinthisForm10K.
/s/PricewaterhouseCoopersLLP
PricewaterhouseCoopersLLP
SanJose,California
February26,2014

EXHIBIT31.1
CERTIFICATIONS
I,ElonMusk,certifythat:

1.

IhavereviewedthisAnnualReportonForm10KofTeslaMotors,Inc.

2.

Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightof
thecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport

3.

Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsof
operationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport

4.

TheregistrantsothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a15(e)
and15d15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a15(f)and15d15(f))fortheregistrantandhave:

(a)

Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterial
informationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodin
whichthisreportisbeingprepared

(b)

Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovide
reasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerally
acceptedaccountingprinciples

(c)

Evaluatedtheeffectivenessoftheregistrantsdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosure
controlsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluationand

(d)

Disclosedinthisreportanychangeintheregistrantsinternalcontroloverfinancialreportingthatoccurredduringtheregistrantsmostrecentfiscalquarter(the
registrantsfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrantsinternalcontrol
overfinancialreportingand

5.

TheregistrantsothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrantsauditorsandthe
auditcommitteeoftheregistrantsBoardofDirectors(orpersonsperformingtheequivalentfunctions):

(a)

Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffect
theregistrantsabilitytorecord,process,summarizeandreportfinancialinformationand

(b)

Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrantsinternalcontroloverfinancialreporting.

Date:February26,2014

/s/ElonMusk
ElonMusk
ChiefExecutiveOfficer
(PrincipalExecutiveOfficer)

EXHIBIT31.2
CERTIFICATIONS
I,DeepakAhuja,certifythat:

1.

IhavereviewedthisAnnualReportonForm10KofTeslaMotors,Inc.

2.

Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightof
thecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport

3.

Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsof
operationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport

4.

TheregistrantsothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a15(e)
and15d15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a15(f)and15d15(f))fortheregistrantandhave:

(a)

Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterial
informationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodin
whichthisreportisbeingprepared

(b)

Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovide
reasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerally
acceptedaccountingprinciples

(c)

Evaluatedtheeffectivenessoftheregistrantsdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosure
controlsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluationand

(d)

Disclosedinthisreportanychangeintheregistrantsinternalcontroloverfinancialreportingthatoccurredduringtheregistrantsmostrecentfiscalquarter(the
registrantsfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrantsinternalcontrol
overfinancialreportingand

5.

TheregistrantsothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrantsauditorsandthe
auditcommitteeoftheregistrantsBoardofDirectors(orpersonsperformingtheequivalentfunctions):

(a)

Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffect
theregistrantsabilitytorecord,process,summarizeandreportfinancialinformationand

(b)

Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrantsinternalcontroloverfinancialreporting.

Date:February26,2014

/s/DeepakAhuja
DeepakAhuja
ChiefFinancialOfficer
(PrincipalFinancialOfficer)

EXHIBIT32.1
SECTION1350CERTIFICATIONS
I,ElonMusk,certify,pursuantto18U.S.C.Section1350,that,tomyknowledge,theAnnualReportofTeslaMotors,Inc.onForm10KfortheannualperiodendedDecember31,
2013,(i)fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934and(ii)thattheinformationcontainedinsuchForm10Kfairly
presents,inallmaterialrespects,thefinancialconditionandresultsofoperationsofTeslaMotors,Inc.

Date:February26,2014

/s/ElonMusk
ElonMusk
ChiefExecutiveOfficer
(PrincipalExecutiveOfficer)

I,DeepakAhuja,certify,pursuantto18U.S.C.Section1350,that,tomyknowledge,theAnnualReportofTeslaMotors,Inc.onForm10KfortheannualperiodendedDecember31,
2013,(i)fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934and(ii)thattheinformationcontainedinsuchForm10Kfairly
presents,inallmaterialrespects,thefinancialconditionandresultsofoperationsofTeslaMotors,Inc.

Date:February26,2014

/s/DeepakAhuja
DeepakAhuja
ChiefFinancialOfficer
(PrincipalFinancialOfficer)