Tesla, Inc....2019/12/31  · TESLA, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,...

UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION

Washington,D.C.20549

FORM10-K

(MarkOne)☒ ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934

ForthefiscalyearendedDecember31,2019OR

☐ TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934Forthetransitionperiodfromto

CommissionFileNumber: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

SecuritiesregisteredpursuanttoSection12(g)oftheAct:None

Indicatebycheckmarkwhethertheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.Yes☒No☐IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13or15(d)oftheAct.Yes☐No☒Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934(“ExchangeAct”)duringthepreceding

12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes☒No☐IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmittedpursuanttoRule405ofRegulationS-T(§232.405ofthis

chapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).Yes☒No☐Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,asmallerreportingcompanyoranemerginggrowthcompany.Seethe

definitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany”and“emerginggrowthcompany”inRule12b-2oftheExchangeAct:

Largeacceleratedfiler ☒ Acceleratedfiler ☐

Non-acceleratedfiler ☐ Smallerreportingcompany ☐

Emerginggrowthcompany ☐ Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccounting

standardsprovidedpursuanttoSection13(a)oftheExchangeAct.☐Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).Yes☐No☒Theaggregatemarketvalueofvotingstockheldbynon-affiliatesoftheregistrant,asofJune30,2019,thelastdayoftheregistrant’smostrecentlycompletedsecondfiscalquarter,was

$31.54billion(basedontheclosingpriceforsharesoftheregistrant’sCommonStockasreportedbytheNASDAQGlobalSelectMarketonJune30,2019).SharesofCommonStockheldbyeachexecutiveofficer,director,andholderof5%ormoreoftheoutstandingCommonStockhavebeenexcludedinthatsuchpersonsmaybedeemedtobeaffiliates.Thisdeterminationofaffiliatestatusisnotnecessarilyaconclusivedeterminationforotherpurposes.

AsofFebruary7,2020,therewere181,341,586sharesoftheregistrant’sCommonStockoutstanding.DOCUMENTSINCORPORATEDBYREFERENCE

Portionsoftheregistrant’sProxyStatementforthe2020AnnualMeetingofStockholdersareincorporatedhereinbyreferenceinPartIIIofthisAnnualReportonForm10-Ktotheextentstatedherein.SuchproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionwithin120daysoftheregistrant’sfiscalyearendedDecember31,2019.

TESLA,INC.

ANNUALREPORTONFORM10-KFORTHEYEARENDEDDECEMBER31,2019

INDEX PagePARTI.

Item1. Business 1Item1A. RiskFactors 15Item1B. UnresolvedStaffComments 34Item2. Properties 35Item3. LegalProceedings 35Item4. MineSafetyDisclosures 35

PARTII.

Item5. MarketforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 36Item6. SelectedConsolidatedFinancialData 38Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 39Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 60Item8. FinancialStatementsandSupplementaryData 61Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 127Item9A. ControlsandProcedures 127Item9B. OtherInformation 128

PARTIII.

Item10. Directors,ExecutiveOfficersandCorporateGovernance 129Item11. ExecutiveCompensation 129Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 129Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 129Item14. PrincipalAccountantFeesandServices 129

PARTIV.

Item15. ExhibitsandFinancialStatementSchedules 129Item16. Summary 155

Signatures 156

i

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Forward-LookingStatements

ThediscussionsinthisAnnualReportonForm10-Kcontainforward-lookingstatementsreflectingourcurrentexpectationsthatinvolverisksanduncertainties.Theseforward-lookingstatementsinclude,butarenotlimitedto,statementsconcerningourstrategy,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,theriskssetforthinPartI,Item1A,“RiskFactors”inthisAnnualReportonForm10-KandinourotherfilingswiththeSecuritiesandExchangeCommission.Wedonotassumeanyobligationtoupdateanyforward-lookingstatements.

PARTI

ITEM1. BUSINESS

OverviewWedesign,develop,manufacture,sellandleasehigh-performancefullyelectricvehiclesandenergygenerationandstoragesystems,andoffer

servicesrelatedtoourproducts.Wearetheworld’sfirstverticallyintegratedsustainableenergycompany,offeringend-to-endcleanenergyproducts,includinggeneration,storageandconsumption.Wegenerallysellourproductsdirectlytocustomers,includingthroughourwebsiteandretaillocations.Wealsocontinuetogrowourcustomer-facinginfrastructurethroughaglobalnetworkofvehicleservicecenters,MobileServicetechnicians,bodyshops,SuperchargerstationsandDestinationChargerstoacceleratethewidespreadadoptionofourproducts.Weemphasizeperformance,attractivestylingandthesafetyofourusersandworkforceinthedesignandmanufactureofourproducts,andarecontinuingtodevelopfullself-drivingtechnologyforimprovedsafety.Wealsostrivetolowerthecostofownershipforourcustomersthroughcontinuouseffortstoreducemanufacturingcostsandbyofferingfinancialservicestailoredtoourvehicles.Oursustainableenergyproducts,engineeringexpertise,intensefocustoacceleratetheworld’stransitiontosustainableenergyandachievethebenefitsofautonomousdriving,andbusinessmodeldifferentiateusfromothercompanies.

Wecurrentlyofferorareplanningtointroduceelectricvehiclestoaddressawiderangeofconsumerandcommercialvehiclemarkets,includingModel3,ModelY,ModelS,ModelX,Cybertruck,TeslaSemiandanewTeslaRoadster.Inordertomeetcustomers’range,functionalityandperformanceexpectations,wehaveemployedourconsiderabledesignandvehicleengineeringcapabilitiestoovercomethedesign,stylingandperformanceissuesthathavehistoricallylimitedbroadadoptionofelectricvehicles.Combinedwithtechnicaladvancementsinourpowertrainsystem,AutopilotandFullSelf-Driving(“FSD”)hardware,andneuralnet,ourelectricvehiclesboastadvantagessuchasleadingrangeandrechargingflexibility;superioracceleration,handlingandsafetycharacteristics;auniquesuiteofuserconvenienceandinfotainmentfeatures;theabilitytohaveadditionalfeaturesenabledthroughover-the-airupdates;andsavingsincharging,maintenanceandothercostsofownership.

Infurtheranceofourmissiontoacceleratetheworld’stransitiontosustainableenergy,wehavealsodevelopedanexpertiseinsolarenergysystems.Wesellandleaseretrofitsolarenergysystemsforresidentialandcommercialcustomers,andalternativelyprovidecertaincustomerswithaccesstooursolarenergysystemsthroughpowerpurchaseorsubscription-basedarrangements.WealsooffertheSolarRoof,whichfeaturesattractiveanddurableglassrooftilesintegratedwithsolarenergygeneration.Ourapproachtothesolarbusinessemphasizessimplicity,standardizationandaccessibilitytomakeiteasyandcost-effectiveforcustomerstoadoptcleanenergy,whilereducingourcustomeracquisitioncosts.

Finally,wehaveleveragedourtechnologicalexpertiseinbatteries,energymanagement,powerelectronics,andintegratedsystemsfromourvehiclepowertrainsystemstodevelopandmanufactureenergystorageproducts,includingPowerwall,PowerpackandMegapack.Thesescalablesystemsmaybeusedinhomes,commercialfacilitiesandontheutilitygrid,andarecapableofnumerousapplicationsincludingbackuporoff-gridpower,peakdemandreduction,demandresponse,reducingintermittencyofrenewableenergygeneration,facilitationoftheuseofrenewableenergygenerationoverfossilfuelgeneration,andothergridservicesandwholesaleelectricmarketservices.Drawingonoursolarbusinessexpertise,wecanalsoofferintegratedsystemscombiningenergygenerationandstorage.Likeourvehicles,ourenergystorageproductscanberemotelyupdatedover-the-airwithsoftwareorfirmwareimprovements.

SegmentInformationWeoperateastworeportablesegments:(i)automotiveand(ii)energygenerationandstorage.

Theautomotivesegmentincludesthedesign,development,manufacturing,sales,andleasingofelectricvehiclesaswellassalesofautomotiveregulatorycredits.Additionally,theautomotivesegmentisalsocomprisedofservicesandother,whichincludesnon-warrantyafter-salesvehicleservices,salesofusedvehicles,retailmerchandise,salesbyouracquiredsubsidiariestothirdpartycustomers,andvehicleinsurancerevenue.Theenergygenerationandstoragesegmentincludesthedesign,manufacture,installation,sales,andleasingofsolarenergygenerationandenergystorageproducts,servicesrelatedtosuchproducts,andsalesofsolarenergysystemincentives.

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OurProductsandServicesAutomotive

Model3Model3isafour-doormid-sizesedanthatwedesignedformanufacturabilitywithabasepriceformass-marketappeal,whichwebegan

deliveringinJuly2017.WecurrentlymanufactureModel3attheFremontFactoryaswellasatGigafactoryShanghai,wherewearerampingproductionwithaninstalledannualproductioncapacityfor150,000Model3vehicles.WecurrentlyofferModel3inrear-wheeldriveanddualmotorall-wheeldrivevariants,includingaPerformanceversionofthelatter.

ModelYModelYisacompactsportutilityvehicle(“SUV”)builtontheModel3platformwiththecapabilityforseatingforuptosevenadults,whichwe

beganproducinginJanuary2020andexpecttocommencedeliveringinthefirstquarterof2020.WecurrentlymanufactureModelYattheFremontFactory,andarefurtherrampingproductionthereandmakingpreparationsforproductionnextatGigafactoryShanghai.WecurrentlyofferModelYindualmotorall-wheeldriveLongRangeandPerformanceversions.

ModelSandModelXModelSisafour-doorfull-sizesedanthatwebegandeliveringinJune2012.ModelSintroducedTeslavehiclemainstayssuchasalarge

touchscreendriverinterface,Autopilothardware,over-the-airsoftwareupdates,andfastchargingthroughourSuperchargernetwork.

ModelXisamid-sizeSUVwithseatingforuptosevenadults,whichwebegandeliveringinSeptember2015.ModelXintroducedfeaturesincludinguniquefalconwingdoorsforeasyaccesstopassengerseatingandanall-glasspanoramicwindshield.

ModelSandModelXfeaturethehighestperformancecharacteristicsandlongestrangesthatweofferinasedanandSUV,respectively.Thesevehiclesareequippedwithastandarddualmotorall-wheeldrivepowertrain,andarealsoavailableinPerformanceversionswithenhancedaccelerationand/ortopspeedandstyling.WemanufactureModelSandModelXattheFremontFactory.

FutureConsumerandCommercialElectricVehiclesInaddition,wehaveunveiledanumberofplannedelectricvehiclestoaddressabroadercross-sectionofthevehiclemarket,including

specializedconsumerelectricvehiclesinCybertruckandthenewTeslaRoadsterandacommercialelectricvehicleinTeslaSemi.

EnergyGenerationandStorageEnergyStorageProductsWebegandeliveriesofthecurrentgenerationsofourPowerwallandPowerpackproductsinlate2016and2017,respectively,andofour

Megapackproductinlate2019.Powerwallisa13.5kilowatthour(“kWh”)rechargeablelithium-ionbatterywithintegratedinverter,designedtostoreenergyatahomeorsmallcommercialfacility.PowerpackandMegapackarefullyintegratedenergystoragesolutionsforcommercial,industrial,utilityandenergygenerationcustomers,comprisedofupto232kWh(AC)batterypacksandupto700kilovolt-ampere(at480V)invertersforPowerpackandupto3megawatthour(“MWh”)(AC)batterypacksandupto1.54megavolt-ampereinvertersforMegapack,multipleunitsofwhichmaybegroupedtogethertoformlargerinstallations,capableofreachinggigawatthours(“GWh”)orgreater.PowerpackandMegapackcanalsobecombinedwithrenewableenergygenerationsourcestocreatemicrogridsthatprovidecommunitieswithclean,resilientandaffordablepower.

Wealsodevelopandadvanceoursoftwarecapabilitiesforthecontrolandoptimaldispatchofenergystoragesystemsacrossawiderangeofmarketsandapplications,whichcanbesenttooursystemsthroughover-the-airupdates.

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SolarEnergyOfferingsThemajorcomponentsofourretrofitsolarenergysystemsincludesolarpanelsthatconvertsunlightintoelectricalcurrent,invertersthat

converttheelectricaloutputfromthepanelstoausablecurrentcompatiblewiththeelectricgrid,rackingthatattachesthesolarpanelstotherooforground,electricalhardwarethatconnectsthesolarenergysystemtotheelectricgrid,andourmonitoringdevice.Wepurchasethemajorityofthesecomponents,andwedosofrommultiplesourcestoensurecompetitivepricingandadequatesupply.Wealsodesignandmanufacturecertaincomponentsforoursolarenergyproducts.Inadditiontosellingretrofitsolarenergysystemstocustomersandcertainchannelpartners,wealsomakethemavailablethroughleaseandpowerpurchaseagreement(“PPA”)arrangements,currentlywith20-yeartermsandtypicallywithrenewaloptions,andasubscription-basedsaleofsolarpower,whichiscurrentlyavailableinCalifornia.

In2019,wecommenceddirectcustomerandchannelpartnersalesofthethirdgenerationofourSolarRoof,whichfeaturesaestheticallypleasinganddurableglassroofingtilesdesignedtocomplementthearchitectureofhomesandcommercialbuildingswhileturningsunlightintoelectricity.WearerampingthevolumeproductionofthisversionoftheSolarRoofatGigafactoryNewYork,andareincreasingourinstallationcapabilitiesbytrainingourpersonnelandthirdpartypartners.

TechnologyAutomotive

Ourcorevehicletechnologycompetenciesincludebatteryandpowertrainengineeringandmanufacturing,aswellasourabilitytodesignvehiclesthatutilizetheuniqueadvantagesofanelectricpowertrain.Ourcoreintellectualpropertyincludesourelectricpowertrainandourworkondevelopingself-drivingtechnologies.Ourpowertrainconsistsofourbatterypack,powerelectronics,motor,gearbox,andcontrolsoftware.Weofferseveralpowertrainvariantsforourvehiclesthatincorporateyearsofresearchanddevelopment.Inaddition,wehavedesignedourvehiclestoincorporatethelatestadvancesinconsumertechnologies,suchasmobilecomputing,sensing,displays,andconnectivity.

BatteryandPowertrainWeoptimizethedesignofthelithium-ioncellsweuseandofourbatterypackstoachievehighenergydensityatdecreasingcostswhilealso

maintainingsafety,reliabilityandlonglifeintherigorsofanautomotiveenvironment.Ourproprietarytechnologyincludessystemsforhighdensityenergystorage,cooling,safety,chargebalancing,structuraldurability,andelectronicsmanagement.Wehavealsopioneeredadvancedmanufacturingtechniquestomanufacturelargevolumesofbatterypackswithhighqualityatlowcost.Moreover,wemaintainextensivetestingandR&Dcapabilitiesforbatterycells,packsandsystems,andhavebuiltanexpansivebodyofknowledgeonlithium-ioncellvendors,chemistrytypesandperformancecharacteristics.Webelievethattheflexibilitythatwehavebuiltintoourdesigns,combinedwithourresearchandreal-worldperformancedata,willenableustocontinuetoevaluatenewbatterycellsandoptimizebatterypacksystemperformanceandcostforourcurrentandfuturevehicles.

Thepowerelectronicsinourelectricpowertraingoverntheflowofelectricalcurrentthroughoutourvehiclesasneeded,convertdirectcurrentfromthebatterypackintoalternatingcurrenttodriveourvehicles’motors(andviceversafromanexternalelectricitysourcetochargethebatterypack),andprovideregenerativebrakingfunctionality.Theprimarytechnologicaladvantagestoourproprietarypowerelectronicsdesignsincludetheabilitytodrivelargeamountsofelectricalcurrentinasmallphysicalpackagewithhighefficiencyandlowcost,andtorechargeonawidevarietyofelectricitysourcesathome,attheofficeorontheroad,includingatourSuperchargers.

Weofferdualmotorpowertrainvehicles,whichusetwoelectricmotorstomaximizetractionandperformanceinanall-wheeldriveconfiguration.Tesla’sdualmotorpowertraindigitallyandindependentlycontrolstorquetothefrontandrearwheels.Thenear-instantaneousresponseofthemotors,combinedwithlowcentersofgravity,providesdriverswithcontrolledperformanceandincreasedtractioncontrol.Wearealsodevelopingvehiclepowertraintechnologyfeaturingthreeelectricmotorsforfurtherincreasedperformance.

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VehicleControlandInfotainmentSoftwareTheperformanceandsafetysystemsofourvehiclesandtheirbatterypacksrequiresophisticatedcontrolsoftware.Therearenumerous

processorsinourvehiclestocontrolthesefunctions,andwewritecustomfirmwareformanyoftheseprocessors.Softwarealgorithmscontroltraction,vehiclestability,theaccelerationandregenerativebrakingofthevehicle,climatecontrolandthermalmanagement,andarealsousedextensivelytomonitorthechargestateofthebatterypackandtomanageallofitssafetysystems.Driversusetheinformationandcontrolsystemsinourvehiclestooptimizeperformance,customizevehiclebehavior,managechargingmodesandtimesandcontrolallinfotainmentfunctions.Wedevelopalmostallofthissoftware,includingmostoftheuserinterfaces,internally.

Self-DrivingDevelopmentWehaveexpertiseindevelopingtechnologies,systemsandsoftwaretoachieveself-drivingvehicles.WeareequippingallnewTeslavehicles

withhardwareneededforfullself-drivinginthefuture,includinganewpowerfulandproprietaryon-boardcomputerthatweintroducedin2019.Thishardwaresuiteenablesfielddatafromtheon-boardcamera,radar,ultrasonics,andGPStocontinuallytrainandimproveourneuralnetworkforreal-worldperformance.

Currently,weofferinourvehiclescertainadvanceddriverassistsystemsunderourAutopilotandFSDoptions,includingauto-steering,trafficawarecruisecontrol,automatedlanechanging,automatedparking,driverwarningsystems,andaSmartSummonfeaturethatenablesvehiclestoberemotelysummonedovershortdistancesinparkinglotsanddriveways.Thesesystemsrelieveourdriversofthemosttediousandpotentiallydangerousaspectsofroadtravel,andthefielddatafeedbackloopsfromtheon-boardhardware,aswellasover-the-airfirmwareupdates,allowustoimprovethemovertime.Althoughatpresentthedriverisultimatelyresponsibleforcontrollingthevehicle,oursystemsprovidesafetyandconveniencefunctionalitythatallowsourcustomerstorelyonthemmuchlikethesystemthatairplanepilotsusewhenconditionspermit.

EnergyGenerationandStorageEnergyStorageProductsWeareleveragingmanyofthecomponent-leveltechnologiesfromourvehiclestoadvanceourenergystorageproducts,includinghighdensity

energystorage,cooling,safety,chargebalancing,structuraldurability,andelectronicsmanagement.Bytakingamodularapproachtothedesignofbatterysystems,weareabletomaximizemanufacturingcapacitytoproduceourPowerwall,PowerpackandMegapackproducts.Additionally,wearemakingsignificantstridesintheareaofbi-directional,grid-tiedpowerelectronicsthatenableustointerconnectourbatterysystemsseamlesslywithglobalelectricitygridswhileprovidingfast-actingsystemsforpowerinjectionandabsorption.

SolarEnergySystemsWearecontinuallyinnovatinganddevelopingnewtechnologiestofacilitatethegrowthofoursolarenergybusiness.Forexample,wehave

developedproprietarysoftwaretoreducesolarenergysystemdesignandinstallationtimelinesandcosts,andtheSolarRoofisdesignedtoworkseamlesslywithPowerwall.

DesignandEngineeringAutomotive

Wehavecreatedsignificantin-housecapabilitiesinthedesignandtestengineeringofelectricvehiclesandtheircomponentsandsystems.Wedesign,engineerandtestbodies,chassis,exteriors,interiors,heatingandcoolingandlowvoltageelectricalsystemsin-house,andtoalesserextent,inconjunctionwithoursuppliers.Ourteamhascorecompetenciesincomputeraideddesignandcrashtestsimulations,whichreducestheproductdevelopmenttimeofnewmodels.Wecontinuetogrowourcapabilities,includingforon-sitecrashtesting,durabilitytestingandcomponentvalidation.

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Additionally,ourteamhasexpertiseinselectingandworkingwithvariousmaterials.Forexample,giventheimpactofmassonrange,whichisveryimportantforpassengervehicles,ModelSandModelXarebuiltwithlightweightaluminumbodiesandchassiswhichincorporateavarietyofmaterialsandproductionmethodsthathelpoptimizevehicleweight,andModel3andModelYarebuiltwithamixofmaterialstobelightweightandsafewhilealsoincreasingcost-effectivenessforthesemass-marketvehicles.Ontheotherhand,toaccommodatethedurabilityrequiredofworkvehicles,weplantouseathickcold-rolledstainlesssteelalloyandultra-strongglassforCybertruckwhileemployingourexpertiseinbatteryengineeringtomaintainexcellentrange.

EnergyGenerationandStorageEnergyStorageProductsWehaveanin-houseengineeringteamthatbothdesignsourenergystorageproductsthemselves,andworkswithourresidential,commercial

andutilitycustomerstodesignbespokesystemsincorporatingourproducts.Ourteam’sexpertiseinelectrical,mechanical,civilandsoftwareengineeringenablesustocreateintegratedenergystoragesolutionsthatmeetthevariousandparticularneedsofourcustomers.

SolarEnergySystemsWealsohaveanin-houseteamthatdesignsacustomizedsolarenergysystemorSolarRoofforeachofourcustomers,includinganintegrated

energystoragesystemwhenrequestedbythecustomer.Wehavedevelopedsoftwarethatsimplifiesandexpeditesthedesignprocessandoptimizesthedesigntomaximizetheenergyproductionofeachsystem.Thisteamcompletesastructuralanalysisofeachbuildingandproducesafullsetofstructuraldesignandelectricalblueprintsthatcontainthespecificationsforallsystemcomponents.Additionally,thisteamspecifiescomplementarymountingandgroundinghardwarewhererequired.

SalesandMarketingHistorically,wehavebeenabletogeneratesignificantmediacoverageofourcompanyandourproducts,andwebelievewewillcontinuetodo

so.Suchmediacoverageandwordofmoutharethecurrentprimarydriversofoursalesleadsandhavehelpedusachievesaleswithouttraditionaladvertisingandatrelativelylowmarketingcosts.

AutomotiveDirectSalesWemarketandsellourvehiclesdirectlytocustomersusingmeansthatwebelievewillmaximizeourreach,improvetheoverallcustomer

experienceandmaximizecapitalefficiency.Currently,oursaleschannelsincludeourwebsiteandaninternationalnetworkofcompany-ownedstores.Insomestates,wehavealsoopenedgalleriestoeducateandinformcustomersaboutourproducts,butsuchlocationsdonotactuallytransactinthesaleofvehicles.Webelievethisinfrastructureenablesustobettercontrolcostsofinventory,managewarrantyserviceandpricing,educateconsumersaboutelectricvehiclesandcharging,maintainandstrengthentheTeslabrand,andobtainrapidcustomerfeedback.

Wereevaluateoursalesstrategybothgloballyandatalocation-by-locationlevelfromtimetotimetooptimizeourcurrentsaleschannels.Salesofvehiclesintheautomobileindustryalsotendtobecyclicalinmanymarkets,whichmayexposeustovolatilityfromtimetotime.

UsedVehicleSalesOurusedvehiclebusinesssupportsnewvehiclesalesbyintegratingthesaleofanewTeslavehiclewithacustomer’strade-inneedsfortheir

existingTeslaandnon-Teslavehicles.TheTeslaandnon-Teslavehiclesweacquirethroughtrade-insaresubsequentlyremarketed,eitherdirectlybyusorthroughthird-parties.WealsoreceiveusedTeslavehiclestoresellthroughleasereturnsandothersources.

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PublicChargingWecontinuetobuildoutourglobalSuperchargernetworkforourcustomers’convenience,includingtoenablelong-distancetravelandurban

ownership,whichisapartofourstrategytoremoveabarriertothebroaderadoptionofelectricvehiclescausedbytheperceptionoflimitedrange.EachTeslaSuperchargerisanindustrialgrade,high-speedchargerdesignedtorechargeaTeslavehiclesignificantlymorequicklythanotherchargingoptions,andwecontinuetoevolveourtechnologytoallowforevenfasterchargingtimesatlowercosttous.Wherepossible,weareco-locatingSuperchargerswithoursolarandenergystoragesystemstofurtherreducecostsandpromoterenewablepower.Superchargerstationstypicallyarestrategicallyplacedalongwell-traveledroutesandindensecitycenterstoallowTeslavehicleownerstheabilitytoenjoyquick,reliableandubiquitouschargingwithconvenient,minimalstops.UseoftheSuperchargernetworkiseitherfreeundercertainsalesprogramsorrequiresacompetitivefee.

Wealsoworkwithawidevarietyofhospitality,retail,andpublicdestinations,aswellasbusinesseswithcommutingemployees,toofferadditionalchargingoptionsforourcustomers.TheseDestinationChargingandworkplacelocationsdeployTeslaWallConnectorstoprovidechargingtoTeslavehicleownerswhopatronizeorareemployedattheirbusinesses.Wealsoworkwithsingle-familyhomeownersandmulti-familyresidentialentitiestodeployhomechargingsolutionsinourcommunities.

EnergyGenerationandStorageWemarketandselloursolarandenergystorageproductstoindividuals,commercialandindustrialcustomersandutilitiesthroughavarietyof

channels.

IntheU.S.,weofferresidentialsolarandenergystorageproductsdirectlythroughourwebsite,storesandgalleries,aswellasthroughournetworkofchannelpartners.OutsideoftheU.S.,weuseourinternationalsalesorganizationandanetworkofchannelpartnerstomarketandselltheseproductsfortheresidentialmarket.WealsosellPowerwalldirectlytoutilities.Inthecaseofproductssoldtosuchutilitiesorchannelpartners,suchpartnerstypicallysellandinstalltheproductincustomerhomes.

WesellPowerpackandMegapacksystemstocommercialandutilitycustomersthroughourinternationalsalesorganization,whichconsistsofexperiencedenergyindustryprofessionalsinallofourtargetmarkets,aswellasthroughourchannelpartnernetwork.Incertainjurisdictions,wealsosellinstalledsolarenergysystems(withorwithoutenergystorage)tocommercialcustomersthroughcash,leaseandPPAtransactions.

ServiceandWarrantyAutomotive

ServiceWeprovideserviceforourelectricvehiclesatourcompany-ownedservicelocationsandthroughanexpandingfleetofTeslaMobileService

technicianswhoprovideservicesthatdonotrequireavehicleliftremotelyatcustomers’homesorotherlocations.Performingvehicleserviceourselvesprovidesuswiththecapabilitytoidentifyproblems,findsolutions,andincorporateimprovementsfaster,andoptimizelogisticsandinventoryforservicepartsbetter,thantraditionalautomobilemanufacturers.Ourvehiclesarealsodesignedwiththecapabilitytowirelesslyuploaddatatousviaanon-boardsystemwithcellularconnectivity,allowingustodiagnoseandremedymanyproblemsbeforeeverlookingatthevehicle.

VehicleLimitedWarrantyandExtendedServicePlansWeprovideamanufacturer’swarrantyonallnewandusedTeslavehicles.Eachnewvehiclehasafouryearor50,000mileNewVehicleLimited

Warranty,subjecttoseparatelimitedwarrantiesforthesupplementalrestraintsystem,batteryanddriveunit,andbodyrustperforation.ForthebatteryanddriveunitonourcurrentnewModelSandModelXvehicles,weofferaneightyear,150,000milelimitedwarranty,withminimum70%retentionofbatterycapacityoverthewarrantyperiod.ForthebatteryanddriveunitonourcurrentnewModel3andModelYvehicles,weofferaneightyearor100,000milelimitedwarrantyforourStandardorStandardRangePlusbatteryandaneightyearor120,000milelimitedwarrantyforourLongRangeorPerformancebattery,withminimum70%retentionofbatterycapacityoverthewarrantyperiod.

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InadditiontotheNewVehicleLimitedWarranty,wecurrentlyofferforModelSandModelXExtendedServiceplansfornewvehiclesinspecifiedregions.TheExtendedServiceplanscovertherepairorreplacementofvehiclepartsforuptoanadditionalfouryearsoruptoanadditional50,000milesaftertheexpirationoftheNewVehicleLimitedWarranty.

EnergyGenerationandStorageEnergyStorageSystemsWegenerallyprovidea10-year“nodefect”and“energyretention”warrantywitheverycurrentPowerwallanda15-year“nodefect”and

“energyretention”warrantywitheverycurrentPowerpackorMegapacksystem.Pursuanttotheseenergyretentionwarranties,weguaranteethattheenergycapacityoftheapplicableproductwillbeatleastaspecifiedpercentage(withinarangeupto80%)ofitsnameplatecapacityduringspecifiedtimeperiods,dependingontheproduct,batterypacksizeand/orregionofinstallation,andsubjecttospecifieduserestrictionsorkWhthroughputscaps.Inaddition,weoffercertainextendedwarranties,whichcustomersareabletopurchasefromusatthetimetheypurchaseanenergystoragesystem,includinga20yearextendedprotectionplanforPowerwallandaselectionof10or20yearperformanceguaranteesforPowerpackandMegapack.IncircumstanceswhereweinstallaPowerwallorPowerpacksystem,wealsoprovidecertainwarrantiesonourinstallationworkmanship.Allofthewarrantiesforourenergystoragesystemsaresubjecttocustomarylimitationsandexclusions.

SolarEnergySystemsForretrofitsolarenergysystems,weprovideaworkmanshipwarrantyforupto20yearsfrominstallationandaseparatewarrantyagainstroof

leaks.Wealsopass-throughtheinverterandmodulemanufacturerwarranties(typically10yearsand25yearsrespectively).Whenweleasearetrofitsolarenergysystem,wecompensatethecustomeriftheirsystemproduceslessenergythanguaranteedoveraspecifiedperiod.FortheSolarRoof,weprovideawarrantyagainstdefectsfor25years,a25yearweatherizationwarrantyandapoweroutputwarranty.Forallsystems(retrofitandSolarRoof)wealsoprovideserviceandrepair(eitherunderwarrantyorforafee)duringtheentiretermofthecustomerrelationship.

FinancialServicesAutomotive

PurchaseFinancingandLeasesWeofferleasingand/orloanfinancingarrangementsforourvehiclesincertainjurisdictionsinNorthAmerica,EuropeandAsiathroughvarious

financialinstitutions.Incertaininternationalmarkets,weofferresalevalueguaranteestocustomerswhopurchaseandfinancetheirvehiclesthroughoneofourspecifiedcommercialbankingpartners,underwhichthosecustomershavetheoptionofsellingtheirvehiclesbacktousatpresetfuturedates,generallyattheendofthetermsoftheapplicableloansorfinancingprograms,forpre-determinedresalevalues.Incertainmarkets,wealsooffervehiclebuybackguaranteestofinancialinstitutions,whichmayobligateustorepurchasethevehiclesforpre-determinedprices.

WealsocurrentlyofferleasingdirectlythroughourlocalsubsidiariesforModelS,ModelXandModel3intheU.S.andforModelSandModelXinCanada.

InsuranceInAugust2019,welaunchedaninsuranceproductdesignedforourcustomers,whichoffersratesthatareoftenbetterthanotheralternatives.

ThisproductiscurrentlyavailableinCalifornia,andweplantoexpandboththemarketsinwhichweofferinsuranceproductsandourabilitytooffersuchproducts,aspartofourongoingefforttodecreasethetotalcostofownershipforourcustomers.

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EnergyGenerationandStorageEnergyStorageSystemsWecurrentlyofferaloanproducttoresidentialcustomerswhopurchasePowerwalltogetherwithanewsolarenergysystem,andleaseandPPA

optionstocommercialcustomerswhopurchaseaPowerpacksystemtogetherwithanewsolarenergysystem.Weintendtointroducefinancialservicesofferingsforcustomerswhopurchasestandaloneenergystorageproductsinthefuture.

SolarEnergySystemsWeareanindustryleaderinofferinginnovativefinancingalternativesthatallowourcustomerstotakedirectadvantageofavailabletaxcredits

andincentivestoreducethecostofowningasolarenergysystemthroughasolarloan,ortomaketheswitchtosolarenergywithlittletonoupfrontcostsunderaleaseorPPA.Oursolarloanoffersthird-partyfinancingdirectlytoaqualifiedcustomertoenablethecustomertopurchaseandownasolarenergysystem.Wearenotapartytotheloanagreementbetweenthecustomerandthethird-partylender,andthethird-partylenderhasnorecourseagainstuswithrespecttotheloan.Oursolarleaseofferscustomersafixedmonthlyfee,atratesthattypicallytranslateintolowermonthlyutilitybills,andanelectricityproductionguarantee.OursolarPPAchargescustomersafeeperkWhbasedontheamountofelectricityproducedbyoursolarenergysystems.WemonetizethecustomerpaymentswereceivefromourleasesandPPAsthroughfundswehaveformedwithinvestors.WealsointendtointroducefinancialservicesofferingsforourSolarRoofcustomersinthefuture.

ManufacturingWemanufactureourproductsandrelatedcomponentsprimarilyattheFremontFactoryandatnearbyfacilitiesintheBayArea,California;

GigafactoryNevadanearReno,Nevada;GigafactoryNewYorkinBuffalo,NewYork;andGigafactoryShanghaiinChina.WehavealsoselectedasitenearBerlin,GermanytobuildafactoryfortheEuropeanmarket,whichwerefertoasGigafactoryBerlin.

ManufacturingFacilitiesintheBayArea,CaliforniaWemanufactureourvehicles,andcertainpartsandcomponentsthatarecriticaltoourintellectualpropertyandqualitystandards,atour

manufacturingfacilitiesintheBayAreainCalifornia,includingtheFremontFactory,andotherlocalmanufacturingfacilities.OurBayAreafacilitiescontainseveralmanufacturingoperations,includingstamping,machining,casting,plastics,bodyassembly,paintoperations,seatassembly,finalvehicleassemblyandend-of-linetestingforourvehicles,aswellasproductionofbatterypacksanddriveunitsforModelSandModelX.Somemajorvehiclecomponentsystemsarepurchasedfromsuppliers;however,wehaveahighlevelofverticalintegrationinourmanufacturingprocessesatourBayAreafacilities.

GigafactoryNevadaGigafactoryNevadaisafacilitywhereweworktogetherwithoursupplierstointegratebatterymaterial,cell,moduleandbatterypack

productioninonelocation.WeusethebatterypacksmanufacturedatGigafactoryNevadaforModel3,ModelYandourenergystorageproducts.WealsomanufactureModel3andModelYdriveunitsatGigafactoryNevada.Finally,theassemblyofMegapacksystemstakesplaceatGigafactoryNevada,allowingustoshipdeployment-readysystemsdirectlytocustomers.

WehavedesignedGigafactoryNevadatoallowusaccesstohighvolumesoflithium-ionbatterycellswhileachievingasignificantreductioninthecostofourbatterypacks,andwehaveanagreementwithPanasonictopartnerwithusonGigafactoryNevadawithinvestmentsinproductionequipmentthatitisusingtomanufactureandsupplyuswithbatterycells.Givenitsimportancetotheproductionofourvehicleandenergystorageproducts,inparticularModel3,ModelYandMegapack,wecontinuetoinvestinGigafactoryNevadatoachieveadditionalproductionoutputthere.

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GigafactoryNewYorkWehaveprimarilyusedourmanufacturingfacilityinBuffalo,NewYork,whichwerefertoasGigafactoryNewYork,forthedevelopmentand

productionofourSolarRoofandothersolarproductsandcomponents,energystoragecomponents,andSuperchargercomponents,andforotherlessor-approvedfunctions.Inparticular,ourmanufacturingoperationsatGigafactoryNewYorkareincreasingsignificantlyasweramptheproductionofthethirdgenerationofourSolarRoofthere.

GigafactoryShanghaiInDecember2019,wecommencedproductionofModel3vehiclesatGigafactoryShanghai,whichwehaveestablishedinordertoincreasethe

affordabilityofourvehiclesforcustomersinlocalmarketsbyreducingtransportationandmanufacturingcostsandeliminatingcertaintariffsonvehiclesimportedintoChinafromtheU.S.AtGigafactoryShanghai,wehaveinstalledannualproductioncapacityfor150,000Model3vehiclesthatwebelievewewilleventuallybeabletopushtoactualratesofproductioninexcessofsuchnumber,subjecttolocalproductionofbatterypacks,whichwebeganrampingtherelaterthanotherprocesses.WehavealsocommencedconstructionofthenextphaseofGigafactoryShanghaitoaddModelYmanufacturingcapacityatleastequivalenttothatforModel3.MuchoftheinvestmentinGigafactoryShanghaihasbeenandisexpectedtocontinuetobeprovidedthroughlocaldebtfinancing,includingaRMB9.0billion(ortheequivalentamountinU.S.dollars)fixedassettermfacilityandaRMB2.25billion(ortheequivalentamountinU.S.dollars)workingcapitalrevolvingfacilitythatoursubsidiaryenteredintoinDecember2019.Wearesupplementingsuchfinancingwithlimiteddirectcapitalexpendituresbyus,atalowercostperunitofproductioncapacitythanthatofModel3productionattheFremontFactory.

OtherManufacturingGenerally,wecontinuetoexpandproductioncapacityatourexistingfacilities.Wealsointendtofurtherincreasecost-competitivenessinour

significantmarketsbystrategicallyaddinglocalmanufacturing,includingatourplannedGigafactoryBerlin.

SupplyChainOurproductsusethousandsofpurchasedpartsthataresourcedfromhundredsofsuppliersacrosstheworld.Wehavedevelopedclose

relationshipswithvendorsofkeypartssuchasbatterycells,electronicsandcomplexvehicleassemblies.Certaincomponentspurchasedfromthesesuppliersaresharedoraresimilaracrossmanyproductlines,allowingustotakeadvantageofpricingefficienciesfromeconomiesofscale.

Asisthecaseformostautomotivecompanies,mostofourprocuredcomponentsandsystemsaresourcedfromsinglesuppliers.Certainkeycomponentsweusehavemultipleavailablesources,andweworktoqualifymultiplesuppliersforeachsuchcomponentwhereitissensibletodoso,inordertominimizeproductionrisksowingtodisruptionsintheirsupply.Wealsomitigateriskbymaintainingsafetystockforkeypartsandassembliesanddiebanksforcomponentswithlengthyprocurementleadtimes.

Ourproductsusevariousrawmaterialsincludingaluminum,steel,cobalt,lithium,nickelandcopper.Pricingforthesematerialsisgovernedbymarketconditionsandmayfluctuateduetovariousfactorsoutsideofourcontrol,suchassupplyanddemandandmarketspeculation.Wecurrentlybelievethatwehaveadequateaccesstorawmaterialssuppliesinordertomeettheneedsofouroperations.

GovernmentalPrograms,IncentivesandRegulationsGlobally,boththeoperationofourbusinessbyusandtheownershipofourproductsbyourcustomersareimpactedbyanumberofgovernment

programs,incentivesandotherarrangements.Ourbusinessandproductsarealsosubjecttoanumberofgovernmentalregulationsthatvaryamongjurisdictions.

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ProgramsandIncentivesCaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthorityTaxIncentivesWehaveenteredintomultipleagreementsoverthepastfewyearswiththeCaliforniaAlternativeEnergyandAdvancedTransportation

FinancingAuthority(“CAEATFA”)thatprovidemulti-yearsalestaxexclusionsonpurchasesofmanufacturingequipmentthatwillbeusedforspecificpurposes,includingtheexpansionandongoingdevelopmentofModelS,ModelX,Model3,ModelYandfutureelectricvehiclesandtheexpansionofelectricvehiclepowertrainproductioninCalifornia.

GigafactoryNevada—NevadaTaxIncentivesInconnectionwiththeconstructionofGigafactoryNevada,wehaveenteredintoagreementswiththeStateofNevadaandStoreyCountyin

Nevadathatprovideabatementsforsales,use,realproperty,personalpropertyandemployerexcisetaxes,discountstothebasetariffenergyratesandtransferabletaxcredits.TheseincentivesareavailablefortheapplicableperiodsbeginningonOctober17,2014andendingoneitherJune30,2024orJune30,2034(dependingontheincentive).Undertheseagreements,wewereeligibleforamaximumof$195.0millionoftransferabletaxcredits,subjecttocapitalinvestmentsbyusandourpartnersforGigafactoryNevadaofatleast$3.50billion,whichweexceededduring2017,andspecifiedhiringtargetsforGigafactoryNevada,whichweexceededduring2018.Asaresult,asofDecember31,2018,wehadearnedthemaximumamountofcredits.

GigafactoryNewYork—NewYorkStateInvestmentandLeaseWehavealeasethroughtheResearchFoundationfortheStateUniversityofNewYork(the“SUNYFoundation”)forGigafactoryNewYork,

whichwasconstructedonbehalfoftheSUNYFoundation.Undertheleaseandarelatedresearchanddevelopmentagreement,therecontinuestobe,onbehalfoftheSUNYFoundation,installationofcertainutilitiesandotherimprovementsandacquisitionofcertainmanufacturingequipmentdesignatedbyustobeusedatGigafactoryNewYork.Thetermsofsuchagreementrequireustocomplywithanumberofcovenants,includingrequiredhiringandcumulativeinvestmenttargets,whichwehavemettodateasoftheapplicablemeasurementdates.

GigafactoryShanghai—LeaseandLandUseRightsWehavealeasearrangementwiththelocalgovernmentofShanghaiforlanduserightsatGigafactoryShanghai.Underthetermsofthe

arrangement,wearerequiredtomeetacumulativecapitalexpendituretargetandanannualtaxrevenuetargetstartingattheendof2023,whichwebelievewillbeattainableevenifouractualvehicleproductionatGigafactoryShanghaiwerefarlowerthanthevolumesweareforecasting.

TeslaRegulatoryCreditsInconnectionwiththeproduction,delivery,placementintoserviceandongoingoperationofourzeroemissionvehicles,charginginfrastructure

andsolarsystemsinglobalmarkets,wehaveearnedandwillcontinuetoearnvarioustradableregulatorycredits.Wehavesoldthesecredits,andwillcontinuetosellfuturecredits,toautomotivecompaniesandotherregulatedentitieswhocanusethecreditstocomplywithemissionstandardsandotherregulatoryrequirements.Forexample,underCalifornia’sZeroEmissionVehicleRegulationandthoseofstatesthathaveadoptedCalifornia’sstandard,vehiclemanufacturersarerequiredtoearnorpurchasecredits,referredtoasZEVcredits,forcompliancewiththeirannualregulatoryrequirements.Theselawsprovidethatautomakersmaybankorselltootherregulatedpartiestheirexcesscreditsiftheyearnmorecreditsthantheminimumquantityrequiredbythoselaws.TeslaalsoearnsothertypesofsaleableregulatorycreditsintheUnitedStatesandabroad,includinggreenhousegas,fueleconomy,renewableenergy,andcleanfuelscredits.Likewise,severalU.S.stateshaveadoptedprocurementrequirementsforrenewableenergyproduction.TheserequirementsenablecompaniesdeployingsolarenergytoearntradablecreditsknownasSolarRenewableEnergyCertificates(“SRECs”).

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EnergyStorageSystems—IncentivesTheregulatoryregimeforenergystorageprojectsisstillunderdevelopment.Nevertheless,therearevariouspolicies,incentivesandfinancial

mechanismsatthefederal,stateandlocallevelsthatsupporttheadoptionofenergystorage.Forexample,energystoragesystemsthatarechargedusingsolarenergyareeligibleforthe26%taxcreditin2020witharampdownin2021andbeyondunderSection48(a)(3)oftheInternalRevenueCode,ortheIRC,asdescribedbelow.Inaddition,Californiaandanumberofotherstateshaveadoptedprocurementtargetsforenergystorage,andbehindthemeterenergystoragesystemsqualifyforfundingundertheCaliforniaSelfGenerationIncentiveProgram.

TheFederalEnergyRegulatoryCommission(“FERC”)hasalsotakenstepstoenabletheparticipationofenergystorageinwholesaleenergymarkets.Forexample,inlate2016,FERCissuedafinalrule,OrderNo.821,tofurtherbreakdownbarrierspreventingenergystoragefromfullyparticipatinginwholesaleenergymarkets.Order821iscurrentlyunderreviewbeforetheU.S.CourtofAppealsfortheD.C.Circuit.

SolarEnergySystems—GovernmentandUtilityProgramsandIncentivesU.S.federal,stateandlocalgovernmentshaveestablishedvariouspolicies,incentivesandfinancialmechanismstoreducethecostofsolar

energyandtoacceleratetheadoptionofsolarenergy.Theseincentivesincludetaxcredits,cashgrants,taxabatementsandrebates.

Thefederalgovernmentcurrentlyprovidesanuncappedinvestmenttaxcredit(“ITC”)undertwosectionsoftheIRC:Section48andSection25D.Section48(a)(3)oftheIRCallowsataxpayertoclaimacreditof26%ofqualifiedexpendituresforacommercialsolarenergysystemthatcommencesconstructionbyDecember31,2020.Thecreditthendeclinesto22%in2021andapermanent10%thereafter.WeclaimtheSection48commercialcreditwhenavailableforbothourresidentialandcommercialprojects,basedonownershipofthesolarenergysystem.Thefederalgovernmentalsoprovidesaccelerateddepreciationforeligiblecommercialsolarenergysystems.Section25DoftheIRCallowsahomeowner-taxpayertoclaimacreditof26%ofqualifiedexpendituresforaresidentialsolarenergysystemownedbythehomeownerthatisplacedinservicebyDecember31,2020.Thecreditthendeclinesto22%in2021andisscheduledtoexpirethereafter.CustomerswhopurchasetheirsolarenergysystemsforcashorthroughoursolarloanofferingareeligibletoclaimtheSection25Dinvestmenttaxcredit.

InadditiontothefederalITC,manyU.S.statesofferpersonalandcorporatetaxcreditsandincentivesforsolarenergysystems.

RegulationsVehicleSafetyandTestingOurvehiclesaresubjectto,andcomplywithorareotherwiseexemptfrom,numerousregulatoryrequirementsestablishedbytheNational

HighwayTrafficSafetyAdministration(“NHTSA”),includingallapplicableUnitedStatesFederalMotorVehicleSafetyStandards(“FMVSS”).OurvehiclesfullycomplywithallapplicableFMVSSswithouttheneedforanyexemptions,andweexpectfutureTeslavehiclestoeitherfullycomplyorcomplywithlimitedexemptionsrelatedtonewtechnologies.Additionally,thereareregulatorychangesbeingconsideredforseveralFMVSS,andwhileweanticipatecompliance,thereisnoassuranceuntilfinalregulationchangesareenacted.

Asamanufacturer,wemustself-certifythatourvehiclesmeetallapplicableFMVSS,aswellastheNHTSAbumperstandard,orotherwiseareexempt,beforethevehiclescanbeimportedorsoldintheU.S.NumerousFMVSSapplytoourvehicles,suchascrash-worthinessrequirements,crashavoidancerequirements,andelectricvehiclerequirements.WearealsorequiredtocomplywithotherfederallawsadministeredbyNHTSA,includingtheCAFEstandards,TheftPreventionActrequirements,consumerinformationlabelingrequirements,EarlyWarningReportingrequirementsregardingwarrantyclaims,fieldreports,deathandinjuryreportsandforeignrecalls,andowner’smanualrequirements.

TheAutomobileInformationandDisclosureActrequiresmanufacturersofmotorvehiclestodisclosecertaininformationregardingthemanufacturer’ssuggestedretailprice,optionalequipmentandpricing.Inaddition,thislawallowsinclusionofcityandhighwayfueleconomyratings,asdeterminedbyEPA,aswellascrashtestratingsasdeterminedbyNHTSAifsuchtestsareconducted.

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OurvehiclessoldoutsideoftheU.S.aresubjecttosimilarforeignsafety,environmentalandotherregulations.ManyofthoseregulationsaredifferentfromthoseapplicableintheU.S.andmayrequireredesignand/orretesting.TheEuropeanUnionhasestablishednewrulesregardingadditionalcomplianceoversightthatarescheduledtocommencein2020,andthereisalsoregulatoryuncertaintyrelatedtotheUnitedKingdom’swithdrawalfromtheEuropeanUnion.ThesechangescouldimpacttherolloutofnewvehiclefeaturesinEurope.

Self-DrivingTherearenofederalU.S.regulationspertainingtothesafetyofself-drivingvehicles;however,NHTSAhasestablishedrecommended

guidelines.CertainU.S.stateshavelegalrestrictionsonself-drivingvehicles,andmanyotherstatesareconsideringthem.Thispatchworkincreasesthelegalcomplexityforourvehicles.InEurope,certainvehiclesafetyregulationsapplytoself-drivingbrakingandsteeringsystems,andcertaintreatiesalsorestrictthelegalityofcertainhigherlevelsofself-drivingvehicles.Self-drivinglawsandregulationsareexpectedtocontinuetoevolveinnumerousjurisdictionsintheU.S.andforeigncountries,andmaycreaterestrictionsonself-drivingfeaturesthatwedevelop.

AutomobileManufacturerandDealerRegulationStatelawsregulatethemanufacture,distribution,saleandserviceofautomobiles,andgenerallyrequiremotorvehiclemanufacturersand

dealerstobelicensedinordertosellvehiclesdirectlytoconsumersinthestate.AsweopenadditionalTeslastoresandservicecenters,wesecuredealerlicenses(ortheirequivalent)andengageinsalesactivitiestosellourvehiclesdirectlytoconsumers.Certainstatesdonotpermitautomobilemanufacturerstobelicensedasdealersortoactinthecapacityofadealer,orotherwiserestrictamanufacturer’sabilitytodeliverorservicevehicles.Tosellvehiclestoresidentsofstateswherewearenotlicensedasadealer,wegenerallyconductthetransferoftitleoutofthestate.Insuchstates,wehaveopened“galleries”thatserveaneducationalpurposeandwherethetitletransfermaynotoccur.

AsweexpandourretailfootprintintheU.S.,someautomobiledealertradeassociationshavebothchallengedthelegalityofouroperationsincourtandusedadministrativeandlegislativeprocessestoattempttoprohibitorlimitourabilitytooperateexistingstoresorexpandtonewlocations.Weexpectthatthedealerassociationswillcontinuetomountchallengestoourbusinessmodel.Inaddition,weexpectthedealerassociationstoactivelylobbystatelicensingagenciesandlegislatorstointerpretexistinglawsorenactnewlawsinwaysnotfavorabletoTesla’sownershipandoperationofitsownretailandservicelocations,andweintendtoactivelyfightanysucheffortstolimitourabilitytosellandserviceourownvehicles.

BatterySafetyandTestingOurbatterypackconformstomandatoryregulationsthatgoverntransportof“dangerousgoods,”definedtoincludelithium-ionbatteries,which

maypresentariskintransportation.Theregulationsvarybymodeofshippingtransportation,suchasbyoceanvessel,rail,truck,orair.Wehavecompletedtheapplicabletransportationtestsforourbatterypacks,demonstratingourcompliancewithapplicableregulations.

Weuselithium-ioncellsinourhighvoltagebatterypacksinourvehiclesandenergystorageproducts.Theuse,storage,anddisposalofourbatterypacksisregulatedunderfederallaw.Wehaveagreementswiththirdpartybatteryrecyclingcompaniestorecycleourbatterypacksandwearealsodevelopingourownrecyclingtechnology.

SolarEnergy—GeneralWearenota“regulatedutility”intheU.S.,althoughwearesubjecttocertainstateandfederalregulationsapplicabletosolarandbattery

storageproviders.Tooperateoursystems,weobtaininterconnectionagreementsfromtheutilities.Inmostcases,interconnectionagreementsarestandardformagreementsthathavebeenpre-approvedbythepublicutilitycommissionorotherregulatorybody.

Salesofelectricityandnon-saleequipmentleasesbythirdparties,suchasourleases,PPAsandsubscriptionagreements,faceregulatorychallengesinsomestatesandjurisdictions.

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SolarEnergy—NetMeteringMoststatesintheU.S.havearegulatorypolicyknownasnetenergymetering,ornetmetering,availabletosolarcustomers.Netmetering

typicallyallowssolarcustomerstointerconnecttheiron-sitesolarenergysystemstotheutilitygridandoffsettheirutilityelectricitypurchasesbyreceivingabillcreditforexcessenergygeneratedbytheirsolarenergysystemthatisexportedtothegrid.Incertainjurisdictions,regulatorsorutilitieshavereducedoreliminatedthebenefitavailableundernetmetering,orhaveproposedtodoso.

SolarEnergy—MandatedRenewableCapacityManystatesalsohaveadoptedprocurementrequirementsforrenewableenergyproduction,suchasanenforceablerenewableportfolio

standard,orRPS,orotherpoliciesthatrequirecoveredentitiestoprocureaspecifiedpercentageoftotalelectricitydeliveredtocustomersinthestatefromeligiblerenewableenergysources,suchassolarenergysystems.InSRECstatemarkets,theRPSrequireselectricitysupplierstosecureaportionoftheirelectricityfromsolargenerators.TheSRECprogramprovidesameansforthegenerationofSRECs,whichcanthenbesoldseparatelyfromtheenergyproducedtocoveredentitieswhosurrendertheSRECstothestatetoprovecompliancewiththestate’srenewableenergymandate.

CompetitionAutomotive

Theworldwideautomotivemarketishighlycompetitiveandweexpectitwillbecomeevenmorecompetitiveinthefutureasweintroduceadditionalvehiclesinabroadercross-sectionofthepassengerandcommercialvehiclemarketandexpandourvehicles’capabilities.

Webelievethatourvehiclescompeteinthemarketbothbasedontheirtraditionalsegmentclassificationaswellasbasedontheirpropulsiontechnology.Forexample,ModelSandModelXcompeteprimarilywithpremiumsedansandpremiumSUVsandModel3andModelYcompetewithsmalltomedium-sizedsedansandcompactSUVs,whichareextremelycompetitivemarkets.Competingproductstypicallyincludeinternalcombustionvehiclesfrommoreestablishedautomobilemanufacturers;however,manyestablishedandnewautomobilemanufacturershaveenteredorhaveannouncedplanstoenterthealternativefuelvehiclemarket.Overall,webelievetheseannouncementsandvehicleintroductionspromotethedevelopmentofthealternativefuelvehiclemarketbyhighlightingtheattractivenessofalternativefuelvehicles,particularlythosefueledbyelectricity,relativetotheinternalcombustionvehicle.ManymajorautomobilemanufacturershaveelectricvehiclesavailabletodayinmajormarketsincludingtheU.S.,ChinaandEurope,andothercurrentandprospectiveautomobilemanufacturersarealsodevelopingelectricvehicles.Inaddition,severalmanufacturersofferhybridvehicles,includingplug-inversions.

Ourvehiclesalsocompeteinthemarketbasedonthecompellinguserexperiencethattheyoffer.WebelievethatakeyfactorinoursuccesswillbeourAutopilotandFSDtechnologiesthatcurrentlyenablethedriver-assistancefeaturesinourvehicles,andinwhichwearemakingsignificantstridesthroughourproprietaryandpowerfulFSDcomputerandremotelyupdateableartificialintelligencesoftware.Ultimately,whilewearesubjecttoregulatoryconstraintsoverwhichwehavenocontrol,ourgoalisafullyautonomously-drivenfuturethatimprovessafetyandprovidesourcustomerswithconvenienceandadditionalincomethroughparticipationinanautonomousTeslaride-hailingnetwork.Thisnetwork,whichwillalsoincludeourownfleetofvehicles,willalsoallowustoaccessanewcustomerbaseevenasmodesoftransportationevolve.Finally,ourvehiclesofferunparalleledin-vehicleentertainmentfeatures,currentlyincludingInternetsearch,musicservices,passengerkaraoke,andparkedvideostreamingandgaming.

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EnergyGenerationandStorageEnergyStorageSystemsThemarketforenergystorageproductsisalsohighlycompetitive.Establishedcompanies,suchasAESEnergyStorage,Siemens,LGChemand

Samsung,aswellasvariousemergingcompanies,haveintroducedproductsthataresimilartoourproductportfolio.Thereareseveralcompaniesprovidingindividualcomponentsofenergystoragesystems(suchascells,batterymodules,andpowerelectronics)aswellasothersprovidingintegratedsystems.Wecompetewiththesecompaniesbasedonprice,energydensityandefficiency.Webelievethatthespecificationsofourproducts,ourstrongbrand,andthemodular,scalablenatureofourPowerpackandMegapackproductsgiveusacompetitiveadvantagewhenmarketingourproducts.

SolarEnergySystemsTheprimarycompetitorstooursolarenergybusinessarethetraditionallocalutilitycompaniesthatsupplyenergytoourpotentialcustomers.

Wecompetewiththesetraditionalutilitycompaniesprimarilybasedonprice,predictabilityofpriceandtheeasebywhichcustomerscanswitchtoelectricitygeneratedbyoursolarenergysystems.Wealsocompetewithsolarenergycompaniesthatprovideproductsandservicessimilartoours.Manysolarenergycompaniesonlyinstallsolarenergysystems,whileothersonlyprovidefinancingfortheseinstallations.Intheresidentialsolarenergysysteminstallationmarket,ourprimarycompetitorsincludeVivintSolarInc.,SunrunInc.,TrinitySolar,SunPowerCorporation,andmanysmallerlocalsolarcompanies.

TheelectricityproducedbysolarinstallationsstillrepresentsasmallfractionoftotalU.S.electricitygeneration.Withtensofmillionsofsingle-familyhomesandbusinessesinourprimaryserviceterritories,andmanymoreinotherlocations,wehavealargeopportunitytoexpandandgrowthisbusinessaswemakeourretrofitinstallationsmoreaccessibleandrampourinnovativeSolarRoof.Wealsobelievethatresidentialsolarenergygenerationisgainingfavorableregulatorymomentum,asexemplifiedinpartbythestateofCaliforniarecentlyrequiringthatnewhomesbebuiltwithsolargenerationstartingin2020.

IntellectualPropertyWeplaceastrongemphasisonourinnovativeapproachandproprietarydesignswhichbringintrinsicvalueanduniquenesstoourproduct

portfolio.Aspartofourbusiness,weseektoprotecttheunderlyingintellectualpropertyrightsoftheseinnovationsanddesignssuchaswithrespecttopatents,trademarks,copyrights,tradesecretsandothermeasures,includingthroughemployeeandthirdpartynondisclosureagreementsandothercontractualarrangements.Forexample,weplaceahighpriorityonobtainingpatentstoprovidethebroadestandstrongestpossibleprotectiontoenableourfreedomtooperateourinnovationsanddesignswithinourproductsandtechnologiesintheelectricvehiclemarketaswellastoprotectanddefendourproductportfolio.Wehavealsoadoptedapatentpolicyinwhichweirrevocablypledgedthatwewillnotinitiatealawsuitagainstanypartyforinfringingourpatentsthroughactivityrelatingtoelectricvehiclesorrelatedequipmentforsolongassuchpartyisactingingoodfaith.Wemadethispledgeinordertoencouragetheadvancementofacommon,rapidly-evolvingplatformforelectricvehicles,therebybenefitingourselves,othercompaniesmakingelectricvehicles,andtheworld.

EmployeesAsofDecember31,2019,Tesla,Inc.had48,016full-timeemployees.Todate,wehavenotexperiencedanyworkstoppages,andweconsider

ourrelationshipwithouremployeestobegood.

AvailableInformationWefileorfurnishperiodicreportsandamendmentsthereto,includingourAnnualReportsonForm10-K,ourQuarterlyReportsonForm10-Q

andCurrentReportsonForm8-K,proxystatementsandotherinformationwiththeSecuritiesandExchangeCommission(“SEC”).Inaddition,theSECmaintainsawebsite(www.sec.gov)thatcontainsreports,proxyandinformationstatements,andotherinformationregardingissuersthatfileelectronically.Ourwebsiteislocatedatwww.tesla.com,andourreports,amendmentsthereto,proxystatementsandotherinformationarealsomadeavailable,freeofcharge,onourinvestorrelationswebsiteatir.tesla.comassoonasreasonablypracticableafterweelectronicallyfileorfurnishsuchinformationwiththeSEC.TheinformationpostedonourwebsiteisnotincorporatedbyreferenceintothisAnnualReportonForm10-K.

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ITEM1A. RISKFACTORS

Youshouldcarefullyconsidertherisksdescribedbelowtogetherwiththeotherinformationsetforthinthisreport,whichcouldmateriallyaffectourbusiness,financialconditionandfutureresults.Therisksdescribedbelowarenottheonlyrisksfacingourcompany.Risksanduncertaintiesnotcurrentlyknowntousorthatwecurrentlydeemtobeimmaterialalsomaymateriallyadverselyaffectourbusiness,financialconditionandoperatingresults.

RisksRelatedtoOurBusinessandIndustryWehaveexperiencedinthepast,andmayexperienceinthefuture,delaysorothercomplicationsinthedesign,manufacture,launch,andproductionrampofourvehicles,energyproducts,andproductfeatures,ormaynotrealizeourmanufacturingcosttargets,whichcouldharmourbrand,business,prospects,financialconditionandoperatingresults.Wehavepreviouslyexperiencedlaunchandproductionrampdelaysorothercomplicationsinconnectionwithnewvehiclemodelssuchas

ModelS,ModelXandModel3,andnewvehiclefeaturessuchastheall-wheeldrivedualmotordrivetrainonModelSandthesecondversionofourAutopilothardware.Forexample,weencounteredunanticipatedsupplychainconstraintsthatledtoinitialdelaysinproducingModelXandanisolatedsupplierlimitationinthemanufactureofModel3.Similarly,duringourinitialModel3productionramp,wehadchallengesrampingfullyautomatedprocesses,suchasportionsofthebatterymoduleassemblyline,materialflowsystemandthegeneralassemblyline,whichweaddressedbyreducingthelevelsofautomationandintroducingsemi-automatedormanualprocesses.Inaddition,wehaveusedanumberofnewmanufacturingtechnologies,techniquesandprocessesforourvehicles,suchasaluminumspotweldingsystemsandhigh-speedblowformingofcertaindifficulttostampvehicleparts,andwemayintroducenewprocessesinthefuture.Wehavealsointroduceduniquedesignfeaturesinourvehicleswithdifferentmanufacturingchallenges,suchaslargedisplayscreens,dualmotordrivetrain,hardwareforourAutopilotandFSDfeaturesandfalcon-wingdoors.Thereisnoguaranteethatwewillbeabletosuccessfullyandtimelyintroduceandscaleanysuchnewprocessesorfeatures.

Inparticular,ourfuturebusinessdependsinlargepartonthehigh-volumeproductionofModel3andModelY,whichwebelieveareourvehicleswiththelargestmarkets.WehavelimitedexperiencetodateinmanufacturingModel3athighvolumesandcontinuouslyincreasingitsproductionrates,particularlyacrossmultiplevehiclemanufacturingfacilities,whichwecommencedinthefourthquarterof2019withGigafactoryShanghaicomingonline.Inordertobesuccessful,wewillneedtoimplement,maintainand/orrampefficientandcost-effectivemanufacturingcapabilities,processesandsupplychainsandachievethedesigntolerances,highqualityandmaximumoutputrateswehaveplanned,includingatGigafactoryShanghai,andforModelY,whichwecommencedmanufacturingattheFremontFactoryinthefirstquarterof2020.Bottleneckssuchasthosewehaveexperiencedinthepastwithnewproductrampsandotherunexpectedchallengesmayalsoariseaswerampproduction,anditwillbeimportantthatweaddressthempromptlywhilecontinuingtoreduceourmanufacturingcosts.Ifwearenotsuccessfulindoingso,orifweexperienceissueswithourongoingmanufacturingprocessimprovementsandcost-downefforts,wecouldfacedelaysinestablishingand/orsustainingourModel3andModelYrampsorbeunabletomeetourrelatedcostandprofitabilitytargets.

Moreover,wewillneedtohire,trainandcompensateskilledemployeestooperatehigh-volumeproductionfacilitiestosupportourvehiclerampattheFremontFactoryandGigafactoryShanghai,aswellasatGigafactoryNevadatosupportthemanufactureofbatterypacksanddriveunitsforcertainofourvehicles.Finally,becauseourvehiclemodels,inparticularModel3andModelY,maysharecertainparts,suppliersorproductionfacilitieswitheachother,thevolumeorefficiencyofproductionwithrespecttoonemodelmayimpactalsotheproductionofothermodelsorleadtobottlenecksthatimpacttheproductionofallmodels.

Wemayalsoexperiencesimilarfuturedelaysorothercomplicationsinlaunchingand/orrampingproductionofnewvehicles,suchasTeslaSemi,CybertruckandthenewTeslaRoadster,ourenergystorageproductsandtheSolarRoof,aswellasfuturefeaturesandservicessuchasnewAutopilotorFSDfeaturesandtheautonomousTeslaride-hailingnetwork.Likewise,wemayencounterdelayswiththedesign,constructionandregulatoryorotherapprovalsnecessarytobuildandbringonlinefuturemanufacturingfacilities,includingourplannedGigafactoryBerlininGermany.

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Anysignificantdelayorothercomplicationintheproductionrampofourcurrentproductsorthedevelopment,manufacture,launchandproductionrampofourfutureproducts,featuresandservices,includingcomplicationsassociatedwithexpandingourproductioncapacityandsupplychainorobtainingormaintainingrelatedregulatoryapprovals,orinabilitytomanagesuchrampscost-effectively,couldmateriallydamageourbrand,business,prospects,financialconditionandoperatingresults.

Wemaybeunabletomeetourgrowingproductsales,deliveryandinstallationplansandvehicleservicingandchargingnetworkneeds,oraccuratelyprojectandmanagethisgrowthinternationally,anyofwhichcouldharmourbusinessandprospects.Concurrentwithdeveloping,launchingandrampingourproducts,oursuccesswilldependonourabilitytocontinuetosignificantlyincrease

theirsales,deliveries,installationsandservicingworldwide,whileallocatingouravailableresourcesamongmultipleproductssimultaneously.Asweexpandglobally,wewillalsoneedtoensureweareincompliancewithanyregulatoryrequirementsapplicabletothesale,installationandserviceofourproducts,thesaleofelectricitygeneratedthroughoursolarenergysystemsandoperationofSuperchargersinvariousjurisdictions,whichcouldtakeconsiderabletimeandexpense.Theseplansrequiresignificantcashinvestmentsandmanagementresourcesandthereisnoguaranteethattheywillultimatelygenerateadditionalsalesorinstallationsofourproducts.

Wecontinuouslyevaluate,andasappropriateevolve,ourretailoperationsandproductofferingsinordertomaximizeourreachandoptimizeourcosts,vehicleline-upandmodeldifferentiation,andpurchasingexperience.However,thereisnoguaranteethateachstepinourevolvingstrategywillbeperceivedasintendedbyprospectivecustomersaccustomedtomoretraditionalsalesmodels.Inparticular,wearetargetingwithModel3andModelYaglobalmassdemographicwithabroadrangeofpotentialcustomers,inwhichwehavelimitedexperienceprojectingdemandandpricingourproducts.UntilweramplocalproductionatGigafactoryShanghaiandinthefutureatGigafactoryBerlin,wewillhavetocontendwithpredominantlysingle-factoryvehicleproductionattheFremontFactoryfornumerousinternationalvariants.Ifourspecificdemandexpectationsforthesevariantsproveinaccurate,wemaynotbeabletotimelygeneratesalesmatchedtothespecificvehiclesthatweproduceinthesametimeframeorthatarecommensuratewithouroperationsinagivenregion,whichmaynegativelyimpactourdeliveriesandoperatingresultsinaparticularperiod.Likewise,aswedevelopandgrowourenergystorageproductandsolarbusinessworldwide,oursuccesswilldependonourabilitytocorrectlyforecastdemandforourproductsindifferentmarkets.

Moreover,becausewedonothaveindependentdealernetworks,weareresponsiblefordeliveringallofourvehiclestoourcustomersandmeetingtheirvehicleservicingneeds.Whilewehavesubstantiallyimplementedandimprovedmanyaspectsofourdeliveryandserviceoperations,westillhaverelativelylimitedexperiencewith,andmayfacedifficultiesin,suchdeliveriesandservicingathighvolumes,particularlyininternationalmarketsasweexpand.Forexample,significanttransittimemayberequiredtotransportvehiclesinvolumeintointernationalmarkets,andwealsosawchallengesininitiallyrampingourlogisticalchannelsinChinaandEuropeaswedeliveredModel3thereforthefirsttimeinthefirstquarterof2019.Toaccommodategrowingvolumes,wehavedeployedanumberofdeliverymodels,suchasdeliveriestocustomers’homesandworkplaces,someofwhichhavenotbeenpreviouslytestedatscaleandindifferentgeographiesandmaynotultimatelybesuccessful.Likewise,becauseofouruniqueexpertisewithourvehicles,werecommendthatourvehiclesbeservicedbyourservicecenters,MobileServicetechniciansorcertainauthorizedprofessionalsthatwehavespecificallytrainedandequipped.Ifweexperiencedelaysinaddingsuchservicingcapacityorexperienceunforeseenissueswiththereliabilityofourvehicles,particularhigher-volumeandneweradditionstoourfleetsuchasModel3andModelY,itcouldoverburdenourservicingcapabilitiesandpartsinventory.Finally,theincreasingnumberofTeslavehiclesalsorequiresustocontinuetorapidlyincreasethenumberofourSuperchargerstationsandconnectorsthroughouttheworld.

WearealsoexpandingourinstallationcapabilitiesfortheSolarRoofaswecontinueitsmanufacturingrampbytrainingbothourownpersonnelandthirdpartyinstallers.Ifwearenotsuccessfulingrowingthisoverallinstallationcapabilitytokeeppacewithourincreasingproduction,orifweexperienceunforeseendelaysintheproductionramporinaccuratelyforecastdemandfortheSolarRoof,ouroperatingresultsmaybenegativelyimpacted.

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Thereisnoassurancethatwewillbeabletorampourbusinesstomeetoursales,delivery,servicing,chargingandinstallationtargetsglobally,thatourprojectionsonwhichsuchtargetsarebasedwillproveaccurate,orthatthepaceofgrowthorcoverageofourcustomerinfrastructurenetworkwillmeetcustomerexpectations.Moreover,wemaynotbesuccessfulinundertakingthisglobalexpansionifweareunabletoavoidcostoverrunsandotherunexpectedoperatingcosts,adaptourproductsandconductouroperationstomeetlocalrequirementsandregulations,implementrequiredlocalinfrastructure,systemsandprocesses,andfindandhireasignificantnumberofadditionalsales,service,electricalinstallation,constructionandadministrativepersonnel.Ifwefailtomanageourgrowtheffectively,itcouldresultinnegativepublicityanddamagetoourbrandandhaveamaterialadverseeffectonourbusiness,prospects,financialconditionandoperatingresults.

Ourfuturegrowthandsuccessisdependentuponconsumers’willingnesstoadoptelectricvehiclesandspecificallyourvehicles.Weoperateintheautomotiveindustry,whichisgenerallysusceptibletocyclicalityandvolatility.Ourgrowthishighlydependentupontheworldwideadoptionbyconsumersofalternativefuelvehiclesingeneralandelectricvehiclesin

particular.Althoughwehavesuccessfullygrowndemandforourvehiclesthusfar,thereisnoguaranteeofsuchfuturedemand,orthatourvehicleswillnotcompetewithoneanotherinthemarket.Moreover,thetargetdemographicsforourvehicles,inparticularthemassmarketdemographicforModel3andModelY,arehighlycompetitive.IfthemarketforelectricvehiclesingeneralandTeslavehiclesinparticulardoesnotdevelopasweexpect,developsmoreslowlythanweexpect,orifdemandforourvehiclesdecreasesinourmarkets,ourbusiness,prospects,financialconditionandoperatingresultscouldbeharmed.

Wehaveonlyrelativelyrecentlyachievedhigh-volumeproductionofvehicles,andarestillatanearlierstageandhavelimitedresourcesrelativetoourcompetitors.Moreover,themarketforalternativefuelvehiclesisrapidlyevolving.Asaresult,themarketforourvehiclescouldbeaffectedbynumerousfactors,suchas: • perceptionsaboutelectricvehiclefeatures,quality,safety,performanceandcost; • perceptionsaboutthelimitedrangeoverwhichelectricvehiclesmaybedrivenonasinglebatterycharge; • competition,includingfromothertypesofalternativefuelvehicles,plug-inhybridelectricvehiclesandhighfuel-economyinternal

combustionenginevehicles; • volatilityinthecostofoilandgasoline; • governmentregulationsandeconomicincentives; • accesstochargingfacilities;and • concernsaboutourfutureviability.

Inaddition,salesofvehiclesintheautomotiveindustrytendtobecyclicalinmanymarkets,whichmayexposeustoincreasedvolatility,especiallyasweexpandandadjustouroperationsandretailstrategies.Specifically,itisuncertainastohowsuchmacroeconomicfactorswillimpactusasacompanythathasbeenexperiencinggrowthandincreasingmarketshareinanindustrythathasgloballybeenexperiencingarecentdeclineinsales.

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Wearedependentonoursuppliers,themajorityofwhicharesingle-sourcesuppliers,andtheinabilityofthesesupplierstodelivernecessarycomponentsofourproductsaccordingtoourscheduleandatprices,qualitylevelsandvolumesacceptabletous,orourinabilitytoefficientlymanagethesecomponents,couldhaveamaterialadverseeffectonourfinancialconditionandoperatingresults.Ourproductscontainthousandsofpurchasedpartsthatwesourcegloballyfromhundredsofdirectsuppliers.Weattempttomitigateour

supplychainriskbyenteringintolong-termagreementswhereitispracticalandbeneficialtodoso,includingagreementsweenteredintowithPanasonictobeourmanufacturingpartnerandsupplier;qualifyingandobtainingcomponentsfrommultiplesourceswheresensible,suchasthePVpanelsforourretrofitsolarinstallationsthatwepurchasefromavarietyofsuppliers;andmaintainingsafetystockforkeypartsandassembliesanddiebanksforcomponentswithlengthyprocurementleadtimes.However,ourlimited,andinmostcasessingle-source,supplychainexposesustomultiplepotentialsourcesofdeliveryfailureorcomponentshortagesforourproduction,suchasthosewhichweexperiencedin2012and2016inconnectionwithourslower-than-plannedModelSandModelXramps.Furthermore,unexpectedchangesinbusinessconditions,materialspricing,laborissues,wars,governmentalchanges,tariffs,naturaldisasterssuchastheMarch2011earthquakesinJapan,healthepidemics,andotherfactorsbeyondourandoursuppliers’controlcouldalsoaffectthesesuppliers’abilitytodelivercomponentstousonatimelybasis.Thelossofanysupplier,particularlyasingle-orlimited-sourcesupplier,orthedisruptioninthesupplyofcomponentsfromoursuppliers,couldleadtoproductdesignchanges,productiondelaysofkeyrevenue-generatingproducts,idlemanufacturingfacilities,andpotentiallossofaccesstoimportanttechnologyandpartsforproducing,servicingandsupportingourproducts,anyofwhichcouldresultinnegativepublicity,damagetoourbrandandamaterialandadverseeffectonourbusiness,prospects,financialconditionandoperatingresults.

Wemayalsobeimpactedbychangesinoursupplychainorproductionneeds.Wehaveexperiencedinthepast,andmayexperienceinthefuture,costincreasesfromcertainofoursuppliersinordertomeetourqualitytargetsanddevelopmenttimelinesaswellasduetoourdesignchanges.Likewise,anysignificantincreasesinourproduction,suchasforModel3andourexpectationsforModelY,hasrequiredand/ormayinthefuturerequireustoprocureadditionalcomponentsinashortamountoftime.Oursuppliersmaynotultimatelybeabletosustainablyandtimelymeetourcost,qualityandvolumeneeds,requiringustoreplacethemwithothersources.Whilewebelievethatwewillbeabletosecureadditionaloralternatesourcesofsupplyformostofourcomponentsinarelativelyshorttimeframe,thereisnoassurancethatwewillbeabletodosoordevelopourownreplacementsforcertainhighlycustomizedcomponents.Additionally,wecontinuouslynegotiatewithexistingsupplierstoobtaincostreductionsandavoidunfavorablechangestoterms,seeknewandlessexpensivesuppliersforcertainparts,andattempttoredesigncertainpartstomakethemlessexpensivetoproduce.Ifweareunsuccessfulinoureffortstocontrolandreducesuppliercosts,ouroperatingresultswillsuffer.

OutsideoftheU.S.,wehavelimitedmanufacturingexperienceandwemayexperienceissuesordelaysincreasingtheleveloflocalizedprocurementatourGigafactoryShanghaiandinthefutureatourGigafactoryBerlin.Furthermore,asthescaleofourvehicleproductionincreases,wewillneedtoaccuratelyforecast,purchase,warehouseandtransportcomponentstoourmanufacturingfacilitiesandservicinglocationsinternationallyandatmuchhighervolumes.Ifweareunabletoaccuratelymatchthetimingandquantitiesofcomponentpurchasestoouractualneedsorsuccessfullyimplementautomation,inventorymanagementandothersystemstoaccommodatetheincreasedcomplexityinoursupplychain,wemayincurunexpectedproductiondisruption,storage,transportationandwrite-offcosts,whichcouldhaveamaterialadverseeffectonourfinancialconditionandoperatingresults.

AnyproblemsordelaysinexpandingGigafactoryNevadaorrampingandmaintainingoperationstherecouldnegativelyaffecttheproductionandprofitabilityofourproducts,suchasModel3,ModelYandourenergystorageproducts.Inaddition,thebatterycellsproducedtherestorelargeamountsofenergy.Tolowerthecostofcellproductionandproducecellsinhighvolume,wehaveverticallyintegratedtheproductionoflithium-ioncellsat

GigafactoryNevada,wherewealsomanufacturebatterypacksanddriveunitsforcertainvehiclesandenergystorageproductsandassembleourMegapackproduct.Productionoflithium-ioncellsatGigafactoryNevadabeganin2017,andwehavenootherdirectexperienceintheproductionoflithium-ioncells.Giventhesizeandcomplexityofthisundertaking,itispossiblethatfutureeventscouldresultinissuesordelaysinfurtherrampingourproductsandexpandingproductionoutputatGigafactoryNevada.

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Inordertoachieveourvolumeandgrossmargintargetsforourvehiclesandenergystorageproducts,wemustcontinuetosustainandrampsignificantcellproductionatGigafactoryNevada,which,amongotherthings,requiresPanasonictosuccessfullyoperateandfurtherrampitscellproductionlinesatsignificantvolumes.AlthoughPanasonichasalongtrackrecordofproducinghigh-qualitycellsatsignificantvolumeatitsfactoriesinJapan,ithasrelativelylimitedexperiencewithcellproductionatGigafactoryNevada.Inaddition,weproduceseveralcomponentsforModel3andModelY,suchasbatterymodulesincorporatingthelithium-ioncellsproducedbyPanasonicanddriveunits(includingtosupportGigafactoryShanghaiproduction),atGigafactoryNevada.Someofthemanufacturinglinesforsuchcomponentstooklongerthananticipatedtoramptotheirfullcapacity.Whilewehavelargelyovercomethisbottleneckafterdeployingmultiplesemi-automatedlinesandimprovingouroriginallines,additionalbottlenecksmayariseaswecontinuetoincreasetheproductionrateandintroducenewlines.IfweareunabletomaintainGigafactoryNevadaproduction,rampoutputadditionallyovertimeasneeded,anddosocost-effectively,orifweorPanasonicareunabletohireandretainasubstantialnumberofhighlyskilledpersonnel,ourabilitytosupplybatterypacksorothercomponentsforModel3,ModelYandourotherproductscouldbenegativelyimpacted,whichcouldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.

Inaddition,thehighvolumesoflithium-ioncellsandbatterymodulesandpacksmanufacturedatGigafactoryNevadaarestoredandrecycledatourvariousfacilities.Anymishandlingofbatterycellsmaycausedisruptiontotheoperationofsuchfacilities.Whilewehaveimplementedsafetyproceduresrelatedtothehandlingofthecells,therecanbenoassurancethatasafetyissueorfirerelatedtothecellswouldnotdisruptouroperations.Suchdisruptionsorissuescouldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.

Anyissuesordelaysinmeetingourprojectedtimelines,costsandproductionatorfundingtherampofGigafactoryShanghai,oranydifficultiesingeneratingandmaintaininglocaldemandforvehiclesmanufacturedthere,couldadverselyimpactourbusiness,prospects,operatingresultsandfinancialcondition.Aspartofourcontinuingworktoincreaseproductionofourvehiclesonasustainedbasis,andinordertomakethemaffordableininternational

marketsbyaccessinglocalsupplychainsandworkforces,wehaveestablishedGigafactoryShanghaiinChina.Currently,wehaveinstalledannualproductioncapacityfor150,000Model3vehiclestherethatwebelievewewilleventuallybeabletopushtoactualratesofproductioninexcessofsuchnumber,andwehavecommencedconstructionofthenextphaseofGigafactoryShanghaitoaddModelYmanufacturingcapacityatleastequivalenttothatforModel3.TherampandfurtherexpansionofGigafactoryShanghaiaresubjecttoanumberofuncertaintiesinherentinallnewmanufacturingoperations,includingongoingcompliancewithregulatoryrequirements,maintenanceofoperationallicensesandapprovalsforadditionalexpansion,potentialsupplychainconstraints,hiring,trainingandretentionofqualifiedemployees,andthepaceofbringingproductionequipmentandprocessesonlinewiththecapabilitytomanufacturehigh-qualityunitsatscale.Wehavelimitedexperiencetodatewithoperatingmanufacturingfacilitiesabroad,andonlyrecentlybegantosellModel3inChina.Ifweexperienceanyissuesordelaysinmeetingourprojectedtimelines,costs,capitalefficiencyandproductioncapacityforGigafactoryShanghai,orinmaintainingandcomplyingwiththetermsoflocaldebtfinancingthatweintendwilllargelyfundit,oringeneratingandmaintainingdemandlocallyforthevehicleswemanufactureatGigafactoryShanghai,ourbusiness,prospects,operatingresultsandfinancialconditioncouldbeadverselyimpacted.

Inparticular,localmanufacturingiscriticaltoourexpansionandsalesinChina,whichisthelargestmarketforelectricvehiclesintheworld.OurvehiclesalesinChinahavebeennegativelyimpactedinthepastbycertaintariffsonautomobilesmanufacturedintheU.S.,suchasourvehicles,andourcostsforproducingourvehiclesintheU.S.havealsobeenaffectedbyimportdutiesoncertaincomponentssourcedfromChina.IfwearenotabletosuccessfullyandtimelyrampGigafactoryShanghai,wemaycontinuetobeexposedtotheimpactofsuchunfavorabletariffs,dutiesorcoststoourdetrimentcomparedtolocally-basedcompetitors.

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Wefacerisksassociatedwithourinternationaloperations,includingunfavorableanduncertainregulatory,political,economic,taxandlaborconditions,andwithestablishingourselvesinnewmarkets,allofwhichcouldharmourbusiness.Wehaveaglobalfootprintwithdomesticandinternationaloperationsandsubsidiaries.Accordingly,wearesubjecttoavarietyoflegal,

politicalandregulatoryrequirementsandsocial,environmentalandeconomicconditionsoverwhichwehavelittlecontrol.Forexample,wemaybeimpactedbytradepolicies,environmentalconditions,politicaluncertaintyandeconomiccyclesinvolvinggeographicregionswherewehavesignificantoperations,whichareinherentlyunpredictable.Wearesubjecttoanumberofrisksassociatedinparticularwithinternationalbusinessactivitiesthatmayincreaseourcosts,impactourabilitytosellourproductsandrequiresignificantmanagementattention.Theserisksincludeconformingourproductstovariousinternationalregulatoryandsafetyrequirementsaswellaschargingandotherelectricinfrastructures,organizinglocaloperatingentities,difficultyinestablishing,staffingandmanagingforeignoperations,challengesinattractingcustomers,foreigngovernmenttaxes,regulationsandpermitrequirements,ourabilitytoenforceourcontractualrights,traderestrictions,customsregulations,tariffsandpriceorexchangecontrols,andpreferencesofforeignnationsfordomesticallymanufacturedproducts.

Increasesincosts,disruptionofsupplyorshortageofmaterials,inparticularforlithium-ioncells,couldharmourbusiness.Wemayexperienceincreasesinthecostoforasustainedinterruptioninthesupplyorshortageofmaterials.Anysuchincrease,supply

interruptionorshortagecouldmateriallyandnegativelyimpactourbusiness,prospects,financialconditionandoperatingresults.Weusevariousmaterialsinourbusinessincludingaluminum,steel,lithium,nickel,copperandcobalt,aswellaslithium-ioncellsfromsuppliers.Thepricesforthesematerialsfluctuate,andtheiravailablesupplymaybeunstable,dependingonmarketconditionsandglobaldemandforthesematerials,includingasaresultofincreasedproductionofelectricvehiclesandenergystorageproductsbyourcompetitors,andcouldadverselyaffectourbusinessandoperatingresults.Forinstance,weareexposedtomultiplerisksrelatingtolithium-ioncells.Theserisksinclude: • anincreaseinthecost,ordecreaseintheavailablesupply,ofmaterialsusedinthecells; • disruptioninthesupplyofcellsduetoqualityissuesorrecallsbybatterycellmanufacturersoranyissuesthatmayarisewithrespect

tocellsmanufacturedatourownfacilities;and • fluctuationsinthevalueofanyforeigncurrenciesinwhichbatterycellandrelatedrawmaterialpurchasesareormaybedenominated,

suchastheJapaneseyen,againsttheU.S.dollar.

Ourbusinessisdependentonthecontinuedsupplyofbatterycellsforthebatterypacksusedinourvehiclesandenergystorageproducts.Whilewebelieveseveralsourcesofthebatterycellsareavailableforsuchbatterypacks,andexpecttoeventuallyrelysubstantiallyonbatterycellsmanufacturedatourownfacilities,wehavetodatefullyqualifiedonlyaverylimitednumberofsuppliersforthecellsusedinsuchbatterypacksandhaveverylimitedflexibilityinchangingcellsuppliers.Anydisruptioninthesupplyofbatterycellsfromsuchsupplierscoulddisruptproductionofourvehiclesandofthebatterypacksweproduceforenergyproductsuntilsuchtimeasadifferentsupplierisfullyqualified.Furthermore,fluctuationsorshortagesinpetroleumandothereconomicconditionsmaycauseustoexperiencesignificantincreasesinfreightchargesandmaterialcosts.Substantialincreasesinthepricesforourmaterialsorpriceschargedtous,suchasthosechargedbybatterycellsuppliers,wouldincreaseouroperatingcosts,andcouldreduceourmarginsifwecannotrecouptheincreasedcoststhroughincreasedvehicleprices.Anyattemptstoincreaseproductpricesinresponsetoincreasedmaterialcostscouldresultincancellationsofordersandreservationsandthereforemateriallyandadverselyaffectourbrand,image,business,prospectsandoperatingresults.

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Ifourvehiclesorotherproductsthatwesellorinstallfailtoperformasexpected,ourabilitytodevelop,marketandsellourproductsandservicescouldbeharmed.Ifourvehiclesorourenergyproductscontaindefectsindesignandmanufacturethatcausethemnottoperformasexpectedorthatrequire

repair,orcertainfeaturesofourvehiclessuchasnewAutopilotorFSDfeaturestakelongerthanexpectedtobecomeenabled,arelegallyrestrictedorbecomesubjecttoonerousregulation,ourabilitytodevelop,marketandsellourproductsandservicescouldbeharmed.Forexample,theoperationofourvehiclesishighlydependentonsoftware,whichisinherentlycomplexandmaycontainlatentdefectsanderrorsorbesubjecttoexternalattacks.Issuesexperiencedbyvehiclecustomershaveincludedthoserelatedtothesoftwareforthe17inchdisplayscreen,aswellasthepanoramicroofandthe12-voltbatteryintheModelSandtheseatsanddoorsintheModelX.Althoughweattempttoremedyanyissuesweobserveinourproductsaseffectivelyandrapidlyaspossible,sucheffortsmaynotbetimely,mayhamperproductionormaynotbetothesatisfactionofourcustomers.Whilewehaveperformedextensiveinternaltestingontheproductswemanufacture,wecurrentlyhavealimitedframeofreferencebywhichtoevaluatedetailedlong-termquality,reliability,durabilityandperformancecharacteristicsofourbatterypacks,powertrains,vehiclesandenergystorageproducts.Therecanbenoassurancethatwewillbeabletodetectandfixanydefectsinourproductspriortotheirsaletoorinstallationforcustomers.

Anyproductdefects,delaysorlegalrestrictionsonproductfeatures,orotherfailureofourproductstoperformasexpected,couldharmourreputationandresultindeliverydelays,productrecalls,productliabilityclaims,breachofwarrantyclaims,andsignificantwarrantyandotherexpenses,andcouldhaveamaterialadverseimpactonourbusiness,financialcondition,operatingresultsandprospects.

Wemaybecomesubjecttoproductliabilityclaims,whichcouldharmourfinancialconditionandliquidityifwearenotabletosuccessfullydefendorinsureagainstsuchclaims.Althoughwedesignourvehiclestobethesafestvehiclesontheroad,productliabilityclaims,eventhosewithoutmerit,couldharmour

business,prospects,operatingresultsandfinancialcondition.Theautomobileindustryinparticularexperiencessignificantproductliabilityclaimsandwefaceinherentriskofexposuretoclaimsintheeventourvehiclesdonotperformorareclaimedtonothaveperformedasexpected.Asistrueforotherautomakers,ourvehicleshavebeeninvolvedandweexpectinthefuturewillbeinvolvedincrashesresultingindeathorpersonalinjury,andsuchcrasheswhereAutopilotorFSDfeaturesareengagedarethesubjectofsignificantpublicattention.Wehaveexperiencedandweexpecttocontinuetofaceclaimsarisingfromorrelatedtomisuseorclaimedfailuresofnewtechnologiesthatwearepioneering,includingAutopilotandFSDfeaturesinourvehicles.Inaddition,thebatterypacksthatweproducemakeuseoflithium-ioncells.Onrareoccasions,lithium-ioncellscanrapidlyreleasetheenergytheycontainbyventingsmokeandflamesinamannerthatcanignitenearbymaterialsaswellasotherlithium-ioncells.Whilewehavedesignedthebatterypacktopassivelycontainanysinglecell’sreleaseofenergywithoutspreadingtoneighboringcells,therecanbenoassurancethatafieldortestingfailureofourvehiclesorotherbatterypacksthatweproducewillnotoccur,inparticularduetoahigh-speedcrash,whichcouldsubjectustolawsuits,productrecallsorredesignefforts,allofwhichwouldbetimeconsumingandexpensive.

Moreover,asoursolarenergysystemsandenergystorageproductsgenerateandstoreelectricity,theyhavethepotentialtocauseinjurytopeopleorproperty.Asuccessfulproductliabilityclaimagainstuscouldrequireustopayasubstantialmonetaryaward.Ourrisksinthisareaareparticularlypronouncedgiventherelativelylimitednumberofvehiclesandenergystorageproductsdeliveredtodateandlimitedfieldexperienceofourproducts.Moreover,aproductliabilityclaimcouldgeneratesubstantialnegativepublicityaboutourproductsandbusinessandcouldhaveamaterialadverseeffectonourbrand,business,prospectsandoperatingresults.Inmostjurisdictions,wegenerallyself-insureagainsttheriskofproductliabilityclaimsforvehicleexposure,meaningthatanyproductliabilityclaimswilllikelyhavetobepaidfromcompanyfunds,notbyinsurance.

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Themarketsinwhichweoperatearehighlycompetitive,andwemaynotbesuccessfulincompetingintheseindustries.Wecurrentlyfacecompetitionfromnewandestablisheddomesticandinternationalcompetitorsandexpecttofacecompetitionfromothersinthefuture,includingcompetitionfromcompanieswithnewtechnology.Theworldwideautomotivemarket,particularlyforalternativefuelvehicles,ishighlycompetitivetodayandweexpectitwillbecomeevenmore

sointhefuture.Thereisnoassurancethatourvehicleswillbesuccessfulintherespectivemarketsinwhichtheycompete.Asignificantandgrowingnumberofestablishedandnewautomobilemanufacturers,aswellasothercompanies,haveenteredorarereportedtohaveplanstoenterthealternativefuelvehiclemarket,includinghybrid,plug-inhybridandfullyelectricvehicles,aswellasthemarketforself-drivingtechnologyandapplications.Insomecases,suchcompetitorshaveannouncedanintentiontoproduceelectricvehiclesexclusivelyatsomepointinthefuture.Mostofourcurrentandpotentialcompetitorshavesignificantlygreaterfinancial,technical,manufacturing,marketing,vehiclesalesresourcesandnetworksthanwedoandmaybeabletodevotegreaterresourcestothedesign,development,manufacturing,distribution,promotion,saleandsupportoftheirproducts.Inparticular,somecompetitorshavealsoannouncedplanstocompetewithusinimportantandlargemarketsforelectricvehicles,suchasChinaandinEurope.Increasedcompetitioncouldresultinlowervehicleunitsales,pricereductions,revenueshortfalls,lossofcustomersandlossofmarketshare,whichcouldharmourbusiness,prospects,financialconditionandoperatingresults.Inaddition,Model3andModelYfacecompetitionfromexistingandfutureautomobilemanufacturersintheextremelycompetitiveentry-levelpremiumsedanandcompactSUVmarket,includingBMW,Ford,Lexus,MercedesandVolkswagenGroup.

Thesolarandenergystorageindustriesarehighlycompetitive.Wefacecompetitionfromothermanufacturers,developersandinstallersofsolarandenergystoragesystems,aswellasfromlargeutilities.Decreasesintheretailpricesofelectricityfromutilitiesorotherrenewableenergysourcescouldmakeourproductslessattractivetocustomersandleadtoanincreasedrateofcustomerdefaultsunderourexistinglong-termleasesandPPAs.Moreover,pricesforsolarproductcomponentsandpricesperkWhforlithium-ionbatterycellshavedeclinedandmaycontinuetodecline,whichmayadverselyimpactourabilitytocost-effectivelymanufacturesuchcomponentsourselves.

Ifweareunabletoestablishandmaintainconfidenceinourlong-termbusinessprospectsamongconsumers,analystsandwithinourindustries,oraresubjecttonegativepublicity,thenourfinancialcondition,operatingresults,businessprospectsandaccesstocapitalmaysuffermaterially.Consumersmaybelesslikelytopurchaseourproductsiftheyarenotconvincedthatourbusinesswillsucceedorthatourserviceandsupport

andotheroperationswillcontinueinthelongterm.Similarly,suppliersandotherthirdpartieswillbelesslikelytoinvesttimeandresourcesindevelopingbusinessrelationshipswithusiftheyarenotconvincedthatourbusinesswillsucceed.Accordingly,inordertobuildandmaintainourbusiness,wemustmaintainconfidenceamongcustomers,suppliers,analysts,ratingsagenciesandotherpartiesinourlong-termfinancialviabilityandbusinessprospects.Maintainingsuchconfidencemaybeparticularlycomplicatedbycertainfactorsincludingthosethatarelargelyoutsideofourcontrol,suchasourlimitedoperatinghistory,customerunfamiliaritywithourproducts,anydelaysinscalingmanufacturing,deliveryandse