Tesla 2015 Annual Report Download - page 34

We are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comply with these regulations
could substantially harm our business and operating results.
The production and sale of motor vehicles, in general and specifically related to electric vehicles, are subject to substantial regulation
under international, federal, state, and local laws. We have incurred, and expect to continue to incur, significant costs in complying with these
regulations.
Regulations related to the electric vehicle industry and alternative energy are currently evolving and we face risks associated with changes
to these regulations. In the United States, the following are examples of regulatory and statutory issues facing us:
In addition, as the automotive industry moves towards greater use of electronics in vehicle systems, NHTSA and other regulatory bodies
may regulate these electronic systems more stringently, particularly as concerns about distracted driving increase. Such concerns could affect use
of electronic systems in Model S, such as the 17 inch display screen, which could reduce the appeal of Model S or require adjustments to the
display screen’s functionality.
As we are currently delivering vehicles in Europe and Asia, we are subject to laws and regulations applicable to the import, sale and
service of automobiles in those regions. For example, we are required to meet vehicle-specific safety standards that are often materially different
from U.S. requirements, thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance. Unlike in the U.S.
where we self-certify our vehicles’ compliance with standards, we must obtain advanced approval from regulatory agencies regarding the proper
certification or homologation of our vehicles to enter into these markets. This process necessitates that foreign regulatory officials review and
certify our vehicles prior to market entry. In addition, we must comply with regulations applicable to vehicles after they enter the market,
including foreign reporting requirements and recall management systems.
To the extent U.S. or international laws change, some or all of our vehicles may not comply with any new applicable international,
federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome,
time consuming, and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition
and operating results will be adversely affected.
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the imposition of a carbon tax or the introduction of a cap
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and
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trade system on electric utilities could increase the cost of electricity;
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● increasingly stringent Clean Air Act emission regulations affecting power plants used to generate electricity could increase the cost
of electricity;
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● changes to the regulations governing the assembly and transportation of lithium-ion battery packs, such as the UN
Recommendations of the Safe Transport of Dangerous Goods Model Regulations or regulations adopted by the U.S. Pipeline and
Hazardous Materials Safety Administration (PHMSA) could increase the cost of lithium
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ion battery packs or restrict their transport;
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the amendment or rescission of the federal law and regulations mandating increased fuel economy in the United States, referred to as
the Corporate Average Fuel Economy (CAFE) standards, could reduce new business opportunities for our powertrain sales and
development activities;
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● the amendment or rescission of federal greenhouse gas tailpipe emission regulations administered by EPA under the authority of the
Clean Air Act could reduce new business opportunities for our powertrain sales and development activities;
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● the amendment or rescission of California’s zero emission vehicle (ZEV) regulations administered by the California Air Resources
Board under the California Health & Safety Code could reduce new business opportunities for our powertrain sales and development
activities, as well as our ability to monetize ZEV credits not only in California, but also in the eleven additional states that have
adopted the California program;
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● increased sensitivity by regulators to the needs of established automobile manufacturers with large employment bases, high fixed
costs and business models based on the internal combustion engine could lead them to pass regulations that could reduce the
compliance costs of such established manufacturers or mitigate the effects of government efforts to promote alternative fuel
vehicles;
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● changes to the vehicle-specific Federal Motor Vehicle Safety Standards, which govern how all motor vehicles are made within the
United States, could result in costly changes to how current vehicles are produced; and
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● changes to regulations governing the export of our products could increase our delivery costs to outside the United States or force us
to charge consumers in such jurisdictions a higher price for our vehicles.
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