Tesla 2014 Annual Report Download - page 51

Table of Contents
We may face regulatory limitations on our ability to sell vehicles directly or over the internet which could materially and adversely affect
our ability to sell our electric vehicles.
We sell our vehicles from our Tesla stores as well as over the internet. We may not be able to sell our vehicles through this sales model in
each state in the United States as many states have laws that may be interpreted to prohibit internet sales by manufacturers to residents of the
state or to impose other limitations on this sales model, including laws that prohibit manufacturers from selling vehicles directly to consumers
without the use of an independent dealership or without a physical presence in the state. In certain states in which we are not able to obtain dealer
licenses, we have worked with state regulators to open galleries, which are locations where potential customers can view our vehicles but are not
full retail locations. It is possible that a state regulator could later determine that the activities at our gallery constitute unlicensed sales of motor
vehicles.
In many states, the application of state motor vehicle laws to our specific sales model is largely untested under state motor vehicle industry
laws and is being determined by a fact specific analysis of numerous factors, including whether we have a physical presence or employees in the
applicable state, whether we advertise or conduct other activities in the applicable state, how the sale transaction is structured, the volume of
sales into the state, and whether the state in question prohibits manufacturers from acting as dealers. As a result of the fact specific and largely
untested nature of these issues, and the fact that applying these laws intended for the traditional automobile distribution model to our sales model
allows for some interpretation and discretion by the regulators, the manner in which the applicable authorities are applying their state laws to our
distribution model continues to be difficult to predict. Laws in some states have limited our ability to obtain dealer licenses from state motor
vehicle regulators and may continue to do so.
In addition, decisions by regulators permitting us to sell vehicles may be subject to challenges as to whether such decisions comply with
applicable state motor vehicle industry laws. For example, in October 2012, vehicle dealer associations in New York and Massachusetts filed
lawsuits to revoke the dealer license issued to Tesla Motors New York in New York and to limit the business activity of Tesla Motors MA, Inc.
in Massachusetts. These lawsuits have been dismissed, reinforcing our continuing belief that state laws were not designed to prevent our
distribution model. A similar litigation was recently filed in the state of Ohio. Possible additional challenges in other states, if successful, could
restrict or prohibit our ability to sell our vehicles to residents in such states. In some states, there have also been legislative efforts by vehicle
dealer associations to propose bills that, if enacted, would prevent us from obtaining dealer licenses in their states given our current sales model.
We are also registered as both a motor vehicle manufacturer and dealer in Canada, Australia, and Japan, and have obtained licenses to sell
vehicles in other places such as Hong Kong and China. Furthermore, while we have performed an analysis of the principal laws in the European
Union relating to our distribution model and believe we comply with such laws, we have not performed a complete analysis in all foreign
jurisdictions in which we may sell vehicles. Accordingly, there may be laws in jurisdictions we have not yet entered or laws we are unaware of
in jurisdictions we have entered that may restrict our sales or other business practices. Even for those jurisdictions we have analyzed, the laws in
this area can be complex, difficult to interpret and may change over time.
Regulatory limitations on our ability to sell vehicles could materially and adversely affect our ability to sell our electric vehicles.
We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to
incur substantial costs.
Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that
would prevent, limit or interfere with our ability to make, use, develop, sell or market our vehicles or components, which could make it more
difficult for us to operate our business. From time to time, we may receive inquiries from holders of patents or trademarks regarding their
proprietary rights. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such
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