Tesla 2015 Annual Report Download - page 36

Our insurance strategy may not be adequate to protect us from all business risks.
We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims
against us, for which we may have no insurance coverage. While we currently maintain general liability, automobile, property, workers’
compensation, and directors’ and officers’ insurance policies, as a general matter, we do not maintain as much insurance coverage as many other
companies do, and in some cases, we do not maintain any at all. Additionally, the policies that we do have may include significant deductibles,
and we cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. A loss that is uninsured or which
exceeds policy limits may require us to pay substantial amounts, which could adversely affect our financial condition and operating results.
Our financial results may vary significantly from period-to-period due fluctuations in our operating costs and the seasonality of our
business.
We expect our period-to-period operating results to vary based on our operating costs which we anticipate will increase significantly in
future periods as we, among other things, design, develop and manufacture Model X and future products, increase the production capacity at our
manufacturing facilities to produce vehicles at higher volumes, develop the Gigafactory, open new Tesla service centers with maintenance and
repair capabilities, open new Supercharger locations, increase our sales and marketing activities, and increase our general and administrative
functions to support our growing operations. As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results,
especially in the short-
term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.
Moreover, our operating results may not meet expectations of equity research analysts or investors. If any of this occurs, the trading price of our
common stock could fall substantially, either suddenly or over time.
Additionally, sales of new cars in the automobile industry typically decline over the winter season and are generally higher during the
spring and summer months. We anticipate that our sales of Model S and future models may have similar seasonality, but our limited operating
history makes it difficult for us to judge the exact nature or extent of the seasonality of our business. Our operating results could also suffer if we
do not achieve revenue consistent with our expectations for this seasonal demand because many of our expenses are based on anticipated levels
of annual revenue.
Unauthorized control or manipulation of our vehicles’ systems may cause them to operate improperly or not at all, or compromise their
safety and data security, which could result in loss of confidence in us and our vehicles and harm our business.
There have been reports of vehicles of other automobile manufacturers being “hacked” to grant access and operation of the vehicles to
unauthorized persons and would-be thieves. Our vehicles, and in particular Model S, are technologically advanced machines requiring the
interoperation of numerous complex and evolving hardware and software systems. Subject to our customers’ ability to opt out pursuant to our
privacy policy, Model S is designed with built-in data connectivity to accept and install periodic remote updates from us to improve or update
the functionality of these systems. Although we have designed, implemented and tested security measures to prevent unauthorized access to our
vehicles and their systems, our information technology networks and communications with our vehicles may be vulnerable to interception,
manipulation, damage, disruptions or shutdowns due to attacks by hackers or breaches due to errors by personnel who have access to our
networks and systems. Any such attacks or breaches could result in unexpected control of or changes to our vehicles’
functionality, user interface
and performance characteristics. Hackers may also use similar means to gain access to data stored in or generated by the vehicle, such as its
current geographical position, previous and stored destination address history and web browser “favorites.” Any such unauthorized control of
vehicles or access to or loss of information could result in legal claims or proceedings and negative publicity, which would negatively affect our
brand and harm our business, prospects, financial condition and operating results.
The range and power of our electric vehicles on a single charge declines over time, and this may negatively influence potential
customers’ decisions whether to purchase our vehicles.
The range and power of our electric vehicles on a single charge declines principally as a function of usage, time and charging patterns as
well as other factors. How a customer uses their Tesla vehicle, the frequency of recharging the battery pack at a low state of charge and the
means of charging can result in additional deterioration of the battery pack’s ability to hold a charge over the long term. For example, we
currently expect that our battery pack for the Tesla Roadster will retain approximately 70% of its ability to hold its initial charge after
approximately 100,000 miles or seven years, which will result in a decrease to the vehicle’s initial range and power. Preliminary internal testing
and customer results of Model S to date suggest that deterioration of the Model S battery pack to be less than the Roadster, however, such battery
pack deterioration and the related decrease in range and power over time as well as any perceived deterioration or fluctuation in range may
negatively influence potential customer decisions whether to purchase our vehicles, which may harm our ability to market and sell our vehicles.
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