Tesla 2016 Annual Report Download - page 35

WecurrentlyofferleasesintheU.S.directlyfromourcaptivefinancingentity,aswellasthroughaleasingpartner.LeasingthroughTeslaFinanceisnow
availablein39statesandtheDistrictofColumbia.WealsoofferfinancingarrangementsthroughentitiesinCanada,GermanyandUK.AsofDecember31,
2015,wehadleasedapproximately3,660vehiclesthroughourcaptivefinancingentitiesintheU.S.andGermanyandapproximately6,730vehiclesthroughour
leasingpartner.Leasingthroughbothourcaptivefinancingentitiesandourleasingpartnerexposesustoresidualvalueriskandwilladverselyimpactournear-
termoperatingresultsbyrequiringthedeferralofrevenuesandcostsintofutureperiodsunderleaseaccounting.Inaddition,forleasesoffereddirectlyfromour
captivefinancingentities(butnotforthoseofferedthroughourbankpartner),wewillnotreceivethefullamountofthecashforthevehiclepriceatdeliveryand
willassumecustomercreditrisk.Weplantocontinueexpandingourleasingofferings.
TheGigafactory
WearedevelopingtheGigafactoryasafacilitywhereweworktogetherwithoursupplierstointegrateproductionofbatterymaterial,cells,modulesand
batterypacksinonelocation.WebrokegroundontheGigafactoryinJune2014andbeganassemblingourTeslaEnergyproductsinthefirstportionofthefacility
inthefourthquarterof2015.Wecurrentlyexpecttoproducecellsatthissitebeginningin2016foruseinitiallyinourTeslaEnergyproductsandlaterforour
vehicles.Overthenextfewyears,wewillcontinuetoinvestintheexpansionofadditionalTeslaEnergyproductioncapacity.
WecontinuetoinvestinconstructionofthebuildingandutilitiesattheGigafactoryandinproductionequipmentforbattery,moduleandpackproduction.
WewillberesponsiblefortheoverallmanagementoftheGigafactoryandwillengagewithpartnerswhohavesignificantexperienceinbatterycellandmaterial
production.PanasonichasagreedtopartnerwithusontheGigafactorywithinvestmentsinproductionequipmentthatitwillusetomanufactureandsupplyuswith
batterycells.UnderourarrangementwithPanasonic,weplantopurchasethefulloutputfromtheirproductionequipmentatnegotiatedprices.Astheseterms
conveyarighttousetheproductionrelatedassetsasdefinedwithinASC840–Leases,wewillconsidertheseleasedassetsbeginningwiththestartofcell
productionin2016.
Giventhesizeandcomplexityofthisundertaking,thecostofbuildingandoperatingtheGigafactorycouldexceedourcurrentexpectations,wemayhave
difficultysigningupadditionalpartners,andtheGigafactorymaytakelongertobringonlinethanweanticipate.
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Critical Accounting Policies and Estimates
OurconsolidatedfinancialstatementsarepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates.Thepreparationof
theseconsolidatedfinancialstatementsrequiresustomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenues,costsand
expensesandrelateddisclosures.Webaseourestimatesonhistoricalexperience,asappropriate,andonvariousotherassumptionsthatwebelievetobereasonable
underthecircumstances.Changesintheaccountingestimatesarereasonablylikelytooccurfromperiodtoperiod.Accordingly,actualresultscoulddiffer
significantlyfromtheestimatesmadebyourmanagement.Weevaluateourestimatesandassumptionsonanongoingbasis.Totheextentthattherearematerial
differencesbetweentheseestimatesandactualresults,ourfuturefinancialstatementpresentation,financialcondition,resultsofoperationsandcashflowswillbe
affected.Webelievethatthefollowingcriticalaccountingpoliciesinvolveagreaterdegreeofjudgmentandcomplexitythanourotheraccountingpolicies.
Accordingly,thesearethepolicieswebelievearethemostcriticaltounderstandingandevaluatingourconsolidatedfinancialconditionandresultsofoperations.
RevenueRecognition
Werecognizerevenueforproductsandserviceswhen:(i)apersuasiveevidenceofanarrangementexists;(ii)deliveryhasoccurredandthereareno
uncertaintiesregardingcustomeracceptance;(iii)pricingorfeesarefixedordeterminable;and(iv)collectionisreasonablyassured.
Vehiclesalesincludestandardfeatures,customerselectedoptionsandaccessories,andspecificotherelementsthatmeetthedefinitionofadeliverable
undermultiple-elementaccountingguidanceincludingfreeinternetconnectivity,accesstoourSuperchargernetwork,andfutureovertheairsoftware
updates.Thesedeliverablesarevaluedonastand-alonebasisandwerecognizetheirrevenueoverourperformanceperiod,whichisgenerallytheeight-yearlifeof
thevehicle,exceptforinternetconnectivitywhichisoverthefreefouryearperiod.Ifweselladeliverableseparately,weusethatpricingtodetermineitsfair
value;otherwise,weuseourbestestimatedsellingpricebyconsideringcostsusedtodevelopanddelivertheservice,thirdpartypricingofsimilaroptions,and
otherinformationwhichmaybeavailable.
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