Soledad

Anual Report 2 017

Ta b l e o f C o n t e n t s

A.1 Introduction

3

B.2 Bussiness

5

B.1.1 Overview

C.1 Productts and Services

11

C.1.1 Vehicles C.1.2 Energy Storage C.1.3 Solar Energy Systems

D.1 Selected Consolidated Financial Data

16

D.1.2 Consolidated Statements of Operations Data D.1.3 Consolidated Balance Sheet Data C.1.3 Solar Energy Systems

D.2 Properties

18

Introducction

Message from CEO

A.1

Introduction

Elon Musk, Chairman & CEO We are excited about 2017, as we

we plan to prioritize profitability and cash

expect to see significant advances across our

preservation over total MW deployed ahead

transport, energy generation and storage

of the solar roof launch. We are on track to

product lines. Most notably, the Model 3 and

generate $500M in cash (including growth of

solar roof launches are on track for the second

non-recourse project financing) by 2019 and

half of the year. However, since even a couple-

achieve the cost synergies we committed to

week shift in timing could have a meaningful

upon acquiring SolarCity. Specifically, we plan

impact on total deliveries and installs, we are

to reduce customer acquisition costs by cut-

focusing our guidance on the first half of the

ting advertising spending, selling solar prod-

year. We expect to deliver 47,000 to 50,000

ucts in Tesla stores, and shifting away from

Model S and Model X vehicles combined in

leasing solar systems. We expect to invest

the first half of 2017, representing vehicle de-

between $2 billion and $2.5 billion in capital

livery growth of 61% to 71% compared with

expenditures ahead of the start of Model 3

the same period last year. In addition, both

production. We continue to focus on capital

GAAP and non-GAAP automotive gross mar-

efficiency while also investing in battery cell,

gin should recover in Q1 to Q3 2016 levels and

pack and energy storage production at Giga-

then continue to expand in Q2 2017. As for

factory 1. Tesla continues to execute against

our energy generation and storage business,

its mission of accelerating.

Anual Report 2017

3

Bussiness

Business

Overwiew

B.1

Part 1 I t e m 1. B u s s i n e s s B.1.1 Overview We design, develop, manufacture and

Our next vehicle introduction is the Model 3,

sell high-performance fully electric vehicles,

a lower priced sedan designed for the mass

and energy storage systems, as well as install,

market. We intend to begin volume produc-

operate and maintain solar and energy storage

tion and deliveries of Model 3 in the second

products. We are the world’s only vertically

half of 2017. We also intend to bring addition-

integrated energy company, offering end-to-

al vehicles to market in the future. The pro-

end clean energy products, including genera-

duction of fully electric vehicles that meets

tion, storage and consumption. We have es-

consumers’ range and performance expecta-

tablished a global network of vehicle stores,

tions requires substantial design, engineering,

service centers and Supercharger stations to

and integration work on almost every system

accelerate the widespread adoption of our

of our vehicles. Our design and vehicle engi-

products. Our vehicles, engineering expertise

neering capabilities, combined with the tech-

across multiple products and systems, intense

nical advancements of our powertrain system,

focus to accelerate the world’s transition to

have enabled us to design and develop electric

sustainable transport, and business model dif-

vehicles that we believe overcome the design,

ferentiates us from other manufacturers.

styling, and performance issues that have historically limited broad consumer adoption of

We currently produce and sell two fully elec-

electric vehicles. As a result, our customers en-

tric vehicles, the Model S sedan and the Model

joy several benefits, including:

X sport utility vehicle (SUV). Both vehicles offer exceptional performance, functionality and

Long Range and Recharging Flexibil-

attractive styling. We commenced deliveries

ity. Our vehicles offer ranges that significantly

of Model S in June 2012 and have continued to

exceed those of any other commercially avail-

improve Model S by introducing performance,

able electric vehicle. In addition, our vehicles

all-wheel drive dual motor, and autopilot op-

incorporate our proprietary on-board charging

tions, as well as free over-the-air software up-

system, permitting recharging from almost any

dates.

available electrical outlet, and also offer fast charging capability from our Supercharger

We commenced deliveries of Model X in the

network.

third quarter of 2015. Model X offers exceptional safety, seating for up to seven people,

High-Performance Without Compro-

all-wheel drive, and our autopilot functional-

mised Design or Functionality. Our vehicles

ity. We are currently ramping production and

deliver unparalleled driving experiences with

deliveries of Model X in the United States, Eu-

instantaneous and sustained acceleration, an

rope and Asia.

advanced autopilot system with active safety Anual Report 2017

5

Business

Overwiew

and convenience features, and over-the-air

nation chargers in North America, Europe and

software updates.

Asia to provide both fast charging that enables convenient long-distance travel as well as oth-

Energy Efficiency and Cost of Own-

er convenient charging options.

ership. Our vehicles offer an attractive cost of ownership when compared to similar internal

In addition to manufacturing and selling our

combustion engine or hybrid electric vehicles.

own vehicles, we leverage our technology

Using only an electric powertrain enables us to

expertise in batteries, power electronics, and

create more energy efficient vehicles that are

integrated systems to manufacture and sell

mechanically simpler than currently available

energy storage products. We recently an-

hybrid or internal combustion engine vehicles.

nounced the latest generation of our energy

The cost to fuel our vehicles is less compared

storage products, the14 kilowatt hour (kWh)

to internal combustion vehicles. We also ex-

Powerwall 2 with an integrated inverter for

pect our electric vehicles will have lower rel-

residential applications and the infinitely scal-

ative maintenance costs than other vehicles

able 200 kWh Powerpack 2. In addition, we

due to fewer moving parts and the absence of

also announced an accompanying bi-direc-

certain components, including oil, oil filters,

tional inverter for commercial, industrial and

spark plugs and engine valves.

utility applications. We began production and deliveries of these second generation prod-

We sell our vehicles through our own sales

ucts in the fourth quarter of 2016. Similar to

and service network which we are continuing

our electric vehicles, our energy storage prod-

to grow globally. The benefits we receive from

ucts have been developed to receive over-the-

distribution ownership enable us to improve

air firmware and software updates that enable

the overall customer experience, the speed of

additional features over time.

product development and the capital efficiency of our business. We are also continuing to build our network of Superchargers and destiAnual Report 2017

6

Business

Overwiew

Also, through our acquisition of So-

tens of millions of single-family homes in our

larCity Corporation, which closed on Novem-

primary service territories, and many more in

ber 21, 2016, we sell renewable energy to

other locations, we have a large opportunity

our customers typically at prices below utility

to expand and grow this business.

rates and are focused on reducing the cost of solar energy for our customers. Since 2006,

We manufacture our vehicle products primar-

SolarCity has installed solar energy systems for

ily at our facilities in Fremont, California, Lath-

over 325,000 customers. Our long-term agree-

rop, California, Tilburg, Netherlands and at

ments with our customers generate recurring

our Gigafactory 1 near Reno, Nevada. We are

payments and create a portfolio of high-qual-

currently using battery packs manufactured at

ity receivables that we leverage to further re-

Gigafactory 1 for our energy storage products,

duce the cost of making the switch to solar

and will build Model 3 battery packs and drive

energy. The electricity produced by our solar

units at Gigafactory 1. We manufacture our

installations represents a very small fraction

solar products at our factories in Fremont, Cal-

of total U.S. electricity generation. With over

ifornia and Buffalo, New York (Gigafactory 2).

Anual Report 2017

7

Products and Services

Products and Services

Vehicles

C.1

O u r P r o d u c t s a n d S e r vi c e s C.1.1 Vehicles

Model S Model S is a fully electric, fourdoor, five-adult passenger sedan that offers compelling range and performance with zero tailpipe emissions. We offer performance and all-wheel drive dual motor system options.

Model S 100D is the longest range allelectric production sedan in the world, and the performance version with the Ludicrous speed upgrade is the quickest accelerating production vehicle ever.

Model S offers a unique combination of functionality, convenience, safety and styling without compromising performance and energy efficiency.

Model S also includes

premium luxury features, including a 17 inch touch screen driver interface, our advanced autopilot hardware to enable both active safety and convenience features, and overthe-air software updates. We believe the

combination

of

performance, safety,

styling,

convenience

and

energy efficiency of Model S positions it as a compelling alternative

to

other vehicles in the

luxury

and

performance segments.

Products and Services

Vehicles

Model X Model X is the longest range all-

rows. Although the National Highway

electric production sport utility vehicle

Traffic Safety Administration has not

in the world, and offers exceptional

yet conducted crash testing on Model

functionality with high performance

X, based on our internal testing, we are

features such as our fully electric, all-

confident that Model X will receive the

wheel drive dual motor system and our

highest safety rating. We began customer

autopilot system. . Model X can seat up

deliveries of Model X in the third quarter

to seven adults and incorporates a unique

of 2015 in the United States. Model X is

falcon wing door system for superior

sold in all the markets where Model S is

access to the second and third seating

available, including in Asia and Europe.

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Products and Services

Vehicles

Model 3 We are developing a third generation electric vehicle, Model 3, which we unveiled in March 2016 and will be produced at the Tesla Factory. We intend to offer this vehicle at a lower price point and expect to produce it at far higher volumes than our Model S or Model X. Gigafactory 1 construction and Model 3 development both remain on plan to support volume Model 3 production and deliveries in the second half of 2017.

Products and Services

Energy Storage

Future Consumer and Commercial EVs Following the introduction of Model 3, we are also planning to introduce additional vehicles to address a broader

cross-section of the consumer vehicle market, as well as introduce commercial EVs in the coming years.

C.1.2 Energy Storage Using the energy management tech-

backup power. In addition, we offer a 200

nologies and manufacturing processes devel-

kWh Powerpack system which can be used by

oped for our vehicle powertrain systems, we

commercial and industrial customers for peak

developed energy storage products for use

shaving, load shifting, self-consumption of

in homes, commercial facilities and utility

solar generation and demand response. The

sites. The applications for these battery sys-

Powerpack system is a fully integrated energy

tems include the provision of backup power,

storage solution that can be used by utilities

grid independence, peak demand reduction,

to smooth and firm the output of renewable

demand response, reducing intermittency of

power generation sources, provide dynamic

renewable generation and wholesale electric

energy capacity to the grid, defer or eliminate

market services. We began selling our resi-

the need to upgrade transmission infrastruc-

dential systems in 2013 and our commercial

ture and also provide for a variety of grid ser-

and utility systems in 2014, and have recently

vices for utilities. For grid-scale applications,

commenced production of the second gener-

200 kWh battery blocks can be grouped to-

ation of these systems.

gether to offer MWh and GWh installations.

We began production of the second genera-

2 Our energy product portfolio includes sys-

tion of energy storage products at Gigafactory 1 in the fourth quarter of 2016.

tems with a wide range of applications, from use in homes to use in large grid-scale pro-

Along with designing and manufacturing en-

jects. Powerwall 2 is a 14 kWh rechargeable

ergy storage products, we continue to devel-

lithium-ion battery designed to store energy

op and advance our software capabilities for

at a home or small commercial facility and

the control and optimal dispatch of energy

can be used for reducing demand, self-con-

storage systems across a wide range of mar-

sumption of solar power generation and as

kets and applications.

Anual Report 2017

13

Products and Services

Solar Energy Systems

C.1.3 Solar Energy Systems The major components of our solar energy systems include solar panels that convert sunlight into electrical current, inverters that convert the electrical output from the panels to a usable current compatible with the electric grid, racking that attaches the solar panels to the roof or ground, electrical hardware that connects the solar energy system to the electric grid and our monitoring device. We purchase the majority of system components from vendors, maintaining multiple sources for each major component to ensure competitive pricing and an adequate supply of materials. We also design and manufacture other system components.

Our SolarLease and SolarPPA customer agreements have fueled our growth by allowing our customers to pay little or no upfront costs to switch to distributed solar energy. Over the terms of both agreements, we own and operate the

solar energy system and guarantee its performance. Our current standard SolarLeases and SolarPPAs have 20year terms, and we typically offer the opportunity to renew our agreements.

Additionally, our Solar Loan offers thirdparty financing alternatives to allow customers to take direct advantage of federal tax credits to reduce their electricity costs.

In October 2016, we revealed the solar roof, integrating solar energy production with aesthetically pleasing and durable glass roofing tiles, designed to complement and power customer homes and commercial buildings. We currently expect to commence production in the summer of 2017 at our Gigafactory 2 in Buffalo, New York, and begin customer installations of the solar roof later in 2017.

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Financial Data

Financial Data

Selected Consolidated Financial Data

D.1

Item 6 S e l e c t e d C o n s o l i d a t e d Fi n a n c i a l D a t a The following selected consolidated financial

Operations” and our consolidated financial

data should be read in conjunction with

statements and the related notes included

“Management’s Discussion and Analysis of

elsewhere in this Annual Report on Form 10-K

Financial Condition and Results of

(in thousands, except per share data).

2016

(2)

2015

2014

2013

$ 413,256

$ 2,013,496

$ 3,198,356

Total revenues

$ 4,046,025

$ 7,000,132

D.1.2 Consolidated Statements of Operations Data

2012

(1) Diluted net loss per share of common stock is computed excluding common stock subject to repurchase, and, if dilutive, potential shares of common stock outstanding during the period. Potential shares of common stock consist of stock options to purchase shares of our common stock, the conversion of our convertible senior notes (using the treasury stock method), warrants to purchase shares of our common stock issued in connection with our 2018 Notes, 2019 Notes, as defined in Note (1) below, and 2021 Notes, as defined in Note (1) below, (using the treasury stock method), warrants to purchase shares of our convertible preferred stock (using the treasury stock method) and the conversion of our convertible preferred stock and convertible notes payable (using the if-converted method). For purposes of these calculations, potential shares of common stock have been excluded from the calculation of diluted net loss per share of common stock as their effect is antidilutive since we generated a net loss in each period.

(2) We acquired SolarCity on November 21, 2016. The results of SolarCity have been included in our results of operation from the date of acquisition. See Note 3, Acquisition of SolarCity, of the Notes to Consolidated Financial Statements for additional information regarding this transaction.

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Financial Data

Selected Consolidated Financial Data

D.1.3 Consolidated Balance Sheet Data

As of December 31 2016 Working capital (deficit) Total assets

(1)

(1)

Total long-term obligations

(1) (2)

(3)

2015

2014

2013

2012

$ 432,791

$ (29,029)

$ 1,072,907 $ 585,665

$ (14,340)

22,664,076

8,067,939

5,830,667

2,411,186

1,114,190

10,923,162

4,125,915

2,753,595

1,069,535

450,382

(1) In May 2013, we issued $660.0 million aggregate principal amount of 2018 Notes in a public offering. In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the 2018 Notes from the host debt instrument and initially recorded the conversion option of $82.8 million in equity. The holders of 2018 Notes may convert their notes during a quarter if the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20 of the last 30 consecutive trading days of the preceding quarter As of December 31, 2016, December 31, 2015 and December 31, 2014 our 2018 Notes have met the conversion criteria; consequently the carrying value of our 2018 Notes of $196.2 million, $612.5 million and $594.3 million have been presented as current liabilities, respectively. In March 2014, we issued $800.0 million principal amount of 0.25% convertible senior notes due 2019 (“2019 Notes”) and $1.20 billion principal amount of 1.25% convertible senior notes due 2021 (“2021 Notes”) in a public offering. In April 2014, we issued an additional $120.0 million aggregate principal amount of 2019 Notes and $180.0 million aggregate principal amount of 2021 Notes, pursuant to the exercise in full of the overallotment options of the underwriters of our March 2014 public offering. In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the notes from the host debt instrument and recorded the conversion option of $188.1 million for the 2019 Notes and $369.4 million for the 2021 Notes in stockholders’ equity as of December 31, 2014 (2) As of August 31, 2012, we had fully drawn down our $465.0 million under our Department of Energy loan facility. In May 2013, we used a portion of the Notes offering proceeds to repay all outstanding loan amounts under this l facility.

(3) We acquired SolarCity on November 21, 2016. The financial position of SolarCity have been included in our consolidated financial statements from the date of acquisition. See Note 3, Acquisition of SolarCity, of the Notes to Consolidated Financial Statements for additional information regarding this transaction.

Anual Report 2017

17

Financial Data

Properties

D.2

Item 2 Properties The following table sets forth the location, approximate size and primary use of our principal leased and owned facilities: Approximate Size Location Fremont, California Sparks, Nevad Fremont, California Livermore, California Fremont, California Tilburg, Netherlands

Lathrop, California Livermore, California Palo Alto, California Sparks, Nevada

(Building) in Square Feets 5,400,000

1,100,000

Lease Expiration Date

Primary Use Manufacturing, administration, engineering services, parts warehousing, and vehicle service *Gigafactory 1 for production of lithium ion battery cells and Model 3 drive units

Owned building

Owned building

1,067,000

Future expansion of manufacturing facilitie

Owned land

635,533

Warehous

Octuber 2026

506,490

Administration and manufacturing

September 2029

Administration, engineering services, powertrain 499,710

development services, parts warehousing, final

November 2023

vehicle assembly and vehicle service 430,000

Manufacturing

Owned building

367,734

Warehouse

October 2016

Corporate headquarters, administration, 350,000

engineering services and powertrain

January 2020

development services 304,200

Warehous

December 2019

A n u a l R e p o r t 2 0 1 7 18

Financial Data

Selected Consolidated Financial Data

Fremont, California Lathrop, California Hawthorne, California Lathrop, California Amsterdam, Netherlands Beijin, China

302,400

R&D and engineering

March 2028

271,075

Manufacturing

May 2025

132,250

Vehicle engeineering and design services

December 2022

92,400

Warehouse

September 2019

71,142

Administration, sales and service center

Febraury 2024

24,003

Administration, sales and marketing services

June 2017

* Gigafactory 1 is partially constructed with current occupancy of approximately 1.1 million square feet.

In addition to the properties included in the table above, we also lease a large number of properties in North America, Europe and Asia for our retail and service locations, Supercharger sites and solar installation and maintenance warehouses.

SolarCity has its corporate headquarters and executive offices in San Mateo, California, where it occupies approximately 68,025 square feet of office space under a lease that expires in December 2021, with a renewal option. SolarCity also leases a regional headquarters in Salt Lake City, Utah, and larger offices in San Francisco, San Rafael and Fremont, California. In addition, SolarCity leases

sales offices, warehouses and manufacturing facilities, including Gigafactory 2 in Buffalo, New York, across the United States and in Mexico and China. SolarCity also leases sales and support offices in Ontario, Canada.

Our properties are used to support both of our reporting segments. We currently intend to add new facilities or expand our existing facilities as we add employees and expand our network of stores and galleries, service locations and Supercharger sites. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms to accommodate our foreseeable future expansion.

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© Tesla Anual Report 2017 Austin, Texas, United States