tesla, inc. · 2021. 3. 31. · tesla, inc. form 10-q for the quarter ended march 31, 2021 index...
TRANSCRIPT
![Page 1: Tesla, Inc. · 2021. 3. 31. · TESLA, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021 INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 4 Consolidated](https://reader036.vdocuments.mx/reader036/viewer/2022062612/613e499959df642846166ebe/html5/thumbnails/1.jpg)
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.
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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
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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.
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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 )
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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 $
19
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
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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
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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.
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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
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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.
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INDEXTOEXHIBITS
Exhibit IncorporatedbyReference FiledNumber ExhibitDescription Form FileNo. Exhibit FilingDate Herewith
10.1
AmendmentNo.1totheSecondAmendedandRestatedLoanandSecurityAgreement,datedasofMarch15,2021,byandamongTesla2014WarehouseSPVLLC,TeslaFinanceLLC,theLendersandGroupAgentsfromtimetotimepartythereto,DeutscheBankTrustCompanyAmericas,asPayingAgent,andDeutscheBankAG,NewYorkBranch,asAdministrativeAgent.
— — — —
X
31.1
Rule13a-14(a)/15(d)-14(a)CertificationofPrincipalExecutiveOfficer
— —
—
—
X
31.2
Rule13a-14(a)/15(d)-14(a)CertificationofPrincipalFinancialOfficer
— —
—
—
X
32.1*
Section1350Certifications
—
—
—
—
101.INS
InlineXBRLInstanceDocument
—
—
—
—
X
101.SCH
InlineXBRLTaxonomyExtensionSchemaDocument
—
—
—
—
X
101.CAL
InlineXBRLTaxonomyExtensionCalculationLinkbaseDocument.
— —
—
—
X
101.DEF
InlineXBRLTaxonomyExtensionDefinitionLinkbaseDocument
— —
—
—
X
101.LAB
InlineXBRLTaxonomyExtensionLabelLinkbaseDocument
— —
—
—
X
101.PRE
InlineXBRLTaxonomyExtensionPresentationLinkbaseDocument
— —
—
—
X
104
CoverPageInteractiveDataFile(formattedasinlineXBRLwithapplicabletaxonomyextensioninformationcontainedinExhibits101)
*Furnishedherewith
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SIGNATURES
PursuanttotherequirementsofSection13or15(d)theSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized. Tesla,Inc. Date:April27,2021 /s/ZacharyJ.Kirkhorn ZacharyJ.Kirkhorn ChiefFinancialOfficer
(PrincipalFinancialOfficerand
DulyAuthorizedOfficer)
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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:
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“(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.
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(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
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INWITNESSWHEREOF,thepartieshavecausedthisAmendmenttobedulyexecutedanddeliveredbytheirduly
authorizedsignatoriesasofthedatefirstabovewritten.
TESLA2014WAREHOUSESPVLLC,asBorrowerBy:_/s/JeffreyMunsonName:JeffreyMunsonTitle:President
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
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DEUTSCHEBANKTRUSTCOMPANYAMERICAS,asPayingAgentBy:/s/AmyMcNultyName:AmyMcNultyTitle:AssistantVicePresidentBy:/s/CynthiaValverdeName:CynthiaValverdeTitle:AssistantVicePresident
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
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DEUTSCHEBANKAG,NEWYORKBRANCH,asAdministrativeAgent,asaGroupAgentandasaCommittedLenderBy:/s/KevinFaganName:KevinFaganTitle:VicePresidentBy:/s/KatherineBolognaName:KatherineBolognaTitle:MD
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
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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
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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
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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
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BARCLAYSBANKPLC,asaGroupAgent
By:/s/JohnMcCarthyName:JohnMcCarthyTitle:Director
SALISBURYRECEIVABLESCOMPANYLLC,asaConduitLender
By:BarclaysBankPLC,asattorney-in-fact
By:/s/JohnMcCarthyName:JohnMcCarthyTitle:Director
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
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WELLSFARGOBANK,NATIONALASSOCIATIONasaGroupAgentandasaCommittedLender
By:/s/CharlieHinkleName:CharlieHinkleTitle:VicePresident
SignaturePagetoAmendmentNo.1toSecondAmendedandRestatedLoanandSecurityAgreement
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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)
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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)
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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)
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