Tesla 2012 Annual Report Download - page 54

Table of Contents
In addition, certain regulations and laws that encourage sales of electric cars through tax credits or other subsidies could be reduced,
eliminated or applied in a way that creates an adverse effect against our vehicles, either currently or at any time in the future. For example, while
the federal and state governments have from time to time enacted tax credits and other incentives for the purchase of alternative fuel cars, our
competitors have more experience and greater resources in working with legislators than we do, and so there is no guarantee that our vehicles
would be eligible for tax credits or other incentives provided to alternative fuel vehicles in the future. This would put our vehicles at a
competitive disadvantage. As an example at the state level, California recently renewed a rebate program for the purchase of qualified alternative
technology vehicles, but reduced the rebate amount from $5,000 per vehicle to $2,500 per vehicle due to fewer funds available and increased
demand. When these funds run out, there is no mechanism in place to replenish them until the next fiscal year. Subsequent purchasers would
face a delay in receiving rebates since they would have to wait until the next fiscal year’s funding became available. As an additional example,
there is considerable discussion at the federal level over tax reform. Discussions have included reducing or even eliminating the current $7,500
tax credit available to purchasers of qualified alternative fuel vehicles, including the Tesla Roadster and Model S. Also, government
disincentives have been enacted in Europe for gas-powered vehicles, which discourage the use of such vehicles and allow us to set a higher sales
price for the Tesla Roadster in Europe. In the event that such disincentives are reduced or eliminated, sales of electric vehicles, including our
Tesla Roadster and our Model S, could be adversely affected. Furthermore, low volume manufacturers are exempt from certain regulatory
requirements in the United States and the European Union. This provides us with an advantage over high volume manufacturers that must
comply with such regulations. Once we reach a certain threshold number of sales in each of the United States and the European Union, we will
no longer be able to take advantage of such exemptions in the respective jurisdictions, which could lead us to incur additional design and
manufacturing expense. We do not anticipate that we will be able to take advantage of these exemptions with respect to Model S which we plan
to produce at significantly higher volumes than the Tesla Roadster.
If we are unable to grow our sales of electric vehicle components to original equipment manufacturers our financial results may suffer.
We may have trouble attracting and retaining powertrain customers which could adversely affect our business prospects and results.
Daimler and its affiliates and Toyota and its affiliates are currently the only customers of our electric powertrain sales and development services.
While we recently received a letter of intent from Daimler for a full electric powertrain program for a vehicle in the Mercedes line and a
purchase order to begin this development, there is no guarantee that we will be able to secure future business with Daimler or its affiliates. Even
if we can attract and retain powertrain customers, there is no assurance that we can adequately pursue such opportunities simultaneously with the
execution of our plans for our vehicles.
Our relationship with Daimler is subject to various risks which could adversely affect our business and future prospects.
While we recently received a letter of intent from Daimler for a full electric powertrain program for a vehicle in the Mercedes line and a
purchase order to begin this development, our relationship with Daimler poses various risks to us including:
The occurrence of any of the foregoing could adversely affect our business, prospects, financial condition and operating results.
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potential loss of access to parts that Daimler is providing for Model S; and
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potential loss of business and adverse publicity to our brand image if there are defects or other problems discovered with our electric
powertrain components that Daimler has incorporated into their vehicles.