tesla, inc. · 2021. 3. 31. · tesla, inc. form 10-q for the quarter ended march 31, 2021 index...
TRANSCRIPT
UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549FORM10-Q
(MarkOne)☒ QUARTERLYREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF
1934ForthequarterlyperiodendedMarch31,2021
OR☐ TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF
1934CommissionFileNumber:001-34756
Tesla,Inc.(Exactnameofregistrantasspecifiedinitscharter)
Delaware 91-2197729(Stateorotherjurisdictionofincorporationororganization)
(I.R.S.EmployerIdentificationNo.)
3500DeerCreekRoadPaloAlto,California
94304
(Addressofprincipalexecutiveoffices) (ZipCode)(650)681-5000
(Registrant’stelephonenumber,includingareacode)
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
Titleofeachclass TradingSymbol(s) NameofeachexchangeonwhichregisteredCommonstock TSLA TheNasdaqGlobalSelectMarket
Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934(“ExchangeAct”)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes☒No☐
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmittedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).Yes☒No☐
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,asmallerreportingcompany,oranemerginggrowthcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany”and“emerginggrowthcompany”inRule12b-2oftheExchangeAct:
Largeacceleratedfiler ☒ Acceleratedfiler ☐
Non-acceleratedfiler ☐ Smallerreportingcompany ☐
Emerginggrowthcompany ☐
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.☐
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).Yes☐No☒AsofApril21,2021,therewere963,330,448sharesoftheregistrant’scommonstockoutstanding.
TESLA,INC.
FORM10-QFORTHEQUARTERENDEDMARCH31,2021
INDEX PagePARTI.FINANCIALINFORMATION Item1. FinancialStatements(Unaudited) 4 ConsolidatedBalanceSheets 4 ConsolidatedStatementsofOperations 5 ConsolidatedStatementsofComprehensiveIncome(Loss) 6 ConsolidatedStatementsofRedeemableNoncontrollingInterestsandEquity 7 ConsolidatedStatementsofCashFlows 8 NotestoConsolidatedFinancialStatements 9Item2. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 29Item3. QuantitativeandQualitativeDisclosuresAboutMarketRisk 39Item4. ControlsandProcedures 39 PARTII.OTHERINFORMATION Item1. LegalProceedings 40Item1A. RiskFactors 41Item2. UnregisteredSalesofEquitySecuritiesandUseofProceeds 54Item3. DefaultsUponSeniorSecurities 54Item4. MineSafetyDisclosures 54Item5. OtherInformation 54Item6. Exhibits 54 Signatures 56
i
Forward-LookingStatementsThediscussionsinthisQuarterlyReportonForm10-Qcontainforward-lookingstatementsreflectingourcurrentexpectationsthatinvolverisksanduncertainties.Theseforward-lookingstatementsinclude,butarenotlimitedto,statementsconcerninganypotentialfutureimpactofthecoronavirusdisease(“COVID-19”)pandemiconourbusiness,ourstrategy,futureoperations,futurefinancialposition,futurerevenues,projectedcosts,profitability,expectedcostreductions,capitaladequacy,expectationsregardingdemandandacceptanceforourtechnologies,growthopportunitiesandtrendsinthemarketinwhichweoperate,prospectsandplansandobjectivesofmanagement.Thewords“anticipates,”“believes,”“could,”“estimates,”“expects,”“intends,”“may,”“plans,”“projects,”“will,”“would”andsimilarexpressionsareintendedtoidentifyforward-lookingstatements,althoughnotallforward-lookingstatementscontaintheseidentifyingwords.Wemaynotactuallyachievetheplans,intentionsorexpectationsdisclosedinourforward-lookingstatementsandyoushouldnotplaceunduerelianceonourforward-lookingstatements.Actualresultsoreventscoulddiffermateriallyfromtheplans,intentionsandexpectationsdisclosedintheforward-lookingstatementsthatwemake.Theseforward-lookingstatementsinvolverisksanduncertaintiesthatcouldcauseouractualresultstodiffermateriallyfromthoseintheforward-lookingstatements,including,withoutlimitation,theriskssetforthinPartII,Item1A,“RiskFactors”inthisQuarterlyReportonForm10-QandinourotherfilingswiththeSecuritiesandExchangeCommission(the"SEC").Wedonotassumeanyobligationtoupdateanyforward-lookingstatements.
PARTI.FINANCIALINFORMATIONITEM1.FINANCIALSTATEMENTS
Tesla,Inc.ConsolidatedBalanceSheets
(inmillions,exceptpersharedata)(unaudited)
March31, December31, 2021 2020
Assets Currentassets Cashandcashequivalents $ 17,141 $ 19,384 Accountsreceivable,net 1,890 1,886 Inventory 4,132 4,101 Prepaidexpensesandothercurrentassets 1,542 1,346 Totalcurrentassets 24,705 26,717
Operatingleasevehicles,net 3,396 3,091 Solarenergysystems,net 5,933 5,979 Property,plantandequipment,net 13,868 12,747 Operatingleaseright-of-useassets 1,647 1,558 Digitalassets,net 1,331 — Intangibleassets,net 299 313 Goodwill 206 207 Othernon-currentassets 1,587 1,536
Totalassets $ 52,972 $ 52,148 Liabilities Currentliabilities Accountspayable $ 6,648 $ 6,051 Accruedliabilitiesandother 4,073 3,855 Deferredrevenue 1,592 1,458 Customerdeposits 745 752 Currentportionofdebtandfinanceleases 1,819 2,132 Totalcurrentliabilities 14,877 14,248
Debtandfinanceleases,netofcurrentportion 9,053 9,556 Deferredrevenue,netofcurrentportion 1,294 1,284 Otherlong-termliabilities 3,283 3,330
Totalliabilities 28,507 28,418 Commitmentsandcontingencies(Note12) Redeemablenoncontrollinginterestsinsubsidiaries 601 604 Convertibleseniornotes(Note10) — 51 Equity Stockholders'equity Preferredstock;$0.001parvalue;100sharesauthorized;nosharesissuedandoutstanding — — Commonstock;$0.001parvalue;2,000sharesauthorized;963and960sharesissuedandoutstandingasofMarch31,2021andDecember31,2020,respectively 1 1 Additionalpaid-incapital 27,623 27,260 Accumulatedothercomprehensiveincome 143 363 Accumulateddeficit (4,750 ) (5,399 )Totalstockholders'equity 23,017 22,225
Noncontrollinginterestsinsubsidiaries 847 850 Totalliabilitiesandequity $ 52,972 $ 52,148
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.4
Tesla,Inc.
ConsolidatedStatementsofOperations(inmillions,exceptpersharedata)
(unaudited)
ThreeMonthsEndedMarch31, 2021 2020
Revenues Automotivesales $ 8,705 $ 4,893 Automotiveleasing 297 239 Totalautomotiverevenues 9,002 5,132
Energygenerationandstorage 494 293 Servicesandother 893 560 Totalrevenues 10,389 5,985
Costofrevenues Automotivesales 6,457 3,699 Automotiveleasing 160 122 Totalautomotivecostofrevenues 6,617 3,821
Energygenerationandstorage 595 282 Servicesandother 962 648 Totalcostofrevenues 8,174 4,751
Grossprofit 2,215 1,234 Operatingexpenses Researchanddevelopment 666 324 Selling,generalandadministrative 1,056 627 Restructuringandother (101 ) — Totaloperatingexpenses 1,621 951
Incomefromoperations 594 283 Interestincome 10 10 Interestexpense (99 ) (169 )Otherincome(expense),net 28 (54 )Incomebeforeincometaxes 533 70 Provisionforincometaxes 69 2 Netincome 464 68 Netincomeattributabletononcontrollinginterestsandredeemablenoncontrollinginterestsinsubsidiaries
26 52 Netincomeattributabletocommonstockholders $ 438 $ 16 Netincomepershareofcommonstockattributabletocommonstockholders(1)
Basic $ 0.46 $ 0.02 Diluted $ 0.39 $ 0.02
Weightedaveragesharesusedincomputingnetincomepershareofcommonstock(1)
Basic 961 915 Diluted 1,133 994
(1) Priorperiodresultshavebeenadjustedtoreflectthefive-for-onestockspliteffectedintheformofastockdividendinAugust2020.
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.5
Tesla,Inc.
ConsolidatedStatementsofComprehensiveIncome(Loss)(inmillions)(unaudited)
ThreeMonthsEndedMarch31, 2021 2020 Netincome $ 464 $ 68 Othercomprehensiveincome(loss):
Foreigncurrencytranslationadjustment (220 ) (77 )Comprehensiveincome(loss) 244 (9 )Less:Comprehensiveincomeattributabletononcontrollinginterestsandredeemablenoncontrollinginterestsinsubsidiaries 26 52 Comprehensiveincome(loss)attributabletocommonstockholders $ 218 $ (61 )
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.6
Tesla,Inc.
ConsolidatedStatementsofRedeemableNoncontrollingInterestsandEquity(inmillions,exceptpersharedata)
(unaudited)
Accumulated Redeemable Additional Other Total Noncontrolling Noncontrolling CommonStock Paid-In Accumulated Comprehensive Stockholders' Interestsin Total
Interests Shares(1) Amount(1) Capital(1) Deficit Loss Equity Subsidiaries Equity BalanceasofDecember31,2019
$ 643 905 $ 1 $12,736
$(6,083
) $ (36 ) $ 6,618 $ 849 $ 7,467 Adjustmentsforpriorperiodsfrom
adoptingASU2016-13 — — — — (37 ) — (37 ) — (37 )
Reclassificationbetweenequityand
mezzanineequityforconvertible
seniornotes — — — (60 ) — — (60 ) — (60 )
Issuanceofcommonstockforequity
incentiveawards — 7 0 160 — — 160 — 160 IssuanceofcommonstockinFeb
2020publicoffering,netof
issuancecostsof$28 — 15 0 2,309 — — 2,309 — 2,309 Stock-basedcompensation — — — 244 — — 244 — 244 Contributionsfromnoncontrolling
interests 2 — — — — — — 17 17 Distributionstononcontrolling
interests (14 ) — — — — — — (50 ) (50 )
Netincome 1 — — — 16 — 16 51 67 Othercomprehensiveloss — — — — — (77 ) (77 ) — (77 )
BalanceasofMarch31,2020 $ 632 927 $ 1 $ 15,389 $ (6,104 ) $ (113 ) $ 9,173 $ 867 $ 10,040
Accumulated Redeemable Additional Other Total Noncontrolling Noncontrolling CommonStock Paid-In Accumulated Comprehensive Stockholders' Interestsin Total
Interests Shares Amount Capital
Deficit
(Loss)Income Equity Subsidiaries Equity BalanceasofDecember31,2020 $ 604 960 $ 1 $ 27,260 $ (5,399 ) $ 363 $ 22,225 $ 850 $ 23,075 Adjustmentsforpriorperiodsfrom
adoptingASU2020-06 — — — (474 ) 211 — (263 ) — (263 )
Exercisesofconversionfeatureof
convertibleseniornotes — 0 0 11 — — 11 — 11 Issuanceofcommonstockforequity
incentiveawards — 3 0 183 — — 183 — 183 Stock-basedcompensation — — — 643 — — 643 — 643 Distributionstononcontrolling
interests (12 ) — — — — — — (20 ) (20 )
Netincome 9 — — — 438 — 438 17 455 Othercomprehensiveloss — — — — — (220 ) (220 ) — (220 )
BalanceasofMarch31,2021 $ 601 963 $ 1 $ 27,623 $ (4,750 ) $ 143 $ 23,017 $ 847 $ 23,864 (1) Priorperiodresultshavebeenadjustedtoreflectthefive-for-onestockspliteffectedintheformofastockdividendinAugust2020.
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.7
Tesla,Inc.
ConsolidatedStatementsofCashFlows(inmillions)(unaudited)
ThreeMonthsEndedMarch31, 2021 2020 CashFlowsfromOperatingActivities Netincome
$ 464 $68
Adjustmentstoreconcilenetincometonetcashprovidedby(usedin)operatingactivities:
Depreciation,amortizationandimpairment 621 553 Stock-basedcompensation 614 211 Inventoryandpurchasecommitmentswrite-downs 49 45 Foreigncurrencytransactionnet(gain)loss (2 ) 19 Non-cashinterestandotheroperatingactivities 8 111 Digitalassetsgain,net (101 ) — Changesinoperatingassetsandliabilities: Accountsreceivable (24 ) (14 )
Inventory (106 ) (981 )
Operatingleasevehicles (426 ) (197 )
Prepaidexpensesandothercurrentassets (143 ) (154 )
Othernon-currentassets (168 ) 40 Accountspayableandaccruedliabilities 672 (265 )
Deferredrevenue 162 53 Customerdeposits (2 ) 88 Otherlong-termliabilities 23 (17 )
Netcashprovidedby(usedin)operatingactivities 1,641 (440 )
CashFlowsfromInvestingActivities Purchasesofpropertyandequipmentexcludingfinanceleases,netofsales (1,348 ) (455 )
Purchasesofsolarenergysystems,netofsales (12 ) (26 )
Purchasesofdigitalassets (1,500 ) — Proceedsfromsalesofdigitalassets 272 — Receiptofgovernmentgrants 6 1
Netcashusedininvestingactivities (2,582 ) (480 )
CashFlowsfromFinancingActivities Proceedsfromissuancesofcommonstockinpublicofferings,netofissuancecosts — 2,309 Proceedsfromissuancesofconvertibleandotherdebt 2,983 2,802 Repaymentsofconvertibleandotherdebt (4,038 ) (2,318 )
Collateralizedleaserepayments (6 ) (97 )
Proceedsfromexercisesofstockoptionsandotherstockissuances 183 160 Principalpaymentsonfinanceleases (101 ) (100 )
Debtissuancecosts (5 ) — Proceedsfrominvestmentsbynoncontrollinginterestsinsubsidiaries — 19 Distributionspaidtononcontrollinginterestsinsubsidiaries (32 ) (67 )
Netcash(usedin)providedbyfinancingactivities (1,016 ) 2,708 Effectofexchangeratechangesoncashandcashequivalentsandrestrictedcash (221 ) (24 )
Net(decrease)increaseincashandcashequivalentsandrestrictedcash (2,178 ) 1,764 Cashandcashequivalentsandrestrictedcash,beginningofperiod 19,901 6,783 Cashandcashequivalentsandrestrictedcash,endofperiod $ 17,723 $ 8,547 SupplementalNon-CashInvestingandFinancingActivities Acquisitionsofpropertyandequipmentincludedinliabilities $ 1,061 $ 415 Leasedassetsobtainedinexchangeforfinanceleaseliabilities $ 64 $ 32 Leasedassetsobtainedinexchangeforoperatingleaseliabilities $ 179 $ 60
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.8
Tesla,Inc.
NotestoConsolidatedFinancialStatements(unaudited)
Note1–Overview
Tesla,Inc.(“Tesla”,the“Company”,“we”,“us”or“our”)wasincorporatedintheStateofDelawareonJuly1,2003.Wedesign,develop,manufactureandsellhigh-performancefullyelectricvehiclesanddesign,manufacture,installandsellsolarenergygenerationandenergystorageproducts.OurChiefExecutiveOfficer,asthechiefoperatingdecisionmaker(“CODM”),organizesourcompany,managesresourceallocationsandmeasuresperformanceamongtwooperatingandreportablesegments:(i)automotiveand(ii)energygenerationandstorage.
Beginninginthefirstquarterof2021,therehasbeenatrendinmanypartsoftheworldofincreasingavailabilityandadministrationofvaccinesagainstCOVID-19,aswellasaneasingofrestrictionsonsocial,business,travelandgovernmentactivitiesandfunctions.Ontheotherhand,infectionratesandregulationscontinuetofluctuateinvariousregionsandthereareongoingglobalimpactsresultingfromthepandemic,includingchallengesandincreasesincostsforlogisticsandsupplychains,suchasincreasedportcongestion,intermittentsupplierdelaysandashortfallofmicrochipsupply.Wehavealsopreviouslybeenaffectedbytemporarymanufacturingclosures,employmentandcompensationadjustments,andimpedimentstoadministrativeactivitiessupportingourproductdeliveriesanddeployments.
Note2–SummaryofSignificantAccountingPoliciesUnauditedInterimFinancialStatements
TheconsolidatedbalancesheetasofMarch31,2021,theconsolidatedstatementsofoperations,theconsolidatedstatementsofcomprehensiveincome,theconsolidatedstatementsofredeemablenoncontrollinginterestsandequity,andtheconsolidatedstatementsofcashflowsforthethreemonthsendedMarch31,2021and2020,aswellasotherinformationdisclosedintheaccompanyingnotes,areunaudited.TheconsolidatedbalancesheetasofDecember31,2020wasderivedfromtheauditedconsolidatedfinancialstatementsasofthatdate.TheinterimconsolidatedfinancialstatementsandtheaccompanyingnotesshouldbereadinconjunctionwiththeannualconsolidatedfinancialstatementsandtheaccompanyingnotescontainedinourAnnualReportonForm10-KfortheyearendedDecember31,2020.
Theinterimconsolidatedfinancialstatementsandtheaccompanyingnoteshavebeenpreparedonthesamebasisastheannualconsolidatedfinancialstatementsand,intheopinionofmanagement,reflectalladjustments,whichincludeonlynormalrecurringadjustments,necessaryforafairstatementoftheresultsofoperationsfortheperiodspresented.Theconsolidatedresultsofoperationsforanyinterimperiodarenotnecessarilyindicativeoftheresultstobeexpectedforthefullyearorforanyotherfutureyearsorinterimperiods.
UseofEstimates
ThepreparationoffinancialstatementsinconformitywithU.S.generallyacceptedaccountingprinciples(“GAAP”)requiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenues,costsandexpensesandrelateddisclosuresintheaccompanyingnotes.
DuetotheCOVID-19pandemic,therehasbeenuncertaintyanddisruptionintheglobaleconomyandfinancialmarketswhichcouldimpactourestimatesandassumptions.WehaveassessedtheimpactandarenotawareofanyspecificeventsorcircumstancesthatrequiredanupdatetoourestimatesandassumptionsormateriallyaffectedthecarryingvalueofourassetsorliabilitiesasofthedateofissuanceofthisQuarterlyReportonForm10-Q.Theseestimatesmaychangeasneweventsoccurandadditionalinformationisobtained.Actualresultscoulddiffermateriallyfromtheseestimatesunderdifferentassumptionsorconditions.
9
RevenueRecognitionRevenuebysourceThefollowingtabledisaggregatesourrevenuebymajorsource(inmillions):
ThreeMonthsEndedMarch31, 2021 2020
Automotivesaleswithoutresalevalueguarantee $ 8,013 $ 4,367 Automotivesaleswithresalevalueguarantee 174 172 Automotiveregulatorycredits 518 354 Energygenerationandstoragesales 383 173 Servicesandother 893 560 Totalrevenuesfromsalesandservices 9,981 5,626
Automotiveleasing 297 239 Energygenerationandstorageleasing 111 120 Totalrevenues $ 10,389 $ 5,985
AutomotiveSegmentAutomotiveSalesRevenueAutomotiveSaleswithandwithoutResaleValueGuarantee
WerecognizerevenuewhencontroltransfersupondeliverytocustomersinaccordancewithASC606asasalewitharightofreturnwhenwedonotbelievethecustomerhasasignificanteconomicincentivetoexercisetheresalevalueguaranteeprovidedtothematcontractinception.Thetotalsalesreturnreserveonvehiclespreviouslysoldunderourbuybackoptionsprogramwas$629millionand$703millionasofMarch31,2021andDecember31,2020,respectively,ofwhich$206millionand$202millionwasshortterm,respectively.
DeferredrevenueactivityrelatedtotheaccesstoourSuperchargernetwork,internetconnectivity,FullSelfDriving(“FSD”)featuresandover-the-airsoftwareupdatesonautomotivesaleswithandwithoutresalevalueguaranteeamountedto$2.00billionand$1.93billionasofMarch31,2021andDecember31,2020,respectively.
Deferredrevenueisequivalenttothetotaltransactionpriceallocatedtotheperformanceobligationsthatareunsatisfied,orpartiallyunsatisfied,asofthebalancesheetdate.RevenuerecognizedfromthedeferredrevenuebalanceasofDecember31,2020and2019was$79millionand$57millionforthethreemonthsendedMarch31,2021and2020,respectively.OfthetotaldeferredrevenueonautomotivesaleswithandwithoutresalevalueguaranteesasofMarch31,2021,weexpecttorecognize$1.21billionofrevenueinthenext12months.Theremainingbalancewillberecognizedovertheperformanceperiodwhichisgenerallytheexpectedownershiplifeofthevehicleortheeight-yearlifeofthevehicle.
AutomotiveRegulatoryCredits
Weearntradablecreditsintheoperationofourautomotivebusinessundervariousregulationsrelatedtozero-emissionvehicles,greenhousegas,fueleconomyandcleanfuel.Wesellthesecreditstootherregulatedentitieswhocanusethecreditstocomplywithemissionstandardsandotherregulatoryrequirements.
Paymentsforautomotiveregulatorycreditsaretypicallyreceivedatthepointcontroltransferstothecustomer,orinaccordancewithpaymenttermscustomarytothebusiness.Werecognizerevenueonthesaleofautomotiveregulatorycreditsatthetimecontroloftheregulatorycreditsistransferredtothepurchasingpartyasautomotivesalesrevenueintheconsolidatedstatementsofoperations.Deferredrevenuerelatedtosalesofautomotiveregulatorycreditswas$61millionand$21millionasofMarch31,2021andDecember31,2020,respectively.WeexpecttorecognizethemajorityofthedeferredrevenueasofMarch31,2021inthenext12months.RevenuerecognizedfromthedeferredrevenuebalanceasofDecember31,2020and2019wasimmaterialforthethreemonthsendedMarch31,2021and2020,respectively.
10
AutomotiveLeasingRevenueDirectSales-TypeLeasingProgram
ForthethreemonthsendedMarch31,2021,werecognized$42millionofsales-typeleasingrevenueand$26millionofsales-typeleasingcostofrevenue.Therewasnosales-typeleasingrevenueorassociatedcostofrevenuerecognizedinthethreemonthsendedMarch31,2020aswehadnotlaunchedthisoffering.
Netinvestmentinsales-typeleases,whichisthesumofthepresentvalueofthefuturecontractualleasepayments,ispresentedontheconsolidatedbalancesheetasacomponentofPrepaidexpensesandothercurrentassetsforthecurrentportionandasOtherassetsforthelong-termportion.Leasereceivablesrelatingtosales-typeleasesarepresentedontheconsolidatedbalancesheetasfollows(inmillions):
March31,2021 December31,2020
Grossleasereceivables $ 134 $ 102 Unearnedinterestincome (14 ) (11 )Netinvestmentinsales-typeleases $ 120 $ 91 Reportedas: Prepaidexpensesandothercurrentassets $ 23 $ 17 Otherassets 97 74 Netinvestmentinsales-typeleases $ 120 $ 91
EnergyGenerationandStorageSegmentEnergyGenerationandStorageSales
Werecordasdeferredrevenueanynon-refundableamountsthatarecollectedfromcustomersrelatedtofeeschargedforprepaymentsandremotemonitoringserviceandoperationsandmaintenanceservice,whichisrecognizedasrevenueratablyovertherespectivecustomercontractterm.AsofMarch31,2021andDecember31,2020,deferredrevenuerelatedtosuchcustomerpaymentsamountedto$195millionand$187million,respectively.RevenuerecognizedfromthedeferredrevenuebalanceasofDecember31,2020and2019was$33millionand$21millionforthethreemonthsendedMarch31,2021and2020respectively.AsofMarch31,2021,totaltransactionpriceallocatedtoperformanceobligationsthatwereunsatisfiedorpartiallyunsatisfiedforcontractswithanoriginalexpectedlengthofmorethanoneyearwas$107million.Ofthisamount,weexpecttorecognize$6millioninthenext12monthsandtheremainingoveraperiodupto27years.
IncomeTaxes
Therearetransactionsthatoccurduringtheordinarycourseofbusinessforwhichtheultimatetaxdeterminationisuncertain.AsofMarch31,2021andDecember31,2020,theaggregatebalancesofourgrossunrecognizedtaxbenefitswere$387millionand$380million,respectively,ofwhich$356millionand$353million,respectively,wouldnotgiverisetochangesinoureffectivetaxratesincethesetaxbenefitswouldincreaseadeferredtaxassetthatiscurrentlyfullyoffsetbyavaluationallowance.
ThelocalgovernmentofShanghaigrantedabeneficialcorporateincometaxrateof15%tocertaineligibleenterprises,comparedtothe25%statutorycorporateincometaxrateinChina.OurGigafactoryShanghaisubsidiarywasgrantedthisbeneficialincometaxrateof15%for2019through2023.
WefileincometaxreturnsintheU.S.,Californiaandvariousstateandforeignjurisdictions.WearecurrentlyunderexaminationbytheIRSfortheyears2015to2018.Additionaltaxyearswithintheperiod2004to2014and2019remainsubjecttoexaminationforfederalincometaxpurposes,andtaxyears2004to2019remainsubjecttoexaminationforCaliforniaincometaxpurposes.AllnetoperatinglossesandtaxcreditsgeneratedtodatearesubjecttoadjustmentforU.S.federalandCaliforniaincometaxpurposes.Taxyears2008to2020remainsubjecttoexaminationinotherU.S.stateandforeignjurisdictions.
Thepotentialoutcomeofthecurrentexaminationcouldresultinachangetounrecognizedtaxbenefitswithinthenexttwelvemonths.However,wecannotreasonablyestimatepossibleadjustmentsatthistime.
11
NetIncomeperShareofCommonStockAttributabletoCommonStockholdersBasicnetincomepershareofcommonstockattributabletocommonstockholdersiscalculatedbydividingnetincomeattributabletocommon
stockholdersbytheweighted-averagesharesofcommonstockoutstandingfortheperiod.Potentiallydilutiveshares,whicharebasedontheweighted-averagesharesofcommonstockunderlyingoutstandingstock-basedawards,warrantsandconvertibleseniornotesusingthetreasurystockmethodortheif-convertedmethod,asapplicable,areincludedwhencalculatingdilutednetincomepershareofcommonstockattributabletocommonstockholderswhentheireffectisdilutive.
OnJanuary1,2021,weadoptedASU2020-06usingthemodifiedretrospectivemethod.Followingthisadoption,weutilizetheif-convertedmethodfordilutednetincomepersharecalculationofourconvertibledebtinstruments(seeRecentAccountingPronouncementssectionbelowforfurtherdetails).DuringthethreemonthsendedMarch31,2021,weincreasednetincomeattributabletocommonstockholdersby$5milliontoarriveatthenumeratorusedtocalculatedilutednetincomepershare,whichrepresentstheinterestexpenserecognizedontheconvertibledebtinstrumentsthatweresubjecttothischangeinmethodology.
Priortotheadoption,weappliedthetreasurystockmethodwhencalculatingthepotentialdilutiveeffect,ifany,ofthefollowingconvertibleseniornoteswhichweintendedtosettleorhavesettledincashtheprincipaloutstanding:our1.25%ConvertibleSeniorNotesduein2021(“2021Notes”),2.375%ConvertibleSeniorNotesduein2022(“2022Notes”),2.00%ConvertibleSeniorNotesduein2024(“2024Notes”)andoursubsidiary’s5.50%ConvertibleSeniorNotesduein2022.Furthermore,inconnectionwiththeofferingsofourconvertibleseniornotes,weenteredintoconvertiblenotehedgesandwarrants(seeNote10,Debt).However,ourconvertiblenotehedgesarenotincludedwhencalculatingpotentiallydilutivesharessincetheireffectisalwaysanti-dilutive.Warrantswhichhaveastrikepriceaboveouraveragesharepriceduringtheperiodwereoutofthemoneyandwerenotincludedinthetablesbelow.Warrantswillbeincludedintheweighted-averagesharesusedincomputingbasicnetincomepershareofcommonstockintheperiod(s)theyaresettled.
Thefollowingtablepresentsthereconciliationofbasictodilutedweightedaveragesharesusedincomputingnetincomepershareofcommonstockattributabletocommonstockholders,asadjustedtogiveeffecttothefive-for-onestockspliteffectedintheformofastockdividendinAugust2020(the“StockSplit”)(inmillions):
ThreeMonthsEndedMarch31, 2021 2020
Weightedaveragesharesusedincomputingnetincomepershareofcommonstock,basic 961 915 Add:
Stock-basedawards 97
46
Convertibleseniornotes(1) 21 30 Warrants 54 3 Weightedaveragesharesusedincomputingnetincomepershareofcommonstock,diluted 1,133 994
Thefollowingtablepresentsthepotentiallydilutivesharesthatwereexcludedfromthecomputationofdilutednetincomepershareofcommon
stockattributabletocommonstockholders,becausetheireffectwasanti-dilutive,asadjustedtogiveeffecttotheStockSplit(inmillions):
ThreeMonthsEndedMarch31, 2021 2020
Stock-basedawards 0 0 Convertibleseniornotes(1) 1 2 (1) UnderthemodifiedretrospectivemethodofadoptionofASU2020-06,thedilutiveimpactofconvertibleseniornoteswascalculatedusingtheif-
convertedmethodforthethreemonthsendedMarch31,2021.CertainconvertibleseniornoteswerecalculatedusingthetreasurystockmethodforthethreemonthsendedMarch31,2020.Refertodiscussionaboveforfurtherdetails.
12
RestrictedCash
Wemaintaincertaincashbalancesrestrictedastowithdrawaloruse.Ourrestrictedcashiscomprisedprimarilyofcashascollateralforoursalestoleasepartnerswitharesalevalueguarantee,lettersofcredit,realestateleases,insurancepolicies,creditcardborrowingfacilitiesandcertainoperatingleases.Inaddition,restrictedcashincludescashreceivedfromcertainfundinvestorsthathavenotbeenreleasedforusebyusandcashheldtoservicecertainpaymentsundervarioussecureddebtfacilities.Werecordrestrictedcashasotherassetsintheconsolidatedbalancesheetsanddeterminecurrentornon-currentclassificationbasedontheexpecteddurationoftherestriction.
Ourtotalcashandcashequivalentsandrestrictedcash,aspresentedintheconsolidatedstatementsofcashflows,wasasfollows(inmillions):
March31, December31, March31, December31, 2021 2020 2020 2019
Cashandcashequivalents $ 17,141 $ 19,384 $ 8,080 $ 6,268 Restrictedcashincludedinprepaidexpensesandothercurrentassets
305 238 193 246
Restrictedcashincludedinothernon-currentassets 277 279 274 269
Totalaspresentedintheconsolidatedstatementsofcashflows $ 17,723 $ 19,901 $ 8,547 $ 6,783 AccountsReceivableandAllowanceforDoubtfulAccounts
Accountsreceivableprimarilyincludeamountsrelatedtoreceivablesfromfinancialinstitutionsandleasingcompaniesofferingvariousfinancingproductstoourcustomers,salesofenergygenerationandstorageproducts,salesofregulatorycreditstootherautomotivemanufacturers,governmentrebatesalreadypassedthroughtocustomersandmaintenanceservicesonvehiclesownedbyleasingcompanies.Weprovideanallowanceagainstaccountsreceivablefortheamountweexpecttobeuncollectible.Wewrite-offaccountsreceivableagainsttheallowancewhentheyaredeemeduncollectible.
Dependingonthedayoftheweekonwhichtheendofafiscalquarterfalls,ouraccountsreceivablebalancemayfluctuateaswearewaitingforcertaincustomerpaymentstoclearthroughourbankinginstitutionsandreceiptsofpaymentsfromourfinancingpartners,whichcantakeuptoapproximatelytwoweeksbasedonthecontractualpaymenttermswithsuchpartners.Ouraccountsreceivablebalancesassociatedwithoursalesofregulatorycredits,whicharetypicallytransferredtoothermanufacturersduringthelastfewdaysofthequarter,isdependentoncontractualpaymentterms.Additionally,governmentrebatescantakeuptoayearormoretobecollecteddependingonthecustomaryprocessingtimelinesofthespecificjurisdictionsissuingthem.Thesevariousfactorsmayhaveasignificantimpactonouraccountsreceivablebalancefromperiodtoperiod.
MyPowerCustomerNotesReceivableAsofMarch31,2021andDecember31,2020,thetotaloutstandingbalanceofMyPowercustomernotesreceivable,netofallowanceforcredit
losses,was$324millionand$334million,respectively,ofwhich$10millionand$9millionweredueinthenext12monthsasofMarch31,2021andDecember31,2020,respectively.AsofMarch31,2021andDecember31,2020,theallowanceforcreditlosseswas$45million.Inaddition,therewerenomaterialnon-accrualorpastduecustomernotesreceivableasofMarch31,2021andDecember31,2020.
ConcentrationofRiskCreditRiskFinancialinstrumentsthatpotentiallysubjectustoaconcentrationofcreditriskconsistofcash,cashequivalents,restrictedcash,accounts
receivable,convertiblenotehedges,andinterestrateswaps.OurcashbalancesareprimarilyinvestedinmoneymarketfundsorondepositathighcreditqualityfinancialinstitutionsintheU.S.Thesedepositsaretypicallyinexcessofinsuredlimits.AsofMarch31,2021andDecember31,2020,noentityrepresented10%ormoreofourtotalaccountsreceivablebalance.Theriskofconcentrationforourconvertiblenotehedgesandinterestrateswapsismitigatedbytransactingwithseveralhighly-ratedmultinationalbanks.
SupplyRiskWearedependentonoursuppliers,includingsinglesourcesuppliers,andtheinabilityofthesesupplierstodelivernecessarycomponentsofour
productsinatimelymanneratprices,qualitylevelsandvolumesacceptabletous,orourinabilitytoefficientlymanagethesecomponentsfromthesesuppliers,couldhaveamaterialadverseeffectonourbusiness,prospects,financialconditionandoperatingresults.
13
OperatingLeaseVehiclesThegrosscostofoperatingleasevehiclesasofMarch31,2021andDecember31,2020was$3.89billionand$3.54billion,respectively.Operating
leasevehiclesontheconsolidatedbalancesheetsarepresentednetofaccumulateddepreciationof$498millionand$446millionasofMarch31,2021andDecember31,2020,respectively.
DigitalAssets,Net
DuringthethreemonthsendedMarch31,2021,wepurchasedanaggregateof$1.50billionindigitalassets,comprisedsolelyofbitcoin.Inaddition,duringthethreemonthsendedMarch31,2021,webeganacceptingbitcoinasapaymentforsalesofcertainofourproductsinspecifiedregions,subjecttoapplicablelaws.Weaccountforsuchnon-cashconsiderationatthetimeweenterintotransactionswithourcustomersinaccordancewiththenon-cashconsiderationguidanceincludedintheAccountingStandardsCodification(“ASC”)606,RevenuefromContractswithCustomers,basedonthethencurrentquotedmarketpricesofbitcoin.
Wecurrentlyaccountforalldigitalassetsheldasaresultofthesetransactionsasindefinite-livedintangibleassetsinaccordancewithASC350,Intangibles—GoodwillandOther.Wehaveownershipofandcontroloverourbitcoinandwemayusethird-partycustodialservicestosecureit.Thedigitalassetsareinitiallyrecordedatcostandaresubsequentlyremeasuredontheconsolidatedbalancesheetatcost,netofanyimpairmentlossesincurredsinceacquisition.
WedeterminethefairvalueofourbitcoinonanonrecurringbasisinaccordancewithASC820,FairValueMeasurement,basedonquotedpricesontheactiveexchange(s)thatwehavedeterminedisitsprincipalmarketforbitcoin(Level1inputs).Weperformananalysiseachquartertoidentifywhethereventsorchangesincircumstances,principallydecreasesinthequotedpricesonactiveexchanges,indicatethatitismorelikelythannotthatourdigitalassetsareimpaired.Indeterminingifanimpairmenthasoccurred,weconsiderthelowestmarketpriceofonebitcoinquotedontheactiveexchangesinceacquiringthebitcoin.Ifthethencurrentcarryingvalueofadigitalassetexceedsthefairvaluesodetermined,animpairmentlosshasoccurredwithrespecttothosedigitalassetsintheamountequaltothedifferencebetweentheircarryingvaluesandthepricedetermined.
ImpairmentlossesarerecognizedwithinRestructuringandotherintheconsolidatedstatementsofoperationsintheperiodinwhichtheimpairmentisidentified.Theimpaireddigitalassetsarewrittendowntotheirfairvalueatthetimeofimpairmentandthisnewcostbasiswillnotbeadjustedupwardforanysubsequentincreaseinfairvalue.Gainsarenotrecordeduntilrealizeduponsale(s),atwhichpointtheyarepresentednetofanyimpairmentlossesforthesamedigitalassetsheldwithinRestructuringandother.Indeterminingthegaintoberecognizeduponsale,wecalculatethedifferencebetweenthesalespriceandcarryingvalueofthedigitalassetssoldimmediatelypriortosale.
SeeNote3,DigitalAssets,Net,forfurtherinformationregardingdigitalassets.
WarrantiesWeprovideamanufacturer’swarrantyonallnewandusedvehiclesandawarrantyontheinstallationandcomponentsoftheenergygeneration
andstoragesystemswesellforperiodstypicallybetween10to25years.Weaccrueawarrantyreservefortheproductssoldbyus,whichincludesourbestestimateoftheprojectedcoststorepairorreplaceitemsunderwarrantiesandrecallsifidentified.Theseestimatesarebasedonactualclaimsincurredtodateandanestimateofthenature,frequencyandcostsoffutureclaims.Theseestimatesareinherentlyuncertaingivenourrelativelyshorthistoryofsales,andchangestoourhistoricalorprojectedwarrantyexperiencemaycausematerialchangestothewarrantyreserveinthefuture.ThewarrantyreservedoesnotincludeprojectedwarrantycostsassociatedwithourvehiclessubjecttooperatingleaseaccountingandoursolarenergysystemsunderleasecontractsorPowerPurchaseAgreements("PPAs"),asthecoststorepairthesewarrantyclaimsareexpensedasincurred.Theportionofthewarrantyreserveexpectedtobeincurredwithinthenext12monthsisincludedwithinAccruedliabilitiesandother,whiletheremainingbalanceisincludedwithinOtherlong-termliabilitiesontheconsolidatedbalancesheets.WarrantyexpenseisrecordedasacomponentofCostofrevenuesintheconsolidatedstatementsofoperations.Duetothemagnitudeofourautomotivebusiness,accruedwarrantybalancewasprimarilyrelatedtoourautomotivesegment.Accruedwarrantyactivityconsistedofthefollowing(inmillions): ThreeMonthsEndedMarch31, 2021 2020 Accruedwarranty—beginningofperiod $ 1,468 $ 1,089 Warrantycostsincurred (116 ) (81 )Netchangesinliabilityforpre-existingwarranties,includingexpirationsandforeignexchangeimpact (1 ) 3 Provisionforwarranty 183 119 Accruedwarranty—endofperiod $ 1,534 $ 1,130
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RecentAccountingPronouncementsRecentlyissuedaccountingpronouncementsnotyetadopted
InMarch2020,theFASBissuedASUNo.2020-04,FacilitationoftheEffectsofReferenceRateReformonFinancialReporting(Topic848).TheASUprovidesoptionalexpedientsandexceptionsforapplyingGAAPtotransactionsaffectedbyreferencerate(e.g.,LIBOR)reformifcertaincriteriaaremet,foralimitedperiodoftimetoeasethepotentialburdeninaccountingfor(orrecognizingtheeffectsof)referenceratereformonfinancialreporting.TheASUiseffectiveasofMarch12,2020throughDecember31,2022.Wewillevaluatetransactionsorcontractmodificationsoccurringasaresultofreferenceratereformanddeterminewhethertoapplytheoptionalguidanceonanongoingbasis.TheASUiscurrentlynotexpectedtohaveamaterialimpactonourconsolidatedfinancialstatements.
RecentlyadoptedaccountingpronouncementsInDecember2019,theFASBissuedASUNo.2019-12,SimplifyingtheAccountingforIncomeTaxes,aspartofitsinitiativetoreducecomplexityin
accountingstandards.TheamendmentsintheASUincluderemovingexceptionstoincrementalintraperiodtaxallocationoflossesandgainsfromdifferentfinancialstatementcomponents,exceptionstothemethodofrecognizingincometaxesoninterimperiodlosses,andexceptionstodeferredtaxliabilityrecognitionrelatedtoforeignsubsidiaryinvestments.Inaddition,theASUrequiresthatentitiesrecognizefranchisetaxbasedonanincrementalmethodandrequiresanentitytoevaluatetheaccountingforstep-upsinthetaxbasisofgoodwillasinsideoroutsideofabusinesscombination.WeadoptedASU2019-12starting2021,whichdidnothaveamaterialimpactonourconsolidatedfinancialstatements.
ASU2020-06InAugust2020,theFASBissuedASU2020-06,AccountingforConvertibleInstrumentsandContractsinanEntity’sOwnEquity.TheASU
simplifiestheaccountingforconvertibleinstrumentsbyremovingcertainseparationmodelsinASC470-20,Debt—DebtwithConversionandOtherOptions,forconvertibleinstruments.TheASUupdatestheguidanceoncertainembeddedconversionfeaturesthatarenotrequiredtobeaccountedforasderivativesunderTopic815,DerivativesandHedging,orthatdonotresultinsubstantialpremiumsaccountedforaspaid-incapital,suchthatthosefeaturesarenolongerrequiredtobeseparatedfromthehostcontract.Theconvertibledebtinstrumentswillbeaccountedforasasingleliabilitymeasuredatamortizedcost.ThiswillalsoresultintheinterestexpenserecognizedforconvertibledebtinstrumentstobetypicallyclosertothecouponinterestratewhenapplyingtheguidanceinTopic835,Interest.Further,theASUmadeamendmentstotheEPSguidanceinTopic260forconvertibledebtinstruments,themostsignificantimpactofwhichisrequiringtheuseoftheif-convertedmethodfordilutedEPScalculation,andnolongerallowingthenetsharesettlementmethod.TheASUalsomaderevisionstoTopic815-40,whichprovidesguidanceonhowanentitymustdeterminewhetheracontractqualifiesforascopeexceptionfromderivativeaccounting.TheamendmentstoTopic815-40changethescopeofcontractsthatarerecognizedasassetsorliabilities.TheASUiseffectiveforinterimandannualperiodsbeginningafterDecember15,2021,withearlyadoptionpermittedforperiodsbeginningafterDecember15,2020.AdoptionoftheASUcaneitherbeonamodifiedretrospectiveorfullretrospectivebasis.
OnJanuary1,2021,weadoptedtheASUusingthemodifiedretrospectivemethod.WerecognizedacumulativeeffectofinitiallyapplyingtheASUasanadjustmenttotheJanuary1,2021openingbalanceofaccumulateddeficit.Duetotherecombinationoftheequityconversioncomponentofourconvertibledebtremainingoutstanding,additionalpaidincapitalandconvertibleseniornotes(mezzanineequity)werereduced.Theremovaloftheremainingdebtdiscountsrecordedforthispreviousseparationhastheeffectofincreasingournetdebtbalanceandthereductionofproperty,plantandequipmentwasrelatedtopreviouslycapitalizedinterest.Thepriorperiodconsolidatedfinancialstatementshavenotbeenretrospectivelyadjustedandcontinuetobereportedundertheaccountingstandardsineffectforthoseperiods.
Accordingly,thecumulativeeffectofthechangesmadeonourJanuary1,2021consolidatedbalancesheetfortheadoptionoftheASUwasasfollows(inmillions):
Balancesat
December31,2020
AdjustmentsfromAdoptionofASU2020-
06 Balancesat
January1,2021
Assets Property,plantandequipment,net $ 12,747 $ (45 ) $ 12,702
Liabilities Currentportionofdebtandfinanceleases 2,132 50 2,182 Debtandfinanceleases,netofcurrentportion 9,556 219 9,775
Mezzanineequity Convertibleseniornotes 51 (51 ) —
Equity Additionalpaid-incapital 27,260 (474 ) 26,786 Accumulateddeficit (5,399 ) 211 (5,188 )
15
TheimpactofadoptiononourconsolidatedstatementsofoperationsforthethreemonthsendedMarch31,2021wasprimarilytodecreasenetinterestexpenseby$145millionandtodecreasedepreciationexpensebyanimmaterialamount.ThishadtheeffectofincreasingourbasicanddilutednetincomepershareofcommonstockattributabletocommonstockholdersforthethreemonthsendedMarch31,2021by$0.15and$0.13,respectively.Thechangeinmethodologytodeterminethedenominatorusedinthecalculationofdilutednetincomepershareofcommonstockattributabletocommonstockholderscontributedlessthan$0.01oftheincreasebyrequiringtheuseoftheif-convertedmethodasdiscussedabove.
Note3–DigitalAssets,NetDuringthethreemonthsendedMarch31,2021,wepurchasedandreceived$1.50billionofbitcoin.DuringthethreemonthsendedMarch31,
2021,werecorded$27millionofimpairmentlossesonbitcoin.Wealsorealizedgainsof$128millionthroughsalesduringthethreemonthsendedMarch31,2021.SuchgainsarepresentednetofimpairmentlossesinRestructuringandotherintheconsolidatedstatementofoperations.AsofMarch31,2021,thecarryingvalueofourbitcoinheldwas$1.33billion,whichreflectscumulativeimpairmentsof$27million.ThefairmarketvalueofbitcoinheldasofMarch31,2021was$2.48billion.
Note4–GoodwillandIntangibleAssetsGoodwilldecreased$1millionwithintheautomotivesegmentfrom$207millionasofDecember31,2020to$206millionasofMarch31,2021due
toforeigncurrencytranslationadjustmentsduringthethreemonthsendedMarch31,2021.TherewerenoaccumulatedimpairmentlossesasofMarch31,2021andDecember31,2020.
Informationregardingourintangibleassetsincludingassetsrecognizedfromouracquisitionswasasfollows(inmillions):
March31,2021 December31,2020
GrossCarrying
Amount Accumulated
Amortization Other NetCarrying
Amount GrossCarrying
Amount Accumulated
Amortization Other NetCarrying
Amount Finite-livedintangibleassets: Developedtechnology $ 302 $ (122 ) $ 3 $ 183 $ 302 $ (111 ) $ 3 $ 194 Tradenames 3 (1 ) — 2 3 (1 ) — 2 Favorablecontractsand
leases,net 113 (34 ) — 79 113 (32 ) — 81 Other 38 (19 ) 1 20 38 (18 ) 1 21 Totalfinite-lived
intangibleassets 456 (176 ) 4 284 456 (162 ) 4 298 Indefinite-livedintangibleassets: GigafactoryNevada
waterrights 15 — — 15 15 — — 15 Totalintangibleassets $ 471 $ (176 ) $ 4 $ 299 $ 471 $ (162 ) $ 4 $ 313
Totalfutureamortizationexpenseforfinite-livedintangibleassetswasestimatedasfollows(inmillions):
NinemonthsendingDecember31,2021 $ 37 2022 50 2023 44 2024 29 2025 29 Thereafter 95 Total $ 284
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Note5–FairValueofFinancialInstruments
ASC820,FairValueMeasurements,statesthatfairvalueisanexitprice,representingtheamountthatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipants.Assuch,fairvalueisamarket-basedmeasurementthatshouldbedeterminedbasedonassumptionsthatmarketparticipantswoulduseinpricinganassetoraliability.Thethree-tieredfairvaluehierarchy,whichprioritizeswhichinputsshouldbeusedinmeasuringfairvalue,iscomprisedof:(LevelI)observableinputssuchasquotedpricesinactivemarkets;(LevelII)inputsotherthanquotedpricesinactivemarketsthatareobservableeitherdirectlyorindirectlyand(LevelIII)unobservableinputsforwhichthereislittleornomarketdata.Thefairvaluehierarchyrequirestheuseofobservablemarketdatawhenavailableindeterminingfairvalue.Ourassetsandliabilitiesthatweremeasuredatfairvalueonarecurringbasiswereasfollows(inmillions):
March31,2021 December31,2020 FairValue LevelI LevelII LevelIII FairValue LevelI LevelII LevelIII Moneymarketfunds(cashandcashequivalents) $ 11,366 $ 11,366 $ — $ — $ 13,847 $ 13,847 $ — $ —Interestrateswapliabilities 30 — 30 — 58 — 58 — Total $ 11,396 $ 11,366 $ 30 $ — $ 13,905 $ 13,847 $ 58 $ —
AllofourmoneymarketfundswereclassifiedwithinLevelIofthefairvaluehierarchybecausetheywerevaluedusingquotedpricesinactivemarkets.OurinterestrateswapswereclassifiedwithinLevelIIofthefairvaluehierarchybecausetheywerevaluedusingalternativepricingsourcesormodelsthatutilizedmarketobservableinputs,includingcurrentandforwardinterestrates.
InterestRateSwapsWeenterintofixed-for-floatinginterestrateswapagreementstoswapvariableinterestpaymentsoncertaindebtforfixedinterestpayments,as
requiredbycertainofourlenders.Wedonotdesignateourinterestrateswapsashedginginstruments.Accordingly,ourinterestrateswapsarerecordedatfairvalueontheconsolidatedbalancesheetswithinOthernon-currentassetsorOtherlong-termliabilities,withanychangesintheirfairvaluesrecognizedasOtherincome(expense),net,intheconsolidatedstatementsofoperationsandwithanycashflowsrecognizedasoperatingactivitiesintheconsolidatedstatementsofcashflows.Ourinterestrateswapsoutstandingwereasfollows(inmillions):
March31,2021 December31,2020
AggregateNotional
Amount GrossAssetat
FairValue GrossLiabilityat
FairValue AggregateNotional
Amount GrossAssetat
FairValue GrossLiabilityat
FairValue Interestrateswaps $ 398 $ — $ 30 $ 554 $ — $ 58
Ourinterestrateswapsactivitywasasfollows(inmillions):
ThreeMonthsEndedMarch31, 2021 2020 Grosslosses $ — $ 39 Grossgains $ 20 $ —
DisclosureofFairValues
Ourfinancialinstrumentsthatarenotre-measuredatfairvalueincludeaccountsreceivable,MyPowercustomernotesreceivable,accountspayable,accruedliabilities,customerdepositsanddebt.Thecarryingvaluesofthesefinancialinstrumentsotherthanour2021Notes,2022Notes,2024Notes,andoursubsidiary’s5.50%ConvertibleSeniorNotesduein2022(collectivelyreferredtoas“ConvertibleSeniorNotes”below),5.30%SeniorNotesduein2025(“2025Notes”),solarasset-backednotesandsolarloan-backednotesapproximatetheirfairvalues.
WeestimatethefairvalueoftheConvertibleSeniorNotesandthe2025Notesusingcommonlyacceptedvaluationmethodologiesandmarket-basedriskmeasurementsthatareindirectlyobservable,suchascreditrisk(LevelII).Inaddition,weestimatethefairvaluesofoursolarasset-backednotesandsolarloan-backednotesbasedonratescurrentlyofferedforinstrumentswithsimilarmaturitiesandterms(LevelIII).Thefollowingtablepresentstheestimatedfairvaluesandthecarryingvalues(inmillions):
March31,2021 December31,2020 CarryingValue FairValue CarryingValue FairValue
ConvertibleSeniorNotes $ 790 $ 8,410 $ 1,971 $ 24,596 2025Notes $ 1,786 $ 1,868 $ 1,785 $ 1,877 Solarasset-backednotes $ 1,097 $ 1,118 $ 1,115 $ 1,137 Solarloan-backednotes $ 128 $ 135 $ 146 $ 152
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Note6–Inventory
Ourinventoryconsistedofthefollowing(inmillions):
March31, December31, 2021 2020 Rawmaterials $ 1,836 $ 1,508 Workinprocess 454 493 Finishedgoods(1) 1,341 1,666 Serviceparts 501 434 Total $ 4,132 $ 4,101
(1) Finishedgoodsinventoryincludesvehiclesintransittofulfillcustomerorders,newvehiclesavailableforsale,usedvehicles,energystorage
productsandSolarRoofproductsavailableforsale.
Forsolarenergysystems,wecommencetransferringcomponentpartsfrominventorytoconstructioninprogress,acomponentofsolarenergysystems,oncealeaseorPPAcontractwithacustomerhasbeenexecutedandinstallationhasbeeninitiated.Additionalcostsincurredontheleasedsolarenergysystems,includinglaborandoverhead,arerecordedwithinsolarenergysystemsunderconstruction.
Wewrite-downinventoryforanyexcessorobsoleteinventoriesorwhenwebelievethatthenetrealizablevalueofinventoriesislessthanthecarryingvalue.DuringthethreemonthsendedMarch31,2021and2020,werecordedwrite-downsof$35millioninCostofrevenuesandResearchanddevelopmentexpensesand$45millioninCostofrevenues,respectively.Note7–Property,PlantandEquipment,Net
Ourproperty,plantandequipment,net,consistedofthefollowing(inmillions):
March31, December31, 2021 2020 Machinery,equipment,vehiclesandofficefurniture $ 8,711 $ 8,493 Tooling 1,916 1,811 Leaseholdimprovements 1,494 1,421 Landandbuildings 3,681 3,662 Computerequipment,hardwareandsoftware 1,020 856 Constructioninprogress 2,435 1,621
19,257 17,864 Less:Accumulateddepreciation (5,389 ) (5,117 )Total $ 13,868
$ 12,747
ConstructioninprogressisprimarilycomprisedofconstructionofGigafactoryBerlinandGigafactoryTexas,expansionofGigafactoryShanghai
andequipmentandtoolingrelatedtothemanufacturingofourproducts.WearecurrentlyconstructingGigafactoryBerlinunderconditionalpermitsinanticipationofbeinggrantedfinalpermits.Completedassetsaretransferredtotheirrespectiveassetclasses,anddepreciationbeginswhenanassetisreadyforitsintendeduse.Interestonoutstandingdebtiscapitalizedduringperiodsofsignificantcapitalassetconstructionandamortizedovertheusefullivesoftherelatedassets.DuringthethreemonthsendedMarch31,2021and2020,wecapitalized$15millionand$10million,respectively,ofinterest.
DepreciationexpenseduringthethreemonthsendedMarch31,2021and2020was$424millionand$371million,respectively.Grossproperty,plantandequipmentunderfinanceleasesasofMarch31,2021andDecember31,2020was$2.34billionand$2.28billion,respectively,withaccumulateddepreciationof$907millionand$816million,respectively.
PanasonichaspartneredwithusonGigafactoryNevadawithinvestmentsintheproductionequipmentthatitusestomanufactureandsupplyuswithbatterycells.UnderourarrangementwithPanasonic,weplantopurchasethefulloutputfromtheirproductionequipmentatnegotiatedprices.AsthetermsofthearrangementconveyafinanceleaseunderASC842,Leases,weaccountfortheirproductionequipmentasleasedassetswhenproductioncommences.Weaccountforeachleaseandanynon-leasecomponentsassociatedwiththatleaseasasingleleasecomponentforallassetclasses,exceptproductionequipmentclassesembeddedinsupplyagreements.ThisresultsinusrecordingthecostoftheirproductionequipmentwithinProperty,plantandequipment,net,ontheconsolidatedbalancesheetswithacorrespondingliabilityrecordedtodebtandfinanceleases.DepreciationonPanasonicproductionequipmentiscomputedusingtheunits-of-productionmethodwherebycapitalizedcostsareamortizedoverthetotalestimatedproductivelifeoftherespectiveassets.AsofMarch31,2021andDecember31,2020,wehadcumulativelycapitalizedcostsof$1.79billionand$1.77billion,respectively,ontheconsolidatedbalancesheetsinrelationtotheproductionequipmentunderourPanasonicarrangement.
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Note8–AccruedLiabilitiesandOther
AsofMarch31,2021andDecember31,2020,accruedliabilitiesandothercurrentliabilitiesconsistedofthefollowing(inmillions):
March31, December31, 2021 2020 Accruedpurchases(1) $ 993 $ 901 Taxespayable(2) 828 777 Payrollandrelatedcosts 660 654 Accruedwarrantyreserve,currentportion 544 479 Salesreturnreserve,currentportion 430 417 Operatingleaseliabilities,currentportion 309 286 Accruedinterest 36 77 Othercurrentliabilities 273 264 Total $ 4,073 $ 3,855
(1) Accruedpurchasesprimarilyreflectsreceiptsofgoodsandservicesthatwehadnotbeeninvoicedyet.Asweareinvoicedforthesegoodsand
services,thisbalancewillreduceandaccountspayablewillincrease.(2) Taxespayableincludesvalueaddedtax,salestax,propertytax,usetaxandincometaxpayables.Note9–OtherLong-TermLiabilities
AsofMarch31,2021andDecember31,2020,otherlong-termliabilitiesconsistedofthefollowing(inmillions):
March31, December31, 2021 2020 Operatingleaseliabilities $ 1,330 $ 1,254 Accruedwarrantyreserve 990 989 Salesreturnreserve 424 500 Deferredtaxliability 144 151 Othernon-currentliabilities 395 436 Totalotherlong-termliabilities $ 3,283 $ 3,330
Note10–Debt
ThefollowingisasummaryofourdebtandfinanceleasesasofMarch31,2021(inmillions):
Unpaid Unused NetCarryingValue Principal Committed Contractual Contractual
Current Long-Term
Balance
Amount(1)
InterestRates MaturityDate
Recoursedebt: 2022Notes $ 317 $ — $ 319 $ — 2.375% March2022
2024Notes 51 378 439 — 2.00% May2024
2025Notes — 1,786 1,800 — 5.30% August2025
CreditAgreement — 1,898 1,898 266 3.3% July2023
SolarBondsandotherLoans 30 23 53 — 4.0-5.8% June2021-January2031
Totalrecoursedebt 398 4,085 4,509 266 Non-recoursedebt: AutomotiveAsset-backedNotes 936 1,636 2,582 — 0.2-7.9% August2021-March2025
SolarAsset-backedNotes 39 1,058 1,125 — 2.9%-7.7% September2024-February2048
ChinaLoanAgreements — 614 614 1,368 4.0% June2021-December2024
CashEquityDebt 19 406 436 — 5.3%-5.8% July2033-January2035
SolarLoan-backedNotes 13 115 134 — 4.8%-7.5% September2048-September2049
WarehouseAgreements — — — 1,100
Notapplicable
September2022
AutomotiveLease-backedCreditFacilities 10 24 34 148 0.8-5.9% September2022-November2022
SolarRevolvingCreditFacilityand
otherLoans — 81 81 23
2.7-5.1%
June2022-February2033
Totalnon-recoursedebt 1,017 3,934 5,006 2,639 Totaldebt 1,415 8,019 $ 9,515 $ 2,905 Financeleases 404 1,034 Totaldebtandfinanceleases $ 1,819 $ 9,053
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ThefollowingisasummaryofourdebtandfinanceleasesasofDecember31,2020(inmillions):
Unpaid Unused NetCarryingValue Principal Committed Contractual Contractual
Current Long-Term Balance Amount(1) InterestRates MaturityDate
Recoursedebt: 2021Notes $ 419 $ — $ 422 $ — 1.25% March2021
2022Notes 115 366 503 — 2.375% March2022
2024Notes 171 856 1,282 — 2.00% May2024
2025Notes — 1,785 1,800 — 5.30% August2025
CreditAgreement — 1,895 1,895 278 3.3% July2023
SolarBondsandotherLoans 4 49 55 — 3.6%-5.8% January2021-January2031
Totalrecoursedebt 709 4,951 5,957 278 Non-recoursedebt: AutomotiveAsset-backedNotes 777 921 1,705 — 0.6%-7.9% August2021-August2024
SolarAsset-backedNotes 39 1,076 1,141 — 3.0%-7.7% September2024-February2048
ChinaLoanAgreements — 616 616 1,372 4.0% June2021-December2024
CashEquityDebt 18 408 439 — 5.3%-5.8% July2033-January2035
SolarLoan-backedNotes 13 133 152 — 4.8%-7.5% September2048-September2049
WarehouseAgreements 37 257 294 806 1.7%-1.8% September2022
SolarTermLoan
151 —
151 —
3.7%
January2021
AutomotiveLease-backedCreditFacility 14 19 33 153 1.9%-5.9% September2022-November2022
SolarRevolvingCreditFacilityand
otherLoans — 81 81 23
2.7%-5.1%
June2022-February2033
Totalnon-recoursedebt 1,049 3,511 4,612 2,354 Totaldebt 1,758 8,462 $ 10,569 $ 2,632 Financeleases 374 1,094 Totaldebtandfinanceleases $ 2,132 $ 9,556
(1) Therearenorestrictionsondraw-downoruseforgeneralcorporatepurposeswithrespecttoanyavailablecommittedfundsunderourcreditfacilitiesandfinancingfunds,exceptcertainspecifiedconditionspriortodraw-down,includingpledgingtoourlenderssufficientamountsofqualifiedreceivables,inventories,leasedvehiclesandourinterestsinthoseleases,solarenergysystemsandtheassociatedcustomercontracts,ourinterestsinfinancingfundsorvariousotherassetsandasmaybedescribedbelowandinthenotestotheconsolidatedfinancialstatementsincludedinourreportonForm10-KfortheyearendedDecember31,2020.
Recoursedebtreferstodebtthatisrecoursetoourgeneralassets.Non-recoursedebtreferstodebtthatisrecoursetoonlyassetsofoursubsidiaries.Thedifferencesbetweentheunpaidprincipalbalancesandthenetcarryingvaluesareduetodebtdiscountsordeferredfinancingcosts.ThedebtdiscountswereupdatedasofJanuary1,2021forourconvertiblenoteswiththeadoptionofASU2020-06asdiscussedinNote2,SummaryofSignificantAccountingPolicies.AsofMarch31,2021,wewereinmaterialcompliancewithallfinancialdebtcovenants,whichincludeminimumliquidityandexpense-coveragebalancesandratios.
2021Notes,2022Notesand2024NotesDuringthefirstquarterof2021,theclosingpriceofourcommonstockexceeded130%oftheapplicableconversionpriceofeachofour2022
Notesand2024Notesonatleast20ofthelast30consecutivetradingdaysofthequarter;causingthe2022Notesand2024Notestobeconvertiblebytheirholdersduringthesecondquarterof2021.Aswenowexpecttosettleaportionofthe2024Notesinthesecondquarterof2021,wereclassified$51millionofthecarryingvalueofthe2024Notesfromdebtandfinanceleases,netofcurrentportiontocurrentportionofdebtandfinanceleasesonourconsolidatedbalancesheetasofMarch31,2021.Shouldtheclosingpriceconditionsbemetinafuturequarterforanyofthesenotes,suchnoteswillbeconvertibleattheirholders’optionduringtheimmediatelyfollowingquarter.
OnJanuary1,2021,weadoptedASU2020-06usingthemodifiedretrospectivemethod.Asaresultofthisadoption,wehavede-recognizedtheremainingdebtdiscountsonthe2022Notesand2024Notesandthereforenolongerrecognizeanyamortizationofdebtdiscountsasinterestexpense(seeNote2,SummaryofSignificantAccountingPolicies).Duringthefirstquarterof2021,$422million,$184millionand$843millioninaggregateprincipalamountofthe2021Notes,2022Notesand2024Notes,respectively,weresettledfor$422million,$184millionand$843millionincashfortheirparamount,andtheissuanceof5.3million,2.5millionand12.5millionsharesofourcommonstockfortheconversionpremium,respectively.Thenotehedgesweenteredintoinconnectionwiththeissuanceofthe2021Notes,2022Notesand2024Noteswereautomaticallysettledwiththerespectiveconversionsofthe2021Notes,2022Notesand2024Notes,resultinginthereceiptof5.3million,2.5millionand12.5millionsharesofourcommonstock,respectively.InMarch2021,the2021Noteswerefullysettled.
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AutomotiveAsset-backedNotesandWarehouseAgreementsInMarch2021,wetransferredbeneficialinterestsrelatedtocertainleasedvehiclesintoanSPEandissued$1.08billioninaggregateprincipal
amountofAutomotiveAsset-backedNotes,withtermssimilartoourotherAutomotiveAsset-backedNotes.Theproceedsfromtheissuance,netofdiscountsandfees,were$1.07billion.Inconjunctionwiththisfinancingwerepaidtheremainingoutstandingbalanceofourvehiclelease-backedloanandsecurityagreement(the"2016WarehouseAgreement"),forwhichcommittedfundsremainedavailableforfutureborrowings.
ChinaLoanAgreementsInApril2021,wefullyrepaidthe$614millioninaggregateprincipalofoursecuredtermloanfacilityinconnectionwiththeconstructionof
GigafactoryShanghai(the“FixedAssetFacility”)andthefacilitywasterminated.Afterthetermination,the$758millionofunusedcommitmentundertheFixedAssetFacilityincludedinthedebtandfinanceleasetableasofMarch31,2021abovewasnolongeravailable.
SolarTermLoanInJanuary2021,ourSolarTermLoanmaturedandwasrepaid.
InterestExpenseThefollowingtablepresentstheinterestexpenserelatedtothecontractualinterestcoupon,theamortizationofdebtissuancecostsandthe
amortizationofdebtdiscountsonourconvertibleseniornoteswithcashconversionfeatures,whichincludethe2021Notes,the2022Notesandthe2024Notes(inmillions):
ThreeMonthsEndedMarch31, 2021 2020
Contractualinterestcoupon $ 7 $
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Amortizationofdebtissuancecosts 2 2 Amortizationofdebtdiscounts(1) — 44 Total $ 9 $ 65
(1) UnderthemodifiedretrospectivemethodofadoptionofASU2020-06,therewasneitheramortizationofdebtdiscounts,norlossesonextinguishmentofdebtrecognizedforthethreemonthsendedMarch31,2021.Refertodiscussionaboveforfurtherdetails.
Note11–EquityIncentivePlans
2018CEOPerformanceAwardInMarch2018,ourstockholdersapprovedtheBoardofDirectors’grantof101.3millionstockoptionawards,asadjustedtogiveeffecttothe
StockSplit,toourCEO(the“2018CEOPerformanceAward”).The2018CEOPerformanceAwardconsistsof12vestingtrancheswithavestingschedulebasedentirelyontheattainmentofbothoperationalmilestones(performanceconditions)andmarketconditions,assumingcontinuedemploymenteitherastheCEOorasbothExecutiveChairmanandChiefProductOfficerandservicethrougheachvestingdate.Eachofthe12vestingtranchesofthe2018CEOPerformanceAwardwillvestuponcertificationbytheBoardofDirectorsthatboth(i)themarketcapitalizationmilestoneforsuchtranche,whichbeginsat$100.0billionforthefirsttrancheandincreasesbyincrementsof$50.0billionthereafter(basedonbothasixcalendarmonthtrailingaverageanda30calendardaytrailingaverage,countingonlytradingdays),hasbeenachieved,and(ii)anyoneofthefollowingeightoperationalmilestonesfocusedontotalrevenueoranyoneoftheeightoperationalmilestonesfocusedonAdjustedEBITDAhavebeenachievedforthefourconsecutivefiscalquartersonanannualizedbasisandsubsequentlyreportedbyusinourfinancialstatementsfiledwithourForms10-Qand/or10-K.AdjustedEBITDAisdefinedasnetincome(loss)attributabletocommonstockholdersbeforeinterestexpense,provision(benefit)forincometaxes,depreciationandamortizationandstock-basedcompensation.Uponvestingandexercise,includingthepaymentoftheexercisepriceof$70.01pershare,ourCEOmustholdsharesthatheacquiresforfiveyearspost-exercise,otherthanacashlessexercisewheresharesaresimultaneouslysoldtopayfortheexercisepriceandanyrequiredtaxwithholding.
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TheachievementstatusoftheoperationalmilestonesasofMarch31,2021isprovidedbelow.Althoughanoperationalmilestoneisdeemedachievedinthelastquarteroftherelevantannualizedperiod,itmaybecertifiedonlyafterthefinancialstatementssupportingitsachievementhavebeenfiledwithourForms10-Qand/or10-K.
TotalAnnualizedRevenue AnnualizedAdjustedEBITDAMilestone(inbillions) AchievementStatus
Milestone(inbillions) AchievementStatus
$ 20.0 Achieved $ 1.5 Achieved$ 35.0 Achieved(1) $ 3.0 Achieved$ 55.0 Probable $ 4.5 Achieved$ 75.0 - $ 6.0 Achieved(1)$ 100.0 - $ 8.0 Probable$ 125.0 - $ 10.0 -$ 150.0 - $ 12.0 -$ 175.0 - $ 14.0 -
(1) Achievedinthefirstquarterof2021andexpectedtobecertifiedfollowingthefilingofthisQuarterlyReportonForm10-Q.
Stock-basedcompensationunderthe2018CEOPerformanceAwardrepresentsanon-cashexpenseandisrecordedasaSelling,general,andadministrativeoperatingexpenseinourconsolidatedstatementofoperations.Ineachquartersincethegrantofthe2018CEOPerformanceAward,wehaverecognizedexpense,generallyonapro-ratedbasis,foronlythenumberoftranches(uptothemaximumof12tranches)thatcorrespondstothenumberofoperationalmilestonesthathavebeenachievedorhavebeendeterminedprobableofbeingachievedinthefuture,inaccordancewiththefollowingprinciples.
Onthegrantdate,aMonteCarlosimulationwasusedtodetermineforeachtranche(i)afixedamountofexpenseforsuchtrancheand(ii)thefuturetimewhenthemarketcapitalizationmilestoneforsuchtranchewasexpectedtobeachieved,orits“expectedmarketcapitalizationmilestoneachievementtime.”Separately,basedonasubjectiveassessmentofourfuturefinancialperformance,eachquarterwedeterminewhetheritisprobablethatwewillachieveeachoperationalmilestonethathasnotpreviouslybeenachievedordeemedprobableofachievementandifso,thefuturetimewhenweexpecttoachievethatoperationalmilestone,orits“expectedoperationalmilestoneachievementtime.”Whenwefirstdeterminethatanoperationalmilestonehasbecomeprobableofbeingachieved,weallocatetheentireexpensefortherelatedtrancheoverthenumberofquartersbetweenthegrantdateandthethen-applicable“expectedfullachievementtime.”The“expectedfullachievementtime”atanygiventimeisthelaterof(i)theexpectedoperationalmilestoneachievementtime(iftherelatedoperationalmilestonehasnotyetbeenachieved)and(ii)theexpectedmarketcapitalizationmilestoneachievementtime(iftherelatedmarketcapitalizationmilestonehasnotyetbeenachieved).Weimmediatelyrecognizeacatch-upexpenseforallaccumulatedexpenseforthequartersfromthegrantdatethroughthequarterinwhichtheoperationalmilestonewasfirstdeemedprobableofbeingachieved.Eachquarterthereafter,werecognizetheproratedportionofthethen-remainingexpenseforthetranchebasedonthenumberofquartersbetweensuchquarterandthethen-applicableexpectedfullachievementtime,exceptthatupontheachievementofbothamarketcapitalizationmilestoneandoperationalmilestonewithrespecttoatranche,allremainingexpenseforthattrancheisimmediatelyrecognized.
Asaresult,wehaveexperienced,andmayexperienceinthefuture,significantcatch-upexpensesinquarterswhenoneormoreoperationalmilestonesarefirstdeterminedtobeprobableofbeingachieved.Historically,theexpectedmarketcapitalizationachievementtimesweregenerallylaterthantherelatedexpectedoperationalmilestoneachievementtimes.Therefore,whenmarketcapitalizationmilestonesareachievedearlierthanoriginallyforecasted,forexampleduetoperiodsofrapidstockpriceappreciation,thishasresulted,andmayresultinthefuture,inhighercatch-upexpensesandtheremainingexpensesbeingrecognizedovershorterperiodsoftimeatahigherper-quarterrate.Duringthefirstquarterof2021,allremainingmarketcapitalizationmilestonesexceptforthemilestonerelatingto$650.0billionwereachieved.
Duringthefirstquarterof2021,theoperationalmilestoneofannualizedrevenueof$55.0billionbecameprobableofbeingachievedandconsequently,werecognizedacatch-upexpenseof$116million.
AsofMarch31,2021,wehad$129millionoftotalunrecognizedstock-basedcompensationexpensefortheoperationalmilestonesthatwereconsideredprobableofachievement,whichwillberecognizedoveraweighted-averageperiodof0.9years.AsofMarch31,2021,wehadunrecognizedstock-basedcompensationexpenseof$548millionfortheoperationalmilestonesthatwereconsiderednotprobableofachievement.ForthethreemonthsendedMarch31,2021and2020werecordedstock-basedcompensationexpenseof$299millionand$66millionrelatedtothe2018CEOPerformanceAward,respectively.
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SummaryStock-BasedCompensationInformationThefollowingtablesummarizesourstock-basedcompensationexpensebylineitemintheconsolidatedstatementsofoperations(inmillions):
ThreeMonthsEndedMarch31,
2021 2020 Costofrevenues $ 103 $ 33 Researchanddevelopment 125 65 Selling,generalandadministrative 386 113 Total $ 614 $ 211
Ourincometaxbenefitsrecognizedfromstock-basedcompensationarrangementsineachoftheperiodspresentedwereimmaterialdueto
cumulativelossesandvaluationallowances.
Note12–CommitmentsandContingenciesOperatingLeaseArrangementinBuffalo,NewYork
WehaveanoperatingleasethroughtheResearchFoundationfortheStateUniversityofNewYork(the“SUNYFoundation”)withrespecttoGigafactoryNewYork.Undertheleaseandarelatedresearchanddevelopmentagreement,wearecontinuingtofurtherdevelopthefacility.
Underthisagreement,weareobligatedto,amongotherthings,meetemploymenttargetsaswellasspecifiedminimumnumbersofpersonnelintheStateofNewYorkandinBuffalo,NewYorkandspendorincur$5.00billionincombinedcapital,operationalexpenses,costsofgoodssoldandothercostsintheStateofNewYorkduringthe10-yearperiodbeginningApril30,2018.Onanannualbasisduringtheinitialleaseterm,asmeasuredoneachanniversaryofsuchdate,ifwefailtomeetthesespecifiedinvestmentandjobcreationrequirements,thenwewouldbeobligatedtopaya$41million“programpayment”totheSUNYFoundationforeachyearthatwefailtomeettheserequirements.Furthermore,ifthearrangementisterminatedduetoamaterialbreachbyus,thenadditionalamountsmaybecomepayablebyus.
AswetemporarilysuspendedmostofourmanufacturingoperationsatGigafactoryNewYorkpursuanttoaNewYorkStateexecutiveorderissuedinMarch2020asaresultoftheCOVID-19pandemic,weweregrantedaone-yeardeferralofourobligationtobecompliantwithourapplicabletargetsundersuchagreementonApril30,2020,whichwasmemorializedinanamendmenttoouragreementwiththeSUNYFoundationinJuly2020.InApril2021,weweregrantedanadditionaldeferralthroughDecember31,2021subjectonlytomemorializationinwritingbyusandtheSUNYFoundation,asouroperationsatGigafactoryNewYorkhavenotyetfullyrampedduetoanumberoffactorsrelatedtothepandemic.GiventhatwewouldhavemetalltargetsoriginallyrequiredasofApril30,2020iftheyhadbeenmeasuredpriortothemandatedreductionofoperationsinMarch2020,andwearecurrentlyinexcessofsuchtargetsrelatingtoinvestmentsandpersonnelintheStateofNewYork,wedonotcurrentlyexpectanyissuesmeetingourapplicableobligationsfollowingthisexpecteddeferralorintheyearsbeyond.However,ifourexpectationsastothecostsandtimelinesofourinvestmentandoperationsatBuffaloorourproductionrampoftheSolarRoofproveincorrect,wemayincuradditionalexpensesorsubstantialpaymentstotheSUNYFoundation.
OperatingLeaseArrangementinShanghai,ChinaWehaveanoperatingleasearrangementforaninitialtermof50yearswiththelocalgovernmentofShanghaiforlanduserightswhereweare
constructingGigafactoryShanghai.Underthetermsofthearrangement,wearerequiredtospendRMB14.08billionincapitalexpendituresbytheendof2023,andtogenerateRMB2.23billionofannualtaxrevenuesstartingattheendof2023.Ifweareunwillingorunabletomeetsuchtargetorobtainperiodicprojectapprovals,inaccordancewiththeChinesegovernment’sstandardtermsforsucharrangements,wewouldberequiredtorevertthesitetothelocalgovernmentandreceivecompensationfortheremainingvalueofthelandlease,buildingsandfixtures.Webelievethecapitalexpenditurerequirementandthetaxrevenuetargetwillbeattainableevenifouractualvehicleproductionwasfarlowerthanthevolumesweareforecasting.
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LegalProceedingsLitigationRelatingtotheSolarCityAcquisition
BetweenSeptember1,2016andOctober5,2016,sevenlawsuitswerefiledintheDelawareCourtofChancerybypurportedstockholdersofTeslachallengingouracquisitionofSolarCityCorporation(“SolarCity”).Followingconsolidation,thelawsuitnamesasdefendantsthemembersofTesla’sboardofdirectorsasthenconstitutedandalleges,amongotherthings,thatboardmembersbreachedtheirfiduciarydutiesinconnectionwiththeacquisition.Thecomplaintassertsbothderivativeclaimsanddirectclaimsonbehalfofapurportedclassandseeks,amongotherrelief,unspecifiedmonetarydamages,attorneys’fees,andcosts.OnJanuary27,2017,defendantsfiledamotiontodismisstheoperativecomplaint.Ratherthanrespondtothedefendants’motion,theplaintiffsfiledanamendedcomplaint.OnMarch17,2017,defendantsfiledamotiontodismisstheamendedcomplaint.OnDecember13,2017,theCourtheardoralargumentonthemotion.OnMarch28,2018,theCourtdenieddefendants’motiontodismiss.Defendantsfiledarequestforinterlocutoryappeal,andtheDelawareSupremeCourtdeniedthatrequestwithoutrulingonthemeritsbutelectingnottohearanappealatthisearlystageofthecase.DefendantsfiledtheiransweronMay18,2018,andmediationswereheldonJune10,2019.PlaintiffsanddefendantsfiledrespectivemotionsforsummaryjudgmentonAugust25,2019,andfurthermediationswereheldonOctober3,2019.TheCourtheldahearingonthemotionsforsummaryjudgmentonNovember4,2019.OnJanuary22,2020,allofthedirectordefendantsexceptElonMuskreachedasettlementtoresolvethelawsuitagainstthemforanamounttobepaidentirelyundertheapplicableinsurancepolicy.Thesettlement,whichdoesnotinvolveanadmissionofanywrongdoingbyanyparty,wasapprovedbytheCourtonAugust17,2020.Teslareceivedpaymentofapproximately$43milliononSeptember16,2020,whichhasbeenrecognizedinourconsolidatedstatementofoperationsasareductiontoSelling,generalandadministrativeoperatingexpensesforcostspreviouslyincurredrelatedtotheacquisitionofSolarCity.OnFebruary4,2020,theCourtissuedarulingthatdeniedplaintiffs’previously-filedmotionforsummaryjudgmentandgrantedinpartanddeniedinpartdefendants’previously-filedmotionforsummaryjudgment.Factandexpertdiscoveryiscomplete,andthecasewassetfortrialinMarch2020untilitwaspostponedbytheCourtduetosafetyprecautionsconcerningCOVID-19.ThecurrentdatesforthetrialarefromJuly12toJuly23,2021,subjecttochangebasedonanyfurthersafetymeasuresimplementedbytheCourt.
TheseplaintiffsandothersfiledparallelactionsintheU.S.DistrictCourtfortheDistrictofDelawareonoraboutApril21,2017.TheyincludeclaimsforviolationsofthefederalsecuritieslawsandbreachoffiduciarydutiesbyTesla’sboardofdirectors.Thoseactionshavebeenconsolidatedandstayedpendingtheabove-referencedChanceryCourtlitigation.
SecuritiesLitigationRelatingtoProductionofModel3VehiclesOnOctober10,2017,apurportedstockholderclassactionwasfiledintheU.S.DistrictCourtfortheNorthernDistrictofCaliforniaagainstTesla,
twoofitscurrentofficersandaformerofficer.ThecomplaintallegesviolationsoffederalsecuritieslawsandseeksunspecifiedcompensatorydamagesandotherreliefonbehalfofapurportedclassofpurchasersofTeslasecuritiesfromMay4,2016toOctober6,2017.ThelawsuitclaimsthatTeslasupposedlymademateriallyfalseandmisleadingstatementsregardingTesla’spreparednesstoproduceModel3vehicles.PlaintiffsfiledanamendedcomplaintonMarch23,2018,anddefendantsfiledamotiontodismissonMay25,2018.Thecourtgranteddefendants’motiontodismisswithleavetoamend.PlaintiffsfiledtheiramendedcomplaintonSeptember28,2018,anddefendantsfiledamotiontodismisstheamendedcomplaintonFebruary15,2019.ThehearingonthemotiontodismisswasheldonMarch22,2019,andonMarch25,2019,theCourtruledinfavorofdefendantsanddismissedthecomplaintwithprejudice.OnApril8,2019,plaintiffsfiledanoticeofappealtotheU.S.CourtofAppealsfortheNinthCircuit(“NinthCircuit”)andonJuly17,2019filedtheiropeningbrief.WefiledouroppositiononSeptember16,2019,andplaintiffsfiledtheirreplyonOctober8,2019.Ahearingontheappealwasheldbeforeathree-judgepanelonApril30,2020.OnJanuary26,2021,thepanelaffirmedtheDistrictCourt’sdismissalofthecomplaintwithprejudice.OnMarch5,2021,theNinthCircuitdeniedplaintiffs’requestforarehearingbeforethefullcourt,andamandateissuedonMarch16,2021.
OnOctober26,2018,inasimilaraction,apurportedstockholderclassactionwasfiledintheSuperiorCourtofCaliforniainSantaClaraCountyagainstTesla,ElonMuskandseveninitialpurchasersinanofferingofdebtsecuritiesbyTeslainAugust2017.ThecomplaintallegesmisrepresentationsmadebyTeslaregardingthenumberofModel3vehiclesTeslaexpectedtoproducebytheendof2017inconnectionwithsuchofferingandseeksunspecifiedcompensatorydamagesandotherreliefonbehalfofapurportedclassofpurchasersofTeslasecuritiesinsuchoffering.Teslathereafterremovedthecasetofederalcourt.OnJanuary22,2019,plaintiffabandoneditsefforttoproceedinstatecourt,insteadfilinganamendedcomplaintagainstTesla,ElonMuskandseveninitialpurchasersinthedebtofferingbeforethesamejudgeintheU.S.DistrictCourtfortheNorthernDistrictofCaliforniawhoishearingtheabove-referencedearlier-filedfederalcase.OnFebruary5,2019,theCourtstayedthisnewcasependingarulingonthemotiontodismissthecomplaintintheearlier-filedfederalcase.Aftersuchearlier-filedfederalcasewasdismissed,defendantsfiledamotiononJuly2,2019todismissthiscaseaswell.ThecasewasthenstayedpendingarulingfromtheNinthCircuitontheearlier-filedfederalcase,withanagreementthatifdefendantsprevailedontheappeal,plaintiffswoulddismissthelater-filedcase.FollowingtheNinthCircuit’saffirmancediscussedabove,theplaintiffsdismissedthelater-filedcasewithprejudiceonApril15,2021.
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LitigationRelatingto2018CEOPerformanceAwardOnJune4,2018,apurportedTeslastockholderfiledaputativeclassandderivativeactionintheDelawareCourtofChanceryagainstElonMusk
andthemembersofTesla’sboardofdirectorsasthenconstituted,allegingcorporatewaste,unjustenrichmentandthatsuchboardmembersbreachedtheirfiduciarydutiesbyapprovingthestock-basedcompensationplan.Thecomplaintseeks,amongotherthings,monetarydamagesandrescissionorreformationofthestock-basedcompensationplan.OnAugust31,2018,defendantsfiledamotiontodismissthecomplaint;plaintifffileditsoppositionbriefonNovember1,2018;anddefendantsfiledareplybriefonDecember13,2018.ThehearingonthemotiontodismisswasheldonMay9,2019.OnSeptember20,2019,theCourtgrantedthemotiontodismissastothecorporatewasteclaimbutdeniedthemotionastothebreachoffiduciarydutyandunjustenrichmentclaims.OuranswerwasfiledonDecember3,2019,andtrialissetforApril2022.Factdiscoveryisongoing.
LitigationRelatedtoDirectors’CompensationOnJune17,2020,apurportedTeslastockholderfiledaderivativeactionintheDelawareCourtofChancery,purportedlyonbehalfofTesla,
againstcertainofTesla’scurrentandformerdirectorsregardingcompensationawardsgrantedtoTesla’sdirectors,otherthanElonMusk,between2017and2020.Thesuitassertsclaimsforbreachoffiduciarydutyandunjustenrichmentandseeksdeclaratoryandinjunctiverelief,unspecifieddamagesandotherrelief.DefendantsfiledtheiransweronSeptember17,2020.TrialissetforSeptember2022,andfactdiscoveryisongoing.
LitigationRelatingtoPotentialGoingPrivateTransactionBetweenAugust10,2018andSeptember6,2018,ninepurportedstockholderclassactionswerefiledagainstTeslaandElonMuskinconnection
withMr.Musk’sAugust7,2018TwitterpostthathewasconsideringtakingTeslaprivate.AllofthesuitsarenowpendingintheU.S.DistrictCourtfortheNorthernDistrictofCalifornia.Althoughthecomplaintsvaryincertainrespects,theyeachpurporttoassertclaimsforviolationsoffederalsecuritieslawsrelatedtoMr.Musk’sstatementandseekunspecifiedcompensatorydamagesandotherreliefonbehalfofapurportedclassofpurchasersofTesla’ssecurities.PlaintiffsfiledtheirconsolidatedcomplaintonJanuary16,2019andaddedasdefendantsthemembersofTesla’sboardofdirectors.Thenow-consolidatedpurportedstockholderclassactionwasstayedwhiletheissueofselectionofleadcounselwasbriefedandarguedbeforetheNinthCircuit.TheNinthCircuitruledregardingleadcounsel.DefendantsfiledamotiontodismissthecomplaintonNovember22,2019.ThehearingonthemotionwasheldonMarch6,2020.OnApril15,2020,theCourtdenieddefendants’motiontodismiss.Thepartiesstipulatedtocertificationofaclassofstockholders,whichthecourtgrantedonNovember25,2020.TrialissetforMay2022.
BetweenOctober17,2018andMarch8,2021,sevenderivativelawsuitswerefiledintheDelawareCourtofChancery,purportedlyonbehalfofTesla,againstMr.MuskandthemembersofTesla’sboardofdirectors,asconstitutedatrelevanttimes,inrelationtostatementsmadeandactionsconnectedtoapotentialgoingprivatetransaction,withcertainofthelawsuitschallengingadditionalTwitterpostsbyMr.Musk,amongotherthings.Fiveofthoseactionswereconsolidated,andallsevenactionshavebeenstayedpendingresolutionoftheabove-referencedconsolidatedpurportedstockholderclassaction.Inadditiontothesecases,twoderivativelawsuitswerefiledonOctober25,2018andFebruary11,2019intheU.S.DistrictCourtfortheDistrictofDelaware,purportedlyonbehalfofTesla,againstMr.MuskandthemembersoftheTeslaboardofdirectorsasthenconstituted.Thosecaseshavealsobeenconsolidatedandstayedpendingresolutionoftheabove-referencedconsolidatedpurportedstockholderclassaction.
Unlessotherwisestated,theindividualdefendantsnamedinthestockholderproceedingsdescribedaboveandtheCompanywithrespecttothestockholderclassactionproceedingsdescribedabovebelievethattheclaimsinsuchproceedingshavenomeritandintendtodefendagainstthemvigorously.Weareunabletoestimatethepossiblelossorrangeofloss,ifany,associatedwiththeseclaims.
CertainInvestigationsandOtherMattersWereceiverequestsforinformationfromregulatorsandgovernmentalauthorities,suchastheNationalHighwayTrafficSafetyAdministration,the
NationalTransportationSafetyBoard,theSEC,theDepartmentofJustice(“DOJ”)andvariousstate,federal,andinternationalagencies.Weroutinelycooperatewithsuchregulatoryandgovernmentalrequests.
Inparticular,theSEChadissuedsubpoenastoTeslainconnectionwith(a)ElonMusk’spriorstatementthathewasconsideringtakingTeslaprivateand(b)certainprojectionsthatwemadeforModel3productionratesduring2017andotherpublicstatementsrelatingtoModel3production.Thetake-privateinvestigationwasresolvedandclosedwithasettlemententeredintowiththeSECinSeptember2018andasfurtherclarifiedinApril2019inanamendment.OnDecember4,2019,theSEC(i)closedtheinvestigationintotheprojectionsandotherpublicstatementsregardingModel3productionratesand(ii)issuedasubpoenaseekinginformationconcerningcertainfinancialdataandcontractsincludingTesla’sregularfinancingarrangements.Separately,theDOJhadalsoaskedustovoluntarilyprovideitwithinformationabouttheabovemattersrelatedtotakingTeslaprivateandModel3productionrates.
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Asidefromthesettlement,asamended,withtheSECrelatingtoMr.Musk’sstatementthathewasconsideringtakingTeslaprivate,therehavenotbeenanydevelopmentsinthesemattersthatwedeemtobematerial,andtoourknowledgenogovernmentagencyinanyongoinginvestigationhasconcludedthatanywrongdoingoccurred.Asisournormalpractice,wehavebeencooperatingandwillcontinuetocooperatewithgovernmentauthorities.Wecannotpredicttheoutcomeorimpactofanyongoingmatters.Shouldthegovernmentdecidetopursueanenforcementaction,thereexiststhepossibilityofamaterialadverseimpactonourbusiness,resultsofoperation,prospects,cashflowsandfinancialposition.
Wearealsosubjecttovariousotherlegalproceedingsandclaimsthatarisefromthenormalcourseofbusinessactivities.Ifanunfavorablerulingordevelopmentweretooccur,thereexiststhepossibilityofamaterialadverseimpactonourbusiness,resultsofoperations,prospects,cashflows,financialpositionandbrand.
IndemnificationandGuaranteedReturnsWearecontractuallyobligatedtocompensatecertainfundinvestorsforanylossesthattheymaysufferincertainlimitedcircumstancesresulting
fromreductionsininvestmenttaxcreditsclaimedunderU.S.federallawsfortheinstallationofsolarpowerfacilitiesandenergystoragesystemsthatarechargedfromaco-sitedsolarpowerfacility(“ITC”s).Generally,suchobligationswouldariseasaresultofreductionstothevalueoftheunderlyingsolarenergysystemsasassessedbytheU.S.InternalRevenueService(the“IRS”)forpurposesofclaimingITCs.Foreachbalancesheetdate,weassessandrecognize,whenapplicable,adistributionpayableforthepotentialexposurefromthisobligationbasedonalltheinformationavailableatthattime,includinganyauditsundertakenbytheIRS.Webelievethatanypaymentstothefundinvestorsinexcessoftheamountsalreadyrecognizedbyusforthisobligationarenotprobableormaterialbasedonthefactsknownatthefilingdate.
ThemaximumpotentialfuturepaymentsthatwecouldhavetomakeunderthisobligationwoulddependonthedifferencebetweenthefairvaluesofthesolarenergysystemssoldortransferredtothefundsasdeterminedbyusandthevaluesthattheIRSwoulddetermineasthefairvalueforthesystemsforpurposesofclaimingITCs.WeclaimITCsbasedonguidelinesprovidedbytheU.S.TreasurydepartmentandthestatutoryregulationsfromtheIRS.Weusefairvaluesdeterminedwiththeassistanceofindependentthird-partyappraisalscommissionedbyusasthebasisfordeterminingtheITCsthatarepassed-throughtoandclaimedbythefundinvestors.SincewecannotdetermineexactlyhowtheIRSwillevaluatesystemvaluesusedinclaimingITCs,weareunabletoreliablyestimatethemaximumpotentialfuturepaymentsthatitcouldhavetomakeunderthisobligationasofeachbalancesheetdate.
Weareeligibletoreceivecertainstateandlocalincentivesthatareassociatedwithrenewableenergygeneration.Theamountofincentivesthatcanbeclaimedisbasedontheprojectedoractualsolarenergysystemsizeand/ortheamountofsolarenergyproduced.Wealsocurrentlyparticipateinonestate’sincentiveprogramthatisbasedoneitherthefairmarketvalueorthetaxbasisofsolarenergysystemsplacedinservice.Stateandlocalincentivesreceivedareallocatedbetweenusandfundinvestorsinaccordancewiththecontractualprovisionsofeachfund.Wearenotcontractuallyobligatedtoindemnifyanyfundinvestorforanylossestheymayincurduetoashortfallintheamountofstateorlocalincentivesactuallyreceived.
Note13–VariableInterestEntityArrangements
Wehaveenteredintovariousarrangementswithinvestorstofacilitatethefundingandmonetizationofoursolarenergysystemsandvehicles.Inparticular,ourwhollyownedsubsidiariesandfundinvestorshaveformedandcontributedcashandassetsintovariousfinancingfundsandenteredintorelatedagreements.Wehavedeterminedthatthefundsarevariableinterestentities(“VIEs”)andwearetheprimarybeneficiaryoftheseVIEsbyreferencetothepowerandbenefitscriterionunderASC810,Consolidation.Wehaveconsideredtheprovisionswithintheagreements,whichgrantusthepowertomanageandmakedecisionsthataffecttheoperationoftheseVIEs,includingdeterminingthesolarenergysystemsorvehiclesandtheassociatedcustomercontractstobesoldorcontributedtotheseVIEs,redeployingsolarenergysystemsorvehiclesandmanagingcustomerreceivables.Weconsiderthattherightsgrantedtothefundinvestorsundertheagreementsaremoreprotectiveinnatureratherthanparticipating.
AstheprimarybeneficiaryoftheseVIEs,weconsolidateinthefinancialstatementsthefinancialposition,resultsofoperationsandcashflowsoftheseVIEs,andallintercompanybalancesandtransactionsbetweenusandtheseVIEsareeliminatedintheconsolidatedfinancialstatements.Cashdistributionsofincomeandotherreceiptsbyafund,netofagreeduponexpenses,estimatedexpenses,taxbenefitsanddetrimentsofincomeandlossandtaxcredits,areallocatedtothefundinvestorandoursubsidiaryasspecifiedintheagreements.
Generally,oursubsidiaryhastheoptiontoacquirethefundinvestor’sinterestinthefundforanamountbasedonthemarketvalueofthefundortheformulaspecifiedintheagreements.
Uponthesaleorliquidationofafund,distributionswouldoccurintheorderandpriorityspecifiedintheagreements.26
Pursuanttomanagementservices,maintenanceandwarrantyarrangements,wehavebeencontractedtoprovideservicestothefunds,suchasoperationsandmaintenancesupport,accounting,leaseservicingandperformancereporting.Insomeinstances,wehaveguaranteedpaymentstothefundinvestorsasspecifiedintheagreements.Afund’screditorshavenorecoursetoourgeneralcreditortothatofotherfunds.Noneoftheassetsofthefundshadbeenpledgedascollateralfortheirobligations.
TheaggregatecarryingvaluesoftheVIEs’assetsandliabilities,aftereliminationofanyintercompanytransactionsandbalances,intheconsolidatedbalancesheetswereasfollows(inmillions):
March31, December31, 2021 2020
Assets Currentassets Cashandcashequivalents $ 78 $ 87 Accountsreceivable,net 35 28 Prepaidexpensesandothercurrentassets 124 105 Totalcurrentassets 237 220
Solarenergysystems,net 4,709 4,749 Othernon-currentassets 197 182
Totalassets $ 5,143 $ 5,151 Liabilities Currentliabilities Accruedliabilitiesandother $ 61 $ 63 Deferredrevenue 11 11 Customerdeposits 16 14 Currentportionofdebtandfinanceleases 957 797 Totalcurrentliabilities 1,045 885
Deferredrevenue,netofcurrentportion 169 168 Debtandfinanceleases,netofcurrentportion 2,062 1,346 Otherlong-termliabilities 17 19
Totalliabilities $ 3,293 $ 2,418 Note14–SegmentReportingandInformationaboutGeographicAreas
Wehavetwooperatingandreportablesegments:(i)automotiveand(ii)energygenerationandstorage.Theautomotivesegmentincludesthedesign,development,manufacturing,sales,andleasingofelectricvehiclesaswellassalesofautomotiveregulatorycredits.Additionally,theautomotivesegmentisalsocomprisedofservicesandother,whichincludesnon-warrantyafter-salesvehicleservices,salesofusedvehicles,retailmerchandise,salesbyouracquiredsubsidiariestothirdpartycustomers,andvehicleinsurancerevenue.Theenergygenerationandstoragesegmentincludesthedesign,manufacture,installation,sales,andleasingofsolarenergygenerationandenergystorageproductsandrelatedservicesandsalesofsolarenergysystemsincentives.OurCODMdoesnotevaluateoperatingsegmentsusingassetorliabilityinformation.Thefollowingtablepresentsrevenuesandgrossprofitbyreportablesegment(inmillions):
ThreeMonthsEndedMarch31, 2021 2020 Automotivesegment Revenues $ 9,895 $ 5,692 Grossprofit $ 2,316 $ 1,223
Energygenerationandstoragesegment Revenues $ 494 $ 293 Grossprofit $ (101 ) $ 11
Thefollowingtablepresentsrevenuesbygeographicareabasedonthesaleslocationofourproducts(inmillions):
ThreeMonthsEndedMarch31, 2021 2020
UnitedStates $ 4,424 $ 2,768 China 3,043 900 Other 2,922 2,317 Total $ 10,389 $ 5,985
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Thefollowingtablepresentslong-livedassetsbygeographicarea(inmillions):
March31, December31,
2021 2020 UnitedStates $ 16,650 $ 15,989 International 3,151 2,737 Total $ 19,801 $ 18,726
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ITEM2.MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONSThefollowingdiscussionandanalysisshouldbereadinconjunctionwiththeconsolidatedfinancialstatementsandtherelatednotesincluded
elsewhereinthisQuarterlyReportonForm10-Q.
OverviewOurmissionistoacceleratetheworld’stransitiontosustainableenergy.Wedesign,develop,manufacture,leaseandsellhigh-performancefully
electricvehicles,solarenergygenerationsystemsandenergystorageproducts.Wealsooffermaintenance,installation,operation,financialandotherservicesrelatedtoourproducts.
In2021,wehaveproduced180,338vehiclesanddelivered184,877vehiclesthroughthefirstquarter.Wearecurrentlyfocusedonincreasingvehicleproductionandcapacity,improvinganddevelopingandbatterytechnologies,increasingtheaffordabilityandefficiencyofourvehicles,expandingourglobalinfrastructureandintroducingournextvehicles.
In2021,wehavedeployed445GWhofenergystorageproductsand92megawattsofsolarenergysystemsthroughthefirstquarter.Wearecurrentlyfocusedonrampingproductionofenergystorageproducts,improvingourSolarRoofinstallationcapabilityandefficiencyandincreasingmarketshareofretrofitsolarenergysystems.
DuringthethreemonthsendedMarch31,2021,werecognizedtotalrevenuesof$10.39billion,representinganincreaseof$4.40billionoverthethreemonthsendedMarch31,2020.Wecontinuetorampproduction,buildnewmanufacturingcapacityandexpandouroperationstoenableincreaseddeliveriesanddeploymentsofourproductsandfurtherrevenuegrowth.
DuringthethreemonthsendedMarch31,2021,ournetincomeattributabletocommonstockholderswas$438million,representingafavorablechangeof$422millionoverthethreemonthsendedMarch31,2020.Wecontinuetofocusonoperationalefficiencies,whilewehaveseenanaccelerationofnon-cashstock-basedcompensationexpenseduetoarapidincreaseinourmarketcapitalizationandupdatestoourbusinessoutlook.
Weendedthefirstquarterof2021with$17.14billionincashandcashequivalents,representingadecreaseof$2.24billionfromtheendof2020.OurcashflowsprovidedbyoperatingactivitiesduringthethreemonthperiodendedMarch31,2021was$1.64billion,representingafavorablechangeof$2.08billioncomparedtoourcashflowsusedinoperatingactivitiesduringtheperiodendedMarch31,2020of$440million,andcapitalexpendituresamountedto$1.35billionduringthethreemonthperiodendedMarch31,2021,comparedto$455millionduringthesameperiodendedMarch31,2020.Sustainedgrowthhasallowedourbusinesstogenerallyfunditself,butwewillcontinueanumberofcapital-intensiveprojectsinupcomingperiods.
ManagementOpportunities,ChallengesandRisksImpactofCOVID-19Pandemic
Beginninginthefirstquarterof2021,therehasbeenatrendinmanypartsoftheworldofincreasingavailabilityandadministrationofvaccinesagainstCOVID-19,aswellasaneasingofrestrictionsonsocial,business,travelandgovernmentactivitiesandfunctions.Ontheotherhand,infectionratesandregulationscontinuetofluctuateinvariousregionsandthereareongoingglobalimpactsresultingfromthepandemic,includingchallengesandincreasesincostsforlogisticsandsupplychains,suchasincreasedportcongestion,intermittentsupplierdelaysandashortfallofmicrochipsupply.Wehavealsopreviouslybeenaffectedbytemporarymanufacturingclosures,employmentandcompensationadjustments,andimpedimentstoadministrativeactivitiessupportingourproductdeliveriesanddeployments.
Ultimately,wecannotpredictthedurationoftheCOVID-19pandemic.Wewillcontinuetomonitormacroeconomicconditionstoremainflexible
andtooptimizeandevolveourbusinessasappropriate,andwewillhavetoaccuratelyprojectdemandandinfrastructurerequirementsgloballyanddeployourproduction,workforceandotherresourcesaccordingly.
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Automotive—ProductionThefollowingisasummaryofthestatusofproductionofeachofourannouncedvehiclemodelsinproductionandunderdevelopment,asofthe
dateofthisQuarterlyReportonForm10-Q:
ProductionLocation VehicleModel(s) ProductionStatusFremontFactory ModelS/ModelX Active
Model3/ModelY ActiveGigafactoryShanghai Model3/ModelY ActiveGigafactoryBerlin ModelY ConstructingmanufacturingfacilitiesGigafactoryTexas ModelY Constructingmanufacturingfacilities
Cybertruck IndevelopmentTBD TeslaSemi Indevelopment
TeslaRoadster IndevelopmentWeinstalledandtestedthemanufacturingequipmentforournewversionsofModelSandModelXinthefirstquarterof2021andweareinthe
earlystagesoframpingproduction.WearefocusedonrampingthesemodelsandModelYtoatleasttheirinstalledproductioncapacities.WehavealsoworkedtoincreaselocalizationatGigafactoryShanghaibyintroducingdriveunitmanufacturingandModelYone-piececastingthere.ThenextphaseofproductiongrowthwilldependontheconstructionofGigafactoryBerlinandGigafactoryTexas,eachofwhichisprogressingasplannedforproductionanddeliveriesbeginninginlate2021,andwherewewillalsoaddtoouravailablesourcesofbatterycellsupplybymanufacturingourowncellsthatwearedevelopingtohavehigh-volumeoutput,lowercapitalandproductioncostsandlongerrange.Consistentwithourapproachofinnovatingatnewfactories,weexpecttopioneertherethemassproductionofthesecellsandouruniquestructuralbatterypackconcept.Ourgoalsaretoimprovevehicleperformance,decreaseproductioncostsandincreaseaffordability.
However,theseplansaresubjecttouncertaintiesinherentinestablishingandrampingmanufacturingoperations,whichmaybeexacerbatedbythenumberofconcurrentinternationalprojectsandanyfutureimpactfromeventsoutsideofourcontrolsuchastheCOVID-19pandemicandanyindustry-widecomponentconstraints.Moreover,wemustmeetambitioustechnologicaltargetswithourplansforbatterycellsaswellasforiterativemanufacturinganddesignimprovementsforourvehicleswitheachnewfactory.
Automotive—DemandandSalesOurcostreductioneffortsandadditionallocalizedprocurementandmanufacturingarekeytoourvehicles’affordability,andforexamplehave
allowedustocompetitivelypriceourvehiclesinChina.Inadditiontoopeningnewfactoriesin2021,wewillalsocontinuetogeneratedemandandbrandawarenessbyimprovingourvehicles’performanceandfunctionality,includingAutopilot,FSDandsoftwarefeatures,andintroducinganticipatedfuturevehicles.Moreover,weexpecttobenefitfromongoingelectrificationoftheautomotivesectorandincreasingenvironmentalawareness.
However,weoperateinacyclicalindustrythatissensitivetotrade,environmentalandpoliticaluncertainty,allofwhichmayalsobecompoundedbyanyfutureglobalimpactfromtheCOVID-19pandemic.Moreover,asadditionalcompetitorsenterthemarketplaceandhelpbringtheworldclosertosustainabletransportation,wewillhavetocontinuetoexecutewelltomaintainourmomentum.
Automotive—DeliveriesandCustomerInfrastructure
Asourdeliveriesincrease,wemustworkconstantlytopreventourvehicledeliverycapabilityfrombecomingabottleneckonourtotaldeliveries.IncreasingtheexportsofvehiclesmanufacturedatGigafactoryShanghaihasbeeneffectiveinmitigatingthestrainonourdeliveries,andweexpecttobenefitfurtherfromsituatingadditionalfactoriesclosertolocalmarkets.Inanycase,asweexpand,wewillhavetocontinuetoincreaseandstaffourdelivery,servicingandcharginginfrastructure,maintainourvehiclereliabilityandoptimizeourSuperchargerlocationstoensurecost-effectivenessandcustomersatisfaction.Inparticular,weremainfocusedonincreasingthecapabilityandefficiencyofourservicingoperations.
EnergyGenerationandStorageDemand,ProductionandDeployment
Thelong-termsuccessofthisbusinessisdependentuponincreasingmarginsthroughgreatervolumes.Wecontinuetoincreasetheproductionofourenergystorageproductstomeethighlevelsofdemand.ForPowerwall,betteravailabilityandgrowinggridstabilityconcernsdrivehigherinterest,andweareemphasizingcross-sellingwithourresidentialsolarenergyproducts.Weremaincommittedtoincreasingourretrofitsolarenergybusinessbyofferingalow-costandsimplifiedonlineorderingexperience.Inaddition,wecontinuetoimproveourinstallationcapabilitiesforSolarRoofbyon-boardingandtrainingalargenumberofinstallersandreducingtheinstallationtimedramatically.Astheseproductlinesgrow,wewillhavetomaintainadequatebatterycellsupplyforourenergystorageproductsandhireadditionalpersonnel,particularlyskilledelectricianstosupporttherampofSolarRoof.
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CashFlowandCapitalExpenditureTrendsOurcapitalexpendituresaretypicallydifficulttoprojectbeyondtheshorttermgiventhenumberandbreadthofourcoreprojectsatanygiven
time,andmayfurtherbeimpactedbyuncertaintiesinfutureglobalmarketconditions.WearesimultaneouslyrampingnewproductsinthenewModelSandModelX,ModelYandSolarRoof,constructingorrampingmanufacturingfacilitiesonthreecontinentsandpilotingthedevelopmentandmanufactureofnewbatterycelltechnologies,andthepaceofourcapitalspendmayvarydependingonoverallpriorityamongprojects,thepaceatwhichwemeetmilestones,productionadjustmentstoandamongourvariousproducts,increasedcapitalefficienciesandtheadditionofnewprojects.Owingandsubjecttotheforegoingaswellasthepipelineofannouncedprojectsunderdevelopmentandallothercontinuinginfrastructuregrowth,wecurrentlyexpectourcapitalexpenditurestobe$4.50to$6.00billionin2021andeachofthenexttwofiscalyears.
Ourbusinesshasrecentlybeenconsistentlygeneratingcashflowfromoperationsinexcessofourlevelofcapitalspend,andwithbetterworkingcapitalmanagementresultinginshorterdayssalesoutstandingthandayspayableoutstanding,oursalesgrowthisalsofacilitatingpositivecashgeneration.Ontheotherhand,wearelikelytoseeheightenedlevelsofcapitalexpendituresduringcertainperiodsdependingonthespecificpaceofourcapital-intensiveprojects.Moreover,asourstockpricehassignificantlyincreasedrecently,wehaveseenhigherlevelsofearlyconversionsof“in-the-money”convertibleseniornotes,whichobligatesustodelivercashandorsharespursuanttothetermsofthosenotes.Overall,weexpectourabilitytobeself-fundingtocontinueaslongasmacroeconomicfactorssupportcurrenttrendsinoursales.
OperatingExpenseTrendsAslongasweseeexpandingsales,andexcludingthepotentialimpactofnon-cashstockcompensationexpenseattributabletothe2018CEO
PerformanceAwardandimpairmentchargesoncertainassetsasexplainedbelow,wegenerallyexpectoperatingexpensesrelativetorevenuestodecreaseasweadditionallyincreaseoperationalefficiencyandprocessautomation.
InMarch2018,ourstockholdersapprovedaperformance-basedstockoptionawardtoourCEO(the“2018CEOPerformanceAward”),consistingof12vestingtranchescontingentontheachievementofspecifiedmarketcapitalizationandoperationalmilestones.Weincurnon-cashstock-basedcompensationexpenseforeachtrancheonlyaftertherelatedoperationalmilestoneinitiallybecomesprobableofbeingachievedbasedonasubjectiveassessmentofourfuturefinancialperformance,andifthishappensfollowingthegrantdate,werecordatsuchtimeacumulativecatch-upexpensethatmaybesignificantbasedonthelengthoftimeelapsedfromthegrantdate.Moreover,theremainingexpenseforthattrancheisratablyrecordedovertheperiodremaininguntilthelaterof(i)theexpectedachievementoftherelevantoperationalmilestone(ifithasnotyetbeenachieved)and(ii)theexpectedachievementoftherelatedmarketcapitalizationmilestone(ifithasnotyetbeenachieved).Upontheachievementofbothmilestonesrelatedtoatranche,allremainingassociatedexpenseisrecognizedimmediately.Becausethemarketcapitalizationmilestoneachievementsweregenerallyexpectedtooccurlaterthantherelatedexpectedoperationalmilestoneachievements,theachievementoftheformerearlierthanexpectedmayincreasethemagnitudeofanycatch-upexpenseand/oracceleratetherateatwhichtheremainingexpenseisrecognized.Since2020,severaloperationalmilestoneshavebecomeprobableand/orhavebeenachievedandallmarketcapitalizationmilestonesexceptonehavebeenachieved,resultingintherecognitionoraccelerationofrelatedexpenseearlierthananticipatedandwithinarelativelyshortperiodoftime.SeeNote11,EquityIncentivePlans—2018CEOPerformanceAward,totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Qforfurtherdetailsregardingthestock-basedcompensationrelatingtothe2018CEOPerformanceAward.
Inthefirstquarterof2021,weinvestedanaggregate$1.50billioninbitcoinandbeganacceptingbitcoinasaformofpaymentforcertainofourproductsinspecifiedregions,subjecttoapplicablelaws.Digitalassetsareconsideredindefinite-livedintangibleassetsunderapplicableaccountingrules.Accordingly,anydecreaseintheirfairvaluesbelowourcarryingvaluesforsuchassetsatanytimesubsequenttotheiracquisitionwillrequireustorecognizeimpairmentcharges,whereaswemaymakenoupwardrevisionsforanymarketpriceincreasesuntilasale.Aswegenerallyintendtoholdtheseassetslong-term,thesechargesmaynegativelyimpactourprofitabilityintheperiodsinwhichsuchimpairmentsoccureveniftheoverallmarketvaluesoftheseassetsincrease.Forexample,inthefirstquarterof2021,werecordedapproximately$27millionofimpairmentlossesresultingfromchangestothecarryingvalueofourbitcoinandgainsof$128milliononcertainsalesofbitcoinbyus.
CriticalAccountingPoliciesandEstimatesTheconsolidatedfinancialstatementsarepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheU.S.(“GAAP”).The
preparationoftheconsolidatedfinancialstatementsrequiresustomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenues,costsandexpensesandrelateddisclosures.Webaseourestimatesonhistoricalexperience,asappropriate,andonvariousotherassumptionsthatwebelievetobereasonableunderthecircumstances.Changesintheaccountingestimatesarereasonablylikelytooccurfromperiodtoperiod.Accordingly,actualresultscoulddiffersignificantlyfromtheestimatesmadebyourmanagement.Weevaluateourestimatesandassumptionsonanongoingbasis.Totheextentthattherearematerialdifferencesbetweentheseestimatesandactualresults,ourfuturefinancialstatementpresentation,financialcondition,resultsofoperationsandcashflowsmaybeaffected.
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DuetotheCOVID-19pandemic,therehasbeenuncertaintyanddisruptionintheglobaleconomyandfinancialmarkets.Theestimatesusedfor,butnotlimitedto,determiningsignificanteconomicincentiveforresalevalueguaranteearrangements,salesreturnreserves,thecollectabilityofaccountsreceivable,inventoryvaluation,fairvalueoflong-livedassets,goodwill,fairvalueoffinancialinstruments,fairvalueandresidualvalueofoperatingleasevehiclesandsolarenergysystemssubjecttoleasescouldbeimpacted.WehaveassessedtheimpactandarenotawareofanyspecificeventsorcircumstancesthatrequiredanupdatetoourestimatesandassumptionsormateriallyaffectedthecarryingvalueofourassetsorliabilitiesasofthedateofissuanceofthisQuarterlyReportonForm10-Q.Theseestimatesmaychangeasneweventsoccurandadditionalinformationisobtained.Actualresultscoulddiffermateriallyfromtheseestimatesunderdifferentassumptionsorconditions.
Foradescriptionofourcriticalaccountingpoliciesandestimates,refertoPartII,Item7,CriticalAccountingPoliciesandEstimatesinourAnnualReportonForm10-KfortheyearendedDecember31,2020.TherehavebeennomaterialchangestoourcriticalaccountingpoliciesandestimatessinceourAnnualReportonForm10-KfortheyearendedDecember31,2020.
RecentAccountingPronouncements
SeeNote2,SummaryofSignificantAccountingPolicies,totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Q.
ResultsofOperationsEffectsofCOVID-19
Beginninginthefirstquarterof2021,therehasbeenatrendinmanypartsoftheworldofincreasingavailabilityandadministrationofvaccinesagainstCOVID-19,aswellasaneasingofrestrictionsonsocial,business,travelandgovernmentactivitiesandfunctions.Ontheotherhand,infectionratesandregulationscontinuetofluctuateinvariousregionsandthereareongoingglobalimpactsresultingfromthepandemic,includingchallengesandincreasesincostsforlogisticsandsupplychainissues,suchasashortfallofmicrochipsupply.
During2020,wewerealsoaffectedbytemporarymanufacturingclosures,employmentandcompensationadjustments,andimpedimentstoadministrativeactivitiessupportingourproductdeliveriesanddeployments.Ourtemporarysuspensionatourfactoriesresultedinidlecapacitychargesaswestillincurredfixedcostssuchasdepreciation,certainpayrollrelatedexpensesandpropertytaxes.AspartofourresponsestrategytothebusinessdisruptionsanduncertaintyaroundmacroeconomicconditionscausedbytheCOVID-19pandemic,weinstitutedcostreductioninitiativesacrossourbusinessgloballytobecommensuratetothescopeofouroperationswhiletheywerescaledbackinthefirsthalfof2020.Additionally,wesuspendednon-criticaloperatingspendandopportunisticallyrenegotiatedsupplierandvendorarrangements.Aspartofvariousgovernmentalresponsestothepandemicgrantedtocompaniesglobally,wereceivedcertainpayrollrelatedbenefitswhichhelpedtoreducetheimpactoftheCOVID-19pandemiconourfinancialresults.Suchpayrollrelatedbenefitsrelatedtoourdirectheadcounthavebeenprimarilynettedagainstourdisclosedidlecapacitychargesandtheymarginallyreducedouroperatingexpenses.Theimpactoftheidlecapacitychargesincurredduringthefirsthalfof2020werealmostentirelyoffsetbyourcostsavingsinitiativesandpayrollrelatedbenefits.Revenues
ThreeMonthsEndedMarch31, Change (Dollarsinmillions) 2021 2020 $ % Automotivesales $ 8,705 $ 4,893 $ 3,812 78%Automotiveleasing 297 239 58 24%Totalautomotiverevenues 9,002 5,132 3,870 75%
Servicesandother 893 560 333 59%
Totalautomotive&servicesandothersegmentrevenue 9,895 5,692 4,203 74%
Energygenerationandstoragesegmentrevenue 494 293 201 69%Totalrevenues $ 10,389 $ 5,985 $ 4,404 74%
Automotive&ServicesandOtherSegment
AutomotivesalesrevenueincludesrevenuesrelatedtocashdeliveriesofnewModelS,ModelX,Model3andModelYvehicles,includingaccesstoourSuperchargernetwork,internetconnectivity,FSDfeaturesandover-the-airsoftwareupdates,aswellassalesofregulatorycreditstootherautomotivemanufacturers.Cashdeliveriesarevehiclesthatarenotsubjecttoleaseaccounting.Ourrevenuefromregulatorycreditsfluctuatesdependingonwhenacontractisexecutedwithabuyerandwhenthecreditsaredelivered.
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Automotiveleasingrevenueincludestheamortizationofrevenueforvehiclesunderdirectoperatingleaseagreementsaswellasthosesoldwithresalevalueguaranteesaccountedforasoperatingleasesunderleaseaccounting.WebeganofferingdirectleasingforModelYvehiclesinthethirdquarterof2020.Additionally,automotiveleasingrevenueincludesdirectsales-typeleasingprogramswherewerecognizeallrevenueassociatedwiththesales-typeleaseupondeliverytothecustomer,whichweintroducedinvolumeduringthethirdquarterof2020.
Servicesandotherrevenueconsistsofnon-warrantyafter-salesvehicleservices,salesofusedvehicles,retailmerchandise,salesbyouracquiredsubsidiariestothirdpartycustomersandvehicleinsurancerevenue.
Automotivesalesrevenueincreased$3.81billion,or78%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoanincreaseof96,464Model3andModelYcashdeliveriesyearoveryearfromproductionrampingatbothGigafactoryShanghaiandtheFremontFactory.Therewasalsoanincreaseof$164millionfromadditionalsalesofregulatorycreditsto$518millioninthethreemonthsendedMarch31,2021.Theincreasesinautomotivesalesrevenuewerepartiallyoffsetbyadecreasefrom8,380fewerModelSandModelXcashdeliveriesataslightlylowercombinedaveragesellingpriceinthethreemonthsendedMarch31,2021comparedtothepriorperiodaswephaseouttheinventoryofoldermodelstogetreadyfortheintroductionoftheupdatedversions.Additionally,therewasadecreaseinthecombinedaveragesellingpriceofModel3andModelYprimarilyduetoahigherproportionofStandardRangevariantsinoursalesmixcomparedtothepriorperiod.
Automotiveleasingrevenueincreased$58million,or24%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoanincreaseincumulativevehiclesunderourdirectoperatingleaseprogramandtheintroductionofdirectsales-typeleasingprogramswhichwebeganofferinginvolumeduringthethirdquarterof2020wherewerecognizeallrevenueassociatedwiththesales-typeleaseupondeliverytothecustomer.Theseincreaseswerepartiallyoffsetbythedecreasesinautomotiveleasingrevenueassociatedwithourresalevalueguaranteeleasingprogramsaccountedforasoperatingleasesasthoseportfolioshavedeclined.
Servicesandotherrevenueincreased$333million,or59%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoincreasesinusedvehiclerevenuedrivenbyanincreaseintrade-ins,non-warrantymaintenanceservicesrevenueasourfleetcontinuestogrowandretailmerchandiserevenue.
EnergyGenerationandStorageSegmentEnergygenerationandstoragerevenueincludessalesandleasingofsolarenergygenerationandenergystorageproducts,servicesrelatedto
suchproductsandsalesofsolarenergysystemsincentives.
Energygenerationandstoragerevenueincreasedby$201million,or69%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoincreasesindeploymentsofsolarcashandloanjobs,PowerwallandMegapack,partiallyoffsetbyreducedaveragesellingpricesonoursolarcashandloanjobsasaresultofourlowcostsolarstrategyintroducedmid-2020.
CostofRevenuesandGrossMargin ThreeMonthsEndedMarch31, Change (Dollarsinmillions) 2021 2020 $ % Costofrevenues Automotivesales $ 6,457 $ 3,699 $ 2,758 75%Automotiveleasing 160 122 38 31%
Totalautomotivecostofrevenues 6,617 3,821 2,796 73%Servicesandother 962 648 314 48%
Totalautomotive&servicesandothersegmentcostofrevenues
7,579 4,469 3,110 70%Energygenerationandstoragesegment 595 282 313 111%
Totalcostofrevenues $ 8,174 $ 4,751 $ 3,423 72%Grossprofittotalautomotive $ 2,385 $ 1,311 Grossmargintotalautomotive 26% 26% Grossprofittotalautomotive&servicesandothersegment
$ 2,316 $ 1,223
Grossmargintotalautomotive&servicesandothersegment
23% 21%
Grossprofitenergygenerationandstoragesegment $ (101 ) $ 11 Grossmarginenergygenerationandstoragesegment -20% 4% Totalgrossprofit $ 2,215 $ 1,234 Totalgrossmargin 21% 21%
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Automotive&ServicesandOtherSegment
Costofautomotivesalesrevenueincludesdirectparts,materialandlaborcosts,manufacturingoverhead,includingdepreciationcostsoftoolingandmachinery,shippingandlogisticcosts,vehicleconnectivitycosts,allocationsofelectricityandinfrastructurecostsrelatedtoourSuperchargernetworkandreservesforestimatedwarrantyexpenses.Costofautomotivesalesrevenuesalsoincludesadjustmentstowarrantyexpenseandchargestowritedownthecarryingvalueofourinventorywhenitexceedsitsestimatednetrealizablevalueandtoprovideforobsoleteandon-handinventoryinexcessofforecasteddemand.
Costofautomotiveleasingrevenueincludestheamortizationofoperatingleasevehiclesovertheleaseterm,costofgoodssoldassociatedwithdirectsales-typeleaseswhichwereintroducedinvolumeinthethirdquarterof2020,aswellaswarrantyexpensesrelatedtoleasedvehicles.CostofautomotiveleasingrevenuealsoincludesvehicleconnectivitycostsandallocationsofelectricityandinfrastructurecostsrelatedtoourSuperchargernetworkforvehiclesunderourleasingprograms.
Costofservicesandotherrevenueincludescostsassociatedwithprovidingnon-warrantyafter-salesservices,coststoacquireandcertifyusedvehicles,costsforretailmerchandise,andcoststoprovidevehicleinsurance.Costofservicesandotherrevenuealsoincludesdirectparts,materialandlaborcostsandmanufacturingoverheadassociatedwiththesalesbyouracquiredsubsidiariestothirdpartycustomers.
Costofautomotivesalesrevenueincreased$2.76billion,or75%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoanincreaseof96,464Model3andModelYcashdeliveries,partiallyoffsetbyadecreaseincombinedaverageModel3andModelYcostsperunitduetolowermaterial,manufacturing,freightanddutycostsfromlocalizedprocurementandmanufacturinginChina,ahighersalesmixofStandardRangetrimsandreductionsinModelYaveragecostsperunitascomparedtothepriorperiodduetotemporaryunder-utilizationofmanufacturingcapacityatlowerproductionvolumesduringourproductionrampinthefirsthalfof2020.Additionally,therewasadecreaseof8,380ModelSandModelXcashdeliveriesinthethreemonthsendedMarch31,2021comparedtothepriorperiod.
Costofautomotiveleasingrevenueincreased$38million,or31%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoanincreaseincumulativevehiclesunderourdirectoperatingleaseprogramandtheintroductionofdirectsales-typeleasingprogramswhichwebeganofferinginvolumeduringthethirdquarterof2020wherewerecognizeallcostofrevenueassociatedwiththesales-typeleaseupondeliverytothecustomer.Theseincreaseswerepartiallyoffsetbythedecreasesincostofautomotiveleaserevenueassociatedwithourresalevalueguaranteeleasingprogramswhichareaccountedforasoperatingleasesasthoseportfolioshavedeclined.
Costofservicesandotherrevenueincreased$314million,or48%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoincreasesinusedvehiclecostofrevenuedrivenbyanincreaseintrade-ins,coststosupportourincreaseinnon-warrantymaintenanceservicesrevenueandcostsofretailmerchandiseasoursaleshaveincreased.
Grossmarginfortotalautomotiveremainedrelativelyconsistentat26%inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020.TherewereincreasesfromimprovementsofModelYandModel3grossmarginsprimarilyfromlowermaterial,manufacturing,freightanddutycostsfromlocalizedprocurementandmanufacturinginChinaandreductionsinModelYaveragecostsperunitascomparedtothepriorperiodduetotemporaryunder-utilizationofmanufacturingcapacityatlowerproductionvolumesduringourproductionrampinthefirsthalfof2020.Additionally,therewasapositiveimpactfromanincreaseof$164millioninsalesofregulatorycredits.TheseincreaseswerepartiallyoffsetbyadecreaseinthecombinedaveragesellingpriceofModel3andModelYduetoahigherproportionofStandardRangevariantsinoursalesmixcomparedtothepriorperiod.
Grossmarginfortotalautomotive&servicesandothersegmentincreasedfrom21%to23%inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetotheautomotivegrossmarginimpactsdiscussedaboveandanimprovementinourservicesandothergrossmargin.Additionally,therewasalowerproportionofservicesandother,whichoperatedatalowergrossmarginthanourautomotivebusiness,withinthesegmentinthethreemonthsendedMarch31,2021ascomparedtothepriorperiod.
EnergyGenerationandStorageSegmentCostofenergygenerationandstoragerevenueincludesdirectandindirectmaterialandlaborcosts,warehouserent,freight,warrantyexpense,
otheroverheadcostsandamortizationofcertainacquiredintangibleassets.Costofenergygenerationandstoragerevenuealsoincludeschargestowritedownthecarryingvalueofourinventorywhenitexceedsitsestimatednetrealizablevalueandtoprovideforobsoleteandon-handinventoryinexcessofforecasteddemand.InagreementsforsolarenergysystemandPPAswherewearethelessor,thecostofrevenueisprimarilycomprisedofdepreciationofthecostofleasedsolarenergysystems,maintenancecostsassociatedwiththosesystemsandamortizationofanyinitialdirectcosts.
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Costofenergygenerationandstoragerevenueincreasedby$313million,or111%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoincreasesindeploymentsofsolarcashandloanjobs,SolarRoof,PowerwallandMegapackandincreasedservicemaintenancecostsonsolarenergysystemswherewearethelessor,partiallyoffsetbyreductionsinaveragecostsperunitofSolarRoofandsolarcashandloanjobsfromimprovedoverheadutilizationasdeploymentsincreased.AlthoughouraveragecostsperunitofSolarRoofimprovedcomparedtothepriorperiod,theystillremainsignificantandcontributedisproportionatelytoourcostofenergygenerationandstoragerevenue.
Grossmarginforenergygenerationandstoragedecreasedfrom4%to-20%inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020primarilyduetoahigherproportionofSolarRoofinouroverallenergybusinesswhichoperatedatlowergrossmarginsasaresultoftemporarymanufacturingunderutilizationduringproductramp,increasedservicemaintenancecostsonsolarenergysystemswherewearethelessorandlowergrossmarginsinourenergystoragebusinessaswearerampingMegapack.
ResearchandDevelopmentExpense
ThreeMonthsEndedMarch31, Change (Dollarsinmillions) 2021 2020 $ % Researchanddevelopment $ 666 $ 324 $ 342 106%Asapercentageofrevenues 6% 5%
Researchanddevelopment(“R&D”)expensesconsistprimarilyofpersonnelcostsforourteamsinengineeringandresearch,manufacturingengineeringandmanufacturingtestorganizations,prototypingexpense,contractandprofessionalservicesandamortizedequipmentexpense.
R&Dexpensesincreased$342million,or106%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020.Theincreasewasprimarilyduetoan$147millionincreaseinemployeeandlaborrelatedexpensesduetoanincreaseinheadcountandincreasedpayrolltaxesrelatedtoappreciationofourstockprice,a$122millionincreaseinR&Dexpensedmaterialsandoutsideservicesanda$60millionincreaseinstock-basedcompensationexpense.TheseincreasesweretosupportourexpandingproductroadmapsuchasthenewversionsofModelSandModelXandtechnologiesincludingourproprietarybatterycells.
R&Dexpensesasapercentageofrevenueincreasedfrom5%to6%inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020.TheincreaseisprimarilyduetotheincreaseinourR&Dexpensesasdetailedabove,partiallyoffsetbyanincreaseintotalrevenuesfromexpandingsales.
Selling,GeneralandAdministrativeExpense
ThreeMonthsEndedMarch31, Change (Dollarsinmillions) 2021 2020 $ % Selling,generalandadministrative $ 1,056 $ 627 $ 429 68%Asapercentageofrevenues 10% 10%
Selling,generalandadministrative(“SG&A”)expensesgenerallyconsistofpersonnelandfacilitiescostsrelatedtoourstores,marketing,sales,executive,finance,humanresources,informationtechnologyandlegalorganizations,aswellasfeesforprofessionalandcontractservicesandlitigationsettlements.
SG&Aexpensesincreased$429million,or68%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020.Theincreaseisprimarilyduetoanincreaseof$273millioninstock-basedcompensationexpense,ofwhich$233millionwasattributabletothe2018CEOPerformanceAward.Werecordedstock-basedcompensationexpenseof$299millioninthethreemonthsendedMarch31,2021forthe2018CEOPerformanceAwardcomparedto$66millioninthepriorperiod.Theincreaseinexpenseunderthe2018CEOPerformanceAwardwasduetothecatch-upexpenseof$116millionrecognizedinthethreemonthsendedMarch31,2021whentheoperationalmilestoneofannualizedrevenueof$55.0billionbecameprobableofbeingachievedaswellastheaccelerationoftheexpenserelatedtothefifthandsixthtranchesastheirmarketcapitalizationmilestoneswereachievedearlierthanoriginallyforecastedduetorapidappreciationofourstockpricesince2020(seeNote11,EquityIncentivePlans,totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Q).Additionally,therewasanincreaseof$125millioninemployeeandlaborrelatedexpensesfromincreasedheadcountandincreasedpayrolltaxesrelatedtoappreciationofourstockprice.
SG&Aexpensesasapercentageofrevenueremainedrelativelyconsistentat10%inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020.Therewasafavorableimpactfromtheincreaseintotalrevenuefromexpandingsales,partiallyoffsetbyanincreaseinourSG&Aexpensesasdetailedabove.
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RestructuringandOtherExpense
ThreeMonthsEndedMarch31, Change(Dollarsinmillions) 2021 2020 $ %Restructuringandother $ (101 ) $ — $ (101 )
Notmeaningful
Asapercentageofrevenues -1% 0%
DuringthethreemonthsendedMarch31,2021,werealizedgainsof$128millionthroughsalesofbitcoinandalsorecorded$27millionofimpairmentlosses.SeeNote2,SummaryofSignificantAccountingPolicies,andNote3,DigitalAssets,Net,totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Qforfurtherdetails.
InterestExpense
ThreeMonthsEndedMarch31, Change (Dollarsinmillions) 2021 2020 $ % Interestexpense $ (99 ) $ (169 ) $ 70 -41%
Asapercentageofrevenues 1% 3%
Interestexpensedecreasedby$70million,or41%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetotheadoptionofASU2020-06,AccountingforConvertibleInstrumentsandContractsinanEntity’sOwnEquity,onJanuary1,2021,wherebywehavede-recognizedtheremainingdebtdiscountsonthe2022Notesand2024Notesandthereforenolongerrecognizeanyamortizationofdebtdiscountsasinterestexpense,aswellasthecontinuedreductioninouroveralldebtbalance.SeeNote2,SummaryofSignificantAccountingPolicies,totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Qforfurtherdetails.
OtherIncome(Expense),Net
ThreeMonthsEndedMarch31, Change(Dollarsinmillions) 2021 2020 $ %
Otherincome(expense),net $ 28 $ (54 ) $ 82 Not
meaningfulAsapercentageofrevenues 0% 1%
Otherincome(expense),net,consistsprimarilyofforeignexchangegainsandlossesrelatedtoourforeigncurrency-denominatedmonetaryassetsandliabilitiesandchangesinthefairvaluesofourfixed-for-floatinginterestrateswaps.Weexpectourforeignexchangegainsandlosseswillvarydependinguponmovementsintheunderlyingexchangerates.
Otherincome(expense),net,changedfavorablyby$82millioninthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetoa$60millionfavorablechangeinthemark-to-marketremeasurementofourinterestrateswapsandfavorablefluctuationsinforeigncurrencyexchangerates.
ProvisionforIncomeTaxes
ThreeMonthsEndedMarch31, Change (Dollarsinmillions) 2021 2020 $ % Provisionforincometaxes $ 69 $ 2 $ 67 3350%Effectivetaxrate 13% 3%
Ourprovisionforincometaxesis$69millionwithpre-taxincomeof$533millionforthethreemonthsendedMarch31,2021.Theprovisionforincometaxesincreasedby$67million,comparedto$2millionprovisionforincometaxeswithpre-taxincomeof$70millionforthethreemonthsendedMarch31,2020.Theincreasewasprimarilyduetothesubstantialincreasesintaxableprofitsinourforeignjurisdictionsyear-over-year.
Oureffectivetaxrateincreasedfrom3%to13%inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020,primarilyduetosubstantialpre-taxincomeinthethreemonthsendedMarch31,2021ascomparedtoasmallpre-taxincomeforthethreemonthsendedMarch31,2020.
SeeNote2,SummaryofSignificantAccountingPolicies,totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Qforfurtherdetails.
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NetIncomeAttributabletoNoncontrollingInterestsandRedeemableNoncontrollingInterests
ThreeMonthsEndedMarch31, Change(Dollarsinmillions) 2021 2020 $ %Netincomeattributabletononcontrollinginterestsandredeemablenoncontrollinginterestsinsubsidiaries $ 26 $ 52 $ (26 ) -50%
Ournetincomeattributabletononcontrollinginterestsandredeemablenoncontrollinginterestswasrelatedtofinancingfundarrangements.
Netincomeattributabletononcontrollinginterestsandredeemablenoncontrollinginterestsdecreasedby$26million,or50%,inthethreemonthsendedMarch31,2021ascomparedtothethreemonthsendedMarch31,2020.Thechangewasprimarilyduetoloweractivitiesfromnewfinancingfundarrangementsoffsetbyadecreaseindistributionstofinancingfundinvestors.
LiquidityandCapitalResources
Weexpecttocontinuetogeneratenetpositiveoperatingcashflowaswehavedoneinthelastthreefiscalyears.Thecashwegeneratefromourcoreoperationsenablesustofundongoingoperationsandproduction,ourresearchanddevelopmentprojectsfornewproductsandtechnologiesincludingourproprietarybatterycells,additionalmanufacturingrampsatexistingmanufacturingfacilitiessuchastheFremontFactory,GigafactoryNevada,GigafactoryShanghaiandGigafactoryNewYork,theconstructionofGigafactoryBerlinandGigafactoryTexas,andthecontinuedexpansionofourretailandservicelocations,bodyshops,MobileServicefleet,Superchargernetworkandenergyproductinstallationcapabilities.
Inaddition,becausealargeportionofourfutureexpenditureswillbetofundourgrowth,weexpectthatifneededwewillbeabletoadjustourcapitalandoperatingexpendituresbyoperatingsegment.Forexample,ifournear-termmanufacturingoperationsdecreaseinscaleorrampmoreslowlythanexpected,includingduetoglobaleconomicorbusinessconditions,wemaychoosetocorrespondinglyslowthepaceofourcapitalexpenditures.Finally,wecontinuallyevaluateourcashneedsandmaydecideitisbesttoraiseadditionalcapitalorseekalternativefinancingsourcestofundtherapidgrowthofourbusiness,includingthroughdrawdownsonexistingornewdebtfacilitiesorfinancingfunds.Conversely,wemayalsofromtimetotimedeterminethatitisinourbestintereststovoluntarilyrepaycertainindebtednessearly.
Accordingly,webelievethatourcurrentsourcesoffundswillprovideuswithadequateliquidityduringthe12-monthperiodfollowingMarch31,2021,includingtopaydownnear-termdebtobligations,aswellasinthelong-term.
Seethesectionsbelowformoredetailsregardingthematerialrequirementsforcashinourbusinessandoursourcesofliquiditytomeetsuchneeds.
MaterialCashRequirements
Fromtimetotimeintheordinarycourseofbusiness,weenterintoagreementswithvendorsforthepurchaseofcomponentsandrawmaterialstobeusedinthemanufactureofourproducts.However,duetocontractualterms,variabilityintheprecisegrowthcurvesofourdevelopmentandproductionramps,andopportunitiestorenegotiatepricing,wegenerallydonothavebindingandenforceablepurchaseordersundersuchcontractsbeyondtheshortterm,andthetimingandmagnitudeofpurchaseordersbeyondsuchperiodisdifficulttoaccuratelyproject.
AsdiscussedinandsubjecttotheconsiderationsreferencedinPartII,Item7,Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations—ManagementOpportunities,ChallengesandRisks—CashFlowandCapitalExpenditureTrendsinthisQuarterlyReportonForm10-Q,wecurrentlyexpectourcapitalexpenditurestosupportourprojectsgloballytobe$4.50to$6.00billionin2021andineachofthenexttwofiscalyears.InconnectionwithouroperationsatGigafactoryBuffalo,wehaveanagreementtospendorincur$5.0billionincombinedcapital,operationalexpenses,costsofgoodssoldandothercostsintheStateofNewYorkthroughDecember31,2029(pursuanttoadeferralofourrequiredtimelinestomeetsuchobligationsthatwasgrantedinApril2021subjectonlytomemorializationinwritingbyusandtheSUNYFoundation).WealsohaveanoperatingleasearrangementwiththelocalgovernmentofShanghaipursuanttowhichwearerequiredtospendRMB14.08billionincapitalexpendituresatGigafactoryShanghaibytheendof2023.Fordetailsregardingtheseobligations,refertoNote12,CommitmentsandContingencies,totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Q.
AsofMarch31,2021,weandoursubsidiarieshadoutstanding$9.52billioninaggregateprincipalamountofindebtedness,ofwhich$1.43billionisscheduledtobecomedueinthesucceeding12months.Fordetailsregardingourindebtedness,refertoNote10,Debt,totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Q.
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SourcesandConditionsofLiquidity
Oursourcestofundourmaterialcashrequirementsarepredominantlyfromourdeliveriesofvehicles,salesandinstallationsofourenergystorageproductsandsolarenergysystems,proceedsfromdebtfacilities,proceedsfromfinancingfundsandproceedsfromequityofferings.
AsofMarch31,2021,wehad$17.14billionofcashandcashequivalents.BalancesheldinforeigncurrencieshadaU.S.dollarequivalentof$7.79billionandconsistedprimarilyofeuros,ChineseyuanandCanadiandollars.Inaddition,wehad$2.15billionofunusedcommittedamountsunderourcreditfacilitiesandfinancingfundsasofMarch31,2021,netofamountsformerlyavailableundertheFixedAssetFacilitythatwaspaidoffandterminatedinApril2021.Certainofsuchunusedcommittedamountsaresubjecttosatisfyingspecifiedconditionspriortodraw-down(suchaspledgingtoourlenderssufficientamountsofqualifiedreceivables,inventories,leasedvehiclesandourinterestsinthoseleases,solarenergysystemsandtheassociatedcustomercontracts,ourinterestsinfinancingfundsorvariousotherassets;andcontributingorsellingqualifiedsolarenergysystemsandtheassociatedcustomercontractsorqualifiedleasedvehiclesandourinterestsinthoseleasesintothefinancingfunds).Fordetailsregardingourindebtednessandfinancingfunds,refertoNote10,Debt,andNote13,VariableInterestEntityArrangementstotheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Q.
Inthefirstquarterof2021,weinvestedanaggregate$1.50billioninbitcoinandbeganacceptingbitcoinasaformofpaymentforourproductsincertainregions,subjecttoapplicablelaws.Inthefirstquarterof2021,wealsosoldanaggregate$272millioninbitcoin.Netofsuchsales,thefairmarketvalueofourbitcoinholdingsasofMarch31,2021was$2.48billion.Basedonourtradingactivitytodate,webelievebitcoinishighlyliquid,althoughwegenerallyintendtoholdourbitcoinlong-termregardlessofthemannerofacquisition.However,digitalassetsmaybesubjecttovolatilemarketprices,whichmaybeunfavorableatthetimeswhenwemaywantorneedtoliquidatethem.
SummaryofCashFlows ThreeMonthsEndedMarch31, (Dollarsinmillions) 2021 2020 Netcashprovidedby(usedin)operatingactivities $ 1,641 $ (440 )Netcashusedininvestingactivities $ (2,582 ) $ (480 )Netcash(usedin)providedbyfinancingactivities $ (1,016 ) $ 2,708 CashFlowsfromOperatingActivities
Ourcashflowsfromoperatingactivitiesaresignificantlyaffectedbyourcashinvestmentstosupportthegrowthofourbusinessinareassuchasresearchanddevelopmentandselling,generalandadministrativeandworkingcapital,especiallyinventory,whichincludesvehiclesintransit.Ouroperatingcashinflowsincludecashfromvehiclesales,customerleasepayments,customerdeposits,cashfromsalesofregulatorycreditsandenergygenerationandstorageproducts.Thesecashinflowsareoffsetbyourpaymentstosuppliersforproductionmaterialsandpartsusedinourmanufacturingprocess,operatingexpenses,operatingleasepaymentsandinterestpaymentsonourfinancings.
Netcashfromoperatingactivitieschangedfavorablyby$2.08billiontonetcashprovidedbyoperatingactivitiesof1.64billionduringthethreemonthsendedMarch31,2021fromnetcashusedinoperatingactivitiesof$440millionduringthethreemonthsendedMarch31,2020.Thisincreasewasprimarilyduetothedecreaseinnetoperatingassetsandliabilitiesof$1.44billionandtheincreaseinnetincomeexcludingnon-cashexpensesandgainsof$747million,partiallyoffsetby$101millionofnetgainondigitalassets.ThedecreaseinournetoperatingassetsandliabilitieswasmainlydrivenbyanincreaseinaccountspayableandaccruedliabilitiesinthethreemonthsendedMarch31,2021ascomparedtoadecreaseinthethreemonthsendedMarch31,2020fromrampupinproductionatGigafactoryShanghaiandtheFremontFactoryandasmallerincreaseininventoryfrombuildupoffinishedgoodsfromlimitedcapacitytodeliverorinstallourproductsattheendofthefirstquarterof2020.ThedecreaseinournetoperatingassetsandliabilitieswaspartiallyoffsetbyalargerincreaseinoperatingleasevehiclesasModelYdirectleasingwasintroducedinthethirdquarterof2020andanincreaseinothernon-currentassetsinthethreemonthsendedMarch31,2021ascomparedtoadecreaseinthesameperiodin2020.
CashFlowsfromInvestingActivities
Cashflowsfrominvestingactivitiesandtheirvariabilityacrosseachperiodrelatedprimarilytocapitalexpenditures,whichwere$1.35billionforthethreemonthsendedMarch31,2021,mainlyforconstructionofGigafactoryTexasandGigafactoryBerlinandexpansionofGigafactoryShanghaiand$455millionforthethreemonthsendedMarch31,2020,mainlyforModelYproductionattheFremontFactoryandGigafactoryShanghaiconstruction.Additionally,netcashactivitiesrelatedtodigitalassetswere$1.23billioninthethreemonthsendedMarch31,2021frompurchasesofdigitalassetsfor$1.50billionandproceedsfromsalesofdigitalassetsof$272million.
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CashFlowsfromFinancingActivitiesNetcashusedinfinancingactivitiesduringthethreemonthsendedMarch31,2021was$1.02billion,whichconsistedprimarilyof$1.45billion
ofcashrepaymentsuponconversionsofourconvertibleseniornotes,$294millionofrepaymentsunderour2016WarehouseAgreement,$151millionrepaymentofSolarTermLoanuponmaturityand$101millionprincipalrepaymentsofourfinanceleases.Thesecashoutflowswerepartiallyoffsetby$877millionofnetborrowingsfromtheAutomotiveAsset-backedNotesand$183millionofproceedsfromexerciseofstockoptionsandotherstockissuances.SeeNote10,DebttotheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Qforfurtherdetailsregardingourdebtobligations.
NetcashprovidedbyfinancingactivitiesduringthethreemonthsendedMarch31,2020was$2.71billion,whichconsistedprimarilyof$2.31billionfromourFebruary2020publicofferingofcommonstock,netofissuancecosts,$359millionofnetborrowingsunderourvehiclelease-backedloanandsecurityagreements(the"WarehouseAgreements"),$292millionofnetborrowingsundertheseniorsecuredasset-basedrevolvingcreditagreement(the“CreditAgreement”)and$160millionofproceedsfromexerciseofstockoptionsandotherstockissuances.Thesecashinflowswerepartiallyoffsetby$129millionofpaymentsoftheautomotiveasset-backednotesand$100millionprincipalrepaymentsofourfinanceleases.
ITEM3.QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISKForeignCurrencyRisk
Wetransactbusinessgloballyinmultiplecurrenciesandhencehaveforeigncurrencyrisksrelatedtoourrevenue,costsofrevenue,operatingexpensesandlocalizedsubsidiarydebtdenominatedincurrenciesotherthantheU.S.dollar(primarilytheChineseyuan,euro,CanadiandollarandSwissfrancinrelationtoourcurrentyearoperations).Ingeneral,weareanetreceiverofcurrenciesotherthantheU.S.dollarforourforeignsubsidiaries.Accordingly,changesinexchangeratesaffectourrevenueandotheroperatingresultsasexpressedinU.S.dollarsaswedonottypicallyhedgeforeigncurrencyrisk.
Wehavealsoexperienced,andwillcontinuetoexperience,fluctuationsinournetincome(loss)asaresultofgains(losses)onthesettlementandthere-measurementofmonetaryassetsandliabilitiesdenominatedincurrenciesthatarenotthelocalcurrency(primarilyconsistingofourintercompanyandcashandcashequivalentsbalances).ForthethreemonthsendedMarch31,2021,werecognizedanetforeigncurrencygainof$2millioninOtherincome(expense),net,withourlargestre-measurementexposuresfromtheCanadiandollar,euroandU.S.dollarasoursubsidiaries’monetaryassetsandliabilitiesaredenominatedinvariouslocalcurrencies.ForthethreemonthsendedMarch31,2020,werecognizedanetforeigncurrencylossof$19millioninOtherincome(expense),net,withourlargestre-measurementexposuresfromtheU.S.dollar,AustraliandollarandSouthKoreanwon.
Weconsideredthehistoricaltrendsinforeigncurrencyexchangeratesanddeterminedthatitisreasonablypossiblethatadversechangesinforeigncurrencyexchangeratesof10%forallcurrenciescouldbeexperiencedinthenear-term.Thesechangeswereappliedtoourtotalmonetaryassetsandliabilitiesdenominatedincurrenciesotherthanourlocalcurrenciesatthebalancesheetdatetocomputetheimpactthesechangeswouldhavehadonournetincome(loss)beforeincometaxes.Thesechangeswouldhaveresultedinalossof$64millionatMarch31,2021and$8millionatDecember31,2020assumingnoforeigncurrencyhedging.
InterestRateRiskWeareexposedtointerestrateriskonourborrowingsthatbearinterestatfloatingrates.Pursuanttoourriskmanagementpolicies,incertain
cases,weutilizederivativeinstrumentstomanagesomeofthisrisk.Wedonotenterintoderivativeinstrumentsfortradingorspeculativepurposes.Ahypothetical10%changeininterestratesonourfloatingratedebtwouldhaveincreasedordecreasedourinterestexpenseforthethreemonthsendedMarch31,2021and2020by$1millionand$1million,respectively.
ITEM4.CONTROLSANDPROCEDURESEvaluationofDisclosureControlsandProcedures
Ourmanagement,withtheparticipationofourChiefExecutiveOfficerandourChiefFinancialOfficer,evaluatedtheeffectivenessofourdisclosurecontrolsandprocedurespursuanttoRule13a-15undertheSecuritiesExchangeActof1934,asamended(the“ExchangeAct”).Indesigningandevaluatingthedisclosurecontrolsandprocedures,ourmanagementrecognizesthatanycontrolsandprocedures,nomatterhowwelldesignedandoperated,canprovideonlyreasonableassuranceofachievingthedesiredcontrolobjectives.Inaddition,thedesignofdisclosurecontrolsandproceduresmustreflectthefactthatthereareresourceconstraintsandthatourmanagementisrequiredtoapplyitsjudgmentinevaluatingthebenefitsofpossiblecontrolsandproceduresrelativetotheircosts.
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Basedonthisevaluation,ourChiefExecutiveOfficerandourChiefFinancialOfficerconcludedthat,asofMarch31,2021,ourdisclosurecontrolsandproceduresweredesignedatareasonableassurancelevelandwereeffectivetoprovidereasonableassurancethattheinformationwearerequiredtodiscloseinreportsthatwefileorsubmitundertheExchangeActisrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedintheSECrulesandforms,andthatsuchinformationisaccumulatedandcommunicatedtoourmanagement,includingourChiefExecutiveOfficerandourChiefFinancialOfficer,asappropriate,toallowtimelydecisionsregardingrequireddisclosures.
ChangesinInternalControloverFinancialReportingTherewasnochangeinourinternalcontroloverfinancialreportingthatoccurredduringthequarterendedMarch31,2021,whichhas
materiallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
PARTII.OTHERINFORMATION
ITEM1.LEGALPROCEEDINGSForadescriptionofourmaterialpendinglegalproceedings,pleaseseeNote12,CommitmentsandContingencies,totheconsolidatedfinancial
statementsincludedelsewhereinthisQuarterlyReportonForm10-Q.
Inaddition,eachofthemattersbelowisbeingdisclosedpursuanttoItem103ofRegulationS-Kbecauseitrelatestoenvironmentalregulationsandaggregatecivilpenaltiesthatcouldpotentiallyexceed$1million.Webelievethatanyproceedingthatismaterialtoourbusinessorfinancialconditionislikelytohavepotentialpenaltiesfarinexcessofsuchamount.
TheBayAreaAirQualityManagementDistrict(“BAAQMD”)hasissuednoticesofviolationtousrelatingtoairpermittingandrelatedcompliancefortheFremontFactory,buthasnotinitiatedformalproceedings.Wehavedisputedcertainoftheseallegationsandhaveassertedthattherehasbeennorelatedadversecommunityorenvironmentalimpact.Whilewehavenotyetresolvedthismatter,weremaininclosecommunicationwithBAAQMDwithrespecttoit.Wedonotcurrentlyexpectanymaterialadverseimpactonourbusiness.
TheGermanUmweltbundesamthasissuedoursubsidiaryinGermanyanoticeandfineintheamountof12millioneuroallegingitsnon-complianceunderapplicablelawsrelatingtomarketparticipationnotificationsandtake-backobligationswithrespecttoend-of-lifebatteryproductsrequiredthereunder.Thisisprimarilyrelatingtoadministrativerequirements,butTeslahascontinuedtotakebackbatterypacks,andalthoughwecannotpredicttheoutcomeofthismatter,includingthefinalamountofanypenalties,wehavefiledourobjectionanditisnotexpectedtohaveamaterialadverseimpactonourbusiness.
InApril2021,wereceivedanoticefromtheEnvironmentalProtectionAgency(the“EPA”)allegingthatTeslafailedtoproviderecordsdemonstratingcompliancewithcertainrequirementsundertheapplicableNationalEmissionStandardsforHazardousAirPollutantsundertheCleanAirActof1963,asamended,relatingtoSurfaceCoatingofAutomobilesandLight-DutyTrucksregulations.TeslahasrespondedtoallinformationrequestsfromtheEPAandrefutestheallegations.Whiletheoutcomeofthismattercannotbedeterminedatthistime,itisnotcurrentlyexpectedtohaveamaterialadverseimpactonourbusiness.
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ITEM1A.RISKFACTORS
Youshouldcarefullyconsidertherisksdescribedbelowtogetherwiththeotherinformationsetforthinthisreport,whichcouldmateriallyaffectourbusiness,financialconditionandfutureresults.Therisksdescribedbelowarenottheonlyrisksfacingourcompany.Risksanduncertaintiesnotcurrentlyknowntousorthatwecurrentlydeemtobeimmaterialalsomaymateriallyadverselyaffectourbusiness,financialconditionandoperatingresults.
RisksRelatedtoOurAbilitytoGrowOurBusinessWemaybeimpactedbymacroeconomicconditionsresultingfromtheglobalCOVID-19pandemic.Sincethefirstquarterof2020,therehasbeenaworldwideimpactfromtheCOVID-19pandemic.Governmentregulationsandshiftingsocial
behaviorshavelimitedorclosednon-essentialtransportation,governmentfunctions,businessactivitiesandperson-to-personinteractions.Insomecases,therelaxationofsuchtrendshasbeenfollowedbyactualorcontemplatedreturnstostringentrestrictionsongatheringsorcommerce,includinginpartsoftheU.S.andanumberofareasinEurope.
During2020,wetemporarilysuspendedoperationsateachofourmanufacturingfacilitiesworldwide,andcertainofoursuppliersalsoshutdownoperationstemporarilyorpermanently.WeinstitutedtemporaryemployeefurloughsandcompensationreductionswhileourU.S.operationswerescaledback.Temporaryimpedimentstoadministrativeactivitiessupportingouroperationsalsohamperedourproductdeliveriesanddeployments.
Globaltradeconditionsandconsumertrendsthatoriginatedduringthepandemiccontinuetopersistandmayalsohavelong-lastingadverseimpactonusandourindustriesindependentlyoftheprogressofthepandemic.Forexample,pandemic-relatedissueshaveexacerbatedportcongestionandintermittentsuppliershutdownsanddelays,resultinginadditionalexpensestoexpeditedeliveryofcriticalparts.Similarly,increaseddemandforpersonalelectronicshascreatedashortfallofmicrochips,whichhascausedchallengesinoursupplychainandproduction.Sustainingourproductiontrajectorywillrequiretheongoingreadinessandsolvencyofoursuppliersandvendors,astableandmotivatedproductionworkforceandgovernmentcooperation,includingfortravelandvisaallowances.ThecontingenciesinherentintheconstructionofandrampatnewfacilitiessuchasGigafactoryShanghai,GigafactoryBerlinandGigafactoryTexasmaybeexacerbatedbythesechallenges.
Wecannotpredictthedurationordirectionofcurrentglobaltrendsortheirsustainedimpact.Ultimately,wecontinuetomonitormacroeconomicconditionstoremainflexibleandtooptimizeandevolveourbusinessasappropriate,andwewillhavetoaccuratelyprojectdemandandinfrastructurerequirementsgloballyanddeployourproduction,workforceandotherresourcesaccordingly.Ifweexperienceunfavorableglobalmarketconditions,orifwecannotordonotmaintainoperationsatascopethatiscommensuratewithsuchconditionsorarelaterrequiredtoorchoosetosuspendsuchoperationsagain,ourbusiness,prospects,financialconditionandoperatingresultsmaybeharmed.
Wemayexperiencedelaysinlaunchingandrampingtheproductionofourproductsandfeatures,orwemaybeunabletocontrolourmanufacturingcosts.Wehavepreviouslyexperiencedandmayinthefutureexperiencelaunchandproductionrampdelaysfornewproductsandfeatures.For
example,weencounteredunanticipatedsupplierissuesthatledtodelaysduringtheinitialrampofModelXandexperiencedchallengeswithasupplierandwithrampingfullautomationforcertainofourinitialModel3manufacturingprocesses.Inaddition,wemayintroduceinthefutureneworuniquemanufacturingprocessesanddesignfeaturesforourproducts.Thereisnoguaranteethatwewillbeabletosuccessfullyandtimelyintroduceandscalesuchprocessesorfeatures.
Inparticular,ourfuturebusinessdependsinlargepartonincreasingtheproductionofmass-marketvehiclesincludingModel3andModelY,whichweareplanningtoachievethroughmultiplefactoriesworldwide.WehaverelativelylimitedexperiencetodateinmanufacturingModel3andModelYathighvolumesandevenlessexperiencebuildingandrampingvehicleproductionlinesacrossmultiplefactoriesindifferentgeographies.Inordertobesuccessful,wewillneedtoimplement,maintainandrampefficientandcost-effectivemanufacturingcapabilities,processesandsupplychainsandachievethedesigntolerances,highqualityandoutputrateswehaveplannedatourmanufacturingfacilitiesinCalifornia,Nevada,Texas,ChinaandGermany.Wewillalsoneedtohire,trainandcompensateskilledemployeestooperatethesefacilities.Bottlenecksandotherunexpectedchallengessuchasthoseweexperiencedinthepastmayariseduringourproductionramps,andwemustaddressthempromptlywhilecontinuingtoimprovemanufacturingprocessesandreducingcosts.Ifwearenotsuccessfulinachievingthesegoals,wecouldfacedelaysinestablishingand/orsustainingourModel3andModelYrampsorbeunabletomeetourrelatedcostandprofitabilitytargets.
Wemayalsoexperiencesimilarfuturedelaysinlaunchingand/orrampingproductionofourenergystorageproductsandSolarRoof;newproductversionsorvariantssuchastherecentlyupdatedModelSandModelX;newvehiclessuchasTeslaSemi,CybertruckandthenewTeslaRoadster;andfuturefeaturesandservicessuchasnewAutopilotorFSDfeaturesandtheautonomous
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Teslaride-hailingnetwork.Likewise,wemayencounterdelayswiththedesign,constructionandregulatoryorotherapprovalsnecessarytobuildandbringonlinefuturemanufacturingfacilitiesandproducts.
Anydelayorothercomplicationinrampingtheproductionofourcurrentproductsorthedevelopment,manufacture,launchandproductionrampofourfutureproducts,featuresandservices,orindoingsocost-effectivelyandwithhighquality,mayharmourbrand,business,prospects,financialconditionandoperatingresults.
Wemaybeunabletogrowourglobalproductsales,deliveryandinstallationcapabilitiesandourservicingandvehiclechargingnetworks,orwemaybeunabletoaccuratelyprojectandeffectivelymanageourgrowth.Oursuccesswilldependonourabilitytocontinuetoexpandoursalescapabilities.WearetargetingwithModel3andModelYaglobalmass
demographicwithabroadrangeofpotentialcustomers,inwhichwehaverelativelylimitedexperienceprojectingdemandandpricingourproducts.Wecurrentlyproducenumerousinternationalvariantsatalimitednumberoffactories,andifourspecificdemandexpectationsforthesevariantsproveinaccurate,wemaynotbeabletotimelygeneratedeliveriesmatchedtothevehiclesthatweproduceinthesametimeframeorthatarecommensuratewiththesizeofouroperationsinagivenregion.Likewise,aswedevelopandgrowourenergyproductsandservicesworldwide,oursuccesswilldependonourabilitytocorrectlyforecastdemandinvariousmarkets.
Becausewedonothaveindependentdealernetworks,weareresponsiblefordeliveringallofourvehiclestoourcustomers.Wemayfacedifficultieswithdeliveriesatincreasingvolumes,particularlyininternationalmarketsrequiringsignificanttransittimes.Forexample,wesawchallengesinrampingourlogisticschannelsinChinaandEuropetoinitiallydeliverModel3thereinthefirstquarterof2019.Wehavedeployedanumberofdeliverymodels,suchasdeliveriestocustomers’homesandworkplacesandtouchlessdeliveries,butthereisnoguaranteethatsuchmodelswillbescalableorbeacceptedglobally.Likewise,aswerampSolarRoof,weareworkingtosubstantiallyincreaseinstallationpersonnelanddecreaseinstallationtimes.Ifwearenotsuccessfulinmatchingsuchcapabilitieswithactualproduction,orifweexperienceunforeseenproductiondelaysorinaccuratelyforecastdemandfortheSolarRoof,ourbusiness,financialconditionandoperatingresultsmaybeharmed.
Moreover,becauseofouruniqueexpertisewithourvehicles,werecommendthatourvehiclesbeservicedbyusorbycertainauthorizedprofessionals.Ifweexperiencedelaysinaddingsuchservicingcapacityorservicingourvehiclesefficiently,orexperienceunforeseenissueswiththereliabilityofourvehicles,particularlyhigher-volumeandneweradditionstoourfleetsuchasModel3andModelY,itcouldoverburdenourservicingcapabilitiesandpartsinventory.Similarly,theincreasingnumberofTeslavehiclesalsorequiresustocontinuetorapidlyincreasethenumberofourSuperchargerstationsandconnectorsthroughouttheworld.
Thereisnoassurancethatwewillbeabletorampourbusinesstomeetoursales,delivery,installation,servicingandvehiclechargingtargetsglobally,thatourprojectionsonwhichsuchtargetsarebasedwillproveaccurateorthatthepaceofgrowthorcoverageofourcustomerinfrastructurenetworkwillmeetcustomerexpectations.Theseplansrequiresignificantcashinvestmentsandmanagementresourcesandthereisnoguaranteethattheywillgenerateadditionalsalesorinstallationsofourproducts,orthatwewillbeabletoavoidcostoverrunsorbeabletohireadditionalpersonneltosupportthem.Asweexpand,wewillalsoneedtoensureourcompliancewithregulatoryrequirementsinvariousjurisdictionsapplicabletothesale,installationandservicingofourproducts,thesaleordispatchofelectricityrelatedtoourenergyproductsandtheoperationofSuperchargers.Ifwefailtomanageourgrowtheffectively,itmayharmourbrand,business,prospects,financialconditionandoperatingresults.
Ourfuturegrowthandsuccessaredependentuponconsumers’demandforelectricvehiclesandspecificallyourvehiclesinanautomotiveindustrythatisgenerallycompetitive,cyclicalandvolatile.IfthemarketforelectricvehiclesingeneralandTeslavehiclesinparticulardoesnotdevelopasweexpect,developsmoreslowlythanwe
expect,orifdemandforourvehiclesdecreasesinourmarketsorourvehiclescompetewitheachother,ourbusiness,prospects,financialconditionandoperatingresultsmaybeharmed.
Wearestillatanearlierstageandhavelimitedresourcesandproductionrelativetoestablishedcompetitorsthatofferinternalcombustionenginevehicles.Inaddition,electricvehiclesstillcompriseasmallpercentageofoverallvehiclesales.Asaresult,themarketforourvehiclescouldbenegativelyaffectedbynumerousfactors,suchas:
perceptionsaboutelectricvehiclefeatures,quality,safety,performanceandcost;
perceptionsaboutthelimitedrangeoverwhichelectricvehiclesmaybedrivenonasinglebatterycharge,andaccesstochargingfacilities;
competition,includingfromothertypesofalternativefuelvehicles,plug-inhybridelectricvehiclesandhighfuel-economyinternalcombustionenginevehicles;
volatilityinthecostofoilandgasoline,suchaswidefluctuationsincrudeoilpricesduring2020;
governmentregulationsandeconomicincentives;and
concernsaboutourfutureviability.42
Finally,thetargetdemographicsforourvehicles,particularlyModel3andModelY,arehighlycompetitive.Salesofvehiclesintheautomotiveindustrytendtobecyclicalinmanymarkets,whichmayexposeustofurthervolatility.
Oursuppliersmayfailtodelivercomponentsaccordingtoschedules,prices,qualityandvolumesthatareacceptabletous,orwemaybeunabletomanagethesecomponentseffectively.Ourproductscontainthousandsofpartsthatwepurchasegloballyfromhundredsofsuppliersincludingsingle-sourcedirectsuppliers.This
exposesustomultiplepotentialsourcesofcomponentshortages,suchasthosethatweexperiencedin2012and2016withourinitialModelSandModelXramps.Unexpectedchangesinbusinessconditions,materialspricing,laborissues,wars,governmentalchanges,tariffs,naturaldisasterssuchastheMarch2011earthquakesinJapan,healthepidemicssuchastheglobalCOVID-19pandemic,tradeandshippingdisruptionsandotherfactorsbeyondouroroursuppliers’controlcouldalsoaffectthesesuppliers’abilitytodelivercomponentstousortoremainsolventandoperational.Forexample,aglobalshortageofmicrochipshasbeenreportedsinceearly2021andhascausedchallengesinoursupplychainandproduction.Theunavailabilityofanycomponentorsuppliercouldresultinproductiondelays,idlemanufacturingfacilities,productdesignchangesandlossofaccesstoimportanttechnologyandtoolsforproducingandsupportingourproducts.Moreover,significantincreasesinourproduction,suchasforModel3andModelY,orproductdesignchangesbyushaverequiredandmayinthefuturerequireustoprocureadditionalcomponentsinashortamountoftime.Oursuppliersmaynotbewillingorabletosustainablymeetourtimelinesorourcost,qualityandvolumeneeds,ortodosomaycostusmore,whichmayrequireustoreplacethemwithothersources.Finally,wehavelimitedvehiclemanufacturingexperienceoutsideoftheFremontFactoryandwemayexperienceissuesincreasingtheleveloflocalizedprocurementatourGigafactoryShanghaiandatfuturefactoriessuchasGigafactoryBerlinandGigafactoryTexas.Whilewebelievethatwewillbeabletosecureadditionaloralternatesourcesordevelopourownreplacementsformostofourcomponents,thereisnoassurancethatwewillbeabletodosoquicklyoratall.Additionally,wemaybeunsuccessfulinourcontinuouseffortstonegotiatewithexistingsupplierstoobtaincostreductionsandavoidunfavorablechangestoterms,sourcelessexpensivesuppliersforcertainpartsandredesigncertainpartstomakethemlessexpensivetoproduce.Anyoftheseoccurrencesmayharmourbusiness,prospects,financialconditionandoperatingresults.
Asthescaleofourvehicleproductionincreases,wewillalsoneedtoaccuratelyforecast,purchase,warehouseandtransportcomponentsathighvolumestoourmanufacturingfacilitiesandservicinglocationsinternationally.Ifweareunabletoaccuratelymatchthetimingandquantitiesofcomponentpurchasestoouractualneedsorsuccessfullyimplementautomation,inventorymanagementandothersystemstoaccommodatetheincreasedcomplexityinoursupplychainandpartsmanagement,wemayincurunexpectedproductiondisruption,storage,transportationandwrite-offcosts,whichmayharmourbusinessandoperatingresults.
Wemaybeunabletomeetourprojectedconstructiontimelines,costsandproductionrampsatnewfactories,orwemayexperiencedifficultiesingeneratingandmaintainingdemandforproductsmanufacturedthere.Ourabilitytoincreaseproductionofourvehiclesonasustainedbasis,makethemaffordablegloballybyaccessinglocalsupplychainsand
workforcesandstreamlinedeliverylogisticsisdependentontheconstructionandrampofGigafactoryShanghai,GigafactoryBerlinandGigafactoryTexas.Theconstructionofandcommencementandrampofproductionatthesefactoriesaresubjecttoanumberofuncertaintiesinherentinallnewmanufacturingoperations,includingongoingcompliancewithregulatoryrequirements,procurementandmaintenanceofconstruction,environmentalandoperationallicensesandapprovalsforadditionalexpansion,potentialsupplychainconstraints,hiring,trainingandretentionofqualifiedemployeesandthepaceofbringingproductionequipmentandprocessesonlinewiththecapabilitytomanufacturehigh-qualityunitsatscale.Forexample,wearecurrentlyconstructingGigafactoryBerlinunderconditionalpermitsinanticipationofbeinggrantedfinalpermits.Moreover,wewillhavetoestablishandrampproductionofourproprietarybatterycellsandpacksatournewfactories,andweadditionallyintendtoincorporatesequentialdesignandmanufacturingchangesintovehiclesmanufacturedateachnewfactory.WehavelimitedexperiencetodatewithdevelopingandimplementingmanufacturinginnovationsoutsideoftheFremontFactory,aswebeganproductionatGigafactoryShanghairelativelyrecently.Inparticular,themajorityofourdesignandengineeringresourcesarecurrentlylocatedinCalifornia.Inordertomeetourexpectationsforournewfactories,wemustexpandandmanagelocalizeddesignandengineeringtalentandresources.Ifweexperienceanyissuesordelaysinmeetingourprojectedtimelines,costs,capitalefficiencyandproductioncapacityforournewfactories,expandingandmanagingteamstoimplementiterativedesignandproductionchangesthere,maintainingandcomplyingwiththetermsofanydebtfinancingthatweobtaintofundthemorgeneratingandmaintainingdemandforthevehicleswemanufacturethere,ourbusiness,prospects,operatingresultsandfinancialconditionmaybeharmed.
Wewillneedtomaintainandsignificantlygrowouraccesstobatterycells,includingthroughthedevelopmentandmanufactureofourowncells,andcontrolourrelatedcosts.Wearedependentonthecontinuedsupplyoflithium-ionbatterycellsforourvehiclesandenergystorageproducts,andwewillrequire
substantiallymorecellstogrowourbusinessaccordingtoourplans.Currently,werelyonsupplierssuchasPanasonicforthesecells.However,wehavetodatefullyqualifiedonlyaverylimitednumberofsuchsuppliersandhavelimitedflexibilityinchangingsuppliers.Anydisruptioninthesupplyofbatterycellsfromoursupplierscouldlimitproductionofourvehiclesandenergystorageproducts.Inthelongterm,weintendtosupplementcellsfromoursupplierswithcellsmanufacturedbyus,whichwebelievewillbemoreefficient,manufacturableatgreatervolumesandcost-effectivethancurrentlyavailablecells.However,oureffortsto
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developandmanufacturesuchbatterycellshaverequiredandmayrequiresignificantinvestments,andtherecanbenoassurancethatwewillbeabletoachievethesetargetsinthetimeframesthatwehaveplannedoratall.Ifweareunabletodoso,wemayhavetocurtailourplannedvehicleandenergystorageproductproductionorprocureadditionalcellsfromsuppliersatpotentiallygreatercosts,eitherofwhichmayharmourbusinessandoperatingresults.
Inaddition,thecostofbatterycells,whethermanufacturedbyoursuppliersorbyus,dependsinpartuponthepricesandavailabilityofrawmaterialssuchaslithium,nickel,cobaltand/orothermetals.Thepricesforthesematerialsfluctuateandtheiravailablesupplymaybeunstable,dependingonmarketconditionsandglobaldemandforthesematerials,includingasaresultofincreasedglobalproductionofelectricvehiclesandenergystorageproducts.Anyreducedavailabilityofthesematerialsmayimpactouraccesstocellsandanyincreasesintheirpricesmayreduceourprofitabilityifwecannotrecouptheincreasedcoststhroughincreasedvehicleprices.Moreover,anysuchattemptstoincreaseproductpricesmayharmourbrand,prospectsandoperatingresults.
Wefacestrongcompetitionforourproductsandservicesfromagrowinglistofestablishedandnewcompetitors.Theworldwideautomotivemarketishighlycompetitivetodayandweexpectitwillbecomeevenmoresointhefuture.Forexample,Model3and
ModelYfacecompetitionfromexistingandfutureautomobilemanufacturersintheextremelycompetitiveentry-levelpremiumsedanandcompactSUVmarkets.Asignificantandgrowingnumberofestablishedandnewautomobilemanufacturers,aswellasothercompanies,haveenteredorarereportedtohaveplanstoenterthemarketforelectricandotheralternativefuelvehicles,includinghybrid,plug-inhybridandfullyelectricvehicles,aswellasthemarketforself-drivingtechnologyandothervehicleapplicationsandsoftwareplatforms.Insomecases,ourcompetitorsofferorwillofferelectricvehiclesinimportantmarketssuchasChinaandEurope,and/orhaveannouncedanintentiontoproduceelectricvehiclesexclusivelyatsomepointinthefuture.Manyofourcompetitorshavesignificantlygreaterorbetter-establishedresourcesthanwedotodevotetothedesign,development,manufacturing,distribution,promotion,saleandsupportoftheirproducts.Increasedcompetitioncouldresultinourlowervehicleunitsales,pricereductions,revenueshortfalls,lossofcustomersandlossofmarketshare,whichmayharmourbusiness,financialconditionandoperatingresults.
Wealsofacecompetitioninourenergygenerationandstoragebusinessfromothermanufacturers,developers,installersandserviceprovidersofcompetingenergysystems,aswellasfromlargeutilities.Decreasesintheretailorwholesalepricesofelectricityfromutilitiesorotherrenewableenergysourcescouldmakeourproductslessattractivetocustomersandleadtoanincreasedrateofresidentialcustomerdefaultsunderourexistinglong-termleasesandPPAs.RisksRelatedtoOurOperations
Wemayexperienceissueswithlithium-ioncellsorothercomponentsmanufacturedatGigafactoryNevada,whichmayharmtheproductionandprofitabilityofourvehicleandenergystorageproducts.Ourplantogrowthevolumeandprofitabilityofourvehiclesandenergystorageproductsdependsonsignificantlithium-ionbatterycell
production,includingbyourpartnerPanasonicatGigafactoryNevada.AlthoughPanasonichasalongtrackrecordofproducinghigh-qualitycellsatsignificantvolumeatitsfactoriesinJapan,ithasrelativelylimitedexperiencewithcellproductionatGigafactoryNevada,whichbeganin2017.Inaddition,weproduceseveralvehiclecomponents,suchasbatterymodulesandpacksincorporatingthecellsproducedbyPanasonicforModel3andModelYanddriveunits(includingtosupportGigafactoryShanghaiproduction),atGigafactoryNevada,andwealsomanufactureenergystorageproductsthere.Inthepast,someofthemanufacturinglinesforcertainproductcomponentstooklongerthananticipatedtoramptotheirfullcapacity,andadditionalbottlenecksmayariseinthefutureaswecontinuetoincreasetheproductionrateandintroducenewlines.IfweorPanasonicareunabletoorotherwisedonotmaintainandgrowourrespectiveoperationsatGigafactoryNevadaproduction,orifweareunabletodosocost-effectivelyorhireandretainhighly-skilledpersonnelthere,ourabilitytomanufactureourproductsprofitablywouldbelimited,whichmayharmourbusinessandoperatingresults.
Finally,thehighvolumesoflithium-ioncellsandbatterymodulesandpacksmanufacturedatGigafactoryNevadaarestoredandrecycledatourvariousfacilities.Anymishandlingofbatterycellsmaycausedisruptiontotheoperationofsuchfacilities.Whilewehaveimplementedsafetyproceduresrelatedtothehandlingofthecells,therecanbenoassurancethatasafetyissueorfirerelatedtothecellswouldnotdisruptouroperations.Anysuchdisruptionsorissuesmayharmourbrandandbusiness.
Wefacerisksassociatedwithmaintainingandexpandingourinternationaloperations,includingunfavorableanduncertainregulatory,political,economic,taxandlaborconditions.Wearesubjecttolegalandregulatoryrequirements,politicaluncertaintyandsocial,environmentalandeconomicconditionsinnumerous
jurisdictions,includingmarketsinwhichwegeneratesignificantsales,overwhichwehavelittlecontrolandwhichareinherentlyunpredictable.Ouroperationsinsuchjurisdictions,particularlyasacompanybasedintheU.S.,createrisksrelatingtoconformingourproductstoregulatoryandsafetyrequirementsandchargingandotherelectricinfrastructures;organizinglocaloperatingentities;establishing,staffingandmanagingforeignbusinesslocations;attractinglocalcustomers;navigatingforeign
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governmenttaxes,regulationsandpermitrequirements;enforceabilityofourcontractualrights;traderestrictions,customsregulations,tariffsandpriceorexchangecontrols;andpreferencesinforeignnationsfordomesticallymanufacturedproducts.Suchconditionsmayincreaseourcosts,impactourabilitytosellourproductsandrequiresignificantmanagementattention,andmayharmourbusinessifweareunabletomanagethemeffectively.
Ourbusinessmaysufferifourproductsorfeaturescontaindefects,failtoperformasexpectedortakelongerthanexpectedtobecomefullyfunctional.Ifourproductscontaindesignormanufacturingdefectsthatcausethemnottoperformasexpectedorthatrequirerepair,orcertainfeaturesof
ourvehiclessuchasnewAutopilotorFSDfeaturestakelongerthanexpectedtobecomeenabled,arelegallyrestrictedorbecomesubjecttoonerousregulation,ourabilitytodevelop,marketandsellourproductsandservicesmaybeharmed,andwemayexperiencedeliverydelays,productrecalls,productliability,breachofwarrantyandconsumerprotectionclaimsandsignificantwarrantyandotherexpenses.Forexample,wearedevelopingself-drivinganddriverassisttechnologiestorelyonvision-basedsensors,unlikealternativetechnologiesindevelopmentthatadditionallyrequireotherredundantsensors.Thereisnoguaranteethatanyincrementalchangesinthespecificequipmentwedeployinourvehiclesovertimewillnotresultininitialfunctionaldisparitiesfromprioriterationsorwillperformasexpectedinthetimeframeweanticipate,oratall.
Ourproductsarealsohighlydependentonsoftware,whichisinherentlycomplexandmaycontainlatentdefectsorerrorsorbesubjecttoexternalattacks.IssuesexperiencedbyourcustomershaveincludedthoserelatedtotheModelSandModelX17-inchdisplayscreen,thepanoramicroofandthe12-voltbatteryintheModelS,theseatsanddoorsintheModelXandtheoperationofsolarpanelsinstalledbyus.Althoughweattempttoremedyanyissuesweobserveinourproductsaseffectivelyandrapidlyaspossible,sucheffortsmaynotbetimely,mayhamperproductionormaynotcompletelysatisfyourcustomers.Whilewehaveperformedextensiveinternaltestingonourproductsandfeatures,wecurrentlyhavealimitedframeofreferencebywhichtoevaluatetheirlong-termquality,reliability,durabilityandperformancecharacteristics.Therecanbenoassurancethatwewillbeabletodetectandfixanydefectsinourproductspriortotheirsaletoorinstallationforcustomers.
Wemayberequiredtodefendorinsureagainstproductliabilityclaims.Theautomobileindustrygenerallyexperiencessignificantproductliabilityclaims,andassuchwefacetheriskofsuchclaimsintheeventour
vehiclesdonotperformorareclaimedtonothaveperformedasexpected.Asistrueforotherautomakers,ourvehicleshavebeeninvolvedandweexpectinthefuturewillbeinvolvedinaccidentsresultingindeathorpersonalinjury,andsuchaccidentswhereAutopilotorFSDfeaturesareengagedarethesubjectofsignificantpublicattention.Wehaveexperiencedandweexpecttocontinuetofaceclaimsarisingfromorrelatedtomisuseorclaimedfailuresofsuchnewtechnologiesthatwearepioneering.Inaddition,thebatterypacksthatweproducemakeuseoflithium-ioncells.Onrareoccasions,lithium-ioncellscanrapidlyreleasetheenergytheycontainbyventingsmokeandflamesinamannerthatcanignitenearbymaterialsaswellasotherlithium-ioncells.Whilewehavedesignedourbatterypackstopassivelycontainanysinglecell’sreleaseofenergywithoutspreadingtoneighboringcells,therecanbenoassurancethatafieldortestingfailureofourvehiclesorotherbatterypacksthatweproducewillnotoccur,inparticularduetoahigh-speedcrash.Likewise,asoursolarenergysystemsandenergystorageproductsgenerateandstoreelectricity,theyhavethepotentialtofailorcauseinjurytopeopleorproperty.Anyproductliabilityclaimmaysubjectustolawsuitsandsubstantialmonetarydamages,productrecallsorredesignefforts,andevenameritlessclaimmayrequireustodefendit,allofwhichmaygeneratenegativepublicityandbeexpensiveandtime-consuming.Inmostjurisdictions,wegenerallyself-insureagainsttheriskofproductliabilityclaimsforvehicleexposure,meaningthatanyproductliabilityclaimswilllikelyhavetobepaidfromcompanyfundsandnotbyinsurance.
Wewillneedtomaintainpubliccredibilityandconfidenceinourlong-termbusinessprospectsinordertosucceed.Inordertomaintainandgrowourbusiness,wemustmaintaincredibilityandconfidenceamongcustomers,suppliers,analysts,investors,ratings
agenciesandotherpartiesinourlong-termfinancialviabilityandbusinessprospects.Maintainingsuchconfidencemaybechallengingduetoourlimitedoperatinghistoryrelativetoestablishedcompetitors;customerunfamiliaritywithourproducts;anydelayswemayexperienceinscalingmanufacturing,deliveryandserviceoperationstomeetdemand;competitionanduncertaintyregardingthefutureofelectricvehiclesorourotherproductsandservices;ourquarterlyproductionandsalesperformancecomparedwithmarketexpectations;andotherfactorsincludingthoseoverwhichwehavenocontrol.Inparticular,Tesla’sproducts,business,resultsofoperations,statementsandactionsarewell-publicizedbyarangeofthirdparties.Suchattentionincludesfrequentcriticism,whichisoftenexaggeratedorunfounded,suchasspeculationregardingthesufficiencyorstabilityofourmanagementteam.Anysuchnegativeperceptions,whethercausedbyusornot,mayharmourbusinessandmakeitmoredifficulttoraiseadditionalfundsifneeded.
Wemaybeunabletoeffectivelygrow,ormanagethecompliance,residualvalue,financingandcreditrisksrelatedto,ourvariousfinancingprograms.WeofferfinancingarrangementsforourvehiclesinNorthAmerica,EuropeandAsiaprimarilythroughvariousfinancialinstitutions.Wealso
currentlyoffervehiclefinancingarrangementsdirectlythroughourlocalsubsidiariesincertainmarkets.Dependingonthecountry,sucharrangementsareavailableforspecifiedmodelsandmayincludeoperatingleasesdirectlywithus
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underwhichwetypicallyreceiveonlyaverysmallportionofthetotalvehiclepurchasepriceatthetimeoflease,followedbyastreamofpaymentsoverthetermofthelease.Wehavealsoofferedvariousarrangementsforcustomersofoursolarenergysystemswherebytheypayusafixedpaymenttoleaseorfinancethepurchaseofsuchsystemsorpurchaseelectricitygeneratedbythem.Ifwedonotsuccessfullymonitorandcomplywithapplicablenational,stateand/orlocalfinancialregulationsandconsumerprotectionlawsgoverningthesetransactions,wemaybecomesubjecttoenforcementactionsorpenalties.
Theprofitabilityofanydirectly-leasedvehiclesreturnedtousattheendoftheirleasesdependsonourabilitytoaccuratelyprojectourvehicles’residualvaluesattheoutsetoftheleases,andsuchvaluesmayfluctuatepriortotheendoftheirtermsdependingonvariousfactorssuchassupplyanddemandofourusedvehicles,economiccyclesandthepricingofnewvehicles.Wehavemadeinthepastandmaymakeinthefuturecertainadjustmentstoourpricesfromtimetotimeintheordinarycourseofbusiness,whichmayimpacttheresidualvaluesofourvehiclesandreducetheprofitabilityofourvehicleleasingprogram.Thefundingandgrowthofthisprogramalsoreliesonourabilitytosecureadequatefinancingand/orbusinesspartners.Ifweareunabletoadequatelyfundourleasingprogramthroughinternalfunds,partnersorotherfinancingsources,andcompellingalternativefinancingprogramsarenotavailableforourcustomerswhomayexpectorneedsuchoptions,wemaybeunabletogrowourvehicledeliveries.Furthermore,ifourvehicleleasingbusinessgrowssubstantially,ourbusinessmaysufferifwecannoteffectivelymanagetheresultinggreaterlevelsofresidualrisk.
Similarly,wehaveprovidedresalevalueguaranteestovehiclecustomersandpartnersforcertainfinancingprograms,underwhichsuchcounterpartiesmayselltheirvehiclesbacktousatcertainpointsintimeatpre-determinedamounts.However,actualresalevaluesaresubjecttofluctuationsoverthetermofthefinancingarrangements,suchasfromthevehiclepricingchangesdiscussedabove.Iftheactualresalevaluesofanyvehiclesresoldorreturnedtouspursuanttotheseprogramsaremateriallylowerthanthepre-determinedamountswehaveoffered,ourfinancialconditionandoperatingresultsmaybeharmed.
Finally,ourvehicleandsolarenergysystemfinancingprogramsandourenergystoragesalesprogramsalsoexposeustocustomercreditrisk.Intheeventofawidespreadeconomicdownturnorothercatastrophicevent,ourcustomersmaybeunableorunwillingtosatisfytheirpaymentobligationstousonatimelybasisoratall.Ifasignificantnumberofourcustomersdefault,wemayincursubstantialcreditlossesand/orimpairmentchargeswithrespecttotheunderlyingassets.
WemustmanageongoingobligationsunderouragreementwiththeResearchFoundationfortheStateUniversityofNewYorkrelatingtoourGigafactoryNewYork.WearepartytoanoperatingleaseandaresearchanddevelopmentagreementthroughtheSUNYFoundation.Theseagreementsprovideforthe
constructionanduseofourGigafactoryNewYork,whichwehaveprimarilyusedforthedevelopmentandproductionofourSolarRoofandothersolarproductsandcomponents,energystoragecomponentsandSuperchargercomponents,andforotherlessor-approvedfunctions.Underthisagreement,weareobligatedto,amongotherthings,meetemploymenttargetsaswellasspecifiedminimumnumbersofpersonnelintheStateofNewYorkandinBuffalo,NewYorkandspendorincur$5.00billionincombinedcapital,operationalexpenses,costsofgoodssoldandothercostsintheStateofNewYorkduringaperiodthatwasinitially10yearsbeginningApril30,2018.AswetemporarilysuspendedmostofourmanufacturingoperationsatGigafactoryNewYorkpursuanttoaNewYorkStateexecutiveorderissuedinMarch2020asaresultoftheCOVID-19pandemic,weweregrantedaone-yeardeferralofourobligationtobecompliantwithourapplicabletargetsundersuchagreementonApril30,2020,whichwasmemorializedinanamendmenttoouragreementwiththeSUNYFoundationinJuly2020.InApril2021,weweregrantedanadditionaldeferralthroughDecember31,2021subjectonlytomemorializationinwritingbyusandtheSUNYFoundation,asouroperationsatGigafactoryNewYorkhavenotyetfullyrampedduetoanumberoffactorsrelatedtothepandemic.WhileweexpecttohaveandgrowsignificantoperationsatGigafactoryNewYorkandthesurroundingBuffaloarea,anyfailurebyusinanyyearoverthecourseofthetermoftheagreementtomeetallapplicablefutureobligationsmayresultinourobligationtopaya“programpayment”of$41milliontotheSUNYFoundationforsuchyear,theterminationofourleaseatGigafactoryNewYorkwhichmayrequireustopayadditionalpenalties,and/ortheneedtoadjustcertainofouroperations,inparticularourproductionrampoftheSolarRooforothercomponents.Anyoftheforegoingeventsmayharmourbusiness,financialconditionandoperatingresults.
Ifweareunabletoattract,hireandretainkeyemployeesandqualifiedpersonnel,ourabilitytocompetemaybeharmed.Thelossoftheservicesofanyofourkeyemployeesoranysignificantportionofourworkforcecoulddisruptouroperationsordelaythe
development,introductionandrampofourproductsandservices.Inparticular,wearehighlydependentontheservicesofElonMusk,TechnokingofTeslaandourChiefExecutiveOfficer.Noneofourkeyemployeesisboundbyanemploymentagreementforanyspecifictermandwemaynotbeabletosuccessfullyattractandretainseniorleadershipnecessarytogrowourbusiness.Ourfuturesuccessalsodependsuponourabilitytoattract,hireandretainalargenumberofengineering,manufacturing,marketing,salesanddelivery,service,installation,technologyandsupportpersonnel,especiallytosupportourplannedhigh-volumeproductsales,marketandgeographicalexpansionandtechnologicalinnovations.Recruitingefforts,particularlyforsenioremployees,maybetime-consuming,whichmaydelaytheexecutionofourplans.Ifwearenotsuccessfulinmanagingtheserisks,ourbusiness,financialconditionandoperatingresultsmaybeharmed.
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EmployeesmayleaveTeslaorchooseotheremployersoverTesladuetovariousfactors,suchasaverycompetitivelabormarketfortalentedindividualswithautomotiveortechnologyexperience,oranynegativepublicityrelatedtous.Inregionswherewehaveorwillhaveoperations,particularlysignificantengineeringandmanufacturingcenters,thereisstrongcompetitionforindividualswithskillsetsneededforourbusiness,includingspecializedknowledgeofelectricvehicles,softwareengineering,manufacturingengineeringandelectricalandbuildingconstructionexpertise.Moreover,wemaybeimpactedbyperceptionsrelatingtoreductionsinforcethatwehaveconductedinthepastinordertooptimizeourorganizationalstructureandreducecostsandthedepartureofcertainseniorpersonnelforvariousreasons.Likewise,asaresultofourtemporarysuspensionofvariousU.S.manufacturingoperationsinthefirsthalfof2020,inApril2020wetemporarilyfurloughedcertainhourlyemployeesandreducedmostsalariedemployees’basesalaries.Wealsocompetewithbothmatureandprosperouscompaniesthathavefargreaterfinancialresourcesthanwedoandstart-upsandemergingcompaniesthatpromiseshort-termgrowthopportunities.
Finally,ourcompensationphilosophyforallofourpersonnelreflectsourstartuporigins,withanemphasisonequity-basedawardsandbenefitsinordertocloselyaligntheirincentiveswiththelong-terminterestsofourstockholders.Weperiodicallyseekandobtainapprovalfromourstockholdersforfutureincreasestothenumberofawardsavailableunderourequityincentiveandemployeestockpurchaseplans.Ifweareunabletoobtaintherequisitestockholderapprovalsforsuchfutureincreases,wemayhavetoexpendadditionalcashtocompensateouremployeesandourabilitytoretainandhirequalifiedpersonnelmaybeharmed.
WearehighlydependentontheservicesofElonMusk,TechnokingofTeslaandourChiefExecutiveOfficer.WearehighlydependentontheservicesofElonMusk,TechnokingofTeslaandourChiefExecutiveOfficer.AlthoughMr.Muskspends
significanttimewithTeslaandishighlyactiveinourmanagement,hedoesnotdevotehisfulltimeandattentiontoTesla.Mr.MuskalsocurrentlyservesasChiefExecutiveOfficerandChiefTechnicalOfficerofSpaceExplorationTechnologiesCorp.,adeveloperandmanufacturerofspacelaunchvehicles,andisinvolvedinotheremergingtechnologyventures.
Wemustmanagerisksrelatingtoourinformationtechnologysystemsandthethreatofintellectualpropertytheft,databreachesandcyber-attacks.Wemustcontinuetoexpandandimproveourinformationtechnologysystemsasouroperationsgrow,suchasproductdatamanagement,
procurement,inventorymanagement,productionplanningandexecution,sales,serviceandlogistics,dealermanagement,financial,taxandregulatorycompliancesystems.ThisincludestheimplementationofnewinternallydevelopedsystemsandthedeploymentofsuchsystemsintheU.S.andabroad.Wemustalsocontinuetomaintaininformationtechnologymeasuresdesignedtoprotectusagainstintellectualpropertytheft,databreaches,sabotageandotherexternalorinternalcyber-attacksormisappropriation.However,theimplementation,maintenance,segregationandimprovementofthesesystemsrequiresignificantmanagementtime,supportandcost,andthereareinherentrisksassociatedwithdeveloping,improvingandexpandingourcoresystemsaswellasimplementingnewsystemsandupdatingcurrentsystems,includingdisruptionstotherelatedareasofbusinessoperation.Theserisksmayaffectourabilitytomanageourdataandinventory,procurepartsorsuppliesormanufacture,sell,deliverandserviceproducts,adequatelyprotectourintellectualpropertyorachieveandmaintaincompliancewith,orrealizeavailablebenefitsunder,taxlawsandotherapplicableregulations.
Moreover,ifwedonotsuccessfullyimplement,maintainorexpandthesesystemsasplanned,ouroperationsmaybedisrupted,ourabilitytoaccuratelyand/ortimelyreportourfinancialresultscouldbeimpairedanddeficienciesmayariseinourinternalcontroloverfinancialreporting,whichmayimpactourabilitytocertifyourfinancialresults.Moreover,ourproprietaryinformationorintellectualpropertycouldbecompromisedormisappropriatedandourreputationmaybeadverselyaffected.Ifthesesystemsortheirfunctionalitydonotoperateasweexpectthemto,wemayberequiredtoexpendsignificantresourcestomakecorrectionsorfindalternativesourcesforperformingthesefunctions.
Anyunauthorizedcontrolormanipulationofourproducts’systemscouldresultinlossofconfidenceinusandourproducts.Ourproductscontaincomplexinformationtechnologysystems.Forexample,ourvehiclesandenergystorageproductsaredesignedwithbuilt-in
dataconnectivitytoacceptandinstallperiodicremoteupdatesfromustoimproveorupdatetheirfunctionality.Whilewehaveimplementedsecuritymeasuresintendedtopreventunauthorizedaccesstoourinformationtechnologynetworks,ourproductsandtheirsystems,maliciousentitieshavereportedlyattempted,andmayattemptinthefuture,togainunauthorizedaccesstomodify,alterandusesuchnetworks,productsandsystemstogaincontrolof,ortochange,ourproducts’functionality,userinterfaceandperformancecharacteristicsortogainaccesstodatastoredinorgeneratedbyourproducts.Weencouragereportingofpotentialvulnerabilitiesinthesecurityofourproductsthroughoursecurityvulnerabilityreportingpolicy,andweaimtoremedyanyreportedandverifiedvulnerability.However,therecanbenoassurancethatanyvulnerabilitieswillnotbeexploitedbeforetheycanbeidentified,orthatourremediationeffortsareorwillbesuccessful.
Anyunauthorizedaccesstoorcontrolofourproductsortheirsystemsoranylossofdatacouldresultinlegalclaimsorgovernmentinvestigations.Inaddition,regardlessoftheirveracity,reportsofunauthorizedaccesstoourproducts,theirsystemsordata,aswellasotherfactorsthatmayresultintheperceptionthatourproducts,theirsystemsordataarecapableofbeinghacked,mayharmourbrand,prospectsandoperatingresults.Wehavebeenthesubjectofsuchreportsinthepast.
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Ourbusinessmaybeadverselyaffectedbyanydisruptionscausedbyunionactivities.Itisnotuncommonforemployeesofcertaintradesatcompaniessuchasustobelongtoaunion,whichcanresultinhigheremployeecostsand
increasedriskofworkstoppages.Moreover,regulationsinsomejurisdictionsoutsideoftheU.S.mandateemployeeparticipationinindustrialcollectivebargainingagreementsandworkcouncilswithcertainconsultationrightswithrespecttotherelevantcompanies’operations.Althoughweworkdiligentlytoprovidethebestpossibleworkenvironmentforouremployees,theymaystilldecidetojoinorseekrecognitiontoformalaborunion,orwemayberequiredtobecomeaunionsignatory.Fromtimetotime,laborunionshaveengagedincampaignstoorganizecertainofouroperations,aspartofwhichsuchunionshavefiledunfairlaborpracticechargesagainstuswiththeNationalLaborRelationsBoard(the"NLRB"),andtheymaydosointhefuture.InSeptember2019,anadministrativelawjudgeissuedarecommendeddecisionforTeslaoncertainissuesandagainstusoncertainothers.InMarch2021,theNLRBadoptedaportionoftherecommendationandoverturnedothers.WehavefiledaNoticeofAppealwiththeUnitedStatesCircuitCourtfortheFifthCircuit.AnyunfavorableultimateoutcomeforTeslamayhaveanegativeimpactontheperceptionofTesla’streatmentofouremployees.Furthermore,wearedirectlyorindirectlydependentuponcompanieswithunionizedworkforces,suchassuppliersandtruckingandfreightcompanies.Anyworkstoppagesorstrikesorganizedbysuchunionscoulddelaythemanufactureandsaleofourproductsandmayharmourbusinessandoperatingresults.
Wemaychoosetoorbecompelledtoundertakeproductrecallsortakeothersimilaractions.Asamanufacturingcompany,wemustmanagetheriskofproductrecallswithrespecttoourproducts.Recallsforourvehicleshaveresulted
from,forexample,industry-wideissueswithairbagsfromaparticularsupplier,concernsofcorrosioninModelSandModelXpowersteeringassistmotorbolts,certainsuspensionfailuresinModelSandModelXandissueswithModelSandModelXmediacontrolunits.Inadditiontorecallsinitiatedbyusforvariouscauses,testingoforinvestigationsintoourproductsbygovernmentregulatorsorindustrygroupsmaycompelustoinitiateproductrecallsormayresultinnegativepublicperceptionsaboutthesafetyofourproducts,evenifwedisagreewiththedefectdeterminationorhavedatathatshowstheactualsafetyrisktobenon-existent.Inthefuture,wemayvoluntarilyorinvoluntarilyinitiaterecallsifanyofourproductsaredeterminedbyusoraregulatortocontainasafetydefectorbenoncompliantwithapplicablelawsandregulations,suchasU.S.federalmotorvehiclesafetystandards.Suchrecalls,whethervoluntaryorinvoluntaryorcausedbysystemsorcomponentsengineeredormanufacturedbyusoroursuppliers,couldresultinsignificantexpense,supplychaincomplicationsandserviceburdens,andmayharmourbrand,business,prospects,financialconditionandoperatingresults.
Ourcurrentandfuturewarrantyreservesmaybeinsufficienttocoverfuturewarrantyclaims.Weprovideamanufacturer’swarrantyonallnewandusedTeslavehicleswesell.Wealsoprovidecertainwarrantieswithrespecttotheenergy
generationandstoragesystemswesell,includingontheirinstallationandmaintenance.Forcomponentsnotmanufacturedbyus,wegenerallypassthroughtoourcustomerstheapplicablemanufacturers’warranties,butmayretainsomewarrantyresponsibilitiesforsomeorallofthelifeofsuchcomponents.Aspartofourenergygenerationandstoragesystemcontracts,wemayprovidethecustomerwithperformanceguaranteesthatguaranteethattheunderlyingsystemwillmeetorexceedtheminimumenergygenerationorotherenergyperformancerequirementsspecifiedinthecontract.Undertheseperformanceguarantees,webeartheriskofelectricityproductionorotherperformanceshortfalls,eveniftheyresultfromfailuresincomponentsfromthirdpartymanufacturers.Theserisksareexacerbatedintheeventsuchmanufacturersceaseoperationsorfailtohonortheirwarranties.
Ifourwarrantyreservesareinadequatetocoverfuturewarrantyclaimsonourproducts,ourfinancialconditionandoperatingresultsmaybeharmed.Warrantyreservesincludeourmanagement’sbestestimatesoftheprojectedcoststorepairortoreplaceitemsunderwarranty,whicharebasedonactualclaimsincurredtodateandanestimateofthenature,frequencyandcostsoffutureclaims.Suchestimatesareinherentlyuncertainandchangestoourhistoricalorprojectedexperience,especiallywithrespecttoproductssuchasModel3,ModelYandSolarRoofthatwehaveintroducedrelativelyrecentlyand/orthatweexpecttoproduceatsignificantlygreatervolumesthanourpastproducts,maycausematerialchangestoourwarrantyreservesinthefuture.
Ourinsurancecoveragestrategymaynotbeadequatetoprotectusfromallbusinessrisks.Wemaybesubject,intheordinarycourseofbusiness,tolossesresultingfromproductsliability,accidents,actsofGodandotherclaimsagainst
us,forwhichwemayhavenoinsurancecoverage.Asageneralmatter,wedonotmaintainasmuchinsurancecoverageasmanyothercompaniesdo,andinsomecases,wedonotmaintainanyatall.Additionally,thepoliciesthatwedohavemayincludesignificantdeductiblesorself-insuredretentions,policylimitationsandexclusions,andwecannotbecertainthatourinsurancecoveragewillbesufficienttocoverallfuturelossesorclaimsagainstus.Alossthatisuninsuredorwhichexceedspolicylimitsmayrequireustopaysubstantialamounts,whichmayharmourfinancialconditionandoperatingresults.
Thereisnoguaranteethatwewillhavesufficientcashflowfromourbusinesstopayourindebtednessorthatwewillnotincuradditionalindebtedness.AsofMarch31,2021,weandoursubsidiarieshadoutstanding$9.52billioninaggregateprincipalamountofindebtedness(seeNote10,Debt,
totheconsolidatedfinancialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Q).Ourconsolidatedindebtednessmayincreaseourvulnerabilitytoanygenerallyadverseeconomicandindustryconditions.Weandoursubsidiariesmay,
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subjecttothelimitationsinthetermsofourexistingandfutureindebtedness,incuradditionaldebt,secureexistingorfuturedebtorrecapitalizeourdebt.
Holdersofconvertibleseniornotesissuedbyusoroursubsidiarymayconvertsuchnotesattheiroptionpriortothescheduledmaturitiesoftherespectiveconvertibleseniornotesundercertaincircumstancespursuanttothetermsofsuchnotes.Uponconversionoftheapplicableconvertibleseniornotes,wewillbeobligatedtodelivercashand/orsharespursuanttothetermsofsuchnotes.Forexample,asourstockpricehassignificantlyincreasedrecently,wehaveseenhigherlevelsofearlyconversionsofsuch“in-the-money”convertibleseniornotes.Moreover,holdersofsuchconvertibleseniornotesmayhavetherighttorequireustorepurchasetheirnotesupontheoccurrenceofafundamentalchangepursuanttothetermsofsuchnotes.
Ourabilitytomakescheduledpaymentsoftheprincipalandinterestonourindebtednesswhendue,tomakepaymentsuponconversionorrepurchasedemandswithrespecttoourconvertibleseniornotesortorefinanceourindebtednessaswemayneedordesire,dependsonourfutureperformance,whichissubjecttoeconomic,financial,competitiveandotherfactorsbeyondourcontrol.Ourbusinessmaynotcontinuetogeneratecashflowfromoperationsinthefuturesufficienttosatisfyourobligationsunderourexistingindebtednessandanyfutureindebtednesswemayincur,andtomakenecessarycapitalexpenditures.Ifweareunabletogeneratesuchcashflow,wemayberequiredtoadoptoneormorealternatives,suchasreducingordelayinginvestmentsorcapitalexpenditures,sellingassets,refinancingorobtainingadditionalequitycapitalontermsthatmaybeonerousorhighlydilutive.Ourabilitytorefinanceexistingorfutureindebtednesswilldependonthecapitalmarketsandourfinancialconditionatsuchtime.Inaddition,ourabilitytomakepaymentsmaybelimitedbylaw,byregulatoryauthorityorbyagreementsgoverningourfutureindebtedness.Wemaynotbeabletoengageintheseactivitiesondesirabletermsoratall,whichmayresultinadefaultonourexistingorfutureindebtednessandharmourfinancialconditionandoperatingresults.
Ourdebtagreementscontaincovenantrestrictionsthatmaylimitourabilitytooperateourbusiness.Thetermsofcertainofourcreditfacilities,includingourseniorasset-basedrevolvingcreditagreement,contain,andanyofourotherfuture
debtagreementsmaycontain,covenantrestrictionsthatlimitourabilitytooperateourbusiness,includingrestrictionsonourabilityto,amongotherthings,incuradditionaldebtorissueguarantees,createliens,repurchasestock,ormakeotherrestrictedpayments,andmakecertainvoluntaryprepaymentsofspecifieddebt.Inaddition,undercertaincircumstanceswearerequiredtocomplywithafixedchargecoverageratio.Asaresultofthesecovenants,ourabilitytorespondtochangesinbusinessandeconomicconditionsandengageinbeneficialtransactions,includingtoobtainadditionalfinancingasneeded,mayberestricted.Furthermore,ourfailuretocomplywithourdebtcovenantscouldresultinadefaultunderourdebtagreements,whichcouldpermittheholderstoaccelerateourobligationtorepaythedebt.Ifanyofourdebtisaccelerated,wemaynothavesufficientfundsavailabletorepayit.
Additionalfundsmaynotbeavailabletouswhenweneedorwantthem.Ourbusinessandourfutureplansforexpansionarecapital-intensive,andthespecifictimingofcashinflowsandoutflowsmayfluctuate
substantiallyfromperiodtoperiod.Wemayneedorwanttoraiseadditionalfundsthroughtheissuanceofequity,equity-relatedordebtsecuritiesorthroughobtainingcreditfromfinancialinstitutionstofund,togetherwithourprincipalsourcesofliquidity,thecostsofdevelopingandmanufacturingourcurrentorfutureproducts,topayanysignificantunplannedoracceleratedexpensesorfornewsignificantstrategicinvestments,ortorefinanceoursignificantconsolidatedindebtedness,evenifnotrequiredtodosobythetermsofsuchindebtedness.Wecannotbecertainthatadditionalfundswillbeavailabletousonfavorabletermswhenrequired,oratall.Ifwecannotraiseadditionalfundswhenweneedthem,ourfinancialcondition,resultsofoperations,businessandprospectscouldbemateriallyandadverselyaffected.
Wemaybenegativelyimpactedbyanyearlyobsolescenceofourmanufacturingequipment.Wedepreciatethecostofourmanufacturingequipmentovertheirexpectedusefullives.However,productcyclesormanufacturingtechnology
maychangeperiodically,andwemaydecidetoupdateourproductsormanufacturingprocessesmorequicklythanexpected.Moreover,improvementsinengineeringandmanufacturingexpertiseandefficiencymayresultinourabilitytomanufactureourproductsusinglessofourcurrentlyinstalledequipment.Alternatively,aswerampandmaturetheproductionofourproductstohigherlevels,wemaydiscontinuetheuseofalreadyinstalledequipmentinfavorofdifferentoradditionalequipment.Theusefullifeofanyequipmentthatwouldberetiredearlyasaresultwouldbeshortened,causingthedepreciationonsuchequipmenttobeaccelerated,andourresultsofoperationsmaybeharmed.
Weholdandmayacquiredigitalassetsthatmaybesubjecttovolatilemarketprices,impairmentanduniquerisksofloss.InJanuary2021,weupdatedourinvestmentpolicytoprovideuswithmoreflexibilitytofurtherdiversifyandmaximizereturnsonourcashthatis
notrequiredtomaintainadequateoperatingliquidity,allowingustoinvestaportionofsuchcashincertainalternativereserveassetsincludingdigitalassets,goldbullion,goldexchange-tradedfundsandotherassetsasspecifiedinthefuture.Thereafter,weinvestedcertainofsuchcashinbitcoinandalsobeganacceptingbitcoinasaformofpaymentforcertainofourproductsinspecifiedregions,subjecttoapplicablelaws.Wegenerallyintendtoholdourbitcoinpositionslong-termregardlessofthemannerofacquisition.
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Thepricesofdigitalassetshavebeeninthepastandmaycontinuetobehighlyvolatile,includingasaresultofvariousassociatedrisksand
uncertainties.Forexample,theprevalenceofsuchassetsisarelativelyrecenttrend,andtheirlong-termadoptionbyinvestors,consumersandbusinessesisunpredictable.Moreover,theirlackofaphysicalform,theirrelianceontechnologyfortheircreation,existenceandtransactionalvalidationandtheirdecentralizationmaysubjecttheirintegritytothethreatofmaliciousattacksandtechnologicalobsolescence.Finally,theextenttowhichsecuritieslawsorotherregulationsapplyormayapplyinthefuturetosuchassetsisunclearandmaychangeinthefuture.Ifweholddigitalassetsandtheirvaluesdecreaserelativetoourpurchaseprices,ourfinancialconditionmaybeharmed.
Moreover,digitalassetsarecurrentlyconsideredindefinite-livedintangibleassetsunderapplicableaccountingrules,meaningthatanydecrease
intheirfairvaluesbelowourcarryingvaluesforsuchassetsatanytimesubsequenttotheiracquisitionwillrequireustorecognizeimpairmentcharges,whereaswemaymakenoupwardrevisionsforanymarketpriceincreasesuntilasale,whichmayadverselyaffectouroperatingresultsinanyperiodinwhichsuchimpairmentoccurs.Moreover,thereisnoguaranteethatfuturechangesinGAAPwillnotrequireustochangethewayweaccountfordigitalassetsheldbyus.
Finally,asintangibleassetswithoutcentralizedissuersorgoverningbodies,digitalassetshavebeen,andmayinthefuturebe,subjecttosecurity
breaches,cyberattacksorothermaliciousactivities,aswellashumanerrorsorcomputermalfunctionsthatmayresultinthelossordestructionofprivatekeysneededtoaccesssuchassets.Whileweintendtotakeallreasonablemeasurestosecureanydigitalassets,ifsuchthreatsarerealizedorthemeasuresorcontrolswecreateorimplementtosecureourdigitalassetsfail,itcouldresultinapartialortotalmisappropriationorlossofourdigitalassets,andourfinancialconditionandoperatingresultsmaybeharmed.
Weareexposedtofluctuationsincurrencyexchangerates.Wetransactbusinessgloballyinmultiplecurrenciesandhaveforeigncurrencyrisksrelatedtoourrevenue,costsofrevenue,operatingexpenses
andlocalizedsubsidiarydebtdenominatedincurrenciesotherthantheU.S.dollar,currentlyprimarilytheChineseyuan,euro,CanadiandollarandSwissfranc.Totheextentwehavesignificantrevenuesdenominatedinsuchforeigncurrencies,anystrengtheningoftheU.S.dollarwouldtendtoreduceourrevenuesasmeasuredinU.S.dollars,aswehavehistoricallyexperienced.Inaddition,aportionofourcostsandexpenseshavebeen,andweanticipatewillcontinuetobe,denominatedinforeigncurrencies,includingtheChineseyuanandJapaneseyen.IfwedonothavefullyoffsettingrevenuesinthesecurrenciesandifthevalueoftheU.S.dollardepreciatessignificantlyagainstthesecurrencies,ourcostsasmeasuredinU.S.dollarsasapercentofourrevenueswillcorrespondinglyincreaseandourmarginswillsuffer.Moreover,whileweundertakelimitedhedgingactivitiesintendedtooffsettheimpactofcurrencytranslationexposure,itisimpossibletopredictoreliminatesuchimpact.Asaresult,ouroperatingresultsmaybeharmed.
Wemayneedtodefendourselvesagainstintellectualpropertyinfringementclaims,whichmaybetime-consumingandexpensive.Ourcompetitorsorotherthirdpartiesmayholdorobtainpatents,copyrights,trademarksorotherproprietaryrightsthatcouldprevent,limitor
interferewithourabilitytomake,use,develop,sellormarketourproductsandservices,whichcouldmakeitmoredifficultforustooperateourbusiness.Fromtimetotime,theholdersofsuchintellectualpropertyrightsmayasserttheirrightsandurgeustotakelicensesand/ormaybringsuitsalleginginfringementormisappropriationofsuchrights,whichcouldresultinsubstantialcosts,negativepublicityandmanagementattention,regardlessofmerit.Whileweendeavortoobtainandprotecttheintellectualpropertyrightsthatweexpectwillallowustoretainoradvanceourstrategicinitiatives,therecanbenoassurancethatwewillbeabletoadequatelyidentifyandprotecttheportionsofintellectualpropertythatarestrategictoourbusiness,ormitigatetheriskofpotentialsuitsorotherlegaldemandsbyourcompetitors.Accordingly,wemayconsidertheenteringintolicensingagreementswithrespecttosuchrights,althoughnoassurancecanbegiventhatsuchlicensescanbeobtainedonacceptabletermsorthatlitigationwillnotoccur,andsuchlicensesandassociatedlitigationcouldsignificantlyincreaseouroperatingexpenses.Inaddition,ifwearedeterminedtohaveorbelievethereisahighlikelihoodthatwehaveinfringeduponathirdparty’sintellectualpropertyrights,wemayberequiredtoceasemaking,sellingorincorporatingcertaincomponentsorintellectualpropertyintothegoodsandservicesweoffer,topaysubstantialdamagesand/orlicenseroyalties,toredesignourproductsandservicesand/ortoestablishandmaintainalternativebrandingforourproductsandservices.Intheeventthatwearerequiredtotakeoneormoresuchactions,ourbrand,business,financialconditionandoperatingresultsmaybeharmed.
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Ouroperationscouldbeadverselyaffectedbyeventsoutsideofourcontrol,suchasnaturaldisasters,warsorhealthepidemics.Wemaybeimpactedbynaturaldisasters,wars,healthepidemics,weatherconditionsorothereventsoutsideofourcontrol.Forexample,our
corporateheadquarters,theFremontFactoryandGigafactoryNevadaarelocatedinseismicallyactiveregionsinNorthernCaliforniaandNevada,andourGigafactoryShanghaiislocatedinaflood-pronearea.Moreover,theareainwhichourGigafactoryTexasisbeingbuiltexperiencedseverewinterstormsinthefirstquarterof2021thathadawidespreadimpactonutilitiesandtransportation.Ifmajordisasterssuchasearthquakes,floodsorothereventsoccur,orourinformationsystemorcommunicationsnetworkbreaksdownoroperatesimproperly,ourheadquartersandproductionfacilitiesmaybeseriouslydamaged,orwemayhavetostopordelayproductionandshipmentofourproducts.Inaddition,theglobalCOVID-19pandemichasimpactedeconomicmarkets,manufacturingoperations,supplychains,employmentandconsumerbehaviorinnearlyeverygeographicregionandindustryacrosstheworld,andwehavebeen,andmayinthefuturebe,adverselyaffectedasaresult.Wemayincurexpensesordelaysrelatingtosucheventsoutsideofourcontrol,whichcouldhaveamaterialadverseimpactonourbusiness,operatingresultsandfinancialcondition.
RisksRelatedtoGovernmentLawsandRegulations
Demandforourproductsandservicesmaybeimpactedbythestatusofgovernmentandeconomicincentivessupportingthedevelopmentandadoptionofsuchproducts.GovernmentandeconomicincentivesthatsupportthedevelopmentandadoptionofelectricvehiclesintheU.S.andabroad,includingcertaintax
exemptions,taxcreditsandrebates,maybereduced,eliminatedorexhaustedfromtimetotime.Forexample,a$7,500federaltaxcreditthatwasavailableintheU.S.forthepurchaseofourvehicleswasreducedinphasesduringandultimatelyendedin2019.Webelievethatthissequentialphase-outlikelypulledforwardsomevehicledemandintotheperiodsprecedingeachreduction.Moreover,previouslyavailableincentivesfavoringelectricvehiclesinareasincludingOntario,Canada,Germany,HongKong,DenmarkandCaliforniahaveexpiredorwerecancelledortemporarilyunavailable,andinsomecaseswerenoteventuallyreplacedorreinstituted,whichmayhavenegativelyimpactedsales.Anysimilardevelopmentscouldhavesomenegativeimpactondemandforourvehicles,andweandourcustomersmayhavetoadjusttothem.
Inaddition,certaingovernmentalrebates,taxcreditsandotherfinancialincentivesthatarecurrentlyavailablewithrespecttooursolarandenergystorageproductbusinessesallowustolowerourcostsandencouragecustomerstobuyourproductsandinvestorstoinvestinoursolarfinancingfunds.However,theseincentivesmayexpirewhentheallocatedfundingisexhausted,reducedorterminatedasrenewableenergyadoptionratesincrease,sometimeswithoutwarning.Forexample,theU.S.federalgovernmentcurrentlyofferscertaintaxcreditsfortheinstallationofsolarpowerfacilitiesandenergystoragesystemsthatarechargedfromaco-sitedsolarpowerfacility;however,thesetaxcreditsarecurrentlyscheduledtodeclineand/orexpirein2023andbeyond.Likewise,injurisdictionswherenetmeteringiscurrentlyavailable,ourcustomersreceivebillcreditsfromutilitiesforenergythattheirsolarenergysystemsgenerateandexporttothegridinexcessoftheelectricloadtheyuse.Thebenefitavailableundernetmeteringhasbeenorhasbeenproposedtobereduced,alteredoreliminatedinseveraljurisdictions,andhasalsobeencontestedandmaycontinuetobecontestedbeforetheFederalEnergyRegulatoryCommission.Anyreductionsorterminationsofsuchincentivesmayharmourbusiness,prospects,financialconditionandoperatingresultsbymakingourproductslesscompetitiveforpotentialcustomers,increasingourcostofcapitalandadverselyimpactingourabilitytoattractinvestmentpartnersandtoformnewfinancingfundsforoursolarandenergystorageassets.
Finally,weandourfundinvestorsclaimtheseU.S.federaltaxcreditsandcertainstateincentivesinamountsbasedonindependentlyappraisedfairmarketvaluesofoursolarandenergystoragesystems.Nevertheless,therelevantgovernmentalauthoritieshaveauditedsuchvaluesandincertaincaseshavedeterminedthatthesevaluesshouldbelower,andtheymaydosoagaininthefuture.Suchdeterminationsmayresultinadversetaxconsequencesand/orourobligationtomakeindemnificationorotherpaymentstoourfundsorfundinvestors.
Wearesubjecttoevolvinglawsandregulationsthatcouldimposesubstantialcosts,legalprohibitionsorunfavorablechangesuponouroperationsorproducts.Aswegrowourmanufacturingoperationsinadditionalregions,weareorwillbesubjecttocomplexenvironmental,manufacturing,healthand
safetylawsandregulationsatnumerousjurisdictionallevelsintheU.S.,China,Germanyandotherlocationsabroad,includinglawsrelatingtotheuse,handling,storage,recycling,disposaland/orhumanexposuretohazardousmaterials,productmaterialinputsandpost-consumerproductsandwithrespecttoconstructing,expandingandmaintainingourfacilities.Thecostsofcompliance,includingremediationsofanydiscoveredissuesandanychangestoouroperationsmandatedbyneworamendedlaws,maybesignificant,andanyfailurestocomplycouldresultinsignificantexpenses,delaysorfines.Wearealsosubjecttolawsandregulationsapplicabletothesupply,manufacture,import,saleandserviceofautomobilesbothdomesticallyandabroad.Forexample,incountriesoutsideoftheU.S.,wearerequiredtomeetstandardsrelatingtovehiclesafety,fueleconomyandemissionsthatareoftenmateriallydifferentfromrequirementsintheU.S.,thusresultinginadditionalinvestmentintothevehiclesandsystemstoensureregulatorycomplianceinthosecountries.Thisprocessmayincludeofficialreviewandcertificationofourvehicles
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byforeignregulatoryagenciespriortomarketentry,aswellascompliancewithforeignreportingandrecallmanagementsystemsrequirements.
Inparticular,weofferinourvehiclesAutopilotandFSDfeaturesthattodayassistdriverswithcertaintediousandpotentiallydangerousaspectsofroadtravel,butwhichcurrentlyrequiredriverstoremainfullyengagedinthedrivingoperation.WearecontinuingtodevelopourFSDtechnologywiththegoalofachievingfullyself-drivingcapabilityinthefuture.Thereareavarietyofinternational,federalandstateregulationsthatmayapplytothesale,registrationandoperationoffullyself-drivingvehicles,whichincludemanyexistingvehiclestandardsthatwerenotoriginallyintendedtoapplytovehiclesthatmaynothaveadriver.Suchregulationscontinuetorapidlychange,whichincreasesthelikelihoodofapatchworkofcomplexorconflictingregulations,ormaydelayproductsorrestrictself-drivingfeaturesandavailability,whichcouldadverselyaffectourbusiness.
Finally,asamanufacturer,installerandserviceproviderwithrespecttosolargenerationandenergystoragesystems,andasupplierofelectricitygeneratedandstoredbycertainofthesolarenergyandenergystoragesystemsweinstallforcustomers,weareimpactedbyfederal,stateandlocalregulationsandpoliciesconcerningelectricitypricing,theinterconnectionofelectricitygenerationandstorageequipmentwiththeelectricalgridandthesaleofelectricitygeneratedbythirdparty-ownedsystems.Ifregulationsandpoliciesthatadverselyimpacttheinterconnectionoruseofoursolarandenergystoragesystemsareintroduced,theycoulddeterpotentialcustomersfrompurchasingoursolarandenergystorageproducts,threatentheeconomicsofourexistingcontractsandcauseustoceasesolarandenergystoragesystemsalesandoperationsintherelevantjurisdictions,whichmayharmourbusiness,financialconditionandoperatingresults.
AnyfailurebyustocomplywithavarietyofU.S.andinternationalprivacyandconsumerprotectionlawsmayharmus.Anyfailurebyusorourvendororotherbusinesspartnerstocomplywithourpublicprivacynoticeorwithfederal,stateorinternationalprivacy,
dataprotectionorsecuritylawsorregulationsrelatingtotheprocessing,collection,use,retention,securityandtransferofpersonallyidentifiableinformationcouldresultinregulatoryorlitigation-relatedactionsagainstus,legalliability,fines,damages,ongoingauditrequirementsandothersignificantcosts.Substantialexpensesandoperationalchangesmayberequiredinconnectionwithmaintainingcompliancewithsuchlaws,andevenanunsuccessfulchallengebycustomersorregulatoryauthoritiesofouractivitiescouldresultinadversepublicityandcouldrequireacostlyresponsefromanddefensebyus.Inaddition,certainemergingprivacylawsarestillsubjecttoahighdegreeofuncertaintyastotheirinterpretation,applicationandimpact,andmayrequireextensivesystemandoperationalchanges,bedifficulttoimplement,increaseouroperatingcosts,adverselyimpactthecostorattractivenessoftheproductsorservicesweoffer,orresultinadversepublicityandharmourreputation.Forexample,inMay2018,theGeneralDataProtectionRegulationbegantofullyapplytotheprocessingofpersonalinformationcollectedfromindividualslocatedintheEuropeanUnion,andhascreatednewcomplianceobligationsandsignificantlyincreasedfinesfornoncompliance.Similarly,asofJanuary2020,theCaliforniaConsumerPrivacyActimposescertainlegalobligationsonouruseandprocessingofpersonalinformationrelatedtoCaliforniaresidents.Finally,newprivacyandcybersecuritylawsarecomingintoeffectinChina.Notwithstandingoureffortstoprotectthesecurityandintegrityofourcustomers’personalinformation,wemayberequiredtoexpendsignificantresourcestocomplywithdatabreachrequirementsif,forexample,thirdpartiesimproperlyobtainandusethepersonalinformationofourcustomersorweotherwiseexperienceadatalosswithrespecttocustomers’personalinformation.Amajorbreachofournetworksecurityandsystemsmayresultinfines,penaltiesanddamagesandharmourbrand,prospectsandoperatingresults.
Wecouldbesubjecttoliability,penaltiesandotherrestrictivesanctionsandadverseconsequencesarisingoutofcertaingovernmentalinvestigationsandproceedings.WearecooperatingwithcertaingovernmentinvestigationsasdiscussedinNote12,CommitmentsandContingencies,totheconsolidated
financialstatementsincludedelsewhereinthisQuarterlyReportonForm10-Q.Toourknowledge,nogovernmentagencyinanysuchongoinginvestigationhasconcludedthatanywrongdoingoccurred.However,wecannotpredicttheoutcomeorimpactofanysuchongoingmatters,andthereexiststhepossibilitythatwecouldbesubjecttoliability,penaltiesandotherrestrictivesanctionsandadverseconsequencesiftheSEC,theU.S.DepartmentofJusticeoranyothergovernmentagencyweretopursuelegalactioninthefuture.Moreover,weexpecttoincurcostsinrespondingtorelatedrequestsforinformationandsubpoenas,andifinstituted,indefendingagainstanygovernmentalproceedings.
Forexample,onOctober16,2018,theU.S.DistrictCourtfortheSouthernDistrictofNewYorkenteredafinaljudgmentapprovingthetermsofasettlementfiledwiththeCourtonSeptember29,2018,inconnectionwiththeactionstakenbytheSECrelatingtoMr.Musk’sstatementonAugust7,2018thathewasconsideringtakingTeslaprivate.Pursuanttothesettlement,we,amongotherthings,paidacivilpenaltyof$20million,appointedanindependentdirectorasthechairofourboardofdirectors,appointedtwoadditionalindependentdirectorstoourboardofdirectorsandmadefurtherenhancementstoourdisclosurecontrolsandothercorporategovernance-relatedmatters.OnApril26,2019,thissettlementwasamendedtoclarifycertainofthepreviously-agreeddisclosureprocedures,whichwassubsequentlyapprovedbytheCourt.Allothertermsofthepriorsettlementwerereaffirmedwithoutmodification.Althoughweintendtocontinuetocomplywiththetermsandrequirementsofthesettlement,ifthereisalackofcomplianceoranallegedlackofcompliance,additionalenforcementactionsorotherlegalproceedingsmaybeinstitutedagainstus.
52
Wemayfaceregulatorychallengestoorlimitationsonourabilitytosellvehiclesdirectly.Whileweintendtocontinuetoleverageourmosteffectivesalesstrategies,includingsalesthroughourwebsite,wemaynotbeabletosellour
vehiclesthroughourownstoresincertainstatesintheU.S.withlawsthatmaybeinterpretedtoimposelimitationsonthisdirect-to-consumersalesmodel.Ithasalsobeenassertedthatthelawsinsomestateslimitourabilitytoobtaindealerlicensesfromstatemotorvehicleregulators,andsuchassertionspersist.Incertainlocations,decisionsbyregulatorspermittingustosellvehicleshavebeenandmaybechallengedbydealerassociationsandothersastowhethersuchdecisionscomplywithapplicablestatemotorvehicleindustrylaws.Wehaveprevailedinmanyoftheselawsuitsandsuchresultshavereinforcedourcontinuingbeliefthatstatelawswerenotintendedtoapplytoamanufacturerthatdoesnothavefranchisedealers.Insomestates,therehavealsobeenregulatoryandlegislativeeffortsbydealerassociationstoproposelawsthat,ifenacted,wouldpreventusfromobtainingdealerlicensesintheirstatesgivenourcurrentsalesmodel.Afewstateshavepassedlegislationthatclarifiesourabilitytooperate,butatthesametimelimitsthenumberofdealerlicenseswecanobtainorstoresthatwecanoperate.Theapplicationofstatelawsapplicabletoouroperationscontinuestobedifficulttopredict.
Internationally,theremaybelawsinjurisdictionswehavenotyetenteredorlawsweareunawareofinjurisdictionswehaveenteredthatmayrestrictoursalesorotherbusinesspractices.Evenforthosejurisdictionswehaveanalyzed,thelawsinthisareacanbecomplex,difficulttointerpretandmaychangeovertime.Continuedregulatorylimitationsandotherobstaclesinterferingwithourabilitytosellvehiclesdirectlytoconsumersmayharmourfinancialconditionandoperatingresults.
RisksRelatedtotheOwnershipofOurCommonStockThetradingpriceofourcommonstockislikelytocontinuetobevolatile.Thetradingpriceofourcommonstockhasbeenhighlyvolatileandcouldcontinuetobesubjecttowidefluctuationsinresponsetovarious
factors,someofwhicharebeyondourcontrol.Ourcommonstockhasexperiencedoverthelast52weeksanintra-daytradinghighof$900.40pershareandalowof$89.28pershare,asadjustedtogiveeffecttotheStockSplit.Thestockmarketingeneral,andthemarketfortechnologycompaniesinparticular,hasexperiencedextremepriceandvolumefluctuationsthathaveoftenbeenunrelatedordisproportionatetotheoperatingperformanceofthosecompanies.Inparticular,alargeproportionofourcommonstockhasbeenhistoricallyandmayinthefuturebetradedbyshortsellerswhichmayputpressureonthesupplyanddemandforourcommonstock,furtherinfluencingvolatilityinitsmarketprice.Publicperceptionandotherfactorsoutsideofourcontrolmayadditionallyimpactthestockpriceofcompanieslikeusthatgarneradisproportionatedegreeofpublicattention,regardlessofactualoperatingperformance.Inaddition,inthepast,followingperiodsofvolatilityintheoverallmarketorthemarketpriceofourshares,securitiesclassactionlitigationhasbeenfiledagainstus.Whilewedefendsuchactionsvigorously,anyjudgmentagainstusoranyfuturestockholderlitigationcouldresultinsubstantialcostsandadiversionofourmanagement’sattentionandresources.
Ourfinancialresultsmayvarysignificantlyfromperiodtoperiodduetofluctuationsinouroperatingcostsandotherfactors.Weexpectourperiod-to-periodfinancialresultstovarybasedonouroperatingcosts,whichweanticipatewillfluctuateasthepaceatwhichwe
continuetodesign,developandmanufacturenewproductsandincreaseproductioncapacitybyexpandingourcurrentmanufacturingfacilitiesandaddingfuturefacilities,maynotbeconsistentorlinearbetweenperiods.Additionally,ourrevenuesfromperiodtoperiodmayfluctuateasweintroduceexistingproductstonewmarketsforthefirsttimeandaswedevelopandintroducenewproducts.Asaresultofthesefactors,webelievethatquarter-to-quartercomparisonsofourfinancialresults,especiallyintheshortterm,arenotnecessarilymeaningfulandthatthesecomparisonscannotberelieduponasindicatorsoffutureperformance.Moreover,ourfinancialresultsmaynotmeetexpectationsofequityresearchanalysts,ratingsagenciesorinvestors,whomaybefocusedonlyonshort-termquarterlyfinancialresults.Ifanyofthisoccurs,thetradingpriceofourstockcouldfallsubstantially,eithersuddenlyorovertime.
Wemayfailtomeetourpubliclyannouncedguidanceorotherexpectationsaboutourbusiness,whichcouldcauseourstockpricetodecline.Wemayprovidefromtimetotimeguidanceregardingourexpectedfinancialandbusinessperformance.Correctlyidentifyingkeyfactors
affectingbusinessconditionsandpredictingfutureeventsisinherentlyanuncertainprocess,andourguidancemaynotultimatelybeaccurateandhasinthepastbeeninaccurateincertainrespects,suchasthetimingofnewproductmanufacturingramps.Ourguidanceisbasedoncertainassumptionssuchasthoserelatingtoanticipatedproductionandsalesvolumes(whichgenerallyarenotlinearthroughoutagivenperiod),averagesalesprices,supplierandcommoditycostsandplannedcostreductions.Ifourguidancevariesfromactualresultsduetoourassumptionsnotbeingmetortheimpactonourfinancialperformancethatcouldoccurasaresultofvariousrisksanduncertainties,themarketvalueofourcommonstockcoulddeclinesignificantly.
Transactionsrelatingtoourconvertibleseniornotesmaydilutetheownershipinterestofexistingstockholders,ormayotherwisedepressthepriceofourcommonstock.Theconversionofsomeoralloftheconvertibleseniornotesissuedbyusoroursubsidiarieswoulddilutetheownershipinterestsofexisting
stockholderstotheextentwedeliversharesuponconversionofanyofsuchnotesbytheirholders,andwemaybe53
requiredtodeliverasignificantnumberofshares.Anysalesinthepublicmarketofthecommonstockissuableuponsuchconversioncouldadverselyaffecttheirprevailingmarketprices.Inaddition,theexistenceoftheconvertibleseniornotesmayencourageshortsellingbymarketparticipantsbecausetheconversionofsuchnotescouldbeusedtosatisfyshortpositions,ortheanticipatedconversionofsuchnotesintosharesofourcommonstockcoulddepressthepriceofourcommonstock.
Moreover,inconnectionwithcertainoftheconvertibleseniornotes,weenteredintoconvertiblenotehedgetransactions,whichareexpectedtoreducethepotentialdilutionand/oroffsetpotentialcashpaymentswearerequiredtomakeinexcessoftheprincipalamountuponconversionoftheapplicablenotes.Wealsoenteredintowarranttransactionswiththehedgecounterparties,whichcouldseparatelyhaveadilutiveeffectonourcommonstocktotheextentthatthemarketpricepershareofourcommonstockexceedstheapplicablestrikepriceofthewarrantsontheapplicableexpirationdates.Inaddition,thehedgecounterpartiesortheiraffiliatesmayenterintovarioustransactionswithrespecttotheirhedgepositions,whichcouldalsoaffectthemarketpriceofourcommonstockortheconvertibleseniornotes.
IfElonMuskwereforcedtosellsharesofourcommonstockthathehaspledgedtosecurecertainpersonalloanobligations,suchsalescouldcauseourstockpricetodecline.CertainbankinginstitutionshavemadeextensionsofcredittoElonMusk,ourChiefExecutiveOfficer,aportionofwhichwasusedtopurchase
sharesofcommonstockincertainofourpublicofferingsandprivateplacementsatthesamepricesofferedtothird-partyparticipantsinsuchofferingsandplacements.Wearenotapartytotheseloans,whicharepartiallysecuredbypledgesofaportionoftheTeslacommonstockcurrentlyownedbyMr.Musk.Ifthepriceofourcommonstockweretodeclinesubstantially,Mr.MuskmaybeforcedbyoneormoreofthebankinginstitutionstosellsharesofTeslacommonstocktosatisfyhisloanobligationsifhecouldnotdosothroughothermeans.Anysuchsalescouldcausethepriceofourcommonstocktodeclinefurther.
Anti-takeoverprovisionscontainedinourgoverningdocuments,applicablelawsandourconvertibleseniornotescouldimpairatakeoverattempt.Ourcertificateofincorporationandbylawsaffordcertainrightsandpowerstoourboardofdirectorsthatmayfacilitatethedelayorprevention
ofanacquisitionthatitdeemsundesirable.WearealsosubjecttoSection203oftheDelawareGeneralCorporationLawandotherprovisionsofDelawarelawthatlimittheabilityofstockholdersincertainsituationstoeffectcertainbusinesscombinations.Inaddition,thetermsofourconvertibleseniornotesmayrequireustorepurchasesuchnotesintheeventofafundamentalchange,includingatakeoverofourcompany.Anyoftheforegoingprovisionsandtermsthathastheeffectofdelayingordeterringachangeincontrolcouldlimittheopportunityforourstockholderstoreceiveapremiumfortheirsharesofourcommonstock,andcouldalsoaffectthepricethatsomeinvestorsarewillingtopayforourcommonstock.
ITEM2.UNREGISTEREDSALESOFEQUITYSECURITIESANDUSEOFPROCEEDSNone.
ITEM3.DEFAULTUPONSENIORSECURITIESNone.
ITEM4.MINESAFETYDISCLOSURESNotapplicable.
ITEM5.OTHERINFORMATIONNone.
ITEM6.EXHIBITSSeeIndextoExhibitsattheendofthisQuarterlyReportonForm10-QfortheinformationrequiredbythisItem.
54
INDEXTOEXHIBITS
Exhibit IncorporatedbyReference FiledNumber ExhibitDescription Form FileNo. Exhibit FilingDate Herewith
10.1
AmendmentNo.1totheSecondAmendedandRestatedLoanandSecurityAgreement,datedasofMarch15,2021,byandamongTesla2014WarehouseSPVLLC,TeslaFinanceLLC,theLendersandGroupAgentsfromtimetotimepartythereto,DeutscheBankTrustCompanyAmericas,asPayingAgent,andDeutscheBankAG,NewYorkBranch,asAdministrativeAgent.
— — — —
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31.1
Rule13a-14(a)/15(d)-14(a)CertificationofPrincipalExecutiveOfficer
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31.2
Rule13a-14(a)/15(d)-14(a)CertificationofPrincipalFinancialOfficer
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32.1*
Section1350Certifications
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101.INS
InlineXBRLInstanceDocument
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101.SCH
InlineXBRLTaxonomyExtensionSchemaDocument
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101.CAL
InlineXBRLTaxonomyExtensionCalculationLinkbaseDocument.
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101.DEF
InlineXBRLTaxonomyExtensionDefinitionLinkbaseDocument
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101.LAB
InlineXBRLTaxonomyExtensionLabelLinkbaseDocument
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101.PRE
InlineXBRLTaxonomyExtensionPresentationLinkbaseDocument
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104
CoverPageInteractiveDataFile(formattedasinlineXBRLwithapplicabletaxonomyextensioninformationcontainedinExhibits101)
*Furnishedherewith
55
SIGNATURES
PursuanttotherequirementsofSection13or15(d)theSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized. Tesla,Inc. Date:April27,2021 /s/ZacharyJ.Kirkhorn ZacharyJ.Kirkhorn ChiefFinancialOfficer
(PrincipalFinancialOfficerand
DulyAuthorizedOfficer)
56
Exhibit10.1
AMENDMENTNO.1TO
SECONDAMENDEDANDRESTATEDLOANANDSECURITYAGREEMENT
THISAMENDMENTNO.1TOSECONDAMENDEDANDRESTATEDLOANANDSECURITYAGREEMENT (this“Amendment”),datedasofMarch15,2021,isenteredintobyandamongTESLA2014WAREHOUSESPVLLC,aDelawarelimited liability company (the “Borrower”), TESLA FINANCE LLC, a Delaware limited liability company (“TFL”), theLenders party hereto, the Group Agents party hereto, DEUTSCHE BANK TRUST COMPANY AMERICAS, a New Yorkbanking corporation, as paying agent (the “Paying Agent”) and DEUTSCHE BANK AG, NEW YORK BRANCH, asadministrativeagent (in such capacity, the “AdministrativeAgent”) and ismade in respect of theSecondAmendedandRestatedLoanandSecurityAgreement,datedasofAugust28,2020(the“LoanAgreement”)amongtheBorrower,TFL,theLenderspartythereto,theGroupAgentspartythereto,theAdministrativeAgentandthePayingAgent.Definedtermsusedherein and not otherwise defined herein shall have the respective meanings given to them in the Loan Agreement asamendedhereby.
WHEREAS, theBorrower, theLenders, theGroupAgents, thePayingAgent and theAdministrativeAgent haveagreedtoamendtheLoanAgreementonthetermsandconditionssetforthherein;
NOW, THEREFORE, in consideration of the premises set forth above, and for other good and valuableconsideration,thereceiptandsufficiencyofwhichareherebyacknowledged,theBorrower,theLenders,theGroupAgents,thePayingAgentandtheAdministrativeAgentagreeasfollows:
1.AmendmentstoLoanAgreement.EffectiveasoftheAmendmentEffectiveDate(asdefinedbelow)andsubjecttothesatisfactionoftheconditionsprecedentsetforthinSection2hereof:
(a)Section1.01oftheLoanAgreementisherebyamendedbyamendingclause(ii)thedefinitionof“ExcessConcentrationAmount”toreadasfollows:
“(ii)theaggregateBaseResidualValueofallWarehouseSUBILeasesthatareEligibleLeasesscheduledtoreachtheirLeaseMaturityDateinanyone(1)monthexceedstheSingleMonthMaturityLimit;provided,thatthisclause(ii) shall not apply during (A) the period beginning on the Effective Date and ending on April 30, 2021 and (B) if aSecuritizationTake-OutDateoccursduringtheperiodbeginningontheAmendmentEffectiveDateandendingonJune30,2021,duringtheperiodbeginningonsuchSecuritizationTake-OutDateandendingonthePaymentDateoccurringinthefourth(4th)monthafterthemonthinwhichsuchSecuritizationTake-OutDateoccurs;”
(b)Section1.01oftheLoanAgreementisherebyamendedbyamendingclause(iiii)thedefinitionof“ExcessConcentrationAmount”toreadasfollows:
“(iii)theaggregateBaseResidualValueofallWarehouseSUBILeasesthatareEligibleLeasesscheduled
toreachtheirLeaseMaturityDateinany6consecutivemonthsexceedstheSixMonthMaturityLimit;provided,thatthisclause(iii)shallnotapplyduring(A)theperiodbeginningontheEffectiveDateandendingonApril30,2021and(B)ifaSecuritizationTake-OutDateoccursduringtheperiodbeginningontheAmendmentEffectiveDateandendingonJune30,2021,duringtheperiodbeginningonsuchSecuritizationTake-OutDateandendingonthePaymentDateoccurringinthesixth(6th)monthafterthemonthinwhichsuchSecuritizationTake-OutDateoccurs;
2.ConditionsPrecedent.ThisAmendmentshallbecomeeffectiveasofthedatehereof(the“AmendmentEffectiveDate”)uponsatisfactionorwaiverofthefollowingconditionsprecedent:
(a)thereceiptbytheAdministrativeAgentoritscounselofcounterpartsignaturepagestothisAmendmentandeachotherdocumentandcertificatetobeexecutedordeliveredinconnectionwiththisAmendment;
(b)noDefault,EventofDefaultorPotentialServicerDefaultshallhaveoccurredorbecontinuing,theTerminationDateshallnothaveoccurredandnoEventofBankruptcyshallhaveoccurredwithrespecttoTFLorTesla,Inc.;and
(c)theAdministrativeAgentandeachGroupAgentshallhavereceivedsuchotherdocuments,instrumentsandagreementsastheAdministrativeAgentorsuchGroupAgentmayhavereasonablyrequested.
3.RepresentationsandWarrantiesoftheBorrower.TheBorrowerherebyrepresentsandwarrantstotheAdministrativeAgent,eachGroupAgentandeachLenderasofthedatehereofthat:
(a)ThisAmendmentandtheLoanAgreement,asamendedhereby,constitutethelegal,validandbindingobligationsoftheBorrowerandareenforceableagainsttheBorrowerinaccordancewiththeirrespectiveterms,exceptassuchenforcementmaybelimitedbyapplicablebankruptcy,insolvency,reorganizationorothersimilarlawsrelatingtoorlimitingcreditors’rightsgenerallyandbygeneralprinciplesofequity(regardlessofwhetherenforcementissoughtinaproceedinginequityoratlaw).
(b)UpontheeffectivenessofthisAmendment,theBorrowerherebyaffirmsthatallrepresentationsandwarrantiesmadebyitinArticleIVoftheLoanAgreement,asamended,arecorrectinallmaterialrespectsonthedatehereofasthoughmadeasoftheeffectivedateofthisAmendment,unlessandtotheextentthatanysuchrepresentationandwarrantyisstatedtorelatesolelytoanearlierdate,inwhichcasesuchrepresentationandwarrantyshallhavebeentrueandcorrectinallmaterialrespectsasofsuchearlierdate.
(c)Asofthedatehereof,noDefault,EventofDefaultorPotentialServicerDefaultshallhaveoccurredorbecontinuing,theTerminationDateshallnothaveoccurredandnoEventofBankruptcyshallhaveoccurredwithrespecttoTFLorTesla,Inc.
4.ReferencetoandEffectontheLoanAgreement.
(a)UpontheeffectivenessofSection1hereof,eachreferenceintheLoanAgreementto
“thisAgreement”,“hereunder”,“hereof”,“herein”orwordsoflikeimportshallmeanandbeareferencetotheLoanAgreementasamendedhereby.
(b)TheLoanAgreement,asamendedhereby,andallotherdocuments,instrumentsandagreementsexecutedand/ordeliveredinconnectiontherewith,shallremaininfullforceandeffectuntilhereafterterminatedinaccordancewiththeirrespectiveterms,andtheLoanAgreementandsuchdocuments,instrumentsandagreementsareherebyratifiedandconfirmed.
(c)Exceptasexpresslyprovidedherein,theexecution,deliveryandeffectivenessofthisAmendmentshallnotoperateasawaiverofanyright,powerorremedyoftheAdministrativeAgent,anyAgentoranyLender,norconstituteawaiverofanyprovisionoftheLoanAgreementoranyotherdocuments,instrumentsandagreementsexecutedand/ordeliveredinconnectiontherewith.
5.CostsandExpenses.TheBorroweragreestopayallreasonableandactualcosts,fees,andout‑of‑pocketexpenses(includingthereasonableattorneys’fees,costsandexpensesofMorgan,Lewis&BockiusLLP,counseltotheAdministrativeAgent,theGroupAgentsandtheLenders)incurredbytheAdministrativeAgent,eachGroupAgentandeachLenderinconnectionwiththepreparation,review,executionandenforcementofthisAmendment.
6.GOVERNINGLAW.THISAMENDMENTSHALLBEGOVERNEDBY,ANDCONSTRUEDINACCORDANCEWITH,THELAWSOFTHESTATEOFNEWYORKWITHOUTREFERENCETOITSCONFLICTSOFLAWSPROVISIONS(OTHERTHANSECTIONS5-1401AND5-1402OFTHENEWYORKGENERALOBLIGATIONSLAW).
7.Headings.SectionheadingsinthisAmendmentareincludedhereinforconvenienceofreferenceonlyandshallnotconstituteapartofthisAmendmentforanyotherpurpose.
8.Counterparts.ThisAmendmentmaybeexecutedbyoneormoreofthepartiestotheAmendmentonanynumberofseparatecounterpartsandallofsaidcounterpartstakentogethershallbedeemedtoconstituteoneandthesameinstrument.DeliveryofanexecutedcounterpartofasignaturepagetothisAmendmentbyfacsimile(transmittedbytelecopierorbyemail)shallbeeffectiveasdeliveryofamanuallyexecutedcounterpartofthisAmendment.
9.ElectronicSignatures.EachpartyagreesthatthisAmendmentmaybeelectronicallysigned,andthatanyelectronicsignaturesappearingonthisAmendmentorsuchotherdocumentsarethesameashandwrittensignaturesforpurposesofvalidity,enforceabilityandadmissibility.
10.DirectiontoPayingAgenttoExecutethisAmendment.ByexecutionofthisAmendment,theAdministrativeAgentandtheLendersherebydirectthePayingAgenttoexecutethisAmendment.
Remainderofpageleftintentionallyblank
INWITNESSWHEREOF,thepartieshavecausedthisAmendmenttobedulyexecutedanddeliveredbytheirduly
authorizedsignatoriesasofthedatefirstabovewritten.
TESLA2014WAREHOUSESPVLLC,asBorrowerBy:_/s/JeffreyMunsonName:JeffreyMunsonTitle:President
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
DEUTSCHEBANKTRUSTCOMPANYAMERICAS,asPayingAgentBy:/s/AmyMcNultyName:AmyMcNultyTitle:AssistantVicePresidentBy:/s/CynthiaValverdeName:CynthiaValverdeTitle:AssistantVicePresident
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
DEUTSCHEBANKAG,NEWYORKBRANCH,asAdministrativeAgent,asaGroupAgentandasaCommittedLenderBy:/s/KevinFaganName:KevinFaganTitle:VicePresidentBy:/s/KatherineBolognaName:KatherineBolognaTitle:MD
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
CITIBANK,N.A.,asaGroupAgentandasaCommittedLenderBy:/s/BrianJChinName:BrianChinTitle:VicePresidentCAFCO,LLC,asConduitLenderBy:Citibank,N.A.,asAttorney-in-FactBy:/s/LindaMosesName:LindaMosesTitle:VicePresidentCHARTA,LLC,asConduitLenderBy:Citibank,N.A.,asAttorney-in-FactBy:/s/LindaMosesName:LindaMosesTitle:VicePresident
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
CIESCO,LLC,asConduitLenderBy:Citibank,N.A.,asAttorney-in-FactBy:/s/LindaMosesName:LindaMosesTitle:VicePresidentCRCFUNDING,LLC,asConduitLenderBy:Citibank,N.A.,asAttorney-in-Fact
By:/s/LindaMosesName:LindaMosesTitle:VicePresident
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
CREDITSUISSEAG,NEWYORKBRANCH,asaGroupAgentBy:/s/KevinQuinnName:KevinQuinnTitle:DirectorBy:/s/JasonRuchelsmanName:JasonRuchelsmanTitle:DirectorCREDITSUISSEAG,CAYMANISLANDSBRANCH,asaCommittedLenderBy:/s/KevinQuinnName:KevinQuinnTitle:AuthorizedSignatoryBy:/s/JasonRuchelsmanName:JasonRuchelsmanTitle:AuthorizedSignatoryGIFSCAPITALCOMPANYLLC,asaConduitLenderBy:/s/CareyD.FearName:CareyD.FearTitle:Manager
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
BARCLAYSBANKPLC,asaGroupAgent
By:/s/JohnMcCarthyName:JohnMcCarthyTitle:Director
SALISBURYRECEIVABLESCOMPANYLLC,asaConduitLender
By:BarclaysBankPLC,asattorney-in-fact
By:/s/JohnMcCarthyName:JohnMcCarthyTitle:Director
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
WELLSFARGOBANK,NATIONALASSOCIATIONasaGroupAgentandasaCommittedLender
By:/s/CharlieHinkleName:CharlieHinkleTitle:VicePresident
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
Exhibit31.1CERTIFICATIONSI,ElonMusk,certifythat:1.IhavereviewedthisQuarterlyReportonForm10-QofTesla,Inc.;2.Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethe
statementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3.Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4.Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:(a)Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,
toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
(b)Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
(c)Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
(d)Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting;and
5.Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’sBoardofDirectors(orpersonsperformingtheequivalentfunctions):(a)Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhichare
reasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarizeandreportfinancialinformation;and(b)Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’sinternal
controloverfinancialreporting.Date:April27,2021 /s/ElonMusk ElonMusk ChiefExecutiveOfficer (PrincipalExecutiveOfficer)
Exhibit31.2CERTIFICATIONSI,ZacharyJ.Kirkhorn,certifythat:1.IhavereviewedthisQuarterlyReportonForm10-QofTesla,Inc.;2.Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethe
statementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3.Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4.Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:(a)Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,
toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
(b)Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
(c)Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
(d)Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting;and
5.Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’sBoardofDirectors(orpersonsperformingtheequivalentfunctions):(a)Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhichare
reasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarizeandreportfinancialinformation;and(b)Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’sinternal
controloverfinancialreporting.Date:April27,2021 /s/ZacharyJ.Kirkhorn ZacharyJ.Kirkhorn ChiefFinancialOfficer (PrincipalFinancialOfficer)
Exhibit32.1
SECTION1350CERTIFICATIONSI,ElonMusk,certify,pursuantto18U.S.C.Section1350,that,tomyknowledge,theQuarterlyReportofTesla,Inc.onForm10-QforthequarterlyperiodendedMarch31,2021,(i)fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934and(ii)thattheinformationcontainedinsuchForm10-Qfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsofTesla,Inc.Date:April27,2021 /s/ElonMusk ElonMusk ChiefExecutiveOfficer (PrincipalExecutiveOfficer)I,ZacharyJ.Kirkhorn,certify,pursuantto18U.S.C.Section1350,that,tomyknowledge,theQuarterlyReportofTesla,Inc.onForm10-QforthequarterlyperiodendedMarch31,2021,(i)fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934and(ii)thattheinformationcontainedinsuchForm10-Qfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsofTesla,Inc.Date:April27,2021 /s/ZacharyJ.Kirkhorn ZacharyJ.Kirkhorn ChiefFinancialOfficer (PrincipalFinancialOfficer)