Tesla 2016 Annual Report Download - page 40

GrossprofitfortheyearsendedDecember31,2015,2014,and2013were$923.5million,$881.7millionand$456.3millionGrossmarginfortheyears
endedDecember31,2015,2014,and2013were22.8%,27.6%,and22.7%.Thelowermarginin2015ascomparedto2014wasprimarilyduetoproductand
regionalmixshift,asagreaterpercentageofsaleswerederivedfromvehiclemodelswithloweraveragesellingprices,andincreasedmanufacturingcostsrelated
totherampinproductionofthesmalldriveunitfordualmotorModelSvehiclesandstartofModelXproduction,obsoleteinventoryandlowerZEVcredits
revenue.Thismargindecreasewaspartiallyoffsetbyanincreasingamountofrevenuesfromvehiclesaccountedforasleasesincludingdirectleasevehiclesand
thoseunderourresalevalueguaranteeprogramswhichhaveasignificantlyhighergrossmarginandfrommaterialcostsavings.Servicesandothergrossmargin
werealsodownyearoveryear,primarilydrivenbyaplannedpricereductionforpowertrainsalestoDaimler.Theincreaseingrossprofitfrom2013to2014was
primarilyduetomanufacturingandsupplychainefficienciesaswellascomponentcostreductionsandhigherregulatorycreditsales,partiallyoffsetby
manufacturinginefficienciesassociatedwithtransitioningtoournewfinalassemblylineandlaunchofAll-WheelDriveDualMotorModelS.
Research and Development Expenses
Researchanddevelopment(R&D)expensesconsistprimarilyofpersonnelcostsforourteamsinengineeringandresearch,supplychain,quality,
manufacturingengineeringandmanufacturingtestorganizations,prototypingexpense,contractandprofessionalservicesandamortizedequipmentexpense.
R&DexpensesfortheyearendedDecember31,2015were$717.9million,anincreasefrom$464.7millionfortheyearendedDecember31,2014.The
increaseinR&Dexpensesconsistedprimarilyofa$93.9millionincreaseinexpensedmaterialsprimarilytosupportourModelXdevelopmentandModelS
improvements,a$75.9millionincreaseinemployeecompensationexpenses,a$30.6millionincreaseinfacilitiesanddepreciationcosts,a$20.1millionincrease
incostsrelatedtoModelX,Autopilotanddualmotorpowertrainengineering,designandtestingactivitiesanda$22.8millionincreaseinstock-based
compensationexpenserelatedtoincreasedheadcountandincreasingvaluesofawardsgranted.
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.The
increaseinR&Dexpensesconsistedprimarilyofan$85.3millionincreaseinemployeecompensationexpenses,a$60.7millionincreaseinexpensedmaterials
primarilytosupportourModelX,dualmotorpowertrainandright-handdriveModelSdevelopment,a$50.9millionincreaseincostsrelatedtoModelX,dual
motorpowertrainandright-handdriveModelSengineering,designandtestingactivities,a$28.1millionincreaseinstock-basedcompensationexpenserelatedto
increasedheadcountandincreasingvaluesofawardsgranted,a$4.1millionincreaseinoffice,informationtechnologyandfacilities-relatedcostsanda$3.3
millionincreaseinshippingchargesforModelX,dualmotorpowertrainandright-handdriveModelSdevelopment.
Selling, General and Administrative Expenses
Selling,generalandadministrative(SG&A)expensesconsistprimarilyofpersonnelandfacilitiescostsrelatedtoourTeslaretailandservicestores,
marketing,sales,executive,finance,humanresources,informationtechnologyandlegalorganizations,settlementsandfeesforprofessionalandcontractservices
supportingthesefunctions.
SG&AexpensesfortheyearendedDecember31,2015were$922.2million,anincreasefrom$603.7millionfortheyearendedDecember31,2014.SG&A
expensesincreasedprimarilyfromhigherheadcountandfacilitycosts,includingstockbasedcompensation,tosupportanexpandedretail,serviceandSupercharger
footprintaswellasthegeneralgrowthofthebusiness.TheincreaseinourSG&Aexpensesconsistedprimarilyofa$138.4millionincreaseinemployee
compensationexpensesrelatedtohighersales,serviceandmarketingheadcounttosupportsalesactivitiesworldwideandhighergeneralandadministrative
headcounttosupporttheexpansionofthebusiness,$126.1millionincreaseinoffice,informationtechnologyandfacilities-relatedcoststosupportthegrowthof
ourbusinessaswellassalesandmarketingactivitiestohandleourexpandingmarketpresence,a$41.8millionincreaseinprofessionalandoutsideservicescosts,
anda$12.2millionincreaseinstockbasedcompensation.
SG&AexpensesfortheyearendedDecember31,2014were$603.7million,anincreasefrom$285.6millionfortheyearendedDecember31,2013.SG&A
expensesincreasedprimarilyfromhigherheadcountandfacilitycoststosupportanexpandedretail,serviceandSuperchargerfootprintaswellasthegeneral
growthofthebusiness.The$318.1millionincreaseinourSG&Aexpensesconsistedprimarilyofa$141.1millionincreaseinemployeecompensationexpenses
relatedtohighersales,serviceandmarketingheadcounttosupportsalesactivitiesworldwideandhighergeneralandadministrativeheadcounttosupportthe
expansionofthebusiness,a$135.9millionincreaseinoffice,informationtechnologyandfacilities-relatedcoststosupportthegrowthofourbusinessaswellas
salesandmarketingactivitiestohandleourexpandingmarketpresence,a$35.8millionincreaseinstock-basedcompensationexpenserelatedtoadditional
headcountandincreasingvalueofawardsgrantedanda$27.2millionincreaseinprofessionalandoutsideservicescosts.
Interest Expense
InterestexpensefortheyearsendedDecember31,2015,2014,and2013was$118.9million,$100.9million,and$32.9million.Theincreaseininterest
expenseisprimarilyduetotheissuanceof$920.0millionaggregateprincipalamountof2019Notesand$1.38billionaggregateprincipalamountof2021Notes
duringthefirsthalfof2014.
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