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TESLA MOTORS INC
FORM 10-K
(Annual Report)
Filed 03/07/13 for the Period Ending 12/31/12
Address 3500 DEER CREEK RD
PALO ALTO, CA 94070
Telephone 650-681-5000
CIK 0001318605
Symbol TSLA
SIC Code 3711 - Motor Vehicles and Passenger Car Bodies
Industry Auto & Truck Manufacturers
Sector Consumer Cyclical
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2013, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    TESLA MOTORS INC FORM 10-K (Annual Report) Filed 03/07/13 for the Period Ending 12/31/12 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 3500 DEER CREEK RD PALO ALTO, CA 94070 650-681-5000 0001318605 TSLA 3711 - Motor Vehicles and Passenger Car Bodies Auto & Truck Manufacturers ...

  • Page 2
    ... on the closing price for shares of the registrant's Common Stock as reported by the NASDAQ Global Select Market on June 30, 2012). Shares of Common Stock held by each executive officer, director, and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be...

  • Page 3
    ... Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Exhibits and Financial Statement Schedules 4 24...

  • Page 4
    ... limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, profitability, expected cost reductions, capital adequacy, expectations regarding demand and acceptance for our technologies, growth opportunities and trends in the market...

  • Page 5
    ... have developed a full electric powertrain system for Toyota Motor Corporation (Toyota) for use in its RAV4 EV and began shipping production components to Toyota in 2012. We sell and service our electric vehicles through our company-owned sales and service network in North America, Europe and Asia...

  • Page 6
    ... for the purchase of alternative fuel vehicles. Even without the tax credit, we believe our list prices are competitive from a pricing perspective with other premium vehicles. We believe that Model S demonstrates our ability to produce increasingly affordable electric vehicles that offer long-range...

  • Page 7
    ... after giving effect to the continuation of a United States federal tax credit of $7,500 for the purchase of alternative fuel vehicles. Even without the tax credit, we believe the base list prices will be competitive with those of other premium vehicles. We also offer a performance version of Model...

  • Page 8
    ...battery pack options, with pricing of each version similar to those of a comparably equipped Model S. We currently intend to target an annual production rate of approximately 10,000 -15,000 cars per year from our Tesla Factory. We have also publicly announced our intent to develop a third generation...

  • Page 9
    ...: battery pack, power electronics, motor, gearbox and the control software which enables the components to operate as a system. We designed each of these major elements for our Tesla Roadster and Model S and plan to use much of this technology in Model X, our future electric vehicles and powertrain...

  • Page 10
    ...in our electric powertrain govern the flow of electrical current throughout the car, primarily the current that flows into and out of the battery pack. The power electronics has two primary functions, the control of torque generation in the motor while driving and the control of energy delivery back...

  • Page 11
    ... custom optimization to integrate with the powertrain of an electric vehicle. For example, we redesigned the heating, ventilation and air conditioning (HVAC) system to integrate with the battery thermal management system and to operate without the energy generated from an internal combustion engine...

  • Page 12
    ...separate sales and service locations in several markets. In April 2011, we opened our store at Santana Row in San Jose, California. The opening of our Santana Row store launched what we believe to be a new retail experience designed to engage and inform potential customers about electric vehicles in...

  • Page 13
    ... locations as of December 31, 2012. We are continuing our plan to build a number of additional service centers in several markets worldwide. Tesla Roadster owners can upload data from their vehicle and send it to us on a memory card and Model S owners can do the same via an on-board GSM system...

  • Page 14
    ...lithium-ion battery packs, electric motors, gearboxes and components both for our vehicles and for our original equipment manufacturer customers. These activities occur at our electric powertrain manufacturing facility in Palo Alto, California and at the Tesla Factory. Supply Chain Model S uses over...

  • Page 15
    ...not maintain long-term agreements with our suppliers. While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for our single source components, we may be unable to do so in the short term or at all at prices or costs that are...

  • Page 16
    ...strategic agreement, would limit us from developing technology with any third party for use in a Tesla-branded product or service or related to the Tesla Roadster or Model S, engaging in any transaction with a company that is not a Daimler competitor, or supplying components for electric powertrains...

  • Page 17
    ... services agreement with Toyota for the development of a validated powertrain system, including a battery, power electronics module, motor, gearbox and associated software, which will be integrated into an electric vehicle version of the Toyota RAV4. We completed all of the development services...

  • Page 18
    ...automobile manufacturers to sell the ZEV credits that we earn. Recently, California passed amendments to the ZEV mandate that would require all large volume manufacturers (those manufacturers selling 20,000 or more vehicles in California in 2018) to increase the number of zero emission vehicles sold...

  • Page 19
    ...of vehicles that we plan to manufacture in 2013. Our current agreements also provide for sale of substantially all of the GHG credits we will earn from the sale of vehicles that we manufacture in 2013 and 2014. Regulation-Vehicle Safety and Testing Our vehicles are subject to, and the Tesla Roadster...

  • Page 20
    ... highway testing cycles. In July 2011, the EPA announced new energy efficiency testing methodologies and labeling requirements for electric vehicles. These new requirements, when applied to our vehicles, resulted in a rated range of 265 miles for the 85 kWh battery pack equipped Model S and a rated...

  • Page 21
    ... engage in activities as a motor vehicle dealer in so far as we are permitted to do so as we open additional Tesla stores and service centers. Some states do not permit automobile manufacturers to be licensed as dealers or to act in the capacity of a dealer. To sell vehicles to residents of states...

  • Page 22
    ... safety and vehicle emissions, technological advances in powertrain and consumer electronics components, and shifting customer needs and expectations are causing the industry to evolve in the direction of electric-based vehicles. We believe the primary competitive factors in our markets include...

  • Page 23
    ...energy storage system (battery pack or fuel cell) which is refueled directly from an electricity source. Both the Tesla Roadster and Model S are examples of electric vehicles. Plug-in Hybrid Vehicles are vehicles powered by both a battery pack with an electric motor and an internal combustion engine...

  • Page 24
    ... position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively. We believe our exclusive focus on electric vehicles and electric vehicle components, as well as our history of vehicle development and production, are the basis on...

  • Page 25
    ...S production will depend upon a number of factors, including our suppliers' ability to deliver quality parts to us in a timely manner, our ability to use our manufacturing processes as planned for volume production while maintaining our desired quality levels and efficiently making design changes to...

  • Page 26
    ...level of in-house manufacturing process; and that the information technology systems that we are currently expanding and improving upon will be effective to manage high volume production. • • • Finally, detailed long-term testing of systems integration, performance and safety as well as long...

  • Page 27
    ... exposes us to multiple potential sources of delivery failure or component shortages for Model S, as well as for our powertrain component sales activities. For example, earthquakes similar to the one that occurred in Japan in March 2011 could negatively impact our supply chain. We have in the past...

  • Page 28
    ... or adapt our vehicles and introduce new models in order to continue to provide vehicles with the latest technology and meet customer expectations. To date, we have limited experience simultaneously designing, testing, manufacturing, upgrading, adapting and selling our electric vehicles. Our future...

  • Page 29
    ...customers that if their battery pack is not charged properly, it may become unusable and may need to be replaced; the availability of alternative fuel vehicles, including plug-in hybrid electric vehicles; improvements in the fuel economy of the internal combustion engine; the availability of service...

  • Page 30
    .... Our vehicle design and our engineering, manufacturing and component supply plans for Model S may continue to be adjusted. In addition, our powertrain component sales, development services revenue and powertrain research and development compensation have been almost entirely generated under...

  • Page 31
    ... or if we suffer product recalls for Model S, our ability to develop, market and sell our electric vehicles could be harmed. Our vehicles, or vehicles that contain our powertrains such as the Toyota RAV4 EV or future Daimler vehicles, may contain defects in design and manufacture that may cause them...

  • Page 32
    ... changes to software may have unexpected effects. Recent Model S issues experienced by customers include those related to the software for the 17 inch display screen and the retractable exterior door handles and the 12V battery. While we have performed extensive internal testing, we currently have...

  • Page 33
    ... that appear on new alternative fueled cars offered for sale starting with model year 2013 (i.e., the Monroney label). Prior to these amended requirements, we advertised that we planned to offer Model S with a variety of battery pack options, which we estimated would offer a range on a single charge...

  • Page 34
    ... ability to market and sell our vehicles. We are dependent upon our loan facility from the United States Department of Energy. We have relied on our DOE Loan Facility to develop and produce Model S and develop the Tesla Factory. Our DOE Loan Facility provided for a $465.0 million loan facility under...

  • Page 35
    ..., our volume production of Model S will necessitate the development, maintenance and improvement of our information technology systems which include product data management, procurement, inventory management, production planning and execution, sales and logistics, dealer management, financial and...

  • Page 36
    ...that our business strategy faces. Any failure to successfully address any of the risks, uncertainties and difficulties related to our business model would have a material adverse effect on our business and prospects. We may face regulatory limitations on our ability to sell vehicles directly or over...

  • Page 37
    ... ultimately take delivery on vehicles due to potential changes in customer preferences, competitive developments and other factors. For example, when we delayed the introduction of the original Tesla Roadster in the fall of 2007, we experienced a significant number of customers that cancelled their...

  • Page 38
    ...S and Model X. However, we have not yet finalized the design, engineering or component sourcing plans for these vehicles and there are no assurances that we will be able to bring these vehicles to market at the price points and in the volumes as we currently intend, if at all. Our failure to address...

  • Page 39
    ... to Model S, we face competition from existing and future automobile manufacturers in the extremely competitive premium sedan market, including Audi, BMW, Lexus and Mercedes. Many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel vehicle...

  • Page 40
    ... and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in a further downward price pressure and adversely affect our business, financial condition...

  • Page 41
    ..., design, develop and manufacture Model X and electric powertrain components, increase the production capacity at our manufacturing facilities to produce Model S and electric powertrain components, open new Tesla service centers with maintenance and repair capabilities, incur costs for warranty...

  • Page 42
    ...credit from government or financial institutions. This capital will be necessary to fund our ongoing operations, continue research and development projects, including those for our planned Model X crossover, establish sales and service centers and to make the investments in tooling and manufacturing...

  • Page 43
    ...known as the Tesla Rangers. However, certain service centers have been open for short periods, and to date we have only limited experience servicing our performance vehicles at these locations We will need to open new standalone service centers and hire and train significant numbers of new employees...

  • Page 44
    ..., maintain and strengthen the Tesla brand. Any failure to develop, maintain and strengthen our brand may materially and adversely affect our ability to sell the Tesla Roadster, Model S, Model X and future planned electric vehicles, and sell our electric powertrain components. If we do not continue...

  • Page 45
    ... at such rate and our planned expansion of our network of Tesla stores will require significant cash investment and management resources, as well as efficiency in the execution of establishing these storefronts and in hiring and training the necessary employees to effectively sell our vehicles. 44

  • Page 46
    ...requirements and economic conditions in these jurisdictions. Additionally, as part of our growth strategy, we intend to expand our sales, maintenance and repair services internationally. However, we have limited experience to date selling and servicing our vehicles internationally and such expansion...

  • Page 47
    ... alternative fuel vehicles generally and performance electric vehicles specifically. For example, we currently benefit from exemptions from California state sales and use taxes for purchases of up to $612 million of manufacturing equipment from our arrangements with the California Alternative Energy...

  • Page 48
    ... current $7,500 tax credit available to purchasers of qualified alternative fuel vehicles, including Model S. Also, government disincentives have been enacted in Europe for gas-powered vehicles, which discourage the use of such vehicles and allow us to set a higher sales price for the Tesla Roadster...

  • Page 49
    ... the future. Strategic business relationships will be an important factor in the growth and success of our business. For example, our strategic relationship with Daimler has provided us with various benefits and we have entered into an agreement for the supply of a validated electric powertrain for...

  • Page 50
    ...not manufacture battery cells, which makes us dependent upon other suppliers of battery cell technology for our battery packs. If we fail to manage future growth effectively as we rapidly grow our company, we may not be able to produce, market, sell and service our vehicles successfully. Any failure...

  • Page 51
    ...affiliates as of the date of the DOE Loan Facility. Mr. Musk's shares of our capital stock are held directly by his personal trust. Many members of our management team are new to the company or to the automobile industry, and execution of our business plan and development strategy could be seriously...

  • Page 52
    ... the Tesla Factory which affect soil and groundwater, and has undertaken efforts to address these conditions. Although we have been advised by NUMMI that it has documented and managed the environmental issues at the Fremont site, we cannot currently determine with certainty the total potential costs...

  • Page 53
    ... tax or the introduction of a cap-and-trade system on electric utilities could increase the cost of electricity; increasingly stringent Clean Air Act emission regulations affecting power plants used to generate electricity could increase the cost of electricity; changes to the regulations governing...

  • Page 54
    ... manufacturers or mitigate the effects of government efforts to promote alternative fuel vehicles; and changes to regulations governing the export of our products could increase our costs incurred to deliver products outside the United States or force us to charge a higher price for our vehicles...

  • Page 55
    ... world where we plan to sell our vehicles. In connection with the development and sale of Model S, Model X, and our future electric vehicles, we will need to comply with various additional safety regulations and requirements that were not applicable to the sales of our Tesla Roadsters, with which it...

  • Page 56
    ... systems, powertrain and brake system. We have previously provided our Tesla Roadster customers with a battery replacement option to replace the battery in their vehicles at any time after the expiration of the New Vehicle Limited Warranty but before the tenth anniversary of the purchase date...

  • Page 57
    ... costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable; current and future competitors may independently develop similar technology, duplicate our vehicles or design new vehicles in a way...

  • Page 58
    ... headquarters in Palo Alto and Tesla Factory in Fremont are located in Northern California, a region known for seismic activity. If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics or other events occur, or our information system...

  • Page 59
    ...and resources. As a result of developing, improving and expanding our core information technology systems as well as implementing new systems to support our sales, engineering, supply chain and manufacturing activities, all of which require significant management time and support, we may not be able...

  • Page 60
    ... majority of our total outstanding shares are held by insiders and may be sold in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock. The market price of our common...

  • Page 61
    ... price of our common stock declines, Mr. Musk may be forced by Goldman Sachs Bank USA to provide additional collateral for the loans or to sell shares of Tesla common stock in order to remain within the margin limitations imposed under the terms of his loans. The loans between Goldman Sachs Bank USA...

  • Page 62
    ... of our Model S vehicle and powertrain components and systems in June 2012 at Tesla Factory. We also intend to build our future vehicles at Tesla Factory. Outside of our Tesla Factory, we do not currently own any of our facilities. The following table sets forth the location, approximate size...

  • Page 63
    ... under our loan facility with the United States Department of Energy, which restrict or limit our ability to pay dividends, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem...

  • Page 64
    ...Exchange Act, except as shall be expressly set forth by specific reference in such filing. The following graph shows a comparison from June 29, 2010 through December 31, 2012, of the cumulative total return for our common stock, the NASDAQ Composite Index, and a group of all public companies sharing...

  • Page 65
    ... stock effected in May 2010. 2012 Year Ended December 31, 2011 2010 2009 (in thousands, except share and per share data) 2008 Consolidated Statements of Operations Data: Revenues: Automotive sales Development services Total revenues Cost of revenues (1): Automotive sales Development services Total...

  • Page 66
    ... Consolidated Balance Sheet Data: Cash and cash equivalents Short-term marketable securities Restricted cash-current (1) Property, plant and equipment, net (2) Working capital (deficit) Total assets Convertible preferred stock warrant liability (3) Common stock warrant liability (3) Capital lease...

  • Page 67
    ...prototype builds and extensive testing at both the vehicle and component levels; development of the Tesla Factory; development and testing of Model S, including activities to homologate Model S for the rest of the world and to introduce the 60 kWh and 40 kWh battery pack options; development, design...

  • Page 68
    ... rate. While we successfully commenced deliveries of Model S to customers in the United States in June 2012, our attention during the second half of 2012 switched to the continued refinement of our manufacturing and supply chain processes to enable high volume production at the Tesla Factory...

  • Page 69
    ... of our current generation Tesla Roadster at 2,500 vehicles. As of December 31, 2012, we had sold most of our remaining Roadsters. In 2012, we began work on a full electric powertrain under the Mercedes-Benz B-Class EV program. Under this program, we will continue to provide development services and...

  • Page 70
    ... charges, vehicle service and sales of regulatory credits, such as zero emission vehicle(ZEV) and greenhouse gas emission (GHG) credits. We also recognize automotive sales revenue from the sales of electric vehicle powertrain components and systems, such as battery packs and drive units, to...

  • Page 71
    ... credits in the future. Since our commercial vehicles are electric, we do not receive any compliance benefit from the generation of these credits, and accordingly look to sell them to other vehicle manufacturers. In order to facilitate the sale of these credits, we enter into contractual agreements...

  • Page 72
    Table of Contents Development Services Revenue from development services arrangements consist of revenue earned from the development of electric vehicle powertrain components and systems for other automobile manufacturers, including the design and development of battery packs, drive units and sample...

  • Page 73
    ... Employee Stock Purchase Plan (ESPP) which require us to measure the cost of employee services received in exchange for the stock-based awards, based on the grant date fair value of the awards. The fair value of the awards is estimated using the Black-Scholes option-pricing model. The resulting cost...

  • Page 74
    ...in our cost of revenues, research and development expenses, and selling, general and administrative expenses. In August 2012, to create incentives for continued long term success beyond the Model S program and to closely align executive pay with increases in stockholder value, our Board of Directors...

  • Page 75
    ...its publicly traded price. Prior to the IPO, we historically granted stock options with exercise prices equal to the fair value of our common stock as determined at the date of grant by our Board of Directors. Because there was no public market for our common stock, our Board of Directors determined...

  • Page 76
    ... 4, 2009 awards, were 6,711,972 stock options granted to our Chief Executive Officer (CEO) comprised of two grants. In recognition of his and our company's achievements and to create incentives for future success, the Board of Directors approved an option grant representing 4% of our fully-diluted...

  • Page 77
    ...at each balance sheet date and any change in fair value is recognized as a component of other expense, net, on the consolidated statements of operations. We have issued a warrant to the DOE to purchase shares of our common stock at an exercise price of $7.54 per share and a warrant to purchase up to...

  • Page 78
    ... for financial reporting versus tax return purposes. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of operations become deductible expenses under applicable income tax laws, or loss or credit...

  • Page 79
    ...of zero emission vehicle and greenhouse gas emission regulatory credits to other automotive manufacturers. Powertrain component and related sales represent the sales of electric vehicle powertrain components and systems, such as battery packs and drive units, to other manufacturers. Vehicle, options...

  • Page 80
    .... Development Services Development services represent arrangements where we develop electric vehicle powertrain components and systems for other automobile manufacturers, including the design and development of battery packs, drive units and chargers to meet customer's specifications. Development...

  • Page 81
    ... powertrain system, including a battery pack, power electronics module, motor, gearbox and associated software, which will be integrated into an electric vehicle version of the Toyota RAV4. Pursuant to this agreement, Toyota would pay us up to $60.0 million for the anticipated development services...

  • Page 82
    ... well as electric powertrain component and systems sales to Toyota as we began to deliver under the Toyota RAV4 EV supply and services agreement, partially offset by a decrease in the number of Roadster deliveries and battery packs and chargers delivered to Daimler. Cost of development services for...

  • Page 83
    ... Tesla Factory, powertrain development activities, a $30.9 million increase in costs related to Model S and Model X engineering, design and testing activities incurred by our suppliers, a $30.4 million increase in employee compensation expenses from higher headcount, a $9.7 million increase in stock...

  • Page 84
    ... the DOE Loan Facility. Interest expense for the year ended December 31, 2012 and 2011 was $7.9 million and $5.1 million, respectively. We have historically capitalized this interest to construction in progress while the Tesla Factory and our manufacturing assets for Model S and future vehicles were...

  • Page 85
    ... 2013, based on our current plans. These capital sources will enable us to fund our ongoing operations, continue research and development projects, including those for our planned Model X crossover, establish sales and service centers and to make the investments in tooling and manufacturing capital...

  • Page 86
    ... Consolidated Financial Statements included in this Annual Report on Form 10-K under Item 8. Financial Statements and Supplementary Data. Follow-on Offering and Concurrent Private Placements In June 2011, we completed a follow-on offering of common stock in which we sold a total of 6,095,000 shares...

  • Page 87
    ...sale of a vehicle, over the lease term and final disposition of the leased vehicle. As such, our cash and working capital requirements will be directly impacted and if leasing volume increases significantly, the impact may be material. However, after taking into consideration our current and planned...

  • Page 88
    ...cost of revenues, partially offset by a $197.4 million increase in accounts payable and accrued liabilities, and a $1.1 million decrease in prepaid expenses and other current assets. Inventory increased to meet our planned production requirements for Model S and powertrain component and system sales...

  • Page 89
    ...million increase in prepaid expenses and other current assets, partially offset by a $13.3 million increase in accrued liabilities and a $3.5 million increase in other long-term liabilities. Inventory increased to meet our production requirements for the Tesla Roadster and powertrain component sales...

  • Page 90
    ... our purchase of our Tesla Factory located in Fremont, California from NUMMI, and certain manufacturing assets located thereon to be used for our Model S manufacturing, as well as $40.2 million primarily related to other Model S capital expenditures, our transition to and build out of our powertrain...

  • Page 91
    ... need to sell vehicles to these customers. All reservation payments for Model S are fully refundable until such time that a customer enters into a purchase agreement. Off-Balance Sheet Arrangements During the periods presented, we did not have relationships with unconsolidated entities or financial...

  • Page 92
    ... DATA Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss Consolidated Statements of Convertible Preferred Stock and Stockholders...

  • Page 93
    ... Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Tesla Motors, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive loss, convertible preferred stock and...

  • Page 94
    ...Motors, Inc. Consolidated Balance Sheets (in thousands, except share and per share data) December 31, December 31, 2012 2011 Assets Current assets Cash and cash equivalents Short-term marketable securities Restricted cash Accounts receivable Inventory Prepaid expenses and other current assets Total...

  • Page 95
    ... of Contents Tesla Motors, Inc. Consolidated Statements of Operations (in thousands, except share and per share data) 2012 Year Ended December 31, 2011 2010 Revenues Automotive sales Development services Total revenues Cost of revenues Automotive sales Development services Total cost of revenues...

  • Page 96
    Table of Contents Tesla Motors, Inc. Consolidated Statements of Comprehensive Loss (in thousands) 2012 Year Ended December 31, 2011 2010 Net loss Other comprehensive income (loss), net of tax: Unrealized net loss on short-term marketable securities Reclassification adjustment for gain included in ...

  • Page 97
    ... employee stock purchase plan Stock-based compensation Comprehensive loss: Net loss Unrealized loss on short-term marketable securities, net Total comprehensive loss Balance as of December 31, 2011 Issuance of common stock in October 2012 public offering at $28.25 per share, net of issuance costs...

  • Page 98
    ... Maturities of short-term marketable securities Payments related to acquisition of Fremont manufacturing facility and related assets Purchases of property and equipment excluding capital leases Withdrawals out of (transfers into) our dedicated Department of Energy account, net Increase in other...

  • Page 99
    ... to Consolidated Financial Statements 1. Overview of the Company Tesla Motors, Inc. (Tesla, we, us or our) was incorporated in the state of Delaware on July 1, 2003. We design, develop, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components...

  • Page 100
    ... sales of Model S and the Tesla Roadster, including vehicle options and accessories, vehicle service and sales of regulatory credits, such as zero emission vehicle (ZEV) and greenhouse gas emission (GHG) credits, as well as sales of electric vehicle powertrain components and systems, such as battery...

  • Page 101
    ... our initial New Vehicle Limited Warranty to cover additional services for an additional three years or 36,000 miles. We refer to this program as our Extended Service plan. Amounts collected on these sales are initially recorded in deferred revenues on the consolidated balance sheets and recognized...

  • Page 102
    ... Development Services Revenue Revenue from development services arrangements consist of revenue earned from the development of electric vehicle powertrain components and systems for other automobile manufacturers, including the design and development of battery packs, drive units and sample vehicles...

  • Page 103
    ...from the development and sales of powertrain systems as well as sales of regulatory credits to other automobile manufacturers. The following summarizes the accounts receivable in excess of 10% of our total accounts receivable: December 31, 2012 December 31, 2011 Customer A Customer B Customer C 102...

  • Page 104
    ... and software Office furniture, machinery and equipment Building and building improvements 3 years 3 to 12 years 30 years Depreciation for tooling is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the related assets...

  • Page 105
    ... tax benefits are classified as income tax expense. Stock-based Compensation We recognize compensation expense for costs related to all share-based payments, including stock options. The fair value of share-based payment awards are estimated on the grant date using an option pricing model. Stock...

  • Page 106
    ... U.S. Dollars using current exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities denominated in non-U.S. currencies are maintained at historical U.S. Dollar exchange rates. Revenues and expenses are re-measured at average U.S. Dollar monthly rates. Foreign currency...

  • Page 107
    ..., we completed the purchase of our Tesla Factory located in Fremont, California from New United Motor Manufacturing, Inc. (NUMMI). NUMMI has previously identified environmental conditions at the Fremont site which affect soil and groundwater. As the owner of the Fremont site, we may be responsible...

  • Page 108
    ... progress is comprised primarily of assets related to the manufacturing of our Model S, including building improvements at our Tesla Factory in Fremont, California as well as tooling and manufacturing equipment and capitalized interest expense. Depreciation of these assets begins when they are ready...

  • Page 109
    ... accrued liabilities consisted of the following (in thousands): December 31, 2012 December 31, 2011 Payroll and related costs Accrued purchases Taxes payable Accrued warranty Other Total Other Long-Term Liabilities $ $ 15,525 10,334 9,710 3,056 1,173 39,798 $ $ 8,905 19,645 967 2,044 548 32...

  • Page 110
    ... our financial assets and financial liabilities that are carried at fair value was as follows (in thousands): December 31, 2012 Fair Value Level I Level II Level III Fair Value December 31, 2011 Level I Level II Level III Money market funds Corporate note Commercial paper Total Common stock warrant...

  • Page 111
    ...least $5,000. The reservation payment becomes a nonrefundable deposit once the customer has selected the vehicle specifications and enters into a purchase agreement. We require full payment of the purchase price of the vehicle only upon delivery of the vehicle to the customer. Amounts received by us...

  • Page 112
    ...Bank (FFB), and the DOE, pursuant to the Advanced Technology Vehicles Manufacturing (ATVM) Incentive Program. This loan facility was amended in June 2011 to expand our cash investment options, in February 2012 to modify the timing of certain future financial covenants and funding of the debt service...

  • Page 113
    ... ATVM Program, and limitations on our and our subsidiaries' ability to incur indebtedness, incur liens, make investments or loans, enter into mergers or acquisitions, dispose of assets, pay dividends or make distributions on capital stock, pay indebtedness, pay management, advisory or similar fees...

  • Page 114
    ... this cash as current restricted cash on the consolidated balance sheet. DOE Warrant In connection with the closing of the DOE Loan Facility, we have issued a warrant to the DOE to purchase shares of our common stock at an exercise price of $7.54 per share and a warrant to purchase up to 5,100...

  • Page 115
    ..., we entered into a common stock purchase agreement with an entity affiliated with Panasonic Corporation (Panasonic) pursuant to which we issued and sold an aggregate of 1,418,573 shares of our common stock at a price of $21.15 per share, which was the average of the trading highs and lows of our...

  • Page 116
    ... including officers and directors. Nonqualified stock options and stock purchase rights may be granted to our employees and consultants. Generally, our stock options vest over four years and are exercisable over a period not to exceed the contractual term of ten years from the date the stock options...

  • Page 117
    ... is summarized below: Options Outstanding Weighted Average Remaining Contractual Life (in years) Number Options Exercisable Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Weighted Average Exercise Price Range of Exercise Price Number $0.15 - $6.15 $6.63...

  • Page 118
    ... award and Employee Stock Purchase Plan (the ESPP) on the grant date generally using the Black-Scholes option pricing model and the weighted average assumptions noted in the following table. 2012 Year Ended December 31, 2011 2010 Risk-free interest rate: Stock options ESPP Expected term (in years...

  • Page 119
    ... for continued long term success beyond the Model S program and to closely align executive pay with increases in stockholder value, 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...

  • Page 120
    ...Year Ended December 31, 2011 2010 Cost of sales Research and development Selling, general and administrative Total $ 2,194 26,580 21,371 $50,145 $ 670 13,377 15,372 $29,419 $ 243 4,139 16,774 $21,156 We realized no income tax benefit from stock option exercises in each of the periods presented...

  • Page 121
    ...% of their eligible compensation, subject to any plan limitations. The purchase price of the shares on each purchase date is equal to 85% of the lower of the fair market value of our common stock on the first and last trading days of each six-month offering period. During the years ended December 31...

  • Page 122
    ... 31, 2011 Deferred tax assets: Net operating loss carry-forwards Research and development credits Foreign tax credits Deferred revenue Inventory and warranty reserves Depreciation and amortization Accruals and others Total deferred tax assets Valuation allowance Deferred tax liabilities: Others...

  • Page 123
    ...is the design, development, manufacturing and sales of electric vehicles and electric vehicle powertrain components. The following tables set forth revenues and long-lived assets by geographic area (in thousands). Revenues 2012 Year Ended December 31, 2011 2010 North America Europe Asia Total $355...

  • Page 124
    ... a Phase 1 contract services agreement with Toyota for the development of a validated powertrain system, including a battery pack, power electronics module, motor, gearbox and associated software to be integrated into an electric vehicle version of the Toyota RAV4. Toyota paid $60.1 million for the...

  • Page 125
    ... consolidated balance sheets under the categories of computer equipment and software and office furniture and equipment. Future minimum commitments for leases as of December 31, 2012 are as follows (in thousands): Operating Leases Capital Leases 2013 2014 2015 2016 2017 and thereafter Total minimum...

  • Page 126
    ...In May 2010, we entered into an agreement to purchase an existing automobile production facility located in Fremont, California from New United Motor Manufacturing, Inc. (NUMMI). NUMMI has previously identified environmental conditions at the Fremont site which affect soil and groundwater, and until...

  • Page 127
    ... and diluted for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different numbers of shares outstanding during each period. 17. Restatement of Unaudited Condensed Consolidated Financial Statements On March 6, 2013, we concluded that the condensed...

  • Page 128
    ... Months Ended March 31, 2011 As Previously Reported Cash Flows From Operating Activities Accounts payable and accrued liabilities Net cash used in operating activities Cash Flows From Investing Activities Purchases of property and equipment, excluding capital leases Net cash provided by (used in...

  • Page 129
    ... over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer to...

  • Page 130
    ... material weakness. We have begun to include as part of our financial reporting review process, the determination of total unpaid amounts related to capital expenditures that should be excluded from investing activities in the consolidated statement of cash flows and disclosed as noncash items. ITEM...

  • Page 131
    ...require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. Exhibits. The exhibits listed in the accompanying "Index to Exhibits" are filed or incorporated by reference as part of this Annual Report on Form 10-K. 130...

  • Page 132
    ... of the Registrant's capital stock named therein Registration Rights Agreement between the United States Department of Energy and the Registrant dated as of January 20, 2010 Amendment to Registration Rights Agreement between the United States Department of Energy and the Registrant dated as of May...

  • Page 133
    ...to Purchase Shares of Common Stock issued by the Registrant to the United States Department of Energy dated May 21, 2010 Fifth Amendment to Fifth Amended and Restated Investors' Rights Agreement, dated as of May 30, 2011, between Registrant and certain holders of the Registrant's capital stock named...

  • Page 134
    ... 2010 Relocation Agreement between the Registrant and John S-1 Walker dated January 26, 2010 Offer Letter between the Registrant and Jon Sobel dated S-1 August 30, 2009 Offer Letter between the Registrant and Gilbert Passin dated January 1, 2010 Commercial Single-Tenant Lease between the Registrant...

  • Page 135
    ... Exhibit Number Incorporated by Reference Exhibit Filed Herewith Exhibit Description Form File No. Filing Date 10.22 Commercial Lease between the Registrant and The Board of Trustees of The Leland Stanford Jr. University dated August 6, 2009 Supply Agreement for Products and Services between...

  • Page 136
    ...the Registrant dated April 19, 2007 Supply Agreement between Polytec Holden Ltd. and the Registrant dated April 13, 2007 Modification to Terms and Conditions between BorgWarner TorqTransfer Systems Inc. and the Registrant dated September 22, 2008 ZEV Credits Agreement between American Honda Motor Co...

  • Page 137
    ... Fourth Amendment to the Loan Arrangement and Reimbursement Agreement between the United States Department of Energy and the Registrant dated as of March 1, 2013 Note Purchase Agreement by and among the Federal S-1/A Financing Bank, the Registrant and the Secretary of Energy dated as of January 20...

  • Page 138
    ... in S-1/A favor of the United States Department of Energy, the Federal Financing Bank and the holders of the notes described therein dated as of January 20, 2010 Development Contract between Daimler AG and Tesla Motors Ltd. dated May 10, 2010 Settlement Agreement between the Registrant and entities...

  • Page 139
    .... 1to the Sale and Purchase Agreement between Registrant and New United Motor Manufacturing, Inc., dated September 23, 2010 Phase 1 Contract Services Agreement between Registrant and Toyota Motor Corporation dated October 6, 2010 Amendment No.3 to Supply Agreement between Lotus Cars Limited and the...

  • Page 140
    ...Contents Exhibit Number Incorporated by Reference Exhibit Filed Herewith Exhibit Description Form File No. Filing Date 31.1 31.2 32.1* Rule 13a-14(a) / 15(d)-14(a) Certification of Principal - Executive Officer Rule 13a-14(a) / 15(d)-14(a) Certification of Principal - Financial Officer Section...

  • Page 141
    .... Tesla Motors, Inc. Date: March 7, 2013 /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities...

  • Page 142
    ...modified from time to time prior to the date hereof, the " Arrangement Agreement "), between Tesla Motors, Inc. (the " Borrower ") and the United States Department of Energy (" DOE "). Unless otherwise defined herein, terms defined in the Arrangement Agreement and used herein shall have the meanings...

  • Page 143
    ...and Tesla Motors Ltd. made in the ordinary course of business in connection with such obligations and which do not remain outstanding for more than 90 days shall not be included in the calculation of such $1,000,000 limit;" (c) A new Section 9.16(e) to the Arrangement Agreement is hereby added which...

  • Page 144
    ..., amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Arrangement Agreement or any other Loan Document in similar or different circumstances. (b) On and after the Amendment Effective Date, each reference in the Arrangement...

  • Page 145
    ...Agreement and each of the other Loan Documents continue to be in full force and effect, (c) each Guarantor confirms its guarantee of the Guaranteed Obligations (as defined in the Guarantee and which definition, for clarity, incorporates... to deliver a manually executed original promptly following such...

  • Page 146
    IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above mentioned. UNITED STATES DEPARTMENT OF ENERGY By: /s/ Frances Nwachuku Name: Frances Nwachuku Title: Director, Portfolio Management Division [Signature Page to Third Amendment]

  • Page 147
    ... Ahuja Title: Chief Financial Officer TESLA MOTORS NEW YORK LLC By: Tesla Motors, Inc., its sole member By: /s/ Deepak Ahuja Name: Deepak Ahuja Title: Chief Financial Officer TESLA MOTORS LEASING, INC. By: /s/ Deepak Ahuja Name: Deepak Ahuja Title: Chief Financial Officer TESLA MOTORS MA, INC. By...

  • Page 148
    ... the relevant terms and conditions of the Development Agreement (the "Obligations"). In light of the benefits mentioned above for our company and in consideration of Daimler entering into the Development Agreement with Tesla UK, we, Tesla Motors Inc., Deer Creek Road, Palo Alto, CA, USA (hereinafter...

  • Page 149
    ... and other benefits to which the Guarantor might otherwise be entitled in its position as a guarantor, but does not apply to contractual defenses of Tesla UK under the Development Agreement. Neither the obligations of the Guarantor contained in this guarantee nor the rights, powers, and remedies...

  • Page 150
    ... by the applicable statute of limitations; the termination of any of the Development Agreement, to the extent the Obligations survived such termination; any act or omission of Tesla UK pursuant to any other arrangement with the Guarantor, any change in the relationship between the Guarantor and...

  • Page 151
    ... of which when executed and delivered shall be an original but all the counterparts together constitute one instrument. Annex 1 : Development Agreement (copy without Annexes) Very truly yours, Tesla Motors, Inc. Address: 3500 Deer Creek Road Palo Alto, California, 94304 USA Accepted: Daimler AG...

  • Page 152
    ... between Tesla Motors, Inc., a corporation incorporated under the laws of Delaware ("TESLA US"), and Tesla Motors Limited, a corporation incorporated under the laws of the United Kingdom ("TESLA UK"). RECITALS WHEREAS, TESLA US and TESLA UK are parties to that certain Service Agreement effective as...

  • Page 153
    ... Development Agreement ("TESLA US Intangible Property"): (A) to allow employees, directors and officers of TESLA UK to use and practice TESLA US Intangible Property within the scope of the Development Agreement solely for internal purposes, (B) to make, have made, use, sell, offer to sell, have sold...

  • Page 154
    ... IP: (i) to allow employees, contractors, agents, directors and officers of TESLA US to use and practice the Restricted IP, (ii) to make, have made, use, sell, offer to sell, have sold, import, and otherwise provide, commercialize and legally dispose of products and services under the Restricted IP...

  • Page 155
    ... any of the terms, conditions, obligations, covenants or agreements contained in the Agreement, all of which shall continue in full force and effect. SECTION 3. Applicable Law . This Amendment shall be governed by and construed in accordance with the laws of the state of Massachusetts, United States...

  • Page 156
    IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed on the Amendment Effective Date by their duly authorized officers or directors. TESLA MOTORS, INC. By: Name: Title: TESLA MOTORS LIMITED By: Name: Title: 5

  • Page 157
    ...modified from time to time prior to the date hereof, the " Arrangement Agreement "), between Tesla Motors, Inc. (the " Borrower ") and the United States Department of Energy (" DOE "). Unless otherwise defined herein, terms defined in the Arrangement Agreement and used herein shall have the meanings...

  • Page 158
    ... a certificate executed by a Responsible Officer of the Borrower setting forth in reasonable detail the amount of, and the calculation required for determining the amount of, Excess Cash Flow for such fiscal quarter, and shall make such prepayment within five (5) Business Days after the delivery of...

  • Page 159
    ... a cumulative basis through completion of the development of the new product of $100 million or more being deemed (without limitation) to be a material modification of the Business Plan)." (h) Annex A to the Arrangement Agreement is hereby amended by adding the following definitions in their proper...

  • Page 160
    ... Working Capital." "' Consolidated Working Capital ' means with respect to any date, (a) the sum of all amounts (other than cash and Cash Equivalents) that would, in conformity with GAAP, be set forth opposite the caption "total current assets" (or any like caption) on a consolidated balance sheet...

  • Page 161
    ... with each Applicable Quarter and tested as of the last day of such Applicable Quarter) to Consolidated Interest Expense (for the trailing twelve (12) months ending with such Applicable Quarter) to be less than the levels set forth in the schedule below for such Applicable Quarter: Minimum Ratio of...

  • Page 162
    ... of the Agreement, DOE's approval of any Business Plan as a whole shall be deemed to extend to the Proposed Ratio Changes contained therein. (iv) Current Ratio. For each Applicable Quarter, the Borrower shall not permit the Current Ratio to be less than the levels set forth in the schedule below for...

  • Page 163
    ...of the aggregate amount set forth for Capital Expenditures for such period in the Business Plan. (vii) Operating Lease Expense . DOE reserves the right to require an additional financial covenant relating to operating lease expense to be established on mutually agreeable terms in connection with the...

  • Page 164
    ..., amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Arrangement Agreement or any other Loan Document in similar or different circumstances. (b) On and after the Amendment Effective Date, each reference in the Arrangement...

  • Page 165
    SECTION 8. Headings . Paragraph headings have been inserted in this Amendment as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Amendment and shall not be used in the interpretation of any provision of this Amendment. [ Remainder of ...

  • Page 166
    IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above mentioned. UNITED STATES DEPARTMENT OF ENERGY By: /s/ Frances Nwachuku Name: Frances Nwachuku Title: Director, Portfolio Management Division [Signature Page to Fourth Amendment]

  • Page 167
    ... Ahuja Title: Chief Financial Officer TESLA MOTORS NEW YORK LLC By: Tesla Motors, Inc., its sole member By: /s/ Deepak Ahuja Name: Deepak Ahuja Title: Chief Financial Officer TESLA MOTORS LEASING, INC. By: /s/ Deepak Ahuja Name: Deepak Ahuja Title: Chief Financial Officer TESLA MOTORS MA, INC. By...

  • Page 168
    NORTHERN NEVADA RESEARCH CO., LLC By: /s/ Deepak Ahuja Name: Deepak Ahuja Title: Chief Financial Officer TESLA MOTORS NV, INC. By: /s/ Deepak Ahuja Name: Deepak Ahuja Title: President TESLA MOTORS FL, INC. By: /s/ Deepak Ahuja Name: Deepak Ahuja Title: President [Signature Page to Fourth Amendment]

  • Page 169
    ... REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-183033 and No. 333-167874) of Tesla Motors, Inc. of our report dated March 7, 2013 relating to the financial statements and the effectiveness of internal control...

  • Page 170
    ... and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer) Date: March...

  • Page 171
    ... and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Deepak Ahuja Deepak Ahuja Chief Financial Officer (Principal Financial Officer) Date...

  • Page 172
    ..., the financial condition and results of operations of Tesla Motors, Inc. Date: March 7, 2013 /s/ Elon Musk Elon Musk Chief Executive Officer (Principal Executive Officer) I, Deepak Ahuja, certify, pursuant to 18 U.S.C. Section 1350, that, to my knowledge, the Annual Report of Tesla Motors, Inc...