Tesla 2012 Annual Report Download - page 92

Table of Contents
expense, contract and professional services and amortized equipment expense. Overhead costs related to the Tesla Factory prior to the start of
production of Model S are also included in research and development expenses. Also included in research and development expenses are
development services costs that we incur, if any, prior to the finalization of agreements with our development services customers as reaching a
final agreement and revenue recognition is not assured. Development services costs incurred after the finalization of an agreement are recorded
in cost of revenues.
Research and development expenses for the year ended December 31, 2011 were $209.0 million, an increase from $93.0 million for the
year ended December 31, 2010. The $116.0 million increase in research and development expenses during the year ended December 31, 2011
consisted primarily of a $38.1 million increase in materials and prototyping expenses primarily to support our Model S alpha and beta builds,
overhead costs related to the Tesla Factory, powertrain development activities, a $30.9 million increase in costs related to Model S and Model X
engineering, design and testing activities incurred by our suppliers, a $30.4 million increase in employee compensation expenses from higher
headcount, a $9.7 million increase in stock-based compensation expense related to a larger number of outstanding equity awards and generally
an increasing common stock valuation applied to new grants, and a $7.0 million increase in office, information technology and facilities-related
costs to support the growth of our business.
Research and development expenses for the year ended December 31, 2010 were $93.0 million, an increase from $19.3 million for the year
ended December 31, 2009. Research and development expenses during the year ended December 31, 2009 included $23.2 million in Daimler
Smart fortwo EV development compensation which was recorded as an offset to research and development expenses. The $73.7 million increase
in research and development expenses during the year ended December 31, 2010 consisted primarily of a $25.0 million increase in employee
cash and stock-based compensation expenses primarily associated with significantly higher headcount to support our Model S and powertrain
development activities, the $23.2 million Daimler development compensation offset recognized during the year ended December 31, 2009, a
$10.5 million increase in materials and prototyping expenses primarily to support our Model S alpha build as well as powertrain development
activities, a $10.7 million increase in professional and outside services costs related to Model S engineering, design and testing activities, and a
$1.6 million increase in office, information technology and facilities-related costs to support the growth of our business, including our transition
to our Palo Alto headquarters.
During the first quarter of 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 associated with this program in
cost of revenues.
We have significantly increased our research and development efforts for Model S, which has resulted in an increase in our research and
development expenses. We anticipate that our research and development expenses will rise moderately as we incur additional costs to further
develop Model S, to develop Model X and to operate our Tesla Factory in Fremont, California prior to the start of Model S production.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel and facilities costs related to our Tesla stores, marketing, sales,
executive, finance, human resources, information technology and legal organizations, as well as litigation settlements and fees for professional
and contract services.
Selling, general and administrative expenses for the year ended December 31, 2011 were $104.1 million, an increase from $84.6 million
for the year ended December 31, 2010. The $19.5 million increase in our selling, general and administrative expenses during the year ended
December 31, 2011 consisted primarily of a
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