Tesla 2015 Annual Report Download - page 27

If we are unable to design, develop, market and sell new electric vehicles that address additional market opportunities, our business,
prospects and operating results will suffer.
We may not be able to successfully develop new electric vehicles, address new market segments or develop a significantly broader
customer base. 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 and are currently testing our Beta Model X vehicles. We have also announced our intent to develop Model 3 based on a
smaller platform than the Model S which we expect to produce at the Tesla Factory after the introduction of Model X. Model 3 is currently
planned to be a lower cost, smaller sedan designed for the mass market. Therefore, we intend to manufacture Model 3 in significantly higher
volumes than Model S and there can be no assurance we can successfully scale our business accordingly. In addition, we have not yet finalized
the design, engineering or component sourcing plans for Model 3 and there are no assurances that we will be able to bring this vehicle to market
at the price point and in the volume that we currently intend, if at all. The market for vehicles in the price range we expect for Model 3 is much
more competitive than for Model S and Model X, and therefore margins are likely to be lower compared to Model S and Model X margins. Our
efforts to manufacture and sell a sufficiently profitable Model 3 may not be as successful, and therefore our business, prospects and operating
results may suffer. Our failure to address additional market opportunities would harm our business, prospects, financial condition and operating
results.
The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition
from new and established competitors and expect to face competition from others in the future.
The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become
even more so in the future. Other automobile manufacturers entered the electric vehicle market at the end of 2010 and we expect additional
competitors to enter this market. With respect to Model S, we face competition from existing and future automobile manufacturers in the
extremely competitive premium sedan market, including Audi, BMW, Lexus and Mercedes.
Many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel vehicle market.
BMW, Daimler, Nissan, Fiat, Ford and Mitsubishi, among others, have electric vehicles available today. Moreover, Porsche, Lexus, Audi,
Volkswagen and Volvo are also developing electric vehicles. In addition, several manufacturers, including General Motors, Toyota, Ford, and
Honda, are each selling hybrid vehicles, and certain of these manufacturers have announced plug-in versions of their hybrid vehicles. For
example, in December 2010, General Motors introduced the Chevrolet Volt, which is a plug-in hybrid vehicle that operates purely on electric
power for a limited number of miles, at which time an internal combustion engine engages to recharge the battery pack.
Moreover, it has been reported that many of the other large OEMs, such as Daimler, Lexus and Audi, are also developing electric
vehicles. Several new start-ups have also entered or announced plans to enter the market for performance electric vehicles. Finally, electric
vehicles have already been brought to market in China and other foreign countries and we expect a number of those manufacturers to enter the
United States market as well.
Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources
than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of
their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do.
In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a
stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.
Additionally, we have not in the past, and do not currently, offer customary discounts on our vehicles like most of our competitors do.
We expect competition in our industry to intensify in the future in light of increased demand for alternative fuel vehicles, continuing
globalization and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features,
innovation and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased competition may
lead to lower vehicle unit sales and increased inventory, which may result in a further downward price pressure and adversely affect our
business, financial condition, operating results and prospects. Our ability to successfully compete in our industry will be fundamental to our
future success in existing and new markets and our market share. There can be no assurances that we will be able to compete successfully in our
markets. If our competitors introduce new cars or services that compete with or surpass the quality, price or performance of our cars or services,
we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate attractive rates
of return on our investment. Increased competition could result in price reductions and revenue shortfalls, loss of customers and loss of market
share, which could harm our business, prospects, financial condition and operating results.
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