Tesla 2016 Annual Report Download - page 60

Warranties
Weprovideamanufacturer’swarrantyonallvehicles,productionpowertraincomponentsandsystems,andTeslaEnergyproductswesell.Weaccruea
manufacturer’swarrantyreservewhichincludesourbestestimateoftheprojectedcoststorepairortoreplaceitemsunderwarranty.Theseestimatesarebasedon
actualclaimsincurredto-dateandanestimateofthenature,frequencyandcostsoffutureclaims.Theseestimatesareinherentlyuncertainandchangestoour
historicalorprojectedwarrantyexperiencemaycausematerialchangestoourwarrantyreserveinthefuture.Theportionofthewarrantyprovisionexpectedtobe
incurredwithin12monthsisclassifiedascurrentwithinaccruedliabilities,whiletheremainingamountisclassifiedaslong-termwithinotherlong-termliabilities.
Accruedwarrantyactivityconsistedofthefollowingfortheperiodspresented(inthousands):

 Year Ended December 31,
 2015 2014 2013
Accruedwarranty—beginningofperiod  $ 129,043  $ 53,182  $ 13,013
Warrantycostsincurred   (52,760)   (39,903)  (19,160)
Netchangesinliabilityforpre-existingwarranties,
includingexpirations   1,470   18,599   (2,072)
Provisionforwarranty   103,001   97,165   61,401
Accruedwarranty—endofperiod  $ 180,754  $ 129,043  $ 53,182
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Ourwarrantyreservesdonotincludeprojectedwarrantycostsassociatedwithourvehiclesaccountedforasoperatingleasesorcollateralizeddebt
arrangements.Coststorepairthesevehiclesareexpensedasincurred.ForthetwelvemonthsendedDecember31,2015,andDecember31,2014warrantycosts
incurredforvehiclesaccountedforasoperatingleasesorcollateralizeddebtarrangementswere$9.5millionand$7.1million.Warrantyexpenseisrecordedasa
componentofcostofautomotiverevenue.
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NetLossperShareofCommonStock
Ourbasicanddilutednetlosspershareofcommonstockiscalculatedbydividingnetlossbytheweighted-averagesharesofcommonstockoutstandingfor
theperiod.Potentiallydilutiveshares,whicharebasedonthenumberofsharesunderlyingoutstandingstockoptionsandwarrantsaswellasourNotes,arenot
includedwhentheireffectisantidilutive.
Thefollowingtablepresentsthepotentialweightedcommonsharesoutstandingthatwereexcludedfromthecomputationofbasicanddilutednetlossper
shareofcommonstockfortheperiods,relatedtothefollowingsecurities:

 Year Ended December 31,
2015 2014 2013
Employeesharebasedawards   15,592,736   14,729,749   13,904,875
Convertibleseniornotes   2,431,265   2,344,998   411,560
WarrantsissuedMay2013   1,049,791   921,985   —
DOEwarrant   —  —   1,061,439
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Sinceweexpecttosettletheprincipalamountofouroutstandingconvertibleseniornotesincash,weusethetreasurystockmethodforcalculatingany
potentialdilutiveeffectoftheconversionspreadondilutednetincomepershare,ifapplicable.Theconversionspreadwillhaveadilutiveimpactondilutednet
incomepershareofcommonstockwhentheaveragemarketpriceofourcommonstockforagivenperiodexceedstheconversionpriceof$124.52,$359.87,and
$359.87pershareforthe2018Notes,2019Notesand2021Notes.
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Note 3 - Financial Instruments
FairValueMeasurements
Thecarryingvaluesofourfinancialinstrumentsincludingcashequivalents,marketablesecurities,accountsreceivableandaccountspayableapproximate
theirfairvalueduetotheirshort-termnature.Asabasisfordeterminingthefairvalueofcertainofourassetsandliabilities,weestablishedathree-tierfairvalue
hierarchywhichprioritizestheinputsusedinmeasuringfairvalueasfollows:(LevelI)observableinputssuchasquotedpricesinactivemarkets;(LevelII)inputs
otherthanthequotedpricesinactivemarketsthatareobservableeitherdirectlyorindirectly;and(LevelIII)unobservableinputsinwhichthereislittleorno
marketdatawhichrequiresustodevelopourownassumptions.Thishierarchyrequiresustouseobservablemarketdata,whenavailable,andtominimizetheuse
ofunobservableinputswhendeterminingfairvalue.Ourfinancialassetsthataremeasuredatfairvalueonarecurringbasisconsistofcashequivalentsand
marketablesecurities.
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