Tesla 2012 Annual Report Download - page 39

Table of Contents
frequency with which they charge the battery pack of their Tesla vehicle can result in additional deterioration of the battery pack’
s ability to hold
a charge. We currently expect that our battery pack for the Tesla Roadster will retain approximately 60-
65% of its ability to hold its initial charge
after approximately 100,000 miles or seven years, which will result in a decrease to the vehicle’s initial range. Such battery pack deterioration
and the related decrease in range may negatively influence potential customer decisions whether to purchase our vehicles, which may harm our
ability to market and sell our vehicles.
We are dependent upon our ability to fully draw down on our loan facility from the United States Department of Energy, which may
restrict our ability to conduct our business.
Our plan for manufacturing Model S and for developing our electric powertrain facility depends on our ability to fully draw down on our
DOE Loan Facility. Our DOE Loan Facility provides for a $465.0 million loan facility under the DOE’s ATVM Program to help finance the
continued development of Model S, including the build out and operation of a manufacturing facility, and to finance the build out and operation
of our electric powertrain manufacturing facility. We cannot, however, access all of these funds at once, but only through periodic draws through
January 2013 as eligible costs are incurred. Through December 31, 2011, we have received loans under our DOE Loan Facility for an aggregate
of $276.3 million. Our ability to draw down these funds under the DOE Loan Facility is conditioned upon specified draw conditions. For the
Model S manufacturing facility project, the draw conditions include our achievement of progress milestones relating to the design and
development of Model S. Additionally, the DOE Loan Facility requires us to comply with certain operating and financial covenants and places
additional restrictions on our ability to operate our business. If we do not comply with such requirements of the DOE Loan Facility, such failure,
if not waived by the DOE, could cause a default. In the event of a default, we would not be eligible to draw funds under the DOE Loan Facility
and existing outstanding loan amounts would become due immediately.
Additionally, if we are unable to draw down the anticipated funds under the DOE Loan Facility, or our ability to make such draw downs is
delayed, we may need to obtain additional or alternative financing to operate our Model S and electric powertrain manufacturing facilities to the
extent our cash on hand is insufficient. Any failure to obtain the remaining DOE funds or secure other alternative funding could materially and
adversely affect our business and prospects. Such additional or alternative financing may not be available on attractive terms, if at all, and could
be more costly for us to obtain. As a result, our plans for the build out of our Model S and electric powertrain manufacturing facilities could be
significantly delayed which would materially adversely affect our business, prospects, financial condition and operating results.
Our DOE Loan Facility documents contain customary covenants that include, among others, a requirement that the project be conducted in
accordance with the business plan for such project, compliance with all requirements of the ATVM Program, and limitations on our and our
subsidiaries’ ability to incur indebtedness, incur liens, make investments or loans, enter into mergers or acquisitions, dispose of assets, pay
dividends or make distributions on capital stock, prepay indebtedness, pay management, advisory or similar fees to affiliates, enter into certain
affiliate transactions, enter into new lines of business and enter into certain restrictive agreements. These restrictions may limit our ability to
operate our business and may cause us to take actions or prevent us from taking actions we believe are necessary from a competitive standpoint
or that we otherwise believe are necessary to grow our business.
In addition, our DOE Loan Facility requires Mr. Musk and certain of his affiliates, until one year after we complete the project relating to
the Model S Facility, to own at least 65% of the Tesla capital stock held by them as of the date of the DOE Loan Facility, and a failure to comply
would be an event of default that could result in an acceleration of all obligations under the DOE Loan Facility documents and the exercise of
other remedies by the DOE.
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