Tesla 2012 Annual Report Download - page 53

Table of Contents
If we fail to successfully address these risks, our business, prospects, operating results and financial condition could be materially harmed.
Foreign currency movements relative to the U.S. dollar could harm our financial results.
Our revenues and costs denominated in foreign currencies are not completely matched. For example, a portion of our costs and expenses
for the year ended December 31, 2011 was denominated in foreign currencies, principally the British pound. This is primarily due to the contract
with Lotus in the United Kingdom to assemble the Tesla Roadster vehicles and gliders. If the value of the U.S. dollar depreciates significantly
against the British pound, our costs as measured in U.S. dollars will correspondingly increase. Similarly, a weakening of the U.S. dollar against
the Japanese yen or another Asian currency could cause our component costs to increase. However, we do not currently have sufficient revenues
denominated in these currencies to fully offset the impact of such cost increases. As a result, our operating results could be adversely
affected. Conversely, we have greater revenues than costs denominated in other currencies, principally the euro. In this case, a strengthening of
the dollar against the euro from current levels would tend to reduce our revenues as measured in U.S. dollars.
The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business,
financial condition, operating results and prospects.
Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the
reduced need for such subsidies and incentives due to the perceived success of the electric vehicle, fiscal tightening or other reasons may result
in the diminished competitiveness of the alternative fuel vehicle industry generally or our electric vehicles in particular. This could materially
and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial condition and operating results.
Our growth depends in part on the availability and amounts of government subsidies and economic incentives for alternative fuel vehicles
generally and performance electric vehicles specifically. For example, in December 2009, we finalized an arrangement with the California
Alternative Energy and Advanced Transportation Financing Authority that will result in an exemption from California state sales and use taxes
for up to $320 million of manufacturing equipment. To the extent all of this equipment is purchased and would otherwise be subject to California
state sales and use tax, we believe this incentive would result in tax savings by us of up to approximately $31 million over a three year period
starting in December 2009. This exemption is only available for equipment that would otherwise be subject to California sales and use taxes and
that would be used only for the following three purposes: to establish our production facility for the Model S sedan, to upgrade our Palo Alto
powertrain production facility, and to expand our current Tesla Roadster assembly operations at our Menlo Park facility. If we fail to meet these
conditions, we would be unable to take full advantage of this tax incentive and our financial position could be harmed.
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fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging
activities we undertake;
• our ability to enforce our contractual and intellectual property rights, especially in those foreign countries that do not respect and
protect intellectual property rights to the same extent as do the United States, Japan and European countries, which increases the risk
of unauthorized, and uncompensated, use of our technology;
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United States and foreign government trade restrictions, tariffs and price or exchange controls;
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foreign labor laws, regulations and restrictions;
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preferences of foreign nations for domestically produced vehicles;
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changes in diplomatic and trade relationships;
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political instability, natural disasters, war or events of terrorism; and
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the strength of international economies.