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I TEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 2015 Highlights
Wedesign,develop,manufacture,andsellhigh-performancefullyelectricvehicles,andenergystorageproducts.Wearecurrentlyproducingandsellingour
ModelSsedanandourModelXsportutilityvehicle.SincetheintroductionofModelSinJune2012,wehaveenhancedourvehicleofferingswithall-wheeldrive
capability,autopilotoptions,andfreeover-the-airsoftwareupdates.WecommencedcustomerdeliveriesofourModelXinSeptember2015andarecurrently
rampingproduction.Wehavedeliveredover107,000vehiclesthroughDecember31,2015.WeintendtounveilModel3,alowerpricedsedandesignedforthe
massmarket,inthefirstquarterof2016andexpecttocommenceproductionanddeliveriesofthisvehicleinlate2017.
Inadditiontoourautomotiveproducts,werecentlyannouncedthenextgenerationofourenergystorageproducts,the7kWhand10kWhPowerwallfor
residentialapplicationsandthe100kWhPowerpackforcommercialandindustrialapplications.Webeganproductionanddeliveriesoftheseproducts,whichwe
willsellundertheTeslaEnergybrand,inthethirdquarterof2015.WetransitionedtheproductionoftheseproductsfromtheFremontFactorytotheGigafactory
duringQ42015.
Ourprimarysourceofrevenueisfromthesaleofourvehicles.DuringtheyearendedDecember31,2015,werecognizedtotalrevenuesof$4.05billion,an
increaseof$847.7millionovertotalrevenuesof$3.20billionfortheyearendedDecember31,2014,primarilydrivenbygrowthofModelSdeliveriesworldwide.
GrossmarginfortheyearendedDecember31,2015was22.8%,adecreasefrom27.6%fortheyearendedDecember31,2014.
WecontinuetoincreaseoursalesandservicefootprintworldwideandexpandourSupercharginganddestinationchargingnetworks.Withthecontinued
globalexpansionofourcustomersupportandSuperchargerinfrastructure,selling,generalandadministrativeexpenseswere$922.2millionfortheyearended
December31,2015,comparedto$603.7millionfortheyearendedDecember30,2014.
Management Opportunities, Challenges and Risks
VehicleOrders,ProductionandDeliveries
WearecurrentlyproducingandsellingboththeModelSsedanandtheModelXsportutilityvehicle.WehavebroadenedtheappealofModelSby
introducingnewvariantsthatimproverange,performance,andvalue.Forthosewantingamoreaffordablecar,weintroducedModelS70withastartingpriceof
only$70,000beforeincentivesandfuelsavings.Ournew90kWhbatterypackoptionenablesalmost300milesofrangeat65mph.Finally,forourperformance
enthusiasts,thenewLudicrousmodeoptionimproves0to60mphaccelerationto2.8seconds.TheintroductionofModelXnowprovidescustomerswitha
performanceelectricvehicleoptioninthesportutilitysegmentforthefirsttime.SimilartoModelS,weexpecttointroducenewversionsandfunctionalityforthe
ModelXovertime.Overall,weexpectthatdemandforourvehicleswillcontinuetoincreaseworldwideasmorepeopledriveandbecomeawareofourvehicles,
aswegrowourcustomersalesandserviceinfrastructure,andaswecontinuetodevelopourproducts.
Wehavebeenincreasingourproductionactivitiesandexpecttocontinuetodoso.InAugust2014,webeganasignificantproductioncapacityincreaseat
theTeslaFactorybytransitioningtoournewfinalassemblylineandupgradingourbodycenter.Theseproductioncapacityincreasescontinuedinto2015,with
furtherinvestmentsincludingbuildinganewpaintshop,anewbodyshopforModelX,andadditionalstampingcapacity.Weexpectourannualproductionwill
increaseconsiderablyeachyearforthenextseveralyears.Inaddition,scalingourdeliveriesmeansthatwewillhaveanincreasingnumberofcarsin-transit,
thereforeproductionwillexceeddeliveries.
During2015,weachievedsignificantefficienciesinModelSproductionandproduced14,037vehiclesinthefourthquarterof2015.Webeganproduction
ofModelXinthethirdquarterof2015.Weplantodeliver80,000to90,000newModelSandModelXvehiclesin2016.
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