Tesla 2015 Annual Report Download - page 33

We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively
impact our ability to operate our manufacturing facilities.
As an automobile manufacturer, we are subject to national, state, provincial and/or local environmental, health and safety laws and
regulations, including laws relating to the use, handling, storage, disposal and human exposure to hazardous materials, both in the United States
and abroad. Environmental and health and safety laws and regulations can be complex, and we expect that our business and operations will be
affected by new, or future amendments to, such laws that may require us to change our operations, potentially resulting in a material adverse
effect on our business. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury and
associated fines and penalties. Capital and operating expenses needed to comply with environmental, health and safety laws and regulations can
be significant, and violations of those laws may result in substantial fines and penalties, third party damages, suspension of production or a
cessation of our operations. These expenses could have a material adverse effect on our financial condition or operating results.
Contamination at properties formerly owned or operated by us, as well as at properties we will own and operate, and properties to which
hazardous substances were sent by us, may result in liability for us under environmental laws and regulations, including, but not limited to the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The government can impose liability on us under
CERCLA for the full amount of remediation-
related costs of a contaminated site without regard to fault. Such costs can include those associated
with the investigation and cleanup of contaminated soil, ground water and buildings as well as to reverse impacts to human health and damages
to natural resources.
We may also face unexpected delays in obtaining the necessary permits and approvals required by environmental laws in connection with
our manufacturing facilities that could require significant time and financial resources and negatively impact our ability to operate these
facilities, which would adversely impact our business prospects and operating results. As the owner of the Tesla Factory and surrounding land,
we may be responsible under federal and state laws and regulations for the entire investigation and remediation of any environmental
contamination at the Tesla Factory, whether it occurred before or after the date we purchased the property. When Tesla purchased the property,
the previous owner and operator of the Tesla Factory, New United Motor Manufacturing, Inc. (NUMMI), identified environmental conditions at
the Tesla Factory that could adversely affect soil and groundwater, and agreed to remediate these conditions. Although NUMMI stated that it
fully documented and managed all environmental issues at the Tesla Factory, we cannot determine with certainty the truth of this statement, nor
the total costs to remediate any pre-existing contamination that may eventually be found. We have reached an agreement with NUMMI under
which, over a ten year period, we will pay the first $15.0 million of any costs of any governmentally-required remediation activities for
contamination that existed prior to the closing of the purchase for any known or unknown environmental conditions (Remediation Activities),
and NUMMI has agreed to pay the next $15.0 million for such Remediation Activities. Our agreement provides, in part, that NUMMI will pay
up to the first $15.0 million on our behalf if such expenses are incurred in the first four years of our agreement, subject to our reimbursement of
such costs on the fourth anniversary date of the closing.
On either the ten-year anniversary of the closing or whenever $30.0 million has been spent on Remediation Activities, whichever comes
first, NUMMI’s liability to us with respect to Remediation Activities ceases, and we are responsible for any and all environmental conditions at
the Fremont site. At that point in time, we have agreed to indemnify, defend, and hold harmless NUMMI from all liability, including attorney
fees, or any costs or penalties it may incur arising out of or in connection with any claim relating to environmental conditions and we have
released NUMMI for any known or unknown claims except for NUMMI’s obligations for representations and warranties under the agreement.
There are no assurances that NUMMI will perform its obligations under our agreement and NUMMI’s failure to perform would require us to
undertake these obligations at a potentially significant cost. Such performance may also adversely affect the production capacity of, and our ability to
operate, the Tesla Factory. Any Remediation Activities or other environmental conditions at the Fremont site could harm our operations and the future use
and value of the Fremont site and could delay our production plans for Model S.
Our business may be adversely affected by union activities.
Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally
for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work
stoppages. Our employees may join or seek recognition to form a labor union, or we may be required to become a union signatory. Our
automobile production facility in Fremont, California was purchased from NUMMI. Prior employees of NUMMI were union members and our
future work force at this facility may be inclined to vote in favor of forming a labor union. We also own and operate another component
manufacturing facility in Lathrop, California. Furthermore, we are directly or indirectly dependent upon companies with unionized work forces,
such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material
adverse impact on our business, financial condition or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our
performance electric vehicles and have a material adverse effect on our business, prospects, operating results or financial condition. The mere
fact that our labor force could be unionized may harm our reputation in the eyes of some investors and thereby negatively affect our stock price.
Consequently, the unionization of our labor force could negatively impact the company’s health.
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