TESLA MOTORS INC

FORM
10-K
(Annual Report)

Filed 02/24/16 for the Period Ending 12/31/15

Address
Telephone
CIK
Symbol
SIC Code
Industry
Sector
Fiscal Year

3500 DEER CREEK RD

PALO ALTO, CA 94070
650-681-5000
0001318605
TSLA
3711 - Motor Vehicles and Passenger Car Bodies
Auto & Truck Manufacturers
Consumer Cyclical
12/31

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 001-34756

Tesla Motors, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

91-2197729
(I.R.S. Employer
Identification No.)

3500 Deer Creek Road

Palo Alto, California
(Address of principal executive offices)

(650) 681-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

94304
(Zip Code)

Title of each class

CommonStock,$0.001parvalue

Name of each exchange on which registered

TheNASDAQStockMarketLLC
Securities registered pursuant to Section 12(g) of the Act:
None

Indicatebycheckmarkwhethertheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.Yesx
No
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13or15(d)oftheAct.Yes
Nox
Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934(ExchangeAct)duringthe
preceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yesx
No

IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandposted
pursuanttoRule405ofRegulationS-Tduringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).Yesx
No
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestof
registrantsknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfilerorasmallerreportingcompany.Seethedefinitionsoflargeaccelerated
filer,acceleratedfiler,andsmallerreportingcompanyinRule12b-2oftheExchangeAct:

Largeacceleratedfiler

Acceleratedfiler

Non-acceleratedfiler

(Donotcheckifasmallerreportingcompany)
Smallerreportingcompany

Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).Yes
Nox
Theaggregatemarketvalueofvotingstockheldbynon-affiliatesoftheregistrant,asofJune30,2015,thelastdayofregistrantsmostrecentlycompletedsecondfiscalquarter,was
$26,340,519,416(basedontheclosingpriceforsharesoftheregistrantsCommonStockasreportedbytheNASDAQGlobalSelectMarketonJune30,2015).SharesofCommonStockheldby
eachexecutiveofficer,director,andholderof5%ormoreoftheoutstandingCommonStockhavebeenexcludedinthatsuchpersonsmaybedeemedtobeaffiliates.Thisdeterminationof
affiliatestatusisnotnecessarilyaconclusivedeterminationforotherpurposes.
AsofJanuary31,2016,therewere132,056,338sharesoftheregistrantsCommonStockoutstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PortionsoftheregistrantsProxyStatementforthe2015AnnualMeetingofStockholdersareincorporatedhereinbyreferenceinPartIIIofthisAnnualReportonForm10-Ktotheextent
statedherein.SuchproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionwithin120daysoftheregistrantsfiscalyearendedDecember31,2015.

TESLA MOTORS, INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2015
INDEX

Page

PART I.

Item1.
Item1A.
Item1B.
Item2.
Item3.
Item4.

Business
RiskFactors
UnresolvedStaffComments
Properties
LegalProceedings
MineSafetyDisclosures

4
13
27
28
28
28

PART II.

Item5.
Item6.
Item7.
Item7A.
Item8.
Item9.
Item9A.
Item9B.

MarketforRegistrantsCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities
SelectedFinancialData
ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations
QuantitativeandQualitativeDisclosuresAboutMarketRisk
FinancialStatementsandSupplementaryData
ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure
ControlsandProcedures
OtherInformation

29
31
32
43
45
74
74
74

PART III.

Item10.
Item11.
Item12.
Item13.
Item14.

Directors,ExecutiveOfficersandCorporateGovernance
ExecutiveCompensation
SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters
CertainRelationshipsandRelatedTransactions,andDirectorIndependence
PrincipalAccountantFeesandServices

75
75
75
75
75

PART IV.

Item15.

ExhibitsandFinancialStatementSchedules

75

Signatures

82

Forward-Looking Statements
The discussions in this Annual Report on Form 10-K contain forward-looking statements reflecting our current expectations that involve risks and
uncertainties. 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 our
forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from
the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set
forth 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 not
assume any obligation to update any forward-looking statements.

P ART I
I TEM 1.

BUSINESS

Overview
Wedesign,develop,manufactureandsellhigh-performancefullyelectricvehiclesandenergystorageproducts.Wehaveestablishedourownnetworkof
vehiclesalesandservicecentersandSuperchargerstationsgloballytoacceleratethewidespreadadoptionofelectricvehicles.Ourvehicles,electricvehicle
engineeringexpertise,andbusinessmodeldifferentiatesusfromincumbentautomobilemanufacturers.
Wecurrentlyproduceandselltwofullyelectricvehicles,theModelSsedanandtheModelXsportutilityvehicle(SUV).Bothvehiclesofferexceptional
performance,functionalityandattractivestyling.WecommenceddeliveriesofModelSinJune2012andasofDecember31,2015wehavedeliveredover107,000
newModelSvehiclesworldwide.WehavecontinuedtoimproveModelSbyintroducingperformance,all-wheeldrivedualmotor,andautopilotoptions,aswell
asfreeover-the-airsoftwareupdates.
WecommencedcustomerdeliveriesofModelXinthethirdquarterof2015.Thisuniquevehicleoffersexceptionalsafety,seatingforsevenpeople,allwheeldrive,andourautopilotfunctionality.WearecurrentlyrampingproductionanddeliveriesofModelXintheUnitedStatesandplantoofferitinEuropeand
Asiain2016.
AftertheModelX,ourgoalistointroducetheModel3,alowerpricedsedandesignedforthemassmarket.WeintendtounveilModel3inthefirstquarter
of2016andstartproductionanddeliveriesinlate2017.
Thecommercialproductionoffullyelectricvehiclesthatmeetsconsumersrangeandperformanceexpectationsrequiressubstantialdesign,engineering,
andintegrationworkonalmosteverysystemofourvehicles.Ourdesignandvehicleengineeringcapabilities,combinedwiththetechnicaladvancementsofour
powertrainsystem,haveenabledustodesignanddevelopelectricvehiclesthatwebelieveovercomethedesign,styling,andperformanceissuesthathave
historicallylimitedbroadconsumeradoptionofelectricvehicles.Asaresult,ourcustomersenjoyseveralbenefits,including:

Long
Range
and
Recharging
Flexibility.
Ourvehiclesofferrangesthatsignificantlyexceedthoseofanyothercommerciallyavailableelectric
vehicle.Inaddition,ourvehiclesincorporateourproprietaryon-boardchargingsystem,permittingrechargingfromalmostanyavailableelectrical
outlet.OurvehiclesalsoofferfastchargingcapabilityfromourSuperchargernetwork.Webelievethelong-rangeandchargingflexibilityofour
vehicleswillhelpreduceconsumeranxietyoverrange,alleviatetheneedforexpensive,large-scalecharginginfrastructure,anddifferentiateour
vehiclesascomparedtothoseofourcompetitors.

High-Performance
Without
Compromised
Design
or
Functionality.
Ourvehiclesdeliverunparalleleddrivingexperienceswithinstantaneousand
sustainedaccelerationthroughanextendedrangeofspeed.Inaddition,ourvehiclesprovidebestinclassstorageinthetrunkandhoodwhileoffering
designandperformancecomparableto,orbetterthan,otherpremiumvehicles.

Energy
Efficiency
and
Cost
of
Ownership.
Ourvehiclesofferconsumersanattractivecostofownershipwhencomparedtosimilarinternal
combustionengineorhybridelectricvehicles.Usingonlyanelectricpowertrainenablesustocreatemoreenergyefficientvehiclesthatare
mechanicallysimplerthancurrentlyavailablehybridorinternalcombustionenginevehicles.Thecosttofuelourvehiclesislesscomparedto
internalcombustionvehicles.Wealsoexpectourelectricvehicleswillhavelowerrelativemaintenancecoststhanhybrid,plug-inhybrid,orinternal
combustionenginevehiclesduetofewermovingpartsandtheabsenceofcertaincomponents,includingoil,oilfilters,sparkplugsandengine
valves.Additionally,governmentincentivesthatarecurrentlyavailablecanreducethecostofownershipevenfurther.

Wesellourvehiclesthroughourownsalesandservicenetworkwhichwearecontinuingtogrowglobally.Webelievethebenefitswereceivefrom
distributionownershipwillenableustoimprovetheoverallcustomerexperience,thespeedofproductdevelopmentandthecapitalefficiencyofourbusiness.We
arealsocontinuingtobuildournetworkofSuperchargersintheUnitedStates,EuropeandAsiatoprovidefastchargingthatenablesconvenientlongdistance
travel.
Inadditiontodevelopingourownvehicles,wesellenergystorageproducts.Werecentlyannouncedthenextgenerationofourenergystorageproducts,the
7kWhand10kWhPowerwallforresidentialapplicationsandthe100kWhPowerpackforcommercialandindustrialapplications.Webeganproductionand
deliveriesoftheseproducts,whichwemarketundertheTeslaEnergybrand,inthethirdquarterof2015.
WemanufactureourproductsprimarilyatourfacilitiesinFremont,California,Lathrop,California,Tilburg,NetherlandsandatourGigafactorynearReno,
Nevada.WearecurrentlyusingbatterypacksmanufacturedattheGigafactoryforourenergystorageproducts,andwilldosoforourvehiclesinthefuture.
Our Vehicles and Products
Wecurrentlydesign,develop,manufactureandsellfullyelectricvehiclesandenergystorageproducts.
4

Model S
ModelSisafullyelectric,four-door,five-adultpassengersedanthatofferscompellingrangeandperformancewithzerotailpipeemissions.ModelSoffers
arangeonasinglechargeofupto288milesasdeterminedusingtheUnitedStatesEPAscombinedtwo-cyclecity/highwaytest.Weofferperformanceandallwheeldrivedualmotorsystemoptions.TheperformanceversionofourAll-WheelDriveDualMotorModelSacceleratesfrom0to60milesperhourin2.8
secondswiththeLudicrousspeedupgrade.
ModelSoffersauniquecombinationoffunctionality,convenience,safetyandstylingwithoutcompromisingperformanceandenergyefficiency.Withthe
batterypackinthefloorofthevehicleandthemotorandgearboxinlinewiththerearaxle,oursinglemotorModelSprovidesbestinclassstoragespace.ModelS
isalsoavailablewithpremiumluxuryfeatures,includinga17inchtouchscreendriverinterface,ouradvancedautopilotsystemwithbothactivesafetyand
conveniencefeatures,andover-the-airsoftwareupdates.Webelievethecombinationofperformance,safety,styling,convenienceandenergyefficiencyofModel
Spositionsitasacompellingalternativetoothervehiclesintheluxuryandperformancesegments.
Model X
ModelXisasportutilityvehiclethatoffersexceptionalfunctionalitywithhighperformancefeaturessuchasourfullyelectric,all-wheeldrivedualmotor
systemandourautopilotsystem.ModelXprovidesupto257milesofrangeonasinglecharge,andcanacceleratefrom0to60asquicklyas3.2secondswiththe
Ludicrousspeedupgrade.ModelXseatssevenadultsandincorporatesauniquefalconwingdoorsystemforsuperioraccesstothesecondandthirdseatingrows.
AlthoughtheNationalHighwayTrafficSafetyAdministrationhasnotyetconductedcrashtestingonModelX,basedonourinternaltesting,weexpectModelXto
receivethehighestsafetyratingineverycategory.WebegancustomerdeliveriesofModelXinthethirdquarterof2015intheUnitedStates.Afteritsinitial
launchintheUnitedStates,ModelXwillbesoldinallthemarketswhereModelSisavailableincludinginAsiaandEurope.
Model 3
Wehavealsopubliclyannouncedourintenttodevelopathirdgenerationelectricvehicle,calledModel3,tobeproducedattheTeslaFactory.Weintendto
offerthisvehicleatalowerpricepointandexpecttoproduceitathighervolumesthanourModelSorModelX.WeplantounveilModel3inMarchof2016and
expecttostartproductionanddeliveriesofthisvehicleinlate2017.
Energy Storage Applications
Usingtheenergymanagementtechnologiesandmanufacturingprocessesdevelopedforourvehiclepowertrainsystems,wehavedevelopedenergystorage
productsforuseinhomes,commercialsitesandutilities.Theapplicationsforthesebatterysystemsincludebackuppower,peakdemandreduction,demand
responseandwholesaleelectricmarketservices.Webegansellingourhomesystemsin2013andourcommercialandutilitysystemsin2014.Werecently
announcedthenextgenerationofourenergystorageproductsundertheTeslaEnergybrand.
TheTeslaEnergyproductportfoliowillincludeenergystorageproductswithawiderangeofapplications,fromuseinsinglehomestouseinlargerutilityscaleprojects.TeslaPowerwallisarechargeablelithium-ionbatterydesignedtostoreenergyataresidentialandsmallcommerciallevelforloadshifting,backup
powerandself-consumptionofsolarpowergeneration.Powerwallisavailableinstoragesizesof10kWh,optimizedforbackupapplications,or7kWh,optimized
fordailyuseapplications.Inaddition,weoffera100kWhPowerpackforpeakshaving,loadshiftinganddemandresponseforcommercialcustomersandfor
renewablefirmingandavarietyofgridservicesforutilities.Forutilityscalesystems,100kWhbatteryblockscanbegroupedtogethertoofferinstallationofover
10MWh.WebeganproductionofourTeslaEnergyproductsattheGigafactoryinthefourthquarterof2015.
Technology
Ourcorecompetenciesarepowertrainengineering,vehicleengineering,innovativemanufacturingandenergystorage.Ourcoreintellectualpropertyresides
notonlywithinourelectricpowertrain,butalsowithinourabilitytodesignavehiclethatutilizestheuniqueadvantagesofanelectricpowertrainandthelatest
advancementsinconsumertechnologies.Ourpowertrainconsistsofourbatterypack,powerelectronics,motor,gearboxandcontrolsoftware.Wedesignedour
powertrainoriginallyforourfirstvehicle,theTeslaRoadster,andcommercializedimprovementsintovehiclesmanufacturedbyDaimlerandToyota,and
ultimatelyintotheModelSandModelX.Today,weofferseveralpowertrainvariantsfortheModelSandModelXthatincorporateyearsofresearchand
developmentperformedsincetheoriginaldesign.Inaddition,wehavedesignedourvehiclestoincorporatethelatestadvancesinconsumertechnologies,suchas
mobilecomputing,sensing,displays,andconnectivity.FurtherevolutionofourtechnologycontinuesforModel3,whichweplantoofferatsignificantlylower
price.Inaddition,advancementsoriginallycommercializedinourvehiclesarebeingleveragedforourstorageapplications.
5

Battery Pack
Wedesignourbatterypackstoachievehighenergydensityatalowcostwhilealsomaintainingsafety,reliabilityandlonglife.Ourproprietarytechnology
includessystemsforhighdensityenergystorage,cooling,safety,chargebalancing,structuraldurability,andelectronicsmanagement.Wehavealsopioneered
advancedmanufacturingtechniquestomanufacturelargevolumesofbatterypackswithhighqualityandlowcosts.
Wehavesignificantexpertiseinthesafetyandmanagementsystemsneededtouselithium-ioncellsintheautomotiveenvironment,andhaveactively
workedwithlithium-ioncellsupplierstofurtheroptimizecelldesignstoincreaseoverallperformance.Theseadvancementshaveenabledustoimprovecostand
performanceofourbatteriesovertime.Forexample,in2015alone,weupgradedthebatteryofourlowestrangeModelSfrom60kWhto70kWh,andourhighest
rangeModelSto90kWh.
Ourengineeringandmanufacturingeffortshavebeenperformedwithalonger-termgoalofbuildingafoundationforfurtherdevelopment.Forinstance,we
havedesignedourbatterypacktopermitflexibilitywithrespecttobatterycellchemistryandformfactor.Insodoing,wecanleveragethesubstantialinvestments
andadvancementsbeingmadegloballybybatterycellmanufacturerstocontinuetoimprovecost.WemaintainextensivetestingandR&Dcapabilitiesatthe
individualcelllevel,thefullbattery-packlevel,andothercriticalbatterypacksystems.Asaresult,wehavebuiltanexpansivebodyofknowledgeonlithium-ion
cellvendors,chemistrytypes,andperformancecharacteristics.Webelievethattheflexibilityofourdesigns,combinedwithourresearchandreal-world
performancedata,willenableustocontinuetoevaluatenewbatterycellsastheybecomecommerciallyviable,andtherebyoptimizebatterypacksystem
performanceandcostforourcurrentandfuturevehicles.
Power Electronics
Thepowerelectronicsinourelectricvehiclepowertraingoverntheflowofhighvoltageelectricalcurrentthroughoutthevehicle.Thepowerelectronics
havetwoprimaryfunctions,poweringourelectricmotortogeneratetorquewhiledrivinganddeliveringenergyintothebatterypackwhilecharging.
Thefirstfunctionisaccomplishedthroughthedriveinverter,whichconvertsdirectcurrent(DC)fromthebatterypackintoalternatingcurrent(AC)todrive
ourinductionmotors.Thedriveinverteralsoprovidesregenerativebrakingfunctionality,whichcapturesenergyfromthewheelstochargethebatterypackwhen
needed.Teslahasdevelopedafamilyofdriveinverterdesignsthatarecustomizedtoitsproprietarymotordesignstomostefficientlymeetthedemandsofeachof
ourvehicles.Theprimarytechnologicaladvantagestoourdesignsincludetheabilitytodrivelargeamountsofcurrentinasmallphysicalpackage.
Thesecondfunction,chargingthebatterypack,isaccomplishedbythecharger,whichconvertsalternatingcurrent(usuallyfromawalloutletorother
electricitysource)intodirectcurrentthatcanbeacceptedbythebattery.Teslavehiclescanrechargeonawidevarietyofelectricitysourcesduetothedesignof
thischarger,fromacommonhouseholdoutlettohighpowercircuitsmeantformoreindustrialuses.Inmostmarkets,TeslavehiclescomewithaMobile
Connectorthatallowsformultipledifferentchargingservicestobeused.Inmanymarkets,TeslaoffersaTeslaWallConnectorthatcanbesetuptoprovidehigher
powerchargingthantheMobileConnectors.
Ontheroad,customerscanalsochargeusingourSuperchargernetworkoratavarietyofdestinationsthathavedeployedourchargingequipment.In
addition,ModelSvehiclescanchargeatavarietyofpublicchargingstationsaroundtheworld,eithernativelyorthroughasuiteofadapters.Thisflexibilityin
chargingprovidescustomerswithadditionalmobility,whilealsoallowingthemtoconvenientlychargethevehicleovernightathome.
Dual Motor Powertrain
InOctoberof2014,welaunchedtheinitialversionofourdualmotorpowertrain,whichusestwoelectricmotorstoprovidegreaterefficiency,performance,
andrangeinanall-wheeldriveconfiguration.Conventionalall-wheeldrivevehiclesdistributepowertothewheelsfromasingleenginedrivingacomplex
mechanicaltransmissionsystem.Bycontrast,Teslasdualmotorpowertraindigitallyandindependentlycontrolstorquetothefrontandrearwheels.Thealmost
instantaneousresponseofthemotors,combinedwithlowcentersofgravityprovidesdriverswithcontrolledperformanceandincreasedtractioncontrol.
Vehicle Control and Infotainment Software
Theperformanceandsafetysystemsofourvehiclesandtheirbatterypacksrequiresophisticatedcontrolsoftware.Therearenumerousprocessorsinour
vehiclestocontrolthesefunctions,andwewritecustomfirmwareformanyoftheseprocessors.Theflowofelectricitybetweenthebatterypackandthemotor
mustbetightlycontrolledinordertodelivertheperformanceandbehaviorexpectedinthevehicle.Forexample,softwarealgorithmsenablethevehicletomimic
thecreepfeelingwhichdriversexpectfromaninternalcombustionenginevehiclewithouthavingtoapplypressureontheaccelerator.Similaralgorithmscontrol
traction,vehiclestabilityandthesustainedaccelerationandregenerativebrakingofthevehicle.Softwarealsoisusedextensivelytomonitorthechargestateof
eachofthecellsofthebatterypackandtomanageallofitssafetysystems.Driversusetheinformationandcontrolsystemsinourvehiclestooptimize
performance,customizevehiclebehavior,managechargingmodesandtimesandcontrolallinfotainmentfunctions.Wedevelopalmostallofthissoftware,
includingmostoftheuserinterfaces,internally.
6

Autopilot Systems
Wehavedevelopedanexpertiseinvehicleautopilotsystems,includingauto-steering,trafficawarecruisecontrol,lanechanging,automatedparking,driver
warningsystemsandautomatedbrakingfunctions.InOctoberof2014,webeganequippingallModelSvehicleswithhardwaretoallowfortheincremental
introductionofautopilottechnology.Ourautopilotsystemsrelieveourdriversofthemosttediousandpotentiallydangerousaspectsofroadtravel.Althoughthe
driverisultimatelyresponsibleforcontrollingthevehicle,oursystemprovidessafetyandconveniencefunctionalitythatallowsourcustomerstorelyonitmuch
likethesystemthatairplanepilotsusewhenconditionspermit.Ourautopilotsystemleveragesanadvancedsetofhardwareincludingaforwardradar,aforwardlookingcamera,12long-rangeultrasonicsensors,andahigh-precisiondigitallycontrolledelectricassistbrakingsystem.Thishardwaresuite,alongwithover-theairfirmwareupdatesandfielddatafeedbackloopsfromtheonboardcamera,radar,ultrasonics,andGPS,enablesthesystemtocontinuallylearnandimproveits
performance.
Vehicle Design and Engineering
Inadditiontothedesign,developmentandproductionofthepowertrain,wehavecreatedsignificantin-housecapabilitiesinthedesignandengineeringof
electricvehiclesandelectricvehiclecomponentsandsystems.Wedesignandengineerbodies,chassis,interiors,heatingandcoolingandlowvoltageelectrical
systemsinhouseandtoalesserextentinconjunctionwithoursuppliers.Ourteamhascorecompetenciesincomputeraideddesignandcrashtestsimulations
whichweexpecttoreducetheproductdevelopmenttimeofnewmodels.
Additionally,ourteamhasexpertiseinlightweightmaterials,averyimportantcharacteristicforelectricvehiclesgiventheimpactofmassonrange.Model
SandModelXarebuiltwithalightweightaluminumbodyandchassiswhichincorporatesavarietyofmaterialsandproductionmethodsthathelpoptimizethe
weightofthevehicle.
Vehicle Sales and Marketing
Company-Owned Stores and Galleries
Wemarketandsellcarsdirectlytoconsumersthroughaninternationalnetworkofcompany-ownedstoresandgalleries.OurTeslastoresandgalleriesare
highlyvisible,premiumoutletsinmajormetropolitanmarkets,someofwhichcombineretailsalesandservice.Wehavealsofoundthatopeningaservicecenterin
anewgeographicareacanincreasedemand.Asaresult,wehavecomplementedourstorestrategywithsalesfacilitiesandpersonnelinservicecenterstomore
rapidlyexpandourretailfootprint.WerefertotheseasServicePluslocations.Includingallofourstores,galleries,ServicePlusandservicefacilities,we
operated208locationsaroundtheworldasofDecember31,2015.
Weownoursalesandservicenetworkbecausethetraditionalfranchiseddistributionandservicemodelisnotviableforabusinesslikeours.Inour
company-ownednetwork,ourcustomersdealdirectlywithourownTesla-employedsalesandservicestaff,creatingadifferentiatedbuyingexperiencefromthe
buyingexperienceconsumershavewithfranchisedautomobiledealersandservicecenters.Webelievewewillalsobeabletobettercontrolcostsofinventory,
managewarrantyserviceandpricing,maintainandstrengthentheTeslabrand,andobtainrapidcustomerfeedback.
Tesla Supercharger Network
Wearebuildinganetworkofupto120kWfastchargingequipment,eachcalledaTeslaSupercharger,throughoutNorthAmerica,EuropeandAsiaforfast
chargingofTeslavehicles.OurSuperchargernetworkisastrategiccorporateinitiativedesignedtoremoveabarriertothebroaderadoptionofelectricvehicles
causedbytheperceptionoflimitedvehiclerangeandtoprovidefastchargingtoenablelong-distancetravel.TheTeslaSuperchargerisanindustrialgrade,high
speedchargerdesignedtoreplenish170milesofrangeinthebatterypackinaslittleas30minutes.Superchargerstationstypicallyhavebetweenfourtoten
Superchargersandarestrategicallyplacedprimarilyalongwell-travelledhighwaystoallowModelSandModelXownerstoenjoylongdistancetravelwith
convenient,minimalstops.AsofDecember31,2015,wehad584SuperchargerstationsopeninNorthAmerica,Europe,andAsia.Weareplanningtocontinueto
expandtheSuperchargernetworkintheUnitedStates,EuropeandAsia.
Destination Charging
Weareworkingwithawidevarietyofhospitalitylocations,includinghotelsandpopulardestinations,toofferanadditionalchargingoptionforour
customers.ThesedestinationchargingpartnersdeployourwallconnectorsandprovidechargingtoModelSownersthatpatronizetheirbusinesses.Asof
December31,2015,over1,800locationsaroundtheworldhadmorethan3,100Teslawallconnectorsinstalled.
Orders and Reservations
WetypicallycarryaverylimitedinventoryofourvehiclesatourTeslastores.Thevastmajorityofourcustomerscustomizetheirvehiclebyplacingan
orderwithusviatheInternet.Tobeginproductionormakeareservation,werequireaninitialpaymentwhichiscollectedoncethecustomerhasselectedthe
vehiclespecificationsandhasenteredintoapurchaseagreement.Werequireallremainingpaymentofthepurchasepriceofthevehicleupondeliveryofthe
vehicletothecustomer.
7

Marketing
Ourprincipalmarketinggoalsareto:

generatedemandforourvehiclesanddriveleadstooursalesteams;

buildlong-termbrandawarenessandmanagecorporatereputation;

manageourexistingcustomerbasetocreateloyaltyandcustomerreferrals,includingthroughourreferralprograms;and

enablecustomerinputintotheproductdevelopmentprocess.

Historically,wehavebeenabletogeneratesignificantmediacoverageofourcompanyandourvehicles,andwebelievewewillcontinuetodoso.Todate,
mediacoverageandwordofmouthhavebeentheprimarydriversofoursalesleadsandhavehelpedusachievesaleswithouttraditionaladvertisingandat
relativelylowmarketingcosts.
Vehicle Service and Warranty
Service
Weprovideserviceforourelectricvehiclesatourcompany-ownedservicecenters,atourServicePluslocationsor,incertainareasforanadditionalcharge,
throughTeslaRangermobiletechnicianswhoprovideservicesthatdonotrequireavehiclelift.Weownedandoperated118servicelocationsasofDecember31,
2015.Wearecontinuingourplantobuildanumberofadditionalservicecentersinseveralmarketsworldwide.
Ourvehiclesaredesignedwiththecapabilitytowirelesslyuploadthedatatousviaanon-boardsystemwithcellularconnectivity,allowingustodiagnose
andremedymanyproblemsbeforeeverlookingatthevehicle.Whenmaintenanceorserviceisrequired,acustomercanscheduleservicebycontactingoneofour
Teslaservicecenters.OurTeslaRangers,ormobileserviceteam,canalsoperformanarrayofservicesfromtheconvenienceofacustomershomeorotherremote
location.
Ourcompany-ownedservicecentersenableourtechnicianstoworkcloselywithourengineersandresearchanddevelopmentteamsinSiliconValleyto
identifyproblems,findsolutions,andincorporateimprovementsfasterthanincumbentautomobilemanufacturers.
New Vehicle Limited Warranty, Maintenance and Extended Service Plans
Weprovideafouryearor50,000mileNewVehicleLimitedWarrantywitheverynewvehicle,subjecttoseparatelimitedwarrantiesforthesupplemental
restraintsystemandbattery.Forthebatteryanddriveunitonourcurrentnewvehicles,weofferaneightyear,infinitemilewarranty,althoughthebatterys
chargingcapacityisnotcovered.
InadditiontotheNewVehicleLimitedWarranty,weofferacomprehensivemaintenanceprogramforeverynewvehicle,whichincludesplanscovering
prepaidmaintenanceforuptoeightyearsorupto100,000milesandanExtendedServiceplan.Themaintenanceplanscoverannualinspectionsandthe
replacementofwearandtearparts,excludingtiresandthebattery.TheExtendedServiceplancoverstherepairorreplacementofvehiclepartsforuptoan
additionalfouryearsoruptoanadditional50,000milesaftertheNewVehicleLimitedWarranty.
OurNewVehicleLimitedWarrantyandExtendedServiceplansaresubjecttocertainlimitations,exclusionsorseparatewarranties,includingoncertain
wearitems,suchastires,brakepads,paintandgeneralappearance,andbatteryperformance,andareintendedtocoverpartsandlabortorepairdefectsinmaterial
orworkmanshipinthebody,chassis,suspension,interior,electronicsystems,battery,powertrainandbrakesystem.Inaddition,allprepaidmaintenanceand
ExtendedServiceplansmustbepurchasedwithinaspecifiedperiodoftimeaftervehiclepurchaseorwarrantyexpiration.
Financial Services
WeofferloansandleasesforourvehiclesinNorthAmerica,EuropeandAsiaprimarilythroughvariousfinancialinstitutions.Wealsoofferfinancing
arrangementsdirectlythroughourlocalsubsidiariesincertainareasoftheUnitedStates,Germany,CanadaandtheUK.Weintendtobroadenourfinancial
servicesofferingsduringthenextfewyears.
Certainofourfinancingprogramsprovidecustomerswitharesalevalueguaranteeunderwhichthosecustomershavetheoptionofsellingtheirvehicle
backtousatapresetfuturedate,generallyduringtheperiodof36to39monthsfollowingdeliveryforapre-determinedresalevalue.Thisstructureallowsthe
customertoenjoythebenefitsofvehicleownershipwithoutconcernforresalevalue.WeintroducedthisprograminNorthAmericain2013andexpandeditto
selectedEuropeanandAPACmarketsin2014and2015.Incertainmarkets,wealsoofferresidualvalueguaranteestofinancialinstitutionswhichmayobligateus
torepurchasethevehiclesforapre-determinedprice.
8

Manufacturing
WeconductvehiclemanufacturingandassemblyoperationsatourfacilitiesinFremont,California;Lathrop,California;andTilburg,Netherlands.Weare
alsobuildingacellandbatterymanufacturingfacility,theTeslaGigafactory,outsideofReno,Nevada.
The Tesla Factory in Fremont, CA and Manufacturing Facility in Lathrop, CA
WemanufacturetheModelSandModelXandcertaincomponentsthatarecriticaltoourintellectualpropertyandqualitystandardsattheTeslaFactory.
TheTeslaFactorycontainsseveralmanufacturingoperations,includingstamping,machining,casting,plastics,bodyassembly,paintoperations,seatassembly,
finalvehicleassemblyandend-of-linetesting.Inaddition,wemanufacturelithium-ionbatterypacks,electricmotors,gearboxesandcomponentsforourvehiclesat
theTeslaFactory.Severalmajorcomponentsystemsofourvehiclesarepurchasedfromsuppliers;howeverwehaveahighlevelofverticalintegrationinour
manufacturingprocessesattheTeslaFactory.WemachinevariousaluminumcomponentsatourfacilityinLathrop,Californiaandarenearingcompletionofasite
expansiontoincludeanaluminumcastingsoperation.
WehavecompletedsignificantinvestmentstoincreaseourproductioncapacityandtobeginproductionoftheModelXattheTeslaFactory.Thisincludes
thecompletionandlaunchofthefirstphaseofanewhighvolumepaintshop,oursecondbodyassemblyshop,twonewstampinglines,aseatassemblyfacility,
andanexpansionofthebatterypackanddriveunitproductionlines.
WeplantoproduceModelS,ModelXandModel3attheTeslaFactory.InsomeareasoftheTeslaFactory,wehavedesignedourinvestmentswith
flexibilitytoaccommodatemultipleproducts.Forexample,ournewhighvolumepaintshopandnewstampinglinescansupportallthreevehicles.Ourfinal
vehicleassemblylineisproducingtheModelSandtheModelXwhilecertainpowertraincomponentsaresharedbetweentheModelSandModelX.Overthe
courseof2016,weplantomakesignificantadditionalinvestmentsattheTeslaFactoryinordertobeabletostartproductionanddeliveriesofModel3,inlate
2017.TheseincludeanewbodyassemblyshopandModel3finalvehicleassembly.
The Netherlands
OurEuropeanheadquartersandmanufacturingfacilitiesarelocatedinAmsterdamandTilburg.Theentitiesthroughwhichthesefacilitiesareoperatedhold
therightstomanufactureanddistributeallTeslaproductstocustomersinallmarketsoutsideoftheUnitedStatesandprovidecorporateoversightfunctionsfor
Europeansales,service,andadministrativefunctions.OuroperationsinTilburgincludefinalassembly,testingandqualitycontrolforvehiclesdeliveredwithinthe
EuropeanUnion,apartsdistributionwarehouseforservicecentersthroughoutEurope,acenterforremanufacturingworkandacustomerservicecenter.
The Gigafactory outside of Reno, Nevada
WearedevelopingtheGigafactoryasafacilitywhereweworktogetherwithoursupplierstointegratebatterymaterial,cell,moduleandbatterypack
productioninonelocation.WeplantousethebatterypacksmanufacturedattheGigafactoryforourvehiclesandforourTeslaEnergyapplications.Webroke
groundontheGigafactoryinJune2014andbeganassemblingourTeslaEnergyproductsinthefirstportionofthefacilityinthefourthquarterof2015.
WecurrentlyexpecttoproducecellsattheGigafactorybeginningin2016foruseinitiallyinourTeslaEnergyproductsandlaterforourvehicles.The
Gigafactoryiscurrentlyexpectedtoattainfullproductioncapacityin2020,whichisanticipatedtobesufficientfortheproductionofapproximately500,000
vehiclesannuallyaswellasfortheproductionofourenergystorageproducts.Bythattime,weexpectbatterypackproductioncapacitytoreach50GWh.Ofthis,
weexpecttobuild35GWhofcellproductioncapacityattheGigafactoryandpurchase15GWhofcellsfromothermanufacturers.
WebelievethattheGigafactorywillallowustoachieveasignificantreductioninthecostofourbatterypacksonceweareinvolumeproductionwith
Model3.ThetotalcapitalexpendituresassociatedwiththeGigafactorythrough2020areexpectedtobe$4to$5billion,ofwhichapproximately$2billionis
expectedtocomefromTesla.PanasonichasagreedtopartnerwithusontheGigafactorywithinvestmentsinproductionequipmentthatitwillusetomanufacture
andsupplyuswithbatterycells.WehaveasupplyagreementwithPanasonicthat,amongotherthings,allowsustopurchaseaminimumof1.8billionlithium-ion
batterycellsatpreferentialpricesthatweintendtopurchasefrom2014through2017.Wehaveagreedtoprepareandprovidetheland,buildingsandutilities,
investinproductionequipmentforbatterymoduleandpackproductionandberesponsiblefortheoverallmanagementoftheGigafactory.
Supply Chain
Ourvehiclesuseover3,000purchasedpartswhichwesourcegloballyfromover350suppliers.Wehavedevelopedcloserelationshipswithseveralkey
suppliersparticularlyintheprocurementofcellsandcertainotherkeysystemparts.Whileweobtaincomponentsfrommultiplesourcesinsomecases,similarto
otherautomobilemanufacturers,manyofthecomponentsusedinourvehiclesarepurchasedbyusfromasinglesource.Inaddition,whileseveralsourcesofthe
batterycellwehaveselectedforourbatterypacksareavailable,wehavecurrentlyfullyqualifiedonlyonecellforthebatterypacksweuseinourproduction
vehicles.Weareworkingtofullyqualifyadditionalcellsfromothermanufacturers.
9

Weusevariousrawmaterialsinourbusinessincludingaluminum,steel,cobalt,nickelandcopper.Thepricesfortheserawmaterialsfluctuatedepending
onmarketconditionsandglobaldemandforthesematerials.Webelievethatwehaveadequatesuppliesorsourcesofavailabilityoftherawmaterialsnecessaryto
meetourmanufacturingandsupplyrequirements.
Governmental Programs, Incentives and Regulations
California Alternative Energy and Advanced Transportation Financing Authority Tax Incentives
Wehaveenteredintoagreementsin2012,2013,and2015withtheCaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthority
(CAEATFA)thateachprovidemulti-yearsalestaxexclusionsonpurchasesofmanufacturingequipmentthatwillbeusedforspecificpurposesincludingthe
expansionandongoingdevelopmentofModelS,ModelXandfutureelectricvehiclesandexpansionofelectricvehiclepowertrainproductioninCalifornia.We
estimatethecombinedtaxsavingsundertheseagreementswillbeapproximately$98million,ofwhich$56millionhasbeenrealizedasofDecember31,2015.
Nevada Tax Incentives
InconnectionwiththeconstructionoftheGigafactoryinNevada,wehaveenteredintoagreementswiththeStateofNevadaandStoreyCountyinNevada
thatwillprovideabatementsforsalesandusetaxes,realandpersonalpropertytaxes,andemployerexcisetaxes,discountstothebasetariffenergyrates,and
transferabletaxcredits.TheseincentiveswillbeavailablefortheapplicableperiodsbeginningonOctober17,2014andendingonJune30,2034,subjecttocapital
investmentsbyTeslaanditspartnersfortheGigafactoryofatleast$3.5billionintheaggregateonorbeforeJune30,2024,andcertainotherconditionsspecified
intheagreements.Ifwedonotsatisfyoneormoreconditionsundertheagreements,Teslawillberequiredtorepaytotherespectivetaxingauthoritiestheamounts
ofthetaxincentivesincurred,plusinterest.
Tesla Regulatory Credits
Inconnectionwiththeproduction,delivery,andplacementintoserviceofourzeroemissionvehiclesinglobalmarkets,wehaveearnedandwillcontinueto
earnvarioustradableregulatorycreditsthatcanbesoldtoothermanufacturers.
UnderCaliforniasZero-EmissionVehicleRegulationsandthoseofstatesthathaveadoptedtheCaliforniastandards,vehiclemanufacturersarerequiredto
ensurethataportionofthevehiclesdeliveredforsaleinthosestatesduringeachmodelyeararezero-emissionvehiclesandpartialzero-emissionvehicles.
Currently,thestatesofArizona,California,Connecticut,Maine,Maryland,Massachusetts,NewJersey,NewMexico,NewYork,Oregon,RhodeIslandand
Vermonthavesuchlawsineffect.Theselawsprovidethatamanufacturermayearncredits,referredtoasZEVcredits,iftheyproducemorezero-emission
vehiclesthantheminimumquantityrequiredbythoselaws.Thosemanufacturerswithasurplusofcreditsmayselltheexcesscreditstoothermanufacturerswho
canthenapplysuchcreditstocomplywiththeregulatoryrequirements,includingmakingupfordeficits.Asamanufacturersolelyofzero-emissionvehicles,we
havenominimumrequirement,andthereforeearnZEVcreditsoneachvehicledeliveredandplacedintoserviceinsuchstates.Wehaveenteredintoagreements
withotherautomobilemanufacturerstoselltheZEVcreditsthatweearn.Recently,CaliforniapassedamendmentstotheZEVmandatethatwouldrequire,starting
in2018,alllarge-volumemanufacturers(thosemanufacturersselling20,000ormorevehiclesinCaliforniain2018)toincreasethenumberofzeroemission
vehiclessold,suchthat15.4%ofeachmanufacturersfleetmustbemadeofzeroemissionvehiclesby2025.AllstatesthathaveadoptedtheCaliforniaprogram
willamendtheirprogramstoconformtothenewCaliforniastandards.
Additionally,undertheEnvironmentalProtectionAgencys(EPA)nationalgreenhousegas(GHG)emissionstandardsandsimilarstandardsadoptedbythe
Canadiangovernment,carandtruckmanufacturersarerequiredtomeetfleet-wideaveragecarbondioxideemissionsstandards.Manufacturerswhofailtomeet
suchstandardshaveadeficitintheiremissionprofile.Manufacturerswhosefleetwideaverageperformsbetterthansuchstandardsmayearn
credits.Manufacturersmaysellexcesscreditstoothermanufacturers,whocanusethecreditstocomplywiththeseregulatoryrequirements.Asamanufacturer
solelyofzeroemissionvehicles,weearnthefullamountofGHGcreditsestablishedbythestandardsoneachvehiclesold.Wehavecontractedwithanother
automobilemanufacturertosellallearnedcredits.
UndertheNationalHighwayTrafficSafetyAdministrations(NHTSA)CorporateAverageFuelEconomy(CAFE)standards,carandtruckmanufacturers
arerequiredtomeetfleet-wideaveragefueleconomystandards.Manufacturersthatfailtomeetsuchstandardshaveadeficitintheirfueleconomy
profile.Manufacturerswhosefleet-wideaverageperformsbetterthansuchstandardsmayearncredits.Manufacturersmaysellexcesscreditstoother
manufacturers,whocanusesuchcreditstocomplywiththeseregulatoryrequirements.Wehaveenteredintoagreementstosellthecreditsthatweearn.
RegulationVehicle Safety and Testing
Ourvehiclesaresubjectto,andcomplywithorareotherwiseexemptfrom,numerousregulatoryrequirementsestablishedbyNHTSA,includingall
applicableUnitedStatesFederalMotorVehicleSafetyStandards(FMVSS).ModelSandModelXfullycomplywithallFMVSSswithouttheneedforany
exemptions.
10

Asamanufacturer,wemustself-certifythatourvehiclesmeetallapplicableFMVSS,aswellastheNHTSAbumperstandard,orotherwiseareexempt,
beforethevehiclescanbeimportedorsoldintheUnitedStates.NumerousFMVSSapplytoourvehicles,suchascrash-worthinessrequirements,crashavoidance
requirements,andelectricvehiclerequirements.WearealsorequiredtocomplywithotherfederallawsadministeredbyNHTSA,includingtheCAFEstandards,T
heftPreventionActrequirements,consumerinformationlabelingrequirements,EarlyWarningReportingrequirementsregardingwarrantyclaims,fieldreports,
deathandinjuryreportsandforeignrecalls,andownersmanualrequirements.
TheAutomobileInformationandDisclosureActrequiresmanufacturersofmotorvehiclestodisclosecertaininformationregardingthemanufacturers
suggestedretailprice,optionalequipmentandpricing.Inaddition,theActallowsinclusionofcityandhighwayfueleconomyratings,asdeterminedbyEPA,as
wellascrashtestratingsasdeterminedbyNHTSAifsuchtestsareconducted.
OurvehiclessoldinoutsideoftheU.S.aresubjecttoforeignsafetytestingregulations.Manyofthoseregulationsaredifferentfromthefederalmotor
vehiclesafetystandardsapplicableintheUnitedStatesandmayrequireredesignand/orretesting.
RegulationBattery Safety and Testing
Ourbatterypackconformstomandatoryregulationsthatgoverntransportofdangerousgoods,definedtoincludelithium-ionbatteries,whichmaypresent
ariskintransportation.Theregulationsvarybymodeofshippingtransportation,suchasbyoceanvessel,rail,truck,orair.Wehavecompletedtheapplicable
transportationtestsforourbatterypacks,demonstratingourcompliancewithapplicableregulations.
Weuselithiummetaloxidecellsinourhighvoltagebatterypacks.Thecellsdonotcontainanylead,mercury,cadmium,otherhazardousmaterials,heavy
metals,ortoxicmaterials.Ourbatterypacksincludecertainpackagingmaterialsthatcontaintraceamountsofhazardouschemicalswhoseuse,storage,and
disposalisregulatedunderfederallaw.Wecurrentlyhaveanagreementwithathirdpartybatteryrecyclingcompanytorecycleourbatterypacks.Ifacustomer
wishestodisposeofabatterypackfromoneofourvehicles,weanticipateacceptingthedepletedbatteryfromthecustomerwithoutanyadditionalcharge.
Automobile Manufacturer and Dealer Regulation
Statelawsregulatethemanufacture,distribution,andsaleofautomobiles,andgenerallyrequiremotorvehiclemanufacturersanddealerstobelicensedin
ordertosellvehiclesdirectlytoconsumersinthestate.AsweopenadditionalTeslastoresandservicecenters,wesecuredealerlicenses(ortheirequivalent)and
engageinsalesactivitiestosellourvehiclesdirectlytoconsumers.Afewstates,suchasTexasandMichigan,donotpermitautomobilemanufacturerstobe
licensedasdealersortoactinthecapacityofadealer,orotherwiserestrictamanufacturersabilitytodeliverorservicevehicles.Tosellvehiclestoresidentsof
stateswherewearenotlicensedasadealer,wegenerallyconductthesaleoutofthestateviatheinternet,phoneormail.Insuchstates,wehaveopenedgalleries
thatserveaneducationalpurposeandarenotretaillocations.
AsweexpandourretailfootprintintheUnitedStates,someautomobiledealertradeassociationshavebothchallengedthelegalityofouroperationsincourt
andusedadministrativeandlegislativeprocessestoattempttoprohibitorlimitourabilitytooperateexistingstoresorexpandtonewlocations.Althoughwehave
thusfarprevailedineverylawsuitbroughtbydealerassociations,weexpectthatthedealerassociationswillcontinuetomountchallengestoourbusinessmodel.In
addition,weexpectthedealerassociationstoactivelylobbystatelicensingagenciesandlegislatorstointerpretexistinglawsorenactnewlawsinwaysnot
favorabletoTeslasownershipandoperationofitsownretailandservicelocations.
WhilewehaveanalyzedtheprincipallawsintheUS,EU,China,Japan,UK,andAustraliarelatingtoourdistributionmodelandbelievewecomplywith
suchlaws,wehavenotperformedacompleteanalysisofalljurisdictionsinwhichwemaysellvehicles.Accordingly,theremaybelawsincertainjurisdictions
thatmayrestrictoursalesandserviceoperations.
Competition
Theworldwideautomotivemarket,particularlyforalternativefuelvehicles,ishighlycompetitivetodayandweexpectitwillbecomeevenmoresointhe
futureasweintroduceadditional,lowerpricedvehiclessuchasourModel3.
Webelievetheprimarycompetitivefactorsinourmarketsincludebutarenotlimitedto:

technologicalinnovation;

productqualityandsafety;

serviceoptions;

productperformance;

designandstyling;

brandperception;
11

productprice;and

manufacturingefficiency.

Webelievethatourvehiclescompeteinthemarketbothbasedontheirtraditionalsegmentclassificationaswellasbasedontheirpropulsiontechnology.
Forexample,ModelScompetesprimarilyintheextremelycompetitivepremiumsedanmarketwithinternalcombustionvehiclesfrommoreestablished
automobilemanufacturers,includingAudi,BMW,LexusandMercedes.Ourvehiclesalsocompetewithvehiclespropelledbyalternativefuels,principally
electricity.
Manyestablishedandnewautomobilemanufacturershaveenteredorhaveannouncedplanstoenterthealternativefuelvehiclemarket.Overall,webelieve
theseannouncementsandvehicleintroductionspromotethedevelopmentofthealternativefuelvehiclemarketbyhighlightingtheattractivenessofalternativefuel
vehicles,particularlythosefueledbyelectricity,relativetotheinternalcombustionvehicle.BMW,Daimler,Nissan,Fiat,FordandMitsubishi,amongothers,have
electricvehiclesavailabletoday.Moreover,Porsche,Lexus,Audi,VolkswagenandVolvo,aswellasanumberofprospectiveautomobilemanufacturers,arealso
developingelectricvehicles.ElectricvehicleshavealsoalreadybeenbroughttomarketinChinaandotherforeigncountriesandweexpectanumberofthose
manufacturerstoentertheUnitedStatesmarketaswell.Inaddition,severalmanufacturers,includingGeneralMotors,Toyota,Ford,andHonda,areeachselling
hybridvehicles,andcertainofthesemanufacturershaveannouncedplug-inversionsoftheirhybridvehicles.
Themarketforenergystorageproductsisalsohighlycompetitive.Establishedcompaniesaswellasemergingcompanieshaveintroducedproductsthatare
similartoourproductportfolio.Forinstance,thereareseveralcompaniesprovidingindividualcomponentsofenergystoragesystems(suchascells,battery
modules,andpowerelectronics)aswellasothersprovidingintegratedsystems.
Mostofourcurrentandpotentialcompetitorsinboththeautomotiveandenergystoragemarketshavesignificantlygreaterresourcesthanwedo,maybe
abletodevotegreaterresourcestothemanufacture,saleandsupportoftheirproducts,andhaveotheradvantages.Webelieveourexclusivefocusonelectric
vehicles,electricvehiclecomponentsandenergystorageproducts,aswellasourhistoryofvehicledevelopmentandproduction,however,arethebasisonwhich
wecancompeteintheglobalautomotivemarketinspiteofthechallengesposedbyourcompetition.
Intellectual Property
Aspartofourbusiness,weseektoprotectourintellectualpropertyrightsinvariousways,includingthroughtrademarks,copyrights,tradesecrets,including
know-how,patents,patentapplications,employeeandthirdpartynondisclosureagreements,intellectualpropertylicensesandothercontractualrights.
Additionally,consistentwithourmissiontoacceleratetheadventofsustainabletransport,weannouncedapatentpolicyinwhichweirrevocablypledgedthatwe
willnotinitiatealawsuitagainstanypartyforinfringingourpatentsthroughactivityrelatingtoelectricvehiclesorrelatedequipmentforsolongassuchpartyis
actingingoodfaith.Wemadethispledgeinordertoencouragetheadvancementofacommon,rapidly-evolvingplatformforelectricvehicles,therebybenefiting
ourselves,othercompaniesmakingelectricvehicles,andtheworld.
Segment Information
Weoperateasonereportablesegmentwhichisthedesign,development,manufacturingandsalesofelectricvehicles.
Employees
AsofDecember31,2015,wehad13,058full-timeemployees.Todate,wehavenotexperiencedanyworkstoppages,andweconsiderourrelationshipwith
ouremployeestobegood.
Available Information
Wefileorfurnishperiodicreportsandamendmentsthereto,includingourAnnualReportsonForm10-K,ourQuarterlyReportsonForm10-QandCurrent
ReportsonForm8-K;proxystatementsandotherinformationwiththeSecuritiesandExchangeCommission(SEC).Suchreports,amendments,proxystatements
andotherinformationmaybeobtainedbyvisitingthePublicReferenceRoomoftheSECat100FStreet,NE,Washington,D.C.20549.Informationonthe
operationofthePublicReferenceRoomcanbeobtainedbycallingtheSECat1-800-SEC-0330.Inaddition,theSECmaintainsawebsite(www.sec.gov)that
containsreports,proxyandinformationstatements,andotherinformationregardingissuersthatfileelectronically.Ourreports,amendmentsthereto,proxy
statementsandotherinformationarealsomadeavailable,freeofcharge,onourinvestorrelationswebsiteatir.teslamotors.comassoonasreasonablypracticable
afterweelectronicallyfileorfurnishsuchinformationwiththeSEC.TheinformationpostedonourwebsiteisnotincorporatedbyreferenceintothisAnnual
ReportonForm10-K.

12

I TEM 1A.

RISK FACTORS

You
should
carefully
consider
the
risks
described
below
together
with
the
other
information
set
forth
in
this
report,
which
could
materially
affect
our
business,
financial
condition
and
future
results.
The
risks
described
below
are
not
the
only
risks
facing
our
company.
Risks
and
uncertainties
not
currently
known
to
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 Industry
We may experience significant delays or other complications in the design, manufacture, launch and production ramp of new vehicles such as Model X
and future vehicles such as Model 3, which could harm our brand, business, prospects, financial condition and operating results.
Wemayexperiencesignificantdelaysorothercomplicationsinbringingtomarketandrampingproductionofnewvehicles,suchasModelX.Whilewe
commencedModelXdeliverieslateinthethirdquarterof2015,wehaveonlyrecentlybegunmanufacturingModelXvehicles,andvariousfactorscouldresultin
delaysinitsproductionramp,includingthecapacityofoursupplierstodeliveruscomponentsatthetimingandvolumeswerequireandproductionlimitationsthat
areneededtomaintainourqualityproductionstandards.Inaddition,sinceModelXsharescertainproductionfacilitieswiththeModelS,thevolumeorefficiency
ofModelSproductionmaybeimpactediftherampofModelXisnotasefficientasweplan.
Wehaveexperienceddelaysorothercomplicationsinconnectionwithnewvehiclemodelsinthepast,suchasproductionrampdelaysforModelSin2012
andtheAll-WheelDriveDualMotorModelS,andthelaunchofModelX.AnysignificantadditionaldelayorothercomplicationintherampofModelXorthe
development,manufacture,launchandproductionrampofourfuturevehicles,includingcomplicationsassociatedwithexpandingourproductioncapacity,supply
chainorregulatoryapprovals,couldmateriallydamageourbrand,business,prospects,financialconditionandoperatingresults.
The complexity in our business continues to grow as we introduce new products and variants.
Wehavelimitedexperiencesimultaneouslydesigning,testing,manufacturing,upgrading,adaptingandsellingourelectricvehiclesaswellaslimited
experienceallocatingouravailableresourcesamongthedesignandproductionofmultiplevehicles,suchasModelS,ModelXandModel3,andthevariants
thereof.Inthepast,whenwehaveaddedcomplexitytoourproductionline,wehaveoccasionallyexperiencedunexpecteddelays.Similarproblemsmayoccurin
thefutureaswesimultaneouslyproduceModelXandModelSvehicles,aswellasfuturevehiclesandTeslaEnergyproducts.
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.
Wehavesignificantlyincreasedvehicleproductionanddeliveries,andourplanscallforsignificantincreasesinvehicleproductionanddeliveriesgoing
forward.Ourabilitytofurtherincreasevehicleproduction,includingtherampofModelXproduction,willdependuponanumberoffactors,includingourability
tousenewmanufacturingprocessesasplannedwhilemaintainingourdesiredqualitylevels,oursuppliersabilitytodeliversufficientvolumesofqualitypartsto
usinatimelymanner,andcarefullybutefficientlymakingdesignandproductionchangestoensureconsistentlyhighquality.Certainsuppliershavehistorically
experienceddelaysinmeetingourdemandorhavesoughttorenegotiatethetermsofthesupplyarrangements,andwecontinuetofocusonsuppliercapabilities
andconstraints.Whileourplanscallforustosignificantlyincreasevehicleproductionanddeliveriesinashortamountoftime,wemaybeunabletodoso.Any
delaysordisruptioninourproductionofModelSandModelXinlinewithourplanscouldmateriallydamageourbrand,business,prospects,financialcondition
andoperatingresults.
Inaddition,wehaveintroducedanumberofnewmanufacturingtechnologiesandtechniquesforourvehicles,suchasaluminumspotweldingsystemsand
high-speedblowformingofcertaindifficulttostampvehicleparts.Ourvehiclesalsohaveuniquedesignfeatures,suchasa17inchdisplayscreen,retractable
exteriordoorhandles,andall-newdualmotorandautopilothardwareintroducedinModelSandfalcon-wingdoorsandotheruniquefeaturesintroducedinModel
X,eachofwhichposesdifferentmanufacturingchallenges.
Concurrentwiththesignificantincreaseinourplannedvehicleproductionlevels,wewillalsoneedtocontinuetosignificantlyincreasedeliveriesofour
vehicles.Wehavelimitedexperienceindeliveringahighvolumeofvehicles,andwemayfacedifficultiesmeetingourdeliveryandgrowthplansintobothexisting
marketsaswellasnewmarketsintowhichweexpand.Ifweareunabletorampuptomeetourdeliverygoalsglobally,thiscouldhaveamaterialadverseeffecton
ourbusiness,prospects,financialconditionandoperatingresults.
Finally,detailedlong-termtestingofquality,reliabilityanddurabilityofourvehiclesisongoing,andinthecaseofModelXvehicleshasonlyrecently
commenced,andanynegativeresultsfromsuchtestingcouldcauseproductionordeliverydelaysorcostincreases.
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 new
vehicle models such as Model 3.
ThereisnoguaranteethatModelS,ModelXorourfuturevehiclessuchasModel3willcontinuetobesuccessfullyacceptedbythegeneralpublic,
especiallyinthelong-term.AlthoughwehavesuccessfullygrowndemandforModelStodateandhaveseenstronginitialdemandforModelX,andwebelieve
thatwewillbeabletocontinuetogrowdemandforthesevehicles,thereisnoguaranteethatfuturedemandforModelSorModelXwillmeetourexpectations.
Additionally,wehavelimitedexperienceinintroducingnewvehicles.AlthoughourreservationconversionrateforModelXhasbeenstrong,wehaveonly
recentlycommencedproductionanddeliveriesofModelX.TotheextentthatwearenotabletobuildModelXinaccordancewithconsumerexpectations,
customersmaycanceltheirreservationsandourfuturesalescouldbeharmed.
WhilewebelievethattherewillcontinuetobeseparateandstrongdemandforbothModelSandModelX,wehavelimitedexperienceinsellingmultiple
vehiclemodelsatthesametime.Althoughwebelievethateachofourvehiclesandtheirvariantsmeetadistinctsegmentoftheautomotivemarket,ifourvehicles
endupcompetingwithoneanotherinthemarket,thenourabilitytoselleachvehiclemodelatplannedquantitiesorpricesmaybeimpacted.
BeyondModelX,wehaveannouncedourintenttodevelopModel3,whichweintendtoofferatalowerpricepointandtoproduceathighvolumes.We
havenotyetfinalizedthedesign,engineeringormaterialandcomponentsourcingplansforModel3.Ifwearenotsuccessfulinbringingittomarketatthe
expectedpricepointandtheexpectedvolume,ouroperatingresultsmaysuffer.Additionally,whileweexpectModel3tobeanextremelypopularvehicle,wedo
notknowwhatlong-termdemandforModel3willbeandwhetheritwillmeetourexpectations.Furthermore,themarketforvehiclesinthepricerangeweexpect
forModel3islarger,butmorecompetitive,thanthemarketsforModelSandModelX.
Problems or delays in bringing the Gigafactory online and operating it in line with our expectations could negatively affect the production and
profitability of our products, such as Model 3 or Tesla Energy products.
Tolowerthecostofcellproductionandproducecellsinhighvolume,weintendtointegratetheproductionoflithium-ioncellsandfinishedbatterypacks
forourvehicles,includingModel3,andTeslaEnergyproductsatournewGigafactory.Wehavelimitedexperienceinbuildingafactory,andnodirectexperience
intheproductionoflithium-ioncells.Also,thecostandcomplexityofbuildingandoperatingtheGigafactorycouldexceedourcurrentexpectationsandthe
Gigafactorymaytakelongertobringonlineforlithium-ioncellandbatterypackproductionthanweanticipate.IfweareunabletobuildtheGigafactoryina
timelymannertoproducehighvolumesofqualitylithium-ioncellsatreasonableprices,ourabilitytosupplybatterypackstoourvehicleandotherproducts
accordingtoourscheduleand/oratapricethatallowsustosellthemprofitablyandinthequantitiesweestimatecouldbeconstrained.Anysuchproblemsor
delayswiththeGigafactorycouldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.
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 be
harmed.
Ifourvehiclesorvehiclesthatcontainourpowertrainsweretocontaindefectsindesignandmanufacturethatcausethemnottoperformasexpectedorthat
requirerepair,ourabilitytodevelop,marketandsellourvehiclescouldbeharmed.Forexample,theoperationofourvehiclesishighlydependentonsoftware,
whichisinherentlycomplexandcouldconceivablycontaindefectsanderrors.Issuesthathavehistoricallybeenexperiencedbycustomersincludethoserelatedto
thesoftwareforthe17inchdisplayscreen,thepanoramicroofandthe12voltbatteryintheModelS.Althoughweattempttoremedyanyissuesweobserveinour
vehiclesaseffectivelyandasrapidlyaspossible,sucheffortsmaynotbetimely,mayhamperproductionormaynotbeuptothesatisfactionofourcustomers.
Whilewehaveperformedextensiveinternaltesting,wecurrentlyhavealimitedframeofreferencebywhichtoevaluatethelong-termperformanceofourbattery
packs,powertrains,vehiclesandTeslaEnergyproducts.Therecanbenoassurancethatwewillbeabletodetectandfixanydefectsinourproductspriortotheir
saletoconsumers.
Anyvehicleproductdefectsoranyotherfailureofourvehiclestoperformasexpectedcouldharmourreputationandresultindeliverydelays,product
recalls,productliabilityclaims,significantwarrantyandotherexpenses,andcouldhaveamaterialadverseimpactonourbusiness,financialcondition,operating
resultsandprospects.OurModelXvehicleshavenotyetbeenevaluatedbyNHTSAforits5-StarSafetyRatings,andwhilebasedonourinternaltestingweexpect
toobtaincomparableratingstothoseachievedbyModelS,thereisnoassurancethiswilloccur.
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 their
refusal to deliver, necessary components of our vehicles in a timely manner at prices, quality levels, and volumes acceptable to us would have a material
adverse effect on our financial condition and operating results.
ModelSandModelXcontainnumerouspurchasedpartswhichwesourcegloballyfromhundredsofdirectsuppliers,themajorityofwhomarecurrently
singlesourcesuppliersdespiteeffortstoqualifyandobtaincomponentsfrommultiplesourceswheneverpossible.Furthermore,wedonotmaintainlong-term
agreementswithanumberofoursuppliers.
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Whilewemaybeabletoestablishalternatesupplyrelationshipsorengineerreplacementcomponentsforoursinglesourcecomponents,wemaybeunable
todosointheshortterm,oratall,atpricesorcoststhatarefavorabletous.Inparticular,whilewebelievethatwewillbeabletosecurealternatesourcesof
supplyformostofoursinglesourcedcomponentsinarelativelyshorttimeframe,qualifyingalternatesuppliersordevelopingourownreplacementsforcertain
highlycustomizedcomponentsofourvehiclesmaybetimeconsuming,costlyandmayforceustomakeadditionalmodificationstoavehiclesdesign.
Thislimitedsupplychainexposesustomultiplepotentialsourcesofdeliveryfailureorcomponentshortagesfortheproductionofourvehiclesand
powertraincomponents.WemayexperiencedelaysduetosupplychaindisruptionswithrespecttoModelS,ModelX,Model3andanyotherfuturevehiclewe
mayproduce,suchasthoseweexperiencedin2012inconnectionwithourslower-than-anticipatedModelSramp.Inaddition,ourcurrentlyongoingtransition
fromlowtohighvolumeproductiontoolingforModelXmaytakelongerthanexpectedwhichmayadverselyimpactourshort-termfinancialresults.
Changesinbusinessconditions,laborissues,wars,governmentalchanges,naturaldisasterssuchastheMarch2011earthquakesinJapanandotherfactors
beyondourcontrolorwhichwedonotpresentlyanticipate,couldalsoaffectoursuppliersabilitytodelivercomponentstousonatimelybasis.Furthermore,ifwe
experiencesignificantlyincreaseddemand,orneedtoreplacecertainexistingsuppliers,therecanbenoassurancethatadditionalsuppliesofcomponentpartswill
beavailablewhenrequiredontermsthatarefavorabletous,orthatanysupplierwouldallocatesufficientsuppliestousinordertomeetourrequirementsorfill
ourordersinatimelymanner,orthatwecouldengineerreplacementcomponentsourselves.
Changesinoursupplychainhaveresultedinthepast,andmayresultinthefuture,inincreasedcost.Wehavealsoexperiencedcostincreasesfromcertain
ofoursuppliersinordertomeetourqualitytargetsanddevelopmenttimelinesaswellasduetodesignchangesthatwemade,andwemayexperiencesimilarcost
increasesinthefuture.Additionally,wearenegotiatingwithexistingsuppliersforcostreductions,seekingnewandlessexpensivesuppliersforcertainparts,and
attemptingtoredesigncertainpartstomakethemlessexpensivetoproduce.Ifweareunsuccessfulinoureffortstocontrolandreducesuppliercosts,ouroperating
resultswillsuffer.
Finally,inOctober2013,weenteredintoanamendmenttoourexistingsupplyagreementwithPanasonicCorporationinordertoaddressouranticipated
short-tomedium-termlithium-ionbatterycellneeds.Whileweexpectthatthissupplyagreement,asamended,willprovideuswithsufficientcellsforthenextfew
years,wemaynotbeabletomeetourlong-termneeds,includingforModel3andotherprogramswemayintroduce,withoutsecuringadditionalsuppliersorother
sourcesforcells.WehavesignedanagreementwithPanasonictobeourpartnerintheGigafactoryandberesponsiblefor,amongotherthings,manufacturingcells
fromthereforuseinourproducts.Ifweencounterunexpecteddifficultieswithourcurrentsuppliers,includingPanasonic,andifweareunabletofilltheseneeds
fromothersuppliers,wecouldexperienceproductiondelays,whichcouldhaveamaterialadverseeffectonourfinancialconditionandoperatingresults.
Our future growth is dependent upon consumers willingness to adopt electric vehicles.
Ourgrowthishighlydependentupontheadoptionbyconsumersofalternativefuelvehiclesingeneralandelectricvehiclesinparticular.Ifthemarketfor
electricvehiclesdoesnotdevelopasweexpect,ordevelopsmoreslowlythanweexpect,ourbusiness,prospects,financialconditionandoperatingresultswillbe
harmed.Themarketforalternativefuelvehiclesisrelativelynew,rapidlyevolving,andsubjecttonumerousexternalfactors,suchas:

perceptionsaboutelectricvehiclequality,safety,performance,cost,andtheconvenienceofcharging;

perceptionsaboutthelimitedrangeoverwhichelectricvehiclesmaybedrivenonasinglebatterycharge;

theavailabilityofothertypesofalternativefuelvehicles,includingplug-inhybridelectricvehicles,improvementsinthefueleconomyofthe
internalcombustionengine;

volatilityinthecostofoilandgasoline;

governmentregulationsandeconomicincentives;

andaccesstochargingfacilities.

If we fail to manage future growth effectively as we rapidly grow our company, especially internationally, we may not be able to produce, market, sell
and service our vehicles successfully.
Anyfailuretomanageourgrowtheffectivelycouldmateriallyandadverselyaffectourbusiness,prospects,operatingresultsandfinancialcondition.We
continuetoexpandouroperationssignificantlyinternationally,particularlyinAsia.Ourfutureoperatingresultsdependtoalargeextentonourabilitytomanage
thisexpansionandgrowthsuccessfully.Risksthatwefaceinundertakingthisglobalexpansionincludecontrollingexpenses;establishingsufficientsales,service
andSuperchargerfacilitiesinatimelymanner;adaptingourproductstomeetlocalrequirements;implementingtherequiredinfrastructure,systemsandprocesses;
andfindingandhiringasignificantnumberofadditionalpersonnel,includingmanufacturingpersonnel,designpersonnel,engineersandservicetechnicians.
15

If we are unable to adequately reduce the manufacturing costs of Model S, control manufacturing costs for Model X, or otherwise control the costs
associated with operating our business, our financial condition and operating results will suffer.
AswehavegraduallyrampedproductionofModelS,manufacturingcostspervehiclehavedecreased.Whileweexpectongoingcostreductionstobe
realizedbybothusandoursuppliers,thereisnoguaranteewewillbeabletoachievesufficientcostsavingstoreachourgrossmarginandprofitabilitygoals.We
incursignificantcostsrelatedtoprocuringtherawmaterialsrequiredtomanufactureourvehicles,assemblingvehiclesandcompensatingourpersonnel.Wemay
alsoincursubstantialcostsorcostoverrunsinincreasingtheproductioncapabilityofourModelS,ModelXandpowertrainmanufacturingfacilities.Furthermore,
ifweareunabletoproduceModelXpursuanttoourplanduetocostoverrunsorotherunexpectedcosts,wemaynotbeabletomeetourgrossmarginandother
financialtargets.
Furthermore,manyofthefactorsthatimpactouroperatingcostsarebeyondourcontrol,suchaspotentialincreasesinthecostsofourrawmaterialsand
components,suchaslithium-ionbatterycellsoraluminumusedtoproducebodypanels.Ifweareunabletokeepouroperatingcostsalignedwiththelevelof
revenueswegenerate,ouroperatingresults,businessandprospectswillbeharmed.
We may fail to meet our publicly announced guidance or other expectations about our business, which would cause our stock price to decline.
Weoccasionallyprovideguidanceregardingourexpectedfinancialandbusinessperformance,suchasprojectionsregardingsalesandproduction,aswellas
anticipatedfuturerevenues,grossmargins,profitabilityandcashflows.Correctlyidentifyingkeyfactorsaffectingbusinessconditionsandpredictingfutureevents
isinherentlyanuncertainprocessandourguidancemaynotultimatelybeaccurate.Ourguidanceisbasedoncertainassumptionssuchasthoserelatingto
anticipatedproductionandsalesvolumesandaveragesalesprices,supplierandcommoditycosts,andplannedcostreductions.Ifourguidanceisnotaccurateor
variesfromactualresultsduetoourinabilitytomeetourassumptionsortheimpactonourfinancialperformancethatcouldoccurasaresultofvariousrisksand
uncertainties,themarketvalueofourcommonstockcoulddeclinesignificantly.
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 raised
concerns, and future events may lead to additional concerns, about the batteries used in automotive applications.
Thebatterypacksthatweproducemakeuseoflithium-ioncells.Onrareoccasions,lithium-ioncellscanrapidlyreleasetheenergytheycontainbyventing
smokeandflamesinamannerthatcanignitenearbymaterialsaswellasotherlithium-ioncells.
Whilewehavedesignedthebatterypacktopassivelycontainanysinglecellsreleaseofenergywithoutspreadingtoneighboringcells.Therecanbeno
assurancethatafieldortestingfailureofourvehiclesorotherbatterypacksthatweproducewillnotoccur,whichcouldsubjectustolawsuits,productrecalls,or
redesignefforts,allofwhichwouldbetimeconsumingandexpensive.Also,negativepublicperceptionsregardingthesuitabilityoflithium-ioncellsfor
automotiveapplicationsoranyfutureincidentinvolvinglithium-ioncellssuchasavehicleorotherfire,evenifsuchincidentdoesnotinvolveourvehicles,could
seriouslyharmourbusiness.
Inaddition,westoreasignificantnumberoflithium-ioncellsatourmanufacturingfacility.Anymishandlingofbatterycellsmaycausedisruptiontothe
operationofourfacilities.Whilewehaveimplementedsafetyproceduresrelatedtothehandlingofthecells,therecanbenoassurancethatasafetyissueorfire
relatedtothecellswouldnotdisruptouroperations.Suchdamageorinjurywouldlikelyleadtoadversepublicityandpotentiallyasafetyrecall.Moreover,any
failureofacompetitorselectricvehiclemaycauseindirectadversepublicityforusandourelectricvehicles.Suchadversepublicitywouldnegativelyaffectour
brandandharmourbusiness,prospects,financialconditionandoperatingresults.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial results
Ourrevenuesandcostsdenominatedinforeigncurrenciesarenotcompletelymatched.AswehaveincreasedModelSdeliveriesinmarketsoutsideofthe
UnitedStates,wehavemuchhigherrevenuesthancostsdenominatedinothercurrenciessuchastheeuro,Norwegiankroner,ChineseyuanandCanadiandollar.
TherecentstrengtheningoftheU.S.dollarthereforehasreduced,andanyfurtherstrengtheningoftheU.S.dollarwouldtendtofurtherreduceourrevenuesas
measuredinU.S.dollars.Inaddition,aportionofourcostsandexpenseshavebeen,andweanticipatewillcontinuetobe,denominatedinforeigncurrencies,
includingtheJapaneseyen.IfwedonothavefullyoffsettingrevenuesinthesecurrenciesandifthevalueoftheU.S.dollardepreciatessignificantlyagainstthese
currencies,ourcostsasmeasuredinU.S.dollarsasapercentofourrevenueswillcorrespondinglyincreaseandourmarginswillsuffer.Asaresult,ouroperating
resultscouldbeadverselyaffected.
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 and
may result in lower revenues, gross margin, profitab ility and liquidity.
Weofferresalevalueguaranteestomanyofourcustomers,underwhichsuchcustomersmayselltheirvehiclesbacktousatcertainpointsintimeatpredeterminedresalevalues.Customerscanleaseourvehiclesthroughbothleasingpartnersandfromusdirectly,throughourcaptivefinancecompanies.Theresale
valuesofanyvehiclesresoldorreturnedtouspursuanttotheseprogramsmaybelowerthanourestimates,whicharebasedonalimitedsecondarymarketforour
vehicles.Ifthevolumeofvehiclesreturnedtousishigherthanourestimatesand/orwearenotabletoresellthem,timelyoratall,ourliquiditycouldbenegatively
impacted.Incaseswherecustomersretaintheirvehiclespasttheguaranteeperiod,ourgrossmarginwillbenegativelyimpactedasallremainingrevenuesand
costsrelatedtothevehiclewillberecognizedatnogrossprofit.
Weapplyleaseaccountingonsalesofvehicleswitharesalevalueguaranteeandonleasesmadedirectlybyus.Underleaseaccounting,werecognizethe
associatedrevenuesandcostsofthevehiclesaleovertimeratherthanfullyupfrontatvehicledelivery.Asaresult,theseprogramsgeneratelowerrevenuesinthe
periodthecarisdeliveredandhighergrossmarginsduringtheperiodoftheresalevalueguaranteeascomparedtopurchasesinwhichtheresalevalueguarantee
doesnotapply.Ahigherthananticipateduptakeundertheseprogramscouldthereforehaveanadverseimpactonourneartermrevenuesandoperatingresults.
Moreover,unliketheresalevalueguaranteeprogramorprogramswithleasingpartnerswhichdonotimpactourcashflowsandliquidityatthetimeofvehicle
delivery,underaleasehelddirectlybyus,wemayreceiveonlyaverysmallportionofthetotalvehiclepurchasepriceatthetimeoflease,followedbyastreamof
paymentsoverthetermofthelease.Totheextentweexpandourleasingprogramwithoutsecuringexternalfinancingorbusinesspartnerstosupportsuch
expansion,ourcashflowandliquiditycouldalsobenegativelyimpacted.
If we fail to effectively manage the residual, financing and credit risks related to our direct Tesla leasing programs our business may suffer.
WeofferfinancingarrangementsthroughourlocalsubsidiariesintheUnitedStates,Canada,GermanyandtheUK,includingleasingdirectlythrough
certainofthosesubsidiaries.Theprofitabilityoftheleasingprogramdependsonourabilitytoaccuratelyprojectresidualvalues,secureadequatefinancingand/or
businesspartnerstofundandgrowthisprogram,andmanagecustomercreditrisk.Ifactualresidualvaluesofourvehiclesarebelowourestimates,wemaysuffer
lowerprofitabilityorpotentiallyhavelosses.Ifweareunabletoadequatelyfundourleasingprogramwitheitherinternalfundsorexternalfinancingsources,we
maybeunabletogrowoursales.Additionally,ifwedonotproperlyscreencustomersfortheircreditworthiness,wemaybeexposedtoexcessivecreditrisksand
associatedlosses.Furthermore,ifourleasingbusinessgrowssubstantially,ourbusinessmaysufferifwecannoteffectivelymanagethegreaterlevelsofresidual
andcreditrisksresultingfromgrowth.Finally,ifwedonotsuccessfullymonitorandcomplywithapplicablenational,stateand/orlocalfinancialregulationsand
consumerprotectionlawsgoverningleasetransactions,wemaybecomesubjecttoenforcementactionsorpenalties,eitherofwhichmayharmourbusiness.
Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.
Wemayexperienceincreasesinthecostorasustainedinterruptioninthesupplyorshortageofrawmaterials.Anysuchincreaseorsupplyinterruption
couldmateriallyandnegativelyimpactourbusiness,prospects,financialconditionandoperatingresults.Weusevariousrawmaterialsinourbusinessincluding
aluminum,steel,nickelandcopper.Thepricesfortheserawmaterialsfluctuatedependingonmarketconditionsandglobaldemandforthesematerialsandcould
adverselyaffectourbusinessandoperatingresults.Forinstance,weareexposedtomultiplerisksrelatingtolithium-ioncells.Theserisksinclude:

theinabilityorunwillingnessofcurrentbatterymanufacturerstobuildoroperatebatterycellmanufacturingplantstosupplythenumbersoflithiumioncellswerequire;

disruptioninthesupplyofcellsduetoqualityissuesorrecallsbybatterycellmanufacturers;

anincreaseinthecostofrawmaterialsusedinthecells;and

fluctuationsinthevalueoftheJapaneseyenagainsttheU.S.dollarasourbatterycellpurchasesarecurrentlydenominatedinJapaneseyen.

Ourbusinessisdependentonthecontinuedsupplyofbatterycellsforthebatterypacksusedinourvehiclesandenergystorageproducts.Whilewebelieve
severalsourcesofthebatterycellsareavailableforsuchbatterypacks,wehavefullyqualifiedonlyaverylimitednumberofsuppliersforthecellsusedinsuch
batterypacksandhaveverylimitedflexibilityinchangingcellsuppliers.Inparticular,wehavefullyqualifiedonlyonesupplierforthecellsusedinbatterypacks
forourproductionvehicles.Anydisruptioninthesupplyofbatterycellsfromsuchvendorscoulddisruptproductionofourvehiclesandofthebatterypackswe
produceforotherautomobilemanufacturersuntilsuchtimeasadifferentsupplierisfullyqualified.Furthermore,fluctuationsorshortagesinpetroleumandother
economicconditionsmaycauseustoexperiencesignificantincreasesinfreightchargesandrawmaterialcosts.Substantialincreasesinthepricesforourraw
materialsorpriceschargedtous,suchasthosechargedbyourbatterycellmanufacturers,wouldincreaseouroperatingcosts,andcouldreduceourmarginsifwe
cannotrecouptheincreasedcoststhroughincreasedvehicleprices.Anyattemptstoincreasevehiclepricesinresponsetoincreasedrawmaterialcostscouldresult
incancellationsofvehicleordersandreservationsandthereforemateriallyandadverselyaffectourbrand,image,business,prospectsandoperatingresults.
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 or
insure ag ainst such claims.
Productliabilityclaimscouldharmourbusiness,prospects,operatingresultsandfinancialcondition.Theautomobileindustryexperiencessignificant
productliabilityclaimsandwefaceinherentriskofexposuretoclaimsintheeventourvehiclesdonotperformasexpectedresultinginpersonalinjuryordeath.
Wealsomayfaceclaimsrelatedtoanymisuseorfailuresofournewautopilottechnology.Asuccessfulproductliabilityclaimagainstuswithrespecttoanyaspect
ofourvehiclescouldrequireustopayasubstantialmonetaryaward.Ourrisksinthisareaareparticularlypronouncedgiventhelimitednumberofvehicles
deliveredtodateandlimitedfieldexperienceofthosevehicles.Moreover,aproductliabilityclaimcouldgeneratesubstantialnegativepublicityaboutourvehicles
andbusinessandwouldhavematerialadverseeffectonourbrand,business,prospectsandoperatingresults.Weself-insureagainsttheriskofproductliability
claims,meaningthatanyproductliabilityclaimswillhavetobepaidfromcompanyfunds,notbyinsurance.
The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from new and
established U.S. and international competitors and expect to face competition from others in the future, including competition from companies with new
technology.
Theworldwideautomotivemarket,particularlyforalternativefuelvehicles,ishighlycompetitivetodayandweexpectitwillbecomeevenmoresointhe
future.Manyestablishedandnewautomobilemanufacturershaveenteredorhaveannouncedplanstoenterthealternativefuelvehiclemarket.Forexample,
BMW,Daimler,Nissanandmanyotherlargecompanieshaveannouncedorarealsoreportedtobedevelopingelectricvehicles.Inaddition,severalmanufacturers,
includingGeneralMotors,Toyota,FordandHonda,aresellinghybridvehicles,includingplug-inhybridvehicles.Mostofourcurrentandpotentialcompetitors
havesignificantlygreaterfinancial,technical,manufacturing,marketingandotherresourcesthanwedoandmaybeabletodevotegreaterresourcestothedesign,
development,manufacturing,distribution,promotion,saleandsupportoftheirproducts.Virtuallyallofourcompetitorshavemoreextensivecustomerbasesand
broadercustomerandindustryrelationshipsthanwedoandalmostallofthesecompanieshavelongeroperatinghistoriesandgreaternamerecognitionthanwedo.
Increasedcompetitioncouldresultinlowervehicleunitsales,pricereductions,revenueshortfalls,lossofcustomersandlossofmarketshare,whichcouldharm
ourbusiness,prospects,financialconditionandoperatingresults.
Demand in the automobile industry is volatile, which may lead to lower vehicle unit sales and adversely affect our operating results.
Volatilityofdemandintheautomobileindustrymaymateriallyandadverselyaffectourbusiness,prospects,operatingresultsandfinancialcondition.The
marketsinwhichwecurrentlycompeteandplantocompeteinthefuturehavebeensubjecttoconsiderablevolatilityindemandinrecentperiods,includingrecent
softeningofthepremiumsedancategory.Asalowvolumevehicleproducer,wehavelessfinancialresourcesthanmoreestablishedautomobilemanufacturersto
withstandchangesinthemarketanddisruptionsindemand.Volatilityindemandmayleadtolowervehicleunitsalesandincreasedinventory,whichmayresultin
furtherdownwardpricepressureandadverselyaffectourbusiness,prospects,financialconditionandoperatingresults.Theseeffectsmayhaveamorepronounced
impactonourbusinessgivenourrelativelysmallerscaleandfinancialresourcesascomparedtomanyincumbentautomobilemanufacturers.
If we are unable to establish and maintain confidence in our long-term business prospects among consumers, analysts and within our industry, then our
financial condition, operating results, business prospects and stock price may suffer materially.
Consumersmaybelesslikelytopurchaseourvehiclesnowiftheyarenotconvincedthatourbusinesswillsucceedorthatouroperationswillcontinuefor
manyyears.Similarly,suppliersandotherthirdpartieswillbelesslikelytoinvesttimeandresourcesindevelopingbusinessrelationshipswithusiftheyarenot
convincedthatourbusinesswillsucceed.Accordingly,inordertobuildandmaintainourbusiness,wemustmaintainconfidenceamongcustomers,suppliers,
analystsandotherpartiesinourliquidityandlong-termbusinessprospects.Maintainingsuchconfidencemaybeparticularlycomplicatedbycertainfactors,such
asourlimitedoperatinghistory,unfamiliaritywithourproducts,competitionanduncertaintyregardingthefutureofelectricvehicles.Manyofthesefactorsare
largelyoutsideourcontrol,andanynegativeperceptionsaboutourlong-termbusinessprospects,evenifexaggeratedorunfounded,wouldlikelyharmourbusiness
andmakeitmoredifficulttoraiseadditionalfundsifneeded.
Our vehicles have unique servicing requirements, and we are using a different service model from the one typically used in the automobile industry. If
we are unable to address the service requirements of our existing and future customers, our business will be materially and adversely affected.
Servicingelectricvehiclesisdifferentthanservicingvehicleswithinternalcombustionenginesandrequiresspecializedskills,includinghighvoltage
trainingandservicingtechniques.Ifweareunabletosatisfactorilyserviceourvehicles,ourabilitytogeneratecustomerloyalty,growourbusinessandsell
additionalvehiclescouldbeimpaired.
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Weserviceourvehiclesthroughourcompany-ownedTeslaservicecenters,certainofourstores,andthroughourmobileservicetechniciansknownasthe
TeslaRangers.Wewillneedtoopennewstandaloneservicecentersinlocationsaroundtheworldandhireandtrainsignificantnumbersofnewemployeestostaff
theseservicecentersandactasTeslaRangersinordertosuccessfullymaintainourfleetofdeliveredvehicles.Ifwedonotcontinuetoadequatelyaddressthe
servicerequirementsofourcustomerstotheirsatisfaction,particularlyasthevolumeofvehiclesweareabletodeliverannuallyincreases,ourbusinesswouldbe
harmed.
Our plan to expand our network of Tesla stores, service centers and Superchargers will require significant cash investments and management resources
and 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 service
centers in certain states or Superchargers in desired locations.
OurplantoexpandournetworkofTeslastores,servicecentersandSuperchargerswillrequiresignificantcashinvestmentsandmanagementresourcesand
maynotmeetourexpectationswithrespecttoadditionalsalesofourvehicles.Thisongoingglobalexpansionmaynothavethedesiredeffectofincreasingsales
andexpandingourbrandpresencetothedegreeweareanticipating.Wewillalsoneedtoensureweareincompliancewithanyregulatoryrequirementsapplicable
tothesaleandserviceofourvehiclesinthosejurisdictions,whichcouldtakeconsiderabletimeandexpense.Ifweexperienceanydelaysinexpandingournetwork
ofTeslastores,servicecentersandSuperchargers,thiscouldleadtoadecreaseinsalesofourvehiclesandcouldnegativelyimpactourbusiness,prospects,
financialconditionandoperatingresults.
We face risks associated with our international operations and expansion, including unfavorable regulatory, political, tax and labor conditions and
establishing ourselves in new markets, all of which could harm our business.
Wecurrentlyhaveinternationaloperationsandsubsidiariesinvariouscountriesandjurisdictionsthataresubjecttothelegal,political,regulatoryandsocial
requirementsandeconomicconditionsinthesejurisdictions.Additionally,aspartofourgrowthstrategy,wewillcontinuetoexpandoursales,serviceand
Superchargerlocationsinternationally.Wehavelimitedexperience,however,sellingandservicingourproductsinternationally,aswellaslimitedexperience
installingandoperatingSuperchargersinternationally.Furthermore,internationalexpansionrequiresustomakesignificantexpenditures,includingthe
establishmentoflocaloperatingentities,hiringoflocalemployeesandestablishingfacilitiesinadvanceofgeneratinganyrevenue.
Wearesubjecttoanumberofrisksassociatedwithinternationalbusinessactivitiesthatmayincreaseourcosts,impactourabilitytosellourelectric
vehiclesandrequiresignificantmanagementattention.Theserisksincludeconformingourvehiclestovariousinternationalregulatoryandsafetyrequirements,
difficultyinestablishing,staffingandmanagingforeignoperations,challengesinattractingcustomers,foreigngovernmenttaxes,regulationsandpermit
requirements,ourabilitytoenforceourcontractualrights;traderestrictions,customsregulations,tariffsandpriceorexchangecontrols,andpreferencesofforeign
nationsfordomesticallyproducedvehicles.
Additionally,aswehaveexpandedintonewinternationalmarkets,wehistoricallyfacedchallengeswithensuringthatourchargingequipmentworks
successfullywiththecharginginfrastructureinsuchmarkets,includinginNorwayandChina.Ifcustomersexperienceproblemswiththewayourcharging
equipmentworkswiththelocalcharginginfrastructure,orweareunabletoadaptourequipmenttoresolvesuchproblems,thentheviabilityandacceptanceofour
vehiclesinsuchmarketscouldbemateriallyandadverselyaffected.Ifwefailtosuccessfullyaddresstheserisks,ourbusiness,prospects,operatingresultsand
financialconditioncouldbemateriallyharmed.
The unavailability, reduction or elimination of government and economic incentives in the U.S. and abroad supporting the development and adoption of
electric vehicles could have some impact on demand for our vehicles.
Wecurrentlybenefitfromcertaingovernmentandeconomicincentivessupportingthedevelopmentandadoptionofelectricvehicles.IntheUnitedStates
andabroad,suchincentivesinclude,amongotherthings,taxcreditsorrebatesthatencouragethepurchaseofelectricvehicles.InNorway,forexample,the
purchaseofelectricvehiclesisnotcurrentlysubjecttoimporttaxes,taxesonnon-recurringvehiclefees,the25%valueaddedtaxorthepurchasetaxesthatapply
tothepurchaseofgas-poweredvehicles.Notably,thequantumofincentiveprogramspromotingelectricvehiclesisatinyfractionoftheamountofincentivesthat
areprovidedtogas-poweredvehiclesthroughtheoilandgasindustries,notwithstandingthattheformerpromotessocialgoodwhilethelattercontributesto
significantsocialharm.Nevertheless,eventhelimitedbenefitsfromsuchprogramscouldbereduced,eliminatedorexhausted.Forexample,onJanuary1,2016,a
previouslyavailableincentiveinDenmarkthatfavoredthepurchaseofelectricvehiclesexpiredandwasreplacedwithanewlyphased-inincentivethatisless
generousthantheincentivethatitreplaced.Incertaincircumstances,thereispressurefromtheoilandgaslobbyorrelatedspecialintereststobringaboutsuch
developments,whichcouldhavesomenegativeimpactondemandforourvehicles.
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Our strategic relationships with third parties, such as Panasonic, are subject to various risks which could adversely affect our business and future
prospects.
Ourstrategicrelationshipswiththirdparties,suchasPanasonicwhichsuppliesuswithbatterycellsforuseinModelSandModelXandwhichisour
strategicpartnerintheGigafactory,posevariousriskstous,includingpotentiallossofaccesstoimportanttechnologyandpartsforproducing,servicingand
supportingourproducts,potentiallossofbusinessandadversepublicity.Moreover,factorsthatmaynotbewithinourpartnerscontrol,suchasmaterialspricing,
mayimpactourabilitytorealizethegoalsofcertainstrategicrelationships,suchascostandgrossmargintargets.Inaddition,thesethirdpartiesmaynotperform
asexpectedunderouragreementswiththem,suchaswithrespecttoqualityofproductionpartsandtimelinessoftheirdeliveries,andwemayhavedisagreements
ordisputeswiththesethirdparties.Theoccurrenceofanyoftheforegoingcouldadverselyaffectourbusiness,prospects,financialconditionandoperatingresults.
If we are unable to attract and/or retain key employees and hire qualified personnel, our ability to compete could be harmed.
Thelossoftheservicesofanyofourkeyemployeescoulddisruptouroperations,delaythedevelopmentandintroductionofourvehiclesandservices,and
negativelyimpactourbusiness,prospectsandoperatingresults.Inparticular,wearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer,
andJBStraubel,ourChiefTechnicalOfficer.
Noneofourkeyemployeesisboundbyanemploymentagreementforanyspecifictermandwemaynotbeabletosuccessfullyattractandretainsenior
leadershipnecessarytogrowourbusiness.Ourfuturesuccessdependsuponourabilitytoattractandretainexecutiveofficersandotherkeytechnology,sales,
marketing,engineering,manufacturingandsupportpersonnelandanyfailuretodosocouldadverselyimpactourbusiness,prospects,financialconditionand
operatingresults.
KeytalentmayleaveTesladuetovariousfactors,suchasaverycompetitivelabormarketfortalentedindividualswithautomotiveexperience.Currentlyin
California,thereisincreasingcompetitionfortalentedindividualswiththespecializedknowledgeofelectricvehicles,softwareengineers,manufacturingengineers
andotherskilledemployeesandthiscompetitionaffectsbothourabilitytoretainkeyemployeesandhirenewones.Ourcontinuedsuccessdependsuponour
continuedabilitytohirenewemployeesinatimelymannerandretaincurrentemployees.Additionally,wecompetewithbothmatureandprosperouscompanies
thathavefargreaterfinancialresourcesthanwedoandstart-upsandemergingcompaniesthatpromiseshort-termgrowthopportunities.Anydifficultiesin
retainingcurrentemployeesorrecruitingnewoneswouldhaveanadverseeffectonourperformance.
We are highly dependent on the services of Elon Musk, our Chief Executive Officer.
WearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer,ProductArchitect,ChairmanofourBoardofDirectorsandlargest
stockholder.AlthoughMr.MuskspendssignificanttimewithTeslaandishighlyactiveinourmanagement,hedoesnotdevotehisfulltimeandattentiontoTesla.
Mr.MuskalsocurrentlyservesasChiefExecutiveOfficerandChiefTechnicalOfficerofSpaceExplorationTechnologies,adeveloperandmanufacturerofspace
launchvehicles,andChairmanofSolarCity,asolarprovider.
We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability to
operate our manufacturing facilities.
Asanautomobilemanufacturer,wearesubjecttocomplexenvironmental,healthandsafetylawsandregulationsatnumerouslevels,includinglawsrelating
totheuse,handling,storage,disposalandhumanexposuretohazardousmaterials,bothintheUnitedStatesandabroad.Thecostsofcompliance,including
remediatingcontaminationifanyisfoundonourproperties,andofanychangestoouroperationsmandatedbynewlawsoramendmentstoexistinglawsmaybe
significant.Wemayalsofaceunexpecteddelaysinobtainingthenecessarypermitsandapprovalsrequiredbysuchlawsinconnectionwithourmanufacturing
facilities,whichwouldhinderouroperationofthesefacilities.Suchcostsanddelaysmayadverselyimpactourbusinessprospectsandoperatingresults.
Furthermore,anyviolationsoftheselawsmayresultinsubstantialfinesandpenalties,remediationcosts,thirdpartydamages,orasuspensionorcessationofour
operations.
Our business may be adversely affected by any disruptions caused by union activities.
Althoughnoneofouremployeesiscurrentlyrepresentedbyalaborunion,itiscommonforemployeesatautomobilecompaniestobelongtoaunion,which
canresultinhigheremployeecostsandincreasedriskofworkstoppages.Althoughweworkdiligentlytoprovidethebestpossibleworkenvironmentforour
employees,theymaystilldecidetojoinorseekrecognitiontoformalaborunion,orwemayberequiredtobecomeaunionsignatory.Furthermore,wearedirectly
orindirectlydependentuponcompanieswithunionizedworkforces,suchaspartssuppliersandtruckingandfreightcompanies,andworkstoppagesorstrikes
organizedbysuchunionscouldhaveamaterialadverseimpactonourbusiness,financialconditionoroperatingresults.Ifaworkstoppageoccurs,itcoulddelay
themanufactureandsaleofourproductsandhaveamaterialadverseeffectonourbusiness,prospects,operatingresultsorfinancialcondition.
20

We are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comp ly with these regulations could
substantially harm our business and operating results.
Motorvehiclesaresubjecttosubstantialregulationunderinternational,federal,state,andlocallaws.Weincursignificantcostsincomplyingwiththese
regulations,andmayberequiredtoincuradditionalcoststocomplywithanychangestosuchregulations.Also,wearesubjecttolawsandregulationsapplicable
totheimport,saleandserviceofautomobilesinternationally.Forexample,wearerequiredtomeetvehicle-specificsafetystandardsthatareoftenmaterially
differentfromU.S.requirements,thusresultinginadditionalinvestmentintothevehiclesandsystemstoensureregulatorycompliance.Thisprocessnecessitates
thatforeignregulatoryofficialsreviewandcertifyourvehiclespriortomarketentry.Inaddition,wemustcomplywithregulationsapplicabletovehiclesafter
theyenterthemarket,includingforeignreportingrequirementsandrecallmanagementsystems.
Additionally,werecentlyreleasedavehiclesoftwareupdatethatdeliversarangeofnewAutopilotfeaturesthatrelievedriversofthemosttediousand
potentiallydangerousaspectsofroadtravel.AsAutopilotisacompletelynewfeaturethatU.S.andforeignregulatorshavelimitedexperiencewith,thereisarisk
thatregulatorscouldtakeactionsimpactingwhetherandhowourcustomersareabletouseourvehiclesequippedforAutopilot,whichcouldadverselyaffectour
business.
We are subject to various privacy and consumer protection laws.
Ourprivacypolicyispostedonourwebsite,andanyfailurebyusorourvendororotherbusinesspartnerstocomplywithitorwithfederal,stateor
internationalprivacy,dataprotectionorsecuritylawsorregulationscouldresultinregulatoryorlitigation-relatedactionsagainstus,legalliability,fines,damages
andothercosts.Althoughwetakestepstoprotectthesecurityofourcustomerspersonalinformation,wemayberequiredtoexpendsignificantresourcesto
complywithdatabreachrequirementsifthirdpartiesimproperlyobtainandusethepersonalinformationofourcustomersorweotherwiseexperienceadataloss
withrespecttocustomerspersonalinformation.Amajorbreachofournetworksecurityandsystemscouldhavenegativeconsequencesforourbusinessandfuture
prospects,includingpossiblefines,penaltiesanddamages,reducedcustomerdemandforourvehicles,andharmtoourreputationandbrand.
We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and financial performance.
Anyproductrecallinthefuturemayresultinadversepublicity,damageourbrandandadverselyaffectourbusiness,prospects,operatingresultsand
financialcondition.WepreviouslyexperiencedproductrecallsinMay2009,October2010,June2013andNovember2015,noneofwhichwasrelatedtoour
electricpowertrainorthatresultedinavehiclecrashorpersonalinjuryreportedtous.InApril2009,wedeterminedthataconditioncausedbyinsufficient
torqueingoftherearinnerhubflangeboltexistedinsomeofourTeslaRoadsters,asaresultofamissedprocessduringthemanufactureoftheTeslaRoadster
glider.InOctober2010,weinitiatedaproductrecallafterthe12volt,lowvoltageauxiliarycableinasinglevehiclechafedagainsttheedgeofacarbonfiberpanel
inthevehiclecausingashort,smokeandpossiblefirebehindtherightfrontheadlampofthevehicle.InJune2013,weinitiatedarecallofslightlymorethanone
thousandModelSvehiclestoinspectandrepairrearseatstrikersthatmayhavebeencompromisedduringtheassemblyprocess.Rearseatstrikersareusedto
retaintherearseatbacksinanuprightposition.Failureofthiscomponentmayhaveresultedincollapseoftherearseatbackduringacrash.InNovember2015,we
initiatedarecallafterwediscoveredasinglecustomer-ownedModelSwithafrontseatbeltthatwasnotproperlyconnectedtotheoutboardlappretensioner.
Furthermore,inJanuary2014,weimplementedafirmwareupdatetoaddressissueswithcertainUniversalMobileConnectorNEMA14-50adapters,whichare
partofthechargingunitsandarenotpartofthevehiclesthemselves,potentiallyoverheatingduringcharging.Inthefuture,wemayatvarioustimes,voluntarilyor
involuntarily,initiatearecallifanyofourvehiclesorourelectricpowertraincomponentsthatweprovidetootherOEMs,includinganysystemsorpartssourced
fromoursuppliers,provetobedefectiveornoncompliantwithapplicablefederalmotorvehiclesafetystandards.Suchrecalls,whethervoluntaryorinvoluntaryor
causedbysystemsorcomponentsengineeredormanufacturedbyusoroursuppliers,involvesignificantexpenseanddiversionofmanagementattentionandother
resources,andcouldadverselyaffectourbrandimageinourtargetmarkets,aswellasourbusiness,prospects,financialconditionandresultsofoperations.
Our current and future warranty reserves may be insufficient to cover future warranty claims which could adversely affect our financial performance.
Ifourwarrantyreservesareinadequatetocoverfuturewarrantyclaimsonourvehicles,ourbusiness,prospects,financialconditionandoperatingresults
couldbemateriallyandadverselyaffected.Warrantyreservesincludemanagementsbestestimateoftheprojectedcoststorepairortoreplaceitemsunder
warranty.Theseestimatesarebasedonactualclaimsincurredto-dateandanestimateofthenature,frequencyandcostsoffutureclaims.Theseestimatesare
inherentlyuncertainandchangestoourhistoricalorprojectedexperiencemaycausematerialchangestoourwarrantyreservesinthefuture.Subjecttoseparate
limitedwarrantiesforthesupplementalrestraintsystemandbattery,weprovideafouryearor50,000mileNewVehicleLimitedWarrantyforthepurchasersof
newModelSandModelXvehicles.TheNewVehicleLimitedWarrantyforModelSandModelXalsocoversthedriveunitforeightyearsandthebatteryfora
periodofeightyearsor125,000milesorunlimitedmiles,dependingonthesizeofthevehiclesbattery,althoughthebatteryschargingcapacityisnotcovered
undertheNewVehicleLimitedWarrantyoranyExtendedServiceplan.
21

Inaddition,customershavetheopportunitytopurchaseanExtendedServiceplanfortheperiodaftertheendoftheNewVehicleLimitedWarrantyfor
ModelSandModelXtocoveradditionalservicesforanadditionalfouryearsor50,000miles,provideditispurchasedwithinaspecifiedperiodoftime.TheNew
VehicleLimitedWarrantyandExtendedServiceplansfortheModelSandModelXaresubjecttocertainlimitations,exclusionsorseparatewarranties,including
certainwearitems,suchastires,brakepads,paintandgeneralappearance,andbatteryperformance,andisintendedtocoverpartsandlabortorepairdefectsin
materialorworkmanshipinthevehicleincludingthebody,chassis,suspension,interior,electronicsystems,powertrainandbrakesystem.Additionally,in2013,as
partofourongoingeffortstoimprovethecustomerownershipexperience,weexpandedthebatterypackwarrantyandalsoeliminatedtheannualservice
requirementthatwasneededtokeeptheNewVehicleLimitedWarrantyineffect.Shouldthischangeinwarrantycoverageleadtoanincreaseinwarrantyclaims,
wemayneedtorecordadditionalwarrantyreserves,whichwouldnegativelyaffectourprofitability.
We are currently expanding and improving our information technology systems and use security measures designed to protect our systems against
breaches and cyber-attacks. If these efforts are not successful, our business and operations could be disrupted and our operating results and reputation
could be harmed.
Wearecurrentlyexpandingandimprovingourinformationtechnologysystems,includingimplementingnewinternallydevelopedsystems,toassistusin
themanagementofourbusiness.Inparticular,ourvolumeproductionofmultiplevehiclesnecessitatescontinueddevelopment,maintenanceandimprovementof
ourinformationtechnologysystemsintheU.S.andabroad,whichincludeproductdatamanagement,procurement,inventorymanagement,productionplanning
andexecution,sales,serviceandlogistics,dealermanagement,financial,taxandregulatorycompliancesystems.Theimplementation,maintenanceand
improvementofthesesystemsrequiresignificantmanagementtime,supportandcost.Moreover,thereareinherentrisksassociatedwithdeveloping,improvingand
expandingourcoresystemsaswellasimplementingnewsystems,includingthedisruptionofourdatamanagement,procurement,manufacturingexecution,
finance,supplychainandsalesandserviceprocesses.Theserisksmayaffectourabilitytomanageourdataandinventory,procurepartsorsuppliesor
manufacture,sell,deliverandservicevehicles,orachieveandmaintaincompliancewith,orrealizeavailablebenefitsunder,taxlawsandotherapplicable
regulations.Wealsomaintaininformationtechnologymeasuresdesignedtoprotectusagainstsystemsecurityrisks,databreachesandcyber-attacks.
Wecannotbesurethatthesesystemsortheirrequiredfunctionalitywillbeeffectivelyimplemented,maintainedorexpandedasplanned.Ifwedonot
successfullyimplement,maintainorexpandthesesystemsasplanned,ouroperationsmaybedisrupted,ourabilitytoaccuratelyand/ortimelyreportourfinancial
resultscouldbeimpaired,anddeficienciesmayariseinourinternalcontroloverfinancialreporting,whichmayimpactourabilitytocertifyourfinancialresults.
Moreover,ourproprietaryinformationcouldbecompromisedandourreputationmaybeadverselyaffected.Ifthesesystemsortheirfunctionalitydonotoperateas
weexpectthemto,wemayberequiredtoexpendsignificantresourcestomakecorrectionsorfindalternativesourcesforperformingthesefunctions.
Our insurance strategy may not be adequate to protect us from all business risks.
Wemaybesubject,intheordinarycourseofbusiness,tolossesresultingfromproductsliability,accidents,actsofGodandotherclaimsagainstus,for
whichwemayhavenoinsurancecoverage.Whilewecurrentlymaintaingeneralliability,automobile,property,workerscompensation,anddirectorsand
officersinsurancepolicies,asageneralmatter,wedonotmaintainasmuchinsurancecoverageasmanyothercompaniesdo,andinsomecases,wedonot
maintainanyatall.Additionally,thepoliciesthatwedohavemayincludesignificantdeductibles,andwecannotbecertainthatourinsurancecoveragewillbe
sufficienttocoverallfutureclaimsagainstus.Alossthatisuninsuredorwhichexceedspolicylimitsmayrequireustopaysubstantialamounts,whichcould
adverselyaffectourfinancialconditionandoperatingresults.
Our financial results may vary significantly from period-to-period due to fluctuations in our operating costs.
Weexpectourperiod-to-periodoperatingresultstovarybasedonouroperatingcostswhichweanticipatewillincreasesignificantlyinfutureperiodsaswe,
amongotherthings,design,developandmanufactureModel3,TeslaEnergyproductsandotherfutureproducts,increasetheproductioncapacityatour
manufacturingfacilitiestoproducevehiclesathighervolumes,includingrampinguptheproductionofModelX,developtheGigafactory,opennewTeslaservice
centerswithmaintenanceandrepaircapabilities,opennewSuperchargerlocations,increaseoursalesandmarketingactivities,andincreaseourgeneraland
administrativefunctionstosupportourgrowingoperations.Asaresultofthesefactors,webelievethatquarter-to-quartercomparisonsofouroperatingresults,
especiallyintheshort-term,arenotnecessarilymeaningfulandthatthesecomparisonscannotberelieduponasindicatorsoffutureperformance.Moreover,our
operatingresultsmaynotmeetexpectationsofequityresearchanalystsorinvestors.Ifanyofthisoccurs,thetradingpriceofourstockcouldfallsubstantially,
eithersuddenlyorovertime.
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.
Ourvehiclescontaincomplexinformationtechnologysystems.Forexample,ourvehiclesaredesignedwithbuilt-indataconnectivitytoacceptandinstall
periodicremoteupdatesfromustoimproveorupdatethefunctionalityofourvehicles.Wehavedesigned,implementedandtestedsecuritymeasuresintendedto
preventunauthorizedaccesstoourinformationtechnologynetworks,ourvehiclesandtheirsystems.However,hackershavereportedlyattempted,andmayattempt
inthefuture,togainunauthorizedaccesstomodify,alterandusesuchnetworks,vehiclesandsystemstogaincontrolof,ortochange,ourvehiclesfunctionality,
userinterfaceandperformancecharacteristics,ortogainaccesstodatastoredinorgeneratedbythevehicle.Weencouragereportingofpotentialvulnerabilitiesin
thesecurityofourvehiclesviaoursecurityvulnerabilityreportingpolicy,andweaimtoremedyanyreportedandverifiedvulnerabilities.Accordingly,wehave
receivedreportsofpotentialvulnerabilitiesinthepastandhaveattemptedtoremedythem.However,therecanbenoassurancethatvulnerabilitieswillnotbe
identifiedinthefuture,orthatourremediationeffortsareorwillbesuccessful.
Anyunauthorizedaccesstoorcontrolofourvehiclesortheirsystemsoranylossofdatacouldresultinlegalclaimsorproceedings.Inaddition,regardless
oftheirveracity,reportsofunauthorizedaccesstoourvehicles,theirsystemsordata,aswellasotherfactorsthatmayresultintheperceptionthatourvehicles,
theirsystemsordataarecapableofbeinghacked,couldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.
If we had a desire or need to raise additional funds and could not do so, our operations and prospects could be negatively affected
Weexpectthatourprincipalsourcesofliquiditywillprovideusadequateliquiditybasedonourcurrentplans.However,ifthecostsfordeveloping,
manufacturinganddeliveringourcurrentorfuturevehiclesexceedourexpectationsorifweincuranysignificantunplannedexpensesorembarkonoraccelerate
newsignificantstrategicinvestments,suchastheGigafactory,wemayneedtoraiseadditionalfunds.Weneedsufficientcapitaltofundourongoingoperations,
continueresearchanddevelopmentprojects,includingthoseforourplannedModel3vehicle,establishsalesandservicecenters,buildanddeploySuperchargers
andtomaketheinvestmentsintoolingandmanufacturingcapitalrequiredtointroducenewvehicles.Ifwecannotraiseadditionalfundsonfavorabletermsoratall
whenweneedthem,ourfinancialcondition,resultsofoperations,businessandprospectscouldbemateriallyadverselyaffected.
We may face regulatory limitations on our ability to sell vehicles directly which could materially and adversely affect our ability to sell our electric
vehicles.
WesellourvehiclesfromourTeslastoresaswellasovertheinternet.Wemaynotbeabletosellourvehiclesthroughthissalesmodelineachstateinthe
UnitedStatesassomestateshavelawsthatmaybeinterpretedtoimposelimitationsonthissalesmodel,includinglawsthatprohibitmanufacturersfromselling
vehiclesdirectlytoconsumerswithouttheuseofanindependentdealershiporwithoutaphysicalpresenceinthestate.Incertainstatesinwhichwearenotableto
obtaindealerlicenses,wehaveworkedwithstateregulatorstoopengalleries,whicharenotfullretaillocations.
Theapplicationofthesestatelawstoouroperationscontinuestobedifficulttopredict.Lawsinsomestateshavelimitedourabilitytoobtaindealerlicenses
fromstatemotorvehicleregulatorsandmaycontinuetodoso.
Inaddition,decisionsbyregulatorspermittingustosellvehiclesmaybesubjecttochallengesastowhethersuchdecisionscomplywithapplicablestate
motorvehicleindustrylaws.Forexample,vehicledealerassociationsinNewYork,Ohio,GeorgiaandMassachusettshavefiledlawsuitstorevokedealerlicenses
issuedtous.Theselawsuitshavebeendismissed,andinonecourtdecision,theSupremeCourtofMassachusettsheldthatstatefranchiselawsliketheonein
Massachusettsdonotrestrictamanufacturer,likeTesla,thatdoesnotusefranchiseddealersfromsellingitsvehiclesdirectlytoconsumers.Suchresultshave
reinforcedourcontinuingbeliefthatstatelawswerenotdesignedtopreventourdistributionmodel.AsimilarlawsuithasbeenfiledinMissouri.Possible
additionalchallengesinotherstates,ifsuccessful,couldrestrictorprohibitourabilitytosellourvehiclestoresidentsinsuchstates.Insomestates,therehavealso
beenregulatoryandlegislativeeffortsbyvehicledealerassociationstoproposebillsandregulationsthat,ifenacted,wouldpreventusfromobtainingdealer
licensesintheirstatesgivenourcurrentsalesmodel.Otherstates,suchasNewJersey,NewYork,OhioandPennsylvania,havepassedlegislationthatclarifiesour
abilitytooperate,butatthesametimelimitsthenumberofdealerlicenseswecanobtainorstoresthatwecanoperate.
Internationally,theremaybelawsinjurisdictionswehavenotyetenteredorlawsweareunawareofinjurisdictionswehaveenteredthatmayrestrictour
salesorotherbusinesspractices.Evenforthosejurisdictionswehaveanalyzed,thelawsinthisareacanbecomplex,difficulttointerpretandmaychangeover
time.
23

We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur
substantial costs.
Companies,organizationsorindividuals,includingourcompetitors,mayholdorobtainpatents,trademarksorotherproprietaryrightsthatwouldprevent,
limitorinterferewithourabilitytomake,use,develop,sellormarketourvehiclesorcomponents,whichcouldmakeitmoredifficultforustooperateour
business.Fromtimetotime,wemayreceivecommunicationsfromholdersofpatentsortrademarksregardingtheirproprietaryrights.Companiesholdingpatents
orotherintellectualpropertyrightsmaybringsuitsalleginginfringementofsuchrightsorotherwiseasserttheirrightsandurgeustotakelicenses.Inaddition,if
wearedeterminedtohaveinfringeduponathirdpartysintellectualpropertyrights,wemayberequiredtodooneormoreofthefollowing:

ceaseselling,incorporatingcertaincomponentsinto,orusingvehiclesorofferinggoodsorservicesthatincorporateorusethechallengedintellectual
property;

paysubstantialdamages;

seekalicensefromtheholderoftheinfringedintellectualpropertyright,whichlicensemaynotbeavailableonreasonabletermsoratall;

redesignourvehiclesorothergoodsorservices;or

establishandmaintainalternativebrandingforourproductsandservices.

Intheeventofasuccessfulclaimofinfringementagainstusandourfailureorinabilitytoobtainalicensetotheinfringedtechnologyorotherintellectual
propertyright,ourbusiness,prospects,operatingresultsandfinancialconditioncouldbemateriallyadverselyaffected.Inaddition,anylitigationorclaims,
whetherornotvalid,couldresultinsubstantialcosts,negativepublicityanddiversionofresourcesandmanagementattention.
Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from interfering with
our commercialization of our products.
Thestatusofpatentsinvolvescomplexlegalandfactualquestionsandthebreadthandeffectivenessofpatentedclaimsisuncertain.Wecannotbecertain
thatwearethefirstcreatorofinventionscoveredbypendingpatentapplicationsorthefirsttofilepatentapplicationsontheseinventions,norcanwebecertain
thatourpendingpatentapplicationswillresultinissuedpatentsorthatanyofourissuedpatentswillaffordsufficientprotectionagainstsomeonecreatinga
knockoffofourproducts,orasadefensiveportfolioagainstacompetitorwhoclaimsthatweareinfringingitspatents.Inaddition,patentapplicationsfiledin
foreigncountriesaresubjecttolaws,rulesandproceduresthatdifferfromthoseoftheUnitedStates,andthuswecannotbecertainthatforeignpatentapplications
willresultinissuedpatentsinthoseforeignjurisdictionsorthatsuchpatentscanbeeffectivelyenforced,eveniftheyrelatetopatentsissuedintheU.S.Inaddition,
othersmayobtainpatentsthatweneedtotakealicensetoordesignaround,eitherofwhichwouldincreasecostsandmayadverselyaffectourbusiness,prospects,
financialconditionandoperatingresults.
Our trademark applications in certain countries remain subject to outstanding opposition proceedings.
WehavefiledtradeandservicemarkapplicationsforourTeslamarksinvariouscountriesinwhichwecurrentlysellandplantosellourproductsand
services.Certainofourapplicationsaresubjecttooutstandingoppositionproceedingsbroughtbyownersorapplicantsallegingpriorapplicationsfororuseof
similarmarks,orrefusalsissuedbytrademarkofficescitingpriorapplicationsorregistrationsforallegedlysimilarmarks.Ifwecannotresolvetheseoppositions
andrefusalsandtherebysecureregisteredrightsinthesecountries,thevalueofthemarksrepresentingourexclusivebrandnameinthesecountrieswillbediluted.
Inaddition,thereisariskthatthepriorrightsownerscouldinthefuturetakeactionstochallengeouruseoftheTeslamarksinthesecountries.Suchactionscould
haveasevereimpactonourpositioninthesecountriesandmayinhibitourabilitytousetheTeslamarksinthesecountries.Ifwewerepreventedfromusingthe
Teslamarksinanyorallofthesecountries,wewouldneedtoexpendsignificantadditionalfinancialandmarketingresourcesonestablishinganalternativebrand
identityinthesemarkets.
Our facilities or operations could be damaged or adversely affected as a result of disasters.
OurcorporateheadquartersandprimarymanufacturingfacilitiesarealllocatedinNorthernCalifornia,aregionknownforseismicactivity.Ifmajor
disasterssuchasearthquakesorothereventsoccur,orourinformationsystemorcommunicationsnetworkbreaksdownoroperatesimproperly,ourheadquarters
andproductionfacilitiesmaybeseriouslydamaged,orwemayhavetostopordelayproductionandshipmentofourproducts.Wemayincurexpensesrelatingto
suchdamages,whichcouldhaveamaterialadverseimpactonourbusiness,operatingresultsandfinancialcondition.
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 al
debt.
Wehaveincurred$3.0billioninaggregateprincipalamountofconvertibleseniornotesissuedinregisteredpublicofferings.Undercertaincircumstances
relatingtothereportedtradingpriceofourcommonstock,theholdersofourconvertibleseniornotesmayconverttheirnotesattheiroption,uponwhichwewould
beobligatedtodelivercashpaymentsand/orsharesofourcommonstocktotheconvertingholders.Currently,holdersofanaggregate$660.0milliontrancheof
noteshavetherighttoconverttheirnotes.Moreover,holdersofthenoteshavetherighttorequireustorepurchasetheirnotesupontheoccurrenceofa
fundamentalchangewithrespecttous.Inaddition,wehaveaseniorsecuredasset-basedrevolvingcreditfacility(theCreditFacility),underwhichwehad$135
millionofborrowingsasofDecember31,2015.
Ourabilitytomakescheduledpaymentsofprincipalwhendue,tomakeperiodicinterestpaymentsortomakeotherpaymentspursuanttothetermsofour
indebtedness,suchaswithrespecttoourconvertibleseniornotesupontheirconversionorupondemandfollowingafundamentalchange,dependsonourfuture
performance,whichissubjecttoeconomic,financial,competitiveandotherfactorsbeyondourcontrol.Ourbusinessmaynotcontinuetogeneratecashflowfrom
operationsinthefuturesufficienttosatisfytheseobligationsorobligationsunderanyfutureindebtednesswemayincurandtomakenecessarycapital
expenditures.Ifweareunabletogeneratesuchcashflow,wemayberequiredtoadoptoneormorealternatives,suchasreducingordelayinginvestmentsor
capitalexpenditures,sellingassets,refinancingorobtainingadditionalequitycapitalontermsthatmaybeonerousorhighlydilutive.Ourabilitytorefinanceour
existingoranyfutureindebtednesswilldependonthecapitalmarketsandourfinancialconditionatsuchtime.Inaddition,ourabilitytomakerequiredpayments
underourindebtednessmaybelimitedbylaw,byregulatoryauthorityorbyagreementsgoverningourfutureindebtedness.Wemaynotbeabletoengageinanyof
theseactivitiesorengageintheseactivitiesondesirabletermsoratall,whichcouldresultinadefaultonourexistingorfutureindebtedness.Furthermore,any
repaymentofanyofourexistingorfutureindebtednesspriortotheirscheduledmaturitycouldhaveamaterialadverseeffectonourbusiness,resultsofoperations
andfinancialcondition.
Our debt agreements contain covenant restrictions that may limit our ability to operate our business.
ThetermsofourCreditFacilitycontain,andanyofourotherfuturedebtagreementsmaycontain,covenantrestrictionsthatlimitourabilitytooperateour
business,includingrestrictionsonourabilityto,amongotherthings,incuradditionaldebtorissueguarantees,createliensandmakecertainvoluntaryprepayments
ofspecifieddebt.Inaddition,undercertaincircumstanceswearerequiredtocomplywithafixedchargecoverageratio.
Asaresultofthesecovenants,ourabilitytorespondtochangesinbusinessandeconomicconditionsandtoobtainadditionalfinancing,ifneeded,maybe
restricted,andwemaybepreventedfromengagingintransactionsthatmightotherwisebebeneficialtous.Inaddition,ourfailuretocomplywithourdebt
covenantscouldresultinadefaultunderourdebtagreements,whichcouldpermittheholderstoaccelerateourobligationtorepaythedebt.Ifanyofourdebtis
accelerated,wemaynothavesufficientfundsavailabletorepayit.
We may still incur substantially more debt or take other actions, which would intensify the risks discussed immediately above.
Weandoursubsidiariesmay,subjecttothelimitationsinthetermsofourCreditFacility,incuradditionaldebt,secureexistingorfuturedebt,recapitalize
ourdebtortakeanumberofotheractionsthatarenotlimitedbythetermsoftheindenturegoverningourconvertibleseniornotesthatcouldhavetheeffectof
diminishingourabilitytomakepaymentsonthenoteswhendue.
The classification of our convertible senior notes may have a material effect on our reported financial results.
AsdescribedintheRiskFactorServicing
our
indebtedness
requires
a
significant
amount
of
cash,
and
we
may
not
have
sufficient
cash
flow
from
our
business
to
pay
our
substantial
debt,

ourconvertibleseniornoteshavebeenhistorically,andmaybecomeinthefuture,convertibleattheoptionoftheirholders
priortotheirscheduledtermsundercertaincircumstances.Evenifholdersdonotelecttoconverttheirnotes,thenotesbecomeconvertiblepriortotheirscheduled
maturitydates,wewouldberequiredtoreclassifysuchnotesandtherelateddebtissuancecostsascurrentliabilitiesandcertainportionsofourequityoutsideof
equitytomezzanineequity,whichwouldhaveanadverseimpactonourreportedfinancialresultsforsuchquarter,andcouldhaveanadverseimpactonthemarket
priceofourcommonstock.
25

Risks Related to the Ownership of our Common Stock

The trading price of our common stock is likely to continue to be volatile.
Thetradingpriceofourcommonstockhasbeenhighlyvolatileandcouldcontinuetobesubjecttowidefluctuationsinresponsetovariousfactors,someof
whicharebeyondourcontrol.Ourcommonstockhasexperiencedanintra-daytradinghighof$286.65pershareandalowof$141.05pershareoverthelast52
weeks.Thestockmarketingeneral,andthemarketfortechnologycompaniesinparticular,hasexperiencedextremepriceandvolumefluctuationsthathaveoften
beenunrelatedordisproportionatetotheoperatingperformanceofthosecompanies.Broadmarketandindustryfactorsmayseriouslyaffectthemarketpriceof
companiesstock,includingours,regardlessofactualoperatingperformance.Inaddition,inthepast,followingperiodsofvolatilityintheoverallmarketandthe
marketpriceofaparticularcompanyssecurities,securitiesclassactionlitigationhasoftenbeeninstitutedagainstthesecompanies.Forexample,ashareholder
litigationlikethiswasfiledagainstusin2013.Whilethetrialcourtdismissedtheplaintiffscomplaintwithprejudice,thislitigation(ifthetrialcourtsorderis
successfullyappealed)orotherslikeitcouldresultinsubstantialcostsandadiversionofourmanagementsattentionandresources.
Conversion of our convertible senior notes may dilute the ownership interest of existing stockholders, including holders who had previously converted
their notes, or may otherwise depress the price of our common stock.
Theconversionofsomeorallofourconvertibleseniornoteswilldilutetheownershipinterestsofexistingstockholderstotheextentwedeliversharesupon
conversionofanyofthenotes.AsdescribedintheRiskFactorServicing
our
indebtedness
requires
a
significant
amount
of
cash,
and
we
may
not
have
sufficient
cash
flow
from
our
business
to
pay
our
substantial
debt,

ourconvertibleseniornoteshavebeenhistorically,andmaybecomeinthefuture,convertibleatthe
optionoftheirholderspriortotheirscheduledtermsundercertaincircumstances.Anysalesinthepublicmarketofthecommonstockissuableuponsuch
conversioncouldadverselyaffectprevailingmarketpricesofourcommonstock.Inaddition,theexistenceofthenotesmayencourageshortsellingbymarket
participantsbecausetheconversionofthenotescouldbeusedtosatisfyshortpositions,oranticipatedconversionofthenotesintosharesofourcommonstock
coulddepressthepriceofourcommonstock.
The convertible note hedge and warrant transactions we entered into in connection with the issuance of our convertible senior notes may affect the
value of the notes and our common stock.
Inconnectionwitheachissuanceofourconvertibleseniornotes,weenteredintoconvertiblenotehedgetransactionswiththehedgecounterparties.The
convertiblenotehedgetransactionscover,subjecttocustomaryanti-dilutionadjustments,thenumberofsharesofourcommonstockthatinitiallyunderlaythe
applicablenotes.Theconvertiblenotehedgetransactionsareexpectedtoreducethepotentialdilutionand/oroffsetpotentialcashpaymentswearerequiredto
makeinexcessoftheprincipalamountuponconversionoftheapplicablenotes.Wealsoenteredintowarranttransactionswiththehedgecounterpartiesrelatingto
thesamenumberofsharesofourcommonstock,subjecttocustomaryanti-dilutionadjustments.However,thewarranttransactionscouldseparatelyhaveadilutive
effectonourcommonstocktotheextentthatthemarketpricepershareofourcommonstockexceedstheapplicablestrikepriceofthewarrantsontheapplicable
expirationdates.
Inaddition,thehedgecounterpartiesortheiraffiliatesmaymodifytheirhedgepositionsbyenteringintoorunwindingvariousderivativeswithrespectto
ourcommonstockand/orpurchasingorsellingourcommonstockorothersecuritiesofoursinsecondarymarkettransactionspriortothematurityoftheapplicable
notes(andarelikelytodosoduringanyobservationperiodrelatedtoaconversionofnotes).Thisactivitycouldalsocauseorpreventanincreaseoradecreasein
themarketpriceofourcommonstockorthenotes.
Wedonotmakeanyrepresentationorpredictionastothedirectionormagnitudeofanypotentialeffectthatthetransactionsdescribedabovemayhaveon
thepricesofthenotesorthesharesofourcommonstock.Inaddition,wedonotmakeanyrepresentationthatthehedgecounterpartieshaveengagedorwillengage
inthesetransactionsorthatthesetransactions,oncecommenced,willnotbediscontinuedwithoutnotice.
Mr. Musk borrowed funds from affiliates of certain underwriters in our public offerings and/or private placements and has pledged shares of our
common stock to secure these borrowings. The forced sale of these shares pursuant to a margin call could cause our stock price to decline and
negatively impact our business.
BeginninginJune2011,bankinginstitutionsthatareaffiliatedwithcertainunderwritersofourcompletedpublicofferingsofcommonstockandour
convertibleseniornotesmadeextensionsofcredittoElonMuskandtheElonMuskRevocableTrustdatedJuly22,2003,ortheTrust,aportionofwhich
Mr.MuskusedtopurchasesharesofcommonstockinourpublicofferingsinMay2013andAugust2015andprivateplacementsinJune2011andJune2013.We
arenotapartytotheseloans,whicharefullrecourseagainstMr.MuskandtheTrustandaresecuredbypledgesofaportionoftheTeslacommonstockcurrently
ownedbyMr.MuskandtheTrustandothersharesofcapitalstockofunrelatedentitiesownedbyMr.MuskandtheTrust.
26

Ifthepriceofourcommonstockdeclines,Mr.Muskmaybeforcedbyoneormoreofthebankinginstitutionstoprovideadditionalcollateralfortheloans
ortosellsharesofTeslacommonstockinordertoremainwithinthemarginlimitationsimposedunderthetermsofhisloans.Theloansbetweenthesebanking
institutionsontheonehand,andMr.MuskandtheTrustontheotherhand,prohibitthenon-pledgedsharescurrentlyownedbyMr.MuskandtheTrustfrom
beingpledgedtosecureanyotherloans.ThesefactorsmaylimitMr.MusksabilitytoeitherpledgeadditionalsharesofTeslacommonstockorsellsharesofTesla
commonstockasameanstoavoidorsatisfyamargincallwithrespecttohispledgedTeslacommonstockintheeventofadeclineinourstockpricethatislarge
enoughtotriggeramargincall.Anysalesofcommonstockfollowingamargincallthatisnotsatisfiedmaycausethepriceofourcommonstocktodeclinefurther.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, the provisions of Delaware law, and the terms of our convertible
senior notes could impair a takeover attempt.
Ourcertificateofincorporation,bylaws,Delawarelawandthetermsofourconvertibleseniornotescontainprovisionswhichcouldhavetheeffectof
renderingmoredifficult,delayingorpreventinganacquisitiondeemedundesirablebyourboardofdirectors.Ourcorporategovernancedocumentsinclude
provisions:

creatingaclassifiedboardofdirectorswhosemembersservestaggeredthree-yearterms;

authorizingblankcheckpreferredstock,whichcouldbeissuedbytheboardwithoutstockholderapprovalandmaycontainvoting,liquidation,
dividendandotherrightssuperiortoourcommonstock;

limitingtheliabilityof,andprovidingindemnificationto,ourdirectorsandofficers;

limitingtheabilityofourstockholderstocallandbringbusinessbeforespecialmeetings;

requiringadvancenoticeofstockholderproposalsforbusinesstobeconductedatmeetingsofourstockholdersandfornominationsofcandidatesfor
electiontoourboardofdirectors;

controllingtheproceduresfortheconductandschedulingofboardandstockholdermeetings;and

providingtheboardofdirectorswiththeexpresspowertopostponepreviouslyscheduledannualmeetingsandtocancelpreviouslyscheduled
specialmeetings.

AsaDelawarecorporation,wearealsosubjecttoprovisionsofDelawarelaw,includingSection203oftheDelawareGeneralCorporationlaw,which
preventssomestockholdersholdingmorethan15%ofouroutstandingcommonstockfromengagingincertainbusinesscombinationswithoutapprovalofthe
holdersofsubstantiallyallofouroutstandingcommonstock.
AnyprovisionofourcertificateofincorporationorbylawsorDelawarelawthathastheeffectofdelayingordeterringachangeincontrolcouldlimitthe
opportunityforourstockholderstoreceiveapremiumfortheirsharesofourcommonstock,andcouldalsoaffectthepricethatsomeinvestorsarewillingtopay
forourcommonstock.
Inaddition,thetermsoftheconvertibleseniornotesrequireustorepurchasethenotesintheeventofafundamentalchange.Atakeoverofourcompany
wouldtriggeranoptionoftheholdersofthenotestorequireustorepurchasethenotes.Thismayhavetheeffectofdelayingorpreventingatakeoverofour
companythatwouldotherwisebebeneficialtoourstockholders.

I TEM 1B.

UNRESOLVED STAFF COMMENTS

None.

27

I TEM 2.

PROPERTIES

Thefollowingtablesetsforththelocation,approximatesizeandprimaryuseofourprincipalleasedandownedfacilities:

Approximate
Size (Building)
in Square Feet

Location

Fremont,California

PaloAlto,California

Tilburg,Netherlands

Lathrop,California
Fremont,California
Fremont,California
Amsterdam,Netherlands
Hawthorne,California
Beijing,China

(1)

Lease
Expiration
Date

Primary Use

5,400,000 Manufacturing,administration,engineeringservices,parts
warehousing,andvehicleservice
350,000 Corporateheadquarters,administration,engineeringservicesand
powertraindevelopmentservices
499,710 Administration,engineeringservices,powertraindevelopment
services,partswarehousing,finalvehicleassemblyandvehicle
service
430,770 Manufacturing
302,400 Sales,marketingandservicescenter
506,490 Administration,salesandmarketingservices
71,142 Administration
132,250 Vehicleengineeringanddesignservices
8,190 Administration,salesandmarketingservices

Ownedbuilding
January2020
November

2023

Ownedbuilding(1)
March2028
August2025
February2024
December2022
November2017

AsofDecember31,2014,theLathroppropertywassubjecttoaleaseagreement.InJanuary2015,TeslaexerciseditsoptiontopurchasetheLathroppropertyunderthe
termsoftheleaseagreement.

Inadditiontothepropertiesincludedinthetableabove,wealsoleasealargenumberofpropertiesinNorthAmerica,EuropeandAsiaforourretailand
servicelocationsaswellasSuperchargersites.
Wecurrentlyintendtoaddnewfacilitiesorexpandourexistingfacilitiesasweaddemployeesandexpandournetworkofstoresandgalleries,service
locationsandSuperchargersites.Webelievethatsuitableadditionaloralternativespacewillbeavailableinthefutureoncommerciallyreasonabletermsto
accommodateourforeseeablefutureexpansion.

I TEM 3.

LEGAL PROCEEDINGS

SeeItem8ofPartII,FinancialStatementsandSupplementaryDataNote13Commitments
and
Contingencies
.
I TEM 4.

MINE SAFETY DISCLOSURES

Notapplicable.

28

P ART II

I TEM 5.

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES

Market Information
OurcommonstockhastradedonTheNASDAQGlobalSelectMarketunderthesymbolTSLAsinceitbegantradingonJune29,2010.Ourinitialpublic
offeringwaspricedat$17.00pershareonJune28,2010.Thefollowingtablesetsforth,forthetimeperiodindicated,thehighandlowclosingsalespriceofour
commonstockasreportedonTheNASDAQGlobalSelectMarket.

2015
2014
High

FirstQuarter
SecondQuarter
ThirdQuarter
FourthQuarter

225.48
271.41
286.65
249.84

Low

181.40
186.05
195.00
202.00

High

254.84
240.06
286.04
260.62

Low

139.34
178.59
215.40
197.81

Holders
AsofJanuary31,2016,therewere836holdersofrecordofourcommonstock.Asubstantiallygreaternumberofholdersofourcommonstockarestreet
nameorbeneficialholders,whosesharesareheldbybanks,brokersandotherfinancialinstitutions.
Dividend Policy
Wehaveneverdeclaredorpaidcashdividendsonourcommonstock.Wecurrentlydonotanticipatepayinganycashdividendsintheforeseeablefuture.
Anyfuturedeterminationtodeclarecashdividendswillbemadeatthediscretionofourboardofdirectors,subjecttoapplicablelaws,andwilldependonour
financialcondition,resultsofoperations,capitalrequirements,generalbusinessconditionsandotherfactorsthatourboardofdirectorsmaydeemrelevant.
29

Stock Performance Graph

This
performance
graph
shall
not
be
deemed
filed
for
purposes
of
Section
18
of
the
Securities
Exchange
Act
of
1934,
as
amended
(the
Exchange
Act),
or
incorporated
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
set
forth
by
specific
reference
in
such
filing.
ThefollowinggraphshowsacomparisonfromJanuary31,2011throughDecember31,2015,ofthecumulativetotalreturnforourcommonstock,the
NASDAQCompositeIndex,andagroupofallpubliccompaniessharingthesameSICcodeasuswhichisSICcode3711,MotorVehiclesandPassengerCar
Bodies(MotorVehiclesandPassengerCarBodiesPublicCompanyGroup).Suchreturnsarebasedonhistoricalresultsandarenotintendedtosuggestfuture
performance.DataforTheNASDAQCompositeIndexandtheMotorVehiclesandPassengerCarBodiesPublicCompanyGroupassumesaninvestmentof$100
onJanuary31,2011andreinvestmentofdividends.Wehaveneverdeclaredorpaidcashdividendsonourcapitalstocknordoweanticipatepayinganysuchcash
dividendsintheforeseeablefuture.

Unregistered Sales of Equity Securities

None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.

30

I TEM 6.

SELECTED CONSOLIDATED FINANCIAL DATA

ThefollowingselectedconsolidatedfinancialdatashouldbereadinconjunctionwithManagementsDiscussionandAnalysisofFinancialConditionand
ResultsofOperationsandourconsolidatedfinancialstatementsandtherelatednotesincludedelsewhereinthisAnnualReportonForm10-K.

Year Ended December 31,

2015

2014
2013
2012
(in thousands, except per share data)

2011

Consolidated Statements of Operations Data:

Totalrevenues
$ 4,046,025 $ 3,198,356 $ 2,013,496 $
413,256 $
204,242
Grossprofit

923,503
881,671
456,262
30,067
61,595
Lossfromoperations

(716,629)
(186,689)
(61,283)
(394,283)
(251,488)
Netloss
$
(888,663) $
(294,040) $
(74,014) $
(396,213) $
(254,411)
Netlosspershareofcommonstock,basicand
diluted(1)
$
(6.93) $
(2.36) $
(0.62) $
(3.69) $
(2.53)
Weightedaveragesharesusedincomputing
netlosspershareofcommonstock,
basicanddiluted(1)

128,202
124,539
119,421
107,349
100,389

(1)
Dilutednetlosspershareofcommonstockiscomputedexcludingcommonstocksubjecttorepurchase,and,ifdilutive,potentialsharesofcommonstock
outstandingduringtheperiod.Potentialsharesofcommonstockconsistofstockoptionstopurchasesharesofourcommonstock,theconversionofour
convertibleseniornotes(usingthetreasurystockmethod),warrantstopurchasesharesofourcommonstockissuedinconnectionwithour2018Notes,
2019Notes,and2021Notes(usingthetreasurystockmethod),warrantstopurchasesharesofourconvertiblepreferredstock(usingthetreasurystock
method)andtheconversionofourconvertiblepreferredstockandconvertiblenotespayable(usingtheif-convertedmethod).Forpurposesofthese
calculations,potentialsharesofcommonstockhavebeenexcludedfromthecalculationofdilutednetlosspershareofcommonstockastheireffectis
antidilutivesincewegeneratedanetlossineachperiod.

As of December 31,

2015

2014

2013

2012

2011

Consolidated Balance Sheet Data:

Workingcapital(deficit)(3)
$
(24,706) $ 1,072,907 $
585,665 $
(14,340) $
181,499
Totalassets

8,092,460
5,830,667
2,411,816
1,114,190
713,448
Totallong-termobligations(1)(2)

4,145,197
2,753,595
1,069,535
450,382
298,064

(1)
InMay2013,weissued$660.0millionaggregateprincipalamountof2018Notesinapublicoffering.Inaccordancewithaccountingguidanceon
embeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththe2018Notesfromthehostdebtinstrumentandinitially
recordedtheconversionoptionof$82.8millioninequity.Duringthefourthquarterof2015,theclosingpriceofourcommonstockexceeded130%ofthe
applicableconversionpriceofour2018Notesonatleast20ofthelast30consecutivetradingdaysofthequarter;therefore,holdersof2018Notesmay
converttheirnotesduringthefirstquarterof2016.Assuch,weclassifiedthe$617.7millioncarryingvalueofour2018Notesascurrentliabilitiesonour
condensedconsolidatedbalancesheetasofDecember31,2015.

(2)
(3)

InMarch2014,weissued$800.0millionprincipalamountof0.25%convertibleseniornotesdue2019(2019Notes)and$1.20billionprincipalamountof
1.25%convertibleseniornotesdue2021(2021Notes)inapublicoffering.InApril2014,weissuedanadditional$120.0millionaggregateprincipal
amountof2019Notesand$180.0millionaggregateprincipalamountof2021Notes,pursuanttotheexerciseinfulloftheoverallotmentoptionsofthe
underwritersofourMarch2014publicoffering.Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedthe
conversionoptionassociatedwiththenotesfromthehostdebtinstrumentandrecordedtheconversionoptionof$188.1millionforthe2019Notesand
$369.4millionforthe2021NotesinstockholdersequityasofDecember31,2014
AsofAugust31,2012,wehadfullydrawndownour$465.0millionunderourDOEloanfacility.InMay2013,weusedaportionoftheNotesoffering
proceedstorepayalloutstandingloanamountsundertheDOELoanFacility.
InNovember2015,theFASBissuedAccountingStandardsUpdateNo.2015-17,IncomeTaxes(Topic740):BalanceSheetClassificationofDeferred
Taxes(ASU2015-17),whichsimplifiesthepresentationofdeferredincometaxesbyrequiringthatdeferredtaxassetsandliabilitiesbeclassifiedas
noncurrentonthebalancesheet.Wehaveretrospectivelyadoptedthisstandardandreclassifiedallofourcurrentdeferredtaxassetstononcurrentdeferred
taxassetsonourconsolidatedbalancesheetsdataforallperiodspresented.Asaresultofthereclassifications,certainnoncurrentdeferredtaxliabilities
werenettedwithnoncurrentdeferredtaxassetsforallperiodspresented.

31

I TEM 7.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following
discussion
and
analysis
should
be
read
in
conjunction
with
our
consolidated
financial
statements
and
the
related
notes
that
appear
elsewhere
in
this
Annual
Report
on
Form
10-K.

Overview and 2015 Highlights

Wedesign,develop,manufacture,andsellhigh-performancefullyelectricvehicles,andenergystorageproducts.Wearecurrentlyproducingandsellingour
ModelSsedanandourModelXsportutilityvehicle.SincetheintroductionofModelSinJune2012,wehaveenhancedourvehicleofferingswithall-wheeldrive
capability,autopilotoptions,andfreeover-the-airsoftwareupdates.WecommencedcustomerdeliveriesofourModelXinSeptember2015andarecurrently
rampingproduction.Wehavedeliveredover107,000vehiclesthroughDecember31,2015.WeintendtounveilModel3,alowerpricedsedandesignedforthe
massmarket,inthefirstquarterof2016andexpecttocommenceproductionanddeliveriesofthisvehicleinlate2017.
Inadditiontoourautomotiveproducts,werecentlyannouncedthenextgenerationofourenergystorageproducts,the7kWhand10kWhPowerwallfor
residentialapplicationsandthe100kWhPowerpackforcommercialandindustrialapplications.Webeganproductionanddeliveriesoftheseproducts,whichwe
willsellundertheTeslaEnergybrand,inthethirdquarterof2015.WetransitionedtheproductionoftheseproductsfromtheFremontFactorytotheGigafactory
duringQ42015.
Ourprimarysourceofrevenueisfromthesaleofourvehicles.DuringtheyearendedDecember31,2015,werecognizedtotalrevenuesof$4.05billion,an
increaseof$847.7millionovertotalrevenuesof$3.20billionfortheyearendedDecember31,2014,primarilydrivenbygrowthofModelSdeliveriesworldwide.
GrossmarginfortheyearendedDecember31,2015was22.8%,adecreasefrom27.6%fortheyearendedDecember31,2014.
WecontinuetoincreaseoursalesandservicefootprintworldwideandexpandourSupercharginganddestinationchargingnetworks.Withthecontinued
globalexpansionofourcustomersupportandSuperchargerinfrastructure,selling,generalandadministrativeexpenseswere$922.2millionfortheyearended
December31,2015,comparedto$603.7millionfortheyearendedDecember30,2014.

Management Opportunities, Challenges and Risks

Vehicle
Orders,
Production
and
Deliveries
WearecurrentlyproducingandsellingboththeModelSsedanandtheModelXsportutilityvehicle.WehavebroadenedtheappealofModelSby
introducingnewvariantsthatimproverange,performance,andvalue.Forthosewantingamoreaffordablecar,weintroducedModelS70withastartingpriceof
only$70,000beforeincentivesandfuelsavings.Ournew90kWhbatterypackoptionenablesalmost300milesofrangeat65mph.Finally,forourperformance
enthusiasts,thenewLudicrousmodeoptionimproves0to60mphaccelerationto2.8seconds.TheintroductionofModelXnowprovidescustomerswitha
performanceelectricvehicleoptioninthesportutilitysegmentforthefirsttime.SimilartoModelS,weexpecttointroducenewversionsandfunctionalityforthe
ModelXovertime.Overall,weexpectthatdemandforourvehicleswillcontinuetoincreaseworldwideasmorepeopledriveandbecomeawareofourvehicles,
aswegrowourcustomersalesandserviceinfrastructure,andaswecontinuetodevelopourproducts.
Wehavebeenincreasingourproductionactivitiesandexpecttocontinuetodoso.InAugust2014,webeganasignificantproductioncapacityincreaseat
theTeslaFactorybytransitioningtoournewfinalassemblylineandupgradingourbodycenter.Theseproductioncapacityincreasescontinuedinto2015,with
furtherinvestmentsincludingbuildinganewpaintshop,anewbodyshopforModelX,andadditionalstampingcapacity.Weexpectourannualproductionwill
increaseconsiderablyeachyearforthenextseveralyears.Inaddition,scalingourdeliveriesmeansthatwewillhaveanincreasingnumberofcarsin-transit,
thereforeproductionwillexceeddeliveries.
During2015,weachievedsignificantefficienciesinModelSproductionandproduced14,037vehiclesinthefourthquarterof2015.Webeganproduction
ofModelXinthethirdquarterof2015.Weplantodeliver80,000to90,000newModelSandModelXvehiclesin2016.
32

Inadditiontoexpandingourvehicleproduction,weexpecttocontinuetolowerthecostofmanufacturingourvehiclesoverthenextseveralquarters.We
expectthatthistrendwillcontributetoimprovedautomotivegrossmarginovertime,excludingtheimpactofforeigncurrencymovements.Significantcost
improvementsforModelSwereachievedin2014and2015relatingtomaterialcostreductionsfrombothengineeringandcommercialactions,andmanufacturing
efficiencies,excludingtheimpactofnewlyintroducedModelSvariantsandModelX.However,duringourproductintroductionsoverthelastfewyears,we
incurredmanufacturinginefficiencieswhichnegativelyimpactedourgrossmargin.Weexpectthatautomotivegrossmarginshouldincreaseduring2016dueto
costreductionsforModelSandimprovingmarginonModelXasourmanufacturingefficiencyimprovesforthatvehicle,supportingourplantobeprofitablefor
thefourthquarterof2016.Ifwearenotabletoachievetheplannedcostreductionsfromourvariouscostsavingsandprocessimprovementinitiativesorramp
ModelXefficiently,ourabilitytoreachourgrossmargingoalswouldbenegativelyaffectedintheshort-term.
Tosupportourplannedvehiclegrowthin2016,weplantocontinueexpandingstoresandserviceinfrastructureworldwide,providemoretimelyservicein
areaswithahighconcentrationofTeslacustomers,andcontinueexpandingourSuperchargeranddestinationchargernetwork.Sincewenowofferourvehiclesin
manycountriesthroughoutNorthAmerica,EuropeandAsia,ourexpansionwillprimarilyoccuringeographicareasinwhichwealreadyhaveapresence.We
expectourlong-termsalesoutsideofNorthAmericawillbealmosthalfofourworldwideautomotiverevenue.AscomparedtomarketsintheUnitedStates,we
haverelativelylimitedexperienceininternationalmarkets,andthuswemayfacedifficultiesmeetingourfutureinternationalexpansionplans.Ifweexperience
unexpecteddifficultiesordelaysinfindingandopeningdesirablelocationsforstoresandservicecenters,wemaynotbeabletomeetourdeliveryplans.
Trends
in
Cash
Flow,
Capital
Expenditures
and
Operating
Expenses
Weexpecttoseeanetincreaseincashandcashequivalentsforthefull-year2016.Weplantofundabout$1.5billionincapitalexpenditureswithout
accessinganyoutsidecapitalotherthanourexistingsourcesthatsupportourleasingandfinishedgoodsinventory.Weplantoinvestinequipmenttosupportcell
productionattheGigafactory,begininstallationofModel3vehicleproductionmachinery,openabout80retaillocationsandservicecenters,andenergizeabout
300newSuperchargerlocations.
Ouroperatingexpensesareexpectedtogrowbyabout20%in2016ascomparedto2015,drivenprimarilybytheexpansionofourretailandservicecenters
aswellasincreasesingeneralandadministrativecoststosupportthegrowthofthebusiness.Weexpectsales,generalandadministrativeexpensestodeclineover
timeasapercentageofrevenueaswefocusonincreasingoperationalefficiencywhilecontinuingtoexpandourcustomerandcorporateinfrastructure.Overtime,
wealsoexpecttotaloperatingexpensestodecreaseasapercentageofrevenue.
AsofDecember31,2015andDecember31,2014,thenetbookvalueofourSuperchargernetworkwas$339.2millionand$107.8millionandasof
December31,2015included584locationsglobally.WeplantocontinueinvestinginourSuperchargernetworkfortheforeseeablefuture,includinginNorth
America,EuropeandAsiaandexpectsuchspendingtobeaminimalportionoftotalcapitalspendingduring2016.During2016,thisinvestmentwillgrowour
Superchargernetworkbyabout50%.WeallocateSuperchargerrelatedexpensestocostofautomotiverevenuesandselling,general,andadministrativeexpenses.
Thesecostswereimmaterialforallperiodspresented.
Customer
Financing
Options
WeofferloansandleasesinNorthAmerica,EuropeandAsiaprimarilythroughvariousfinancialinstitutions.Weofferaresalevalueguaranteein
connectionwithcertainloansofferedbyfinancialinstitutionsandasofDecember31,2015hadapproximately18,400vehiclesunderthisprogram.Weexpanded
thisprogramtoselectedEuropeanandAsianmarketsduringthefirsthalfof2015.Resalevalueguaranteesavailableforexercisewithinthenext12monthstotal
$136.8millioninvalueandrelateto3,017vehicles.
Vehicledeliverieswiththeresalevalueguaranteedonotimpactournear-termcashflowsandliquidity,sincewereceivethefullamountofcashforthe
vehiclesalespriceatdelivery.However,thisprogramrequiresthedeferralofrevenuesandcostsintofutureperiodsastheyareconsideredleasesforaccounting
purposes.
Whilewedonotassumeanycreditriskrelatedtothecustomer,ifacustomerexercisestheoptiontoreturnthevehicletous,weareexposedtoliquidityrisk
thattheresalevalueofvehiclesundertheseprogramsmaybelowerthanourguarantee,orthevolumeofvehiclesreturnedtousmaybehigherthanourestimates,
orwemaybeunabletoreselltheusedcarsinatimelymanner,allofwhichcouldadverselyimpactourcashflows.Alternatively,incaseswherecustomersretain
theirvehiclespasttheexpirationoftheguaranteeperiod,theremainingdeferredrevenuesandcostswillberecognizedatnogrossprofit.
Basedoncurrentmarketdemandforourcars,weestimatetheresalepricesforourvehicleswillcontinuetobeaboveourresalevalueguarantee
amounts.Shouldmarketvaluesofourvehiclesorcustomerdemanddecrease,theseestimatesmaybeimpactedmaterially.
33

WecurrentlyofferleasesintheU.S.directlyfromourcaptivefinancingentity,aswellasthroughaleasingpartner.LeasingthroughTeslaFinanceisnow
availablein39statesandtheDistrictofColumbia.WealsoofferfinancingarrangementsthroughentitiesinCanada,GermanyandUK.AsofDecember31,
2015,wehadleasedapproximately3,660vehiclesthroughourcaptivefinancingentitiesintheU.S.andGermanyandapproximately6,730vehiclesthroughour
leasingpartner.Leasingthroughbothourcaptivefinancingentitiesandourleasingpartnerexposesustoresidualvalueriskandwilladverselyimpactourneartermoperatingresultsbyrequiringthedeferralofrevenuesandcostsintofutureperiodsunderleaseaccounting.Inaddition,forleasesoffereddirectlyfromour
captivefinancingentities(butnotforthoseofferedthroughourbankpartner),wewillnotreceivethefullamountofthecashforthevehiclepriceatdeliveryand
willassumecustomercreditrisk.Weplantocontinueexpandingourleasingofferings.
The
Gigafactory
WearedevelopingtheGigafactoryasafacilitywhereweworktogetherwithoursupplierstointegrateproductionofbatterymaterial,cells,modulesand
batterypacksinonelocation.WebrokegroundontheGigafactoryinJune2014andbeganassemblingourTeslaEnergyproductsinthefirstportionofthefacility
inthefourthquarterof2015.Wecurrentlyexpecttoproducecellsatthissitebeginningin2016foruseinitiallyinourTeslaEnergyproductsandlaterforour
vehicles.Overthenextfewyears,wewillcontinuetoinvestintheexpansionofadditionalTeslaEnergyproductioncapacity.
WecontinuetoinvestinconstructionofthebuildingandutilitiesattheGigafactoryandinproductionequipmentforbattery,moduleandpackproduction.
WewillberesponsiblefortheoverallmanagementoftheGigafactoryandwillengagewithpartnerswhohavesignificantexperienceinbatterycellandmaterial
production.PanasonichasagreedtopartnerwithusontheGigafactorywithinvestmentsinproductionequipmentthatitwillusetomanufactureandsupplyuswith
batterycells.UnderourarrangementwithPanasonic,weplantopurchasethefulloutputfromtheirproductionequipmentatnegotiatedprices.Astheseterms
conveyarighttousetheproductionrelatedassetsasdefinedwithinASC840Leases
,wewillconsidertheseleasedassetsbeginningwiththestartofcell
productionin2016.
Giventhesizeandcomplexityofthisundertaking,thecostofbuildingandoperatingtheGigafactorycouldexceedourcurrentexpectations,wemayhave
difficultysigningupadditionalpartners,andtheGigafactorymaytakelongertobringonlinethanweanticipate.

Critical Accounting Policies and Estimates

OurconsolidatedfinancialstatementsarepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates.Thepreparationof
theseconsolidatedfinancialstatementsrequiresustomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenues,costsand
expensesandrelateddisclosures.Webaseourestimatesonhistoricalexperience,asappropriate,andonvariousotherassumptionsthatwebelievetobereasonable
underthecircumstances.Changesintheaccountingestimatesarereasonablylikelytooccurfromperiodtoperiod.Accordingly,actualresultscoulddiffer
significantlyfromtheestimatesmadebyourmanagement.Weevaluateourestimatesandassumptionsonanongoingbasis.Totheextentthattherearematerial
differencesbetweentheseestimatesandactualresults,ourfuturefinancialstatementpresentation,financialcondition,resultsofoperationsandcashflowswillbe
affected.Webelievethatthefollowingcriticalaccountingpoliciesinvolveagreaterdegreeofjudgmentandcomplexitythanourotheraccountingpolicies.
Accordingly,thesearethepolicieswebelievearethemostcriticaltounderstandingandevaluatingourconsolidatedfinancialconditionandresultsofoperations.
Revenue
Recognition
Werecognizerevenueforproductsandserviceswhen:(i)apersuasiveevidenceofanarrangementexists;(ii)deliveryhasoccurredandthereareno
uncertaintiesregardingcustomeracceptance;(iii)pricingorfeesarefixedordeterminable;and(iv)collectionisreasonablyassured.
Vehiclesalesincludestandardfeatures,customerselectedoptionsandaccessories,andspecificotherelementsthatmeetthedefinitionofadeliverable
undermultiple-elementaccountingguidanceincludingfreeinternetconnectivity,accesstoourSuperchargernetwork,andfutureovertheairsoftware
updates.Thesedeliverablesarevaluedonastand-alonebasisandwerecognizetheirrevenueoverourperformanceperiod,whichisgenerallytheeight-yearlifeof
thevehicle,exceptforinternetconnectivitywhichisoverthefreefouryearperiod.Ifweselladeliverableseparately,weusethatpricingtodetermineitsfair
value;otherwise,weuseourbestestimatedsellingpricebyconsideringcostsusedtodevelopanddelivertheservice,thirdpartypricingofsimilaroptions,and
otherinformationwhichmaybeavailable.
34

Vehicle
sales
to
customers
with
a
residual
value
guarantee
Weofferresalevalueguaranteesorsimilarbuy-backtermstoallcustomerswhopurchasevehiclesandwhofinancetheirvehiclethroughoneofour
specifiedbankingpartners.Underthisprogram,customershavetheoptionofsellingtheirvehiclebacktousduringtheguaranteeperiodforapre-determined
resalevalue.Guaranteeperiodsgenerallyrangefrom36to39months.Althoughwereceivefullpaymentforthevehiclesalespriceatthetimeofdelivery,weare
requiredtoaccountfortheseasoperatingleases.Theamountofsaleproceedsequaltotheresidualvalueguaranteeisdeferreduntiltheguaranteeexpiresoris
exercised.Theremainingsaleproceedsaredeferredandrecognizedonastraightlinebasisoverthestatedguaranteeperiod.Theguaranteeperiodexpiresatthe
earlieroftheendoftheguaranteeperiodorthepay-offoftheinitialloan.WecapitalizethecostofthesevehiclestoleasedvehiclesonourConsolidatedBalance
Sheetsanddepreciatetheirvalue,lesssalvagevalue,tocostofautomotiverevenueoverthesameperiod.
Incaseswhencustomerretainsownershipofthevehicleattheendoftheguaranteeperiod,theresalevalueguaranteeliabilityandanyremainingdeferred
revenuebalancesrelatedtothevehiclearesettledtoautomotiverevenueandthenetbookvalueoftheleasedvehicleisexpensedtocostsofautomotive
revenue.Incaseswhencustomersreturnthevehiclebacktousduringtheguaranteeperiod,wepurchasethevehiclefromthecustomeratanamountequaltothe
resalevalueguaranteeandsettleanyremainingdeferredbalancestoautomotiverevenueandwereclassifythenetbookvalueofthevehicleonourbalancesheetto
pre-ownedvehicleinventory.AsofDecember31,2015,$136.8millionofguaranteesareexercisablebycustomerswithinthenexttwelvemonths.
Vehicle
sales
to
leasing
partners
with
a
residual
value
guarantee
Inthefourthquarterof2014,wealsobeganofferingresidualvalueguaranteesinconnectionwithautomobilesalestocertainbankleasingpartners.Aswe
haveguaranteedthevalueofthesevehiclesandasthevehiclesareleasedtoend-customers,weaccountforthesetransactionsasinterestbearingcollateralized
borrowingsasrequiredunderASC
840
-
Leases
.Underthisprogram,cashisreceivedforthefullpriceofthevehicleandisrecordedwithinresalevalueguarantee
forthelong-termportionanddeferredrevenueforthecurrentportion.Weaccretethedeferredrevenueamounttoautomotiverevenueonastraightlinebasisover
theguaranteeperiodandaccrueinterestexpensebasedonourborrowingrate.WecapitalizevehiclesunderthisprogramtoleasedvehiclesonourConsolidated
BalanceSheetsandrecorddepreciationfromthesevehiclestocostofautomotiverevenuesduringtheperiodthevehicleisunderaleasearrangement.Cash
receivedforthesevehicles,netofrevenuerecognizedduringtheperiod,isclassifiedascollateralizedleaseborrowingswithincashflowsfromfinancingactivities
inourConsolidatedStatementsofCashFlows.
Attheendoftheleaseterm,wesettleourliabilityincashbyeitherpurchasingthevehiclefromtheleasingpartnerfortheresidualvalueguaranteeamount,
orpayingashortfalltotheguaranteeamounttheleasingpartnermayrealizeonthesaleofthevehicle.Anyremainingbalanceswithindeferredrevenueandresale
valueguaranteewillbesettledtoautomotiverevenue.Incaseswherethebankretainsownershipofthevehicleaftertheendofourguaranteeperiod,weexpense
thenetvalueoftheleasedvehicletocostsofautomotiverevenue.Themaximumcashwecouldberequiredtopayunderthisprogram,assumingwerepurchaseof
allvehiclesunderthisprogramis$348.2millionatDecember31,2015.
AsofDecember31,2015andDecember31,2014,wehad$527.5millionand$16.7millionofsuchborrowingsrecordedintheresalevalueguarantee
liabilityand$120.5millionand$3.9millionrecordedindeferredrevenueliability.
Atleastannually,weassesstheestimatedmarketvaluesofvehiclesunderourresalevalueguaranteeprogramtodetermineifwehavesustainedalosson
anyofthesecontracts.Asweaccumulatemoredatarelatedtotheresalevaluesofourvehiclesorasmarketconditionschange,theremaybesignificantchangesto
theirestimatedvalues.
Direct
Vehicle
Leasing
Program
WeofferavehicleleasingprogramincertainlocationsintheUnitedStates,CanadaandGermany.Qualifyingcustomersarepermittedtoleaseavehicle
directlyfromTeslafor36or48months.Attheendoftheleaseterm,customershavetheoptionofeitherreturningthevehicletousorpurchasingifforapredeterminedresidualvalue.Weaccountfortheseleasingtransactionsasoperatingleasesandrecognizeleasingrevenuesoverthecontractualtermandrecordthe
depreciationofthesevehiclestocostofautomotiverevenues.AsofDecember31,2015andDecember31,2014,wehaddeferred$25.8millionand$9.4millionof
lease-relatedupfrontpaymentswhichwillberecognizedonastraight-linebasisoverthecontractualtermoftheindividualleases.Leaserevenuesarerecordedin
automotiverevenueandfortheyearendedDecember31,2015andDecember31,2014,werecognized$41.2millionand$4.4million
Maintenance
and
Service
Plans
Weofferaprepaidmaintenanceprogramforourvehicles,whichincludesplanscoveringmaintenanceforuptoeightyearsorupto100,000miles,provided
theseservicesarepurchasedwithinaspecifiedperiodoftime.Themaintenanceplanscoverannualinspectionsandthereplacementofwearandtearparts,
excludingtiresandthebattery.Paymentscollectedinadvanceoftheperformanceofserviceareinitiallyrecordedindeferredrevenuesontheconsolidatedbalance
sheetsandrecognizedinautomotivesalesaswefulfillourperformanceobligations.
35

Wealsoofferanextendedserviceplan,whichcoverstherepairorreplacementofvehiclepartsforanadditionalfouryearsoruptoanadditional50,000
miles,aftertheendofourinitialNewVehicleLimitedWarranty,providedtheyarepurchasedwithinaspecifiedperiodoftime.Paymentscollectedinadvanceof
theperformanceofserviceareinitiallyrecordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesratablyovertheservice
coverageperiods.
Inventory
Valuation
Inventoriesarestatedatthelowerofcostormarket.Costiscomputedusingstandardcost,whichapproximatesactualcostonafirst-in,first-outbasis.We
recordinventorywrite-downsforexcessorobsoleteinventoriesbaseduponassumptionsaboutoncurrentandfuturedemandforecasts.Ifourinventoryonhandis
inexcessofourfuturedemandforecast,theexcessamountsarewrittenoff.
Wealsoreviewinventorytodeterminewhetheritscarryingvalueexceedsthenetamountrealizableupontheultimatesaleoftheinventory.Thisrequiresus
todeterminetheestimatedsellingpriceofourvehicleslesstheestimatedcosttoconvertinventoryonhandintoafinishedproduct.Onceinventoryiswritten-down,
anew,lower-costbasisforthatinventoryisestablishedandsubsequentchangesinfactsandcircumstancesdonotresultintherestorationorincreaseinthatnewly
establishedcostbasis.
Shouldourestimatesoffuturesellingpricesorproductioncostschange,additionalandpotentiallymaterialincreasestothisreservemayberequired.A
smallchangeinourestimatesmayresultinamaterialchargetoourreportedfinancialresults.
Warranties
Weprovideamanufacturerswarrantyonallvehicles,productionpowertraincomponentsandsystems,andTeslaEnergyproductswesell.Atthetimeof
delivery,weaccrueforamanufacturerswarrantywhichincludesourbestestimateoftheprojectedcoststorepairortoreplaceitemsunderwarranty.These
estimatesarebasedonactualclaimsincurredto-dateandanestimateofthenature,frequencyandcostsoffutureclaims.
Theseestimatesareinherentlyuncertainandchangestoourhistoricalorprojectedwarrantyexperiencemaycausematerialchangestoourwarrantyreserve
inthefuture.Theportionofthewarrantyprovisionexpectedtobeincurredwithin12monthsisclassifiedasacurrentliability.
Ourwarrantyreservesdonotincludeprojectedwarrantycostsassociatedwithourvehiclesaccountedforasoperatingleasesorcollateralizeddebt
arrangements.Coststorepairthesevehiclesareexpensedasincurred.Warrantyexpenseisrecordedasacomponentofcostofautomotiverevenue.
Stock-Based
Compensation
Weusethefairvaluemethodofaccountingforourstockoptionsandrestrictedstockunits(RSUs)grantedtoemployeesandourEmployeeStockPurchase
Plan(ESPP)tomeasurethecostofemployeeservicesreceivedinexchangeforthestock-basedawards.ThefairvalueofstockoptionsandESPPareestimatedon
thegrantdateandofferingdateusingtheBlack-Scholesoption-pricingmodel.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfair
marketvalueofourcommonstock.Theresultingcostisrecognizedovertheperiodduringwhichanemployeeisrequiredtoprovideserviceinexchangeforthe
awards,usuallythevestingperiodwhichisgenerallyfouryearsforstockoptionsandRSUsandsixmonthsfortheESPP.Stock-basedcompensationexpenseis
recognizedonastraight-linebasis,netofestimatedforfeitures.
TheBlack-Scholesoption-pricingmodelrequiresinputssuchastherisk-freeinterestrate,expectedtermandexpectedvolatility.Further,theforfeiturerate
alsoaffectstheamountofaggregatecompensation.Theseinputsaresubjectiveandgenerallyrequiresignificantjudgment.
Weestimateourforfeitureratebasedonananalysisofouractualforfeitureexperienceandwillcontinuetoevaluatetheappropriatenessoftheforfeiture
ratebasedonactualforfeitureexperience,analysisofemployeeturnoverbehaviorandotherfactors.Quarterlychangesintheestimatedforfeitureratecanhavea
significanteffectonreportedstock-basedcompensationexpense,asthecumulativeeffectofadjustingtherateforallexpenseamortizationisrecognizedinthe
periodtheforfeitureestimateischanged.Ifarevisedforfeiturerateishigherthanthepreviouslyestimatedforfeiturerate,anadjustmentismadethatwillresultina
decreasetothestock-basedcompensationexpenserecognizedintheconsolidatedfinancialstatements.Ifarevisedforfeiturerateislowerthanthepreviously
estimatedforfeiturerate,anadjustmentismadethatwillresultinanincreasetothestock-basedcompensationexpenserecognizedintheconsolidatedfinancial
statements.
Asweaccumulateadditionalemployeestock-basedawardsdataovertimeandasweincorporatemarketdatarelatedtoourcommonstock,wemay
calculatesignificantlydifferentvolatilities,expectedlivesandforfeiturerates,whichcouldmateriallyimpactthevaluationofourstock-basedawardsandthe
stock-basedcompensationexpensethatwewillrecognizeinfutureperiods.Stock-basedcompensationexpenseisrecordedinourcostofrevenues,researchand
developmentexpenses,andselling,generalandadministrativeexpenses.
36

InAugust2012,ourBoardofDirectorsgranted5,274,901stockoptionstoourCEO(2012CEOGrant).The2012CEOGrantconsistsoftenvesting
trancheswithavestingschedulebasedentirelyontheattainmentofbothperformanceconditionsandmarketconditions,assumingcontinuedemploymentand
servicetousthrougheachvestingdate.
Eachofthevestingtranchesrequiresacombinationofoneofthetenpre-determinedperformancemilestonesoutlinedbelowandanincrementalincreasein
ourmarketcapitalizationof$4.0billion,ascomparedtotheinitialmarketcapitalizationof$3.2billionmeasuredatthetimeofthe2012CEOGrant.

SuccessfulcompletionoftheModelXAlphaPrototype;

SuccessfulcompletionoftheModelXBetaPrototype;

CompletionofthefirstModelXProductionVehicle;

SuccessfulcompletionoftheModel3AlphaPrototype;

SuccessfulcompletionoftheModel3BetaPrototype;

CompletionofthefirstModel3ProductionVehicle;

Grossmarginof30%ormoreforfourconsecutivequarters;

Aggregatevehicleproductionof100,000vehicles;

Aggregatevehicleproductionof200,000vehicles;and

Aggregatevehicleproductionof300,000vehicles.

Thetermofthe2012CEOGrantistenyears,soanytranchesthatremainunvestedattheexpirationofthe2012CEOGrantwillbeforfeited.Inaddition,
unvestedoptionswillbeforfeitedifourCEOisnolongerinthatrole,whetherforcauseorotherwise.
Wemeasuredthefairvalueofthe2012CEOGrantusingaMonteCarlosimulationapproachwiththefollowingassumptions:risk-freeinterestrateof
1.65%,expectedtermoftenyears,expectedvolatilityof55%anddividendyieldof0%.
Stock-basedcompensationexpenseassociatedwiththe2012CEOGrantisrecognizedforeachpairofperformanceandmarketconditionsoverthelonger
oftheexpectedachievementperiodoftheperformanceandmarketconditions,beginningatthepointintimethattherelevantperformanceconditionisconsidered
probableofbeingmet.
AsofDecember31,2015,themarketconditionsforsevenvestingtranchesandthefollowingperformancemilestoneswereachievedandapprovedbyour
BoardofDirectors,andthereforefouroftentranchesofthe2012CEOGrantwerevestedasofsuchdate:

SuccessfulcompletionoftheModelXAlphaPrototype

SuccessfulcompletionoftheModelXBetaPrototype;and

CompletionofthefirstModelXProductionVehicle

Aggregatevehicleproductionof100,000vehicles

AsofDecember31,2015thefollowingtwoperformancemilestoneswereconsideredprobableofachievement:

SuccessfulcompletionoftheModel3AlphaPrototype;and

SuccessfulcompletionoftheModel3BetaPrototype

Astheabovethreeperformancemilestoneswereconsideredprobableofachievement,werecordedstock-basedcompensationexpenseof$10.6million,
$25.0millionand$14.5millionfortheyearsendedDecember31,2015,2014and2013.
Additionally,nocashcompensationhaseverbeenreceivedbyourCEOforhisservicestotheCompany.
Income
Taxes
WearesubjecttofederalandstatetaxesintheUnitedStatesinmanyforeignjurisdictions.Significantjudgmentisrequiredindeterminingourprovisionfor
incometaxes,ourdeferredtaxassetsandliabilitiesandanyvaluationallowancerecordedagainstournetdeferredtaxassets.Wemaketheseestimatesand
judgmentsaboutourfuturetaxableincomethatarebasedonassumptionsthatareconsistentwithourfutureplans.Taxlaws,regulations,andadministrative
practicesmaybesubjecttochangeduetoeconomicorpoliticalconditionsincludingfundamentalchangestothetaxlawsapplicabletocorporatemultinationals.
TheU.S.,manycountriesintheEuropeanUnion,andanumberofothercountriesareactivelyconsideringchangesinthisregard.AsofDecember31,2015,we
hadrecordedafullvaluationallowanceonournetU.S.deferredtaxassetsbecauseweexpectthatitismorelikelythannotthatourU.S.deferredtaxassetswillnot
berealizedintheforeseeablefuture.Shouldtheactualamountsdifferfromourestimates,theamountofourvaluationallowancecouldbemateriallyimpacted.
37

Furthermore,significantjudgmentisrequiredinevaluatingourtaxpositions.Intheordinarycourseofbusiness,therearemanytransactionsand
calculationsforwhichtheultimatetaxsettlementisuncertain.Asaresult,werecognizetheeffectofthisuncertaintyonourtaxattributesbasedonourestimatesof
theeventualoutcome.Theseeffectsarerecognizedwhen,despiteourbeliefthatourtaxreturnpositionsaresupportable,webelievethatitismorelikelythannot
thatthosepositionsmaynotbefullysustaineduponreviewbytaxauthorities.WearerequiredtofileincometaxreturnsintheUnitedStatesandvariousforeign
jurisdictions,whichrequiresustointerprettheapplicabletaxlawsandregulationsineffectinsuchjurisdictions.Suchreturnsaresubjecttoauditbythevarious
federal,stateandforeigntaxingauthorities,whomaydisagreewithrespecttoourtaxpositions.Webelievethatourconsiderationisadequateforallopenaudit
yearsbasedonourassessmentofmanyfactors,includingpastexperienceandinterpretationsoftaxlaw.Wereviewandupdateourestimatesinlightofchanging
factsandcircumstances,suchastheclosingofataxaudit,thelapseofastatuteoflimitationsorachangeinestimate.Totheextentthatthefinaltaxoutcomeof
thesemattersdiffersfromourexpectations,suchdifferencesmayimpactincometaxexpenseintheperiodinwhichsuchdeterminationismade.Theeventual
impactonourincometaxexpensedependsinpartifwestillhaveavaluationallowancerecordedagainstourdeferredtaxassetsintheperiodthatsuch
determinationismade.

Results of Operations
Revenues
AutomotiverevenueincludesrevenuesrelatedtodeliveriesofnewModelSandModelXvehicles,includinginternetconnectivity,Superchargingaccess,
andovertheairsoftwareupdates,aswellassalesofregulatorycreditstootherautomotivemanufacturers,amortizationofrevenueforcarssoldwithresalevalue
guarantees,andvehicleleasingrevenue.
Servicesandotherrevenueconsistsofrepairandmaintenanceservices,serviceplansandmerchandise,salesofpre-ownedTeslavehicles,salesofelectric
vehiclepowertraincomponentsandsystemstoothermanufacturers,TeslaEnergyproducts,andnetsalesofnon-Teslavehicletrade-ins.
AutomotiverevenueduringtheyearsendedDecember31,2015,2014,and2013were$3.74billion,$3.00billion,and$1.92billion.Theincreasewas
primarilydrivenbytherampinvehicledeliveries.FortheyearsendedDecember31,2015,2014,and2013automotiverevenueincludes$309.4million,$132.6
millionand$33.5millionfromtheaccretionofthedeferredrevenuesfromourresalevalueguaranteeandothersimilarprograms,aswellasTeslaleasing.
ServiceandotherrevenueduringtheyearsendedDecember31,2015,2014,and2013were$305.0million,$191.3million,and$91.6million,related
primarilytoincreasesinpre-ownedvehiclesalesandmaintenanceservicerevenueinallyears,andincreasedpowertrainsalesin2014ascomparedto2013.
Cost of Revenues and Gross Profit
Costofautomotiverevenuesincludesdirectparts,materialandlaborcosts,manufacturingoverhead,includingamortizedtoolingcosts,shippingandlogistic
costs,vehicleinternetconnectivitycosts,allocationsofelectricityandinfrastructurecostsrelatedtoourSuperchargernetwork,andreservesforestimatedwarranty
expenses.Costofrevenuesalsoincludesadjustmentstowarrantyexpenseandchargestowritedownthecarryingvalueofourinventorywhenitexceedsits
estimatednetrealizablevalueandtoprovideforon-handinventorythatiseitherobsoleteorisinexcessofforecasteddemand.
CostofautomotiverevenuesfortheyearendedDecember31,2015,2014,and2013were$2.82billion,$2.15billion,and$1.48billion.Theincreaseincost
ofautomotiverevenueswasdrivenprimarilybyincreasedModelSdeliveries.FortheyearsendedDecember31,2015,2014,and2013,werecognized$172.4
million,$84.5,and$21.1millionincostofautomotiverevenuesrelatedtocarsaccountedforasoperatingleases.
Costofservicesandotherrevenueincludesdirectparts,materialandlaborcostsforrepairandmaintenanceservices,allocationsofservicecenteroverhead
costs,pre-ownedTeslavehiclesales,salesofourpowertraincomponents,andcostsrelatedtotheproductionandsaleofTeslaEnergyproducts.Fortheyears
endedDecember31,2015,2014,and2013costsofservicesandotherrevenuewere$299.2million,$170.9million,and$73.9million.Theincreaseincostof
servicesandotherrevenueswasdrivenprimarilybygreaterpre-ownedvehiclesalesandincreasedmaintenanceandrepairservicesinallyears,andincreased
powertrainsalestoDaimlerin2014ascomparedto2013.
38

GrossprofitfortheyearsendedDecember31,2015,2014,and2013were$923.5million,$881.7millionand$456.3millionGrossmarginfortheyears
endedDecember31,2015,2014,and2013were22.8%,27.6%,and22.7%.Thelowermarginin2015ascomparedto2014wasprimarilyduetoproductand
regionalmixshift,asagreaterpercentageofsaleswerederivedfromvehiclemodelswithloweraveragesellingprices,andincreasedmanufacturingcostsrelated
totherampinproductionofthesmalldriveunitfordualmotorModelSvehiclesandstartofModelXproduction,obsoleteinventoryandlowerZEVcredits
revenue.Thismargindecreasewaspartiallyoffsetbyanincreasingamountofrevenuesfromvehiclesaccountedforasleasesincludingdirectleasevehiclesand
thoseunderourresalevalueguaranteeprogramswhichhaveasignificantlyhighergrossmarginandfrommaterialcostsavings.Servicesandothergrossmargin
werealsodownyearoveryear,primarilydrivenbyaplannedpricereductionforpowertrainsalestoDaimler.Theincreaseingrossprofitfrom2013to2014was
primarilyduetomanufacturingandsupplychainefficienciesaswellascomponentcostreductionsandhigherregulatorycreditsales,partiallyoffsetby
manufacturinginefficienciesassociatedwithtransitioningtoournewfinalassemblylineandlaunchofAll-WheelDriveDualMotorModelS.
Research and Development Expenses
Researchanddevelopment(R&D)expensesconsistprimarilyofpersonnelcostsforourteamsinengineeringandresearch,supplychain,quality,
manufacturingengineeringandmanufacturingtestorganizations,prototypingexpense,contractandprofessionalservicesandamortizedequipmentexpense.
R&DexpensesfortheyearendedDecember31,2015were$717.9million,anincreasefrom$464.7millionfortheyearendedDecember31,2014.The
increaseinR&Dexpensesconsistedprimarilyofa$93.9millionincreaseinexpensedmaterialsprimarilytosupportourModelXdevelopmentandModelS
improvements,a$75.9millionincreaseinemployeecompensationexpenses,a$30.6millionincreaseinfacilitiesanddepreciationcosts,a$20.1millionincrease
incostsrelatedtoModelX,Autopilotanddualmotorpowertrainengineering,designandtestingactivitiesanda$22.8millionincreaseinstock-based
compensationexpenserelatedtoincreasedheadcountandincreasingvaluesofawardsgranted.
R&DexpensesfortheyearendedDecember31,2014were$464.7million,anincreasefrom$232.0millionfortheyearendedDecember31,2013.The
increaseinR&Dexpensesconsistedprimarilyofan$85.3millionincreaseinemployeecompensationexpenses,a$60.7millionincreaseinexpensedmaterials
primarilytosupportourModelX,dualmotorpowertrainandright-handdriveModelSdevelopment,a$50.9millionincreaseincostsrelatedtoModelX,dual
motorpowertrainandright-handdriveModelSengineering,designandtestingactivities,a$28.1millionincreaseinstock-basedcompensationexpenserelatedto
increasedheadcountandincreasingvaluesofawardsgranted,a$4.1millionincreaseinoffice,informationtechnologyandfacilities-relatedcostsanda$3.3
millionincreaseinshippingchargesforModelX,dualmotorpowertrainandright-handdriveModelSdevelopment.
Selling, General and Administrative Expenses
Selling,generalandadministrative(SG&A)expensesconsistprimarilyofpersonnelandfacilitiescostsrelatedtoourTeslaretailandservicestores,
marketing,sales,executive,finance,humanresources,informationtechnologyandlegalorganizations,settlementsandfeesforprofessionalandcontractservices
supportingthesefunctions.
SG&AexpensesfortheyearendedDecember31,2015were$922.2million,anincreasefrom$603.7millionfortheyearendedDecember31,2014.SG&A
expensesincreasedprimarilyfromhigherheadcountandfacilitycosts,includingstockbasedcompensation,tosupportanexpandedretail,serviceandSupercharger
footprintaswellasthegeneralgrowthofthebusiness.TheincreaseinourSG&Aexpensesconsistedprimarilyofa$138.4millionincreaseinemployee
compensationexpensesrelatedtohighersales,serviceandmarketingheadcounttosupportsalesactivitiesworldwideandhighergeneralandadministrative
headcounttosupporttheexpansionofthebusiness,$126.1millionincreaseinoffice,informationtechnologyandfacilities-relatedcoststosupportthegrowthof
ourbusinessaswellassalesandmarketingactivitiestohandleourexpandingmarketpresence,a$41.8millionincreaseinprofessionalandoutsideservicescosts,
anda$12.2millionincreaseinstockbasedcompensation.
SG&AexpensesfortheyearendedDecember31,2014were$603.7million,anincreasefrom$285.6millionfortheyearendedDecember31,2013.SG&A
expensesincreasedprimarilyfromhigherheadcountandfacilitycoststosupportanexpandedretail,serviceandSuperchargerfootprintaswellasthegeneral
growthofthebusiness.The$318.1millionincreaseinourSG&Aexpensesconsistedprimarilyofa$141.1millionincreaseinemployeecompensationexpenses
relatedtohighersales,serviceandmarketingheadcounttosupportsalesactivitiesworldwideandhighergeneralandadministrativeheadcounttosupportthe
expansionofthebusiness,a$135.9millionincreaseinoffice,informationtechnologyandfacilities-relatedcoststosupportthegrowthofourbusinessaswellas
salesandmarketingactivitiestohandleourexpandingmarketpresence,a$35.8millionincreaseinstock-basedcompensationexpenserelatedtoadditional
headcountandincreasingvalueofawardsgrantedanda$27.2millionincreaseinprofessionalandoutsideservicescosts.
Interest Expense
InterestexpensefortheyearsendedDecember31,2015,2014,and2013was$118.9million,$100.9million,and$32.9million.Theincreaseininterest
expenseisprimarilyduetotheissuanceof$920.0millionaggregateprincipalamountof2019Notesand$1.38billionaggregateprincipalamountof2021Notes
duringthefirsthalfof2014.
39

Other Income (Expense), Net

Otherincome(expense),net,consistsprimarilyofforeignexchangegainsandlossesrelatedtoourforeigncurrency-denominatedmonetaryassetsand
liabilitiesandthechangeinthefairvalueofourDOEcommonstockwarrantliability.Ourforeignexchangegainsandlosseswillvarydependinguponmovements
intheunderlyingforeigncurrencyexchangerates.PriortotheexpirationoftheDOEwarrantinMay2013,theDOEwarranthadbeencarriedatitsestimatedfair
valuewithchangesinitsfairvaluereflectedinotherincome(expense),net.
Otherincome(expense),net,fortheyearsendedDecember31,2015,2014,and2013was($41.7)million,$1.8millionand$22.6million.Fluctuationsin
otherincome(expense)from2014to2015areprimarilytheresultofgains(losses)fromforeigncurrencyexchangeof($45.6)millionand$2.0millionforthe
yearsendedDecember31,2015and2014.Foreigncurrencylossesduring2015relatedprimarilytochangesintheexchangeratesofeuro,Norwegiankrone,
Canadiandollars,andChineseyuan.Otherincome,netof$22.6millionin2013wasprimarilyduetothereductioninfairvalueofourDOEcommonstockwarrant
liabilityof$10.7millionduringtheyear.Otherincome,net,alsoincludesthefavorableforeigncurrencyexchangeimpactfromourforeigncurrency-denominated
liabilitiesduringtheyearendedDecember31,2013,especiallyrelatedtotheJapaneseyen.
Provision for Income Taxes
OurprovisionforincometaxesfortheyearsendedDecember31,2015,2014,and2013was$13.0million,$9.4million,and$2.6million.Theincreasesin
theprovisionforincometaxesweredueprimarilytotheincreaseintaxableincomeinourinternationaljurisdictions.

Liquidity and Capital Resources

AsofDecember31,2015,wehad$1.20billioninprincipalsourcesofliquidityavailablefromourcashandcashequivalentsincluding$297.8millionof
moneymarketfunds.AmountsheldinforeigncurrencieshadaUSdollarequivalentof$535.6millionasofDecember31,2015,andconsistedprimarilyofeuro,
Danishkrone,Norwegiankrone,Swedishkrone,Canadiandollars,euro,andJapaneseyen.
Sourcesofcasharepredominatelyfromourdeliveriesofvehicles,aswellascustomerdeposits,salesofregulatorycredits,proceedsfromfinancing
activities,TeslaEnergyproducts,andrepairandmaintenanceservices.Weexpectthatourcurrentsourcesofliquidity,includingcashandcashequivalents,
togetherwithourcurrentprojectionsofcashflowfromoperatingactivities,willprovideuswithadequateliquidityoverthenext12monthsbasedonourcurrent
plans.Thesecashflowsenableustofundourongoingoperations,researchanddevelopmentprojectsforourplannedModel3,andcertainotherfutureproducts;
purchasetoolingandmanufacturingequipmentrequiredtocontinuetorampupproductionofModelXandModelS;constructourGigafactory;andestablishand
expandourretailstores,servicecentersandSuperchargernetwork.Wecurrentlyanticipatemakingaggregatecapitalexpendituresofabout$1.5billionin2016.
In2015,weenteredintoaseniorsecuredasset-basedrevolvingcreditagreementwithasyndicateofbanksunderwhichwecurrentlyhavetotal
commitmentsofupto$1billion.TheCreditAgreementprovidesforaseniorsecuredasset-basedrevolvingcreditfacility,whichwemaydrawuponasneeded,
subjecttocertainconditions.Borrowedfundsbearinterest,attheCompanysoption,atanannualrateof(a)1%plusLIBORor(b)thehighestof(i)thefederal
fundsrateplus0.50%,(ii)thelendersprimerateor(iii)1%plusLIBOR.InFebruary2016,weamendedtheCreditAgreementandincreasedtheavailabilityand
thecommitmentsundertheCreditAgreementfrom$750.0millionto$1.0billion.AsofDecember31,2015,borrowingsundertheCreditFacilityof$135.0
millionwereusedtorepayallborrowingsunderandterminateasecuredassetbasedlineofcreditweusedtosupportourdirectleasingprogram.
Whenmarketconditionsarefavorable,wemayevaluatealternativestopursueliquidityoptionstofundcapitalintensiveinitiatives.Shouldprevailing
economic,financial,businessorotherfactorsadverselyaffectourabilitytomeetouroperatingcashrequirements,wecouldberequiredtoobtainfundingthough
traditionaloralternativesourcesoffinancing.Wecannotbecertainthatadditionalfundswouldbeavailabletousonfavorabletermswhenrequired,oratall.
Summary of Cash Flows

Netcashprovidedby(usedin)operatingactivities
Netcashusedininvestingactivities
Netcashprovidedbyfinancingactivities

2015

Year Ended December 31,

2014

(524,499) $
(1,673,551)
1,523,523

(57,337) $
(990,444)
2,143,130

2013

264,804
(249,417)
635,422

40

Cash Flows from Operating Activities

Ourcashflowsfromoperatingactivitiesaresignificantlyaffectedbyourcashinvestmentstosupportthegrowthofourbusinessinareassuchas
manufacturing,researchanddevelopmentandselling,generalandadministrative.Ouroperatingcashflowsarealsoaffectedbyourworkingcapitalneedsto
supportgrowthandfluctuationsininventory,personnelrelatedexpenditures,accountspayableandothercurrentassetsandliabilities.
Ouroperatingcashinflowsincludecashfromsalesofourvehicles,customerdepositsforModelSandModelX,salesofregulatorycredits,cashfromthe
provisionofdevelopmentservices,andsalesofpowertraincomponentsandsystems.Thesecashinflowsareoffsetbypaymentswemaketooursuppliersfor
productionmaterialsandpartsusedinourmanufacturingprocess,employeecompensation,operatingleasesandinterestexpenseonourfinancings.
Cashprovidedby(usedin)operatingactivitieswas($524.5)million,($57.3)millionand$264.8in2015,2014and2013.Thedecreaseinoperatingcash
flowsin2015ascomparedto2014wasduetoanincreaseinoverallinventorytosupportgrowth,andincreaseinoperatingleasevehicles,partiallyoffsetby
proceedsfromsales,andhigheroperatingexpensesinR&DandSG&A.
Thedecreaseinoperatingcashflowsin2014ascomparedto2013wasduetoanincreaseinfinishedgoodsinventoryprimarilyduetocarswhosedelivery
slippedfromQ4of2014tothefollowingyear,anincreaseinrawmaterialinventorybalancesatyearendnecessarytomeetourplannedproductionrequirements
forModelSinQ1ofthefollowingyear,higheroperatingexpensesinR&DandSG&A,anduseofcashforvehiclesdirectlyleasedbyus,partiallyoffsetby
increasedcashreceiptsfromcustomerpaymentsonvehiclesales,includinganincreaseincustomerdeposits.
Customer
Deposits
Wecollectdepositsfromcustomersatthetimetheyplaceanorderforavehicleand,insomelocations,atcertainadditionalmilestonesuptothepointof
delivery.Customerdepositamountsandtimingvarydependingonthevehiclemodelandcountryofdelivery.Customerdepositsarefullyrefundableuptothe
pointthevehicleisplacedintotheproductioncycle.Amountsareincludedincurrentliabilitiesuntilrefundedoruntiltheyareappliedtoacustomerspurchase
balanceattimeofdelivery.AsofDecember31,2015,weheld$283.4millionincustomerdeposits.
Cash Flows from Investing Activities
Cashflowsfrominvestingactivitiesprimarilyrelatetocapitalexpenditurestosupportourgrowthinoperations,includinginvestmentsinModelS
manufacturingequipmentandtoolingandourstores,servicecentersandSuperchargernetworkinfrastructure.Cashusedininvestingactivitieswas$1.67billion,
$990.4millionand$249.4millionin2015,2014and2013.Cashflowsfrominvestingactivitiesandvariabilitybetweeneachyearrelatedprimarilytocapital
expenditures,whichwere$1.63billion,$969.9million,and$264.2millionin2015,2014,and2013.Expendituresinallyearsconsistedprimarilyofpurchasesof
capitalequipment,tooling,andfacilitiestosupportourModelSandModelXmanufacturing.
In2014,webeganconstructionofourGigafactoryfacilityinNevada.Teslascontributiontototalcapitalexpendituresareexpectedtobeabout$2.0billion
overthenext5years.In2015,weusedcashof$220.0milliontowardstheconstructionofthefirststageofthisprojectandexpecttospendupto$250millionover
thenext12months.
Cash Flows from Financing Activities
Netcashprovidedbyfinancingactivitieswas$1.52billion,$2.14billionand$635.4millionin2015,2014and2013.Cashflowsfromfinancingactivities
duringthetwelvemonthsendedDecember31,2015consistedprimarilyof$738.3millionnetproceedsfromAugust2015publicofferingof3,099,173sharesof
commonstockand$568.7receivedfromvehiclesalestoourbankleasingpartners.Thedecreaseincashprovidedfromfinancingin2015ascomparedto2014was
primarilydueto$2.1billionnetproceedsreceivedin2014fromissuanceofour2019and2021Notes.
Theincreaseincashprovidedfromfinancingin2014ascomparedto2013wasprimarilydueto$2.1billionnetproceedsfromtheissuanceofour2019and
2021Notes,includingtheassociatedhedgeandwarranttransactions,representinga$1.5billionincreaseindebtfinancingascomparedto2013.Cashflowsfrom
financingin2013thatdidnotrecurin2014includedproceedsof$415.0millionfromtheissuanceofcommonstockinpublicandprivateofferingsand$452.3
millionusedtorepayourDOEloans.
0.25%
and
1.25%
Convertible
Senior
Notes
and
Bond
Hedge
and
Warrant
Transactions
In2014,weissued$920.0millionprincipalamountof0.25%convertibleseniornotesdue2019(2019Notes)and$1.38billionprincipalamountof1.25%
convertibleseniornotesdue2021(2021Notes)inapublicoffering.Thetotalnetproceedsfromtheseofferings,afterdeductingtransactioncosts,were
approximately$905.8millionfromthe2019Notesand$1.36billionfromthe2021Notes.Theinterestratesarefixedat0.25%and1.25%perannumforthe2019
and2021Notes,andarepayablesemi-annuallyinarrearsonMarch1andSeptember1ofeachyear,commencingonSeptember1,2014.
41

Inconnectionwiththeofferingofthesenotesin2014,wepurchasedconvertiblenotehedgesfor$603.4millioninaggregateandsoldwarrantsfor$389.2
millioninaggregate.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedtooffsetanyactualdilutionfromthe
conversionofthe2019Notesand2021Notes.
Duringthefourthquarterof2015,theclosingpriceofourcommonstockdidnotmeetorexceed130%oftheapplicableconversionpriceofour2019Notes
and2021Notesonatleast20ofthelast30consecutivetradingdaysofthequarter;furthermore,nootherconditionsallowingholdersofthesenotestoconverthave
beenmetasofDecember31,2015.Therefore,the2019Notesand2021Notesarenotconvertibleduringthefirstquarterof2016andareclassifiedaslong-term
debt.Shouldtheclosingpriceconditionsbemetinthefirstquarterof2016orafuturequarter,the2019Notesand/orthe2021Noteswillbeconvertibleattheir
holdersoptionduringtheimmediatelyfollowingquarter.
1.50%
Convertible
Senior
Notes
and
Bond
Hedge
and
Warrant
Transactions
InMay2013,weissued$660.0millionaggregateprincipalamountof1.50%convertibleseniornotesdue2018(theNotes)inapublicoffering.Thenet
proceedsfromtheoffering,afterdeductingtransactioncosts,wereapproximately$648.0million.TheinterestundertheNotesisfixedat1.50%perannumandis
payablesemi-annuallyinarrearsonJune1andDecember1ofeachyear,commencingonDecember1,2013.
Inconnectionwiththeofferingofthe2018Notes,wepurchasedconvertiblenotehedgesfor$177.5millioninaggregateandsoldwarrantsfor$120.3
millioninaggregate.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedtooffsetanyactualdilutionfromthe
conversionofthe2018Notes.
Duringthefourthquarterof2015,theclosingpriceofourcommonstockexceeded130%oftheapplicableconversionpriceofour2018Notesonatleast20
ofthelast30consecutivetradingdaysofthequarter;therefore,holdersof2018Notesmayconverttheirnotesduringthefirstquarterof2016.Assuch,we
classifiedthe$617.7millioncarryingvalueofour2018Notesascurrentliabilitiesandclassified$42.1million,representingthedifferencebetweentheaggregate
principalofour2018Notesof$659.8millionandthecarryingvalueof2018Notes,asmezzanineequityonourconsolidatedbalancesheetasofDecember31,
2015.Similarly,debtissuancecostswereclassifiedasothercurrentassetsasofDecember31,2015.Shouldtheclosingpriceconditionsbemetinthefirstquarter
of2016orafuturequarter,the2018Noteswillbeconvertibleattheirholdersoptionduringtheimmediatelyfollowingquarter.
Formoreinformationonthe2018Notes,2019Notes,and2021NotesseePartII-Item8-FinancialStatementsandSupplementaryData,Note8Convertible
Notes
and
Long-Term
Debt
Obligations
.
Common Stock Offering and Concurrent Private Placement
Concurrentwiththeexecutionofthe2018NotesandrelatedtransactionsinMay2013,wealsocompletedapublicofferingofcommonstockandsolda
totalof3,902,862sharesofourcommonstockfortotalcashproceedsofapproximately$355.1million(whichincludes487,857sharesor$45.0millionsoldtoour
ChiefExecutiveOfficer(CEO)),netofunderwritingdiscountsandofferingcosts.Wealsosold596,272sharesofourcommonstocktoourCEOandreceivedtotal
cashproceedsof$55.0millioninaprivateplacementatthepublicofferingprice.
InAugust2015,wecompletedapublicofferingofcommonstockandsoldatotalof3,099,173sharesofourcommonstockfortotalcashproceedsof
approximately$738.3million(whichincludes82,645sharesor$20.0millionsoldtoElonMusk,ourChiefExecutiveOfficer(CEO)),netofunderwriting
discountsandofferingcosts.
Contractual Obligations
Wearepartytocontractualobligationsinvolvingcommitmentstomakepaymentstothirdparties,includingcertaindebtfinancingarrangementsandleases,
primarilyforstores,servicecenters,certainmanufacturingandcorporateoffices.Thesealsoinclude,aspartofournormalbusinesspractices,contractswith
suppliersforpurchasesofcertainrawmaterials,components,andservicestofacilitateadequatesupplyofthesematerialsandservicesandcapacityreservation
contracts.Wehavethefollowingcontractualobligations,includingfirmpurchaseobligations.Apurchaseobligationisdefinedasanagreementtopurchasegoods
orservicesthatisenforceableandlegallybindingonusandthatspecifiesallsignificantterms.Forobligationswithcancellationprovisions,theamountsincluded
inthetablebelowwerelimitedtothenon-cancelableportionoftheagreementterms.Theexpectedtimingofpaymentsoftheobligationsintheprecedingtableis
estimatedbasedoncurrentinformation.Timingofpaymentsandactualamountspaidmaybedifferent,dependingonthetimeofreceiptofgoodsorservices,or
changestoagreed-uponamountsforsomeobligations.Openpurchaseordersaregenerallycancellableinfullorinpartatourdiscretionandarethereforenot
consideredfirmpurchaseobligations.
42

Thefollowingtablesetsforth,asofDecember31,2015certainsignificantobligationsthatwillaffectourfutureliquidity(inthousands):

Year Ended December 31,

Total

2016

2017

2018

2019

2020 and
thereafter

Operatingleaseobligations
$ 570,864 $
88,629 $
86,661 $
78,531 $
69,013 $
248,030
Capitalleaseobligations,includinginterest

34,679
16,758
11,321
5,488
1,112

Purchaseobligations(1)(2)

549,716
537,719
11,997

2018Notes,includinginterest(3)

684,537
684,537

2019Notes,includinginterest

928,050
2,300
2,300
2,300
1,150
920,000
2021Notes,includinginterest
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)
AmountsdonotincludefuturecashpaymentsforpurchaseobligationswhichwererecordedinAccountspayableorAccruedliabilitiesatDecember31,
2015.
(2)
Thesetotalsrepresentaggregatepurchasecommitmentswithallvendors.SomeofthecommitmentsincludedareouragreementswithPanasonic
Corporation,totheextentquantitiesandtimingofsuchpurchasesarefixed.ShouldweterminatethePanasoniccontractspriortopurchasingcertain
minimumquantities,wewouldoweanadditional$57millionunderthetermsoftheagreementasofDecember31,2015.
(3)
Duringthefourthquarterof2015,theclosingpriceofourcommonstockexceeded130%oftheapplicableconversionpriceofour2018Notesonatleast20
ofthelast30consecutivetradingdaysofthequarter;therefore,holdersof2018Notesmayconverttheirnotesduringthefirstquarterof2016.Assuch,we
classifiedthe$617.7millioncarryingvalueofour2018NotesascurrentliabilitiesonourcondensedconsolidatedbalancesheetasofDecember31,2015
andhaveincludedrelatedcontractualpaymentsinthe2016categoryinthetableabove.

Off-Balance Sheet Arrangements

Duringtheperiodspresented,wedidnothaverelationshipswithunconsolidatedentitiesorfinancialpartnerships,suchasentitiesoftenreferredtoas
structuredfinanceorspecialpurposeentities,whichwouldhavebeenestablishedforthepurposeoffacilitatingoff-balancesheetarrangementsorother
contractuallynarroworlimitedpurposes.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

Wetransactbusinessgloballyinmultiplecurrencies.Ourinternationalrevenues,aswellascostsandexpensesdenominatedinforeigncurrencies,exposeus
totheriskoffluctuationsinforeigncurrencyexchangeratesagainstthefunctionalcurrenciesofourforeignsubsidiariesandagainsttheU.S.dollar.Upon
consolidation,asforeignexchangeratesvary,revenuesandexpensesmaybesignificantlyimpactedandwemayrecordsignificantgainsorlossesonthe
remeasurementofmonetaryassetsandliabilities,includingintercompanybalances.AsofDecember31,2015,ourlargestcurrencyexposuresarefromtheeuro,
Chineseyuan,NorwegianandDanishkrona,Canadiandollar,Swissfranc,Britishpound,andJapaneseyen.Werecordedforeignexchangelossesof$45.6million
inotherincome(expense),net,fortheyearendedDecember31,2015relatedtheimpactofchangesinexchangeratesonforeigncurrencydenominatedmonetary
assetsandliabilities.
Weconsideredthehistoricaltrendsincurrencyexchangeratesanddeterminedthatitwasreasonablypossiblethatadversechangesinexchangeratesof
10%forallcurrenciescouldbeexperiencedinthenearterm.Thesereasonablypossibleadversechangesinexchangeratesof10%wereappliedtototalmonetary
assetsandliabilitiesdenominatedincurrenciesotherthanthelocalcurrenciesasofDecember31,2015tocomputetheadverseimpactthesechangeswouldhave
hadonourincomebeforeincometaxesinthenearterm.Thesechangeswouldhaveresultedinanadverseimpactonincomebeforeincometaxesofapproximately
$189.2million,recordedtootherincome(expense),net,principallyfromintercompanyandcashbalances.
43

InNovember2015,weimplementedaprogramtohedgetheforeigncurrencyexposureriskrelatedtocertainforecastedinventorypurchasesdenominatedin
Japaneseyen.Thederivativeinstrumentsweuseareforeigncurrencyforwardcontractsandaredesignatedascashflowhedgeswithmaturitydatesof12monthsor
less.Wedonotenterintoderivativecontractsfortradingorspeculativepurposes.Wedocumenteachhedgerelationshipandassessitsinitialeffectivenessatthe
inceptionofthehedgecontractandwemeasureitsongoingeffectivenessonaquarterlybasisusingregressionanalysis.Duringthetermofaneffectivehedge
contract,werecordgainsandlosseswithinaccumulatedothercomprehensiveloss.Wereclassifythesegainsorlossestocostsofautomotivesalesintheperiodthe
relatedfinishedgoodsinventoryissoldoroverthedepreciationperiodforthosesalesaccountedforasleases.Althoughourcontractsareconsideredeffective
hedges,wemayexperiencesmallamountsofineffectivenessduetotimingdifferencesbetweenouractualinventorypurchasesandthesettlementdateofthe
relatedforeigncurrencyforwardcontracts.Wehaverecordedzeroamountofineffectivenesswithinotherincome(expense),netinourConsolidatedStatementsof
Operations,asofDecember31,2015.AsofDecember31,2015wehadrecordedagainof$7.3milliontoAOCIrelatedtoourforeigncurrencycashflowhedges.
IftheU.S.dollarhadstrengthenedby10%asofDecember31,2015,theamountrecordedinaccumulatedAOCIrelatedtoourforeignexchangecontractsbefore
taxeffectwouldhavebeenalossofapproximately$21.1million.
Interest Rate Risk
Wehadcashandcashequivalentstotaling$1.20billionasofDecember31,2015.Asignificantportionofourcashandcashequivalentswereinvestedin
moneymarketfunds.Cashandcashequivalentsareheldforworkingcapitalpurposes.Wedonotenterintoinvestmentsfortradingorspeculativepurposes.We
believethatwedonothaveanymaterialexposuretochangesinthefairvalueasaresultofchangesininterestratesduetotheshorttermnatureofourcash
equivalents.
AsofDecember31,2015,wehad$2.96billionaggregateprincipalamountofconvertibleseniornotesoutstanding,whicharefixedrateinstruments.
Therefore,ourresultsofoperationsarenotsubjecttofluctuationsininterestrates.However,thefairvalueofourdebtwillfluctuatewithmovementsofinterest
rates,increasinginperiodsofdecliningratesofinterestanddeclininginperiodsofincreasingratesofinterest.BaseduponquotedmarketpricesandLevel2inputs,
thefairvalueofourtotaldebtwas$3.4billionasofDecember31,2015.

44

I TEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page

ReportofIndependentRegisteredPublicAccountingFirm
ConsolidatedBalanceSheets
ConsolidatedStatementsofOperations
ConsolidatedStatementsofComprehensiveLoss
ConsolidatedStatementsofStockholdersEquity
ConsolidatedStatementsofCashFlows
NotestoConsolidatedFinancialStatements

45

46
47
48
49
50
51
52

R eport of Independent Registered Public Accounting Firm

TotheBoardofDirectorsandStockholdersofTeslaMotors,Inc.
Inouropinion,theaccompanyingconsolidatedbalancesheetsandtherelatedconsolidatedstatementsofoperations,ofcomprehensiveloss,ofstockholdersequity
andofcashflowspresentfairly,inallmaterialrespects,thefinancialpositionofTeslaMotors,Inc.anditssubsidiariesatDecember31,2015andDecember31,
2014,andtheresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,2015inconformitywithaccounting
principlesgenerallyacceptedintheUnitedStatesofAmerica.Alsoinouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontrolover
financialreportingasofDecember31,2015,basedoncriteriaestablishedinInternalControl-IntegratedFramework(2013)issuedbytheCommitteeof
SponsoringOrganizationsoftheTreadwayCommission(COSO).TheCompany'smanagementisresponsibleforthesefinancialstatements,formaintaining
effectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedinManagement's
ReportonInternalControloverFinancialReportingappearingunderItem9A.Ourresponsibilityistoexpressopinionsonthesefinancialstatementsandonthe
Company'sinternalcontroloverfinancialreportingbasedonourintegratedaudits.WeconductedourauditsinaccordancewiththestandardsofthePublic
CompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhether
thefinancialstatementsarefreeofmaterialmisstatementandwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterial
respects.Ourauditsofthefinancialstatementsincludedexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements,
assessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,andevaluatingtheoverallfinancialstatementpresentation.Ourauditof
internalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweakness
exists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditsalsoincludedperformingsuch
otherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditsprovideareasonablebasisforouropinions.
Acompanysinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthe
preparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompanysinternalcontroloverfinancial
reportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactions
anddispositionsoftheassetsofthecompany;(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancial
statementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewith
authorizationsofmanagementanddirectorsofthecompany;and(iii)providereasonableassuranceregardingpreventionortimelydetectionofunauthorized
acquisition,use,ordispositionofthecompanysassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationof
effectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewith
thepoliciesorproceduresmaydeteriorate.
/s/PricewaterhouseCoopersLLP
SanJose,California
February24,2016

46

Tesla Motors, Inc.

Consolidated Balance Sheets
(in thousands)

December 31,
2015

Assets
Currentassets
Cashandcashequivalents
Restrictedcashandmarketablesecurities
Accountsreceivable
Inventory
Prepaidexpensesandothercurrentassets
Totalcurrentassets
Operatingleasevehicles,net
Property,plantandequipment,net
Restrictedcash
Otherassets
Totalassets

1,905,713
17,947
226,604
953,675
76,134
3,180,073
766,744
1,829,267
11,374
43,209
5,830,667

Liabilities and Stockholders' Equity

Currentliabilities


Accountspayable
$
916,148
Accruedliabilities

422,798
Deferredrevenue

423,961
Resalevalueguarantees

136,831
Customerdeposits

283,370
Long-termdebtandcapitalleases

633,166
Totalcurrentliabilities

2,816,274

Deferredrevenue

446,105
Long-termdebtandcapitalleases

2,040,375
Resalevalueguarantee

1,293,741
Otherlong-termliabilities

364,976
Totalliabilities

6,961,471

Convertibleseniornotes(Notes8)

42,045
Stockholders'equity:


Preferredstock;$0.001parvalue;100,000sharesauthorized;noshares
issuedandoutstanding


Commonstock;$0.001parvalue;2,000,000sharesauthorizedasof
December31,2015and2014,respectively;131,425and125,688
sharesissuedandoutstandingasofDecember31,2015and2014,respectively

131
Additionalpaid-incapital

3,414,692
Accumulatedothercomprehensiveloss

(3,556)
Accumulateddeficit

(2,322,323)
Totalstockholders'equity

1,088,944
Totalliabilitiesandstockholders'equity
$
8,092,460

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

777,946
268,883
191,651

257,587
611,099
2,107,166

292,271
1,818,785
487,879
154,660
4,860,761

58,196

126
2,345,266
(22)
(1,433,660)
911,710
5,830,667

47

1,196,908
22,628
168,965
1,277,838
125,229
2,791,568
1,791,403
3,403,334
31,522
74,633
8,092,460

December 31,
2014

Tesla Motors, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

Revenues
Automotive
Servicesandother
Totalrevenues
Cost of revenues
Automotive
Servicesandother
Totalcostofrevenues
Grossprofit
Operating expenses
Researchanddevelopment
Selling,generalandadministrative
Totaloperatingexpenses
Lossfromoperations
Interestincome
Interestexpense
Otherincome(expense),net
Lossbeforeincometaxes
Provisionforincometaxes
Netloss

Netlosspershareofcommonstock,basicanddiluted

2015

Year Ended December 31,

2014

3,740,973
305,052
4,046,025

2,823,302
299,220
3,122,522
923,503

717,900
922,232
1,640,132
(716,629)
1,508
(118,851)
(41,652)
(875,624)
13,039
(888,663)

(6.93) $

Weightedaveragesharesusedincomputingnetlosspershareof
commonstock,basicanddiluted

128,202

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

48

3,007,012
191,344
3,198,356

2,145,749
170,936
2,316,685
881,671

464,700
603,660
1,068,360
(186,689)
1,126
(100,886)
1,813
(284,636)
9,404
(294,040)

2013

1,921,877
91,619
2,013,496

1,483,321
73,913
1,557,234
456,262

231,976
285,569
517,545
(61,283)
189
(32,934)
22,602
(71,426)
2,588
(74,014)

(2.36) $

(0.62)

124,539

119,421

Tesla Motors, Inc.

Consolidated Statements of Comprehensive Loss
(in thousands)

2015

Year Ended December 31,

2014

Netloss
$
(888,663) $
Othercomprehensiveincome(loss),netoftax:


Unrealizedgain(loss)onderivativesandshort-termmarketablesecurities

7,465
Foreigncurrencytranslationadjustment

(10,999)
Othercomprehensiveincome(loss)

(3,534)
Comprehensiveloss
$
(892,197) $

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

49

(294,040)

(22)

(22)
(294,062)

2013

(74,014)

(74,014)

Tesla Motors, Inc.

Consolidated Statements of Stockholders Equity
(in thousands, except per share data)

Common Stock
Shares

Balance as of December 31, 2012

IssuanceofcommonstockinMay2013publicofferingat
$92.20pershare,netofissuancecostsof$6,367
IssuanceofcommonstockinMay2013concurrentprivate
placementsat$92.20pershare
Conversionfeatureofconvertibleseniornotesdue2018
Purchaseofbondhedges
Salesofwarrant
Issuanceofcommonstockuponexerciseofstockoptions
Issuanceofcommonstockuponreleaseofrestrictedstock
units,netofshareswithheldforemployeetaxes
Issuanceofcommonstockunderemployeestockpurchase
plan
Stock-basedcompensation
Netloss
Balance as of December 31, 2013
Conversionfeatureofconvertibleseniornotesdue
2019and2021
Purchaseofbondhedges
Salesofwarrant
Reclassfromequitytomezzanineequity
Issuanceofcommonstockuponexerciseofstockoptions
Issuanceofcommonstockuponreleaseofrestrictedstock
units,netofshareswithheldforemployeetaxes
Issuanceofcommonstockunderemployeestockpurchase
plan
Stock-basedcompensation
Comprehensiveloss:
Netloss
Othercomprehensiveloss
Balance as of December 31, 2014
Conversionfeatureofconvertibleseniornotesdue
2018
Conversionfeatureofconvertibleseniornotesdue
2019and2021
IssuanceofcommonstockinAugust2015secondary
publicofferingat$242pershare,netofissuancecostsof
$11,122
Issuanceofcommonstockuponexerciseofstockoptions
Issuanceofcommonstockuponreleaseofrestrictedstock
units,netofshareswithheldforemployeetaxes
Issuanceofcommonstockunderemployeestockpurchase
plan
Stock-basedcompensation
Comprehensiveloss:
Netloss
Othercomprehensiveloss
Balance as of December 31, 2015

Additional
Paid-In
Capital

Amount

114,214 $

115 $

3,903

596

3,853

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

1,190,191 $ (1,065,606)
353,629
55,000
82,842
(177,540)
120,318
82,570

(1,116)

Total
Stockholders'
Equity

124,700

353,632

55,001
82,842
(177,540)
120,318
82,573

(1,116)

519

123,091

123

13,848
86,875

1,806,617

(74,014)
(1,139,620)

13,849
86,875
(74,014)
667,120

2,267

548,603
(603,428)
389,160
(58,199)
72,053

548,603
(603,428)
389,160
(58,199)
72,055

(189)

166
164

125,688

126

(190)
28,571
162,079

2,345,266

(294,040)

$ (1,433,660)

(22)
(22)

28,571
162,079

(294,040)
(22)
911,710

16,150

16,150

3,099
2,012

3
2

738,405
68,999

738,408
69,001

405

(4)

(4)

221

131,425

131

37,538
208,338

3,414,692

(888,663)

$ (2,322,323)

(3,534)
(3,556)

37,538
208,338

(888,663)
(3,534)
1,088,944

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

50

Tesla Motors, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

2014


(888,663) $
(294,040) $

2015
Cash Flows From Operating Activities
Netloss
Adjustmentstoreconcilenetlosstonetcashprovidedby(usedin)
operatingactivities:
Depreciationandamortization
Stock-basedcompensation
Amortizationofdiscountonconvertibledebt
Inventorywrite-downs
AmortizationofDepartmentofEnergy(DOE)loanoriginationcosts
ChangeinfairvalueofDOEwarrantliability
Fixedassetdisposal
Othernon-cashoperatingactivities
Foreigncurrencytransaction(gain)loss
Changesinoperatingassetsandliabilities
Accountsreceivable
Inventoriesandoperatingleasevehicles
Prepaidexpensesandothercurrentassets
Otherassets
Accountspayableandaccruedliabilities
Deferredrevenue
Customerdeposits
Resalevalueguarantee
Otherlong-termliabilities
Netcashprovidedby(usedin)operatingactivities
Cash Flows From Investing Activities
Purchasesofpropertyandequipmentexcludingcapitalleases
WithdrawalsoutofourdedicatedDOEaccount,net
(Increase)decreaseinotherrestrictedcash
Purchasesofshort-termmarketablesecurities
Maturitiesofshort-termmarketablesecurities

Businessacquisition
Netcashusedininvestingactivities
Cash Flows From Financing Activities
Proceedsfromissuanceofconvertibleandotherdebt
Proceedsfromissuanceofcommonstockinpublicoffering
Proceedsfromissuanceofwarrants
Proceedsfromexerciseofstockoptionsandotherstockissuances
Proceedsfromissuanceofcommonstockinprivateplacement
PrincipalpaymentsonDOEloans
Purchaseofconvertiblenotehedges
Commonstockandconvertibledebtissuancecosts
Principalpaymentsoncapitalleasesandotherdebt
Collateralizedleaseborrowing
Netcashprovidedbyfinancingactivities
Effectofexchangeratechangesoncashandcashequivalents
Netincrease(decrease)incashandcashequivalents
Cashandcashequivalentsatbeginningofperiod
Cashandcashequivalentsatendofperiod
Supplemental Disclosures
Interestpaid
Incometaxespaid
Supplemental noncash investing activities
Acquisitionofpropertyandequipmentincludedinaccountspayable
andaccruedliabilities
Estimatedfairmarketvalueoffacilitiesunderbuild-to-suitlease

$

$

231,931
156,496
69,734
15,609

14,178
7,471
(1,891)

(183,658)
(1,050,264)
(60,637)
(4,493)
414,856
209,681
106,230
249,492
61,968
(57,337)

(969,885)

(3,849)
(205,841)
189,131

106,083
80,737
9,143
8,918
5,558
(10,692)
1,796
1,815
(13,498)

(21,705)
(460,561)
(17,533)
(434)
87,413
268,098
24,354
236,299
33,027
264,804

(264,224)
14,752
55

(12,260)
(1,673,551)

318,972
730,000

106,611
20,000

(17,025)
(203,780)
568,745
1,523,523
(34,278)
(708,805)
1,905,713
1,196,908

32,060
9,461

$

$

(990,444)

2,300,000

389,160
100,455

(603,428)
(35,149)
(11,179)
3,271
2,143,130
(35,525)
1,059,824
845,889
1,905,713

20,539
3,120

$

$

(249,417)

660,000
360,000
120,318
95,307
55,000
(452,337)
(177,540)
(16,901)
(8,425)

635,422
(6,810)
643,999
201,890
845,889

9,041
257

267,334
174,749

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
51

(74,014)

422,590
197,999
72,063
44,940

37,723
26,373
55,765

46,267
(1,573,860)
(29,595)
(24,362)
263,345
322,203
36,721
442,295
23,697
(524,499)

(1,634,850)

(26,441)

2013

254,393
50,076

38,789

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

Note 1 - Overview of the Company

TeslaMotors,Inc.(Tesla,we,usorour)wasincorporatedinthestateofDelawareonJuly1,2003.Wedesign,develop,manufacture,andsellhighperformancefullyelectricvehicles,andstationaryenergystorageproducts.Wehavewholly-ownedsubsidiariesinNorthAmerica,EuropeandAsia.Theprimary
purposeofthesesubsidiariesistomarket,manufacture,selland/orserviceourvehicles.

Note 2 - Summary of Significant Accounting Policies

Basis
of
Consolidation
TheconsolidatedfinancialstatementsincludetheaccountsofTeslaanditswhollyownedsubsidiaries.Inter-companybalancesandtransactionsbetween
consolidatedentitieshavebeeneliminated.
Use
of
Estimates
ThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericarequiresmanagementto
makeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentliabilitiesandaccompanyingnotes.Estimates
areusedfor,butnotlimitedto,determiningthesellingpriceofproductsandservicesinmultipleelementrevenuearrangementsanddeterminingtheamortization
periodoftheseelements,residualvalueofoperatingleasevehicles,inventoryvaluation,warranties,fairvalueoffinancialinstruments,depreciablelivesof
propertyandequipment,inputsusedtovaluestock-basedcompensationincludingvolatility,livesofstockoptionawardsandforfeiturerates,incometaxes,and
contingencies.Actualresultscoulddifferfromthoseestimates.
Recent
Accounting
Pronouncements
InMay2014,theFinancialAccountingStandardsBoardissuedanaccountingupdatewhichamendstheexistingaccountingstandardsforrevenue
recognition.Thenewguidanceprovidesanewmodeltodeterminewhenandoverwhatperiodrevenueisrecognized.Underthisnewmodel,revenueisrecognized
asgoodsorservicesaredeliveredinanamountthatreflectstheconsiderationweexpecttocollect.Theguidanceiseffectiveforfiscalyearsbeginningafter
December15,2017;earlyadoptionispermittedforperiodsbeginningafterDecember15,2016.Thenewstandardisrequiredtoeitherbeappliedretrospectivelyto
eachpriorreportingperiodpresentedorretrospectivelywiththecumulativeeffectofinitiallyapplyingitrecognizedatthedateofinitialapplication.Wehavenot
yetselectedatransitionmethodandareevaluatingtheimpactofadoptingit.
InApril2015,theFASBissuednewauthoritativeaccountingguidanceonsimplifyingthepresentationofdebtissuancecosts,whichrequiresthatdebt
issuancecostsrelatedtoarecognizeddebtliabilitybepresentedinthebalancesheetasadirectdeductionfromthecarryingamountofthatdebtliability,consistent
withdebtdiscounts.Wedidnotadoptthisstandardduring2015;however,theimpacttotheourConsolidatedBalanceSheetasofDecember31,2015wouldhave
beena$10.7millionreductioninprepaidexpensesandothercurrentassets,a$18.7millionreductioninotherassets,andacorrespondingreductioninthe
aggregatecarryingvalueoftheCompanyslongtermdebtliabilities.
InNovember2015,theFASBissuedAccountingStandardsUpdateNo.2015-17,IncomeTaxes(Topic740):BalanceSheetClassificationofDeferred
Taxes(ASU2015-17),whichsimplifiesthepresentationofdeferredincometaxesbyrequiringthatdeferredtaxassetsandliabilitiesbeclassifiedasnon-current.
WehaveretrospectivelyadoptedthisstandardasofDecember31,2015,andasaresultwereclassified$18.6millionofcurrentdeferredtaxassetstonon-current
andnetted$18.6millionnon-currentdeferredtaxliabilitiesagainstournon-currentdeferredtaxassetsasofDecember31,2014.
Revenue
Recognition
Werecognizerevenueforproductsandserviceswhen:(i)apersuasiveevidenceofanarrangementexists;(ii)deliveryhasoccurredandthereareno
uncertaintiesregardingcustomeracceptance;(iii)pricingorfeesarefixedordeterminable;and(iv)collectionisreasonablyassured.
Vehiclesalesincludestandardfeatures,customerselectedoptionsandaccessories,andspecificotherelementsthatmeetthedefinitionofadeliverable
undermultiple-elementaccountingguidanceincludingfreeinternetconnectivity,freeaccesstoourSuperchargernetwork,andfutureovertheairsoftwareupdates.
Thesedeliverablesarevaluedonastand-alonebasisandwerecognizetheirrevenueoverourperformanceperiod,whichisgenerallytheeight-yearlifeofthe
vehicle,exceptforinternetconnectivitywhichisoverthefreefouryearperiod.Ifweselladeliverableseparately,weusethatpricingtodetermineitsfairvalue;
otherwise,weuseourbestestimatedsellingpricebyconsideringcostsusedtodevelopanddelivertheservice,thirdpartypricingofsimilaroptions,andother
informationwhichmaybeavailable.
52

Atthetimeofrevenuerecognition,werecordareserveagainstrevenueforestimatedfutureproductreturns.Suchestimatesarebasedonhistorical
experienceandareimmaterialinallperiodspresented.

Vehicle
sales
to
customers
with
a
residual
value
guarantee
Weofferresalevalueguaranteesorsimilarbuy-backtermstoallcustomerswhopurchasevehiclesandwhofinancetheirvehiclethroughoneofour
specifiedcommercialbankingpartners.Underthisprogram,customershavetheoptionofsellingtheirvehiclebacktousduringtheguaranteeperiodforapredeterminedresalevalue.Guaranteeperiodsgenerallyrangefrom36to39months.Althoughwereceivefullpaymentforthevehiclesalespriceatthetimeof
delivery,wearerequiredtoaccountforthesetransactionsasoperatingleases.Theamountofsaleproceedsequaltotheresidualvalueguaranteeisdeferreduntil
theguaranteeexpiresorisexercised.Theremainingsaleproceedsaredeferredandrecognizedonastraightlinebasisoverthestatedguaranteeperiod.The
guaranteeperiodexpiresattheearlieroftheendoftheguaranteeperiodorthepay-offoftheinitialloan.Wecapitalizethecostofthesevehiclestoleasedvehicles
onourConsolidatedBalanceSheetsanddepreciatetheirvalue,lesssalvagevalue,tocostofautomotiverevenueoverthesameperiod.
Incaseswhencustomerretainsownershipofthevehicleattheendoftheguaranteeperiod,theresalevalueguaranteeliabilityandanyremainingdeferred
revenuebalancesrelatedtothevehiclearesettledtoautomotiverevenueandthenetbookvalueoftheleasedvehicleisexpensedtocostsofautomotive
revenue.Incaseswhencustomersreturnthevehiclebacktousduringtheguaranteeperiod,wepurchasethevehicleformthecustomerinanamountequaltothe
resalevalueguaranteeandsettleanyremainingdeferredbalancestoautomotiverevenueandwereclassifythenetbookvalueofthevehicleonourbalancesheetto
pre-ownedvehicleinventory.AsofDecember31,2015,$136.8millionofguaranteesareexercisablebycustomerswithinthenexttwelvemonths.
Vehicle
sales
to
leasing
partners
with
a
residual
value
guarantee
Inthefourthquarterof2014,wealsobeganofferingresidualvalueguaranteesinconnectionwithautomobilesalestocertainbankleasingpartners.Aswe
haveguaranteedthevalueofthesevehiclesandasthevehiclesareleasedtoend-customers,weaccountforthesetransactionsasinterestbearingcollateralized
borrowingsasrequiredunderASC
840
-
Leases
.Underthisprogram,cashisreceivedforthefullpriceofthevehicleandisrecordedwithinresalevalueguarantee
forthelong-termportionanddeferredrevenueforthecurrentportion.Weaccretethedeferredrevenueamounttoautomotiverevenueonastraightlinebasisover
theguaranteeperiodandaccrueinterestexpensebasedonourborrowingrate.WecapitalizevehiclesunderthisprogramtoleasedvehiclesonourConsolidated
BalanceSheetsandwerecorddepreciationfromthesevehiclestocostofautomotiverevenuesduringtheperiodthevehicleisunderaleasearrangement.Cash
receivedforthesevehicles,netofrevenuerecognizedduringtheperiod,isclassifiedascollateralizedleaseborrowingswithincashflowsfromfinancingactivities
inourConsolidatedStatementsofCashFlows.
Attheendoftheleaseterm,wesettleourliabilityincashbyeitherpurchasingthevehiclefromtheleasingpartnerfortheresidualvalueguaranteeamount,
orpayingashortfalltotheguaranteeamounttheleasingpartnermayrealizeonthesaleofthevehicle.Anyremainingbalanceswithindeferredrevenueandresale
valueguaranteewillbesettledtoautomotiverevenue.Incaseswherethebankretainsownershipofthevehicleaftertheendofourguaranteeperiod,weexpense
thenetvalueoftheleasedvehicletocostsofautomotiverevenue.Themaximumcashwecouldberequiredtopayunderthisprogram,shouldwedecideto
repurchaseallvehiclesis$348.2millionatDecember31,2015.
AsofDecember31,2015andDecember31,2014,wehad$527.5millionand$16.7millionofsuchborrowingsrecordedintheresalevalueguarantee
liabilityand$120.5millionand$3.9millionrecordedindeferredrevenueliability.
Atleastannually,weassesstheestimatedmarketvaluesofvehiclesunderourresalevalueguaranteeprogramtodetermineifwehavesustainedalosson
anyofthesecontracts.Asweaccumulatemoredatarelatedtotheresalevaluesofourvehiclesorasmarketconditionschange,theremaybesignificantchangesto
theirestimatedvalues.

53

Activityrelatedtoourresalevalueguaranteeprogramconsistedofthefollowingfortheperiodpresented(inthousands):

Year ended
December 31,
2015

Operating Lease Vehicles

Operatingleasevehiclesbeginningofperiod
Netincreaseinoperatingleasevehicles
Depreciationexpenserecordedincostofautomotiverevenues
Additionaldepreciationexpenserecordedincostof
automotiverevenuesasaresultofearlycancellationof
resalevalueguarantee
Increasestoinventoryfromvehiclesreturnedunderourtradeinprogram
Operatingleasevehiclesendofperiod

684,590
1,047,220
(130,355)

Year ended
December 31,
2014

376,979
380,627
(63,105)

(21,487)

(9,251)

(23,439)
1,556,529 $

(660)
684,590

Deferred Revenue
Deferredrevenuebeginningofperiod
Netincreaseindeferredrevenuefromnewvehicledeliveries
andreclassificationofcollateralizedborrowingfromlongtermtoshort-term
Amortizationofdeferredrevenueandshort-termcollateralized
borrowingrecordedinautomotiverevenue
Additionalrevenuerecordedinautomotiverevenueasaresult
ofearlycancellationofresalevalueguarantee
Recognitionofdeferredrevenueresultingfromreturnof
vehicleundertrade-inprogram
Deferredrevenueendofperiod

381,096 $

230,856

553,765

280,542

(229,624)

(118,570)

(12,352)

(9,590)

(13,753)
679,132 $

(2,142)
381,096

Resale Value Guarantee

Resalevalueguaranteeliabilitybeginningofperiod
Netincreaseinresalevalueguarantee
Reclassificationfromlong-termtoshort-termcollateralized
borrowing
Additionalrevenuerecordedinautomotiverevenueasaresult
ofearlycancellationofresalevalueguarantee
Releaseofresalevalueguaranteeresultingfromreturnof
vehicleundertrade-inprogram
Resalevalueguaranteeliabilityendofperiod

487,880 $
1,013,733

236,298
262,526

(29,612)

(11,042)

(8,557)

(30,386)
1,430,573 $

(2,387)
487,880

Direct
Vehicle
Leasing
Program
InApril2014,webeganofferingaleasingprogramintheUnitedStates,andsubsequentlybegantooffersimilarprogramsinCanadaandGermany.
QualifyingcustomersarepermittedtoleaseavehicledirectlyfromalocalTeslasubsidiaryfor36or48months.Attheendoftheleaseterm,customershavethe
optionofeitherreturningthevehicletousorpurchasingitforapre-determinedresidualvalue.Weaccountfortheseleasingtransactionsasoperatingleasesand
recognizeleasingrevenuesoverthecontractualtermandrecordthedepreciationofthesevehiclestocostofautomotiverevenues.AsofDecember31,2015and
December31,2014,wehaddeferred$25.8millionand$9.4millionoflease-relatedupfrontpaymentswhichwillberecognizedonastraight-linebasisoverthe
contractualtermoftheindividualleases.LeaserevenuesarerecordedinautomotiverevenueandfortheyearendedDecember31,2015andDecember31,2014,
werecognized$41.2millionand$4.4million.

Regulatory
Credits
Californiaandcertainotherstateshavelawsinplacerequiringvehiclemanufacturerstoensurethataportionofthevehiclesdeliveredforsaleinthatstate
duringeachmodelyeararezeroemissionvehicles.Theselawsandregulationsprovidethatamanufacturerofzeroemissionvehiclesmayearnregulatorycredits
(ZEVcredits)andmaysellexcesscreditstoothermanufacturerswhoapplysuchcreditstocomplywiththeseregulatoryrequirements.Similarregulationsexistat
thefederallevelthatrequirecompliancerelatedtogreenhousegasemissionsandalsoallowforthesaleofexcesscreditsbyonemanufacturertoother
manufacturers.Asamanufacturersolelyofzeroemissionvehicles,wehaveearnedemissioncredits,suchasZEVandGHGcreditsonvehicles,andweexpectto
continuetoearnthesecreditsinthefuture.Weenterintocontractualagreementswiththirdpartiestopurchaseourregulatorycredits.
54

Werecognizerevenueonthesaleofthesecreditsatthetimelegaltitletothecreditsistransferredtothepurchasingparty.Revenuefromthesaleof
regulatorycreditstotaled$168.7million,$216.3million,and$194.4millionfortheyearsendedDecember31,2015,2014and2013.
AdditionallywehaveenteredintoagreementswiththeStateofNevadaandStoreyCountyinNevadathatwillprovideabatementsforsalesandusetaxes,
realandpersonalpropertytaxes,andemployerexcisetaxes,discountstothebasetariffenergyrates,andtransferabletaxcredits.Theseincentiveswillbeavailable
fortheapplicableperiodsbeginningonOctober17,2014andendingonJune30,2034,subjecttocapitalinvestmentsbyTeslaanditspartnersfortheGigafactory
ofatleast$3.5billionintheaggregateonorbeforeJune30,2024,andcertainotherconditionsspecifiedintheagreements.Ifwedonotsatisfyoneormore
conditionsundertheagreement,Teslawillberequiredtorepaytotherespectivetaxingauthoritiestheamountsofthetaxincentivesincurred,plusinterest.Asof
December31,2015,wehaveearned$19.9millionoftransferabletaxcreditsundertheseagreements.Werecordthesecreditsasearnedwhenwehaveevidence
thereisamarketfortheirsale.Creditsareappliedasacostoffsettoeitheremployeeexpenseortocapitalassets,dependingonthesourceofthecredits.Credits
earnedfromemployeehiresorcapitalspendingbyourpartnersattheGigafactoryarerecordedtootherincome(expense),net.
Maintenance
and
Service
Plans
WeofferaprepaidmaintenanceprogramforModelS,whichincludesplanscoveringmaintenanceforuptoeightyearsorupto100,000miles,provided
theseservicesarepurchasedwithinaspecifiedperiodoftime.Themaintenanceplanscoverannualinspectionsandthereplacementofwearandtearparts,
excludingtiresandthebattery.Paymentscollectedinadvanceoftheperformanceofserviceareinitiallyrecordedindeferredrevenuesontheconsolidatedbalance
sheetsandrecognizedinautomotivesalesaswefulfillourperformanceobligations.
Wealsoofferanextendedserviceplan,whichcoverstherepairorreplacementofModelSpartsforanadditionalfouryearsoruptoanadditional50,000
miles,aftertheendofourinitialNewVehicleLimitedWarranty,providedtheyarepurchasedwithinaspecifiedperiodoftime.Paymentscollectedinadvanceof
theperformanceofserviceareinitiallyrecordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesratablyovertheservice
coverageperiods.
AsofDecember31,2015and2014,wehaddeferred$53.6millionand$39.7millionrelatedtoourmaintenanceandserviceplans.Duringtheyearsended
December31,2015and2014,werecognizedrevenueof$4.5millionand$3.0millionrelatedtotheseplans.
Cash
and
Cash
Equivalents
Allhighlyliquidinvestmentswithanoriginalmaturityofthreemonthsorlessatthedateofpurchaseareconsideredtobecashequivalents.Wecurrently
investourcashprimarilyinmoneymarketfunds.

Marketable
Securities
Marketablesecuritiesarecomprisedofcommercialpaperandcorporatedebtandarealldesignatedasavailable-for-saleandreportedatestimatedfairvalue,
withunrealizedgainsandlossesrecordedinaccumulatedothercomprehensivelosswhichisincludedwithinstockholdersequity.Realizedgainsandlossesonthe
saleofavailable-for-salemarketablesecuritiesarerecordedinotherincome(expense),net.Thecostofavailable-for-salemarketablesecuritiessoldisbasedonthe
specificidentificationmethod.Interest,dividends,amortizationandaccretionofpurchasepremiumsanddiscountsonourmarketablesecuritiesareincludedin
otherincome(expense),net.Available-for-salemarketablesecuritieswithmaturitiesgreaterthanthreemonthsatthedateofpurchaseandremainingmaturitiesof
oneyearorlessareclassifiedasshort-termmarketablesecurities.Wheretemporarydeclinesinfairvalueexist,wehavetheabilityandtheintenttoholdthese
securitiesforaperiodoftimesufficienttoallowforanyanticipatedrecoveryinfairvalue.
Whenheld,weregularlyreviewallofourmarketablesecuritiesforother-than-temporarydeclinesinfairvalue.Thereviewincludesbutisnotlimitedto
(i)theconsiderationofthecauseoftheimpairment,(ii)thecreditworthinessofthesecurityissuers,(iii)thelengthoftimeasecurityisinanunrealizedloss
position,and(iv)ourabilitytoholdthesecurityforaperiodoftimesufficienttoallowforanyanticipatedrecoveryinfairvalue.
Restricted
Cash
and
Deposits
Wemaintaincertaincashamountsrestrictedastowithdrawaloruse.CurrentandnoncurrentrestrictedcashasofDecember31,2015wascomprised
primarilyofcashascollateralrelatedtooursalestoleasepartnerswitharesidualvalueguaranteeandforlettersofcreditincludingforourrealestateleases,and
insurancepolicies.InDecember2015,wesettledandclosedourWarehouseFacilityandremovedrestrictionsoncashrelatedtothatarrangement.
55

Accounts
Receivable
and
Allowance
for
Doubtful
Accounts
Accountsreceivableprimarilyincludeamountsrelatedtosalesofpowertrainsystems,receivablesfromfinancialinstitutionsandleasingcompaniesoffering
variousfinancingproductstoourcustomers,regulatorycreditstootherautomotivemanufacturers,andfrommaintenanceservicesonvehiclesownedbyleasing
companies.Weprovideanallowanceagainstamountsreceivabletotheamountwereasonablybelievewillbecollected.
Wetypicallydonotcarryaccountsreceivablerelatedtoourvehicleandrelatedsalesascustomerpaymentsareduepriortovehicledelivery,exceptforthe
amountsduefromcommercialfinancialinstitutionsforapprovedfinancingarrangementsbetweenourcustomersandthefinancialinstitutions.
Concentration
of
Risk
Credit
Risk
Financialinstrumentsthatpotentiallysubjectustoaconcentrationofcreditriskconsistofcash,cashequivalents,restrictedcashandaccountsreceivable.
OurcashequivalentsareprimarilyinvestedinmoneymarketfundswithhighcreditqualityfinancialinstitutionsintheUnitedStates.Attimes,thesedepositsand
securitiesmaybeinexcessofinsuredlimits.Weinvestcashnotrequiredforuseinoperationsinhighcreditqualitysecuritiesbasedonourinvestmentpolicy.Our
investmentpolicyprovidesguidelinesandlimitsregardingcreditquality,investmentconcentration,investmenttype,andmaturitythatwebelievewillprovide
liquiditywhilereducingriskoflossofcapital.Ourinvestmentsarecurrentlyofashort-termnatureandincludecommercialpaperandU.S.treasurybills.
AsofDecember31,2015and2014,ouraccountsreceivablewerederivedprimarilyfromsalesofregulatorycredits,aswellasfundstobereceivedfrom
financialinstitutionsandleasingcompaniesofferingvariousfinancingproductstoourcustomers,thedevelopmentandsalesofpowertraincomponentsandsystems
toOEMs.Accountsreceivablealsoincludedamountstobereceivedfromcommercialfinancialinstitutionsforapprovedfinancingarrangementsbetweenour
customersandfinancialinstitutions.
Thefollowingsummarizestheaccountsreceivablefromourcustomersinexcessof10%ofourtotalaccountsreceivable:

December 31,
2015

CustomerA
CustomerB
CustomerC
CustomerD

15%
8%
6%

December 31,
2014

7%
14%
13%
19%

Supply
Risk
Althoughtheremaybemultiplesuppliersavailable,manyofthecomponentsusedinourvehiclesarepurchasedbyusfromasinglesource.Ifthesesingle
sourcesuppliersfailtosatisfyourrequirementsonatimelybasisatcompetitiveprices,wecouldsuffermanufacturingdelays,apossiblelossofrevenues,orincur
highercostofsales,anyofwhichcouldadverselyaffectouroperatingresults.
Inventories
and
Inventory
Valuation
Inventoriesarestatedatthelowerofcostormarket.Costiscomputedusingstandardcost,whichapproximatesactualcostonafirst-in,first-outbasis.We
recordinventorywrite-downsforexcessorobsoleteinventoriesbasedoncurrentandfuturedemandforecasts.Ifourinventoryonhandisinexcessofourfuture
demandforecast,theexcessamountsarewrittenoff.
Wealsoreviewinventorytodeterminewhetheritscarryingvalueexceedsthenetamountrealizableupontheultimatesaleoftheinventory.Thisrequires
ustodeterminetheestimatedsellingpriceofourvehicleslesstheestimatedcosttoconvertinventoryonhandintoafinishedproduct.Onceinventoryiswrittendown,anew,lower-costbasisforthatinventoryisestablishedandsubsequentchangesinfactsandcircumstancesdonotresultintherestorationorincreaseinthat
newlyestablishedcostbasis.
Shouldourestimatesoffuturesellingpricesorproductioncostschange,additionalandpotentiallymaterialincreasestothisreservemayberequired.A
smallchangeinourestimatesmayresultinamaterialchangetoourreportedfinancialresults.
56

Property,
Plant
and
Equipment
Property,plantandequipmentarerecognizedatcostlessaccumulateddepreciation.Depreciationisgenerallycomputedusingthestraight-linemethodover
theestimatedusefullivesoftherelatedassetsasfollows:

Machinery,equipmentandofficefurniture
3to12years
Buildingandbuildingimprovements
30years
Computerequipmentandsoftware
3years

Depreciationfortoolingiscomputedusingtheunits-of-productionmethodwherebycapitalizedcostsareamortizedoverthetotalestimatedproductivelife
oftherelatedassets.AsofDecember31,2015,theestimatedproductivelifefortoolingwas250,000vehiclesbasedonourcurrentestimatesofproduction.
Leaseholdimprovementsareamortizedonastraight-linebasisovertheshorteroftheirestimatedusefullivesorthetermoftherelatedlease.
Upontheretirementorsaleofourproperty,plantandequipment,thecostandrelatedaccumulateddepreciationareremovedfromthebalancesheetandthe
resultinggainorlossisreflectedinoperations.Maintenanceandrepairexpendituresareexpensedasincurred,whilemajorimprovementsthatincreasethe
functionality,outputorexpectedlifeoftheassetarecapitalizedanddepreciatedratablytoexpenseovertheidentifiedusefullife.Landisnotdepreciated.
Interestexpenseonoutstandingdebtiscapitalizedduringtheperiodofsignificantcapitalassetconstruction.Capitalizedinterestonconstructioninprogress
isincludedinproperty,plantandequipment,andisamortizedoverthelifeoftherelatedassets.
Operating
Lease
Vehicles
Vehiclesdeliveredunderourresalevalueguaranteeprogram,vehiclesthatareleasedaspartofourleasingprogramsaswellasanyvehiclesthataresold
withasignificantbuy-backguaranteeareclassifiedasoperatingleasevehiclesastherelatedrevenuetransactionsaretreatedasoperatingleases.Operatinglease
vehiclesarerecordedatcostlessaccumulateddepreciation.Depreciationiscomputedusingthestraight-linemethodovertheexpectedoperatingleaseterm.The
totalcostofoperatingleasevehiclesrecordedintheConsolidatedBalanceSheetsasofDecember31,2015and2014was$2.0billionand$849.8million.
AccumulateddepreciationrelatedtoleasedvehiclesasofDecember31,2015and2014was$216.5millionand$83.1million.
Long-lived
Assets
Weevaluateourlong-livedassets,includingintangibleassets,forindicatorsofpossibleimpairmentwheneventsorchangesincircumstancesindicatethe
carryingamountofanasset(orassetgroup)maynotberecoverable.Impairmentexistsifthecarryingamountsofsuchassetsexceedtheestimatesoffuturenet
undiscountedcashflowsexpectedtobegeneratedbysuchassets.Shouldimpairmentexist,theimpairmentlosswouldbemeasuredbasedontheexcesscarrying
valueoftheassetovertheassetsestimatedfairvalue.Wedidnotrecordanymaterialimpairmentlossesonourlong-livedassetsin2015and2014.
Research
and
Development
Costs
Researchanddevelopmentcostsareexpensedasincurred.Researchanddevelopmentexpensesconsistprimarilyofpayroll,benefitsandstock-based
compensationofthoseemployeesengagedinresearch,designanddevelopmentactivities,costsrelatedtodesigntools,licenseexpensesrelatedtointellectual
property,suppliesandservices,depreciationandotheroccupancycosts.
Marketing
and
Promotion
Costs
Marketingandsalespromotioncostsareexpensedasincurred.DuringtheyearsendedDecember31,2015,2014and2013,advertising,promotionand
relatedmarketingexpenseswere$58.3million,$48.9millionand$9.0million.
Transportation
Costs
Amountsbilledtocustomersrelatedtoshippingandhandlingareclassifiedasautomotiverevenue,andrelatedtransportationcostsareincludedincostof
automotiverevenues.
Income
Taxes
Incometaxesarecomputedusingtheassetandliabilitymethod,underwhichdeferredtaxassetsandliabilitiesaredeterminedbasedonthedifference
betweenthefinancialstatementandtaxbasesofassetsandliabilitiesusingenactedtaxratesineffectfortheyearinwhichthedifferencesareexpectedtoaffect
taxableincome.Valuationallowancesareestablishedwhennecessarytoreducedeferredtaxassetstotheamountexpectedtoberealized.
57

Werecordliabilitiesrelatedtouncertaintaxpositionswhen,despiteourbeliefthatourtaxreturnpositionsaresupportable,webelievethatitismorelikely
thannotthatthosepositionsmaynotbefullysustaineduponreviewbytaxauthorities.Accruedinterestandpenaltiesrelatedtounrecognizedtaxbenefitsare
classifiedasincometaxexpense.
Stock-based
Compensation
Werecognizecompensationexpenseforcostsrelatedtoallshare-basedpayments,includingstockoptions,restrictedstockunits(RSUs)andouremployee
stockpurchaseplan(theESPP).ThefairvalueofstockoptionsandtheESPPareestimatedonthegrantdateandofferingdateusinganoptionpricingmodel,
respectively.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfairmarketvalueofourcommonstock.Stock-basedcompensationexpense
isrecognizedonastraight-linebasisovertherequisiteserviceperiod,netofestimatedforfeitures.
Weaccountforequityinstrumentsissuedtonon-employeesbasedonthefairvalueoftheawards.Thefairvalueoftheawardsgrantedtonon-employeesis
re-measuredastheawardsvestandtheresultingchangeinfairvalue,ifany,isrecognizedintheconsolidatedstatementsofoperationsduringtheperiodtherelated
servicesarerendered.
Forperformance-basedawards,stock-basedcompensationexpenseisrecognizedovertheexpectedperformanceachievementperiodofindividual
performancemilestoneswhentheachievementofeachindividualperformancemilestonebecomesprobable.
Forperformance-basedawardswithavestingschedulebasedentirelyontheattainmentofbothperformanceandmarketconditions,thestock-based
compensationexpenseisrecognizedforeachpairofperformanceandmarketconditionsoverthelongeroftheexpectedachievementperiodoftheperformance
andmarketconditions,beginningatthepointintimethattherelevantperformanceconditionisconsideredprobableofbeingmet(seeNote10Equity
Incentive
Plans
).
Foreign
Currency
Wedeterminethefunctionalandreportingcurrencyofeachofourinternationalsubsidiariesandtheiroperatingdivisionsbasedontheprimarycurrencyin
whichtheyoperate.IncaseswherethefunctionalcurrencyisnottheUSdollar,wewillrecognizeacumulativetranslationadjustmentcreatedbythedifferentrates
weapplytoretainedearnings,includingcurrentperiodincomeorloss,andthebalancesheet.Foreachsubsidiary,weapplyamonthlyaveragefunctionalcurrency
ratetotheirincomeorlossandthemonthendfunctionalcurrencyratetotranslatethebalancesheet.
BeginningJanuary1,2015,thefunctionalcurrencyofeachofourforeignsubsidiarieschangedtotheirlocalcountryscurrency.Thischangewasbasedon
theculminationoffactsandcircumstancesthathavedevelopedasweexpandedourforeignoperationsoverthepastyear.Theadjustmentof$10.0million
attributabletothecurrentratetranslationofnon-monetaryassetsasofthedateofthechangeisincludedinaccumulatedothercomprehensivelossonour
consolidatedbalancesheet.
Foreigncurrencytransactiongainsandlossesarearesultoftheeffectofexchangeratechangesontransactionsdenominatedincurrenciesotherthanthe
functionalcurrency.Transactiongainsandlossesarerecognizedinotherincome(expense),net,intheconsolidatedstatementsofoperations.Fortheyearended
December31,2015,2014,and2013werecordedforeigncurrencytransactiongains(loss)of($45.6)million,$2.0millionand$11.9million.
Derivative
Financial
Instruments
InNovember2015,weimplementedaprogramtohedgetheforeigncurrencyexposureriskrelatedtocertainforecastedinventorypurchasesdenominatedin
Japaneseyen.Thederivativeinstrumentsweuseareforeigncurrencyforwardcontractsandaredesignatedascashflowhedgeswithmaturitydatesof12months
orless.Wedonotenterintoderivativecontractsfortradingorspeculativepurposes(SeeNote3-Financial
Instruments
).
ThebankcounterpartiesinallcontractsexposeTeslatocredit-relatedlossesintheeventoftheirnonperformance.However,tomitigatethatrisk,Teslaonly
contractswithcounterpartieswhomeettheCompanysminimumrequirementsunderitscounterpartyriskassessmentprocess.Teslamonitorsratings,credit
spreads,andpotentialdowngradesonatleastaquarterlybasis.Basedonouron-goingassessmentofcounterpartyrisk,theCompanywilladjustitsexposureto
variouscounterparties.Wegenerallyenterintomasternettingarrangements,whichreducecreditriskbypermittingnetsettlementoftransactionswiththesame
counterparty.However,wedonothaveanymasternettingarrangementsinplacewithcollateralfeatures.
Comprehensive
Loss
Comprehensivelossiscomprisedofnetlossandothercomprehensiveincome(loss).Othercomprehensiveincome(loss)consistsofunrealizedgainsand
lossesonderivatives,ouravailable-for-salemarketablesecurities,andforeigncurrencytranslationadjustmentthathavebeenexcludedfromthedeterminationof
netloss.
58

Warranties
Weprovideamanufacturerswarrantyonallvehicles,productionpowertraincomponentsandsystems,andTeslaEnergyproductswesell.Weaccruea
manufacturerswarrantyreservewhichincludesourbestestimateoftheprojectedcoststorepairortoreplaceitemsunderwarranty.Theseestimatesarebasedon
actualclaimsincurredto-dateandanestimateofthenature,frequencyandcostsoffutureclaims.Theseestimatesareinherentlyuncertainandchangestoour
historicalorprojectedwarrantyexperiencemaycausematerialchangestoourwarrantyreserveinthefuture.Theportionofthewarrantyprovisionexpectedtobe
incurredwithin12monthsisclassifiedascurrentwithinaccruedliabilities,whiletheremainingamountisclassifiedaslong-termwithinotherlong-termliabilities.
Accruedwarrantyactivityconsistedofthefollowingfortheperiodspresented(inthousands):

2015

Accruedwarrantybeginningofperiod
Warrantycostsincurred
Netchangesinliabilityforpre-existingwarranties,
includingexpirations
Provisionforwarranty
Accruedwarrantyendofperiod

Year Ended December 31,

2014

2013

129,043 $
(52,760)

53,182 $
(39,903)

13,013
(19,160)

1,470
103,001
180,754 $

18,599
97,165
129,043 $

(2,072)
61,401
53,182

Ourwarrantyreservesdonotincludeprojectedwarrantycostsassociatedwithourvehiclesaccountedforasoperatingleasesorcollateralizeddebt
arrangements.Coststorepairthesevehiclesareexpensedasincurred.ForthetwelvemonthsendedDecember31,2015,andDecember31,2014warrantycosts
incurredforvehiclesaccountedforasoperatingleasesorcollateralizeddebtarrangementswere$9.5millionand$7.1million.Warrantyexpenseisrecordedasa
componentofcostofautomotiverevenue.

Net
Loss
per
Share
of
Common
Stock
Ourbasicanddilutednetlosspershareofcommonstockiscalculatedbydividingnetlossbytheweighted-averagesharesofcommonstockoutstandingfor
theperiod.Potentiallydilutiveshares,whicharebasedonthenumberofsharesunderlyingoutstandingstockoptionsandwarrantsaswellasourNotes,arenot
includedwhentheireffectisantidilutive.
Thefollowingtablepresentsthepotentialweightedcommonsharesoutstandingthatwereexcludedfromthecomputationofbasicanddilutednetlossper
shareofcommonstockfortheperiods,relatedtothefollowingsecurities:

Year Ended December 31,

2015

Employeesharebasedawards
Convertibleseniornotes
WarrantsissuedMay2013
DOEwarrant

15,592,736
2,431,265
1,049,791

2014

14,729,749
2,344,998
921,985

2013

13,904,875
411,560

1,061,439

Sinceweexpecttosettletheprincipalamountofouroutstandingconvertibleseniornotesincash,weusethetreasurystockmethodforcalculatingany
potentialdilutiveeffectoftheconversionspreadondilutednetincomepershare,ifapplicable.Theconversionspreadwillhaveadilutiveimpactondilutednet
incomepershareofcommonstockwhentheaveragemarketpriceofourcommonstockforagivenperiodexceedstheconversionpriceof$124.52,$359.87,and
$359.87pershareforthe2018Notes,2019Notesand2021Notes.

Note 3 - Financial Instruments

Fair
Value
Measurements
Thecarryingvaluesofourfinancialinstrumentsincludingcashequivalents,marketablesecurities,accountsreceivableandaccountspayableapproximate
theirfairvalueduetotheirshort-termnature.Asabasisfordeterminingthefairvalueofcertainofourassetsandliabilities,weestablishedathree-tierfairvalue
hierarchywhichprioritizestheinputsusedinmeasuringfairvalueasfollows:(LevelI)observableinputssuchasquotedpricesinactivemarkets;(LevelII)inputs
otherthanthequotedpricesinactivemarketsthatareobservableeitherdirectlyorindirectly;and(LevelIII)unobservableinputsinwhichthereislittleorno
marketdatawhichrequiresustodevelopourownassumptions.Thishierarchyrequiresustouseobservablemarketdata,whenavailable,andtominimizetheuse
ofunobservableinputswhendeterminingfairvalue.Ourfinancialassetsthataremeasuredatfairvalueonarecurringbasisconsistofcashequivalentsand
marketablesecurities.
59

Allofourcashequivalentsandcurrentrestrictedcash,whicharecomprisedprimarilyofmoneymarketfunds,areclassifiedwithinLevelIofthefairvalue
hierarchybecausetheyarevaluedusingquotedmarketpricesormarketpricesforsimilarsecurities.Ourrestrictedshort-termmarketablesecuritiesareclassified
withinLevelIofthefairvaluehierarchy.

AsofDecember31,2015and2014,thefairvaluehierarchyforourfinancialassetsandfinancialliabilitiesthatarecarriedatfairvaluewasasfollows(in
thousands),andunrealizedgains(losses)onfinancialassetspresentedinthetablebelowforallperiodspresentedwerelessthan$1.0million:

Fair Value

December 31, 2015

Level I
Level II

Level III

Fair Value

December 31, 2014

Level I
Level II

Level

III

Moneymarketfunds
$ 297,810 $ 297,810 $
$
$ 1,275,346 $ 1,275,346 $
$

U.S.treasurybills

16,664
16,664


16,673
16,673

Total
$ 314,474 $ 314,474 $
$
$ 1,292,019 $ 1,292,019 $
$

AsofDecember31,2015,theestimatedfairvalueofour2018Notes,2019Notes,and2021Noteswas$1.29billion(parvalue$659.8million),$864.8
million(parvalue$920.0million),and$1.27billion(parvalue$1.38billion).AsofDecember31,2014theestimatedfairvalueofour2018Notes,2019Notes,
and2021Noteswas$1.22billion(parvalue$659.8million),$852.2million(parvalue$920.0million),and$1.25billion(parvalue$1.38billion).Thesefair
valuesrepresentLevelIIvaluations.Whendeterminingtheestimatedfairvalueofourlong-termdebt,weusedacommonlyacceptedvaluationmethodologyand
market-basedriskmeasurementsthatareindirectlyobservable,suchascreditrisk.AsofDecember31,2015,the$135.0millioncarryingvalueofourCredit
Agreementliabilityapproximatesthefairvalueoftheborrowingsbasedupontheborrowingrateavailabletousfordebtwithsimilartermsandconsiderationof
creditanddefaultriskusingLevelIIinputs.

Derivative
Financial
Instruments
InNovember2015,weimplementedaprogramtohedgetheforeigncurrencyexposureriskrelatedtocertainforecastedinventorypurchasesdenominatedin
Japaneseyen.Thederivativeinstrumentsweuseareforeigncurrencyforwardcontractsandaredesignatedascashflowhedgeswithmaturitydatesof12monthsor
less.Wedonotenterintoderivativecontractsfortradingorspeculativepurposes.
Wedocumenteachhedgerelationshipandassessitsinitialeffectivenessattheinceptionofthehedgecontractandwemeasureitsongoingeffectivenesson
aquarterlybasisusingregressionanalysis.Duringthetermofaneffectivehedgecontract,werecordgainsandlosseswithinaccumulatedothercomprehensive
loss.Wereclassifythesegainsorlossestocostsofautomotivesalesintheperiodtherelatedfinishedgoodsinventoryissoldoroverthedepreciationperiodfor
thosesalesaccountedforasleases.Althoughourcontractsareconsideredeffectivehedges,wemayexperiencesmallamountsofineffectivenessduetotiming
differencesbetweenouractualinventorypurchasesandthesettlementdateoftherelatedforeigncurrencyforwardcontracts.Wehaverecordedzeroamountof
ineffectivenesswithinotherincome(expense),netinourConsolidatedStatementsofOperations,asofDecember31,2015.

Thenetnotionalamountofthesecontractswas$322.6millionatDecember31,2015.Outstandingcontractsarerecognizedaseitherassetsorliabilitieson
theConsolidatedBalanceSheetatfairvaluewithinotherassetsorwithinaccruedliabilities,dependingonournetposition.Thenetgainof$7.3millionin
accumulatedothercomprehensivelossasofDecember31,2015isexpectedtoberecognizedtothecostbasisoffinishedgoodsinventoryinthenexttwelve
months.ThetotalfairvaluesofforeigncurrencycontractsdesignatedascashflowhedgesasofDecember31,2015is$7.3millionandwasdeterminedusingLevel
IIinputsandrecordedinprepaidexpensesandothercurrentassetsonourConsolidatedBalanceSheets.Noamountshavebeenreclassifiedtofinishedgoods
inventoryasofDecember31,2015.

Note 4 - Inventory
AsofDecember31,2015and2014,ourinventoryconsistedofthefollowing(inthousands):

December 31,
2015

Rawmaterials
Workinprocess
Finishedgoods
Serviceparts
Total

528,935
163,830
476,512
108,561
1,277,838

December 31,
2014

392,292
56,114
397,318
107,951
953,675

Finishedgoodsinventoryincludesvehiclesintransittofulfillcustomerorders,newvehiclesavailableforimmediatesaleatourretailandservicecenter
locations,andpre-ownedTeslavehicles.Theincreaseinfinishedgoodsinventorywasprimarilyduetocustomerordersthatwereintransitfordeliveryatyear
end.

60

Wewritedowninventoryasaresultofexcessandobsoleteinventories,orwhenwebelievethatthenetrealizablevalueofinventoriesislessthanthe
carryingvalue.DuringtheyearsendedDecember31,2015,2014and2013,werecordedwrite-downsof$44.9million,$15.6millionand$8.9millionincostof
automotivesales.

Note 5 - Property, Plant and Equipment

AsofDecember31,2015and2014,ourproperty,plantandequipment,net,consistedofthefollowing(inthousands):

December 31,
2015

Machinery,equipmentandofficefurniture
Tooling
Leaseholdimprovements
Buildingandbuildingimprovements
Land
Computerequipmentandsoftware
Constructioninprogress

Less:Accumulateddepreciationandamortization
Total

December 31,
2014

1,694,910
550,902
338,392
461,303
60,234
175,512
693,207
3,974,460
(571,126)
3,403,334

720,746
295,906
230,270
154,362
49,478
98,970
572,125
2,121,857
(292,590)
1,829,267

ConstructioninprogressiscomprisedprimarilyoftoolingandequipmentrelatedtothemanufacturingofourModelSandModelXvehicles,Gigafactory
construction,andrelatedcapitalizedinterest.Completedassetsaretransferredtotheirrespectiveassetclassanddepreciationbeginswhentheassetisreadyforits
intendeduse.Interestexpenseonoutstandingdebtiscapitalizedduringtheperiodofsignificantcapitalassetconstruction.Capitalizedinterestonconstructionin
progressisincludedinproperty,plantandequipment,andisamortizedoverthelifeoftherelatedassets.DuringtheyearsendedDecember31,2015and2014,we
capitalized$41.5millionand$12.8millionofinterestexpense.
Wearesometimesinvolvedinconstructionatourleasedfacilitiesprimarilyrelatedtoretailstores,servicecenters,andcertainmanufacturingfacilities.In
accordancewithAccountingStandardsCodification840,Leases,forbuild-to-suitleasearrangementswhereweareinvolvedintheconstructionofstructural
improvementspriortothecommencementoftheleaseortakesomelevelofconstructionrisk,weareconsideredtheowneroftheassetsandlandduringthe
constructionperiod.Accordingly,uponcommencementofourconstructionactivities,werecordaconstructioninprogressassetandacorrespondingfinancing
liability.Oncetheconstructioniscompleted,iftheleasemeetscertainsale-leasebackcriteria,wewillremovetheassetandrelatedfinancialobligationfromthe
balancesheetandtreatthebuildingleaseasanoperatinglease.Ifuponcompletionofconstruction,theprojectdoesnotmeetthesale-leasebackcriteria,the
leasedpropertywillbetreatedasacapitalleaseandincludedinbuildingandbuildingimprovementsinthetableabove.AsofDecember31,2015andDecember
31,2014,thetableaboveincludes$206.1millionand$52.4millionofbuild-to-suitassets.AsofDecember31,2015andDecember31,2014,corresponding
financingobligationsof$1.3millionand$21.0millionarerecordedinaccruedliabilitiesand$201.3millionand$31.4millionarerecordedinotherlong-term
liabilities.
DepreciationandamortizationexpenseduringtheyearsendedDecember31,2015,2014and2013were$278.7million,$155.9millionand$83.9million.
TotalpropertyandequipmentassetsundercapitalleaseasofDecember31,2015and2014were$58.1millionand$33.4million.Accumulateddepreciationrelated
toassetsundercapitalleaseasofthesedateswere$22.7millionand$12.8million.
WehaveacquiredlandforthesiteofourGigafactoryandconstructionactivitiesareongoingforwhichwehaveincurred$317.5millionand$106.6million
ofcostsasofDecember31,2015and2014.

Note 6 - Accrued Liabilities

AsofDecember31,2015and2014,ouraccruedliabilitiesconsistedofthefollowing(inthousands):

Taxespayable
Accruedpurchases
Payrollandrelatedcosts
Warrantyandother
Total

December 31,
2015

101,206
140,540
86,859
94,193
422,798

December 31,
2014

71,229
68,547
54,492
74,615
268,883

61

Taxespayableincludesvalueaddedtax,salestax,propertytax,andincometaxpayables.
AccruedpurchasesreflectliabilitiesrelatedtotheconstructionoftheGigafactory,andengineeringdesignandtestingaccruals.Astheseservicesare
invoiced,thisbalancewillreduceandaccountspayablewillincrease.

Note 7 - Customer Deposits

Customerdepositsincludecashpaymentsfromcustomersatthetimetheyplaceanorderforavehicleandadditionalpaymentsuptothepointofdelivery
includingthefairvalueofcustomertrade-invehiclesthatareapplicabletowardanewvehiclepurchase.Customerdepositamountsandtimingvarydependingon
thevehiclemodelandcountryofdelivery.Customerdepositsarefullyrefundableuptothepointthevehicleisplacedintotheproductioncycle.Customerdeposits
areincludedincurrentliabilitiesuntilrefundedoruntiltheyareappliedtoacustomerspurchasebalanceattimeofdelivery.
AsofDecember31,2015and2014,weheld$283.4millionand$257.6millionincustomerdeposits.

Note 8 - Convertible Notes and Long-term Debt Obligations

0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant Transactions
InMarch2014,weissued$800.0millionprincipalamountof0.25%convertibleseniornotesdue2019(2019Notes)and$1.20billionprincipalamountof
1.25%convertibleseniornotesdue2021(2021Notes)inapublicoffering.InApril2014,weissuedanadditional$120.0millionaggregateprincipalamountof
2019Notesand$180.0millionaggregateprincipalamountof2021Notes,pursuanttotheexerciseinfulloftheoverallotmentoptionsoftheunderwritersofour
March2014publicoffering.Thetotalnetproceedsfromtheseofferings,afterdeductingtransactioncosts,wereapproximately$905.8millionfrom2019Notesand
$1.36billionfrom2021Notes.Weincurred$14.2millionand$21.4millionofdebtissuancecostsinconnectionwiththe2019Notesandthe2021Notes,which
weinitiallyrecordedinotherassetsandareamortizingtointerestexpenseusingtheeffectiveinterestmethodoverthecontractualtermsofthesenotes.Theinterest
ratesarefixedat0.25%and1.25%perannumandarepayablesemi-annuallyinarrearsonMarch1andSeptember1ofeachyear,commencingonSeptember1,
2014.

Each$1,000ofprincipalofthesenoteswillinitiallybeconvertibleinto2.7788sharesofourcommonstock,whichisequivalenttoaninitialconversion
priceofapproximately$359.87pershare,subjecttoadjustmentupontheoccurrenceofspecifiedevents.Holdersofthesenotesmayconverttheirnotesattheir
optiononorafterDecember1,2018forthe2019NotesandonorafterDecember1,2020forthe2021Notes.Further,holdersofthesenotesmayconverttheir
notesattheiroptionpriortotherespectivedatesabove,onlyunderthefollowingcircumstances:(1)duringanyfiscalquarterbeginningafterthefiscalquarter
endingJune30,2014,ifthelastreportedsalepriceofourcommonstockforatleast20tradingdays(whetherornotconsecutive)duringthelast30consecutive
tradingdaysofimmediatelyprecedingfiscalquarterisgreaterthanorequalto130%oftheconversionpriceoftheapplicablenotesoneachapplicabletradingday;
(2)duringthefivebusinessdayperiodfollowinganyfiveconsecutivetradingdayperiodinwhichthetradingpricefortheapplicablenotesislessthan98%ofthe
averageoftheclosingsalepriceofourcommonstockforeachdayduringsuchfivetradingdayperiod;or(3)ifwemakespecifieddistributionstoholdersofour
commonstockorifspecifiedcorporatetransactionsoccur.Uponconversionofthe2019Notes,wewouldpayordeliverasapplicable,cash,sharesofourcommon
stockoracombinationofcashandsharesofourcommonstock,atourelection.Uponconversionofthe2021Notes,wewouldpaytheholdersincashforthe
principalamountand,ifapplicable,sharesofourcommonstock(subjecttoourrighttodelivercashinlieuofalloraportionofsuchsharesofourcommonstock)
basedonadailyconversionvalue.Ifafundamentalchangeoccurspriortothematuritydate,holdersofthesenotesmayrequireustorepurchasealloraportionof
theirnotesforcashatarepurchasepriceequalto100%oftheprincipalamountofthenotes,plusanyaccruedandunpaidinterest.Inaddition,ifspecificcorporate
eventsoccurpriortotheapplicablematuritydate,wewillincreasetheconversionrateforaholderwhoelectstoconverttheirnotesinconnectionwithsucha
corporateeventincertaincircumstances.Duringthefourthquarterof2015,theclosingpriceofourcommonstockdidnotmeetorexceed130%oftheapplicable
conversionpriceofour2019Notesand2021Notesonatleast20ofthelast30consecutivetradingdaysofthequarter;furthermore,nootherconditionsallowing
holdersofthesenotestoconverthavebeenmetasofDecember31,2015.Therefore,the2019Notesand2021Notesarenotconvertibleduringthefirstquarterof
2016andareclassifiedaslong-termdebt.Shouldtheclosingpriceconditionsbemetinthefirstquarterof2015orafuturequarter,the2019and/orthe2021Notes
willbeconvertibleattheirholdersoptionduringtheimmediatelyfollowingquarter.AsofDecember31,2015,theif-convertedvalueofthe2019Notesand2021
Notesdidnotexceedtheprincipalvalueofthosenotes.

Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththenotesfrom
therespectivehostdebtinstrumentandinitiallyrecordedtheconversionoptionof$188.1millionforthe2019Notesand$369.4millionforthe2021Notesin
stockholdersequity.Theresultingdebtdiscountsonthe2019Notesand2021Notesarebeingamortizedtointerestexpenseataneffectiveinterestrateof4.89%
and5.96%,respectively,overthecontractualtermsofthenotes.

62

InconnectionwiththeofferingofthesenotesinMarch2014,weenteredintoconvertiblenotehedgetransactionswherebywehavetheoptiontopurchase
initially(subjecttoadjustmentforcertainspecifiedevents)atotalofapproximately5.6millionsharesofourcommonstockatapriceofapproximately$359.87
pershare.Thetotalcostoftheconvertiblenotehedgetransactionswas$524.7million.Inaddition,wesoldwarrantswherebytheholdersofthewarrantshavetheo
ptiontopurchaseinitially(subjecttoadjustmentforcertainspecifiedevents)atotalofapproximately2.2millionsharesofourcommonstockatapriceof$512.66
forthe2019Notesandatotalofapproximately3.3millionsharesofourcommonstockatapriceof$560.64persharefor2021Notes.Wereceived$338.4million
incashproceedsfromthesaleofthesewarrants.Similarly,inconnectionwiththeissuanceofadditionalnotesinApril2014,weenteredintoconvertiblenote
hedgetransactionsandpaidanaggregate$78.7million.Inaddition,wesoldwarrantstopurchase(subjecttoadjustmentforcertainspecifiedevents)atotalof
approximately0.3millionsharesofourcommonstockatastrikepriceof$512.66pershareforthewarrantsrelatingto2019Notes,andatotalofapproximately
0.5millionsharesofourcommonstockatastrikepriceof$560.64pershareforthewarrantsrelatingto2021Notes.Wereceivedaggregateproceedsof
approximately$50.8millionfromthesaleofthewarrants.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedto
offsetanyactualdilutionfromtheconversionofthesenotesandtoeffectivelyincreasetheoverallconversionpricefrom$359.87to$512.66pershareinthecase
ofwarrantsrelatingto2019Notesandfrom$359.87to$560.64inthecaseofwarrantsrelatingto2021Notes.Asthesetransactionsmeetcertainaccounting
criteria,theconvertiblenotehedgesandwarrantsarerecordedinstockholdersequityandarenotaccountedforasderivatives.Thenetcostincurredinconnection
withtheconvertiblenotehedgeandwarranttransactionswasrecordedasareductiontoadditionalpaid-incapitalontheconsolidatedbalancesheetasof
December31,2015.
1.50% Convertible Senior Notes and Bond Hedge and Warrant Transactions
InMay2013,weissued$660.0millionaggregateprincipalamountof2018Notesinapublicoffering.Thenetproceedsfromtheoffering,afterdeducting
transactioncosts,wereapproximately$648.0million.Weincurred$12.0millionofdebtissuancecostsinconnectionwiththeissuanceofthe2018Noteswhichwe
recordedinotherassetsandareamortizingtointerestexpenseusingtheeffectiveinterestmethodoverthecontractualtermofthe2018Notes.Theinterestunder
the2018Notesisfixedat1.50%perannumandispayablesemi-annuallyinarrearsonJune1andDecember1ofeachyear,commencingonDecember1,2013.

Each$1,000ofprincipalofthe2018Noteswillinitiallybeconvertibleinto8.0306sharesofourcommonstock,whichisequivalenttoaninitialconversion
priceofapproximately$124.52pershare,subjecttoadjustmentupontheoccurrenceofspecifiedevents.Holdersofthe2018Notesmayconverttheir2018Notes
attheiroptiononorafterMarch1,2018.Further,holdersofthe2018Notesmayconverttheir2018NotesattheiroptionpriortoMarch1,2018,onlyunderthe
followingcircumstances:(1)duringanyfiscalquarterbeginningafterthefiscalquarterendingSeptember30,2013,ifthelastreportedsalepriceofourcommon
stockforatleast20tradingdays(whetherornotconsecutive)duringthelast30consecutivetradingdaysoftheimmediatelyprecedingfiscalquarterisgreaterthan
orequalto130%oftheconversionpriceoneachapplicabletradingday;(2)duringthefivebusinessdayperiodfollowinganyfiveconsecutivetradingdayperiod
inwhichthetradingpriceforthe2018Notesislessthan98%oftheaverageoftheclosingsalepriceofourcommonstockforeachdayduringsuchfivetrading
dayperiod;or(3)ifwemakespecifieddistributionstoholdersofourcommonstockorifspecifiedcorporatetransactionsoccur.Uponconversion,wewouldpay
theholdersincashfortheprincipalamountofthe2018Notesand,ifapplicable,sharesofourcommonstock(subjecttoourrighttodelivercashinlieuofallora
portionofsuchsharesofourcommonstock)basedonacalculateddailyconversionvalue.Ifafundamentalchangeoccurspriortothematuritydate,holdersofthe
2018Notesmayrequireustorepurchasealloraportionoftheir2018Notesforcashatarepurchasepriceequalto100%oftheprincipalamountofthe2018
Notes,plusanyaccruedandunpaidinterest.Inaddition,ifspecificcorporateeventsoccurpriortothematuritydate,wewillincreasetheconversionratefora
holderwhoelectstoconvertits2018Notesinconnectionwithsuchacorporateeventincertaincircumstances.

Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththe2018Notes
fromthehostdebtinstrumentandrecordedtheconversionoptionof$82.8millioninstockholdersequity.Theresultingdebtdiscountonthe2018Notesisbeing
amortizedtointerestexpenseataneffectiveinterestrateof4.29%overthecontractualtermofthe2018Notes.

Inconnectionwiththeofferingofthe2018Notes,weenteredintoconvertiblenotehedgetransactionswherebywehavetheoptiontopurchaseinitially
(subjecttocertainspecifiedevents)atotalofapproximately5.3millionsharesofourcommonstockatapriceofapproximately$124.52pershare.Thecostofthe
convertiblenotehedgetransactionswas$177.5million.Inaddition,wesoldwarrantswherebytheholdersofthewarrantshavetheoptiontopurchaseinitially
(subjecttocertainspecifiedevents)atotalofapproximately5.3millionsharesofourcommonstockatapriceof$184.48pershare.Wereceived$120.3millionin
cashproceedsfromthesaleofthesewarrants.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedtooffsetanyactual
dilutionfromtheconversionofthe2018Notesandtoeffectivelyincreasetheoverallconversionpricefrom$124.52to$184.48pershare.Asthesetransactions
meetcertainaccountingcriteria,theconvertiblenotehedgesandwarrantsarerecordedinstockholdersequityandarenotaccountedforasderivatives.Thenetcost
incurredinconnectionwiththeconvertiblenotehedgeandwarranttransactionswasrecordedasareductiontoadditionalpaid-incapitalontheconsolidated
balancesheetasofDecember31,2015.
63

Duringthefourthquarterof2015,theclosingpriceofourcommonstockexceeded130%oftheapplicableconversionpriceofour2018Notesonatleast20
ofthelast30consecutivetradingdaysofthequarter;therefore,holdersof2018Notesmayconverttheirnotesduringthefirstquarterof2016.Assuch,we
classifiedthe$617.7millioncarryingvalueofour2018Notesascurrentliabilitiesandclassified$42.1million,representingthedifferencebetweentheaggregate
principalofour2018Notesof$659.8millionandthecarryingvalueof2018Notes,asmezzanineequityonourconsolidatedbalancesheetasofDecember31,
2015.Similarly,debtissuancecostswereclassifiedasothercurrentassetsasofDecember31,2015.Shouldtheclosingpriceconditionsbemetinthefirstquarter
of2016orafuturequarter,2018Noteswillbeconvertibleattheirholdersoptionduringtheimmediatelyfollowingquarter.
Convertible Senior Notes Carrying Value and Interest Expense
Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththeNotesfrom
therespectivehostdebtinstrumentandinitiallyrecordedtheconversionoptionforthe2018Notes,2019Notes,and2021Notesinstockholdersequity.The
resultingdebtdiscountsonthe2018Notes,2019Notes,and2021Notesarebeingamortizedtointerestexpenseattheeffectiveinterestrateoverthecontractual
termsoftheNotes.

December 31, 2015

December 31, 2014

2018 Notes

2019 Notes
2021 Notes
2018 Notes
2019 Notes
(in thousands, except years and percentages)

Carryingvalue
Unamortizeddiscount
Principalamount

617,716 $
42,045
659,761 $

795,405 $ 1,092,748 $
124,595 287,252
920,000 $ 1,380,000 $

Remainingamortizationperiod(years)
Effectiveinterestrateonliabilitycomponent
Carryingamountofequitycomponent
Ifconvertedvalueinexcessofparvalue

$
$

2.4
4.29%
82,800
611,898

3.2
4.89%
188,100

5.2
5.96%
369,400

601,566 $
58,196
659,762 $

2021 Notes

759,891 $ 1,046,627
160,109 333,373
920,000 $ 1,380,000

Full Repayment of Department of Energy Loan Facility

OnJanuary20,2010,weenteredintoaloanfacilitywiththeFederalFinancingBank(FFB),andtheDOE,pursuanttotheAdvancedTechnologyVehicles
Manufacturing(ATVM)IncentiveProgram.InMay2013,inconnectionwiththeclosingofourofferingsofcommonstockandNotes,wepaid$451.8millionto
settlealloutstandingloanamountsof$441.0million,includingprincipalandinterest,aswellasanearlyrepaymentpenaltyof$10.8millionwhichwasrecordedin
interestexpensefortheyearendedDecember31,2013.UponterminationoftheDOELoanFacility,$29.3millionheldinthisdedicatedaccountwasreleasedby
theDOE.

AsaresultofourrepaymentofalloutstandingprincipalandinterestundertheDOELoanFacilityandtheterminationoftheDOELoanFacilityinMay
2013,theDOEwarrantexpired.Assuch,werecognizedotherincomeforthechangeinthefairvalueoftheDOEwarrantintheamountof$10.7millionforthe
yearendedDecember31,2013.Additionally,weamortizedallremainingunamortizeddebtissuancecostsof$5.8millionrelatedtotheDOELoanFacilityto
interestexpensefortheyearendedDecember31,2013.
Warehouse line of credit
InMarch2015,weenteredintoaloanandsecurityagreement(theWarehouseFacility)forasecuredassetbasedlineofcreditforaprincipalamountup
to$100million.InJune2015,weamendedtheWarehouseFacilityforanadditionalprincipalamountof$50million,foratotalofupto$150million.Obligations
undertheWarehouseFacilityweresecuredbycertainofourleasecontractswithTesladirectlyandtherelatedleasedvehicles.InconnectionwiththeWarehouse
Facility,wesoldthebeneficialinterestinsuchleasecontractsandrelatedvehiclestoawhollyownedspecialpurposeentitythatistheborrowerintheWarehouse
Facility,whichpledgedsuchbeneficialinterestintheunderlyingassetstothethird-partylenderundertheWarehouseFacility.BorrowingsundertheWarehouse
Facilityaregenerallylimitedtoupto72%ofthenetpresentvalueoftheremainingleasepaymentsandtheresidualvehiclevaluesundereligibleleasecontracts.
InterestwaspayablemonthlyonamountsborrowedundertheWarehouseFacilityatavariablerateofLIBORplus1.65%andonundrawnamountsatarate
of0.5%.TheWarehousefacilitywouldhavematuredinMarch2017,atwhichtimealloutstandingborrowingwouldbecomedue.Priortothatdate,principal
paymentsweredueintheamountthattheborrowinglimitdecreasedbelowouroutstandingprincipalbalance.AsofDecember31,2015,wehadrepaidall
borrowingsundertheWarehouseFacilityandterminatedit.

64

Asset-Based Credit Agreement

InJune2015,weenteredintoaseniorsecuredasset-basedrevolvingcreditagreement(theCreditAgreement)withasyndicateofbanks,whichwe
amendedasofNovember3,2015.TheCreditAgreementprovidesforaseniorsecuredasset-basedrevolvingcreditfacility(theCreditFacility),whichwemay
drawuponasneeded.InOctober,lendersincreasedtheirtotalfundingcommitmentstousundertheCreditFacilitybyuptoanadditional$250.0million,subjectto
certainconditions,fortotalcommitmentsupto$750million.Inaddition,theCreditAgreementprovidesfora$200.0millionletterofcreditsub-facilityanda
$40.0millionswing-lineloansub-facility.TheCreditAgreementiscollateralizedbyapledgeofcertainofouraccountsreceivable,inventory,andequipment,and
availabilityundertheCreditAgreementisbasedonthevalueofsuchassets,asreducedbycertainreserves.InFebruary2016,weamendedtheCreditAgreement
andincreasedtheavailabilityandthecommitmentsundertheCreditAgreementfrom$750.0millionto$1.0billion.

Borrowedfundsbearinterest,atouroption,atanannualrateof(a)1%plusLIBORor(b)thehighestof(i)thefederalfundsrateplus0.50%,(ii)thelenders
primerateor(iii)1%plusLIBOR.Thefeeforundrawnamountsis0.25%perannum.Interestispayablequarterly.TheCreditAgreementterminates,andall
outstandingloansbecomedueandpayable,inJune2020.AsofDecember31,2015,wehad$135.0millionborrowingsundertheCreditFacility.

Wearerequiredtomeetvariouscovenants,includingmeetingcertainreportingrequirements,suchasthecompletionandpresentationofaudited
consolidatedfinancialstatementsforourborrowings.AsofDecember31,2015wewereincompliancewithallcovenantscontainedintheCreditAgreement.
Pledged Assets
AsofDecember31,2015and2014,wehavepledgedorrestricted$1.43billionand$29.3millionprincipallyfromfinishedgoodsandrawmaterials
inventory,aswellascertainpropertyandequipment,directleasevehicles,receivablesandcashascollateralforlettersofcreditincludingourAsset-basedcredit
arrangement,realestateleases,andinsurancepolicies.
Interest Expense
ThefollowingtablepresentstheaggregateamountofinterestexpenserecognizedontheWarehouseFacility,CreditAgreement,2018Notes,2019Notes,
and2021Notesrelatingtothecontractualinterestcouponandamortizationofthedebtissuancecostsanddebtdiscount.

2015
2014
2013
Contractualinterestcoupon
$
32,061 $
26,019 $
5,938
Amortizationofdebtissuancecosts

8,102
5,288
1,207
Amortizationofdebtdiscount

97,786
79,479
9,143
Total
$
137,949 $
110,786 $
16,288

Note 9 - Common Stock

InOctober2012,wecompletedafollow-onofferingofcommonstockinwhichwesoldatotalof7,964,601sharesofourcommonstockandreceivedcash
proceedsof$222.1million(whichincluded35,398sharesor$1.0millionsoldtoourCEO)fromthistransaction,netofunderwritingdiscountsandofferingcosts.
InMay2013,wecompletedapublicofferingofcommonstockandsoldatotalof3,902,862sharesofourcommonstockfortotalcashproceedsof
approximately$355.1million(whichincluded487,857sharesor$45.0millionsoldtoourCEO),netofunderwritingdiscountsandofferingcosts.Wealsosold
596,272sharesofourcommonstocktoourCEOandreceivedtotalcashproceedsof$55.0millioninaprivateplacementatthepublicofferingprice.Concurrent
withtheseequitytransactions,wealsoissued$660.0millionprincipalamountof1.50%convertibleseniornotesinapublicofferingandreceivedtotalcash
proceedsofapproximately$648.0million,netofunderwritingdiscountsandofferingcosts(seeNote8Convertible
Notes
and
Long-Term
Debt
Obligations
).
InAugust2015,wecompletedapublicofferingofcommonstockandsoldatotalof3,099,173sharesofourcommonstockfortotalcashproceedsof
approximately$738.3million(whichincludes82,645sharesor$20.0millionsoldtoourCEO,netofunderwritingdiscountsandofferingcosts.

65

Note 10 - Equity Incentive Plans

InJuly2003,weadoptedthe2003EquityIncentivePlan.ConcurrentwiththeeffectivenessofourregistrationstatementonFormS-1onJune28,2010,we
adoptedthe2010EquityIncentivePlan(thePlan)andallremainingcommonsharesreservedforfuturegrantorissuanceunderthe2003EquityIncentivePlan
wereaddedtothe2010EquityIncentivePlan.ThePlanprovidesforthegrantingofstockoptions,RSUsandstockpurchaserightstoouremployees,directorsand
consultants.OptionsgrantedunderthePlanmaybeeitherincentiveoptionsornonqualifiedstockoptions.Incentivestockoptionsmaybegrantedonlytoour
employeesincludingofficersanddirectors.Nonqualifiedstockoptionsandstockpurchaserightsmaybegrantedtoouremployeesandconsultants.Generally,our
stockoptionsandRSUsvestoverfouryearsandareexercisableoveraperiodnottoexceedthecontractualtermoftenyearsfromthedatethestockoptionsare
granted.Continuedvestingtypicallyterminateswhentheemploymentorconsultingrelationshipends.AsofDecember31,2015,22,454,854sharesofcommon
stockwerereservedforissuanceunderthePlan.

ThefollowingtablesummarizesstockoptionandRSUactivityunderthePlan:

Outstanding Stock Options

Shares Available
for Grant

Balance,December31,2012
Additionaloptionsreserved
Granted
Exercised
Cancelled
Released
Balance,December31,2013
Additionaloptionsreserved
Granted
Exercised
Cancelled
Released
Tradedfortaxes
Balance,December31,2014

155.51

154.92
160.98
155.41

223.66

187.90
155.70

203.08

Granted

(2,728,110) 1,102,190 $
243.22 1,625,920 $
Exercised

(2,012,646)
34.32

Cancelled

708,797
(447,324)
96.70
(261,473)
Released




(404,883)
Tradedfortaxes

14



Balance,December31,2015

816,785 20,015,180 $
46.14 2,439,674 $

AdditionalinformationregardingallstockoptionsoutstandingandexercisableasofDecember31,2015issummarizedbelow:

Options Outstanding
Options Exercisable

229.54

211.66
233.30

219.90

$2.70-$6.15
$6.63-$6.63
$9.96-$30.06
$30.08-$31.07
$31.17-$31.17
$31.49-$41.83
$87.80-$241.93
$250.69-$261.89
$262.16-$262.16
$282.11-$282.11

469,531
3,426,428
(3,345,899)

1,170,445

1,720,505
3,077,274
(2,525,246)

556,765

6,786
2,836,084

Weighted
Average
Exercise Price

Range of Exercise Price

Number of
Options

Outstanding RSUs
Weighted
Average Grant
Number
Date Fair
of RSUs
Value

195,706
6,915,441
2,049,342

294,030
5,517,405
2,007,717
2,238,944

736,616

44,012

15,967
20,015,180

3.05
6.63
25.13
30.77
31.17
34.28
165.32
257.36
262.16
282.11
46.13

21.20

74.17
21.42
36.47

26.70

181.56
31.80
56.25

35.93

Weighted
Average
Remaining
Contractual
Life (in
years)

Weighted
Average
Exercise
Price

Number

25,007,776

2,643,821
(3,852,673)
(1,157,982)

22,640,942

1,432,171
(2,266,697)

(433,456)

21,372,960 $

4.55

702,078

(12,463)
(12,031)
677,584

1,093,075

(123,309)
(167,240)

1,480,110

195,706
6,915,142
1,917,003
236,557
2,279,381
1,531,818
648,292
96,232

5,500
13,825,631

Weighted
Average
Remaining
Contractual
Life (in
years)

Weighted
Average
Exercise
Price

Number

3.05
6.63
24.89
30.70
31.17
33.60
146.31
259.50

282.11
24.98

3.36

66

AdditionalinformationregardingallstockoptionsoutstandingandexercisableasofDecember31,2014issummarizedbelow:

Options Outstanding

Range of Exercise Price

Weighted
Average
Exercise
Price

Number

Options Exercisable
Weighted
Average
Remaining
Contractual
Life (in
years)

Weighted
Average
Exercise
Price

Number

Weighted
Average
Remaining
Contractual
Life (in
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

Theaggregateintrinsicvaluerepresentsthetotalpretaxintrinsicvalue(i.e.,thedifferencebetweenourcommonstockpriceandtheexerciseprice,
multipliedbythenumberofin-the-moneyoptions)thatwouldhavebeenreceivedbytheoptionholdershadalloptionholdersexercisedtheiroptions.The
aggregateintrinsicvalueofoptionsoutstandingasofDecember31,2015and2014was$3.90billionand$4.00billion.Theintrinsicvalueofoptionsexercisable
was$2.98billionand$2.46billion,andtheintrinsicvalueofoptionsvestedandexpectedtovestwas$3.90billionand$4.00billionasofDecember31,2015and
2014.Thetotalintrinsicvalueofoptionsexercisedwas$395.6millionand$446.9millionfortheyearsendedDecember31,2015and2014.Theaggregate
intrinsicvalueofRSUsoutstandingasofDecember31,2015andDecember31,2014was$585.7millionand$329.2million.

Fair Value Adoption

Weutilizethefairvaluemethodinrecognizingstock-basedcompensationexpense.Underthefairvaluemethod,weestimatedthefairvalueofeachoption
awardandtheESPPonthegrantdategenerallyusingtheBlack-Scholesoptionpricingmodelandtheweightedaverageassumptionsnotedinthefollowingtable.

Year Ended December 31,

Risk-freeinterestrate:
Stockoptions
ESPP
Expectedterm(inyears):
Stockoptions
ESPP
Expectedvolatility:
Stockoptions
ESPP
Dividendyield:
Stockoptions
ESPP

2015

1.6%
0.3%

5.4
0.5

48%
42%

0.0%
0.0%

2014

2013

1.9%
0.1%

6.0
0.5

55%
46%

0.0%
0.0%

1.3%
0.1%

6.1
0.5

57%
43%

0.0%
0.0%

Therisk-freeinterestratethatweuseisbasedontheUnitedStatesTreasuryyieldineffectatthetimeofgrantforzerocouponUnitedStatesTreasurynotes
withmaturitiesapproximatingeachgrantsexpectedlife.Givenourlimitedhistorywithemployeegrants,weusethesimplifiedmethodinestimatingthe
expectedtermforouremployeegrants.Thesimplifiedmethod,aspermittedbytheSEC,iscalculatedastheaverageofthetime-to-vestingandthecontractual
lifeoftheoptions.
67

Beginningin2015ourexpectedvolatilityisderivedfromourimpliedvolatilityonpubliclytradedoptionsofourcommonstockandthehistoricalvolatility
ofourcommonstock.Priorto2015,ourexpectedvolatilitywasderivedfromourimpliedvolatilityonpubliclytradedoptionsofourcommonstockandthe
historicalvolatilitiesofseveralunrelatedpubliccompanieswithinindustriesrelatedtoourbusiness,includingtheautomotiveOEM,automotiveretail,automotive
partsandbatterytechnologyindustries,becausewehadlimitedtradinghistoryonourcommonstock.Whenmakingtheselectionsofourpeercompanieswithin
industriesrelatedtoourbusinesstobeusedinthevolatilitycalculation,wealsoconsideredthestageofdevelopment,sizeandfinancialleverageofpotential
comparablecompanies.Ourhistoricalvolatilityandimpliedvolatilityareweightedbasedoncertainqualitativefactorsandcombinedtoproduceasinglevolatility
factor.

Theweighted-averagegrant-datefairvalueforoptionawardsgrantedduringtheyearsendedDecember31,2015,2014and2013was$108.28,$94.01and
$40.72pershare.Theweighted-averagegrant-datefairvalueforESPPgrantedduringtheyearsendedDecember31,2015,2014and2013was$58.77,$74.07and
$19.22pershare.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfairmarketvalueofourcommonstock.
Performance-Based Stock Options
In2014,tocreateincentivesforcontinuedlongtermsuccessbeyondtheModelSprogramandtocloselyalignexecutivepaywithourstockholders
interestsintheachievementofsignificantmilestonesbyourcompany,theCompensationCommitteeofourBoardofDirectorsgrantedstockoptionstocertain
employeestopurchaseanaggregate1,073,000sharesofourcommonstock.Eachsuchgrantconsistsoffourvestingtrancheswithavestingschedulebasedentirely
ontheattainmentoffutureperformancemilestones,assumingcontinuedemploymentandservicetousthrougheachvestingdate.

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstModelXProductionVehicle;

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievingaggregatevehicleproductionof100,000vehiclesinatrailing12monthperiod;

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstGenIIIProductionVehicle;and

1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievementofannualizedgrossmarginofgreaterthan30.0%inanythreeyears

AsofDecember31,2015,thefollowingperformancemilestonewereachievedandapprovedbyourBoardofDirectors.

CompletionofthefirstModelXProductionVehicle

Webeginrecordingstock-basedcompensationexpenseaseachmilestonebecomesprobable.AsofDecember31,2015,wehadunrecognizedcompensation
expenseof$68.7millionforthoseperformancemilestonesthatwerenotconsideredprobableofachievement.FortheyearsendedDecember31,2015and2014,
werecordedstock-basedcompensationexpenseof$10.4millionand$10.7millionrelatedtothisgrant.
2012 CEO Grant
InAugust2012,ourBoardofDirectorsgranted5,274,901stockoptionstoourCEO(2012CEOGrant).The2012CEOGrantconsistsoftenvesting
trancheswithavestingschedulebasedentirelyontheattainmentofbothperformanceconditionsandmarketconditions,assumingcontinuedemploymentand
servicetousthrougheachvestingdate.

Eachofthevestingtranchesrequiresacombinationofoneofthetenpre-determinedperformancemilestonesoutlinedbelowandanincrementalincreasein
ourmarketcapitalizationof$4.0billion,ascomparedtotheinitialmarketcapitalizationof$3.2billionmeasuredatthetimeofthe2012CEOGrant.

SuccessfulcompletionoftheModelXAlphaPrototype;

SuccessfulcompletionoftheModelXBetaPrototype;

CompletionofthefirstModelXProductionVehicle;

SuccessfulcompletionoftheModel3AlphaPrototype;

SuccessfulcompletionoftheModel3BetaPrototype;

CompletionofthefirstModel3ProductionVehicle;

Grossmarginof30%ormoreforfourconsecutivequarters;

Aggregatevehicleproductionof100,000vehicles;

Aggregatevehicleproductionof200,000vehicles;and

Aggregatevehicleproductionof300,000vehicles.
68

Thetermofthe2012CEOGrantistenyears,soanytranchesthatremainunvestedattheexpirationofthe2012CEOGrantwillbeforfeited.Inaddition,
unvestedoptionswillbeforfeitedifourCEOisnolongerinthatrole,whetherforcauseorotherwise.
Wemeasuredthefairvalueofthe2012CEOGrantusingaMonteCarlosimulationapproachwiththefollowingassumptions:risk-freeinterestrateof
1.65%,expectedtermoftenyears,expectedvolatilityof55%anddividendyieldof0%.
Stock-basedcompensationexpenseassociatedwiththe2012CEOGrantisrecognizedforeachpairofperformanceandmarketconditionsoverthelonger
oftheexpectedachievementperiodoftheperformanceandmarketconditions,beginningatthepointintimethattherelevantperformanceconditionisconsidered
probableofbeingmet.
AsofDecember31,2015,themarketconditionsforsevenvestingtranchesandthefollowingperformancemilestoneswereachievedandapprovedbyour
BoardofDirectors,andthereforefouroftentranchesofthe2012CEOGrantwerevestedasofsuchdate:

SuccessfulcompletionoftheModelXAlphaPrototype

SuccessfulcompletionoftheModelXBetaPrototype;and

CompletionofthefirstModelXProductionVehicle

Aggregatevehicleproductionof100,000vehicles

AsofDecember31,2015,thefollowingtwoperformancemilestoneswereconsideredprobableofachievement:

SuccessfulcompletionoftheModel3AlphaPrototype;and

SuccessfulcompletionoftheModel3BetaPrototype

Webeginrecordingstock-basedcompensationexpenseaseachmilestonebecomesprobable.AsofDecember31,2015,wehad$1.7millionoftotal
unrecognizedcompensationexpenseforthoseperformancemilestonesthatwereconsideredprobableofachievementandwillberecognizedoveraweightedaverageperiodof0.7years.AsofDecember31,2015,wehadunrecognizedcompensationexpenseof$25.1millionforthoseperformancemilestonesthatwere
notconsideredprobableofachievement.FortheyearsendedDecember312015,2014,and2013,werecordedstock-basedcompensationexpenseof$10.6million,
$25.0millionand$14.5million.
NocashcompensationhaseverbeenreceivedbyourCEOforhisservicestothecompany.
Summary Stock Based Compensation Information
Thefollowingtablesummarizesthestock-basedcompensationexpensebylineitemintheconsolidatedstatementsofoperations(inthousands):

2015

Costofsales
Researchanddevelopment
Selling,generalandadministrative
Total

Year Ended December 31,

2014

19,244
89,309
89,446
197,999

17,454
62,601
76,441
156,496

2013

9,071
35,494
39,090
83,655

Werealizednoincometaxbenefitfromstockoptionexercisesineachoftheperiodspresentedduetorecurringlossesandvaluationallowances.
AsofDecember31,2015,wehad$518.2millionoftotalunrecognizedcompensationexpense,net,ofestimatedforfeitures,relatedtonon-performance
awardsthatwillberecognizedoveraweighted-averageperiodof3.4years.
Employee Stock Purchase Plan
Employeesareeligibletopurchasecommonstockthroughpayrolldeductionsofupto15%oftheireligiblecompensation,subjecttoanyplanlimitations.
Thepurchasepriceofthesharesoneachpurchasedateisequalto85%ofthelowerofthefairmarketvalueofourcommonstockonthefirstandlasttradingdays
ofeachsix-monthofferingperiod.DuringtheyearsendedDecember31,2015,2014and2013,220,571,163,600and518,743shareswereissuedundertheESPP
for$37.5million,$28.6millionand$13.8million,respectively.Atotalof3,615,749sharesofcommonstockhavebeenreservedforissuanceundertheESPP,and
therewere2,115,851sharesavailableforissuanceundertheESPPasofDecember31,2015.

69

Note 11 - Income Taxes

Aprovisionforincometaxesof$13.0million,$9.4millionand$2.6millionhasbeenrecognizedfortheyearsendedDecember31,2015,2014and2013
relatedprimarilytooursubsidiarieslocatedoutsideoftheUnitedStates.OurlossbeforeprovisionforincometaxesfortheyearsendedDecember31,2015,2014
and2013wereasfollows(inthousands):

Year Ended December 31,

2015

Domestic
International
Lossbeforeincometaxes

$

$

2014

415,694 $
459,930
875,624 $

2013

60,451 $
224,185
284,636 $

75,279
(3,853)
71,426

ThecomponentsoftheprovisionforincometaxesfortheyearsendedDecember31,2015,2014and2013,consistedofthefollowing(inthousands):

Current:
Federal
State
Foreign
Totalcurrent
Deferred:
Federal
State
Foreign
Totaldeferred
Totalprovisionforincometaxes

2015

Year Ended December 31,

2014

525
10,342
10,867



2,172
2,172
13,039

257
9,203
9,460



(56)
(56)
9,404

2013

178
2,349
2,527

61
61
2,588

Deferredtaxassets(liabilities)asofDecember31,2015and2014consistedofthefollowing(inthousands):

Deferred tax assets:

Netoperatinglosscarry-forwards
Researchanddevelopmentcredits
Othertaxcredits
Deferredrevenue
Inventoryandwarrantyreserves
Depreciationandamortization
Stock-basedcompensation
Convertibledebt
Accrualsandothers
Totaldeferredtaxassets
Valuationallowance
Deferredtaxassets,netofvaluationallowance
Deferred tax liabilities:
Depreciationandamortization
Other
Totaldeferredtaxliabilities
Deferredtaxassets,netofvaluationallowanceanddeferredtaxliabilities

December 31,
2015

447,824
73,068
30,079
111,559
60,663
66
71,009
35,073
29,547
858,888
(668,419)
190,469

(188,240)
(4,309)
(192,549)
(2,080)

December 31,
2014

276,916
46,486
12,750
75,823
53,546
68
50,918
45,118
49,225
610,850
(524,394)
86,456

(86,298)

(86,298)
158

70

ReconciliationofstatutoryfederalincometaxestooureffectivetaxesfortheyearsendedDecember31,2015,2014and2013isasfollows(inthousands):

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

2015

Year Ended December 31,

2014

(306,470)
525
16,711
172,259
(43,911)
1,232
172,693
13,039

(99,622)
257
15,238
86,734
(26,895)
877
32,815
9,404

2013

(25,001)
178
733
(253)
(6,682)
1,317
32,296
2,588

AsofDecember31,2015,werecordedavaluationallowanceof$668.4millionfortheportionofthedeferredtaxassetthatwedonotexpecttoberealized.
Thevaluationonournetdeferredtaxesincreasedby$144.0millionduringtheyearendedDecember31,2015,primarilyduetoadditionalU.S.deferredtaxassets
incurredinthecurrentyearthatcannotberealized.Managementbelievesthatbasedontheavailableinformation,itismorelikelythannotthattheU.S.deferred
taxassetswillnotberealized,suchthatafullvaluationallowanceisrequiredagainstallU.S.deferredtaxassets.TheCompanyhasnet$3.3millionofdeferredtax
assetsinforeignjurisdictionswhichitbelievesaremore-likely-than-nottobefullyrealizedgiventheexpectationoffutureearningsinthesejurisdictions.
AsofDecember31,2015,wehadapproximately$2.14billionoffederaland$1.36billionofstatenetoperatinglosscarry-forwardsavailabletooffset
futuretaxableincome,whichwillbegintoexpireforfederalin2024and2019forstatepurposes.Theportionofnetoperatinglosscarryforwardsrelatedtostock
optionsisapproximately$867.2millionand$379.8millionforfederalandstatepurposes,respectively,ofwhichthetaxbenefitswillbecreditedtoadditionalpaidincapitalwhenrealized.Wehaveresearchanddevelopmenttaxcreditsofapproximately$58.6millionand$62.0millionforfederalandstateincometaxpurposes,
respectively.Ifnotutilized,thefederalcarry-forwardswillexpireinvariousamountsbeginningin2019.However,thestateresearchanddevelopmenttaxcredits
canbecarriedforwardindefinitely.Inaddition,wehaveothergeneralbusinesstaxcreditsofapproximately$29.9millionforfederalincometaxpurposes,which
willbegintoexpirein2034.
NodeferredtaxliabilityhasbeenrecognizedfortheremittanceofanyundistributedforeignearningstotheUnitedStatessincetheCompanyhasno
materialamountofundistributedforeignearningsoutsideofourU.S.taxjurisdictionasofDecember31,2015.
Federalandstatelawscanimposesubstantialrestrictionsontheutilizationofnetoperatinglossandtaxcreditcarry-forwardsintheeventofanownership
change,asdefinedinSection382oftheInternalRevenueCode.Wedeterminedthatnosignificantlimitationwouldbeplacedontheutilizationofournet
operatinglossandtaxcreditcarry-forwardsduetoanypriorownershipchanges.
Uncertain Tax Positions
TheaggregatechangesinthebalanceofourgrossunrecognizedtaxbenefitsduringtheyearsendedDecember31,2015,2014and2013wereasfollows(in
thousands):

December31,2012

18,070
Decreasesinbalancesrelatedtoprioryeartaxpositions

(7,802)
Increasesinbalancesrelatedtocurrentyeartaxpositions

3,102
December31,2013

13,370
Increaseinbalancesrelatedtoprioryeartaxpositions

56
Increasesinbalancesrelatedtocurrentyeartaxpositions

27,951
December31,2014

41,377
Increaseinbalancesrelatedtoprioryeartaxpositions

6,626
Increasesinbalancesrelatedtocurrentyeartaxpositions

51,124
December31,2015
$
99,127

71

Accruedinterestandpenaltiesrelatedtounrecognizedtaxbenefitsareclassifiedasincometaxexpenseandwasimmaterial.AsofDecember31,2015,
unrecognizedtaxbenefitsof$95.7million,ifrecognized,wouldnotaffectoureffectivetaxrateasthetaxbenefitswouldincreaseadeferredtaxassetwhichis
currentlyfullyoffsetwithafullvaluationallowance.Wedonotanticipatethattheamountofexistingunrecognizedtaxbenefitswillsignificantlyincreaseor
decreasewithinthenext12months.WefileincometaxreturnsintheUnitedStates,California,andotherstatesandforeignjurisdictions.Taxyears2003to2014
remainsubjecttoexaminationforfederalpurposes,andtaxyears2003to2014remainsubjecttoexaminationforCaliforniapurposes.Allnetoperatinglossesand
taxcreditsgeneratedtodatearesubjecttoadjustmentforU.S.federalandCaliforniapurposes.Taxyears2007to2014remainopenforexaminationinotherU.S.
stateandforeignjurisdictions.
TheUnitedStatesTaxCourthasissuedadecisioninAlteraCorpv.Commissionerrelatedtothetreatmentofshare-basedcompensationexpenseinacostsharingarrangement.Asthisdecisioncanbeoverturneduponappeal,wehavenotrecordedanyimpactasofDecember31,2015.Inaddition,anypotentialtax
benefitswouldincreaseadeferredtaxassetwhichiscurrentlyoffsetwithafullvaluationallowance.

Note 12 - Information about Geographic Areas

Weoperateasonereportablesegmentwhichisthedesign,development,manufacturingandsalesofelectricvehicles,andstationaryenergystorage
products.
Thefollowingtablessetforthtotalrevenuesandlong-livedassetsbygeographicarea(inthousands).
Total Revenues

UnitedStates
China
Norway
Other
Total

2015

Year Ended December 31,

2014

1,957,397
318,513
356,419
1,413,696
4,046,025

1,471,643
477,082
412,198
837,433
3,198,356

2013

1,479,166

217,070
317,260
2,013,496

Long-lived Assets

UnitedStates
International
Total

$

$

December 31,
2015

4,585,521 $
609,216
5,194,737 $

December 31,
2014

2,452,219
143,792
2,596,011

Note 13 - Commitments and Contingencies

Operating Leases
OurcorporateheadquartersandpowertrainproductionoperationsarebasedinPaloAlto,Californiawherewehaveleasedafacilityconsistingof350,000
squarefeet.ThisleaseexpiresinJanuary2020.Weleasea203,772squarefeetmanufacturingfacilityinTilburg,NetherlandsthroughNovember2023.Wealso
leaseanumberofpropertiesinNorthAmerica,EuropeandAsiaforouroffice,retailandservicelocationsaswellasSuperchargersitesundernon-cancelable
operatingleaseswithvariousexpirationdatesthroughDecember2030.
IncludedwithinOperatingLeasescommitmentsinthetablebelowarepaymentsdueunderoperatingleasesthathavebeenaccountedforasbuild-to-suit
arrangementsandareincludedinproperty,plant,andequipmentinourConsolidatedBalanceSheets.

RentexpensefortheyearsendedDecember31,2015,2014and2013was$68.2million,$46.3millionand$21.5million.
Capital Leases
Wehaveenteredintovariousagreementstoleaseequipmentundercapitalleasesovertermsbetween36and60months.Theequipmentundertheleasesare
collateralfortheleaseobligationsandareincludedwithinproperty,plantandequipment,netontheConsolidatedBalanceSheetsunderthecategoriesofcomputer
equipmentandsoftwareandofficefurnitureandequipment.

72

FutureminimumcommitmentsforleasesasofDecember31,2015areasfollows(inthousands):

Operating
Leases

2016
2017
2018
2019
2020andthereafter
Totalminimumleasepayments

Less:Amountsrepresentinginterestnotyetincurred
Presentvalueofcapitalleaseobligations
Less:Currentportion
Long-termportionofcapitalleaseobligations

Capital
Leases

88,629
86,661
78,531
69,013
248,030
570,864

16,758
11,321
5,488
1,112

34,679

2,006
32,673
15,451
17,222

Environmental Liabilities

InconnectionwithourTeslaFactorylocatedinFremont,California,weareobligatedtopayfortheremediationofcertainenvironmentalconditions
existingatthetimewepurchasedthepropertyfromNewUnitedMotorManufacturing,Inc.(NUMMI).Teslaisresponsibleforthefirst$15millionofremediation
costsandanycostsinexcessof$30millionorcostsincurredaftertheten-yearanniversaryofclosing.NUMMIisresponsibleforremediationcostsbetween$15
millionand$30millionforupto10yearsfromtheclosingdate.ThroughDecember31,2015,wehavepaid$6.94millionforremediationcostsincurredrelatedto
theFremontfacility,effectivelysettlingouraccruedobligationandasofDecember31,2015,wehavenoaccruedamountsremaining.AsofDecember31,2014,
weaccruedatotalof$4.0millionrelatedtotheseenvironmentalliabilities.
Legal Proceedings
Fromtimetotime,wearesubjecttovariouslegalproceedingsthatarisefromthenormalcourseofbusinessactivities.Inaddition,fromtimetotime,third
partiesmayassertintellectualpropertyinfringementclaimsagainstusintheformoflettersandotherformsofcommunication.Ifanunfavorablerulingwereto
occur,thereexiststhepossibilityofamaterialadverseimpactonourresultsofoperations,prospects,cashflows,financialpositionandbrand.
InNovember2013,aputativesecuritiesclassactionlawsuitwasfiledagainstTeslainU.S.DistrictCourt,NorthernDistrictofCalifornia,alleging
violationsof,andseekingremediespursuantto,Sections10(b)and20(a)oftheSecuritiesExchangeActof1934andRule10b-5.Thecomplaint,madeclaims
againstTeslaandourCEO,ElonMusk,soughtdamagesandattorneysfeesonthebasisofallegationsthat,amongotherthings,TeslaandMr.Muskmadefalse
and/ormisleadingrepresentationsandomissions,includingwithrespecttothesafetyofModelS.Thiscasewasbroughtonbehalfofaputativeclassconsistingof
certainpersonswhopurchasedTeslassecuritiesbetweenAugust19,2013andNovember17,2013.OnSeptember26,2014,thetrialcourt,uponthemotionof
TeslaandMr.Musk,dismissedthecomplaintwithprejudice,andthereafterissuedaformalwrittenordertothateffect.Theplaintiffshaveappealedfromthetrial
courtsorder,andthatappealispending.

Note 14 - Quarterly Results of Operations (Unaudited)

ThefollowingtableincludesselectedquarterlyresultsofoperationsdatafortheyearsendedDecember31,2015and2014(inthousands,exceptpershare
data):

2015
Totalrevenues
Grossprofit
Netloss
Netlosspershare,basic
Netincome(loss)pershare,diluted
2014
Totalrevenues
Grossprofit
Netincome(loss)
Netincome(loss)pershare,basic
Netincome(loss)pershare,diluted

73

March 31

Three months ended

June 30
September 30

December 31

$
939,880 $
954,976 $
936,789 $ 1,214,379

260,073
213,370
231,496
218,564
(154,181) (184,227)
(229,858)
(320,397)

(1.22)
(1.45)
(1.78)
(2.44)

(1.22)
(1.45)
(1.78)
(2.44)

$
620,542 $
769,349 $
851,804 $
956,661

155,128
212,995
251,851
261,697

(49,800)
(61,900)
(74,708)
(107,630)

(0.40)
(0.50)
(0.60)
(0.86)

(0.40)
(0.50)
(0.60)
(0.86)

Netlosspershare,basicanddilutedforthefourquartersofeachfiscalyearmaynotsumtothetotalfortheyearbecauseofthedifferentnumbersofshares
outstandingduringeachperiod.

I TEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Notapplicable.

I TEM 9A.

CONTROLS AND PROCEDURES

Evaluation
of
Disclosure
Controls
and
Procedures
WeconductedanevaluationasofDecember31,2015,underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutive
OfficerandChiefFinancialOfficer,oftheeffectivenessofthedesignandoperationofourdisclosurecontrolsandprocedures.Baseduponthatevaluation,our
ChiefExecutiveOfficerandChiefFinancialOfficerconcludedthat,asofDecember31,2015,ourdisclosurecontrolsandprocedureswereeffectivetoprovide
reasonableassurance.
Managements
Report
on
Internal
Control
over
Financial
Reporting
Ourmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.Internalcontroloverfinancialreporting
isaprocessdesignedby,orunderthesupervisionof,ourChiefExecutiveOfficerandChiefFinancialOfficertoprovidereasonableassuranceregardingthe
reliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciplesand
includesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthatinreasonabledetailaccuratelyandfairlyreflectthetransactionsand
dispositionsofourassets;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordance
withgenerallyacceptedaccountingprinciples,andthatourreceiptsandexpendituresarebeingmadeonlyinaccordancewithauthorizationsofourmanagement
anddirectors;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,useordispositionofourassetsthatcould
haveamaterialeffectonthefinancialstatements.
Underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,weconductedan
evaluationoftheeffectivenessofourinternalcontroloverfinancialreportingbasedoncriteriaestablishedinInternalControlIntegratedFramework(2013)
issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).Ourmanagementconcludedthatourinternalcontroloverfinancial
reportingwaseffectiveasofDecember31,2015.
Ourindependentregisteredpublicaccountingfirm,PricewaterhouseCoopersLLP,hasauditedtheeffectivenessofourinternalcontroloverfinancial
reportingasofDecember31,2015asstatedintheirreportwhichisincludedherein.
Limitations
on
the
Effectiveness
of
Controls
Becauseofinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatementsandprojectionsofanyevaluationof
effectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewith
thepoliciesorproceduresmaydeteriorate.
Changes
in
Internal
Control
over
Financial
Reporting
TherewasnochangeinourinternalcontroloverfinancialreportingwhichoccurredduringthefourthfiscalquarteroftheyearendedDecember31,2015
whichhasmateriallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.

I TEM 9B.

OTHER INFORMATION

None

74

P ART III
I TEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

TheinformationrequiredbythisItem10ofForm10-Kwillbeincludedinour2016ProxyStatementtobefiledwiththeSECinconnectionwiththe
solicitationofproxiesforour2016AnnualMeetingofStockholders(2016ProxyStatement)andisincorporatedhereinbyreference.The2016ProxyStatement
willbefiledwiththeSECwithin120daysaftertheendofthefiscalyeartowhichthisreportrelates.
I TEM 11.

EXECUTIVE COMPENSATION

TheinformationrequiredbythisItem11ofForm10-Kwillbeincludedinour2016ProxyStatementandisincorporatedhereinbyreference.
I TEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS

TheinformationrequiredbythisItem12ofForm10-Kwillbeincludedinour2016ProxyStatementandisincorporatedhereinbyreference.
I TEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

TheinformationrequiredbythisItem13ofForm10-Kwillbeincludedinour2016ProxyStatementandisincorporatedhereinbyreference.
I TEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

TheinformationrequiredbythisItem14ofForm10-Kwillbeincludedinour2016ProxyStatementandisincorporatedhereinbyreference.

I TEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1.

FinancialStatements.SeeIndextoConsolidatedFinancialStatementsinPartII,Item8ofthisAnnualReportonForm10-K.

2.

Allfinancialstatementscheduleshavebeenomitted,sincetherequiredinformationisnotapplicableorisnotpresentinamountssufficienttorequire
submissionoftheschedule,orbecausetheinformationrequiredisincludedintheconsolidatedfinancialstatementsandnotesthereto.

3.

Exhibits.TheexhibitslistedintheaccompanyingIndextoExhibitsarefiledorincorporatedbyreferenceaspartofthisAnnualReportonForm10-K.

75

INDEX TO EXHIBITS

Exhibit
Number

3.1

Exhibit Description

Form

AmendedandRestatedCertificateofIncorporationof S-1
theRegistrant

3.2

AmendedandRestatedBylawsoftheRegistrant

8-K

333 164593
333 164593

4.1

SpecimencommonstockcertificateoftheRegistrant

S-1/A

4.2

4.2A

4.2B

4.2C

4.2D

4.2E

4.2F

4.2G

FifthAmendedandRestatedInvestorsRights
Agreement,datedasofAugust31,2009,between
RegistrantandcertainholdersoftheRegistrants
capitalstocknamedtherein

4.1

May27,2010

January29,2010

333164593

4.2A

May27,2010

333164593

4.2B

May27,2010

333164593

4.2C

June15,2010

00134756

4.1

November4,2010

333174466

4.2E

June2,2011

SixthAmendmenttoFifthAmendedandRestated
8-K
InvestorsRightsAgreement,datedasofMay15,
2013amongtheRegistrant,theElonMuskRevocable
TrustdatedJuly22,2003andcertainotherholdersof
thecapitalstockoftheRegistrantnamedtherein.

76

00134756

4.1

June1,2011

00134756

4.1

May20,2013

4.2

Filed
Herewith

333164593

AmendmenttoFifthAmendedandRestatedInvestors 8-K
RightsAgreement,datedasofMay30,2011,between
RegistrantandcertainholdersoftheRegistrants
capitalstocknamedtherein

S-1

WaivertoFifthAmendedandRestatedInvestors
S-1/A
RightsAgreement,datedasofMay25,2011,between
RegistrantandcertainholdersoftheRegistrants
capitalstocknamedtherein

June8,2012

AmendmenttoFifthAmendedandRestatedInvestors 8-K
RightsAgreement,datedasofNovember2,2010,
betweenRegistrantandcertainholdersofthe
Registrantscapitalstocknamedtherein

3.2

AmendmenttoFifthAmendedandRestatedInvestors S-1/A
RightsAgreement,datedasofJune14,2010,between
RegistrantandcertainholdersoftheRegistrants
capitalstocknamedtherein

AmendmenttoFifthAmendedandRestatedInvestors S-1/A
RightsAgreementbetweenRegistrant,ToyotaMotor
CorporationandcertainholdersoftheRegistrants
capitalstocknamedtherein

January29,2010

AmendmenttoFifthAmendedandRestatedInvestors S-1/A
RightsAgreement,datedasofMay20,2010,between
RegistrantandcertainholdersoftheRegistrants
capitalstocknamedtherein

333 164593

3.1

Filing Date

Incorporated by Reference
File No.
Exhibit

Exhibit
Number

4.2H

WaivertoFifthAmendedandRestatedInvestors
RightsAgreement,datedasofAugust13,2015,
betweentheRegistrantandcertainholdersofthe
capitalstockoftheRegistrantnamedtherein.

4.5
4.6

4.7
4.8

ThirdSupplementalIndenture,datedasofMarch5,
2014,byandbetweentheRegistrantandU.S.Bank
NationalAssociation.

4.9

001 34756

4.2

May22,2013

001 34756

10.4**

10.5**

4.3

March5,2014

4.4

March5,2014

001 34756
333 164593

333 164593

333 164593
333 164593

77

333 164593

10.1

June15,2010

10.2

May27,2010

10.3

January29,2010

10.3A

March29,2010

AppendixA

April24,2014

10.5

March29,2010

FormofStockOptionAgreementunder2010Equity
S-1/A
IncentivePlan

14A

March5,2014

S-1/A

4.5

333 164593

00134756

8-K

FormofStockOptionAgreementunder2003Equity
S-1
IncentivePlan

March5,2014

AmendedandRestated2010EquityIncentivePlan,
effectiveasofApril10,2014

4.2

00134756

S-1/A

GrantNoticeandStockOptionAgreementbetween
theRegistrantandElonMusk

2003EquityIncentivePlan

10.3A**

May22,2013

001 34756

S-1/A

4.3

10.2**

10.3**

00134756

8-K

May22,2013

4.1

Filed
Herewith

Formof1.25%ConvertibleSeniorNoteDueMarch1, 8-K
2021(includedinExhibit4.8).

FormofIndemnificationAgreementbetweenthe
Registrantanditsdirectorsandofficers

10.1**

August19,2015

Formof0.25%ConvertibleSeniorNoteDueMarch1, 8-K
2019(includedinExhibit4.6).

4.1

May20,2013

00134756

SecondSupplementalIndenture,datedasofMarch5, 8-K
2014,byandbetweentheRegistrantandU.S.Bank
NationalAssociation.

4.2

8-K

00134756

Formof1.50%ConvertibleSeniorNoteDueJune1,
8-K
2018(includedinExhibit4.4).

Indenture,datedasofMay22,2013,byandbetween 8-K
theRegistrantandU.S.BankNationalAssociation.
FirstSupplementalIndenture,datedasofMay22,
2013,byandbetweentheRegistrantandU.S.Bank
NationalAssociation.

Filing Date

Incorporated by Reference
File No.
Exhibit

4.4

Form

4.3

WaivertoFifthAmendedandRestatedInvestors
8-K
RightsAgreement,datedasofMay14,2013,between
theRegistrantandcertainholdersofthecapitalstock
oftheRegistrantnamedtherein.

4.2I

Exhibit Description

Exhibit
Number

10.6**

10.7**

10.8**

10.9**

10.10**

10.11**

10.12**

10.13

10.14

10.14A

10.14B

10.14C

10.14D

10.14E

10.14F

Exhibit Description

FormofRestrictedStockUnitAwardAgreement
under2010EquityIncentivePlan

OfferLetterbetweentheRegistrantandElonMusk
datedOctober13,2008

OfferLetterbetweentheRegistrantandJason
WheelerdatedOctober8,2015.

CommercialLeasebetweentheRegistrantandThe
BoardofTrusteesofTheLelandStanford
Jr.UniversitydatedAugust6,2009

333 164593
333 164593

10.10

January29,2010

10.11

January29,2010

S-1

333 164593

10.12

January29,2010

S-1

333164593

10.22

January29,2010

333 164593

10.3

November12,2010

00134756

10.4

November12,2010

AmendmentNo.6totheLetterAgreementbetween
10-Q
theRegistrantandNewUnitedMotorManufacturing,
Inc.datedOctober19,2010

78

00134756

10.5

November12,2010

00134756

10.6

November12,2010

00134756

10.7

November12,2010

00134756

10.8

November12,2010

00134756

May27,2010

10.45

333164593

S-1

AmendmentNo.5totheLetterAgreementbetween
10-Q
theRegistrantandNewUnitedMotorManufacturing,
Inc.datedOctober15,2010

AmendmentNo.4totheLetterAgreementbetween
10-Q
theRegistrantandNewUnitedMotorManufacturing,
Inc.datedOctober13,2010

January29,2010

AmendmentNo.3totheLetterAgreementbetween
10-Q
theRegistrantandNewUnitedMotorManufacturing,
Inc.datedOctober8,2010

10.9

AmendmentNo.2totheLetterAgreementbetween
10-Q
theRegistrantandNewUnitedMotorManufacturing,
Inc.datedOctober1,2010

Filed
Herewith

AmendmentNo.1totheLetterAgreementbetween
10-Q
theRegistrantandNewUnitedMotorManufacturing,
Inc.datedJune15,2010

LetterAgreementbetweentheRegistrantandNew
S-1/A
UnitedMotorManufacturing,Inc.datedMay26,2010

OfferLetterbetweentheRegistrantandDeepakAhuja S-1
datedJune13,2008,andamendedJune4,2009

OfferLetterbetweentheRegistrantandJeffreyB.
StraubeldatedMay6,2004

March29,2010

10.6

S-1

RelocationAgreementbetweentheRegistrantand
DeepakAhujaeffectiveOctober31,2008and
amendedJune4,2009

333 164593

Filing Date

Incorporated by Reference
File No.
Exhibit

S-1/A

AmendedandRestated2010EmployeeStock
PurchasePlan,effectiveasofAugust3,2011.

Form

Exhibit
Number

10.15

10.15A

10.16

10.16A

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.25A

10.26

Exhibit Description

Form

SaleandPurchaseAgreementbetweenRegistrantand 10-Q
NewUnitedMotorManufacturing,Inc.,dated
August13,2010

AddendumNo.1totheSaleandPurchaseAgreement 10-Q
betweenRegistrantandNewUnitedMotor
Manufacturing,Inc.,datedSeptember23,2010

SupplyAgreementbetweenPanasonicCorporation
andtheRegistrantdatedOctober5,2011
AmendmentNo.1toSupplyAgreementbetween
PanasonicCorporationandtheRegistrantdated
October29,2013

001 34756
001 34756

001 34756

001 34756

001 34756

LetterAgreement,datedasofFebruary24,2015,
regardingadditionofco-partytoGeneralTermsand
Conditions,ProductionPricingAgreementand
InvestmentLetterAgreementbetweenPanasonic
CorporationandtheRegistrant.

10.2

March5,2014

10.3

March5,2014

10.4

March5,2014

10.5

March5,2014

10.1

November7,2014

10.2

November7,2014

ProductionPricingAgreementbetweenPanasonic
10-Q
CorporationandtheRegistrantdatedOctober1,2014.

001 34756
79

10.3

November7,2014

GeneralTermsandConditionsbetweenPanasonic
10-Q
CorporationandtheRegistrantdatedOctober1,2014.

10-Q

May22,2013

8-K

10.2

March5,2014

001 34756

10.1

May22,2013

00134756

001 34756

8-K

10.1

001 34756

FormofCallOptionConfirmationrelatingto1.25%
8-K
ConvertibleSeniorNotesDueMarch1,2021.

AgreementbetweenPanasonicCorporationandthe
RegistrantdatedJuly31,2014.

February27,2012

10.50

Filed
Herewith

FormofCallOptionConfirmationrelatingto0.25%
8-K
ConvertibleSeniorNotesDueMarch1,2019.

FormofWarrantConfirmationrelatingto1.25%
ConvertibleSeniorNotesDueMarch1,2021.

February26,2014

November12,2010

10.35A

IndemnificationAgreement,datedasofFebruary27, 8-K
2014,byandbetweentheRegistrantandJ.P.Morgan
SecuritiesLLC.

FormofWarrantConfirmationrelatingto0.25%
ConvertibleSeniorNotesDueMarch1,2019.

10.2

00134756

00134756

10-K

8-K

November12,2010

FormofCallOptionConfirmationrelatingto1.50%
8-K
ConvertibleSeniorNoteDueJune1,2018.

FormofWarrantConfirmationrelatingto1.50%
ConvertibleSeniorNoteDueJune1,2018.

10.1

00134756

-001 34756

10-K

Filing Date

Incorporated by Reference
File No.
Exhibit

Exhibit
Number

10.27

10.28

10.28A

10.28B

10.28C

Exhibit Description

Form

10-Q
InvestmentLetterAgreementbetweenPanasonic
CorporationandtheRegistrantdatedOctober1,2014.

001 34756

ABLCreditAgreement,datedasofJune10,2015,by 8-K
andamongtheRegistrant,TeslaMotorsNetherlands
B.V.,certainoftheRegistrantsandTeslaMotors
NetherlandsB.V.sdirectorindirectsubsidiariesfrom
timetotimepartythereto,asborrowers,WellsFargo
Bank,NationalAssociation,asdocumentationagent,
JPMorganChaseBank,N.A.,GoldmanSachsBank
USA,MorganStanleySeniorFundingInc.andBank
ofAmerica,N.A.,assyndicationagents,thelenders
fromtimetotimepartythereto,andDeutscheBank
AGNewYorkBranch,asadministrativeagentand
collateralagent.

SecondAmendment,datedasofDecember31,2015,
toABLCreditAgreement,datedasofJune10,2015,
byandamongtheRegistrant,TeslaMotors
NetherlandsB.V.,certainoftheRegistrantsandTesla
MotorsNetherlandsB.V.sdirectorindirect
subsidiariesfromtimetotimepartythereto,as
borrowers,andthedocumentationagent,syndication
agents,administrativeagent,collateralagentand
lendersfromtimetotimepartythereto.

ThirdAmendment,datedasofFebruary9,2016,to
ABLCreditAgreement,datedasofJune10,2015,by
andamongtheRegistrant,TeslaMotorsNetherlands
B.V.,certainoftheRegistrantsandTeslaMotors
NetherlandsB.V.sdirectorindirectsubsidiariesfrom
timetotimepartythereto,asborrowers,andthe
documentationagent,syndicationagents,
administrativeagent,collateralagentandlendersfrom
timetotimepartythereto.

10.4

November7,2014

Filed
Herewith

00134756

10.1

June12,2015

00134756

10.1

November5,2015

80

Filing Date

FirstAmendment,datedasofNovember3,2015,to
10-Q
ABLCreditAgreement,datedasofJune10,2015,by
andamongtheRegistrant,TeslaMotorsNetherlands
B.V.,certainoftheRegistrantsandTeslaMotors
NetherlandsB.V.sdirectorindirectsubsidiariesfrom
timetotimepartythereto,asborrowers,andthe
documentationagent,syndicationagents,
administrativeagent,collateralagentandlendersfrom
timetotimepartythereto.

Incorporated by Reference
File No.
Exhibit

Exhibit
Number

Exhibit Description

Form

Incorporated by Reference
File No.
Exhibit

00134756

10.1

August7,2015

10.29

AgreementforTaxAbatementandIncentives,dated
10-Q
asofMay7,2015,byandbetweenTeslaMotors,Inc.
andtheStateofNevada,actingbyandthroughthe
NevadaGovernorsOfficeofEconomicDevelopment

12.1

StatementregardingComputationofRatioofEarnings
toFixedCharges

21.1

ListofSubsidiariesoftheRegistrant

23.1

ConsentofPricewaterhouseCoopersLLP,
IndependentRegisteredPublicAccountingFirm

31.1

Rule13a-14(a)/15(d)-14(a)CertificationofPrincipal
ExecutiveOfficer

31.2

Rule13a-14(a)/15(d)-14(a)CertificationofPrincipal
FinancialOfficer

32.1*

Section1350Certifications

101.INS

XBRLInstanceDocument

101.SCH

XBRLTaxonomyExtensionSchemaDocument

101.CAL

XBRLTaxonomyExtensionCalculationLinkbase
Document.

101.DEF

XBRLTaxonomyExtensionDefinitionLinkbase
Document

101.LAB

XBRLTaxonomyExtensionLabelLinkbase
Document

101.PRE

XBRLTaxonomyExtensionPresentationLinkbase
Document

*
**

Furnishedherewith
Indicatesamanagementcontractorcompensatoryplanorarrangement.
Confidentialtreatmenthasbeenrequestedforportionsofthisexhibit

81

Filed
Herewith

Filing Date

S IGNATURES
PursuanttotherequirementsofSection13or15(d)theSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalf
bytheundersigned,thereuntodulyauthorized.

TeslaMotors,Inc.

Date:February24,2016

/s/ElonMusk

ElonMusk

ChiefExecutiveOfficer

(PrincipalExecutiveOfficer)

PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrant
andinthecapacitiesandonthedatesindicated.

Signature

Date

/s/ElonMusk
ElonMusk

ChiefExecutiveOfficerandDirector(Principal
ExecutiveOfficer)

February24,2016

/s/JasonWheeler
JasonWheeler

ChiefFinancialOfficer(PrincipalFinancialOfficer
andPrincipalAccountingOfficer)

February24,2016

/s/BradW.Buss
BradW.Buss

Director

/s/RobynDenholm
RobynDenholm

Director

/s/IraEhrenpreis
IraEhrenpreis

Director

/s/AntonioJ.Gracias
AntonioJ.Gracias

Director

/s/StephenT.Jurvetson
StephenT.Jurvetson

Director

/s/KimbalMusk
KimbalMusk

Director

Title

82

February24,2016

February24,2016

February24,2016

February24,2016

February24,2016

February24,2016

Exhibit 10.7
TESLA MOTORS, INC.
2010 EMPLOYEE STOCK PURCHASE PLAN
(AsAmendedandRestatedEffectiveAugust3,2011)
1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase
CommonStockthroughaccumulatedpayrolldeductions.TheCompanysintentionistohavethePlanqualifyasanemployeestockpurchaseplanunderSection
423oftheCode.TheprovisionsofthePlan,accordingly,willbeconstruedsoastoextendandlimitPlanparticipationinauniformandnondiscriminatorybasis
consistentwiththerequirementsofSection423oftheCode.
2.Definitions.
(a)AdministratormeanstheBoardoranyCommitteedesignatedbytheBoardtoadministerthePlanpursuanttoSection14.
(b)ApplicableLawsmeanstherequirements relating totheadministration ofequity-based awards underU.S.state corporate laws,
U.S.federalandstatesecuritieslaws,theCode,anystockexchangeorquotationsystemonwhichtheCommonStockislistedorquotedandtheapplicablelawsof
anyforeigncountryorjurisdictionwhereAwardsare,orwillbe,grantedunderthePlan.
(c)BoardmeanstheBoardofDirectorsoftheCompany.
(d)ChangeinControlmeanstheoccurrenceofanyofthefollowingevents:
(i)AchangeintheownershipoftheCompanywhichoccursonthedatethatanyoneperson,ormorethanonepersonacting
asagroup(Person),acquiresownershipofthestockoftheCompanythat,togetherwiththestockheldbysuchPerson,constitutesmorethanfiftypercent(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 one
Person,whoisconsideredtoownmorethanfiftypercent(50%)ofthetotalvotingpowerofthestockoftheCompanywillnotbeconsideredaChangeinControl;
or
(ii)AchangeintheeffectivecontroloftheCompanywhichoccursonthedatethatamajorityofmembersoftheBoardis
replacedduringanytwelve(12)monthperiodbyDirectorswhoseappointmentorelectionisnotendorsedbyamajorityofthemembersoftheBoardpriortothe
dateoftheappointmentorelection.Forpurposesofthisclause,ifanyPersonisconsideredtobeineffectivecontroloftheCompany,theacquisitionofadditional
controloftheCompanybythesamePersonwillnotbeconsideredaChangeinControl;or
(iii) Achangeintheownershipofasubstantial portionoftheCompanysassetswhichoccursonthedatethatanyPerson
acquires (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 the
Companythathaveatotalgrossfairmarketvalueequaltoormorethanfiftypercent(50%)ofthetotalgrossfairmarketvalueofalloftheassetsoftheCompany
immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection, the following will not constitute a change in the
ownership of a substantial portion of the Companys assets: (A) a transfer to an entity that is controlled by the Companys stockholders immediately after the
transfer,or(B)atransferofassetsbytheCompanyto:(1)astockholderoftheCompany(immediatelybeforetheassettransfer)inexchangefororwithrespectto
theCompanysstock,(2)anentity,fiftypercent(50%)ormoreofthetotalvalueorvotingpowerofwhichisowned,directlyorindirectly,bytheCompany,(3)a
Person,thatowns,directlyorindirectly,fiftypercent(50%)ormoreofthetotalvalueorvotingpowerofalltheoutstandingstockoftheCompany,or(4)anentity,
atleastfiftypercent(50%)ofthetotalvalueorvotingpowerofwhichisowned,directlyorindirectly,byaPersondescribedinthissubsection(iii)(B)(3).For
purposesofthissubsection,grossfairmarket

valuemeansthevalueoftheassetsoftheCompany,orthevalueoftheassetsbeingdisposedof,determinedwithoutregardtoanyliabilitiesassociatedwithsuch
assets.
Forpurposesofthis definition, personswill beconsidered tobeacting asagroupif theyare ownersofacorporation that
entersintoamerger,consolidation,purchaseoracquisitionofstock,orsimilarbusinesstransactionwiththeCompany.
(e)CodemeanstheInternalRevenueCodeof1986,asamended.ReferencetoaspecificsectionoftheCodeorregulationthereunder
shallincludesuchsectionorregulation,anyvalidregulationpromulgatedundersuchsection,andanycomparableprovisionofanyfuturelegislationorregulation
amending,supplementingorsupersedingsuchsectionorregulation.
(f)CommitteemeansacommitteeoftheBoardappointedinaccordancewithSection14hereof.
(g)CommonStockmeansthecommonstockoftheCompany.
(h)CompanymeansTeslaMotors,Inc.,aDelawarecorporation.
(i)CompensationmeansanEligibleEmployeesregularandrecurringstraighttimegrossearnings,paymentsforovertimeandshift
premium,butexclusiveofpaymentsforincentivecompensation,bonusesandothersimilarcompensation.TheAdministrator,initsdiscretion,may,onauniform
andnondiscriminatorybasis,establishadifferentdefinitionofCompensationforasubsequentOfferingPeriod.
(j)DesignatedSubsidiarymeansanySubsidiarythathasbeendesignatedbytheAdministratorfromtimetotimeinitssolediscretion
aseligibletoparticipateinthePlan.
(k)DirectormeansamemberoftheBoard.
(l)EligibleEmployeemeansanyindividualwhoisacommonlawemployeeofanEmployerandiscustomarilyemployedforatleast
twenty(20)hoursperweekandmorethanfive(5)monthsinanycalendaryearbytheEmployer.ForpurposesofthePlan,theemploymentrelationshipwillbe
treatedascontinuingintactwhiletheindividualisonsickleaveorotherleaveofabsencethattheEmployerapproves.Wheretheperiodofleaveexceedsthree(3)
months and the individuals right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have
terminatedthree(3)monthsandone(1)dayfollowingthecommencementofsuchleave.TheAdministrator,initsdiscretion,fromtimetotimemay,priortoan
OfferingDateforalloptionstobegrantedonsuchOfferingDate,determine(onauniformandnondiscriminatorybasis)thatthedefinitionofEligibleEmployee
willorwillnotincludeanindividualifheorshe:(i)hasnotcompletedatleasttwo(2)yearsofservicesincehisorherlasthiredate(orsuchlesserperiodoftime
asmaybedeterminedbytheAdministratorinitsdiscretion),(ii)customarilyworksnotmorethantwenty(20)hoursperweek(orsuchlesserperiodoftimeasmay
bedeterminedbytheAdministratorinitsdiscretion),(iii)customarilyworksnotmorethanfive(5)monthspercalendaryear(orsuchlesserperiodoftimeasmay
bedeterminedbytheAdministratorinitsdiscretion),(iv)isanexecutive,officerorothermanager,or(v)isahighlycompensatedemployeeunderSection414(q)
oftheCode.
(m)EmployermeansanyoneoralloftheCompanyanditsDesignatedSubsidiaries.WithrespecttoaparticularEligibleEmployee,
EmployermeanstheCompanyorDesignatedSubsidiary,asthecasemaybe,thatdirectlyemploystheEligibleEmployee.
(n) Exchange Act means the Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated
thereunder.
(o)ExerciseDatemeansthelastTradingDayinFebruaryandAugustofeachyear.Notwithstandingthepreceding,thefirstExercise
DateunderthePlanwillbeFebruary22,2011.

(p) Fair Market Value means, as of any date and unless the Administrator determines otherwise, the value of Common Stock
determinedasfollows:
(i)IftheCommonStockislistedonanyestablishedstockexchangeoranationalmarketsystem,includingwithoutlimitation
theNewYorkStockExchange,theNasdaqGlobalSelectMarket,theNasdaqGlobalMarketortheNasdaqCapitalMarketofTheNasdaqStockMarket,itsFair
MarketValuewillbetheclosingsalespriceforsuchstock(ortheclosingbid,ifnosaleswerereported)asquotedonsuchexchangeorsystemonthedateof
determination,asreportedinThe
Wall
Street
Journal
orsuchothersourceastheAdministratordeemsreliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair
MarketValuewillbethemeanoftheclosingbidandaskedpricesfortheCommonStockonthedateofdetermination,asreportedinThe
Wall
Street
Journal
or
suchothersourceastheAdministratordeemsreliable;
(iii)IntheabsenceofanestablishedmarketfortheCommonStock,theFairMarketValuethereofwillbedeterminedingood
faithbytheAdministrator;or
(iv)ForpurposesoftheOfferingDateofthefirstOfferingPeriodunderthePlan,theFairMarketValuewillbetheinitial
pricetothepublicassetforthinthefinalprospectusincludedwithintheregistrationstatementonFormS-1filedwiththeSecuritiesandExchangeCommissionfor
theinitialpublicofferingoftheCommonStock(theRegistrationStatement).
(q)FiscalYearmeansthefiscalyearoftheCompany.
(r)NewExerciseDatemeansanewExerciseDatesetbyshorteninganyOfferingPeriodtheninprogress.
(s)OfferingDatemeansthefirstTradingDayofeachOfferingPeriod.
(t)OfferingPeriodsmeanstheperiodsofapproximatelysix(6)monthsduringwhichanoptiongrantedpursuanttothePlanmaybe
exercised, (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,
approximatelysix(6)monthslater,and(ii)commencingonthefirstTradingDayonorafterSeptember1ofeachyearandterminatingonthelastTradingDayin
thesubsequentFebruary,approximatelysix(6)monthslater.Notwithstandingthepreceding,thefirstOfferingPeriodunderthePlancommencedwiththefirst
Trading Day on or after the date on which the Securities and Exchange Commission declared the Companys Registration Statement effective and will end on
February22,2011.ThenextOfferingPeriodunderthePlanwillbeginonMarch1,2011.ThedurationandtimingoffutureOfferingPeriodsmaybechanged
pursuanttoSections4and20.
(u)Parentmeansaparentcorporation,whethernoworhereafterexisting,asdefinedinSection424(e)oftheCode.
(v)ParticipantmeansanEligibleEmployeewhoparticipatesinthePlan.
(w)PlanmeansthisTeslaMotors,Inc.2010EmployeeStockPurchasePlan.
(x)PurchasePricemeansanamountequaltoeighty-fivepercent(85%)oftheFairMarketValueofashareofCommonStockonthe
OfferingDateorontheExerciseDate,whicheverislower;providedhowever,thatthePurchasePricemaybedeterminedforsubsequentOfferingPeriodsbythe
Administrator,initsdiscretion,subjecttocompliancewithSection423oftheCodeorpursuanttoSection20.
(y)Subsidiarymeansasubsidiarycorporation,whethernoworhereafterexisting,asdefinedinSection424(f)oftheCode.

(z)TradingDaymeansadayonwhichthenationalstockexchangeuponwhichtheCommonStockislistedisopenfortrading.
3.Eligibility.
(a) First Offering Period . Any individual who is an Eligible Employee immediately prior to the first Offering Period will be
automaticallyenrolledinthefirstOfferingPeriod.
(b) Subsequent Offering Periods . Any Eligible Employee on a given Offering Date subsequent to the first Offering Period will be
eligibletoparticipateinthePlan,subjecttotherequirementsofSection5.
(c)Limitations.AnyprovisionsofthePlantothecontrarynotwithstanding,noEligibleEmployeewillbegrantedanoptionunderthe
Plan(i)totheextentthat,immediatelyafterthegrant,suchEligibleEmployee(oranyotherpersonwhosestockwouldbeattributedtosuchEligibleEmployee
pursuanttoSection424(d)oftheCode)wouldowncapitalstockoftheCompanyoranyParentorSubsidiaryoftheCompanyand/orholdoutstandingoptionsto
purchasesuchstockpossessingfivepercent(5%)ormoreofthetotalcombinedvotingpowerorvalueofallclassesofthecapitalstockoftheCompanyorofany
ParentorSubsidiaryoftheCompany,or(ii)totheextentthathisorherrightstopurchasestockunderallemployeestockpurchaseplans(asdefinedinSection423
oftheCode)oftheCompanyoranyParentorSubsidiaryoftheCompanyaccruesataratewhichexceedstwenty-fivethousanddollars($25,000)worthofstock
(determinedattheFairMarketValueofthestockatthetimesuchoptionisgranted)foreachcalendaryearinwhichsuchoptionisoutstandingatanytime.
4.OfferingPeriods.ThePlanwillbeimplementedbyconsecutiveOfferingPeriodswithanewOfferingPeriodcommencingonthefirstTradingDay
onorafterMarch1andSeptember1ofeachyear,oronsuchotherdateastheAdministratorwilldetermine.TheAdministratorwillhavethepowertochangethe
durationofOfferingPeriods(includingthecommencementdatesthereof)withrespecttofutureofferingswithoutstockholderapprovalifsuchchangeisannounced
priortothescheduledbeginningofthefirstOfferingPeriodtobeaffectedthereafter.
5.Participation.
(a)FirstOfferingPeriod.AnEligibleEmployeewillbeentitledtocontinuetoparticipateinthefirstOfferingPeriodpursuanttoSection
3(a)onlyifsuchindividualsubmitsasubscriptionagreementauthorizingpayrolldeductionsinaformdeterminedbytheAdministrator(whichmaybesimilarto
theformattachedheretoasExhibitA)totheCompanysdesignatedplanadministrator(i)noearlierthantheeffectivedateoftheFormS-8registrationstatement
withrespecttotheissuanceofCommonStockunderthisPlanand(ii)nolaterthanten(10)businessdaysfollowingtheeffectivedateofsuchS-8registration
statement or such other period of time as the Administrator may determine (the Enrollment Window ). An Eligible Employees failure to submit the
subscriptionagreementduringtheEnrollmentWindowwillresultintheautomaticterminationofsuchindividualsparticipationinthefirstOfferingPeriod.
(b) Subsequent Offering Periods . An Eligible Employee may participate in the Plan pursuant to Section 3(b)by (i) submitting to the
Companys payroll office (or its designee), on or before a date prescribed by the Administrator prior to an applicable Offering Date, a properly completed
subscription agreement authorizing payroll deductions in the form provided by the Administrator for such purpose, or (ii) following an electronic or other
enrollmentprocedureprescribedbytheAdministrator.
6.PayrollDeductions.
(a)AtthetimeaParticipantenrollsinthePlanpursuanttoSection5,heorshewillelecttohavepayrolldeductionsmadeoneachpayday
duringtheOfferingPeriodinanamountnotexceedingfifteenpercent(15%)oftheCompensationwhichheorshereceivesoneachpaydayduringtheOffering
Period;provided,however,thatshouldapaydayoccuronanExerciseDate,aParticipantwillhavethepayrolldeductionsmadeonsuchdayappliedtohisorher
accountunderthesubsequentOfferingPeriod.AParticipantssubscriptionagreementwillremainineffectforsuccessiveOfferingPeriodsunlessterminatedas
providedinSection10hereof.

(b)PayrolldeductionsforaParticipantwillcommenceonthefirstpaydayfollowingtheOfferingDateandwillendonthelastpayday
priortotheExerciseDateofsuchOfferingPeriodtowhichsuchauthorizationisapplicable,unlesssoonerterminatedbytheParticipantasprovidedinSection10
hereof; provided, however, that for the first Offering Period, payroll deductions will commence on the first pay day on or following the end of the Enrollment
Window.
(c) All payroll deductions made for a Participant will be credited to his or her account under the Plan and will be withheld in whole
percentagesonly.AParticipantmaynotmakeanyadditionalpaymentsintosuchaccount.
(d) A Participant may discontinue his or her participation in the Plan as provided in Section 10. If permitted by the Administrator, as
determinedinitssolediscretion,foranOfferingPeriod,aParticipantmayincreaseordecreasetherateofhisorherpayrolldeductionsduringtheOfferingPeriod
by (i) properly completing and submitting to the Companys payroll office (or its designee), on or before a date prescribed by the Administrator prior to an
applicable Exercise Date, a new subscription agreement authorizing the change in payroll deduction rate in the form provided by the Administrator for such
purpose,or(ii)followinganelectronicorotherprocedureprescribedbytheAdministrator.IfaParticipanthasnotfollowedsuchprocedurestochangetherateof
payrolldeductions,therateofhisorherpayrolldeductionswillcontinueattheoriginallyelectedratethroughouttheOfferingPeriodandfutureOfferingPeriods
(unlessterminatedasprovidedinSection10).TheAdministratormay,initssolediscretion,limitthenatureand/ornumberofpayrolldeductionratechangesthat
maybemadebyParticipantsduringanyOfferingPeriod.AnychangeinpayrolldeductionratemadepursuanttothisSection6(d)willbeeffectiveasofthefirst
fullpayrollperiodfollowingfive(5)businessdaysafterthedateonwhichthechangeismadebytheParticipant(unlesstheAdministrator,initssolediscretion,
electstoprocessagivenchangeinpayrolldeductionratemorequickly).
(e)Notwithstandingtheforegoing,totheextentnecessarytocomplywithSection423(b)(8)oftheCodeandSection3(c),aParticipants
payrolldeductionsmaybedecreasedtozeropercent(0%)atanytimeduringanOfferingPeriod.SubjecttoSection423(b)(8)oftheCodeandSection3(c)hereof,
payrolldeductionswillrecommenceattherateoriginallyelectedbytheParticipanteffectiveasofthebeginningofthefirstOfferingPeriodwhichisscheduledto
endinthefollowingcalendaryear,unlessterminatedbytheParticipantasprovidedinSection10.
(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 is
disposed of, the Participant must make adequate provision for the Companys or Employers 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 Common
Stock.Atanytime,theCompanyortheEmployermay,butwillnotbeobligatedto,withholdfromtheParticipantscompensationtheamountnecessaryforthe
CompanyortheEmployertomeetapplicablewithholdingobligations,includinganywithholdingrequiredtomakeavailabletotheCompanyortheEmployerany
taxdeductionsorbenefitsattributabletosaleorearlydispositionofCommonStockbytheEligibleEmployee.
7.GrantofOption.OntheOfferingDateofeachOfferingPeriod,eachEligibleEmployeeparticipatinginsuchOfferingPeriodwillbegrantedan
option 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 Stock
determinedbydividingsuchEligibleEmployeespayrolldeductionsaccumulatedpriortosuchExerciseDateandretainedintheEligibleEmployeesaccountasof
theExerciseDatebytheapplicablePurchasePrice;providedthatinnoeventwillanEligibleEmployeebepermittedtopurchaseduringeachOfferingPeriodmore
than500sharesoftheCommonStock(subjecttoanyadjustmentpursuanttoSection19),andprovidedfurtherthatsuchpurchasewillbesubjecttothelimitations
setforthinSections3(c)and13.TheEligibleEmployeemayacceptthegrantofsuchoptionwithrespecttothefirstOfferingPeriodbysubmittingaproperly
completedsubscriptionagreementinaccordancewiththerequirementsofSection5(a)onorbeforethelastdayoftheEnrollmentWindow,and(ii)withrespectto
anyfutureOfferingPeriodunderthePlan,byelectingtoparticipateinthePlaninaccordancewiththerequirementsofSection5(b).TheAdministratormay,for
futureOfferingPeriods,increaseordecrease,initsabsolutediscretion,themaximumnumberofsharesofCommonStockthatanEligibleEmployeemaypurchase
duringeachOfferingPeriod.ExerciseoftheoptionwilloccurasprovidedinSection8,unlesstheParticipanthaswithdrawnpursuanttoSection10.Theoption
willexpireonthelastdayoftheOfferingPeriod.

8.ExerciseofOption.
(a)UnlessaParticipantwithdrawsfromthePlanasprovidedinSection10,hisorheroptionforthepurchaseofsharesofCommonStock
willbeexercisedautomaticallyontheExerciseDate,andthemaximumnumberoffullsharessubjecttotheoptionwillbepurchasedforsuchParticipantatthe
applicablePurchasePricewiththeaccumulatedpayrolldeductionsinhisorheraccount.NofractionalsharesofCommonStockwillbepurchased;anypayroll
deductionsaccumulatedinaParticipantsaccount,whicharenotsufficienttopurchaseafullsharewillbereturnedtotheParticipant.Anyotherfundsleftoverin
a Participants account after the Exercise Date will be returned to the Participant. During a Participants lifetime, a Participants option to purchase shares
hereunderisexercisableonlybyhimorher.
(b)IftheAdministratordeterminesthat,onagivenExerciseDate,thenumberofsharesofCommonStockwithrespecttowhichoptions
are 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 applicable
OfferingPeriod,or(ii)thenumberofsharesofCommonStockavailableforsaleunderthePlanonsuchExerciseDate,theAdministratormayinitssolediscretion
provide 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, as
applicable,inasuniformamanneraswillbepracticableandasitwilldetermineinitssolediscretiontobeequitableamongallParticipantsexercisingoptionsto
purchaseCommonStockonsuchExerciseDate,andcontinueallOfferingPeriodsthenineffectorterminateallOfferingPeriodsthenineffectpursuanttoSection
20. The Company may make a pro rata allocation of the shares available on the Offering Date of any applicable Offering Period pursuant to the preceding
sentence,notwithstandinganyauthorizationofadditionalsharesforissuanceunderthePlanbytheCompanysstockholderssubsequenttosuchOfferingDate.
9.Delivery.AssoonasreasonablypracticableaftereachExerciseDateonwhichapurchaseofsharesofCommonStockoccurs,theCompanywill
arrangethedeliverytoeachParticipantofthesharespurchaseduponexerciseofhisorheroptioninaformdeterminedbytheAdministrator(initssolediscretion)
and pursuant to rules established by the Administrator. The Company may permit or require that shares be deposited directly with a broker designated by the
CompanyortoadesignatedagentoftheCompany,andtheCompanymayutilizeelectronicorautomatedmethodsofsharetransfer.TheCompanymayrequire
that shares be retained with such broker or agent for a designated period of time and/or may establish other procedures to permit tracking of disqualifying
dispositions of such shares. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to any
optiongrantedunderthePlanuntilsuchshareshavebeenpurchasedanddeliveredtotheParticipantasprovidedinthisSection9.
10.Withdrawal.
(a)AParticipantmaywithdrawallbutnotlessthanallthepayrolldeductionscreditedtohisorheraccountandnotyetusedtoexercise
hisorheroptionunderthePlanatanytimeby(i)submittingtotheCompanyspayrolloffice(oritsdesignee)awrittennoticeofwithdrawalintheformprescribed
by the Administrator for such purpose (which may be similar to the form attached hereto as Exhibit B), or (ii) following an electronic or other withdrawal
procedureprescribedbytheAdministrator.AlloftheParticipantspayrolldeductionscreditedtohisorheraccountwillbepaidtosuchParticipantpromptlyafter
receiptofnoticeofwithdrawalandsuchParticipantsoptionfortheOfferingPeriodwillbeautomatically terminated,andnofurtherpayrolldeductionsforthe
purchaseofshareswillbemadeforsuchOfferingPeriod.IfaParticipantwithdrawsfromanOfferingPeriod,payrolldeductionswillnotresumeatthebeginning
ofthesucceedingOfferingPeriod,unlesstheParticipantre-enrollsinthePlaninaccordancewiththeprovisionsofSection5.
(b)AParticipantswithdrawalfromanOfferingPeriodwillnothaveanyeffectuponhisorhereligibilitytoparticipateinanysimilarplan
whichmayhereafterbeadoptedbytheCompanyorinsucceedingOfferingPeriods,whichcommenceaftertheterminationoftheOfferingPeriodfromwhichthe
Participantwithdraws.
11.TerminationofEmployment.UponaParticipantsceasingtobeanEligibleEmployee,foranyreason,heorshewillbedeemedtohaveelected
to withdraw from the Plan and the payroll deductions credited to such Participants account during the Offering Period but not yet used to purchase shares of
CommonStockunderthe

PlanwillbereturnedtosuchParticipantor,inthecaseofhisorherdeath,tothepersonorpersonsentitledtheretounderSection15,andsuchParticipantsoption
willbeautomaticallyterminated.
12.Interest.NointerestwillaccrueonthepayrolldeductionsofaParticipantinthePlan.
13.Stock.
(a)SubjecttoadjustmentuponchangesincapitalizationoftheCompanyasprovidedinSection19hereof,themaximumnumberofshares
ofCommonStockwhichwillbemadeavailableforsaleunderthePlanwillbe1,666,666shares,plusanannualincreasetobeaddedonthefirstdayofeachFiscal
Yearbeginningwiththe2011FiscalYear,equaltotheleastof(i)1,000,000sharesofCommonStock,(ii)onepercent(1%)oftheoutstandingsharesofCommon
Stockonsuchdate,or(iii)anamountdeterminedbytheAdministrator.
(b)Untilthesharesareissued(asevidencedbytheappropriateentryonthebooksoftheCompanyorofadulyauthorizedtransferagent
oftheCompany),aParticipantwillonlyhavetherightsofanunsecuredcreditorwithrespecttosuchshares,andnorighttovoteorreceivedividendsoranyother
rightsasastockholderwillexistwithrespecttosuchshares.
(c)SharesofCommonStocktobedeliveredtoaParticipantunderthePlanwillberegisteredinthenameoftheParticipantorinthename
oftheParticipantandhisorherspouse.
14.Administration.ThePlanwillbeadministeredbytheBoardoraCommitteeappointedbytheBoard,whichCommitteewillbeconstitutedto
complywithApplicableLaws.TheAdministrator willhavefullandexclusivediscretionary authoritytoconstrue,interpretandapplythetermsofthePlan,to
determineeligibilityandtoadjudicatealldisputedclaimsfiledunderthePlan.Everyfinding,decisionanddeterminationmadebytheAdministratorwill,tothe
fullextentpermittedbylaw,befinalandbindinguponallparties.NotwithstandinganyprovisiontothecontraryinthisPlan,theAdministratormayadoptrulesor
proceduresrelatingtotheoperationandadministrationofthePlantoaccommodatethespecificrequirementsoflocallawsandproceduresforjurisdictionsoutside
of the United States. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding
eligibilitytoparticipate,thedefinitionofCompensation,handlingofpayrolldeductions,makingofcontributionstothePlan(including,withoutlimitation,informs
otherthanpayrolldeductions),establishmentofbankortrustaccountstoholdpayrolldeductions,paymentofinterest,conversionoflocalcurrency,obligationsto
pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates which vary with local
requirements.
15.DesignationofBeneficiary.
(a) A Participant may file a designation of a beneficiary who is to receive any shares of Common Stock and cash, if any, from the
ParticipantsaccountunderthePlanintheeventofsuchParticipantsdeathsubsequenttoanExerciseDateonwhichtheoptionisexercisedbutpriortodeliveryto
suchParticipantofsuchsharesandcash.Inaddition,aParticipantmayfileadesignationofabeneficiarywhoistoreceiveanycashfromtheParticipantsaccount
underthePlanintheeventofsuchParticipantsdeathpriortoexerciseoftheoption.IfaParticipantismarriedandthedesignatedbeneficiaryisnotthespouse,
spousalconsentwillberequiredforsuchdesignationtobeeffective.
(b)SuchdesignationofbeneficiarymaybechangedbytheParticipantatanytimebynoticeinaformdeterminedbytheAdministrator.In
theeventofthedeathofaParticipantandintheabsenceofabeneficiaryvalidlydesignatedunderthePlanwhoislivingatthetimeofsuchParticipantsdeath,the
Company will deliver suchshares and/or cash to the executor or administrator of the estate of theParticipant, or if no such executor or administrator has been
appointed(totheknowledgeoftheCompany),theCompany,initsdiscretion,maydeliversuchsharesand/orcashtothespouseortoanyoneormoredependents
orrelativesoftheParticipant,orifnospouse,dependentorrelativeisknowntotheCompany,thentosuchotherpersonastheCompanymaydesignate.
(c)AllbeneficiarydesignationswillbeinsuchformandmannerastheAdministratormaydesignatefromtimetotime.

16.Transferability.NeitherpayrolldeductionscreditedtoaParticipantsaccountnoranyrightswithregardtotheexerciseofanoptionortoreceive
sharesofCommonStockunderthePlanmaybeassigned,transferred,pledgedorotherwisedisposedofinanyway(otherthanbywill,thelawsofdescentand
distributionorasprovidedinSection15hereof)bytheParticipant.Anysuchattemptatassignment,transfer,pledgeorotherdispositionwillbewithouteffect,
exceptthattheCompanymaytreatsuchactasanelectiontowithdrawfundsfromanOfferingPeriodinaccordancewithSection10hereof.
17.UseofFunds.TheCompanymayuseallpayrolldeductionsreceivedorheldbyitunderthePlanforanycorporatepurpose,andtheCompany
willnotbeobligatedtosegregatesuchpayrolldeductions.UntilsharesofCommonStockareissued,Participantswillonlyhavetherightsofanunsecuredcreditor
withrespecttosuchshares.
18.Reports.IndividualaccountswillbemaintainedforeachParticipantinthePlan.StatementsofaccountwillbegiventoparticipatingEligible
Employees at least annually, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares of Common Stock
purchasedandtheremainingcashbalance,ifany.
19.Adjustments,Dissolution,Liquidation,MergerorChangeinControl.
(a)Adjustments.Intheeventthatanydividendorotherdistribution(whetherintheformofcash,CommonStock,othersecurities,or
otherproperty),recapitalization,stocksplit,reversestocksplit,reorganization,merger,consolidation,split-up,spin-off,combination,repurchase,orexchangeof
Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock occurs, the
Administrator,inordertopreventdilutionorenlargementofthebenefitsorpotentialbenefitsintendedtobemadeavailableunderthePlan,will,insuchmanneras
itmaydeemequitable,adjustthenumberandclassofCommonStockthatmaybedeliveredunderthePlan,thePurchasePricepershareandthenumberofshares
ofCommonStockcoveredbyeachoptionunderthePlanwhichhasnotyetbeenexercised,andthenumericallimitsofSections7and13.
(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, any Offering Period then in
progresswillbeshortenedbysettingaNewExerciseDate,andwillterminateimmediatelypriortotheconsummationofsuchproposeddissolutionorliquidation,
unless provided otherwise by the Administrator. The New Exercise Date will be before the date of the Companys proposed dissolution or liquidation. The
AdministratorwillnotifyeachParticipantinwriting,atleastten(10)businessdayspriortotheNewExerciseDate,thattheExerciseDatefortheParticipants
optionhasbeenchangedtotheNewExerciseDateandthattheParticipantsoptionwillbeexercisedautomaticallyontheNewExerciseDate,unlesspriortosuch
datetheParticipanthaswithdrawnfromtheOfferingPeriodasprovidedinSection10hereof.
(c) Merger or Change in Control . In the event of a merger or Change in Control, each outstanding option will be assumed or an
equivalentoptionsubstitutedbythesuccessorcorporationoraParentorSubsidiaryofthesuccessorcorporation.Intheeventthatthesuccessorcorporationrefuses
toassumeorsubstitutefortheoption,theOfferingPeriodwithrespecttowhichsuchoptionrelateswillbeshortenedbysettingaNewExerciseDateandwillend
ontheNewExerciseDate.TheNewExerciseDatewilloccurbeforethedateoftheCompanysproposedmergerorChangeinControl.TheAdministratorwill
notifyeachParticipantinwritingpriortotheNewExerciseDate,thattheExerciseDatefortheParticipantsoptionhasbeenchangedtotheNewExerciseDateand
thattheParticipantsoptionwillbeexercisedautomaticallyontheNewExerciseDate,unlesspriortosuchdatetheParticipanthaswithdrawnfromtheOffering
PeriodasprovidedinSection10hereof.
20.AmendmentorTermination.
(a) The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any
reason.IfthePlanisterminated,theAdministrator,initsdiscretion,mayelecttoterminatealloutstandingOfferingPeriodseitherimmediatelyoruponcompletion
ofthepurchaseofsharesofCommonStockonthenextExerciseDate(whichmaybesoonerthanoriginallyscheduled,ifdeterminedbytheAdministratorinits
discretion),ormayelecttopermitOfferingPeriodstoexpireinaccordancewiththeirterms(andsubjecttoanyadjustmentpursuanttoSection19).IftheOffering
Periodsareterminatedpriortoexpiration,all

amountsthencreditedtoParticipantsaccountswhichhavenotbeenusedtopurchasesharesofCommonStockwillbereturnedtotheParticipants(withoutinterest
thereon,exceptasotherwiserequiredunderlocallaws)assoonasadministrativelypracticable.
(b) Without stockholder consent and without limiting Section 20(a), the Administrator will be entitled to change the Offering Periods,
limitthefrequencyand/ornumberofchangesintheamountwithheldduringanOfferingPeriod,establishtheexchangeratioapplicabletoamountswithheldina
currencyotherthanU.S.dollars,permitpayrollwithholdinginexcessoftheamountdesignatedbyaParticipantinordertoadjustfordelaysormistakesinthe
Companys processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the
ParticipantsCompensation,andestablishsuchotherlimitationsorproceduresastheAdministratordeterminesinitssolediscretionadvisablewhichareconsistent
withthePlan.
(c) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting
consequences,theAdministratormay,initsdiscretionand,totheextentnecessaryordesirable,modify,amendorterminatethePlantoreduceoreliminatesuch
accountingconsequenceincluding,butnotlimitedto:
(i) amending the Plan to conform with the safe harbor definition under Financial Accounting Standards Board Accounting
StandardsCodificationTopic718,includingwithrespecttoanOfferingPeriodunderwayatthetime;
(ii)alteringthePurchasePriceforanyOfferingPeriodincludinganOfferingPeriodunderwayatthetimeofthechangein
PurchasePrice;
(iii)shorteninganyOfferingPeriodbysettingaNewExerciseDate,includinganOfferingPeriodunderwayatthetimeofthe
Administratoraction;
(iv)reducingthemaximumpercentageofCompensationaParticipantmayelecttosetasideaspayrolldeductions;and
(v)reducingthemaximumnumberofSharesaParticipantmaypurchaseduringanyOfferingPeriod.
SuchmodificationsoramendmentswillnotrequirestockholderapprovalortheconsentofanyPlanParticipants.
21.Notices.AllnoticesorothercommunicationsbyaParticipanttotheCompanyunderorinconnectionwiththePlanwillbedeemedtohavebeen
dulygivenwhenreceivedintheformandmannerspecifiedbytheCompanyatthelocation,orbytheperson,designatedbytheCompanyforthereceiptthereof.
22.ConditionsUponIssuanceofShares.SharesofCommonStockwillnotbeissuedwithrespecttoanoptionunlesstheexerciseofsuchoptionand
theissuanceanddeliveryofsuchsharespursuanttheretowillcomplywithallapplicableprovisionsoflaw,domesticorforeign,including,withoutlimitation,the
SecuritiesActof1933,asamended,theExchangeAct,therulesandregulationspromulgatedthereunder,andtherequirementsofanystockexchangeuponwhich
thesharesmaythenbelisted,andwillbefurthersubjecttotheapprovalofcounselfortheCompanywithrespecttosuchcompliance.
Asaconditiontotheexerciseofanoption,theCompanymayrequirethepersonexercisingsuchoptiontorepresentandwarrantatthetimeofany
suchexercisethatthesharesarebeingpurchasedonlyforinvestmentandwithoutanypresentintentiontosellordistributesuchsharesif,intheopinionofcounsel
fortheCompany,sucharepresentationisrequiredbyanyoftheaforementionedapplicableprovisionsoflaw.

23.TermofPlan.ThePlanwillbecomeeffectiveupontheearliertooccurofitsadoptionbytheBoardoritsapprovalbythestockholdersofthe
Company.Itwillcontinueineffectforatermoften(10)years,unlesssoonerterminatedunderSection20.
24.StockholderApproval.ThePlanwillbesubjecttoapprovalbythestockholdersoftheCompanywithintwelve(12)monthsafterthedatethePlan
isadoptedbytheBoard.SuchstockholderapprovalwillbeobtainedinthemannerandtothedegreerequiredunderApplicableLaws.

EXHIBIT A
TESLA MOTORS, INC.
2010 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I hereby elect to participate in the Tesla Motors, Inc. 2010 Employee Stock Purchase Plan (the Plan) and subscribe to purchase shares of the
CompanysCommonStockinaccordancewiththisSubscriptionAgreementandthePlan.
2.IherebyauthorizepayrolldeductionsfromeachpaycheckfollowingmyentryintothePlan,andhavedesignatedmyrateofpayrolldeductionat
________________(from1to15%ofmyCompensation),oneachpaydayduringtheOfferingPeriodinaccordancewiththePlan.(Pleasenotethatnofractional
percentagesarepermitted,)IunderstandthatsuchpayrolldeductionswillbeaccumulatedforthepurchaseofsharesofCommonStockattheapplicablePurchase
PricedeterminedinaccordancewiththePlan.IunderstandthatifIdonotwithdrawfromanOfferingPeriod,anyaccumulatedpayrolldeductionswillbeusedto
automaticallyexercisemyoptionandpurchaseCommonStockunderthePlan.
3.IhavereceivedandreadacopyofthePlandocumentandtheprospectusthatdescribesthePlan.IunderstandthatmyparticipationinthePlanisin
allrespectssubjecttothetermsofthePlan.
4.For
U.S.
Taxpayers:
IunderstandthatifIdisposeofanysharesreceivedbymepursuanttothePlanwithintwo(2)yearsaftertheOfferingDate
(thefirstdayoftheOfferingPeriodduringwhichIpurchasedsuchshares)orone(1)yearaftertheExerciseDate,Iwillbetreatedforfederalincometaxpurposes
ashavingreceivedordinaryincomeatthetimeofsuchdispositioninanamountequaltotheexcessofthefairmarketvalueofthesharesatthetimesuchshares
werepurchasedbymeoverthepricewhichIpaidfortheshares.IherebyagreetonotifytheCompanyinwritingwithinthirty(30)daysafterthedateofany
dispositionofmysharesandIwillmakeadequateprovisionforfederal,stateorothertaxwithholdingobligations,ifany,whichariseuponthedispositionofthe
Common Stock . The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of
CommonStockbyme.IfIdisposeofsuchsharesatanytimeaftertheexpirationofthetwo(2)-yearandone(1)-yearholdingperiods,IunderstandthatIwillbe
treatedforfederalincometaxpurposesashavingreceivedincomeonlyatthetimeofsuchdisposition,andthatsuchincomewillbetaxedasordinaryincomeonly
totheextentofanamountequaltothelesserof(a)theexcessofthefairmarketvalueofthesharesatthetimeofsuchdispositionoverthepurchasepricewhichI
paidfortheshares,or(b)fifteenpercent(15%)ofthefairmarketvalueofthesharesonthefirsttradingdayoftheOfferingPeriod.Theremainderofthegain,if
any,recognizedonsuchdispositionwillbetaxedascapitalgain.
5.IherebyagreetobeboundbythetermsofthePlan,including(butnotlimitedto)thepoweroftheAdministratorofthePlantointerpretthePlan,to
makealldeterminationsunderthePlanandtoamendorterminatethePlanatanytime.TheeffectivenessofthisSubscriptionAgreementisdependentuponmy
eligibilitytoparticipateinthePlan.

________________________________________
________________________________________
Name
EmployeeIDNumber(Required(6digits))
________________________________________
________________________________________
SocialSecurityNumber
Date

EXHIBIT B
TESLA MOTORS, INC.
2010 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned Participant in the Offering Period of the Tesla Motors, Inc. 2010 Employee Stock Purchase Plan that began on ____________,
______(theOfferingDate)herebynotifiestheCompanythatheorsheherebywithdrawsfromtheOfferingPeriod.HeorsheherebydirectstheCompanyto
paytotheundersignedaspromptlyaspracticableallthepayrolldeductionscreditedtohisorheraccountwithrespecttosuchOfferingPeriod.Theundersigned
understandsandagreesthathisorheroptionforsuchOfferingPeriodwillbeautomaticallyterminated.Theundersignedunderstandsfurtherthatnofurtherpayroll
deductionswillbemadeforthepurchaseofsharesinthecurrentOfferingPeriodandtheundersignedwillbeeligibletoparticipateinsucceedingOfferingPeriods
onlybydeliveringtotheCompanyanewSubscriptionAgreement.
NameandAddressofParticipant:

Signature:

Date:


Exhibit
10.12

October 8, 2015
Jason Wheeler
Dear 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 report
to Elon Musk, Chief Executive Officer. Your duties, responsibilities, job title, and work location may be changed at any time by
Tesla.
Your annualized salary will be $500,000 per year, subject to standard payroll deductions and withholdings. As an exempt
employee, you will not be entitled to overtime. You will be eligible for vacation and sick leave according to Tesla's standard
policy. Subject to the rules of the applicable plan documents, you will also be eligible to receive other benefits Tesla may provide
to its employees (e.g., health and dental insurance coverage) beginning on your date of hire. Tesla may consider you for
bonuses, although the amount of such bonuses, if any, and the criteria for determining the award of such bonuses, if any, shall
be in the sole discretion of Tesla. Of course, Tesla reserves the right to modify your compensation and benefits from time to
time, 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 our
standard equity policies, you will receive an equity award with a value of $15 million in the form of stock options, which
you will only receive at the time of vesting, as described below. This value is determined based on our standard equity
granting policies. The actual number of Shares and stock options that you receive will depend on the value of our
stock at or around the time your grant is approved, as determined by Teslas Compensation Committee. Please note
that for purposes of this allocation, 1 Share is equivalent to 3.00 stock options. This award, which is made pursuant to
Tesla'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 on
each of the first, second, third, and fourth anniversary of the date vesting begins (such date to be indicated in your
Award Agreement), subject to your continuing eligibility through the applicable vesting dates. In contrast, with respect
to stock options, twenty-five percent (25%) of the shares subject to the option shall vest 12 months after the date your
vesting begins and no shares shall vest before such date and no rights to any vesting shall be earned or accrued prior
to such date, and the remaining shares shall vest monthly over the next 36 months in equal monthly amounts subject
to 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 Teslas 2010 Equity Incentive Plan
and your Award Agreement, including vesting requirements.
Please be aware that Tesla makes no representation about the future value of the equity award granted herein, and
you should be aware that the value of this award will fluctuate in the future. Finally, the receipt of this award is subject
to your signing the appropriate grant agreements.
401K
Program:
You will be eligible to participate in Teslas 401K program after your first pay check. Our 401K
program is administered by Fidelity Investments.
Vacation
Program:
Regular full-time employees and part-time employees who work 20 hours per week are eligible for
PTO 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 should
be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a result, you
are free to resign at any time, for any reason or for no reason, with or without notice. Similarly, the Company is free to conclude
its 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 employment
that may affect your eligibility to be employed by Tesla or limit the manner in which you may be employed. It is Teslas
understanding that any such agreements will not prevent you from performing the duties of your position and you represent that
such is the case. We want to emphasize that we do not wish you to bring any confidential or proprietary materials of any former
employer which would violate any obligations you may have to your former employer .You agree not to make any unauthorized
disclosure to Tesla or use on behalf of Tesla any confidential information belonging to any of your former employers (except in
accordance with agreements between Tesla and any such former employer). You also warrant that you do not possess any
property containing a third party's confidential and proprietary information. Of course, during your employment with Tesla, you
may make use of information generally known and used by persons with training and experience comparable to your own, and
information which is common knowledge in the industry or is otherwise legally available in the public domain. Moreover, you
agree 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 during
the 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 your
employment, you will sign and comply with Tesla's standard confidentiality agreement which prohibits unauthorized use or
disclosure 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 with
Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your
employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final,
binding
and
confidential
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 for
employment disputes; provided that:
a.

Any claim, dispute, or cause of action must be brought in a partys individual capacity, and not as a plaintiff or class
member 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 such
relief 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 authority
to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one
arbitration proceeding; and

d.

The arbitrator shall issue a written arbitration decision including the arbitrators essential findings and conclusions and
a 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 court
of 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 irreparable
harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to
resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of
arbitration.
Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring
before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including
discrimination and/or retaliation claims filed with the Equal Employment Opportunity Commission and unfair labor practice
charges filed with the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for
administrative 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 Companys present or
planned business that has not been released to the public with the Companys authorization, including, but not limited to,
confidential information, materials, or proprietary data belonging to the Company or relating to the Companys affairs
(collectively, Confidential Information) and (B) information and materials that concern the Companys business that come into
the Companys possession by reason of employment with the Company (collectively, Business Related Information); (ii) all
Confidential Information and Business Related Information are the property of the Company; (iii) the use, misappropriation, or
disclosure of any Confidential Information or Business Related Information would constitute a breach of trust and could cause
serious and irreparable injury to the Company; and (iv) it is essential to the protection of the Companys goodwill and
maintenance of the Companys competitive position that all Confidential Information and Business Related Information be kept
confidential and that you do not disclose any Confidential Information or Business Related Information to others or use
Confidential 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 Related
Information becomes publicly available (other than through a breach by you), you shall: (i) hold and safeguard all Confidential
Information and Business Related Information in trust for the Company; (ii) not appropriate or disclose or make available to
anyone for use outside of the Companys organization at any time any Confidential Information and Business Related
Information, whether or not developed by you; (iii) keep in strictest confidence any Confidential Information or Business Related
Information; (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 or
Business Related Information; and (v) upon the termination of your employment, return all Confidential Information and Business
Records 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 constitutes
the complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms and
conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or
written. 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 United
States.
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 and
returning 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 Musk
Chairman of the Board and CEO

Accepted by:

Start Date:

/s/ Jason Wheeler

Monday, November 30 th , 2015

Date: 10/9/15

Exhibit 10.25A
CONFIDENTIAL

February24,2015

To:

Director,BatteryTechnology
TeslaMotors,Inc.
3500DeerCreekRoadPaloAlto,CA94304

Cc:LegalDepartment
RE:

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 Panasonics First Line Unit at Giga-Factory

DearMr.KurtKelty,
This letter is to notify Tesla Motors, Inc. pursuant to Section 16.4(a)(i) of General Terms and Conditions dated October 1, 2014 between
Tesla Motors, Inc. and Panasonic Corporation (General Terms) that Panasonic Energy Corporation of North America, an Affiliate of
PanasonicCorporation,isaddedasofJanuary1,2015asaco-partytothoseGeneralTerms,ProductionPricingAgreementdatedSeptember
30,2014andInvestmentLetterAgreementforPanasonicsFirstProductionLineUnitatGiga-FactorydatedOctober1,2014.
Please kindly indicate Teslas confirmation on the foregoing by signing where indicated below, and return the original to Panasonic
Corporation.
Sincerelyyours,

/s/ShinjiSakamoto
ShinjiSakamoto
ExecutiveOfficer
SeniorVicePresident
Automotive&IndustrialSystemsCompany
PanasonicCorporation

Confirmed by Tesla Motors, Inc.

By: /s/JBStraubel
Name:JBStraubel
Title:CTO
TeslaMotors,Inc.

/s/MasayukiKitabayashi
MasayukiKitabayashi
President
PanasonicEnergyCorporationofNorthAmerica


Exhibit 10.28B
Execution Version
SECOND AMENDMENT TO CREDIT AGREEMENT
SECONDAMENDMENTTOCREDITAGREEMENT(thisAmendment),datedasofDecember31,2015,tothatcertainABLCreditAgreement,
datedasofJune10,2015(asamended,supplementedorotherwisemodifiedthroughthedatehereof,theCreditAgreement),amongTeslaMotors,Inc.(the
Company,andtogetherwitheachWholly-OwnedDomesticSubsidiaryoftheCompanythatbecomesaU.S.BorrowerpursuanttothetermsoftheCredit
Agreement,collectively,theU.S.Borrowers),TeslaMotorsNetherlandsB.V.(TeslaB.V.,andtogetherwitheachWholly-OwnedDutchSubsidiaryofTesla
B.V.thatbecomesaDutchBorrowerpursuanttothetermsoftheCreditAgreement,collectively,theDutchBorrowers;andtheDutchBorrowers,togetherwith
theU.S.Borrowers,collectively,theBorrowers),thelendersfromtimetotimepartythereto(theLenders),DeutscheBankAGNewYorkBranch,as
AdministrativeAgent(theAdministrativeAgent)andasCollateralAgent,andtheotheragentspartythereto.
RECITALS :
WHEREAS,theCompanyintendstoformNewB.V.(asdefinedbelow);
WHEREAS,TeslaB.V.willtransfercertainofitsassets(excludingassetsincludedintheDutchBorrowingBase)toNewB.V;
WHEREAS,pursuanttoSection13.12oftheCreditAgreement,theCreditAgreementmaybeamendedwiththewrittenconsentoftheRequired
LendersandeachCreditPartypartytotheCreditAgreement;and
WHEREAS,thepartiesnowwishtoamendtheCreditAgreementincertainrespects.
AGREEMENT:
NOW,THEREFORE,inconsiderationofthepremisesandmutualcovenantscontainedherein,thepartiesheretoagreeasfollows:
Section1.
Defined
Terms.
Unlessotherwisespecificallydefinedherein,eachtermusedherein(includingintherecitalsabove)hasthemeaning
assignedtosuchtermintheCreditAgreement.
Section2.
Amendments.

2.1Amendments
to
Section
1.1
of
the
Credit
Agreement
.ThefollowingdefinitionsshallbeinsertedintoSection1.1oftheCredit
Agreementinappropriatealphabeticalorder:
NewB.V.meansTeslaInternationalB.V.,acompanyorganizedunderthelawsoftheNetherlandsandthatis(orwillbewhenformed)aWhollyOwnedSubsidiaryofTeslaMotorsNetherlandsCoperatiefU.A.
TaxSharingAgreementmeansataxsharingagreement,enteredintoamongNewB.V.,TeslaMotorsNetherlandsCoperatiefU.A.,TeslaB.V.and
anyotherDutchAffiliatesofTeslaB.V.whomaybecomemembersofafiscalunity(fiscal
eenheid
)withTeslaB.V.andtheotherDutchCreditPartiesfromtime
totimepartythereto.
SecondAmendmentmeansthatcertainSecondAmendment,datedasofDecember31,2015,amongtheCompany,TeslaB.V.,theAdministrative
AgentandtheLenderspartythereto.


2.2Amendment
to
Section
8.25
of
the
Credit
Agreement
.Section8.25oftheCreditAgreementisherebyamendedbydeletingsuch
Sectioninitsentiretyandreplacingitwiththefollowing:
FiscalUnity.NoDutchCreditPartyisamemberofafiscalunity(fiscal
eenheid
)otherthan(a)afiscalunityamongtheDutchCreditPartiesonly
or(b)solongastheTaxSharingAgreementremainsinfullforceandeffect,afiscalunityamongtheDutchCreditPartiesandotherDutchAffiliatesofTeslaB.V.
fromtimetotimepartytosuchTaxSharingAgreement,TeslaMotorsNetherlandsCoperatiefU.A.,andtheNewB.V.
2.3Amendments
to
Section
10.08

of
the
Credit
Agreement
.Section10.08oftheCreditAgreementisherebyamendedbydeletingorat
theendofclause(b)thereof,deletingthe.attheendofclause(c)thereofandinserting;orinlieuthereofandinsertingthefollowingnewclause(d)after
clause(c)thereof:
amend,modify,changeorwaiveanytermorprovisionoftheTaxSharingAgreementinamannerwhichisadversetotheinterestsoftheLendersin
anymaterialrespect(asreasonablydeterminedbytheCompanyinconsultationwiththeAdministrativeAgent).
2.4Amendment
to
Section
10.13
of
the
Credit
Agreement
.Section10.13oftheCreditAgreementisherebyamendedbydeletingsuch
Sectioninitsentiretyandreplacingitwiththefollowing:
FiscalUnity.NoDutchCreditPartyshallcreateorbecomeamemberofafiscalunity(fiscal
eenheid
)otherthan(a)afiscalunityamongtheDutch
CreditPartiesonlyor(b)solongastheTaxSharingAgreementremainsinfullforceandeffect,afiscalunityamongtheDutchCreditPartiesandotherDutch
AffiliatesofTeslaB.V.fromtimetotimepartytosuchTaxSharingAgreement,TeslaMotorsNetherlandsCoperatiefU.A.andtheNewB.V.
Section3.
Tax
Sharing
Agreement
.TheformofTaxSharingAgreementreferencedintheCreditAgreement(asamendedby
thisAgreement)has
beenprovidedtotheAdministrativeAgent.
Section4.Conditions.
ThisAgreementshallbecomeeffectiveonthedateonwhichthefollowingconditionsprecedent
havebeensatisfiedorwaived(thedateon
whichsuchconditionsshallhavebeensosatisfiedorwaived,theAmendmentEffectiveDate):
(a)TheAdministrativeAgentshallhavereceivedacounterpartofthisAgreement,executedanddeliveredbytheCreditParties,theAdministrative
AgentandtheRequiredLenders.
(b)AllfeesrequiredtobepaidtotheAdministrativeAgentandtheLendersinconnectionherewith,accruedreasonableanddocumentedout-of-pocket
costsandexpenses(including,totheextentinvoicedinadvance,reasonablelegalfeesandout-of-pocketexpensesofcounsel)andothercompensationdueand
payabletotheAdministrativeAgentandtheLendersonorpriortotheAmendmentEffectiveDateshallhavebeenpaid.
(c)EachoftherepresentationsandwarrantiesmadebytheCreditPartiesinorpursuanttotheCreditAgreementorinorpursuanttotheotherCredit
Documentsshallbetrueandcorrectinallmaterialrespects(exceptthatanyrepresentationandwarrantythatisqualifiedorsubjecttoMaterialAdverseEffect
shallbetrueandcorrectinallrespects)onandasoftheAmendmentEffectiveDateasifmadeonandasofsuchdateexceptforsuchrepresentationsand
warrantiesexpresslystatedtobemadeasofanearlierdate(inwhichcasesuchrepresentationsandwarrantiesshallbetrueandcorrectinallmaterialrespectsasof
suchearlierdate).
(d)NoDefaultorEventofDefaultshallexistontheAmendmentEffectiveDate.
(e)TheAdministrativeAgentshallhavereceivedanofficerscertificatefromanAuthorizedOfficeroftheCompanyanddatedasoftheAmendment
EffectiveDate,certifyingthateachconditionsetforthinSections4(c)and(d)hereofhavebeensatisfiedonandasoftheAmendmentEffectiveDate.
Section5.Representations
and
Warranties,
etc
.TheBorrowersherebyconfirm,reaffirmandrestatethateachoftherepresentationsandwarranties
madebyanyCreditPartyintheCreditDocumentsistrueandcorrectinallmaterialrespectsonandasoftheAmendmentEffectiveDate(itbeingunderstoodand
agreedthat(x)any


representationorwarrantywhichbyitstermsismadeasofaspecifieddateshallberequiredtobetrueandcorrectinallmaterialrespectsonlyasofsuchspecified
dateand(y)anyrepresentationorwarrantythatisqualifiedbymateriality,MaterialAdverseEffectorsimilarlanguageshallbetrueandcorrectinall
respects).TheBorrowersrepresentandwarrantthat,immediatelyaftergivingeffecttotheoccurrenceoftheAmendmentEffectiveDate,noDefaultorEventof
Defaulthasoccurredandiscontinuing.TheBorrowersrepresentandwarrantthateachCreditParty(i)hastheBusinesspowerandauthoritytoexecute,deliver
andperformthetermsandprovisionsofthisAgreementandhastakenallnecessaryBusinessactiontoauthorizetheexecution,deliveryandperformanceby
thereofand(ii)hasdulyexecutedanddeliveredthisAgreement,andthatthisAgreementconstitutesalegal,validandbindingobligationoftheBorrowers
enforceableagainsteachBorrowerinaccordancewithitsterms,exceptasenforceabilitymaybelimitedbyapplicablebankruptcy,insolvency,reorganization,
moratoriumorsimilarlawsaffectingtheenforcementofcreditorsrightsgenerallyandbygeneralequitableprinciples(whetherenforcementissoughtby
proceedingsinequityoratlaw).
Section6.Governing
Law.
ThisAgreementandtherightsofthepartieshereundershallbegovernedbyandconstruedinaccordancewiththelawsof
theStateofNewYork(withoutregardtoconflictsoflawprinciplesthatwouldresultintheapplicationofanylawotherthanthelawoftheStateofNewYork).
Section7.
Effect
of
This
Agreement.
Exceptasexpresslysetforthherein,thisAgreementshallnotbyimplicationorotherwiselimit,impair,constitute
awaiveroforotherwiseaffecttherightsandremediesofanyLenderorAgentundertheCreditAgreementoranyotherCreditDocument,andshallnotalter,
modify,amendorinanywayaffectanyoftheterms,conditions,obligations,covenantsoragreementscontainedintheCreditAgreementoranyotherCredit
Document,allofwhichareratifiedandaffirmedinallrespectsandshallcontinueinfullforceandeffect.Nothinghereinshallbedeemedtoentitleanypartytoa
consentto,orawaiver,amendment,modificationorotherchangeof,anyoftheterms,conditions,obligations,covenantsoragreementscontainedintheCredit
AgreementoranyotherCreditDocumentinsimilarordifferentcircumstances.
Section8.Counterparts.
ThisAgreementmaybesignedinanynumberofcounterparts,eachofwhichshallbeanoriginal,withthesameeffectasif
thesignaturestheretoandheretowereuponthesameinstrument.DeliveryofanexecutedsignaturepageofthisAgreementbyfacsimiletransmissionorelectronic
transmission(e.g.,pdfortif)shallbeeffectiveasdeliveryofamanuallyexecutedcounterparthereof.
Section9.
Miscellaneous.
ThisAgreementshallconstituteaCreditDocumentforallpurposesoftheCreditAgreement.TheBorrowersshallpayall
reasonablefees,costsandexpensesoftheAdministrativeAgentincurredinconnectionwiththenegotiation,preparationandexecutionofthisAgreementandthe
transactionscontemplatedhereby.

[remainder
of
page
intentionally
left
blank
]


INWITNESSWHEREOF,thepartiesheretohavecausedthisAmendmenttobedulyexecutedasofthedatefirstabovewritten.

TESLAMOTORS,INC.

By:

/s/JasonWheeler
Name:JasonWheeler
Title:ChiefFinancialOfficer

TESLAMOTORSNETHERLANDSB.V.

By:

/s/ToddMaron
Name:ToddMaron
Title:ManagingDirector

[SecondAmendmenttoCreditAgreementSignaturePage]


DEUTSCHEBANKAGNEWYORKBRANCH,asAdministrativeAgent,
CollateralAgentandaLender

By:

/s/MichaelShannon
Name:MichaelShannon
Title:VicePresident

By:

/s/MingK.Chu
Name:MingK.Chu
Title:VicePresident

[SecondAmendmenttoCreditAgreementSignaturePage]


BankofAmerica,N.A.,asanIssuingLenderandaLender

By:

/s/RobertM.Dalton
Name:RobertM.Dalton
Title:SeniorVicePresident

[SecondAmendmenttoCreditAgreementSignaturePage]


JPMorganChaseBank,N.A.,asanIssuingLenderandaLender

By:

/s/JeannetteBehm
Name:JeannetteBehm
Title:AuthorizedOfficer

[SecondAmendmenttoCreditAgreementSignaturePage]


MorganStanleySeniorFunding,Inc.,asaLender

By:

/s/EmanuelMa
Name:EmanuelMa
Title:VicePresident

[SecondAmendmenttoCreditAgreementSignaturePage]


WELLSFARGOBANK,N.A.,asaLender

By:

/s/KristaMize
Name:KristaMize
Title:AuthorizedSignatory

[SecondAmendmenttoCreditAgreementSignaturePage]


CITIBANK,N.A.,asaLender

By:

/s/K.KellyGunness
Name:K.KellyGunness
Title:VicePresidentandDirector

[SecondAmendmenttoCreditAgreementSignaturePage]


CREDITSUISSEAG,CAYMANISLANDSBRANCH,
asaLender

By:

/s/MikhailFaybusovich
Name:MikhailFaybusovich
Title:AuthorizedSignatory

By:

/s/KarimRahimtoola
Name:KarimRahimtoola
Title:AuthorizedSignatory

[SecondAmendmenttoCreditAgreementSignaturePage]


GOLDMANSACHSBANKUSA,asaLender

By:

/s/JerryLi
Name:JerryLi
Title:AuthorizedSignatory

[SecondAmendmenttoCreditAgreementSignaturePage]

Exhibit 10.28C
Execution Version
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRDAMENDMENTTOCREDITAGREEMENT(thisAmendment),datedasofFebruary9,2016,tothatcertainABLCreditAgreement,
datedasofJune10,2015(asamended,supplementedorotherwisemodifiedthroughthedatehereof,theCreditAgreement),amongTeslaMotors,Inc.(the
Company,andtogetherwitheachWholly-OwnedDomesticSubsidiaryoftheCompanythatbecomesaU.S.BorrowerpursuanttothetermsoftheCredit
Agreement,collectively,theU.S.Borrowers),TeslaMotorsNetherlandsB.V.(TeslaB.V.,andtogetherwitheachWholly-OwnedDutchSubsidiaryofTesla
B.V.thatbecomesaDutchBorrowerpursuanttothetermsoftheCreditAgreement,collectively,theDutchBorrowers;andtheDutchBorrowers,togetherwith
theU.S.Borrowers,collectively,theBorrowers),thelendersfromtimetotimepartythereto(theLenders),DeutscheBankAGNewYorkBranch,as
AdministrativeAgent(theAdministrativeAgent)andasCollateralAgent,andtheotheragentspartythereto.
RECITALS:
WHEREAS,theCompanyhasrequestedthattheavailablecommitmentsundertheCreditAgreementbeincreasedfrom$750,000,000to
$1,000,000,000;
WHEREAS,pursuanttoSection13.12oftheCreditAgreement,theCreditAgreementmaybeamendedwiththewrittenconsentoftheRequired
LendersandeachCreditPartypartytotheCreditAgreement;
WHEREAS,pursuanttoSection13.12,anyincreasetotheRevolvingLoanCommitmentofanyLenderrequiresthewrittenconsentofsuchLender
(eachLenderincreasingitsRevolvingLoanCommitmentpursuanttothisAmendment,anIncreasingLender);and
WHEREAS,thepartiesnowwishtoamendtheCreditAgreementincertainrespects.
AGREEMENT:
NOW,THEREFORE,inconsiderationofthepremisesandmutualcovenantscontainedherein,thepartiesheretoagreeasfollows:
Section1.
Defined
Terms.
Unlessotherwisespecificallydefinedherein,eachtermusedherein(includingintherecitalsabove)hasthemeaning
assignedtosuchtermintheCreditAgreement.
Section2.
Amendments.
2.1Amendments
to
Section
1.1
of
the
Credit
Agreement
.
2.1.1ThefollowingdefinedtermshallbeinsertedintoSection1.1oftheCreditAgreementinappropriatealphabeticalorder:
ThirdAmendmentEffectiveDateshallmeanFebruary9,2016.
2.1.2ThedefinitionofTotalRevolvingLoanCommitmentinSection1.1oftheCreditAgreementshallbeamendedand
restatedinitsentiretyasfollows:
TotalRevolvingLoanCommitmentshallmean,atanytime,thesumoftheRevolvingLoanCommitmentsofeachofthe
Lendersatsuchtime.AsoftheThirdAmendmentEffectiveDate,theTotalRevolvingLoanCommitmentis$1,000,000,000.

2.2Amendment
to
Schedule
1.01(a)
to
the
Credit
Agreement
.Schedule1.01(a)totheCreditAgreementshallbeamendedandrestatedin
itsentiretyassetforthonSchedule1hereto.
2.3Amendment
to
Dollar
Thresholds
.TheCreditAgreementshallbeamendedsuchthatSection2.14(e)oftheCreditAgreementshall
applytotheincreaseintheTotalRevolvingLoanCommitmenteffectedpursuanttothisAmendmentasifsuchincreasewereaprovisionofIncremental
CommitmentspursuanttoSection2.14oftheCreditAgreement.
2.4Amendment
to
Section
10.01(t)
of
the
Credit
Agreement
.Clause(t)ofSection10.01oftheCreditAgreementshallbeamendedby
insertingbankersacceptances,bankguarantees,immediatelyafterlettersofcredit,inthesecondlinethereofandbyinsertingbankersacceptancesorbank
guarantees,afterundrawnlettersofcredit,.
2.5AmendmenttoSection10.04(m)oftheCreditAgreement.Clause(m)ofSection10.04oftheCreditAgreementshallbeamendedby
insertingbankersacceptances,bankguaranteesimmediatelypriortoperformancebondsinthethirdlinethereofandbyinserting,bankersacceptancesand
bankguaranteesimmediatelyafterlettersofcreditinthefourthlinethereof.
Section3.Conditions.
ThisAmendmentshallbecomeeffectiveonthedateonwhichthefollowingconditionsprecedenthavebeensatisfiedorwaived
(thedateonwhichsuchconditionsshallhavebeensosatisfiedorwaived,theAmendmentEffectiveDate):
(a)TheAdministrativeAgentshallhavereceivedacounterpartofthisAmendment,executedanddeliveredbytheCreditParties,theAdministrative
Agent,theRequiredLendersandeachIncreasingLender.
(b)AllfeesrequiredtobepaidtotheAdministrativeAgentandtheLendersinconnectionherewith,accruedreasonableanddocumentedout-of-pocket
costsandexpenses(including,totheextentinvoicedinadvance,reasonablelegalfeesandout-of-pocketexpensesofcounsel)andothercompensationdueand
payabletotheAdministrativeAgentandtheLendersonorpriortotheAmendmentEffectiveDateshallhavebeenpaid.
(c)EachoftherepresentationsandwarrantiesmadebytheCreditPartiesinorpursuanttotheCreditAgreementorinorpursuanttotheotherCredit
Documentsshallbetrueandcorrectinallmaterialrespects(exceptthatanyrepresentationandwarrantythatisqualifiedorsubjecttomateriality,Material
AdverseEffectorsimilarlanguageshallbetrueandcorrectinallrespects)onandasoftheAmendmentEffectiveDateasifmadeonandasofsuchdateexcept
forsuchrepresentationsandwarrantiesexpresslystatedtobemadeasofanearlierdate(inwhichcasesuchrepresentationsandwarrantiesshallbetrueandcorrect
inallmaterialrespectsasofsuchearlierdate).
(d)NoDefaultorEventofDefaultshallexistontheAmendmentEffectiveDate.
(e)TheAdministrativeAgentshallhavereceivedanofficerscertificatefromanAuthorizedOfficeroftheCompanyanddatedasoftheAmendment
EffectiveDate,certifyingthateachconditionsetforthinSections3(c)and(d)hereofhavebeensatisfiedonandasoftheAmendmentEffectiveDate.
(f)TheAdministrativeAgentshallhavereceivedfromWilsonSonsiniGoodrich&Rosati,P.C.,specialNewYorkcounseltotheCreditParties,an
opinioninformandsubstancereasonablysatisfactorytotheAdministrativeAgentaddressedtotheAdministrativeAgent,theCollateralAgentandeachofthe
LendersanddatedtheAmendmentEffectiveDatecoveringsuchmattersincidenttothetransactionscontemplatedhereinastheAdministrativeAgentmay
reasonablyrequest.
(g)TheAdministrativeAgentshallhavereceivedfromDLAPiperNederlandN.V.,specialDutchcounseltotheDutchCreditParties,anopinionin
formandsubstancereasonablysatisfactorytotheAdministrativeAgentaddressedtotheAdministrativeAgent,theCollateralAgentandeachoftheLendersand
datedtheAmendmentEffectiveDatecoveringsuchmattersincidenttothetransactionscontemplatedhereinastheAdministrativeAgentmayreasonablyrequest.

(h)TheAdministrativeAgentshallhavereceivedacertificatefromeachCreditParty,datedtheAmendmentEffectiveDate,signedbyanAuthorized
OfficerofsuchCreditParty(or,withrespecttoTeslaB.V.,itsdirectors),and,ifsignedbyanAuthorizedOfficerofsuchCreditParty,attestedtobyanother
AuthorizedOfficerofsuchCreditParty,intheformofExhibitE-2totheCreditAgreement(orsuchotherformreasonablyacceptabletotheAdministrativeAgent)
withappropriateinsertions,togetherwithcopiesofthecertificateorarticlesofincorporationandby-laws(orotherequivalentorganizationaldocumentsrelatingto
anyDutchCreditParty),asapplicable,ofsuchCreditPartyandtheresolutionsofsuchCreditPartyreferredtoinsuchcertificate.
(i)TheAdministrativeAgentshallhavereceivedagoodstandingcertificate(orequivalent)fortheCompany.
Section4.Representations
and
Warranties,
etc
.TheBorrowersherebyconfirm,reaffirmandrestatethateachoftherepresentationsandwarranties
madebyanyCreditPartyintheCreditDocumentsistrueandcorrectinallmaterialrespectsonandasoftheAmendmentEffectiveDate(itbeingunderstoodand
agreedthat(x)anyrepresentationorwarrantywhichbyitstermsismadeasofaspecifieddateshallberequiredtobetrueandcorrectinallmaterialrespectsonly
asofsuchspecifieddateand(y)anyrepresentationorwarrantythatisqualifiedbymateriality,MaterialAdverseEffectorsimilarlanguageshallbetrueand
correctinallrespects).TheBorrowersrepresentandwarrantthat,immediatelyaftergivingeffecttotheoccurrenceoftheAmendmentEffectiveDate,noDefault
orEventofDefaulthasoccurredandiscontinuing.TheBorrowersrepresentandwarrantthateachCreditParty(i)hastheBusinesspowerandauthorityto
execute,deliverandperformthetermsandprovisionsofthisAmendmentandhastakenallnecessaryBusinessactiontoauthorizetheexecution,deliveryand
performancebythereofand(ii)hasdulyexecutedanddeliveredthisAmendment,andthatthisAmendmentconstitutesalegal,validandbindingobligationofthe
BorrowersenforceableagainsteachBorrowerinaccordancewithitsterms,exceptasenforceabilitymaybelimitedbyapplicablebankruptcy,insolvency,
reorganization,moratoriumorsimilarlawsaffectingtheenforcementofcreditorsrightsgenerallyandbygeneralequitableprinciples(whetherenforcementis
soughtbyproceedingsinequityoratlaw).
Section5.Acknowledgement
.Fortheavoidanceofdoubt,itisunderstoodandagreedthatonandaftertheAmendmentEffectiveDate,theCompany
doesnothavetherighttorequestIncrementalCommitmentspursuanttoSection2.14oftheCreditAgreement.
Section6.Reaffirmation
.EachGuarantorherebyagreesthat(i)allofitsObligationsundertheCreditDocumentsshallremaininfullforceandeffect
onacontinuousbasisaftergivingeffecttothisAmendmentand(ii)eachCreditDocumentisratifiedandaffirmedinallrespects.
Section7.Governing
Law.
ThisAmendmentandtherightsofthepartieshereundershallbegovernedbyandconstruedinaccordancewiththelawsof
theStateofNewYork(withoutregardtoconflictsoflawprinciplesthatwouldresultintheapplicationofanylawotherthanthelawoftheStateofNewYork).
Section8.
Effect
of
This
Amendment.
Exceptasexpresslysetforthherein,thisAmendmentshallnotbyimplicationorotherwiselimit,impair,
constituteawaiveroforotherwiseaffecttherightsandremediesofanyLenderorAgentundertheCreditAgreementoranyotherCreditDocument,andshallnot
alter,modify,amendorinanywayaffectanyoftheterms,conditions,obligations,covenantsoragreementscontainedintheCreditAgreementoranyotherCredit
Document,allofwhichareratifiedandaffirmedinallrespectsandshallcontinueinfullforceandeffect.Nothinghereinshallbedeemedtoentitleanypartytoa
consentto,orawaiver,amendment,modificationorotherchangeof,anyoftheterms,conditions,obligations,covenantsoragreementscontainedintheCredit
AgreementoranyotherCreditDocumentinsimilarordifferentcircumstances.
Section9.Bookrunners
.EachofDeutscheBankSecuritiesInc.,J.P.MorganSecuritiesLLC,GoldmanSachsBankUSA,MorganStanleySenior
Funding,Inc.,Citibank,N.A.andBankofAmerica,N.A.isabookrunnerwithrespecttothisAmendmentandtheBorrowersherebyagreethateachisdeemedan
ArrangerforpurposesofSections12.02(b)and13.01oftheCreditAgreementandentitledtothebenefitsandprotectionsaffordedto,andsubjecttotheprovisions
governingtheconductof,Arrangersthereunder.

Section10.Counterparts.
ThisAmendmentmaybesignedinanynumberofcounterparts,eachofwhichshallbeanoriginal,withthesameeffectasif
thesignaturestheretoandheretowereuponthesameinstrument.DeliveryofanexecutedsignaturepageofthisAmendmentbyfacsimiletransmissionor
electronictransmission(e.g.,pdfortif)shallbeeffectiveasdeliveryofamanuallyexecutedcounterparthereof.
Section11.
Miscellaneous.
ThisAmendmentshallconstituteaCreditDocumentforallpurposesoftheCreditAgreement.TheBorrowersshallpayall
reasonablefees,costsandexpensesoftheAdministrativeAgentincurredinconnectionwiththenegotiation,preparationandexecutionofthisAmendmentandthe
transactionscontemplatedhereby.
[remainder
of
page
intentionally
left
blank
]


INWITNESSWHEREOF,thepartiesheretohavecausedthisAmendmenttobedulyexecutedasofthedatefirstabovewritten.

TESLAMOTORS,INC.

By:

/s/JasonWheeler
Name:JasonWheeler
Title:ChiefFinancialOfficer

TESLAMOTORSNETHERLANDSB.V.

By:

/s/ToddMaron
Name:ToddMaron
Title:ManagingDirector

[ThirdAmendmenttoCreditAgreementSignaturePage]


DEUTSCHEBANKAGNEWYORKBRANCH,asAdministrativeAgent,
CollateralAgentandaLender

By:

/s/PeterCucchiara
Name:PeterCucchiara
Title:VicePresident

By:

/s/MarcusM.Tarkington
Name:MarcusM.Tarkington
Title:Director

[ThirdAmendmenttoCreditAgreementSignaturePage]


GOLDMANSACHSBANKUSA,asaLender

By:

/s/RebeccaKratz
Name:RebeccaKratz
Title:AuthorizedSignatory

[ThirdAmendmenttoCreditAgreementSignaturePage]


CITIBANK,N.A.,asaLender

By:

/s/K.KellyGunness
Name:K.KellyGunness
Title:VicePresidentandDirector

[ThirdAmendmenttoCreditAgreementSignaturePage]


JPMorganChaseBank,N.A.,asanIssuingLenderandaLender

By:

/s/AnnalieseFisher
Name:AnnalieseFisher
Title:AuthorizedOfficer

[ThirdAmendmenttoCreditAgreementSignaturePage]


MorganStanleySeniorFunding,Inc.,asaLender

By:

/s/MichaelKing
Name:MichaelKing
Title:VicePresident

[ThirdAmendmenttoCreditAgreementSignaturePage]


BankofAmerica,N.A.,asanIssuingLenderandaLender

By:

/s/RobertM.Dalton
Name:RobertM.Dalton
Title:SeniorVicePresident

[ThirdAmendmenttoCreditAgreementSignaturePage]


WELLSFARGOBANK,N.A.,asanIssuingLenderandaLender

By:

/s/KristaMize
Name:KristaMize
Title:AuthorizedSignatory

[ThirdAmendmenttoCreditAgreementSignaturePage]


Schedule1

Schedule1.01(a)
Lenders; Commitments
RevolvingLoanCommitments

Lender
DEUTSCHEBANKAGNEWYORKBRANCH
GOLDMANSACHSBANKUSA
CITIBANK,N.A.
JPMORGANCHASEBANK,N.A.
MORGANSTANLEYSENIORFUNDING,INC.
BANKOFAMERICA,N.A.
WELLSFARGOBANK,NATIONALASSOCIATION
CREDITSUISSEAG,CAYMANISLANDSBRANCH
TOTAL

Revolving Loan Commitment

$147,500,000
$175,000,000
$147,500,000
$147,500,000
$147,500,000
$110,000,000
$100,000,000
$25,000,000
$1,000,000,000

EXHIBIT 12.1
Ratio of Earnings to Fixed Charges
Theratioofearningstofixedchargesforeachoftheperiodsindicatedisasfollows.

Year Ended December 31,

2015
2014
2013
2012
2011
Ratioofearningstofixedcharges(1)

(1)Forthepurposeofcalculatingsuchratios,earningsconsistofincomefromcontinuingoperationsbeforeincometaxesplusfixedchargesandfixedcharges
consistofinterestexpense(netofcapitalizedportion),capitalizedinterest,amortizationofdebtdiscountandtheportionofrentalexpenserepresentativeofinterest
expense.Earningswereinadequatetocoverthefixedchargesby$912.8million,$295.4million,$73.5million,$403.3million,and$259.0million,fortheyears
endedDecember31,2015,2014,2013,2012,and2011,respectively.

EXHIBIT 21.1
SUBSIDIARIES OF TESLA MOTORS, INC.

NameofSubsidiary
RoadsterAutomobileSalesandService(Beijing)Co.,Ltd.
RoadsterFinlandOy
Tesla2014WarehouseSPVLLC
TeslaAutomobileDistribution(Beijing)Co.,Ltd.
TeslaAutomobileSalesandService(Beijing)Co.,Ltd.
TeslaAutomobileSalesandService(Chengdu)Co.,Ltd.
TeslaAutomobileSalesandService(Chengdu)2Co.,Ltd.
TeslaAutomobileSalesandService(Guangzhou)Co.,Ltd.
TeslaAutomobileSalesandService(Hangzhou)Co.,Ltd.
TeslaAutomobileSalesandService(Nanjing)Co.,Ltd.
TeslaAutomobileSalesandService(Shanghai)Co.,Ltd.
TeslaAutomobileSalesandService(Shenzhen)Co.,Ltd.
TeslaAutomobileSalesandService(Wuhan)Co.,Ltd.
TeslaAutomobileSalesandService(Xian)Co.,Ltd.
TeslaAutomobilesMexico,S.deR.L.deC.V.
TeslaAutomobilesSalesandServiceMexico,S.deR.L.deC.V.
TeslaEnergiaMacauLimitada
TeslaFinanceLLC
TeslaFinancialServicesGmbH
TeslaFinancialServicesHoldingsB.V.
TeslaFinancialServicesLimited
TeslaInternationalB.V.
TeslaLeaseTrust
TeslaLLC
TeslaJordanCarTradingLLC
TeslaMotorsAustralia,PtyLtd
TeslaMotorsAustriaGmbH
TeslaMotorsBelgiumSPRL
TeslaMotorsCanadaULC
TeslaMotorsCoperatiefU.A.
TeslaMotorsDenmarkApS
TeslaMotorsExportsLLC
TeslaMotorsFL,Inc.
TeslaMotorsFranceS.r.l.
TeslaMotorsGmbH
TeslaMotorsHKLimited
TeslaMotorsItalyS.r.l.
TeslaMotorsJapanGK
TeslaMotorsLeasing,Inc.
TeslaMotorsLimited
TeslaMotorsLuxembourgS.r.l.

Jurisdictionof
IncorporationorOrganization
China
Finland
Delaware
China
China
China
China
China
China
China
China
China
China
China
Mexico
Mexico
Macau
Delaware
Germany
Netherlands
UK
Netherlands
Delaware
Delaware
Jordan
Australia
Austria
Belgium
Canada
Netherlands
Denmark
Delaware
Florida
France
Germany
HongKong
Italy
Japan
Delaware
UK
Luxembourg

TeslaMotorsMA,Inc.
TeslaMotorsNetherlandsB.V.
TeslaMotorsNewYorkLLC
TeslaMotorsNLLLC
TeslaMotorsNorwayAS
TeslaMotorsNV,Inc.
TeslaMotorsPA,Inc.
TeslaMotorsSingaporePrivateLimited
TeslaMotorsSingaporeHoldingsPte.Ltd.
TeslaMotorsStichting
TeslaMotorsSwitzerlandGmbH
TeslaMotorsTN,Inc.
TeslaMotorsTX,Inc.
TeslaMotorsUT,Inc.
TMInternationalC.V.
TMSwedenAB

Massachusetts
Netherlands
NewYork
Delaware
Norway
Nevada
Pennsylvania
Singapore
Singapore
Netherlands
Switzerland
Tennessee
Texas
Utah
Netherlands
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, 333187113, 333-183033, and 333-167874) of Tesla Motors, Inc. of our report dated February 24, 2016 relating to the financial statements and the
effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
San Jose, California
February 24, 2016


EXHIBIT 31.1
CERTIFICATIONS
I,ElonMusk,certifythat:
1.

IhavereviewedthisAnnualReportonForm10-KofTeslaMotors,Inc.;

2.

Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatements
made,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;

3.

Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancial
condition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;

4.

TheregistrantsothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchange
ActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))forthe
registrantandhave:

(a)

Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensure
thatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,
particularlyduringtheperiodinwhichthisreportisbeingprepared;

(b)

Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,
toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesin
accordancewithgenerallyacceptedaccountingprinciples;

(c)

Evaluatedtheeffectivenessoftheregistrantsdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectiveness
ofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and

(d)

Disclosedinthisreportanychangeintheregistrantsinternalcontroloverfinancialreportingthatoccurredduringtheregistrantsmostrecentfiscal
quarter(theregistrantsfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,
theregistrantsinternalcontroloverfinancialreporting;and

5.

TheregistrantsothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,tothe
registrantsauditorsandtheauditcommitteeoftheregistrantsBoardofDirectors(orpersonsperformingtheequivalentfunctions):

(a)

Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikely
toadverselyaffecttheregistrantsabilitytorecord,process,summarizeandreportfinancialinformation;and

(b)

Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrantsinternalcontrolover
financialreporting.

Date:February24,2016

/s/ElonMusk
ElonMusk
ChiefExecutiveOfficer
(PrincipalExecutiveOfficer)


EXHIBIT 31.2
CERTIFICATIONS
I,JasonWheeler,certifythat:
1.

IhavereviewedthisAnnualReportonForm10-KofTeslaMotors,Inc.;

2.

Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatements
made,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;

3.

Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancial
condition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;

4.

TheregistrantsothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchange
ActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))forthe
registrantandhave:

(a)

Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensure
thatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,
particularlyduringtheperiodinwhichthisreportisbeingprepared;

(b)

Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,
toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesin
accordancewithgenerallyacceptedaccountingprinciples;

(c)

Evaluatedtheeffectivenessoftheregistrantsdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectiveness
ofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and

(d)

Disclosedinthisreportanychangeintheregistrantsinternalcontroloverfinancialreportingthatoccurredduringtheregistrantsmostrecentfiscal
quarter(theregistrantsfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,
theregistrantsinternalcontroloverfinancialreporting;and

5.

TheregistrantsothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,tothe
registrantsauditorsandtheauditcommitteeoftheregistrantsBoardofDirectors(orpersonsperformingtheequivalentfunctions):

(a)

Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikely
toadverselyaffecttheregistrantsabilitytorecord,process,summarizeandreportfinancialinformation;and

(b)

Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrantsinternalcontrolover
financialreporting.

Date:February24,2016

/s/JasonWheeler
JasonWheeler
ChiefFinancialOfficer
(PrincipalFinancialOfficer)

EXHIBIT 32.1
SECTION 1350 CERTIFICATIONS
I,ElonMusk,certify,pursuantto18U.S.C.Section1350,that,tomyknowledge,theAnnualReportofTeslaMotors,Inc.onForm10-Kfortheannualperiod
endedDecember31,2015,(i)fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934and(ii)thattheinformation
containedinsuchForm10-Kfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsofTeslaMotors,Inc.

Date:February24,2016
/s/ElonMusk

ElonMusk

ChiefExecutiveOfficer

(PrincipalExecutiveOfficer)

I,JasonWheeler,certify,pursuantto18U.S.C.Section1350,that,tomyknowledge,theAnnualReportofTeslaMotors,Inc.onForm10-Kfortheannualperiod
endedDecember31,2015,(i)fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934and(ii)thattheinformation
containedinsuchForm10-Kfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsofTeslaMotors,Inc.

Date:February24,2016
/s/JasonWheeler

JasonWheeler

ChiefFinancialOfficer

(PrincipalFinancialOfficer)