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  • Tesla, Inc. · 12/31/2020  · PART III. Item 10. Directors, Executive Officers and Corporate Governance 108 Item 11. Executive Compensation 108 Item 12. Security Ownership of Certain
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34756 Tesla, Inc. (Exact name of registrant as specified in its charter) Delaware 91-2197729 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3500 Deer Creek Road Palo Alto, California 94304 (Address of principal executive offices) (Zip Code) (650) 681-5000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock TSLA The Nasdaq Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act: Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of voting stock held by non-affiliates of the registrant, as of June 30, 2020, the last day of the registrant’s most recently completed second fiscal quarter, was $160.57 billion (based on the closing price for shares of the registrant’s Common Stock as reported by the NASDAQ Global Select Market on June 30, 2020). Shares of Common Stock held by each executive officer, director, and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 1, 2021, there were 959,853,504 shares of the registrant’s Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Proxy Statement for the 2021 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2020.

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  • UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION

    Washington,D.C.20549

    FORM10-K

    (MarkOne)☒ ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934

    ForthefiscalyearendedDecember31,2020OR

    ☐ 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”)duringthepreceding12months

    (orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes☒No☐IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmittedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)during

    thepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).Yes☒No☐Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,asmallerreportingcompanyoranemerginggrowthcompany.Seethedefinitionsof

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

    Largeacceleratedfiler ☒ Acceleratedfiler ☐

    Non-acceleratedfiler ☐ Smallerreportingcompany ☐

    Emerginggrowthcompany ☐ Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandards

    providedpursuanttoSection13(a)oftheExchangeAct.☐IndicatebycheckmarkwhethertheRegistranthasfiledareportonandattestationtoitsmanagement’sassessmentoftheeffectivenessofitsinternalcontroloverfinancialreportingunderSection

    404(b)oftheSarbanes-OxleyAct(15U.S.C.7262(b))bytheregisteredpublicaccountingfirmthatpreparedorissueditsauditreport.☒Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).Yes☐No☒Theaggregatemarketvalueofvotingstockheldbynon-affiliatesoftheregistrant,asofJune30,2020,thelastdayoftheregistrant’smostrecentlycompletedsecondfiscalquarter,was$160.57billion

    (basedontheclosingpriceforsharesoftheregistrant’sCommonStockasreportedbytheNASDAQGlobalSelectMarketonJune30,2020).SharesofCommonStockheldbyeachexecutiveofficer,director,andholderof5%ormoreoftheoutstandingCommonStockhavebeenexcludedinthatsuchpersonsmaybedeemedtobeaffiliates.Thisdeterminationofaffiliatestatusisnotnecessarilyaconclusivedeterminationforotherpurposes.

    AsofFebruary1,2021,therewere959,853,504sharesoftheregistrant’sCommonStockoutstanding.DOCUMENTSINCORPORATEDBYREFERENCE

    Portionsoftheregistrant’sProxyStatementforthe2021AnnualMeetingofStockholdersareincorporatedhereinbyreferenceinPartIIIofthisAnnualReportonForm10-Ktotheextentstatedherein.SuchproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionwithin120daysoftheregistrant’sfiscalyearendedDecember31,2020.

  • TESLA,INC.

    ANNUALREPORTONFORM10-KFORTHEYEARENDEDDECEMBER31,2020

    INDEX PagePARTI.

    Item1. Business 4Item1A. RiskFactors 14Item1B. UnresolvedStaffComments 27Item2. Properties 27Item3. LegalProceedings 28Item4. MineSafetyDisclosures 28

    PARTII.

    Item5. MarketforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 29Item6. SelectedConsolidatedFinancialData 30Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 31Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 49Item8. FinancialStatementsandSupplementaryData 50Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 107Item9A. ControlsandProcedures 107Item9B. OtherInformation 107

    PARTIII.

    Item10. Directors,ExecutiveOfficersandCorporateGovernance 108Item11. ExecutiveCompensation 108Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 108Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 108Item14. PrincipalAccountantFeesandServices 108

    PARTIV.

    Item15. ExhibitsandFinancialStatementSchedules 108Item16. Summary 125

    Signatures 126

    i

    file:///tmp/knp_snappy60213140184a54.50500178.html#PART_Ifile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_1_BUSINESSfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_1A_RISK_FACTORSfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_1B_UNRESOLVED_STAFF_COMMENTSfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_2_PROPERTIESfile:///tmp/knp_snappy60213140184a54.50500178.html#LEGAL_PROCEEDINGSfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_4file:///tmp/knp_snappy60213140184a54.50500178.html#PART_IIfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_5_MARKET_FOR_REGISTRANTS_COMMON_EQUfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_6_SELECTED_CONSOLIDATED_FINANCIAL_Dfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_7_MANAGEMENTS_DISCUSSION_ANALYSIS_Ffile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_7A_QUANTITATIVE_QUALITATIVE_DISCLOSfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_8_FINANCIAL_STATEMEMTS_SUPPLEMENTARfile:///tmp/knp_snappy60213140184a54.50500178.html#Item_9file:///tmp/knp_snappy60213140184a54.50500178.html#Item_9Afile:///tmp/knp_snappy60213140184a54.50500178.html#Item_9Bfile:///tmp/knp_snappy60213140184a54.50500178.html#PART_IIIfile:///tmp/knp_snappy60213140184a54.50500178.html#Item_10file:///tmp/knp_snappy60213140184a54.50500178.html#Item_11file:///tmp/knp_snappy60213140184a54.50500178.html#Item_12file:///tmp/knp_snappy60213140184a54.50500178.html#Item_13file:///tmp/knp_snappy60213140184a54.50500178.html#Item_14file:///tmp/knp_snappy60213140184a54.50500178.html#PART_IVfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_15_EXHIBITS_FINANCIAL_STATEMENT_SCHfile:///tmp/knp_snappy60213140184a54.50500178.html#ITEM_16_SUMMARYfile:///tmp/knp_snappy60213140184a54.50500178.html#SIGNATURES

  • Forward-LookingStatementsThediscussionsinthisAnnualReportonForm10-Kcontainforward-lookingstatementsreflectingourcurrentexpectationsthatinvolverisksanduncertainties.Theseforward-lookingstatementsinclude,butarenotlimitedto,statementsconcerninganypotentialfutureimpactofthecoronavirusdisease(“COVID-19”)pandemiconourbusiness,ourstrategy,futureoperations,futurefinancialposition,futurerevenues,projectedcosts,profitability,expectedcostreductions,capitaladequacy,expectationsregardingdemandandacceptanceforourtechnologies,growthopportunitiesandtrendsinthemarketinwhichweoperate,prospectsandplansandobjectivesofmanagement.Thewords“anticipates,”“believes,”“could,”“estimates,”“expects,”“intends,”“may,”“plans,”“projects,”“will,”“would”andsimilarexpressionsareintendedtoidentifyforward-lookingstatements,althoughnotallforward-lookingstatementscontaintheseidentifyingwords.Wemaynotactuallyachievetheplans,intentionsorexpectationsdisclosedinourforward-lookingstatementsandyoushouldnotplaceunduerelianceonourforward-lookingstatements.Actualresultsoreventscoulddiffermateriallyfromtheplans,intentionsandexpectationsdisclosedintheforward-lookingstatementsthatwemake.Theseforward-lookingstatementsinvolverisksanduncertaintiesthatcouldcauseouractualresultstodiffermateriallyfromthoseintheforward-lookingstatements,including,withoutlimitation,theriskssetforthinPartI,Item1A,“RiskFactors”inthisAnnualReportonForm10-KandinourotherfilingswiththeSecuritiesandExchangeCommission.Wedonotassumeanyobligationtoupdateanyforward-lookingstatements.

    3

  • PARTI

    ITEM1. BUSINESSOverview

    Wedesign,develop,manufacture,sellandleasehigh-performancefullyelectricvehiclesandenergygenerationandstoragesystems,andofferservicesrelatedtooursustainableenergyproducts.Wegenerallysellourproductsdirectlytocustomers,includingthroughourwebsiteandretaillocations.Wealsocontinuetogrowourcustomer-facinginfrastructurethroughaglobalnetworkofvehicleservicecenters,MobileServicetechnicians,bodyshops,SuperchargerstationsandDestinationChargerstoacceleratethewidespreadadoptionofourproducts.Weemphasizeperformance,attractivestylingandthesafetyofourusersandworkforceinthedesignandmanufactureofourproductsandarecontinuingtodevelopfullself-drivingtechnologyforimprovedsafety.Wealsostrivetolowerthecostofownershipforourcustomersthroughcontinuouseffortstoreducemanufacturingcostsandbyofferingfinancialservicestailoredtoourproducts.Ourmissiontoacceleratetheworld’stransitiontosustainableenergy,engineeringexpertise,verticallyintegratedbusinessmodelandfocusonuserexperiencedifferentiateusfromothercompanies.

    SegmentInformationWeoperateastworeportablesegments:(i)automotiveand(ii)energygenerationandstorage.

    Theautomotivesegmentincludesthedesign,development,manufacturing,salesandleasingofelectricvehiclesaswellassalesofautomotiveregulatorycredits.Additionally,theautomotivesegmentisalsocomprisedofservicesandother,whichincludesnon-warrantyafter-salesvehicleservices,salesofusedvehicles,retailmerchandise,salesbyouracquiredsubsidiariestothirdpartycustomersandvehicleinsurancerevenue.Theenergygenerationandstoragesegmentincludesthedesign,manufacture,installation,salesandleasingofsolarenergygenerationandenergystorageproductsandrelatedservicesandsalesofsolarenergysystemsincentives.

    OurProductsandServicesAutomotive

    Model3Model3isafour-doormid-sizesedanthatwedesignedformanufacturabilitywithabasepriceformass-marketappeal,whichwebegandeliveringin

    July2017.WecurrentlymanufactureModel3attheFremontFactoryandatGigafactoryShanghai.

    ModelYModelYisacompactsportutilityvehicle(“SUV”)builtontheModel3platformwithseatingforuptosevenadults,whichwebegandeliveringinMarch

    2020.WecurrentlymanufactureModelYattheFremontFactoryandatGigafactoryShanghai.

    ModelSandModelXModelSisafour-doorfull-sizesedanthatwebegandeliveringinJune2012.ModelXisamid-sizeSUVwithseatingforuptosevenadults,whichwe

    begandeliveringinSeptember2015.ModelSandModelXfeaturethehighestperformancecharacteristicsandlongestrangesthatweofferinasedanandSUV,respectively,andwemanufacturebothmodelsattheFremontFactory.

    FutureConsumerandCommercialElectricVehiclesWehavealsoannouncedseveralplannedelectricvehiclestoaddressadditionalvehiclemarkets,includingspecializedconsumerelectricvehiclesin

    CybertruckandthenewTeslaRoadsterandacommercialelectricvehicleinTeslaSemi.Wealsoplantointroduceinthefuturealower-costvehicletoleveragedevelopmentsinourproprietaryFullSelf-Driving(“FSD”),batterycellandothertechnologies.

    EnergyGenerationandStorageEnergyStorageProductsWebegandeliveriesofthemostrecentgenerationsofPowerwall,PowerpackandMegapack,whichareourlithium-ionbatteryenergystorageproducts

    integratedwithinvertersandcontroltechnology,in2016,2017and2019,respectively.Powerwallisdesignedtostoreenergyatahomeorsmallcommercialfacility.MegapackandPowerpackareenergystoragesolutionsforcommercial,industrial,utilityandenergygenerationcustomers,whichmaybegroupedtogethertoformlargerinstallationscapableofreachinggigawatthours(“GWh”)orgreater.Wealsoofferintegratedsystemscombiningenergygenerationandstorage.OurenergystorageproductsarecurrentlyassembledatGigafactoryNevada.

    4

  • Wehavealsodevelopedsoftwarecapabilitiesforremotelycontrollinganddispatchingourenergystoragesystemsacrossawiderangeofmarketsandapplications,includingthroughourreal-timeenergytradingplatform.

    SolarEnergyOfferingsWesellretrofitsolarenergysystemstocustomersandchannelpartnersandalsomakethemavailablethroughleaseandpowerpurchaseagreement

    (“PPA”)arrangementsandasubscription-basedsaleofsolarpower,whichiscurrentlyavailableinlimitedU.S.markets.Wepurchasemostofthecomponentsforourretrofitsolarenergysystemsfrommultiplesourcestoensurecompetitivepricingandadequatesupply.Wealsodesignandmanufacturecertaincomponentsforoursolarenergyproducts.

    In2019,wecommenceddirectcustomerandchannelpartnersalesofthethirdgenerationofourSolarRoof,whichcombinespremiumglassrooftileswithenergygeneration.WearerampingthevolumeproductionofSolarRoofatGigafactoryNewYork,andweareimprovingourinstallationcapabilityandefficiency.

    TechnologyAutomotive

    BatteryandPowertrainOurcorevehicletechnologycompetenciesincludepowertrainengineeringandmanufacturingandourabilitytodesignvehiclesthatutilizetheunique

    advantagesofanelectricpowertrain.Wehavedesignedourproprietarypowertrainsystemstobeadaptable,efficient,reliableandcost-effectivewhilewithstandingtherigorsofanautomotiveenvironment.Weofferdualmotorpowertrainvehicles,whichusetwoelectricmotorstomaximizetractionandperformanceinanall-wheeldriveconfiguration,andareintroducingvehiclepowertraintechnologyfeaturingthreeelectricmotorsforfurtherincreasedperformance.

    Amongotherthings,wemaintainextensivetestingandR&Dcapabilitiesforbatterycells,packsandsystems,andhavebuiltanexpansivebodyofknowledgeonlithium-ioncellchemistrytypesandperformancecharacteristics.Inordertoenableagreatersupplyofcellsforourproductswithhigherenergydensityatlowercosts,wearecurrentlyusingourexpertisetodevelopanewproprietarylithium-ionbatterycellandimprovedmanufacturingprocesses.

    VehicleControlandInfotainmentSoftwareTheperformanceandsafetysystemsofourvehiclesandtheirbatterypacksrequiresophisticatedcontrolsoftware.Controlsystemsinourvehicles

    optimizeperformance,customizevehiclebehavior,managechargingandcontrolallinfotainmentfunctions.Wedevelopalmostallofthissoftware,includingmostoftheuserinterfaces,internallyandupdateourvehicles’softwareregularlythroughover-the-airupdates.

    Self-DrivingDevelopmentWehaveexpertiseindevelopingtechnologies,systemsandsoftwaretoenableself-drivingvehiclesusingprimarilyvisionandradar-basedsensors.Our

    FSDComputerrunsourneuralnetworksinourvehicles,andwearealsodevelopingadditionalcomputerhardwaretobetterenablethemassiveamountsoffielddatacapturedbyourvehiclestocontinuallytrainandimprovetheseneuralnetworksforreal-worldperformance.

    Currently,weofferinourvehiclescertainadvanceddriverassistsystemsunderourAutopilotandFSDoptions.Althoughatpresentthedriverisultimatelyresponsibleforcontrollingthevehicle,oursystemsprovidesafetyandconveniencefunctionalitythatrelievesdriversofthemosttediousandpotentiallydangerousaspectsofroadtravelmuchlikethesystemthatairplanepilotsuse,whenconditionspermit.Aswithothervehiclesystems,weimprovethesefunctionsinourvehiclesovertimethroughover-the-airupdates.

    WeintendtoestablishinthefutureanautonomousTeslaride-hailingnetwork,whichweexpectwouldalsoallowustoaccessanewcustomerbaseevenasmodesoftransportationevolve.

    EnergyGenerationandStorageEnergyStorageProductsWeleveragemanyofthecomponent-leveltechnologiesfromourvehiclesinourenergystorageproducts.Bytakingamodularapproachtothedesignof

    batterysystems,wecanoptimizemanufacturingcapacityamongourenergystorageproducts.Additionally,ourexpertiseinpowerelectronicsenablesustointerconnectourbatterysystemsseamlesslywithglobalelectricitygridswhileprovidingfast-actingsystemsforpowerinjectionandabsorption.Wehavealsodevelopedthesoftwaretoremotelycontrolanddispatchourenergystoragesystemsusingourreal-timeenergytradingplatform.

    5

  • SolarEnergySystemsWehaveengineeredSolarRoofovernumerousiterationstocombineaestheticappealanddurabilitywithpowergeneration.Theefficiencyofoursolar

    energyproductsisaidedbyourownsolarinverter,whichalsoincorporatesourpowerelectronicstechnologies.WedesignedbothproductstointegratewithPowerwall.

    DesignandEngineeringAutomotive

    Wehaveestablishedsignificantin-housecapabilitiesinthedesignandtestengineeringofelectricvehiclesandtheircomponentsandsystems.Ourteamhascorecompetenciesincomputeraideddesignaswellasdurability,strengthandcrashtestsimulations,whichreducestheproductdevelopmenttimeofnewmodels.Additionally,ourteamhasexpertiseinselectingandworkingwitharangeofmaterialsforourvehiclestobalanceperformance,costanddurabilityinwaysthatarebestsuitedforourvehicles’targetdemographicsandutility.Wehavealsousedourcapabilitiestoachievecomplexengineeringfeatsinstamping,castingandthermalsystems,andarecurrentlydevelopingdesignsthatintegratebatteriesdirectlywithvehiclebodystructureswithoutseparatebatterypackstooptimizemanufacturability,weight,rangeandcostcharacteristics.

    Wearealsoexpandingourmanufacturingoperationsgloballywhileexploringwaystolocalizeourvehicledesignsandproductionforparticularmarkets,includingcountry-specificmarketdemandsandfactoryoptimizationsforlocalworkforces.Asweincreaseourcapabilities,particularlyintheareasofautomation,die-makingandline-building,wearealsomakingstridesinthesimulationsmodelingthesecapabilitiespriortoconstruction.

    EnergyGenerationandStorageOurexpertiseinelectrical,mechanical,civilandsoftwareengineeringallowsustodesignandmanufactureourenergygenerationandstorageproducts

    andcomponents.Wealsoemployourdesignandengineeringexpertisetocustomizesolutionsincludingourenergystorageproducts,solarenergysystemsand/orSolarRoofforcustomerstomeettheirspecificneeds.Wehavedevelopedsoftwarethatsimplifiesandexpeditesthedesignprocessandmaximizestheenergyproductionofeachsolarenergysystem,aswellasmountinghardwarethatfacilitatessolarpanelinstallation.

    SalesandMarketingHistorically,wehavebeenabletogeneratesignificantmediacoverageofourcompanyandourproducts,andwebelievewewillcontinuetodoso.Such

    mediacoverageandwordofmoutharethecurrentprimarydriversofoursalesleadsandhavehelpedusachievesaleswithouttraditionaladvertisingandatrelativelylowmarketingcosts.

    AutomotiveDirectSalesOurvehiclesaleschannelscurrentlyincludeourwebsiteandaninternationalnetworkofcompany-ownedstores.Insomejurisdictions,wealsohave

    galleriestoeducateandinformcustomersaboutourproducts,butsuchlocationsdonotactuallytransactinthesaleofvehicles.Webelievethisinfrastructureenablesustobettercontrolcostsofinventory,managewarrantyserviceandpricing,educateconsumersaboutelectricvehicles,maintainandstrengthentheTeslabrandandobtainrapidcustomerfeedback.

    Wereevaluateoursalesstrategybothgloballyandatalocation-by-locationlevelfromtimetotimetooptimizeourcurrentsaleschannels.Salesofvehiclesintheautomobileindustrytendtobecyclicalinmanymarkets,whichmayexposeustovolatilityfromtimetotime.

    UsedVehicleSalesOurusedvehiclebusinesssupportsnewvehiclesalesbyintegratingthetrade-inofacustomer’sexistingTeslaornon-Teslavehiclewiththesaleofa

    neworusedTeslavehicle.TheTeslaandnon-Teslavehiclesweacquireastrade-insaresubsequentlyremarketed,eitherdirectlybyusorthroughthirdparties.WealsoremarketusedTeslavehiclesacquiredfromothersourcesincludingleasereturns.

    PublicChargingWehaveagrowingglobalnetworkofTeslaSuperchargers,whichareourindustrialgrade,high-speedvehiclechargers.Wherepossible,weco-locate

    Superchargerswithoursolarandenergystoragesystemstoreducecostsandpromoterenewablepower.Superchargerstationsaretypicallyplacedalongwell-traveledroutesandinandarounddensecitycenterstoallowTeslavehicleownerstheabilitytoenjoyquick,reliableandubiquitouschargingwithconvenient,minimalstops.UseoftheSuperchargernetworkeitherrequirespaymentofafeeorisfreeundercertainsalesprograms.

    6

  • Wealsoworkwithawidevarietyofhospitality,retailandpublicdestinations,aswellasbusinesseswithcommutingemployees,toofferadditionalchargingoptionsforourcustomers.TheseDestinationChargingandworkplacelocationsdeployTeslaWallConnectorstoprovidechargingtoTeslavehicleownerswhopatronizeorareemployedattheirbusinesses.Wealsoworkwithsingle-familyhomeownersandmulti-familyresidentialentitiestodeployhomechargingsolutions.

    In-AppUpgradesAsourvehiclesarecapableofbeingupdatedremotelyover-the-air,ourcustomersmaypurchaseadditionalpaidoptionsandfeaturesthroughtheTesla

    app.Weexpectthatthisfunctionalitywillalsoallowustooffercertainoptionsandfeaturesonasubscriptionbasisinthefuture.

    EnergyGenerationandStorageWemarketandselloursolarandenergystorageproductstoresidential,commercialandindustrialcustomersandutilitiesthroughavarietyofchannels.

    Weemphasizesimplicity,standardizationandaccessibilitytomakeiteasyandcost-effectiveforcustomerstoadoptcleanenergy,whilereducingourcustomeracquisitioncosts.

    IntheU.S.,weofferresidentialsolarandenergystorageproductsdirectlythroughourwebsite,storesandgalleries,aswellasthroughournetworkofchannelpartners.OutsideoftheU.S.,weuseourinternationalsalesorganizationandanetworkofchannelpartnerstomarketandselltheseproductsfortheresidentialmarket.WealsosellPowerwalldirectlytoutilities.Inthecaseofproductssoldtoutilitiesorchannelpartners,suchpartnerstypicallyselltheproductandmanagetheinstallationincustomerhomes.

    Wesellourcommercialandutility-scaleenergystoragesystemstocustomersthroughourU.S.andinternationalsalesorganizationandourchannelpartnernetwork.Incertainjurisdictions,wealsosellinstalledsolarenergysystems(withorwithoutenergystorage)tocommercialcustomersthroughcash,leaseandPPAtransactions.

    ServiceandWarrantyAutomotive

    ServiceWeprovideserviceforourelectricvehiclesatourcompany-ownedservicelocationsandthroughTeslaMobileServicetechnicianswhoperformwork

    remotelyatcustomers’homesorotherlocations.Performingvehicleserviceourselvesprovidesuswiththecapabilitytoidentifyproblemsandimplementsolutionsandimprovementsfaster,andoptimizelogisticsandinventorybetter,thantraditionalautomobilemanufacturersandtheirdealernetworks.Theconnectivityofourvehiclesalsoallowsustodiagnoseandremedymanyproblemsremotelyandproactively.

    VehicleLimitedWarrantiesandExtendedServicePlansWeprovideamanufacturer’slimitedwarrantyonallnewandusedTeslavehicleswesell,whichmayincludeseparatelimitedwarrantiesoncertain

    components,specifictypesofdamageorbatterycapacityretention.Wealsocurrentlyofferextendedserviceplansthatprovidecoveragebeyondthenewvehiclelimitedwarrantiesforcertainmodelsinspecifiedregions.

    EnergyGenerationandStorageWeprovideserviceandrepairstoourenergyproductcustomers,includingunderwarrantywhereapplicable.

    EnergyStorageSystemsWegenerallyprovidemanufacturer’slimitedwarrantieswitheverynewenergystorageproductandoffercertainextendedlimitedwarrantiesthatare

    availableatthetimeofpurchaseofthesystem.Ifweinstallasystem,wealsoprovidecertainlimitedwarrantiesonourinstallationworkmanship.Aspartofourenergystoragesystemcontracts,wemayprovidethecustomerwithperformanceguaranteesthatwarrantthattheunderlyingsystemwillmeetorexceedtheminimumenergyperformancerequirementsspecifiedinthecontract.

    SolarEnergySystemsForretrofitsolarenergysystems,weprovideseparatelimitedwarrantiesforworkmanshipandagainstroofleaks,andforSolarRoof,weprovidelimited

    warrantiesfordefectsandweatherization.Forcomponentsnotmanufacturedbyus,wegenerallypass-throughtheapplicablemanufacturers’warranties.Aspartofoursolarenergysystemcontracts,wemayprovidethecustomerwithperformanceguaranteesthatwarrantthattheunderlyingsystemwillmeetorexceedtheminimumenergygenerationrequirementsspecifiedinthecontract.

    7

  • FinancialServicesAutomotive

    PurchaseFinancingandLeasesWeofferleasingand/orloanfinancingarrangementsforourvehiclesincertainjurisdictionsinNorthAmerica,EuropeandAsiathroughvariousfinancial

    institutions.Undercertainofsuchprograms,wehaveprovidedresalevalueguaranteesorbuybackguaranteesthatmayobligateustorepurchasethesubjectvehiclesatpre-determinedvalues.Wealsooffervehiclefinancingarrangementsincertainmarketsforspecifiedvehiclemodelsdirectlythroughourlocalsubsidiaries.

    InsuranceInAugust2019,welaunchedaninsuranceproductdesignedforourcustomers,whichoffersratesthatareoftenbetterthanotheralternatives.This

    productiscurrentlyavailableinCalifornia,andweplantoexpandboththemarketsinwhichweofferinsuranceproductsandourabilitytooffersuchproducts,aspartofourongoingefforttodecreasethetotalcostofownershipforourcustomers.

    EnergyGenerationandStorageEnergyStorageSystemsWecurrentlyoffercertainloan,leaseand/orPPAoptionstoresidentialorcommercialcustomerswhopairenergystoragesystemswithsolarenergy

    systems.Weintendtointroducefinancialservicesofferingsforcustomerswhopurchasestandaloneenergystorageproductsinthefuture.

    SolarEnergySystemsWeoffervariousfinancingoptionstooursolarcustomers.Oursolarloanoffersthird-partyfinancingtoenablethecustomertopurchaseandownasolar

    energysystem.Wearenotapartytotheloanagreement,andthethird-partylenderhasnorecourseagainstuswithrespecttotheloan.Oursolarleaseofferscustomersafixedmonthlyfeeatratesthattypicallytranslateintolowermonthlyutilitybillsandanelectricityproductionguarantee.OursolarPPAchargescustomersafeeperkilowatt-hourbasedontheamountofelectricityproducedbyoursolarenergysystems.WemonetizethecustomerpaymentswereceivefromourleasesandPPAsthroughfundswehaveformedwithinvestors.WealsointendtointroducefinancialservicesofferingsforourSolarRoofcustomersinthefuture.

    Manufacturing

    ManufacturingFacilitiesintheBayArea,CaliforniaWemanufactureandtestourvehiclesatourmanufacturingfacilitiesintheBayAreainCalifornia,includingtheFremontFactoryandotherlocal

    manufacturingfacilities.Wealsomanufactureanddevelopcertainpartsandcomponentsthatarecriticaltoourintellectualpropertyandqualitystandards,suchasModelSandModelXbatterypacksandourproprietarylithium-ionbatterycells,attheselocations.

    GigafactoryNevadanearReno,NevadaWehaveintegratedbatterymaterial,cell,moduleandbatterypackproductionforModel3,ModelYandourenergyproductsinonelocationat

    GigafactoryNevada.Inaddition,wemanufacturevehicledriveunitsandourenergystorageproductsthere.GigafactoryNevadaallowsustoaccesshighvolumesoflithium-ionbatterycellsmanufacturedbyourpartnerPanasonictherewhileachievingasignificantreductioninthecostofourbatterypacks.WecontinuetoinvestinGigafactoryNevadatoachieveadditionaloutputthere,includingthroughouragreementwithPanasonic.

    GigafactoryNewYorkinBuffalo,NewYorkWeuseGigafactoryNewYorkforthedevelopmentandproductionofourSolarRoofandothersolarproductsandcomponents,energystorage

    componentsandSuperchargercomponents,andforotherlessor-approvedfunctions.

    GigafactoryShanghaiinChinaWeestablishedGigafactoryShanghaitoincreasetheaffordabilityofourvehiclesforcustomersinlocalmarketsbyreducingtransportationand

    manufacturingcostsandeliminatingtheimpactofunfavorabletariffs.Wecontinuetoincreasethedegreeoflocalizedprocurementandmanufacturingthere.GigafactoryShanghaiisrepresentativeofourplantoiterativelyimproveourmanufacturingoperationsasweestablishnewfactories,asweimplementedthelearningsfromourModel3rampattheFremontFactorytocommenceandrampourproductiontherequicklyandcost-effectively.

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  • OtherManufacturingGenerally,wecontinuetoexpandproductioncapacityatourexistingfacilities.Wealsointendtofurtherincreasecost-competitivenessinoursignificant

    marketsbystrategicallyaddinglocalmanufacturing,includingatGigafactoryBerlininGermanyandGigafactoryTexasinAustin,Texas,whichareunderconstruction.

    SupplyChainOurproductsusethousandsofpurchasedpartsthataresourcedfromhundredsofsuppliersacrosstheworld.Wehavedevelopedcloserelationships

    withvendorsofkeypartssuchasbatterycells,electronicsandcomplexvehicleassemblies.Certaincomponentspurchasedfromthesesuppliersaresharedoraresimilaracrossmanyproductlines,allowingustotakeadvantageofpricingefficienciesfromeconomiesofscale.

    Asisthecaseformostautomotivecompanies,mostofourprocuredcomponentsandsystemsaresourcedfromsinglesuppliers.Wheremultiplesourcesareavailableforcertainkeycomponents,weworktoqualifymultiplesuppliersforthemwhereitissensibletodosoinordertominimizeproductionrisksowingtodisruptionsintheirsupply.Wealsomitigateriskbymaintainingsafetystockforkeypartsandassembliesanddiebanksforcomponentswithlengthyprocurementleadtimes.

    Ourproductsusevariousrawmaterialsincludingaluminum,steel,cobalt,lithium,nickelandcopper.Pricingforthesematerialsisgovernedbymarketconditionsandmayfluctuateduetovariousfactorsoutsideofourcontrol,suchassupplyanddemandandmarketspeculation.Westrivetoexecutelong-termsupplycontractsforsuchmaterialsatcompetitivepricingwhenfeasible,andwecurrentlybelievethatwehaveadequateaccesstorawmaterialssuppliesinordertomeettheneedsofouroperations.

    GovernmentalPrograms,IncentivesandRegulationsGlobally,boththeoperationofourbusinessbyusandtheownershipofourproductsbyourcustomersareimpactedbyvariousgovernmentprograms,

    incentivesandotherarrangements.Ourbusinessandproductsarealsosubjecttonumerousgovernmentalregulationsthatvaryamongjurisdictions.

    ProgramsandIncentivesCaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthorityTaxIncentivesWehaveagreementswiththeCaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthoritythatprovidemulti-yearsalestax

    exclusionsonpurchasesofmanufacturingequipmentthatwillbeusedforspecificpurposes,includingtheexpansionandongoingdevelopmentofelectricvehiclesandpowertrainproductioninCalifornia.

    GigafactoryNevada—NevadaTaxIncentivesInconnectionwiththeconstructionofGigafactoryNevada,weenteredintoagreementswiththeStateofNevadaandStoreyCountyinNevadathat

    provideabatementsforspecifiedtaxes,discountstothebasetariffenergyratesandtransferabletaxcreditsinconsiderationofcapitalinvestmentandhiringtargetsthatweremetatGigafactoryNevada.TheseincentivesareavailableuntilJune2024orJune2034,dependingontheincentive.

    GigafactoryNewYork—NewYorkStateInvestmentandLeaseWehavealeasethroughtheResearchFoundationfortheStateUniversityofNewYork(the“SUNYFoundation”)withrespecttoGigafactoryNewYork.

    Undertheleaseandarelatedresearchanddevelopmentagreement,wearecontinuingtodesignatefurtherbuildoutsatthefacility.Wearerequiredtocomplywithcertaincovenants,includinghiringandcumulativeinvestmenttargets.

    AswetemporarilysuspendedmostofourmanufacturingoperationsatGigafactoryNewYorkpursuanttoaNewYorkStateexecutiveorderissuedinMarch2020asaresultoftheCOVID-19pandemic,weweregrantedaone-yeardeferralofourobligationtobecompliantwithourapplicabletargetsundersuchagreementonApril30,2020,whichwasmemorializedinanamendmenttoouragreementwiththeSUNYFoundationinJuly2020.

    GigafactoryShanghai—LandUseRightsandEconomicBenefitsWehaveanagreementwiththelocalgovernmentofShanghaiforlanduserightsatGigafactoryShanghai.Underthetermsofthearrangement,weare

    requiredtomeetacumulativecapitalexpendituretargetandanannualtaxrevenuetargetstartingattheendof2023.Inaddition,theShanghaigovernmenthasgrantedtoourGigafactoryShanghaisubsidiaryin2019and2020certainincentivestobeusedinconnectionwitheligiblecapitalinvestmentsatGigafactoryShanghai.Finally,theShanghaigovernmentgrantedabeneficialcorporateincometaxrateof15%tocertaineligibleenterprises,whichislowerthanthe25%statutorycorporateincometaxrateinChina.OurGigafactoryShanghaisubsidiarywasgrantedthislowerratefor2019through2023.

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  • GigafactoryBerlin–PendingGrantWehaveappliedforagrantwiththeGermangovernmenttoimprovethedesign,chemistry,manufacturingtechnologyandrecyclingoflithium-ion

    batterycellsforGigafactoryBerlin.ThegrantwasapprovedbytheEuropeanCommissioninJanuary2021anditsimplementationwillbesubjecttoagrantagreementwiththeGermangovernment.

    GigafactoryTexas–TaxIncentivesInconnectionwiththeconstructionofGigafactoryTexas,weenteredintoa20-yearagreementwithTravisCountyinTexaspursuanttowhichwewould

    receivegrantfundingequalto70-80%ofpropertytaxespaidbyustoTravisCountyandaseparate10-yearagreementwiththeDelValleIndependentSchoolDistrictinTexaspursuanttowhichaportionofthetaxablevalueofourpropertywouldbecappedataspecifiedamount,ineachcasesubjecttoourmeetingcertainminimumeconomicdevelopmentmetricsthroughourconstructionandoperationsatGigafactoryTexas.

    RegulatoryCreditsWeearntradablecreditsintheoperationofourbusinessundervariousregulationsrelatedtozero-emissionvehicles(“ZEVs”),greenhousegas,fuel

    economy,renewableenergyandcleanfuel.Wesellthesecreditstootherregulatedentitieswhocanusethecreditstocomplywithemissionstandards,renewableenergyprocurementstandardsandotherregulatoryrequirements.

    EnergyStorageSystemIncentivesandPoliciesWhiletheregulatoryregimeforenergystorageprojectsisstillunderdevelopment,therearevariouspolicies,incentivesandfinancialmechanismsatthe

    federal,stateandlocallevelsthatsupporttheadoptionofenergystorage.

    Forexample,energystoragesystemsthatarechargedusingsolarenergymaybeeligibleforthesolarenergy-relatedU.S.federaltaxcreditsdescribedbelow.TheFederalEnergyRegulatoryCommission(“FERC”)hasalsotakenstepstoenabletheparticipationofenergystorageinwholesaleenergymarkets.Inaddition,Californiaandanumberofotherstateshaveadoptedprocurementtargetsforenergystorage,andbehind-the-meterenergystoragesystemsqualifyforfundingundertheCaliforniaSelfGenerationIncentiveProgram.

    SolarEnergySystemIncentivesandPoliciesU.S.federal,stateandlocalgovernmentshaveestablishedvariouspolicies,incentivesandfinancialmechanismstoreducethecostofsolarenergyand

    toacceleratetheadoptionofsolarenergy.Theseincentivesincludetaxcredits,cashgrants,taxabatementsandrebates.

    Inparticular,Sections48and25DoftheU.S.InternalRevenueCodecurrentlyprovideataxcreditof26%ofqualifiedcommercialorresidentialexpendituresforsolarenergysystems,whichmaybeclaimedbyourcustomersforsystemstheypurchase,orbyusforarrangementswhereweownthesystems.Thesetaxcreditsarecurrentlyscheduledtodeclineand/orexpirein2023andbeyond.

    RegulationsVehicleSafetyandTestingIntheU.S.,ourvehiclesaresubjecttoregulationbytheNationalHighwayTrafficSafetyAdministration(“NHTSA”),includingallapplicableFederal

    MotorVehicleSafetyStandards(“FMVSS”)andtheNHTSAbumperstandard.NumerousFMVSSapplytoourvehicles,suchascrash-worthinessrequirements,crashavoidancerequirementsandelectricvehiclerequirements.WhileourcurrentvehiclesfullycomplyandweexpectthatourvehiclesinthefuturewillfullycomplywithallapplicableFMVSSwithlimitedornoexemptions,FMVSSaresubjecttochangefromtimetotime.Asamanufacturer,wemustself-certifythatourvehiclesmeetallapplicableFMVSSandtheNHTSAbumperstandard,orotherwiseareexempt,beforethevehiclesmaybeimportedorsoldintheU.S.

    WearealsorequiredtocomplywithotherfederallawsadministeredbyNHTSA,includingtheCAFEstandards,TheftPreventionActrequirements,consumerinformationlabelingrequirements,EarlyWarningReportingrequirementsregardingwarrantyclaims,fieldreports,deathandinjuryreportsandforeignrecalls,owner’smanualrequirementsandadditionalrequirementsforcooperatingwithsafetyinvestigationsanddefectandrecallreporting.TheU.S.AutomobileInformationandDisclosureActalsorequiresmanufacturersofmotorvehiclestodisclosecertaininformationregardingthemanufacturer’ssuggestedretailprice,optionalequipmentandpricing.Inaddition,federallawrequiresinclusionoffueleconomyratings,asdeterminedbytheU.S.DepartmentofTransportationandtheEnvironmentalProtectionAgency(the“EPA”),and5-starsafetyratingsasdeterminedbyNHTSA,ifavailable.

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  • OurvehiclessoldoutsideoftheU.S.aresubjecttosimilarforeignsafety,environmentalandotherregulations.ManyofthoseregulationsaredifferentfromthoseapplicableintheU.S.andmayrequireredesignand/orretesting.Someofthoseregulationsimpactorpreventtherolloutofnewvehiclefeatures.Additionally,theEuropeanUnionhasestablishednewrulesregardingadditionalcomplianceoversightthatcommencedin2020,andthereisalsoregulatoryuncertaintyrelatedtotheUnitedKingdom’swithdrawalfromtheEuropeanUnion.

    Self-DrivingVehiclesGenerally,lawspertainingtoself-drivingvehiclesareevolvingglobally,andinsomecasesmaycreaterestrictionsonself-drivingfeaturesthatwe

    develop.WhiletherearecurrentlynofederalU.S.regulationsspecificallypertainingtoself-drivingvehiclesorself-drivingequipment,NHTSAhaspublishedrecommendedguidelinesonself-drivingvehicles,andretainstheauthoritytoinvestigateand/ortakeactiononthesafetyofanyvehicle,equipmentorfeaturesoperatingonpublicroads.CertainU.S.stateshavelegalrestrictionsontheoperation,registrationorlicensureofself-drivingvehicles,andmanyotherstatesareconsideringthem.Thisregulatorypatchworkincreasesthelegalcomplexitywithrespecttoself-drivingvehiclesintheU.S.

    InmarketsthatfollowtheregulationsoftheUnitedNationsEconomicCommissionforEurope,somerequirementsrestrictthedesignofadvanceddriver-assistanceorself-drivingfeatures,whichcancompromiseorpreventtheiruseentirely.Otherapplicablelaws,bothcurrentandproposed,mayhinderthepathandtimelinetointroducingself-drivingvehiclesforsaleanduseinthemarketswheretheyapply.

    Otherkeymarkets,includingChina,continuetoconsiderself-drivingregulation.AnyimplementedregulationsmaydiffermateriallyfromthoseintheU.S.andEurope,whichmayfurtherincreasethelegalcomplexityofself-drivingvehiclesandlimitorpreventcertainfeatures.

    AutomobileManufacturerandDealerRegulationIntheU.S.,statelawsregulatethemanufacture,distribution,saleandserviceofautomobiles,andgenerallyrequiremotorvehiclemanufacturersand

    dealerstobelicensedinordertosellvehiclesdirectlytoresidents.Certainstateshaveassertedthatthelawsinsuchstatesdonotpermitautomobilemanufacturerstobelicensedasdealersortoactinthecapacityofadealer,orthattheyotherwiserestrictamanufacturer’sabilitytodeliverorservicevehicles.Tosellvehiclestoresidentsofstateswherewearenotlicensedasadealer,wegenerallyconductthetransferoftitleoutofthestate.Incertainsuchstates,wehaveopened“galleries”thatserveaneducationalpurposeandwherethetitletransfermaynotoccur.

    Someautomobiledealertradeassociationshavebothchallengedthelegalityofouroperationsincourtandusedadministrativeandlegislativeprocessestoattempttoprohibitorlimitourabilitytooperateexistingstoresorexpandtonewlocations.Certaindealerassociationshavealsoactivelylobbiedstatelicensingagenciesandlegislatorstointerpretexistinglawsorenactnewlawsinwaysnotfavorabletoourownershipandoperationofourownretailandservicelocations.Weexpectsuchchallengestocontinue,andweintendtoactivelyfightanysuchefforts.

    BatterySafetyandTestingOurbatterypacksaresubjecttovariousU.S.andinternationalregulationsthatgoverntransportof“dangerousgoods,”definedtoincludelithium-ion

    batteries,whichmaypresentariskintransportation.Weconducttestingtodemonstrateourcompliancewithsuchregulations.

    Weuselithium-ioncellsinourhighvoltagebatterypacksinourvehiclesandenergystorageproducts.Theuse,storageanddisposalofourbatterypacksareregulatedunderexistinglawsandarethesubjectofongoingregulatorychangesthatmayaddadditionalrequirementsinthefuture.Wehaveagreementswiththirdpartybatteryrecyclingcompaniestorecycleourbatterypacksandwearealsopilotingourownrecyclingtechnology.

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

    providers.Tooperateoursystems,weenterintostandardinterconnectionagreementswithapplicableutilities.Salesofelectricityandnon-saleequipmentleasesbythirdparties,suchasourleases,PPAsandsubscriptionagreements,havefacedregulatorychallengesinsomestatesandjurisdictions.

    SolarEnergy—NetMeteringMoststatesintheU.S.makenetenergymetering,ornetmetering,availabletosolarcustomers.Netmeteringtypicallyallowssolarcustomersto

    interconnecttheirsolarenergysystemstotheutilitygridandoffsettheirutilityelectricitypurchasesbyreceivingabillcreditforexcessenergygeneratedbytheirsolarenergysystemthatisexportedtothegrid.Incertainjurisdictions,regulatorsorutilitieshavereducedoreliminatedthebenefitavailableundernetmeteringorhaveproposedtodoso.

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  • CompetitionAutomotive

    Theworldwideautomotivemarketishighlycompetitiveandweexpectitwillbecomeevenmorecompetitiveinthefutureasweintroduceadditionalvehiclesinabroadercross-sectionofthepassengerandcommercialvehiclemarketandexpandourvehicles’capabilities.

    Webelievethatourvehiclescompeteinthemarketbothbasedontheirtraditionalsegmentclassificationaswellasbasedontheirpropulsiontechnology.Forexample,ModelSandModelXcompeteprimarilywithpremiumsedansandpremiumSUVsandModel3andModelYcompetewithsmalltomedium-sizedsedansandcompactSUVs,whichareextremelycompetitivemarkets.Competingproductstypicallyincludeinternalcombustionvehiclesfrommoreestablishedautomobilemanufacturers;however,manyestablishedandnewautomobilemanufacturershaveenteredorhaveannouncedplanstoenterthemarketforelectricandotheralternativefuelvehicles.Overall,webelievetheseannouncementsandvehicleintroductionspromotethedevelopmentoftheelectricvehiclemarketbyhighlightingtheattractivenessofelectricvehiclesrelativetotheinternalcombustionvehicle.ManymajorautomobilemanufacturershaveelectricvehiclesavailabletodayinmajormarketsincludingtheU.S.,ChinaandEurope,andothercurrentandprospectiveautomobilemanufacturersarealsodevelopingelectricvehicles.Inaddition,severalmanufacturersofferhybridvehicles,includingplug-inversions.

    Wealsobelievethatthereisincreasingcompetitionforourvehicleofferingsasaplatformfordeliveringself-drivingtechnologies,chargingsolutionsandotherfeaturesandservices,andweexpecttocompeteinthisdevelopingmarketthroughcontinuedprogressonourAutopilot,FSDandneuralnetworkcapabilities,Superchargernetworkandourinfotainmentofferings.

    EnergyGenerationandStorageEnergyStorageSystemsThemarketforenergystorageproductsisalsohighlycompetitive,andbothestablishedandemergingcompanieshaveintroducedproductsthatare

    similartoourproductportfolioorthatarealternativestotheelementsofoursystems.Wecompetewiththesecompaniesbasedonprice,energydensityandefficiency.Webelievethatthespecificationsandfeaturesofourproducts,ourstrongbrandandthemodular,scalablenatureofourenergystorageproductsgiveusacompetitiveadvantageinourmarkets.

    SolarEnergySystemsTheprimarycompetitorstooursolarenergybusinessarethetraditionallocalutilitycompaniesthatsupplyenergytoourpotentialcustomers.We

    competewiththesetraditionalutilitycompaniesprimarilybasedonpriceandtheeasebywhichcustomerscanswitchtoelectricitygeneratedbyoursolarenergysystems.Wealsocompetewithsolarenergycompaniesthatprovideproductsandservicessimilartoours.Manysolarenergycompaniesonlyinstallsolarenergysystems,whileothersonlyprovidefinancingfortheseinstallations.Webelievewehaveasignificantexpansionopportunitywithourofferingsandthattheregulatoryenvironmentisincreasinglyconducivetotheadoptionofrenewableenergysystems.

    IntellectualPropertyWeplaceastrongemphasisonourinnovativeapproachandproprietarydesignswhichbringintrinsicvalueanduniquenesstoourproductportfolio.As

    partofourbusiness,weseektoprotecttheunderlyingintellectualpropertyrightsoftheseinnovationsanddesignssuchaswithrespecttopatents,trademarks,copyrights,tradesecretsandothermeasures,includingthroughemployeeandthird-partynondisclosureagreementsandothercontractualarrangements.Forexample,weplaceahighpriorityonobtainingpatentstoprovidethebroadestandstrongestpossibleprotectiontoenableourfreedomtooperateourinnovationsanddesignswithinourproductsandtechnologiesintheelectricvehiclemarketaswellastoprotectanddefendourproductportfolio.Wehavealsoadoptedapatentpolicyinwhichweirrevocablypledgedthatwewillnotinitiatealawsuitagainstanypartyforinfringingourpatentsthroughactivityrelatingtoelectricvehiclesorrelatedequipmentforsolongassuchpartyisactingingoodfaith.Wemadethispledgeinordertoencouragetheadvancementofacommon,rapidly-evolvingplatformforelectricvehicles,therebybenefitingourselves,othercompaniesmakingelectricvehiclesandtheworld.

    HumanCapitalResourcesAsofDecember31,2020,ourfull-timecountforourandoursubsidiaries’employeesworldwidewas70,757.Todate,wehavenotexperiencedanywork

    stoppagesasaresultoflabordisputes,andweconsiderourrelationshipwithouremployeestobegood.Ourkeyhumancapitalobjectivesinmanagingourbusinessincludeattracting,developingandretainingtoptalentwhileintegratingdiversity,equityandinclusionprinciplesandpracticesintoourcorevalues.

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  • Wewanttoattractapoolofdiverseandexceptionalcandidatesandsupporttheircareergrowthoncetheybecomeemployees.Oureffortsbeginattheentrylevelwithdevelopment,apprenticeshipandinternshipprogramsinlocalhighschools,communitycollegesandfour-yearcolleges.Inaddition,weseektohirebasedontalentratherthansolelyoneducationalpedigree,andhaveprovidedthousandsofjobopenings,includinginourlocalcommunities,forcapableworkersfromvariousbackgroundstolearnvaluableskillsincriticaloperationssuchasinmanufacturing,vehicleserviceandenergyproductinstallation.Wealsoemphasizeinourevaluationandcareerdevelopmenteffortsinternalmobilityopportunitiesforemployeestodriveprofessionaldevelopment.Ourgoalisalong-term,upward-boundcareeratTeslaforeveryemployee,whichwebelievealsodrivesourretentionefforts.

    Wealsobelievethatourabilitytoretainourworkforceisdependentonourabilitytofosteranenvironmentthatissustainablysafe,respectful,fairandinclusiveofeveryoneandpromotesdiversity,equityandinclusioninsideandoutsideofourbusiness.FromouroutreachtoHistoricallyBlackCollegesandUniversitiesandHispanicServingInstitutionstosponsoringemployeeresourcegroupsacrossnumerouslocations,includingAsianPacificIslandersatTesla,BlackatTesla,Intersectionality,LatinosatTesla,LGBTQatTesla,VeteransatTeslaandWomeninTesla,weengagethesenetworksaskeybusinessresourcesandsourcesofactionablefeedback.Wearealsoworkingondiversityeffortsinoursupplychaintoexpandouroutreachandsupporttosmall-andlarge-scalesuppliersfromunderrepresentedcommunitiestoemphasizethisculturewithourownemployees.

    AvailableInformationWefileorfurnishperiodicreportsandamendmentsthereto,includingourAnnualReportsonForm10-K,ourQuarterlyReportsonForm10-Qand

    CurrentReportsonForm8-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.

    RisksRelatedtoOurAbilitytoGrowOurBusinessWemaybeimpactedbymacroeconomicconditionsresultingfromtheglobalCOVID-19pandemic.Sincethefirstquarterof2020,therehasbeenaworldwideimpactfromtheCOVID-19pandemic.Governmentregulationsandshiftingsocialbehaviors

    havelimitedorclosednon-essentialtransportation,governmentfunctions,businessactivitiesandperson-to-personinteractions.Insomecases,therelaxationofsuchtrendshasrecentlybeenfollowedbyactualorcontemplatedreturnstostringentrestrictionsongatheringsorcommerce,includinginpartsoftheU.S.andanumberofareasinEurope.

    Wetemporarilysuspendedoperationsateachofourmanufacturingfacilitiesworldwideforapartofthefirsthalfof2020.Someofoursuppliersandpartnersalsoexperiencedtemporarysuspensionsbeforeresuming,includingPanasonic,whichmanufacturesbatterycellsforourproductsatourGigafactoryNevada.WealsoinstitutedtemporaryemployeefurloughsandcompensationreductionswhileourU.S.operationswerescaledback.Reducedoperationsorclosuresatmotorvehicledepartments,vehicleauctionhousesandmunicipalandutilitycompanyinspectorshaveresultedinchallengesinorpostponementsforournewvehicledeliveries,usedvehiclesalesandenergyproductdeployments.Globaltradeconditionsandconsumertrendsmayfurtheradverselyimpactusandourindustries.Forexample,pandemic-relatedissueshaveexacerbatedportcongestionandintermittentsuppliershutdownsanddelays,resultinginadditionalexpensestoexpeditedeliveryofcriticalparts.Similarly,increaseddemandforpersonalelectronicshascreatedashortfallofmicrochipsupply,anditisyetunknownhowwemaybeimpacted.Sustainingourproductiontrajectorywillrequirethereadinessandsolvencyofoursuppliersandvendors,astableandmotivatedproductionworkforceandongoinggovernmentcooperation,includingfortravelandvisaallowances.ThecontingenciesinherentintheconstructionofandrampatnewfacilitiessuchasGigafactoryShanghai,GigafactoryBerlinandGigafactoryTexasmaybeexacerbatedbythesechallenges.

    Wecannotpredictthedurationordirectionofcurrentglobaltrends,thesustainedimpactofwhichislargelyunknown,israpidlyevolvingandhasvariedacrossgeographicregions.Ultimately,wecontinuetomonitormacroeconomicconditionstoremainflexibleandtooptimizeandevolveourbusinessasappropriate,andwewillhavetoaccuratelyprojectdemandandinfrastructurerequirementsgloballyanddeployourproduction,workforceandotherresourcesaccordingly.Ifcurrentglobalmarketconditionscontinueorworsen,orifwecannotordonotmaintainoperationsatascopethatiscommensuratewithsuchconditionsorarelaterrequiredtoorchoosetosuspendsuchoperationsagain,ourbusiness,prospects,financialconditionandoperatingresultsmaybeharmed.

    Wemayexperiencedelaysinlaunchingandrampingtheproductionofourproductsandfeatures,orwemaybeunabletocontrolourmanufacturingcosts.Wehavepreviouslyexperiencedandmayinthefutureexperiencelaunchandproductionrampdelaysfornewproductsandfeatures.Forexample,we

    encounteredunanticipatedsupplierissuesthatledtodelaysduringtherampofModelXandexperiencedchallengeswithasupplierandwithrampingfullautomationforcertainofourinitialModel3manufacturingprocesses.Inaddition,wemayintroduceinthefutureneworuniquemanufacturingprocessesanddesignfeaturesforourproducts.Thereisnoguaranteethatwewillbeabletosuccessfullyandtimelyintroduceandscalesuchprocessesorfeatures.

    Inparticular,ourfuturebusinessdependsinlargepartonincreasingtheproductionofmass-marketvehiclesincludingModel3andModelY,whichweareplanningtoachievethroughmultiplefactoriesworldwide.WehaverelativelylimitedexperiencetodateinmanufacturingModel3andModelYathighvolumesandevenlessexperiencebuildingandrampingvehicleproductionlinesacrossmultiplefactoriesindifferentgeographies.Inordertobesuccessful,wewillneedtoimplement,maintainandrampefficientandcost-effectivemanufacturingcapabilities,processesandsupplychainsandachievethedesigntolerances,highqualityandoutputrateswehaveplannedatourmanufacturingfacilitiesinCalifornia,Nevada,Texas,ChinaandGermany.Wewillalsoneedtohire,trainandcompensateskilledemployeestooperatethesefacilities.Bottlenecksandotherunexpectedchallengessuchasthoseweexperiencedinthepastmayariseduringourproductionramps,andwemustaddressthempromptlywhilecontinuingtoimprovemanufacturingprocessesandreducingcosts.Ifwearenotsuccessfulinachievingthesegoals,wecouldfacedelaysinestablishingand/orsustainingourModel3andModelYrampsorbeunabletomeetourrelatedcostandprofitabilitytargets.

    Wemayalsoexperiencesimilarfuturedelaysinlaunchingand/orrampingproductionofourenergystorageproductsandSolarRoof;newproductversionsorvariants;newvehiclessuchasTeslaSemi,CybertruckandthenewTeslaRoadster;andfuturefeaturesandservicessuchasnewAutopilotorFSDfeaturesandtheautonomousTeslaride-hailingnetwork.Likewise,wemayencounterdelayswiththedesign,constructionandregulatoryorotherapprovalsnecessarytobuildandbringonlinefuturemanufacturingfacilitiesandproducts.

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  • Anydelayorothercomplicationinrampingtheproductionofourcurrentproductsorthedevelopment,manufacture,launchandproductionrampofourfutureproducts,featuresandservices,orindoingsocost-effectivelyandwithhighquality,mayharmourbrand,business,prospects,financialconditionandoperatingresults.

    Wemaybeunabletogrowourglobalproductsales,deliveryandinstallationcapabilitiesandourservicingandvehiclechargingnetworks,orwemaybeunabletoaccuratelyprojectandeffectivelymanageourgrowth.Oursuccesswilldependonourabilitytocontinuetoexpandoursalescapabilities.Wealsofrequentlyadjustourretailoperationsandproductofferings

    inordertooptimizeourreach,costs,productline-upandmodeldifferentiationandcustomerexperience.However,thereisnoguaranteethatsuchstepswillbeacceptedbyconsumersaccustomedtotraditionalsalesstrategies.Forexample,marketingmethodssuchastouchlesstestdrivesthatwehavepioneeredincertainmarketshavenotbeenprovenatscale.WearetargetingwithModel3andModelYaglobalmassdemographicwithabroadrangeofpotentialcustomers,inwhichwehaverelativelylimitedexperienceprojectingdemandandpricingourproducts.Wecurrentlyproducenumerousinternationalvariantsatalimitednumberoffactories,andifourspecificdemandexpectationsforthesevariantsproveinaccurate,wemaynotbeabletotimelygeneratedeliveriesmatchedtothevehiclesthatweproduceinthesametimeframeorthatarecommensuratewiththesizeofouroperationsinagivenregion.Likewise,aswedevelopandgrowourenergyproductsandservicesworldwide,oursuccesswilldependonourabilitytocorrectlyforecastdemandinvariousmarkets.

    Becausewedonothaveindependentdealernetworks,weareresponsiblefordeliveringallofourvehiclestoourcustomers.Whilewehaveimprovedourdeliverylogistics,wemayfacedifficultieswithdeliveriesatincreasingvolumes,particularlyininternationalmarketsrequiringsignificanttransittimes.Forexample,wesawchallengesinrampingourlogisticschannelsinChinaandEuropetoinitiallydeliverModel3thereinthefirstquarterof2019.Wehavedeployedanumberofdeliverymodels,suchasdeliveriestocustomers’homesandworkplacesandtouchlessdeliveries,butthereisnoguaranteethatsuchmodelswillbescalableorbeacceptedglobally.Likewise,aswerampSolarRoof,weareworkingtosubstantiallyincreaseinstallationpersonnelanddecreaseinstallationtimes.Ifwearenotsuccessfulinmatchingsuchcapabilitieswithactualproduction,orifweexperienceunforeseenproductiondelaysorinaccuratelyforecastdemandfortheSolarRoof,ourbusiness,financialconditionandoperatingresultsmaybeharmed.

    Moreover,becauseofouruniqueexpertisewithourvehicles,werecommendthatourvehiclesbeservicedbyusorbycertainauthorizedprofessionals.Ifweexperiencedelaysinaddingsuchservicingcapacityorservicingourvehiclesefficiently,orexperienceunforeseenissueswiththereliabilityofourvehicles,particularlyhigher-volumeandneweradditionstoourfleetsuchasModel3andModelY,itcouldoverburdenourservicingcapabilitiesandpartsinventory.Similarly,theincreasingnumberofTeslavehiclesalsorequiresustocontinuetorapidlyincreasethenumberofourSuperchargerstationsandconnectorsthroughouttheworld.

    Thereisnoassurancethatwewillbeabletorampourbusinesstomeetoursales,delivery,installation,servicingandvehiclechargingtargetsglobally,thatourprojectionsonwhichsuchtargetsarebasedwillproveaccurateorthatthepaceofgrowthorcoverageofourcustomerinfrastructurenetworkwillmeetcustomerexpectations.Theseplansrequiresignificantcashinvestmentsandmanagementresourcesandthereisnoguaranteethattheywillgenerateadditionalsalesorinstallationsofourproducts,orthatwewillbeabletoavoidcostoverrunsorbeabletohireadditionalpersonneltosupportthem.Asweexpand,wewillalsoneedtoensureourcompliancewithregulatoryrequirementsinvariousjurisdictionsapplicabletothesale,installationandservicingofourproducts,thesaleordispatchofelectricityrelatedtoourenergyproductsandtheoperationofSuperchargers.Ifwefailtomanageourgrowtheffectively,itmayharmourbrand,business,prospects,financialconditionandoperatingresults.

    Ourfuturegrowthandsuccessaredependentuponconsumers’demandforelectricvehiclesandspecificallyourvehiclesinanautomotiveindustrythatisgenerallycompetitive,cyclicalandvolatile.IfthemarketforelectricvehiclesingeneralandTeslavehiclesinparticulardoesnotdevelopasweexpect,developsmoreslowlythanweexpect,orif

    demandforourvehiclesdecreasesinourmarketsorourvehiclescompetewitheachother,ourbusiness,prospects,financialconditionandoperatingresultsmaybeharmed.

    Wearestillatanearlierstageandhavelimitedresourcesandproductionrelativetoestablishedcompetitorsthatofferinternalcombustionenginevehicles.Inaddition,electricvehiclesstillcompriseasmallpercentageofoverallvehiclesales.Asaresult,themarketforourvehiclescouldbenegativelyaffectedbynumerousfactors,suchas: • perceptionsaboutelectricvehiclefeatures,quality,safety,performanceandcost; • perceptionsaboutthelimitedrangeoverwhichelectricvehiclesmaybedrivenonasinglebatterycharge,andaccesstochargingfacilities; • competition,includingfromothertypesofalternativefuelvehicles,plug-inhybridelectricvehiclesandhighfuel-economyinternalcombustion

    enginevehicles; • volatilityinthecostofoilandgasoline,suchaswidefluctuationsincrudeoilpricesduring2020;

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  • • governmentregulationsandeconomicincentives;and • concernsaboutourfutureviability.

    Finally,thetargetdemographicsforourvehicles,particularlyModel3andModelY,arehighlycompetitive.Salesofvehiclesintheautomotiveindustrytendtobecyclicalinmanymarkets,whichmayexposeustofurthervolatilityasweexpandandadjustouroperationsandretailstrategies.Moreover,theCOVID-19pandemicmaynegativelyimpactthetransportationandautomotiveindustrieslong-term.Itisuncertainastohowsuchmacroeconomicfactorswillimpactusasacompanythathasbeenexperiencinggrowthandincreasingmarketshareinanindustrythathasgloballybeenexperiencingarecentdeclineinsales.

    Oursuppliersmayfailtodelivercomponentsaccordingtoschedules,prices,qualityandvolumesthatareacceptabletous,orwemaybeunabletomanagethesecomponentseffectively.Ourproductscontainthousandsofpartsthatwepurchasegloballyfromhundredsofmostlysingle-sourcedirectsuppliers,generallywithoutlong-term

    supplyagreements.Thisexposesustomultiplepotentialsourcesofcomponentshortages,suchasthosethatweexperiencedin2012and2016withourModelSandModelXramps.Unexpectedchangesinbusinessconditions,materialspricing,laborissues,wars,governmentalchanges,tariffs,naturaldisasterssuchastheMarch2011earthquakesinJapan,healthepidemicssuchastheglobalCOVID-19pandemic,tradeandshippingdisruptionsandotherfactorsbeyondouroroursuppliers’controlcouldalsoaffectthesesuppliers’abilitytodelivercomponentstousortoremainsolventandoperational.Forexample,aglobalshortageofmicrochipshasbeenreportedsinceearly2021,andtheimpacttousisyetunknown.Theunavailabilityofanycomponentorsuppliercouldresultinproductiondelays,idlemanufacturingfacilities,productdesignchangesandlossofaccesstoimportanttechnologyandtoolsforproducingandsupportingourproducts.Moreover,significantincreasesinourproduction,suchasforModel3andModelY,orproductdesignchangesbyushaverequiredandmayinthefuturerequireustoprocureadditionalcomponentsinashortamountoftime.Oursuppliersmaynotbewillingorabletosustainablymeetourtimelinesorourcost,qualityandvolumeneeds,ortodosomaycostusmore,whichmayrequireustoreplacethemwithothersources.Finally,wehavelimitedvehiclemanufacturingexperienceoutsideoftheFremontFactoryandwemayexperienceissuesincreasingtheleveloflocalizedprocurementatourGigafactoryShanghaiandatfuturefactoriessuchasGigafactoryBerlinandGigafactoryTexas.Whilewebelievethatwewillbeabletosecureadditionaloralternatesourcesordevelopourownreplacementsformostofourcomponents,thereisnoassurancethatwewillbeabletodosoquicklyoratall.Additionally,wemaybeunsuccessfulinourcontinuouseffortstonegotiatewithexistingsupplierstoobtaincostreductionsandavoidunfavorablechangestoterms,sourcelessexpensivesuppliersforcertainpartsandredesigncertainpartstomakethemlessexpensivetoproduce.Anyoftheseoccurrencesmayharmourbusiness,prospects,financialconditionandoperatingresults.

    Asthescaleofourvehicleproductionincreases,wewillalsoneedtoaccuratelyforecast,purchase,warehouseandtransportcomponentsathighvolumestoourmanufacturingfacilitiesandservicinglocationsinternationally.Ifweareunabletoaccuratelymatchthetimingandquantitiesofcomponentpurchasestoouractualneedsorsuccessfullyimplementautomation,inventorymanagementandothersystemstoaccommodatetheincreasedcomplexityinoursupplychainandpartsmanagement,wemayincurunexpectedproductiondisruption,storage,transportationandwrite-offcosts,whichmayharmourbusinessandoperatingresults.

    Wemaybeunabletomeetourprojectedconstructiontimelines,costsandproductionrampsatnewfactories,orwemayexperiencedifficultiesingeneratingandmaintainingdemandforproductsmanufacturedthere.Ourabilitytoincreaseproductionofourvehiclesonasustainedbasis,makethemaffordablegloballybyaccessinglocalsupplychainsandworkforces

    andstreamlinedeliverylogisticsisdependentontheconstructionandrampofGigafactoryShanghai,GigafactoryBerlinandGigafactoryTexas.Theconstructionofandcommencementandrampofproductionatthesefactoriesaresubjecttoanumberofuncertaintiesinherentinallnewmanufacturingoperations,includingongoingcompliancewithregulatoryrequirements,procurementandmaintenanceofconstruction,environmentalandoperationallicensesandapprovalsforadditionalexpansion,potentialsupplychainconstraints,hiring,trainingandretentionofqualifiedemployeesandthepaceofbringingproductionequipmentandprocessesonlinewiththecapabilitytomanufacturehigh-qualityunitsatscale.Forexample,wearecurrentlyconstructingGigafactoryBerlinunderconditionalpermits.Moreover,weintendtoincorporatesequentialdesignandmanufacturingchangesintovehiclesmanufacturedateachnewfactory.WehavelimitedexperiencetodatewithdevelopingandimplementingvehiclemanufacturinginnovationsoutsideoftheFremontFactory,asweonlyrecentlybeganproductionatGigafactoryShanghai.Inparticular,themajorityofourdesignandengineeringresourcesarecurrentlylocatedinCalifornia.Inordertomeetourexpectationsforournewfactories,wemustexpandandmanagelocalizeddesignandengineeringtalentandresources.Ifweexperienceanyissuesordelaysinmeetingourprojectedtimelines,costs,capitalefficiencyandproductioncapacityforournewfactories,expandingandmanagingteamstoimplementiterativedesignandproductionchangesthere,maintainingandcomplyingwiththetermsofanydebtfinancingthatweobtaintofundthemorgeneratingandmaintainingdemandforthevehicleswemanufacturethere,ourbusiness,prospects,operatingresultsandfinancialconditionmaybeharmed.

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  • Wewillneedtomaintainandsignificantlygrowouraccesstobatterycells,includingthroughthedevelopmentandmanufactureofourowncells,andcontrolourrelatedcosts.Wearedependentonthecontinuedsupplyoflithium-ionbatterycellsforourvehiclesandenergystorageproducts,andwewillrequiresubstantially

    morecellstogrowourbusinessaccordingtoourplans.Currently,werelyonsupplierssuchasPanasonicforthesecells.However,wehavetodatefullyqualifiedonlyaverylimitednumberofsuchsuppliersandhavelimitedflexibilityinchangingsuppliers.Anydisruptioninthesupplyofbatterycellsfromoursupplierscouldlimitproductionofourvehiclesandenergystorageproducts.Inthelongterm,weintendtosupplementcellsfromoursupplierswithcellsmanufacturedbyus,whichwebelievewillbemoreefficient,manufacturableatgreatervolumesandcost-effectivethancurrentlyavailablecells.However,oureffortstodevelopandmanufacturesuchbatterycellshaverequiredandmayrequiresignificantinvestments,andtherecanbenoassurancethatwewillbeabletoachievethesetargetsinthetimeframesthatwehaveplannedoratall.Ifweareunabletodoso,wemayhavetocurtailourplannedvehicleandenergystorageproductproductionorprocureadditionalcellsfromsuppliersatpotentiallygreatercosts,eitherofwhichmayharmourbusinessandoperatingresults.

    Inaddition,thecostofbatterycells,whethermanufacturedbyoursuppliersorbyus,dependsinpartuponthepricesandavailabilityofrawmaterialssuchaslithium,nickel,cobaltand/orothermetals.Thepricesforthesematerialsfluctuateandtheiravailablesupplymaybeunstable,dependingonmarketconditionsandglobaldemandforthesematerials,includingasaresultofincreasedglobalproductionofelectricvehiclesandenergystorageproducts.Anyreducedavailabilityofthesematerialsmayimpactouraccesstocellsandanyincreasesintheirpricesmayreduceourprofitabilityifwecannotrecouptheincreasedcoststhroughincreasedvehicleprices.Moreover,anysuchattemptstoincreaseproductpricesmayharmourbrand,prospectsandoperatingresults.

    Wefacestrongcompetitionforourproductsandservicesfromagrowinglistofestablishedandnewcompetitors.Theworldwideautomotivemarketishighlycompetitivetodayandweexpectitwillbecomeevenmoresointhefuture.Forexample,Model3andModel

    Yfacecompetitionfromexistingandfutureautomobilemanufacturersintheextremelycompetitiveentry-levelpremiumsedanandcompactSUVmarkets.Asignificantandgrowingnumberofestablishedandnewautomobilemanufacturers,aswellasothercompanies,haveenteredorarereportedtohaveplanstoenterthemarketforelectricandotheralternativefuelvehicles,includinghybrid,plug-inhybridandfullyelectricvehicles,aswellasthemarketforself-drivingtechnologyandothervehicleapplicationsandsoftwareplatforms.Insomecases,ourcompetitorsofferorwillofferelectricvehiclesinimportantmarketssuchasChinaandEurope,and/orhaveannouncedanintentiontoproduceelectricvehiclesexclusivelyatsomepointinthefuture.Manyofourcompetitorshavesignificantlygreaterorbetter-establishedresourcesthanwedotodevotetothedesign,development,manufacturing,distribution,promotion,saleandsupportoftheirproducts.Increasedcompetitioncouldresultinourlowervehicleunitsales,pricereductions,revenueshortfalls,lossofcustomersandlossofmarketshare,whichmayharmourbusiness,financialconditionandoperatingresults.

    Wealsofacecompetitioninourenergygenerationandstoragebusinessfromothermanufacturers,developers,installersandserviceprovidersofcompetingenergysystems,aswellasfromlargeutilities.Decreasesintheretailorwholesalepricesofelectricityfromutilitiesorotherrenewableenergysourcescouldmakeourproductslessattractivetocustomersandleadtoanincreasedrateofresidentialcustomerdefaultsunderourexistinglong-termleasesandPPAs.RisksRelatedtoOurOperations

    Wemayexperienceissueswithlithium-ioncellsorothercomponentsmanufacturedatGigafactoryNevada,whichmayharmtheproductionandprofitabilityofourvehicleandenergystorageproducts.Ourplantogrowthevolumeandprofitabilityofourvehiclesandenergystorageproductsdependsonsignificantlithium-ionbatterycellproductionby

    ourpartnerPanasonicatGigafactoryNevada.AlthoughPanasonichasalongtrackrecordofproducinghigh-qualitycellsatsignificantvolumeatitsfactoriesinJapan,ithasrelativelylimitedexperiencewithcellproductionatGigafactoryNevada,whichbeganin2017.Moreover,althoughPanasonicisco-locatedwithusatGigafactoryNevada,itisfreetomakeitsownoperationaldecisions,suchasitsdeterminationtotemporarilysuspenditsmanufacturingthereinresponsetotheCOVID-19pandemic.Inaddition,weproduceseveralvehiclecomponents,suchasbatterymodulesandpacksincorporatingthecellsproducedbyPanasonicforModel3andModelYanddriveunits(includingtosupportGigafactoryShanghaiproduction),atGigafactoryNevada,andwealsomanufactureenergystorageproductsthere.Inthepast,someofthemanufacturinglinesforcertainproductcomponentstooklongerthananticipatedtoramptotheirfullcapacity,andadditionalbottlenecksmayariseinthefutureaswecontinuetoincreasetheproductionrateandintroducenewlines.IfweorPanasonicareunabletoorotherwisedonotmaintainandgrowourrespectiveoperationsatGigafactoryNevadaproduction,orifweareunabletodosocost-effectivelyorhireandretainhighly-skilledpersonnelthere,ourabilitytomanufactureourproductsprofitablywouldbelimited,whichmayharmourbusinessandoperatingresults.

    Finally,thehighvolumesoflithium-ioncellsandbatterymodulesandpacksmanufacturedatGigafactoryNevadaarestoredandrecycledatourvariousfacilities.Anymishandlingofbatterycellsmaycausedisruptiontotheoperationofsuchfacilities.While

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  • wehaveimplementedsafetyproceduresrelatedtothehandlingofthecells,therecanbenoassurancethatasafetyissueorfirerelatedtothecellswouldnotdisruptouroperations.Anysuchdisruptionsorissuesmayharmourbrandandbusiness.

    Wefacerisksassociatedwithmaintainingandexpandingourinternationaloperations,includingunfavorableanduncertainregulatory,political,economic,taxandlaborconditions.Wearesubjecttolegalandregulatoryrequirements,politicaluncertaintyandsocial,environmentalandeconomicconditionsinnumerousjurisdictions,

    overwhichwehavelittlecontrolandwhichareinherentlyunpredictable.Ouroperationsinsuchjurisdictions,particularlyasacompanybasedintheU.S.,createrisksrelatingtoconformingourproductstoregulatoryandsafetyrequirementsandchargingandotherelectricinfrastructures;organizinglocaloperatingentities;establishing,staffingandmanagingforeignbusinesslocations;attractinglocalcustomers;navigatingforeigngovernmenttaxes,regulationsandpermitrequirements;enforceabilityofourcontractualrights;traderestrictions,customsregulations,tariffsandpriceorexchangecontrols;andpreferencesinforeignnationsfordomesticallymanufacturedproducts.Suchconditionsmayincreaseourcosts,impactourabilitytosellourproductsandrequiresignificantmanagementattention,andmayharmourbusinessifweunabletomanagethemeffectively.

    Ourbusinessmaysufferifourproductsorfeaturescontaindefects,failtoperformasexpectedortakelongerthanexpectedtobecomefullyfunctional.Ifourproductscontaindesignormanufacturingdefectsthatcausethemnottoperformasexpectedorthatrequirerepair,orcertainfeaturesofour

    vehiclessuchasnewAutopilotorFSDfeaturestakelongerthanexpectedtobecomeenabled,arelegallyrestrictedorbecomesubjecttoonerousregulation,ourabilitytodevelop,marketandsellourproductsandservicesmaybeharmed,andwemayexperiencedeliverydelays,productrecalls,productliability,breachofwarrantyandconsumerprotectionclaimsandsignificantwarrantyandotherexpenses.Inparticular,ourproductsarehighlydependentonsoftware,whichisinherentlycomplexandmaycontainlatentdefectsorerrorsorbesubjecttoexternalattacks.IssuesexperiencedbyourcustomershaveincludedthoserelatedtotheModelSandModelX17-inchdisplayscreen,thepanoramicroofandthe12-voltbatteryintheModelS,theseatsanddoorsintheModelXandtheoperationofsolarpanelsinstalledbyus.Althoughweattempttoremedyanyissuesweobserveinourproductsaseffectivelyandrapidlyaspossible,sucheffortsmaynotbetimely,mayhamperproductionormaynotcompletelysatisfyourcustomers.Whilewehaveperformedextensiveinternaltestingonourproductsandfeatures,wecurrentlyhavealimitedframeofreferencebywhichtoevaluatetheirlong-termquality,reliability,durabilityandperformancecharacteristics.Therecanbenoassurancethatwewillbeabletodetectandfixanydefectsinourproductspriortotheirsaletoorinstallationforcustomers.

    Wemayberequiredtodefendorinsureagainstproductliabilityclaims.Theautomobileindustrygenerallyexperiencessignificantproductliabilityclaims,andassuchwefacetheriskofsuchclaimsintheeventourvehicles

    donotperformorareclaimedtonothaveperformedasexpected.Asistrueforotherautomakers,ourvehicleshavebeeninvolvedandweexpectinthefuturewillbeinvolvedinaccidentsresultingindeathorpersonalinjury,andsuchaccidentswhereAutopilotorFSDfeaturesareengagedarethesubjectofsignificantpublicattention.Wehaveexperiencedandweexpecttocontinuetofaceclaimsarisingfromorrelatedtomisuseorclaimedfailuresofsuchnewtechnologiesthatwearepioneering.Inaddition,thebatterypacksthatweproducemakeuseoflithium-ioncells.Onrareoccasions,lithium-ioncellscanrapidlyreleasetheenergytheycontainbyventingsmokeandflamesinamannerthatcanignitenearbymaterialsaswellasotherlithium-ioncells.Whilewehavedesignedourbatterypackstopassivelycontainanysinglecell’sreleaseofenergywithoutspreadingtoneighboringcells,therecanbenoassurancethatafieldortestingfailureofourvehiclesorotherbatterypacksthatweproducewillnotoccur,inparticularduetoahigh-speedcrash.Likewise,asoursolarenergysystemsandenergystorageproductsgenerateandstoreelectricity,theyhavethepotentialtofailorcauseinjurytopeopleorproperty.Anyproductliabilityclaimmaysubjectustolawsuitsandsubstantialmonetarydamages,productrecallsorredesignefforts,andevenameritlessclaimmayrequireustodefendit,allofwhichmaygeneratenegativepublicityandbeexpensiveandtime-consuming.Inmostjurisdictions,wegenerallyself-insureagainsttheriskofproductliabilityclaimsforvehicleexposure,meaningthatanyproductliabilityclaimswilllikelyhavetobepaidfromcompanyfundsandnotbyinsurance.

    Wewillneedtomaintainpubliccredibilityandconfidenceinourlong-termbusinessprospectsinordertosucceed.Inordertomaintainandgrowourbusiness,wemustmaintaincredibilityandconfidenceamongcustomers,suppliers,analysts,investors,ratings

    agenciesandotherpartiesinourlong-termfinancialviabilityandbusinessprospects.Maintainingsuchconfidencemaybechallengingduetoourlimitedoperatinghistoryrelativetoestablishedcompetitors;customerunfamiliaritywithourproducts;anydelayswemayexperienceinscalingmanufacturing,deliveryandserviceoperationstomeetdemand;competitionanduncertaintyregardingthefutureofelectricvehiclesorourotherproductsandservices;ourquarterlyproductionandsalesperformancecomparedwithmarketexpectations;andotherfactorsincludingthoseoverwhichwehavenocontrol.Inparticular,Tesla’sproducts,business,resultsofoperations,statementsandactionsarewell-publicizedbyarangeofthirdparties.Suchattentionincludesfrequentcriticism,whichisoftenexaggeratedorunfounded,suchasspeculationregardingthesufficiencyorstabilityofourmanagementteam.Anysuchnegativeperceptions,whethercausedbyusornot,mayharmourbusinessandmakeitmoredifficulttoraiseadditionalfundsifneeded.

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  • Wemaybeunabletoeffectivelygrow,ormanagethecompliance,residualvalue,financingandcreditrisksrelatedto,ourvariousfinancingprograms.WeofferfinancingarrangementsforourvehiclesinNorthAmerica,EuropeandAsiaprimarilythroughvariousfinancialinstitutions.Wealsocurrently

    offervehiclefinancingarrangementsdirectlythroughourlocalsubsidiariesincertainmarkets.Dependingonthecountry,sucharrangementsareavailableforspecifiedmodelsandmayincludeoperatingleasesdirectlywithusunderwhichwetypicallyreceiveonlyaverysmallportionofthetotalvehiclepurchasepriceatthetimeoflease,followedbyastreamofpaymentsoverthetermofthelease.Wehavealsoofferedvariousarrangementsforcustomersofoursolarenergysystemswherebytheypayusafixedpaymenttoleaseorfinancethepurchaseofsuchsystemsorpurchaseelectricitygeneratedbythem.Ifwedonotsuccessfullymonitorandcomplywithapplicablenational,stateand/orlocalfinancialregulationsandconsumerprotectionlawsgoverningthesetransactions,wemaybecomesubjecttoenforcementactionsorpenalties.

    Theprofitabilityofanydirectly-leasedvehiclesreturnedtousattheendoftheirleasesdependsonourabilitytoaccuratelyprojectourvehicles’residualvaluesattheoutsetoftheleases,andsuchvaluesmayfluctuatepriortotheendoftheirtermsdependingonvariousfactorssuchassupplyanddemandofourusedvehicles,economiccyclesandthepricingofnewvehicles.Wehavemadeinthepastandmaymakeinthefuturecertainadjustmentstoourpricesfromtimetotimeintheordinarycourseofbusiness,whichmayimpacttheresidualvaluesofourvehiclesandreducetheprofitabilityofourvehicleleasingprogram.Thefundingandgrowthofthisprogramalsoreliesonourabilitytosecureadequatefinancingand/orbusinesspartners.Ifweareunabletoadequatelyfundourleasingprogramthroughinternalfunds,partnersorotherfinancingsources,andcompellingalternativefinancingprogramsarenotavailableforourcustomerswhomayexpectorneedsuchoptions,wemaybeunabletogrowourvehicledeliveries.Furthermore,ifourvehicleleasingbusinessgrowssubstantially,ourbusinessmaysufferifwecannoteffectivelymanagetheresultinggreaterlevelsofresidualrisk.

    Similarly,wehaveprovidedresalevalueguaranteestovehiclecustomersandpartnersforcertainfinancingprograms,underwhichsuchcounterpartiesmayselltheirvehiclesbacktousatcertainpointsintimeatpre-determinedamounts.However,actualresalevaluesaresubjecttofluctuationsoverthetermofthefinancingarrangements,suchasfromthevehiclepricingchangesdiscussedabove.Iftheactualresalevaluesofanyvehiclesresoldorreturnedtouspursuanttotheseprogramsaremateriallylowerthanthepre-determinedamountswehaveoffered,ourfinancialconditionandoperatingresultsmaybeharmed.

    Finally,ourvehicleandsolarenergysystemfinancingprogramsandourenergystoragesalesprogramsalsoexposeustocustomercreditrisk.Intheeventofawidespreadeconomicdownturnorothercatastrophicevent,ourcustomersmaybeunableorunwillingtosatisfytheirpaymentobligationstousonatimelybasisoratall.Ifasignificantnumberofourcustomersdefault,wemayincursubstantialcreditlossesand/orimpairmentchargeswithrespecttotheunderlyingassets.

    WemustmanageongoingobligationsunderouragreementwiththeResearchFoundationfortheStateUniversityofNewYorkrelatingtoourGigafactoryNewYork.WearepartytoanoperatingleaseandaresearchanddevelopmentagreementthroughtheSUNYFoundation.Theseagreementsprovideforthe

    constructionanduseofourGigafactoryNewYork,whichwehaveprimarilyusedforthedevelopmentandproductionofourSolarRoofandothersolarproductsandcomponents,energystoragecomponentsandSuperchargercomponents,andforotherlessor-approvedfunctions.Underthisagreement,weareobligatedto,amongotherthings,meetemploymenttargetsaswellasspecifiedminimumnumbersofpersonnelintheStateofNewYorkandinBuffalo,NewYorkandspendorincur$5.00billionincombinedcapital,operationalexpenses,costsofgoodssoldandothercostsintheStateofNewYorkduringthe10-yearperiodbeginningApril30,2018.AswetemporarilysuspendedmostofourmanufacturingoperationsatGigafactoryNewYorkpursuanttoaNewYorkStateexecutiveorderissuedinMarch2020asaresultoftheCOVID-19pandemic,weweregrantedaone-yeardeferralofourobligationtobecompliantwithourapplicabletargetsundersuchagreementonApril30,2020,whichwasmemorializedinanamendmenttoouragreementwiththeSUNYFoundationinJuly2020.WhileweexpecttohaveandgrowsignificantoperationsatGigafactoryNewYorkandthesurroundingBuffaloarea,anyfailurebyusinanyyearoverthecourseofthetermoftheagreementtomeetallapplicablefutureobligationsmayresultinourobligationtopaya“programpayment”of$41milliontotheSUNYFoundationforsuchyear,theterminationofourleaseatGigafactoryNewYorkwhichmayrequireustopayadditionalpenaltiesand/ortheneedtoadjustcertainofouroperations,inparticularourproductionrampoftheSolarRooforothercomponents.Anyoftheforegoingeventsmayharmourbusiness,financialconditionandoperatingresults.

    Ifweareunabletoattract,hireandretainkeyemployeesandqualifiedpersonnel,ourabilitytocompetemaybeharmed.Thelossoftheservicesofanyofourkeyemployeesoranysignificantportionofourworkforcecoulddisruptouroperationsordelaythedevelopment,

    introductionandrampofourproductsandservices.Inparticular,wearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer.Noneofourkeyemployeesisboundbyanemploymentagreementforanyspecifictermandwemaynotbeabletosuccessfullyattractandretainseniorleadershipnecessarytogrowourbusiness.Ourfuturesuccessalsodependsuponourabilitytoattract,hireandretainalargenumberofengineering,manufacturing,marketing,salesanddelivery,service,installation,technologyandsupportpersonnel,especiallytosupportourplannedhigh-volumeproductsales,marketandgeographical

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  • expansionandtechnologicalinnovations.Recruitingefforts,particularlyforsenioremployees,maybetime-consuming,whichmaydelaytheexecutionofourplans.Ifwearenotsuccessfulinmanagingtheserisks,ourbusiness,financialconditionandoperatingresultsmaybeharmed.

    EmployeesmayleaveTeslaorchooseotheremployersoverTesladuetovariousfactors,suchasaverycompetitivelabormarketfortalentedindividualswithautomotiveortechnologyexperience,oranynegativepublicityrelatedtous.InCalifornia,Nevadaandotherregionswherewehaveoperations,thereisincreasingcompetitionforindividualswithskillsetsneededforourbusiness,includingspecializedknowledgeofelectricvehicles,softwareengineering,manufacturingengineeringandelectricalandbuildingconstructionexpertise.Moreover,wemaybeimpactedbyperceptionsrelatingtoreductionsinforcethatwehaveconductedinthepastinordertooptimizeourorganizationalstructureandreducecostsandthedepartureofcertainseniorpersonnelforvariousreasons.Likewise,asaresultofourtemporarysuspensionofvariousU.S.manufacturingoperationsinthefirsthalfof2020,inApril2020wetemporarilyfurloughedcertainhourlyemployeesandreducedmostsalariedemployees’basesalaries.Wealsocompetewithbothmatureandprosperouscompaniesthathavefargreaterfinancialresourcesthanwedoandstart-upsandemergingcompaniesthatpromiseshort-termgrowthopportunities.

    Finally,ourcompensationphilosophyforallofourpersonnelreflectsourstartuporigins,withanemphasisonequity-basedawardsandbenefitsinordertocloselyaligntheirincentiveswiththelong-terminterestsofourstockholders.Weperiodicallyseekandobtainapprovalfromourstockholdersforfutureincreasestothenumberofawardsavailableunderourequityincentiveandemployeestockpurchaseplans.Ifweareunabletoobtaintherequisitestockholderapprovalsforsuchfutureincreases,wemayhavetoexpendadditionalcashtocompensateouremployeesandourabilitytoretainandhirequalifiedpersonnelmaybeharmed.

    WearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer.WearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficerandlargeststockholder.AlthoughMr.Muskspendssignificanttime

    withTeslaandishighlyactiveinourmanagement,hedoesnotdevotehisfulltimeandattentiontoTesla.Mr.MuskalsocurrentlyservesasChiefExecutiveOfficerandChiefTechnicalOfficerofSpaceExplorationTechnologiesCorp.,adeveloperandmanufacturerofspacelaunchvehicles,andisinvolvedinotheremergingtechnologyventures.

    Wemustmanagerisksrelatingtoourinformationtechnologysystemsandthethreatofintellectualpropertytheft,databreachesandcyber-attacks.Wemustcontinuetoexpandandimproveourinformationtechnologysystemsasouroperationsgrow,suchasproductdatamanagement,procurement,

    inventorymanagement,productionplanningandexecution,sales,serviceandlogistics,dealermanagement,financial,taxandregulatorycompliancesystems.ThisincludestheimplementationofnewinternallydevelopedsystemsandthedeploymentofsuchsystemsintheU.S.andabroad.Wemustalsocontinuetomaintaininformationtechnologymeasuresdesignedtoprotectusagainstintellectualpropertytheft,databreaches,sabotageandotherexternalorinternalcyber-attacksormisappropriation.However,theimplementation,maintenance,segregationandimprovementofthesesystemsrequiresignificantmanagementtime,supportandcost,andthereareinherentrisksassociatedwithdeveloping,improvingandexpandingourcoresystemsaswellasimplementingnewsystemsandupdatingcurrentsystems,includingdisruptionstotherelatedareasofbusinessoperation.Theserisksmayaffectourabilitytomanageourdataandinventory,procurepartsorsuppliesormanufacture,sell,deliverandserviceproducts,adequatelyprotectourintellectualpropertyorachieveandmaintaincompliancewith,orrealizeavailablebenefitsunder,taxlawsandotherapplicableregulations.

    Moreover,ifwedonotsuccessfullyimplement,maintainorexpandthesesystemsasplanned,ouroperationsmaybedisrupted,ourabilitytoaccuratelyand/ortimelyreportourfinancialresultscouldbeimpairedanddeficienciesmayariseinourinternalcontroloverfinancialreporting,whichmayimpactourabilitytocertifyourfinancialresults.Moreover,ourproprietaryinformationorintellectualpropertycouldbecompromisedormisappropriatedandourreputationmaybeadverselyaffected.Ifthesesystemsortheirfunctionalitydonotoperateasweexpectthemto,wemayberequiredtoexpendsignificantresourcestomakecorrectionsorfindalternativesourcesforperformingthesefunctions.

    Anyunauthorizedcontrolormanipulationofourproducts’systemscouldresultinlossofconfidenceinusandourproducts.Ourproductscontaincomplexinformationtechnologysystems.Forexample,ourvehiclesandenergystorageproductsaredesignedwithbuilt-indata

    connectivitytoacceptandinstallperiodicremoteupdatesfromustoimproveorupdatetheirfunctionality.Whilewehaveimplementedsecuritymeasuresintendedtopreventunauthorizedaccesstoourinformationtechnologynetworks,ourproductsandtheirsystems,maliciousentitieshavereportedlyattempted,andmayattemptinthefuture,togainunauthorizedaccesstomodify,alterandusesuchnetworks,productsandsystemstogaincontrolof,ortochange,ourproducts’functionality,userinterfaceandperformancecharacteristicsortogainaccesstodatastoredinorgeneratedbyourproducts.Weencouragereportingofpotentialvulnerabilitiesinthesecurityofourproductsthroughoursecurityvulnerabilityreportingpolicy,andweaimtoremedyanyreportedandverifiedvulnerability.However,therecanbenoassurancethatanyvulnerabilitieswillnotbeexploitedbeforetheycanbeidentified,orthatourremediationeffortsareorwillbesuccessful.

    20

  • Anyunauthorizedaccesstoorcontrolofourproductsortheirsystemsoranylossofdatacouldresultinlegalclaimsorgovernmentinvestigations.Inaddition,regardlessoftheirveracity,reportsofunauthorizedaccesstoourproducts,theirsystemsordata,aswellasotherfactorsthatmayresultintheperceptionthatourproducts,theirsystemsordataarecapableofbeinghacked,mayharmourbrand,prospectsandoperatingresults.Wehavebeenthesubjectofsuchreportsinthepast.

    Ourbusinessmaybeadverselyaffectedbyanydisruptionscausedbyunionactivities.Itisnotuncommonforemployeesofcertaintradesatcompaniessuchasustobelongtoaunion,whichcanresultinhigheremployeecostsand

    increasedriskofworkstoppages.Moreover,regulationsinsomejurisdictionsoutsideoftheU.S.mandateemployeeparticipationinindustrialcollectivebargainingagreementsandworkcouncilswithcertainconsultationrightswithrespecttotherelevantcompanies’operations.Althoughweworkdiligentlytoprovidethebestpossibleworkenvironmentforouremployees,theymaystilldecidetojoinorseekrecognitiontoformalaborunion,orwemayberequiredtobecomeaunionsignatory.Fromtimetotime,laborunionshaveengagedincampaignstoorganizecertainofouroperations,aspartofwhichsuchunionshavefiledunfairlaborpracticechargesagainstuswiththeNationalLaborRelationsBoard,andtheymaydosointhefuture.InSeptember2019,anadministrativelawjudgeissuedarecommendeddecisionforTeslaoncertainissuesandagainstusoncertainothers.TheNationalLaborRelationsBoardhasnotyetadoptedtherecommendationandwehaveappealedcertainaspectsoftherecommendeddecision.AnyunfavorableultimateoutcomeforTeslamayhaveanegativeimpactontheperceptionofTesla’streatmentofouremployees.Furthermore,wearedirectlyorindirectlydependentuponcompanieswithunionizedworkforces,suchassuppliersandtruckingandfreightcompanies.Anyworkstoppagesorstrikesorganizedbysuchunionscoulddelaythemanufactureandsaleofourproductsandmayharmourbusinessandoperatingresults.

    Wemaychoosetoorbecompelledtoundertakeproductrecallsortakeothersimilaractions.Asamanufacturingcompany,wemustmanagetheriskofproductrecallswithrespecttoourproducts.Recallsforourvehicleshaveresultedfrom,for

    example,industry-wideissueswithairbagsfromaparticularsupplier,concernsofcorrosioninModelSandModelXpowersteeringassistmotorbolts,certainsuspensionfailuresinModelSandModelXandissueswithModelSandModelXmediacontrolunits.Inadditiontorecallsinitiatedbyusforvariouscauses,testingoforinvestigationsintoourproductsbygovernmentregulatorsorindustrygroupsmaycompelustoinitiateproductrecallsormayresultinnegativepublicperceptionsaboutthesafetyofourproducts,evenifwedisagreewiththedefectdeterminationorhavedatathatshowstheactualsafetyrisktobenon-existent.Inthefuture,wemayvoluntarilyorinvoluntarilyinitiaterecallsifanyofourproductsaredeterminedbyusoraregulatortocontainasafetydefectorbenoncompliantwithapplicablelawsandregulations,suchasU.S.federalmotorvehiclesafetystandards.Suchrecalls,whethervoluntaryorinvoluntaryorcausedbysystemsorcomponentsengineeredormanufacturedbyusoroursuppliers,couldresultinsignificantexpense,supplychaincomplicationsandserviceburdens,andmayharmourbrand,business,prospects,financialconditionandoperatingresults.

    Ourcurrentandfuturewarrantyreservesmaybeinsufficienttocoverfuturewarrantyclaims.Weprovideamanufacturer’swarrantyonallnewandusedTeslavehicleswesell.Wealsoprovidecertainwarrantieswithrespecttotheenergy

    generationandstoragesystemswesell,includingontheirinstallationandmaintenance,andforcomponentsnotmanufacturedbyus,wegenerallypassthroughtoourcustomerstheapplicablemanufacturers’warranties.Aspartofourenergygenerationandstoragesystemcontracts,wemayprovidethecustomerwithperformanceguaranteesthatwarrantthattheunderlyingsystemwillmeetorexceedtheminimumenergygenerationorotherenergyperformancerequirementsspecifiedinthecontract.Undertheseperformanceguarantees,webeartheriskofelectricityproductionorotherperformanceshortfalls,eveniftheyresultfromfailuresincomponentsfromthirdpartymanufacturers.Theserisksareexacerbatedintheeventsuchmanufacturersceaseoperationsorfailtohonortheirwarranties.

    Ifourwarrantyreservesareinadequatetocoverfuturewarrantyclaimsonourproducts,ourfinancialconditionandoperatingresultsmaybeharmed.Warrantyreservesincludeourmanagement’sbestestimatesoftheprojectedcoststorepairortoreplaceitemsunderwarranty,whicharebasedonactualclaimsincurredtodateandanestimateofthenature,frequencyandcostsoffutureclaims.Suchestimatesareinherentlyuncertainandchangestoourhistoricalorprojectedexperience,especiallywithrespecttoproductssuchasModel3,ModelYandSolarRoofthatwehaverecentlyintroducedand/orthatweexpecttoproduceatsignificantlygreatervolumesthanourpastproducts,maycausematerialchangestoourwarrantyreservesinthefuture.

    Ourinsurancecoveragestrategymaynotbeadequatetoprotectusfromallbusinessrisks.Wemaybesubject,intheordinarycourseofbusiness,tolossesresultingfromproductsliability,accidents,actsofGodandotherclaimsagainstus,for

    whichwemayhavenoinsurancecoverage.Asageneralmatter,wedonotmaintainasmuchinsurancecoverageasmanyothercompaniesdo,andinsomecases,wedonotmaintainanyatall.Additionally,thepoliciesthatwedohavemayincludesignificantdeductiblesorself-insuredretentions,policylimitationsandexclusions,andwecannotbecertainthatourinsurancecoveragewillbesufficienttocoverallfuturelossesorclaimsagainstus.Alossthatisuninsuredorwhichexceedspolicylimitsmayrequireustopaysubstantialamounts,whichmayharmourfinancialconditionandoperatingresults.

    21

  • Thereisnoguaranteethatwewillhavesufficientcashflowfromourbusinesstopayoursubstantialindebtednessorthatwewillnotincuradditionalindebtedness.AsofDecember31,2020,weandoursubsidiarieshadoutstanding$10.57billioninaggregateprincipalamountofindebtednes


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