Tesla 2011 Annual Report Download - page 48

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2013, and do not have any experience servicing these cars as they do not exist currently. Servicing electric vehicles is different than servicing
vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques.
We plan to service our performance electric vehicles through our company-owned Tesla stores and through our mobile service technicians
known as the Tesla Rangers. As of December 31, 2010, we had opened 16 Tesla stores, most of which are equipped to actively service our
performance electric vehicles. However, seven stores have been open for less than one year, and to date we have only limited experience
servicing our performance vehicles through our Tesla stores. Going forward, we intend to build separate sales and service locations in several
markets, 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 act as Tesla Rangers, in order to successfully maintain our fleet of delivered performance electric vehicles. We only
implemented our Tesla Rangers program in October 2009 and have limited experience in deploying them to service our customers’ vehicles.
There can be no assurance that these service arrangements or our limited experience servicing our vehicles will adequately address the service
requirements of our customers to their satisfaction, or that we will have sufficient resources to meet these service requirement in a timely manner
as the volume of vehicles we are able to deliver annually increases.
We do not expect to be able to open Tesla stores in all the geographic areas in which our existing and potential customers may reside. In
order to address the service needs of customers that are not in geographical proximity to our service centers, we plan to either transport those
vehicles to the nearest Tesla store or service center for servicing or deploy our mobile Tesla Rangers to service the vehicles at the customer’s
location. These special arrangements may be expensive and we may not be able to recoup the costs of providing these services to our customers.
In addition, a number of potential customers may choose not to purchase our vehicles because of the lack of a more widespread service network.
If we do not adequately address our customers’ service needs, our brand and reputation will be adversely affected, which in turn, could have a
material and adverse impact on our business, financial condition, operating results and prospects.
Traditional automobile manufacturers do not provide maintenance and repair services directly. Consumers must rather service their
vehicles through franchised dealerships or through third party maintenance service providers. We do not have any such arrangements with third
party service providers and it is unclear when or even whether such third party service providers will be able to acquire the expertise to service
our vehicles. At this point, we anticipate that we will be providing substantially all of the service for our vehicles for the foreseeable future. As
our vehicles are placed in more locations, we may encounter negative reactions from our consumers who are frustrated that they cannot use local
service stations to the same extent as they have with their conventional automobiles and this frustration may result in negative publicity and
reduced sales, thereby harming our business and prospects.
In addition, the motor vehicle industry laws in many states require that service facilities be available with respect to vehicles physically
sold from locations in the state. Whether these laws would also require that service facilities be available with respect to vehicles sold over the
internet to consumers in a state in which we have no physical presence is uncertain. While we believe our Tesla Ranger program and our practice
of shipping customers’ vehicles to our nearest Tesla store for service would satisfy regulators in these circumstances, without seeking formal
regulatory guidance, there are no assurances that regulators will not attempt to require that we provide physical service facilities in their states.
Further, certain state franchise laws which prohibit manufacturers from being licensed as a dealer or acting in the capacity of dealer also restrict
manufacturers from providing vehicle service. If issues arise in connection with these laws, certain aspects of Tesla’s service program would
need to be restructured to comply with state law, which may harm our business.
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