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
file:///tmp/knp_snappy5f74155e644752.18737158.html#PART_Ifile:///tmp/knp_snappy5f74155e644752.18737158.html#ITEM_1_BUSINESSfile:///tmp/knp_snappy5f74155e644752.18737158.html#ITEM_1A_RISK_FACTORSfile:///tmp/knp_snappy5f74155e644752.18737158.html#ITEM_1B_UNRESOLVED_STAFF_COMMENTSfile:///tmp/knp_snappy5f74155e644752.18737158.html#ITEM_2_PROPERTIESfile:///tmp/knp_snappy5f74155e644752.18737158.html#LEGAL_PROCEEDINGSfile:///tmp/knp_snappy5f74155e644752.18737158.html#ITEM_4file:///tmp/knp_snappy5f74155e644752.18737158.html#PART_IIfile:///tmp/knp_snappy5f74155e644752.18737158.html#Item_5file:///tmp/knp_snappy5f74155e644752.18737158.html#Item_6file:///tmp/knp_snappy5f74155e644752.18737158.html#Item_7file:///tmp/knp_snappy5f74155e644752.18737158.html#ITEM_7A_QUANTITATIVE_QUALITATIVE_DISCLOSfile:///tmp/knp_snappy5f74155e644752.18737158.html#Item_8file:///tmp/knp_snappy5f74155e644752.18737158.html#Item_9file:///tmp/knp_snappy5f74155e644752.18737158.html#Item_9Afile:///tmp/knp_snappy5f74155e644752.18737158.html#Item_9Bfile:///tmp/knp_snappy5f74155e644752.18737158.html#PART_IIIfile:///tmp/knp_snappy5f74155e644752.18737158.html#Item_10file:///tmp/knp_snappy5f74155e644752.18737158.html#Item_11file:///tmp/knp_snappy5f74155e644752.18737158.html#Item_12file:///tmp/knp_snappy5f74155e644752.18737158.html#Item_13file:///tmp/knp_snappy5f74155e644752.18737158.html#Item_14file:///tmp/knp_snappy5f74155e644752.18737158.html#ITEM_15_EXHIBITS_FINANCIAL_STATEMENT_SCHfile:///tmp/knp_snappy5f74155e644752.18737158.html#ITEM_16_SUMMARYfile:///tmp/knp_snappy5f74155e644752.18737158.html#SIGNATURES
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.
1
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.
2
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.
3
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.
4
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.
5
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.
6
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.
7
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.
8
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.
9
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”).
10
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.
11
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.
12
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.
13
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.
14
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.
15
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.
16
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.
17
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.
18
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.
19
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.
20
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.
21
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