Tesla 2012 Annual Report Download - page 91

Table of Contents
Cost of Revenues and Gross Profit
Cost of revenues includes cost of automotive sales and costs related to our development services. Cost of revenues for the year ended
December 31, 2011 was $142.6 million, an increase from $86.0 million for the year ended December 31, 2010. The increase in cost of
automotive sales for the year ended December 31, 2011 was driven primarily by an increase in the number of vehicles that we sold and the
increased shipments of battery packs and chargers to Daimler. We began delivering battery packs and chargers for the Daimler Smart fortwo EV
program at the end of 2009 and for the Daimler A-Class EV program at the end of 2010. Cost of development services includes engineering
support and testing, direct parts, material and labor costs, manufacturing overhead, including amortized tooling costs, shipping and logistic costs
and other development expenses that we incur in the performance of our services under development agreements. The increase in cost of
development services was driven primarily by our activities for the Toyota RAV4 EV program which began in the second half of 2010.
Gross profit for the year ended December 31, 2011 was $61.6 million, an increase from $30.7 million for the year ended December 31,
2010. The increase was driven primarily by higher sales of the Tesla Roadster coupled with higher average selling prices and ongoing cost
improvement program on the Roadster, increased shipments of battery packs and chargers to Daimler, as well as gross profit from our
development services activities which we expanded in the latter half of 2010 with the Toyota RAV4 EV program.
Cost of revenues for the year ended December 31, 2010 was $86.0 million, a decrease from $102.4 million for the year ended
December 31, 2009. The decrease in cost of revenues was driven primarily by the significant number of vehicles delivered during the first three
quarters of 2009 from fulfilling customer reservations placed prior to 2009. The decrease in cost of revenues from automotive sales for the year
ended December 31, 2010 was partially offset by the increase in cost of revenues from our development services activities.
Cost of development services includes engineering support and testing, direct parts, material and labor costs, manufacturing overhead,
including amortized tooling costs, shipping and logistic costs and other development expenses that we incur in the performance of our services
under development agreements. During the quarter ended March 31, 2010, Daimler engaged us to assist with the development and production of
a battery pack and charger for a pilot fleet of its A-Class electric vehicles to be introduced in Europe during 2011. As of March 31, 2010, a
development agreement had yet to be finalized and as such, the related development services costs of $0.5 million that we incurred during the
quarter ended March 31, 2010 were expensed in research and development. In May 2010, we finalized the agreement and began recording the
costs related to this program in cost of revenues.
Gross profit for the year ended December 31, 2010 was $30.7 million, an increase from $9.5 million for the year ended December 31,
2009. The increase was driven primarily by the gross profit contributed by our development services revenues which we began to recognize in
2010; an expanded offering of vehicle options to our customers; the continued launch of the Tesla Roadster internationally, where in certain
markets, we have experienced higher selling prices; and cost improvements associated with the model changeover from the Tesla Roadster to the
Tesla Roadster 2 during the second half of 2009. Gross profit for the year ended December 31, 2010 was also favorably impacted by the fact that
certain of the A-Class development services revenue that we recognized during the year ended December 31, 2010 did not have any
corresponding cost of revenues, since these costs were recorded in research and development expenses prior to us finalizing the development
agreement in May 2010.
We expect our development services revenue may fluctuate in future periods based on the timing of cash receipts as compared to the
timing of meeting revenue recognition criteria. This may cause our gross profit and gross margin to be similarly impacted.
Research and Development Expenses
Research and development expenses consist primarily of personnel costs for our teams in engineering and research, supply chain, quality,
manufacturing engineering and manufacturing test organizations, prototyping
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