Tesla 2011 Annual Report Download - page 50

Table of Contents
license with Lotus on terms favorable to us, if at all. Additionally, because we are dependent upon our relationship with Lotus for the
manufacturing of the Tesla Roadster, our business depends on Lotus continuing to operate as a viable and solvent entity and to continue to
produce the Tesla Roadster vehicles and gliders pursuant to our supply agreement. Any delay or discontinuance by Lotus of delivery of the Tesla
Roadster vehicles and gliders or failure by Lotus to produce the vehicles and gliders in accordance with quality standards would have a material
adverse effect on our business, prospects, operating results and financial condition.
We are dependent on our suppliers, a significant number of which are single or limited source suppliers, and the inability of these
suppliers to continue to deliver, or their refusal to deliver, necessary components of our vehicles at prices and volumes acceptable to us would
have a material adverse effect on our business, prospects and operating results.
The Tesla Roadster uses over 2,000 purchased parts which we source globally from over 150 suppliers, many of whom are currently single
source suppliers for these components. While we obtain components from multiple sources whenever possible, similar to other automobile
manufacturers, many of the components used in our vehicles are purchased by us from a single source. We refer to these component suppliers as
our single source suppliers. To date we have not qualified alternative sources for most of the single sourced components used in our vehicles and
we generally do not maintain long-term agreements with our single source suppliers.
While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for
our single source components, we may be unable to do so in the short term or at all at prices or costs that are favorable to us. In particular, while
we believe that we will be able to secure alternate sources of supply for almost all of our single sourced components on a relatively short time
frame, qualifying alternate suppliers or developing our own replacements for certain highly customized components of the Tesla Roadster, such
as the carbon fiber body panels, which are supplied to us by Sotira 35, a unit of Sora Composites Group, may be time consuming and costly.
In addition, Lotus is the only manufacturer for certain components, such as the chassis of our Tesla Roadster. We therefore refer to it as a
sole source supplier. Replacing the components from Lotus that are sole sourced may require us to reengineer our vehicles, which would be time
consuming and costly. We do not currently utilize any sole source suppliers other than Lotus.
This supply chain exposes us to multiple potential sources of delivery failure or component shortages for the Tesla Roadster, our
powertrain component sales activities and the planned Model S. We are currently evaluating, qualifying and selecting our suppliers for the
planned production of the Model S and we intend to establish dual suppliers for several key components of the Model S, although 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, governmental changes and other factors beyond our control or which we do not presently anticipate,
could also affect our suppliers’ ability to deliver components to us on a timely basis. Furthermore, if we experience significant increased
demand, or need to replace our existing suppliers, there can be no assurance that additional supplies of component parts will be available when
required on terms that are favorable to us, at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or
fill our orders in a timely manner. In the past, we have replaced certain suppliers because of their failure to provide components that met our
quality control standards. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers
could lead to delays in vehicle deliveries to our customers, which could hurt our relationships with our customers and also materially adversely
affect our business, prospects and operating results.
Changes in our supply chain have resulted in the past, and may result in the future, in increased cost and delay. For example, a change in
our supplier for our carbon fiber body panels contributed to the delay in our
49