Tesla 2016 Annual Report Download - page 16

Whilewemaybeabletoestablishalternatesupplyrelationshipsorengineerreplacementcomponentsforoursinglesourcecomponents,wemaybeunable
todosointheshortterm,oratall,atpricesorcoststhatarefavorabletous.Inparticular,whilewebelievethatwewillbeabletosecurealternatesourcesof
supplyformostofoursinglesourcedcomponentsinarelativelyshorttimeframe,qualifyingalternatesuppliersordevelopingourownreplacementsforcertain
highlycustomizedcomponentsofourvehiclesmaybetimeconsuming,costlyandmayforceustomakeadditionalmodificationstoavehicle’sdesign.
Thislimitedsupplychainexposesustomultiplepotentialsourcesofdeliveryfailureorcomponentshortagesfortheproductionofourvehiclesand
powertraincomponents.WemayexperiencedelaysduetosupplychaindisruptionswithrespecttoModelS,ModelX,Model3andanyotherfuturevehiclewe
mayproduce,suchasthoseweexperiencedin2012inconnectionwithourslower-than-anticipatedModelSramp.Inaddition,ourcurrentlyongoingtransition
fromlowtohighvolumeproductiontoolingforModelXmaytakelongerthanexpectedwhichmayadverselyimpactourshort-termfinancialresults.
Changesinbusinessconditions,laborissues,wars,governmentalchanges,naturaldisasterssuchastheMarch2011earthquakesinJapanandotherfactors
beyondourcontrolorwhichwedonotpresentlyanticipate,couldalsoaffectoursuppliers’abilitytodelivercomponentstousonatimelybasis.Furthermore,ifwe
experiencesignificantlyincreaseddemand,orneedtoreplacecertainexistingsuppliers,therecanbenoassurancethatadditionalsuppliesofcomponentpartswill
beavailablewhenrequiredontermsthatarefavorabletous,orthatanysupplierwouldallocatesufficientsuppliestousinordertomeetourrequirementsorfill
ourordersinatimelymanner,orthatwecouldengineerreplacementcomponentsourselves.
Changesinoursupplychainhaveresultedinthepast,andmayresultinthefuture,inincreasedcost.Wehavealsoexperiencedcostincreasesfromcertain
ofoursuppliersinordertomeetourqualitytargetsanddevelopmenttimelinesaswellasduetodesignchangesthatwemade,andwemayexperiencesimilarcost
increasesinthefuture.Additionally,wearenegotiatingwithexistingsuppliersforcostreductions,seekingnewandlessexpensivesuppliersforcertainparts,and
attemptingtoredesigncertainpartstomakethemlessexpensivetoproduce.Ifweareunsuccessfulinoureffortstocontrolandreducesuppliercosts,ouroperating
resultswillsuffer.
Finally,inOctober2013,weenteredintoanamendmenttoourexistingsupplyagreementwithPanasonicCorporationinordertoaddressouranticipated
short-tomedium-termlithium-ionbatterycellneeds.Whileweexpectthatthissupplyagreement,asamended,willprovideuswithsufficientcellsforthenextfew
years,wemaynotbeabletomeetourlong-termneeds,includingforModel3andotherprogramswemayintroduce,withoutsecuringadditionalsuppliersorother
sourcesforcells.WehavesignedanagreementwithPanasonictobeourpartnerintheGigafactoryandberesponsiblefor,amongotherthings,manufacturingcells
fromthereforuseinourproducts.Ifweencounterunexpecteddifficultieswithourcurrentsuppliers,includingPanasonic,andifweareunabletofilltheseneeds
fromothersuppliers,wecouldexperienceproductiondelays,whichcouldhaveamaterialadverseeffectonourfinancialconditionandoperatingresults.
Our future growth is dependent upon consumers’ willingness to adopt electric vehicles.
Ourgrowthishighlydependentupontheadoptionbyconsumersofalternativefuelvehiclesingeneralandelectricvehiclesinparticular.Ifthemarketfor
electricvehiclesdoesnotdevelopasweexpect,ordevelopsmoreslowlythanweexpect,ourbusiness,prospects,financialconditionandoperatingresultswillbe
harmed.Themarketforalternativefuelvehiclesisrelativelynew,rapidlyevolving,andsubjecttonumerousexternalfactors,suchas:
·perceptionsaboutelectricvehiclequality,safety,performance,cost,andtheconvenienceofcharging;
·perceptionsaboutthelimitedrangeoverwhichelectricvehiclesmaybedrivenonasinglebatterycharge;
·theavailabilityofothertypesofalternativefuelvehicles,includingplug-inhybridelectricvehicles,improvementsinthefueleconomyofthe
internalcombustionengine;
·volatilityinthecostofoilandgasoline;
·governmentregulationsandeconomicincentives;
·andaccesstochargingfacilities.
If we fail to manage future growth effectively as we rapidly grow our company, especially internationally, we may not be able to produce, market, sell
and service our vehicles successfully.
Anyfailuretomanageourgrowtheffectivelycouldmateriallyandadverselyaffectourbusiness,prospects,operatingresultsandfinancialcondition.We
continuetoexpandouroperationssignificantlyinternationally,particularlyinAsia.Ourfutureoperatingresultsdependtoalargeextentonourabilitytomanage
thisexpansionandgrowthsuccessfully.Risksthatwefaceinundertakingthisglobalexpansionincludecontrollingexpenses;establishingsufficientsales,service
andSuperchargerfacilitiesinatimelymanner;adaptingourproductstomeetlocalrequirements;implementingtherequiredinfrastructure,systemsandprocesses;
andfindingandhiringasignificantnumberofadditionalpersonnel,includingmanufacturingpersonnel,designpersonnel,engineersandservicetechnicians.
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