Tesla 2011 Annual Report Download - page 24

Table of Contents
us of up to approximately $31 million over a three year period starting in December 2009. The equipment purchases may be used only for three
purposes: (i) to establish our production facility for the Model S sedan in California, (ii) to upgrade our Palo 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 Program
In connection with the delivery and placement into service of our zero emission vehicles in a number of states, we have earned and will
continue to earn tradable credits that can be sold. Under California’s Low-
Emission Vehicle Regulations, and similar laws in other states, vehicle
manufacturers are required to ensure that a portion of the vehicles delivered for sale in that state during each model year are zero emission
vehicles. Currently, the states of California, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island and
Vermont have such laws in effect. These laws provide that a manufacturer of zero emission vehicles may earn credits, referred to as ZEV credits,
and may sell excess credits to other manufacturers who apply such credits to comply with these regulatory requirements. As a manufacturer
solely of zero emission vehicles, we earn ZEV credits on each vehicle sold in such states and have entered into agreements with other
automobile manufacturers to sell the ZEV credits that we earn.
We have entered into two contracts for the sale of ZEV credits with two separate automotive manufacturers. For the years ended
December 31, 2010, 2009 and 2008, we earned revenue from the sale of ZEV credits of $2.8 million, $8.2 million and $3.5 million, respectively.
Our current agreement with American Honda Co., Inc. (Honda) provides for the sale of ZEV credits that we earn from the sale of vehicles that
we manufacture through December 31, 2011. As of December 31, 2010, we had sold credits for 491 vehicles under this agreement and Honda
has an obligation to purchase credits for up to 150 additional vehicles that Tesla will manufacture prior to the expiration of the agreement. To the
extent we have additional ZEV credits available for sale, we may enter into new agreements with Honda or other manufacturers to sell such
credits. We previously had an agreement with a different buyer for ZEV credits related to vehicles sold in the year ended December 31, 2008,
some of which ZEV credits were recognized in the year ended December 31, 2009.
Regulation—Vehicle Safety and Testing
Our vehicles are subject to, and the Tesla Roadster complies with, or is exempt from, numerous regulatory requirements established by the
National Highway Traffic Safety Administration (NHTSA), including all applicable United States federal motor vehicle safety standards
(FMVSS). As a manufacturer, we must self-certify that a vehicle meets or otherwise obtain an exemption from all applicable FMVSSs, as well
as the NHTSA bumper standard, before the vehicle can be imported into or sold in the United States. There are numerous FMVSSs that apply to
our vehicles. Examples of these requirements include:
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• Crash-worthiness requirements —including applicable and appropriate level of vehicle structure and occupant protection in frontal,
side and interior impacts including through use of equipment such as seat belts and airbags which must satisfy applicable
requirements;
•
Crash avoidance requirements
—
including appropriate steering, braking, electronic stability control and equipment requirements,
such as, headlamps, tail lamps, and other required lamps, all of which must conform to various photometric and performance
requirements;
•
Electric vehicle requirements
—
limitations on electrolyte spillage, battery retention, and avoidance of electric shock following
specified crash tests;
•
Windshield defrosting and defogging
—
defined zones of the windshield must be cleared within a specified timeframe; and
•
Rearview mirror requirements
—
rearward areas that must be visible to the driver via the mirrors.