Tesla 2011 Annual Report Download - page 28

Table of Contents
The foregoing examples of state laws governing the sale of motor vehicles are just some of the regulations we will face as we sell our
vehicles. In many states, the application of state motor vehicle laws to our specific sales model is largely without precedent, particularly with
respect to sales over the internet, and would be 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 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, state legal prohibitions may prevent us from selling to
consumers in such state.
California laws, and potentially the laws of other states, restrict the ability of licensed dealers to advertise or take deposits for vehicles
before they are available. In November 2007, we became aware that the New Motor Vehicle Board of the California Department of
Transportation has considered whether our reservation and advertising policies comply with these laws. To date, we have not received any
communications on this topic from the New Motor Vehicle Board or the Department of Motor Vehicles (DMV) which has the power to enforce
these laws. There can be no assurance that the DMV will not take the position that our vehicle reservation or advertising practices violate the
law. We expect that if the DMV determines that we may have violated the law, it would initially discuss its concerns with us and request
voluntary compliance. If we are ultimately found to be in violation of California law, we might be precluded from taking reservation payments,
and the DMV could take other actions against us, including levying fines and requiring us to refund reservation payments. Resolution of any
inquiry may also involve restructuring certain aspects of the reservation program. The DMV also has the power to suspend licenses to
manufacture and sell vehicles in California, following a hearing on the merits, which it has typically exercised only in cases of significant or
repeat violations and/or a refusal to comply with DMV directions.
Certain states may have specific laws which apply to dealers, or manufacturers selling directly to consumers, or both. For example, the
state of Washington requires that reservation payments or other payment received from residents in the state of Washington must be placed in a
segregated account until delivery of the vehicle, which account must be unencumbered by any liens from creditors of the dealer and may not be
used by the dealer. Consequently, we established a segregated account for reservation payments in the state of Washington in January 2010.
There can be no assurance that other state or foreign jurisdictions will not require similar segregation of reservation payment received from
customers. Our inability to access these funds for working capital purposes could harm our liquidity.
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 vehicle reservation practices 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.
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 for consumers and engage in other activities in that state. While we have performed an analysis of laws in certain jurisdictions in
which we have Tesla stores, we have not performed a complete analysis in all jurisdictions in which we may sell vehicles. Accordingly, there
may be laws in jurisdictions we have not yet entered that may restrict our vehicle reservation practices or other business practices.
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