Tesla 2014 Annual Report Download - page 98

Table of Contents
Automotive Sales
Automotive sales consisted of the following for the periods presented (in thousands):
Automotive sales consist primarily of revenue earned from the sales of the Model S, Tesla Roadster, vehicle service, and vehicle options,
accessories and destination charges as well as sales of regulatory credits. Automotive sales also consist of revenue earned from the sales of
electric vehicle powertrain components and systems, such as battery packs and drive units, to other automotive manufacturers. 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 the consolidated balance sheets.
In regards to the sale of Model S and the Tesla Roadster, revenue is generally recognized when all risks and rewards of ownership are
transferred to our customers. In certain circumstances, we may deliver a vehicle to a customer without all of the options ordered by the customer
if the options do not limit the functionality of the vehicle. In such cases, we will continue to defer the related revenue based on the undelivered
item’s fair value, as evidenced by the contractual price of the option in stand-alone transactions, where available, or using the selling price
hierarchy where such prices do not exist. Additionally, if a customer purchases a vehicle option that requires us to provide services in the future,
we will defer the related revenue based on the undelivered items’
fair value and recognize the associated revenue over our expected performance
period.
While the sale of vehicle option may take place separately from a vehicle sale, they are often part of a single vehicle sales agreement
resulting in multiple element arrangements. To determine the appropriate accounting for recognition of our revenue, we consider 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 also
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 generally
been able to establish the fair value for each of the deliverables within these 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. In the
case of access to our Supercharger network and connectivity, we use our best estimate of selling price and TPE, respectively, to allocate fair
value to the deliverables to be recognized over our expected performance period. As of December 31, 2013, we had deferred $10.3 million
related to access to our Supercharger network and $0.7 million related to connectivity.
Resale Value Guarantee
In April 2013, we began offering a resale value guarantee to all customers who purchased a Model S in the United States and financed their
vehicle through one of our specified commercial banking partners, and in October 2013, we introduced this program in Canada. Under the
program, Model S customers have the option of selling their vehicle back to us during the period of 36 to 39 months after delivery for a pre-
determined resale value. Although we receive the full amount of cash for the vehicle sales price at delivery, we account for transactions under
the resale value guarantee program as operating leases. Accordingly, we defer and amortize to
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Year Ended December 31,
2013
2012
2011
Vehicle, options and related sales
$
1,952,684
$
354,344
$
101,708
Powertrain component and related sales
45,102
31,355
46,860
Total automotive sales
$
1,997,786
$
385,699
$
148,568