Tesla 2012 Annual Report Download - page 120

Table of Contents
5. Purchase of Tesla Factory and Assets
Tesla Factory
In May 2010, we entered into an agreement to purchase an existing automobile production facility located in Fremont, California from
NUMMI, which is a joint venture between Toyota, and Motors Liquidation Company, the owner of selected assets of General Motors. In
October 2010, we completed the purchase and received title to the facility and land. The total cash paid was $42.0 million. The purchase totals
210 acres, or approximately 55% of the land at the site, and includes all of the manufacturing facilities located thereon. In October 2010, we and
NUMMI amended the facility purchase agreement to include the transfer to us of certain operating permits, or emission credits, for additional
consideration of $6.5 million. We completed the transfer of these permits in October 2010. We intend to use the facility and manufacturing
assets for the production of our Model S vehicle and to build our future vehicles.
NUMMI has previously identified environmental conditions at the Fremont site which affect soil and groundwater, and is currently
undertaking efforts to address these conditions. Although we have been advised by NUMMI that it has documented and managed the
environmental issues, we cannot determine with certainty the total potential costs to remediate pre-existing contamination. Based on
management’s best estimate, we estimated the fair value of the environmental liabilities that we assumed to be $5.3 million. The fair value of
these liabilities was determined based on an expected value analysis of the related potential costs to investigate, remediate and manage various
environmental conditions that were identified as part of NUMMI’s facility decommissioning activities as well as our own diligence efforts. As
NUMMI continues with its decommissioning activities and we continue with our construction and operating activities, it is reasonably possible
that our estimate of environmental liabilities may change materially. We have reached an agreement with NUMMI in terms of how we and
NUMMI will take responsibility for any costs related to governmentally
-required remediation activities for contamination that existed prior to
the completion of the facility and land purchase for any known or unknown environmental conditions (see Note 15).
The purchase consideration for the Tesla Factory located in Fremont, California consisted of cash paid of $48.5 million and liabilities
assumed of $5.3 million for an aggregate purchase price of $53.8 million. The aggregate purchase price of $53.8 million was allocated to land,
building, site improvements and emission credits based on their relative fair values as the total estimated fair values of these assets were greater
than the total purchase price. The following table summarizes the allocation of the purchase price to the tangible and intangible assets purchased
as of the date of purchase (in thousands):
Building and site improvements are classified within construction in progress and together with land, are recorded in property, plant and
equipment, net, on the consolidated balance sheet. The estimated fair value of land was determined using the market approach. Although the
market approach compares the subject asset purchase to similar transactions which would otherwise classify these inputs within Level II of the
fair value hierarchy, adjustments we made to comparable sales both qualitatively and quantitatively caused us to classify these inputs within
Level III of the fair value hierarchy. The fair value of the building and site improvements were estimated using the cost approach and therefore,
the inputs are classified within Level III of the fair value hierarchy. Incremental due diligence costs of $0.7 million related to the purchase of the
land have been capitalized to land.
Emission credits are classified as intangible assets and are recorded in other noncurrent assets on the consolidated balance sheet. The
estimated fair value of emission credits was determined using market data related to traded emission credits and as such, these inputs are
classified within Level I of the fair value
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Building and site improvements
$
13,556
Land
25,736
Emission credits
14,508
$
53,800