Tesla 2011 Annual Report Download - page 52

Table of Contents
inherent risks associated with developing, improving and expanding our core systems, including supply chain disruptions that may affect our
ability to obtain supplies when needed or to deliver vehicles to our Tesla stores and customers. We cannot be sure that these expanded systems
will be fully or effectively implemented on a timely basis, if at all. If we do not successfully implement this project, our operations may be
disrupted and our operating results could be harmed. In addition, the new systems may not operate as we expect them to, and we may be required
to expend significant resources to correct problems or find alternative sources for performing these functions.
If our vehicle owners customize our vehicles or change the charging infrastructure with aftermarket products, the vehicle may not operate
properly which could harm our business.
Automobile enthusiasts may seek to “hack” our vehicles to modify its performance which could compromise vehicle safety systems. Also,
we are aware of customers who have customized their vehicles with after-market parts that may compromise driver safety. For example, some
customers have installed seats that elevate the driver such that airbag and other safety systems could be compromised. Other customers have
changed wheels and tires, while others have installed large speaker systems that may impact the electrical systems of the vehicle. We have not
tested, nor do we endorse, such changes or products. In addition, customer use of improper external cabling or unsafe charging outlets can
expose our customer to injury from high voltage electricity. Such unauthorized modifications could reduce the safety of our vehicles and any
injuries resulting from such modifications could result in adverse publicity which would negatively affect our brand and harm our business,
prospects, financial condition and operating results.
The success of our business depends on attracting and retaining a large number of customers. If we are unable to do so, we will not be
able to achieve profitability.
Our success depends on attracting a large number of potential customers to purchase our electric vehicles. As of December 31, 2010 we
had sold approximately 1,500 Tesla Roadsters to customers, almost all of which were sold in the United States and Europe, and had accepted
reservations for approximately 3,400 Model S sedans. If our existing and prospective customers do not perceive our vehicles and services to be
of sufficiently high value and quality, cost competitive and appealing in aesthetics or performance, or if the final production version of the
Model S is not sufficiently similar to the drivable design prototype, we may not be able to retain our current customers or attract new customers,
and our business and prospects, operating results and financial condition would suffer as a result. In addition, because our performance electric
vehicles to date have been sold largely through word of mouth marketing efforts, we may be required to incur significantly higher and more
sustained advertising and promotional expenditures than we have previously incurred to attract customers, and use more traditional advertising
techniques. In addition, if we engage in traditional advertising, we may face review by consumer protection enforcement agencies and may incur
significant expenses to ensure that our advertising claims are fully supported. To date, we have limited experience selling our electric vehicles
and we may not be successful in attracting and retaining a large number of customers. For example, a significant number of our stores have been
open for less than one year and a portion of our sales team come from backgrounds other than automotive. If for any of these reasons we are not
able to attract and maintain customers, our business, prospects, operating results and financial condition would be materially harmed.
Regulators could review our practice of taking reservation payments and, if the practice is deemed to violate applicable law, we could be
required to pay penalties or refund the reservation payments that we have received for vehicles that are not immediately available for
delivery, to stop accepting additional reservation payments, to restructure certain aspects of our reservation program, and potentially to
suspend or revoke our licenses to manufacture and sell our vehicles.
We have not yet commenced production of our Model S sedan which we currently plan for mid-2012. For customers interested in
reserving the Model S, we require an initial refundable reservation payment of at least $5,000. As of December 31, 2010, we had collected
reservation payments for Model S sedans in an aggregate
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