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TESLA MOTORS INC
FORM 10-K
(Annual Report)
Filed 02/24/16 for the Period Ending 12/31/15
Address
3500 DEER CREEK RD
PALO ALTO, CA 94070
Telephone
650-681-5000
CIK
0001318605
Symbol
TSLA
SIC Code
3711 - Motor Vehicles and Passenger Car Bodies
Industry
Auto & Truck Manufacturers
Sector
Consumer Cyclical
Fiscal Year
12/31
http://www.edgar-online.com
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Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 001-34756 Tesla Motors, Inc.(Exact name of registrant as specified in its charter) Delaware 91-2197729(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 3500 Deer Creek RoadPalo Alto, California 94304(Address of principal executive offices) (Zip Code)(650) 681-5000(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.001 par value The NASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x
No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨
No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x
No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x
No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large acceleratedfiler,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
(Do not check if a smaller reporting company) Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No xThe aggregate market value of voting stock held by non-affiliates of the registrant, as of June 30, 2015, the last day of registrant’s most recently completed second fiscal quarter, was$26,340,519,416 (based on the closing price for shares of the registrant’s Common Stock as reported by the NASDAQ Global Select Market on June 30, 2015). Shares of Common Stock held byeach executive officer, director, and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination ofaffiliate status is not necessarily a conclusive determination for other purposes.As of January 31, 2016, there were 132,056,338 shares of the registrant’s Common Stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s Proxy Statement for the 2015 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extentstated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2015. TESLA MOTORS, INC.ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2015INDEX PagePART I. Item 1. Business 4Item 1A. Risk Factors 13Item 1B. Unresolved Staff Comments 27Item 2. Properties 28Item 3. Legal Proceedings 28Item 4. Mine Safety Disclosures 28 PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29Item 6. Selected Financial Data 31Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32Item 7A. Quantitative and Qualitative Disclosures About Market Risk 43Item 8. Financial Statements and Supplementary Data 45Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 74Item 9A. Controls and Procedures 74Item 9B. Other Information 74 PART III. Item 10. Directors, Executive Officers and Corporate Governance 75Item 11. Executive Compensation 75Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 75Item 13. Certain Relationships and Related Transactions, and Director Independence 75Item 14. Principal Accountant Fees and Services 75 PART IV. Item 15. Exhibits and Financial Statement Schedules 75 Signatures 82 2 Forward-Looking StatementsThe discussions in this Annual Report on Form 10-K contain forward-looking statements reflecting our current expectations that involve risks anduncertainties. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position,future revenues, projected costs, profitability, expected cost reductions, capital adequacy, expectations regarding demand and acceptance for our technologies,growth opportunities and trends in the market in which we operate, prospects and plans and objectives of management. The words “anticipates”, “believes”,“estimates”, “expects”, “intends”, “may”, “plans”, “projects”, “will”, “would” and similar expressions are intended to identify forward-looking statements,although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in ourforward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially fromthe plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks anduncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks setforth in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission. We do notassume any obligation to update any forward-looking statements. 3 P ART II TEM 1.BUSINESSOverviewWe design, develop, manufacture and sell high-performance fully electric vehicles and energy storage products. We have established our own network ofvehicle sales and service centers and Supercharger stations globally to accelerate the widespread adoption of electric vehicles. Our vehicles, electric vehicleengineering expertise, and business model differentiates us from incumbent automobile manufacturers.We currently produce and sell two fully electric vehicles, the Model S sedan and the Model X sport utility vehicle (SUV). Both vehicles offer exceptionalperformance, functionality and attractive styling. We commenced deliveries of Model S in June 2012 and as of December 31, 2015 we have delivered over 107,000new Model S vehicles worldwide. We have continued to improve Model S by introducing performance, all-wheel drive dual motor, and autopilot options, as wellas free over-the-air software updates.We commenced customer deliveries of Model X in the third quarter of 2015. This unique vehicle offers exceptional safety, seating for seven people, all-wheel drive, and our autopilot functionality. We are currently ramping production and deliveries of Model X in the United States and plan to offer it in Europe andAsia in 2016.After the Model X, our goal is to introduce the Model 3, a lower priced sedan designed for the mass market. We intend to unveil Model 3 in the first quarterof 2016 and start production and deliveries in late 2017.The commercial production of fully electric vehicles that meets consumers’ range and performance expectations requires substantial design, engineering,and integration work on almost every system of our vehicles. Our design and vehicle engineering capabilities, combined with the technical advancements of ourpowertrain system, have enabled us to design and develop electric vehicles that we believe overcome the design, styling, and performance issues that havehistorically limited broad consumer adoption of electric vehicles. As a result, our customers enjoy several benefits, including: ·Long
Range
and
Recharging
Flexibility.
Our vehicles offer ranges that significantly exceed those of any other commercially available electricvehicle. In addition, our vehicles incorporate our proprietary on-board charging system, permitting recharging from almost any available electricaloutlet. Our vehicles also offer fast charging capability from our Supercharger network. We believe the long-range and charging flexibility of ourvehicles will help reduce consumer anxiety over range, alleviate the need for expensive, large-scale charging infrastructure, and differentiate ourvehicles as compared to those of our competitors. ·High-Performance
Without
Compromised
Design
or
Functionality.
Our vehicles deliver unparalleled driving experiences with instantaneous andsustained acceleration through an extended range of speed. In addition, our vehicles provide best in class storage in the trunk and hood while offeringdesign and performance comparable to, or better than, other premium vehicles. ·Energy
Efficiency
and
Cost
of
Ownership.
Our vehicles offer consumers an attractive cost of ownership when compared to similar internalcombustion engine or hybrid electric vehicles. Using only an electric powertrain enables us to create more energy efficient vehicles that aremechanically simpler than currently available hybrid or internal combustion engine vehicles. The cost to fuel our vehicles is less compared tointernal combustion vehicles. We also expect our electric vehicles will have lower relative maintenance costs than hybrid, plug-in hybrid, or internalcombustion engine vehicles due to fewer moving parts and the absence of certain components, including oil, oil filters, spark plugs and enginevalves. Additionally, government incentives that are currently available can reduce the cost of ownership even further.We sell our vehicles through our own sales and service network which we are continuing to grow globally. We believe the benefits we receive fromdistribution ownership will enable us to improve the overall customer experience, the speed of product development and the capital efficiency of our business. Weare also continuing to build our network of Superchargers in the United States, Europe and Asia to provide fast charging that enables convenient long distancetravel.In addition to developing our own vehicles, we sell energy storage products. We recently announced the next generation of our energy storage products, the7 kWh and 10 kWh Powerwall for residential applications and the 100 kWh Powerpack for commercial and industrial applications. We began production anddeliveries of these products, which we market under the Tesla Energy brand, in the third quarter of 2015.We manufacture our products primarily at our facilities in Fremont, California, Lathrop, California, Tilburg, Netherlands and at our Gigafactory near Reno,Nevada. We are currently using battery packs manufactured at the Gigafactory for our energy storage products, and will do so for our vehicles in the future.Our Vehicles and ProductsWe currently design, develop, manufacture and sell fully electric vehicles and energy storage products.4 Model SModel S is a fully electric, four-door, five-adult passenger sedan that offers compelling range and performance with zero tailpipe emissions. Model S offersa range on a single charge of up to 288 miles as determined using the United States EPA’s combined two-cycle city/highway test. We offer performance and all-wheel drive dual motor system options. The performance version of our All-Wheel Drive Dual Motor Model S accelerates from 0 to 60 miles per hour in 2.8seconds with the Ludicrous speed upgrade.Model S offers a unique combination of functionality, convenience, safety and styling without compromising performance and energy efficiency. With thebattery pack in the floor of the vehicle and the motor and gearbox in line with the rear axle, our single motor Model S provides best in class storage space. Model Sis also available with premium luxury features, including a 17 inch touch screen driver interface, our advanced autopilot system with both active safety andconvenience features, and over-the-air software updates. We believe the combination of performance, safety, styling, convenience and energy efficiency of ModelS positions it as a compelling alternative to other vehicles in the luxury and performance segments.Model XModel X is a sport utility vehicle that offers exceptional functionality with high performance features such as our fully electric, all-wheel drive dual motorsystem and our autopilot system. Model X provides up to 257 miles of range on a single charge, and can accelerate from 0 to 60 as quickly as 3.2 seconds with theLudicrous speed upgrade. Model X seats seven adults and incorporates a unique falcon wing door system for superior access to the second and third seating rows.Although the National Highway Traffic Safety Administration has not yet conducted crash testing on Model X, based on our internal testing, we expect Model X toreceive the highest safety rating in every category. We began customer deliveries of Model X in the third quarter of 2015 in the United States. After its initiallaunch in the United States, Model X will be sold in all the markets where Model S is available including in Asia and Europe.Model 3We have also publicly announced our intent to develop a third generation electric vehicle, called Model 3, to be produced at the Tesla Factory. We intend tooffer this vehicle at a lower price point and expect to produce it at higher volumes than our Model S or Model X. We plan to unveil Model 3 in March of 2016 andexpect to start production and deliveries of this vehicle in late 2017.Energy Storage ApplicationsUsing the energy management technologies and manufacturing processes developed for our vehicle powertrain systems, we have developed energy storageproducts for use in homes, commercial sites and utilities. The applications for these battery systems include backup power, peak demand reduction, demandresponse and wholesale electric market services. We began selling our home systems in 2013 and our commercial and utility systems in 2014. We recentlyannounced the next generation of our energy storage products under the Tesla Energy brand.The Tesla Energy product portfolio will include energy storage products with a wide range of applications, from use in single homes to use in larger utility-scale projects. Tesla Powerwall is a rechargeable lithium-ion battery designed to store energy at a residential and small commercial level for load shifting, backuppower and self-consumption of solar power generation. Powerwall is available in storage sizes of 10kWh, optimized for backup applications, or 7kWh, optimizedfor daily use applications. In addition, we offer a 100 kWh Powerpack for peak shaving, load shifting and demand response for commercial customers and forrenewable firming and a variety of grid services for utilities. For utility scale systems, 100kWh battery blocks can be grouped together to offer installation of over10MWh. We began production of our Tesla Energy products at the Gigafactory in the fourth quarter of 2015.TechnologyOur core competencies are powertrain engineering, vehicle engineering, innovative manufacturing and energy storage. Our core intellectual property residesnot only within our electric powertrain, but also within our ability to design a vehicle that utilizes the unique advantages of an electric powertrain and the latestadvancements in consumer technologies. Our powertrain consists of our battery pack, power electronics, motor, gearbox and control software. We designed ourpowertrain originally for our first vehicle, the Tesla Roadster, and commercialized improvements into vehicles manufactured by Daimler and Toyota, andultimately into the Model S and Model X. Today, we offer several powertrain variants for the Model S and Model X that incorporate years of research anddevelopment performed since the original design. In addition, we have designed our vehicles to incorporate the latest advances in consumer technologies, such asmobile computing, sensing, displays, and connectivity. Further evolution of our technology continues for Model 3, which we plan to offer at significantly lowerprice. In addition, advancements originally commercialized in our vehicles are being leveraged for our storage applications.5 Battery PackWe design our battery packs to achieve high energy density at a low cost while also maintaining safety, reliability and long life. Our proprietary technologyincludes systems for high density energy storage, cooling, safety, charge balancing, structural durability, and electronics management. We have also pioneeredadvanced manufacturing techniques to manufacture large volumes of battery packs with high quality and low costs.We have significant expertise in the safety and management systems needed to use lithium-ion cells in the automotive environment, and have activelyworked with lithium-ion cell suppliers to further optimize cell designs to increase overall performance. These advancements have enabled us to improve cost andperformance of our batteries over time. For example, in 2015 alone, we upgraded the battery of our lowest range Model S from 60 kWh to 70 kWh, and our highestrange Model S to 90 kWh.Our engineering and manufacturing efforts have been performed with a longer-term goal of building a foundation for further development. For instance, wehave designed our battery pack to permit flexibility with respect to battery cell chemistry and form factor. In so doing, we can leverage the substantial investmentsand advancements being made globally by battery cell manufacturers to continue to improve cost. We maintain extensive testing and R&D capabilities at theindividual cell level, the full battery-pack level, and other critical battery pack systems. As a result, we have built an expansive body of knowledge on lithium-ioncell vendors, chemistry types, and performance characteristics. We believe that the flexibility of our designs, combined with our research and real-worldperformance data, will enable us to continue to evaluate new battery cells as they become commercially viable, and thereby optimize battery pack systemperformance and cost for our current and future vehicles.Power ElectronicsThe power electronics in our electric vehicle powertrain govern the flow of high voltage electrical current throughout the vehicle. The power electronicshave two primary functions, powering our electric motor to generate torque while driving and delivering energy into the battery pack while charging.The first function is accomplished through the drive inverter, which converts direct current (DC) from the battery pack into alternating current (AC) to driveour induction motors. The drive inverter also provides “regenerative braking” functionality, which captures energy from the wheels to charge the battery pack whenneeded. Tesla has developed a family of drive inverter designs that are customized to its proprietary motor designs to most efficiently meet the demands of each ofour vehicles. The primary technological advantages to our designs include the ability to drive large amounts of current in a small physical package.The second function, charging the battery pack, is accomplished by the charger, which converts alternating current (usually from a wall outlet or otherelectricity source) into direct current that can be accepted by the battery. Tesla vehicles can recharge on a wide variety of electricity sources due to the design ofthis charger, from a common household outlet to high power circuits meant for more industrial uses. In most markets, Tesla vehicles come with a MobileConnector that allows for multiple different charging services to be used. In many markets, Tesla offers a Tesla Wall Connector that can be set up to provide higherpower charging than the Mobile Connectors.On the road, customers can also charge using our Supercharger network or at a variety of destinations that have deployed our charging equipment. Inaddition, Model S vehicles can charge at a variety of public charging stations around the world, either natively or through a suite of adapters. This flexibility incharging provides customers with additional mobility, while also allowing them to conveniently charge the vehicle overnight at home.Dual Motor PowertrainIn October of 2014, we launched the initial version of our dual motor powertrain, which uses two electric motors to provide greater efficiency, performance,and range in an all-wheel drive configuration. Conventional all-wheel drive vehicles distribute power to the wheels from a single engine driving a complexmechanical transmission system. By contrast, Tesla’s dual motor powertrain digitally and independently controls torque to the front and rear wheels. The almostinstantaneous response of the motors, combined with low centers of gravity provides drivers with controlled performance and increased traction control.Vehicle Control and Infotainment SoftwareThe performance and safety systems of our vehicles and their battery packs require sophisticated control software. There are numerous processors in ourvehicles to control these functions, and we write custom firmware for many of these processors. The flow of electricity between the battery pack and the motormust be tightly controlled in order to deliver the performance and behavior expected in the vehicle. For example, software algorithms enable the vehicle to mimicthe “creep” feeling which drivers expect from an internal combustion engine vehicle without having to apply pressure on the accelerator. Similar algorithms controltraction, vehicle stability and the sustained acceleration and regenerative braking of the vehicle. Software also is used extensively to monitor the charge state ofeach of the cells of the battery pack and to manage all of its safety systems. Drivers use the information and control systems in our vehicles to optimizeperformance, customize vehicle behavior, manage charging modes and times and control all infotainment functions. We develop almost all of this software,including most of the user interfaces, internally.6 Autopilot SystemsWe have developed an expertise in vehicle autopilot systems, including auto-steering, traffic aware cruise control, lane changing, automated parking, driverwarning systems and automated braking functions. In October of 2014, we began equipping all Model S vehicles with hardware to allow for the incrementalintroduction of autopilot technology. Our autopilot systems relieve our drivers of the most tedious and potentially dangerous aspects of road travel. Although thedriver is ultimately responsible for controlling the vehicle, our system provides safety and convenience functionality that allows our customers to rely on it muchlike the system that airplane pilots use when conditions permit. Our autopilot system leverages an advanced set of hardware including a forward radar, a forward-looking camera, 12 long-range ultrasonic sensors, and a high-precision digitally controlled electric assist braking system. This hardware suite, along with over-the-air firmware updates and field data feedback loops from the onboard camera, radar, ultrasonics, and GPS, enables the system to continually learn and improve itsperformance.Vehicle Design and EngineeringIn addition to the design, development and production of the powertrain, we have created significant in-house capabilities in the design and engineering ofelectric vehicles and electric vehicle components and systems. We design and engineer bodies, chassis, interiors, heating and cooling and low voltage electricalsystems in house and to a lesser extent in conjunction with our suppliers. Our team has core competencies in computer aided design and crash test simulationswhich we expect to reduce the product development time of new models.Additionally, our team has expertise in lightweight materials, a very important characteristic for electric vehicles given the impact of mass on range. ModelS and Model X are built with a lightweight aluminum body and chassis which incorporates a variety of materials and production methods that help optimize theweight of the vehicle.Vehicle Sales and MarketingCompany-Owned Stores and GalleriesWe market and sell cars directly to consumers through an international network of company-owned stores and galleries. Our Tesla stores and galleries arehighly visible, premium outlets in major metropolitan markets, some of which combine retail sales and service. We have also found that opening a service center ina new geographic area can increase demand. As a result, we have complemented our store strategy with sales facilities and personnel in service centers to morerapidly expand our retail footprint. We refer to these as “Service Plus” locations. Including all of our stores, galleries, Service Plus and service facilities, weoperated 208 locations around the world as of December 31, 2015.We own our sales and service network because the traditional franchised distribution and service model is not viable for a business like ours. In ourcompany-owned network, our customers deal directly with our own Tesla-employed sales and service staff, creating a differentiated buying experience from thebuying experience consumers have with franchised automobile dealers and service centers. We believe we will also be able to better control costs of inventory,manage warranty service and pricing, maintain and strengthen the Tesla brand, and obtain rapid customer feedback.Tesla Supercharger NetworkWe are building a network of up to 120 kW fast charging equipment, each called a Tesla Supercharger, throughout North America, Europe and Asia for fastcharging of Tesla vehicles. Our Supercharger network is a strategic corporate initiative designed to remove a barrier to the broader adoption of electric vehiclescaused by the perception of limited vehicle range and to provide fast charging to enable long-distance travel. The Tesla Supercharger is an industrial grade, highspeed charger designed to replenish 170 miles of range in the battery pack in as little as 30 minutes. Supercharger stations typically have between four to tenSuperchargers and are strategically placed primarily along well-travelled highways to allow Model S and Model X owners to enjoy long distance travel withconvenient, minimal stops. As of December 31, 2015, we had 584 Supercharger stations open in North America, Europe, and Asia. We are planning to continue toexpand the Supercharger network in the United States, Europe and Asia.Destination ChargingWe are working with a wide variety of hospitality locations, including hotels and popular destinations, to offer an additional charging option for ourcustomers. These destination charging partners deploy our wall connectors and provide charging to Model S owners that patronize their businesses. As ofDecember 31, 2015, over 1,800 locations around the world had more than 3,100 Tesla wall connectors installed.Orders and ReservationsWe typically carry a very limited inventory of our vehicles at our Tesla stores. The vast majority of our customers customize their vehicle by placing anorder with us via the Internet. To begin production or make a reservation, we require an initial payment which is collected once the customer has selected thevehicle specifications and has entered into a purchase agreement. We require all remaining payment of the purchase price of the vehicle upon delivery of thevehicle to the customer.7 MarketingOur principal marketing goals are to: ·generate demand for our vehicles and drive leads to our sales teams; ·build long-term brand awareness and manage corporate reputation; ·manage our existing customer base to create loyalty and customer referrals, including through our referral programs; and ·enable customer input into the product development process.Historically, we have been able to generate significant media coverage of our company and our vehicles, and we believe we will continue to do so. To date,media coverage and word of mouth have been the primary drivers of our sales leads and have helped us achieve sales without traditional advertising and atrelatively low marketing costs.Vehicle Service and WarrantyServiceWe provide service for our electric vehicles at our company-owned service centers, at our Service Plus locations or, in certain areas for an additional charge,through Tesla Ranger mobile technicians who provide services that do not require a vehicle lift. We owned and operated 118 service locations as of December 31,2015. We are continuing our plan to build a number of additional service centers in several markets worldwide.Our vehicles are designed with the capability to wirelessly upload the data to us via an on-board system with cellular connectivity, allowing us to diagnoseand remedy many problems before ever looking at the vehicle. When maintenance or service is required, a customer can schedule service by contacting one of ourTesla service centers. Our Tesla Rangers, or mobile service team, can also perform an array of services from the convenience of a customer’s home or other remotelocation.Our company-owned service centers enable our technicians to work closely with our engineers and research and development teams in Silicon Valley toidentify problems, find solutions, and incorporate improvements faster than incumbent automobile manufacturers.New Vehicle Limited Warranty, Maintenance and Extended Service PlansWe provide a four year or 50,000 mile New Vehicle Limited Warranty with every new vehicle, subject to separate limited warranties for the supplementalrestraint system and battery. For the battery and drive unit on our current new vehicles, we offer an eight year, infinite mile warranty, although the battery’scharging capacity is not covered.In addition to the New Vehicle Limited Warranty, we offer a comprehensive maintenance program for every new vehicle, which includes plans coveringprepaid maintenance for up to eight years or up to 100,000 miles and an Extended Service plan. The maintenance plans cover annual inspections and thereplacement of wear and tear parts, excluding tires and the battery. The Extended Service plan covers the repair or replacement of vehicle parts for up to anadditional four years or up to an additional 50,000 miles after the New Vehicle Limited Warranty.Our New Vehicle Limited Warranty and Extended Service plans are subject to certain limitations, exclusions or separate warranties, including on certainwear items, such as tires, brake pads, paint and general appearance, and battery performance, and are intended to cover parts and labor to repair defects in materialor workmanship in the body, chassis, suspension, interior, electronic systems, battery, powertrain and brake system. In addition, all prepaid maintenance andExtended Service plans must be purchased within a specified period of time after vehicle purchase or warranty expiration.Financial ServicesWe offer loans and leases for our vehicles in North America, Europe and Asia primarily through various financial institutions. We also offer financingarrangements directly through our local subsidiaries in certain areas of the United States, Germany, Canada and the UK. We intend to broaden our financialservices offerings during the next few years.Certain of our financing programs provide customers with a resale value guarantee under which those customers have the option of selling their vehicleback to us at a preset future date, generally during the period of 36 to 39 months following delivery for a pre-determined resale value . This structure allows thecustomer to enjoy the benefits of vehicle ownership without concern for resale value. We introduced this program in North America in 2013 and expanded it toselected European and APAC markets in 2014 and 2015. In certain markets, we also offer residual value guarantees to financial institutions which may obligate usto repurchase the vehicles for a pre-determined price.8 ManufacturingWe conduct vehicle manufacturing and assembly operations at our facilities in Fremont, California; Lathrop, California; and Tilburg, Netherlands. We arealso building a cell and battery manufacturing facility, the Tesla Gigafactory, outside of Reno, Nevada.The Tesla Factory in Fremont, CA and Manufacturing Facility in Lathrop, CAWe manufacture the Model S and Model X and certain components that are critical to our intellectual property and quality standards at the Tesla Factory.The Tesla Factory contains several manufacturing operations, including stamping, machining, casting, plastics, body assembly, paint operations, seat assembly,final vehicle assembly and end-of-line testing. In addition, we manufacture lithium-ion battery packs, electric motors, gearboxes and components for our vehicles atthe Tesla Factory. Several major component systems of our vehicles are purchased from suppliers; however we have a high level of vertical integration in ourmanufacturing processes at the Tesla Factory. We machine various aluminum components at our facility in Lathrop, California and are nearing completion of a siteexpansion to include an aluminum castings operation.We have completed significant investments to increase our production capacity and to begin production of the Model X at the Tesla Factory. This includesthe completion and launch of the first phase of a new high volume paint shop, our second body assembly shop, two new stamping lines, a seat assembly facility,and an expansion of the battery pack and drive unit production lines.We plan to produce Model S, Model X and Model 3 at the Tesla Factory. In some areas of the Tesla Factory, we have designed our investments withflexibility to accommodate multiple products. For example, our new high volume paint shop and new stamping lines can support all three vehicles. Our finalvehicle assembly line is producing the Model S and the Model X while certain powertrain components are shared between the Model S and Model X. Over thecourse of 2016, we plan to make significant additional investments at the Tesla Factory in order to be able to start production and deliveries of Model 3, in late2017. These include a new body assembly shop and Model 3 final vehicle assembly.The NetherlandsOur European headquarters and manufacturing facilities are located in Amsterdam and Tilburg. The entities through which these facilities are operated holdthe rights to manufacture and distribute all Tesla products to customers in all markets outside of the United States and provide corporate oversight functions forEuropean sales, service, and administrative functions. Our operations in Tilburg include final assembly, testing and quality control for vehicles delivered within theEuropean Union, a parts distribution warehouse for service centers throughout Europe, a center for remanufacturing work and a customer service center.The Gigafactory outside of Reno, NevadaWe are developing the Gigafactory as a facility where we work together with our suppliers to integrate battery material, cell, module and battery packproduction in one location. We plan to use the battery packs manufactured at the Gigafactory for our vehicles and for our Tesla Energy applications. We brokeground on the Gigafactory in June 2014 and began assembling our Tesla Energy products in the first portion of the facility in the fourth quarter of 2015.We currently expect to produce cells at the Gigafactory beginning in 2016 for use initially in our Tesla Energy products and later for our vehicles. TheGigafactory is currently expected to attain full production capacity in 2020, which is anticipated to be sufficient for the production of approximately 500,000vehicles annually as well as for the production of our energy storage products. By that time, we expect battery pack production capacity to reach 50 GWh. Of this,we expect to build 35 GWh of cell production capacity at the Gigafactory and purchase 15 GWh of cells from other manufacturers.We believe that the Gigafactory will allow us to achieve a significant reduction in the cost of our battery packs once we are in volume production withModel 3. The total capital expenditures associated with the Gigafactory through 2020 are expected to be $4 to $5 billion, of which approximately $2 billion isexpected to come from Tesla. Panasonic has agreed to partner with us on the Gigafactory with investments in production equipment that it will use to manufactureand supply us with battery cells. We have a supply agreement with Panasonic that, among other things, allows us to purchase a minimum of 1.8 billion lithium-ionbattery cells at preferential prices that we intend to purchase from 2014 through 2017. We have agreed to prepare and provide the land, buildings and utilities,invest in production equipment for battery module and pack production and be responsible for the overall management of the Gigafactory.Supply ChainOur vehicles use over 3,000 purchased parts which we source globally from over 350 suppliers. We have developed close relationships with several keysuppliers particularly in the procurement of cells and certain other key system parts. While we obtain components from multiple sources in some cases, similar toother automobile manufacturers, many of the components used in our vehicles are purchased by us from a single source. In addition, while several sources of thebattery cell we have selected for our battery packs are available, we have currently fully qualified only one cell for the battery packs we use in our productionvehicles. We are working to fully qualify additional cells from other manufacturers.9 We use various raw materials in our business including aluminum, steel, cobalt, nickel and copper. The prices for these raw materials fluctuate dependingon market conditions and global d emand for these materials. We believe that we have adequate supplies or sources of availability of the raw materials necessary tomeet our manufacturing and supply requirements.Governmental Programs, Incentives and RegulationsCalifornia Alternative Energy and Advanced Transportation Financing Authority Tax IncentivesWe have entered into agreements in 2012, 2013, and 2015 with the California Alternative Energy and Advanced Transportation Financing Authority(CAEATFA) that each provide multi-year sales tax exclusions on purchases of manufacturing equipment that will be used for specific purposes including theexpansion and ongoing development of Model S, Model X and future electric vehicles and expansion of electric vehicle powertrain production in California. Weestimate the combined tax savings under these agreements will be approximately $98 million, of which $56 million has been realized as of December 31, 2015.Nevada Tax IncentivesIn connection with the construction of the Gigafactory in Nevada, we have entered into agreements with the State of Nevada and Storey County in Nevadathat will provide abatements for sales and use taxes, real and personal property taxes, and employer excise taxes, discounts to the base tariff energy rates, andtransferable tax credits. These incentives will be available for the applicable periods beginning on October 17, 2014 and ending on June 30, 2034, subject to capitalinvestments by Tesla and its partners for the Gigafactory of at least $3.5 billion in the aggregate on or before June 30, 2024, and certain other conditions specifiedin the agreements. If we do not satisfy one or more conditions under the agreements, Tesla will be required to repay to the respective taxing authorities the amountsof the tax incentives incurred, plus interest.Tesla Regulatory CreditsIn connection with the production, delivery, and placement into service of our zero emission vehicles in global markets, we have earned and will continue toearn various tradable regulatory credits that can be sold to other manufacturers.Under California’s Zero-Emission Vehicle Regulations and those of states that have adopted the California standards, vehicle manufacturers are required toensure that a portion of the vehicles delivered for sale in those states during each model year are zero-emission vehicles and partial zero-emission vehicles.Currently, the states of Arizona, California, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Rhode Island andVermont have such laws in effect. These laws provide that a manufacturer may earn credits, referred to as ZEV credits, if they produce more zero-emissionvehicles than the minimum quantity required by those laws. Those manufacturers with a surplus of credits may sell the excess credits to other manufacturers whocan then apply such credits to comply with the regulatory requirements, including making up for deficits. As a manufacturer solely of zero-emission vehicles, wehave no minimum requirement, and therefore earn ZEV credits on each vehicle delivered and placed into service in such states. We have entered into agreementswith other automobile manufacturers to sell the ZEV credits that we earn. Recently, California passed amendments to the ZEV mandate that would require, startingin 2018, all large-volume manufacturers (those manufacturers selling 20,000 or more vehicles in California in 2018) to increase the number of zero emissionvehicles sold, such that 15.4% of each manufacturers’ fleet must be made of zero emission vehicles by 2025. All states that have adopted the California programwill amend their programs to conform to the new California standards.Additionally, under the Environmental Protection Agency’s (EPA) national greenhouse gas (GHG) emission standards and similar standards adopted by theCanadian government, car and truck manufacturers are required to meet fleet-wide average carbon dioxide emissions standards. Manufacturers who fail to meetsuch standards have a deficit in their emission profile. Manufacturers whose fleet wide average performs better than such standards may earncredits. Manufacturers may sell excess credits to other manufacturers, who can use the credits to comply with these regulatory requirements. As a manufacturersolely of zero emission vehicles, we earn the full amount of GHG credits established by the standards on each vehicle sold. We have contracted with anotherautomobile manufacturer to sell all earned credits.Under the National Highway Traffic Safety Administration’s (NHTSA) Corporate Average Fuel Economy (CAFE) standards, car and truck manufacturersare required to meet fleet-wide average fuel economy standards. Manufacturers that fail to meet such standards have a deficit in their fuel economyprofile. Manufacturers whose fleet-wide average performs better than such standards may earn credits. Manufacturers may sell excess credits to othermanufacturers, who can use such credits to comply with these regulatory requirements. We have entered into agreements to sell the credits that we earn.Regulation—Vehicle Safety and TestingOur vehicles are subject to, and comply with or are otherwise exempt from, numerous regulatory requirements established by NHTSA, including allapplicable United States Federal Motor Vehicle Safety Standards (FMVSS). Model S and Model X fully comply with all FMVSSs without the need for anyexemptions.10 As a manufacturer, we must self-certify that our vehicles meet all applicable FMVSS, as well as the NHTSA bumper standard, or otherwise are exempt,before the vehicles can be imported or sold in the United Sta tes. Numerous FMVSS apply to our vehicles, such as crash-worthiness requirements, crash avoidancerequirements, and electric vehicle requirements. We are also required to comply with other federal laws administered by NHTSA, including the CAFE standards, Theft Prevention Act requirements, consumer information labeling requirements, Early Warning Reporting requirements regarding warranty claims, field reports,death and injury reports and foreign recalls, and owner’s manual requirements.The Automobile Information and Disclosure Act requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer’ssuggested retail price, optional equipment and pricing. In addition, the Act allows inclusion of city and highway fuel economy ratings, as determined by EPA, aswell as crash test ratings as determined by NHTSA if such tests are conducted.Our vehicles sold in outside of the U.S. are subject to foreign safety testing regulations. Many of those regulations are different from the federal motorvehicle safety standards applicable in the United States and may require redesign and/or retesting.Regulation—Battery Safety and TestingOur battery pack conforms to mandatory regulations that govern transport of “dangerous goods”, defined to include lithium-ion batteries, which may presenta risk in transportation. The regulations vary by mode of shipping transportation, such as by ocean vessel, rail, truck, or air. We have completed the applicabletransportation tests for our battery packs, demonstrating our compliance with applicable regulations.We use lithium metal oxide cells in our high voltage battery packs. The cells do not contain any lead, mercury, cadmium, other hazardous materials, heavymetals, or toxic materials. Our battery packs include certain packaging materials that contain trace amounts of hazardous chemicals whose use, storage, anddisposal is regulated under federal law. We currently have an agreement with a third party battery recycling company to recycle our battery packs. If a customerwishes to dispose of a battery pack from one of our vehicles, we anticipate accepting the depleted battery from the customer without any additional charge.Automobile Manufacturer and Dealer RegulationState laws regulate the manufacture, distribution, and sale of automobiles, and generally require motor vehicle manufacturers and dealers to be licensed inorder to sell vehicles directly to consumers in the state. As we open additional Tesla stores and service centers, we secure dealer licenses (or their equivalent) andengage in sales activities to sell our vehicles directly to consumers. A few states, such as Texas and Michigan, do not permit automobile manufacturers to belicensed as dealers or to act in the capacity of a dealer, or otherwise restrict a manufacturer’s ability to deliver or service vehicles. To sell vehicles to residents ofstates where we are not licensed as a dealer, we generally conduct the sale out of the state via the internet, phone or mail. In such states, we have opened “galleries”that serve an educational purpose and are not retail locations.As we expand our retail footprint in the United States, some automobile dealer trade associations have both challenged the legality of our operations in courtand used administrative and legislative processes to attempt to prohibit or limit our ability to operate existing stores or expand to new locations. Although we havethus far prevailed in every lawsuit brought by dealer associations, we expect that the dealer associations will continue to mount challenges to our business model. Inaddition, we expect the dealer associations to actively lobby state licensing agencies and legislators to interpret existing laws or enact new laws in ways notfavorable to Tesla’s ownership and operation of its own retail and service locations.While we have analyzed the principal laws in the US, EU, China, Japan, UK, and Australia relating to our distribution model and believe we comply withsuch laws, we have not performed a complete analysis of all jurisdictions in which we may sell vehicles. Accordingly, there may be laws in certain jurisdictionsthat may restrict our sales and service operations.CompetitionThe worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in thefuture as we introduce additional, lower priced vehicles such as our Model 3.We believe the primary competitive factors in our markets include but are not limited to: ·technological innovation; ·product quality and safety; ·service options; ·product performance; ·design and styling; ·brand perception;11 ·product price; and ·manufacturing efficiency.We believe that our vehicles compete in the market both based on their traditional segment classification as well as based on their propulsion technology.For example, Model S competes primarily in the extremely competitive premium sedan market with internal combustion vehicles from more establishedautomobile manufacturers, including Audi, BMW, Lexus and Mercedes. Our vehicles also compete with vehicles propelled by alternative fuels, principallyelectricity.Many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel vehicle market. Overall, we believethese announcements and vehicle introductions promote the development of the alternative fuel vehicle market by highlighting the attractiveness of alternative fuelvehicles, particularly those fueled by electricity, relative to the internal combustion vehicle. BMW, Daimler, Nissan, Fiat, Ford and Mitsubishi, among others, haveelectric vehicles available today. Moreover, Porsche, Lexus, Audi, Volkswagen and Volvo, as well as a number of prospective automobile manufacturers, are alsodeveloping electric vehicles. Electric vehicles have also already been brought to market in China and other foreign countries and we expect a number of thosemanufacturers to enter the United States market as well. In addition, several manufacturers, including General Motors, Toyota, Ford, and Honda, are each sellinghybrid vehicles, and certain of these manufacturers have announced plug-in versions of their hybrid vehicles.The market for energy storage products is also highly competitive. Established companies as well as emerging companies have introduced products that aresimilar to our product portfolio. For instance, there are several companies providing individual components of energy storage systems (such as cells, batterymodules, and power electronics) as well as others providing integrated systems.Most of our current and potential competitors in both the automotive and energy storage markets have significantly greater resources than we do, may beable to devote greater resources to the manufacture, sale and support of their products, and have other advantages. We believe our exclusive focus on electricvehicles, electric vehicle components and energy storage products, as well as our history of vehicle development and production, however, are the basis on whichwe can compete in the global automotive market in spite of the challenges posed by our competition.Intellectual PropertyAs part of our business, we seek to protect our intellectual property rights in various ways, including through trademarks, copyrights, trade secrets, includingknow-how, patents, patent applications, employee and third party nondisclosure agreements, intellectual property licenses and other contractual rights.Additionally, consistent with our mission to accelerate the advent of sustainable transport, we announced a patent policy in which we irrevocably pledged that wewill not initiate a lawsuit against any party for infringing our patents through activity relating to electric vehicles or related equipment for so long as such party isacting in good faith. We made this pledge in order to encourage the advancement of a common, rapidly-evolving platform for electric vehicles, thereby benefitingourselves, other companies making electric vehicles, and the world.Segment InformationWe operate as one reportable segment which is the design, development, manufacturing and sales of electric vehicles.EmployeesAs of December 31, 2015, we had 13,058 full-time employees. To date, we have not experienced any work stoppages, and we consider our relationship withour employees to be good.Available InformationWe file or furnish periodic reports and amendments thereto, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and CurrentReports on Form 8-K; proxy statements and other information with the Securities and Exchange Commission (SEC). Such reports, amendments, proxy statementsand other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. Information on theoperation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website ( www.sec.gov ) thatcontains reports, proxy and information statements, and other information regarding issuers that file electronically. Our reports, amendments thereto, proxystatements and other information are also made available, free of charge, on our investor relations website at ir.teslamotors.com as soon as reasonably practicableafter we electronically file or furnish such information with the SEC. The information posted on our website is not incorporated by reference into this AnnualReport on Form 10-K. 12 I TEM 1A.RISK FACTORSYou
should
carefully
consider
the
risks
described
below
together
with
the
other
information
set
forth
in
this
report,
which
could
materially
affect
ourbusiness,
financial
condition
and
future
results.
The
risks
described
below
are
not
the
only
risks
facing
our
company.
Risks
and
uncertainties
not
currently
knownto
us
or
that
we
currently
deem
to
be
immaterial
also
may
materially
adversely
affect
our
business,
financial
condition
and
operating
results.Risks Related to Our Business and IndustryWe may experience significant delays or other complications in the design, manufacture, launch and production ramp of new vehicles such as Model Xand future vehicles such as Model 3, which could harm our brand, business, prospects, financial condition and operating results.We may experience significant delays or other complications in bringing to market and ramping production of new vehicles, such as Model X. While wecommenced Model X deliveries late in the third quarter of 2015, we have only recently begun manufacturing Model X vehicles, and various factors could result indelays in its production ramp, including the capacity of our suppliers to deliver us components at the timing and volumes we require and production limitations thatare needed to maintain our quality production standards. In addition, since Model X shares certain production facilities with the Model S, the volume or efficiencyof Model S production may be impacted if the ramp of Model X is not as efficient as we plan.We have experienced delays or other complications in connection with new vehicle models in the past, such as production ramp delays for Model S in 2012and the All-Wheel Drive Dual Motor Model S, and the launch of Model X. Any significant additional delay or other complication in the ramp of Model X or thedevelopment, manufacture, launch and production ramp of our future vehicles, including complications associated with expanding our production capacity, supplychain or regulatory approvals, could materially damage our brand, business, prospects, financial condition and operating results.The complexity in our business continues to grow as we introduce new products and variants.We have limited experience simultaneously designing, testing, manufacturing, upgrading, adapting and selling our electric vehicles as well as limitedexperience allocating our available resources among the design and production of multiple vehicles, such as Model S, Model X and Model 3, and the variantsthereof. In the past, when we have added complexity to our production line, we have occasionally experienced unexpected delays. Similar problems may occur inthe future as we simultaneously produce Model X and Model S vehicles, as well as future vehicles and Tesla Energy products.We may be unable to meet our production and delivery plans for Model S and Model X, both of which could harm our business and prospects.We have significantly increased vehicle production and deliveries, and our plans call for significant increases in vehicle production and deliveries goingforward. Our ability to further increase vehicle production, including the ramp of Model X production, will depend upon a number of factors, including our abilityto use new manufacturing processes as planned while maintaining our desired quality levels, our suppliers’ ability to deliver sufficient volumes of quality parts tous in a timely manner, and carefully but efficiently making design and production changes to ensure consistently high quality. Certain suppliers have historicallyexperienced delays in meeting our demand or have sought to renegotiate the terms of the supply arrangements, and we continue to focus on supplier capabilitiesand constraints. While our plans call for us to significantly increase vehicle production and deliveries in a short amount of time, we may be unable to do so. Anydelays or disruption in our production of Model S and Model X in line with our plans could materially damage our brand, business, prospects, financial conditionand operating results.In addition, we have introduced a number of new manufacturing technologies and techniques for our vehicles, such as aluminum spot welding systems andhigh-speed blow forming of certain difficult to stamp vehicle parts. Our vehicles also have unique design features, such as a 17 inch display screen, retractableexterior door handles, and all-new dual motor and autopilot hardware introduced in Model S and falcon-wing doors and other unique features introduced in ModelX, each of which poses different manufacturing challenges.Concurrent with the significant increase in our planned vehicle production levels, we will also need to continue to significantly increase deliveries of ourvehicles. We have limited experience in delivering a high volume of vehicles, and we may face difficulties meeting our delivery and growth plans into both existingmarkets as well as new markets into which we expand. If we are unable to ramp up to meet our delivery goals globally, this could have a material adverse effect onour business, prospects, financial condition and operating results.Finally, detailed long-term testing of quality, reliability and durability of our vehicles is ongoing, and in the case of Model X vehicles has only recentlycommenced, and any negative results from such testing could cause production or delivery delays or cost increases.13 Our long-term success will be dependent upon our ability to achieve market acceptance of our vehi cles, including Model S and Model X, and newvehicle models such as Model 3.There is no guarantee that Model S, Model X or our future vehicles such as Model 3 will continue to be successfully accepted by the general public,especially in the long-term. Although we have successfully grown demand for Model S to date and have seen strong initial demand for Model X, and we believethat we will be able to continue to grow demand for these vehicles, there is no guarantee that future demand for Model S or Model X will meet our expectations.Additionally, we have limited experience in introducing new vehicles. Although our reservation conversion rate for Model X has been strong, we have onlyrecently commenced production and deliveries of Model X. To the extent that we are not able to build Model X in accordance with consumer expectations,customers may cancel their reservations and our future sales could be harmed.While we believe that there will continue to be separate and strong demand for both Model S and Model X, we have limited experience in selling multiplevehicle models at the same time. Although we believe that each of our vehicles and their variants meet a distinct segment of the automotive market, if our vehiclesend up competing with one another in the market, then our ability to sell each vehicle model at planned quantities or prices may be impacted.Beyond Model X, we have announced our intent to develop Model 3, which we intend to offer at a lower price point and to produce at high volumes. Wehave not yet finalized the design, engineering or material and component sourcing plans for Model 3. If we are not successful in bringing it to market at theexpected price point and the expected volume, our operating results may suffer. Additionally, while we expect Model 3 to be an extremely popular vehicle, we donot know what long-term demand for Model 3 will be and whether it will meet our expectations. Furthermore, the market for vehicles in the price range we expectfor Model 3 is larger, but more competitive, than the markets for Model S and Model X.Problems or delays in bringing the Gigafactory online and operating it in line with our expectations could negatively affect the production andprofitability of our products, such as Model 3 or Tesla Energy products.To lower the cost of cell production and produce cells in high volume, we intend to integrate the production of lithium-ion cells and finished battery packsfor our vehicles, including Model 3, and Tesla Energy products at our new Gigafactory. We have limited experience in building a factory, and no direct experiencein the production of lithium-ion cells. Also, the cost and complexity of building and operating the Gigafactory could exceed our current expectations and theGigafactory may take longer to bring online for lithium-ion cell and battery pack production than we anticipate. If we are unable to build the Gigafactory in atimely manner to produce high volumes of quality lithium-ion cells at reasonable prices, our ability to supply battery packs to our vehicle and other productsaccording to our schedule and/or at a price that allows us to sell them profitably and in the quantities we estimate could be constrained. Any such problems ordelays with the Gigafactory could negatively affect our brand and harm our business, prospects, financial condition and operating results.If our vehicles or vehicles that contain our powertrains fail to perform as expected, our ability to develop, market and sell our electric vehicles could beharmed.If our vehicles or vehicles that contain our powertrains were to contain defects in design and manufacture that cause them not to perform as expected or thatrequire repair, our ability to develop, market and sell our vehicles could be harmed. For example, the operation of our vehicles is highly dependent on software,which is inherently complex and could conceivably contain defects and errors. Issues that have historically been experienced by customers include those related tothe software for the 17 inch display screen, the panoramic roof and the 12 volt battery in the Model S. Although we attempt to remedy any issues we observe in ourvehicles as effectively and as rapidly as possible, such efforts may not be timely, may hamper production or may not be up to the satisfaction of our customers.While we have performed extensive internal testing, we currently have a limited frame of reference by which to evaluate the long-term performance of our batterypacks, powertrains, vehicles and Tesla Energy products. There can be no assurance that we will be able to detect and fix any defects in our products prior to theirsale to consumers.Any vehicle product defects or any other failure of our vehicles to perform as expected could harm our reputation and result in delivery delays, productrecalls, product liability claims, significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operatingresults and prospects. Our Model X vehicles have not yet been evaluated by NHTSA for its 5-Star Safety Ratings, and while based on our internal testing we expectto obtain comparable ratings to those achieved by Model S, there is no assurance this will occur.We are dependent on our suppliers, the majority of which are single source suppliers, and the inability of these suppliers to continue to deliver, or theirrefusal to deliver, necessary components of our vehicles in a timely manner at prices, quality levels, and volumes acceptable to us would have a materialadverse effect on our financial condition and operating results.Model S and Model X contain numerous purchased parts which we source globally from hundreds of direct suppliers, the majority of whom are currentlysingle source suppliers despite efforts to qualify and obtain components from multiple sources whenever possible. Furthermore, we do not maintain long-termagreements with a number of our suppliers.14 While we may be able to establish alternate supply relationships or engineer replacement components for our single sour ce components, we may be unableto do so in the short term, or at all, at prices or costs that are favorable to us. In particular, while we believe that we will be able to secure alternate sources ofsupply for most of our single sourced components in a re latively short time frame, qualifying alternate suppliers or developing our own replacements for certainhighly customized components of our vehicles may be time consuming, costly and may force us to make additional modifications to a vehicle’s design.This limited supply chain exposes us to multiple potential sources of delivery failure or component shortages for the production of our vehicles andpowertrain components. We may experience delays due to supply chain disruptions with respect to Model S, Model X, Model 3 and any other future vehicle wemay produce, such as those we experienced in 2012 in connection with our slower-than-anticipated Model S ramp. In addition, our currently ongoing transitionfrom low to high volume production tooling for Model X may take longer than expected which may adversely impact our short-term financial results.Changes in business conditions, labor issues, wars, governmental changes, natural disasters such as the March 2011 earthquakes in Japan and other factorsbeyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. Furthermore, if weexperience significantly increased demand, or need to replace certain existing suppliers, there can be no assurance that additional supplies of component parts willbe available when required on terms that are favorable to us, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fillour orders in a timely manner, or that we could engineer replacement components ourselves.Changes in our supply chain have resulted in the past, and may result in the future, in increased cost. We have also experienced cost increases from certainof our suppliers in order to meet our quality targets and development timelines as well as due to design changes that we made, and we may experience similar costincreases in the future. Additionally, we are negotiating with existing suppliers for cost reductions, seeking new and less expensive suppliers for certain parts, andattempting to redesign certain parts to make them less expensive to produce. If we are unsuccessful in our efforts to control and reduce supplier costs, our operatingresults will suffer. Finally, in October 2013, we entered into an amendment to our existing supply agreement with Panasonic Corporation in order to address our anticipatedshort- to medium-term lithium-ion battery cell needs. While we expect that this supply agreement, as amended, will provide us with sufficient cells for the next fewyears, we may not be able to meet our long-term needs, including for Model 3 and other programs we may introduce, without securing additional suppliers or othersources for cells. We have signed an agreement with Panasonic to be our partner in the Gigafactory and be responsible for, among other things, manufacturing cellsfrom there for use in our products. If we encounter unexpected difficulties with our current suppliers, including Panasonic, and if we are unable to fill these needsfrom other suppliers, we could experience production delays, which could have a material adverse effect on our financial condition and operating results.Our future growth is dependent upon consumers’ willingness to adopt electric vehicles.Our growth is highly dependent upon the adoption by consumers of alternative fuel vehicles in general and electric vehicles in particular. If the market forelectric vehicles does not develop as we expect, or develops more slowly than we expect, our business, prospects, financial condition and operating results will beharmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, and subject to numerous external factors, such as: ·p erceptions about electric vehicle quality, safety, performance, cost, and the convenience of charging; ·perceptions about the limited range over which electric vehicles may be driven on a single battery charge; ·the availability of other types of alternative fuel vehicles, including plug-in hybrid electric vehicles, improvements in the fuel economy of theinternal combustion engine; ·volatility in the cost of oil and gasoline; ·government regulations and economic incentives; ·and access to charging facilities.If we fail to manage future growth effectively as we rapidly grow our company, especially internationally, we may not be able to produce, market, selland service our vehicles successfully.Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. Wecontinue to expand our operations significantly internationally, particularly in Asia. Our future operating results depend to a large extent on our ability to managethis expansion and growth successfully. Risks that we face in undertaking this global expansion include controlling expenses; establishing sufficient sales, serviceand Supercharger facilities in a timely manner; adapting our products to meet local requirements; implementing the required infrastructure, systems and processes;and finding and hiring a significant number of additional personnel, including manufacturing personnel, design personnel, engineers and service technicians.15 If we are unable to adequately reduce the manufacturing costs of Model S, control manufacturing costs for Model X, or otherwise control the costsassociated with operating our business, our financial condition and operating results will suffer.As we have gradually ramped production of Model S, manufacturing costs per vehicle have decreased. While we expect ongoing cost reductions to berealized by both us and our suppliers, there is no guarantee we will be able to achieve sufficient cost savings to reach our gross margin and profitability goals. Weincur significant costs related to procuring the raw materials required to manufacture our vehicles, assembling vehicles and compensating our personnel. We mayalso incur substantial costs or cost overruns in increasing the production capability of our Model S, Model X and powertrain manufacturing facilities. Furthermore,if we are unable to produce Model X pursuant to our plan due to cost overruns or other unexpected costs, we may not be able to meet our gross margin and otherfinancial targets.Furthermore, many of the factors that impact our operating costs are beyond our control, such as potential increases in the costs of our raw materials andcomponents, such as lithium-ion battery cells or aluminum used to produce body panels. If we are unable to keep our operating costs aligned with the level ofrevenues we generate, our operating results, business and prospects will be harmed.We may fail to meet our publicly announced guidance or other expectations about our business, which would cause our stock price to decline.We occasionally provide guidance regarding our expected financial and business performance, such as projections regarding sales and production, as well asanticipated future revenues, gross margins, profitability and cash flows. Correctly identifying key factors affecting business conditions and predicting future eventsis inherently an uncertain process and our guidance may not ultimately be accurate. Our guidance is based on certain assumptions such as those relating toanticipated production and sales volumes and average sales prices, supplier and commodity costs, and planned cost reductions. If our guidance is not accurate orvaries from actual results due to our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks anduncertainties, the market value of our common stock could decline significantly.Our vehicles make use of lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame, and such events have raisedconcerns, and future events may lead to additional concerns, about the batteries used in automotive applications.The battery packs that we produce make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by ventingsmoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells.While we have designed the battery pack to passively contain any single cell’s release of energy without spreading to neighboring cells. There can be noassurance that a field or testing failure of our vehicles or other battery packs that we produce will not occur, which could subject us to lawsuits, product recalls, orredesign efforts, all of which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells forautomotive applications or any future incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve our vehicles, couldseriously harm our business.In addition, we store a significant number of lithium-ion cells at our manufacturing facility. Any mishandling of battery cells may cause disruption to theoperation of our facilities. While we have implemented safety procedures related to the handling of the cells, there can be no assurance that a safety issue or firerelated to the cells would not disrupt our operations. Such damage or injury would likely lead to adverse publicity and potentially a safety recall. Moreover, anyfailure of a competitor’s electric vehicle may cause indirect adverse publicity for us and our electric vehicles. Such adverse publicity would negatively affect ourbrand and harm our business, prospects, financial condition and operating results.We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial resultsOur revenues and costs denominated in foreign currencies are not completely matched. As we have increased Model S deliveries in markets outside of theUnited States, we have much higher revenues than costs denominated in other currencies such as the euro, Norwegian kroner, Chinese yuan and Canadian dollar.The recent strengthening of the U.S. dollar therefore has reduced, and any further strengthening of the U.S. dollar would tend to further reduce our revenues asmeasured in U.S. dollars. In addition, a portion of our costs and expenses have been, and we anticipate will continue to be, denominated in foreign currencies,including the Japanese yen. If we do not have fully offsetting revenues in these currencies and if the value of the U.S. dollar depreciates significantly against thesecurrencies, our costs as measured in U.S. dollars as a percent of our revenues will correspondingly increase and our margins will suffer. As a result, our operatingresults could be adversely affected.16 Our resale value guarantee and leasing programs expose us to the risk that the resale values of vehicles returned to us are lower than our estimates andmay result in lower revenues, gross margin, profitab ility and liquidity.We offer resale value guarantees to many of our customers, under which such customers may sell their vehicles back to us at certain points in time at pre-determined resale values. Customers can lease our vehicles through both leasing partners and from us directly, through our captive finance companies. The resalevalues of any vehicles resold or returned to us pursuant to these programs may be lower than our estimates, which are based on a limited secondary market for ourvehicles. If the volume of vehicles returned to us is higher than our estimates and/or we are not able to resell them, timely or at all, our liquidity could be negativelyimpacted. In cases where customers retain their vehicles past the guarantee period, our gross margin will be negatively impacted as all remaining revenues andcosts related to the vehicle will be recognized at no gross profit.We apply lease accounting on sales of vehicles with a resale value guarantee and on leases made directly by us. Under lease accounting, we recognize theassociated revenues and costs of the vehicle sale over time rather than fully upfront at vehicle delivery. As a result, these programs generate lower revenues in theperiod the car is delivered and higher gross margins during the period of the resale value guarantee as compared to purchases in which the resale value guaranteedoes not apply. A higher than anticipated uptake under these programs could therefore have an adverse impact on our near term revenues and operating results.Moreover, unlike the resale value guarantee program or programs with leasing partners which do not impact our cash flows and liquidity at the time of vehicledelivery, under a lease held directly by us, we may receive only a very small portion of the total vehicle purchase price at the time of lease, followed by a stream ofpayments over the term of the lease. To the extent we expand our leasing program without securing external financing or business partners to support suchexpansion, our cash flow and liquidity could also be negatively impacted.If we fail to effectively manage the residual, financing and credit risks related to our direct Tesla leasing programs our business may suffer.We offer financing arrangements through our local subsidiaries in the United States, Canada, Germany and the UK, including leasing directly throughcertain of those subsidiaries. The profitability of the leasing program depends on our ability to accurately project residual values, secure adequate financing and/orbusiness partners to fund and grow this program, and manage customer credit risk. If actual residual values of our vehicles are below our estimates, we may sufferlower profitability or potentially have losses. If we are unable to adequately fund our leasing program with either internal funds or external financing sources, wemay be unable to grow our sales. Additionally, if we do not properly screen customers for their creditworthiness, we may be exposed to excessive credit risks andassociated losses. Furthermore, if our leasing business grows substantially, our business may suffer if we cannot effectively manage the greater levels of residualand credit risks resulting from growth. Finally, if we do not successfully monitor and comply with applicable national, state and/or local financial regulations andconsumer protection laws governing lease transactions, we may become subject to enforcement actions or penalties, either of which may harm our business.Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials. Any such increase or supply interruptioncould materially and negatively impact our business, prospects, financial condition and operating results. We use various raw materials in our business includingaluminum, steel, nickel and copper. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials and couldadversely affect our business and operating results. For instance, we are exposed to multiple risks relating to lithium-ion cells. These risks include: ·the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells we require; ·disruption in the supply of cells due to quality issues or recalls by battery cell manufacturers; ·an increase in the cost of raw materials used in the cells; and ·fluctuations in the value of the Japanese yen against the U.S. dollar as our battery cell purchases are currently denominated in Japanese yen. Our business is dependent on the continued supply of battery cells for the battery packs used in our vehicles and energy storage products. While we believeseveral sources of the battery cells are available for such battery packs, we have fully qualified only a very limited number of suppliers for the cells used in suchbattery packs and have very limited flexibility in changing cell suppliers. In particular, we have fully qualified only one supplier for the cells used in battery packsfor our production vehicles. Any disruption in the supply of battery cells from such vendors could disrupt production of our vehicles and of the battery packs weproduce for other automobile manufacturers until such time as a different supplier is fully qualified. Furthermore, fluctuations or shortages in petroleum and othereconomic conditions may cause us to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our rawmaterials or prices charged to us, such as those charged by our battery cell manufacturers, would increase our operating costs, and could reduce our margins if wecannot recoup the increased costs through increased vehicle prices. Any attempts to increase vehicle prices in response to increased raw material costs could resultin cancellations of vehicle orders and reservations and therefore materially and adversely affect our brand, image, business, prospects and operating results.17 We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend orinsure ag ainst such claims.Product liability claims could harm our business, prospects, operating results and financial condition. The automobile industry experiences significantproduct liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected resulting in personal injury or death.We also may face claims related to any misuse or failures of our new autopilot technology. A successful product liability claim against us with respect to any aspectof our vehicles could require us to pay a substantial monetary award. Our risks in this area are particularly pronounced given the limited number of vehiclesdelivered to date and limited field experience of those vehicles. Moreover, a product liability claim could generate substantial negative publicity about our vehiclesand business and would have material adverse effect on our brand, business, prospects and operating results. We self-insure against the risk of product liabilityclaims, meaning that any product liability claims will have to be paid from company funds, not by insurance.The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from new andestablished U.S. and international competitors and expect to face competition from others in the future, including competition from companies with newtechnology.The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in thefuture. Many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel vehicle market. For example,BMW, Daimler, Nissan and many other large companies have announced or are also reported to be developing electric vehicles. In addition, several manufacturers,including General Motors, Toyota, Ford and Honda, are selling hybrid vehicles, including plug-in hybrid vehicles. Most of our current and potential competitorshave significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design,development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases andbroader customer and industry relationships than we do and almost all of these companies have longer operating histories and greater name recognition than we do.Increased competition could result in lower vehicle unit sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which could harmour business, prospects, financial condition and operating results.Demand in the automobile industry is volatile, which may lead to lower vehicle unit sales and adversely affect our operating results.Volatility of demand in the automobile industry may materially and adversely affect our business, prospects, operating results and financial condition. Themarkets in which we currently compete and plan to compete in the future have been subject to considerable volatility in demand in recent periods, including recentsoftening of the premium sedan category. As a low volume vehicle producer, we have less financial resources than more established automobile manufacturers towithstand changes in the market and disruptions in demand. Volatility in demand may lead to lower vehicle unit sales and increased inventory, which may result infurther downward price pressure and adversely affect our business, prospects, financial condition and operating results. These effects may have a more pronouncedimpact on our business given our relatively smaller scale and financial resources as compared to many incumbent automobile manufacturers.If we are unable to establish and maintain confidence in our long-term business prospects among consumers, analysts and within our industry, then ourfinancial condition, operating results, business prospects and stock price may suffer materially.Consumers may be less likely to purchase our vehicles now if they are not convinced that our business will succeed or that our operations will continue formany years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are notconvinced that our business will succeed. Accordingly, in order to build and maintain our business, we must maintain confidence among customers, suppliers,analysts and other parties in our liquidity and long-term business prospects. Maintaining such confidence may be particularly complicated by certain factors, suchas our limited operating history, unfamiliarity with our products, competition and uncertainty regarding the future of electric vehicles. Many of these factors arelargely outside our control, and any negative perceptions about our long-term business prospects, even if exaggerated or unfounded, would likely harm our businessand make it more difficult to raise additional funds if needed.Our vehicles have unique servicing requirements, and we are using a different service model from the one typically used in the automobile industry. Ifwe are unable to address the service requirements of our existing and future customers, our business will be materially and adversely affected.Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltagetraining and servicing techniques. If we are unable to satisfactorily service our vehicles, our ability to generate customer loyalty, grow our business and selladditional vehicles could be impaired.18 We service our vehicles through our company-owned Tesla service cen ters, certain of our stores, and through our mobile service technicians known as theTesla Rangers. We will need to open new standalone service centers in locations around the world and hire and train significant numbers of new employees to staffthese ser vice centers and act as Tesla Rangers in order to successfully maintain our fleet of delivered vehicles. If we do not continue to adequately address theservice requirements of our customers to their satisfaction, particularly as the volume of vehicles we are able to deliver annually increases, our business would beharmed.Our plan to expand our network of Tesla stores, service centers and Superchargers will require significant cash investments and management resourcesand may not meet our expectations with respect to additional sales of our electric vehicles. In addition, we may not be able to open stores or servicecenters in certain states or Superchargers in desired locations.Our plan to expand our network of Tesla stores, service centers and Superchargers will require significant cash investments and management resources andmay not meet our expectations with respect to additional sales of our vehicles. This ongoing global expansion may not have the desired effect of increasing salesand expanding our brand presence to the degree we are anticipating. We will also need to ensure we are in compliance with any regulatory requirements applicableto the sale and service of our vehicles in those jurisdictions, which could take considerable time and expense. If we experience any delays in expanding our networkof Tesla stores, service centers and Superchargers, this could lead to a decrease in sales of our vehicles and could negatively impact our business, prospects,financial condition and operating results.We face risks associated with our international operations and expansion, including unfavorable regulatory, political, tax and labor conditions andestablishing ourselves in new markets, all of which could harm our business.We currently have international operations and subsidiaries in various countries and jurisdictions that are subject to the legal, political, regulatory and socialrequirements and economic conditions in these jurisdictions. Additionally, as part of our growth strategy, we will continue to expand our sales, service andSupercharger locations internationally. We have limited experience, however, selling and servicing our products internationally, as well as limited experienceinstalling and operating Superchargers internationally. Furthermore, international expansion requires us to make significant expenditures, including theestablishment of local operating entities, hiring of local employees and establishing facilities in advance of generating any revenue.We are subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our electricvehicles and require significant management attention. These risks include conforming our vehicles to various international regulatory and safety requirements,difficulty in establishing, staffing and managing foreign operations, challenges in attracting customers, foreign government taxes, regulations and permitrequirements, our ability to enforce our contractual rights; trade restrictions, customs regulations, tariffs and price or exchange controls, and preferences of foreignnations for domestically produced vehicles.Additionally, as we have expanded into new international markets, we historically faced challenges with ensuring that our charging equipment workssuccessfully with the charging infrastructure in such markets, including in Norway and China. If customers experience problems with the way our chargingequipment works with the local charging infrastructure, or we are unable to adapt our equipment to resolve such problems, then the viability and acceptance of ourvehicles in such markets could be materially and adversely affected. If we fail to successfully address these risks, our business, prospects, operating results andfinancial condition could be materially harmed.The unavailability, reduction or elimination of government and economic incentives in the U.S. and abroad supporting the development and adoption ofelectric vehicles could have some impact on demand for our vehicles.We currently benefit from certain government and economic incentives supporting the development and adoption of electric vehicles. In the United Statesand abroad, such incentives include, among other things, tax credits or rebates that encourage the purchase of electric vehicles. In Norway, for example, thepurchase of electric vehicles is not currently subject to import taxes, taxes on non-recurring vehicle fees, the 25% value added tax or the purchase taxes that applyto the purchase of gas-powered vehicles. Notably, the quantum of incentive programs promoting electric vehicles is a tiny fraction of the amount of incentives thatare provided to gas-powered vehicles through the oil and gas industries, notwithstanding that the former promotes social good while the latter contributes tosignificant social harm. Nevertheless, even the limited benefits from such programs could be reduced, eliminated or exhausted. For example, on January 1, 2016, apreviously available incentive in Denmark that favored the purchase of electric vehicles expired and was replaced with a newly phased-in incentive that is lessgenerous than the incentive that it replaced. In certain circumstances, there is pressure from the oil and gas lobby or related special interests to bring about suchdevelopments, which could have some negative impact on demand for our vehicles.19 Our strategic relationships with third parties, such as Panasonic, are subject to various risks which could adversely affect our business and futureprospects.Our strategic relationships with third parties, such as Panasonic which supplies us with battery cells for use in Model S and Model X and which is ourstrategic partner in the Gigafactory, pose various risks to us, including potential loss of access to important technology and parts for producing, servicing andsupporting our products, potential loss of business and adverse publicity. Moreover, factors that may not be within our partners’ control, such as materials pricing,may impact our ability to realize the goals of certain strategic relationships, such as cost and gross margin targets. In addition, these third parties may not performas expected under our agreements with them, such as with respect to quality of production parts and timeliness of their deliveries, and we may have disagreementsor disputes with these third parties. The occurrence of any of the foregoing could adversely affect our business, prospects, financial condition and operating results.If we are unable to attract and/or retain key employees and hire qualified personnel, our ability to compete could be harmed.The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our vehicles and services, andnegatively impact our business, prospects and operating results. In particular, we are highly dependent on the services of Elon Musk, our Chief Executive Officer,and JB Straubel, our Chief Technical Officer.None of our key employees is bound by an employment agreement for any specific term and we may not be able to successfully attract and retain seniorleadership necessary to grow our business. Our future success depends upon our ability to attract and retain executive officers and other key technology, sales,marketing, engineering, manufacturing and support personnel and any failure to do so could adversely impact our business, prospects, financial condition andoperating results.Key talent may leave Tesla due to various factors, such as a very competitive labor market for talented individuals with automotive experience. Currently inCalifornia, there is increasing competition for talented individuals with the specialized knowledge of electric vehicles, software engineers, manufacturing engineersand other skilled employees and this competition affects both our ability to retain key employees and hire new ones. Our continued success depends upon ourcontinued ability to hire new employees in a timely manner and retain current employees. Additionally, we compete with both mature and prosperous companiesthat have far greater financial resources than we do and start-ups and emerging companies that promise short-term growth opportunities. Any difficulties inretaining current employees or recruiting new ones would have an adverse effect on our performance.We are highly dependent on the services of Elon Musk, our Chief Executive Officer.We are highly dependent on the services of Elon Musk, our Chief Executive Officer, Product Architect, Chairman of our Board of Directors and largeststockholder. Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla.Mr. Musk also currently serves as Chief Executive Officer and Chief Technical Officer of Space Exploration Technologies, a developer and manufacturer of spacelaunch vehicles, and Chairman of SolarCity, a solar provider.We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability tooperate our manufacturing facilities.As an automobile manufacturer, we are subject to complex environmental, health and safety laws and regulations at numerous levels, including laws relatingto the use, handling, storage, disposal and human exposure to hazardous materials, both in the United States and abroad. The costs of compliance, includingremediating contamination if any is found on our properties, and of any changes to our operations mandated by new laws or amendments to existing laws may besignificant. We may also face unexpected delays in obtaining the necessary permits and approvals required by such laws in connection with our manufacturingfacilities, which would hinder our operation of these facilities. Such costs and delays may adversely impact our business prospects and operating results.Furthermore, any violations of these laws may result in substantial fines and penalties, remediation costs, third party damages, or a suspension or cessation of ouroperations.Our business may be adversely affected by any disruptions caused by union activities.Although none of our employees is currently represented by a labor union, it is common for employees at automobile companies to belong to a union, whichcan result in higher employee costs and increased risk of work stoppages. Although we work diligently to provide the best possible work environment for ouremployees, they may still decide to join or seek recognition to form a labor union, or we may be required to become a union signatory. Furthermore, we are directlyor indirectly dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikesorganized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs, it could delaythe manufacture and sale of our products and have a material adverse effect on our business, prospects, operating results or financial condition.20 We are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comp ly with these regulations couldsubstantially harm our business and operating results.Motor vehicles are subject to substantial regulation under international, federal, state, and local laws. We incur significant costs in complying with theseregulations, and may be required to incur additional costs to comply with any changes to such regulations. Also, we are subject to laws and regulations applicableto the import, sale and service of automobiles internationally. For example, we are required to meet vehicle-specific safety standards that are often materiallydifferent from U.S. requirements, thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance. This process necessitatesthat foreign regulatory official’s review and certify our vehicles prior to market entry. In addition, we must comply with regulations applicable to vehicles afterthey enter the market, including foreign reporting requirements and recall management systems.Additionally, we recently released a vehicle software update that delivers a range of new Autopilot features that relieve drivers of the most tedious andpotentially dangerous aspects of road travel. As Autopilot is a completely new feature that U.S. and foreign regulators have limited experience with, there is a riskthat regulators could take actions impacting whether and how our customers are able to use our vehicles equipped for Autopilot, which could adversely affect ourbusiness.We are subject to various privacy and consumer protection laws.Our privacy policy is posted on our website, and any failure by us or our vendor or other business partners to comply with it or with federal, state orinternational privacy, data protection or security laws or regulations could result in regulatory or litigation-related actions against us, legal liability, fines, damagesand other costs. Although we take steps to protect the security of our customers’ personal information, we may be required to expend significant resources tocomply with data breach requirements if third parties improperly obtain and use the personal information of our customers or we otherwise experience a data losswith respect to customers’ personal information. A major breach of our network security and systems could have negative consequences for our business and futureprospects, including possible fines, penalties and damages, reduced customer demand for our vehicles, and harm to our reputation and brand.We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and financial performance.Any product recall in the future may result in adverse publicity, damage our brand and adversely affect our business, prospects, operating results andfinancial condition. We previously experienced product recalls in May 2009, October 2010, June 2013 and November 2015, none of which was related to ourelectric powertrain or that resulted in a vehicle crash or personal injury reported to us. In April 2009, we determined that a condition caused by insufficienttorqueing of the rear inner hub flange bolt existed in some of our Tesla Roadsters, as a result of a missed process during the manufacture of the Tesla Roadsterglider. In October 2010, we initiated a product recall after the 12 volt, low voltage auxiliary cable in a single vehicle chafed against the edge of a carbon fiber panelin the vehicle causing a short, smoke and possible fire behind the right front headlamp of the vehicle. In June 2013, we initiated a recall of slightly more than onethousand Model S vehicles to inspect and repair rear seat strikers that may have been compromised during the assembly process. Rear seat strikers are used toretain the rear seat backs in an upright position. Failure of this component may have resulted in collapse of the rear seat back during a crash. In November 2015, weinitiated a recall after we discovered a single customer-owned Model S with a front seat belt that was not properly connected to the outboard lap pretensioner.Furthermore, in January 2014, we implemented a firmware update to address issues with certain Universal Mobile Connector NEMA 14-50 adapters, which arepart of the charging units and are not part of the vehicles themselves, potentially overheating during charging. In the future, we may at various times, voluntarily orinvoluntarily, initiate a recall if any of our vehicles or our electric powertrain components that we provide to other OEMs, including any systems or parts sourcedfrom our suppliers, prove to be defective or noncompliant with applicable federal motor vehicle safety standards. Such recalls, whether voluntary or involuntary orcaused by systems or components engineered or manufactured by us or our suppliers, involve significant expense and diversion of management attention and otherresources, and could adversely affect our brand image in our target markets, as well as our business, prospects, financial condition and results of operations.Our current and future warranty reserves may be insufficient to cover future warranty claims which could adversely affect our financial performance.If our warranty reserves are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition and operating resultscould be materially and adversely affected. Warranty reserves include management’s best estimate of the projected costs to repair or to replace items underwarranty. These estimates are based on actual claims incurred to-date and an estimate of the nature, frequency and costs of future claims. These estimates areinherently uncertain and changes to our historical or projected experience may cause material changes to our warranty reserves in the future. Subject to separatelimited warranties for the supplemental restraint system and battery, we provide a four year or 50,000 mile New Vehicle Limited Warranty for the purchasers ofnew Model S and Model X vehicles. The New Vehicle Limited Warranty for Model S and Model X also covers the drive unit for eight years and the battery for aperiod of eight years or 125,000 miles or unlimited miles, depending on the size of the vehicle’s battery, although the battery’s charging capacity is not coveredunder the New Vehicle Limited Warranty or any Extended Service plan.21 In addition, customers h ave the opportunity to purchase an Extended Service plan for the period after the end of the New Vehicle Limited Warranty forModel S and Model X to cover additional services for an additional four years or 50,000 miles, provided it is purchased within a s pecified period of time. The NewVehicle Limited Warranty and Extended Service plans for the Model S and Model X are subject to certain limitations, exclusions or separate warranties, includingcertain wear items, such as tires, brake pads, paint and gener al appearance, and battery performance, and is intended to cover parts and labor to repair defects inmaterial or workmanship in the vehicle including the body, chassis, suspension, interior, electronic systems, powertrain and brake system. Additionally, i n 2013, aspart of our ongoing efforts to improve the customer ownership experience, we expanded the battery pack warranty and also eliminated the annual servicerequirement that was needed to keep the New Vehicle Limited Warranty in effect. Should this ch ange in warranty coverage lead to an increase in warranty claims,we may need to record additional warranty reserves, which would negatively affect our profitability.We are currently expanding and improving our information technology systems and use security measures designed to protect our systems againstbreaches and cyber-attacks. If these efforts are not successful, our business and operations could be disrupted and our operating results and reputationcould be harmed.We are currently expanding and improving our information technology systems, including implementing new internally developed systems, to assist us inthe management of our business. In particular, our volume production of multiple vehicles necessitates continued development, maintenance and improvement ofour information technology systems in the U.S. and abroad, which include product data management, procurement, inventory management, production planningand execution, sales, service and logistics, dealer management, financial, tax and regulatory compliance systems. The implementation, maintenance andimprovement of these systems require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving andexpanding our core systems as well as implementing new systems, including the disruption of our data management, procurement, manufacturing execution,finance, supply chain and sales and service processes. These risks may affect our ability to manage our data and inventory, procure parts or supplies ormanufacture, sell, deliver and service vehicles, or achieve and maintain compliance with, or realize available benefits under, tax laws and other applicableregulations. We also maintain information technology measures designed to protect us against system security risks, data breaches and cyber-attacks.We cannot be sure that these systems or their required functionality will be effectively implemented, maintained or expanded as planned. If we do notsuccessfully implement, maintain or expand these systems as planned, our operations may be disrupted, our ability to accurately and/or timely report our financialresults could be impaired, and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results.Moreover, our proprietary information could be compromised and our reputation may be adversely affected. If these systems or their functionality do not operate aswe expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.Our insurance strategy may not be adequate to protect us from all business risks.We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against us, forwhich we may have no insurance coverage. While we currently maintain general liability, automobile, property, workers’ compensation, and directors’ andofficers’ insurance policies, as a general matter, we do not maintain as much insurance coverage as many other companies do, and in some cases, we do notmaintain any at all. Additionally, the policies that we do have may include significant deductibles, and we cannot be certain that our insurance coverage will besufficient to cover all future claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which couldadversely affect our financial condition and operating results.Our financial results may vary significantly from period-to-period due to fluctuations in our operating costs.We expect our period-to-period operating results to vary based on our operating costs which we anticipate will increase significantly in future periods as we,among other things, design, develop and manufacture Model 3, Tesla Energy products and other future products, increase the production capacity at ourmanufacturing facilities to produce vehicles at higher volumes, including ramping up the production of Model X, develop the Gigafactory, open new Tesla servicecenters with maintenance and repair capabilities, open new Supercharger locations, increase our sales and marketing activities, and increase our general andadministrative functions to support our growing operations. As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results,especially in the short-term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, ouroperating results may not meet expectations of equity research analysts or investors. If any of this occurs, the trading price of our stock could fall substantially,either suddenly or over time.22 Any u nauthorized control or manipulation of our vehicles’ systems could result in loss of confidence in us and our vehicles and harm our business.Our vehicles contain complex information technology systems. For example, our vehicles are designed with built-in data connectivity to accept and installperiodic remote updates from us to improve or update the functionality of our vehicles. We have designed, implemented and tested security measures intended toprevent unauthorized access to our information technology networks, our vehicles and their systems. However, hackers have reportedly attempted, and may attemptin the future, to gain unauthorized access to modify, alter and use such networks, vehicles and systems to gain control of, or to change, our vehicles’ functionality,user interface and performance characteristics, or to gain access to data stored in or generated by the vehicle. We encourage reporting of potential vulnerabilities inthe security of our vehicles via our security vulnerability reporting policy, and we aim to remedy any reported and verified vulnerabilities. Accordingly, we havereceived reports of potential vulnerabilities in the past and have attempted to remedy them. However, there can be no assurance that vulnerabilities will not beidentified in the future, or that our remediation efforts are or will be successful.Any unauthorized access to or control of our vehicles or their systems or any loss of data could result in legal claims or proceedings. In addition, regardlessof their veracity, reports of unauthorized access to our vehicles, their systems or data, as well as other factors that may result in the perception that our vehicles,their systems or data are capable of being “hacked,” could negatively affect our brand and harm our business, prospects, financial condition and operating results.If we had a desire or need to raise additional funds and could not do so, our operations and prospects could be negatively affectedWe expect that our principal sources of liquidity will provide us adequate liquidity based on our current plans. However, if the costs for developing,manufacturing and delivering our current or future vehicles exceed our expectations or if we incur any significant unplanned expenses or embark on or acceleratenew significant strategic investments, such as the Gigafactory, we may need to raise additional funds. We need sufficient capital to fund our ongoing operations,continue research and development projects, including those for our planned Model 3 vehicle, establish sales and service centers, build and deploy Superchargersand to make the investments in tooling and manufacturing capital required to introduce new vehicles. If we cannot raise additional funds on favorable terms or at allwhen we need them, our financial condition, results of operations, business and prospects could be materially adversely affected.We may face regulatory limitations on our ability to sell vehicles directly which could materially and adversely affect our ability to sell our electricvehicles.We sell our vehicles from our Tesla stores as well as over the internet. We may not be able to sell our vehicles through this sales model in each state in theUnited States as some states have laws that may be interpreted to impose limitations on this sales model, including laws that prohibit manufacturers from sellingvehicles directly to consumers without the use of an independent dealership or without a physical presence in the state. In certain states in which we are not able toobtain dealer licenses, we have worked with state regulators to open galleries, which are not full retail locations.The application of these state laws to our operations continues to be difficult to predict. Laws in some states have limited our ability to obtain dealer licensesfrom state motor vehicle regulators and may continue to do so.In addition, decisions by regulators permitting us to sell vehicles may be subject to challenges as to whether such decisions comply with applicable statemotor vehicle industry laws. For example, vehicle dealer associations in New York, Ohio, Georgia and Massachusetts have filed lawsuits to revoke dealer licensesissued to us. These lawsuits have been dismissed, and in one court decision, the Supreme Court of Massachusetts held that state franchise laws like the one inMassachusetts do not restrict a manufacturer, like Tesla, that does not use franchised dealers from selling its vehicles directly to consumers. Such results havereinforced our continuing belief that state laws were not designed to prevent our distribution model. A similar lawsuit has been filed in Missouri. Possibleadditional challenges in other states, if successful, could restrict or prohibit our ability to sell our vehicles to residents in such states. In some states, there have alsobeen regulatory and legislative efforts by vehicle dealer associations to propose bills and regulations that, if enacted, would prevent us from obtaining dealerlicenses in their states given our current sales model. Other states, such as New Jersey, New York, Ohio and Pennsylvania, have passed legislation that clarifies ourability to operate, but at the same time limits the number of dealer licenses we can obtain or stores that we can operate.Internationally, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict oursales or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change overtime.23 We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incursubstantial costs.Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent,limit or interfere with our ability to make, use, develop, sell or market our vehicles or components, which could make it more difficult for us to operate ourbusiness. From time to time, we may receive communications from holders of patents or trademarks regarding their proprietary rights. Companies holding patentsor other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights and urge us to take licenses. In addition, ifwe are determined to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following: ·cease selling, incorporating certain components into, or using vehicles or offering goods or services that incorporate or use the challenged intellectualproperty; ·pay substantial damages; ·seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; ·redesign our vehicles or other goods or services; or ·establish and maintain alternative branding for our products and services.In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectualproperty right, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims,whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from interfering withour commercialization of our products.The status of patents involves complex legal and factual questions and the breadth and effectiveness of patented claims is uncertain. We cannot be certainthat we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions, nor can we be certainthat our pending patent applications will result in issued patents or that any of our issued patents will afford sufficient protection against someone creating aknockoff of our products, or as a defensive portfolio against a competitor who claims that we are infringing its patents. In addition, patent applications filed inforeign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applicationswill result in issued patents in those foreign jurisdictions or that such patents can be effectively enforced, even if they relate to patents issued in the U.S. In addition,others may obtain patents that we need to take a license to or design around, either of which would increase costs and may adversely affect our business, prospects,financial condition and operating results.Our trademark applications in certain countries remain subject to outstanding opposition proceedings.We have filed trade and service mark applications for our Tesla marks in various countries in which we currently sell and plan to sell our products andservices. Certain of our applications are subject to outstanding opposition proceedings brought by owners or applicants alleging prior applications for or use ofsimilar marks, or refusals issued by trademark offices citing prior applications or registrations for allegedly similar marks. If we cannot resolve these oppositionsand refusals and thereby secure registered rights in these countries, the value of the marks representing our exclusive brand name in these countries will be diluted.In addition, there is a risk that the prior rights owners could in the future take actions to challenge our use of the Tesla marks in these countries. Such actions couldhave a severe impact on our position in these countries and may inhibit our ability to use the Tesla marks in these countries. If we were prevented from using theTesla marks in any or all of these countries, we would need to expend significant additional financial and marketing resources on establishing an alternative brandidentity in these markets.Our facilities or operations could be damaged or adversely affected as a result of disasters.Our corporate headquarters and primary manufacturing facilities are all located in Northern California, a region known for seismic activity. If majordisasters such as earthquakes or other events occur, or our information system or communications network breaks down or operates improperly, our headquartersand production facilities may be seriously damaged, or we may have to stop or delay production and shipment of our products. We may incur expenses relating tosuch damages, which could have a material adverse impact on our business, operating results and financial condition.24 Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substanti aldebt.We have incurred $3.0 billion in aggregate principal amount of convertible senior notes issued in registered public offerings. Under certain circumstancesrelating to the reported trading price of our common stock, the holders of our convertible senior notes may convert their notes at their option, upon which we wouldbe obligated to deliver cash payments and/or shares of our common stock to the converting holders. Currently, holders of an aggregate $660.0 million tranche ofnotes have the right to convert their notes. Moreover, holders of the notes have the right to require us to repurchase their notes upon the occurrence of afundamental change with respect to us. In addition, we have a senior secured asset-based revolving credit facility (the Credit Facility), under which we had $135million of borrowings as of December 31, 2015.Our ability to make scheduled payments of principal when due, to make periodic interest payments or to make other payments pursuant to the terms of ourindebtedness, such as with respect to our convertible senior notes upon their conversion or upon demand following a fundamental change, depends on our futureperformance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow fromoperations in the future sufficient to satisfy these obligations or obligations under any future indebtedness we may incur and to make necessary capitalexpenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments orcapital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance ourexisting or any future indebtedness will depend on the capital markets and our financial condition at such time. In addition, our ability to make required paymentsunder our indebtedness may be limited by law, by regulatory authority or by agreements governing our future indebtedness. We may not be able to engage in any ofthese activities or engage in these activities on desirable terms or at all, which could result in a default on our existing or future indebtedness. Furthermore, anyrepayment of any of our existing or future indebtedness prior to their scheduled maturity could have a material adverse effect on our business, results of operationsand financial condition.Our debt agreements contain covenant restrictions that may limit our ability to operate our business.The terms of our Credit Facility contain, and any of our other future debt agreements may contain, covenant restrictions that limit our ability to operate ourbusiness, including restrictions on our ability to, among other things, incur additional debt or issue guarantees, create liens and make certain voluntary prepaymentsof specified debt. In addition, under certain circumstances we are required to comply with a fixed charge coverage ratio.As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may berestricted, and we may be prevented from engaging in transactions that might otherwise be beneficial to us. In addition, our failure to comply with our debtcovenants could result in a default under our debt agreements, which could permit the holders to accelerate our obligation to repay the debt. If any of our debt isaccelerated, we may not have sufficient funds available to repay it.We may still incur substantially more debt or take other actions, which would intensify the risks discussed immediately above.We and our subsidiaries may, subject to the limitations in the terms of our Credit Facility, incur additional debt, secure existing or future debt, recapitalizeour debt or take a number of other actions that are not limited by the terms of the indenture governing our convertible senior notes that could have the effect ofdiminishing our ability to make payments on the notes when due.The classification of our convertible senior notes may have a material effect on our reported financial results.As described in the Risk Factor “ Servicing
our
indebtedness
requires
a
significant
amount
of
cash,
and
we
may
not
have
sufficient
cash
flow
from
ourbusiness
to
pay
our
substantial
debt,”
our convertible senior notes have been historically, and may become in the future, convertible at the option of their holdersprior to their scheduled terms under certain circumstances. Even if holders do not elect to convert their notes, the notes become convertible prior to their scheduledmaturity dates, we would be required to reclassify such notes and the related debt issuance costs as current liabilities and certain portions of our equity outside ofequity to mezzanine equity, which would have an adverse impact on our reported financial results for such quarter, and could have an adverse impact on the marketprice of our common stock.25 Risks Related to the Ownership of our Common StockThe trading price of our common stock is likely to continue to be volatile.The trading price of our common stock has been highly volatile and could continue to be subject to wide fluctuations in response to various factors, some ofwhich are beyond our control. Our common stock has experienced an intra-day trading high of $286.65 per share and a low of $141.05 per share over the last 52weeks. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have oftenbeen unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price ofcompanies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and themarket price of a particular company’s securities, securities class action litigation has often been instituted against these companies. For example, a shareholderlitigation like this was filed against us in 2013. While the trial court dismissed the plaintiffs’ complaint with prejudice, this litigation (if the trial court’s order issuccessfully appealed) or others like it could result in substantial costs and a diversion of our management’s attention and resources.Conversion of our convertible senior notes may dilute the ownership interest of existing stockholders, including holders who had previously convertedtheir notes, or may otherwise depress the price of our common stock.The conversion of some or all of our convertible senior notes will dilute the ownership interests of existing stockholders to the extent we deliver shares uponconversion of any of the notes. As described in the Risk Factor “ Servicing
our
indebtedness
requires
a
significant
amount
of
cash,
and
we
may
not
have
sufficientcash
flow
from
our
business
to
pay
our
substantial
debt,”
our convertible senior notes have been historically, and may become in the future, convertible at theoption of their holders prior to their scheduled terms under certain circumstances. Any sales in the public market of the common stock issuable upon suchconversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the notes may encourage short selling by marketparticipants because the conversion of the notes could be used to satisfy short positions, or anticipated conversion of the notes into shares of our common stockcould depress the price of our common stock.The convertible note hedge and warrant transactions we entered into in connection with the issuance of our convertible senior notes may affect thevalue of the notes and our common stock.In connection with each issuance of our convertible senior notes, we entered into convertible note hedge transactions with the hedge counterparties. Theconvertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlay theapplicable notes. The convertible note hedge transactions are expected to reduce the potential dilution and/or offset potential cash payments we are required tomake in excess of the principal amount upon conversion of the applicable notes. We also entered into warrant transactions with the hedge counterparties relating tothe same number of shares of our common stock, subject to customary anti-dilution adjustments. However, the warrant transactions could separately have a dilutiveeffect on our common stock to the extent that the market price per share of our common stock exceeds the applicable strike price of the warrants on the applicableexpiration dates.In addition, the hedge counterparties or their affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect toour common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the applicablenotes (and are likely to do so during any observation period related to a conversion of notes). This activity could also cause or prevent an increase or a decrease inthe market price of our common stock or the notes.We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have onthe prices of the notes or the shares of our common stock. In addition, we do not make any representation that the hedge counterparties have engaged or will engagein these transactions or that these transactions, once commenced, will not be discontinued without notice.Mr. Musk borrowed funds from affiliates of certain underwriters in our public offerings and/or private placements and has pledged shares of ourcommon stock to secure these borrowings. The forced sale of these shares pursuant to a margin call could cause our stock price to decline andnegatively impact our business.Beginning in June 2011, banking institutions that are affiliated with certain underwriters of our completed public offerings of common stock and ourconvertible senior notes made extensions of credit to Elon Musk and the Elon Musk Revocable Trust dated July 22, 2003, or the Trust, a portion of whichMr. Musk used to purchase shares of common stock in our public offerings in May 2013 and August 2015 and private placements in June 2011 and June 2013. Weare not a party to these loans, which are full recourse against Mr. Musk and the Trust and are secured by pledges of a portion of the Tesla common stock currentlyowned by Mr. Musk and the Trust and other shares of capital stock of unrelated entities owned by Mr. Musk and the Trust.26 If the price of our common stock declines, Mr. Musk may be forced by one or more of the banking institutions to provide additional collater al for the loansor to sell shares of Tesla common stock in order to remain within the margin limitations imposed under the terms of his loans. The loans between these bankinginstitutions on the one hand, and Mr. Musk and the Trust on the other hand, proh ibit the non-pledged shares currently owned by Mr. Musk and the Trust frombeing pledged to secure any other loans. These factors may limit Mr. Musk’s ability to either pledge additional shares of Tesla common stock or sell shares of Teslacommon stock as a means to avoid or satisfy a margin call with respect to his pledged Tesla common stock in the event of a decline in our stock price that is largeenough to trigger a margin call. Any sales of common stock following a margin call that is not satisfied may cause the price of our common stock to decline further.Anti-takeover provisions contained in our certificate of incorporation and bylaws, the provisions of Delaware law, and the terms of our convertiblesenior notes could impair a takeover attempt.Our certificate of incorporation, bylaws, Delaware law and the terms of our convertible senior notes contain provisions which could have the effect ofrendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents includeprovisions: ·creating a classified board of directors whose members serve staggered three-year terms; ·authorizing “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation,dividend and other rights superior to our common stock; ·limiting the liability of, and providing indemnification to, our directors and officers; ·limiting the ability of our stockholders to call and bring business before special meetings; ·requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates forelection to our board of directors; ·controlling the procedures for the conduct and scheduling of board and stockholder meetings; and ·providing the board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduledspecial meetings.As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, whichprevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of theholders of substantially all of our outstanding common stock.Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit theopportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to payfor our common stock.In addition, the terms of the convertible senior notes require us to repurchase the notes in the event of a fundamental change. A takeover of our companywould trigger an option of the holders of the notes to require us to repurchase the notes. This may have the effect of delaying or preventing a takeover of ourcompany that would otherwise be beneficial to our stockholders. I TEM 1B.UNRESOLVED STAFF COMMENTSNone. 27 I TEM 2.PROPERTIESThe following table sets forth the location, approximate size and primary use of our principal leased and owned facilities: Location ApproximateSize (Building)in Square Feet Primary Use LeaseExpirationDateFremont, California 5,400,000 Manufacturing, administration, engineering services, partswarehousing, and vehicle service Owned buildingPalo Alto, California 350,000 Corporate headquarters, administration, engineering services andpowertrain development services January 2020Tilburg, Netherlands 499,710 Administration, engineering services, powertrain developmentservices, parts warehousing, final vehicle assembly and vehicleservice November
2023Lathrop, California 430,770 Manufacturing Owned building (1)Fremont, California 302,400 Sales, marketing and services center March 2028Fremont, California 506,490 Administration, sales and marketing services August 2025Amsterdam, Netherlands 71,142 Administration February 2024Hawthorne, California 132,250 Vehicle engineering and design services December 2022Beijing, China 8,190 Administration, sales and marketing services November 2017 (1)As of December 31, 2014, the Lathrop property was subject to a lease agreement. In January 2015, Tesla exercised its option to purchase the Lathrop property under theterms of the lease agreement.In addition to the properties included in the table above, we also lease a large number of properties in North America, Europe and Asia for our retail andservice locations as well as Supercharger sites.We currently intend to add new facilities or expand our existing facilities as we add employees and expand our network of stores and galleries, servicelocations and Supercharger sites. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms toaccommodate our foreseeable future expansion. I TEM 3.LEGAL PROCEEDINGSSee Item 8 of Part II, Financial Statements and Supplementary Data—Note 13— Commitments
and
Contingencies
. I TEM 4.MINE SAFETY DISCLOSURESNot applicable. 28 P ART II I TEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket InformationOur common stock has traded on The NASDAQ Global Select Market under the symbol “TSLA” since it began trading on June 29, 2010. Our initial publicoffering was priced at $17.00 per share on June 28, 2010. The following table sets forth, for the time period indicated, the high and low closing sales price of ourcommon stock as reported on The NASDAQ Global Select Market. 2015 2014 High Low High Low First Quarter $225.48 $181.40 $254.84 $139.34 Second Quarter 271.41 186.05 240.06 178.59 Third Quarter 286.65 195.00 286.04 215.40 Fourth Quarter 249.84 202.00 260.62 197.81 HoldersAs of January 31, 2016, there were 836 holders of record of our common stock. A substantially greater number of holders of our common stock are “streetname” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.Dividend PolicyWe have never declared or paid cash dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future.Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on ourfinancial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.29 Stock Performance GraphThis
performance
graph
shall
not
be
deemed
“filed”
for
purposes
of
Section
18
of
the
Securities
Exchange
Act
of
1934,
as
amended
(the
Exchange
Act),
orincorporated
by
reference
into
any
filing
of
Tesla
Motors,
Inc.
under
the
Securities
Act
of
1933,
as
amended,
or
the
Exchange
Act,
except
as
shall
be
expressly
setforth
by
specific
reference
in
such
filing.The following graph shows a comparison from January 31, 2011 through December 31, 2015, of the cumulative total return for our common stock, theNASDAQ Composite Index, and a group of all public companies sharing the same SIC code as us which is SIC code 3711, “Motor Vehicles and Passenger CarBodies” (Motor Vehicles and Passenger Car Bodies Public Company Group). Such returns are based on historical results and are not intended to suggest futureperformance. Data for The NASDAQ Composite Index and the Motor Vehicles and Passenger Car Bodies Public Company Group assumes an investment of $100on January 31, 2011 and reinvestment of dividends. We have never declared or paid cash dividends on our capital stock nor do we anticipate paying any such cashdividends in the foreseeable future. Unregistered Sales of Equity SecuritiesNone.Purchases of Equity Securities by the Issuer and Affiliated PurchasersNone. 30 I TEM 6.SELECTED CONSOLIDATED FINANCIAL DATAThe following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2015 2014 2013 2012 2011 (in thousands, except per share data) Consolidated Statements of Operations Data: Total revenues $4,046,025 $3,198,356 $2,013,496 $413,256 $204,242 Gross profit 923,503 881,671 456,262 30,067 61,595 Loss from operations (716,629) (186,689) (61,283) (394,283) (251,488)Net loss $(888,663) $(294,040) $(74,014) $(396,213) $(254,411)Net loss per share of common stock, basic and diluted (1) $(6.93) $(2.36) $(0.62) $(3.69) $(2.53)Weighted average shares used in computing net loss per share of common stock, basic and diluted (1) 128,202 124,539 119,421 107,349 100,389 (1)Diluted net loss per share of common stock is computed excluding common stock subject to repurchase, and, if dilutive, potential shares of common stockoutstanding during the period. Potential shares of common stock consist of stock options to purchase shares of our common stock, the conversion of ourconvertible senior notes (using the treasury stock method), warrants to purchase shares of our common stock issued in connection with our 2018 Notes,2019 Notes, and 2021 Notes (using the treasury stock method), warrants to purchase shares of our convertible preferred stock (using the treasury stockmethod) and the conversion of our convertible preferred stock and convertible notes payable (using the if-converted method). For purposes of thesecalculations, potential shares of common stock have been excluded from the calculation of diluted net loss per share of common stock as their effect isantidilutive since we generated a net loss in each period. As of December 31, 2015 2014 2013 2012 2011 Consolidated Balance Sheet Data: Working capital (deficit) (3) $(24,706) $1,072,907 $585,665 $(14,340) $181,499 Total assets 8,092,460 5,830,667 2,411,816 1,114,190 713,448 Total long-term obligations (1)(2) 4,145,197 2,753,595 1,069,535 450,382 298,064 (1)In May 2013, we issued $660.0 million aggregate principal amount of 2018 Notes in a public offering. In accordance with accounting guidance onembedded conversion features, we valued and bifurcated the conversion option associated with the 2018 Notes from the host debt instrument and initiallyrecorded the conversion option of $82.8 million in equity. During the fourth quarter of 2015, the closing price of our common stock exceeded 130% of theapplicable conversion price of our 2018 Notes on at least 20 of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes mayconvert their notes during the first quarter of 2016. As such, we classified the $617.7 million carrying value of our 2018 Notes as current liabilities on ourcondensed consolidated balance sheet as of December 31, 2015. In March 2014, we issued $800.0 million principal amount of 0.25% convertible senior notes due 2019 (2019 Notes) and $1.20 billion principal amount of1.25% convertible senior notes due 2021 (2021 Notes) in a public offering. In April 2014, we issued an additional $120.0 million aggregate principalamount of 2019 Notes and $180.0 million aggregate principal amount of 2021 Notes, pursuant to the exercise in full of the overallotment options of theunderwriters of our March 2014 public offering. In accordance with accounting guidance on embedded conversion features, we valued and bifurcated theconversion option associated with the notes from the host debt instrument and recorded the conversion option of $188.1 million for the 2019 Notes and$369.4 million for the 2021 Notes in stockholders’ equity as of December 31, 2014(2)As of August 31, 2012, we had fully drawn down our $465.0 million under our DOE loan facility. In May 2013, we used a portion of the Notes offeringproceeds to repay all outstanding loan amounts under the DOE Loan Facility.(3)In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of DeferredTaxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified asnoncurrent on the balance sheet. We have retrospectively adopted this standard and reclassified all of our current deferred tax assets to noncurrent deferredtax assets on our consolidated balance sheets data for all periods presented. As a result of the reclassifications, certain noncurrent deferred tax liabilitieswere netted with noncurrent deferred tax assets for all periods presented. 31 I TEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe
following
discussion
and
analysis
should
be
read
in
conjunction
with
our
consolidated
financial
statements
and
the
related
notes
that
appear
elsewherein
this
Annual
Report
on
Form
10-K.
Overview and 2015 HighlightsWe design, develop, manufacture, and sell high-performance fully electric vehicles, and energy storage products. We are currently producing and selling ourModel S sedan and our Model X sport utility vehicle. Since the introduction of Model S in June 2012, we have enhanced our vehicle offerings with all-wheel drivecapability, autopilot options, and free over-the-air software updates. We commenced customer deliveries of our Model X in September 2015 and are currentlyramping production. We have delivered over 107,000 vehicles through December 31, 2015. We intend to unveil Model 3, a lower priced sedan designed for themass market, in the first quarter of 2016 and expect to commence production and deliveries of this vehicle in late 2017.In addition to our automotive products, we recently announced the next generation of our energy storage products, the 7 kWh and 10 kWh Powerwall forresidential applications and the 100 kWh Powerpack for commercial and industrial applications. We began production and deliveries of these products, which wewill sell under the Tesla Energy brand, in the third quarter of 2015. We transitioned the production of these products from the Fremont Factory to the Gigafactoryduring Q4 2015.Our primary source of revenue is from the sale of our vehicles. During the year ended December 31, 2015, we recognized total revenues of $4.05 billion, anincrease of $847.7 million over total revenues of $3.20 billion for the year ended December 31, 2014, primarily driven by growth of Model S deliveries worldwide.Gross margin for the year ended December 31, 2015 was 22.8%, a decrease from 27.6% for the year ended December 31, 2014.We continue to increase our sales and service footprint worldwide and expand our Supercharging and destination charging networks. With the continuedglobal expansion of our customer support and Supercharger infrastructure, selling, general and administrative expenses were $922.2 million for the year endedDecember 31, 2015, compared to $603.7 million for the year ended December 30, 2014. Management Opportunities, Challenges and RisksVehicle
Orders,
Production
and
DeliveriesWe are currently producing and selling both the Model S sedan and the Model X sport utility vehicle. We have broadened the appeal of Model S byintroducing new variants that improve range, performance, and value. For those wanting a more affordable car, we introduced Model S 70 with a starting price ofonly $70,000 before incentives and fuel savings. Our new 90kWh battery pack option enables almost 300 miles of range at 65 mph. Finally, for our performanceenthusiasts, the new Ludicrous mode option improves 0 to 60 mph acceleration to 2.8 seconds. The introduction of Model X now provides customers with aperformance electric vehicle option in the sport utility segment for the first time. Similar to Model S, we expect to introduce new versions and functionality for theModel X over time. Overall, we expect that demand for our vehicles will continue to increase worldwide as more people drive and become aware of our vehicles,as we grow our customer sales and service infrastructure, and as we continue to develop our products.We have been increasing our production activities and expect to continue to do so. In August 2014, we began a significant production capacity increase atthe Tesla Factory by transitioning to our new final assembly line and upgrading our body center. These production capacity increases continued into 2015, withfurther investments including building a new paint shop, a new body shop for Model X, and additional stamping capacity. We expect our annual production willincrease considerably each year for the next several years. In addition, scaling our deliveries means that we will have an increasing number of cars in-transit,therefore production will exceed deliveries. During 2015, we achieved significant efficiencies in Model S production and produced 14,037 vehicles in the fourth quarter of 2015. We began productionof Model X in the third quarter of 2015. We plan to deliver 80,000 to 90,000 new Model S and Model X vehicles in 2016.32 In addition to expanding our vehicle production, we expect to continue to lower the cost of manufacturing our vehicles over the next several quarters. Weexpect that this trend will contribute to improved au tomotive gross margin over time, excluding the impact of foreign currency movements. Significant costimprovements for Model S were achieved in 2014 and 2015 relating to material cost reductions from both engineering and commercial actions, and manufacturingefficiencies, excluding the impact of newly introduced Model S variants and Model X. However, during our product introductions over the last few years, weincurred ma nufacturing inefficiencies which negatively impacted our gross margin. We expect that automotive gross margin should increase during 2016 due tocost reductions for Model S and improving margin on Model X as our manufacturing effici ency improves for that v ehicle, supporting our plan to be profitable forthe fourth quarter of 2016. I f we are not able to achieve the planned cost reductions from our various cost savings and process improvement initiatives or rampModel X efficiently, our ability to reach our g ross margin goals would be negatively affected in the short-term.To support our planned vehicle growth in 2016, we plan to continue expanding stores and service infrastructure worldwide, provide more timely service inareas with a high concentration of Tesla customers, and continue expanding our Supercharger and destination charger network. Since we now offer our vehicles inmany countries throughout North America, Europe and Asia, our expansion will primarily occur in geographic areas in which we already have a presence. Weexpect our long-term sales outside of North America will be almost half of our worldwide automotive revenue. As compared to markets in the United States, wehave relatively limited experience in international markets, and thus we may face difficulties meeting our future international expansion plans. If we experienceunexpected difficulties or delays in finding and opening desirable locations for stores and service centers, we may not be able to meet our delivery plans.Trends
in
Cash
Flow,
Capital
Expenditures
and
Operating
ExpensesWe expect to see a net increase in cash and cash equivalents for the full-year 2016. We plan to fund about $1.5 billion in capital expenditures withoutaccessing any outside capital other than our existing sources that support our leasing and finished goods inventory. We plan to invest in equipment to support cellproduction at the Gigafactory, begin installation of Model 3 vehicle production machinery, open about 80 retail locations and service centers, and energize about300 new Supercharger locations.Our operating expenses are expected to grow by about 20% in 2016 as compared to 2015, driven primarily by the expansion of our retail and service centersas well as increases in general and administrative costs to support the growth of the business. We expect sales, general and administrative expenses to decline overtime as a percentage of revenue as we focus on increasing operational efficiency while continuing to expand our customer and corporate infrastructure. Over time,we also expect total operating expenses to decrease as a percentage of revenue.As of December 31, 2015 and December 31, 2014, the net book value of our Supercharger network was $339.2 million and $107.8 million and as ofDecember 31, 2015 included 584 locations globally. We plan to continue investing in our Supercharger network for the foreseeable future, including in NorthAmerica, Europe and Asia and expect such spending to be a minimal portion of total capital spending during 2016. During 2016, this investment will grow ourSupercharger network by about 50%. We allocate Supercharger related expenses to cost of automotive revenues and selling, general, and administrative expenses.These costs were immaterial for all periods presented.Customer
Financing
OptionsWe offer loans and leases in North America, Europe and Asia primarily through various financial institutions. We offer a resale value guarantee inconnection with certain loans offered by financial institutions and as of December 31, 2015 had approximately 18,400 vehicles under this program. We expandedthis program to selected European and Asian markets during the first half of 2015. Resale value guarantees available for exercise within the next 12 months total$136.8 million in value and relate to 3,017 vehicles.Vehicle deliveries with the resale value guarantee do not impact our near-term cash flows and liquidity, since we receive the full amount of cash for thevehicle sales price at delivery. However, this program requires the deferral of revenues and costs into future periods as they are considered leases for accountingpurposes.While we do not assume any credit risk related to the customer, if a customer exercises the option to return the vehicle to us, we are exposed to liquidity riskthat the resale value of vehicles under these programs may be lower than our guarantee, or the volume of vehicles returned to us may be higher than our estimates,or we may be unable to resell the used cars in a timely manner, all of which could adversely impact our cash flows. Alternatively, in cases where customers retaintheir vehicles past the expiration of the guarantee period, the remaining deferred revenues and costs will be recognized at no gross profit.Based on current market demand for our cars, we estimate the resale prices for our vehicles will continue to be above our resale value guaranteeamounts. Should market values of our vehicles or customer demand decrease, these estimates may be impacted materially.33 We currently offer leases in the U. S. directly from our captive financing entity, as well as through a leasing partner. Leasing through Tesl a Finance is nowavailable in 39 states and the District of Columbia. We also offer financing arrangements through e ntities in Canada, Germany and UK. As of December 3 1 ,2015, we ha d leased approximately 3, 660 vehicles throu gh our captive financing entities in the U.S. and Germany and approximately 6,73 0 vehicles through ourleasing partner. Le asing through both our captive financing entities and our leasing partner exposes us to residual value risk and will adversely impact our near-term operating results by requiring the deferral of revenues and costs into future periods under lease accounting. In addition, for leas es off ered directly from ourcaptive financing entities (but not for those offered through our bank partner), we will not receive the full amount of the cash for the vehicle price at delivery andwill assume customer credit risk. We plan to continue expand ing our leasing offerings.The
GigafactoryWe are developing the Gigafactory as a facility where we work together with our suppliers to integrate production of battery material, cells, modules andbattery packs in one location. We broke ground on the Gigafactory in June 2014 and began assembling our Tesla Energy products in the first portion of the facilityin the fourth quarter of 2015. We currently expect to produce cells at this site beginning in 2016 for use initially in our Tesla Energy products and later for ourvehicles. Over the next few years, we will continue to invest in the expansion of additional Tesla Energy production capacity. We continue to invest in construction of the building and utilities at the Gigafactory and in production equipment for battery, module and pack production.We will be responsible for the overall management of the Gigafactory and will engage with partners who have significant experience in battery cell and materialproduction. Panasonic has agreed to partner with us on the Gigafactory with investments in production equipment that it will use to manufacture and supply us withbattery cells. Under our arrangement with Panasonic, we plan to purchase the full output from their production equipment at negotiated prices. As these termsconvey a right to use the production related assets as defined within ASC 840 – Leases
, we will consider these leased assets beginning with the start of cellproduction in 2016.Given the size and complexity of this undertaking, the cost of building and operating the Gigafactory could exceed our current expectations, we may havedifficulty signing up additional partners, and the Gigafactory may take longer to bring online than we anticipate. Critical Accounting Policies and EstimatesOur consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation ofthese consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs andexpenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonableunder the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differsignificantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are materialdifferences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will beaffected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies.Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.Revenue
RecognitionWe recognize revenue for products and services when: (i) a persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are nouncertainties regarding customer acceptance; (iii) pricing or fees are fixed or determinable; and (iv) collection is reasonably assured.Vehicle sales include standard features, customer selected options and accessories, and specific other elements that meet the definition of a deliverableunder multiple-element accounting guidance including free internet connectivity, access to our Supercharger network, and future over the air softwareupdates. These deliverables are valued on a stand-alone basis and we recognize their revenue over our performance period, which is generally the eight-year life ofthe vehicle, except for internet connectivity which is over the free four year period. If we sell a deliverable separately, we use that pricing to determine its fairvalue; otherwise, we use our best estimated selling price by considering costs used to develop and deliver the service, third party pricing of similar options, andother information which may be available.34 Vehicle
sales
to
customers
with
a
residual
value
guaranteeWe offer resale value guarantees or similar buy-back terms to all customers who purchase vehicles and who finance their vehicle through one of ourspecified banking partners. Under this program, customers have the option of selling their vehicle back to us during the guarantee period for a pre-determinedresale value. Guarantee periods generally range from 36 to 39 months. Although we receive full payment for the vehicle sales price at the time of delivery, we arerequired to account for these as operating leases. The amount of sale proceeds equal to the residual value guarantee is deferred until the guarantee expires or isexercised. The remaining sale proceeds are deferred and recognized on a straight line basis over the stated guarantee period. The guarantee period expires at theearlier of the end of the guarantee period or the pay-off of the initial loan. We capitalize the cost of these vehicles to leased vehicles on our Consolidated BalanceSheets and depreciate their value, less salvage value, to cost of automotive revenue over the same period.In cases when customer retains ownership of the vehicle at the end of the guarantee period, the resale value guarantee liability and any remaining deferredrevenue balances related to the vehicle are settled to automotive revenue and the net book value of the leased vehicle is expensed to costs of automotiverevenue. In cases when customers return the vehicle back to us during the guarantee period, we purchase the vehicle from the customer at an amount equal to theresale value guarantee and settle any remaining deferred balances to automotive revenue and we reclassify the net book value of the vehicle on our balance sheet topre-owned vehicle inventory. As of December 31, 2015, $136.8 million of guarantees are exercisable by customers within the next twelve months.Vehicle
sales
to
leasing
partners
with
a
residual
value
guaranteeIn the fourth quarter of 2014, we also began offering residual value guarantees in connection with automobile sales to certain bank leasing partners. As wehave guaranteed the value of these vehicles and as the vehicles are leased to end-customers, we account for these transactions as interest bearing collateralizedborrowings as required under ASC
840
-
Leases
. Under this program, cash is received for the full price of the vehicle and is recorded within resale value guaranteefor the long-term portion and deferred revenue for the current portion. We accrete the deferred revenue amount to automotive revenue on a straight line basis overthe guarantee period and accrue interest expense based on our borrowing rate. We capitalize vehicles under this program to leased vehicles on our ConsolidatedBalance Sheets and record depreciation from these vehicles to cost of automotive revenues during the period the vehicle is under a lease arrangement. Cashreceived for these vehicles, net of revenue recognized during the period, is classified as collateralized lease borrowings within cash flows from financing activitiesin our Consolidated Statements of Cash Flows.At the end of the lease term, we settle our liability in cash by either purchasing the vehicle from the leasing partner for the residual value guarantee amount,or paying a shortfall to the guarantee amount the leasing partner may realize on the sale of the vehicle. Any remaining balances within deferred revenue and resalevalue guarantee will be settled to automotive revenue. In cases where the bank retains ownership of the vehicle after the end of our guarantee period, we expensethe net value of the leased vehicle to costs of automotive revenue. The maximum cash we could be required to pay under this program, assuming we repurchase ofall vehicles under this program is $348.2 million at December 31, 2015.As of December 31, 2015 and December 31, 2014, we had $527.5 million and $16.7 million of such borrowings recorded in the resale value guaranteeliability and $120.5 million and $3.9 million recorded in deferred revenue liability.At least annually, we assess the estimated market values of vehicles under our resale value guarantee program to determine if we have sustained a loss onany of these contracts. As we accumulate more data related to the resale values of our vehicles or as market conditions change, there may be significant changes totheir estimated values.Direct
Vehicle
Leasing
ProgramWe offer a vehicle leasing program in certain locations in the United States, Canada and Germany. Qualifying customers are permitted to lease a vehicledirectly from Tesla for 36 or 48 months. At the end of the lease term, customers have the option of either returning the vehicle to us or purchasing if for a pre-determined residual value. We account for these leasing transactions as operating leases and recognize leasing revenues over the contractual term and record thedepreciation of these vehicles to cost of automotive revenues. As of December 31, 2015 and December 31, 2014, we had deferred $25.8 million and $9.4 million oflease-related upfront payments which will be recognized on a straight-line basis over the contractual term of the individual leases. Lease revenues are recorded inautomotive revenue and for the year ended December 31, 2015 and December 31, 2014, we recognized $41.2 million and $4.4 millionMaintenance
and
Service
PlansWe offer a prepaid maintenance program for our vehicles, which includes plans covering maintenance for up to eight years or up to 100,000 miles, providedthese services are purchased within a specified period of time. The maintenance plans cover annual inspections and the replacement of wear and tear parts,excluding tires and the battery. Payments collected in advance of the performance of service are initially recorded in deferred revenues on the consolidated balancesheets and recognized in automotive sales as we fulfill our performance obligations.35 We also offer an extended service plan, which covers the repair or replacement of vehicle parts for an additional four years or up to an additional 50,000miles, after the end of our initial New Vehicl e Limited Warranty, provided they are purchased within a specified period of time. Payments collected in advance ofthe performance of service are initially recorded in deferred revenues on the consolidated balance sheets and recognized in automotive sales ratably over the servicecoverage periods.Inventory
ValuationInventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Werecord inventory write-downs for excess or obsolete inventories based upon assumptions about on current and future demand forecasts. If our inventory on hand isin excess of our future demand forecast, the excess amounts are written off.We also review inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires usto determine the estimated selling price of our vehicles less the estimated cost to convert inventory on hand into a finished product. Once inventory is written-down,a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newlyestablished cost basis.Should our estimates of future selling prices or production costs change, additional and potentially material increases to this reserve may be required. Asmall change in our estimates may result in a material charge to our reported financial results.WarrantiesWe provide a manufacturer’s warranty on all vehicles, production powertrain components and systems, and Tesla Energy products we sell. At the time ofdelivery, we accrue for a manufacturer’s warranty which includes our best estimate of the projected costs to repair or to replace items under warranty. Theseestimates are based on actual claims incurred to-date and an estimate of the nature, frequency and costs of future claims.These estimates are inherently uncertain and changes to our historical or projected warranty experience may cause material changes to our warranty reservein the future. The portion of the warranty provision expected to be incurred within 12 months is classified as a current liability.Our warranty reserves do not include projected warranty costs associated with our vehicles accounted for as operating leases or collateralized debtarrangements. Costs to repair these vehicles are expensed as incurred. Warranty expense is recorded as a component of cost of automotive revenue.Stock-Based
CompensationWe use the fair value method of accounting for our stock options and restricted stock units (RSUs) granted to employees and our Employee Stock PurchasePlan (ESPP) to measure the cost of employee services received in exchange for the stock-based awards. The fair value of stock options and ESPP are estimated onthe grant date and offering date using the Black-Scholes option-pricing model. The fair value of RSUs is measured on the grant date based on the closing fairmarket value of our common stock. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for theawards, usually the vesting period which is generally four years for stock options and RSUs and six months for the ESPP. Stock-based compensation expense isrecognized on a straight-line basis, net of estimated forfeitures.The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected volatility. Further, the forfeiture ratealso affects the amount of aggregate compensation. These inputs are subjective and generally require significant judgment.We estimate our forfeiture rate based on an analysis of our actual forfeiture experience and will continue to evaluate the appropriateness of the forfeiturerate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. Quarterly changes in the estimated forfeiture rate can have asignificant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in theperiod the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in adecrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previouslyestimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financialstatements.As we accumulate additional employee stock-based awards data over time and as we incorporate market data related to our common stock, we maycalculate significantly different volatilities, expected lives and forfeiture rates, which could materially impact the valuation of our stock-based awards and thestock-based compensation expense that we will recognize in future periods. Stock-based compensation expense is recorded in our cost of revenues, research anddevelopment expenses, and selling, general and administrative expenses.36 In August 2012, our Board of Directors granted 5,27 4,901 stock options to our CEO (2012 CEO Grant). The 2012 CEO Grant consists of ten vestingtranches with a vesting schedule based entirely on the attainment of both performance conditions and market conditions, assuming continued employment andservice t o us through each vesting date.Each of the vesting tranches requires a combination of one of the ten pre-determined performance milestones outlined below and an incremental increase inour market capitalization of $4.0 billion, as compared to the initial market capitalization of $3.2 billion measured at the time of the 2012 CEO Grant. ·Successful completion of the Model X Alpha Prototype; ·Successful completion of the Model X Beta Prototype; ·Completion of the first Model X Production Vehicle; ·Successful completion of the Model 3 Alpha Prototype; ·Successful completion of the Model 3 Beta Prototype; ·Completion of the first Model 3 Production Vehicle; ·Gross margin of 30% or more for four consecutive quarters; ·Aggregate vehicle production of 100,000 vehicles; ·Aggregate vehicle production of 200,000 vehicles; and ·Aggregate vehicle production of 300,000 vehicles.The term of the 2012 CEO Grant is ten years, so any tranches that remain unvested at the expiration of the 2012 CEO Grant will be forfeited. In addition,unvested options will be forfeited if our CEO is no longer in that role, whether for cause or otherwise.We measured the fair value of the 2012 CEO Grant using a Monte Carlo simulation approach with the following assumptions: risk-free interest rate of1.65%, expected term of ten years, expected volatility of 55% and dividend yield of 0%.Stock-based compensation expense associated with the 2012 CEO Grant is recognized for each pair of performance and market conditions over the longerof the expected achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition is consideredprobable of being met.As of December 31, 2015, the market conditions for seven vesting tranches and the following performance milestones were achieved and approved by ourBoard of Directors, and therefore four of ten tranches of the 2012 CEO Grant were vested as of such date: ·Successful completion of the Model X Alpha Prototype ·Successful completion of the Model X Beta Prototype; and ·Completion of the first Model X Production Vehicle ·Aggregate vehicle production of 100,000 vehiclesAs of December 31, 2015 the following two performance milestones were considered probable of achievement: ·Successful completion of the Model 3 Alpha Prototype; and ·Successful completion of the Model 3 Beta PrototypeAs the above three performance milestones were considered probable of achievement, we recorded stock-based compensation expense of $10.6 million,$25.0 million and $14.5 million for the years ended December 31, 2015, 2014 and 2013.Additionally, no cash compensation has ever been received by our CEO for his services to the Company.Income
TaxesWe are subject to federal and state taxes in the United States in many foreign jurisdictions. Significant judgment is required in determining our provision forincome taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates andjudgments about our future taxable income that are based on assumptions that are consistent with our future plans. Tax laws, regulations, and administrativepractices may be subject to change due to economic or political conditions including fundamental changes to the tax laws applicable to corporate multinationals.The U.S., many countries in the European Union, and a number of other countries are actively considering changes in this regard. As of December 31, 2015, wehad recorded a full valuation allowance on our net U.S. deferred tax assets because we expect that it is more likely than not that our U.S. deferred tax assets will notbe realized in the foreseeable future. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially impacted.37 Furthermore, significant judgment is required in evaluating our tax positions. In the ordinary course of business, there are many transactions andcalculations for which the ultimate tax settlement is uncertain. As a result, we recognize th e effect of this uncertainty on our tax attributes based on our estimates ofthe eventual outcome. These effects are recognized when, despite our belief that our tax return positions are supportable, we believe that it is more likely than notthat those po sitions may not be fully sustained upon review by tax authorities. We are required to file income tax returns in the United States and various foreignjurisdictions, which requires us to interpret the applicable tax laws and regulations in effect in such j urisdictions. Such returns are subject to audit by the variousfederal, state and foreign taxing authorities, who may disagree with respect to our tax positions. We believe that our consideration is adequate for all open audityears based on our assessment of many factors, including past experience and interpretations of tax law. We review and update our estimates in light of changingfacts and circumstances, such as the closing of a tax audit, the lapse of a statute of limitations or a change in estimate. To the extent that the final tax outcome ofthese matters differs from our expectations, such differences may impact income tax expense in the period in which such determination is made. The eventualimpact on our income tax expense depends in part if we s till have a valuation allowance recorded against our deferred tax assets in the period that suchdetermination is made. Results of OperationsRevenuesAutomotive revenue includes revenues related to deliveries of new Model S and Model X vehicles, including internet connectivity, Supercharging access,and over the air software updates, as well as sales of regulatory credits to other automotive manufacturers, amortization of revenue for cars sold with resale valueguarantees, and vehicle leasing revenue.Services and other revenue consists of repair and maintenance services, service plans and merchandise, sales of pre-owned Tesla vehicles, sales of electricvehicle powertrain components and systems to other manufacturers, Tesla Energy products, and net sales of non-Tesla vehicle trade-ins.Automotive revenue during the years ended December 31, 2015, 2014, and 2013 were $3.74 billion, $3.00 billion, and $1.92 billion. The increase wasprimarily driven by the ramp in vehicle deliveries. For the years ended December 31, 2015, 2014, and 2013 automotive revenue includes $309.4 million, $132.6million and $33.5 million from the accretion of the deferred revenues from our resale value guarantee and other similar programs, as well as Tesla leasing.Service and other revenue during the years ended December 31, 2015, 2014, and 2013 were $305.0 million, $191.3 million, and $91.6 million, relatedprimarily to increases in pre-owned vehicle sales and maintenance service revenue in all years, and increased powertrain sales in 2014 as compared to 2013.Cost of Revenues and Gross ProfitCost of automotive revenues includes direct parts, material and labor costs, manufacturing overhead, including amortized tooling costs, shipping and logisticcosts, vehicle internet connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network, and reserves for estimated warrantyexpenses. Cost of revenues also includes adjustments to warranty expense and charges to write down the carrying value of our inventory when it exceeds itsestimated net realizable value and to provide for on-hand inventory that is either obsolete or is in excess of forecasted demand.Cost of automotive revenues for the year ended December 31, 2015, 2014, and 2013 were $2.82 billion, $2.15 billion, and $1.48 billion. The increase in costof automotive revenues was driven primarily by increased Model S deliveries. For the years ended December 31, 2015, 2014, and 2013, we recognized $172.4million, $84.5, and $21.1 million in cost of automotive revenues related to cars accounted for as operating leases.Cost of services and other revenue includes direct parts, material and labor costs for repair and maintenance services, allocations of service center overheadcosts, pre-owned Tesla vehicle sales, sales of our powertrain components, and costs related to the production and sale of Tesla Energy products. For the yearsended December 31, 2015, 2014, and 2013 costs of services and other revenue were $299.2 million, $170.9 million, and $73.9 million. The increase in cost ofservices and other revenues was driven primarily by greater pre-owned vehicle sales and increased maintenance and repair services in all years, and increasedpowertrain sales to Daimler in 2014 as compared to 2013.38 Gross profit for the years ended December 31, 2015, 2014, and 2013 were $923.5 million, $881.7 million and $456.3 million Gross ma rgin for the yearsended December 31, 2015, 2014, and 2013 were 22.8%, 27.6%, and 22.7%. The lower margin in 2015 as compared to 2014 was primarily due to product andregional mix shift, as a greater percentage of sales were derived from vehicle models wit h lower average selling prices, and increased manufacturing costs relatedto the ramp in production of the small drive unit for dual motor Model S vehicles and start of Model X production , obsolete inventory and lower ZEV creditsrevenue. This margin decre ase was partially offset by an increasing amount of revenues from vehicles accounted for as leases including direct lease vehicles andthose under our resale value guarantee programs which have a significantly higher gross margin and from material cost sav ings. Services and other gross marginwere also down year over year, primarily driven by a planned price reduction for powertrain sales to Daimler. The increase in gross profit from 2013 to 2014 wasprimarily due to manufacturing and supply chain efficien cies as well as component cost reductions and higher regulatory credit sales, partially offset bymanufacturing inefficiencies associated with transitioning to our new final assembly line and launch of All-Wheel Drive Dual Motor Model S.Research and Development ExpensesResearch and development (R&D) expenses consist primarily of personnel costs for our teams in engineering and research, supply chain, quality,manufacturing engineering and manufacturing test organizations, prototyping expense, contract and professional services and amortized equipment expense.R&D expenses for the year ended December 31, 2015 were $717.9 million, an increase from $464.7 million for the year ended December 31, 2014. Theincrease in R&D expenses consisted primarily of a $93.9 million increase in expensed materials primarily to support our Model X development and Model Simprovements, a $75.9 million increase in employee compensation expenses, a $30.6 million increase in facilities and depreciation costs, a $20.1 million increasein costs related to Model X, Autopilot and dual motor powertrain engineering, design and testing activities and a $22.8 million increase in stock-basedcompensation expense related to increased headcount and increasing values of awards granted.R&D expenses for the year ended December 31, 2014 were $464.7 million, an increase from $232.0 million for the year ended December 31, 2013. Theincrease in R&D expenses consisted primarily of an $85.3 million increase in employee compensation expenses, a $60.7 million increase in expensed materialsprimarily to support our Model X, dual motor powertrain and right-hand drive Model S development, a $50.9 million increase in costs related to Model X, dualmotor powertrain and right-hand drive Model S engineering, design and testing activities, a $28.1 million increase in stock-based compensation expense related toincreased headcount and increasing values of awards granted, a $4.1 million increase in office, information technology and facilities-related costs and a $3.3million increase in shipping charges for Model X, dual motor powertrain and right-hand drive Model S development.Selling, General and Administrative ExpensesSelling, general and administrative (SG&A) expenses consist primarily of personnel and facilities costs related to our Tesla retail and service stores,marketing, sales, executive, finance, human resources, information technology and legal organizations, settlements and fees for professional and contract servicessupporting these functions.SG&A expenses for the year ended December 31, 2015 were $922.2 million, an increase from $603.7 million for the year ended December 31, 2014. SG&Aexpenses increased primarily from higher headcount and facility costs, including stock based compensation, to support an expanded retail, service and Superchargerfootprint as well as the general growth of the business. The increase in our SG&A expenses consisted primarily of a $138.4 million increase in employeecompensation expenses related to higher sales, service and marketing headcount to support sales activities worldwide and higher general and administrativeheadcount to support the expansion of the business, $126.1 million increase in office, information technology and facilities-related costs to support the growth ofour business as well as sales and marketing activities to handle our expanding market presence, a $41.8 million increase in professional and outside services costs,and a $12.2 million increase in stock based compensation.SG&A expenses for the year ended December 31, 2014 were $603.7 million, an increase from $285.6 million for the year ended December 31, 2013. SG&Aexpenses increased primarily from higher headcount and facility costs to support an expanded retail, service and Supercharger footprint as well as the generalgrowth of the business. The $318.1 million increase in our SG&A expenses consisted primarily of a $141.1 million increase in employee compensation expensesrelated to higher sales, service and marketing headcount to support sales activities worldwide and higher general and administrative headcount to support theexpansion of the business, a $135.9 million increase in office, information technology and facilities-related costs to support the growth of our business as well assales and marketing activities to handle our expanding market presence, a $35.8 million increase in stock-based compensation expense related to additionalheadcount and increasing value of awards granted and a $27.2 million increase in professional and outside services costs.Interest ExpenseInterest expense for the years ended December 31, 2015, 2014, and 2013 was $118.9 million, $100.9 million, and $32.9 million. The increase in interestexpense is primarily due to the issuance of $920.0 million aggregate principal amount of 2019 Notes and $1.38 billion aggregate principal amount of 2021 Notesduring the first half of 2014.39 Other Income (Expense), NetOther income (expense), net, consists primarily of foreign exchange gains and losses related to our foreign currency-denominated monetary assets andliabilities and the change in the fair value of our DOE common stock warrant liability. Our foreign exchange gains and losses will vary depending upon movementsin the underlying foreign currency exchange rates. Prior to the expiration of the DOE warrant in May 2013, the DOE warrant had been carried at its estimated fairvalue with changes in its fair value reflected in other income (expense), net.Other income (expense), net, for the years ended December 31, 2015, 2014, and 2013 was ($41.7) million, $1.8 million and $22.6 million. Fluctuations inother income (expense) from 2014 to 2015 are primarily the result of gains (losses) from foreign currency exchange of ($45.6) million and $2.0 million for theyears ended December 31, 2015 and 2014. Foreign currency losses during 2015 related primarily to changes in the exchange rates of euro, Norwegian krone,Canadian dollars, and Chinese yuan. Other income, net of $22.6 million in 2013 was primarily due to the reduction in fair value of our DOE common stock warrantliability of $10.7 million during the year. Other income, net, also includes the favorable foreign currency exchange impact from our foreign currency-denominatedliabilities during the year ended December 31, 2013, especially related to the Japanese yen.Provision for Income TaxesOur provision for income taxes for the years ended December 31, 2015, 2014, and 2013 was $13.0 million, $9.4 million, and $2.6 million. The increases inthe provision for income taxes were due primarily to the increase in taxable income in our international jurisdictions. Liquidity and Capital ResourcesAs of December 31, 2015, we had $1.20 billion in principal sources of liquidity available from our cash and cash equivalents including $297.8 million ofmoney market funds. Amounts held in foreign currencies had a US dollar equivalent of $535.6 million as of December 31, 2015, and consisted primarily of euro,Danish krone, Norwegian krone, Swedish krone, Canadian dollars, euro, and Japanese yen.Sources of cash are predominately from our deliveries of vehicles, as well as customer deposits, sales of regulatory credits, proceeds from financingactivities, Tesla Energy products, and repair and maintenance services. We expect that our current sources of liquidity, including cash and cash equivalents,together with our current projections of cash flow from operating activities, will provide us with adequate liquidity over the next 12 months based on our currentplans. These cash flows enable us to fund our ongoing operations, research and development projects for our planned Model 3, and certain other future products;purchase tooling and manufacturing equipment required to continue to ramp up production of Model X and Model S; construct our Gigafactory; and establish andexpand our retail stores, service centers and Supercharger network. We currently anticipate making aggregate capital expenditures of about $1.5 billion in 2016.In 2015, we entered into a senior secured asset-based revolving credit agreement with a syndicate of banks under which we currently have totalcommitments of up to $1 billion. The Credit Agreement provides for a senior secured asset-based revolving credit facility, which we may draw upon as needed,subject to certain conditions. Borrowed funds bear interest, at the Company’s option, at an annual rate of (a) 1% plus LIBOR or (b) the highest of (i) the federalfunds rate plus 0.50%, (ii) the lenders “prime rate” or (iii) 1% plus LIBOR. In February 2016, we amended the Credit Agreement and increased the availability andthe commitments under the Credit Agreement from $750.0 million to $1.0 billion. As of December 31, 2015, borrowings under the Credit Facility of $135.0million were used to repay all borrowings under and terminate a secured asset based line of credit we used to support our direct leasing program.When market conditions are favorable, we may evaluate alternatives to pursue liquidity options to fund capital intensive initiatives. Should prevailingeconomic, financial, business or other factors adversely affect our ability to meet our operating cash requirements, we could be required to obtain funding thoughtraditional or alternative sources of financing. We cannot be certain that additional funds would be available to us on favorable terms when required, or at all.Summary of Cash Flows Year Ended December 31, 2015 2014 2013 Net cash provided by (used in) operating activities $(524,499) $(57,337) $264,804 Net cash used in investing activities (1,673,551) (990,444) (249,417)Net cash provided by financing activities 1,523,523 2,143,130 635,422 40 Cash Flows from Operating ActivitiesOur cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such asmanufacturing, research and development and selling, general and administrative. Our operating cash flows are also affected by our working capital needs tosupport growth and fluctuations in inventory, personnel related expenditures, accounts payable and other current assets and liabilities.Our operating cash inflows include cash from sales of our vehicles, customer deposits for Model S and Model X, sales of regulatory credits, cash from theprovision of development services, and sales of powertrain components and systems. These cash inflows are offset by payments we make to our suppliers forproduction materials and parts used in our manufacturing process, employee compensation, operating leases and interest expense on our financings.Cash provided by (used in) operating activities was ($524.5) million, ($57.3) million and $264.8 in 2015, 2014 and 2013. The decrease in operating cashflows in 2015 as compared to 2014 was due to an increase in overall inventory to support growth, and increase in operating lease vehicles, partially offset byproceeds from sales, and higher operating expenses in R&D and SG&A.The decrease in operating cash flows in 2014 as compared to 2013 was due to an increase in finished goods inventory primarily due to cars whose deliveryslipped from Q4 of 2014 to the following year, an increase in raw material inventory balances at year end necessary to meet our planned production requirementsfor Model S in Q1 of the following year, higher operating expenses in R&D and SG&A, and use of cash for vehicles directly leased by us, partially offset byincreased cash receipts from customer payments on vehicle sales, including an increase in customer deposits.Customer
DepositsWe collect deposits from customers at the time they place an order for a vehicle and, in some locations, at certain additional milestones up to the point ofdelivery. Customer deposit amounts and timing vary depending on the vehicle model and country of delivery. Customer deposits are fully refundable up to thepoint the vehicle is placed into the production cycle. Amounts are included in current liabilities until refunded or until they are applied to a customer’s purchasebalance at time of delivery. As of December 31, 2015, we held $283.4 million in customer deposits.Cash Flows from Investing ActivitiesCash flows from investing activities primarily relate to capital expenditures to support our growth in operations, including investments in Model Smanufacturing equipment and tooling and our stores, service centers and Supercharger network infrastructure. Cash used in investing activities was $1.67 billion,$990.4 million and $249.4 million in 2015, 2014 and 2013. Cash flows from investing activities and variability between each year related primarily to capitalexpenditures, which were $1.63 billion, $969.9 million, and $264.2 million in 2015, 2014, and 2013. Expenditures in all years consisted primarily of purchases ofcapital equipment, tooling, and facilities to support our Model S and Model X manufacturing.In 2014, we began construction of our Gigafactory facility in Nevada. Tesla’s contribution to total capital expenditures are expected to be about $2.0 billionover the next 5 years. In 2015, we used cash of $220.0 million towards the construction of the first stage of this project and expect to spend up to $250 million overthe next 12 months. Cash Flows from Financing ActivitiesNet cash provided by financing activities was $1.52 billion, $2.14 billion and $635.4 million in 2015, 2014 and 2013. Cash flows from financing activitiesduring the twelve months ended December 31, 2015 consisted primarily of $738.3 million net proceeds from August 2015 public offering of 3,099,173 shares ofcommon stock and $568.7 received from vehicle sales to our bank leasing partners. The decrease in cash provided from financing in 2015 as compared to 2014 wasprimarily due to $2.1 billion net proceeds received in 2014 from issuance of our 2019 and 2021 Notes.The increase in cash provided from financing in 2014 as compared to 2013 was primarily due to $2.1 billion net proceeds from the issuance of our 2019 and2021 Notes, including the associated hedge and warrant transactions, representing a $1.5 billion increase in debt financing as compared to 2013. Cash flows fromfinancing in 2013 that did not recur in 2014 included proceeds of $415.0 million from the issuance of common stock in public and private offerings and $452.3million used to repay our DOE loans.0.25%
and
1.25%
Convertible
Senior
Notes
and
Bond
Hedge
and
Warrant
TransactionsIn 2014, we issued $920.0 million principal amount of 0.25% convertible senior notes due 2019 (2019 Notes) and $1.38 billion principal amount of 1.25%convertible senior notes due 2021 (2021 Notes) in a public offering. The total net proceeds from these offerings, after deducting transaction costs, wereapproximately $905.8 million from the 2019 Notes and $1.36 billion from the 2021 Notes. The interest rates are fixed at 0.25% and 1.25% per annum for the 2019and 2021 Notes, and are payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2014.41 In connection with the offering of these notes in 2014, we purchased convertible note hedges for $603.4 million in aggregate and sold warrants for $389.2million in aggregate. Taken together, the pur chase of the convertible note hedges and the sale of warrants are intended to offset any actual dilution from theconversion of the 2019 Notes and 2021 Notes.During the fourth quarter of 2015, the closing price of our common stock did not meet or exceed 130% of the applicable conversion price of our 2019 Notesand 2021 Notes on at least 20 of the last 30 consecutive trading days of the quarter; furthermore, no other conditions allowing holders of these notes to convert havebeen met as of December 31, 2015. Therefore, the 2019 Notes and 2021 Notes are not convertible during the first quarter of 2016 and are classified as long-termdebt. Should the closing price conditions be met in the first quarter of 2016 or a future quarter, the 2019 Notes and/or the 2021 Notes will be convertible at theirholders’ option during the immediately following quarter.1.50%
Convertible
Senior
Notes
and
Bond
Hedge
and
Warrant
TransactionsIn May 2013, we issued $660.0 million aggregate principal amount of 1.50% convertible senior notes due 2018 (the Notes) in a public offering. The netproceeds from the offering, after deducting transaction costs, were approximately $648.0 million. The interest under the Notes is fixed at 1.50% per annum and ispayable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013.In connection with the offering of the 2018 Notes, we purchased convertible note hedges for $177.5 million in aggregate and sold warrants for $120.3million in aggregate. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any actual dilution from theconversion of the 2018 Notes.During the fourth quarter of 2015, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes may convert their notes during the first quarter of 2016. As such, weclassified the $617.7 million carrying value of our 2018 Notes as current liabilities and classified $42.1 million, representing the difference between the aggregateprincipal of our 2018 Notes of $659.8 million and the carrying value of 2018 Notes, as mezzanine equity on our consolidated balance sheet as of December 31,2015. Similarly, debt issuance costs were classified as other current assets as of December 31, 2015. Should the closing price conditions be met in the first quarterof 2016 or a future quarter, the 2018 Notes will be convertible at their holders’ option during the immediately following quarter. For more information on the 2018 Notes, 2019 Notes, and 2021 Notes see Part II - Item 8 - Financial Statements and Supplementary Data, Note 8 -Convertible
Notes
and
Long-Term
Debt
Obligations
.Common Stock Offering and Concurrent Private PlacementConcurrent with the execution of the 2018 Notes and related transactions in May 2013, we also completed a public offering of common stock and sold atotal of 3,902,862 shares of our common stock for total cash proceeds of approximately $355.1 million (which includes 487,857 shares or $45.0 million sold to ourChief Executive Officer (CEO)), net of underwriting discounts and offering costs. We also sold 596,272 shares of our common stock to our CEO and received totalcash proceeds of $55.0 million in a private placement at the public offering price.In August 2015, we completed a public offering of common stock and sold a total of 3,099,173 shares of our common stock for total cash proceeds ofapproximately $738.3 million (which includes 82,645 shares or $20.0 million sold to Elon Musk, our Chief Executive Officer (CEO)), net of underwritingdiscounts and offering costs.Contractual ObligationsWe are party to contractual obligations involving commitments to make payments to third parties, including certain debt financing arrangements and leases,primarily for stores, service centers, certain manufacturing and corporate offices. These also include, as part of our normal business practices, contracts withsuppliers for purchases of certain raw materials, components, and services to facilitate adequate supply of these materials and services and capacity reservationcontracts. We have the following contractual obligations, including firm purchase obligations. A purchase obligation is defined as an agreement to purchase goodsor services that is enforceable and legally binding on us and that specifies all significant terms. For obligations with cancellation provisions, the amounts includedin the table below were limited to the non-cancelable portion of the agreement terms. The expected timing of payments of the obligations in the preceding table isestimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, orchanges to agreed-upon amounts for some obligations. Open purchase orders are generally cancellable in full or in part at our discretion and are therefore notconsidered firm purchase obligations.42 The following table sets forth, as of December 31, 2015 certain significant obligations that will affect our future liquidity (in thousands): Year Ended December 31, Total 2016 2017 2018 2019 2020 andthereafter Operating lease obligations $570,864 $88,629 $86,661 $78,531 $69,013 $248,030 Capital lease obligations, including interest 34,679 16,758 11,321 5,488 1,112 — Purchase obligations (1)(2) 549,716 537,719 11,997 — — 2018 Notes, including interest (3) 684,537 684,537 — — — — 2019 Notes, including interest 928,050 2,300 2,300 2,300 1,150 920,000 2021 Notes, including interest 1,474,875 17,250 17,250 17,250 17,250 1,405,875 Total $4,242,721 $1,347,193 $129,529 $103,569 $88,525 $2,573,905 (1)Amounts do not include future cash payments for purchase obligations which were recorded in Accounts payable or Accrued liabilities at December 31,2015.(2)These totals represent aggregate purchase commitments with all vendors. Some of the commitments included are our agreements with PanasonicCorporation, to the extent quantities and timing of such purchases are fixed. Should we terminate the Panasonic contracts prior to purchasing certainminimum quantities, we would owe an additional $57 million under the terms of the agreement as of December 31, 2015.(3)During the fourth quarter of 2015, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes may convert their notes during the first quarter of 2016. As such, weclassified the $617.7 million carrying value of our 2018 Notes as current liabilities on our condensed consolidated balance sheet as of December 31, 2015and have included related contractual payments in the 2016 category in the table above.Off-Balance Sheet ArrangementsDuring the periods presented, we did not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to asstructured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKForeign Currency RiskWe transact business globally in multiple currencies. Our international revenues, as well as costs and expenses denominated in foreign currencies, expose usto the risk of fluctuations in foreign currency exchange rates against the functional currencies of our foreign subsidiaries and against the U.S. dollar. Uponconsolidation, as foreign exchange rates vary, revenues and expenses may be significantly impacted and we may record significant gains or losses on theremeasurement of monetary assets and liabilities, including intercompany balances. As of December 31, 2015, our largest currency exposures are from the euro,Chinese yuan, Norwegian and Danish krona, Canadian dollar, Swiss franc, British pound, and Japanese yen. We recorded foreign exchange losses of $45.6 millionin other income (expense), net, for the year ended December 31, 2015 related the impact of changes in exchange rates on foreign currency denominated monetaryassets and liabilities.We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of10% for all currencies could be experienced in the near term. These reasonably possible adverse changes in exchange rates of 10% were applied to total monetaryassets and liabilities denominated in currencies other than the local currencies as of December 31, 2015 to compute the adverse impact these changes would havehad on our income before income taxes in the near term. These changes would have resulted in an adverse impact on income before income taxes of approximately$189.2 million, recorded to other income (expense), net, principally from intercompany and cash balances.43 In November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated inJapanese yen. The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months orless. We do not enter into derivative contracts for trading or speculative purposes. We document each hedge relationship a nd assess its initial effectiveness at theinception of the hedge contract and we measure its ongoing effectiveness on a quarterly basis using regression analysis. During the term of an effective hedgecontract, we record gains and losses within accumulate d other comprehensive loss. We reclassify these gains or losses to costs of automotive sales in the period therelated finished goods inventory is sold or over the depreciation period for those sales accounted for as leases. Although our contracts are cons idered effectivehedges, we may experience small amounts of ineffectiveness due to timing differences between our actual inventory purchases and the settlement date of therelated foreign currency forward contracts. We have recorded zero amount of ineffect iveness within other income (expense), net in our Consolidated Statements ofOperations, as of December 31, 2015. As o f December 31, 2015 we had recorded a gain of $7.3 million to AOCI related to our foreign currency cash flow hedges.If t he U.S. dollar ha d strengthened by 10% as of December 31, 2015, the amount recorded in accumulated AOCI related to our foreign exchange contracts beforetax ef fect would have been a loss of approximately $21.1 million.Interest Rate RiskWe had cash and cash equivalents totaling $1.20 billion as of December 31, 2015. A significant portion of our cash and cash equivalents were invested inmoney market funds. Cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Webelieve that we do not have any material exposure to changes in the fair value as a result of changes in interest rates due to the short term nature of our cashequivalents.As of December 31, 2015, we had $2.96 billion aggregate principal amount of convertible senior notes outstanding, which are fixed rate instruments.Therefore, our results of operations are not subject to fluctuations in interest rates. However, the fair value of our debt will fluctuate with movements of interestrates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. Based upon quoted market prices and Level 2 inputs,the fair value of our total debt was $3.4 billion as of December 31, 2015. 44 I TEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAIndex to Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm 46Consolidated Balance Sheets 47Consolidated Statements of Operations 48Consolidated Statements of Comprehensive Loss 49Consolidated Statements of Stockholders’ Equity 50Consolidated Statements of Cash Flows 51Notes to Consolidated Financial Statements 52 45 R eport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Tesla Motors, Inc.In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive loss, of stockholders’ equityand of cash flows present fairly, in all material respects, the financial position of Tesla Motors, Inc. and its subsidiaries at December 31, 2015 and December 31,2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accountingprinciples generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintainingeffective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sReport on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on theCompany's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whetherthe financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all materialrespects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit ofinternal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing suchother procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaFebruary 24, 2016 46 Tesla Motors, Inc.Consolidated Balance Sheets(in thousands) December 31, December 31, 2015 2014 Assets Current assets Cash and cash equivalents $1,196,908 $1,905,713 Restricted cash and marketable securities 22,628 17,947 Accounts receivable 168,965 226,604 Inventory 1,277,838 953,675 Prepaid expenses and other current assets 125,229 76,134 Total current assets 2,791,568 3,180,073 Operating lease vehicles, net 1,791,403 766,744 Property, plant and equipment, net 3,403,334 1,829,267 Restricted cash 31,522 11,374 Other assets 74,633 43,209 Total assets $8,092,460 $5,830,667 Liabilities and Stockholders' Equity Current liabilities Accounts payable $916,148 $777,946 Accrued liabilities 422,798 268,883 Deferred revenue 423,961 191,651 Resale value guarantees 136,831 — Customer deposits 283,370 257,587 Long-term debt and capital leases 633,166 611,099 Total current liabilities 2,816,274 2,107,166 Deferred revenue 446,105 292,271 Long-term debt and capital leases 2,040,375 1,818,785 Resale value guarantee 1,293,741 487,879 Other long-term liabilities 364,976 154,660 Total liabilities 6,961,471 4,860,761 Convertible senior notes (Notes 8) 42,045 58,196 Stockholders' equity: Preferred stock; $0.001 par value; 100,000 shares authorized; no shares issued and outstanding — — Common stock; $0.001 par value; 2,000,000 shares authorized as of December 31, 2015 and 2014, respectively; 131,425 and 125,688 shares issued and outstanding as of December 31, 2015 and 2014, respectively 131 126 Additional paid-in capital 3,414,692 2,345,266 Accumulated other comprehensive loss (3,556) (22)Accumulated deficit (2,322,323) (1,433,660)Total stockholders' equity 1,088,944 911,710 Total liabilities and stockholders' equity $8,092,460 $5,830,667 The accompanying notes are an integral part of these consolidated financial statements. 47 Tesla Motors, Inc. Consolidated Statements of Operations(in thousands, except per share data) Year Ended December 31, 2015 2014 2013 Revenues Automotive $3,740,973 $3,007,012 $1,921,877 Services and other 305,052 191,344 91,619 Total revenues 4,046,025 3,198,356 2,013,496 Cost of revenues Automotive 2,823,302 2,145,749 1,483,321 Services and other 299,220 170,936 73,913 Total cost of revenues 3,122,522 2,316,685 1,557,234 Gross profit 923,503 881,671 456,262 Operating expenses Research and development 717,900 464,700 231,976 Selling, general and administrative 922,232 603,660 285,569 Total operating expenses 1,640,132 1,068,360 517,545 Loss from operations (716,629) (186,689) (61,283)Interest income 1,508 1,126 189 Interest expense (118,851) (100,886) (32,934)Other income (expense), net (41,652) 1,813 22,602 Loss before income taxes (875,624) (284,636) (71,426)Provision for income taxes 13,039 9,404 2,588 Net loss $(888,663) $(294,040) $(74,014)Net loss per share of common stock, basic and diluted $(6.93) $(2.36) $(0.62)Weighted average shares used in computing net loss per share of common stock, basic and diluted 128,202 124,539 119,421 The accompanying notes are an integral part of these consolidated financial statements. 48 Tesla Motors, Inc.Consolidated Statements of Comprehensive Loss(in thousands) Year Ended December 31, 2015 2014 2013 Net loss $(888,663) $(294,040) $(74,014)Other comprehensive income (loss), net of tax: Unrealized gain (loss) on derivatives and short-term marketable securities 7,465 (22) — Foreign currency translation adjustment (10,999) — — Other comprehensive income (loss) (3,534) (22) — Comprehensive loss $(892,197) $(294,062) $(74,014) The accompanying notes are an integral part of these consolidated financial statements. 49 Tesla Motors, Inc.Consolidated Statements of Stockholders’ Equity(in thousands, except per share data) Accumulated Common Stock Additional Other Total Paid-In Accumulated Comprehensive Stockholders' Shares Amount Capital Deficit Loss Equity Balance as of December 31, 2012 114,214 $115 $1,190,191 $(1,065,606) — $124,700 Issuance of common stock in May 2013 public offering at $92.20 per share, net of issuance costs of $6,367 3,903 3 353,629 — — 353,632 Issuance of common stock in May 2013 concurrent private placements at $92.20 per share 596 1 55,000 — — 55,001 Conversion feature of convertible senior notes due 2018 — — 82,842 — — 82,842 Purchase of bond hedges — — (177,540) — — (177,540)Sales of warrant — — 120,318 — — 120,318 Issuance of common stock upon exercise of stock options 3,853 3 82,570 — — 82,573 Issuance of common stock upon release of restricted stock units, net of shares withheld for employee taxes 6 — (1,116) — — (1,116)Issuance of common stock under employee stock purchase plan 519 1 13,848 — — 13,849 Stock-based compensation — — 86,875 — — 86,875 Net loss — — — (74,014) — (74,014)Balance as of December 31, 2013 123,091 123 1,806,617 (1,139,620) — 667,120 Conversion feature of convertible senior notes due 2019 and 2021 — — 548,603 — — 548,603 Purchase of bond hedges — — (603,428) — — (603,428)Sales of warrant — — 389,160 — — 389,160 Reclass from equity to mezzanine equity — — (58,199) — — (58,199)Issuance of common stock upon exercise of stock options 2,267 2 72,053 — — 72,055 Issuance of common stock upon release of restricted stock units, net of shares withheld for employee taxes 166 1 (190) — — (189)Issuance of common stock under employee stock purchase plan 164 — 28,571 — — 28,571 Stock-based compensation — — 162,079 — — 162,079 Comprehensive loss: Net loss (294,040) (294,040)Other comprehensive loss — — — — (22) (22)Balance as of December 31, 2014 125,688 $126 $2,345,266 $(1,433,660) $(22) $911,710 Conversion feature of convertible senior notes due 2018 16,150 16,150 Conversion feature of convertible senior notes due 2019 and 2021 Issuance of common stock in August 2015 secondary public offering at $242 per share, net of issuance costs of $11,122 3,099 3 738,405 738,408 Issuance of common stock upon exercise of stock options 2,012 2 68,999 — — 69,001 Issuance of common stock upon release of restricted stock units, net of shares withheld for employee taxes 405 — (4) — — (4)Issuance of common stock under employee stock purchase plan 221 — 37,538 — — 37,538 Stock-based compensation — — 208,338 — — 208,338 Comprehensive loss: Net loss (888,663) (888,663)Other comprehensive loss — — — — (3,534) (3,534)Balance as of December 31, 2015 131,425 $131 $3,414,692 $(2,322,323) $(3,556) $1,088,944 The accompanying notes are an integral part of these consolidated financial statements. 50 Tesla Motors, Inc. Consolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2015 2014 2013 Cash Flows From Operating Activities Net loss $(888,663) $(294,040) $(74,014)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 422,590 231,931 106,083 Stock-based compensation 197,999 156,496 80,737 Amortization of discount on convertible debt 72,063 69,734 9,143 Inventory write-downs 44,940 15,609 8,918 Amortization of Department of Energy (DOE) loan origination costs — — 5,558 Change in fair value of DOE warrant liability — — (10,692)Fixed asset disposal 37,723 14,178 1,796 Other non-cash operating activities 26,373 7,471 1,815 Foreign currency transaction (gain) loss 55,765 (1,891) (13,498)Changes in operating assets and liabilities Accounts receivable 46,267 (183,658) (21,705)Inventories and operating lease vehicles (1,573,860) (1,050,264) (460,561)Prepaid expenses and other current assets (29,595) (60,637) (17,533)Other assets (24,362) (4,493) (434)Accounts payable and accrued liabilities 263,345 414,856 87,413 Deferred revenue 322,203 209,681 268,098 Customer deposits 36,721 106,230 24,354 Resale value guarantee 442,295 249,492 236,299 Other long-term liabilities 23,697 61,968 33,027 Net cash provided by (used in) operating activities (524,499) (57,337) 264,804 Cash Flows From Investing Activities Purchases of property and equipment excluding capital leases (1,634,850) (969,885) (264,224)Withdrawals out of our dedicated DOE account, net — — 14,752 (Increase) decrease in other restricted cash (26,441) (3,849) 55 Purchases of short-term marketable securities — (205,841) — Maturities of short-term marketable securities — 189,131 — Business acquisition (12,260) — — Net cash used in investing activities (1,673,551) (990,444) (249,417)Cash Flows From Financing Activities Proceeds from issuance of convertible and other debt 318,972 2,300,000 660,000 Proceeds from issuance of common stock in public offering 730,000 — 360,000 Proceeds from issuance of warrants — 389,160 120,318 Proceeds from exercise of stock options and other stock issuances 106,611 100,455 95,307 Proceeds from issuance of common stock in private placement 20,000 — 55,000 Principal payments on DOE loans — — (452,337)Purchase of convertible note hedges — (603,428) (177,540)Common stock and convertible debt issuance costs (17,025) (35,149) (16,901)Principal payments on capital leases and other debt (203,780) (11,179) (8,425)Collateralized lease borrowing 568,745 3,271 — Net cash provided by financing activities 1,523,523 2,143,130 635,422 Effect of exchange rate changes on cash and cash equivalents (34,278) (35,525) (6,810)Net increase (decrease) in cash and cash equivalents (708,805) 1,059,824 643,999 Cash and cash equivalents at beginning of period 1,905,713 845,889 201,890 Cash and cash equivalents at end of period $1,196,908 $1,905,713 $845,889 Supplemental Disclosures Interest paid $32,060 $20,539 $9,041 Income taxes paid 9,461 3,120 257 Supplemental noncash investing activities Acquisition of property and equipment included in accounts payable and accrued liabilities 267,334 254,393 38,789 Estimated fair market value of facilities under build-to-suit lease 174,749 50,076 — The accompanying notes are an integral part of these consolidated financial statements. 51 Tesla Motors, Inc.Notes to Consolidated Financial Statements Note 1 - Overview of the CompanyTesla Motors, Inc. (Tesla, we, us or our) was incorporated in the state of Delaware on July 1, 2003. We design, develop, manufacture, and sell high-performance fully electric vehicles, and stationary energy storage products. We have wholly-owned subsidiaries in North America, Europe and Asia. The primarypurpose of these subsidiaries is to market, manufacture, sell and/or service our vehicles. Note 2 - Summary of Significant Accounting PoliciesBasis
of
ConsolidationThe consolidated financial statements include the accounts of Tesla and its wholly owned subsidiaries. Inter-company balances and transactions betweenconsolidated entities have been eliminated.Use
of
EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities and accompanying notes. Estimatesare used for, but not limited to, determining the selling price of products and services in multiple element revenue arrangements and determining the amortizationperiod of these elements, residual value of operating lease vehicles, inventory valuation, warranties, fair value of financial instruments, depreciable lives ofproperty and equipment, inputs used to value stock-based compensation including volatility, lives of stock option awards and forfeiture rates, income taxes, andcontingencies. Actual results could differ from those estimates.Recent
Accounting
PronouncementsIn May 2014, the Financial Accounting Standards Board issued an accounting update which amends the existing accounting standards for revenuerecognition. The new guidance provides a new model to determine when and over what period revenue is recognized. Under this new model, revenue is recognizedas goods or services are delivered in an amount that reflects the consideration we expect to collect. The guidance is effective for fiscal years beginning afterDecember 15, 2017; early adoption is permitted for periods beginning after December 15, 2016. The new standard is required to either be applied retrospectively toeach prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have notyet selected a transition method and are evaluating the impact of adopting it.In April 2015, the FASB issued new authoritative accounting guidance on simplifying the presentation of debt issuance costs, which requires that debtissuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistentwith debt discounts. We did not adopt this standard during 2015; however, the impact to the our Consolidated Balance Sheet as of December 31, 2015 would havebeen a $10.7 million reduction in prepaid expenses and other current assets, a $18.7 million reduction in other assets, and a corresponding reduction in theaggregate carrying value of the Company’s long term debt liabilities.In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of DeferredTaxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as non-current.We have retrospectively adopted this standard as of December 31, 2015, and as a result we reclassified $18.6 million of current deferred tax assets to non-currentand netted $18.6 million non-current deferred tax liabilities against our non-current deferred tax assets as of December 31, 2014. Revenue
RecognitionWe recognize revenue for products and services when: (i) a persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are nouncertainties regarding customer acceptance; (iii) pricing or fees are fixed or determinable; and (iv) collection is reasonably assured.Vehicle sales include standard features, customer selected options and accessories, and specific other elements that meet the definition of a deliverableunder multiple-element accounting guidance including free internet connectivity, free access to our Supercharger network, and future over the air software updates.These deliverables are valued on a stand-alone basis and we recognize their revenue over our performance period, which is generally the eight-year life of thevehicle, except for internet connectivity which is over the free four year period. If we sell a deliverable separately, we use that pricing to determine its fair value;otherwise, we use our best estimated selling price by considering costs used to develop and deliver the service, third party pricing of similar options, and otherinformation which may be available.52 At the time of revenue recognition, we record a reserve against revenue for estimated future product returns. Such estimates are based on historicalexperience and are immaterial in all periods presented. Vehicle
sales
to
customers
with
a
residual
value
guaranteeWe offer resale value guarantees or similar buy-back terms to all customers who purchase vehicles and who finance their vehicle through one of ourspecified commercial banking partners. Under this program, customers have the option of selling their vehicle back to us during the guarantee period for a pre-determined resale value. Guarantee periods generally range from 36 to 39 months. Although we receive full payment for the vehicle sales price at the time ofdelivery, we are required to account for these transactions as operating leases. The amount of sale proceeds equal to the residual value guarantee is deferred untilthe guarantee expires or is exercised. The remaining sale proceeds are deferred and recognized on a straight line basis over the stated guarantee period. Theguarantee period expires at the earlier of the end of the guarantee period or the pay-off of the initial loan. We capitalize the cost of these vehicles to leased vehicleson our Consolidated Balance Sheets and depreciate their value, less salvage value, to cost of automotive revenue over the same period. In cases when customer retains ownership of the vehicle at the end of the guarantee period, the resale value guarantee liability and any remaining deferredrevenue balances related to the vehicle are settled to automotive revenue and the net book value of the leased vehicle is expensed to costs of automotiverevenue. In cases when customers return the vehicle back to us during the guarantee period, we purchase the vehicle form the customer in an amount equal to theresale value guarantee and settle any remaining deferred balances to automotive revenue and we reclassify the net book value of the vehicle on our balance sheet topre-owned vehicle inventory. As of December 31, 2015, $136.8 million of guarantees are exercisable by customers within the next twelve months.Vehicle
sales
to
leasing
partners
with
a
residual
value
guaranteeIn the fourth quarter of 2014, we also began offering residual value guarantees in connection with automobile sales to certain bank leasing partners. As wehave guaranteed the value of these vehicles and as the vehicles are leased to end-customers, we account for these transactions as interest bearing collateralizedborrowings as required under ASC
840
-
Leases
. Under this program, cash is received for the full price of the vehicle and is recorded within resale value guaranteefor the long-term portion and deferred revenue for the current portion. We accrete the deferred revenue amount to automotive revenue on a straight line basis overthe guarantee period and accrue interest expense based on our borrowing rate. We capitalize vehicles under this program to leased vehicles on our ConsolidatedBalance Sheets and we record depreciation from these vehicles to cost of automotive revenues during the period the vehicle is under a lease arrangement. Cashreceived for these vehicles, net of revenue recognized during the period, is classified as collateralized lease borrowings within cash flows from financing activitiesin our Consolidated Statements of Cash Flows.At the end of the lease term, we settle our liability in cash by either purchasing the vehicle from the leasing partner for the residual value guarantee amount,or paying a shortfall to the guarantee amount the leasing partner may realize on the sale of the vehicle. Any remaining balances within deferred revenue and resalevalue guarantee will be settled to automotive revenue. In cases where the bank retains ownership of the vehicle after the end of our guarantee period, we expensethe net value of the leased vehicle to costs of automotive revenue . The maximum cash we could be required to pay under this program, should we decide torepurchase all vehicles is $348.2 million at December 31, 2015.As of December 31, 2015 and December 31, 2014, we had $527.5 million and $16.7 million of such borrowings recorded in the resale value guaranteeliability and $120.5 million and $3.9 million recorded in deferred revenue liability.At least annually, we assess the estimated market values of vehicles under our resale value guarantee program to determine if we have sustained a loss onany of these contracts. As we accumulate more data related to the resale values of our vehicles or as market conditions change, there may be significant changes totheir estimated values. 53 Activity related to our resale value guarantee program consisted of the following for the period presented (in thousands): Year ended Year ended December 31,2015 December 31,2014 Operating Lease Vehicles Operating lease vehicles—beginning of period $684,590 $376,979 Net increase in operating lease vehicles 1,047,220 380,627 Depreciation expense recorded in cost of automotive revenues (130,355) (63,105)Additional depreciation expense recorded in cost of automotive revenues as a result of early cancellation of resale value guarantee (21,487) (9,251)Increases to inventory from vehicles returned under our trade- in program (23,439) (660)Operating lease vehicles—end of period $1,556,529 $684,590 Deferred Revenue Deferred revenue—beginning of period $381,096 $230,856 Net increase in deferred revenue from new vehicle deliveries and reclassification of collateralized borrowing from long- term to short-term 553,765 280,542 Amortization of deferred revenue and short-term collateralized borrowing recorded in automotive revenue (229,624) (118,570)Additional revenue recorded in automotive revenue as a result of early cancellation of resale value guarantee (12,352) (9,590)Recognition of deferred revenue resulting from return of vehicle under trade-in program (13,753) (2,142)Deferred revenue—end of period $679,132 $381,096 Resale Value Guarantee Resale value guarantee liability—beginning of period $487,880 $236,298 Net increase in resale value guarantee 1,013,733 262,526 Reclassification from long-term to short-term collateralized borrowing (29,612) — Additional revenue recorded in automotive revenue as a result of early cancellation of resale value guarantee (11,042) (8,557)Release of resale value guarantee resulting from return of vehicle under trade-in program (30,386) (2,387)Resale value guarantee liability—end of period $1,430,573 $487,880 Direct
Vehicle
Leasing
Program In April 2014, we began offering a leasing program in the United States, and subsequently began to offer similar programs in Canada and Germany.Qualifying customers are permitted to lease a vehicle directly from a local Tesla subsidiary for 36 or 48 months. At the end of the lease term, customers have theoption of either returning the vehicle to us or purchasing it for a pre-determined residual value. We account for these leasing transactions as operating leases andrecognize leasing revenues over the contractual term and record the depreciation of these vehicles to cost of automotive revenues. As of December 31, 2015 andDecember 31, 2014, we had deferred $25.8 million and $9.4 million of lease-related upfront payments which will be recognized on a straight-line basis over thecontractual term of the individual leases. Lease revenues are recorded in automotive revenue and for the year ended December 31, 2015 and December 31, 2014,we recognized $41.2 million and $4.4 million. Regulatory
CreditsCalifornia and certain other states have laws in place requiring vehicle manufacturers to ensure that a portion of the vehicles delivered for sale in that stateduring each model year are zero emission vehicles. These laws and regulations provide that a manufacturer of zero emission vehicles may earn regulatory credits(ZEV credits) and may sell excess credits to other manufacturers who apply such credits to comply with these regulatory requirements. Similar regulations exist atthe federal level that require compliance related to greenhouse gas emissions and also allow for the sale of excess credits by one manufacturer to othermanufacturers. As a manufacturer solely of zero emission vehicles, we have earned emission credits, such as ZEV and GHG credits on vehicles, and we expect tocontinue to earn these credits in the future. We enter into contractual agreements with third parties to purchase our regulatory credits.54 We recognize revenue on the sale of these credits at the time legal title to the credits is transf erred to the purchasing party. Revenue from the sale ofregulatory credits totaled $168.7 million, $216.3 million, and $194.4 million for the years ended December 31, 2015, 2014 and 2013.Additionally we have entered into agreements with the State of Nevada and Storey County in Nevada that will provide abatements for sales and use taxes,real and personal property taxes, and employer excise taxes, discounts to the base tariff energy rates, and transferable tax credits. These incentives will be availablefor the applicable periods beginning on October 17, 2014 and ending on June 30, 2034, subject to capital investments by Tesla and its partners for the Gigafactoryof at least $3.5 billion in the aggregate on or before June 30, 2024, and certain other conditions specified in the agreements. If we do not satisfy one or moreconditions under the agreement, Tesla will be required to repay to the respective taxing authorities the amounts of the tax incentives incurred, plus interest. As ofDecember 31, 2015, we have earned $19.9 million of transferable tax credits under these agreements. We record these credits as earned when we have evidencethere is a market for their sale. Credits are applied as a cost offset to either employee expense or to capital assets, depending on the source of the credits. Creditsearned from employee hires or capital spending by our partners at the Gigafactory are recorded to other income (expense), net.Maintenance
and
Service
PlansWe offer a prepaid maintenance program for Model S, which includes plans covering maintenance for up to eight years or up to 100,000 miles, providedthese services are purchased within a specified period of time. The maintenance plans cover annual inspections and the replacement of wear and tear parts,excluding tires and the battery. Payments collected in advance of the performance of service are initially recorded in deferred revenues on the consolidated balancesheets and recognized in automotive sales as we fulfill our performance obligations.We also offer an extended service plan, which covers the repair or replacement of Model S parts for an additional four years or up to an additional 50,000miles, after the end of our initial New Vehicle Limited Warranty, provided they are purchased within a specified period of time. Payments collected in advance ofthe performance of service are initially recorded in deferred revenues on the consolidated balance sheets and recognized in automotive sales ratably over the servicecoverage periods.As of December 31, 2015 and 2014, we had deferred $53.6 million and $39.7 million related to our maintenance and service plans. During the years endedDecember 31, 2015 and 2014, we recognized revenue of $4.5 million and $3.0 million related to these plans.Cash
and
Cash
EquivalentsAll highly liquid investments with an original maturity of three months or less at the date of purchase are considered to be cash equivalents. We currentlyinvest our cash primarily in money market funds. Marketable
SecuritiesMarketable securities are comprised of commercial paper and corporate debt and are all designated as available-for-sale and reported at estimated fair value,with unrealized gains and losses recorded in accumulated other comprehensive loss which is included within stockholders’ equity. Realized gains and losses on thesale of available-for-sale marketable securities are recorded in other income (expense), net. The cost of available-for-sale marketable securities sold is based on thespecific identification method. Interest, dividends, amortization and accretion of purchase premiums and discounts on our marketable securities are included inother income (expense), net. Available-for-sale marketable securities with maturities greater than three months at the date of purchase and remaining maturities ofone year or less are classified as short-term marketable securities. Where temporary declines in fair value exist, we have the ability and the intent to hold thesesecurities for a period of time sufficient to allow for any anticipated recovery in fair value.When held, we regularly review all of our marketable securities for other-than-temporary declines in fair value. The review includes but is not limited to(i) the consideration of the cause of the impairment, (ii) the creditworthiness of the security issuers, (iii) the length of time a security is in an unrealized lossposition, and (iv) our ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.Restricted
Cash
and
DepositsWe maintain certain cash amounts restricted as to withdrawal or use. Current and noncurrent restricted cash as of December 31, 2015 was comprisedprimarily of cash as collateral related to our sales to lease partners with a residual value guarantee and for letters of credit including for our real estate leases, andinsurance policies. In December 2015, we settled and closed our Warehouse Facility and removed restrictions on cash related to that arrangement.55 Accounts
Receivable
and
Allowance
for
Doubtful
AccountsAccounts receivable primarily include amounts related to sales of powertrain systems, receivables from financial institutions and leasing companies offeringvarious financing products to our customers, regulatory credits to other automotive manufacturers, and from maintenance services on vehicles owned by leasingcompanies. We provide an allowance against amounts receivable to the amount we reasonably believe will be collected.We typically do not carry accounts receivable related to our vehicle and related sales as customer payments are due prior to vehicle delivery, except for theamounts due from commercial financial institutions for approved financing arrangements between our customers and the financial institutions.Concentration
of
RiskCredit
RiskFinancial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash and accounts receivable.Our cash equivalents are primarily invested in money market funds with high credit quality financial institutions in the United States. At times, these deposits andsecurities may be in excess of insured limits. We invest cash not required for use in operations in high credit quality securities based on our investment policy. Ourinvestment policy provides guidelines and limits regarding credit quality, investment concentration, investment type, and maturity that we believe will provideliquidity while reducing risk of loss of capital. Our investments are currently of a short-term nature and include commercial paper and U.S. treasury bills.As of December 31, 2015 and 2014, our accounts receivable were derived primarily from sales of regulatory credits, as well as funds to be received fromfinancial institutions and leasing companies offering various financing products to our customers, the development and sales of powertrain components and systemsto OEMs. Accounts receivable also included amounts to be received from commercial financial institutions for approved financing arrangements between ourcustomers and financial institutions.The following summarizes the accounts receivable from our customers in excess of 10% of our total accounts receivable: December 31, December 31, 2015 2014 Customer A 15% 7%Customer B 8% 14%Customer C 6% 13%Customer D — 19% Supply
RiskAlthough there may be multiple suppliers available, many of the components used in our vehicles are purchased by us from a single source. If these singlesource suppliers fail to satisfy our requirements on a timely basis at competitive prices, we could suffer manufacturing delays, a possible loss of revenues, or incurhigher cost of sales, any of which could adversely affect our operating results.Inventories
and
Inventory
ValuationInventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Werecord inventory write-downs for excess or obsolete inventories based on current and future demand forecasts. If our inventory on hand is in excess of our futuredemand forecast, the excess amounts are written off.We also review inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requiresus to determine the estimated selling price of our vehicles less the estimated cost to convert inventory on hand into a finished product. Once inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in thatnewly established cost basis.Should our estimates of future selling prices or production costs change, additional and potentially material increases to this reserve may be required. Asmall change in our estimates may result in a material change to our reported financial results.56 Property,
Plant
and
EquipmentProperty, plant and equipment are recognized at cost less accumulated depreciation. Depreciation is generally computed using the straight-line method overthe estimated useful lives of the related assets as follows: Machinery, equipment and office furniture 3 to 12 yearsBuilding and building improvements 30 yearsComputer equipment and software 3 years Depreciation for tooling is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive lifeof the related assets. As of December 31, 2015, the estimated productive life for tooling was 250,000 vehicles based on our current estimates of production.Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the related lease.Upon the retirement or sale of our property, plant and equipment, the cost and related accumulated depreciation are removed from the balance sheet and theresulting gain or loss is reflected in operations. Maintenance and repair expenditures are expensed as incurred, while major improvements that increase thefunctionality, output or expected life of the asset are capitalized and depreciated ratably to expense over the identified useful life. Land is not depreciated.Interest expense on outstanding debt is capitalized during the period of significant capital asset construction. Capitalized interest on construction in progressis included in property, plant and equipment, and is amortized over the life of the related assets.Operating
Lease
VehiclesVehicles delivered under our resale value guarantee program, vehicles that are leased as part of our leasing programs as well as any vehicles that are soldwith a significant buy-back guarantee are classified as operating lease vehicles as the related revenue transactions are treated as operating leases. Operating leasevehicles are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the expected operating lease term. Thetotal cost of operating lease vehicles recorded in the Consolidated Balance Sheets as of December 31, 2015 and 2014 was $2.0 billion and $849.8 million.Accumulated depreciation related to leased vehicles as of December 31, 2015 and 2014 was $216.5 million and $83.1 million.Long-lived
AssetsWe evaluate our long-lived assets, including intangible assets, for indicators of possible impairment when events or changes in circumstances indicate thecarrying amount of an asset (or asset group) may not be recoverable. Impairment exists if the carrying amounts of such assets exceed the estimates of future netundiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured based on the excess carryingvalue of the asset over the asset’s estimated fair value. We did not record any material impairment losses on our long-lived assets in 2015 and 2014.Research
and
Development
CostsResearch and development costs are expensed as incurred. Research and development expenses consist primarily of payroll, benefits and stock-basedcompensation of those employees engaged in research, design and development activities, costs related to design tools, license expenses related to intellectualproperty, supplies and services, depreciation and other occupancy costs. Marketing
and
Promotion
CostsMarketing and sales promotion costs are expensed as incurred. During the years ended December 31, 2015, 2014 and 2013, advertising, promotion andrelated marketing expenses were $58.3 million, $48.9 million and $9.0 million.Transportation
CostsAmounts billed to customers related to shipping and handling are classified as automotive revenue, and related transportation costs are included in cost ofautomotive revenues.Income
TaxesIncome taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the differencebetween the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affecttaxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.57 We record liabilities related to uncertain tax positions when, despite our belief t hat our tax return positions are supportable, we believe that it is more likelythan not that those positions may not be fully sustained upon review by tax authorities. Accrued interest and penalties related to unrecognized tax benefits areclassified as i ncome tax expense.Stock-based
CompensationWe recognize compensation expense for costs related to all share-based payments, including stock options, restricted stock units (RSUs) and our employeestock purchase plan (the ESPP). The fair value of stock options and the ESPP are estimated on the grant date and offering date using an option pricing model,respectively. The fair value of RSUs is measured on the grant date based on the closing fair market value of our common stock. Stock-based compensation expenseis recognized on a straight-line basis over the requisite service period, net of estimated forfeitures.We account for equity instruments issued to non-employees based on the fair value of the awards. The fair value of the awards granted to non-employees isre-measured as the awards vest and the resulting change in fair value, if any, is recognized in the consolidated statements of operations during the period the relatedservices are rendered.For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individualperformance milestones when the achievement of each individual performance milestone becomes probable.For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, the stock-basedcompensation expense is recognized for each pair of performance and market conditions over the longer of the expected achievement period of the performanceand market conditions, beginning at the point in time that the relevant performance condition is considered probable of being met (see Note 10 – Equity
IncentivePlans
).Foreign
CurrencyWe determine the functional and reporting currency of each of our international subsidiaries and their operating divisions based on the primary currency inwhich they operate. In cases where the functional currency is not the US dollar, we will recognize a cumulative translation adjustment created by the different rateswe apply to retained earnings, including current period income or loss, and the balance sheet. For each subsidiary, we apply a monthly average functional currencyrate to their income or loss and the month end functional currency rate to translate the balance sheet. Beginning January 1, 2015, the functional currency of each of our foreign subsidiaries changed to their local country’s currency. This change was based onthe culmination of facts and circumstances that have developed as we expanded our foreign operations over the past year. The adjustment of $10.0 millionattributable to the current rate translation of non-monetary assets as of the date of the change is included in accumulated other comprehensive loss on ourconsolidated balance sheet.Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than thefunctional currency. Transaction gains and losses are recognized in other income (expense), net, in the consolidated statements of operations. For the year endedDecember 31, 2015, 2014, and 2013 we recorded foreign currency transaction gains (loss) of ($45.6) million, $2.0 million and $11.9 million.Derivative
Financial
InstrumentsIn November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated inJapanese yen. The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 monthsor less. We do not enter into derivative contracts for trading or speculative purposes (See Note 3 - Financial
Instruments
). The bank counterparties in all contracts expose Tesla to credit-related losses in the event of their nonperformance. However, to mitigate that risk, Tesla onlycontracts with counterparties who meet the Company’s minimum requirements under its counterparty risk assessment process. Tesla monitors ratings, creditspreads, and potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, the Company will adjust its exposure tovarious counterparties. We generally enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the samecounterparty. However, we do not have any master netting arrangements in place with collateral features.Comprehensive
LossComprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains andlosses on derivatives, our available-for-sale marketable securities, and foreign currency translation adjustment that have been excluded from the determination ofnet loss.58 WarrantiesWe provide a manufacturer’s warranty on all vehicles, production powertrain components and systems, and Tesla Energy products we sell. We accrue amanufacturer’s warranty reserve which includes our best estimate of the projected costs to repair or to replace items under warranty. These estimates are based onactual claims incurred to-date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain and changes to ourhistorical or projected warranty experience may cause material changes to our warranty reserve in the future. The portion of the warranty provision expected to beincurred within 12 months is classified as current within accrued liabilities, while the remaining amount is classified as long-term within other long-term liabilities.Accrued warranty activity consisted of the following for the periods presented (in thousands): Year Ended December 31, 2015 2014 2013 Accrued warranty—beginning of period $129,043 $53,182 $13,013 Warranty costs incurred (52,760) (39,903) (19,160)Net changes in liability for pre-existing warranties, including expirations 1,470 18,599 (2,072)Provision for warranty 103,001 97,165 61,401 Accrued warranty—end of period $180,754 $129,043 $53,182 Our warranty reserves do not include projected warranty costs associated with our vehicles accounted for as operating leases or collateralized debtarrangements. Costs to repair these vehicles are expensed as incurred. For the twelve months ended December 31, 2015, and December 31, 2014 warranty costsincurred for vehicles accounted for as operating leases or collateralized debt arrangements were $9.5 million and $7.1 million. Warranty expense is recorded as acomponent of cost of automotive revenue. Net
Loss
per
Share
of
Common
StockOur basic and diluted net loss per share of common stock is calculated by dividing net loss by the weighted-average shares of common stock outstanding forthe period. Potentially dilutive shares, which are based on the number of shares underlying outstanding stock options and warrants as well as our Notes, are notincluded when their effect is antidilutive.The following table presents the potential weighted common shares outstanding that were excluded from the computation of basic and diluted net loss pershare of common stock for the periods, related to the following securities: Year Ended December 31, 2015 2014 2013 Employee share based awards 15,592,736 14,729,749 13,904,875 Convertible senior notes 2,431,265 2,344,998 411,560 Warrants issued May 2013 1,049,791 921,985 — DOE warrant — — 1,061,439 Since we expect to settle the principal amount of our outstanding convertible senior notes in cash, we use the treasury stock method for calculating anypotential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted netincome per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $124.52, $359.87, and$359.87 per share for the 2018 Notes, 2019 Notes and 2021 Notes. Note 3 - Financial Instruments Fair
Value
MeasurementsThe carrying values of our financial instruments including cash equivalents, marketable securities, accounts receivable and accounts payable approximatetheir fair value due to their short-term nature. As a basis for determining the fair value of certain of our assets and liabilities, we established a three-tier fair valuehierarchy which prioritizes the inputs used in measuring fair value as follows: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputsother than the quoted prices in active markets that are observable either directly or indirectly; and (Level III) unobservable inputs in which there is little or nomarket data which requires us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to minimize the useof unobservable inputs when determining fair value. Our financial assets that are measured at fair value on a recurring basis consist of cash equivalents andmarketable securities.59 All o f our cash equivalents and current restricted cash, which are comprised primarily of money market funds, are classified within Level I of the fair valuehierarchy because they are valued using quoted market prices or market prices for similar securities. O ur restricted short-term marketable securities are classifiedwithin Level I of the fair value hierarchy . As of December 31, 2015 and 2014, the fair value hierarchy for our financial assets and financial liabilities that are carried at fair value was as follows (inthousands), and unrealized gains (losses) on financial assets presented in the table below for all periods presented were less than $1.0 million: December 31, 2015 December 31, 2014 Fair Value Level I Level II Level III Fair Value Level I Level II Level
III Money market funds$297,810 $297,810 $— $— $1,275,346 $1,275,346 $— $— U.S. treasury bills 16,664 16,664 — — 16,673 16,673 — — Total$314,474 $314,474 $— $— $1,292,019 $1,292,019 $— $— As of December 31, 2015, the estimated fair value of our 2018 Notes, 2019 Notes, and 2021 Notes was $1.29 billion (par value $659.8 million), $864.8million (par value $920.0 million), and $1.27 billion (par value $1.38 billion). As of December 31, 2014 the estimated fair value of our 2018 Notes, 2019 Notes,and 2021 Notes was $1.22 billion (par value $659.8 million), $852.2 million (par value $920.0 million), and $1.25 billion (par value $1.38 billion). These fairvalues represent Level II valuations. When determining the estimated fair value of our long-term debt, we used a commonly accepted valuation methodology andmarket-based risk measurements that are indirectly observable, such as credit risk. As of December 31, 2015, the $135.0 million carrying value of our CreditAgreement liability approximates the fair value of the borrowings based upon the borrowing rate available to us for debt with similar terms and consideration ofcredit and default risk using Level II inputs. Derivative
Financial
InstrumentsIn November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated inJapanese yen. The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months orless. We do not enter into derivative contracts for trading or speculative purposes.We document each hedge relationship and assess its initial effectiveness at the inception of the hedge contract and we measure its ongoing effectiveness ona quarterly basis using regression analysis. During the term of an effective hedge contract, we record gains and losses within accumulated other comprehensiveloss. We reclassify these gains or losses to costs of automotive sales in the period the related finished goods inventory is sold or over the depreciation period forthose sales accounted for as leases. Although our contracts are considered effective hedges, we may experience small amounts of ineffectiveness due to timingdifferences between our actual inventory purchases and the settlement date of the related foreign currency forward contracts. We have recorded zero amount ofineffectiveness within other income (expense), net in our Consolidated Statements of Operations, as of December 31, 2015. The net notional amount of these contracts was $322.6 million at December 31, 2015. Outstanding contracts are recognized as either assets or liabilities onthe Consolidated Balance Sheet at fair value within other assets or within accrued liabilities, depending on our net position. The net gain of $7.3 million inaccumulated other comprehensive loss as of December 31, 2015 is expected to be recognized to the cost basis of finished goods inventory in the next twelvemonths. The total fair values of foreign currency contracts designated as cash flow hedges as of December 31, 2015 is $7.3 million and was determined using LevelII inputs and recorded in prepaid expenses and other current assets on our Consolidated Balance Sheets. No amounts have been reclassified to finished goodsinventory as of December 31, 2015. Note 4 - InventoryAs of December 31, 2015 and 2014, our inventory consisted of the following (in thousands): December 31, December 31, 2015 2014 Raw materials $528,935 $392,292 Work in process 163,830 56,114 Finished goods 476,512 397,318 Service parts 108,561 107,951 Total $1,277,838 $953,675 Finished goods inventory includes vehicles in transit to fulfill customer orders, new vehicles available for immediate sale at our retail and service centerlocations, and pre-owned Tesla vehicles. The increase in finished goods inventory was primarily due to customer orders that were in transit for delivery at yearend. 60 We write down inventory as a result of excess and obsolete inventories, or when we believe that the net realizable value of inventories is less than thecarrying value. During the years e nded December 31, 2015, 2014 and 2013, we recorded write-downs of $44.9 million, $15.6 million and $8.9 million in cost ofautomotive sales. Note 5 - Property, Plant and EquipmentAs of December 31, 2015 and 2014, our property, plant and equipment, net, consisted of the following (in thousands): December 31, December 31, 2015 2014 Machinery, equipment and office furniture $1,694,910 $720,746 Tooling 550,902 295,906 Leasehold improvements 338,392 230,270 Building and building improvements 461,303 154,362 Land 60,234 49,478 Computer equipment and software 175,512 98,970 Construction in progress 693,207 572,125 3,974,460 2,121,857 Less: Accumulated depreciation and amortization (571,126) (292,590)Total $3,403,334 $1,829,267 Construction in progress is comprised primarily of tooling and equipment related to the manufacturing of our Model S and Model X vehicles, Gigafactoryconstruction, and related capitalized interest. Completed assets are transferred to their respective asset class and depreciation begins when the asset is ready for itsintended use. Interest expense on outstanding debt is capitalized during the period of significant capital asset construction. Capitalized interest on construction inprogress is included in property, plant and equipment, and is amortized over the life of the related assets. During the years ended December 31, 2015 and 2014, wecapitalized $41.5 million and $12.8 million of interest expense.We are sometimes involved in construction at our leased facilities primarily related to retail stores, service centers, and certain manufacturing facilities. Inaccordance with Accounting Standards Codification 840, Leases, for build-to-suit lease arrangements where we are involved in the construction of structuralimprovements prior to the commencement of the lease or take some level of construction risk, we are considered the owner of the assets and land during theconstruction period. Accordingly, upon commencement of our construction activities, we record a construction in progress asset and a corresponding financingliability. Once the construction is completed, if the lease meets certain “sale-leaseback” criteria, we will remove the asset and related financial obligation from thebalance sheet and treat the building lease as an operating lease. If upon completion of construction, the project does not meet the “sale-leaseback” criteria, theleased property will be treated as a capital lease and included in building and building improvements in the table above. As of December 31, 2015 and December31, 2014, the table above includes $206.1 million and $52.4 million of build-to-suit assets. As of December 31, 2015 and December 31, 2014, correspondingfinancing obligations of $1.3 million and $21.0 million are recorded in accrued liabilities and $201.3 million and $31.4 million are recorded in other long-termliabilities.Depreciation and amortization expense during the years ended December 31, 2015, 2014 and 2013 were $278.7 million, $155.9 million and $83.9 million.Total property and equipment assets under capital lease as of December 31, 2015 and 2014 were $58.1 million and $33.4 million. Accumulated depreciation relatedto assets under capital lease as of these dates were $22.7 million and $12.8 million.We have acquired land for the site of our Gigafactory and construction activities are ongoing for which we have incurred $317.5 million and $106.6 millionof costs as of December 31, 2015 and 2014. Note 6 - Accrued Liabilities As of December 31, 2015 and 2014, our accrued liabilities consisted of the following (in thousands): December 31, December 31, 2015 2014 Taxes payable $101,206 $71,229 Accrued purchases 140,540 68,547 Payroll and related costs 86,859 54,492 Warranty and other 94,193 74,615 Total $422,798 $268,883 61 Taxes payable includes v alue a dded t ax, sales tax, property tax, and income tax payables. Accrued purchases reflect liabilities related to the construction of the Gigafactory, and engineering design and testing accruals. As these services areinvoiced, this balance will reduce and accounts payable will increase. Note 7 - Customer DepositsCustomer deposits include cash payments from customers at the time they place an order for a vehicle and additional payments up to the point of deliveryincluding the fair value of customer trade-in vehicles that are applicable toward a new vehicle purchase. Customer deposit amounts and timing vary depending onthe vehicle model and country of delivery. Customer deposits are fully refundable up to the point the vehicle is placed into the production cycle. Customer depositsare included in current liabilities until refunded or until they are applied to a customer’s purchase balance at time of delivery.As of December 31, 2015 and 2014, we held $283.4 million and $257.6 million in customer deposits. Note 8 - Convertible Notes and Long-term Debt Obligations0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant TransactionsIn March 2014, we issued $800.0 million principal amount of 0.25% convertible senior notes due 2019 (2019 Notes) and $1.20 billion principal amount of1.25% convertible senior notes due 2021 (2021 Notes) in a public offering. In April 2014, we issued an additional $120.0 million aggregate principal amount of2019 Notes and $180.0 million aggregate principal amount of 2021 Notes, pursuant to the exercise in full of the overallotment options of the underwriters of ourMarch 2014 public offering. The total net proceeds from these offerings, after deducting transaction costs, were approximately $905.8 million from 2019 Notes and$1.36 billion from 2021 Notes. We incurred $14.2 million and $21.4 million of debt issuance costs in connection with the 2019 Notes and the 2021 Notes, whichwe initially recorded in other assets and are amortizing to interest expense using the effective interest method over the contractual terms of these notes. The interestrates are fixed at 0.25% and 1.25% per annum and are payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1,2014. Each $1,000 of principal of these notes will initially be convertible into 2.7788 shares of our common stock, which is equivalent to an initial conversionprice of approximately $359.87 per share, subject to adjustment upon the occurrence of specified events. Holders of these notes may convert their notes at theiroption on or after December 1, 2018 for the 2019 Notes and on or after December 1, 2020 for the 2021 Notes. Further, holders of these notes may convert theirnotes at their option prior to the respective dates above, only under the following circumstances: (1) during any fiscal quarter beginning after the fiscal quarterending June 30, 2014, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutivetrading days of immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the applicable notes on each applicable trading day;(2) during the five business day period following any five consecutive trading day period in which the trading price for the applicable notes is less than 98% of theaverage of the closing sale price of our common stock for each day during such five trading day period; or (3) if we make specified distributions to holders of ourcommon stock or if specified corporate transactions occur. Upon conversion of the 2019 Notes, we would pay or deliver as applicable, cash, shares of our commonstock or a combination of cash and shares of our common stock, at our election. Upon conversion of the 2021 Notes, we would pay the holders in cash for theprincipal amount and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock)based on a daily conversion value. If a fundamental change occurs prior to the maturity date, holders of these notes may require us to repurchase all or a portion oftheir notes for cash at a repurchase price equal to 100% of the principal amount of the notes, plus any accrued and unpaid interest. In addition, if specific corporateevents occur prior to the applicable maturity date, we will increase the conversion rate for a holder who elects to convert their notes in connection with such acorporate event in certain circumstances. During the fourth quarter of 2015, the closing price of our common stock did not meet or exceed 130% of the applicableconversion price of our 2019 Notes and 2021 Notes on at least 20 of the last 30 consecutive trading days of the quarter; furthermore, no other conditions allowingholders of these notes to convert have been met as of December 31, 2015. Therefore, the 2019 Notes and 2021 Notes are not convertible during the first quarter of2016 and are classified as long-term debt. Should the closing price conditions be met in the first quarter of 2015 or a future quarter, the 2019 and/or the 2021 Noteswill be convertible at their holders’ option during the immediately following quarter. As of December 31, 2015, the if-converted value of the 2019 Notes and 2021Notes did not exceed the principal value of those notes. In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the notes fromthe respective host debt instrument and initially recorded the conversion option of $188.1 million for the 2019 Notes and $369.4 million for the 2021 Notes instockholders’ equity. The resulting debt discounts on the 2019 Notes and 2021 Notes are being amortized to interest expense at an effective interest rate of 4.89%and 5.96%, respectively, over the contractual terms of the notes. 62 In connection with the offering of these notes in March 2014, we entered into convertible note hedge transactions whereby we have the option to purchaseinitially (subject to adjustment for certain specified events) a total o f approximately 5.6 million shares of our common stock at a price of approximately $359.87per share. The total cost of the convertible note hedge transactions was $524.7 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 2.2 million shares of our common stock at a price of $512.66for the 2019 Notes and a total of approximately 3.3 million shares of our common stock at a price of $560.64 per share for 2021 Notes. We received $338.4 millionin cash proceeds from the sale of these warrants. Similarly, in connection with the issuance of additional notes in April 2014, we entered into convertible notehedge transactions and paid an aggregate $78.7 million. In addition, we sold warrants to purchase (subject to adjustment for certain specified events) a total ofapproximately 0.3 million shares of our common stock at a strike price of $512.66 per share for the warrants relatin g to 2019 Notes, and a total of approximately0.5 million shares of our common stock at a strike price of $560.64 per share for the warrants relating to 2021 Notes. We received aggregate proceeds ofapproximately $50.8 million from the sale of the warrants . Taken together, the purchase of the convertible note hedges and the sale of warrants are intended tooffset any actual dilution from the conversion of these notes and to effectively increase the overall conversion price from $359.87 to $512.66 per share in the caseof warrants relating to 2019 Notes and from $359.87 to $560.64 in the case of warrants relating to 2021 Notes. As these transactions meet certain accountingcriteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connectionwith the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on the consolidated balance sheet as ofDecember 31, 2015.1.50% Convertible Senior Notes and Bond Hedge and Warrant TransactionsIn May 2013, we issued $660.0 million aggregate principal amount of 2018 Notes in a public offering. The net proceeds from the offering, after deductingtransaction costs, were approximately $648.0 million. We incurred $12.0 million of debt issuance costs in connection with the issuance of the 2018 Notes which werecorded in other assets and are amortizing to interest expense using the effective interest method over the contractual term of the 2018 Notes. The interest underthe 2018 Notes is fixed at 1.50% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013. Each $1,000 of principal of the 2018 Notes will initially be convertible into 8.0306 shares of our common stock, which is equivalent to an initial conversionprice of approximately $124.52 per share, subject to adjustment upon the occurrence of specified events. Holders of the 2018 Notes may convert their 2018 Notesat their option on or after March 1, 2018. Further, holders of the 2018 Notes may convert their 2018 Notes at their option prior to March 1, 2018, only under thefollowing circumstances: (1) during any fiscal quarter beginning after the fiscal quarter ending September 30, 2013, if the last reported sale price of our commonstock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater thanor equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period following any five consecutive trading day periodin which the trading price for the 2018 Notes is less than 98% of the average of the closing sale price of our common stock for each day during such five tradingday period; or (3) if we make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon conversion, we would paythe holders in cash for the principal amount of the 2018 Notes and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of all or aportion of such shares of our common stock) based on a calculated daily conversion value. If a fundamental change occurs prior to the maturity date, holders of the2018 Notes may require us to repurchase all or a portion of their 2018 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2018Notes, plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date, we will increase the conversion rate for aholder who elects to convert its 2018 Notes in connection with such a corporate event in certain circumstances. In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the 2018 Notesfrom the host debt instrument and recorded the conversion option of $82.8 million in stockholders’ equity. The resulting debt discount on the 2018 Notes is beingamortized to interest expense at an effective interest rate of 4.29% over the contractual term of the 2018 Notes. In connection with the offering of the 2018 Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially(subject to certain specified events) a total of approximately 5.3 million shares of our common stock at a price of approximately $124.52 per share. The cost of theconvertible note hedge transactions was $177.5 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially(subject to certain specified events) a total of approximately 5.3 million shares of our common stock at a price of $184.48 per share. We received $120.3 million incash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any actualdilution from the conversion of the 2018 Notes and to effectively increase the overall conversion price from $124.52 to $184.48 per share. As these transactionsmeet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net costincurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on the consolidatedbalance sheet as of December 31, 2015.63 During the fourth quarter of 2015, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes may convert their notes during the first quarter of 2016. As such, weclassified the $617.7 million carrying value of our 2018 Notes as current liabilities and classified $42.1 million, representing the difference between the aggregateprincipal of our 2018 Notes of $659.8 million and the carrying value of 2018 Notes, as mezzanine equity on our consolidated balance sheet as of December 31,2015. Similarly, debt issuance costs were classified as other current assets as of December 31, 2015. Should the closing price conditions be met in the first quarterof 2016 or a future quarter, 2018 Notes will be convertible at their holders’ option during the immediately following quarter.Convertible Senior Notes Carrying Value and Interest ExpenseIn accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the Notes fromthe respective host debt instrument and initially recorded the conversion option for the 2018 Notes, 2019 Notes, and 2021 Notes in stockholders’ equity. Theresulting debt discounts on the 2018 Notes, 2019 Notes, and 2021 Notes are being amortized to interest expense at the effective interest rate over the contractualterms of the Notes. December 31, 2015 December 31, 2014 2018 Notes 2019 Notes 2021 Notes 2018 Notes 2019 Notes 2021 Notes (in thousands, except years and percentages) Carrying value $617,716 $795,405 $1,092,748 $601,566 $759,891 $1,046,627 Unamortized discount 42,045 124,595 287,252 58,196 160,109 333,373 Principal amount $659,761 $920,000 $1,380,000 $659,762 $920,000 $1,380,000 Remaining amortization period (years) 2.4 3.2 5.2 Effective interest rate on liability component 4.29% 4.89% 5.96% Carrying amount of equity component $82,800 $188,100 $369,400 If converted value in excess of par value $611,898 Full Repayment of Department of Energy Loan FacilityOn January 20, 2010, we entered into a loan facility with the Federal Financing Bank (FFB), and the DOE, pursuant to the Advanced Technology VehiclesManufacturing (ATVM) Incentive Program. In May 2013, in connection with the closing of our offerings of common stock and Notes, we paid $451.8 million tosettle all outstanding loan amounts of $441.0 million, including principal and interest, as well as an early repayment penalty of $10.8 million which was recorded ininterest expense for the year ended December 31, 2013. Upon termination of the DOE Loan Facility, $29.3 million held in this dedicated account was released bythe DOE. As a result of our repayment of all outstanding principal and interest under the DOE Loan Facility and the termination of the DOE Loan Facility in May2013, the DOE warrant expired. As such, we recognized other income for the change in the fair value of the DOE warrant in the amount of $10.7 million for theyear ended December 31, 2013. Additionally, we amortized all remaining unamortized debt issuance costs of $5.8 million related to the DOE Loan Facility tointerest expense for the year ended December 31, 2013.Warehouse line of creditIn March 2015, we entered into a loan and security agreement (the “Warehouse Facility”) for a secured asset based line of credit for a principal amount upto $100 million. In June 2015, we amended the Warehouse Facility for an additional principal amount of $50 million, for a total of up to $150 million. Obligationsunder the Warehouse Facility were secured by certain of our lease contracts with Tesla directly and the related leased vehicles. In connection with the WarehouseFacility, we sold the beneficial interest in such lease contracts and related vehicles to a wholly owned special purpose entity that is the borrower in the WarehouseFacility, which pledged such beneficial interest in the underlying assets to the third-party lender under the Warehouse Facility. Borrowings under the WarehouseFacility are generally limited to up to 72% of the net present value of the remaining lease payments and the residual vehicle values under eligible lease contracts.Interest was payable monthly on amounts borrowed under the Warehouse Facility at a variable rate of LIBOR plus 1.65% and on undrawn amounts at a rateof 0.5%. The Warehouse facility would have matured in March 2017, at which time all outstanding borrowing would become due. Prior to that date, principalpayments were due in the amount that the borrowing limit decreased below our outstanding principal balance. As of December 31, 2015, we had repaid allborrowings under the Warehouse Facility and terminated it. 64 Asset-Based Credit Agreement In June 2015, we entered into a senior secured asset-based revolving credit agreement (the “Credit Agreement”) with a syndicate of banks, which weamended as of November 3, 2015. The Credit Agreement provides for a senior secured asset-based revolving credit facility (the “Credit Facility”), which we maydraw upon as needed. In October, lenders increased their total funding commitments to us under the Credit Facility by up to an additional $250.0 million, subject tocertain conditions, for total commitments up to $750 million. In addition, the Credit Agreement provides for a $200.0 million letter of credit sub-facility and a$40.0 million swing-line loan sub-facility. The Credit Agreement is collateralized by a pledge of certain of our accounts receivable, inventory, and equipment, andavailability under the Credit Agreement is based on the value of such assets, as reduced by certain reserves. In February 2016, we amended the Credit Agreementand increased the availability and the commitments under the Credit Agreement from $750.0 million to $1.0 billion. Borrowed funds bear interest, at our option, at an annual rate of (a) 1% plus LIBOR or (b) the highest of (i) the federal funds rate plus 0.50%, (ii) the lenders“prime rate” or (iii) 1% plus LIBOR. The fee for undrawn amounts is 0.25% per annum. Interest is payable quarterly. The Credit Agreement terminates, and alloutstanding loans become due and payable, in June 2020. As of December 31, 2015, we had $135.0 million borrowings under the Credit Facility. We are required to meet various covenants, including meeting certain reporting requirements, such as the completion and presentation of auditedconsolidated financial statements for our borrowings. As of December 31, 2015 we were in compliance with all covenants contained in the Credit Agreement.Pledged AssetsAs of December 31, 2015 and 2014, we have pledged or restricted $1.43 billion and $29.3 million principally from finished goods and raw materialsinventory, as well as certain property and equipment, direct lease vehicles, receivables and cash as collateral for letters of credit including our Asset-based creditarrangement, real estate leases, and insurance policies.Interest ExpenseThe following table presents the aggregate amount of interest expense recognized on the Warehouse Facility, Credit Agreement, 2018 Notes, 2019 Notes,and 2021 Notes relating to the contractual interest coupon and amortization of the debt issuance costs and debt discount. 2015 2014 2013 Contractual interest coupon $32,061 $26,019 $5,938 Amortization of debt issuance costs 8,102 5,288 1,207 Amortization of debt discount 97,786 79,479 9,143 Total $137,949 $110,786 $16,288 Note 9 - Common StockIn October 2012, we completed a follow-on offering of common stock in which we sold a total of 7,964,601 shares of our common stock and received cashproceeds of $222.1 million (which included 35,398 shares or $1.0 million sold to our CEO) from this transaction, net of underwriting discounts and offering costs.In May 2013, we completed a public offering of common stock and sold a total of 3,902,862 shares of our common stock for total cash proceeds ofapproximately $355.1 million (which included 487,857 shares or $45.0 million sold to our CEO), net of underwriting discounts and offering costs. We also sold596,272 shares of our common stock to our CEO and received total cash proceeds of $55.0 million in a private placement at the public offering price. Concurrentwith these equity transactions, we also issued $660.0 million principal amount of 1.50% convertible senior notes in a public offering and received total cashproceeds of approximately $648.0 million, net of underwriting discounts and offering costs (see Note 8 – Convertible
Notes
and
Long-Term
Debt
Obligations
).In August 2015, we completed a public offering of common stock and sold a total of 3,099,173 shares of our common stock for total cash proceeds ofapproximately $738.3 million (which includes 82,645 shares or $20.0 million sold to our CEO, net of underwriting discounts and offering costs. 65 Note 10 - Equity Incentive PlansIn July 2003, we adopted the 2003 Equity Incentive Plan. Concurrent with the effectiveness of our registration statement on Form S-1 on June 28, 2010, weadopted the 2010 Equity Incentive Plan (the Plan) and all remaining common shares reserved for future grant or issuance under the 2003 Equity Incentive Planwere added to the 2010 Equity Incentive Plan. The Plan provides for the granting of stock options, RSUs and stock purchase rights to our employees, directors andconsultants. Options granted under the Plan may be either incentive options or nonqualified stock options. Incentive stock options may be granted only to ouremployees including officers and directors. Nonqualified stock options and stock purchase rights may be granted to our employees and consultants. Generally, ourstock options and RSUs vest over four years and are exercisable over a period not to exceed the contractual term of ten years from the date the stock options aregranted. Continued vesting typically terminates when the employment or consulting relationship ends. As of December 31, 2015, 22,454,854 shares of commonstock were reserved for issuance under the Plan. The following table summarizes stock option and RSU activity under the Plan: Outstanding Stock Options Outstanding RSUs Weighted Weighted Average Grant Shares Available Number of Average Number Date Fair for Grant Options Exercise Price of RSUs Value Balance, December 31, 2012 469,531 25,007,776 21.20 — — Additional options reserved 3,426,428 — — — Granted (3,345,899) 2,643,821 74.17 702,078 155.51 Exercised — (3,852,673) 21.42 — — Cancelled 1,170,445 (1,157,982) 36.47 (12,463) 154.92 Released — — — (12,031) 160.98 Balance, December 31, 2013 1,720,505 22,640,942 26.70 677,584 155.41 Additional options reserved 3,077,274 — — — Granted (2,525,246) 1,432,171 181.56 1,093,075 223.66 Exercised — (2,266,697) 31.80 — — Cancelled 556,765 (433,456) 56.25 (123,309) 187.90 Released — — — (167,240) 155.70 Traded for taxes 6,786 — — — — Balance, December 31, 2014 2,836,084 21,372,960 $35.93 1,480,110 $203.08 Granted (2,728,110) 1,102,190 $243.22 1,625,920 $229.54 Exercised — (2,012,646) 34.32 — — Cancelled 708,797 (447,324) 96.70 (261,473) 211.66 Released — — — (404,883) 233.30 Traded for taxes 14 — — — Balance, December 31, 2015 816,785 20,015,180 $46.14 2,439,674 $219.90 Additional information regarding all stock options outstanding and exercisable as of December 31, 2015 is summarized below: Options Outstanding Options Exercisable Weighted Weighted Average Average Weighted Remaining Weighted Remaining Average Contractual Average Contractual Exercise Life (in Exercise Life (in Range of Exercise Price Number Price years) Number Price years) $2.70 - $6.15 195,706 $3.05 195,706 $3.05 $6.63 - $6.63 6,915,441 6.63 6,915,142 6.63 $9.96 - $30.06 2,049,342 25.13 1,917,003 24.89 $30.08 - $31.07 294,030 30.77 236,557 30.70 $31.17 - $31.17 5,517,405 31.17 2,279,381 31.17 $31.49 - $41.83 2,007,717 34.28 1,531,818 33.60 $87.80 - $241.93 2,238,944 165.32 648,292 146.31 $250.69 - $261.89 736,616 257.36 96,232 259.50 $262.16 - $262.16 44,012 262.16 — — $282.11 - $282.11 15,967 282.11 5,500 282.11 20,015,180 $46.13 4.55 13,825,631 $24.98 3.36 66 Additional information regarding all stock options outstanding and exercisable as of December 31, 2014 is summarized below: Options Outstanding Options Exercisable Weighted Weighted Average Average Weighted Remaining Weighted Remaining Average Contractual Average Contractual Exercise Life (in Exercise Life (in Range of Exercise Price Number Price years) Number Price years) $2.70 - $6.15 329,072 $3.13 327,696 $3.13 $6.63 - $6.63 7,030,489 6.63 7,029,293 6.63 $9.96 - $28.45 2,183,386 23.87 1,779,133 23.19 $29.12 - $31.07 1,105,021 30.00 606,484 30.00 $31.17 - $31.17 5,611,130 31.17 663,860 31.17 $31.49 - $38.42 2,376,417 33.25 1,167,109 32.82 $39.10 - $179.72 2,140,496 111.51 379,519 94.50 $184.67 - $259.32 498,658 233.06 84 198.09 $259.94 - $259.94 72,333 259.94 4,332 259.94 $282.11 - $282.11 25,958 282.11 — — 21,372,960 35.93 5.48 11,957,510 12.37 3.63 The aggregate intrinsic value represents the total pretax intrinsic value (i.e., the difference between our common stock price and the exercise price,multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options. Theaggregate intrinsic value of options outstanding as of December 31, 2015 and 2014 was $3.90 billion and $4.00 billion. The intrinsic value of options exercisablewas $2.98 billion and $2.46 billion, and the intrinsic value of options vested and expected to vest was $3.90 billion and $4.00 billion as of December 31, 2015 and2014. The total intrinsic value of options exercised was $395.6 million and $446.9 million for the years ended December 31, 2015 and 2014. The aggregateintrinsic value of RSUs outstanding as of December 31, 2015 and December 31, 2014 was $585.7 million and $329.2 million.Fair Value AdoptionWe utilize the fair value method in recognizing stock-based compensation expense. Under the fair value method, we estimated the fair value of each optionaward and the ESPP on the grant date generally using the Black-Scholes option pricing model and the weighted average assumptions noted in the following table. Year Ended December 31, 2015 2014 2013 Risk-free interest rate: Stock options 1.6% 1.9% 1.3%ESPP 0.3% 0.1% 0.1%Expected term (in years): Stock options 5.4 6.0 6.1 ESPP 0.5 0.5 0.5 Expected volatility: Stock options 48% 55% 57%ESPP 42% 46% 43%Dividend yield: Stock options 0.0% 0.0% 0.0%ESPP 0.0% 0.0% 0.0% The risk-free interest rate that we use is based on the United States Treasury yield in effect at the time of grant for zero coupon United States Treasury noteswith maturities approximating each grant’s expected life. Given our limited history with employee grants, we use the “simplified” method in estimating theexpected term for our employee grants. The “simplified” method, as permitted by the SEC, is calculated as the average of the time-to-vesting and the contractuallife of the options.67 Beginning in 2015 our expected volatility is derived from our implied volatility on publicly traded options of our common stock and the historical volatilityof our common stock. Prior to 2015 , o ur expected volatility was derived from our implied volatility on publicly traded options of our common stock and thehistorical volatilities of several unrelated public companies within industries related to our business, including the automotive OEM, automotive retail, automotiveparts and battery technology industries, becaus e we had limited trading history on our common stock. When making the selections of our peer companies withinindustries related to our business to be used in the volatility calculation, we also considered the stage of development, size and financial lever age of potentialcomparable companies. Our historical volatility and implied volatility are weighted based on certain qualitative factors and combined to produce a single volatilityfactor. The weighted-average grant-date fair value for option awards granted during the years ended December 31, 2015, 2014 and 2013 was $108.28, $94.01 and$40.72 per share. The weighted-average grant-date fair value for ESPP granted during the years ended December 31, 2015, 2014 and 2013 was $58.77, $74.07 and$19.22 per share. The fair value of RSUs is measured on the grant date based on the closing fair market value of our common stock.Performance-Based Stock OptionsIn 2014, to create incentives for continued long term success beyond the Model S program and to closely align executive pay with our stockholders’interests in the achievement of significant milestones by our company, the Compensation Committee of our Board of Directors granted stock options to certainemployees to purchase an aggregate 1,073,000 shares of our common stock. Each such grant consists of four vesting tranches with a vesting schedule based entirelyon the attainment of future performance milestones, assuming continued employment and service to us through each vesting date. ·1/4th of the shares subject to the options are scheduled to vest upon completion of the first Model X Production Vehicle; ·1/4th of the shares subject to the options are scheduled to vest upon achieving aggregate vehicle production of 100,000 vehicles in a trailing 12-month period; ·1/4th of the shares subject to the options are scheduled to vest upon completion of the first Gen III Production Vehicle; and ·1/4th of the shares subject to the options are scheduled to vest upon achievement of annualized gross margin of greater than 30.0% in any three yearsAs of December 31, 2015, the following performance milestone were achieved and approved by our Board of Directors. ·Completion of the first Model X Production Vehicle We begin recording stock-based compensation expense as each milestone becomes probable. As of December 31, 2015, we had unrecognized compensationexpense of $68.7 million for those performance milestones that were not considered probable of achievement. For the years ended December 31, 2015 and 2014,we recorded stock-based compensation expense of $10.4 million and $10.7 million related to this grant.2012 CEO GrantIn August 2012, our Board of Directors granted 5,274,901 stock options to our CEO (2012 CEO Grant). The 2012 CEO Grant consists of ten vestingtranches with a vesting schedule based entirely on the attainment of both performance conditions and market conditions, assuming continued employment andservice to us through each vesting date. Each of the vesting tranches requires a combination of one of the ten pre-determined performance milestones outlined below and an incremental increase inour market capitalization of $4.0 billion, as compared to the initial market capitalization of $3.2 billion measured at the time of the 2012 CEO Grant. ·Successful completion of the Model X Alpha Prototype; ·Successful completion of the Model X Beta Prototype; ·Completion of the first Model X Production Vehicle; ·Successful completion of the Model 3 Alpha Prototype; ·Successful completion of the Model 3 Beta Prototype; ·Completion of the first Model 3 Production Vehicle; ·Gross margin of 30% or more for four consecutive quarters; ·Aggregate vehicle production of 100,000 vehicles; ·Aggregate vehicle production of 200,000 vehicles; and ·Aggregate vehicle production of 300,000 vehicles.68 The term of the 2012 CEO Grant is ten years, so any tranches that remain unvested at the expiration of the 2012 CEO Grant will be forfeited. In addition,unvested options will be forfeited if our CEO is no longer in that role, whether for cause or otherwise.We measured the fair value of the 2012 CEO Grant using a Monte Carlo simulation approach with the following assumptions: risk-free interest rate of1.65%, expected term of ten years, expected volatility of 55% and dividend yield of 0%.Stock-based compensation expense associated with the 2012 CEO Grant is recognized for each pair of performance and market conditions over the longerof the expected achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition is consideredprobable of being met.As of December 31, 2015, the market conditions for seven vesting tranches and the following performance milestones were achieved and approved by ourBoard of Directors, and therefore four of ten tranches of the 2012 CEO Grant were vested as of such date: ·Successful completion of the Model X Alpha Prototype ·Successful completion of the Model X Beta Prototype; and ·Completion of the first Model X Production Vehicle ·Aggregate vehicle production of 100,000 vehiclesAs of December 31, 2015, the following two performance milestones were considered probable of achievement: ·Successful completion of the Model 3 Alpha Prototype; and ·Successful completion of the Model 3 Beta PrototypeWe begin recording stock-based compensation expense as each milestone becomes probable. As of December 31, 2015, we had $1.7 million of totalunrecognized compensation expense for those performance milestones that were considered probable of achievement and will be recognized over a weighted-average period of 0.7 years. As of December 31, 2015, we had unrecognized compensation expense of $25.1 million for those performance milestones that werenot considered probable of achievement. For the years ended December 31 2015, 2014, and 2013, we recorded stock-based compensation expense of $10.6 million,$25.0 million and $14.5 million.No cash compensation has ever been received by our CEO for his services to the company.Summary Stock Based Compensation InformationThe following table summarizes the stock-based compensation expense by line item in the consolidated statements of operations (in thousands): Year Ended December 31, 2015 2014 2013 Cost of sales $19,244 $17,454 $9,071 Research and development 89,309 62,601 35,494 Selling, general and administrative 89,446 76,441 39,090 Total $197,999 $156,496 $83,655 We realized no income tax benefit from stock option exercises in each of the periods presented due to recurring losses and valuation allowances.As of December 31, 2015, we had $518.2 million of total unrecognized compensation expense, net, of estimated forfeitures, related to non-performanceawards that will be recognized over a weighted-average period of 3.4 years.Employee Stock Purchase PlanEmployees are eligible to purchase common stock through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations.The purchase price of the shares on each purchase date is equal to 85% of the lower of the fair market value of our common stock on the first and last trading daysof each six-month offering period. During the years ended December 31, 2015, 2014 and 2013, 220,571, 163,600 and 518,743 shares were issued under the ESPPfor $37.5 million, $28.6 million and $13.8 million, respectively. A total of 3,615,749 shares of common stock have been reserved for issuance under the ESPP, andthere were 2,115,851 shares available for issuance under the ESPP as of December 31, 2015. 69 Note 11 - Income TaxesA provision for income taxes of $13.0 million, $9.4 million and $2.6 million has been recognized for the years ended December 31, 2015, 2014 and 2013related primarily to our subsidiaries located outside of the United States. Our loss before provision for income taxes for the years ended December 31, 2015, 2014and 2013 were as follows (in thousands): Year Ended December 31, 2015 2014 2013 Domestic $415,694 $60,451 $75,279 International 459,930 224,185 (3,853)Loss before income taxes $875,624 $284,636 $71,426 The components of the provision for income taxes for the years ended December 31, 2015, 2014 and 2013, consisted of the following (in thousands): Year Ended December 31, 2015 2014 2013 Current: Federal $— $— $— State 525 257 178 Foreign 10,342 9,203 2,349 Total current 10,867 9,460 2,527 Deferred: Federal — — — State — — — Foreign 2,172 (56) 61 Total deferred 2,172 (56) 61 Total provision for income taxes $13,039 $9,404 $2,588 Deferred tax assets (liabilities) as of December 31, 2015 and 2014 consisted of the following (in thousands): December 31, December 31, 2015 2014 Deferred tax assets: Net operating loss carry-forwards $447,824 $276,916 Research and development credits 73,068 46,486 Other tax credits 30,079 12,750 Deferred revenue 111,559 75,823 Inventory and warranty reserves 60,663 53,546 Depreciation and amortization 66 68 Stock-based compensation 71,009 50,918 Convertible debt 35,073 45,118 Accruals and others 29,547 49,225 Total deferred tax assets 858,888 610,850 Valuation allowance (668,419) (524,394)Deferred tax assets, net of valuation allowance 190,469 86,456 Deferred tax liabilities: Depreciation and amortization (188,240) (86,298)Other (4,309) — Total deferred tax liabilities (192,549) (86,298)Deferred tax assets, net of valuation allowance and deferred tax liabilities $(2,080) $158 70 Reconciliation of statutory federal income taxes to our effective taxes for the years ended December 31, 2015, 2014 and 2013 is as follows (in thousands): Year Ended December 31, 2015 2014 2013 Tax at statutory federal rate $(306,470) $(99,622) $(25,001)State tax, net of federal benefit 525 257 178 Nondeductible expenses 16,711 15,238 733 Foreign income rate differential 172,259 86,734 (253)U.S. tax credits (43,911) (26,895) (6,682)Other reconciling items 1,232 877 1,317 Change in valuation allowance 172,693 32,815 32,296 Provision for income taxes $13,039 $9,404 $2,588 As of December 31, 2015, we recorded a valuation allowance of $668.4 million for the portion of the deferred tax asset that we do not expect to be realized.The valuation on our net deferred taxes increased by $144.0 million during the year ended December 31, 2015, primarily due to additional U.S. deferred tax assetsincurred in the current year that cannot be realized. Management believes that based on the available information, it is more likely than not that the U.S. deferredtax assets will not be realized, such that a full valuation allowance is required against all U.S. deferred tax assets. The Company has net $3.3 million of deferred taxassets in foreign jurisdictions which it believes are more-likely-than-not to be fully realized given the expectation of future earnings in these jurisdictions.As of December 31, 2015, we had approximately $2.14 billion of federal and $1.36 billion of state net operating loss carry-forwards available to offsetfuture taxable income, which will begin to expire for federal in 2024 and 2019 for state purposes. The portion of net operating loss carryforwards related to stockoptions is approximately $867.2 million and $379.8 million for federal and state purposes, respectively, of which the tax benefits will be credited to additional paid-in capital when realized. We have research and development tax credits of approximately $58.6 million and $62.0 million for federal and state income tax purposes,respectively. If not utilized, the federal carry-forwards will expire in various amounts beginning in 2019. However, the state research and development tax creditscan be carried forward indefinitely. In addition, we have other general business tax credits of approximately $29.9 million for federal income tax purposes, whichwill begin to expire in 2034.No deferred tax liability has been recognized for the remittance of any undistributed foreign earnings to the United States since the Company has nomaterial amount of undistributed foreign earnings outside of our U.S. tax jurisdiction as of December 31, 2015.Federal and state laws can impose substantial restrictions on the utilization of net operating loss and tax credit carry-forwards in the event of an “ownershipchange,” as defined in Section 382 of the Internal Revenue Code. We determined that no significant limitation would be placed on the utilization of our netoperating loss and tax credit carry-forwards due to any prior ownership changes.Uncertain Tax PositionsThe aggregate changes in the balance of our gross unrecognized tax benefits during the years ended December 31, 2015, 2014 and 2013 were as follows (inthousands): December 31, 2012 18,070 Decreases in balances related to prior year tax positions (7,802)Increases in balances related to current year tax positions 3,102 December 31, 2013 13,370 Increase in balances related to prior year tax positions 56 Increases in balances related to current year tax positions 27,951 December 31, 2014 41,377 Increase in balances related to prior year tax positions 6,626 Increases in balances related to current year tax positions 51,124 December 31, 2015 $99,127 71 Accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense and was immaterial. As of December 31, 2015,unrecognized tax benefits of $95.7 million, if recognized, would not affect our effective tax rate as the tax benefits would increase a d eferred tax asset which iscurrently fully offset with a full valuation allowance. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase ordecrease within the next 12 months. We file income tax returns in t he United States, California, and other states and foreign jurisdictions. Tax years 2003 to 2014remain subject to examination for federal purposes, and tax years 2003 to 2014 remain subject to examination for California purposes. All net operating losses andtax credits generated to date are subject to adjustment for U.S. federal and California purposes. Tax years 2007 to 2014 remain open for examination in other U.S.state and foreign jurisdictions.The United States Tax Court has issued a decision in Altera Corp v. Commissioner related to the treatment of share-based compensation expense in a cost-sharing arrangement. As this decision can be overturned upon appeal, we have not recorded any impact as of December 31, 2015. In addition, any potential taxbenefits would increase a deferred tax asset which is currently offset with a full valuation allowance. Note 12 - Information about Geographic AreasWe operate as one reportable segment which is the design, development, manufacturing and sales of electric vehicles, and stationary energy storageproducts.The following tables set forth total revenues and long-lived assets by geographic area (in thousands).Total Revenues Year Ended December 31, 2015 2014 2013 United States $1,957,397 $1,471,643 $1,479,166 China 318,513 477,082 — Norway 356,419 412,198 217,070 Other 1,413,696 837,433 317,260 Total $4,046,025 $3,198,356 $2,013,496 Long-lived Assets December 31, December 31, 2015 2014 United States $4,585,521 $2,452,219 International 609,216 143,792 Total $5,194,737 $2,596,011 Note 13 - Commitments and ContingenciesOperating LeasesOur corporate headquarters and powertrain production operations are based in Palo Alto, California where we have leased a facility consisting of 350,000square feet. This lease expires in January 2020. We lease a 203,772 square feet manufacturing facility in Tilburg, Netherlands through November 2023. We alsolease a number of properties in North America, Europe and Asia for our office, retail and service locations as well as Supercharger sites under non-cancelableoperating leases with various expiration dates through December 2030.Included within Operating Leases commitments in the table below are payments due under operating leases that have been accounted for as build-to-suitarrangements and are included in property, plant, and equipment in our Consolidated Balance Sheets. Rent expense for the years ended December 31, 2015, 2014 and 2013 was $68.2 million, $46.3 million and $21.5 million.Capital LeasesWe have entered into various agreements to lease equipment under capital leases over terms between 36 and 60 months. The equipment under the leases arecollateral for the lease obligations and are included within property, plant and equipment, net on the Consolidated Balance Sheets under the categories of computerequipment and software and office furniture and equipment. 72 Future minimum commitments for leases as of December 31, 2015 are as follows (in thousands): Operating Capital Leases Leases 2016 $88,629 $16,758 2017 86,661 11,321 2018 78,531 5,488 2019 69,013 1,112 2020 and thereafter 248,030 — Total minimum lease payments 570,864 34,679 Less: Amounts representing interest not yet incurred 2,006 Present value of capital lease obligations 32,673 Less: Current portion 15,451 Long-term portion of capital lease obligations $17,222 Environmental Liabilities In connection with our Tesla Factory located in Fremont, California, we are obligated to pay for the remediation of certain environmental conditionsexisting at the time we purchased the property from New United Motor Manufacturing, Inc. (NUMMI). Tesla is responsible for the first $15 million of remediationcosts and any costs in excess of $30 million or costs incurred after the ten-year anniversary of closing. NUMMI is responsible for remediation costs between $15million and $30 million for up to 10 years from the closing date. Through December 31, 2015, we have paid $6.94 million for remediation costs incurred related tothe Fremont facility, effectively settling our accrued obligation and as of December 31, 2015, we have no accrued amounts remaining. As of December 31, 2014,we accrued a total of $4.0 million related to these environmental liabilities.Legal ProceedingsFrom time to time, we are subject to various legal proceedings that arise from the normal course of business activities. In addition, from time to time, thirdparties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. If an unfavorable ruling were tooccur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand.In November 2013, a putative securities class action lawsuit was filed against Tesla in U.S. District Court, Northern District of California, allegingviolations of, and seeking remedies pursuant to, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint, made claimsagainst Tesla and our CEO, Elon Musk, sought damages and attorney’s fees on the basis of allegations that, among other things, Tesla and Mr. Musk made falseand/or misleading representations and omissions, including with respect to the safety of Model S. This case was brought on behalf of a putative class consisting ofcertain persons who purchased Tesla’s securities between August 19, 2013 and November 17, 2013. On September 26, 2014, the trial court, upon the motion ofTesla and Mr. Musk, dismissed the complaint with prejudice, and thereafter issued a formal written order to that effect. The plaintiffs have appealed from the trialcourt’s order, and that appeal is pending. Note 14 - Quarterly Results of Operations (Unaudited)The following table includes selected quarterly results of operations data for the years ended December 31, 2015 and 2014 (in thousands, except per sharedata): Three months ended March 31 June 30 September 30 December 31 2015 Total revenues $939,880 $954,976 $936,789 $1,214,379 Gross profit 260,073 213,370 231,496 218,564 Net loss (154,181) (184,227) (229,858) (320,397)Net loss per share, basic (1.22) (1.45) (1.78) (2.44)Net income (loss) per share, diluted (1.22) (1.45) (1.78) (2.44)2014 Total revenues $620,542 $769,349 $851,804 $956,661 Gross profit 155,128 212,995 251,851 261,697 Net income (loss) (49,800) (61,900) (74,708) (107,630)Net income (loss) per share, basic (0.40) (0.50) (0.60) (0.86)Net income (loss) per share, diluted (0.40) (0.50) (0.60) (0.86) 73 Net loss per share, basic and diluted for the four quarters of each fiscal year may not sum to the total for the year because of the different numbers of sharesoutstanding during each period. I TEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable. I TEM 9A.CONTROLS AND PROCEDURESEvaluation
of
Disclosure
Controls
and
ProceduresWe conducted an evaluation as of December 31, 2015, under the supervision and with the participation of our management, including our Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, ourChief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were effective to providereasonable assurance.Management’s
Report
on
Internal
Control
over
Financial
ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reportingis a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles andincludes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions anddispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our managementand directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that couldhave a material effect on the financial statements.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted anevaluation of the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control—Integrated Framework (2013)”issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management concluded that our internal control over financialreporting was effective as of December 31, 2015.Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of our internal control over financialreporting as of December 31, 2015 as stated in their report which is included herein.Limitations
on
the
Effectiveness
of
ControlsBecause of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.Changes
in
Internal
Control
over
Financial
ReportingThere was no change in our internal control over financial reporting which occurred during the fourth fiscal quarter of the year ended December 31, 2015which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. I TEM 9B.OTHER INFORMATIONNone 74 P ART IIII TEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this Item 10 of Form 10-K will be included in our 2016 Proxy Statement to be filed with the SEC in connection with thesolicitation of proxies for our 2016 Annual Meeting of Stockholders (2016 Proxy Statement) and is incorporated herein by reference. The 2016 Proxy Statementwill be filed with the SEC within 120 days after the end of the fiscal year to which this report relates.I TEM 11.EXECUTIVE COMPENSATIONThe information required by this Item 11 of Form 10-K will be included in our 2016 Proxy Statement and is incorporated herein by reference.I TEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this Item 12 of Form 10-K will be included in our 2016 Proxy Statement and is incorporated herein by reference.I TEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this Item 13 of Form 10-K will be included in our 2016 Proxy Statement and is incorporated herein by reference.I TEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this Item 14 of Form 10-K will be included in our 2016 Proxy Statement and is incorporated herein by reference. I TEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES1.Financial Statements. See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K.2.All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to requiresubmission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.3.Exhibits. The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Annual Report on Form 10-K. 75 INDEX TO EXHIBITS ExhibitNumber Incorporated by Reference Filed Herewith Exhibit Description Form File No. Exhibit Filing Date 3.1 Amended and Restated Certificate of Incorporation ofthe Registrant S-1 333-164593 3.1 January 29, 2010 3.2 Amended and Restated Bylaws of the Registrant 8-K 333-164593 3.2 June 8, 2012 4.1 Specimen common stock certificate of the Registrant S-1/A 333-164593 4.1 May 27, 2010 4.2 Fifth Amended and Restated Investors’ RightsAgreement, dated as of August 31, 2009, betweenRegistrant and certain holders of the Registrant’scapital stock named therein S-1 333-164593 4.2 January 29, 2010 4.2A Amendment to Fifth Amended and Restated Investors’Rights Agreement, dated as of May 20, 2010, betweenRegistrant and certain holders of the Registrant’scapital stock named therein S-1/A 333-164593 4.2A May 27, 2010 4.2B Amendment to Fifth Amended and Restated Investors’Rights Agreement between Registrant, Toyota MotorCorporation and certain holders of the Registrant’scapital stock named therein S-1/A 333-164593 4.2B May 27, 2010 4.2C Amendment to Fifth Amended and Restated Investor’sRights Agreement, dated as of June 14, 2010, betweenRegistrant and certain holders of the Registrant’scapital stock named therein S-1/A 333-164593 4.2C June 15, 2010 4.2D Amendment to Fifth Amended and Restated Investor’sRights Agreement, dated as of November 2, 2010,between Registrant and certain holders of theRegistrant’s capital stock named therein 8-K 001-34756 4.1 November 4, 2010 4.2E Waiver to Fifth Amended and Restated Investor’sRights Agreement, dated as of May 25, 2011, betweenRegistrant and certain holders of the Registrant’scapital stock named therein S-1/A 333-174466 4.2E June 2, 2011 4.2F Amendment to Fifth Amended and Restated Investor’sRights Agreement, dated as of May 30, 2011, betweenRegistrant and certain holders of the Registrant’scapital stock named therein 8-K 001-34756 4.1 June 1, 2011 4.2G Sixth Amendment to Fifth Amended and RestatedInvestors’ Rights Agreement, dated as of May 15,2013 among the Registrant, the Elon Musk RevocableTrust dated July 22, 2003 and certain other holders ofthe capital stock of the Registrant named therein. 8-K 001-34756 4.1 May 20, 2013 76 ExhibitNumber Incorporated by Reference Filed Herewith Exhibit Description Form File No. Exhibit Filing Date 4.2H Waiver to Fifth Amended and Restated Investor’sRights Agreement, dated as of May 14, 2013, betweenthe Registrant and certain holders of the capital stockof the Registrant named therein. 8-K 001-34756 4.2 May 20, 2013 4.2I Waiver to Fifth Amended and Restated Investor’sRights Agreement, dated as of August 13, 2015,between the Registrant and certain holders of thecapital stock of the Registrant named therein. 8-K 001-34756 4.1 August 19, 2015 4.3 Indenture, dated as of May 22, 2013, by and betweenthe Registrant and U.S. Bank National Association. 8-K 001-34756 4.1 May 22, 2013 4.4 First Supplemental Indenture, dated as of May 22,2013, by and between the Registrant and U.S. BankNational Association. 8-K 001-34756 4.2 May 22, 2013 4.5 Form of 1.50% Convertible Senior Note Due June 1,2018 (included in Exhibit 4.4). 8-K 001-34756 4.3 May 22, 2013 4.6 Second Supplemental Indenture, dated as of March 5,2014, by and between the Registrant and U.S. BankNational Association. 8-K 001-34756 4.2 March 5, 2014 4.7 Form of 0.25% Convertible Senior Note Due March 1,2019 (included in Exhibit 4.6). 8-K 001-34756 4.3 March 5, 2014 4.8 Third Supplemental Indenture, dated as of March 5,2014, by and between the Registrant and U.S. BankNational Association. 8-K 001-34756 4.4 March 5, 2014 4.9 Form of 1.25% Convertible Senior Note Due March 1,2021 (included in Exhibit 4.8). 8-K 001-34756 4.5 March 5, 2014 10.1** Form of Indemnification Agreement between theRegistrant and its directors and officers S-1/A 333-164593 10.1 June 15, 2010 10.2** 2003 Equity Incentive Plan S-1/A 333-164593 10.2 May 27, 2010 10.3** Form of Stock Option Agreement under 2003 EquityIncentive Plan S-1 333-164593 10.3 January 29, 2010 10.3A** Grant Notice and Stock Option Agreement betweenthe Registrant and Elon Musk S-1/A 333-164593 10.3A March 29, 2010 10.4** Amended and Restated 2010 Equity Incentive Plan,effective as of April 10, 2014 14A 333-164593 Appendix A April 24, 2014 10.5** Form of Stock Option Agreement under 2010 EquityIncentive Plan S-1/A 333-164593 10.5 March 29, 2010 77 ExhibitNumber Incorporated by Reference Filed Herewith Exhibit Description Form File No. Exhibit Filing Date 10.6** Form of Restricted Stock Unit Award Agreementunder 2010 Equity Incentive Plan S-1/A 333-164593 10.6 March 29, 2010 10.7** Amended and Restated 2010 Employee StockPurchase Plan, effective as of August 3, 2011. — — — — X 10.8** Offer Letter between the Registrant and Elon Muskdated October 13, 2008 S-1 333-164593 10.9 January 29, 2010 10.9** Offer Letter between the Registrant and Deepak Ahujadated June 13, 2008, and amended June 4, 2009 S-1 333-164593 10.10 January 29, 2010 10.10** Relocation Agreement between the Registrant andDeepak Ahuja effective October 31, 2008 andamended June 4, 2009 S-1 333-164593 10.11 January 29, 2010 10.11** Offer Letter between the Registrant and Jeffrey B.Straubel dated May 6, 2004 S-1 333-164593 10.12 January 29, 2010 10.12** Offer Letter between the Registrant and JasonWheeler dated October 8, 2015. — — — — X 10.13 Commercial Lease between the Registrant and TheBoard of Trustees of The Leland StanfordJr. University dated August 6, 2009 S-1 333-164593 10.22 January 29, 2010 10.14 Letter Agreement between the Registrant and NewUnited Motor Manufacturing, Inc. dated May 26, 2010 S-1/A 333-164593 10.45 May 27, 2010 10.14A Amendment No. 1 to the Letter Agreement betweenthe Registrant and New United Motor Manufacturing,Inc. dated June 15, 2010 10-Q 001-34756 10.3 November 12, 2010 10.14B Amendment No. 2 to the Letter Agreement betweenthe Registrant and New United Motor Manufacturing,Inc. dated October 1, 2010 10-Q 001-34756 10.4 November 12, 2010 10.14C Amendment No. 3 to the Letter Agreement betweenthe Registrant and New United Motor Manufacturing,Inc. dated October 8, 2010 10-Q 001-34756 10.5 November 12, 2010 10.14D Amendment No. 4 to the Letter Agreement betweenthe Registrant and New United Motor Manufacturing,Inc. dated October 13, 2010 10-Q 001-34756 10.6 November 12, 2010 10.14E Amendment No. 5 to the Letter Agreement betweenthe Registrant and New United Motor Manufacturing,Inc. dated October 15, 2010 10-Q 001-34756 10.7 November 12, 2010 10.14F† Amendment No. 6 to the Letter Agreement betweenthe Registrant and New United Motor Manufacturing,Inc. dated October 19, 2010 10-Q 001-34756 10.8 November 12, 2010 78 ExhibitNumber Incorporated by Reference Filed Herewith Exhibit Description Form File No. Exhibit Filing Date 10.15 Sale and Purchase Agreement between Registrant andNew United Motor Manufacturing, Inc., datedAugust 13, 2010 10-Q 001-34756 10.1 November 12, 2010 10.15A Addendum No. 1to the Sale and Purchase Agreementbetween Registrant and New United MotorManufacturing, Inc., dated September 23, 2010 10-Q 001-34756 10.2 November 12, 2010 10.16† Supply Agreement between Panasonic Corporationand the Registrant dated October 5, 2011 10-K -001-34756 10.50 February 27, 2012 10.16A† Amendment No. 1 to Supply Agreement betweenPanasonic Corporation and the Registrant datedOctober 29, 2013 10-K 001-34756 10.35A February 26, 2014 10.17 Form of Call Option Confirmation relating to 1.50%Convertible Senior Note Due June 1, 2018. 8-K 001-34756 10.1 May 22, 2013 10.18 Form of Warrant Confirmation relating to 1.50%Convertible Senior Note Due June 1, 2018. 8-K 001-34756 10.2 May 22, 2013 10.19 Indemnification Agreement, dated as of February 27,2014, by and between the Registrant and J.P. MorganSecurities LLC. 8-K 001-34756 10.1 March 5, 2014 10.20 Form of Call Option Confirmation relating to 0.25%Convertible Senior Notes Due March 1, 2019. 8-K 001-34756 10.2 March 5, 2014 10.21 Form of Call Option Confirmation relating to 1.25%Convertible Senior Notes Due March 1, 2021. 8-K 001-34756 10.3 March 5, 2014 10.22 Form of Warrant Confirmation relating to 0.25%Convertible Senior Notes Due March 1, 2019. 8-K 001-34756 10.4 March 5, 2014 10.23 Form of Warrant Confirmation relating to 1.25%Convertible Senior Notes Due March 1, 2021. 8-K 001-34756 10.5 March 5, 2014 10.24 Agreement between Panasonic Corporation and theRegistrant dated July 31, 2014. 10-Q 001-34756 10.1 November 7, 2014 10.25 † General Terms and Conditions between PanasonicCorporation and the Registrant dated October 1, 2014. 10-Q 001-34756 10.2 November 7, 2014 10.25A Letter Agreement, dated as of February 24, 2015,regarding addition of co-party to General Terms andConditions, Production Pricing Agreement andInvestment Letter Agreement between PanasonicCorporation and the Registrant. — — — — X 10.26 † Production Pricing Agreement between PanasonicCorporation and the Registrant dated October 1, 2014. 10-Q 001-34756 10.3 November 7, 2014 79 ExhibitNumber Incorporated by Reference Filed Herewith Exhibit Description Form File No. Exhibit Filing Date 10.27 † Investment Letter Agreement between PanasonicCorporation and the Registrant dated October 1, 2014. 10-Q 001-34756 10.4 November 7, 2014 10.28 ABL Credit Agreement, dated as of June 10, 2015, byand among the Registrant, Tesla Motors NetherlandsB.V., certain of the Registrant’s and Tesla MotorsNetherlands B.V.’s direct or indirect subsidiaries fromtime to time party thereto, as borrowers, Wells FargoBank, National Association, as documentation agent,JPMorgan Chase Bank, N.A., Goldman Sachs BankUSA, Morgan Stanley Senior Funding Inc. and Bankof America, N.A., as syndication agents, the lendersfrom time to time party thereto, and Deutsche BankAG New York Branch, as administrative agent andcollateral agent. 8-K 001-34756 10.1 June 12, 2015 10.28A First Amendment, dated as of November 3, 2015, toABL Credit Agreement, dated as of June 10, 2015, byand among the Registrant, Tesla Motors NetherlandsB.V., certain of the Registrant’s and Tesla MotorsNetherlands B.V.’s direct or indirect subsidiaries fromtime to time party thereto, as borrowers, and thedocumentation agent, syndication agents,administrative agent, collateral agent and lenders fromtime to time party thereto. 10-Q 001-34756 10.1 November 5, 2015 10.28B Second Amendment, dated as of December 31, 2015,to ABL Credit Agreement, dated as of June 10, 2015,by and among the Registrant, Tesla MotorsNetherlands B.V., certain of the Registrant’s and TeslaMotors Netherlands B.V.’s direct or indirectsubsidiaries from time to time party thereto, asborrowers, and the documentation agent, syndicationagents, administrative agent, collateral agent andlenders from time to time party thereto. — — — — X 10.28C Third Amendment, dated as of February 9, 2016, toABL Credit Agreement, dated as of June 10, 2015, byand among the Registrant, Tesla Motors NetherlandsB.V., certain of the Registrant’s and Tesla MotorsNetherlands B.V.’s direct or indirect subsidiaries fromtime to time party thereto, as borrowers, and thedocumentation agent, syndication agents,administrative agent, collateral agent and lenders fromtime to time party thereto. — — — — X80 ExhibitNumber Incorporated by Reference Filed Herewith Exhibit Description Form File No. Exhibit Filing Date 10.29 † Agreement for Tax Abatement and Incentives, datedas of May 7, 2015, by and between Tesla Motors, Inc.and the State of Nevada, acting by and through theNevada Governor’s Office of Economic Development 10-Q 001-34756 10.1 August 7, 2015 12.1 Statement regarding Computation of Ratio of Earningsto Fixed Charges — — — — X 21.1 List of Subsidiaries of the Registrant — — — — X 23.1 Consent of PricewaterhouseCoopers LLP,Independent Registered Public Accounting Firm — — — — X 31.1 Rule 13a-14(a) / 15(d)-14(a) Certification of PrincipalExecutive Officer — — — — X 31.2 Rule 13a-14(a) / 15(d)-14(a) Certification of PrincipalFinancial Officer — — — — X 32.1* Section 1350 Certifications — — — — 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation LinkbaseDocument. 101.DEF XBRL Taxonomy Extension Definition LinkbaseDocument 101.LAB XBRL Taxonomy Extension Label LinkbaseDocument 101.PRE XBRL Taxonomy Extension Presentation LinkbaseDocument *Furnished herewith**Indicates a management contract or compensatory plan or arrangement.†Confidential treatment has been requested for portions of this exhibit 81 S IGNATURESPursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. Tesla Motors, Inc. Date: February 24, 2016 /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. Signature Title Date /s/ Elon Musk Chief Executive Officer and Director (Principal February 24, 2016 Elon Musk Executive Officer) /s/ Jason Wheeler Chief Financial Officer (Principal Financial Officer February 24, 2016 Jason Wheeler and Principal Accounting Officer) /s/ Brad W. Buss Director February 24, 2016 Brad W. Buss /s/ Robyn Denholm Director February 24, 2016 Robyn Denholm /s/ Ira Ehrenpreis Director February 24, 2016 Ira Ehrenpreis /s/ Antonio J. Gracias Director February 24, 2016 Antonio J. Gracias /s/ Stephen T. Jurvetson Director February 24, 2016 Stephen T. Jurvetson /s/ Kimbal Musk Director February 24, 2016 Kimbal Musk 82 Exhibit 10.7TESLA MOTORS, INC.2010 EMPLOYEE STOCK PURCHASE PLAN(As Amended and Restated Effective August 3, 2011)1. Purpose . The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchaseCommon Stock through accumulated payroll deductions. The Company’s intention is to have the Plan qualify as an “employee stock purchase plan” under Section423 of the Code. The provisions of the Plan, accordingly, will be construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basisconsistent with the requirements of Section 423 of the Code.2. Definitions .(a) “ Administrator ” means the Board or any Committee designated by the Board to administer the Plan pursuant to Section 14.(b) “ Applicable Laws ” means the requirements relating to the administration of equity-based awards under U.S. state corporate laws,U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws ofany foreign country or jurisdiction where Awards are, or will be, granted under the Plan.(c) “ Board ” means the Board of Directors of the Company.(d) “ Change in Control ” means the occurrence of any of the following events:(i) A change in the ownership of the Company which occurs on the date that any one person, or more than one person actingas a group (“ Person ”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%)of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, the acquisition of additional stock by any onePerson, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control;or(ii) A change in the effective control of the Company which occurs on the date that a majority of members of the Board isreplaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to thedate of the appointment or election. For purposes of this clause, if any Person is considered to be in effective control of the Company, the acquisition of additionalcontrol of the Company by the same Person will not be considered a Change in Control; or(iii) A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Personacquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from theCompany that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Companyimmediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection, the following will not constitute a change in theownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after thetransfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect tothe Company’ s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) aPerson, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity,at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). Forpurposes of this subsection, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with suchassets.For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation thatenters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.(e) “ Code ” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereundershall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulationamending, supplementing or superseding such section or regulation.(f) “ Committee ” means a committee of the Board appointed in accordance with Section 14 hereof.(g) “ Common Stock ” means the common stock of the Company.(h) “ Company ” means Tesla Motors, Inc., a Delaware corporation.(i) “ Compensation ” means an Eligible Employee’s regular and recurring straight time gross earnings, payments for overtime and shiftpremium, but exclusive of payments for incentive compensation, bonuses and other similar compensation. The Administrator, in its discretion, may, on a uniformand nondiscriminatory basis, establish a different definition of Compensation for a subsequent Offering Period.(j) “ Designated Subsidiary ” means any Subsidiary that has been designated by the Administrator from time to time in its sole discretionas eligible to participate in the Plan.(k) “ Director ” means a member of the Board.(l) “ Eligible Employee ” means any individual who is a common law employee of an Employer and is customarily employed for at leasttwenty (20) hours per week and more than five (5) months in any calendar year by the Employer. For purposes of the Plan, the employment relationship will betreated as continuing intact while the individual is on sick leave or other leave of absence that the Employer approves. Where the period of leave exceeds three (3)months and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to haveterminated three (3) months and one (1) day following the commencement of such leave. The Administrator, in its discretion, from time to time may, prior to anOffering Date for all options to be granted on such Offering Date, determine (on a uniform and nondiscriminatory basis) that the definition of Eligible Employeewill or will not include an individual if he or she: (i) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of timeas may be determined by the Administrator in its discretion), (ii) customarily works not more than twenty (20) hours per week (or such lesser period of time as maybe determined by the Administrator in its discretion), (iii) customarily works not more than five (5) months per calendar year (or such lesser period of time as maybe determined by the Administrator in its discretion), (iv) is an executive, officer or other manager, or (v) is a highly compensated employee under Section 414(q)of the Code.(m) “ Employer ” means any one or all of the Company and its Designated Subsidiaries. With respect to a particular Eligible Employee,Employer means the Company or Designated Subsidiary, as the case may be, that directly employs the Eligible Employee.(n) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, including the rules and regulations promulgatedthereunder.(o) “ Exercise Date ” means the last Trading Day in February and August of each year. Notwithstanding the preceding, the first ExerciseDate under the Plan will be February 22, 2011. (p) “ Fair Market Value ” means, as of any date and unless the Administrator determines otherwise, the value of Common Stockdetermined as follows:(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitationthe New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market of The Nasdaq Stock Market, its FairMarket Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date ofdetermination, as reported in The
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or such other source as the Administrator deems reliable;(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its FairMarket Value will be the mean of the closing bid and asked prices for the Common Stock on the date of determination, as reported in The
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orsuch other source as the Administrator deems reliable;(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in goodfaith by the Administrator; or(iv) For purposes of the Offering Date of the first Offering Period under the Plan, the Fair Market Value will be the initialprice to the public as set forth in the final prospectus included within the registration statement on Form S-1 filed with the Securities and Exchange Commission forthe initial public offering of the Common Stock (the “ Registration Statement ”).(q) “ Fiscal Year ” means the fiscal year of the Company.(r) “ New Exercise Date ” means a new Exercise Date set by shortening any Offering Period then in progress.(s) “ Offering Date ” means the first Trading Day of each Offering Period.(t) “ Offering Periods ” means the periods of approximately six (6) months during which an option granted pursuant to the Plan may beexercised, (i) commencing on the first Trading Day on or after March 1 of each year and terminating on the last Trading Day in the subsequent August,approximately six (6) months later, and (ii) commencing on the first Trading Day on or after September 1 of each year and terminating on the last Trading Day inthe subsequent February, approximately six (6) months later. Notwithstanding the preceding, the first Offering Period under the Plan commenced with the firstTrading Day on or after the date on which the Securities and Exchange Commission declared the Company’s Registration Statement effective and will end onFebruary 22, 2011. The next Offering Period under the Plan will begin on March 1, 2011. The duration and timing of future Offering Periods may be changedpursuant to Sections 4 and 20.(u) “ Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.(v) “ Participant ” means an Eligible Employee who participates in the Plan.(w) “ Plan ” means this Tesla Motors, Inc. 2010 Employee Stock Purchase Plan.(x) “ Purchase Price ” means an amount equal to eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on theOffering Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be determined for subsequent Offering Periods by theAdministrator, in its discretion, subject to compliance with Section 423 of the Code or pursuant to Section 20.(y) “ Subsidiary ” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code. (z) “ Trading Day ” means a day on which the national stock exchange upon which the Common Stock is listed is open for trading.3. Eligibility .(a) First Offering Period . Any individual who is an Eligible Employee immediately prior to the first Offering Period will beautomatically enrolled in the first Offering Period.(b) Subsequent Offering Periods . Any Eligible Employee on a given Offering Date subsequent to the first Offering Period will beeligible to participate in the Plan, subject to the requirements of Section 5.(c) Limitations . Any provisions of the Plan to the contrary notwithstanding, no Eligible Employee will be granted an option under thePlan (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employeepursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options topurchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of anyParent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock(determined at the Fair Market Value of the stock at the time such option is granted) for each calendar year in which such option is outstanding at any time.4. Offering Periods . The Plan will be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Dayon or after March 1 and September 1 of each year, or on such other date as the Administrator will determine. The Administrator will have the power to change theduration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announcedprior to the scheduled beginning of the first Offering Period to be affected thereafter.5. Participation .(a) First Offering Period . An Eligible Employee will be entitled to continue to participate in the first Offering Period pursuant to Section3(a) only if such individual submits a subscription agreement authorizing payroll deductions in a form determined by the Administrator (which may be similar tothe form attached hereto as Exhibit A) to the Company’s designated plan administrator (i) no earlier than the effective date of the Form S-8 registration statementwith respect to the issuance of Common Stock under this Plan and (ii) no later than ten (10) business days following the effective date of such S-8 registrationstatement or such other period of time as the Administrator may determine (the “ Enrollment Window ”). An Eligible Employee’s failure to submit thesubscription agreement during the Enrollment Window will result in the automatic termination of such individual’s participation in the first Offering Period.(b) Subsequent Offering Periods . An Eligible Employee may participate in the Plan pursuant to Section 3(b)by (i) submitting to theCompany’s payroll office (or its designee), on or before a date prescribed by the Administrator prior to an applicable Offering Date, a properly completedsubscription agreement authorizing payroll deductions in the form provided by the Administrator for such purpose, or (ii) following an electronic or otherenrollment procedure prescribed by the Administrator.6. Payroll Deductions .(a) At the time a Participant enrolls in the Plan pursuant to Section 5, he or she will elect to have payroll deductions made on each pay dayduring the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during the OfferingPeriod; provided, however, that should a pay day occur on an Exercise Date, a Participant will have the payroll deductions made on such day applied to his or heraccount under the subsequent Offering Period. A Participant’s subscription agreement will remain in effect for successive Offering Periods unless terminated asprovided in Section 10 hereof. (b) Payroll deductions for a Participant will commence on the first pay day following the Offering Date and will end on the last pay dayprior to the Exercise Date of such Offering Period to which such authorization is applicable, unless sooner terminated by the Participant as provided in Section 10hereof; provided, however, that for the first Offering Period, payroll deductions will commence on the first pay day on or following the end of the EnrollmentWindow.(c) All payroll deductions made for a Participant will be credited to his or her account under the Plan and will be withheld in wholepercentages only. A Participant may not make any additional payments into such account.(d) A Participant may discontinue his or her participation in the Plan as provided in Section 10. If permitted by the Administrator, asdetermined in its sole discretion, for an Offering Period, a Participant may increase or decrease the rate of his or her payroll deductions during the Offering Periodby (i) properly completing and submitting to the Company’s payroll office (or its designee), on or before a date prescribed by the Administrator prior to anapplicable Exercise Date, a new subscription agreement authorizing the change in payroll deduction rate in the form provided by the Administrator for suchpurpose, or (ii) following an electronic or other procedure prescribed by the Administrator. If a Participant has not followed such procedures to change the rate ofpayroll deductions, the rate of his or her payroll deductions will continue at the originally elected rate throughout the Offering Period and future Offering Periods(unless terminated as provided in Section 10). The Administrator may, in its sole discretion, limit the nature and/or number of payroll deduction rate changes thatmay be made by Participants during any Offering Period. Any change in payroll deduction rate made pursuant to this Section 6(d) will be effective as of the firstfull payroll period following five (5) business days after the date on which the change is made by the Participant (unless the Administrator, in its sole discretion,elects to process a given change in payroll deduction rate more quickly).(e) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(c), a Participant’spayroll deductions may be decreased to zero percent (0%) at any time during an Offering Period. Subject to Section 423(b)(8) of the Code and Section 3(c) hereof,payroll deductions will recommence at the rate originally elected by the Participant effective as of the beginning of the first Offering Period which is scheduled toend in the following calendar year, unless terminated by the Participant as provided in Section 10.(f) At the time the option is exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan isdisposed of, the Participant must make adequate provision for the Company’s or Employer’s federal, state, or any other tax liability payable to any authority,national insurance, social security or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the CommonStock. At any time, the Company or the Employer may, but will not be obligated to, withhold from the Participant’s compensation the amount necessary for theCompany or the Employer to meet applicable withholding obligations, including any withholding required to make available to the Company or the Employer anytax deductions or benefits attributable to sale or early disposition of Common Stock by the Eligible Employee.7. Grant of Option . On the Offering Date of each Offering Period, each Eligible Employee participating in such Offering Period will be granted anoption to purchase on each Exercise Date with respect to an Offering Period (at the applicable Purchase Price) up to a number of shares of Common Stockdetermined by dividing such Eligible Employee’s payroll deductions accumulated prior to such Exercise Date and retained in the Eligible Employee’s account as ofthe Exercise Date by the applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to purchase during each Offering Period morethan 500 shares of the Common Stock (subject to any adjustment pursuant to Section 19), and provided further that such purchase will be subject to the limitationsset forth in Sections 3(c) and 13. The Eligible Employee may accept the grant of such option with respect to the first Offering Period by submitting a properlycompleted subscription agreement in accordance with the requirements of Section 5(a) on or before the last day of the Enrollment Window, and (ii) with respect toany future Offering Period under the Plan, by electing to participate in the Plan in accordance with the requirements of Section 5(b). The Administrator may, forfuture Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that an Eligible Employee may purchaseduring each Offering Period. Exercise of the option will occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10. The optionwill expire on the last day of the Offering Period. 8. Exercise of Option .(a) Unless a Participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of shares of Common Stockwill be exercised automatically on the Exercise Date, and the maximum number of full shares subject to the option will be purchased for such Participant at theapplicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares of Common Stock will be purchased; any payrolldeductions accumulated in a Participant’s account, which are not sufficient to purchase a full share will be returned to the Participant. Any other funds left over ina Participant’s account after the Exercise Date will be returned to the Participant. During a Participant’s lifetime, a Participant’s option to purchase shareshereunder is exercisable only by him or her.(b) If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which optionsare to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Offering Date of the applicableOffering Period, or (ii) the number of shares of Common Stock available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretionprovide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Offering Date or Exercise Date, asapplicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options topurchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or terminate all Offering Periods then in effect pursuant to Section20. The Company may make a pro rata allocation of the shares available on the Offering Date of any applicable Offering Period pursuant to the precedingsentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company’s stockholders subsequent to such Offering Date.9. Delivery . As soon as reasonably practicable after each Exercise Date on which a purchase of shares of Common Stock occurs, the Company willarrange the delivery to each Participant of the shares purchased upon exercise of his or her option in a form determined by the Administrator (in its sole discretion)and pursuant to rules established by the Administrator. The Company may permit or require that shares be deposited directly with a broker designated by theCompany or to a designated agent of the Company, and the Company may utilize electronic or automated methods of share transfer. The Company may requirethat shares be retained with such broker or agent for a designated period of time and/or may establish other procedures to permit tracking of disqualifyingdispositions of such shares. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to anyoption granted under the Plan until such shares have been purchased and delivered to the Participant as provided in this Section 9.10. Withdrawal .(a) A Participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercisehis or her option under the Plan at any time by (i) submitting to the Company’s payroll office (or its designee) a written notice of withdrawal in the form prescribedby the Administrator for such purpose (which may be similar to the form attached hereto as Exhibit B), or (ii) following an electronic or other withdrawalprocedure prescribed by the Administrator. All of the Participant’s payroll deductions credited to his or her account will be paid to such Participant promptly afterreceipt of notice of withdrawal and such Participant’s option for the Offering Period will be automatically terminated, and no further payroll deductions for thepurchase of shares will be made for such Offering Period. If a Participant withdraws from an Offering Period, payroll deductions will not resume at the beginningof the succeeding Offering Period, unless the Participant re-enrolls in the Plan in accordance with the provisions of Section 5.(b) A Participant’s withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in any similar planwhich may hereafter be adopted by the Company or in succeeding Offering Periods, which commence after the termination of the Offering Period from which theParticipant withdraws.11. Termination of Employment . Upon a Participant’s ceasing to be an Eligible Employee, for any reason, he or she will be deemed to have electedto withdraw from the Plan and the payroll deductions credited to such Participant’s account during the Offering Period but not yet used to purchase shares ofCommon Stock under the Plan will be returned to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15, and such Participant’s optionwill be automatically terminated.12. Interest . No interest will accrue on the payroll deductions of a Participant in the Plan.13. Stock .(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of sharesof Common Stock which will be made available for sale under the Plan will be 1,666,666 shares, plus an annual increase to be added on the first day of each FiscalYear beginning with the 2011 Fiscal Year, equal to the least of (i) 1,000,000 shares of Common Stock, (ii) one percent (1%) of the outstanding shares of CommonStock on such date, or (iii) an amount determined by the Administrator.(b) Until the shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agentof the Company), a Participant will only have the rights of an unsecured creditor with respect to such shares, and no right to vote or receive dividends or any otherrights as a stockholder will exist with respect to such shares.(c) Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the nameof the Participant and his or her spouse.14. Administration . The Plan will be administered by the Board or a Committee appointed by the Board, which Committee will be constituted tocomply with Applicable Laws. The Administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, todetermine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Administrator will, to thefull extent permitted by law, be final and binding upon all parties. Notwithstanding any provision to the contrary in this Plan, the Administrator may adopt rules orprocedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures for jurisdictions outsideof the United States. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regardingeligibility to participate, the definition of Compensation, handling of payroll deductions, making of contributions to the Plan (including, without limitation, in formsother than payroll deductions), establishment of bank or trust accounts to hold payroll deductions, payment of interest, conversion of local currency, obligations topay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates which vary with localrequirements.15. Designation of Beneficiary .(a) A Participant may file a designation of a beneficiary who is to receive any shares of Common Stock and cash, if any, from theParticipant’s account under the Plan in the event of such Participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery tosuch Participant of such shares and cash. In addition, a Participant may file a designation of a beneficiary who is to receive any cash from the Participant’s accountunder the Plan in the event of such Participant’s death prior to exercise of the option. If a Participant is married and the designated beneficiary is not the spouse,spousal consent will be required for such designation to be effective.(b) Such designation of beneficiary may be changed by the Participant at any time by notice in a form determined by the Administrator. Inthe event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, theCompany will deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has beenappointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependentsor relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.(c) All beneficiary designations will be in such form and manner as the Administrator may designate from time to time. 16. Transferability . Neither payroll deductions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receiveshares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent anddistribution or as provided in Section 15 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition will be without effect,except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.17. Use of Funds . The Company may use all payroll deductions received or held by it under the Plan for any corporate purpose, and the Companywill not be obligated to segregate such payroll deductions. Until shares of Common Stock are issued, Participants will only have the rights of an unsecured creditorwith respect to such shares.18. Reports . Individual accounts will be maintained for each Participant in the Plan. Statements of account will be given to participating EligibleEmployees at least annually, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares of Common Stockpurchased and the remaining cash balance, if any.19. Adjustments, Dissolution, Liquidation, Merger or Change in Control .(a) Adjustments . In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, orother property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange ofCommon Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock occurs, theAdministrator, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will, in such manner asit may deem equitable, adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of sharesof Common Stock covered by each option under the Plan which has not yet been exercised, and the numerical limits of Sections 7and 13.(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, any Offering Period then inprogress will be shortened by setting a New Exercise Date, and will terminate immediately prior to the consummation of such proposed dissolution or liquidation,unless provided otherwise by the Administrator. The New Exercise Date will be before the date of the Company’s proposed dissolution or liquidation. TheAdministrator will notify each Participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the Participant’soption has been changed to the New Exercise Date and that the Participant’s option will be exercised automatically on the New Exercise Date, unless prior to suchdate the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.(c) Merger or Change in Control . In the event of a merger or Change in Control, each outstanding option will be assumed or anequivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refusesto assume or substitute for the option, the Offering Period with respect to which such option relates will be shortened by setting a New Exercise Date and will endon the New Exercise Date. The New Exercise Date will occur before the date of the Company’s proposed merger or Change in Control. The Administrator willnotify each Participant in writing prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date andthat the Participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the OfferingPeriod as provided in Section 10 hereof.20. Amendment or Termination .(a) The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for anyreason. If the Plan is terminated, the Administrator, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completionof the purchase of shares of Common Stock on the next Exercise Date (which may be sooner than originally scheduled, if determined by the Administrator in itsdiscretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 19). If the OfferingPeriods are terminated prior to expiration, all amounts then credited to Participants’ accounts which have not been used to purchase shares of Common Stock will be returned to the Participants (without interestthereon, except as otherwise required under local laws) as soon as administratively practicable.(b) Without stockholder consent and without limiting Section 20(a), the Administrator will be entitled to change the Offering Periods,limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in acurrency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in theCompany’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and creditingprocedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from theParticipant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable which are consistentwith the Plan.(c) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accountingconsequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate suchaccounting consequence including, but not limited to:(i) amending the Plan to conform with the safe harbor definition under Financial Accounting Standards Board AccountingStandards Codification Topic 718, including with respect to an Offering Period underway at the time;(ii) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change inPurchase Price;(iii) shortening any Offering Period by setting a New Exercise Date, including an Offering Period underway at the time of theAdministrator action;(iv) reducing the maximum percentage of Compensation a Participant may elect to set aside as payroll deductions; and(v) reducing the maximum number of Shares a Participant may purchase during any Offering Period.Such modifications or amendments will not require stockholder approval or the consent of any Plan Participants.21. Notices . All notices or other communications by a Participant to the Company under or in connection with the Plan will be deemed to have beenduly given when received in the form and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.22. Conditions Upon Issuance of Shares . Shares of Common Stock will not be issued with respect to an option unless the exercise of such option andthe issuance and delivery of such shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign, including, without limitation, theSecurities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon whichthe shares may then be listed, and will be further subject to the approval of counsel for the Company with respect to such compliance.As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of anysuch exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counselfor the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. Term of Plan . The Plan will become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of theCompany. It will continue in effect for a term of ten (10) years, unless sooner terminated under Section 20.24. Stockholder Approval . The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Planis adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws. EXHIBIT ATESLA MOTORS, INC.2010 EMPLOYEE STOCK PURCHASE PLANSUBSCRIPTION AGREEMENT1. I hereby elect to participate in the Tesla Motors, Inc. 2010 Employee Stock Purchase Plan (the “Plan”) and subscribe to purchase shares of theCompany’s Common Stock in accordance with this Subscription Agreement and the Plan.2. I hereby authorize payroll deductions from each paycheck following my entry into the Plan, and have designated my rate of payroll deduction at________________(from 1 to 15% of my Compensation), on each payday during the Offering Period in accordance with the Plan. (Please note that no fractionalpercentages are permitted,) I understand that such payroll deductions will be accumulated for the purchase of shares of Common Stock at the applicable PurchasePrice determined in accordance with the Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used toautomatically exercise my option and purchase Common Stock under the Plan.3. I have received and read a copy of the Plan document and the prospectus that describes the Plan. I understand that my participation in the Plan is inall respects subject to the terms of the Plan.4. For
U.S.
Taxpayers:
I understand that if I dispose of any shares received by me pursuant to the Plan within two (2) years after the Offering Date(the first day of the Offering Period during which I purchased such shares) or one (1) year after the Exercise Date, I will be treated for federal income tax purposesas having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shareswere purchased by me over the price which I paid for the shares. I hereby agree to notify the Company in writing within thirty (30) days after the date of anydisposition of my shares and I will make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the disposition of theCommon Stock . The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholdingobligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition ofCommon Stock by me. If I dispose of such shares at any time after the expiration of the two (2)-year and one (1)-year holding periods, I understand that I will betreated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income onlyto the extent of an amount equal to the lesser of (a) the excess of the fair market value of the shares at the time of such disposition over the purchase price which Ipaid for the shares, or (b) fifteen percent (15%) of the fair market value of the shares on the first trading day of the Offering Period. The remainder of the gain, ifany, recognized on such disposition will be taxed as capital gain.5. I hereby agree to be bound by the terms of the Plan, including (but not limited to) the power of the Administrator of the Plan to interpret the Plan, tomake all determinations under the Plan and to amend or terminate the Plan at any time. The effectiveness of this Subscription Agreement is dependent upon myeligibility to participate in the Plan. ________________________________________Name________________________________________Employee ID Number (Required (6 digits))________________________________________Social Security Number________________________________________Date EXHIBIT BTESLA MOTORS, INC.2010 EMPLOYEE STOCK PURCHASE PLANNOTICE OF WITHDRAWALThe undersigned Participant in the Offering Period of the Tesla Motors, Inc. 2010 Employee Stock Purchase Plan that began on ____________,______ (the “ Offering Date ”) hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company topay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersignedunderstands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payrolldeductions will be made for the purchase of shares in the current Offering Period and the undersigned will be eligible to participate in succeeding Offering Periodsonly by delivering to the Company a new Subscription Agreement.Name and Address of Participant: Signature: Date: Exhibit
10.12 October 8, 2015Jason WheelerDear Jason:Tesla Motors, Inc. (“Tesla” or the “Company”) is pleased to offer you the exempt, salaried position of Chief Financial Officer(CFO) on the terms set forth below. As CFO, you will perform the duties customarily associated with this position. You will reportto Elon Musk, Chief Executive Officer. Your duties, responsibilities, job title, and work location may be changed at any time byTesla.Your annualized salary will be $500,000 per year, subject to standard payroll deductions and withholdings. As an exemptemployee, you will not be entitled to overtime. You will be eligible for vacation and sick leave according to Tesla's standardpolicy. Subject to the rules of the applicable plan documents, you will also be eligible to receive other benefits Tesla may provideto its employees (e.g., health and dental insurance coverage) beginning on your date of hire. Tesla may consider you forbonuses, although the amount of such bonuses, if any, and the criteria for determining the award of such bonuses, if any, shallbe in the sole discretion of Tesla. Of course, Tesla reserves the right to modify your compensation and benefits from time totime, as it deems necessary.Tesla Motors, Inc. offers a competitive benefits package described below:Equity
Grant:
Subject to the approval of the Compensation Committee of Tesla's Board of Directors and ourstandard equity policies, you will receive an equity award with a value of $15 million in the form of stock options, whichyou will only receive at the time of vesting, as described below. This value is determined based on our standard equitygranting policies. The actual number of Shares and stock options that you receive will depend on the value of ourstock at or around the time your grant is approved, as determined by Tesla’s Compensation Committee. Please notethat for purposes of this allocation, 1 Share is equivalent to 3.00 stock options. This award, which is made pursuant toTesla's 2010 Equity Incentive Plan, shall be subject to vesting conditions. Specifically, the Shares shall vest over a period of four years: twenty-five percent (25%) of the award shall vest oneach of the first, second, third, and fourth anniversary of the date vesting begins (such date to be indicated in yourAward Agreement), subject to your continuing eligibility through the applicable vesting dates. In contrast, with respectto stock options, twenty-five percent (25%) of the shares subject to the option shall vest 12 months after the date yourvesting begins and no shares shall vest before such date and no rights to any vesting shall be earned or accrued priorto such date, and the remaining shares shall vest monthly over the next 36 months in equal monthly amounts subjectto your continuing eligibility. No Shares or stock options shall vest other than on the anniversary dates. This grant shall be subject to the terms and conditions of Tesla’s 2010 Equity Incentive Planand your Award Agreement, including vesting requirements.Please be aware that Tesla makes no representation about the future value of the equity award granted herein, andyou should be aware that the value of this award will fluctuate in the future. Finally, the receipt of this award is subjectto your signing the appropriate grant agreements.401K
Program:
You will be eligible to participate in Tesla’s 401K program after your first pay check. Our 401Kprogram is administered by Fidelity Investments.Vacation
Program:
Regular full-time employees and part-time employees who work 20 hours per week are eligible forPTO immediately and accrue PTO at 1.25 days per month (for a total of 15 days per calendar year).The Company is excited about your joining and looks forward to a beneficial and fruitful relationship. Nevertheless, you shouldbe aware that your employment with the Company is for no specified period and constitutes at-will employment. As a result, youare free to resign at any time, for any reason or for no reason, with or without notice. Similarly, the Company is free to concludeits employment relationship with you at any time, with or without cause, and with or without notice.We ask that, if you have not already done so, you disclose to Tesla any and all agreements relating to your prior employmentthat may affect your eligibility to be employed by Tesla or limit the manner in which you may be employed. It is Tesla’sunderstanding that any such agreements will not prevent you from performing the duties of your position and you represent thatsuch is the case. We want to emphasize that we do not wish you to bring any confidential or proprietary materials of any formeremployer which would violate any obligations you may have to your former employer . You agree not to make any unauthorizeddisclosure to Tesla or use on behalf of Tesla any confidential information belonging to any of your former employers (except inaccordance with agreements between Tesla and any such former employer). You also warrant that you do not possess anyproperty containing a third party's confidential and proprietary information. Of course, during your employment with Tesla, youmay make use of information generally known and used by persons with training and experience comparable to your own, andinformation which is common knowledge in the industry or is otherwise legally available in the public domain. Moreover, youagree that, during the term of your employment with the Company, you will not engage in any other employment, occupation,consulting or other business activity directly related to the business in which Tesla is now involved or becomes involved duringthe term of your employment, nor will you engage in any other activities that conflict with your obligations to Tesla.As a Tesla employee, you will be expected to abide by all Tesla policies and procedures, and , as a condition of youremployment, you will sign and comply with Tesla's standard confidentiality agreement which prohibits unauthorized use ordisclosure of Tesla confidential information or the confidential information of Tesla's clients.In addition, to ensure the rapid and economical resolution of disputes that may arise in connection with your employment withTesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to youremployment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final,
binding
andconfidential
arbitration
in your city and state of employment conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“J AMS”), or its successors, under the then current rules of JAMS foremployment disputes; provided that: a.Any claim, dispute, or cause of action must be brought in a party’s individual capacity, and not as a plaintiff or classmember in any purported class or representative proceeding; and b.The arbitrator shall have the authority to compel adequate discovery for the resolution of the dispute and to award suchrelief as would otherwise be permitted by law; and c.The arbitrator shall not have the authority to consolidate the claims of other employees and shall not have the authorityto fashion a proceeding as a class or collective action or to award relief to a group or class of employees in onearbitration proceeding; and d.The arbitrator shall issue a written arbitration decision including the arbitrator’s essential findings and conclusions anda statement of the award; and e.Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a courtof law; and f.Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.Nothing in this agreement is intended to prevent either you or Tesla from obtaining injunctive relief in court to prevent irreparableharm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right toresolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead ofarbitration.Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bringbefore any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (includingdiscrimination and/or retaliation claims filed with the Equal Employment Opportunity Commission and unfair labor practicecharges filed with the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy foradministrative claims.You acknowledge and agree that: (i) in the course of your employment by the Company, it will be necessary for you to create,use, or have access to (A) technical, business, or customer information, materials, or data relating to the Company’s present orplanned business that has not been released to the public with the Company’s authorization, including, but not limited to,confidential information, materials, or proprietary data belonging to the Company or relating to the Company’s affairs(collectively, “Confidential Information”) and (B) information and materials that concern the Company’s business that come intothe Company’s possession by reason of employment with the Company (collectively, “Business Related Information”); (ii) allConfidential Information and Business Related Information are the property of the Company; (iii) the use, misappropriation, ordisclosure of any Confidential Information or Business Related Information would constitute a breach of trust and could causeserious and irreparable injury to the Company; and (iv) it is essential to the protection of the Company’s goodwill andmaintenance of the Company’s competitive position that all Confidential Information and Business Related Information be keptconfidential and that you do not disclose any Confidential Information or Business Related Information to others or useConfidential Information or Business Related Information to your own advantage or the advantage of others. In recognition of the acknowledgment above, you agree that until the Confidential Information and/or Business RelatedInformation becomes publicly available (other than through a breach by you), you shall: (i) hold and safeguard all ConfidentialInformation and Business Related Information in trust for the Company; (ii) not appropriate or disclose or make available toanyone for use outside of the Company’s organization at any time any Confidential Information and Business RelatedInformation, whether or not developed by you; (iii) keep in strictest confidence any Confidential Information or Business RelatedInformation; (iv) not disclose or divulge, or allow to be disclosed or divulged by any person within your control, to any person,firm, or corporation, or use directly or indirectly, for your own benefit or the benefit of others, any Confidential Information orBusiness Related Information; and (v) upon the termination of your employment, return all Confidential Information and BusinessRecords and not make or retain any copies or exacts thereof.If you accept our offer, your first day of employment is to be Monday, November 30 th , 2015. This letter agreement constitutesthe complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms andconditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral orwritten. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla.This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.As required by immigration law, this offer of employment is conditioned upon satisfactory proof of your right to work in the UnitedStates.This offer of employment is contingent upon the successful completion of your reference and background checks.If you choose to accept our offer under the terms described above, please indicate your acceptance, by signing below andreturning it to me prior to Monday, October 12 th , 2015 after which date this offer will expire.We look forward to your favorable reply and to a productive and enjoyable work relationship. Very truly yours,Tesla Motors, Inc. Elon MuskChairman of the Board and CEO Accepted by:/s/ Jason Wheeler Date:10/9/15 Start Date:Monday, November 30 th , 2015 Exhibit 10.25ACONFIDENTIAL February 24, 2015 To:Director, Battery Technology Tesla Motors, Inc. 3500 Deer Creek Road Palo Alto, CA 94304Cc: Legal DepartmentRE:Notification of adding Panasonic Energy Corporation of North America as a Co-Party to General Terms and Conditions,Production Pricing Agreement and Investment Letter Agreement for Panasonic’s First Line Unit at Giga-FactoryDear Mr. Kurt Kelty,This letter is to notify Tesla Motors, Inc. pursuant to Section 16.4(a)(i) of General Terms and Conditions dated October 1, 2014 betweenTesla Motors, Inc. and Panasonic Corporation (“General Terms”) that Panasonic Energy Corporation of North America, an Affiliate ofPanasonic Corporation, is added as of January 1, 2015 as a co-party to those General Terms, Production Pricing Agreement dated September30, 2014 and Investment Letter Agreement for Panasonic’s First Production Line Unit at Giga-Factory dated October 1, 2014.Please kindly indicate Tesla’s confirmation on the foregoing by signing where indicated below, and return the original to PanasonicCorporation.Sincerely yours, /s/ Shinji Sakamoto /s/ Masayuki KitabayashiShinji Sakamoto Masayuki KitabayashiExecutive Officer PresidentSenior Vice President Panasonic Energy Corporation of North AmericaAutomotive & Industrial Systems Company Panasonic Corporation Confirmed by Tesla Motors, Inc. By:/s/ JB Straubel Name: JB Straubel Title: CTO Tesla Motors, Inc. Exhibit 10.28BExecution VersionSECOND AMENDMENT TO CREDIT AGREEMENTSECOND AMENDMENT TO CREDIT AGREEMENT (this “ Amendment ”), dated as of December 31, 2015, to that certain ABL Credit Agreement,dated as of June 10, 2015 (as amended, supplemented or otherwise modified through the date hereof, the “ Credit Agreement ”), among Tesla Motors, Inc. (the “Company ”, and together with each Wholly-Owned Domestic Subsidiary of the Company that becomes a U.S. Borrower pursuant to the terms of the CreditAgreement, collectively, the “ U.S. Borrowers ”), Tesla Motors Netherlands B.V. (“ Tesla B.V. ”, and together with each Wholly-Owned Dutch Subsidiary of TeslaB.V. that becomes a Dutch Borrower pursuant to the terms of the Credit Agreement, collectively, the “ Dutch Borrowers ”; and the Dutch Borrowers, together withthe U.S. Borrowers, collectively, the “ Borrowers ”), the lenders from time to time party thereto (the “ Lenders ”), Deutsche Bank AG New York Branch, asAdministrative Agent (the “ Administrative Agent ”) and as Collateral Agent, and the other agents party thereto.RECITALS :WHEREAS, the Company intends to form New B.V. (as defined below);WHEREAS, Tesla B.V. will transfer certain of its assets (excluding assets included in the Dutch Borrowing Base) to New B.V; WHEREAS, pursuant to Section 13.12 of the Credit Agreement, the Credit Agreement may be amended with the written consent of the RequiredLenders and each Credit Party party to the Credit Agreement; andWHEREAS, the parties now wish to amend the Credit Agreement in certain respects.AGREEMENT:NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows:Section 1 .
Defined
Terms.
Unless otherwise specifically defined herein, each term used herein (including in the recitals above) has the meaningassigned to such term in the Credit Agreement.Section 2 .
Amendments.
2.1 Amendments
to
Section
1.1
of
the
Credit
Agreement
. The following definitions shall be inserted into Section 1.1 of the CreditAgreement in appropriate alphabetical order:“ New B.V. ” means Tesla International B.V., a company organized under the laws of the Netherlands and that is (or will be when formed) a Wholly-Owned Subsidiary of Tesla Motors Netherlands Coöperatief U.A.“ Tax Sharing Agreement ” means a tax sharing agreement, entered into among New B.V., Tesla Motors Netherlands Coöperatief U.A., Tesla B.V. andany other Dutch Affiliates of Tesla B.V. who may become members of a fiscal unity ( fiscal
eenheid
) with Tesla B.V. and the other Dutch Credit Parties from timeto time party thereto.“ Second Amendment ” means that certain Second Amendment, dated as of December 31, 2015, among the Company, Tesla B.V., the AdministrativeAgent and the Lenders party thereto. 2.2 Amendment
to
Section
8.25
of
the
Credit
Agreement
. Section 8.25 of the Credit Agreement is hereby amended by deleting suchSection in its entirety and replacing it with the following:“ Fiscal Unity . No Dutch Credit Party is a member of a fiscal unity ( fiscal
eenheid
) other than (a) a fiscal unity among the Dutch Credit Parties onlyor (b) so long as the Tax Sharing Agreement remains in full force and effect, a fiscal unity among the Dutch Credit Parties and other Dutch Affiliates of Tesla B.V.from time to time party to such Tax Sharing Agreement, Tesla Motors Netherlands Coöperatief U.A., and the New B.V.”2.3 Amendments
to
Section
10.08
of
the
Credit
Agreement
. Section 10.08 of the Credit Agreement is hereby amended by deleting “or” atthe end of clause (b) thereof, deleting the “.” at the end of clause (c) thereof and inserting “; or” in lieu thereof and inserting the following new clause (d) afterclause (c) thereof:“amend, modify, change or waive any term or provision of the Tax Sharing Agreement in a manner which is adverse to the interests of the Lenders inany material respect (as reasonably determined by the Company in consultation with the Administrative Agent).”2.4 Amendment
to
Section
10.13
of
the
Credit
Agreement
. Section 10.13 of the Credit Agreement is hereby amended by deleting suchSection in its entirety and replacing it with the following:“ Fiscal Unity . No Dutch Credit Party shall create or become a member of a fiscal unity ( fiscal
eenheid
) other than (a) a fiscal unity among the DutchCredit Parties only or (b) so long as the Tax Sharing Agreement remains in full force and effect, a fiscal unity among the Dutch Credit Parties and other DutchAffiliates of Tesla B.V. from time to time party to such Tax Sharing Agreement, Tesla Motors Netherlands Coöperatief U.A. and the New B.V.Section 3 .
Tax
Sharing
Agreement
. The form of Tax Sharing Agreement referenced in the Credit Agreement (as amended by
this Agreement) hasbeen provided to the Administrative Agent. Section 4. Conditions.
This Agreement shall become effective on the date on which the following conditions precedent
have been satisfied or waived (the date onwhich such conditions shall have been so satisfied or waived, the “ Amendment Effective Date ”):(a) The Administrative Agent shall have received a counterpart of this Agreement, executed and delivered by the Credit Parties, the AdministrativeAgent and the Required Lenders.(b) All fees required to be paid to the Administrative Agent and the Lenders in connection herewith, accrued reasonable and documented out-of-pocketcosts and expenses (including, to the extent invoiced in advance, reasonable legal fees and out-of-pocket expenses of counsel) and other compensation due andpayable to the Administrative Agent and the Lenders on or prior to the Amendment Effective Date shall have been paid.(c) Each of the representations and warranties made by the Credit Parties in or pursuant to the Credit Agreement or in or pursuant to the other CreditDocuments shall be true and correct in all material respects (except that any representation and warranty that is qualified or subject to “Material Adverse Effect”shall be true and correct in all respects) on and as of the Amendment Effective Date as if made on and as of such date except for such representations andwarranties expressly stated to be made as of an earlier date (in which case such representations and warranties shall be true and correct in all material respects as ofsuch earlier date).(d) No Default or Event of Default shall exist on the Amendment Effective Date.(e) The Administrative Agent shall have received an officer’s certificate from an Authorized Officer of the Company and dated as of the AmendmentEffective Date, certifying that each condition set forth in Sections 4(c) and (d) hereof have been satisfied on and as of the Amendment Effective Date.Section 5. Representations
and
Warranties,
etc
. The Borrowers hereby confirm, reaffirm and restate that each of the representations and warrantiesmade by any Credit Party in the Credit Documents is true and correct in all material respects on and as of the Amendment Effective Date (it being understood andagreed that (x) any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specifieddate and (y) any representation or warranty that is qualified by “materiality”, “Material Adverse Effect” or similar language shall be true and correct in allrespects). The Borrowers represent and warrant that, immediately after giving effect to the occurrence of the Amendment Effective Date, no Default or Event ofDefault has occurred and is continuing. The Borrowers represent and warrant that each Credit Party (i) has the Business power and authority to execute, deliverand perform the terms and provisions of this Agreement and has taken all necessary Business action to authorize the execution, delivery and performance bythereof and (ii) has duly executed and delivered this Agreement, and that this Agreement constitutes a legal, valid and binding obligation of the Borrowersenforceable against each Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization,moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought byproceedings in equity or at law).Section 6. Governing
Law.
This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws ofthe State of New York (without regard to conflicts of law principles that would result in the application of any law other than the law of the State of New York).Section 7 .
Effect
of
This
Agreement.
Except as expressly set forth herein, this Agreement shall not by implication or otherwise limit, impair, constitutea waiver of or otherwise affect the rights and remedies of any Lender or Agent under the Credit Agreement or any other Credit Document, and shall not alter,modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other CreditDocument, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle any party to aconsent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the CreditAgreement or any other Credit Document in similar or different circumstances.Section 8. Counterparts.
This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as ifthe signatures thereto and hereto were upon the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission or electronictransmission (e.g., “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart hereof.Section 9 .
Miscellaneous.
This Agreement shall constitute a Credit Document for all purposes of the Credit Agreement. The Borrowers shall pay allreasonable fees, costs and expenses of the Administrative Agent incurred in connection with the negotiation, preparation and execution of this Agreement and thetransactions contemplated hereby. [ remainder
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] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. TESLA MOTORS, INC. By:/s/ Jason Wheeler Name: Jason Wheeler Title: Chief Financial Officer TESLA MOTORS NETHERLANDS B.V. By:/s/ Todd Maron Name: Todd Maron Title: Managing Director [Second Amendment to Credit Agreement – Signature Page] DEUTSCHE BANK AG NEW YORK BRANCH , as Administrative Agent,Collateral Agent and a Lender By:/s/ Michael Shannon Name: Michael Shannon Title: Vice President By:/s/ Ming K. Chu Name: Ming K. Chu Title: Vice President [Second Amendment to Credit Agreement – Signature Page] Bank of America, N.A., as an Issuing Lender and a Lender By:/s/ Robert M. Dalton Name: Robert M. Dalton Title: Senior Vice President [Second Amendment to Credit Agreement – Signature Page] JPMorgan Chase Bank, N.A., as an Issuing Lender and a Lender By:/s/ Jeannette Behm Name: Jeannette Behm Title: Authorized Officer [Second Amendment to Credit Agreement – Signature Page] Morgan Stanley Senior Funding, Inc., as a Lender By:/s/ Emanuel Ma Name: Emanuel Ma Title: Vice President [Second Amendment to Credit Agreement – Signature Page] WELLS FARGO BANK, N.A., as a Lender By:/s/ Krista Mize Name: Krista Mize Title: Authorized Signatory [Second Amendment to Credit Agreement – Signature Page] CITIBANK, N.A., as a Lender By:/s/ K. Kelly Gunness Name: K. Kelly Gunness Title: Vice President and Director [Second Amendment to Credit Agreement – Signature Page] CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,as a Lender By:/s/ Mikhail Faybusovich Name: Mikhail Faybusovich Title: Authorized Signatory By:/s/ Karim Rahimtoola Name: Karim Rahimtoola Title: Authorized Signatory [Second Amendment to Credit Agreement – Signature Page] GOLDMAN SACHS BANK USA, as a Lender By:/s/ Jerry Li Name: Jerry Li Title: Authorized Signatory [Second Amendment to Credit Agreement – Signature Page] Exhibit 10.28CExecution VersionTHIRD AMENDMENT TO CREDIT AGREEMENTTHIRD AMENDMENT TO CREDIT AGREEMENT (this “ Amendment ”), dated as of February 9, 2016, to that certain ABL Credit Agreement,dated as of June 10, 2015 (as amended, supplemented or otherwise modified through the date hereof, the “ Credit Agreement ”), among Tesla Motors, Inc. (the “Company ”, and together with each Wholly-Owned Domestic Subsidiary of the Company that becomes a U.S. Borrower pursuant to the terms of the CreditAgreement, collectively, the “ U.S. Borrowers ”), Tesla Motors Netherlands B.V. (“ Tesla B.V. ”, and together with each Wholly-Owned Dutch Subsidiary of TeslaB.V. that becomes a Dutch Borrower pursuant to the terms of the Credit Agreement, collectively, the “ Dutch Borrowers ”; and the Dutch Borrowers, together withthe U.S. Borrowers, collectively, the “ Borrowers ”), the lenders from time to time party thereto (the “ Lenders ”), Deutsche Bank AG New York Branch, asAdministrative Agent (the “ Administrative Agent ”) and as Collateral Agent, and the other agents party thereto.RECITALS:WHEREAS, the Company has requested that the available commitments under the Credit Agreement be increased from $750,000,000 to$1,000,000,000;WHEREAS, pursuant to Section 13.12 of the Credit Agreement, the Credit Agreement may be amended with the written consent of the RequiredLenders and each Credit Party party to the Credit Agreement;WHEREAS, pursuant to Section 13.12, any increase to the Revolving Loan Commitment of any Lender requires the written consent of such Lender(each Lender increasing its Revolving Loan Commitment pursuant to this Amendment, an “ Increasing Lender ”); andWHEREAS, the parties now wish to amend the Credit Agreement in certain respects.AGREEMENT:NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows:Section 1 .
Defined
Terms.
Unless otherwise specifically defined herein, each term used herein (including in the recitals above) has the meaningassigned to such term in the Credit Agreement.Section 2 .
Amendments.2.1 Amendments
to
Section
1.1
of
the
Credit
Agreement
.2.1.1 The following defined term shall be inserted into Section 1.1 of the Credit Agreement in appropriate alphabetical order:“ Third Amendment Effective Date ” shall mean February 9, 2016.2.1.2 The definition of “Total Revolving Loan Commitment” in Section 1.1 of the Credit Agreement shall be amended andrestated in its entirety as follows:“ Total Revolving Loan Commitment ” shall mean, at any time, the sum of the Revolving Loan Commitments of each of theLenders at such time. As of the Third Amendment Effective Date, the Total Revolving Loan Commitment is $1,000,000,000. 2.2 Amendment
to
Schedule
1.01(a)
to
the
Credit
Agreement
. Schedule 1.01(a) to the Credit Agreement shall be amended and restated inits entirety as set forth on Schedule 1 hereto.2.3 Amendment
to
Dollar
Thresholds
. The Credit Agreement shall be amended such that Section 2.14(e) of the Credit Agreement shallapply to the increase in the Total Revolving Loan Commitment effected pursuant to this Amendment as if such increase were a provision of IncrementalCommitments pursuant to Section 2.14 of the Credit Agreement.2.4 Amendment
to
Section
10.01(t)
of
the
Credit
Agreement
. Clause (t) of Section 10.01 of the Credit Agreement shall be amended byinserting “bankers’ acceptances, bank guarantees,” immediately after “letters of credit,” in the second line thereof and by inserting “bankers’ acceptances or bankguarantees,” after “undrawn letters of credit,”.2.5 Amendment to Section 10.04(m) of the Credit Agreement. Clause (m) of Section 10.04 of the Credit Agreement shall be amended byinserting “bankers’ acceptances, bank guarantees” immediately prior to “performance bonds” in the third line thereof and by inserting “, bankers’ acceptances andbank guarantees” immediately after “letters of credit” in the fourth line thereof.Section 3. Conditions.
This Amendment shall become effective on the date on which the following conditions precedent have been satisfied or waived(the date on which such conditions shall have been so satisfied or waived, the “ Amendment Effective Date ”):(a) The Administrative Agent shall have received a counterpart of this Amendment, executed and delivered by the Credit Parties, the AdministrativeAgent, the Required Lenders and each Increasing Lender.(b) All fees required to be paid to the Administrative Agent and the Lenders in connection herewith, accrued reasonable and documented out-of-pocketcosts and expenses (including, to the extent invoiced in advance, reasonable legal fees and out-of-pocket expenses of counsel) and other compensation due andpayable to the Administrative Agent and the Lenders on or prior to the Amendment Effective Date shall have been paid.(c) Each of the representations and warranties made by the Credit Parties in or pursuant to the Credit Agreement or in or pursuant to the other CreditDocuments shall be true and correct in all material respects (except that any representation and warranty that is qualified or subject to “materiality”, “MaterialAdverse Effect” or similar language shall be true and correct in all respects) on and as of the Amendment Effective Date as if made on and as of such date exceptfor such representations and warranties expressly stated to be made as of an earlier date (in which case such representations and warranties shall be true and correctin all material respects as of such earlier date).(d) No Default or Event of Default shall exist on the Amendment Effective Date.(e) The Administrative Agent shall have received an officer’s certificate from an Authorized Officer of the Company and dated as of the AmendmentEffective Date, certifying that each condition set forth in Sections 3(c) and (d) hereof have been satisfied on and as of the Amendment Effective Date.(f) The Administrative Agent shall have received from Wilson Sonsini Goodrich & Rosati, P.C., special New York counsel to the Credit Parties, anopinion in form and substance reasonably satisfactory to the Administrative Agent addressed to the Administrative Agent, the Collateral Agent and each of theLenders and dated the Amendment Effective Date covering such matters incident to the transactions contemplated herein as the Administrative Agent mayreasonably request.(g) The Administrative Agent shall have received from DLA Piper Nederland N.V., special Dutch counsel to the Dutch Credit Parties, an opinion inform and substance reasonably satisfactory to the Administrative Agent addressed to the Administrative Agent, the Collateral Agent and each of the Lenders anddated the Amendment Effective Date covering such matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request. (h) The Administrative Agent shall have received a certificate from each Credit Party, dated the Amendment Effective Date, signed by an AuthorizedOfficer of such Credit Party (or, with respect to Tesla B.V., its directors), and, if signed by an Authorized Officer of such Credit Party, attested to by anotherAuthorized Officer of such Credit Party, in the form of Exhibit E-2 to the Credit Agreement (or such other form reasonably acceptable to the Administrative Agent)with appropriate insertions, together with copies of the certificate or articles of incorporation and by-laws (or other equivalent organizational documents relating toany Dutch Credit Party), as applicable, of such Credit Party and the resolutions of such Credit Party referred to in such certificate.(i) The Administrative Agent shall have received a good standing certificate (or equivalent) for the Company.Section 4. Representations
and
Warranties,
etc
. The Borrowers hereby confirm, reaffirm and restate that each of the representations and warrantiesmade by any Credit Party in the Credit Documents is true and correct in all material respects on and as of the Amendment Effective Date (it being understood andagreed that (x) any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects onlyas of such specified date and (y) any representation or warranty that is qualified by “materiality”, “Material Adverse Effect” or similar language shall be true andcorrect in all respects). The Borrowers represent and warrant that, immediately after giving effect to the occurrence of the Amendment Effective Date, no Defaultor Event of Default has occurred and is continuing. The Borrowers represent and warrant that each Credit Party (i) has the Business power and authority toexecute, deliver and perform the terms and provisions of this Amendment and has taken all necessary Business action to authorize the execution, delivery andperformance by thereof and (ii) has duly executed and delivered this Amendment, and that this Amendment constitutes a legal, valid and binding obligation of theBorrowers enforceable against each Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency,reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement issought by proceedings in equity or at law).Section 5. Acknowledgement
. For the avoidance of doubt, it is understood and agreed that on and after the Amendment Effective Date, the Companydoes not have the right to request Incremental Commitments pursuant to Section 2.14 of the Credit Agreement.Section 6. Reaffirmation
. Each Guarantor hereby agrees that (i) all of its Obligations under the Credit Documents shall remain in full force and effecton a continuous basis after giving effect to this Amendment and (ii) each Credit Document is ratified and affirmed in all respects.Section 7. Governing
Law.
This Amendment and the rights of the parties hereunder shall be governed by and construed in accordance with the laws ofthe State of New York (without regard to conflicts of law principles that would result in the application of any law other than the law of the State of New York).Section 8 .
Effect
of
This
Amendment.
Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair,constitute a waiver of or otherwise affect the rights and remedies of any Lender or Agent under the Credit Agreement or any other Credit Document, and shall notalter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other CreditDocument, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle any party to aconsent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the CreditAgreement or any other Credit Document in similar or different circumstances. Section 9. Bookrunners
. Each of Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Goldman Sachs Bank USA, Morgan Stanley SeniorFunding, Inc., Citibank, N.A. and Bank of America, N.A. is a bookrunner with respect to this Amendment and the Borrowers hereby agree that each is deemed anArranger for purposes of Sections 12.02(b) and 13.01 of the Credit Agreement and entitled to the benefits and protections afforded to, and subject to the provisionsgoverning the conduct of, Arrangers thereunder. Section 10. Counterparts.
This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as ifthe signatures thereto and hereto were upon the same instrument. Delivery of an executed signature page of this Amendment by facsimile transmission orelectronic transmission (e.g., “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart hereof.Section 11 .
Miscellaneous.
This Amendment shall constitute a Credit Document for all purposes of the Credit Agreement. The Borrowers shall pay allreasonable fees, costs and expenses of the Administrative Agent incurred in connection with the negotiation, preparation and execution of this Amendment and thetransactions contemplated hereby.[ remainder
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] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. TESLA MOTORS, INC. By:/s/ Jason Wheeler Name: Jason Wheeler Title: Chief Financial Officer TESLA MOTORS NETHERLANDS B.V. By:/s/ Todd Maron Name: Todd Maron Title: Managing Director [Third Amendment to Credit Agreement – Signature Page] DEUTSCHE BANK AG NEW YORK BRANCH , as Administrative Agent,Collateral Agent and a Lender By:/s/ Peter Cucchiara Name: Peter Cucchiara Title: Vice President By:/s/ Marcus M. Tarkington Name: Marcus M. Tarkington Title: Director [Third Amendment to Credit Agreement – Signature Page] GOLDMAN SACHS BANK USA, as a Lender By:/s/ Rebecca Kratz Name: Rebecca Kratz Title: Authorized Signatory [Third Amendment to Credit Agreement – Signature Page] CITIBANK, N.A., as a Lender By:/s/ K. Kelly Gunness Name: K. Kelly Gunness Title: Vice President and Director [Third Amendment to Credit Agreement – Signature Page] JPMorgan Chase Bank, N.A., as an Issuing Lender and a Lender By:/s/ Annaliese Fisher Name: Annaliese Fisher Title: Authorized Officer [Third Amendment to Credit Agreement – Signature Page] Morgan Stanley Senior Funding, Inc., as a Lender By:/s/ Michael King Name: Michael King Title: Vice President [Third Amendment to Credit Agreement – Signature Page] Bank of America, N.A., as an Issuing Lender and a Lender By:/s/ Robert M. Dalton Name: Robert M. Dalton Title: Senior Vice President [Third Amendment to Credit Agreement – Signature Page] WELLS FARGO BANK, N.A., as an Issuing Lender and a Lender By:/s/ Krista Mize Name: Krista Mize Title: Authorized Signatory [Third Amendment to Credit Agreement – Signature Page] Schedule 1 Schedule 1.01(a)Lenders; Commitments Revolving Loan Commitments LenderRevolving Loan CommitmentDEUTSCHE BANK AG NEW YORK BRANCH$147,500,000GOLDMAN SACHS BANK USA$175,000,000CITIBANK, N.A.$147,500,000JPMORGAN CHASE BANK, N.A.$147,500,000MORGAN STANLEY SENIOR FUNDING, INC.$147,500,000BANK OF AMERICA, N.A.$110,000,000WELLS FARGO BANK, NATIONAL ASSOCIATION$100,000,000CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH$25,000,000TOTAL$1,000,000,000 EXHIBIT 12.1Ratio of Earnings to Fixed ChargesThe ratio of earnings to fixed charges for each of the periods indicated is as follows. Year Ended December 31, 2015 2014 2013 2012 2011 Ratio of earnings to fixed charges (1) — — — — — (1) For the purpose of calculating such ratios, “earnings” consist of income from continuing operations before income taxes plus fixed charges and “fixed charges”consist of interest expense (net of capitalized portion), capitalized interest, amortization of debt discount and the portion of rental expense representative of interestexpense. Earnings were inadequate to cover the fixed charges by $912.8 million, $295.4 million, $73.5 million, $403.3 million, and $259.0 million, for the yearsended December 31, 2015, 2014, 2013, 2012, and 2011, respectively. EXHIBIT 21.1SUBSIDIARIES OF TESLA MOTORS, INC. Name of Subsidiary Jurisdiction ofIncorporation or OrganizationRoadster Automobile Sales and Service (Beijing) Co., Ltd. ChinaRoadster Finland Oy FinlandTesla 2014 Warehouse SPV LLC DelawareTesla Automobile Distribution (Beijing) Co., Ltd. ChinaTesla Automobile Sales and Service (Beijing) Co., Ltd. ChinaTesla Automobile Sales and Service (Chengdu) Co., Ltd. ChinaTesla Automobile Sales and Service (Chengdu) 2 Co., Ltd. ChinaTesla Automobile Sales and Service (Guangzhou) Co., Ltd. ChinaTesla Automobile Sales and Service (Hangzhou) Co., Ltd. ChinaTesla Automobile Sales and Service (Nanjing) Co., Ltd. ChinaTesla Automobile Sales and Service (Shanghai) Co., Ltd. ChinaTesla Automobile Sales and Service (Shenzhen) Co., Ltd. ChinaTesla Automobile Sales and Service (Wuhan) Co., Ltd. ChinaTesla Automobile Sales and Service (Xi’an) Co., Ltd. ChinaTesla Automobiles Mexico, S. de R.L. de C.V. MexicoTesla Automobiles Sales and Service Mexico, S. de R.L. de C.V. MexicoTesla Energia Macau Limitada MacauTesla Finance LLC DelawareTesla Financial Services GmbH GermanyTesla Financial Services Holdings B.V. NetherlandsTesla Financial Services Limited UKTesla International B.V. NetherlandsTesla Lease Trust DelawareTesla LLC DelawareTesla Jordan Car Trading LLC JordanTesla Motors Australia, Pty Ltd AustraliaTesla Motors Austria GmbH AustriaTesla Motors Belgium SPRL BelgiumTesla Motors Canada ULC CanadaTesla Motors Coöperatief U.A. NetherlandsTesla Motors Denmark ApS DenmarkTesla Motors Exports LLC DelawareTesla Motors FL, Inc. FloridaTesla Motors France S.à r.l. FranceTesla Motors GmbH GermanyTesla Motors HK Limited Hong KongTesla Motors Italy S.r.l. ItalyTesla Motors Japan GK JapanTesla Motors Leasing, Inc. DelawareTesla Motors Limited UKTesla Motors Luxembourg S.à r.l. Luxembourg Tesla Motors MA, Inc. MassachusettsTesla Motors Netherlands B.V. NetherlandsTesla Motors New York LLC New YorkTesla Motors NL LLC DelawareTesla Motors Norway AS NorwayTesla Motors NV, Inc. NevadaTesla Motors PA, Inc. PennsylvaniaTesla Motors Singapore Private Limited SingaporeTesla Motors Singapore Holdings Pte. Ltd. SingaporeTesla Motors Stichting NetherlandsTesla Motors Switzerland GmbH SwitzerlandTesla Motors TN, Inc. TennesseeTesla Motors TX, Inc. TexasTesla Motors UT, Inc. UtahTM International C.V. NetherlandsTM Sweden AB Sweden EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-188625) and S-8 (Nos. 333-198002, 333-187113, 333-183033, and 333-167874) of Tesla Motors, Inc. of our report dated February 24, 2016 relating to the financial statements and theeffectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLPSan Jose, CaliforniaFebruary 24, 2016 EXHIBIT 31.1CERTIFICATIONSI, Elon Musk, certify that:1.I have reviewed this Annual Report on Form 10-K of Tesla Motors, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: February 24, 2016 /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer) 1 EXHIBIT 31.2CERTIFICATIONSI, Jason Wheeler, certify that:1.I have reviewed this Annual Report on Form 10-K of Tesla Motors, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: February 24, 2016 /s/ Jason Wheeler Jason Wheeler Chief Financial Officer (Principal Financial Officer) 1 EXHIBIT 32.1SECTION 1350 CERTIFICATIONSI, Elon Musk, certify, pursuant to 18 U.S.C. Section 1350, that, to my knowledge, the Annual Report of Tesla Motors, Inc. on Form 10-K for the annual periodended December 31, 2015, (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that the informationcontained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Tesla Motors, Inc. Date: February 24, 2016 /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer)I, Jason Wheeler, certify, pursuant to 18 U.S.C. Section 1350, that, to my knowledge, the Annual Report of Tesla Motors, Inc. on Form 10-K for the annual periodended December 31, 2015, (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that the informationcontained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Tesla Motors, Inc. Date: February 24, 2016 /s/ Jason Wheeler Jason Wheeler Chief Financial Officer (Principal Financial Officer)
