Tesla 2012 Annual Report Download - page 78

Table of Contents
Revenue Recognition
Automotive Sales
We recognize automotive sales revenue from sales of the Tesla Roadster, including vehicle options, accessories and destination charges,
vehicle service and sales of zero emission vehicle, or ZEV credits. We also recognize automotive sales revenue from the sales of electric vehicle
powertrain components, such as battery packs and battery chargers, to other manufacturers. We recognize revenue when (i) persuasive evidence
of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) fees are fixed or
determinable; and (iv) collection is reasonably assured.
Automotive sales consist primarily of revenue earned from the sale of vehicles. Sales or other amounts collected in advance of meeting all
of the revenue recognition criteria are not recognized in the consolidated statements of operations and are instead recorded as deferred revenue
on our consolidated balance sheets. Prior to February 2010, we did not provide direct financing for the purchase of the Tesla Roadster although a
third-party lender has provided financing arrangements to our customers in the United States. Under these arrangements we have been paid in
full by the customer at the time of purchase. Starting in February 2010, we began offering a leasing program to qualified customers in the United
States.
Automotive sales also consist of revenue earned from the sales of vehicle options, accessories and destination charges. While these sales
may take place separately from a vehicle sale, they are often part of one vehicle sale agreement resulting in multiple element arrangements.
Contract interpretation is sometimes required to determine the appropriate accounting for recognition of our revenue, including whether the
deliverables specified in the multiple element arrangement should be treated as separate units of accounting, and, if so, how the price should be
allocated among the elements, when to recognize revenue for each element, and the period over which revenue should be recognized. We are
also required to evaluate whether a delivered item has value on a stand-alone basis prior to delivery of the remaining items by determining
whether we have made separate sales of such items or whether the undelivered items are essential to the functionality of the delivered items.
Further, we assess whether we know the fair value of the undelivered items, determined by reference to stand-alone sales of such items.
To date, we have been able to establish the fair value for each of the deliverables within the multiple element arrangements because we sell
each of the vehicles, vehicle accessories and options separately, outside of any multiple element arrangements. As each of these items has stand
alone value to the customer, revenue from sales of vehicle accessories and options are recognized when those specific items are delivered to the
customer. Increased complexity to our sales agreements or changes in our judgments and estimates regarding application of these revenue
recognition guidelines could result in a change in the timing or amount of revenue recognized in future periods.
Effective January 1, 2011, we adopted amended accounting standards issued by the Financial Accounting Standards Board (FASB) for
multiple deliverable revenue arrangements on a prospective basis for applicable transactions originating or materially modified after January 1,
2011. The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires
the allocation of arrangement consideration to each deliverable to be based on the relative selling price. For fiscal 2011 and future periods, when
a sales arrangement contains multiple elements, we allocate revenue to each element based on a selling price hierarchy. The selling price for a
deliverable is based on its vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or
estimated selling price if neither VSOE nor TPE is available. To date, we have been able to establish the fair value for each of the deliverables
within the multiple element arrangements because we sell each of the vehicles, vehicles accessories and options separately, outside of any
multiple element arrangements. Therefore, there were no material differences between total revenue reported and pro forma total revenues that
would have been reported during the year ended December 31, 2011, if the transactions entered into or materially modified after January 1, 2011
were subject to previous accounting guidance.
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