Tesla 2015 Annual Report Download - page 29

We service our performance electric vehicles through our company-owned Tesla service centers, certain of our stores, and through our
mobile service technicians known as the Tesla Rangers. However, certain service centers have been open for short periods, such as those outside
of the United States, and to date we have only limited experience servicing our performance vehicles at these locations. We will need to open
new standalone service centers in locations around the world and hire and train significant numbers of new employees to staff these service
centers and act as Tesla Rangers in order to successfully maintain our fleet of delivered performance electric vehicles. We only implemented our
Tesla Rangers program in October 2009 and have limited experience in deploying them to service our customers’ vehicles. There can be no
assurance that these service arrangements or our limited experience servicing our vehicles will adequately address the service requirements of
our customers to their satisfaction, or that we will have sufficient resources to meet these service requirements in a timely manner as the volume
of vehicles we are able to deliver annually increases.
We do not expect to be able to open Tesla service centers in all the geographic areas in which our existing and potential customers may
reside. In order to address the service needs of customers who are not in geographical proximity to our service centers, we plan to either
transport those vehicles to the nearest Tesla store or service center for servicing or deploy our mobile Tesla Rangers to service the vehicles at the
customer’s location. These special arrangements may be expensive and we may not be able to recoup the costs of providing these services to our
customers. In addition, a number of potential customers may choose not to purchase our vehicles because of the lack of a more widespread
service network. If we do not adequately address our customers’ service needs, our brand and reputation will be adversely affected, which in
turn, could have a material and adverse impact on our business, financial condition, operating results and prospects.
Traditional automobile manufacturers in the United States do not provide maintenance and repair services directly. Consumers must rather
service their vehicles through franchised dealerships or through third party maintenance service providers. We do not have any such
arrangements with third party service providers and it is unclear when or even whether such third party service providers will be able to acquire
the expertise to service our vehicles. At this point, we anticipate that we will be providing substantially all of the service for our vehicles for the
foreseeable future. As our vehicles are placed in more locations, we may encounter negative reactions from our consumers who are frustrated
that they cannot use local service stations to the same extent as they have with their conventional automobiles and this frustration may result in
negative publicity and reduced sales, thereby harming our business and prospects.
In addition, the motor vehicle industry laws in many states require that service facilities be available with respect to vehicles physically
sold from locations in the state. Whether these laws would also require that service facilities be available with respect to vehicles sold over the
internet to consumers in a state in which we have no physical presence is uncertain. While we believe our Tesla Ranger program and our practice
of transporting customers’ vehicles to our nearest Tesla service center would satisfy regulators in these circumstances, without seeking formal
regulatory guidance, there are no assurances that regulators will not attempt to require that we provide physical service facilities in their states.
Further, certain state franchise laws which prohibit manufacturers from being licensed as a dealer or acting in the capacity of dealer also restrict
manufacturers from providing vehicle service. If issues arise in connection with these laws, certain aspects of Tesla’s service program would
need to be restructured to comply with state law, which may harm our business.
We may not succeed in maintaining and strengthening the Tesla brand, which would materially and adversely affect customer acceptance
of our vehicles and components and our business, revenues and prospects.
Our business and prospects are heavily dependent on our ability to develop, maintain and strengthen the Tesla brand. Any failure to
develop, maintain and strengthen our brand may materially and adversely affect our ability to sell the Model S, Model X, Model 3 and other
future planned electric vehicles, and sell our electric powertrain components. If we do not continue to establish, maintain and strengthen our
brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on
our ability to provide high quality electric cars and maintenance and repair services, and we have very limited experience in these areas. Any
problems associated with the Toyota RAV4 EV and Mercedes-Benz B-
Class EV, both of which use a Tesla powertrain, or the Model X may hurt
the Tesla brand.
In addition, we expect that our ability to develop, maintain and strengthen the Tesla brand will also depend heavily on the success of our
marketing efforts. To date, we have limited experience with marketing activities as we have relied primarily on the internet, word of mouth and
attendance at industry trade shows to promote our brand. To further promote our brand, we may be required to change our marketing practices,
which could result in substantially increased advertising expenses, including the need to use traditional media such as television, radio and print.
The automobile industry is intensely competitive, and we may not be successful in building, maintaining and strengthening our brand. Many of
our current and potential competitors, particularly automobile manufacturers headquartered in Detroit, Japan and the European Union, have
greater name recognition, broader customer relationships and substantially greater marketing resources than we do. If we do not develop and
maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.
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