Tesla 2012 Annual Report Download - page 42

Table of Contents
which we may sell vehicles. Accordingly, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions
we have entered that may restrict our vehicle reservation practices or other business practices. Even for those jurisdictions we have analyzed, the
laws in this area can be complex, difficult to interpret and may change over time.
Regulatory limitations on our ability to sell vehicles could materially and adversely affect our ability to sell our electric vehicles.
Reservations for Model S and Model X are fully refundable to customers, and significant cancellations could harm our financial
condition, business, prospects and operating results.
As of December 31, 2011, we had unfilled reservations for over 8,000 Model S sedans, all of which are subject to cancellation by the
customer up until such time that the customer enters into a purchase agreement. Historically, all of our reservations have been refundable and we
have had a significant number of customers who submitted reservations for the Tesla Roadster cancel those reservations and we have refunded
their deposits.
Given the long lead times that we have historically experienced between customer reservation and delivery on the Tesla Roadster and that
we expect to experience on Model S and Model X, there is a heightened risk that customers that have made reservations may not ultimately take
delivery on vehicles due to potential changes in customer preferences, competitive developments and other factors. For example, when we
delayed the introduction of the original Tesla Roadster in the fall of 2007, we experienced a significant number of customers that cancelled their
reservations and requested the return of their reservation payment. If we encounter delays in the introduction of Model S or Model X, we believe
that a significant number of our customers could similarly cancel their reservations and demand refunds of their reservation payments. As a
result, no assurance can be made that reservations will not be cancelled and will ultimately result in the final purchase, delivery, and sale of the
vehicle. Given the high level of reservations, significant cancellations could harm our financial condition, business, prospects and operating
results.
If we are unable to design, develop, market and sell new electric vehicles and services that address additional market opportunities, our
business, prospects and operating results will suffer.
We may not be able to successfully develop new electric vehicles and services, address new market segments or develop a significantly
broader customer base. To date, we have focused our business on the sale of high-performance electric vehicles and have targeted relatively
affluent consumers. We will need to address additional markets and expand our customer demographic in order to further grow our business. In
particular, we intend Model S to appeal to the customers of premium vehicles, which is a much larger and different demographic from that of the
Tesla Roadster. Successfully offering a vehicle in this vehicle class requires delivering a vehicle with a higher standard of fit and finish in the
interior and exterior than currently exists in the Tesla Roadster, at a price that is competitive with other premium vehicles. We have not
completely finalized the design, component sourcing or manufacturing process for Model S, so it is difficult to accurately forecast its final cost,
manufacturability or quality. Therefore, there can be no assurance that we will be able to deliver a vehicle that is ultimately competitive in the
premium vehicle market. In 2012, we publicly revealed an early prototype of the Model X crossover as the first vehicle we intend to develop by
leveraging the Model S platform. We have also previously announced our intent to develop a third generation electric vehicle which we expect to
produce at the Tesla Factory after the introduction of Model S. However, we have not yet finalized the design, engineering or component
sourcing plans for these vehicles and there are no assurances that we will be able to bring these vehicles to market at the price points and in the
volumes as we currently intend, if at all. Our failure to address additional market opportunities would harm our business, prospects, financial
condition and operating results.
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