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TESLA MOTORS INC
FORM 10-K
(Annual Report)
Filed 03/03/11 for the Period Ending 12/31/10
Address 3500 DEER CREEK RD
PALO ALTO, CA 94070
Telephone 650-681-5000
CIK 0001318605
Symbol TSLA
SIC Code 3711 - Motor Vehicles and Passenger Car Bodies
Industry Auto & Truck Manufacturers
Sector Consumer Cyclical
http://www.edgar-online.com
© Copyright 2011, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    TESLA MOTORS INC FORM 10-K (Annual Report) Filed 03/03/11 for the Period Ending 12/31/10 Address Telephone CIK Symbol SIC Code Industry Sector 3500 DEER CREEK RD PALO ALTO, CA 94070 650-681-5000 0001318605 TSLA 3711 - Motor Vehicles and Passenger Car Bodies Auto & Truck Manufacturers Consumer ...

  • Page 2
    ... Deer Creek Road Palo Alto, California (Address of principal executive offices) 94304 (Zip Code) (650) 681-5000 (Registrant's telephone number, including area code) Title of each class Name of each exchange on which registered Common Stock, $0.001 par value The NASDAQ Stock Market LLC Securities...

  • Page 3
    ...Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of...

  • Page 4
    ... of the Tesla Roadster. We sell and service our Tesla Roadster though our company-owned sales and service network. Our intent is to offer a compelling customer experience while achieving operating efficiencies, better control costs of inventory, manage warranty service and pricing, maintain and...

  • Page 5
    ... designing the Model S to offer a variety of range options from 160 miles to 300 miles on a single charge, as projected using the EPA's combined two-cycle city/highway test. The EPA has announced its intention to develop and establish new energy efficiency testing methodologies for electric vehicles...

  • Page 6
    ... product offerings. Energy Efficiency and Cost of Ownership . We believe our Tesla Roadster offers and our planned Model S will offer consumers an attractive cost of ownership when compared to similar internal combustion engine or hybrid electric vehicles. Using only a single electric powertrain...

  • Page 7
    ...new energy efficiency testing methodologies for electric vehicles, which we believe could result in a significant decrease to the advertised ranges of all electric vehicles, including ours. The Tesla Roadster reportedly set a new world distance record of 313 miles on a single charge for a production...

  • Page 8
    ...alternative fuel vehicles. We delivered our first right-hand drive model of the Tesla Roadster in January 2010 and have since delivered righthand drive Roadsters into key markets such as United Kingdom, Japan, Hong Kong, and Australia. In July 2010, a year after the launch of Roadster 2, we released...

  • Page 9
    ... list price will be competitive with other premium vehicles. We have not finalized pricing for the 230 or 300 mile range variants of the Model S. We are designing the Model S to provide a lower cost of ownership as compared to other vehicles in its class. We consider the purchase price, cost of fuel...

  • Page 10
    ... facility in Fremont, California. We intend to offer this vehicle at a lower price point and expect to produce it at higher volumes than our planned Model S. We expect that this vehicle will be produced a few years after the introduction of the Model X. Powertrain Development and Sales In addition...

  • Page 11
    ... electronics module, a motor, a gearbox and the control software which enables the components to operate as a system. We designed each of these major elements for our Tesla Roadster and plan to use much of this technology in the Model S and our future electric vehicles. Our powertrain and battery...

  • Page 12
    ... new battery cells as they become commercially viable, and thereby optimize battery pack system performance and cost for our current and future vehicles. We believe our ability to change battery cell chemistries and vendors while retaining our existing investments in software, electronics, testing...

  • Page 13
    ...For the Model S, we plan to offer a high-voltage fast charge option that will enable the vehicle to charge from higher amperage, DC commercial charging stations that we anticipate may be available in the future. Motor Our powertrains currently use custom designed 3-phase induction motors. We believe...

  • Page 14
    ... will help accelerate the development of new products and allow for faster introduction of product changes. As of December 31, 2010, we had 170 employees in our vehicle design and engineering departments. Sales and Marketing Company-Owned Sales We market and sell cars directly to consumers. Until we...

  • Page 15
    ... purchase price of the vehicle. For vehicles purchased directly from our showrooms, no deposit is required. For our 2011 model year Tesla Roadsters manufactured to specification, our current purchase agreement requires the payment of an initial deposit, which varies based on the country of purchase...

  • Page 16
    ... markets. Within countries that are covered by our warranty agreement, we offer at home service through our mobile service technicians known as the Tesla Rangers. We charge customers a fixed rate per mile for our Tesla Rangers technicians' return trip from the location of the customer's vehicle...

  • Page 17
    ... addition to developing our planned Model S and future vehicle manufacturing facility in Fremont, California, we are currently designing and manufacturing lithium-ion battery packs, electric motors, gearboxes and components both for our vehicles and for our original equipment manufacturer customers...

  • Page 18
    ...and production capability for these activities in our Palo Alto facility. We intend to manufacture the powertrain components for the Model S and for the Toyota RAV 4 EV at this facility and at our planned Fremont manufacturing facility. Supply Chain The Tesla Roadster uses over 2,000 purchased parts...

  • Page 19
    ... ensure product developers, supplier chain managers, and production controllers have the product information they need. As of December 31, 2010, we had 213 employees in our manufacturing department. Customers and Selected Relationships We currently sell our cars primarily to individual customers. We...

  • Page 20
    ...expected term of our performance. In connection with the Toyota RAV4 program, in October 2010, we entered into a Phase 1 contract services agreement with Toyota for the development of a validated powertrain system, including a battery, power electronics module, motor, gearbox and associated software...

  • Page 21
    ... Cars Limited Lotus currently provides us with assembly and other manufacturing services. Although we complete the final assembly of our Tesla Roadster, the initial body and chassis assembly processes occur at a Lotus facility in Hethel, England where our staff works closely with Lotus. For vehicles...

  • Page 22
    ...milestones relating to the design and development of the Model S and the planned Model S manufacturing facility. We will be required to maintain, at all times, available cash and cash equivalents of at least 105% of the amounts required to fund such commitment, after taking into account current cash...

  • Page 23
    ... event of a change of control, including a failure of Elon Musk, our Chief Executive Officer, Product Architect and Chairman, and certain of his affiliates, at any time prior to one year after we complete the project relating to the Model S Facility, to own at least 65% of capital stock held by Mr...

  • Page 24
    ... Alto powertrain production facility, and (iii) to expand our current Tesla Roadster assembly operations at our Menlo Park facility. As of December 31, 2010, we have received the tax exemption for approximately $34.8 million in asset purchases. California Air Resources Board's Zero Emissions Vehicle...

  • Page 25
    ...000 vehicles per year, and have no plans to commence testing our Tesla Roadsters for the WVTA to assure compliance with the European Union requirements to permit unlimited sales. Similarly, Australia and Japan have additional testing regulations applicable to high volume manufacturers. We also plan...

  • Page 26
    ... Act requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer's suggested retail price, optional equipment and pricing. In addition, the Act allows inclusion of city and highway fuel economy ratings, as determined by EPA, as well as crash test ratings as...

  • Page 27
    ...we anticipate accepting the depleted battery from the customer without any additional charge. Automobile Manufacturer and Dealer Regulation State law regulates the manufacture, distribution and sale of automobiles, and generally requires motor vehicle manufacturers and dealers to be licensed. We are...

  • Page 28
    ...time. In addition to licensing laws, specific laws and regulations in each of the states (and their interpretation by regulators) may limit or determine how we sell, market, advertise, and otherwise solicit sales, take orders, take reservations and reservation payments, deliver, and service vehicles...

  • Page 29
    ... on-board energy storage system (battery pack or fuel cell) which is refueled directly from an electricity source. Both the Tesla Roadster and the Model S are examples of electric vehicles. Plug-in Hybrid Vehicles are vehicles powered by both a battery pack with an electric motor and an internal...

  • Page 30
    ... manufacturing, 212 in powertrain research and development, 121 in sales and marketing, 170 in vehicle design and engineering, 79 in service and 104 in general and administration. Of all of our employees, 648 are located in our Northern California offices, 106 are located at our Los Angeles facility...

  • Page 31
    ... our revenues principally from sales of the Tesla Roadster and related sales of zero emission vehicle credits, and from electric powertrain development services and sales. We intend in the longer term to derive substantial revenues from the sales of our planned Model S sedan electric vehicle which...

  • Page 32
    ... general and performance electric vehicles specifically, we will be expected to upgrade or adapt our vehicles and introduce new models in order to continue to provide vehicles with the latest technology. To date, we have limited experience simultaneously designing, testing, manufacturing and selling...

  • Page 33
    ...production model for the Tesla Roadster. Our future business depends in large part on our ability to execute on our plans to develop, manufacture, market and sell our planned Model S electric vehicle. To date, our revenues have been principally derived from the sales of our Tesla Roadster. The Tesla...

  • Page 34
    ... out of our planned Model S manufacturing facility in Fremont, California, could materially damage our brand, business, prospects, financial condition and operating results. Automobile manufacturers often experience delays in the design, manufacture and commercial release of new vehicle models. We...

  • Page 35
    ...additional costs of developing and producing an electric powertrain that has comparable performance to a traditional gasoline engine in terms of range and power, inexperience with servicing electric vehicles, regulations associated with the transport of lithium-ion batteries and unproven high-volume...

  • Page 36
    ... We expect the rate at which we will incur losses to increase significantly in future periods from current levels as we design, develop and manufacture our planned Model S; design, develop and manufacture components of our electric powertrain; develop and equip our manufacturing facility to produce...

  • Page 37
    ... we expect, our business, prospects, financial condition and operating results will be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and...

  • Page 38
    ... about and the actual cost of alternative fuel; and macroeconomic factors. In addition, recent reports have suggested the potential for extreme temperatures to affect the range or performance of electric vehicles. Based on internal testing, we estimate that our Tesla Roadster would have a 5-10...

  • Page 39
    ...to buy additional cars from us which could also harm our business and prospects. Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for our electric vehicles. Significant developments in alternative technologies, such...

  • Page 40
    ... dealer franchise system. For example, we will not be able to utilize long established sales channels developed through a franchise system to increase our sales volume, which may harm our business, prospects, financial condition and operating results. Moreover, we will be competing with companies...

  • Page 41
    ...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. A large amount of our Tesla Roadster sales revenue has been due to the fulfillment of orders from reservations taken in prior years. As of...

  • Page 42
    ... price point and in higher volumes than our planned Model S as we currently intend, if at all. Our failure to address additional market opportunities would harm our business, prospects, financial condition and operating results. Any changes to the Federal Trade Commission's electric vehicle range...

  • Page 43
    ... vehicles. For example, in December 2010, General Motors introduced the Chevrolet Volt, which is a plug-in hybrid vehicle that operates purely on electric power for a limited number of miles, at which time an internal combustion engine engages to recharge the battery. Moreover, it has been reported...

  • Page 44
    ... and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in a further downward price pressure and adversely affect our business, financial condition...

  • Page 45
    ... planned Model S and electric powertrain components, build and equip new manufacturing facilities to produce the Model S and electric powertrain components, open new Tesla stores with maintenance and repair capabilities, incur costs for warranty repairs or product recalls, if any, increase our sales...

  • Page 46
    ... from government or financial institutions. This capital will be necessary to fund our ongoing operations, continue research, development and design efforts including those for our planned Model X vehicle, establish sales and service centers, improve infrastructure such as expanded battery assembly...

  • Page 47
    ... our business and sell additional Tesla Roadsters as well as Model S sedans could be impaired. We have very limited experience servicing our vehicles. As of December 31, 2010 we had sold only approximately 1,500 Tesla Roadsters to customers, primarily in the United States and Europe. We do not plan...

  • Page 48
    ...but to date have limited experience with separate sales and service locations within a geographic market. We will need to open additional Tesla stores with service capabilities and standalone service locations, as well as hire and train significant numbers of new employees to staff these centers and...

  • Page 49
    ... we intend to offer a limited number of Tesla Roadsters for sale in 2012. We anticipate that our next generation Tesla Roadster, which we plan to launch at least one year after we begin production of the Model S, will be manufactured in our own facilities. Pursuant to the supply agreement with Lotus...

  • Page 50
    ... we expect that a number of components for the Model S will be single sourced. We have in the past experienced source disruptions in our supply chains which have caused delays in our production process and we may experience additional delays in the future. Changes in business conditions, wars...

  • Page 51
    ... electric vehicles could prevent us from fulfilling customer orders in a timely fashion which could result in negative publicity, damage our brand and have a material adverse effect on our business, prospects, financial condition and operating results. In addition, since we have no fixed pricing...

  • Page 52
    ... able to retain our current customers or attract new customers, and our business and prospects, operating results and financial condition would suffer as a result. In addition, because our performance electric vehicles to date have been sold largely through word of mouth marketing efforts, we may be...

  • Page 53
    ... payments. Resolution of any inquiry may also involve restructuring certain aspects of the reservation program. In addition, California is currently the only jurisdiction in which we have licenses to both manufacture and sell our vehicles so any limitation imposed on our operations in California...

  • Page 54
    ... latter half of 2010, we began offering a leasing alternative in Canada through our Canadian subsidiary. Under our program, we currently permit qualifying customers to lease the Tesla Roadster for 36 months, after which time they have the option of either returning the vehicle to us or purchasing it...

  • Page 55
    ... automobile markets and our business, prospects, financial condition and operating results. Our growth depends in part on the availability and amounts of government subsidies and economic incentives for alternative fuel vehicles generally and performance electric vehicles specifically. For example...

  • Page 56
    ...our Palo Alto powertrain production facility, and to expand our current Tesla Roadster assembly operations at our Menlo Park facility. If we fail to meet these conditions, we would be unable to take full advantage of this tax incentive and our financial position could be harmed. In addition, certain...

  • Page 57
    ... future prospects. In October 2010, we and Toyota entered into an agreement to develop a validated electric powertrain for the Toyota RAV4. We have also previously announced our intention for Tesla to receive Toyota's support with sourcing parts and production and engineering expertise for the Model...

  • Page 58
    ... key technology, sales, marketing and support personnel and any failure to do so could adversely impact our business, prospects, financial condition and operating results. We have in the past and may in the future experience difficulty in retaining members of our senior management team. In addition...

  • Page 59
    ... to Tesla. Mr. Musk also currently serves as Chief Executive Officer and Chief Technical Officer of Space Exploration Technologies, a developer and manufacturer of space launch vehicles, and Chairman of SolarCity, a solar equipment installation company. In addition, our financing agreements with...

  • Page 60
    ... the members of our current senior management team have limited or no prior experience in the automobile or electric vehicle industries. We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in building our manufacturing facilities...

  • Page 61
    ... business and operating results. Our performance electric vehicles, the sale of motor vehicles in general and the electronic components used in our vehicles are subject to substantial regulation under international, federal, state, and local laws. We have incurred, and expect to incur in the future...

  • Page 62
    .... Regulations related to the electric vehicle industry and alternative energy are currently evolving and we face risks associated with changes to these regulations such as the imposition of a carbon tax or the introduction of a cap-and-trade system on electric utilities could increase the cost of...

  • Page 63
    ... and business and inhibit or prevent commercialization of other future vehicle candidates which would have material adverse effect on our brand, business, prospects and operating results. We maintain product liability insurance for all our vehicles with annual limits of approximately $21 million on...

  • Page 64
    ... systems, battery, powertrain and brake system. We record and adjust warranty reserves based on changes in estimated costs and actual warranty costs. However, because we only began delivering our first Tesla Roadster in early 2008, we have extremely limited operating experience with our vehicles...

  • Page 65
    ...; the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable; current and future competitors may independently develop similar technology, duplicate our vehicles or design new vehicles in...

  • Page 66
    ... similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating...

  • Page 67
    ...on our business, financial condition, results of operations and stock price. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim...

  • Page 68
    ...in the future, it could harm our brand image, business, prospects, financial condition and operating results. Risks Related to the Ownership of our Common Stock We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies...

  • Page 69
    ...or increase the prices of our products or services. Additionally, if these requirements divert our management's attention from other business concerns, they could have a material adverse effect on our business, prospects, financial condition and operating results. As a public company, we also expect...

  • Page 70
    ... of our total outstanding shares are held by insiders and may be sold on a stock exchange in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock. The market price of...

  • Page 71
    ... of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. Our current agreements with Blackstar, an affiliate...

  • Page 72
    ... our headquarters and powertrain activities. The Palo Alto facility serves as our production facility for the electric vehicle components we utilize in the Tesla Roadster and for our powertrain component and systems development and sales. In May 2010, we entered into an agreement to purchase an...

  • Page 73
    ... covenants under our loan facility with the United States Department of Energy, which restrict or limit our ability to pay dividends, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may...

  • Page 74
    ... total return for our common stock, the NASDAQ Composite Index, and a group of all public companies sharing the same SIC code as us which is SIC code 3711, "Motor Vehicles and Passenger Car Bodies" (Motor Vehicles and Passenger Car Bodies Public Company Group). Such returns are based on historical...

  • Page 75
    .... Following the sale of the shares in connection with the closing of the IPO, the offering terminated. We paid to the underwriters underwriting discounts and commissions totaling approximately $13.1 million in connection with the offering. In addition, we incurred additional costs of approximately...

  • Page 76
    ...per share data) 2006 Consolidated Statements of Operations Data: Revenues: Automotive sales Development services Total revenues Cost of revenues (1): Automotive sales Development services Total cost of revenues Gross profit (loss) Operating expenses (1): Research and development (net of development...

  • Page 77
    ...the Department of Energy (DOE) in connection with the closing of our DOE loan facility to purchase shares of our Series E convertible preferred stock. This convertible preferred stock warrant became a warrant to purchase shares of our common stock upon the closing of our initial public offering (IPO...

  • Page 78
    ...the latter half of 2010, we began offering a leasing alternative in Canada. Under our program, we permit qualifying customers to lease the Tesla Roadster for 36 months, after which time they have the option of either returning the vehicle to us or purchasing it for a predetermined residual value. We...

  • Page 79
    ... over total revenues of $111.9 million in 2009. We are designing our second vehicle, the planned Model S, for a significantly broader customer base than the Tesla Roadster and plan to manufacture the Model S in higher volumes than our current volumes for the Tesla Roadster. Model S development...

  • Page 80
    ... loan facility to finance up to 91.5% of the costs eligible for funding for the development of, and to build out the manufacturing facility for our Model S sedan. In July 2010, we closed our initial public offering (IPO) pursuant to which we sold 11,880,600 shares of our common stock and received...

  • Page 81
    ... to be at its highest level in 2011, as we plan to purchase much of the tooling and manufacturing equipment required for production. Inclusive of non-Model S related investments, aggregate capital expenditures for 2011 are expected to be in the range of $190 million to $215 million. The majority of...

  • Page 82
    ...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...

  • Page 83
    .... Development Services Revenue from development services arrangements consist of revenue earned from the development of electric vehicle powertrain components for other automobile manufacturers, including the design and development of battery packs and chargers to meet a customer's specifications...

  • Page 84
    ... of future selling prices or production costs change, material changes to these reserves may be required. Further, a small change in our estimates may result in a material charge to our reported financial results. Warranties We accrue warranty reserves at the time a vehicle or powertrain component...

  • Page 85
    ... the time-to-vesting and the contractual life of the options. Our expected volatility is derived from the historical volatilities of several unrelated public companies within industries related to our business, including the automotive OEM, automotive retail, automotive parts and battery technology...

  • Page 86
    ... a key element of our current business plan-the successful launch and commercialization of the Model S-the Board of Directors approved additional options totaling an additional 4% of our fully-diluted shares prior to such grant as of December 4, 2009, with a vesting schedule based entirely on the...

  • Page 87
    ... the fact that we have been selling the Tesla Roadster since 2008, that we began selling powertrain components in the quarter ended December 31, 2009 and our anticipation of Model S production in mid-2012. Under the market approach, the total enterprise value of the company is estimated by comparing...

  • Page 88
    ... date and any change in fair value is recognized as a component of other expense, net on the consolidated statements of operations. In January 2010, we issued a warrant to the DOE in connection with the closing of the DOE Loan Facility to purchase shares of our Series E convertible preferred stock...

  • Page 89
    ... Loan Facility and market interest rates is derived from the credit spread data of several unrelated public companies within industries related to our business. As the average simulated value of our stock warrant increases relative to the credit spread of our comparator companies, the fair value of...

  • Page 90
    ... beginning January 1, 2011 with early application permitted. We are currently evaluating the impact of the standard on our consolidated financial statements. In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures which requires a reporting entity to...

  • Page 91
    ... Automotive sales Development services Total revenues Cost of revenues Automotive sales Development services Total cost of revenues Gross profit (loss) Operating expenses Research and development (net of development compensation of $23,249 for the year ended December 31, 2009) Selling, general and...

  • Page 92
    ..., Tesla Motors Leasing, Inc., qualifying customers are permitted to lease the Tesla Roadster for 36 months, after which time they have the option of either returning the vehicle to us or purchasing it for a pre-determined residual value. We account for these leasing transactions as operating leases...

  • Page 93
    ... Toyota and other automobile manufacturers. Additionally, we expect our development services revenue may fluctuate in future periods based on the timing of cash receipts as compared to the timing of meeting revenue recognition criteria. Cost of Revenues and Gross Profit Cost of revenues for the year...

  • Page 94
    ...Tesla Roadster and limited economies of scale from low vehicle production volumes. Gross profit for the year ended December 31, 2009 of $9.5 million benefited from higher per unit revenue and reduced manufacturing cost from increased volume and component re-design. We expect our development services...

  • Page 95
    ... build as well as powertrain development activities; a $10.7 million increase in professional and outside services costs related to Model S engineering, design and testing activities; and a $1.6 million increase in office, information technology and facilities-related costs to support the growth...

  • Page 96
    ...increase in office, information technology and facilities-related costs to support the growth of our business, including the opening of new stores and service locations and our transition to our Palo Alto headquarters; a $3.2 million increase in travel and expenses related to our sales and marketing...

  • Page 97
    ... launch of the Tesla Roadster in Europe in July 2009 and the ensuing increase in taxable income in our international jurisdictions in subsequent periods. Additionally, during the year ended December 31, 2009, we recognized research and development benefits from our foreign operations which decreased...

  • Page 98
    ... sales and service centers, improve infrastructure such as expanded battery assembly facilities, and to make the investments in tooling and manufacturing capital required to introduce the Model S. The acceleration of the development of future vehicles, investments in new technologies, increased...

  • Page 99
    .... In addition, events of default include a failure of Elon Musk, our Chief Executive Officer, Product Architect and Chairman, and certain of his affiliates, at any time prior to one year after we complete the project relating to the Model S Facility, to own at least 65% of capital stock held by...

  • Page 100
    ... owned subsidiary Tesla Motors Leasing, Inc., qualifying customers are permitted to lease the Tesla Roadster for 36 months, after which time they have the option of either returning the vehicle to us or purchasing it for a pre-determined residual value. When compared to our sales of vehicles, our...

  • Page 101
    ... million increase in reservation payments, partially offset by a $3.2 million increase in accounts receivable. In October 2010, we entered into a Phase 1 contract services agreement with Toyota for the development of a validated powertrain system, including a battery, power electronics module, motor...

  • Page 102
    .... Deferred revenues increased primarily from customer payments we collected for certain Tesla Roadsters that we had delivered but as to which we had unfulfilled obligations related to powertrain upgrades. We received cash from Daimler of $8.6 million for our development efforts during the year ended...

  • Page 103
    ... our planned Model S manufacturing, as well as $40.2 million primarily related to other Model S capital expenditures, our transition to and build out of our powertrain manufacturing facility and corporate headquarters in Palo Alto, California, and purchases of manufacturing equipment. Our purchase...

  • Page 104
    ... environmental conditions at the Fremont site. At that point in time, we have agreed to indemnify, defend, and hold harmless NUMMI from all liability and we have released NUMMI for any known or unknown claims except for NUMMI's obligations for representations and warranties under the agreement. As...

  • Page 105
    ...primarily due to the contract with Lotus Cars Limited, or Lotus, in the United Kingdom to manufacture the Tesla Roadster vehicles and gliders and other parts sourced in Europe. In addition, our international sales and marketing operations incur expenses denominated in foreign currencies, principally...

  • Page 106
    ... ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Tesla Motors, Inc. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm Financial Statements Consolidated Balance Sheets as of December 31, 2010 and 2009 Consolidated Statements of Operations for...

  • Page 107
    ... accompanying consolidated balance sheets and the related consolidated statements of operations, of convertible preferred stock and stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Tesla Motors, Inc. and its subsidiaries at December...

  • Page 108
    ... Tesla Motors, Inc. Consolidated Balance Sheets (in thousands, except share and per share data) December 31, 2010 Assets Current assets Cash and cash equivalents Restricted cash Accounts receivable Inventory Prepaid expenses and other current assets Total current assets Operating lease vehicles...

  • Page 109
    ... Tesla Motors, Inc. Consolidated Statements of Operations (in thousands, except share and per share data) 2010 Year Ended December 31, 2009 2008 Revenues Automotive sales Development services Total revenues Cost of revenues Automotive sales Development services Total cost of revenues Gross profit...

  • Page 110
    ...Tesla Motors, Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) (in thousands, except share and per share data) Convertible Preferred Stock Shares Amount Accumulated Deficit Total Stockholders' Equity (Deficit) Common Stock Shares Amount Additional Paid...

  • Page 111
    ... Deferred development compensation Deferred revenue Reservation payments Other long-term liabilities Net cash used in operating activities Cash flows from investing activities Payments related to acquisition of Fremont manufacturing facility and related assets Purchases of property and equipment...

  • Page 112
    ... million in cash and cash equivalents. We are currently selling the Tesla Roadster automobile and are developing the Model S sedan. To the extent we do not meet our planned sales volumes or future product releases or our existing cash and cash equivalents balances are insufficient to fund our future...

  • Page 113
    ... million in the three months ended June 30, 2010. We considered the impact of the error on reported operating expenses and trends in operating results and determined that the impact of the error was not material to previously reported financial information as well as those related to the year ended...

  • Page 114
    ... three months prior to production of a Tesla Roadster manufactured to specification, the reservation payment becomes nonrefundable when the customer enters into a purchase agreement. In a limited number of circumstances, we may deliver a vehicle to a customer without all of the options ordered by...

  • Page 115
    ... the Extended Service Plan and have not yet recognized any related revenues. Additionally, within three months of purchasing a vehicle, we provide customers with a one-time option to replace the battery packs in their vehicles at any time after the expiration of the New Vehicle Limited Warranty but...

  • Page 116
    ... stock or additional paid-in capital, as applicable. Cash and Cash Equivalents All highly liquid investments with an original or remaining maturity of three months or less at the date of purchase are considered to be cash equivalents. We currently deposit excess cash primarily in money market funds...

  • Page 117
    ... 31, 2009 of total accounts receivable, respectively. We perform credit evaluations of our customers' financial condition and, generally, require no collateral. A number of components that meet our manufacturing requirements are available only from single source suppliers. For example, Lotus is the...

  • Page 118
    ... design tools, license expenses related to intellectual property, supplies and services, depreciation and other occupancy costs. Also included in research and development are development services costs incurred, if any, prior to the finalization of agreements with our development services customers...

  • Page 119
    ...compensation expense for costs related to all share-based payments, including stock options. The fair value of share-based payment awards are estimated on the grant date using an option pricing model. Stock-based compensation expense is recognized on a straightline basis over the service period, net...

  • Page 120
    ... all vehicle and production powertrain component sales, and we accrue warranty reserves at the time a vehicle is delivered to a customer. Warranty reserves include management's best estimate of the projected costs to repair or to replace any items under warranty, based on actual warranty experience...

  • Page 121
    ... January 1, 2011 with early application permitted. We do not expect the adoption of the guidance to have a material impact on our consolidated financial statements. In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures which requires a reporting entity...

  • Page 122
    ... of $30.3 million related to building, site improvements, manufacturing assets and spare parts, were purchased as part of our facility in Fremont, California (see Note 4). Capitalized interest on construction in progress is included in property, plant and equipment. During the year ended December 31...

  • Page 123
    ... 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 planned Model S vehicle and to build our future vehicles. NUMMI...

  • Page 124
    ... market data related to traded emission credits and as such, these inputs are classified within Level I of the fair value hierarchy. The utility of the emission credits are related to the operation of the purchased facility and therefore, will be amortized over the same useful life. As the facility...

  • Page 125
    ...purchase price of the vehicle at the time the customer selected their vehicle specifications. During the three months ended June 30, 2010, we changed our policy to require nonrefundable deposits for Tesla Roadsters manufactured to specification at the time a customer enters into a purchase agreement...

  • Page 126
    ... on the earlier of March 30, 2011 or an initial public offering. As a result of our IPO which closed on July 2, 2010, these warrants were net exercised for 184,359 shares of common stock. The fair value of these warrants as of July 2, 2010 in the amount of $3.6 million was recorded in equity on the...

  • Page 127
    ... milestones relating to the design and development of the Model S and the planned Model S manufacturing facility. Certain advances will be subject to additional conditions to draw-down related to the site on which the applicable project is located. Additionally, the DOE Loan Facility provides...

  • Page 128
    .... In addition, events of default include a failure of Elon Musk, our Chief Executive Officer, Product Architect and Chairman, and certain of his affiliates, at any time prior to one year after we complete the project relating to the Model S Facility, to own at least 65% of capital stock held by...

  • Page 129
    ...the number of shares ultimately issuable under the warrants will vary depending on the average outstanding balance of the loan during the contractual vesting period, and decisions to prepay would be influenced by our future stock price as well as the interest rates on our loans in relation to market...

  • Page 130
    ... Public Offering and Toyota Concurrent Private Placement On June 28, 2010, our registration statement on Form S-1 for our IPO was declared effective by the SEC. The IPO closed on July 2, 2010, at which time we sold 11,880,600 shares of our common stock and received cash proceeds of $188.8 million...

  • Page 131
    ...of stock options and stock purchase rights to employees, directors and consultants of Tesla. Options granted under the Plan may be either incentive options or nonqualified stock options. Incentive stock options may be granted only to our employees including officers and directors. Nonqualified stock...

  • Page 132
    ...Plan. These non-employee options outstanding had a weighted average exercise price of $1.80 as of each year end. Additional information regarding all stock options outstanding and exercisable as of December 31, 2010 is summarized below: Options Outstanding Weighted Average Remaining Contractual Life...

  • Page 133
    ... as there was no public market for our common stock. The Board of Directors has determined fair value of the common stock at the time of each grant of options by considering a number of objective and subjective factors including valuation of comparable companies, sales of convertible preferred...

  • Page 134
    ...our current business plan- the successful launch and commercialization of the Model S-the Board of Directors approved an additional option grant to our Chief Executive Officer totaling an additional 4% of our fully-diluted shares prior to such grant as of December 4, 2009, or 3,355,986 stock options...

  • Page 135
    ... plan limitations. The purchase price of the shares on each purchase date is equal to 85% of the lower of the fair market value of our common stock on the first and last trading days of each six-month offering period. Through December 31, 2010, no shares have yet been issued under the ESPP. A total...

  • Page 136
    ...97 December 31, 2010 2009 Deferred tax assets: Net operating loss carry-forwards Research and development credits Deferred revenue Inventory and warranty reserves Depreciation and amortization Accruals and others Total deferred tax assets Valuation allowance Deferred tax liabilities: Undistributed...

  • Page 137
    ...and California purposes. Tax years 2005 to 2010 remain open for examination in other U.S. state and foreign jurisdictions. 12. Information about Geographic Areas We have determined that we operate in one reporting segment which is the design, development, manufacturing and sales of electric vehicles...

  • Page 138
    ... electric vehicle program under which we were performing powertrain development activities since 2008. In May 2009, we entered into an agreement with Daimler related to the development of a battery pack and charger for Daimler's Smart fortwo electric drive. We began development efforts in the year...

  • Page 139
    ... and production of a battery pack and charger for a pilot fleet of its A-Class electric vehicles to be introduced in Europe during 2011. We began providing development services for this program during the three months ended March 31, 2010 and had received an aggregate of $5.5 million in payments...

  • Page 140
    ...Phase 1 contract services agreement with Toyota for the development of a validated powertrain system, including a battery, power electronics module, motor, gearbox and associated software, which will be integrated into an electric vehicle version of the Toyota RAV4. Pursuant to the agreement, Toyota...

  • Page 141
    ... to a supply agreement with Lotus Cars Limited, we are required to purchase a minimum of 2,400 partially assembled vehicles or gliders over the term of the agreement regardless of whether we are able to market and distribute the Tesla Roadster. Based on the foreign exchange rate for the British...

  • Page 142
    ... results of operations data for the years ended December 31, 2010 and 2009 (in thousands, except per share data): March 31 Three months ended June 30 September 30 December 31 2010 Total revenues Gross profit Net loss Net loss per share, basic and diluted 2009 Total revenues Gross profit (loss) Net...

  • Page 143
    ...limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers...

  • Page 144
    Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this Item 10 of Form 10-K that is found in our 2011 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our 2011 Annual Meeting of ...

  • Page 145
    ...to Fifth Amended and Restated Investor's Rights Agreement, dated as of November 2, 2010, between Registrant and certain holders of the Registrant's capital stock named therein Registration Rights Agreement between the United States Department of Energy and the Registrant dated as of January 20, 2010...

  • Page 146
    ... 4.5 Warrant to Purchase Shares of Common Stock issued by the S-1/A Registrant to the United States Department of Energy dated May 21, 2010 Form of Indemnification Agreement between the Registrant and its directors and officers 2003 Equity Incentive Plan Form of Stock Option Agreement under 2003...

  • Page 147
    ....22 January 29, 2010 January 29, 2010 Commercial Lease between the Registrant and The Board of S-1 Trustees of The Leland Stanford Jr. University dated August 6, 2009 Supply Agreement for Products and Services between Lotus S-1 Cars Limited and the Registrant dated July 11, 2005 Amendment No. 1 to...

  • Page 148
    ...†10.29†10.30†10.31†Modification to Terms and Conditions between BorgWarner S-1 TorqTransfer Systems Inc. and the Registrant dated September 22, 2008 ZEV Credits Agreement between American Honda Motor Co., Inc. and the Registrant dated February 12, 2009 S-1/A 10.32†10.32A 333-164593...

  • Page 149
    ... Number Incorporated by Reference Form File No. Filed Herewith Exhibit Description Exhibit Filing Date 10.32C†Second Supplemental ZEV Credits Agreement between American Honda Motor Co., Inc. and the Registrant dated February 8, 2010 Supply Agreement by and among Panasonic Industrial Company...

  • Page 150
    ...thereto in favor of the United States Department of Energy, the Federal Financing Bank and the holders of the notes described therein dated as of January 20, 2010 Development Contract between Daimler AG and Tesla Motors Ltd. dated May 10, 2010 Settlement Agreement between the Registrant and entities...

  • Page 151
    ... Motor Manufacturing, Inc., dated August 13, 2010 Addendum No. 1 to the Sale and Purchase Agreement between Registrant and New United Motor Manufacturing, Inc., dated September 23, 2010 Phase 1 Contract Services Agreement between the Registrant and Toyota Motor Corporation dated October 6, 2010 List...

  • Page 152
    ... by the undersigned, thereunto duly authorized. Tesla Motors, Inc. Date: March 3, 2011 /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 153
    ... has pre-existing technology and intellectual property rights relating to the manufacturing, operating and selling of a variety of vehicles; C. The Parties wish to work together to develop Electric Vehicles based on the TMC RAV4 platform ("RAV4 Platform") and the Tesla Powertrain System (as defined...

  • Page 154
    ... receiving Party, within thirty (30) calendar days after its oral disclosure. As used herein, "Confidential Information" may include, without limitation, the Tesla Technology, the TMC Technology, Qualified Disclosures, and documents relating to the development, manufacturing, testing, and marketing...

  • Page 155
    ...the Deliverables Schedule. (h) " Electric Vehicles " shall mean vehicles that are powered by the Tesla Powertrain System. (i) " Errors " shall mean any material failures or deviations in a Deliverable as measured against the Initial Statement of Work and Specification or Final Specifications, as the...

  • Page 156
    ... for these classes or types of patent rights, in all countries of the world. (u) " Person " shall mean any natural person, general partnership, limited partnership, corporation, joint venture, trust, business trust, limited liability company, cooperative, association or other form of organization...

  • Page 157
    ... Jointly-Developed Technology that is Powertrain Technology. (ll) " Tesla Powertrain System " shall mean the Tesla electric powertrain system which is comprised of the following components: (i) drive inverter; (ii) AC induction motor; (iii) single speed gearbox; (iv) charger; (v) lithium-ion battery...

  • Page 158
    ... secrecy. Without limiting the generality of the foregoing, Trade Secrets include business information such as information set out in, or relating to, cost data, pricing practices and policies, marketing practices and policies, licensing practices and policies, and the identity and location of past...

  • Page 159
    ... REQUESTED BY TESLA MOTORS, INC. TESLA AND TMC CONFIDENTIAL INFORMATION EXECUTION VERSION (b) Development . Each of the Parties shall use its commercially reasonable efforts to perform the Services and deliver the Deliverables in accordance with the Initial Statement of Work and Specification or...

  • Page 160
    .... For avoidance of doubt, Tesla's right to payments under Section 5 that accrued as of the date of termination of this Agreement, shall survive in all cases. (e) Change Order Process . The Parties recognize and acknowledge that the Final Specifications and Final Statement of Work may need to be...

  • Page 161
    .... Each Party agrees to be reasonable in implementing the Change Order process described in this Section 2(e). (f) Designation of Line Items as Powertrain or Non-Powertrain . For each of the line items of work listed in the Initial Statement of Work and Specification and for each of the line items of...

  • Page 162
    ... the collaboration and development activities under this Agreement shall be directed. The initial Project Manager for Tesla shall be Mr. Diarmuid O'Connell, and the initial Project Manager for TMC shall be Mr. Shinya Kotera. Each Party may change its Project Manager at any time by providing written...

  • Page 163
    CONFIDENTIAL TREATMENT REQUESTED BY TESLA MOTORS, INC. TESLA AND TMC CONFIDENTIAL INFORMATION EXECUTION VERSION 3. OWNERSHIP (a) General Principles . Each Party shall continue to own all of its Technology and Intellectual Property Rights and nothing set forth in this Agreement is intended to, or ...

  • Page 164
    ... the Qualified Jointly-Developed Technology that is Non-Powertrain Technology, Payment Technology, and all Intellectual Property Rights in the foregoing for any purpose related to Tesla's development, manufacture and sale of Tesla Vehicles. (vi) No Implied Rights or Licenses . Joint ownership of the...

  • Page 165
    ... its electric vehicle business and in performing services for its customers. The foregoing license shall be fully transferable and sublicenseable. (ii) License to TMC Background Technology that is Powertrain Technology . Subject to the terms and conditions of this Agreement, TMC hereby grants Tesla...

  • Page 166
    ...REQUESTED BY TESLA MOTORS, INC. TESLA AND TMC CONFIDENTIAL INFORMATION EXECUTION VERSION (c) Licenses to Non-Powertrain Technology . (i) License to Tesla Foreground Technology that is Non-Powertrain Technology . Subject to the terms and conditions of this Agreement, Tesla hereby grants TMC a limited...

  • Page 167
    ... funds to such bank and account as Tesla will direct. In the event that payment is not received within thirty (30) calendar days of the date of Tesla's invoice, Tesla will be entitled in its sole discretion to (a) charge interest on any undisputed outstanding amount from day to day at the rate...

  • Page 168
    ... exercising its rights under this Agreement. (b) Exceptions . Confidential Information shall not include information Recipient can document, which: (i) is or becomes (through no improper action or inaction by Recipient or any Affiliate or Personnel of Recipient) generally known to the public (and is...

  • Page 169
    ... any way limiting or restricting the assignment of employees within such Party. (g) Confidentiality of Agreement . Each Party agrees that the terms and conditions of this Agreement shall be treated as confidential information and that no reference to the terms and conditions of this Agreement can be...

  • Page 170
    ... BY TESLA MOTORS, INC. TESLA AND TMC CONFIDENTIAL INFORMATION EXECUTION VERSION 7. LIMITED REPRESENTATIONS AND WARRANTIES; DISCLAIMER (a) Mutual Representations and Warranties . Each Party represents and warrants to the other Party that it: (i) has the right to enter this Agreement, is a corporation...

  • Page 171
    ...or (v) use of the Tesla Technology or Prototype Powertrain Systems (when Tesla is the Indemnifying Party), or the TMC Technology (when TMC is the Indemnifying Party) in a manner that is in breach of the terms and conditions of this Agreement. (d) Conditions . The Parties' indemnification obligations...

  • Page 172
    ... to Tesla at any time by bearing all reasonable, actual and documented development costs incurred by Tesla up to such point less Fees already paid by TMC pursuant to Section 5, and upon such termination, Tesla shall deliver all in-development products to TMC. (d) Survival of Rights and Obligations...

  • Page 173
    ... existence or terms of this Agreement, unless required by law, shall be made until the Parties have agreed upon the text of and issued an appropriate joint press release announcing this Agreement. Moreover, neither Party shall have any right or license to use the trademarks, service marks or logos...

  • Page 174
    ... VERSION TMC Toyota Motor Corporation Tesla Motors, Inc. 1, Toyota-cho, Toyota City Aichi Prefecture 471-8571 Japan Attn: General Manager, BR-Electric Drive Vehicles Project Dept Fax: +81-565-23-5714 Tesla Tesla Motors, Inc. 3500 Deer Creek Road Palo Alto, CA 94304 U.S.A Attn: Legal Department Fax...

  • Page 175
    ... TREATMENT REQUESTED BY TESLA MOTORS, INC. TESLA AND TMC CONFIDENTIAL INFORMATION EXECUTION VERSION hereof, and supersedes and replaces all prior and contemporaneous understandings or agreements, written or oral, regarding such subject matter. (p) Counterparts . This Agreement may be executed in two...

  • Page 176
    ... REQUESTED BY TESLA MOTORS, INC. TESLA AND TMC CONFIDENTIAL INFORMATION EXECUTION VERSION IN WITNESS WHEREOF, the Parties have executed this Agreement by persons duly authorized as of the date and year first above written. By: Name: Title: Date: /s/ S. Terashi Shigeki Terashi Managing Officer Oct...

  • Page 177
    ... Technology Tesla Background Technology includes, without limitation, all of the Tesla Background Technology related to the following Tesla developed Technologies: [ *** ] -25***Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange...

  • Page 178
    CONFIDENTIAL TREATMENT REQUESTED BY TESLA MOTORS, INC. TESLA AND TMC CONFIDENTIAL INFORMATION Exhibit B Powertrain Technology [ *** ] -26***Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been ...

  • Page 179
    CONFIDENTIAL TREATMENT REQUESTED BY TESLA MOTORS, INC. TESLA AND TMC CONFIDENTIAL INFORMATION Exhibit C Non-Powertrain Technology [ *** ] -27***Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have ...

  • Page 180
    ...Tesla Motors France SARL Tesla Motors GmbH (Germany) Tesla Motors HK Limited Tesla Motors Italy Srl Tesla Motors Japan KK Tesla Motors Leasing, Inc. (United States) Tesla Motors Limited (United Kingdom) Tesla Motors New York, LLC Tesla Motors SARL (Monaco) Tesla Motors Singapore Pte Ltd Tesla Motors...

  • Page 181
    EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-167874) of Tesla Motors, Inc. of our report dated March 2, 2011 relating to the financial statements, which appears in this ...

  • Page 182
    ... financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer) Date: March 3, 2011

  • Page 183
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who...

  • Page 184
    ... financial condition and results of operations of Tesla Motors, Inc. Date: March 3, 2011 /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer) I, Deepak Ahuja, certify, pursuant to 18 U.S.C. Section 1350, that, to my knowledge, the Annual Report of Tesla Motors, Inc. on Form...