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Beginningin2015ourexpectedvolatilityisderivedfromourimpliedvolatilityonpubliclytradedoptionsofourcommonstockandthehistoricalvolatility
ofourcommonstock.Priorto2015,ourexpectedvolatilitywasderivedfromourimpliedvolatilityonpubliclytradedoptionsofourcommonstockandthe
historicalvolatilitiesofseveralunrelatedpubliccompanieswithinindustriesrelatedtoourbusiness,includingtheautomotiveOEM,automotiveretail,automotive
partsandbatterytechnologyindustries,becausewehadlimitedtradinghistoryonourcommonstock.Whenmakingtheselectionsofourpeercompanieswithin
industriesrelatedtoourbusinesstobeusedinthevolatilitycalculation,wealsoconsideredthestageofdevelopment,sizeandfinancialleverageofpotential
comparablecompanies.Ourhistoricalvolatilityandimpliedvolatilityareweightedbasedoncertainqualitativefactorsandcombinedtoproduceasinglevolatility
factor.
Theweighted-averagegrant-datefairvalueforoptionawardsgrantedduringtheyearsendedDecember31,2015,2014and2013was$108.28,$94.01and
$40.72pershare.Theweighted-averagegrant-datefairvalueforESPPgrantedduringtheyearsendedDecember31,2015,2014and2013was$58.77,$74.07and
$19.22pershare.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfairmarketvalueofourcommonstock.
Performance-Based Stock Options
In2014,tocreateincentivesforcontinuedlongtermsuccessbeyondtheModelSprogramandtocloselyalignexecutivepaywithourstockholders’
interestsintheachievementofsignificantmilestonesbyourcompany,theCompensationCommitteeofourBoardofDirectorsgrantedstockoptionstocertain
employeestopurchaseanaggregate1,073,000sharesofourcommonstock.Eachsuchgrantconsistsoffourvestingtrancheswithavestingschedulebasedentirely
ontheattainmentoffutureperformancemilestones,assumingcontinuedemploymentandservicetousthrougheachvestingdate.
·1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstModelXProductionVehicle;
·1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievingaggregatevehicleproductionof100,000vehiclesinatrailing12-
monthperiod;
·1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstGenIIIProductionVehicle;and
·1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievementofannualizedgrossmarginofgreaterthan30.0%inanythreeyears
AsofDecember31,2015,thefollowingperformancemilestonewereachievedandapprovedbyourBoardofDirectors.
·CompletionofthefirstModelXProductionVehicle
Webeginrecordingstock-basedcompensationexpenseaseachmilestonebecomesprobable.AsofDecember31,2015,wehadunrecognizedcompensation
expenseof$68.7millionforthoseperformancemilestonesthatwerenotconsideredprobableofachievement.FortheyearsendedDecember31,2015and2014,
werecordedstock-basedcompensationexpenseof$10.4millionand$10.7millionrelatedtothisgrant.
2012 CEO Grant
InAugust2012,ourBoardofDirectorsgranted5,274,901stockoptionstoourCEO(2012CEOGrant).The2012CEOGrantconsistsoftenvesting
trancheswithavestingschedulebasedentirelyontheattainmentofbothperformanceconditionsandmarketconditions,assumingcontinuedemploymentand
servicetousthrougheachvestingdate.
Eachofthevestingtranchesrequiresacombinationofoneofthetenpre-determinedperformancemilestonesoutlinedbelowandanincrementalincreasein
ourmarketcapitalizationof$4.0billion,ascomparedtotheinitialmarketcapitalizationof$3.2billionmeasuredatthetimeofthe2012CEOGrant.
·SuccessfulcompletionoftheModelXAlphaPrototype;
·SuccessfulcompletionoftheModelXBetaPrototype;
·CompletionofthefirstModelXProductionVehicle;
·SuccessfulcompletionoftheModel3AlphaPrototype;
·SuccessfulcompletionoftheModel3BetaPrototype;
·CompletionofthefirstModel3ProductionVehicle;
·Grossmarginof30%ormoreforfourconsecutivequarters;
·Aggregatevehicleproductionof100,000vehicles;
·Aggregatevehicleproductionof200,000vehicles;and
·Aggregatevehicleproductionof300,000vehicles.
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