Tesla 2011 Annual Report Download - page 36

Table of Contents
ever achieve profitability it will be dependent upon the successful development and successful commercial introduction and acceptance of
automobiles such as the Model S, which may not occur.
We expect the rate at which we will incur losses to increase significantly in future periods from current levels as we:
Because we will incur the costs and expenses from these efforts before we receive any incremental revenues with respect thereto, our
losses in future periods will be significantly greater than the losses we would incur if we developed our business more slowly. In addition, we
may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in increases in our revenues, which
would further increase our losses.
In addition, as of December 31, 2010, we had recorded a full valuation allowance on our United States net deferred tax assets as at this
point we believe it is more likely than not that we will not achieve profitability and accordingly be able to use our deferred tax assets in the
foreseeable future. Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carry-forwards in
the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code. Although we do not believe that our initial public
offering (IPO) would constitute an ownership change resulting in limitations on our ability to use our net operating loss and tax credit carry-
forwards, we have not yet performed a study to determine whether such limitations exist. If an ownership change is deemed to have occurred as
a result of our IPO, utilization of these assets could be significantly reduced.
If we are unable to adequately control the costs associated with operating our business, including our costs of manufacturing, sales and
materials, our business, financial condition, operating results and prospects will suffer.
If we are unable to maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and servicing
our electric vehicles relative to their selling prices, our operating results, gross margins, business and prospects could be materially and adversely
impacted. We have made, and will be required to continue to make, significant investments for the design, manufacture and sales of our electric
vehicles. When we first began delivering our Tesla Roadster in early 2008, our marginal costs of producing the Tesla Roadster exceeded our
revenue from selling those vehicles. Revenue from the sales of our Tesla Roadster as well as from ZEV credits did not exceed cost of revenues
related to our Tesla Roadster, until the second quarter of 2009. There can be no assurances that our costs of producing and delivering the
Model S will be less than the revenue we generate from sales at the time of the Model S launch or that we will achieve our expected gross
margin on sales of the Model S.
We incur significant costs related to procuring the raw materials required to manufacture our high-performance electric cars, assembling
vehicles and compensating our personnel. We will also incur substantial
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design, develop and manufacture our planned Model S;
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design, develop and manufacture components of our electric powertrain;
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develop and equip our manufacturing facility to produce our Model S in Fremont, California;
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build up inventories of parts and components for our Model S;
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develop and equip manufacturing facilities to produce our electric powertrain components;
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open new Tesla stores;
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expand our design, development, maintenance and repair capabilities;
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increase our sales and marketing activities; and
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increase our general and administrative functions to support our growing operations.