Tesla 2015 Annual Report Download - page 48

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that
appear elsewhere in this Annual Report on Form 10-K.
Overview and 2014 Highlights
We design, develop, manufacture and sell high-performance fully electric vehicles, advanced electric vehicle powertrain components and
stationary energy storage applications. We are currently producing and selling our second vehicle, the Model S sedan. Model S is a four door,
five-passenger premium sedan that offers exceptional performance, functionality and attractive styling. The Model S inherited many of the
electric powertrain innovations we introduced with our first vehicle, the Tesla Roadster. We commenced deliveries of Model S in June 2012 and
have delivered 56,768 vehicles through December 31, 2014. We recently announced the availability of our All-Wheel Drive Dual Motor Model
S and began delivery, starting with a performance-optimized version, in December 2014.
We are continuing to develop our Model X crossover vehicle and intend to commence customer deliveries in the third quarter of 2015.
After the Model X, our goal is to introduce Model 3, a lower priced sedan designed for the mass market, in 2017.
Our primary source of revenue is from the sale of our vehicles. During the year ended December 31, 2014, we recognized total revenues
of $3.20 billion, an increase of $1.19 billion over total revenues of $2.01 billion for the year ended December 31, 2013, primarily driven by
growth of Model S deliveries worldwide.
Gross margin for the year ended December 31, 2014 was 27.6%, a significant increase from 22.7% for the year ended December 31, 2013.
Higher vehicle production volume, supply chain efficiencies and component cost reductions, partially offset by one-time manufacturing
inefficiencies associated with transitioning to our new final assembly line and introduction of All-
Wheel Drive Dual Motor Model S, contributed
to higher gross margin in 2014.
Research and development (R&D) expenses for the year ended December 31, 2014 were $464.7 million, an increase from $232.0 million
for the year ended December 31, 2013. R&D expenses in 2014 reflected our engineering work on Model X as well as development work on our
dual motor powertrain and other development programs including localization efforts for foreign markets. R&D expenses in 2013 reflected our
activities on manufacturing process improvements, Model S cost reductions, the right-hand drive Model S and localization efforts for foreign
markets, as well as development work on Model X.
During 2014, we significantly increased our sales and service footprint worldwide, entered several new markets including China, as well
as accelerated the rollout of our Supercharging network. With the continued global expansion of our customer support infrastructure and the
business in general in 2014, selling, general and administrative expenses were $603.7 million for the year ended December 31, 2014, compared
to $285.6 million for the year ended December 31, 2013.
Management Opportunities, Challenges and Risks
Orders, Production and Deliveries
Our orders for Model S in 2014 significantly increased from the prior year as we expanded our operations internationally and introduced
Model S product enhancements. In October 2014, we revealed our All-Wheel Drive Dual Motor Model S and our Autopilot system. This
version of Model S proved very popular, leading to over 10,000 unfulfilled orders as of January 1, 2015. We expect that demand for Model S
will continue to increase worldwide as more people drive and become aware of our vehicles, as we grow our customer support infrastructure,
and as we broaden the appeal of our products.
As of December 31, 2014, we had received almost 20,000 reservations for Model X in advance of its planned introduction later this
year. We are continuing to test the Beta Model X prototypes, and plan to begin building and testing a small fleet of release candidate Model X
vehicles later in the first quarter of 2015. Our ability to launch the Model X program on time and cost efficiently is dependent upon a variety of
factors, including completion of production tooling, supplier readiness, engineering completion and the successful completion of our validation
testing.
In order to meet this anticipated demand for both Model S and Model X, we are executing a plan to increase our combined Model S and
Model X production capacity to over 2,000 units per week by the end of 2015. In August 2014, we began our production ramp by transitioning
to our new final assembly line and upgrading our body center. We are planning further investments in production capacity during 2015,
including building a new paint shop and a new body shop for Model X. We expect our annual production will increase by over 50% each year
for the next several years.
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S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS