Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October ~~27, 2017,~~18, 2022, there were ~~168,067,395~~3,157,752,449 shares of the registrant’s common stock outstanding.

The discussions in this Quarterly Report on Form 10-Q contain forward-looking statements reflecting our current expectations that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements concerning any potential future impact of the coronavirus disease (“COVID-19”) pandemic on our business, supply chain constraints, our strategy, competition, future operations and production capacity, 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 in which we operate, prospects and plans and objectives of management. The words ~~“anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”, “might”, “plans”, “projects”, “will”,~~“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in ~~these~~our forward-looking statements and you should not place undue reliance on ~~these~~our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results ~~or events~~ to differ materially from ~~the plans, intentions or expectations disclosed~~those in ~~these~~the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange ~~Commission.~~Commission (the “SEC”). We do not assume any obligation to update any forward-looking statements.

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of ~~Cash Flows~~Redeemable Noncontrolling Interests and Equity

The accompanying notes are an integral part of these consolidated financial statements.

Note 1 – Overview

Tesla, Inc. (“Tesla”, the “Company”, “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 design, manufacture, install and sell solar energy generation and energy storage products. Our Chief Executive Officer, as the chief operating decision maker (“CODM”), organizes ~~the Company,~~our company, manages resource allocations and measures performance among two operating and reportable segments: (i) automotive and (ii) energy generation and storage.

There continues to be widespread impact from the COVID-19 pandemic. Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. We have been affected by temporary manufacturing closures, employment and compensation adjustments and impediments to administrative activities supporting our product deliveries and deployments.

In addition, we have experienced and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID‐19 pandemic and general global economic conditions. The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible.

On August 5, 2022, we increased the number of authorized shares of common stock by 4,000,000,000 shares and our Board of Directors declared a three-for-one split of the Company’s common stock effected in the form of a stock dividend (the “2022 Stock Split”). Each stockholder of record on August 17, 2022 received a dividend of two additional shares of common stock for each then-held share, distributed after close of trading on August 24, 2022. All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the 2022 Stock Split.

Note 2 – Summary of Significant Accounting Policies

Unaudited Interim Financial Statements

The consolidated balance sheet as of September 30, ~~2017,~~2022, the consolidated statements of operations, ~~and~~ the consolidated statements of comprehensive ~~loss~~income, the consolidated statements of redeemable noncontrolling interests and equity for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 and the consolidated statements of cash flows for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, ~~2016~~2021 was derived from the audited consolidated financial statements as of that date. The interim consolidated financial statements and the accompanying notes should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

The interim consolidated financial statements and the accompanying notes have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future years or interim periods.

Use of Estimates

~~Reclassifications~~The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets which could impact our estimates and assumptions. The estimates used for, but not limited to, determining significant economic incentive for resale value guarantee arrangements, sales return reserves, the collectability of accounts receivable, inventory valuation, warranties, fair value of long-lived assets, goodwill, fair value of financial instruments, fair value and residual value of operating lease vehicles and solar energy systems subject to leases could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes. ~~Such reclassifications had no effect on previously reported results of operations. Starting in the fourth quarter of 2016, we have reclassified the~~

Revenue Recognition

Revenue by source

The following table disaggregates our revenue by major source (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Automotive sales without resale value guarantee	$	17,624	$	11,230	$	46,467	$	28,575
Automotive sales with resale value guarantee		161		163		502		525
Automotive regulatory credits		286		279		1,309		1,151
Energy generation and storage sales		966		662		2,186		1,698
Services and other		1,645		894		4,390		2,738
Total revenues from sales and services		20,682		13,228		54,854		34,687
Automotive leasing		621		385		1,877		1,014
Energy generation and storage leasing		151		144		413		403
Total revenues	$	21,454	$	13,757	$	57,144	$	36,104

Automotive Segment

Automotive Sales Revenue

Automotive Sales with and ~~cost of revenue of our energy storage products from ‘services and other’ into ‘energy generation and storage’ for all periods presented in order to align with our reportable segments.~~

without Resale Value ~~Guarantees and Other Financing Programs~~Guarantee

~~Vehicle sales~~We recognize revenue when control transfers upon delivery to customers in accordance with ASC 606, Revenue from Contracts with Customers, as a sale with a right of return when we do not believe the customer has a significant economic incentive to exercise the resale value guarantee

~~Prior~~ provided to ~~June 30, 2016, we offered~~them at contract inception. The total sales return reserve on vehicles sold with resale value guarantees was $105 million and $223 million as of September 30, 2022 and December 31, 2021, respectively, of which $48 million and $91 million was short-term, respectively.

Deferred revenue is related to the access to our Full Self Driving (“FSD”) features, internet connectivity, Supercharger network and over-the-air software updates on automotive sales with and without resale value guarantee, which amounted to $2.80 billion and $2.38 billion as of September 30, 2022 and December 31, 2021, respectively.

Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or ~~similar buy-back terms to all customers who purchase vehicles~~partially unsatisfied, as of the balance sheet date. Revenue recognized from the deferred revenue balance as of December 31, 2021 and who financed their vehicles through one of our specified commercial banking partners. Since June 30, 2016, this program is available only in certain international markets. Under this program, customers have the option of selling their vehicle back to us during the guarantee period for a determined resale value. Guarantee periods generally range from 36 to 39 months. Although we receive full payment2020 was $169 million and $230 million for the ~~vehicle~~nine months ended September 30, 2022 and 2021, respectively. Of the total deferred revenue on automotive sales ~~price~~with and without resale value guarantees as of September 30, 2022, we expect to recognize $1.09 billion of revenue in the next 12 months. The remaining balance will be recognized at the time of ~~delivery, we~~transfer of control of the product or over the performance period, which is generally the expected ownership life of the vehicle.

We have been providing loans for financing our automotive deliveries during the nine months ended September 30, 2022. We have recorded net financing receivables on the consolidated balance sheets, of which $76 million is recorded within Accounts receivable, net, for the current portion and $398 million is recorded within Other non-current assets for the long-term portion, as of September 30, 2022.

Automotive Regulatory Credits

We earn tradable credits in the operation of our automotive business under various regulations related to zero-emission vehicles, greenhouse gas, fuel economy and clean fuel. We sell these credits to other regulated entities who can use the credits to comply with emission standards and other regulatory requirements.

Payments for automotive regulatory credits are ~~required to account for these transactions as operating leases. The amount of sale proceeds equal~~typically received at the point control transfers to the ~~resale value guarantee is deferred until~~customer, or in accordance with payment terms customary to the ~~guarantee expires or is exercised. The remaining~~business. We recognize revenue on the sale ~~proceeds are deferred and recognized on a straight-line basis over the stated guarantee period to~~of automotive ~~leasing revenue. The guarantee period expires~~regulatory credits, which have negligible incremental costs associated with them, at the ~~earlier~~time control of the ~~end~~regulatory credits is transferred to the purchasing party. Deferred revenue related to sales of automotive regulatory credits was immaterial as of September 30, 2022 and December 31, 2021. Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was immaterial for the nine months ended September 30, 2022 and 2021. During the nine months ended September 30, 2022, we had also recognized $288 million in revenue due to changes in regulation which entitled us to additional consideration for credits sold previously.

Automotive Leasing Revenue

Direct Sales-Type Leasing Program

For the three and nine months ended September 30, 2022, we recognized $161 million and $559 million, respectively, of sales-type leasing revenue and $97 million and $343 million, respectively, of sales-type leasing cost of revenue. For the three and nine months ended September 30, 2021, we recognized $59 million and $156 million, respectively, of sales-typing leasing revenue and $35 million and $97 million, respectively, of sales-type leasing cost of revenue.

Net investment in sales-type leases, which is the sum of the ~~guarantee period or the pay-off~~present value of the ~~initial loan. We capitalize the cost of these vehicles~~future contractual lease payments, is presented on the consolidated balance sheets as ~~operating lease vehicles, net,~~a component of Prepaid expenses and ~~depreciate their value, less salvage value, to cost of automotive leasing revenue over~~other current assets for the ~~same period.~~

In cases where a customer retains ownership of a vehicle at the end of the guarantee period, the resale value guarantee liability and any remaining deferred revenue balances related to the vehicle are settled to automotive leasing revenue and the net book value of the leased vehicle is expensed to costs of automotive leasing revenue. If a customer returns the vehicle to us during the guarantee period, we purchase the vehicle from the customer in an amount equal to the resale value guarantee and settle any remaining deferred balances to automotive leasing revenue, and we reclassify the net book value of the vehicle on our balance sheet to used vehicle inventory. As of September 30, 2017 and December 31, 2016, $279.9 million and $179.5 million, respectively, of the guarantees were exercisable by customers within a 12-month period from each such date.

~~Vehicle sales to leasing partners with a resale value guarantee~~

~~We also offer resale value guarantees in connection with automobile sales to certain leasing partners. As we have guaranteed the value of these vehicles~~current portion and as ~~the vehicles are leased to end-customers, we account for these transactions as interest bearing collateralized borrowings as required under ASC 840,~~ ~~Leases. Under this program, cash is received for the full price of the vehicle and is recorded within resale value guarantees~~Other non-current assets for the long-term ~~portion and deferred revenue for the current~~ portion. ~~We accrete the deferred revenue amount~~Lease receivables relating to automotive leasing revenue on a straight-line basis over the guarantee period and accrue interest expense based on our borrowing rate. We capitalize vehicles under this program to operating lease vehicles, net,sales-type leases are presented on the consolidated balance sheets as follows (in millions):


	September 30, 2022			December 31, 2021
Gross lease receivables	$	726		$	427
Unearned interest income		(83	)		(50	)
Allowance for expected credit losses		(3	)		(1	)
Net investment in sales-type leases	$	640		$	376

Reported as:
Prepaid expenses and other current assets	$	145		$	73
Other non-current assets		495			303
Net investment in sales-type leases	$	640		$	376

Energy Generation and Storage Segment

Energy Generation and Storage Sales

We record as deferred revenue any non-refundable amounts that are collected from customers related to fees charged for prepayments and remote monitoring service and operations and maintenance service, which is recognized as revenue ratably over the respective customer contract term. As of September 30, 2022 and December 31, 2021, deferred revenue related to such customer payments amounted to $665 million and $399 million, respectively. Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was $132 million and $90 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, total transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied for contracts with an original expected length of more than one year was $212 million. Of this amount, we ~~record depreciation from these vehicles~~expect to ~~cost of automotive leasing revenues~~recognize $12 million in the next 12 months and the remaining over a period up to 25 years.

We have been providing loans for financing our energy generation products during the ~~period the vehicle is under a lease arrangement. Cash received for these vehicles,~~nine months ended September 30, 2022. We have recorded net ~~of revenue recognized during the period, is classified as collateralized lease borrowings within cash flows from~~ financing ~~activities in~~receivables on the consolidated ~~statements~~balance sheets, of ~~cash flows.~~

~~At the end of the lease term, we settle our liability in cash by either purchasing the vehicle from the leasing partner~~which $18 million is recorded within Accounts receivable, net, for the ~~resale value guarantee amount or paying a shortfall to~~current portion and $307 million is recorded within Other non-current assets for the guarantee amount the leasing partner may realize on the sale of the vehicle. Any remaining balances within deferred revenue and resale value guarantee will be settled to automotive leasing revenue. In cases where the leasing partner retains ownership of the vehicle after the end of our guarantee period, we expense the net value of the leased vehicle to costs of automotive leasing revenue~~. The maximum amount we could be required to pay under this program, should we decide to repurchase all vehicles, was $1.18 billion and $855.9 million~~long-term portion, as of September 30, ~~2017 and December 31, 2016, respectively, including~~ ~~$263.5 million within a 12-month period from September 30, 2017~~.2022.

~~As of September 30, 2017 and December 31, 2016, we had $1.57 billion and $1.18 billion, respectively, of such borrowings recorded in resale value guarantees and $341.0 million and $289.1~~ ~~million, respectively, recorded in deferred revenue liability. As of September 30, 2017 and December 31, 2016, we had a total of $46.5 million and $57.0 million, respectively, in account receivables from our leasing partners~~.12

On a quarterly basis, we assess the estimated market values of vehicles under our resale value guarantee program to determine if we have sustained a loss on any of these contracts. As we accumulate more data related to the resale values of our vehicles or as market conditions change, there may be material changes to their estimated values.

~~Activity related to our resale value guarantee and similar programs consisted of the following (in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Operating Lease Vehicles

Operating lease vehicles—
   beginning of period

$
2,835,674

$
2,126,581

$
2,462,061

$
1,556,529

Net increase in operating lease vehicles

237,853

375,287

904,767

1,085,551

Depreciation expense recorded in cost
   of automotive leasing revenues

(96,995
)

(71,454
)

(269,012
)

(179,087
)
Additional depreciation expense recorded in
   cost of automotive leasing revenues as
   a result of early cancellation of resale
   value guarantee

(2,416
)

(5,509
)

(14,631
)

(11,166
)
Additional depreciation expense recorded in
   cost of automotive leasing revenues
   as a result of expiration

(32,489
)

(55,009
)

(105,378
)

(55,009
)
Increases to inventory from vehicles
   returned under our trade-in program
   and exercises of resale value guarantee

(14,700
)

(18,718
)

(50,880
)

(45,640
)
Operating lease vehicles—end of period

$
2,926,927

$
2,351,178

$
2,926,927

$
2,351,178

Deferred Revenue

Deferred revenue—beginning of period

$
1,006,600

$
851,684

$
916,652

$
679,132

Net increase in deferred revenue from new
   vehicle deliveries and reclassification of
   collateralized borrowing from long-term
   to short-term

155,133

188,113

559,996

574,226

Amortization of deferred revenue and
   short-term collateralized borrowing
   recorded in automotive leasing
   revenue

(171,763
)

(125,411
)

(474,949
)

(330,093
)
Additional revenue recorded in automotive
   leasing revenue as a result of early
   cancellation of resale value guarantee

(394
)

(1,521
)

(2,746
)

(4,333
)
Recognition of deferred revenue resulting
   from return of vehicle under trade-in
   program, expiration, and exercises of
   resale value guarantee

(3,118
)

(3,456
)

(12,495
)

(9,523
)
Deferred revenue—end of period

$
986,458

$
909,409

$
986,458

$
909,409

Resale Value Guarantee

Resale value guarantee liability—beginning
   of period

$
2,835,849

$
2,007,347

$
2,389,927

$
1,430,573

Increase in resale value guarantee

240,134

361,434

922,342

1,013,369

Reclassification from long-term to
   short-term collateralized borrowing

(74,252
)

(33,129
)

(189,733
)

(79,171
)
Additional revenue recorded in automotive
   leasing revenue as a result of early
   cancellation of resale value guarantee

(1,322
)

(4,291
)

(9,570
)

(10,110
)
Release of resale value guarantee resulting
   from return of vehicle under trade-in
   program and exercises

(14,372
)

(15,516
)

(54,205
)

(38,816
)
Release of resale value guarantee resulting
   from expiration of resale value guarantee

(32,481
)

(55,722
)

(105,205
)

(55,722
)
Resale value guarantee liability—end of
   period

$
2,953,556

$
2,260,123

$
2,953,556

$
2,260,123

Income Taxes

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the aggregate balances of our gross unrecognized tax benefits were ~~$300.0~~$778 million and ~~$203.9~~$531 million, respectively, of which ~~$292.9~~$587 million and ~~$198.3~~$473 million, respectively, would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset that is currently fully offset by a valuation allowance.

The local government of Shanghai granted a beneficial corporate income tax rate of 15% to certain eligible enterprises, compared to the 25% statutory corporate income tax rate in China. Our Gigafactory Shanghai subsidiary was granted this beneficial income tax rate of 15% for 2019 through 2023.

We file income tax returns in the U.S. and various state and foreign jurisdictions. We are currently under examination by the Internal Revenue Service (“IRS”) for the years 2015 to 2018. Additional tax years within the periods 2004 to 2014 and 2019 to 2021 remain subject to examination for federal income tax purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state income tax purposes. Our returns for 2004 and subsequent tax years remain subject to examination in U.S. state and foreign jurisdictions.

Given the uncertainty in timing and outcome of our tax examinations, an estimate of the range of the reasonably possible change in gross unrecognized tax benefits within twelve months cannot be made at this time.

Net ~~Loss~~Income per Share of Common Stock Attributable to Common Stockholders

Basic net income ~~(loss)~~ per share of common stock attributable to common stockholders is calculated by dividing net income ~~(loss)~~ attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible senior notes using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income ~~(loss)~~ per share of common stock attributable to common stockholders when their effect is dilutive. ~~Since~~

Furthermore, in connection with the offerings of our convertible senior notes, we ~~expect to settle in cash the principal outstanding under the 0.25% Convertible Senior Notes due in 2019, the 1.25% Convertible Senior Notes due in 2021~~entered into convertible note hedges and ~~the 2.375% Convertible Senior Notes due in 2022, we use the treasury stock method~~warrants (see Note 10, Debt). However, our convertible note hedges are not included when calculating potentially dilutive shares since their ~~potential dilutive~~ effect ~~if any.~~ is always anti-dilutive. The strike price on the warrants were below our average share price during the period and were included in the tables below. Warrants are included in the weighted-average shares used in computing basic net income per share of common stock in the period(s) they are settled.

The following table presents the reconciliation of net income attributable to common stockholders to net income used in computing basic and diluted net income per share of common stock (in millions):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021			2022			2021
Net income attributable to common stockholders	$	3,292	$	1,618		$	8,869		$	3,198
Less: Buy-out of noncontrolling interest		—		—			8			—
Net income used in computing basic net income per share of common stock		3,292		1,618			8,861			3,198
Less: Dilutive convertible debt	(0)			(1	)		(1	)		(8	)
Net income used in computing diluted net income per share of common stock	$	3,292	$	1,619		$	8,862		$	3,206

The following table presents the reconciliation of basic to diluted weighted average shares used in computing net income per share of common stock attributable to common stockholders, as adjusted to give effect to the 2022 Stock Split (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Weighted average shares used in computing net income per share of common stock, basic		3,146		2,993		3,120		2,931
Add:
Stock-based awards		301		294		311		303
Convertible senior notes		2		13		4		36
Warrants		19		69		39		121
Weighted average shares used in computing net income per share of common stock, diluted		3,468		3,369		3,474		3,391

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income ~~(loss)~~ per share of common stock attributable to common stockholders, because their effect was ~~anti-dilutive:~~anti-dilutive, as adjusted to give effect to the 2022 Stock Split (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2022		2021		2022		2021
Stock-based awards		8,855,128		5,666,686		10,177,154		16,527,336		3		1		3		1
Convertible senior notes		1,908,572		—		2,559,810		1,959,492		—		0		—		1
Warrants		414,996		—		658,345		629,782

Restricted Cash

We maintain certain cash balances restricted as to withdrawal or use. Our restricted cash is comprised primarily of cash held to service certain payments under various secured debt facilities. In addition, restricted cash includes cash held as collateral for certain permits as well as sales to lease partners with a resale value guarantee, letters of credit, real estate leases, deposits held for our insurance services and certain operating leases. We record restricted cash as other assets in the consolidated balance sheets and determine current or non-current classification based on the expected duration of the restriction.

Our total cash and cash equivalents and restricted cash, as presented in the consolidated statements of cash flows, was as follows (in millions):


	September 30,		December 31,		September 30,		December 31,
	2022		2021		2021		2020
Cash and cash equivalents	$	19,532	$	17,576	$	16,065	$	19,384
Restricted cash included in prepaid expenses and other current assets		382		345		327		238
Restricted cash included in other non-current assets		235		223		302		279
Total as presented in the consolidated statements of cash flows	$	20,149	$	18,144	$	16,694	$	19,901

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable primarily include amounts related to receivables from financial institutions and leasing companies offering various financing products to our customers, sales of energy generation and storage products, sales of regulatory credits to other automotive manufacturers, government rebates already passed through to customers and maintenance services on vehicles owned by leasing companies. We provide an allowance against accounts receivable for the amount we expect to be uncollectible. We write-off accounts receivable against the allowance when they are deemed uncollectible.

Depending on the day of the week on which the end of a fiscal quarter falls, our accounts receivable balance may fluctuate as we are waiting for certain customer payments to clear through our banking institutions and receipts of payments from our financing partners, which can take up to approximately two weeks based on the contractual payment terms with such partners. Our accounts receivable balances associated with our sales of regulatory credits, which are typically transferred to other manufacturers during the last few days of the quarter, is dependent on contractual payment terms. Additionally, government rebates can take up to a year or more to be collected depending on the customary processing timelines of the specific jurisdictions issuing them. These various factors may have a significant impact on our accounts receivable balance from period to period. As of September 30, 2022 and December 31, 2021, we had $671 million and $627 million, respectively, of long-term government rebates receivable in Other non-current assets on our consolidated balance sheets.

MyPower Customer Notes Receivable

As of September 30, 2022 and December 31, 2021, the total outstanding balance of MyPower customer notes receivable, net of allowance for expected credit losses, was $280 million and $299 million, respectively, of which $6 million and $11 million were due in the next 12 months as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, the allowance for expected credit losses was $41 million.

Concentration of Risk

Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, marketable securities, restricted cash, accounts receivable and ~~interest rate swaps.~~other finance receivables. Our cash balances are primarily ~~invested in money market funds or~~ on deposit at high credit quality financial institutions or invested in ~~the United States. At times, these~~money market funds. These deposits ~~may be~~are typically in excess of insured limits. As of September 30, ~~2017,~~ 2022 and December 31, 2021, no ~~customer~~ entity represented ~~10%~~10% or more of our total ~~accounts receivable~~receivables balance. As of December 31, 2016, one customer represented 10% or more of our total accounts receivable balance. The risk of concentration for our interest rate swaps is mitigated by transacting with several highly rated multinational banks. We maintain reserves for any amounts that we consider uncollectible.

Supply Risk

We are dependent on our suppliers, ~~the majority of which are~~including single source suppliers, and the inability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components from these suppliers, could have a material adverse effect on our business, prospects, financial condition and operating results.

The gross cost of operating lease vehicles as of September 30, 2022 and December 31, 2021 was $5.83 billion and $5.28 billion, respectively. Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $1.00 billion and $773 million as of September 30, 2022 and December 31, 2021, respectively.

Warranties

We provide a manufacturer’s warranty on all new and ~~certified~~ used vehicles ~~production powertrain components~~ and ~~systems and energy products we sell. In addition, we also provide~~ a warranty on the installation and components of the ~~solar~~ energy generation and storage systems we sell for periods typically between 10 to ~~30 years.~~25 years. We accrue a warranty reserve for the products sold by us, which includes our best estimate of the projected costs to repair or replace items under ~~warranty.~~warranties and recalls if identified. 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 given our relatively short history of sales, and changes to our historical or projected warranty experience may cause material changes to the warranty reserve in the future. The warranty reserve does not include projected warranty costs associated with our vehicles subject to operating lease accounting and our solar energy systems under lease contracts or ~~power purchase agreements,~~Power Purchase Agreements (“PPAs”), as the costs to repair these warranty claims are expensed as incurred. The portion of the warranty reserve expected to be incurred within the next 12 months is included within ~~accrued~~Accrued liabilities and other, while the remaining balance is included within ~~other~~Other long-term liabilities on ~~our~~the consolidated balance sheets. Warranty expense is recorded as a component of ~~cost~~Cost of ~~revenues.~~ revenues in the consolidated statements of operations. Due to the magnitude of our automotive business, accrued warranty balance is primarily related to our automotive segment. Accrued warranty activity consisted of the following (in ~~thousands)~~millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Accrued warranty—beginning of period

$
343,279

$
216,459

$
266,655

$
180,754

Warranty costs incurred

(39,481
)

(16,571
)

(87,881
)

(56,734
)
Net changes in liability for pre-existing warranties,
including expirations and foreign exchange impact

4,768

(19,523
)

7,239

(12,889
)
Provision for warranty

60,156

46,454

182,709

115,688

Accrued warranty—end of period

$
368,722

$
226,819

$
368,722

$
226,819


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Accrued warranty—beginning of period	$	2,433		$	1,691		$	2,101		$	1,468
Warranty costs incurred		(236	)		(140	)		(574	)		(381	)
Net changes in liability for pre-existing warranties, including expirations and foreign exchange impact		156			(64	)		158			(22	)
Provision for warranty		418			249			1,086			671
Accrued warranty—end of period	$	2,771		$	1,736		$	2,771		$	1,736

For the three and nine months ended September 30, 2017, warranty costs incurred for vehicles accounted for as operating leases or collateralized debt arrangements were $10.8 million and $24.3 million, respectively, and for the three and nine months ended September 30, 2016, such costs were $7.2 million and $12.3 million, respectively.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In ~~May 2014,~~October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Accounting ~~Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue~~for Contract Assets and Contract Liabilities from Contracts with Customers, (Topic 805). This ASU requires an acquirer in a business combination to ~~replace~~recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the ~~existing~~ revenue recognition ~~criteria~~guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for ~~contracts with customers. In August 2015, the FASB issued ASU No. 2015-14,~~ ~~Deferral of the Effective Date, to defer the effective date of ASU No. 2014-09 to interim and~~ annual periods beginning after December 15, ~~2017, with early adoption permitted. Subsequently, the FASB issued ASU No. 2016-08,~~ ~~Principal versus Agent Considerations, ASU No. 2016-10,~~ ~~Identifying Performance Obligations and Licensing, ASU No. 2016-11,~~ ~~Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, ASU No. 2016-12,~~ ~~Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20,~~ ~~Technical Corrections and Improvements~~, to clarify and amend the guidance in ASU No. 2014-09. We currently expect to adopt the ASUs on January 1, 2018 on a modified retrospective basis through a cumulative adjustment to equity. The adoption of the ASUs might accelerate the revenue recognition of certain vehicle sales to customers or leasing partners with a resale value guarantee, which may qualify to be accounted for as sales with a right of return as opposed to the current accounting as operating leases or collateralized lease borrowings. Our interpretation is subject to change as a result of future changes in market conditions, incentives or program offerings. Upon adoption of the ASUs, we currently estimate an increase to equity in the range of $550.0 million to $750.0 million,2022, including the impact of adjusting deferred revenue for investment tax credit balances. We are continuing to assess the impact of adopting the ASUs on the consolidated financial statements, and we are continuing to adjust our accounting processes accordingly.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~, to require lessees to recognize all leases, with certain exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. The ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. The ASU is effective for interim ~~and annual~~ periods beginning after December 15, 2018, with early adoption permitted. We currently expect to adopt the ASU on January 1, 2019. We will be required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available. We intend to elect the available practical expedients upon adoption. Upon adoption, we expect the consolidated balance sheet to include a right of use asset and liability related to substantially all of our lease arrangements. We are continuing to assess the impact of adopting the ASU on our financial position, results of operations and related disclosures and have not yet concluded whether the effect will be material.

~~In March 2016, the FASB issued ASU No. 2016-06,~~ ~~Contingent Put and Call Options in Debt Instruments, to clarify when a contingent put or call option to accelerate the repayment of debt is an embedded derivative. The ASU is effective for interim and~~

~~annual periods beginning after December 15, 2016, with early adoption permitted.~~within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is ~~modified retrospective. We adopted the ASU on January 1, 2017, but the ASU did not have~~also permitted, including adoption in an ~~impact on the consolidated financial statements.~~

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~, to simplify the accounting for the income tax effects from share-based compensation, the accounting for forfeitures and the accounting for statutory income tax withholding, among others. In particular, the ASU requires all income tax effects from share-based compensation to be recognized in the consolidated statement of operations when the awards vest or are settled, the ASU permits accounting for forfeitures as they occur, and the ASU permits a higher level of statutory income tax withholding without triggering liability accounting. Adoption of the ASU is modified retrospective, retrospective and prospective, depending on the specific provision being adopted. We adopted the ASU on January 1, 2017. Our gross U.S. deferred tax assets increased by $909.1 million as a result of our adoption, which was fully offset by a corresponding increase to our valuation allowance. In addition, we now account for forfeitures as they occur.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments, to reduce the diversity in practice with respect to the classification of certain cash receipts and cash payments on the statement of cash flows. The ASU is effective for~~ interim and annual periods beginning after December 15, 2017, with early adoption permitted. Adoption of the ASU is retrospective. We plan to adopt the ASU on January 1, 2018, which will impact the classifications within the consolidated statements of cash flows.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory~~, to require the recognition of the income tax effects from an intra-entity transfer of an asset other than inventory. The ASU is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Adoption of the ASU is modified retrospective. Weperiod. If early adopted, the ~~ASU on January 1, 2017. Our adoption did not have a material impact on the consolidated financial statements.~~

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows: Restricted Cash, which requires entities~~amendments are applied retrospectively to present the aggregate changes in cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, the statement of cash flows will be required to present restricted cash and restricted cash equivalents as a part of the beginning and ending balances of cash and cash equivalents. The ASU is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Adoption of the ASU is retrospective. We plan to adopt the ASU on January 1, 2018, which will impact the classifications within the consolidated statements of cash flows.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Clarifying the Definition of a Business~~, to clarify the definition of a business with the objective of assisting entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Adoption of the ASU is prospective. We plan to adopt the ASU on January 1, 2018.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~, to simplify the test for goodwill impairment by removing Step 2. An entity will, therefore, perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Adoption of the ASU is prospective. We have not yet selected an adoption date, and the ASU will have a currently undetermined impact on the consolidated financial statements.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Scope of Modification Accounting~~, to provide guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The ASU is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Adoption of the ASU is prospective. We plan to adopt the ASU on January 1, 2018.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Targeted Improvements to Accounting for Hedging Activities~~, to simplify the application of current hedge accounting guidance. The ASU expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. Adoption of the ASU is generally modified retrospective. We are currently obtaining an understanding of the ASU and plan to adopt the ASU on January 1, 2019.

~~Note 3 – Business Combinations~~

~~Grohmann Acquisition~~

On January 3, 2017, we completed our acquisition of Grohmann Engineering GmbH (now Tesla Grohmann Automation GmbH or “Grohmann”), a company that specializes in the design, development and sale of automated manufacturing systems, for $109.5 million in cash. We acquired Grohmann to improve the speed and efficiency of our manufacturing processes.

At the time of acquisition, we entered into an incentive compensation arrangement for up to a maximum of $25.8 million of payments contingent upon continued service with us for 36 months after the acquisition date. Such payments would have been accounted for as compensation expense in the periods earned. However, during the three months ended March 31, 2017, we terminated the incentive compensation arrangement and accelerated the payments thereunder. As a result, we recorded the entire $25.8 million as compensation expense during the three months ended March 31, 2017, which was included in selling, general and administrative expense in our consolidated statements of operations.

~~Fair Value of Assets Acquired and Liabilities Assumed~~

~~We accounted for the Grohmann acquisition using the purchase method of accounting for~~all business combinations ~~under ASC 805,~~ ~~Business Combinations. The total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date.~~

As we finalize our estimate of the fair values of the identifiable intangible assets acquired and deferred taxes, additional purchase price adjustments may be recorded during the measurement period (a period not to exceed 12 months),for which may have a material impact on our results of operations and financial position. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives and the expected future cash flows and related discount rates, can materiality impact our results of operations. Significant inputs used included the amount of cash flows, the expected period of the cash flows and the discount rates. There were no changes to the fair values of the assets acquired and the liabilities assumed during the six months ended September 30, 2017.

~~The preliminary allocation of the purchase price is based on management’s estimate of~~ the acquisition date ~~fair values of the assets acquired and the liabilities assumed, as follows (in thousands):~~

Assets acquired:

Cash and cash equivalents
$
334

Accounts receivable

42,947

Inventory

10,031

Property, plant and equipment

44,030

Intangible assets

21,723

Prepaid expenses and other assets, current and non-current

1,998

Total assets acquired

121,063

Liabilities assumed:

Accounts payable

(19,975
)
Accrued liabilities

(12,403
)
Debt and capital leases, current and non-current

(9,220
)
Other long-term liabilities

(10,049
)
Total liabilities assumed

(51,647
)
Net assets acquired

69,416

Goodwill

40,065

Total purchase price
$
109,481

Goodwill represented the excess of the purchase price over the fair value of the net assets acquired and was primarily attributable to the expected synergies from potential monetization opportunities and from integrating Grohmann’s technology into our automotive business as well as the acquired talent. Goodwill is not deductible for U.S. income tax purposes and is not amortized. Rather, we assess goodwill for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value.

~~Identifiable Intangible Assets Acquired~~

~~Our preliminary assessment of the fair values of the identified intangible assets and their respective useful lives are as follows (in thousands, except for useful lives):~~

September 30, 2017

Fair Value

Useful Life
(in years)

Developed technology
$
12,528

10

Software

3,341

3

Customer relations

3,236

6

Trade name

1,775

7

Other

843

2

Total intangible assets
$
21,723

Grohmann’s results of operations since the acquisition date have been included within the automotive segment in our consolidated statements of operations. Actual and pro forma results of operations have not been separately presented because they were not material to our consolidated financial statements.

~~SolarCity Acquisition~~

~~On November 21, 2016, we completed our acquisition of SolarCity for a total purchase price of $2.1 billion in stock~~. ~~We are currently finalizing our estimates of the fair values of the solar energy systems,~~ ~~leased and to be leased, identifiable intangible assets, deferred revenue, deferred taxes and noncontrolling interests assumed. Fair value adjustments recorded~~occurred during the ~~measurement period (a period~~fiscal year of adoption. This ASU is currently not expected to ~~exceed 12 months) may~~ have a material impact on our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which we adopted on January 1, 2020. This ASU also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU would be applied prospectively. Early adoption is also permitted, including adoption in an interim period. This ASU is currently not expected to have a material impact on our consolidated financial statements.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law and is effective for taxable years beginning after December 31, 2022. The IRA includes multiple incentives to promote clean energy, electric vehicles, battery and energy storage manufacture or purchase, in addition to a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion. These measures may materially affect our consolidated financial statements, and we will continue to evaluate the applicability and effect of the IRA as more guidance is issued.

Recently adopted accounting pronouncements

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application. We adopted the ASU prospectively on January 1, 2022. The additional annual disclosures required are not expected to have a material impact on our consolidated financial statements.

Note 3 – Digital Assets, Net

During the three months ended March 31, 2017, we recorded an $11.6 million measurement period adjustment to the acquisition date fair values of certain assets as previously reported in our Form 10-K for the year ended December 31, 2016. Additionally, during the threenine months ended September 30, ~~2017,~~2022 and 2021, we purchased and/or received an immaterial amount and $1.50 billion, respectively, of digital assets. As of September 30, 2022, we have converted approximately 75% of our purchases into fiat currency. During the nine months ended September 30, 2022, we recorded ~~an $18.2~~$170 million ~~measurement period adjustment to~~of impairment losses on such digital assets, and $51 million and $101 million during the ~~acquisition date fair values~~three and nine months ended September 30, 2021, respectively. During the nine months ended September 30, 2022 and 2021, we realized gains of ~~certain liabilities as previously reported~~$64 million and $128 million, respectively, in connection with converting our ~~Form 10-K for~~holdings of digital assets into fiat currency. The gains are presented net of impairment losses in Restructuring and other in the ~~year ended~~consolidated statements of operations. As of September 30, 2022 and December 31, ~~2016.~~2021, the carrying value of our digital assets held was $218 million and $1.26 billion, which reflects cumulative impairments of $169 million and $101 million, each period, respectively. The ~~measurement period adjustments were recorded~~fair market value of such digital assets held as ~~losses to other income (expense), net, in our consolidated statement~~ of ~~operations, to effectively reduce the gain on acquisition initially recognized during the period ended December 31, 2016.~~September 30, 2022 was $226 million.

Note 4 – ~~Goodwill and~~ Intangible Assets

~~Goodwill increased to $45.2 million from December 31, 2016 to September 30, 2017 due to our acquisition of Grohmann and the impact of foreign currency translation adjustments.~~

Information regarding our ~~acquired~~ intangible assets including assets recognized from our acquisitions was as follows (in ~~thousands)~~millions):


	September 30, 2017									December 31, 2016							September 30, 2022									December 31, 2021
	Gross Carrying Amount		Accumulated Amortization			Other		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Other		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Other		Net Carrying Amount
Finite-lived intangible assets:
Developed technology	$	125,889	$	(14,766	)	$	1,880	$	113,003	$	113,361	$	(1,740	)	$	111,621	$	299	$	(179	)	$	2	$	122	$	299	$	(150	)	$	3	$	152
Trade name		45,275		(7,707	)		233		37,801		43,500		(967	)		42,533
Trade names																		2		(2	)		—		—		2		(1	)		—		1
Favorable contracts and leases, net		112,817		(6,695	)		—		106,122		112,817		(864	)		111,953		113		(46	)		—		67		113		(40	)		—		73
Other		34,099		(6,624	)		1,005		28,480		26,679		(3,473	)		23,206		36		(22	)		1		15		36		(21	)		1		16
Total finite-lived intangible assets		318,080		(35,792	)		3,118		285,406		296,357		(7,044	)		289,313		450		(249	)		3		204		450		(212	)		4		242
Indefinite-lived intangible assets:
IPR&D		86,832		—			—		86,832		86,832		—			86,832
Total indefinite-lived intangible assets		86,832		—			—		86,832		86,832		—			86,832
Gigafactory Nevada water rights																		15		—			—		15		15		—			—		15
Other																		9		—			—		9		—		—			—		—
Total infinite-lived intangible assets																		24		—			—		24		15		—			—		15
Total intangible assets	$	404,912	$	(35,792	)	$	3,118	$	372,238	$	383,189	$	(7,044	)	$	376,145	$	474	$	(249	)	$	3	$	228	$	465	$	(212	)	$	4	$	257

The in-process research and development (“IPR&D”), which we acquired from SolarCity, is accounted for as an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. If the research and development efforts are successfully completed and commercial feasibility is reached, the IPR&D would be amortized over its then estimated useful life. If the research and development efforts are not completed or are abandoned, the IPR&D might be impaired. The fair value of the IPR&D was estimated using the replacement cost method under the cost approach, based on the historical acquisition costs and expenses of the technology adjusted for estimated developer’s profit, opportunity cost and obsolescence factor. We expect to complete the research

and development efforts by the end of 2017, but there can be no assurance that the commercial feasibility will be achieved. The nature of the research and development efforts consists principally of planning, designing and testing the technology for viability in manufacturing. If commercial feasibility is not achieved, we would likely look to other alternative technologies.

Total future amortization expense for finite-lived intangible assets was estimated as follows (in ~~thousands)~~millions):


Three months ending December 31, 2022	$	12
2023		43
2024		28
2025		28
2026		27
Thereafter		66
Total	$	204

ASC 820, Fair Value Measurements, states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a ~~liability~~.liability. The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value. Our assets and liabilities that were measured at fair value on a recurring basis were as follows (in ~~thousands)~~millions):


	September 30, 2022								December 31, 2021
	Fair Value		Level I		Level II		Level III		Fair Value		Level I		Level II		Level III
Money market funds	$	7,729	$	7,729	$	—	$	—	$	9,548	$	9,548	$	—	$	—
U.S. government securities		888		—		888		—		—		—		—		—
Corporate debt securities		687		—		687		—		131		—		131		—
Interest rate swap liabilities		—		—		—		—		31		—		31		—
Total	$	9,304	$	7,729	$	1,575	$	—	$	9,710	$	9,548	$	162	$	—

All of our ~~cash equivalents~~money market funds were classified within Level I of the fair value hierarchy because they were valued using quoted prices in active markets. Our U.S. government securities and marketable securities are classified within Level II of the fair value hierarchy and the market approach was used to determine fair value of these investments. Our interest rate swaps were classified within Level II of the fair value hierarchy because they were valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates. ~~During~~

Our cash, cash equivalents and marketable securities classified by security type as of September 30, 2022 and December 31, 2021 consisted of the following (in millions):


		September 30, 2022
		Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities
Cash		$	11,803	$	—	$	—		$	11,803	$	11,803	$	—
Money market funds			7,729		—		—			7,729		7,729		—
U.S. government securities			889		—		(1	)		888		—		888
Corporate debt securities			706		—		(19	)		687		—		687
Total cash, cash equivalents and short-term marketable securities	��	$	21,127	$	—	$	(20	)	$	21,107	$	19,532	$	1,575


	December 31, 2021
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities
Cash	$	8,028	$	—	$	—		$	8,028	$	8,028	$	—
Money market funds		9,548		—		—			9,548		9,548		—
Corporate debt securities		132		—		(1	)		131		—		131
Total cash, cash equivalents and short-term marketable securities	$	17,708	$	—	$	(1	)	$	17,707	$	17,576	$	131

We record gross realized gains, losses and credit losses as a component of Other (expense) income, net in the consolidated statements of operations. For the three and nine months ended September 30, ~~2017, there~~2022, we did not recognize any material gross realized gains, losses or credit losses. The ending allowance balances for credit losses were ~~no transfers between~~immaterial as of September 30, 2022 and December 31, 2021. We have determined that the ~~levels~~gross unrealized losses on our marketable securities as of September 30, 2022 and December 31, 2021 were temporary in nature.

The following table summarizes the fair value ~~hierarchy.~~of our marketable securities by stated contractual maturities as of September 30, 2022 (in millions):


Due in 1 year or less	$	943
Due in 1 year through 5 years		576
Due in 5 years through 10 years		56
Total	$	1,575

We ~~enter~~had previously entered into fixed-for-floating interest rate swap agreements to swap variable interest payments on certain debt for fixed interest payments, as required by certain of our lenders. We dodid not designate our interest rate swaps as hedging instruments. Accordingly, our interest rate swaps ~~are~~were recorded at fair value on the consolidated balance sheets within ~~other~~Other non-current assets or ~~other~~Other long-term liabilities, with any changes in their fair values recognized as ~~other~~Other (expense) income, ~~(expense),~~ net, in the consolidated statements of operations and with any cash flows recognized as ~~investing~~operating activities in the consolidated statements of cash flows. Our interest rate swaps outstanding were as follows (in millions):

Note 6 – Inventory

Our inventory consisted of the following (in ~~thousands)~~millions):


	September 30,		December 31,
	2022		2021
Raw materials	$	5,381	$	2,816
Work in process		2,237		1,089
Finished goods (1)		2,067		1,277
Service parts		642		575
Total	$	10,327	$	5,757

September 30,

December 31,

2017

2016

Raw materials

$
612,225

$
680,339

Work in process

277,155

233,746

Finished goods

1,418,385

1,016,731

Service parts

163,617

136,638

Total

$
2,471,382

$
2,067,454

(1)

Finished goods inventory ~~included~~includes vehicles in transit to fulfill customer orders, new vehicles available for ~~immediate~~ sale, ~~at our retail and service center locations,~~ used ~~Tesla~~ vehicles, ~~and~~ energy storage ~~products.~~

~~For solar energy systems, leased~~products and to be leased, we commence transferring component parts from inventory to construction in progress, a component of solar energy systems, leased and to be leased, once a lease contract with a customer has been executed and installation has been initiated. Additional costs incurred on the leased systems, including labor and overhead, are recorded within construction in progress.

Solar Roof products available for sale.

We write-down inventory for any excess or obsolete inventories or when we believe that the net realizable value of inventories is less than the carrying value. During the three and nine months ended September 30, ~~2017,~~2022, we recorded write-downs of ~~$26.2~~$42 million and ~~$93.0~~$91 million, respectively, in ~~cost~~Cost of ~~revenues.~~revenues in the consolidated statements of operations. During the three and nine months ended September 30, ~~2016,~~2021, we recorded write-downs of ~~$14.9~~$22 million and ~~$38.3~~$78 million, respectively, in ~~cost~~Cost of ~~revenues.~~revenues in the consolidated statements of operations.

Note 7 ~~– Solar Energy Systems, Leased and To Be Leased, Net~~

~~Solar energy systems, leased and to be leased, net, consisted of the following (in thousands):~~

September 30,

December 31,

2017

2016

Solar energy systems leased to customers

$
5,878,322

$
5,052,976

Initial direct costs related to customer solar energy
system lease acquisition costs

65,283

12,774

5,943,605

5,065,750

Less: accumulated depreciation and amortization

(168,571
)

(20,157
)

5,775,034

5,045,593

Solar energy systems under construction

241,928

460,913

Solar energy systems to be leased to customers

271,003

413,374

Solar energy systems, leased and to be leased – net (1)

$
6,287,965

$
5,919,880

~~(1)~~

Included in solar energy systems, leased and to be leased, as of September 30, 2017 and December 31, 2016 was $36.0 million and $36.0 million, respectively, related to capital leased assets with an accumulated depreciation and amortization of $1.5 million and $0.2 million, respectively.

~~Note 8~~ – Property, Plant and Equipment, Net

Our property, plant and equipment, net, consisted of the following (in ~~thousands)~~millions):


	September 30,			December 31,			September 30,			December 31,
	2017			2016			2022			2021
Machinery, equipment, vehicles and office furniture	$	3,671,297		$	2,154,367		$	12,261		$	9,953
Tooling		1,112,484			794,793			2,468			2,188
Leasehold improvements		716,015			505,295			2,102			1,826
Land and buildings		1,557,697			1,079,452			6,988			4,675
Computer equipment, hardware and software		360,533			275,655			1,879			1,414
Construction in progress		3,488,046			2,147,332			4,549			5,559
Other		23,886			23,548
		10,929,958			6,980,442			30,247			25,615
Less: Accumulated depreciation and amortization		(1,535,561	)		(997,485	)
Less: Accumulated depreciation								(8,321	)		(6,731	)
Total	$	9,394,397		$	5,982,957		$	21,926		$	18,884

Construction in progress is primarily comprised of ~~tooling~~construction of Gigafactory Berlin-Brandenburg and Gigafactory Texas, expansion of Gigafactory Shanghai and equipment and tooling related to the manufacturing of our vehicles and a portion of Gigafactory 1 construction. In addition, construction in progress also included certain build-to-suit lease costs incurred at our Buffalo manufacturing facility, referred to as Gigafactory 2.products. Completed assets are transferred to their respective asset classes and depreciation begins when an asset is ready for its intended use. Interest on outstanding debt is capitalized during periods of significant capital asset construction and amortized over the useful lives of the related assets. During the three and nine months ended September 30, ~~2017,~~2022, we capitalized ~~$37.3 million and $96.0 million, respectively,~~interest of ~~interest.~~an immaterial amount. During the three and nine months ended September 30, ~~2016,~~2021, we capitalized ~~$11.4~~$14 million and ~~$30.4~~$52 million, respectively, of interest.

As of September 30, 2017 and December 31, 2016, the table above included $1.59 billion and $1.32 billion, respectively, of build-to-suit lease assets. As of September 30, 2017 and December 31, 2016, the corresponding financing liabilities of $17.5 million and $3.8 million, respectively, were recorded in accrued liabilities and $1.62 billion and $1.32 billion, respectively, were recorded in other long-term liabilities.

Depreciation ~~and amortization~~ expense during the three and nine months ended September 30, ~~2017~~2022 was ~~$197.5~~$620 million and ~~$534.2 million,~~$1.75 billion, respectively. Depreciation ~~and amortization~~ expense during the three and nine months ended September 30, ~~2016~~2021 was ~~$126.8~~$495 million and ~~$337.9 million.~~$1.38 billion, respectively. Gross property, plant and equipment under ~~capital~~finance leases as of September 30, ~~2017~~2022 and December 31, ~~2016~~2021 was ~~$612.3 million~~$2.76 billion and ~~$112.6 million,~~$2.75 billion, respectively, with accumulated depreciation of $1.56 billion and $1.21 billion, respectively. ~~Accumulated depreciation~~

Panasonic has partnered with us on ~~property~~Gigafactory Nevada with investments in the production equipment that it uses 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 the terms of the arrangement convey a finance lease under ASC 842, Leases, we account for their production equipment as leased assets when production commences. We account for each lease and any non-lease components associated with that lease as a single lease component for all asset classes, except production equipment classes embedded in supply agreements. This results in us recording the cost of their production equipment within Property, plant and equipment, ~~under capital leases as~~net, on the consolidated balance sheets with a corresponding liability recorded to debt and finance leases. Depreciation on Panasonic production equipment is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of ~~these dates was $88.3 million~~the respective assets. As of September 30, 2022 and ~~$40.2 million, respectively.~~

WeDecember 31, 2021, we had cumulatively capitalized gross costs of ~~$2.85~~$2.01 billion and ~~$1.04~~$1.98 billion, respectively, on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement.

Note 8 – Accrued Liabilities and Other

Our accrued liabilities and other current liabilities consisted of the following (in millions):


	September 30,		December 31,
	2022		2021
Accrued purchases (1)	$	2,281	$	2,045
Taxes payable (2)		1,114		1,122
Payroll and related costs		980		906
Accrued warranty reserve, current portion		840		703
Sales return reserve, current portion		263		265
Operating lease liabilities, current portion		426		368
Other current liabilities		342		310
Total	$	6,246	$	5,719

(1)

Accrued purchases primarily reflects receipts of goods and services for ~~Gigafactory 1 as of September 30, 2017~~which we had not yet been invoiced. As we are invoiced for these goods and ~~December 31, 2016.~~services, this balance will reduce and accounts payable will increase.

(2)

Taxes payable includes value added tax, sales tax, property tax, use tax and income tax payables.

Note 9 – Other Long-Term Liabilities

~~Other~~

Our other long-term liabilities consisted of the following (in ~~thousands)~~millions):

September 30, 2017

December 31, 2016

Accrued warranty reserve, net of current portion

$
238,949

$
149,858

Build-to-suit lease liability, net of current portion

1,621,593

1,323,293

Deferred rent expense

43,133

36,966

Financing obligation, net of current portion

72,278

84,360

Liability for receipts from an investor

59,421

76,828

Other noncurrent liabilities

347,456

220,144

Total long-term liabilities

$
2,382,830

$
1,891,449


	September 30,		December 31,
	2022		2021
Operating lease liabilities	$	1,895	$	1,671
Accrued warranty reserve		1,931		1,398
Sales return reserve		57		133
Deferred tax liability		20		24
Other non-current liabilities		427		320
Total other long-term liabilities	$	4,330	$	3,546

The liability for receipts from an investor represents the amounts received from the investor under a lease pass-through fund arrangement for the monetization of investment tax credits (“ITCs”) for solar energy systems not yet placed in service. This balance is reclassified to deferred revenue when the solar energy systems are placed in service.

Note 10 – ~~Customer Deposits~~Debt

Customer deposits primarily consisted of cash payments from customers at the time they place an order or reservation for a vehicle or an energy product and any additional payments up to the point of delivery or the completion of installation, including the

fair values of any customer trade-in vehicles that are applicable toward a new vehicle purchase. Customer deposit amounts and timing vary depending on the vehicle model, the energy product and the country of delivery. Customer deposits are fully refundable in the case of a vehicle up to the point the vehicle is placed into the production cycle, and, in the case of solar or energy storage products, prior to the entry into a purchase agreement or in certain cases for a limited time thereafter, in accordance with applicable laws. Customer deposits are included in current liabilities until refunded or until they are applied towards the customer’s purchase balance. As of September 30, 2017 and December 31, 2016, we held $686.1 million and $663.9 million, respectively, in customer deposits.

~~Note 11 – Convertible and Long-Term Debt Obligations~~

The following is a summary of our debt and finance leases as of September 30, ~~2017~~2022 (in ~~thousands)~~millions):

Unpaid

Unused

Principal

Net Carrying Value

Committed

Contractual

Balance

Current

Long-Term

Amount

Interest Rate

Maturity Date
Recourse debt:

1.50% Convertible Senior Notes due in 2018
   ("2018 Notes")

$
17,512

$
17,155

$
—

$
—

1.50
%

June 2018
0.25% Convertible Senior Notes due in 2019
   ("2019 Notes")

920,000

—

858,449

—

0.25
%

March 2019
1.25% Convertible Senior Notes due in 2021
   ("2021 Notes")

1,380,000

—

1,172,195

—

1.25
%

March 2021
2.375% Convertible Senior Notes due in 2022
   ("2022 Notes")

977,500

—

834,834

—

2.375
%

March 2022
5.30% Senior Notes due in 2025
   ("2025 Notes")

1,800,000

—

1,774,742

—

5.30
%

August 2025
Credit Agreement

1,269,000

—

1,269,000

535,095

1% plus LIBOR

June 2020
Vehicle and Other Loans

15,367

12,863

2,504

—

1.8%-7.6%

October 2017-
September 2019
2.75% Convertible Senior Notes due in 2018

230,000

—

221,166

—

2.75
%

November 2018
1.625% Convertible Senior Notes due in 2019

566,000

—

506,535

—

1.625
%

November 2019
Zero-coupon Convertible Senior Notes due in 2020

103,000

—

85,182

—

0.0
%

December 2020
Related Party Promissory Notes due in February 2018

100,000

100,000

—

—

6.5
%

February 2018
Solar Bonds

32,016

6,424

25,135

—

2.6%-5.8%

March 2018-
January 2031
Total recourse debt

7,410,395

136,442

6,749,742

535,095

Non-recourse debt:

Warehouse Agreements

556,992

154,191

402,801

43,008

2.7
%

September 2019
Canada Credit Facility

55,072

21,357

33,715

—

3.6%-4.5%

December 2020
Term Loan due in December 2018

154,573

3,943

150,306

21,299

4.7
%

December 2018
Term Loan due in January 2021

178,820

5,745

171,938

—

4.8
%

January 2021
Revolving Aggregation Credit Facility

420,265

—

417,681

179,735

4.1%-4.8%

December 2019
Solar Renewable Energy Credit Loan Facility

45,389

17,025

28,509

—

7.0
%

July 2021
Cash Equity Debt

488,000

12,397

459,987

—

5.3%-5.8%

July 2033-
January 2035
Solar Asset-backed Notes

438,417

16,403

406,327

—

4.0%-5.6%

November 2038-
September 2046
Solar Loan-backed Notes

244,498

8,003

228,723

—

4.8%-7.5%

September 2048-
September 2049
Total non-recourse debt

2,582,026

239,064

2,299,987

244,042

Total debt

$
9,992,421

$
375,506

$
9,049,729

$
779,137


					Unpaid		Unused
	Net Carrying Value				Principal		Committed		Contractual		Contractual
	Current		Long-Term		Balance		Amount (1)		Interest Rates		Maturity Date
Recourse debt:
2024 Notes	$	—	$	44	$	45	$	—	2.00	%	May 2024
Credit Agreement		—		—		—		2,266	Not applicable		July 2023
Solar Bonds		—		7		7		—	4.70-5.75	%	March 2025-January 2031
Total recourse debt		—		51		52		2,266
Non-recourse debt:
Automotive Asset-backed Notes		949		972		1,927		—	0.36-5.48	%	December 2022-September 2025
Solar Asset-backed Notes		4		14		18		—	4.80	%	December 2026
Cash Equity Debt		26		370		406		—	5.25-5.81	%	July 2033-January 2035
Automotive Lease-backed Credit Facilities		—		—		—		139	Not applicable		September 2024
Other Loans		—		11		11		—	5.10	%	February 2033
Total non-recourse debt		979		1,367		2,362		139
Total debt		979		1,418	$	2,414	$	2,405
Finance leases		478		678
Total debt and finance leases	$	1,457	$	2,096

The following is a summary of our debt and finance leases as of December 31, ~~2016~~2021 (in ~~thousands)~~millions):


						Unpaid		Unused
	Net Carrying Value					Principal		Committed		Contractual		Contractual
	Current			Long-Term		Balance		Amount (1)		Interest Rates		Maturity Date
Recourse debt:
2022 Notes	$		29	$	—	$	29	$	—	2.375	%	March 2022
2024 Notes			1		89		91		—	2.00	%	May 2024
Credit Agreement			—		1,250		1,250		920	3.25	%	July 2023
Solar Bonds		0			7		7		—	4.00-5.75	%	January 2022-January 2031
Total recourse debt			30		1,346		1,377		920
Non-recourse debt:
Automotive Asset-backed Notes			1,007		1,706		2,723		—	0.12%-5.48	%	September 2022-September 2025
Solar Asset and Loan-backed Notes			27		800		844		—	2.87%-7.74	%	September 2024-September 2049
Cash Equity Debt			24		388		422		—	5.25-5.81	%	July 2033-January 2035
Automotive Lease-backed Credit Facilities			—		—		—		167	Not applicable		September 2023
Other Loans			—		14		14		21	5.10	%	February 2033
Total non-recourse debt			1,058		2,908		4,003		188
Total debt			1,088		4,254	$	5,380	$	1,108
Finance leases			501		991
Total debt and finance leases	$		1,589	$	5,245

Unpaid

Unused

Principal

Net Carrying Value

Committed

Contractual

Balance

Current

Long-Term

Amount

Interest Rate

Maturity Date
Recourse debt:

2018 Notes

$
205,013

$
196,229

$
—

$
—

1.50
%

June 2018
2019 Notes

920,000

—

827,620

—

0.25
%

March 2019
2021 Notes

1,380,000

—

1,132,029

—

1.25
%

March 2021
Credit Agreement

969,000

—

969,000

181,000

1% plus LIBOR

June 2020
Secured Revolving Credit Facility

364,000

366,247

—

24,305

4.0%-6.0%

January 2017-
December 2017
Vehicle and Other Loans

23,771

17,235

6,536

—

2.9%-7.6%

March 2017-
June 2019
2.75% Convertible Senior Notes due in 2018

230,000

—

212,223

—

2.75%

November 2018
1.625% Convertible Senior Notes due in 2019

566,000

—

483,820

—

1.625%

November 2019
Zero-coupon Convertible Senior Notes due in 2020

113,000

—

89,418

—

0.0%

December 2020
Solar Bonds

332,060

181,582

148,948

#

1.1%-6.5%

January 2017-
January 2031
Total recourse debt

5,102,844

761,293

3,869,594

205,305

Non-recourse debt:

Warehouse Agreement

390,000

73,708

316,292

210,000

Various

September 2018
Canada Credit Facility

67,342

18,489

48,853

—

3.6%- 4.5%

December 2020
Term Loan due in December 2017

75,467

75,715

—

52,173

4.2%

December 2017
Term Loan due in January 2021

183,388

5,860

176,169

—

4.5%

January 2021
MyPower Revolving Credit Facility

133,762

133,827

—

56,238

4.1%-6.6%

January 2017
Revolving Aggregation Credit Facility

424,757

—

427,944

335,243

4.0%-4.8%

December 2018
Solar Renewable Energy Credit Term Loan

38,124

12,491

26,262

—

6.6%-9.9%

April 2017-
July 2021
Cash Equity Debt

496,654

13,642

466,741

—

5.3%-5.8%

July 2033-
January 2035
Solar Asset-backed Notes

458,836

16,113

426,651

—

4.0%-7.5%

November 2038-
September 2046
Solar Loan-backed Notes

140,586

3,514

133,510

—

4.8%-6.9%

September 2048
Total non-recourse debt

2,408,916

353,359

2,022,422

653,654

Total debt

$
7,511,760

$
1,114,652

$
5,892,016

$
858,959

(1)

There are no restrictions on draw-down or use for general corporate purposes with respect to any available committed funds under our credit facilities, except certain specified conditions prior to draw-down, including pledging to our lenders sufficient amounts of qualified receivables, inventories, leased vehicles and our interests in those leases or various other assets and as may be described below and in the notes to the consolidated financial statements included in our report on Form 10-K for the year ended December 31, 2021.

#	~~Out of the $350.0 million authorized to be issued, $17.9 million remained available to be issued.~~

Recourse debt refers to debt that is recourse to our general assets. Non-recourse debt refers to debt that is recourse to only ~~specified~~ assets of our subsidiaries. The differences between the unpaid principal balances and the net carrying values are due to ~~convertible senior note conversion features,~~ debt discounts ~~and~~or deferred financing costs. As of September 30, ~~2017,~~2022, we were in material compliance with all financial debt covenants. ~~The~~

2022 Notes and 2024 Notes

During each of the first three quarters of 2022, the closing price of our common stock continued to exceed 130% of the applicable conversion price of our 2024 Notes on at least 20 of the last 30 consecutive trading days of the quarter, causing the 2024 Notes to be convertible by their holders during the second, third and fourth quarters of 2022. Should the closing price conditions continue to be met in a future quarter for the 2024 Notes, the 2024 Notes will be convertible at their holders’ option during the immediately following ~~descriptions summarize the significant debt activity in~~quarter.

During the nine months ended September 30, ~~2017.~~

~~2018 Notes~~

~~In June 2017, $144.8~~2022, $29 million and $46 million in aggregate principal amount of the ~~2018~~2022 Notes and 2024 Notes, respectively, were ~~exchanged~~converted and settled in cash for ~~1,163,442~~their par amount, and the issuance of 1.2 million and 2.1 million shares of our common stock ~~(see Note 12,~~ ~~Common~~for the applicable conversion premium, respectively, as adjusted to give effect to the 2022 Stock~~). As a result,~~ Split. The note hedges we ~~recognized a loss on debt extinguishment of $1.1 million.~~

Inentered into in connection with the ~~third quarter of 2017, $42.7 million in aggregate principal amount~~issuance of the ~~2018~~2022 Notes and 2024 Notes were ~~exchanged or converted for 250,198~~automatically settled with the respective conversions of the 2022 Notes and 2024 Notes, resulting in the receipt of 1.2 million and 2.1 million shares of our common stock, ~~(see Note 12,~~ ~~Common~~respectively, as adjusted to give effect to the 2022 Stock~~) and $32.7 million in cash. As a result, we recognized a loss on debt extinguishment of $0.3 million.~~

Split. In March 2022, the 2022 Notes ~~Bond Hedges and Warrant Transactions~~

~~In March 2017,~~were fully settled. Additionally, during the nine months ended September 30, 2022, we ~~issued $977.5 million~~fully settled the warrants entered into in ~~aggregate principal amount of 2.375% convertible senior notes due in March 2022 in a public offering. The net proceeds from~~connection with the issuance ~~after deducting transaction costs, were $965.9 million.~~of the 2022 Notes, resulting in the issuance of 37.0 million shares of our common stock, as adjusted to give effect to the 2022 Stock Split.

~~Each $1,000~~As adjusted to give effect to the 2022 Stock Split, each $1,000 of principal of the ~~2022~~2024 Notes is ~~initially~~now convertible into ~~3.0534~~48.4140 shares of our common stock, which is equivalent to ~~an initial~~a conversion price of approximately ~~$327.50~~$20.66 per ~~share, subject to adjustment upon~~share. Under the occurrence of specified events. Holders of the 2022 Notes may convert, at their option, on or after December 15, 2021. Further, holders of the 2022 Notes may convert such 2022 Notes, at their option, prior to December 15, 2021, only under the following circumstances: (1) during any quarter beginning after June 30, 2017, if the closing price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days immediately preceding the quarter is greater than or equal to 130% of the conversion price; (2) during the five-business day period following any five-consecutive trading day period in which the trading price of the 2022 Notes is less than 98% of the average of the closing price of our common stock for each day during such five-consecutive trading day period; or (3) ifnote hedge transactions we ~~make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon a~~

conversion, we would pay cash for the principal amount and, if applicable, deliver shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock) based on a daily conversion value. If a fundamental change occurs prior to the maturity date, holders of the 2022 Notes may require us to repurchase all or a portion of their 2022 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date, we would increase the conversion rate for a holder who elects to convert their 2022 Notesentered in connection with ~~such an event in certain circumstances. As of September 30, 2017, none~~the issuance of the ~~conditions permitting the holders of the 2022~~2024 Notes, ~~to early convert had been met. Therefore, the 2022 Notes are classified as long-term debt.~~

In accordance with GAAP relating to embedded conversion features, we initially valued and bifurcated the conversion feature associated with the 2022 Notes. We recorded to stockholders’ equity $145.6 million for the conversion feature. The resulting debt discount is being amortized to interest expense at an effective interest rate of 6.00%.

~~In connection with the offering of the 2022 Notes, we entered into convertible note hedge transactions whereby~~ we had the option to purchase ~~initially (subject to adjustment for certain specified events) a total of 3.0~~89.1 million shares ~~of our common stock~~ at ~~a price of $327.50~~approximately $20.66 per ~~share. The cost~~share, as adjusted to give effect to the 2022 Stock Split. Additionally, in connection with the issuance of the ~~convertible note hedge transactions was $204.1 million. In addition,~~2024 Notes, we sold warrants whereby the holders of the warrants had the option to purchase ~~initially (subject to certain specified events) a total of 3.0~~89.1 million shares ~~of our common stock~~ at ~~a price of $655.00~~approximately $40.50 per ~~share. We received $52.9 million in cash proceeds from~~share, as adjusted to give effect to the ~~sale of these warrants.~~2022 Stock Split. Taken together, the purchase of the convertible note hedges and the sale of the warrants are intended ~~to reduce potential dilution from the conversion of the 2022 Notes and~~ to effectively increase the overall conversion price from ~~$327.50~~approximately $20.66 per share to ~~$655.00~~approximately $40.50 per share. ~~As these transactions meet certain accounting criteria,~~

Solar Asset and Loan-backed Notes

During the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on our consolidated balance sheet.

~~2025 Notes~~

~~In August 2017,~~nine months ended September 30, 2022, we ~~issued $1,800.0~~early repaid $819 million in aggregate principal ~~amount~~ of ~~unsecured 5.30% senior notes due in August 2025 pursuant to Rule 144A~~the Solar Asset and ~~Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the issuance, after deducting transaction costs, were $1,774.2 million.~~

~~Secured Revolving Credit Facility~~

~~In August 2017, the secured revolving credit facility was terminated,~~Loan-backed Notes and ~~the aggregate outstanding principal amount of $324.0 million was fully repaid.~~

~~Zero-coupon Convertible Senior Notes due in 2020~~

~~On April 26, 2017, our Chief Executive Officer converted all of his zero-coupon convertible senior notes due in 2020, which had~~recorded an ~~aggregate principal amount of $10.0 million (see Note 12,~~ ~~Common Stock). As a result, we recognized a loss on debt~~ extinguishment of ~~$2.2 million.~~

~~Related Party Promissory Notes due in February 2018~~

~~On April 11, 2017, our Chief Executive Officer, SolarCity’s former Chief Executive Officer and SolarCity’s former Chief Technology Officer exchanged their $100.0~~debt charge of $24 million ~~(collectively) in aggregate principal amount of 6.50% Solar Bonds due in February 2018 for promissory notes in the same amounts and with substantially the same terms.~~

~~Solar Bonds~~

~~Solar Bonds are senior unsecured obligations that are structurally subordinate~~related to the indebtedness and other liabilities of our subsidiaries. Solar Bonds were issued under multiple series between October 2014 and August 2016 with various terms and interest rates. In April 2017, we fully extinguished certain series of Solar Bonds by prepaying $20.9 million of principal and interest. See Note 16, ~~Related Party Transactions, for Solar Bonds issued to related parties.~~

~~Warehouse Agreements~~

On August 31, 2016, our subsidiaries entered into a Warehouse Agreement with a bank for loans secured by the future cash flows arising from certain leases and the related leased vehicles. On August 17, 2017, the Warehouse Agreement was amended to modify the interest rates and extend the availability period and the maturity date, by appending another Warehouse Agreement with substantially the same terms and that shares the same committed amount. Amounts drawn under the Warehouse Agreements generally bear interest at (i) LIBOR plus a fixed margin or (ii) the commercial paper rate. The Warehouse Agreements are non-recourse to our other assets.

~~Pursuant to the Warehouse Agreements, an undivided beneficial interest~~early repayments in ~~the future cash flows arising from certain leases and the related leased vehicles has been sold for legal purposes but continues to be reported~~Interest expense in the consolidated ~~financial statements. The interest in the future cash flows arising from these leases and the related vehicles is not available to pay the claims~~statement of our creditors other than pursuant to obligations to the lenders under the Warehouse Agreements. We retain the right to receive the excess cash flows not needed to pay obligations under the Warehouse Agreements.operations.

~~On October 18, 2017, the total committed amount under the Warehouse Agreements was increased from $600.0 million to $1.1 billion.~~

~~Term Loan due in December 2018~~

On March 31, 2016, a subsidiary of SolarCity entered into an agreement for a term loan. The term loan bears interest at an annual rate of the lender’s cost of funds plus 3.25%. The fee for undrawn commitments is 0.85% per annum. On March 31, 2017, the agreement was amended to extend the availability period and the maturity date. The term loan is secured by substantially all of the assets of the subsidiary and is non-recourse to our other assets.

~~MyPower Revolving Credit Facility~~

~~In January 2017, the MyPower revolving credit facility matured, and the aggregate outstanding principal amount of $133.8 million was fully repaid.~~

~~Revolving Aggregation Credit Facility~~

On May 4, 2015, a subsidiary of SolarCity entered into an agreement with a syndicate of banks for a revolving aggregation credit facility. On March 23, 2016 and June 23, 2017, the agreement was amended to modify the interest rates and extend the availability period and the maturity date. The revolving aggregation credit facility bears interest at an annual rate of 2.75% plus (i) for commercial paper loans, the commercial paper rate and (ii) for LIBOR loans, at our option, three-month LIBOR or daily LIBOR. The revolving aggregation credit facility is secured by certain assets of certain subsidiaries of SolarCity and is non-recourse to our other assets.

~~Solar Renewable Energy Credit Loan Facilities~~

On March 31, 2016, a subsidiary of SolarCity entered into an agreement for a term loan. The term loan bore interest at an annual rate of one-month LIBOR plus 9.00% or, at our option, 8.00% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate or (iii) one-month LIBOR plus 1.00%. The term loan was secured by substantially all of the assets of the subsidiary, including its rights under forward contracts to sell solar renewable energy credits, and was non-recourse to our other assets. On March 1, 2017, we fully repaid the principal outstanding under the term loan.

On July 14, 2016, the same subsidiary entered into an agreement for another loan facility. The loan facility bears interest at an annual rate of one-month LIBOR plus 5.75% or, at our option, 4.75% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate or (iii) one-month LIBOR plus 1.00%. The loan facility is secured by substantially all of the assets of the subsidiary, including its rights under forward contracts to sell solar renewable energy credits, and is non-recourse to our other assets.

~~Solar Loan-backed Notes, Series 2017-A~~

On January 27, 2017, we pooled and transferred certain MyPower customer notes receivable into a special purpose entity (“SPE”) and issued $123.0 million in aggregate principal amount of Solar Loan-backed Notes, Series 2017-A, Class A; $8.8 million in aggregate principal amount of Solar Loan-backed Notes, Series 2017-A, Class B; and $13.2 million in aggregate principal amount of Solar Loan-backed Notes, Series 2017-A, Class C; backed by these notes receivable to investors. The SPE is wholly owned by us and is consolidated in our financial statements. Accordingly, we did not recognize a gain or loss on the transfer of these notes receivable. The Solar Loan-backed Notes were issued at a discount of 1.87% for Class A, 1.86% for Class B and 8.13% for Class C. The payments received by the SPE from these notes receivable are used to service the semi-annual principal and interest payments on the Solar Loan-backed Notes and satisfy the SPE’s expenses, and any remaining cash is distributed to one of our wholly owned subsidiaries. The SPE’s assets and cash flows are not available to our other creditors, and the creditors of the SPE, including the Solar Loan-backed Note holders, have no recourse to our other assets.

Interest Expense

The following table presents the interest expense related to the contractual interest coupon and the amortization of debt issuance costs, ~~and~~which include the ~~amortization of debt discounts on convertible senior notes with cash conversion features, which includes the 2018~~1.25% Convertible Senior Notes ~~the 2019 Notes, the~~due in 2021 ~~Notes and~~(fully settled in March 2021), the 2022 Notes ~~(in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Contractual interest coupon

$
10,899

$
6,615

$
28,306

$
23,330

Amortization of debt issuance costs

1,759

4,952

5,274

8,835

Amortization of debt discounts

29,888

24,660

83,852

75,493

Total

$
42,546

$
36,227

$
117,432

$
107,658

~~Note 12 – Common Stock~~

In(fully settled in March 2017, we completed a public offering of our common stock and issued a total of 1,536,259 shares for total cash proceeds of $399.6 million (including 95,420 shares purchased by our Chief Executive Officer for $25.0 million), net of underwriting discounts and offering costs.

In April 2017, our Chief Executive Officer exercised his right under the indenture to convert all of his zero-coupon convertible senior notes due in 2020, which had an aggregate principal amount of $10.0 million. As a result, ~~on April 26, 2017, we issued 33,333 shares~~ ~~of our common stock to our Chief Executive Officer in accordance with the specified conversion rate, and~~ ~~we recorded an increase to additional paid-in capital of $10.3 million (see Note 11,~~ ~~Convertible and Long-Term Debt Obligations~~).

In June 2017, we issued 1,163,442 shares of our common stock pursuant to exchange agreements entered into with holders of $144.8 million in aggregate principal amount of the 2018 Notes (see Note 11, ~~Convertible and Long-Term Debt Obligations~~). As a result, we recorded an increase to additional paid-in capital of $141.8 million. In addition, we amended and settled early the associated portions of the bond hedges and warrants entered into in connection with the 2018 Notes, resulting in a net cash inflow of $43.6 million, which was recorded as an increase to additional paid-in capital.

In the third quarter of 2017, we issued 250,198 shares of our common stock and paid $32.7 million in cash pursuant to conversions by or exchange agreements entered into with holders of $42.7 million in aggregate principal amount of the 2018 Notes (see Note 11, ~~Convertible and Long-Term Debt Obligations~~). As a result, we recorded an increase to additional paid-in capital of $9.3 million. In addition, we settled portions of the bond hedges and warrants entered into in connection with the 2018 Notes, resulting in a net cash inflow of $6.3 million (which was recorded as an increase to additional paid-in capital), the issuance of 17,433 shares of our common stock2022) and the ~~receipt of 169,890~~ ~~shares of our common stock~~.2024 Notes (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Contractual interest coupon	$	0	$	1	$	1	$	11
Amortization of debt issuance costs		0		1		1		4
Total	$	0	$	2	$	2	$	15

Note 1311 – Equity Incentive Plans

2018 CEO Performance Award

In ~~2010, we adopted~~March 2018, our stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the granting of stock options, RSUs and stock purchase rights to our employees, directors and consultants. Options granted under the 2010 Plan may be either incentive options or nonqualified stock options. Incentive stock options may be granted only to our employees, including officers. Nonqualified stock options and stock purchase rights may be granted to our employees, including directors, and consultants. Generally, our stock option and RSU awards vest over up to four years and are exercisable over a maximum period of ten years from their grant dates. Vesting typically terminates when the employment or consulting relationship ends.

~~As of September 30, 2017, there were 15,014,437 shares underlying outstanding equity awards.~~

~~2014 Performance-Based Stock Option Awards~~

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 us, the Compensation Committee of our Board of ~~Directors granted~~Directors’ grant of 304.0 million stock option awards, as adjusted to ~~certain employees (excluding our Chief Executive Officer)~~give effect to ~~purchase an aggregate~~the five-for-one stock split effected in the form of ~~1,073,000 shares of our common stock. Each award consisted of four vesting tranches with~~ a ~~vesting schedule based entirely on~~stock dividend in August 2020 (the “2020 Stock Split”) and the ~~attainment of performance milestones, assuming continued employment and service through each vesting date:~~

~~1/4th of each award vested upon completion of the first Model X production vehicle;~~

~~1/4th of each award is scheduled to vest upon achieving aggregate production of 100,000 vehicles in a trailing 12-month period;~~

~~1/4th of each award is scheduled to vest upon completion of the first Model 3 production vehicle; and~~

~~1/4th of each award is scheduled to vest upon achieving an annualized gross margin of greater than 30.0% for any three-year period.~~

~~As of September 30, 2017, the following performance milestones had been achieved:~~

~~Completion of the first Model X production vehicle;~~

~~Aggregate production of 100,000 vehicles in a trailing 12-month period; and~~

~~Completion of the first Model 3 production vehicle.~~

We begin recognizing stock-based compensation expense as each performance milestone becomes probable of achievement. As of September 30, 2017, we had unrecognized stock-based compensation expense of $17.1 million for the performance milestone that was considered not probable of achievement. For the three and nine months ended September 30, 2017, we recorded stock-based compensation expense of $0.5 million and $6.8 million, respectively, related to these awards. For the three and nine months ended September 30, 2016, we recorded stock-based compensation expense of $11.6 million and $22.8 million, respectively, related to these awards.

~~2012 Chief Executive Officer Awards~~

~~In August 2012, our Board of Directors granted 5,274,901 stock option awards~~2022 Stock Split, to our ~~Chief Executive Officer~~CEO (the ~~“2012~~“2018 CEO ~~Grant”~~Performance Award”). The ~~2012~~2018 CEO ~~Grant~~Performance Award consists of 1012 vesting tranches with a vesting schedule based entirely on the attainment of both ~~performance conditions~~operational milestones (performance conditions) and market conditions, assuming continued employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12 vesting tranches of the 2018 CEO Performance Award will vest upon certification by the Board of Directors that both (i) the market capitalization milestone for such tranche, ~~requires~~which begins at $100.0 billion for the first tranche and increases by increments of $50.0 billion thereafter (based on both a ~~combination~~six calendar month trailing average and a 30 calendar day trailing average, counting only trading days), has been achieved, and (ii) any one of the following eight operational milestones focused on total revenue or any one of the eight operational milestones focused on Adjusted EBITDA have been achieved for the four consecutive fiscal quarters on an annualized basis and subsequently reported by us in our consolidated financial statements filed with our Forms 10-Q and/or 10-K. Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest expense, provision (benefit) for income taxes, depreciation and amortization and stock-based compensation. Upon vesting and exercise, including the payment of the exercise price of $23.34 per share as adjusted to give effect to the 2020 Stock Split and the 2022 Stock Split, our CEO must hold shares that he acquires for five years post-exercise, other than a ~~pre-determined~~cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

The achievement status of the operational milestones as of September 30, 2022 is provided below. Although an operational milestone is deemed achieved in the last quarter of the relevant annualized period, it may be certified only after the financial statements supporting its achievement have been filed with our Forms 10-Q and/or 10-K.


Total Annualized Revenue			Annualized Adjusted EBITDA
Milestone (in billions)		Achievement Status	Milestone (in billions)		Achievement Status
$	20.0	Achieved	$	1.5	Achieved
$	35.0	Achieved	$	3.0	Achieved
$	55.0	Achieved	$	4.5	Achieved
$	75.0	Probable	$	6.0	Achieved
$	100.0	-	$	8.0	Achieved
$	125.0	-	$	10.0	Achieved
$	150.0	-	$	12.0	Achieved
$	175.0	-	$	14.0	Achieved

Stock-based compensation under the 2018 CEO Performance Award represents a non-cash expense and is recorded as a Selling, general, and administrative operating expense in our consolidated statements of operations. In each quarter since the grant of the 2018 CEO Performance Award, we have recognized expense, generally on a pro-rated basis, for only the number of tranches (up to the maximum of 12 tranches) that corresponds to the number of operational milestones that have been achieved or have been determined probable of being achieved in the future, in accordance with the following principles.

On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed amount of expense for such tranche and (ii) the future time when the market capitalization milestone for such tranche was expected to be achieved, or its “expected market capitalization milestone achievement time.” Separately, based on a subjective assessment of our future financial performance, each quarter we determine whether it is probable that we will achieve each operational milestone that has not previously been achieved or deemed probable of achievement and if so, the future time when we expect to achieve that operational milestone, or its “expected operational milestone achievement time.” When we first determine that an operational milestone has become probable of being achieved, we allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected full achievement time.” The “expected full achievement time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market capitalization milestone achievement time (if the related market capitalization milestone had not yet been achieved). We immediately recognize a catch-up expense for all accumulated expense for the quarters from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved. Each quarter thereafter, we recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected full achievement time, except that upon the achievement of both a market capitalization milestone and ~~an incremental increase~~operational milestone with respect to a tranche, all remaining expense for that tranche is immediately recognized.

As a result, we have experienced significant catch-up expenses in ~~our~~quarters when one or more operational milestones were first determined to be probable of achievement. Historically, the expected market capitalization ~~of $4.0 billion, as compared to our initial~~achievement times were generally later than the related expected operational milestone achievement times. Therefore, when market capitalization milestones were achieved earlier than originally forecasted due to periods of ~~$3.2 billion~~rapid stock price appreciation, we had higher catch-up expenses and the remaining expenses were being recognized over shorter periods of time at a higher per-quarter rate. All market capitalization milestones were achieved as of the ~~time~~second quarter of ~~grant.~~ 2021.

During the first quarter of 2022, three operational milestones were achieved and consequently, we recognized an aggregate catch-up expense of $11 million.

As of September 30, ~~2017, the market capitalization conditions for all of the vesting tranches and the following eight performance milestones had been achieved:~~

~~Successful completion of the Model X alpha prototype;~~

~~Successful completion of the Model X beta prototype;~~

~~Completion of the first Model X production vehicle;~~

~~Aggregate production of 100,000 vehicles;~~

~~Successful completion of the Model 3 alpha prototype,~~

~~Successful completion of the Model 3 beta prototype;~~

~~Aggregate production of 200,000 vehicles; and~~

~~Completion of the first Model 3 production vehicle.~~

~~As of September 30, 2017, the following performance milestone was considered probable of achievement:~~

~~Aggregate production of 300,000 vehicles.~~

~~We begin recognizing stock-based compensation expense as each milestone becomes probable of achievement. As of September 30, 2017,~~2022, we had ~~$1.0~~$4 million of total unrecognized stock-based compensation expense ~~for the performance milestone that was considered probable~~remaining, all of ~~achievement,~~ which will be recognized over a weighted-average period of 0.3 years. ~~As of September 30, 2017, we had unrecognized stock-based compensation expense of $5.7 million for the performance milestone that was considered not probable of achievement.~~ For the three and nine months ended September 30, ~~2017,~~2022, we recorded stock-based compensation expense of ~~$1.2~~$5 million and ~~$4.3~~$62 million, respectively, related to the ~~2012~~2018 CEO ~~Grant.~~Performance Award, and $190 million and $665 million, respectively, for the same periods in 2021.

Other Performance-Based Grants

2021 Performance-Based Stock Option & Restricted Stock Unit (“RSU”) Awards

During the fourth quarter of 2021, the Compensation Committee of our Board of Directors granted to certain employees RSUs and stock options to purchase an aggregate 2.2 million shares of our common stock, as adjusted to give effect to the 2022 Stock Split, to create incentives for continued long-term success and to closely align compensation with our stockholders’ interests in the achievement of certain performance milestones by our company.

We begin recording stock-based compensation expense when the performance milestones become probable of achievement. Following achievement, vesting occurs over a two-year period with continued employment. During the first quarter of 2022, the performance milestones related to this grant became probable of achievement and consequently, we recognized an aggregate catch-up expense of $30 million. As of September 30, 2022, we had unrecognized stock-based compensation expense of $236 million, which will be recognized over a weighted-average period of 2.7 years. For the three and nine months ended September 30, ~~2016,~~2022, we recorded $31 million and $134 million, respectively, of stock-based compensation expense ~~of $4.6 million and $14.9 million, respectively,~~ related to ~~the 2012 CEO Grant.~~this grant, net of forfeitures.

Our Chief Executive Officer earns a base salary that reflects the currently applicable minimum wage requirements under California law, and he is subject to income taxes based on such base salary. However, he has never accepted and currently does not accept his salary.

Summary Stock-Based Compensation Information

The following table summarizes our stock-based compensation expense by line item in the consolidated statements of operations (in ~~thousands)~~millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		Three Months Ended September 30,				Nine Months Ended September 30,
Cost of sales	$	10,166	$	8,939	$	27,663	$	21,837
									2022		2021		2022		2021
Cost of revenues									$	150	$	99	$	424	$	310
Research and development		51,066		40,220		158,052		113,328		124		105		389		334
Selling, general and administrative		51,421		40,384		146,697		111,347		88		271		328		919
Total	$	112,653	$	89,543	$	332,412	$	246,512	$	362	$	475	$	1,141	$	1,563

~~We realized no~~

Our income tax benefits recognized from ~~stock option exercises~~stock-based compensation arrangements in each of the periods presented were immaterial due to ~~recurring~~cumulative losses and valuation allowances. As of September 30, 2017, we had $1.1 billion of total unrecognized stock-based compensation expense related to non-performance awards, which will be recognized over a weighted-average period of 2.9 years.

Note 1412 – Commitments and Contingencies

~~Non-Cancellable Leases~~

We have entered into various non-cancellable leases for certain of our offices, manufacturing and warehouse facilities, retail and service locations, equipment, vehicles, solar energy systems and Supercharger sites, throughout the world.

~~Build-to-Suit~~Operating Lease Arrangement in Buffalo, New York

~~As discussed in Note 8,~~ ~~Property, Plant and Equipment~~, weWe have ~~a build-to-suit~~an operating lease ~~arrangement with~~through the Research Foundation for the State University of New York (the ~~“Foundation”~~“SUNY Foundation”) ~~where~~with respect to Gigafactory New York. Under the ~~Foundation will construct~~lease and a ~~solar cell~~related research and ~~panel manufacturing facility, referred~~development agreement, we are continuing to further develop the facility.

Under this agreement, we are obligated to, among other things, meet employment targets as ~~Gigafactory 2, with our participation~~well as specified minimum numbers of personnel in the design and construction, install certain utilities and other improvements and acquire certain manufacturing equipment designated by us to be used in the manufacturing facility. The Foundation will cover (i) construction costs related to the manufacturing facility in an amount up to $350.0 million, (ii) the acquisition and commissioning of the manufacturing equipment in an amount up to $274.7 million and (iii) $125.3 million for additional specified scope costs, in cases (i) and (ii) only, subject to the maximum funding allocation from the State of New York and ~~we will be responsible for any construction and equipment costs~~ in excess of such amounts. The Foundation will own the manufacturing facility and the manufacturing equipment purchased by the Foundation. Following completion of the manufacturing facility, we will lease the manufacturing facility and the manufacturing equipment owned by the Foundation for an initial period of 10 years, with an option to renew, for $2 per year plus utilities.

Under the terms of the build-to-suit lease arrangement, we are required to achieve specific operational milestones during the initial term of the lease, which include employing a certain number of employees at the manufacturing facility, within westernBuffalo, New York and ~~within the State of New York within specified periods following the completion of the manufacturing facility. We are also required to~~ spend or incur ~~approximately $5.0~~$5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York ~~over~~during the ~~10 years following the achievement of full production.~~10-year period beginning April 30, 2018. On an annual basis during the initial lease term, as measured on each anniversary of ~~the commissioning of the manufacturing facility,~~such date, if we fail to meet these specified investment and job creation requirements, then we would be obligated to pay a ~~$41.2~~$41 million “program payment” to the SUNY Foundation for each year that we fail to meet these requirements. Furthermore, if the arrangement is terminated due to a material breach by us, then additional amounts ~~might be~~may become payable by us.

As we temporarily suspended most of our manufacturing operations at Gigafactory New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we were granted a deferral of our obligation to be compliant with our applicable targets through December 31, 2021 in an amendment memorialized in August 2021. The ~~non-cash investing~~amendment also extended our overall agreement to spend or incur $5.00 billion in combined capital, operational expenses, costs of goods sold and ~~financing activities related~~other costs in the State of New York through December 31, 2029. On February 1, 2022, we reported to the ~~arrangement during the three~~State of New York that we had met and ~~nine months ended~~exceeded our annual requirements for jobs and investment in Buffalo and New York State. As of September 30, ~~2017 amounted~~2022, we are currently in excess of such targets relating to ~~$1.9 million~~investments and ~~$83.5 million, respectively.~~

~~Legal Proceedings~~

~~Securities Litigation~~

~~On March 28, 2014, a purported stockholder class action was filed~~personnel in the ~~United States District Court~~State of New York and Buffalo and do not currently expect any issues meeting our applicable obligations following this expected deferral or in the years beyond. However, if our expectations as to the costs and timelines of our investment and operations at Buffalo or our production ramp of the Solar Roof prove incorrect, we may incur additional expenses or be required to make substantial payments to the SUNY Foundation.

Operating Lease Arrangement in Shanghai, China

We have an operating lease arrangement for an initial term of 50 years with the local government of Shanghai for land use rights where we are constructing Gigafactory Shanghai. Under the terms of the arrangement, we are required to spend RMB 14.08 billion in capital expenditures by the end of 2023 and to generate RMB 2.23 billion of annual tax revenues starting at the end of 2023. If we are unwilling or unable to meet such target or obtain periodic project approvals, in accordance with the Chinese government’s standard terms for such arrangements, we would be required to revert the site to the local government and receive compensation for the ~~Northern District~~remaining value of ~~California against SolarCity~~the land lease, buildings and ~~two~~fixtures. We expect to meet the capital expenditure and tax revenue requirements based on our current level of ~~its officers. The complaint alleges violations of federal securities laws,~~spend and seeks unspecified compensatory damages and other relief on behalf of a purported class of purchasers of SolarCity’s securities from March 6, 2013 to March 18, 2014. After a series of amendments to the original complaint, the District Court dismissed the amended complaint and entered a judgment in our favor on August 9, 2016. The plaintiffs have filed a notice of appeal. The District Court has set a hearing on plaintiffs’ notice of appeal from the dismissal for December 4, 2017. We believe that the claims are without merit and

~~intend to defend against this lawsuit and appeal vigorously. We are unable to estimate the possible loss or range of loss, if any, associated with this lawsuit.~~sales.

On August 15, 2016, a purported stockholder class action lawsuit was filed in the United States District Court for the Northern District of California against SolarCity, two of its officers and a former officer. On March 20, 2017, the purported stockholder class filed a consolidated complaint that includes the original matter in the same court against SolarCity, one of its officers and three former officers. As consolidated, the complaint alleges that SolarCity made projections of future sales and installations that it failed to achieve and that these projections were fraudulent when made. The lawsuit claimed violations of federal securities laws and sought unspecified compensatory damages and other relief on behalf of a purported class of purchasers of SolarCity’s securities from May 6, 2015 to May 9, 2016. On July 25, 2017, the court took SolarCity’s fully-briefed motion to dismiss under submission. On August 11, 2017, the District Court granted the motion to dismiss with leave to amend. On September 11, 2017, after the lead plaintiff determined he would not amend, the District Court dismissed the action with prejudice and entered a judgment in favor of SolarCity and the individual defendants.Legal Proceedings

On October 10, 2017, a purported stockholder class action was filed in the United States District Court for the Northern District of California against Tesla, two of its current officers and a former officer. The complaint alleges violations of federal securities laws and seeks unspecified compensatory damages and other relief on behalf of a purported class of purchasers of Tesla securities from May 4, 2016 to October 6, 2017. The lawsuit claims that Tesla supposedly made materially false and misleading statements regarding its preparedness to produce Model 3 vehicles. We believe that the claims are without merit and intend to defend against this lawsuit vigorously. We are unable to estimate the possible loss or range of loss, if any, associated with this lawsuit.

Litigation Relating to the SolarCity Acquisition

Between September 1, 2016 and October 5, 2016, seven lawsuits were filed in the Delaware Court of Chancery ~~of the State of Delaware~~ by purported stockholders of Tesla challenging our acquisition of ~~SolarCity.~~SolarCity Corporation (“SolarCity”). Following consolidation, the lawsuit names as defendants the members of Tesla’s board of directors as then constituted and alleges, among other things, that board members breached their fiduciary duties in connection with the acquisition. The complaint asserts both derivative claims and direct claims on behalf of a purported class and seeks, among other relief, unspecified monetary damages, attorneys’ fees and costs. On January 22, 2020, all of the director defendants except Elon Musk reached a settlement to resolve the lawsuit against them for an amount to be paid entirely under the applicable insurance policy. The settlement, which does not involve an admission of any wrongdoing by any party, was approved by the Court on August 17, 2020. Tesla received payment of approximately $43 million on September 16, 2020, which has been recognized in our consolidated statements of operations as a reduction to Selling, general and administrative operating expenses for costs previously incurred related to the acquisition of SolarCity. On February 4, 2020, the Court issued a ruling that denied plaintiffs’ previously-filed motion for summary judgment and granted in part and denied in part defendants’ previously-filed motion for summary judgment. The case was set for trial in March 2020 until it was postponed by the Court due to safety precautions concerning COVID-19. The trial was held from July 12 to July 23, 2021 and on August 16, 2021. On October 22, 2021, the Court approved the parties’ joint stipulation that (a) the class is decertified and the action shall continue exclusively as a derivative action under Court of Chancery Rule 23.1 and (b) the direct claims against Elon Musk are dismissed with prejudice. Following post-trial briefing, post-trial argument was held on January 18, 2022.

On April 27, ~~2017,~~2022, the ~~defendants~~Court entered judgment in favor of Mr. Musk on all counts.  On May 26, 2022, the plaintiff filed a ~~motion to dismiss~~notice of appeal. The parties have completed briefing and argument will be held before the ~~operative complaint. Rather than respond to~~Supreme Court of Delaware during the ~~defendants’ motion, the~~January 2023 session.

These plaintiffs and others filed ~~an amended complaint. On March 17, 2017, the defendants filed a motion to dismiss the amended complaint; that motion is pending. These same plaintiffs filed a~~ parallel ~~action~~actions in the ~~United States~~U.S. District Court for the District of Delaware on or about April 21, ~~2017, adding~~2017. They include claims for violations of the federal securities ~~laws.~~laws and breach of fiduciary duties by Tesla’s board of directors. Those actions have been consolidated and stayed pending the above-referenced Chancery Court litigation.

Litigation Relating to 2018 CEO Performance Award

On ~~February 6, 2017,~~June 4, 2018, a purported Tesla stockholder ~~made~~filed a ~~demand~~putative class and derivative action in the Delaware Court of Chancery against Elon Musk and the members of Tesla’s board of directors as then constituted, alleging corporate waste, unjust enrichment and that such board members breached their fiduciary duties by approving the stock-based compensation plan awarded to ~~inspect Tesla’s books~~Elon Musk in 2018. The complaint seeks, among other things, monetary damages and ~~records, purportedly~~rescission or reformation of the stock-based compensation plan. On August 31, 2018, defendants filed a motion to ~~investigate potential breaches~~dismiss the complaint; plaintiff filed its opposition brief on November 1, 2018; and defendants filed a reply brief on December 13, 2018. The hearing on the motion to dismiss was held on May 9, 2019. On September 20, 2019, the Court granted the motion to dismiss as to the corporate waste claim but denied the motion as to the breach of fiduciary duty and unjust enrichment claims. Defendants’ answer was filed on December 3, 2019.

On January 25, 2021, the Court conditionally certified certain claims and a class of Tesla stockholders as a class action. On September 30, 2021, plaintiff filed a motion for leave to file a verified amended derivative complaint. On October 1, 2021, defendants Kimbal Musk and Steve Jurvetson moved for summary judgment as to the claims against them. Following the motion, plaintiff agreed to voluntarily dismiss the claims against Kimbal Musk and Steve Jurvetson. Plaintiff also moved for summary judgment on October 1, 2021. On October 27, 2021, the Court approved the parties’ joint stipulation that, among other things, (a) all claims against Kimbal Musk and Steve Jurvetson in the Complaint are dismissed with prejudice; (b) the class is decertified and the action shall continue exclusively as a derivative action under Court of Chancery Rule 23.1; and (c) the direct claims against the remaining defendants are dismissed with prejudice. On November 18, 2021, the remaining defendants (a) moved for partial summary judgment, (b) opposed plaintiff’s summary judgment motion and (c) opposed the plaintiff’s motion to amend his complaint. In January 2022, the case was assigned to a different judge. On February 24, 2022, the court (i) granted plaintiff’s motion to amend his complaint, and (ii) canceled oral argument on the summary judgment motions, stating that the court is “skeptical that this litigation can be resolved based on the undisputed facts” and the “case is going to trial,” but that the “parties may reassert their arguments made in support of summary judgment in their pre-trial and post-trial briefs.” Trial is currently set for November 14-18, 2022.

Litigation Related to Directors’ Compensation

On June 17, 2020, a purported Tesla stockholder filed a derivative action in the Delaware Court of Chancery, purportedly on behalf of Tesla, against certain of Tesla’s current and former directors regarding compensation awards granted to Tesla’s directors, other than Elon Musk, between 2017 and 2020. The suit asserts claims for breach of fiduciary duty and unjust enrichment and seeks declaratory and injunctive relief, unspecified damages and other relief. Defendants filed their answer on September 17, 2020. On September 20, 2022, the parties filed the Third Amended Stipulation and Proposed Order Governing Case Schedule, with trial from November 27, 2023, to December 1, 2023. The Proposed Order is pending before the Court.

Litigation Relating to Potential Going Private Transaction

Between August 10, 2018 and September 6, 2018, nine purported stockholder class actions were filed against Tesla and Elon Musk in connection with Mr. Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. All of the ~~SolarCity acquisition.~~suits are now pending in the U.S. District Court for the Northern District of California. Although the complaints vary in certain respects, they each purport to assert claims for violations of federal securities laws related to Mr. Musk’s statement and seek unspecified compensatory damages and other relief on behalf of a purported class of purchasers of Tesla’s securities. Plaintiffs filed their consolidated complaint on January 16, 2019 and added as defendants the members of Tesla’s board of directors. The now-consolidated purported stockholder class action was stayed while the issue of selection of lead counsel was briefed and argued before the Ninth Circuit. The Ninth Circuit ruled regarding lead counsel. Defendants filed a motion to dismiss the complaint on November 22, 2019. The hearing on the motion was held on March 6, 2020. On April ~~17, 2017,~~15, 2020, the ~~purported stockholder~~Court denied defendants’ motion to dismiss. The parties stipulated to certification of a class of stockholders, which the court granted on November 25, 2020. On January 11, 2022, plaintiff filed a ~~petition~~motion for ~~a writ of mandate~~partial summary judgment. On April 1, 2022, the Court granted in ~~California Superior~~part plaintiffs’ motion for partial summary judgment. The Company disagrees with the ruling and accordingly, on April 22, 2022, asked the Court ~~seeking to compel Tesla to provide the documents requested in the demand. Tesla filed a demurrer to the writ petition~~for reconsideration or, in the alternative, ~~a motion~~certification to ~~stay~~file an interlocutory appeal. On June 16, 2022, in response to Tesla’s motions, the ~~action,~~Court denied certification to appeal and declined to reconsider its opinion but clarified its summary judgment ruling to make clear that it had not ruled that any misstatements it identified met the required materiality element under the securities statute. The issue of materiality and reliance will both be questions for the jury to decide at trial, which ~~remain pending.~~is set for January 17, 2023.

OnBetween October 17, 2018 and March ~~24, 2017, another lawsuit was~~8, 2021, seven derivative lawsuits were filed in the ~~United States~~Delaware Court of Chancery, purportedly on behalf of Tesla, against Mr. Musk and the members of Tesla’s board of directors, as constituted at relevant times, in relation to statements made and actions connected to a potential going private transaction, with certain of the lawsuits challenging additional Twitter posts by Mr. Musk, among other things. Five of those actions were consolidated, and all seven actions have been stayed pending resolution of the above-referenced consolidated purported stockholder class action. In addition to these cases, two derivative lawsuits were filed on October 25, 2018 and February 11, 2019 in the U.S. District Court for the District of Delaware, purportedly on behalf of Tesla, against Mr. Musk and the members of the Tesla board of directors as then constituted. Those cases have also been consolidated and stayed pending resolution of the above-referenced consolidated purported stockholder class action.

On October 21, 2022, a lawsuit was filed in the Delaware Court of Chancery by a purported shareholder of Tesla ~~stockholder challenging the SolarCity acquisition. The complaint alleges,~~alleging, among other things, that ~~Tesla’s~~ board ~~of directors~~members breached their fiduciary duties in connection with ~~the acquisition and alleges violations~~their oversight of the ~~federal securities laws.~~Company’s 2018 settlement with the SEC, as amended. Among other things, the plaintiff seeks reforms to the Company’s corporate governance and internal procedures, unspecified damages, and attorneys’ fees.

WeUnless otherwise stated, the individual defendants named in the stockholder proceedings described above and the Company with respect to the stockholder class action proceedings described above believe that the claims ~~challenging the SolarCity acquisition are without merit.~~in such proceedings have no merit and intend to defend against them vigorously. We are unable to reasonably estimate the possible loss or range of loss, if any, associated with these claims.

~~Proceedings Relating to United States Treasury~~25

In July 2012, SolarCity, along with other companies in the solar energy industry, received a subpoena from the United States Treasury Department’s Office of the Inspector General to deliver certain documents in SolarCity’s possession that relate to SolarCity’s applications for United States Treasury grants. In February 2013, two financing funds affiliated with SolarCityOn November 15, 2021, JPMorgan Chase Bank (“JP Morgan”) filed a lawsuit against Tesla in the ~~United States Court~~Southern District of ~~Federal Claims against~~New York alleging breach of a stock warrant agreement that was entered into as part of a convertible notes offering in 2014. In 2018, JP Morgan informed Tesla that it had adjusted the ~~United States government, seeking~~strike price based upon Mr. Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. Tesla disputed JP Morgan’s adjustment as a violation of the parties’ agreement. In 2021, Tesla delivered shares to ~~recover $14.0~~JP Morgan per the agreement, which they duly accepted. JP Morgan now alleges that it is owed approximately $162 million as the value of additional shares that it claims should have been delivered as a result of the adjustment to the strike price in 2018. On January 24, 2022, Tesla filed multiple counterclaims as part of its answer to the underlying lawsuit, asserting among other points that JP Morgan should have terminated the stock warrant agreement in 2018 rather than make an adjustment to the strike price that it should have known would lead to a commercially unreasonable result. Tesla believes that the ~~United States Treasury was obligated to pay, but failed to pay,~~adjustments made by JP Morgan were neither proper nor commercially reasonable, as required under ~~Section 1603 of~~ the ~~American Recovery and Reinvestment Act of 2009. In February 2016, the United States government~~stock warrant agreements. JP Morgan filed a motion ~~seeking leave to assert a counterclaim against the two plaintiff funds~~for judgment on the ~~grounds~~pleadings, which Tesla opposed, and that motion is currently pending before the Court.

Litigation and Investigations Relating to Alleged Discrimination and Harassment

On October 4, 2021, in a case captioned Diaz v. Tesla, a jury in the Northern District of California returned a verdict of $136.9 million against Tesla on claims by a former contingent worker that he was subjected to race discrimination while assigned to work at Tesla’s Fremont Factory from 2015-2016. On November 16, 2021, Tesla filed a post-trial motion for relief that included a request for a new trial or reduction of the jury’s damages. The Court held a hearing on Tesla’s motion on January 19, 2022. On April 13, 2022, the Court granted Tesla’s motion in part, reducing the total damages to $15 million and conditionally denied the motion for a new trial subject to the plaintiff’s acceptance of the reduced award. On June 21, 2022, the plaintiff rejected the reduced award and, as a result, on June 27, 2022, the Court ordered a new trial to commence on March 27, 2023. Tesla continues to believe that the ~~United States government,~~facts and law do not justify the damages awarded and is assessing its next steps.

On February 9, 2022, shortly after the Diaz jury verdict, the California Civil Rights Department (”CRD,” formerly “DFEH”) filed a civil complaint against Tesla in ~~fact, paid them more, not less, than they were entitled~~Alameda County, California Superior Court, alleging systemic race discrimination, hostile work environment and pay equity claims, among others. CRD’s amended complaint seeks monetary damages and injunctive relief. On September 22, 2022, Tesla filed a counter-claim against CRD, alleging that it violated the Administrative Procedures Act by failing to asfollow statutory pre-requisites prior to filing suit. The case is now in discovery.

Additionally, on June 1, 2022 the Equal Employment Opportunity Commission (“EEOC”) issued a ~~matter~~cause finding against Tesla that closely parallels the CRD’s allegations. Tesla is in the process of ~~law. In September 2017, SolarCity~~setting up a mandatory mediation with the EEOC.

On June 16, 2022, two Tesla stockholders filed separate derivative actions in the U.S. District Court for the Western District of Texas, purportedly on behalf of Tesla, against certain of Tesla’s current and ~~the United States government reached a global settlement~~former directors. Both suits assert claims for breach of ~~both the investigation~~fiduciary duty, unjust enrichment, and ~~SolarCity’s lawsuit. In that settlement, SolarCity admitted no wrongdoing and agreed to return approximately 5%~~violation of the ~~United States Treasury cash grants it had received between 2009~~federal securities laws in connection with alleged race and ~~2013, amounting~~gender discrimination and sexual harassment. Among other things, plaintiffs seek declaratory and injunctive relief, unspecified damages payable to ~~$29.5 million. The investigation is now closed~~Tesla, and ~~SolarCity’s lawsuit has been dismissed.~~attorneys’ fees. On July 22, 2022, the Court consolidated the two cases and on September 6, 2022, plaintiffs filed a consolidated complaint. We anticipate that the directors will move to dismiss both actions because neither shareholder made a demand upon Tesla’s board of directors prior to filing suit.

Certain Investigations and Other Matters

~~From time to time, we have received~~We receive requests for information from regulators and governmental authorities, such as the National Highway Traffic Safety Administration, the National Transportation Safety Board, the SEC, the Department of Justice (“DOJ”) and various state, federal, and international agencies. We routinely cooperate with such regulatory and governmental requests, including subpoenas, formal and informal requests and other investigations and inquiries.

For example, the ~~Securities~~SEC had issued subpoenas to Tesla in connection with Elon Musk’s prior statement that he was considering taking Tesla private. The take-private investigation was resolved and ~~Exchange Commission.~~ closed with a settlement entered into with the SEC in September 2018 and as further clarified in April 2019 in an amendment. Since November 16, 2021, the SEC has periodically issued subpoenas to us seeking information on our governance processes around compliance with the SEC settlement, as amended.

Separately, the DOJ previously asked us to voluntarily provide it with information about the above matter related to taking Tesla private and Model 3 production rates. We have not received any further requests from DOJ on these matters since we last provided information in May 2019. There have not been any additional developments in these matters that we deem to be material, and to our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred. As is our normal practice, we have been cooperating and will continue to cooperate with government authorities. We cannot predict the outcome or impact of any ongoing matters. Should the government decide to pursue an enforcement action, there exists the possibility of a material adverse impact on our business, results of operation, prospects, cash flows and financial position.

We are also subject to various other legal proceedings and claims that arise from the normal course of business activities. If an unfavorable ruling or development were to occur, there exists the possibility of a material adverse impact on our business, results of operations, prospects, cash flows, financial position and brand.

Indemnifications ~~and Guaranteed Returns~~

We are contractually obligated to compensate certain fund investors for any losses that they may suffer in certain limited circumstances resulting from reductions in investment tax credits claimed under U.S. Treasury grants or ITCs. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the U.S. Treasury Department for purposes of claiming U.S. Treasury grants or as assessed by the IRS for purposes of claiming ITCs or U.S. Treasury grants. For each balance sheet date, we assess and recognize, when applicable, a distribution payablefederal laws for the ~~potential exposure~~installation of solar power facilities and energy storage systems that are charged from ~~this obligation based on all the information available at that time, including any guidelines issued by the U.S. Treasury Department on~~a co-sited solar ~~energy system valuations for purposes of claiming U.S. Treasury grants and any audits undertaken by the IRS.~~power facility. We believe that any payments to the fund investors in excess of the ~~amount~~amounts already recognized by us for this obligation are not probable or material based on the facts known at the filing date.

The maximum potential future payments that we could have to make under this obligation would depend on the difference between the fair values of the solar energy systems sold or transferred to the funds as determined by us and the values that the U.S. Treasury Department would determine as fair value for the systems for purposes of claiming U.S. Treasury grants or the values the IRS would determine as the fair value for the systems for purposes of claiming ITCs or U.S. Treasury grants. We claim U.S. Treasury grants based on guidelines provided by the U.S. Treasury department and the statutory regulations from the IRS. We use fair values determined with the assistance of independent third-party appraisals commissioned by us as the basis for determining the ITCs that are passed-through to and claimed by the fund investors. Since we cannot determine future revisions to U.S. Treasury Department guidelines governing solar energy system values or how the IRS will evaluate system values used in claiming ITCs or U.S. Treasury grants, we are unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date.

We are eligible to receive certain state and local incentives that are associated with renewable energy generation. The amount of incentives that can be claimed is based on the projected or actual solar energy system size and/or the amount of solar energy produced. We also currently participate in one state’s incentive program that is based on either the fair market value or the tax basis of solar energy systems placed in service. State and local incentives received are allocated between us and fund investors in accordance with the contractual provisions of each fund. We are not contractually obligated to indemnify any fund investor for any losses they may incur due to a shortfall in the amount of state or local incentives actually received.

Note 13 – Variable Interest Entity Arrangements

We are contractually obligated to make payments to one fund investor if the fund investor does not achieve a specified minimum internal rate of return. The fund investor has already received a significant portion of the projected economic benefits from U.S. Treasury grant distributions and tax depreciation benefits. The contractual provisions of the fund state that the fund has an indefinite term unless the members agree to dissolve the fund. Based on our current financial projections regarding the amounts and timing of future distributions to the fund investor, we do not expect to make any payments as a result of this guarantee and have not accrued any liabilities for this guarantee. The amounts of any potential future payments under this guarantee are dependent on the amounts and timing of future distributions to the fund investor, future tax benefits that accrue to the fund investor, our purchase of the fund investor’s interest in the fund and future distributions to the fund investor upon the liquidation of the fund. Due to the uncertainties surrounding estimating the amounts and timing of these factors, we are unable to estimate the maximum potential payments under this guarantee. To date, the fund investor has achieved the specified minimum internal rate of return.

Our lease pass-through financing funds have a one-time lease payment reset mechanism that occurs after the installation of all solar energy systems in a fund. As a result of this mechanism, we may be required to refund master lease prepayments previously received from investors. Any refunds of master lease prepayments would reduce the lease pass-through financing obligation.

~~Letters of Credit~~

~~As of September 30, 2017, we had $129.9 million of unused letters of credit outstanding.~~

~~Note 15 – VIE Arrangements~~

We have entered into various arrangements with investors to facilitate the funding and monetization of our solar energy systems and vehicles. In particular, our wholly owned subsidiaries and fund investors have formed and contributed cash and assets into various financing funds and entered into related agreements. We have determined that the funds are ~~VIEs~~variable interest entities (“VIEs”) and we are the primary beneficiary of these VIEs by reference to the power and benefits criterion under ASC 810, Consolidation. We have considered the provisions within the agreements, which grant us the power to manage and make decisions that affect the operation of these VIEs, including

determining the solar energy systems ~~or vehicles~~ and the associated customer contracts to be sold or contributed to these VIEs, redeploying solar energy systems ~~or vehicles~~ and managing customer receivables. We consider that the rights granted to the fund investors under the agreements are more protective in nature rather than participating.

As the primary beneficiary of these VIEs, we consolidate in the financial statements the financial position, results of operations and cash flows of these VIEs, and all intercompany balances and transactions between us and these VIEs are eliminated in the consolidated financial statements. Cash distributions of income and other receipts by a fund, net of agreed upon expenses, estimated expenses, tax benefits and detriments of income and loss and tax credits, are allocated to the fund investor and our subsidiary as specified in the agreements.

Generally, our subsidiary has the option to acquire the fund investor’s interest in the fund for an amount based on the market value of the fund or the formula specified in the agreements.

Upon the sale or liquidation of a fund, distributions would occur in the order and priority specified in the agreements.

Pursuant to management services, maintenance and warranty arrangements, we have been contracted to provide services to the funds, such as operations and maintenance support, accounting, lease servicing and performance reporting. In some instances, we have guaranteed payments to the fund investors as specified in the agreements. A fund’s creditors have no recourse to our general credit or to that of other funds. None of the assets of the funds had been pledged as collateral for their obligations.

The aggregate carrying values of the VIEs’ assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheets were as follows (in ~~thousands)~~millions):

September 30, 2017

December 31, 2016

Assets

Cash and cash equivalents

$
71,973

$
44,091

Restricted cash

33,343

20,916

Accounts receivable, net

36,248

16,023

Rebates receivable

5,060

6,646

Prepaid expenses and other current assets

3,620

7,532

Total current assets

150,244

95,208

Operating lease vehicles, net

143,613

—

Solar energy systems, leased and to be leased, net

5,098,398

4,618,443

Other assets

52,866

35,826

Total assets

$
5,445,121

$
4,749,477

Liabilities

Accounts payable

$
31

$
20

Distributions payable to noncontrolling interests
and redeemable noncontrolling interests

32,245

24,085

Accrued and other current liabilities

14,472

8,157

Customer deposits

4,274

1,169

Current portion of deferred revenue

51,768

17,114

Current portion of long-term debt

22,288

89,356

Total current liabilities

125,078

139,901

Deferred revenue, net of current portion

280,044

178,783

Long-term debt, net of current portion

650,211

466,741

Other liabilities and deferred costs

60,740

82,917

Total liabilities

$
1,116,073

$
868,342


	September 30,		December 31,
	2022		2021
Assets
Current assets
Cash and cash equivalents	$	69	$	79
Accounts receivable, net		38		22
Prepaid expenses and other current assets		409		152
Total current assets		516		253
Solar energy systems, net		3,882		4,108
Other non-current assets		401		265
Total assets	$	4,799	$	4,626
Liabilities
Current liabilities
Accrued liabilities and other	$	73	$	74
Deferred revenue		9		10
Current portion of debt and finance leases		976		1,031
Total current liabilities		1,058		1,115
Deferred revenue, net of current portion		142		153
Debt and finance leases, net of current portion		1,341		2,093
Other long-term liabilities		8		11
Total liabilities	$	2,549	$	3,372

~~Note 16 – Related Party Transactions~~

~~Related party balances were comprised of the following (in thousands):~~

September 30, 2017

December 31, 2016

Solar Bonds issued to related parties

$
100

$
265,100

Convertible senior notes due to related parties

$
3,000

$
13,000

Promissory notes due to related parties

$
100,000

$
—

Due to related parties (primarily accrued interest,
included in accrued and other current liabilities)

$
1,133

$
5,136

The related party transactions were primarily issuances, maturities and exchanges of debt held by Space Exploration Technologies Corporation (“SpaceX”), our Chief Executive Officer, SolarCity’s former Chief Executive Officer, SolarCity’s former Chief Technology Officer and an entity affiliated with our Chief Executive Officer. SpaceX is considered a related party because our Chief Executive Officer is the Chief Executive Officer, Chief Technology Officer, Chairman and a significant stockholder of SpaceX.

On March 21, 2017, $90.0 million in aggregate principal amount of 4.40% Solar Bonds held by SpaceX matured and were fully repaid by us. On June 10, 2017, $75.0 million in aggregate principal amount of 4.40% Solar Bonds held by SpaceX matured and were fully repaid by us.

On April 11, 2017, our Chief Executive Officer, SolarCity’s former Chief Executive Officer and SolarCity’s former Chief Technology Officer exchanged their $100.0 million (collectively) in aggregate principal amount of 6.50% Solar Bonds due in February 2018 for promissory notes in the same amounts and with substantially the same terms.

~~On April 18, 2017, our Chief Executive Officer converted all of his zero-coupon convertible senior notes due in 2020, which had an aggregate principal amount of $10.0 million (see Note 12,~~ ~~Common Stock~~).

Note 1714 – Segment Reporting and Information about Geographic Areas

We have two operating and reportable segments: (i) automotive and (ii) energy generation and storage. The automotive segment includes the design, development, manufacturing, sales and leasing of electric vehicles as well as sales of ~~electric vehicles.~~automotive regulatory credits. Additionally, the automotive segment is also comprised of services and other, which includes non-warranty after-sales vehicle services, sales of used vehicles, retail merchandise, sales by our acquired subsidiaries to third party customers and vehicle ~~sales, powertrain sales and services by Grohmann.~~insurance revenue. The energy generation and storage segment includes the design, manufacture, installation, sales and ~~sale or lease~~leasing of ~~stationary~~solar energy generation and energy storage products and related services and sales of solar energy systems ~~or sale of electricity generated by our solar energy systems to customers.~~incentives. Our CODM does not evaluate operating segments using asset ~~and~~or liability information. The following table presents revenues and gross ~~margins~~profit by reportable segment (in ~~thousands)~~millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Automotive segment

Revenues

$
2,667,170

$
2,275,102

$
7,652,273

$
4,665,492

Gross profit

$
368,923

$
637,682

$
1,558,295

$
1,164,523

Energy generation and storage segment

Revenues

$
317,505

$
23,334

$
818,229

$
50,009

Gross profit

$
80,217

$
(947
)

$
225,406

$
(544
)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Automotive segment
Revenues	$	20,337	$	12,951	$	54,545	$	34,003
Gross profit	$	5,278	$	3,657	$	14,947	$	8,837
Energy generation and storage segment
Revenues	$	1,117	$	806	$	2,599	$	2,101
Gross profit	$	104	$	3	$	129	$	(78	)

The following table presents revenues by geographic area based on ~~where~~the sales location of our products ~~are shipped~~ (in ~~thousands)~~millions):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2022		2021		2022		2021
United States	$	1,582,143	$	1,432,456	$	4,380,393	$	2,891,419	$	10,236	$	6,414	$	28,584	$	16,043
China		563,561		314,941		1,531,082		567,357		5,131		3,113		13,568		9,015
Norway		225,461		135,200		482,965		236,009
Other		613,510		415,839		2,076,062		1,020,716		6,087		4,230		14,992		11,046
Total	$	2,984,675	$	2,298,436	$	8,470,502	$	4,715,501	$	21,454	$	13,757	$	57,144	$	36,104

The following table presents long-lived assets by geographic area (in ~~thousands)~~millions):


					September 30,		December 31,
	September 30, 2017		December 31, 2016		2022		2021
United States	$	14,935,394	$	11,399,545	$	20,903	$	19,026
International		746,968		503,294
Germany						3,175		2,606
China						2,675		2,415
Other international						735		602
Total	$	15,682,362	$	11,902,839	$	27,488	$	24,649

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the ~~accompanying~~related notes included elsewhere in this Quarterly Report on Form 10-Q.

Our mission is to accelerate the world’s transition to sustainable energy. We design, develop, manufacture, lease and sell high-performance fully electric vehicles, solar energy generation systems and energy storage products. We also offer maintenance, installation, operation, financial and other services related to our products. Additionally, we are increasingly focused on products and services based on artificial intelligence, robotics and automation.

~~Our production vehicle fleet includes our Model S premium sedan and our Model X sport utility vehicle, which are our highest-performance and most capable~~In 2022, we have produced 929,910 vehicles and ~~our Model 3, a lower priced sedan designed for~~delivered 908,573 vehicles through the ~~mass market. We continue to enhance our vehicle offerings with enhanced Autopilot options, Internet connectivity~~third quarter, despite ongoing supply chain and ~~free over-the-air software updates to provide additional safety, convenience~~logistics challenges and ~~performance features.~~factory shutdowns. We are ~~also actively working~~currently focused on ~~future~~increasing vehicle production, capacity and delivery capabilities, improving and developing battery technologies, improving our FSD capabilities, increasing the affordability and efficiency of our vehicles, ~~such as a 100%-electric semi-truck.~~bringing new products to market and expanding our global infrastructure.

~~Energy Generation~~In 2022, we have deployed 4.08 GWh of energy storage products and ~~Storage~~

~~We lease and sell~~248 megawatts of solar energy systems ~~and sell renewable energy and energy products to our customers.~~through the third quarter. We ~~have partnered with Panasonic to provide capital and operational support to manufacture photovoltaic (“PV”) cells, and thus enable high volume integrated tile and PV cell~~are currently focused on ramping production ~~at our Gigafactory 2 in Buffalo, New York.~~ ~~We also plan to produce Solar Roof tiles at Gigafactory 2. Our~~of energy storage products, ~~which we manufacture at Gigafactory 1, consist of Powerwall for residential applications and Powerpack for commercial, industrial and utility-scale applications.~~

~~We drive demand for our vehicles by continually~~ improving our vehicles through over-the-air software updates, expanding our retail, service and charging infrastructure, and by periodically developing and introducing new vehicle variants and models. The worldwide automotive market for alternative fuel vehicles is highly competitive and we expect it to become even more so, as many companies have announced plans to expand, and in some cases fully transition to, production of electric or environmentally friendly vehicles. We welcome the acceleration of the world’s transition to sustainable transport. Nonetheless, we believe that the unique features of our vehicles, our constant innovation, our growing brand, the increased affordability introduced with Model 3, and our future vehicles, will continue to generate incremental demand for our vehicles by making our vehicles accessible to larger and previously untapped consumer and commercial markets. For example, in the third quarter of 2017, we achieved all-time quarterly records for both net orders and deliveries of Model S and X.

The initial phase of manufacturing any new vehicle is always challenging, and the Model 3 production ramp is no exception, particularly given our focus on highly automated manufacturing processes that we expect will ultimately result in higher volumes at significantly lower costs. Model 3 production in the third quarter of 2017 was less than anticipated due to production bottlenecks relating to a handful of manufacturing subsystems at our Fremont Factory and Gigafactory 1 taking longer to bring online than expected. The battery module assembly line at Gigafactory 1 has been the primary production constraint to date, as the complex design of the module and its automated manufacturing process involves a four zone process of which we had to take over key elements of two zones from manufacturing systems suppliers and significantly redesign them. We have redirected our best engineering talent to Gigafactory 1 to fine-tune the automated processes and related robotic programming, and we believe that throughput will increase substantially in upcoming weeks and ultimately be capable of production rates significantly greater than those for which they were originally intended.

We have designed Model 3 to facilitate volume production, and we believe there are no fundamental problems with our supply chain or any of our production processes. While we continue to make significant progress each week in resolving Model 3 bottlenecks, it is difficult to predict exactly how long it will take for all bottlenecks to be resolved or when new issues may arise. Based on our current progress, we expect to achieve a production rate of 5,000 Model 3 vehicles per week by the end of the first quarter of 2018, although the precise progress of the ramp is difficult to predict given that our production growth rate is similar to a stepped exponential, so there may be significant rate increases from one week to the next. In order to optimize the incremental improvement of our automation processes and the efficiency of our capital expenditures, we will implement the capacity to further ramp production to 10,000 units per week only after we have achieved a 5,000 units per week run rate. For Model S and Model X, we have made significant and sustained progress in the production processes, and we produced 25,076 of these vehicles in the third quarter of 2017.

We are also making strides in other aspects of our vehicle production, deliveries and customer infrastructure. For example, we expect to continue to lower the cost of manufacturing our vehicles over the next several quarters due to economies of scale, material cost reductions and more efficient manufacturing. We have achieved cost improvements through material cost reductions from both engineering and commercial actions and increased manufacturing efficiencies including better inventory control. This is also evident through increased product reliability including vehicle, battery and drive units. Likewise, while we have experienced in the past and may experience in the future infrastructure constraints and customer experience issues relating to vehicle deliveries, we are trying to address such concerns by opening additional delivery centers to scale the volume of vehicles we are able to deliver. Generally, as sales of Tesla vehicles ramp, we continue to open new Tesla retail, locations, service centers and delivery hubs around the world, we continue to expand our mobile repair services, and we plan to significantly increase the number of Superchargers and Destination Charging connectors globally.

We are continuing to reduce customer acquisition costs of our energy generation products, including by cutting advertising spend and increasingly selling these products in Tesla stores with dedicated energy product sales personnel, and we continue to leverage well-performing channel partnerships. Moreover, we are deemphasizing absolute growth for our solar products, and we are instead analyzing our portfolio of residential and commercial solar projects to prioritize cash and profitability. Solar Roof ~~installations will initially ramp slowly in the fourth quarter~~installation capability and efficiency, and increasing market share of ~~2017 as we move the production process from Fremont to Gigafactory 2. As we fine tune~~retrofit and ~~standardize the production and installation process, we expect to ramp Solar Roof production considerably in 2018.~~

~~We believe that demand for our energy products will continue to increase with~~ new product offerings and product integration. Demand for our Powerwall and Powerpack products presently exceeds capacity. We are ramping up production for these products at our Gigafactory 1 over the next several quarters.

We plan to continue to invest heavily in capital expenditures to ramp installed production capacity and further increase vehicle production capacity in our Fremont Facility, including for Model 3, facilities and manufacturing equipment at Gigafactory 1 as well as new retail locations, service centers, delivery hubs and Supercharger locations. Capital expenditures for our automotive segment were $1.1 billion in the third quarter of 2017, and ~~we expect to invest approximately$1.0 billion in capital expenditures for our automotive segment in the fourth quarter of 2017.~~

We expect operating expenses to grow in 2017 as compared to 2016, driven by engineering, design, testing and production expenses related to Model 3, supplier contracts and higher sales and service costs associated with expanding our worldwide geographic presence. In addition, we expect operating expenses to increase as a result of the increased selling, general and administrative expenses incurred by our energy generation and storage segment. We expect selling, general and administrative expenses to continue to increase in absolute amounts while declining significantly as a percentage of revenue due to the significant increase in revenue primarily driven by the ramp in Model 3 sales and as we focus on increasing operational efficiency while continuing to expand our customer and corporate infrastructure.

~~We offer loans and leases for our vehicles in certain markets in North America, Europe and Asia primarily through various financial institutions.~~ We offered resale value guarantees or similar buy-back terms to all direct customers who purchase vehicles and who financed their vehicle through one of our specified commercial banking partners. Subsequent to June 30, 2016, this program is available only in certain international markets. ~~Resale value guarantees available for exercise within the 12 months following September 30, 2017 totaled $279.9 million in value.~~

Vehicle deliveries with the resale value guarantee do not impact our near-term cash flows and liquidity, since we receive the full amount of cash for the vehicle sales price at delivery. However, this program requires the deferral of revenues and costs into future periods as they are considered leases for accounting purposes. While we do not assume any credit risk related to the customer, if a customer exercises the option to return the vehicle to us, we are exposed to liquidity risk that the resale value of vehicles under these programs may be lower than our guarantee, or the volume of vehicles returned to us may be higher than our estimates or we may be unable to resell the used cars in a timely manner, all of which could adversely impact our cash flows. Based on current market demand for our cars, we estimate the resale prices for our vehicles will continue to be above our resale value guarantee amounts. Should market values of our vehicles or customer demand decrease, these estimates may be impacted materially.

We currently offer vehicle leases in the U.S. directly from Tesla Finance, our captive financing entity, as well as through leasing partners. Leasing through Tesla Finance is available in 39 states and the District of Columbia. We also offer financing arrangements through our entities in Canada, Germany and the United Kingdom. Leasing through our captive financing entities and our leasing partners exposes us to residual value risk and adversely impacts our near-term operating results by requiring the deferral of revenues and costs into future periods under lease accounting. In addition, for leases offered directly from our captive financing entities (but not for those offered through our leasing partners), we only receive a limited portion of cash for the vehicle price at delivery and will

assume customer credit risk. We plan to continue expanding our financing offerings, including our lease financing options and the financial sources to support them, and to support the overall financing needs of our customers. To the extent that we are unable to arrange such options for our customers on terms that are attractive, our sales, financial results and cash flows could be negatively impacted.

~~We offer Solar Loans, whereby a third-party lender provides financing directly to a qualified customer to enable the customer to purchase and own a~~build solar energy system designed, installed and serviced by us. We enter into a standard solar energy system sale agreement with the customer. Separately, the customer enters into a loan agreement with a third-party lender, who finances the full purchase price. We are not a party to the loan agreement between the customer and the third-party lender, and the third-party lender has no recourse against us with respect to the loan.systems.

We are developing Gigafactory 1 as a facility where we work together with our suppliers to integrate production of battery material, cells, modules, battery packs and drive units in one location for vehicles and energy storage products. We broke ground on Gigafactory 1 in June 2014, began assembling our energy storage products in the first portion of the facility in the fourth quarter of 2015 ~~and began production of lithium-ion battery cells for our energy storage products in the first quarter of 2017~~. At Gigafactory 1, we are now producing drive units, as well as our proprietary form factor cells, which are then assembled into battery packs, for Model 3 and for our energy storage products. We also continue to invest in construction of the building at Gigafactory 1 and in production equipment for battery, module and pack production.

Panasonic has partnered with us on Gigafactory 1 with investments in the production equipment that it uses 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 to us the right to use, as defined in ASC 840, ~~Leases~~, their production equipment, we consider them to be leased assets when production commences. This results in us recording the value of their production equipment within property, plant and equipment, net, on our consolidated balance sheets with a corresponding liability recorded to financing obligations. For all suppliers and partners for which we plan to purchase the full output from their production equipment located at Gigafactory 1, we will apply similar accounting. During the three and nine months ended September 30, ~~2017,~~2022, we ~~recorded $148.5 million~~recognized total revenues of $21.45 billion and ~~$415.0 million,~~$57.14 billion, respectively, representing increases of $7.70 billion and $21.04 billion, respectively, over the same periods ended September 30, 2021. We continue to ramp production, build new manufacturing capacity and expand our operations to enable increased deliveries and deployments of our products and further revenue growth.

During the three and nine months ended September 30, 2022, our net income attributable to common stockholders was $3.29 billion and $8.87 billion, respectively, representing favorable changes of $1.67 billion and $5.67 billion, respectively, over the same periods ended September 30, 2021. We continue to focus on improving our ~~consolidated balance sheet.~~profitability through production and operational efficiencies.

~~While~~We ended the third quarter of 2022 with $21.11 billion in cash and cash equivalents and marketable securities, representing an increase of $3.40 billion from the end of 2021. Our cash flows provided by operating activities during the nine month period ended September 30, 2022 was $11.45 billion, representing an increase of $4.53 billion compared to $6.91 billion during the same period ended September 30, 2021. Capital expenditures amounted to $5.30 billion during the nine month period ended September 30, 2022, compared to $4.67 billion during the same period ended September 30, 2021. Sustained growth has allowed our business to generally fund itself, and we ~~currently believe that~~will continue investing in a number of capital-intensive projects in upcoming periods.

Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays, labor shortages and a shortfall of semiconductor supply. We have been affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our progress at Gigafactory 1 will allow us to reach our production targets, our ultimate ability to do so will require us to resolve the types of challenges that are typical of a production ramp. For example,product deliveries and deployments.

In addition, we have experienced ~~bottlenecks~~and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID‐19 pandemic and general global economic conditions. The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible.

Ultimately, we cannot predict the duration of the COVID-19 pandemic or global economic trends. We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and attempt to optimally project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly.

The following is a summary of the status of production of each of our announced vehicle models in production and under development, as of the date of this Quarterly Report on Form 10-Q:

We are focused on growing our manufacturing capacity, which includes ramping all of our production vehicles to their installed production capacities as well as increasing production rate and capacity at our current factories. Our production continues to be affected by the industry-wide semiconductor and other component shortages, requiring additional workaround manufacturing and production design solutions to be implemented which may be difficult to sustain. The next phase of production growth will depend on the ramp at Gigafactory Berlin-Brandenburg and Gigafactory Texas and the upgrade and expansion of Gigafactory Shanghai, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range. Consistent with our approach of innovating manufacturing techniques at our new factories, we expect as well to pioneer new methods related to the mass production of these cells and our unique structural battery pack concept. For example, in the ~~assembly~~second quarter of ~~battery modules~~2022, at Gigafactory 1,Texas, we began delivering to customers some Model Ys with Tesla-made 4680 cells with a structural battery pack. Our goals are to improve vehicle performance, decrease production costs and increase affordability.

However, these plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which ~~has negatively affected~~may be exacerbated by the new product and manufacturing technologies we are introducing, the number of concurrent international projects, any industry-wide component constraints which may increase the number of manufacturing and production design workaround solutions required, labor shortages and any future impact from events outside of our control such as the COVID-19 pandemic. For example, spikes in COVID-19 cases in Shanghai resulted in limited production and temporary shutdowns to Gigafactory Shanghai as well as parts of our supply chain in the first and second quarters of 2022. Moreover, we have set ambitious technological targets with our plans for battery cells as well as for iterative manufacturing and design improvements for our vehicles with each new factory.

Our cost reduction efforts and additional localized procurement and manufacturing are key to our vehicles’ affordability, and for example, have allowed us to competitively price our vehicles in China. In addition to our ongoing production ramp in 2022, we will also continue to generate demand and brand awareness by improving our vehicles’ performance and functionality, including through products based on artificial intelligence such as Autopilot and FSD, and other software features, and delivering new vehicles, such as the Tesla Semi in December 2022. Moreover, we expect to continue to benefit from ongoing electrification of the automotive sector and increasing environmental awareness.

However, we operate in a cyclical industry that is sensitive to political and regulatory uncertainty, including with respect to trade and the environment, all of which may also be compounded by any future global impact from the COVID-19 pandemic, inflationary pressures, rising energy prices and increases in interest rates. Moreover, as additional competitors enter the marketplace and help bring the world closer to sustainable transportation, we will have to adjust and continue to execute well to maintain our momentum.

As our production increases, we must work constantly to similarly increase vehicle delivery capability so that it does not become a bottleneck on our total deliveries. In the third quarter of ~~Model 3. While~~2022, due to continuing challenges caused by vehicle transportation capacity during peak delivery periods, we ~~continue~~began transitioning to ~~make progress~~a more even regional mix of vehicle builds each week, which led to ~~resolve such issues~~an increase in cars in transit at the end of the quarter. Increasing the exports of vehicles manufactured at Gigafactory 1, ~~given~~Shanghai has also been effective in mitigating the ~~size~~strain on our deliveries in markets outside of the United States, and ~~complexity of this undertaking, it is possible that future events could result in~~we expect to benefit further from situating additional factories closer to local markets, including the ~~cost of building and operating~~recent production launch at Gigafactory ~~1 exceeding our current expectations~~Berlin-Brandenburg and Gigafactory ~~1 taking longer to~~Austin. As we expand ~~than we currently anticipate.~~

We have an agreement with the Research Foundation for the State University of New York (“Foundation”) for the construction of a factory capable of producing 1.0 gigawatts of solar cells annually in Buffalo, New York, referred to as Gigafactory 2. In December 2016, we entered into an agreement with Panasonic under which it will manufacture custom photovoltaic (“PV”) cells and modules for us, primarily at Gigafactory 2, and we will purchase certain quantities of PV cells and modules from Panasonic during the 10-year term.

The terms of our agreement with the Foundation require us to comply with a number of covenants, and any failure to comply with these covenants could obligate us to pay significant amounts to the Foundation and result in termination of the agreement. ~~Although we remain on track with our progress at Gigafactory 2,~~ ~~our expectations as to the cost of building the facility, acquiring manufacturing equipment and supporting~~ our manufacturing operations ~~may prove incorrect, which could subject us~~globally, we will also have to ~~significant expenses~~continue to ~~achieve~~increase and staff our delivery, servicing and charging infrastructure accordingly, maintain our vehicle reliability and optimize our Supercharger locations to ensure cost effectiveness and customer satisfaction. In particular, we remain focused on increasing the ~~desired benefits.~~capability and efficiency of our servicing operations.

~~Other Manufacturing~~Energy Generation and Storage Demand, Production and Deployment

The long-term success of this business is dependent upon increasing margins through greater volumes. We continue to increase the production of our energy storage products to meet high levels of demand, including the ramp of our Megafactory in Lathrop, California, but such production is also sensitive to global component constraints, particularly the industry-wide semiconductor shortage. For Megapack, energy storage deployments can vary meaningfully quarter to quarter depending on the timing of specific project milestones. For Powerwall, better availability and growing grid stability concerns drive higher customer interest, and we are emphasizing cross-selling with our residential solar energy products. We remain committed to growing our retrofit solar energy business by offering a low-cost and simplified online ordering experience. In addition, we continue to ~~expand~~seek to improve our installation capabilities and price efficiencies for Solar Roof by on-boarding and training new installers, as well as collaborating with real estate developers and builders on new homes to reduce installation time and costs. As these product lines grow, we will have to maintain adequate battery cell supply for our energy storage products and hire additional personnel, particularly skilled electricians, to support the ramp of Solar Roof.

Our capital expenditures are typically difficult to project beyond the short-term given the number and breadth of our core projects at any given time, and may further be impacted by uncertainties in future global market conditions. We are simultaneously ramping new products, including new iterations of our Megapack, ramping manufacturing facilities on three continents and piloting the development and manufacture of new battery cell technologies, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production ~~capacity~~adjustments to and among our various products, increased capital efficiencies and the addition of new projects. Owing and subject to the foregoing as well as the pipeline of announced projects under development, all other continuing infrastructure growth and varying levels of inflation, we currently expect our capital expenditures to be between $6.00 to $8.00 billion in 2022 and each of the next two fiscal years.

Our business has recently been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also facilitating positive cash generation. On the other hand, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and rising material prices and increasing supply chain and labor expenses resulting from changes in global trade conditions and labor availability associated with the COVID-19 pandemic. Overall, we expect our ability to be self-funding to continue as long as macroeconomic factors support current trends in our sales.

As long as we see expanding sales, and excluding the potential impact of macroeconomic conditions including increased labor costs and impairment charges on certain assets as explained below, we generally expect operating expenses relative to revenues to decrease as we continue to increase operational efficiency and process automation. We expect operating expenses to continue to grow in 2022 as we are expanding our operations globally.

In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin. As with any investment and consistent with how we manage fiat-based cash and cash-equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our ~~Fremont Factory~~view of market and environmental conditions. Digital assets are ~~exploring additional production capacity~~considered indefinite-lived intangible assets under applicable accounting rules. Accordingly, any decrease in ~~Asia~~their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale. For any digital assets held now or in the future, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase. For example, in the nine month period ended September 30, 2022, we recorded $170 million of impairment losses resulting from changes to the carrying value of our bitcoin and ~~Europe~~.gains of $64 million on certain conversions of bitcoin into fiat currency by us.

The consolidated financial statements ~~have been~~are prepared in accordance with ~~accounting principles generally accepted in the United States (“GAAP”).~~GAAP. The preparation of the consolidated financial statements requires us to make estimates and assumptions that

affect the reported amounts of assets, liabilities, revenues, costs and expenses and ~~the~~ 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 ~~us.~~our management. We evaluate our estimates and assumptions on an ~~on-going~~ongoing basis. To the extent that there are material differences between ~~our~~these estimates and actual results, ~~the~~our future financial statement presentation, financial condition, results of operations and cash flows ~~would~~may be affected.

For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2021.

See Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Automotive sales revenue includes ~~revenue~~revenues related to ~~the sale~~cash and financing deliveries of new Model S, Model X, Model 3, and Model 3Y vehicles, including access to our Supercharger network, internet connectivity, ~~Supercharger access, specified~~FSD features and over-the-air software ~~updates for~~updates. These deliveries are vehicles ~~equipped with Autopilot hardware and~~that are not subject to lease accounting.

Automotive regulatory credits includes sales of regulatory credits to other automotive manufacturers. Our revenue from automotive regulatory credits is directly related to our new vehicle production, sales and pricing negotiated with our customers. We monetize them proactively as new vehicles are sold based on standing arrangements with buyers of such credits, typically as close as possible to the production and delivery of the vehicle or changes in regulation impacting the credits.

Automotive leasing revenue includes the amortization of revenue for vehicles under direct operating lease agreements. Additionally, automotive leasing revenue includes direct sales-type leasing programs where we recognize all revenue associated with the sales-type lease upon delivery to the customer.

Services and other revenue consists of non-warranty after-sales vehicle services, paid supercharging, sales of used vehicles, retail merchandise, sales by our acquired subsidiaries to third party customers and vehicle insurance revenue.

Automotive sales revenue increased ~~by $159.3 million,~~$6.39 billion, or 8%56%, in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016. This was~~2021, primarily due to an increase of 96,737 Model 3 and Model Y cash deliveries, and an increase of 9,330 Model S and Model X cash deliveries year over year. This was achieved from production ramping of Model Y at Gigafactory Shanghai and the Fremont Factory as well as the start of production at Gigafactory Berlin-Brandenburg and Gigafactory Texas in 2022, at a ~~23%~~higher combined average selling price from a higher proportion of Model Y sales. There was also an increase in ~~deliveries to 20,608 vehicles resulting from increased sales~~production of Model X and ~~S, at~~an increase in the combined average selling ~~prices that remained relatively consistent as~~price of Model S and Model X with a higher proportion of Model X sales, compared to the prior period as ~~well as~~deliveries of the ~~roll-out~~new versions of Model 3S and Model X began ramping in the ~~third quarter~~second and fourth quarters of ~~2017. The increase from new deliveries was offset by a decrease of $147.6 million in sales of regulatory credits.~~2021, respectively.

Automotive sales revenue increased ~~by $2.3~~$17.87 billion, or ~~59%~~61%, in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016. This was~~2021, primarily due to an increase of 253,016 Model 3 and Model Y cash deliveries, and an increase of 32,293 Model S and Model X cash deliveries year over year. This was achieved from production ramping of Model Y at Gigafactory Shanghai and the Fremont Factory as well as the start of production at Gigafactory Berlin-Brandenburg and Gigafactory Texas in 2022, at a ~~68%~~higher combined average selling price from a higher proportion of Model Y sales. There was also an increase in ~~deliveries to 56,931 vehicles resulting from increased sales~~production of Model X and ~~S, at~~an increase in the combined average selling ~~prices that remained relatively consistent as~~price of Model S and Model X with a higher proportion of Model X sales, compared to the prior period as ~~well as~~deliveries of the ~~roll-out~~new versions of Model 3 in the third quarter of 2017. The increase from new deliveries was offset by a decrease of $99.5 million in sales of regulatory credits as well as additional deferrals of Autopilot 2.0 revenue in the current period.

~~Automotive leasing revenue is comprised of revenue from~~ Model S and Model X ~~vehicles accounted for as operating leases, including~~began ramping in the ~~amortization~~second and fourth quarters of ~~revenue for vehicles sold with resale value guarantees.~~ 2021, respectively.

Automotive ~~leasing~~regulatory credits revenue increased ~~by $54.9~~$7 million, or ~~24%~~3%, in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016. The increase was~~2021 primarily due to ~~a 41% increase~~the regional mix of the credits sold.

Automotive regulatory credits revenue increased $158 million, or 14%, in ~~vehicles under leasing programs and programs with a resale value guarantee as of~~the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016, offset by~~2021, primarily due to changes in regulation which entitled us to additional consideration of $288 million in revenue in the first quarter of 2022 for credits sold previously, in the absence of which we had a decrease in automotive regulatory credits revenue driven by lower sales of ~~$26.8 million of automotive~~regulatory credits.

Automotive leasing revenue ~~upon early payoff and expiration of resale value guarantees~~increased $236 million, or 61%, in the three months ended September 30, ~~2017~~2022 as compared to the ~~prior period.~~

three months ended September 30, 2021. Automotive leasing revenue increased ~~by $306.4~~$863 million, or 85%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. The changes for both periods are primarily due to an increase in direct sales-type leasing revenue and an increase in activities under our direct operating lease program.

Services and other revenue increased $751 million, or 84%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Services and other revenue increased $1.65 billion, or 60%, in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016.~~2021. The ~~increase was~~changes for both periods are primarily due to ~~a 41%~~ increase in used vehicle revenue driven by increases in volume and average selling prices of used Tesla and non-Tesla vehicles, ~~under~~paid supercharging revenue, non-warranty maintenance services revenue as our fleet continues to grow, insurance services revenue and retail merchandise revenue.

Energy generation and storage revenue includes sales and leasing ~~programs~~of solar energy generation and ~~programs with a resale value guarantee~~energy storage products, financing of solar energy generation products, services related to such products and sales of solar energy systems incentives.

Energy generation and storage revenue increased $311 million, or 39%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to an increase in Megapack, Powerwall and solar retrofit deployments.

Energy generation and storage revenue increased $498 million, or 24%, in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, 2016. In addition, during the nine months ended September 30, 2017, we recognized an increase of $52.8 million of automotive leasing revenue upon early payoff and expiration of resale value guarantees in the nine months ended September 30, 2017 as compared to the prior period.

Services and other revenue include sales of used vehicles, maintenance services for the fleet of Tesla vehicles and sales of electric vehicle powertrain components and systems to other manufacturers. Service and other revenue increased by $177.9 million, or

~~141%, in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. This was~~2021, primarily due to an increase in ~~used vehicle sales as an organic result of increased automotive sales as well as from the expansion of our trade-in program.~~Powerwall and Megapack deployments.

Services and other revenue increased by $404.3 million, or 131%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This was primarily due to an increase in used vehicle sales as an organic result of increased automotive sales as well as from the expansion of our trade-in program. Additionally, there were increases of $43.7 million from the inclusion of engineering service revenue from Grohmann, which we acquired on January 3, 2017, and $34.7 million in maintenance services revenue as our fleet continues to grow.34

Energy generation and storage revenue includes sales of solar energy systems and energy storage products, leasing revenue from solar energy systems under operating leases and power purchase agreements and sales of solar energy system incentives. Energy generation and storage revenue increased by $294.2 million, or 1261%, in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. Energy generation and storage revenue increased by $768.2 million, or 1536%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. These increases were primarily due to the inclusion of revenue from SolarCity, which we acquired on November 21, 2016, of $273.0 million and $752.8 million for the three and nine months ended September 30, 2017, respectively, as well as increases in sales of our energy storage products.

	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change
(Dollars in thousands)	2017			2016			$		%			2017			2016			$		%
																							Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change
(Dollars in millions)																							2022			2021			$		%			2022			2021			$		%
Cost of revenues
Automotive sales	$	1,755,622		$	1,355,102		$	400,520		30	%	$	4,724,849		$	2,895,483		$	1,829,366		63	%	$	13,099		$	8,150		$	4,949		61	%	$	34,166		$	21,726		$	12,440		57	%
Automotive leasing		175,224			161,959			13,265		8	%		516,683			310,176			206,507		67	%		381			234			147		63	%		1,157			582			575		99	%
Total automotive cost of revenues		1,930,846			1,517,061			413,785		27	%		5,241,532			3,205,659			2,035,873		64	%		13,480			8,384			5,096		61	%		35,323			22,308			13,015		58	%
Services and other		367,401			120,359			247,042		205	%		852,446			295,310			557,136		189	%		1,579			910			669		74	%		4,275			2,858			1,417		50	%
Total automotive & services and other segment cost of revenue		2,298,247			1,637,420			660,827		40	%		6,093,978			3,500,969			2,593,009		74	%
Total automotive & services and other segment cost of revenues																								15,059			9,294			5,765		62	%		39,598			25,166			14,432		57	%
Energy generation and storage segment		237,288			24,281			213,007		877	%		592,823			50,553			542,270		1073	%		1,013			803			210		26	%		2,470			2,179			291		13	%
Total cost of revenues	$	2,535,535		$	1,661,701		$	873,834		53	%	$	6,686,801		$	3,551,522		$	3,135,279		88	%	$	16,072		$	10,097		$	5,975		59	%	$	42,068		$	27,345		$	14,723		54	%

Gross profit total automotive	$	432,043		$	631,666							$	1,697,573		$	1,150,984							$	5,212		$	3,673							$	14,832		$	8,957
Gross margin total automotive		18.3	%		29.4	%							24.5	%		26.4	%							27.9	%		30.5	%							29.6	%		28.6	%

Gross profit total automotive & services and other segment	$	368,923		$	637,682							$	1,558,295		$	1,164,523							$	5,278		$	3,657							$	14,947		$	8,837
Gross margin total automotive & services and other segment		13.8	%		28.0	%							20.4	%		25.0	%							26.0	%		28.2	%							27.4	%		26.0	%

Gross profit energy generation and storage segment	$	80,217		$	(947	)						$	225,406		$	(544	)						$	104		$	3							$	129		$	(78	)
Gross margin energy generation and storage segment		25.3	%		-4.1	%							27.5	%		-1.1	%							9.3	%		0.4	%							5.0	%		-3.7	%

Total gross profit	$	449,140		$	636,735							$	1,783,701		$	1,163,979							$	5,382		$	3,660							$	15,076		$	8,759
Total gross margin		15.0	%		27.7	%							21.1	%		24.7	%							25.1	%		26.6	%							26.4	%		24.3	%

Cost of automotive sales revenue includes direct ~~parts, material~~ and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network and reserves for estimated warranty expenses. Cost of automotive sales ~~revenue~~revenues also includes adjustments to warranty expense and charges to ~~write-down~~write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete orand on-hand inventory in excess ~~inventory. Cost~~ of automotive sales revenue increased by $400.5 million, or 30%, in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. Cost of automotive sales revenue increased by $1.8 billion, or 63%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. These increases were primarily due to increases in vehicle deliveries of 23% and 68% in the three and nine months ended September 30, 2017, respectively, as compared to the same periods in the prior year as a result of increased sales of Model S and Model X, and the rollout of Model 3 in the third quarter of 2017. The increase is offset by lower costs of production of Model X as we are gaining manufacturing efficiencies through lower material costs and labor hours.forecasted demand.

Cost of automotive leasing revenue ~~primarily~~ includes the ~~amortization~~depreciation of operating lease vehicles, ~~over the lease term as well as~~cost of goods sold associated with direct sales-type leases and warranty ~~expenses recognized as incurred.~~expense related to leased vehicles. Cost of automotive leasing revenue ~~increased by $13.3 million, or 8%, in the three months ended September 30, 2017 as compared~~also includes vehicle connectivity costs and allocations of electricity and infrastructure costs related to ~~the three months ended September 30, 2016. The increase was primarily due to a 41% increase in~~our Supercharger network for vehicles under our leasing programs and programs with a resale value guarantee as of September 30, 2017 as compared to September 30, 2016, offset by a decrease of $26.8 million of cost of automotive leasing revenue upon expiration of resale value guarantees in the three months ended September 30, 2017 as compared to the prior period.programs.

Cost of automotive leasing revenue increased by $206.5 million, or 67%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase was primarily due to a 41% increase in vehicles under leasing programs and programs with a resale value guarantee in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. In addition, during the nine months ended September 30, 2017, we recognized an increase of $52.8 million of cost of automotive leasing revenue upon early payoff and expiration of resale value guarantees in the nine months ended September 30, 2017 as compared to the prior period.

Cost of services and other revenue includes costs associated with providing ~~maintenance~~non-warranty after-sales services, ~~to the fleet~~costs of ~~Tesla~~paid supercharging, cost of used vehicles including refurbishment costs, costs for retail merchandise, and costs to ~~acquire~~provide vehicle insurance. Cost of services and ~~sell used vehicles,~~other revenue also includes direct parts, material and labor costs and manufacturing overhead associated with the sales ~~of electric vehicle powertrain components and systems~~by our acquired subsidiaries to ~~other manufacturers.~~ third party customers.

Cost of ~~services and other~~automotive sales revenue increased ~~by $247.0 million,~~$4.95 billion, or ~~205%~~61%, in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016. This~~2021, in line with the growth in revenue year over year, as discussed above. Further there was ~~primarily~~an increase in combined average Model 3 and Model Y costs per unit due to overall rising raw material, commodity, logistics and expedite costs and the ~~increase in costs~~ramping up of ~~used vehicle sales~~production at Gigafactory Berlin-Brandenburg and Gigafactory Texas as ~~a result of the increase in volume, $69.4 million increase in costs to provide maintenance service~~well as our ~~fleet continues to grow, and an increase of $10.0 million due~~proprietary battery cells manufacturing during the three months ended September 30, 2022 as compared to the ~~inclusion of Grohmann’s cost of engineering services.~~three months ended September 30, 2021. These increases were partially offset by a ~~$24.7 million~~ decrease in combined average Model S and Model X costs per unit driven by lower average cost for the new versions of ~~powertrain sales to Daimler as we discontinued the program at the end of the second quarter of 2017.~~Model S and Model X from ramping up production.

Cost of ~~services and other~~automotive sales revenue increased ~~by $557.1 million,~~$12.44 billion, or ~~189%~~57%, in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016. This was~~2021, in line with the growth in revenue year over year, as discussed above. There were also idle capacity charges of $244 million primarily ~~due~~related to the ~~increase~~temporary suspension of production at Gigafactory Shanghai as well as the ramping up of production in ~~costs of used vehicle sales as a result of~~Gigafactory Texas and our proprietary battery cells manufacturing during the increase in volume, $182.3 million increase in costs to provide maintenance service as our fleet continues to grow, and an increase of $32.6 million due to the inclusion of Grohmann’s cost of engineering services.nine months ended September 30, 2022. These increases were partially offset by a ~~$10.1 million~~ decrease in combined average Model S and Model X costs per unit driven by lower average cost for the new versions of ~~powertrain sales to Daimler as we discontinued the program at the end~~Model S and Model X from ramping up production.

~~Gross margin for total~~ automotive ~~decreased from 29.4% to 18.3%~~leasing revenue increased $147 million, or 63%, in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016. This decrease was primarily due to the higher cost structure associated with the roll-out~~2021. Cost of Model 3 in the third quarter of 2017 and lower sales of regulatory credits in the current period. We anticipate the costs per unit of Model 3 to decrease significantly once production is fully ramped-up. The decrease of current period early payoffs and expirations of resale value guarantees, as compared to the same period in the prior year, partially offset the overall decrease since they have a dilutive effect on gross margin.

~~Gross margin for total~~ automotive ~~decreased from 26.4% to 24.5%~~leasing revenue increased $575 million, or 99%, in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016. The roll-out~~2021, primarily due to an increase in cumulative vehicles under our direct operating lease program and an increase in direct sales-type leasing cost of ~~Model 3~~revenues from more activities in the ~~third quarter~~current year.

Cost of ~~2017, lower sales of regulatory credits~~services and ~~higher current period early payoffs and expirations of resale value guarantees,~~other revenue increased $669 million, or 74%, in the three months ended September 30, 2022 as compared to the ~~same period~~three months ended September 30, 2021. Cost of services and other revenue increased $1.42 billion, or 50%, in the ~~prior year, contributed~~nine months ended September 30, 2022 as compared to the ~~lower gross margin. Lower material~~nine months ended September 30, 2021. The change in both periods is primarily due to an increase in used vehicle cost of revenue driven by increases in volume and ~~manufacturing~~ costs of used Tesla and non-Tesla vehicles, an increase in costs of paid supercharging, increase innon-warranty maintenance services revenue, insurance services and retail merchandise.

Gross margin for ~~Model S and Model X, as we further improved our vehicle production processes, and the recognition of Autopilot 2.0 revenue~~total automotive decreased from 30.5% to 27.9% in the ~~current period partially offset~~three months ended September 30, 2022 as compared to the ~~overall decrease.~~three months ended September 30, 2021. This was driven by the changes in automotive sales revenue and cost of automotive sales revenue, as discussed earlier.

Gross margin for total automotive increased from 28.6% to 29.6% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This was driven by the growth in automotive sales revenue and cost of automotive sales revenue as well as increase from regulatory credits revenue, as discussed earlier.

Gross margin for total automotive & services and other segment decreased from ~~28.0%~~28.2% to ~~13.8%~~26.0% in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016.~~ 2021, primarily due to the automotive gross margin decrease discussed above and offset by an improvement in our services and other gross margin.

Gross margin for total automotive & services and other segment ~~decreased~~increased from ~~25.0%~~26.0% to ~~20.4%~~27.4% in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended

September 30, ~~2016. These decreases are driven by~~2021, primarily due to the ~~factors impacting~~automotive gross margin ~~for total automotive,~~increase discussed above and an improvement in our services and other gross margin. Additionally, services and other was a higher percentage of the segment gross margin during the three and nine months ended September 30, 2022 as ~~explained above, as well as higher costs of maintenance service.~~compared to the prior year.

Cost of energy generation and storage revenue includes direct and indirect material and labor costs, warehouse rent, freight, warranty expense, other overhead costs and amortization of certain acquired intangible assets. Cost of energy generation and storage revenue also includes charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand. In agreements for solar energy ~~systems~~system and PPAs where we are the lessor, the cost of revenue is primarily comprised of depreciation of the cost of leased solar energy ~~storage products, depreciation expense and~~systems, maintenance costs associated with ~~leased solar energy systems.~~ those systems and amortization of any initial direct costs.

Cost of energy generation and storage revenue increased ~~by $213.0~~$210 million, or ~~877%~~26%, in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016.~~ 2021, primarily due to increases in deployments of Megapack, Powerwall and solar retrofit deployments.

Cost of energy generation and storage revenue increased ~~by $542.3~~$291 million, or ~~1073%~~13%, in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016. These increases were~~2021, primarily due to ~~the inclusion of energy generation and storage costs from SolarCity of $178.1 million and $497.5 million in the three and nine months ended September 30, 2017, respectively, as well as~~ increases in ~~sales~~deployments of ~~energy storage products as a result~~Powerwall and Megapack and higher average cost of ~~growing popularity of our Powerpack~~solar cash and ~~Powerwall offerings.~~loan deployments due to increased component costs.

Gross margin for energy generation and storage increased from ~~-4.1%~~0.4% to ~~25.3%~~9.3% in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016.~~2021. Gross margin for energy generation and storage increased from ~~-1.1%~~-3.7% to ~~27.5%~~5.0% in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016. These increases were primarily due to~~2021. This was driven by the ~~inclusion of~~growth in energy generation and storage revenue and ~~costs from SolarCity and improved gross margin~~cost of energy generation and storage ~~sales.~~revenue, as discussed above.

Research and development ~~expense consists~~(“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. ~~Research and development expense~~

R&D expenses increased ~~by $117.3~~$122 million, or ~~55%~~20%, in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016. This~~2021. The increase was primarily due to a ~~$69.0~~$47 million increase in employee and ~~labor-rated~~labor related expenses, ~~from increased headcount as~~ a ~~result of our acquisitions as well as headcount growth from the expansion of our automotive and energy storage businesses. Additionally, there were increases~~$29 million increase in R&D expensed materials, a $24 million increase in facilities, ~~expenses,~~outside services, freight and depreciation ~~expenses, professional~~expense, and ~~outside service expenses and expensed materials~~a $19 million increase in stock-based compensation expense. These increases were to support ~~Solar Roof development as well as the development of future products.~~our expanding product roadmap and technologies including our proprietary battery cells.

~~Research and development expense~~R&D expenses increased ~~by $435.0~~$412 million, or ~~74%~~22%, in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016. This~~2021. The increase was primarily due to a ~~$216.5~~$169 million increase in employee and ~~labor-rated~~labor related expenses, ~~from increased headcount~~a $128 million increase in facilities, outside services, freight and depreciation expense, a $55 million increase in stock-based compensation expense and a $54 million increase in R&D expensed materials. These increases were to support our expanding product roadmap and technologies including our proprietary battery cells and there were additional R&D expenses in the first quarter of 2022 as we were in the pre-production phase at Gigafactory Texas and started production at Gigafactory Berlin-Brandenburg only closer to the end of the first quarter of 2022.

R&D expenses as a ~~result~~percentage of ~~our acquisitions~~revenue decreased from 4% to 3% in the three months ended September 30, 2022 as ~~well~~compared to the three months ended September 30, 2021. R&D expenses as ~~headcount growth~~a percentage of revenue decreased from 5% to 4% in the ~~expansion~~nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Our R&D expenses have decreased as a proportion of ~~our automotive~~total revenues despite expanding product roadmap and energy storage businesses. Additionally, there were increases of $74.4 million in facilities and depreciation expenses and $67.0 million in expensed materials to support Model 3 and Solar Roof development as well as the development of future products.technologies.

Selling, general and administrative ~~expense consists primarily~~(“SG&A”) expenses generally consist of personnel and facilities costs related to our stores, marketing, sales, executive, finance, human resources, information technology and legal organizations, as well as ~~litigation settlements and~~ fees for professional and contract ~~services. Selling, general~~services and ~~administrative expense increased by $316.2~~litigation settlements.

SG&A expenses decreased $33 million, or ~~94%~~3%, in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016.~~2021. This ~~increase was~~is primarily due to a ~~$148.1~~decrease of $184 million in stock-based compensation expense, most of which is attributable to the lower stock-based compensation expense of $185 million on the 2018 CEO Performance Award. See Note 11, Equity Incentive Plans, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. This was offset by an increase of $92 million in employee and ~~labor-rated~~labor related expenses from increased headcount ~~as a result~~and an increase of ~~our acquisitions as well as headcount growth from the expansion of our automotive and energy storage businesses. Additionally, the increase was due to a $87.7~~$53 million ~~increase~~ in office, information technology, ~~and~~ facilities-related expenses ~~to support the growth of our business as well as~~and sales and marketing ~~activities to handle our expanding market presence and a $53.0 million increase in professional and outside service~~activities.

~~Selling, general and administrative expense increased by $818.0~~decreased $109 million, or ~~84%~~4%, in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016.~~2021. This ~~increase was~~is primarily due to a ~~$437.0~~decrease of $591 million in stock-based compensation expense, most of which is attributable to the lower stock-based compensation expense of $603 million on the 2018 CEO Performance Award. See Note 11, Equity Incentive Plans, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. This was offset by an increase of $311 million in employee and ~~labor-rated~~labor related expenses from increased headcount ~~as a result~~and an increase of ~~our acquisitions as well as headcount growth from the expansion of our automotive and energy storage businesses. Additionally, the increase was due to a $210.3~~$172 million ~~increase~~ in office, information technology, ~~and~~ facilities-related expenses, ~~to support the growth of our business as well as~~ sales and marketing activities and other costs.

SG&A expenses as a percentage of revenue decreased from 7% to ~~handle our expanding market presence and a $108.0 million increase in professional and outside service expenses to support the growth of our business.~~

~~Interest expense increased by $70.4 million, or 151%,~~4% in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016. Interest expense increased by $191.2 million, or 143%,~~2021. SG&A expenses as a percentage of revenue decreased from 8% to 5% in the nine months ended September 30, ~~2017~~2022 as compared to the nine months ended September 30, ~~2016. These increases were primarily~~2021. Our SG&A expenses have decreased as a proportion of total revenues due to operational efficiencies, in addition to the ~~inclusion~~decrease in expenses discussed above.

During the nine months ended September 30, 2022, we recorded $170 million of ~~interest expenses from SolarCity of $48.7~~impairment losses on such digital assets, and $51 million and ~~$156.5~~$101 million ~~for~~during the three and nine months ended September 30, ~~2017,~~2021, respectively. ~~In addition,~~During the nine months ended September 30, 2022 and 2021, we realized gains of $64 million and $128 million, respectively, in connection with converting our ~~average outstanding indebtedness has~~holdings of digital assets into fiat currency. See Note 3, Digital Assets, Net, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. We also recorded other expenses of $36 million during the nine months ended September 30, 2022, related to employee terminations in the second quarter.

Interest income increased $76 million, or 760%, in the three ~~and nine~~ months ended September 30, ~~2017~~2022 as compared to the ~~same period~~three months ended September 30, 2021. Interest income increased $109 million, or 352%, in the ~~prior year.~~nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. These increases were due to higher interest earned on cash and cash equivalents balances as of September 30, 2022 compared to September 30, 2021, driven by rising interest rates as well as an increase in our overall cash and cash equivalents balance during the periods presented.

Interest expense decreased $73 million, or 58%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Interest expense decreased $142 million, or 47%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. These decreases were primarily due to the continued reduction in our overall debt balance offset by lower capitalized interest. See Note 10, Debt, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Other (expense) income, ~~(expense),~~ net, consists primarily of foreign exchange gains and losses related to our foreign ~~currency denominated~~currency-denominated monetary assets and liabilities ~~as well as~~and changes in the fair values of our fixed-for-floating interest rate swaps. We expect our foreign exchange gains and losses ~~from our interest rate swaps.~~ will vary depending upon movements in the underlying exchange rates.

Other (expense) income, ~~(expense),~~ net, ~~decreased~~changed unfavorably by ~~$12.6~~$79 million ~~or 107%,~~ in the three months ended September 30, ~~2017~~2022 as compared to the three months ended September 30, ~~2016. This decrease~~2021. Other (expense) income, net, changed unfavorably by $68 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. The change for both periods was primarily due to fluctuations in foreign currency exchange rates. ~~Additionally, we recognized an $18.2~~

Our provision for income taxes increased by $82 million, loss in the current period for measurement period adjustments to the acquisition date fair values of certain liabilities as previously reported in our Form 10-K for the year ended December 31, 2016. However, there was a partially offsetting increase of $7.0 million from the losses recognized upon conversions of the 2018 Notesor 37%, in the three months ended September 30, ~~2016.~~

~~Other income (expense), net, decreased~~2022 and increased by ~~$73.7~~$449 million, or ~~741%~~110%, in the nine months ended September 30, ~~2017~~2022 as compared to the three and nine months ended September 30, 2021, primarily due to the increase in our pre-tax income year over year.

Our effective tax rate decreased from 12% to 8% in the three months ended September 30, 2022 and from 11% to 9% in the nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, primarily due to changes in mix of jurisdictional earnings.

See Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased $2 million, or 5%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by $92 million, or 89%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, ~~2016. This decrease was primarily~~2021. These changes were due to ~~fluctuations~~a decrease in foreign currency exchange rates. Additionally, we recognized a $29.8 million loss in the current year for measurement period adjustments to the acquisition date fair values of certain assets and liabilities as previously reported in our Form 10-K for the year ended December 31, 2016 and a $9.7 million loss related to our interest rate swaps in the current year.

Our (benefit) provision for income taxes decreased by $8.4 million, or 104%, from an expense of $8.1 million in the three months ended September 30, 2016 to a benefit of $0.3 million in the three months ended September 30, 2017. This decrease was primarily due to reduced profits in taxable jurisdictions in the current period.

Our provision for income taxes increased by $25.0 million, or 160%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This increase was primarily due to the significant increase in taxable income in our international jurisdictions as a result of increased vehicle deliveries in the current year as compared to the prior year.

~~Net Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests~~

~~Our net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests was related~~allocations to financing fund ~~arrangements.~~investors.

~~As of September 30, 2017,~~We expect to continue to generate net positive operating cash flow as we ~~had $3.53 billion of~~have done in the last four fiscal years. The cash and cash equivalents. Balances held in foreign currencies had a U.S. dollar equivalent of $535.4 million and consisted primarily of Chinese yuan, euros and Norwegian kroner. Our sources of cash are predominatelywe generate from our ~~deliveries of vehicles, proceeds from debt facilities, proceeds from financing funds and sales and installations of our energy storage products and solar energy systems.~~

~~Our sources of liquidity and cash flows enable~~core operations enables us to fund ~~on-going~~ongoing operations and production, our research and development projects ~~investments in tooling~~for new products and technologies including our proprietary battery cells, additional manufacturing ~~equipment for~~ramps at existing manufacturing facilities such as the ~~production~~Fremont Factory, Gigafactory Nevada, Gigafactory Shanghai and Gigafactory New York, the ramp of ~~our Model 3 vehicle, the continued construction of~~ Gigafactory 1Berlin-Brandenburg and Gigafactory Texas and the continued expansion of our retail ~~stores,~~and service ~~centers, mobile repair services~~locations, body shops, Mobile Service fleet, Supercharger network and ~~Supercharger network. We are growing~~energy product installation capabilities.

In addition, because a large portion of our ~~vehicle~~future expenditures will be to fund our growth, we expect that if needed we will be able to adjust our capital and operating expenditures by operating segment. For example, if our near-term manufacturing ~~capacity primarily~~operations decrease in scale or ramp more slowly than expected, including due to ~~fulfill Model 3 production at 5,000 vehicles per week and in a later phase~~global economic or business conditions, we may choose to ~~10,000 vehicles per week. We expect to invest approximately $1.0 billion in~~correspondingly slow the pace of our capital ~~expenditures during the fourth quarter of 2017. We~~expenditures. Finally, we continually evaluate our ~~capital expenditure~~cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early.

Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following September 30, 2022, as well as in the ~~coming~~long-term.

See the sections below for more details regarding the material requirements for cash in our business and our sources of liquidity to meet such needs.

From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw materials to be used in the manufacture of our products. However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders under such contracts beyond the short-term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project.

As discussed in and subject to the considerations referenced in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Risks and 2022 Outlook—Cash Flow and Capital Expenditure Trends in this Quarterly Report on Form 10-Q, we currently expect our capital expenditures to support our projects globally to be between $6.00 to $8.00 billion in 2022 and each of the next two fiscal years.

We In connection with our operations at Gigafactory New York, we have an agreement to spend or incur ~~approximately $5.0~~$5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York ~~during~~through December 31, 2029 (pursuant to a deferral of our required timelines to meet such obligations that was granted in April 2021, and which was memorialized in an amendment to our agreement with the ~~10-year period following full production~~SUNY Foundation in August 2021). We also have an operating lease arrangement with the local government of Shanghai pursuant to which we are required to spend RMB 14.08 billion in capital expenditures at Gigafactory ~~2. We anticipate meeting these obligations through our operations at Gigafactory 2 and other operations within~~Shanghai by the ~~State~~end of ~~New York, and we do not believe that we face a significant risk of default.~~

We expect that our current sources of liquidity together with our projection of cash flows from operating activities will provide us with adequate liquidity over at least the next 12 months. A large portion of our future expenditures is to fund our growth and we can adjust our capital and operating expenditures by operating segments, including future expansion of our product offerings, stores, service centers, delivery centers and the Supercharger network. We may need or want to raise additional funds in the future, and these funds may not be available to us when we need or want them, or at all. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected.

In addition, we had $1.4 billion of unused committed amounts under our credit facilities and financing funds, some of which are subject to satisfying specified conditions prior to draw-down as discussed in Note 11, ~~Convertible and Long-Term Debt Obligations, and Note 15,~~ ~~VIE Arrangements~~.2023. For details regarding ~~our indebtedness,~~these obligations, refer to Note ~~11,~~ ~~Convertible~~12, Commitments and ~~Long-Term Debt Obligations~~Contingencies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

As of September 30, 2022, we and our subsidiaries had outstanding $2.41 billion in aggregate principal amount of indebtedness, of which $983 million is scheduled to become due in the succeeding 12 months. For details regarding our indebtedness, refer to Note 10, Debt, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Our sources to fund our material cash requirements are predominantly from our deliveries and servicing of new and used vehicles, sales and installations of our energy storage products and solar energy systems, proceeds from debt facilities and proceeds from equity offerings, when applicable.

As of September 30, 2022, we had $19.53 billion of cash and cash equivalents. Balances held in foreign currencies had a U.S. dollar equivalent of $6.28 billion and consisted primarily of Chinese yuan, euros and Canadian dollars. In addition, we had $2.41 billion of unused committed amounts under our credit facilities as of September 30, 2022. Certain of such unused committed amounts are subject to satisfying specified conditions prior to draw-down (such as pledging to our lenders sufficient amounts of qualified receivables, inventories, leased vehicles and our interests in those leases, solar energy systems and the associated customer contracts or various other assets). For details regarding our indebtedness, refer to Note 10, Debt to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We continue adapting our investment strategy to meet our liquidity and risk objectives, such as investing in U.S. government and other marketable securities, digital assets and providing product related financing. As with any investment and consistent with how we manage fiat-based cash and cash equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions. The fair market value of our remaining holdings of digital assets as of September 30, 2022 was $226 million. Additionally, we held short-term marketable securitiesof $1.58 billion as of September 30, 2022.

Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as research and development and selling, general and ~~administrative.~~administrative and working capital. Our operating cash inflows include cash from vehicle sales and related servicing, customer lease payments, ~~directly from our customers,~~ customer deposits, ~~for vehicles,~~cash from sales of regulatory credits and energy generation and storage products. These cash inflows are offset by our payments ~~we make~~ to ~~our~~ suppliers for production materials and parts used in our manufacturing process, ~~employee compensation,~~operating expenses, operating lease payments and interest ~~expenses~~payments on our financings.

Net cash ~~from~~provided by operating activities increased by $4.53 billion to $11.45 billion during the nine months ended September 30, ~~2017 decreased~~2022 from $6.91 billion during the nine months ended September 30, 2021. This increase was primarily due to the increase in net income excluding non-cash expenses, gains and losses of $5.91 billion, offset by ~~$894.9 million~~the overall increase in net operating assets and liabilities of $1.38 billion.The increase in our net operating assets and liabilities was mainly driven by a larger increase of inventory in the nine months ended September 30, 2022 as compared to the nine months ended September 30, ~~2016, due to an~~2021, partially offset by a larger increase ~~in working capital~~ of $846.4 million and an increase in net loss adjusted for non-cash items by $48.6 million. The change in net cash from operating activities was primarily a result of the growth of our business. In addition, we received significantly more customer deposits in the nine months ended September 30, 2016, when we

~~began taking reservations for Model 3, and we had larger increases to our~~ accounts payable and accrued liabilities, ~~balances~~to support the ramp up in production at our factories and a larger increase in other non-current assets. Additionally, the ~~same period~~.increase in our net operating assets and other liabilities was partially offset by a larger increase in other long-term liabilities.

~~Net cash used in investing activities was $3.5 billion and $821.7 million during the nine months ended September 30, 2017 and 2016, respectively.~~ Cash flows from investing activities and ~~the~~their variability across each period related primarily to capital expenditures, which were ~~$3.2~~$5.30 billion ~~and $759.2 million~~ for the nine months ended September 30, ~~2017~~2022 and ~~2016, respectively. The increase in capital expenditures was primarily due to payments~~$4.67 billion for ~~Model 3 production equipment~~the nine months ended September 30, 2021, mainly for the expansions of Gigafactory Texas, the Fremont Factory, Gigafactory Berlin-Brandenburg, and ~~the design, acquisition and installation~~Gigafactory Shanghai. We also purchased $1.47 billion of ~~solar energy systems under operating leases with our customers,~~marketable securities in the nine months ended September 30, ~~2017. We also paid $109.1~~2022. Additionally, net cash inflows related to sales of digital assets were $936 million ~~net of cash acquired, for the acquisition of Grohmann~~ in the nine months ended September 30, ~~2017~~.2022.

~~In 2014, we began construction of our Gigafactory 1 facility in Nevada. During the nine months ended September 30, 2017, we used cash of $1.2 billion towards Gigafactory 1 construction.~~

~~During the nine months ended September 30, 2017, net~~Net cash ~~provided by~~used in financing activities ~~was $4.1~~decreased by $914 million to $3.03 billion which consisted primarily of $966.4 million from the issuance of convertible senior notes, $1.8 billion from the issuance of senior notes and $400.2 million from a public offering of our common stock, net of underwriter fees. However, we paid $151.2 million for the purchase of bond hedges, net of the amount we received from the sale of warrants. Furthermore, we received proceeds from vehicle sales to our bank leasing partners of $416.4 million and net proceeds from investments by fund investors of $501.2 million.

~~During the nine months ended September 30, 2016, net cash provided by financing activities was $2.4 billion, which~~ consisted primarily of $1.7 billion of net proceeds from our May 2016 public offering of 7,915,004 shares of common stock, $1.7 billion of proceeds from our issuances of debt, which included $1.3 billion of borrowings under our Credit Agreement and $300 million of borrowings under our Warehouse Agreement, and $557.7 million of proceeds from vehicle sales to our bank leasing partners. These increases were partially offset by our repayments of borrowings under our Credit Agreement of $1.1 billion and the settlement of $435.5 million for certain conversions of our 2018 Notes.

~~Contractual obligations did not materially change~~ during the nine months ended September 30, ~~2017 except for~~2022 from $3.95 billion during the nine months ended September 30, 2021. The decrease was primarily due to a $956 million decrease in repayments of convertible and other debt, ~~activity, as discussed in more detail in Note 11,~~ ~~Convertible~~net of proceeds from issuances of convertible and ~~Long-Term Debt Obligations~~.

~~The consolidated financial statements include all assets, liabilities and results of operations of the financing fund arrangements that we have entered into. We have not entered into any~~ other ~~transactions that have generated relationships with unconsolidated entities, financial partnerships or special purpose entities. Accordingly, we do not have any off-balance sheet arrangements.~~

debt. See Note 2, ~~Summary of Significant Accounting Policies~~10, Debt, to the consolidated financial statements included elsewhere in this Quarterly Report on Form ~~10-Q.~~10-Q for further details regarding our debt obligations.

We transact business globally in multiple ~~currencies. Our~~currencies and hence have foreign ~~operations expose us~~currency risks related to our revenue, costs of revenue, operating expenses and localized subsidiary debt denominated in currencies other than the ~~risk~~U.S. dollar (primarily the Chinese yuan, euro, South Korean won and pound sterling in relation to our current year operations). In general, we are a net receiver of currencies other than the U.S. dollar for our foreign subsidiaries. Accordingly, changes in exchange rates affect our revenue and other operating results as expressed in U.S. dollars as we do not typically hedge foreign currency risk.

We have also experienced, and will continue to experience, fluctuations in ~~foreign currency exchange rates against the functional currencies~~our net income as a result of ~~our foreign subsidiaries and against the U.S. dollar. Upon consolidation, as foreign currency exchange rates vary, revenues and expenses may be significantly impacted, and we may record significant~~ gains ~~or losses~~(losses) on the settlement and the re-measurement of ~~our~~ monetary assets and liabilities ~~including~~denominated in currencies that are not the local currency (primarily consisting of our intercompany ~~balances. As of September 30, 2017, our largest foreign currency exposures were from the euro~~ and ~~the Hong Kong dollar. In the nine months ended September 30, 2017, we recognized a net foreign currency exchange loss of $35.9 million in other income (expense), net.~~cash and cash equivalents balances).

We considered the historical trends in foreign currency exchange rates and determined that it is reasonably possible that adverse changes in foreign currency exchange rates of 10% for all currencies could be experienced in the near-term. These ~~reasonably possible adverse~~ changes were applied to our total monetary assets and liabilities denominated in currencies other than our ~~functional~~local currencies ~~as of September 30, 2017~~at the balance sheet date to compute the ~~adverse~~ impact these changes would have had on our net income before income taxes. These changes would have resulted in ~~an adverse impact on our income before income taxes~~a gain or loss of ~~$408.6 million.~~$56 million at September 30, 2022 and $277 million at December 31, 2021, assuming no foreign currency hedging.

We are exposed to interest rate risk ~~for~~on our borrowings that bear interest at floating rates. Pursuant to our risk management policies, in certain cases, we ~~utilize~~utilized derivative instruments to manage some of ~~our exposures to fluctuations in interest rates on certain floating-rate debt.~~this risk. We do not enter into ~~any~~ derivative instruments for trading or speculative purposes. A hypothetical 10% change in ~~our~~ interest rates on our floating rate debt would have increased or decreased our interest expense by an immaterial amount for the nine months ended September 30, ~~2017 by $6.0 million.~~2022 and 2021, respectively.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that our management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, ~~2017,~~2022, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission~~SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

There ~~were~~was no ~~changes~~change in our internal control over financial reporting ~~as identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act,~~ that occurred during the ~~three months~~quarter ended September 30, ~~2017 that have~~2022, which has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

~~On March 28, 2014,~~For a ~~purported stockholder class action was filed in the United States District Court for the Northern District~~description of ~~California against SolarCity~~our material pending legal proceedings, please seeNote 12, Commitments and two of its officers. The complaint alleges violations of federal securities laws, and seeks unspecified compensatory damages and other relief on behalf of a purported class of purchasers of SolarCity’s securities from March 6, 2013 to March 18, 2014. After a series of amendmentsContingencies, to the ~~original complaint,~~consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

In addition, each of the ~~District Court dismissed the amended complaint~~matters below is being disclosed pursuant to Item 103 of Regulation S-K because it relates to environmental regulations and ~~entered a judgment in our favor on August 9, 2016. The plaintiffs have filed a notice of appeal. The Court has set a hearing on plaintiffs’ notice of appeal from the dismissal for December 4, 2017.~~aggregate civil penalties that we currently believe could potentially exceed $1 million. We believe that ~~the claims are without merit~~any proceeding that is material to our business or financial condition is likely to have potential penalties far in excess of such amount.

The German Umweltbundesamt has issued our subsidiary in Germany a notice and ~~intend to defend against this lawsuit and appeal vigorously. We are unable to estimate the possible loss or range of loss, if any, associated with this lawsuit.~~

~~On August 15, 2016, a purported stockholder class action lawsuit was filed~~fine in the ~~United States District Court for~~amount of 12 million euro alleging its non-compliance under applicable laws relating to market participation notifications and take-back obligations with respect to end-of-life battery products required thereunder. In response to Tesla’s objection, the ~~Northern District~~German Umweltbundesamt issued Tesla a revised fine notice dated April 29, 2021 in which it reduced the original fine amount to 1.45 million euro. This is primarily relating to administrative requirements, but Tesla has continued to take back battery packs, and although we cannot predict the outcome of ~~California against SolarCity, two~~this matter, including the final amount of ~~its officers and a former officer. On March 20, 2017, the purported stockholder class~~any penalties, we filed a ~~consolidated complaint that includes the original matter~~new objection in ~~the same court against SolarCity, one of its officers~~June 2021. A hearing is scheduled for November 2022, and ~~three former officers. As consolidated, the complaint alleges that SolarCity made projections of future sales and installations that~~ it ~~failed~~is not expected to achieve and that these projections were fraudulent when made. The suit claimed violations of federal securities laws and sought unspecified compensatory damages and other relief on behalf of a purported class of purchasers of SolarCity’s securities from May 6, 2015 to May 9, 2016. On July 25, 2017, the court took SolarCity’s fully-briefed motion to dismiss under submission. On August 11, 2017, the court granted the motion to dismiss with leave to amend. On September 11, 2017, after lead plaintiff determined he would not amend, the Court dismissed the action with prejudice and entered judgment in favor of SolarCity and the individual defendants.

On October 10, 2017, a purported stockholder class action was filed in the United States District Court for the Northern District of California against Tesla, two of its current officers and a former officer. The complaint alleges violations of federal securities laws, and seeks unspecified compensatory damages and other relief on behalf of a purported class of purchasers of Tesla securities from May 4, 2016 to October 6, 2017. The lawsuit claims that Tesla supposedly made materially false and misleading statements regarding the Company’s preparedness to produce Model 3 vehicles. We believe that the claims are without merit and intend to defend against this lawsuit vigorously. We are unable to estimate the possible loss or range of loss, if any, associated with this lawsuit.

Between September 1, 2016 and October 5, 2016, seven lawsuits were filed in the Court of Chancery of the State of Delaware by purported stockholders of Tesla challenging our acquisition of SolarCity. Following consolidation, the lawsuit names as defendants the members of Tesla’s board of directors and alleges, among other things, that board members breached their fiduciary duties in connection with the acquisition. The complaint asserts both derivative claims and direct claims on behalf of a purported class and seeks, among other relief, unspecified monetary damages, attorneys’ fees, and costs. On January 27, 2017, the defendants filed a motion to dismiss the operative complaint. Rather than respond to the defendants’ motion, the plaintiffs filed an amended complaint. On March 17, 2017, the defendants filed a motion to dismiss the amended complaint; that motion is pending. These same plaintiffs filed a parallel action in the United States District Court for the District of Delaware on April 21, 2017, adding claims for violations of the federal securities laws.

On February 6, 2017, a purported stockholder made a demand to inspect Tesla’s books and records, purportedly to investigate potential breaches of fiduciary duty in connection with the SolarCity acquisition. On April 17, 2017, the purported stockholder filed a petition for a writ of mandate in California Superior Court, seeking to compel Tesla to provide the documents requested in the demand. Tesla filed a demurrer to the writ petition or, in the alternative, a motion to stay the action, which remain pending.

On March 24, 2017, another lawsuit was filed in the United States District Court for the District of Delaware by a purported Tesla stockholder challenging the SolarCity acquisition. The complaint alleges, among other things, that Tesla’s board of directors breached their fiduciary duties in connection with the acquisition and alleges violations of the federal securities laws.

~~We believe that claims challenging the SolarCity acquisition are without merit. We are unable to estimate the possible loss or range of loss, if any, associated with these claims.~~

In July 2012, SolarCity, along with other companies in the solar energy industry, received a subpoena from the U.S. Treasury Department’s Office of the Inspector General to deliver certain documents in SolarCity’s possession that relate to SolarCity’s applications for U.S. Treasury grants. In February 2013, two financing funds affiliated with SolarCity filed a lawsuit in the United

States Court of Federal Claims against the United States government, seeking to recover $14.0 million that the United States Treasury was obligated to pay, but failed to pay, under Section 1603 of the American Recovery and Reinvestment Act of 2009. In February 2016, the U.S. government filed a motion seeking leave to assert a counterclaim against the two plaintiff funds on the grounds that the U.S. government, in fact, paid them more, not less, than they were entitled to as a matter of law. In September 2017, SolarCity and the United States government reached a global settlement of both the investigation and Company’s lawsuit. In that settlement, SolarCity admitted no wrongdoing and agreed to return approximately 5% of the cash grants it had received between 2009 and 2013, amounting to $29.5 million. The investigation is now closed and the Company’s lawsuit has been dismissed.

~~From time to time, we~~ have received requests for information from regulators and governmental authorities, such as the National Highway Traffic Safety Administration, the National Transportation Safety Board and the Securities and Exchange Commission. We are also subject to various other legal proceedings and claims that arise from the normal course of business activities. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our ~~results~~business.

District attorneys in certain California counties are conducting an investigation into Tesla’s waste segregation practices pursuant to Cal. Health & Saf. Code section 25100 et seq. and Cal. Civil Code § 1798.80. Tesla has implemented various remedial measures, including conducting training and audits, and enhancements to its site waste management programs. While the outcome of ~~operations, prospects, cash flows, financial position and brand.~~this matter cannot be determined at this time, it is not currently expected to have a material adverse impact on our business.

You should carefully consider the risks described below together with the other information set forth in this report, which could materially affect our business, financial condition and future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.

We may be impacted by macroeconomic conditions resulting from the global COVID-19 pandemic.

Since the first quarter of 2020, there has been a worldwide impact from the COVID-19 pandemic. Government regulations and ~~Industry~~shifting social behaviors have limited or closed non-essential transportation, government functions, business activities and person-to-person interactions. In some cases, the relaxation of such trends has been followed by actual or contemplated returns to stringent restrictions on gatherings or commerce, including in parts of the U.S., and the rest of the world.

During 2020, we temporarily suspended operations at each of our manufacturing facilities worldwide, and certain of our suppliers also shut down operations temporarily or permanently, including during the recently re-imposed lockdowns in certain parts of the world. We ~~have experienced~~instituted temporary employee furloughs and compensation reductions while our U.S. operations were scaled back. Temporary impediments to administrative activities supporting our operations also hampered our product deliveries and deployments. In the first and second quarters of 2022, spikes in COVID-19 cases in Shanghai resulted in the ~~past,~~temporary shutdown of Gigafactory Shanghai, as well as parts of our supply chain.

Global trade conditions and consumer trends that originated during the pandemic continue to persist and may ~~experience~~also have long-lasting adverse impact on us and our industries independently of the progress of the pandemic. For example, pandemic-related issues have exacerbated port congestion and intermittent supplier shutdowns and delays, resulting in additional expenses to expedite delivery of critical parts. Similarly, increased demand for personal electronics has created a shortfall of semiconductors, which has caused challenges in our supply chain and production. In addition, labor shortages resulting from the pandemic, including worker absenteeism, may lead to increased difficulty in hiring and retaining manufacturing and service workers, as well as increased labor costs and supplier delays. Sustaining our production trajectory will require the ongoing readiness and solvency of our suppliers and vendors, a stable and motivated production workforce and government cooperation, including for travel and visa allowances. The contingencies inherent in the ~~future, significant delays~~ramp at new facilities such as Gigafactory Berlin-Brandenburg and Gigafactory Texas may be exacerbated by these challenges.

We cannot predict the duration or ~~other complications in the design, manufacture, launch~~direction of current global trends or their sustained impact. Ultimately, we continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and attempt to accurately project demand and infrastructure requirements globally and deploy our production, ~~ramp of new vehicles~~workforce and other ~~products~~resources accordingly. If we experience unfavorable global market conditions, or if we cannot or do not maintain operations at a scope that is

commensurate with such ~~as Model 3,~~conditions or are later required to or choose to suspend such operations again, our ~~energy storage products and the Solar Roof, which could harm our brand,~~ business, prospects, financial condition and operating ~~results.~~results may be harmed.

We may experience delays in launching and ramping the production of our products and features, or we may be unable to control our manufacturing costs.

We have previously experienced and may in the future experience launch and production ramp delays for new products and features. For example, we encountered unanticipated supplier issues that led to delays during the initial ramp of our first Model X and experienced challenges with a supplier and with ramping full automation for certain of our initial Model 3 manufacturing processes. In addition, we may introduce in the future new or unique manufacturing processes and design features for our products. There is no guarantee that we will be able to successfully and timely introduce and scale such processes or features.

In particular, our future business depends in large part on increasing the production of mass-market vehicles including Model 3 and Model Y, which we are planning to achieve through multiple factories worldwide. We have relatively limited experience to date in manufacturing Model 3 and Model Y at high volumes and even less experience building and ramping vehicle production lines across multiple factories in different geographies. In order to be successful, we will need to implement, maintain and ramp efficient and cost-effective manufacturing capabilities, processes and supply chains and achieve the design tolerances, high quality and output rates we have planned at our manufacturing facilities in California, Nevada, Texas, China and Germany. We will also need to hire, train and compensate skilled employees to operate these facilities. Bottlenecks and other unexpected challenges such as those we experienced in the past ~~launch,~~may arise during our production ramps, and we must address them promptly while continuing to improve manufacturing processes and ~~production ramp~~reducing costs. If we are not successful in achieving these goals, we could face delays in establishing and/or ~~other complications in connection with new vehicle models such as Model S, Model X and~~sustaining our Model 3 and ~~new vehicle features such as the all-wheel drive dual motor drivetrain on~~ Model SY ramps or be unable to meet our related cost and the second version of autopilot hardware. For example, at times since the launch of Model X, we encountered unanticipated challenges, such as certain supply chain constraints, that forced us to decrease the production of these vehicles from our initial expectations. Similarly, in the third quarter of 2017, weprofitability targets.

We have experienced, certain production bottlenecks in the production of Model 3 due to a small number of manufacturing subsystems, including the battery module assembly line at Gigafactory 1, taking longer to bring online than expected. While we continue to make progress resolving such early bottlenecks, it is difficult to predict exactly how long it will take for all bottlenecks to be cleared or when further issues may arise. If such issues arise or recur with respect to Model 3 or any of our other production vehicles, we may experience further delays. In addition, because our vehicle models share certain production facilities with other models, the volume or efficiency of production with respect to one model may impact the production of other models.

Weand may also experience similar future delays ~~or other complications~~ in ~~bringing to market and~~launching and/or ramping production of ~~new vehicles, such as ramping Model 3 on production manufacturing lines, and other products such as our announced Tesla Semi truck and~~ our energy storage products and Solar Roof; new product versions or variants such as the ~~Solar Roof.~~ updated Model S and Model X; new vehicles such as Tesla Semi, Cybertruck and the new Tesla Roadster; and future features and services based on artificial intelligence, such as new Autopilot or FSD functionalities, the autonomous Tesla ride-hailing network and robotics. Likewise, we may encounter delays with the design, construction and regulatory or other approvals necessary to build and bring online future manufacturing facilities and products.

Any ~~significant additional~~ delay or other complication in ramping the production of our current products or the development, manufacture, launch and production ramp of our future products, ~~including complications associated~~features and services, or in doing so cost-effectively and with ~~expanding our production capacity, supply chain or regulatory approvals, could materially damage~~high quality, may harm our brand, business, prospects, financial condition and operating results.

WeOur suppliers may ~~experience delays~~ in ~~realizing~~ ~~our~~ ~~projected timelines~~fail to deliver components according to schedules, prices, quality and ~~cost~~ ~~and~~ ~~volume targets for~~ ~~the production~~ ~~and ramp~~ of ~~our~~ ~~Model 3~~ ~~vehicle,~~ ~~which could harm our business~~, ~~prospects, financial condition and operating results.~~

~~Our~~ ~~future business depends in large part on our~~ ~~ability to~~ ~~execute on our plans to manufacture, market and sell the Model 3 vehicle, which we are offering at a lower price point and which we intend to produce at significantly higher~~ volumes than our present production capabilities for the Model S or Model X vehicles. We commenced production and initial customer deliveries of Model 3 in July 2017 and have announced our current expectation to achieve a production rate of 5,000 Model 3 vehicles per week by late in the first quarter of 2018.

~~We have no experience to date in manufacturing vehicles at the high volumes that we anticipate for Model 3, and to be successful, we will need to~~ ~~complete the implementation and ramp of efficient, automated and low-cost manufacturing capabilities, processes and supply chains necessary to support such volumes.~~ ~~Moreover, our Model 3 production plan has required and will require significant investments of cash and management resources.~~

~~Our production plan for Model 3 is based on many key assumptions, including:~~

If one or more of the foregoing assumptions turns out to be incorrect, our ability to meet our Model 3 projections on time and at volumes and prices that are profitable, the number of current and future Model 3 reservations, as well as our business, prospects, operating results and financial condition, may be materially and adversely impacted.

Our products contain thousands of parts purchased globally from hundreds of suppliers, including single-source direct suppliers, which exposes us to multiple potential sources of component shortages. Unexpected changes in business conditions, materials pricing, including inflation of raw material costs, labor issues, wars, trade policies, natural disasters such as the March 2011 earthquakes in Japan, health epidemics such as the global COVID-19 pandemic, trade and shipping disruptions, port congestions and other factors beyond our or our suppliers’ control could also affect these suppliers’ ability to deliver components to us or to remain solvent and operational. For example, a global shortage of semiconductors has been reported since early 2021 and has caused challenges in the manufacturing industry and impacted our supply chain and production as well. In addition, a spike in COVID-19 cases in Shanghai in early 2022 led to temporary manufacturing shutdowns of certain of our suppliers. We have used alternative parts and programmed software to mitigate certain challenges caused by these shortages, but there is no guarantee we may be able to continually do so as we scale production to meet our ~~growing vehicle~~growth targets. Additionally, if our suppliers do not accurately forecast and effectively allocate production or if they are not willing to allocate sufficient production to us, it may reduce our access to components and ~~delivery plans, both~~require us to search for new suppliers. The unavailability of ~~which~~any component or supplier could ~~harm~~result in production delays, idle manufacturing facilities, product design changes and loss of access to important technology and tools for producing and supporting our ~~business~~products, as well as impact our capacity expansion and ~~prospects.~~

~~Our plans call for~~our ability to fulfill our obligations under customer contracts. Moreover, significant increases in ~~vehicle~~our production, and deliveries to high volumes in a short amount of time. Our ability to achieve these plans will depend upon a number of factors, including our ability to utilize installed manufacturing capacity, achieve the planned production yield and further increase capacity as planned while maintaining our desired quality levels and optimize design and production changes, and our suppliers’ ability to support our needs. In addition, we have used and may use in the future a number of new manufacturing technologies, techniques and processes for our vehicles, which we must successfully introduce and scale for high volume production. For example, we have introduced highly automated production lines, aluminum spot welding systems and high-speed blow forming of certain difficult to stamp vehicle parts. We have also introduced unique design features in our vehicles with different manufacturing challenges, such as large display screens, dual motor drivetrain, autopilot hardware and falcon-wing doors. We have limited experience developing, manufacturing, selling and servicing, and allocating our available resources among, multiple products simultaneously. If we are unable to realize our plans, our brand, business, prospects, financial condition and operating results could be materially damaged.

Concurrent with the significant planned increase in our vehicle production levels, we will also need to continue to significantly increase deliveries of our vehicles. Although we have a plan for delivering a significantly increased volumes of vehicles, we have limited experience in delivering a high volume of vehicles, and no experience in delivering vehicles at the significantly higher volumes we anticipate for Model 3 and weModel Y, or product design changes by us have required and may face difficulties meeting our delivery and growth plans into both existing markets as well as new markets into which we expand. If we are unable to ramp up to meet our delivery goals globally, this could have a material adverse effect on our business, prospects, financial condition and operating results.

~~We are dependent on our suppliers,~~in the majority of which are single source suppliers, and the inability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels, and volumes acceptable to us, or our inability to efficiently manage these components, could have a material adverse effect on our financial condition and operating results.

Our products contain numerous purchased parts which we source globally from hundreds of direct suppliers, the majority of whom are currently single source suppliers despite efforts to qualify and obtain components from multiple sources whenever feasible. Any significant unanticipated demand wouldfuture require us to procure additional components in a short amount of ~~time,~~time. Our suppliers may not be willing or able to sustainably meet our timelines or our cost, quality and ~~in the past~~volume needs, or to do so may cost us more, which may require us to replace them with other sources. Finally, we have ~~also replaced~~ ~~certain suppliers~~ ~~because~~limited vehicle manufacturing experience outside of ~~their failure to provide components that met our quality control standards.~~the Fremont Factory and Gigafactory Shanghai and we may experience issues increasing the level of localized procurement at Gigafactory Berlin-Brandenburg and Gigafactory Texas. While we believe that we will be able to secure additional or alternate sources ~~of supply~~or develop our own replacements for most of our components, ~~in a relatively short time frame,~~ there is no assurance that we will be able to do so quickly or ~~develop our own replacements for certain highly customized components of our products. Moreover,~~at all. Additionally, we ~~have signed long-term agreements with Panasonic to~~may be ~~our manufacturing partner and supplier for lithium-ion cells at Gigafactory 1 in Nevada and PV cells and panels at Gigafactory 2 in Buffalo, New York. If we encounter~~

unexpected difficulties with key suppliers such as Panasonic, and if we are unable to fill these needs from other suppliers, we could experience production delays and potential loss of access to important technology and parts for producing, servicing and supporting our products.

This limited, and in many cases single source, supply chain exposes us to multiple potential sources of delivery failure or component shortages for the production of our products, such as those which we experienced in 2012 and 2016 in connection with our slower-than-planned Model S and Model X ramps. Furthermore, unexpected changes in business conditions, materials pricing, labor issues, wars, governmental changes, natural disasters such as the March 2011 earthquakes in Japan and other factors beyond our and our suppliers’ control, could also affect our suppliers’ ability to deliver components to us on a timely basis. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to product design changes and delays in product deliveries to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material and adverse effect on ~~our business, prospects, financial condition and operating results.~~

~~Changes~~unsuccessful in our ~~supply chain have also resulted in the past, and may result in the future, in increased cost. We have also experienced cost increases from certain of our suppliers in order~~continuous efforts to meet our quality targets and development timelines as well as due to design changes that we made, and we may experience similar cost increases in the future. Certain suppliers have sought to renegotiate the terms of the supply arrangements. Additionally, we are negotiatingnegotiate with existing suppliers ~~for~~to obtain cost reductions ~~seeking new~~ and avoid unfavorable changes to terms, source less expensive suppliers for

certain parts and ~~attempting to~~ redesign certain parts to make them less expensive to ~~produce. If we are unsuccessful~~produce, especially in light of the increases in materials pricing. Any of these occurrences may harm our ~~efforts to control~~business, prospects, financial condition and ~~reduce supplier costs, our~~ operating ~~results will suffer.~~ results.

We expect the foregoing discussion to apply generally to Model 3. However, because we plan to produce Model 3 at significantly higher volumes than Model S or Model X, the negative impact of any delays or other constraints with respect to our suppliers for Model 3 could be substantially greater than any such issues experienced with respect to our products to date. As some of our suppliers for Model S and Model X do not have the resources, equipment or capability to provide components for the Model 3 in line with our requirements, we have engaged a significant number of new suppliers, and such suppliers will also have to ramp to achieve our needs in a short period of time. There is no assurance that these suppliers will ultimately be able to meet our cost, quality and volume needs, or do so in a timely manner. ~~Furthermore, as~~ the scale of our vehicle production increases, we will also need to accurately forecast, purchase, warehouse and transport components at high volumes to our manufacturing facilities ~~components at much higher volumes than we have experience with.~~and servicing locations internationally. If we are unable to accurately match the timing and quantities of component purchases to our actual needs or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain and parts management, we may incur unexpected production disruption, storage, transportation and write-off costs, which ~~could~~may harm our business and operating results.

We may be unable to meet our projected construction timelines, costs and production ramps at new factories, or we may experience difficulties in generating and maintaining demand for products manufactured there.

Our ability to increase production of our vehicles on a sustained basis, make them affordable globally by accessing local supply chains and workforces and streamline delivery logistics is dependent on the construction and ramp of our current and future factories. The construction of and commencement and ramp of production at these factories are subject to a number of uncertainties inherent in all new manufacturing operations, including ongoing compliance with regulatory requirements, procurement and maintenance of construction, environmental and operational licenses and approvals for additional expansion, supply chain constraints, hiring, training and retention of qualified employees and the pace of bringing production equipment and processes online with the capability to manufacture high-quality units at scale. Moreover, we will have ~~a material adverse effect~~to establish and ramp production of our proprietary battery cells and packs at our new factories, and we additionally intend to incorporate sequential design and manufacturing changes into vehicles manufactured at each new factory. We have limited experience to date with developing and implementing manufacturing innovations outside of the Fremont Factory and Gigafactory Shanghai. In particular, the majority of our design and engineering resources are currently located in California. In order to meet our expectations for our new factories, we must expand and manage localized design and engineering talent and resources. If we experience any issues or delays in meeting our projected timelines, costs, capital efficiency and production capacity for our new factories, expanding and managing teams to implement iterative design and production changes there, maintaining and complying with the terms of any debt financing that we obtain to fund them or generating and maintaining demand for the vehicles we manufacture there, our business, prospects, operating results and financial condition may be harmed.

We may be unable to grow our global product sales, delivery and installation capabilities and our servicing and vehicle charging networks, or we may be unable to accurately project and effectively manage our growth.

Our success will depend on our ability to continue to expand our sales capabilities. We are targeting with Model 3 and Model Y a global mass demographic with a broad range of potential customers, in which we have relatively limited experience projecting demand and pricing our products. We currently produce numerous international variants at a limited number of factories, and if our specific demand expectations for these variants prove inaccurate, we may not be able to timely generate deliveries matched to the vehicles that we produce in the same timeframe or that are commensurate with the size of our operations in a given region. Likewise, as we develop and grow our energy products and services worldwide, our success will depend on our ability to correctly forecast demand in various markets.

Because we do not have independent dealer networks, we are responsible for delivering all of our vehicles to our customers. We have faced in the past, and may face difficulties with deliveries at increasing volumes, particularly in international markets requiring significant transit times. For example, we saw challenges in ramping our logistics channels in China and Europe to initially deliver Model 3 there in the first quarter of 2019. We have deployed a number of delivery models, such as deliveries to customers’ homes and workplaces and touchless deliveries, but there is no guarantee that such models will be scalable or be accepted globally. Likewise, as we ramp our energy products, we are working to substantially increase our production and installation capabilities. If we experience production delays or inaccurately forecast demand, our business, financial condition and operating ~~results.~~results may be harmed.

Moreover, because of our unique expertise with our vehicles, we recommend that our vehicles be serviced by us or by certain authorized professionals. If we experience delays in adding servicing capacity or servicing our vehicles efficiently, or experience unforeseen issues with the reliability of our vehicles, particularly higher-volume additions to our fleet such as Model 3 and Model Y, it could overburden our servicing capabilities and parts inventory. Similarly, the increasing number of Tesla vehicles also requires us to continue to rapidly increase the number of our Supercharger stations and connectors throughout the world.

There is no assurance that we will be able to ramp our business to meet our sales, delivery, installation, servicing and vehicle charging targets globally, that our projections on which such targets are based will prove accurate or that the pace of growth or coverage of our customer infrastructure network will meet customer expectations. These plans require significant cash investments and management resources and there is no guarantee that they will generate additional sales or installations of our products, or that we will be able to avoid cost overruns or be able to hire additional personnel to support them. As we expand, we will also need to ensure our compliance with regulatory requirements in various jurisdictions applicable to the sale, installation and servicing of our products,

the sale or dispatch of electricity related to our energy products and the operation of Superchargers. If we fail to manage our growth effectively, it may harm our brand, business, prospects, financial condition and operating results.

We will need to maintain and significantly grow our access to battery cells, including through the development and manufacture of our own cells, and control our related costs.

We are dependent on the continued supply of lithium-ion battery cells for our vehicles and energy storage products, and we will require substantially more cells to grow our business according to our plans. Currently, we rely on suppliers such as Panasonic and Contemporary Amperex Technology Co. Limited (CATL) for these cells. We have to date fully qualified only a very limited number of such suppliers and have limited flexibility in changing suppliers. Any disruption in the supply of battery cells from our suppliers could limit production of our vehicles and energy storage products. In the long term, we intend to supplement cells from our suppliers with cells manufactured by us, which we believe will be more efficient, manufacturable at greater volumes and more cost-effective than currently available cells. However, our efforts to develop and manufacture such battery cells have required, and may continue to require, significant investments, and there can be no assurance that we will be able to achieve these targets in the timeframes that we have planned or at all. If we are unable to do so, we may have to curtail our planned vehicle and energy storage product production or procure additional cells from suppliers at potentially greater costs, either of which may harm our business and operating results.

In addition, the cost and mass production of battery cells, whether manufactured by our suppliers or by us, depends in part upon the prices and availability of raw materials such as lithium, nickel, cobalt and/or other metals. The prices for these materials fluctuate and their available supply may be unstable, depending on market conditions and global demand for these materials. For example, as a result of increased global production of electric vehicles and energy storage products, suppliers of these raw materials may be unable to meet our volume needs. Additionally, our suppliers may not be willing or able to reliably meet our timelines or our cost and quality needs, which may require us to replace them with other sources. Any reduced availability of these materials may impact our access to cells and our growth, and any increases in their prices may reduce our profitability if we cannot recoup such costs through increased prices. Moreover, our inability to meet demand and any product price increases may harm our brand, growth, prospects and operating results.

Our future growth and success isare dependent upon consumers’ ~~willingness to adopt~~demand for electric vehicles and specifically our vehicles ~~especially~~ in ~~the mass market demographic which we are targeting with Model 3.~~an automotive industry that is generally competitive, cyclical and volatile.

Our growth is highly dependent upon the adoption by consumers of alternative fuel vehicles in general and electric vehicles in particular. Although we have successfully grown demand for Model S and Model X, have seen very strong initial demand for Model 3, and we believe that we will be able to continue to grow demand separately for each of these and future vehicles, there is no guarantee of such future demand or that our vehicles will not compete with one another in the market. Moreover, the mass market demographic which we are targeting with Model 3 is larger, but more competitive, than for Model S and Model X, and additional electric vehicles are coming on to the market.

If the market for electric vehicles in general and Tesla vehicles in particular does not develop as we expect, or develops more slowly than we expect, or if demand for our vehicles decreases in ~~key and~~our markets or our vehicles compete with each other, ~~markets,~~ our business, prospects, financial condition and operating results may be harmed.

We are still at an earlier stage of development and have limited resources and production relative to established competitors that offer internal combustion engine vehicles. In addition, electric vehicles still comprise a small percentage of overall vehicle sales. As a result, the market for our vehicles could be ~~harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, and could be~~negatively affected by numerous ~~external~~ factors, such as:

~~access~~Finally, the target demographics for our vehicles, particularly Model 3 and Model Y, are highly competitive. Sales of vehicles in the automotive industry tend to ~~charging facilities.~~be cyclical in many markets, which may expose us to further volatility.

~~Future problems~~We face strong competition for our products and services from a growing list of established and new competitors.

The worldwide automotive market is highly competitive today and we expect it will become even more so in the future. For example, Model 3 and Model Y face competition from existing and future automobile manufacturers in the extremely competitive entry-level premium sedan and compact SUV markets. A significant and growing number of established and new automobile manufacturers, as well as other companies, have entered, or ~~delays~~are reported to have plans to enter, the market for electric and other alternative fuel vehicles, including hybrid, plug-in hybrid and fully electric vehicles, as well as the market for self-driving technology and other vehicle applications and software platforms. In some cases, our competitors offer or will offer electric vehicles in ~~expanding~~important markets such as China and Europe, and/or have announced an intention to produce electric vehicles exclusively at some point in the future. Many of our competitors have significantly greater or better-established resources than we do to devote to the design, development, manufacturing, distribution, promotion, sale and support of their products. Increased competition could result in our

lower vehicle unit sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which may harm our business, financial condition and operating results.

We also face competition in our energy generation and storage business from other manufacturers, developers, installers and service providers of competing energy technologies, as well as from large utilities. Decreases in the retail or wholesale prices of electricity from utilities or other renewable energy sources could make our products less attractive to customers and lead to an increased rate of customer defaults.

We may experience issues with lithium-ion cells or other components manufactured at Gigafactory ~~1 or ramping operations there could negatively affect~~Nevada and Gigafactory Shanghai, which may harm the production and profitability of our vehicle and energy storage products.

Our plan to grow the volume and profitability of our vehicles and energy storage products depends on significant lithium-ion battery cell production, including by our partner Panasonic at Gigafactory Nevada. In addition, we produce several vehicle components, such as ~~Model 3.~~

~~To lower the cost of cell production~~battery modules and ~~produce cells in high volume,~~packs and drive units at Gigafactory Nevada and Gigafactory Shanghai, and we ~~are integrating the production of lithium-ion cells and finished battery packs for the Model 3 and~~also manufacture energy storage products at Gigafactory ~~1. While Gigafactory 1 began producing lithium-ion cells~~Nevada. In the past, some of the manufacturing lines for ~~energy storage products in January 2017~~certain product components took longer than anticipated to ramp to their full capacity, and ~~has since begun producing lithium-ion cells for Model 3, we have no other direct experience~~additional bottlenecks may arise in the future as we continue to increase the production ~~of lithium-ion cells. Given the size~~rate and ~~complexity of this undertaking, it is possible that future events could result in the cost of expanding~~introduce new lines. If we are unable to or otherwise do not maintain and ~~operating~~grow our respective operations at Gigafactory ~~1 exceeding our current expectations~~Nevada and Gigafactory ~~1 taking longer to ramp~~Shanghai production, and expand than we currently anticipate. In order to reach our planned volume and gross margin for Model 3, we must have significant cell production from Gigafactory 1, which, among other things, requires Panasonic to successfully ramp its all-new cell production lines to significant volumes over a short period of time. Although Panasonic has a long track record of producing high-quality cells at significant volume at its factories in Japan, it has never before started and ramped cell production at a factory in the U.S. like at Gigafactory 1. We are now in the early stages of production and have experienced the types of challenges that typically come with a production ramp. We expect that we will continue to experience challenges as we move through the ramp, and we will continue to fine-tune our manufacturing lines to address them. While we currently believe that we will reach our production targets,or if we are unable to ~~resolve ramping challenges~~do so cost-effectively or hire and ~~expand~~retain highly-skilled personnel there, our ability to manufacture our products profitably would be limited, which may harm our business and operating results.

Finally, the high volumes of lithium-ion cells and battery modules and packs manufactured at Gigafactory ~~1 production~~Nevada are stored and recycled at our various facilities. Any mishandling of battery cells may cause disruption to the operation of such facilities. While we have implemented safety procedures related to the handling of the cells, there can be no assurance that a safety issue or fire related to the cells would not disrupt our operations. Any such disruptions or issues may harm our brand and business.

We face risks associated with maintaining and expanding our international operations, including unfavorable and uncertain regulatory, political, economic, tax and labor conditions.

We are subject to legal and regulatory requirements, political uncertainty and social, environmental and economic conditions in numerous jurisdictions, including markets in which we generate significant sales, over which we have little control and which are inherently unpredictable. Our operations in such jurisdictions, particularly as a ~~timely manner~~company based in the U.S., create risks relating to conforming our products to regulatory and ~~at reasonable prices,~~safety requirements and charging and other electric infrastructures; organizing local operating entities; establishing, staffing and managing foreign business locations; attracting local customers; navigating foreign government taxes, regulations and permit requirements; enforceability of our contractual rights; trade restrictions, customs regulations, tariffs and price or exchange controls; and preferences in foreign nations for domestically manufactured products. Such conditions may increase our costs, impact our ability to sell our products and require significant management attention, and may harm our business if we ~~or Panasonic~~ are unable to ~~attract, hire and retain a substantial number of highly skilled personnel,~~manage them effectively.

Our business may suffer if our ~~ability to supply battery packs to our vehicles, especially Model 3, and other~~ products ~~could be negatively impacted. Any such problems~~ or ~~delays with Gigafactory 1 could negatively affect our brand and harm our business, prospects, financial condition and operating results.~~

~~If our vehicles or other products that we sell or install~~features contain defects, fail to perform as expected ~~our ability~~or take longer than expected to ~~develop, market and sell~~become fully functional.

~~If our vehicles~~contain design or ~~our energy products were to contain~~manufacturing defects ~~in design and manufacture~~ that cause them not to perform as expected or that require repair, or certain features of our vehicles such as new Autopilot or FSD features take longer than expected to become enabled, are legally restricted or become subject to onerous regulation, our ability to develop, market and sell our products and services ~~could~~may be ~~harmed.~~harmed, and we may experience delivery delays, product recalls, product liability, breach of warranty and consumer protection claims and significant warranty and other expenses. For example, we are developing self-driving and driver assist technologies to rely on vision-based sensors, unlike alternative technologies in development that additionally require other redundant sensors. There is no guarantee that any incremental changes in the ~~operation of~~specific equipment we deploy in our vehicles isover time will not result in initial functional disparities from prior iterations or will perform as expected in the timeframe we anticipate, or at all.

Our products are also highly dependent on software, which is inherently complex and ~~could conceivably~~may contain latent defects ~~and~~or errors or be subject to external attacks. Issues experienced by our customers have included those related to the ~~software for the 17 inch~~Model S and Model X 17-inch display screen, the panoramic roof and the ~~12 volt~~12-volt battery in the Model S, ~~and~~ the seats and doors in the Model X.X and the operation of solar panels installed by us. Although we attempt to remedy any issues we observe in our products as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not ~~be up to the satisfaction of~~completely satisfy our customers. While we have performed, and continue to perform, extensive internal testing on ~~the~~our products ~~we manufacture,~~and features, we currently have a limited frame of reference by which to evaluate ~~detailed~~their long-term quality, reliability, durability and performance ~~characteristics of our battery packs, powertrains, vehicles and energy storage products.~~characteristics. There can be no assurance that we will be able to detect and fix any defects in our products prior to their sale to or installation for ~~consumers.~~customers.

We may be required to defend or insure against product ~~defects or any other failure of our products to perform as expected could harm our reputation and result in delivery delays, product recalls,~~liability claims.

The automobile industry generally experiences significant product liability claims, ~~significant warranty~~ and as such we face the risk of such claims in the event our vehicles do not perform or are claimed to not have performed as expected. As is true for other ~~expenses, and could have a material adverse impact on~~automakers, our ~~business, financial condition, operating results and prospects. Our Model 3~~ vehicles have ~~not yet~~ been ~~evaluated by NHTSA for a star rating under the New Car Assessment Program,~~involved and ~~while based on our internal testing~~ we ~~expect to obtain comparable ratings to those achieved by Model S and Model X, there is no assurance this will occur.~~

If we fail to scale our business operations and otherwise manage future growth effectively as we rapidly grow our company, including internationally, we may not be able to produce, market, sell and service our products successfully.

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We continue to expand our operations significantly, including internationally, including by a planned transition to high volume vehicle production with the ramp of Model 3 and the worldwide sales, delivery and servicing of a significantly higher number of vehicles than our current vehicle fleet in the coming years. Furthermore, we are developing and growing our energy storage product and solar business worldwide, including in countries where we have limited or no previous operating experience in connection with our vehicle business. Our future operating results depend to a large extent on our ability to manage our expansion and growth successfully. We may not be successful in undertaking this global expansion if we are unable to control ~~expenses~~ ~~and avoid cost overruns and other unexpected operating costs; establish~~ ~~sufficient~~ ~~worldwide automobile~~ ~~sales, delivery, service and Supercharger facilities in a timely manner;~~ ~~adapt~~ ~~our products and conduct our operations to meet local requirements;~~ ~~implement~~ ~~the required infrastructure, systems and processes; and~~ ~~find and hire a significant number of additional manufacturing, engineering, service, electrical installation, construction and administrative personnel.~~

~~If we are unable to achieve our targeted manufacturing costs for our vehicles, including Model 3, our financial condition and operating results will suffer.~~

~~While we have experienced and~~ expect in the future ~~to realize cost reductions by both us and our suppliers, there is no guarantee we~~ will be ~~able to achieve sufficient cost savings to reach our gross margin~~involved in accidents resulting in death or personal injury, and ~~profitability goals.~~such accidents where Autopilot, Enhanced Autopilot or FSD Capability features are engaged are the subject of significant public attention. We ~~incur significant costs related~~

~~to procuring the materials required to manufacture our vehicles, assembling vehicles~~have experienced, and compensating our personnel. We may also incur substantial costs or cost overruns in utilizing and increasing the production capability of our vehicle manufacturing facilities, such as for Model 3. Furthermore, if we are unable to achieve production cost targets on our vehicles pursuant to our plans, we may not be able to meet our gross margin and other financial targets. Furthermore, many of the factors that impact our manufacturing costs are beyond our control, such as potential increases in the costs of our materials and components, such as lithium, nickel and other components of our battery cells or aluminum used to produce body panels. If we are unableexpect to continue to ~~control~~face, claims and ~~reduce our manufacturing costs, our operating results, business and prospects will be harmed.~~

~~We are significantly dependent upon revenue generated~~regulatory scrutiny arising from ~~the sale~~or related to misuse or claimed failures of ~~a limited fleet of electric vehicles, which currently includes Model S, Model X and Model 3.~~

~~We currently generate a significant percentage of our revenues from the sale of two products: Model S and Model X vehicles. Model 3, for which~~such new technologies that we are planning significantly higher volumes than Model S or Model X, has required and will require significant investment in connection with its ongoing ramp, and there is no guarantee that it will be commercially successful. Historically, automobile customers have come to expect a variety of vehicles offered in a manufacturer’s fleet and new and improved vehicle models to be introduced frequently.pioneering. In ~~order to meet these expectations, we may in~~addition, the future be required to introduce on a regular basis new vehicle models as well as enhanced versions of existing vehicle models. To the extent our product variety and cycles do not meet consumer expectations, or cannot be produced on our projected timelines and cost and volume targets our future sales may be adversely affected. This could have a material adverse effect on our business, prospects, financial condition and operating results.

Our vehicles and energy storage products make use of lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame, and such events have raised concerns, and future events may lead to additional concerns, about the batteries used in automotive applications.

~~The~~ battery packs that we produce make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While we have designed ~~the~~our battery ~~pack~~packs to passively contain any single cell’s release of energy without spreading to neighboring cells, there can be no assurance that a field or testing failure of our vehicles or other battery packs that we produce will not occur, which could subject us to lawsuits, product recalls, or redesign efforts, all of which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications or any future incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve our vehicles or energy storage products, could seriously harm our business.

In addition, we store a significant number of lithium-ion cells at our facilities and plan to produce high volumes of cells and battery modules and packs at Gigafactory 1. Any mishandling of battery cells may cause disruption to the operation of our facilities. While we have implemented safety procedures related to the handling of the cells, there can be no assurance that a safety issue or fire related to the cells would not disrupt our operations. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any failure of a competitor’s electric vehicle or energy storage product may cause indirect adverse publicity for us and our products. Such adverse publicity could negatively affect our brand and harm our business, prospects, financial condition and operating results.

~~Increases in costs, disruption of supply or shortage of materials,~~ in particular ~~for lithium-ion cells, could harm our business.~~

We may experience increases in the cost or a sustained interruption in the supply or shortage of materials. Any such increase, supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating results. We use various materials in our business including aluminum, steel, lithium, cobalt, nickel and copper, as well as lithium-ion cells from suppliers. The prices for these materials fluctuate, and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased production of electric vehicles and energy storage products by our competitors, and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to lithium-ion cells. These risks include:

Our business is dependent on the continued supply of battery cells for the battery packs used in our vehicles and energy storage products. While we believe several sources of the battery cells are available for such battery packs, and expect to eventually rely substantially on battery cells manufactured at our own facilities, we have to date fully qualified only a ~~very limited number of suppliers for the cells used in such battery packs and have very limited flexibility in changing cell suppliers. In particular, we have~~

fully qualified only one supplier for the cells used in battery packs for our current production vehicles. Any disruption in the supply of battery cells from such suppliers could disrupt production of our vehicles and of the battery packs we produce for energy products until such time as a different supplier is fully qualified. Furthermore, fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges and material costs. Substantial increases in the prices for our materials or prices charged to us, such as those charged by battery cell suppliers, would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices. Any attempts to increase vehicle prices in response to increased material costs could result in cancellations of vehicle orders and reservations and therefore materially and adversely affect our brand, image, business, prospects and operating results.

~~We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.~~

Although we design our vehicles to be the safest vehicles on the road, product liability claims could harm our business, prospects, operating results and financial condition. The automobile industry in particular experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected. On extremely rare occasions, our cars have been involved and we expect in the future will be involved in crashes resulting in death or personal injury, and such crashes where Autopilot is engaged are the subject of significant public attention. We have experienced and we expect to continue to face claims related to misuse or failures of new technologies that we are pioneering, including Autopilot in our vehicles. Finally,high-speed crash. Likewise, as our solar energy systems and energy storage products generate and store electricity, they have the potential to fail or cause injury to people or property. ~~A successful~~Any product liability claim ~~against~~may subject us ~~could~~to lawsuits and substantial monetary damages, product recalls or redesign efforts, and even a meritless claim may require us to ~~pay a substantial monetary award. Our risks in this area are particularly pronounced given the limited number~~defend it, all of ~~vehicles and energy storage products delivered to date and limited field experience of our products. Moreover, a product liability claim could~~which may generate ~~substantial~~ negative publicity ~~about our products~~ and ~~business~~be expensive and ~~could have material adverse effect on our brand, business, prospects and operating results.~~time-consuming. In most jurisdictions, we generally self-insure against the risk of product liability claims for vehicle exposure, meaning that any product liability claims will likely have to be paid from company funds and not by insurance.

~~The markets in which we operate are highly competitive,~~We will need to maintain public credibility and we may not be successful in competing in these industries. We currently face competition from new and established domestic and international competitors and expect to face competition from others in the future, including competition from companies with new technology.

The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in the future. There is no assurance that our vehicles will be successful in the respective markets in which they compete. Many established and new automobile manufacturers such as Audi, BMW, Daimler, General Motors, Toyota and Volvo, as well as other companies, have entered or are reported to have plans to enter the alternative fuel vehicle market, including hybrid, plug-in hybrid and fully electric vehicles. In some cases, such competitors have announced an intention to produce electric vehicles exclusively at some point in the future. Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing, vehicle sales networks and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Increased competition could result in lower vehicle unit sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results. In addition, our Model 3 vehicle faces competition from existing and future automobile manufacturers in the extremely competitive entry-level premium sedan market, including Audi, BMW, Lexus and Mercedes.

The solar and energy storage industries are highly competitive. We face competition from other manufacturers, developers and installers of solar and energy storage systems, as well as from large utilities. Decreases in the retail prices of electricity from utilities or other renewable energy sources could make our products less attractive to customers and lead to an increased rate of customer defaults under our existing long-term leases and power purchase agreements. Moreover, solar panel and lithium-ion battery prices have declined and are continuing to decline. As we increase our battery and solar panel manufacturing capabilities, including at Gigafactory 1 and Gigafactory 2, future price declines may harm our ability to produce energy storage systems and solar panels at competitive prices.

~~If we are unable to establish and maintain~~ confidence in our long-term business prospects ~~among consumers, analysts and within our industries, then our financial condition, operating results, business prospects and stock price may suffer materially.~~

Consumers may be less likely to purchase our products now if they are not convinced that our business will succeed or that our service and support and other operations will continue for many years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, in order to ~~build~~succeed.

In order to maintain and ~~maintain~~grow our business, we must maintain credibility and confidence among customers, suppliers, analysts, investors, ratings agencies and other parties in our ~~liquidity~~long-term financial viability and ~~long-term~~ business prospects. Maintaining such confidence may be ~~particularly complicated by certain~~

~~factors, such as~~challenging due to our limited operating history relative to established competitors; customer unfamiliarity with our ~~products,~~products; any delays we may experience in scaling manufacturing, delivery and service operations to meet demand; competition and uncertainty regarding the future of electric vehicles or our other products and ~~services and~~services; our quarterly production and sales performance compared with market ~~expectations. Many~~expectations; and other factors including those over which we have no control. In particular, Tesla’s products, business, results of ~~these factors~~operations, statements and actions are ~~largely outside our control, and any negative perceptions about our long-term business prospects, even if~~well-publicized by a range of third parties. Such attention includes frequent criticism, which is often exaggerated or unfounded, ~~would likely~~such as speculation regarding the sufficiency or stability of our management team. Any such negative perceptions, whether caused by us or not, may harm our business and make it more difficult to raise additional funds if needed.

Our plan to expand our network of Tesla stores, galleries, delivery centers, service centers and Superchargers will require significant cash investments and management resources and may not meet expectations with respect to additional sales or installations of our products or availability of Superchargers.

Our plans to expand our network of Tesla stores, galleries, delivery centers, service centers, mobile service offerings and Superchargers will require significant cash investments and management resources and may not meet our expectations with respect to additional sales or installations of our products. This ongoing global expansion, which includes planned entry into markets in which we have limited or no experience selling, delivering, installing and/or servicing our products, and which may pose legal, regulatory, cultural and political challenges that we have not previously encountered, may not have the desired effect of increasing sales and installations and expanding our brand presence to the degree we are anticipating. Furthermore, the increasing number of Model S and Model X vehicles, as well as the significant increase in our vehicle fleet size that we expect from Model 3, will require us to continue to increase the number of our Supercharger stations significantly. If we fail to do so, our customers could become dissatisfied, which could adversely affect sales of our vehicles. We will also need to ensure we are in compliance with any regulatory requirements applicable to the sale, installation and service of our products, the sale of electricity generated through our solar energy systems, and operation of Superchargers in those jurisdictions, which could take considerable time and expense. If we experience any delays or cannot meet customer expectations in expanding our network of Tesla stores, galleries, service centers, mobile service offerings and Superchargers, this could lead to a decrease in sales or installations of our products and could negatively impact our business, prospects, financial condition and operating results.

We face risks associated with our international operations and expansion, including unfavorable regulatory, political, tax and labor conditions, and with establishing ourselves in new markets, all of which could harm our business.

We currently have international operations and subsidiaries in various countries and jurisdictions that are subject to legal, political, and regulatory requirements and social and economic conditions that may be very different from those affecting us domestically. Additionally, as part of our growth strategy, we will continue to expand our sales, delivery, service and Supercharger locations internationally. International expansion requires us to make significant expenditures, including the establishment of local operating entities, hiring of local employees and establishing facilities in advance of generating any revenue.

We are subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our products and require significant management attention. These risks include conforming our products to various international regulatory and safety requirements as well as charging and other electric infrastructures, difficulty in establishing, staffing and managing foreign operations, challenges in attracting customers, foreign government taxes, regulations and permit requirements, our ability to enforce our contractual rights; trade restrictions, customs regulations, tariffs and price or exchange controls, and preferences of foreign nations for domestically manufactured products.

~~If we fail~~unable to effectively grow, ~~and~~or manage the compliance, residual value, financing and credit risks related to, our ~~vehicle~~various financing ~~programs,~~programs.

vehicles in North America, Europe and Asia primarily ourselves and through various financial institutions. We also currently offer vehicle financing arrangements ~~for Model S and Model X~~directly through our local subsidiaries in certain markets. Depending on the ~~United States, Canada, Germany~~country, such arrangements are available for specified models and ~~the UK, including leasing~~may include operating leases directly ~~through certain of those subsidiaries. The profitability~~with us under which we typically receive only a very small portion of the ~~leasing program depends on~~total vehicle purchase price at the time of lease, followed by a stream of payments over the term of the lease. We have also offered various arrangements for customers of our ~~ability~~solar energy systems whereby they pay us a fixed payment to ~~accurately project residual values, secure adequate financing and/~~lease or ~~business partners to fund and grow this program, and screen for and manage customer credit risk. We expect~~finance the ~~need for leasing and other financing options will continue to be important to Model S and Model X deliveries and for Model 3 in the long term.~~purchase of such systems or purchase electricity generated by them. If we are unable to adequately fund our leasing program with internal funds, or partners or other external financing sources, and compelling alternative financing programs are not available for our customers, we may be unable to grow our sales. Furthermore, if our leasing business grows substantially, our business may suffer if we cannot effectively manage the greater levels of residual and credit risks resulting from growth. Finally, if we do not successfully monitor and comply with applicable national, state and/or local financial regulations and consumer protection laws governing ~~lease~~these transactions, we may become subject to enforcement actions or ~~penalties, either~~penalties.

~~The unavailability, reduction or elimination~~any directly-leased vehicles returned to us at the end of or unfavorable determinations with respect to, government and economic incentives in the United States and abroad supporting the development and adoption of electric vehicles or solar energy could have some impacttheir leases depends on ~~demand for our products and services.~~

We currently benefit from certain government and economic incentives supporting the development and adoption of electric vehicles. In the United States and abroad, such incentives include, among other things, tax credits or rebates that encourage the

purchase of electric vehicles. In Norway, for example, the purchase of electric vehicles is not currently subject to import taxes, taxes on non-recurring vehicle fees, the 25% value added tax or the purchase taxes that apply to the purchase of gas-powered vehicles. Notably, the quantum of incentive programs promoting electric vehicles is a tiny fraction of the amount of subsidies that are provided to gas-powered vehicles through the oil and gas industries. Nevertheless, even the limited benefits from such programs could be reduced, eliminated or exhausted. For example, in April 2017 and January 2016, respectively, previously available incentives in Hong Kong and Denmark that favored the purchase of electric vehicles expired, negatively impacting sales. Moreover, under current regulations, a $7,500 federal tax credit available in the United States for the purchase of qualified electric vehicles with at least 17 kWh of battery capacity, such as our vehicles, will begin to phase out with respect to any vehicles delivered in the second calendar quarter following the quarter in which we deliver our 200,000^th qualifying vehicle in the United States. In addition, California implemented regulations phasing out a $2,500 cash rebate on qualified electric vehicles for high-income consumers, which became effective in March 2016. In certain circumstances, there is pressure from the oil and gas lobby or related special interests to bring about such developments, which could have some negative impact on demand for our vehicles.

In addition, certain governmental rebates, tax credits and other financial incentives that are currently available with respect to our solar and energy storage product businesses allow us to lower our installation costs and cost of capital and encourage customers to buy our products and investors to invest in our solar financing funds. However, these incentives may expire on a particular date, end when the allocated funding is exhausted or be reduced or terminated as renewable energy adoption rates increase, often without warning. For example, the federal government currently offers a 30% investment tax credit (“ITC”) for the installation of solar power facilities and energy storage systems that are charged from a co-sited solar power facility. The ITC is currently scheduled to decline to 10%, and expire altogether for residential systems, by January 2022. Likewise, in jurisdictions where net energy metering is currently available, our customers receive bill credits from utilities for energy that their solar energy systems generate and export to the grid in excess of the electric load they use. Several jurisdictions have reduced or eliminated the benefit available under net energy metering, or have proposed to do so. Such reductions in or termination of governmental incentives could adversely impact our results by making our products less competitive for potential customers, increasing our cost of capital and adversely impacting our ability to ~~attract investment partners~~accurately project our vehicles’ residual values at the outset of the leases, and such values may fluctuate prior to ~~form new financing funds for our solar~~the end of their terms depending on various factors such as supply and ~~energy storage assets.~~

~~Moreover, we and our fund investors claim the ITC in amounts based on the fair market value~~demand of our ~~solar~~used vehicles, economic cycles and ~~energy storage systems. Although we obtain independent appraisals to support~~ the ~~claimed fair market values, the relevant governmental authorities~~pricing of new vehicles. We have ~~audited such values and in certain cases have determined that they should be lower, and they may do so~~made in the ~~future. Such determinations~~past and may ~~result~~make in ~~adverse tax consequences and/or our obligation to make indemnification or other payments, or contribute additional assets,~~the future certain adjustments to our ~~funds~~ prices from time to time in the ordinary course of business, which may impact the residual values of our vehicles and reduce the profitability of our vehicle leasing program. The funding and growth of this program also relies on our ability to secure adequate financing and/or ~~fund investors.~~

business partners. If we are unable to ~~integrate SolarCity successfully into~~adequately fund our leasing program through internal funds, partners or other financing sources, and compelling alternative financing programs are not available for our customers who may expect or need such options, we may be unable to grow our vehicle deliveries. Furthermore, if our vehicle leasing business grows substantially, our business may suffer if we cannot effectively manage the resulting greater levels of residual risk.

Similarly, we have provided resale value guarantees to vehicle customers and partners for certain financing programs, under which such counterparties may sell their vehicles back to us at certain points in time at pre-determined amounts. However, actual resale values are subject to fluctuations over the term of the financing arrangements, such as from the vehicle pricing changes discussed above. If the actual resale values of any vehicles resold or returned to us pursuant to these programs are materially lower than the pre-determined amounts we have offered, our financial condition and operating results may be harmed.

Finally, our vehicle and solar energy system financing programs and our energy storage sales programs also expose us to customer credit risk. In the event of a widespread economic downturn or other catastrophic event, our customers may be unable or

unwilling to satisfy their payment obligations to us on a timely basis or at all. If a significant number of our customers default, we may ~~not realize the anticipated benefits of our acquisition of SolarCity.~~

~~We have devoted to date, and continue to devote,~~incur substantial attention and resources to integrating into our company the business and operations of SolarCity, which we acquired in November 2016. We have no prior experience integrating a business of the size and scale of SolarCity. If the integration process takes longer than expected credit losses and/or ~~is more costly than expected, we may fail to realize some or all of the anticipated benefits of the acquisition.~~

~~Potential difficulties we may encounter in the integration process include the following:~~

~~Any failure by us to realize the expected benefits of our substantial investments and commitments~~impairment charges with respect to the ~~manufacture of PV cells, including if we are unable to comply with the terms of~~underlying assets.

We must manage ongoing obligations under our agreement with the Research Foundation for the State University of New York relating to our Gigafactory ~~2, could result in negative consequences for our business.~~New York.

~~As part of our acquisition of SolarCity, we acquired certain PV cell manufacturing and technology assets,~~We are party to an operating lease and a ~~build-to-suit lease arrangement with~~research and development agreement through the ~~Research Foundation for the State University of New York (the “Foundation”). This agreement with the Foundation provides~~SUNY Foundation. These agreements provide for the construction and use of our Gigafactory ~~2 in Buffalo,~~ New York, which ~~at full capacity~~ we ~~expect will be capable~~have primarily used for the development and production of

~~producing 1 gigawatt of PV cells annually, including for~~ our Solar ~~Roof.~~Roof and other solar products and components, energy storage components and Supercharger components, and for other lessor-approved functions. Under this agreement, we are obligated to, among other things, ~~employ~~meet employment targets as well as specified minimum numbers of personnel in the State of New York ~~during the 10-year period following the arrival of manufacturing equipment, the receipt of certain permits~~ and ~~other specified items at Gigafactory 2,~~in Buffalo, New York and spend or incur ~~approximately $5.0~~$5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York during ~~the 10-year~~a period ~~following the achievement~~that was initially 10 years beginning April 30, 2018. As we temporarily suspended most of ~~full production output~~our manufacturing operations at Gigafactory ~~2. If~~New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we ~~fail~~were granted a deferral of our obligation to be compliant with our applicable targets through December 31, 2021 in an amendment memorialized in August 2021. As of September 30, 2022, we are currently in excess of such targets relating to investments and personnel in the State of New York and Buffalo. While we expect to have and grow significant operations at Gigafactory New York and the surrounding Buffalo area, any failure by us in any year over the course of the term of the agreement to meet ~~these~~all applicable future obligations ~~we would be obligated~~may result in our obligation to pay a “program payment” of ~~$41.2~~$41 million to the SUNY Foundation infor such ~~year. Any inability on our part to comply with the requirements of this agreement may result in the payment of significant amounts to the Foundation,~~year, the termination of our lease at Gigafactory 2,New York which may require us to pay additional penalties, and/or the need to ~~secure an alternative supply~~adjust certain of ~~PV cells for products such as~~ our operations, in particular our production ramp of the Solar ~~Roof. Moreover, if we are unable to utilize the~~Roof or other manufacturing and technology assets that were acquired in the SolarCity acquisition in accordance with our expectations, we may have to recognize accounting charges pertaining to the write-off of such assets.components. Any of the foregoing events ~~could have a material adverse effect on~~may harm our business, ~~prospects,~~ financial condition and operating results.

~~We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial results.~~

Our revenues and costs denominated in foreign currencies are not completely matched. As we have increased vehicle deliveries in markets outside of the United States, we have much higher revenues than costs denominated in other currencies such as the euro, Chinese yuan, Norwegian krone, pound sterling and Canadian dollar. Any strengthening of the U.S. dollar would tend to reduce our revenues as measured in U.S. dollars, as we have historically experienced. In addition, a portion of our costs and expenses have been, and we anticipate will continue to be, denominated in foreign currencies, including the Japanese yen. If we do not have fully offsetting revenues in these currencies and if the value of the U.S. dollar depreciates significantly against these currencies, our costs as measured in U.S. dollars as a percent of our revenues will correspondingly increase and our margins will suffer. Moreover, while we undertake limited hedging activities intended to offset the impact of currency translation exposure, it is impossible to predict or eliminate such impact. As a result, our operating results could be adversely affected.

If we are unable to attract, ~~and/or~~hire and retain key employees and ~~hire~~ qualified personnel, our ability to compete ~~could~~may be harmed.

The loss of the services of any of our key employees or any significant portion of our workforce could disrupt our operations or delay the development, introduction and ~~introduction~~ramp of our ~~vehicles~~products and ~~services, and negatively impact our business, prospects and operating results.~~services. In particular, we are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive ~~Officer, and Jeffrey B. Straubel, our Chief Technical~~ Officer.

None of our key employees is bound by an employment agreement for any specific term and we may not be able to successfully attract and retain senior leadership necessary to grow our business. Our future success also depends upon our ability to attract, hire and retain ~~executive officers~~a large number of engineering, manufacturing, marketing, sales and ~~other key~~delivery, service, installation, technology ~~sales, marketing, engineering, manufacturing~~ and support personnel, especially to support our planned high-volume product sales, market and ~~any failure to do so could adversely impact~~geographical expansion and technological innovations. Recruiting efforts, particularly for senior employees, may be time-consuming, which may delay the execution of our plans. If we are not successful in managing these risks, our business, ~~prospects,~~ financial condition and operating ~~results.~~results may be harmed.

~~Key talent~~Employees may leave Tesla or choose other employers over Tesla due to various factors, such as a very competitive labor market for talented individuals with automotive or technology ~~experience.~~experience, or any negative publicity related to us. In ~~California and other~~ regions where we have or will have operations, particularly significant engineering and manufacturing centers, there is ~~increasing~~strong competition for individuals with skillsets needed for our business, including specialized knowledge of electric vehicles, ~~software engineering, manufacturing~~ engineering and ~~other skills such as~~ electrical and building construction expertise. ~~This competition affects both~~Moreover, we may be impacted by perceptions relating to reductions in force that we have conducted in the past in order to optimize our ~~ability to retain key employees~~organizational structure and ~~hire new ones. Our continued success depends upon our continued ability to hire new employees in a timely manner, especially to support our expansion plans~~reduce costs and ~~ramp to high-volume manufacture~~the departure of ~~vehicles, and retain current employees. Additionally, we~~certain senior personnel for various reasons. We also compete with both mature and prosperous companies that have far greater financial resources than we do and start-ups and emerging companies that promise short-term growth opportunities. ~~Difficulties~~

Finally, our compensation philosophy for all of our personnel reflects our startup origins, with an emphasis on equity-based awards and benefits in ~~retaining current~~order to closely align their incentives with the long-term interests of our stockholders. We periodically seek and obtain approval from our stockholders for future increases to the number of awards available under our equity incentive and employee stock purchase plans. If we are unable to obtain the requisite stockholder approvals for such future increases, we may have to expend additional cash to compensate our employees ~~or recruiting new ones could have an adverse effect on~~and our ~~performance.~~ability to retain and hire qualified personnel may be harmed.

We are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive Officer.

We are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive ~~Officer, Chairman of our Board of Directors and largest stockholder.~~Officer. Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla. Mr. Musk also currently serves as Chief Executive Officer and Chief Technical Officer of Space Exploration Technologies Corp., a developer and manufacturer of space launch vehicles, and is involved in other emerging technology ventures.

Our information technology systems or data, or those of our service providers or customers or users could be subject to ~~various environmental~~cyber-attacks or other security incidents, which could result in data breaches, intellectual property theft, claims, litigation, regulatory investigations, significant liability, reputational damage and ~~safety~~other adverse consequences.

We continue to expand our information technology systems as our operations grow, such as product data management, procurement, inventory management, production planning and execution, sales, service and logistics, dealer management, financial, tax and regulatory compliance systems. This includes the implementation of new internally developed systems and the deployment of such systems in the U.S. and abroad. While, we maintain information technology measures designed to protect us against intellectual property theft, data breaches, sabotage and other external or internal cyber-attacks or misappropriation, our systems and those of our service providers are potentially vulnerable to malware, ransomware, viruses, denial-of-service attacks, phishing attacks, social engineering, computer hacking, unauthorized access, exploitation of bugs, defects and vulnerabilities, breakdowns, damage, interruptions, system malfunctions, power outages, terrorism, acts of vandalism, security breaches, security incidents, inadvertent or intentional actions by employees or other third parties, and other cyber-attacks.

To the extent any security incident results in unauthorized access or damage to or acquisition, use, corruption, loss, destruction, alteration or dissemination of our data, including intellectual property and personal information, or our products or vehicles, or for it to be believed or reported that any of these occurred, it could disrupt our business, harm our reputation, compel us to comply with applicable data breach notification laws, subject us to time consuming, distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the correctness of database contents, or otherwise subject us to liability under laws, regulations and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to us and result in significant legal and financial exposure and/or reputational harm.

We also rely on service providers, and similar incidents relating to their information technology systems could also have a material adverse effect on our business. There have been and may continue to be significant supply chain attacks. Our service providers, including our workforce management software provider, have been subject to ransomware and other security incidents, and we cannot guarantee that our or our service providers’ systems have not been breached or that they do not contain exploitable defects, bugs, or vulnerabilities that could result in a security incident, or other disruption to, our or our service providers’ systems. Our ability to monitor our service providers’ security measures is limited, and, in any event, malicious third parties may be able to circumvent those security measures.

Further, the implementation, maintenance, segregation and improvement of these systems require significant management time, support and cost, and there are inherent risks associated with developing, improving and expanding our core systems as well as implementing new systems and updating current systems, including disruptions to the related areas of business operation. These risks may affect our ability to manage our data and inventory, procure parts or supplies or manufacture, sell, deliver and service products, adequately protect our intellectual property or achieve and maintain compliance with, or realize available benefits under, tax laws and ~~regulations that~~other applicable regulations.

Moreover, if we do not successfully implement, maintain or expand these systems as planned, our operations may be disrupted, our ability to accurately and/or timely report our financial results could ~~impose substantial costs upon us~~be impaired and ~~negatively~~deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results. Moreover, our proprietary information, including intellectual property and personal information, could be compromised or misappropriated and our reputation may be adversely affected. If these systems or their functionality do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.

Any unauthorized control or manipulation of our ~~manufacturing facilities.~~products’ systems could result in loss of confidence in us and our products.

~~As a manufacturing company, including~~Our products contain complex information technology systems. For example, our vehicles and energy storage products are designed with ~~respect~~built-in data connectivity to ~~facilities such as the Tesla Factory, Gigafactory 1~~accept and ~~Gigafactory 2,~~install periodic remote updates from us to improve or update their functionality. While we ~~are subject~~have implemented security measures intended to ~~complex environmental, health~~prevent unauthorized access to our information technology networks, our products and ~~safety laws~~their systems, malicious entities have reportedly attempted, and ~~regulations at numerous jurisdictional levels~~may attempt in the ~~United States~~future, to gain unauthorized access to modify, alter and ~~abroad, including laws relating~~use such networks, products and systems to gain control of, or to change, our products’ functionality, user interface and performance characteristics or to gain access to data stored in or generated by our products. We encourage reporting of potential vulnerabilities in the ~~use, handling, storage, disposal~~security of our products through our security vulnerability reporting policy, and ~~human exposure~~we aim to ~~hazardous materials. The costs~~remedy any reported and verified vulnerability. However, there can be no assurance that any vulnerabilities will not be exploited before they can be identified, or that our remediation efforts are or will be successful.

Any unauthorized access to or control of ~~compliance, including remediating contamination if~~our products or their systems or any ~~is found on our properties and any changes~~loss of data could result in legal claims or government investigations. In addition, regardless of their veracity, reports of unauthorized access to our ~~operations mandated by~~

~~new~~products, their systems or ~~amended laws,~~data, as well as other factors that may ~~be significant. We~~result in the perception that our products, their systems or data are capable of being hacked, may ~~also face unexpected delays in obtaining permits and approvals required by such laws in connection with~~harm our ~~manufacturing facilities, which would hinder our operation of these facilities. Such costs and delays may adversely impact our business~~brand, prospects and operating results. ~~Furthermore, any violations~~We have been the subject of ~~these laws may result~~such reports in ~~substantial fines and penalties, remediation costs, third party damages, or a suspension or cessation of our operations.~~the past.

Our business may be adversely affected by any disruptions caused by union activities.

It is ~~common~~not uncommon for employees of certain trades at companies ~~with significant manufacturing operations~~ such as us to belong to a union, which can result in higher employee costs and increased risk of work stoppages. Moreover, regulations in some jurisdictions outside of the ~~United States~~U.S. mandate employee participation in industrial collective bargaining agreements and work councils with certain consultation rights with respect to the relevant companies’ operations. Although we work diligently to provide the best possible work environment for our employees, they may still decide to join or seek recognition to form a labor union, or we may be required to become a union signatory. ~~The United Automobile Workers has publicly announced a desire~~From time to time, labor unions have engaged in campaigns to organize certain of our operations, as part of which such unions have filed unfair labor practice charges against us with the ~~Fremont Factory,~~National Labor Relations Board (the “NLRB”), and ~~has been engaged~~they may do so in the future. In September 2019, an administrative law judge issued a ~~campaign~~recommended decision for Tesla on certain issues and against us on certain others. In March 2021, the ~~company.~~NLRB adopted a portion of the recommendation and overturned others. Tesla appealed the decision to the United States Circuit Court for the Fifth Circuit, which is currently pending. Any unfavorable ultimate outcome for Tesla may have a negative impact on the perception of Tesla’s treatment of our employees. Furthermore, we are directly or indirectly dependent upon companies with unionized work forces, such as ~~parts~~ suppliers and trucking and freight ~~companies, and~~companies. Any work stoppages or strikes organized by such unions ~~could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs, it~~ could delay the manufacture and sale of our products and ~~have a material adverse effect on our business, prospects, operating results or financial condition.~~

~~Our products and services are subject to substantial regulations, which are evolving, and unfavorable changes or failure by us to comply with these regulations could substantially~~may harm our business and operating results.

Motor vehicles are subject to substantial regulation under international, federal, state, and local laws. We incur significant costs in complying with these regulations, and may be required to incur additional costs to comply with any changes to such regulations. We are subject to laws and regulations applicable to the manufacture, import, sale and service of automobiles internationally. For example, in countries outside of the United States, we are required to meet vehicle-specific safety standards that are often materially different from requirements in the United States, thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance in those countries. This process may include official review and certification of our vehicles by foreign regulatory agencies prior to market entry, as well as compliance with foreign reporting and recall management systems requirements.

Additionally, our vehicles are equipped with a suite of driver-assistance features called Autopilot, which help assist drivers with certain tedious and potentially dangerous aspects of road travel, but require drivers to remain engaged. Autopilot is a recently-introduced feature with which domestic and foreign regulators have limited experience. Any changes in law or regulatory enforcement could impact whether and how our customers are able to use our vehicles equipped with Autopilot, and which, depending on the severity, could adversely affect our business.

Moreover, as a manufacturer and installer of solar panels and energy storage systems and a supplier of electricity generated and stored by the solar energy and energy storage systems we install for customers, we are impacted by federal, state and local regulations and policies concerning electricity pricing, the interconnection of electricity generation and storage equipment with the electric grid, and the sale of electricity generated by third-party owned systems. For example, existing or proposed regulations and policies would permit utilities to limit the amount of electricity generated by our customers with their solar energy systems, charge fees and penalties to our customers relating to the purchase of energy other than from the grid, adjust electricity rate designs such that the price of our solar products may not be competitive with that of electricity from the grid, restrict us and our customers from transacting under our power purchase agreements or qualifying for government incentives and benefits that apply to solar power, and limit or eliminate net energy metering. If such regulations and policies remain in effect or are adopted in other jurisdictions, or if other regulations and policies that adversely impact the interconnection of our solar and energy storage systems to the grid are introduced, modified or eliminated, they could deter potential customers from purchasing our solar and energy storage products, threaten the economics of our existing contracts and cause us to cease solar and energy storage system sales and operations in the relevant jurisdictions, which could harm our business, prospects, financial condition and results of operations.

Our privacy policy is posted on our website, and any failure by us or our vendor or other business partners to comply with it or with federal, state or international privacy, data protection or security laws or regulations could result in regulatory or litigation-related actions against us, legal liability, fines, damages and other costs. We may ~~also incur substantial expenses and costs in connection with maintaining compliance with such laws. Although we take steps~~choose to protect the security of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if third parties improperly obtain and use the personal information of our customers or we otherwise experience a data loss with respect to customers’ personal information. A major breach of our network security and systems could have negative consequences for our business and future prospects, including possible fines, penalties and damages, reduced customer demand for our vehicles, and harm to our reputation and brand.

~~We may~~ be compelled to undertake product recalls or take other ~~actions, which could adversely affect~~similar actions.

As a manufacturing company, we must manage the risk of product recalls with respect to our ~~brand image and financial performance.~~

~~Any product recall, including~~products. Recalls for ~~solar or charging equipment, in the future may result in adverse publicity, damage~~ our ~~brand and adversely affect our business, prospects, operating results and financial condition. For example, certain limited vehicle recalls that we initiated in the past two years~~vehicles have resulted from a component that could prevent the parking brake from releasing once engaged, a concern with the firmware in the restraints control module in certain right-hand-drive vehicles, industry-wide issues with airbags from a particular supplier, a front seat belt issue in a single field vehicle,various hardware and ~~internal tests that revealed potential unintended movements in the Model X second row and third row seats during a collision. None of our past~~software-related safety defect or non-compliance determinations. In addition to recalls ~~have been related to our electric powertrain~~. ~~Furthermore,~~initiated by us for various causes, testing of or investigations into our ~~vehicles~~products by government regulators or industry groups may ~~require~~compel us to initiate ~~vehicle~~product recalls or may result in negative public perceptions about the safety of our ~~vehicles.~~products, even if we disagree with the defect determination or have data that shows the actual safety risk to be non-existent. In the future, we may ~~at various times,~~ voluntarily or involuntarily initiate ~~a recall~~recalls if any of our products are determined by us or ~~our electric vehicle powertrain components that we have provided~~a regulator to ~~other vehicle OEMs, including any systems~~contain a safety defect or ~~parts sourced from our suppliers, prove to~~ be ~~defective or~~ noncompliant with applicable laws and regulations, such as ~~federal motor vehicle safety standards.~~U.S. Federal Motor Vehicle Safety Standards. Such recalls, whether voluntary or involuntary or caused by systems or components engineered or manufactured by us or our suppliers, could ~~involve~~result in significant expense, supply chain complications and ~~could adversely affect~~service burdens, and may harm our brand, ~~image in our target markets, as well as our~~ business, prospects, financial condition and ~~results of operations.~~

Our resale value guarantee and leasing programs for our vehicles expose us to the risk that the resale values of vehicles returned to us are lower than our estimates and may result in lower revenues, gross margin, profitability and liquidity.

We have provided resale value guarantees to many of our customers, under which such customers may sell their vehicles back to us at certain points in time at pre-determined resale values. If the resale values of any vehicles resold or returned to us pursuant to these programs are materially lower than our estimates, our profitability and/or liquidity could be negatively impacted.

We apply lease accounting on sales of vehicles with a resale value guarantee and on leases made directly by us or by our leasing partners. Under lease accounting, we recognize the associated revenues and costs of the vehicle sale over time rather than fully upfront at vehicle delivery. As a result, these programs generate lower revenues in the period the car is delivered and higher gross margins during the period of the resale value guarantee as compared to purchases in which the resale value guarantee does not apply. A higher than anticipated prevalence of these programs could therefore have an adverse impact on our near term revenues and operating results. Moreover, unlike the sale of a vehicle with a resale value guarantee or programs with leasing partners which do not impact our cash flows and liquidity at the time of vehicle delivery, under a lease held directly by us, we may receive only a very small portion of the total vehicle purchase price at the time of lease, followed by a stream of payments over the term of the lease. To the extent we expand our leasing program without securing external financing or business partners to support such expansion, our cash flow and liquidity could also be negatively impacted.

Our current and future warranty reserves may be insufficient to cover future warranty ~~claims which could adversely affect our financial performance.~~claims.

~~Subject to separate limited warranties for the supplemental restraint system, battery and drive unit, we~~We provide four year or 50,000 mile limited warranties for the purchasers of new Model S and Model X vehicles and pre-owned Model S vehicles certified and sold by us. The limited warranty for the battery and drive unit covers the drive unit for eight years, as well as the battery for a period of eight years (or for certain older vehicles, 125,000 miles if reached sooner than eight years), although the battery’s charging capacity is not covered under any of our warranties or Extended Service plans. In addition, customers of new Model S and Model X vehicles have the opportunity to purchase an Extended Service plan for the period after the end of the limited warranty for their new vehicles to cover additional services for up to an additional four years or 50,000 miles, provided it is purchased within a specified period of time.

For energy storage products, we provide limited warranties against defects and to guarantee minimum energy retention levels. For example, we guarantee that each Powerwall 2 product will maintain at least 70-80% of its stated energy capacity after 10 years, and that each Powerpack 2 product will retain specified minimum energy capacities in each of its first 10 to 15 years of use. For our Solar Roof, we offer amanufacturer’s warranty on ~~the glass tiles for the lifetime of a customer’s home~~all new and ~~a separate warranty for~~used Tesla vehicles we sell. We also provide certain warranties with respect to the energy generation ~~capability of the solar tiles. We also offer extended warranties, availability guarantees~~ and ~~capacity guarantees for periods of up to 20 years at an additional cost at the time of purchase, as well as workmanship warranties to customers who elect to have~~storage systems we sell, including on their installation and maintenance. For components not manufactured by us, ~~install their systems.~~

Finally, customers who buy energy from us under solar energy system leases or power purchase agreements are covered by warranties equal to the length of the agreement term, which is typically 20 years. Systems purchased for cash are covered by a warranty of up to 10 years, with extended warranties available at additional cost. In addition, we generally pass through to our customers the ~~inverter and panel~~applicable manufacturers’ warranties, ~~which~~but may retain some warranty responsibilities for some or all of the life of such components. As part of our energy generation and storage system contracts, we may provide the customer with performance guarantees that guarantee that the underlying system will meet or exceed the minimum energy generation or other energy performance requirements specified in the contract. Under these performance guarantees, we generally ~~range from 5 to 25 years, subjecting us to~~bear the risk ~~that~~of electricity production or other performance shortfalls, including in some cases shortfalls caused by failures in components from third party manufacturers. These risks are exacerbated in the event such manufacturers ~~may later~~ cease operations or fail to honor their ~~underlying~~ warranties. ~~Finally, we provide a performance guarantee~~

~~with our leased solar energy systems that compensates a customer on an annual basis if their system does not meet the electricity production guarantees set forth in their lease.~~

If our warranty reserves are inadequate to cover future warranty claims on our products, our ~~business, prospects,~~ financial condition and operating results ~~could~~may be ~~materially and adversely affected.~~harmed. Warranty reserves include our management’s best ~~estimate~~estimates of the projected costs to repair or to replace items under ~~warranty. These estimates~~warranty, which are based on actual claims incurred ~~to-date~~to date and an estimate of the nature, frequency and costs of future claims. Such estimates are inherently uncertain and changes to our historical or projected experience, especially with respect to products such as Model 3, Model Y and Solar Roof that ~~are new~~we have introduced relatively recently and/or that we expect to produce at significantly greater volumes than our past products, may cause material changes to our warranty reserves in the future.

We are continuously expanding and improving our information technology systems and use security measures designed to protect our systems against breaches and cyber-attacks. If these efforts are not successful, our business and operations could be disrupted and our operating results and reputation could be harmed.

We are continuously expanding and improving our information technology systems, including implementing new internally developed systems, to assist us in the management of our business. In particular, our volume production of multiple vehicles necessitates continued development, maintenance and improvement of our information technology systems in the United States and abroad, which include product data management, procurement, inventory management, production planning and execution, sales, service and logistics, dealer management, financial, tax and regulatory compliance systems. The implementation, maintenance and improvement of these systems require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving and expanding our core systems as well as implementing new systems, including the disruption of our data management, procurement, manufacturing execution, finance, supply chain and sales and service processes. These risks may affect our ability to manage our data and inventory, procure parts or supplies or manufacture, sell, deliver and service vehicles, or achieve and maintain compliance with, or realize available benefits under, tax laws and other applicable regulations. We also maintain information technology measures designed to protect us against system security risks, data breaches and cyber-attacks.

We cannot be sure that these systems or their required functionality will be effectively implemented, maintained or expanded as planned. If we do not successfully implement, maintain or expand these systems as planned, our operations may be disrupted, our ability to accurately and/or timely report our financial results could be impaired, and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results. Moreover, our proprietary information could be compromised and our reputation may be adversely affected. If these systems or their functionality do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.

Our insurance coverage strategy may not be adequate to protect us from all business risks.

We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. As a general matter, we do not maintain as much insurance coverage as many other companies do, and in some cases, we do not maintain any at all. Additionally, the policies that we do have may include significant deductibles or self-insured retentions, policy limitations and exclusions, and we cannot be certain that our insurance coverage will be sufficient to cover all future losses or claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which ~~could adversely affect~~may harm our financial condition and operating results.

Our ~~financial results~~debt agreements contain covenant restrictions that may ~~vary significantly from period-to-period due~~limit our ability to ~~fluctuations in~~operate our ~~operating costs.~~business.

~~We expect~~The terms of certain of our ~~period-to-period financial results~~credit facilities, including our senior asset-based revolving credit agreement, contain, and any of our other future debt agreements may contain, covenant restrictions that limit our ability to ~~vary based~~operate our business, including restrictions on our ~~operating costs which we anticipate will increase significantly in future periods as we,~~ability to, among other things, ~~design, develop~~incur additional debt or issue guarantees, create liens, repurchase stock, or make other restricted payments, and ~~manufacture current and future products, increase the production capacity at our manufacturing facilities~~make certain voluntary prepayments of specified debt. In addition, under certain circumstances we are required to ~~produce vehicles at higher volumes, including ramping up the production of Model S, Model X and Model 3, expand Gigafactory 1, open new Tesla stores and service centers~~

comply with maintenance and repair capabilities, open new Supercharger locations, develop Gigafactory 2, increase our sales and marketing activities, and increase our general and administrative functions to support our growing operations.a fixed charge coverage ratio. As a result of these ~~factors, we believe that quarter-to-quarter comparisons of~~covenants, our ~~financial results, especially~~ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing as needed, may be restricted. Furthermore, our failure to comply with our debt covenants could result in a default under our debt agreements, which could permit the ~~short-term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover,~~holders to accelerate our ~~financial results may not meet expectations of equity research analysts or investors.~~obligation to repay the debt. If any of ~~this occurs,~~our debt is accelerated, we may not have sufficient funds available to repay it.

Our business and our future plans for expansion are capital-intensive, and the ~~trading price~~specific timing of cash inflows and outflows may fluctuate substantially from period to period. We may need or want to raise additional funds through the issuance of equity, equity-related or debt securities or through obtaining credit from financial institutions to fund, together with our principal sources of liquidity, the costs of developing and manufacturing our current or future products, to pay any significant unplanned or accelerated expenses or for new significant strategic investments, or to refinance our significant consolidated indebtedness, even if not required to do so by the terms of such indebtedness. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all. If we cannot raise additional funds when we need them, our financial condition, results of operations, business and prospects could be materially and adversely affected.

We may be negatively impacted by any early obsolescence of our ~~stock could fall substantially, either suddenly or over time.~~manufacturing equipment.

~~Any unauthorized control or manipulation~~We depreciate the cost of our ~~vehicles’ systems could~~manufacturing equipment over their expected useful lives. However, product cycles or manufacturing technology may change periodically, and we may decide to update our products or manufacturing processes more quickly than expected. Moreover, improvements in engineering and manufacturing expertise and efficiency may result in ~~loss~~our ability to manufacture our products using less of ~~confidence~~our currently installed equipment. Alternatively, as we ramp and mature the production of our products to higher levels, we may discontinue the use of already installed equipment in usfavor of different or additional equipment. The useful life of any equipment that would be retired early as a result would be shortened, causing the depreciation on such equipment to be accelerated, and our ~~vehicles~~results of operations may be harmed.

We hold and ~~harm~~may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.

In January 2021, we updated our ~~business.~~investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity, allowing us to invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future. Thereafter, we invested certain of such cash in bitcoin. As with any investment and consistent with how we manage fiat-based cash and cash equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and on our view of market and environmental conditions.

~~Our vehicles contain complex information technology systems.~~The prices of digital assets have been in the past and may continue to be highly volatile, including as a result of various associated risks and uncertainties. For example, ~~our vehicles are designed with built-in data connectivity to accept and install periodic remote updates from us to improve or update~~ the ~~functionality~~prevalence of ~~our vehicles. We have designed, implemented and tested security measures intended to prevent unauthorized access to our information technology networks, our vehicles~~such assets is a relatively recent trend, and their ~~systems. However, hackers have reportedly attempted,~~long-term adoption by investors, consumers and businesses is unpredictable. Moreover, their lack of a physical form, their reliance on technology for their creation, existence and transactional validation and their decentralization may ~~attempt~~subject their integrity to the threat of malicious attacks and technological obsolescence. Finally, the extent to which securities laws or other regulations apply or may apply in the future to ~~gain unauthorized~~

~~access~~such assets is unclear and may change in the future. If we hold digital assets and their values decrease relative to ~~modify, alter and use~~our purchase prices, our financial condition may be harmed.

Moreover, digital assets are currently considered indefinite-lived intangible assets under applicable accounting rules, meaning that any decrease in their fair values below our carrying values for such ~~networks, vehicles and systems~~assets at any time subsequent to ~~gain control of, or~~their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale, which may adversely affect our operating results in any period in which such impairment occurs. Moreover, there is no guarantee that future changes in GAAP will not require us to change ~~our vehicles’ functionality, user interface~~the way we account for digital assets held by us.

Finally, as intangible assets without centralized issuers or governing bodies, digital assets have been, and performance characteristics, or to gain access to data stored in or generated by the vehicle. We encourage reporting of potential vulnerabilities in the security of our vehicles via our security vulnerability reporting policy, and we aim to remedy any reported and verified vulnerabilities. Accordingly, we have received reports of potential vulnerabilities in the past and have attempted to remedy them. However, there can be no assurance that vulnerabilities will not be identifiedmay in the future be, subject to security breaches, cyberattacks or ~~that our remediation efforts are or will be successful.~~

Any unauthorized access to or control of our vehicles or their systems or any loss of data could result in legal claims or proceedings. In addition, regardless of their veracity, reports of unauthorized access to our vehicles, their systems or data,other malicious activities, as well as ~~other factors~~human errors or computer malfunctions that may result in the ~~perception that~~loss or destruction of private keys needed to access such assets. While we intend to take all reasonable measures to secure any digital assets, if such threats are realized or the measures or controls we create or implement to secure our ~~vehicles, their systems~~digital assets fail, it could result in a partial or ~~data are capable~~total misappropriation or loss of ~~being “hacked,” could negatively affect~~ our ~~brand~~digital assets, and ~~harm~~ our ~~business, prospects,~~ financial condition and operating ~~results.~~ ~~We have been the subject of such reports in the past.~~results may be harmed.

~~Servicing our indebtedness requires a significant amount of cash, and~~There is no guarantee that we ~~may not~~will have sufficient cash flow from our business to pay our ~~substantial~~indebtedness or that we will not incur additional indebtedness.

As of September 30, ~~2017,~~2022, we and our subsidiaries had outstanding ~~$10.0~~$2.41 billion in aggregate principal amount of indebtedness (see Note ~~11,~~ ~~Convertible and Long-Term~~10, Debt ~~Obligations~~, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Our ~~substantial~~ consolidated indebtedness may increase our vulnerability to any generally adverse economic and industry conditions. We and our subsidiaries may, subject to the limitations in the terms of our existing and future indebtedness, incur additional debt, secure existing or future debt or recapitalize our debt.

Pursuant to their terms, holders of the 2018 Notes, 2019 Notes, 2021 Notes and 2022 Notes (collectively, the “Tesla Convertible Notes”) may convert their respective Tesla Convertible Notes at their option prior to the scheduled maturities of the respective Tesla Convertible Notes under certain circumstances. The 2018 Notes have been convertible at their holders’ option during each quarter commencing with the fourth quarter of 2013, except the first quarter of 2014. Upon conversion of the applicable Tesla Convertible Notes, we will be obligated to deliver cash and/or shares in respect of the principal amounts thereof and the conversion value in excess of such principal amounts on such Tesla Convertible Notes. For example, in June 2017 and September 2017, pursuant to separate privately negotiated agreements, we exchanged $144.8 million and $10.0 million, respectively, in aggregate principal amount of the 2018 Notes for 1.2 million shares and 0.1 million shares, respectively, of our common stock. Moreover, the 2.75% convertible senior notes due 2018, 1.625% convertible senior notes due 2019 and zero coupon convertible senior notes due 2020 issued by SolarCity Corporation (the “SolarCity Convertible Notes”) are convertible into shares of our common stock at conversion prices ranging from $300.00 to $759.36 per share. Finally, holders of the Tesla Convertible Notes and the SolarCity Convertible Notes will have the right to require us to repurchase their notes upon the occurrence of a fundamental change at a purchase price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change purchase date.52

Our ability to make scheduled payments of the principal and interest on our indebtedness when due, or to make payments upon conversion or repurchase demands with respect to our convertible senior notes or to refinance our indebtedness as we may need or desire, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under our existing indebtedness and any future indebtedness we may incur, and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance existing or future indebtedness will depend on the capital markets and our financial condition at such time. In addition, our ability to make payments may be limited by law, by regulatory authority or by agreements governing our future indebtedness. We may not be able to engage in ~~any of these activities or engage in~~ these activities on desirable terms or at all, which ~~could~~may result in a default on our existing or future indebtedness and harm our financial condition and operating results.

We transact business globally in multiple currencies and have foreign currency risks related to our revenue, costs of revenue, operating expenses and localized subsidiary debt denominated in currencies other than the U.S. dollar, currently primarily the Chinese yuan, euro, South Korean won and pound sterling. To the extent we have significant revenues denominated in such foreign currencies, any strengthening of the U.S. dollar would tend to reduce our revenues as measured in U.S. dollars, as we have historically experienced. In addition, a portion of our costs and expenses have been, and we anticipate will continue to be, denominated in foreign currencies, including the Chinese yuan and Japanese yen. If we do not have fully offsetting revenues in these currencies and if the value of the U.S. dollar depreciates significantly against these currencies, our costs as measured in U.S. dollars as a percent of our revenues will correspondingly increase and our margins will suffer. Moreover, while we undertake limited hedging activities intended to offset the impact of currency translation exposure, it is impossible to predict or eliminate such impact. As a result, our operating results may be harmed.

We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and expensive.

Our competitors or other third parties may hold or obtain patents, copyrights, trademarks or other proprietary rights that could prevent, limit or interfere with our ability to make, use, develop, sell or market our products and services, which could make it more difficult for us to operate our business. From time to time, the holders of such intellectual property rights may assert their rights and urge us to take licenses and/or may bring suits alleging infringement or misappropriation of such rights, which could result in substantial costs, negative publicity and management attention, regardless of merit. While we endeavor to obtain and protect the intellectual property rights that we expect will allow us to retain or advance our strategic initiatives, there can be no assurance that we will be able to adequately identify and protect the portions of intellectual property that are strategic to our business, or mitigate the risk of potential suits or other legal demands by our competitors. Accordingly, we may consider the entering into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur, and such licenses and associated litigation could significantly increase our operating expenses. In addition, if we are determined to have or believe there is a high likelihood that we have infringed upon a third party’s intellectual property rights, we may be required to cease making, selling or incorporating certain components or intellectual property into the goods and services we offer, to pay substantial damages and/or license royalties, to redesign our products and services and/or to establish and maintain alternative branding for our products and services. In the event that we are required to take one or more such actions, our brand, business, financial condition and operating results may be harmed.

Increased scrutiny and changing expectations from stakeholders with respect to the Company’s ESG practices may result in additional costs or risks.

Companies across many industries are facing increasing scrutiny related to their environmental, social and governance (ESG) practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the non-financial impacts of their investments. While our mission is to accelerate the world’s transition to sustainable energy, if our ESG practices do not meet investor or other industry stakeholder expectations, which continue to evolve, we may incur additional costs and our brand, ability to attract and retain qualified employees and business may be harmed.

Our operations could be adversely affected by events outside of our control, such as natural disasters, wars or health epidemics.

We may be impacted by natural disasters, wars, health epidemics, weather conditions, the long-term effects of climate change, power outages or other events outside of our control. For example, our Fremont Factory and Gigafactory Nevada are located in seismically active regions in Northern California and Nevada, and our Gigafactory Shanghai is located in a flood-prone area. Moreover, the area in which our Gigafactory Texas is located experienced severe winter storms in the first quarter of 2021 that had a widespread impact on utilities and transportation. If major disasters such as earthquakes, floods or other climate-related events occur, or our information system or communication breaks down or operates improperly, our headquarters and production facilities may be seriously damaged, or we may have to stop or delay production and shipment of our products. In addition, the global COVID-19 pandemic has impacted economic markets, manufacturing operations, supply chains, employment and consumer behavior in nearly every geographic region and industry across the world, and we have been, and may in the future be, adversely affected as a result. Also, the broader consequences in the current conflict between Russia and Ukraine, which may include further embargoes, regional instability and geopolitical shifts; airspace bans relating to certain routes, or strategic decisions to alter certain routes; and potential retaliatory action by the Russian government against companies, and the extent of the conflict on our business and operating results cannot be predicted. We may incur expenses or delays relating to such events outside of our control, which could have a material adverse ~~effect~~impact on our business, operating results ~~of operations~~ and financial condition.

~~Our debt agreements contain covenant restrictions~~Risks Related to Government Laws and Regulations

Demand for our products and services may be impacted by the status of government and economic incentives supporting the development and adoption of such products.

Government and economic incentives that support the development and adoption of electric vehicles in the U.S. and abroad, including certain tax exemptions, tax credits and rebates, may be reduced, eliminated or exhausted from time to time. For example, previously available incentives favoring electric vehicles in areas including Ontario, Canada, Netherlands, Italy, Hong Kong and California have expired or were cancelled or temporarily unavailable, and in some cases were not eventually replaced or reinstituted, which may have negatively impacted sales. Certain government and economic incentives may also be implemented that provide disproportionate benefits to manufacturers who assemble domestically, have local suppliers or have other characteristics that may ~~limit~~not apply to Tesla. Any similar developments could have some negative impact on demand for our vehicles, and we and our customers may have to adjust to them.

In addition, certain governmental rebates, tax credits and other financial incentives that are currently available with respect to our solar and energy storage product businesses allow us to lower our costs and encourage customers to buy our products and investors to invest in our solar financing funds. However, these incentives may expire when the allocated funding is exhausted, reduced or terminated as renewable energy adoption rates increase, sometimes without warning. Likewise, in jurisdictions where net metering is currently available, our customers receive bill credits from utilities for energy that their solar energy systems generate and export to the grid in excess of the electric load they use. The benefit available under net metering has been or has been proposed to be reduced, altered or eliminated in several jurisdictions, and has also been contested and may continue to be contested before the Federal Energy Regulatory Commission. Any reductions or terminations of such incentives may harm our business, prospects, financial condition and operating results by making our products less competitive for customers, increasing our cost of capital and adversely impacting our ability to ~~operate~~attract investment partners and to form new financing funds for our ~~business.~~solar and energy storage assets.

~~The terms of~~Finally, we and our fund investors claim these U.S. federal tax credits and certain state incentives in amounts based on independently appraised fair market values of our ~~credit facilities,~~solar and energy storage systems. Some governmental authorities have audited such values and in certain cases have determined that these values should be lower, and they may do so again in the future. Such determinations may result in adverse tax consequences and/or our obligation to make indemnification or other payments to our funds or fund investors.

We are subject to evolving laws and regulations that could impose substantial costs, legal prohibitions or unfavorable changes upon our operations or products.

As we grow our manufacturing operations in additional regions, we are or will be subject to complex environmental, manufacturing, health and safety laws and regulations at numerous jurisdictional levels in the U.S., China, Germany and other locations abroad, including laws relating to the use, handling, storage, recycling, disposal and/or human exposure to hazardous materials, product material inputs and post-consumer products and with respect to constructing, expanding and maintaining our ~~senior secured asset based revolving credit agreement,~~ ~~contain,~~facilities. New, or changes in, environmental and climate change laws, regulations or rules could also lead to increased costs of compliance, including remediations of any discovered issues, and changes to our operations, which may be significant, and any failures to comply could result in significant expenses, delays or fines. In addition, as we have increased our employee headcount and operations, we are and may continue to be subject to increased scrutiny, including litigation and government investigations relating to allegations such as discrimination and workplace misconduct, that we will need to defend against. If we are unable to successfully defend ourselves in such litigation or government investigations, it may harm our brand, ability to attract and retain qualified employees, business and financial condition. We are also subject to laws and regulations applicable to the supply, manufacture,

import, sale and service of our ~~other future debt agreements may contain, covenant restrictions that limit our ability to operate our business, including restrictions on our ability to, among other things,~~ ~~incur additional debt or issue guarantees, create liens, repurchase stock or make other restricted payments,~~products both domestically and ~~make certain voluntary prepayments~~abroad. For example, in countries outside of ~~specified debt. In addition, under certain circumstances~~the U.S., we are required to ~~comply~~meet standards relating to vehicle safety, fuel economy and emissions that are often materially different from requirements in the U.S., thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance in those countries. This process may include official review and certification of our vehicles by foreign regulatory agencies prior to market entry, as well as compliance with foreign reporting and recall management systems requirements.

In particular, we offer in our vehicles in certain markets Enhanced Autopilot and FSD Capability features that today assist drivers with certain tedious and potentially dangerous aspects of road travel, but which currently require drivers to remain fully engaged in the driving operation. We are continuing to develop our Autopilot and FSD Capability technology with the goal of achieving fully self-driving capability in the future. There are a ~~fixed charge coverage ratio. As~~variety of international, federal and state regulations that may apply to the sale, registration and operation of fully self-driving vehicles, which include many existing vehicle standards that were not originally intended to apply to vehicles that may not be operated by a ~~result~~human driver. Such regulations continue to rapidly change, which increases the likelihood of ~~these~~ ~~covenants, our ability to respond to changes in business~~a patchwork of complex or conflicting regulations, or may delay products or restrict certain features and economic conditions and engage in beneficial transactions, including to obtain additional financing as needed, may be restricted. Furthermore, our failure to comply with our debt covenants could result in a default under our debt agreements,their availability, which could ~~permit~~adversely affect our business.

Finally, as a manufacturer, installer and service provider with respect to solar generation and energy storage systems, a supplier of electricity generated and stored by certain of the ~~holders to accelerate our obligation to repay~~solar energy and energy storage systems we install for customers, and a provider of grid services through virtual power plant models, we are impacted by federal, state and local regulations and policies concerning the ~~debt.~~import or export of components, electricity pricing, the interconnection of electricity generation and storage equipment with the electrical grid and the sale of electricity generated by third party-owned systems. If ~~any~~regulations and policies are introduced that adversely impact the import or export of components, or the interconnection, maintenance or use of our ~~debt is accelerated, we may not have sufficient funds available to repay it.~~

~~We may need~~ or ~~want~~ ~~to raise additional funds~~solar and ~~these funds may~~ ~~not~~ ~~be available to us when we need them. If we cannot raise additional funds when we need or want them~~,energy storage systems, they could deter potential customers from purchasing our ~~operations~~solar and ~~prospects could be negatively affected~~.

~~The design, manufacture, sale, installation and/or servicing of automobiles,~~ energy storage products and solar products is a capital intensive business. Until we are consistently generating positive free cash flows, we may need or want to raise additional funds through the issuance of equity, equity-related or debt securities or through obtaining credit from financial institutions to fund, together with ~~our principal sources of liquidity~~, ~~the costs~~ of ~~developing~~ ~~and~~ ~~manufacturing our current or future vehicles, energy storage products and/or solar products, to pay~~ ~~any significant unplanned~~ ~~or accelerated~~ ~~expenses or~~ ~~for~~ new significant strategic investments, or to refinance our significant consolidated indebtedness, even if not required to do so by the terms of such indebtedness. We need sufficient capital to fund our ongoing operations, ramp vehicle production, continue research and development projects, establish sales, delivery and service centers, build and deploy Superchargers~~, expand Gigafactory 1,~~ ~~develop Gigafactory 2 and to make the investments in tooling and manufacturing capital required to introduce new vehicles, energy storage products and solar products. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all.~~ ~~If we cannot raise additional funds when we need them, our financial condition, results of operations, business and prospects could be materially~~ ~~and~~ ~~adversely affected.~~

Additionally, we use capital from third-party fund investors to reduce the cost of capital of our solar energy system installations, improve our margins, offset future reductions in government incentives and maintain the price competitiveness of our solar energy systems. The availability of this tax-advantaged financing depends upon many factors, including the confidence of the investors in the solar energy industry and the quality and mix of our customer contracts, any regulatory changes impactingservices, threaten the economics of our existing ~~customer~~ contracts ~~changes~~and cause us to cease solar and energy storage system sales and services in ~~legal and tax advantages or risks or government incentives associated with these financings, and our ability to compete with other renewable energy companies for~~ the limited number of potential fund investors. Moreover, interest rates are at historically low levels. If the rate of return required by investors rises as a result of a rise in interest rates, it will reduce the present value of the customer payment streams underlying, and therefore the total value of, our financing structures, increasing our cost of capital. If we are unable to establish new financing funds on favorable terms for third-party ownership arrangements to enable our customers’ access to our solar energy systems with little or no upfront cost, werelevant jurisdictions, which may ~~be unable to finance installation of our customers’ systems, or our cost of capital could increase and our liquidity may be negatively impacted, any of which would have an adverse effect on~~harm our business, financial condition and ~~results~~operating results.

Any failure by us to comply with a variety of ~~operations.~~U.S. and international privacy and consumer protection laws may harm us.

Any failure by us or our vendor or other business partners to comply with our public privacy notice or with federal, state or international privacy, data protection or security laws or regulations relating to the processing, collection, use, retention, security and transfer of personally identifiable information could result in regulatory or litigation-related actions against us, legal liability, fines, damages, ongoing audit requirements and other significant costs. Substantial expenses and operational changes may be required in connection with maintaining compliance with such laws, and even an unsuccessful challenge by customers or regulatory authorities of our activities could result in adverse publicity and could require a costly response from and defense by us. In addition, certain emerging privacy laws are still subject to a high degree of uncertainty as to their interpretation, application and impact, and may require extensive system and operational changes, be difficult to implement, increase our operating costs, adversely impact the cost or attractiveness of the products or services we offer, or result in adverse publicity and harm our reputation. For example, the General Data Protection Regulation applies to the processing of personal information collected from individuals located in the European Union, and has created new compliance obligations and significantly increased fines for noncompliance. Similarly, the California Consumer Privacy Act imposes certain legal obligations on our use and processing of personal information related to California residents. Finally, new privacy and cybersecurity laws have come into effect in China. In addition to the risks related to general privacy regulation, we may also be subject to specific vehicle manufacturer obligations relating to cybersecurity, data privacy and data localization requirements which place additional risks to our international operations. Risks and penalties could include ongoing audit requirements, data protection authority investigations, legal proceedings by international governmental entities or others resulting in mandated disclosure of sensitive data or other commercially unfavorable terms. Notwithstanding our efforts to protect the security and integrity of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if, for example, third parties improperly obtain and use the personal information of our customers or we otherwise experience a data loss with respect to customers’ personal information. A major breach of our network security and systems may result in fines, penalties and damages and harm our brand, prospects and operating results.

We could be subject to liability, penalties and other restrictive sanctions and adverse consequences arising out of certain governmental investigations and proceedings.

We are cooperating with certain government investigations as discussed in Note 12, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. To our knowledge, no government agency in any such ongoing investigation has concluded that any wrongdoing occurred. However, we cannot predict the outcome or impact of any such ongoing matters, and there exists the possibility that we could be subject to liability, penalties and other restrictive sanctions and adverse consequences if the SEC, the U.S. Department of Justice or any other government agency were to pursue legal action in the future. Moreover, we expect to incur costs in responding to related requests for information and subpoenas, and if instituted, in defending against any governmental proceedings.

For example, on October 16, 2018, the U.S. District Court for the Southern District of New York entered a final judgment approving the terms of a settlement filed with the Court on September 29, 2018, in connection with the actions taken by the SEC

relating to Mr. Musk’s statement on August 7, 2018 that he was considering taking Tesla private. Pursuant to the settlement, we, among other things, paid a civil penalty of $20 million, appointed an independent director as the chair of our board of directors, appointed two additional independent directors to our board of directors and made further enhancements to our disclosure controls and other corporate governance-related matters. On April 26, 2019, this settlement was amended to clarify certain of the previously-agreed disclosure procedures, which was subsequently approved by the Court. All other terms of the prior settlement were reaffirmed without modification. Although we intend to continue to comply with the terms and requirements of the settlement, if there is a lack of compliance or an alleged lack of compliance, additional enforcement actions or other legal proceedings may be instituted against us.

We may face regulatory challenges to or limitations on our ability to sell vehicles ~~directly which could materially and adversely affect~~directly.

While we intend to continue to leverage our ~~ability to sell~~most effective sales strategies, including sales through our ~~electric vehicles.~~

~~We sell our vehicles directly to consumers. We~~website, we may not be able to sell our vehicles through ~~this sales model~~our own stores in ~~each state~~certain states in the ~~United States as some states have~~U.S. with laws that may be interpreted to impose limitations on this direct-to-consumer sales model. ~~In certain states in which we are not able to obtain dealer licenses, we have opened galleries, which are not full retail locations.~~

~~The application of these state~~It has also been asserted that the laws ~~to our operations continues to be difficult to predict. Laws~~ in some states ~~have limited~~limit our ability to obtain dealer licenses from state motor vehicle regulators, and ~~may continue to do so.~~

such assertions persist. In ~~addition,~~certain locations, decisions by regulators permitting us to sell vehicles have been, and may be, ~~subject to challenges~~challenged by dealer associations and others as to whether such decisions comply with applicable state motor vehicle industry laws. We have prevailed in many of these lawsuits and such results have reinforced our continuing belief that state laws were not ~~designed~~intended to ~~prevent our distribution model.~~apply to a manufacturer that does not have franchise dealers. In some states, there have also been regulatory and legislative efforts by ~~vehicle~~ dealer associations to propose ~~bills and regulations~~laws that, if enacted, would prevent us from obtaining dealer licenses in their states given our current sales model. A few states have passed legislation that clarifies our ability to operate, but at the same time limits the number of dealer licenses we can obtain or stores that we can operate. ~~We have also filed a lawsuit in federal court in Michigan challenging the constitutionality~~The application of ~~the state’s prohibition on direct sales as applied~~state laws applicable to our ~~business.~~operations continues to be difficult to predict.

Internationally, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our sales or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change over time. Continued regulatory limitations and other obstacles interfering with our ability to sell vehicles directly to consumers ~~could have a negative and material impact~~may harm our ~~business, prospects,~~ financial condition and ~~results of operations.~~operating results.

~~We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs.~~

Others, including our competitors, may hold or obtain patents, copyrights, trademarks or other proprietary rights that could prevent, limit or interfere with our ability to make, use, develop, sell or market our products and services, which could make it more difficult for us to operate our business. From time to time, the holders of such intellectual property rights may assert their rights and

urge us to take licenses, and/or may bring suits alleging infringement or misappropriation of such rights. We may consider the entering into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur, and such licenses could significantly increase our operating expenses. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required to cease making, selling or incorporating certain components or intellectual property into the goods and services we offer, to pay substantial damages and/or license royalties, to redesign our products and services, and/or to establish and maintain alternative branding for our products and services. In the event that we were required to take one or more such actions, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.

~~Our facilities or operations could be damaged or adversely affected as a result of disasters.~~

Our corporate headquarters, the Tesla Factory and Gigafactory 1 are located in seismically active regions in Northern California and Nevada. If major disasters such as earthquakes or other events occur, or our information system or communications network breaks down or operates improperly, our headquarters and production facilities may be seriously damaged, or we may have to stop or delay production and shipment of our products. We may incur expenses relating to such damages, which could have a material adverse impact on our business, operating results and financial condition.

The trading price of our common stock has been highly volatile and could continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control. Our common stock has experienced over the last 52 weeks an intra-day trading high of ~~$389.61~~$414.50 per share and a low of ~~$178.19~~$202.00 per share ~~over~~(as adjusted to give effect to the ~~last 52 weeks.~~2022 Stock Split). The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. ~~Broad~~In particular, a large proportion of our common stock has been historically and may in the future be traded by short sellers which may put pressure on the supply and demand for our common stock, further influencing volatility in its market price. Public perception and ~~industry~~other factors outside of our control may ~~seriously affect~~additionally impact the ~~market~~stock price of ~~companies’ stock, including ours,~~companies like us that garner a disproportionate degree of public attention, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market ~~and~~or the market price of ~~a particular company’s securities,~~our shares, securities class action litigation has ~~often~~ been ~~instituted against these companies. For example, a shareholder litigation like this was~~ filed against us. While we defend such actions vigorously, any judgment against us ~~in 2013. While the plaintiffs’ complaint was dismissed with prejudice,~~or any future ~~shareholder~~stockholder litigation could result in substantial costs and a diversion of our management’s attention and resources.

Our financial results may vary significantly from period to period due to fluctuations in our operating costs and other factors.

We expect our period-to-period financial results to vary based on our operating costs, which we anticipate will fluctuate as the pace at which we continue to design, develop and manufacture new products and increase production capacity by expanding our current manufacturing facilities and adding future facilities, may not be consistent or linear between periods. Additionally, our revenues from period to period may fluctuate as we introduce existing products to new markets for the first time and as we develop and introduce new products. As a result of these factors, we believe that quarter-to-quarter comparisons of our financial results, especially in the short term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our financial results may not meet expectations of equity research analysts, ratings agencies or investors, who may be focused only on short-term quarterly financial results. If any of this occurs, the trading price of our stock could fall substantially, either suddenly or over time.

We may fail to meet our publicly announced guidance or other expectations about our business, which could cause our stock price to decline.

We ~~occasionally~~may provide from time to time guidance regarding our expected financial and business ~~performance, such as projections regarding sales and production, as well as anticipated future revenues, gross margins, profitability and cash flows.~~performance. Correctly identifying key factors affecting business conditions and predicting future events is inherently an uncertain process, and our guidance may not ultimately be ~~accurate.~~accurate and has in the past been inaccurate in certain respects, such as the timing of new product manufacturing ramps. Our guidance is based on certain assumptions such as those relating to anticipated production and sales volumes ~~and~~(which generally are

not linear throughout a given period), average sales prices, supplier and commodity costs and planned cost reductions. If our guidance ~~is not accurate or~~ varies from actual results due to our ~~inability to meet our~~ assumptions not being met or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our common stock could decline significantly.

Transactions relating to our convertible senior notes may dilute the ownership interest of existing stockholders, or may otherwise depress the price of our common stock.

The conversion of some or all of the ~~Tesla Convertible Notes~~convertible senior notes issued by us or ~~the SolarCity Convertible Notes~~our subsidiaries would dilute the ownership interests of existing stockholders to the extent we deliver shares upon conversion of any of such ~~notes. Our 2018 Notes and the SolarCity Convertible Notes have been historically, and the other Tesla Convertible Notes may become in the future, convertible at the option of~~notes by their holders, ~~prior to their scheduled terms under certain circumstances. If holders elect to convert their convertible notes,~~and we ~~could~~may be required to deliver ~~to them~~ a significant number of ~~shares of our common stock.~~shares. Any sales in the public market of the common stock issuable upon such conversion could adversely affect their prevailing market ~~prices of our common stock.~~prices. In addition, the existence of the convertible senior notes may encourage short selling by market participants because the conversion of such notes could be used to satisfy short positions, or the anticipated conversion of such notes into shares of our common stock could depress the price of our common stock.

Moreover, in connection with each issuance of the Tesla Convertible Notes, we entered into convertible note hedge transactions, which are expected to reduce the potential dilution and/or offset potential cash payments we are required to make in excess of the principal amount upon conversion of the applicable Tesla Convertible Notes. We also entered into warrant transactions with the hedge counterparties, which could separately have a dilutive effect on our common stock to the extent that the market price per share of our

common stock exceeds the applicable strike price of the warrants on the applicable expiration dates. In addition, the hedge counterparties or their affiliates may enter into various transactions with respect to their hedge positions, which could also cause or prevent an increase or a decrease in the market price of our common stock or the convertible notes.

If Elon Musk ~~has pledged~~were forced to sell shares of our common stock that he has pledged to secure certain ~~bank borrowings. If Mr. Musk were forced to sell these shares pursuant to a margin call that he could not avoid or satisfy,~~personal loan obligations, such sales could cause our stock price to decline.

Certain banking institutions have made extensions of credit to Elon Musk, our Chief Executive Officer, a portion of which was used to purchase shares of common stock in certain of our public offerings and private placements at the same prices offered to ~~third party~~third-party participants in such offerings and placements. We are not a party to these loans, which are partially secured by pledges of a portion of the Tesla common stock currently owned by Mr. Musk. If the price of our common stock were to decline substantially, ~~and Mr. Musk were unable to avoid or satisfy a margin call with respect to his pledged shares,~~ Mr. Musk may be forced by one or more of the banking institutions to sell shares of Tesla common stock ~~in order~~ to ~~remain within the margin limitations imposed under the terms of~~satisfy his ~~loans.~~loan obligations if he could not do so through other means. Any such sales could cause the price of our common stock to decline further.

Anti-takeover provisions contained in our governing documents, applicable laws and our convertible senior notes could impair a takeover attempt.

Our certificate of incorporation and bylaws afford certain rights and powers to our board of directors that ~~could~~ ~~contribute to~~may facilitate the delay or prevention of an acquisition that it deems undesirable. We are also subject to Section 203 of the Delaware General Corporation Law and other provisions of Delaware law that limit the ability of stockholders in certain situations to effect certain business combinations. In addition, the terms of our convertible senior notes may require us to repurchase such notes in the event of a fundamental change, including a takeover of our company. Any of the foregoing provisions and terms that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

~~On September 11,~~In connection with the offering of the 2.375% Convertible Senior Notes due 2022, in March 2017 we sold warrants to each of Goldman, Sachs & Co., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. (later partially assigned to National Bank of Canada), Morgan Stanley & Co. LLC, Barclays Capital Inc. or their respective affiliates (the “2017 Warrantholders”). Between July 1, 2022 and August 15, 2022, we issued ~~80,306~~an aggregate of 28,853,619 shares of our common stock (as adjusted to ~~a holder of our 2018 Notes in exchange for $10.0 million in aggregate principal amount of 2018 Notes,~~give effect to the 2022 Stock Split) to the 2017 Warrantholders pursuant to ~~privately negotiated agreement.~~their exercise of such warrants, which were net of the applicable exercise prices. Such ~~issuance was conducted~~shares were issued pursuant to an exemption from registration provided by Rule 3(a)(9) of the Securities ~~Act. We relied on this exemption from registration based in part on the representations made by the holder~~Act of ~~2018 Notes in the transaction.~~1933.

In connection with the offering of the 2018 Notes in 2013, we sold certain warrants to Morgan Stanley & Co. LLC (“Morgan Stanley”). On September 12, 2017, we agreed with Morgan Stanley to partially terminate such warrants and, in connection with such partial termination, we issued 17,433 shares of our common stock to Morgan Stanley. Such issuance was conducted as a private placement pursuant to an exemption from registration provided by Rule 4(a)(2) of the Securities Act and were offered only to persons believed to be either (i) “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act or (ii) “qualified institutional buyers” within the meaning of Rule 144A promulgated under the Securities Act. We relied on this exemption from registration based in part on the representations made by Morgan Stanley.

~~None.~~The Board of Directors (the “Board“) of Tesla has established May 16, 2023 as the date of the Company’s 2023 annual meeting of stockholders (the “2023 Annual Meeting”). The time and location of the 2023 Annual Meeting will be specified in the Company’s proxy statement for the 2023 Annual Meeting. The Board has fixed the close of business on March 20, 2023 as the record date for determining stockholders of the Company who are entitled to vote at the 2023 Annual Meeting, including any adjournments or postponements of the 2023 Annual Meeting.

Tesla’s 2022 annual meeting of stockholders (the “2022 Annual Meeting”) was held on August 4, 2022. Because the date of the 2023 Annual Meeting is being changed by more than 30 days from the one-year anniversary of the 2022 Annual Meeting, the Company is informing stockholders of this change in accordance with Rule 14a-5(f) under the Exchange Act, and is informing stockholders of the new dates described below for submitting stockholder proposals and other matters.

Pursuant to Rule 14a-8(e)(2) of the Exchange Act, a stockholder intending to present a proposal to be included in the proxy statement for the 2023 Annual Meeting must deliver the proposal in writing to our principal executive offices no later than a reasonable time before we begin to print and mail the proxy materials for the 2023 Annual Meeting. Accordingly, the Board has fixed the new deadline for the submission of proposals to be included in the proxy statement for the 2023 Annual Meeting as December 22, 2022. Proposals should be addressed to: Tesla, Inc.; Attention: Legal Department,; 1 Tesla Road, Austin, Texas 78725, with a copy sent by e-mail to shareholdermail@tesla.com. Proposals of stockholders must also comply with the SEC’s rules regarding the inclusion of stockholder proposals in proxy materials, and we may omit any proposal from our proxy materials that does not comply with the SEC’s rules.

Pursuant to Tesla’s bylaws, if a stockholder intends to present certain matters, including nominations for the election of directors, at the 2023 Annual Meeting without inclusion in our proxy materials, the notice must also be delivered to our principal executive offices, at the address set forth in the preceding paragraph, with a copy sent by e-mail to shareholdermail@tesla.com, between 120 days prior to the 2023 Annual Meeting and the later of (i) 90 days prior to the meeting or (ii) the 10th day following the public announcement of the date of the 2023 Annual Meeting (the “Notice Period“). Accordingly, the Notice Period for the 2023 Annual Meeting will start on January 16, 2023 and end on February 15, 2023. The proposal or nomination must also contain the information required by our bylaws.

See Index to Exhibits at the end of this Quarterly Report on Form 10-Q for the information required by this Item.

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	TSLA	The Nasdaq Global Select Market


Large accelerated filer	☒		Accelerated filer	☐

Non-accelerated filer	☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

Emerging growth company	☐


		Page
PART I. FINANCIAL INFORMATION

Item 1.	~~FINANCIAL INFORMATION~~Financial Statements	4
	Consolidated Balance Sheets	4
~~Item 1.~~	~~Financial Statements (Unaudited)~~	4
	~~Consolidated Balance Sheets~~	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income ~~(Loss)~~	6
	Consolidated Statements of Redeemable Noncontrolling Interests and Equity	7
	Consolidated Statements of Cash Flows	79
	Notes to Consolidated Financial Statements	810
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3130
Item 3.	Quantitative and Qualitative Disclosures ~~About~~about Market Risk	4042
Item 4.	Controls and Procedures	4142

PART II. OTHER INFORMATION

Item 1.	~~OTHER INFORMATION~~Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 1.2.	~~Legal Proceedings~~	42
~~Item 1A.~~	~~Risk Factors~~	43
~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds	5857
Item 3.	Defaults Upon Senior Securities	5857
Item 4.	Mine Safety Disclosures	5857
Item 5.	Other Information	5857
Item 6.	Exhibits	58

~~SIGNATURES~~Signatures		6160

	September 30,			December 31,
	2017			2016
Assets
Current assets
Cash and cash equivalents	$	3,530,030		$	3,393,216
Restricted cash		138,181			105,519
Accounts receivable, net		607,734			499,142
Inventory		2,471,382			2,067,454
Prepaid expenses and other current assets		321,406			194,465
Total current assets		7,068,733			6,259,796
Operating lease vehicles, net		3,834,234			3,134,080
Solar energy systems, leased and to be leased, net		6,287,965			5,919,880
Property, plant and equipment, net		9,394,397			5,982,957
Intangible assets, net		372,238			376,145
Goodwill		45,236			—
MyPower customer notes receivable, net of current portion		463,878			506,302
Restricted cash, net of current portion		408,544			268,165
Other assets		231,849			216,751
Total assets	$	28,107,074		$	22,664,076
Liabilities
Current liabilities
Accounts payable	$	2,385,778		$	1,860,341
Accrued liabilities and other		1,477,784			1,210,028
Deferred revenue		951,734			763,126
Resale value guarantees		543,336			179,504
Customer deposits		686,084			663,859
Current portion of long-term debt and capital leases		324,224			984,211
Current portion of solar bonds and promissory notes issued to related parties		100,000			165,936
Total current liabilities		6,468,940			5,827,005
Long-term debt and capital leases, net of current portion		9,581,616			5,860,049
Solar bonds issued to related parties, net of current portion		100			99,164
Convertible senior notes issued to related parties		2,481			10,287
Deferred revenue, net of current portion		1,082,870			851,790
Resale value guarantees, net of current portion		2,410,220			2,210,423
Other long-term liabilities		2,382,830			1,891,449
Total liabilities		21,929,057			16,750,167
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests in subsidiaries		402,943			367,039
Convertible senior notes (Note 11)		357			8,784
Equity
Stockholders' equity
Preferred stock; $0.001 par value; 100,000 shares authorized; no shares issued and outstanding		—			—
Common stock; $0.001 par value; 2,000,000 shares authorized; 168,017 and 161,561 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		168			161
Additional paid-in capital		8,989,022			7,773,727
Accumulated other comprehensive gain (loss)		21,250			(23,740	)
Accumulated deficit		(4,298,960	)		(2,997,237	)
Total stockholders' equity		4,711,480			4,752,911
Noncontrolling interests in subsidiaries		1,063,237			785,175
Total liabilities and equity	$	28,107,074		$	22,664,076

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues
Automotive sales	$	2,076,731		$	1,917,442		$	6,125,643		$	3,849,558
Automotive leasing		286,158			231,285			813,462			507,085
Total automotive revenues		2,362,889			2,148,727			6,939,105			4,356,643
Energy generation and storage		317,505			23,334			818,229			50,009
Services and other		304,281			126,375			713,168			308,849
Total revenues		2,984,675			2,298,436			8,470,502			4,715,501
Cost of revenues
Automotive sales		1,755,622			1,355,102			4,724,849			2,895,483
Automotive leasing		175,224			161,959			516,683			310,176
Total automotive cost of revenues		1,930,846			1,517,061			5,241,532			3,205,659
Energy generation and storage		237,288			24,281			592,823			50,553
Services and other		367,401			120,359			852,446			295,310
Total cost of revenues		2,535,535			1,661,701			6,686,801			3,551,522
Gross profit		449,140			636,735			1,783,701			1,163,979
Operating expenses
Research and development		331,622			214,302			1,023,436			588,448
Selling, general and administrative		652,998			336,811			1,794,210			976,173
Total operating expenses		984,620			551,113			2,817,646			1,564,621
(Loss) income from operations		(535,480	)		85,622			(1,033,945	)		(400,642	)
Interest income		5,531			2,858			13,406			6,351
Interest expense		(117,109	)		(46,713	)		(324,896	)		(133,706	)
Other expense, net		(24,390	)		(11,756	)		(83,696	)		(9,952	)
(Loss) income before income taxes		(671,448	)		30,011			(1,429,131	)		(537,949	)
(Benefit) provision for income taxes		(285	)		8,133			40,640			15,628
Net (loss) income		(671,163	)		21,878			(1,469,771	)		(553,577	)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries		(51,787	)		—			(183,721	)		—
Net (loss) income attributable to common stockholders	$	(619,376	)	$	21,878		$	(1,286,050	)	$	(553,577	)
Net (loss) income per share of common stock attributable to common stockholders, basic and diluted
Basic	$	(3.70	)	$	0.15		$	(7.80	)	$	(3.94	)
Diluted	$	(3.70	)	$	0.14		$	(7.80	)	$	(3.94	)
Weighted average shares used in computing net income (loss) per share of common stock, basic and diluted
Basic		167,294			148,991			164,897			140,581
Diluted		167,294			156,935			164,897			140,581


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


										Accumulated
	Redeemable							Additional		Other					Total			Noncontrolling
	Noncontrolling			Common Stock				Paid-In		Comprehensive			Retained		Stockholders’			Interests in			Total
Three Months Ended September 30, 2022	Interests			Shares (1)		Amount (1)		Capital		Loss			Earnings (1)		Equity			Subsidiaries			Equity
Balance as of June 30, 2022	$	421			3,122	$	3	$	30,944	$	(477	)	$	5,906	$	36,376		$	861		$	37,237
Exercises of conversion feature of convertible senior notes		—			0		0		0		—			—		0			—			0
Settlements of warrants		—			29		0		0		—			—		0			—			0
Issuance of common stock for equity incentive awards		—			7		0		229		—			—		229			—			229
Stock-based compensation		—			—		—		419		—			—		419			—			419
Distributions to noncontrolling interests		(11	)		—		—		—		—			—		—			(36	)		(36	)
Net income		11			—		—		—		—			3,292		3,292			27			3,319
Other comprehensive loss		—			—		—		—		(465	)		—		(465	)		—			(465	)
Balance as of September 30, 2022	$	421			3,158	$	3	$	31,592	$	(942	)	$	9,198	$	39,851		$	852		$	40,703

Assets acquired:
Cash and cash equivalents	$	334
Accounts receivable		42,947
Inventory		10,031
Property, plant and equipment		44,030
Intangible assets		21,723
Prepaid expenses and other assets, current and non-current		1,998
Total assets acquired		121,063
Liabilities assumed:
Accounts payable		(19,975	)
Accrued liabilities		(12,403	)
Debt and capital leases, current and non-current		(9,220	)
Other long-term liabilities		(10,049	)
Total liabilities assumed		(51,647	)
Net assets acquired		69,416
Goodwill		40,065
Total purchase price	$	109,481

	September 30, 2017
	Fair Value		Useful Life (in years)
Developed technology	$	12,528		10
Software		3,341		3
Customer relations		3,236		6
Trade name		1,775		7
Other		843		2
Total intangible assets	$	21,723

	September 30, 2017
Three months ending December 31, 2017	$	9,583
2018		37,910
2019		37,805
2020		35,954
2021		34,987
Thereafter		129,167
Total	$	285,406


	September 30, 2022						December 31, 2021
	Aggregate Notional Amount		Gross Asset at Fair Value		Gross Liability at Fair Value		Aggregate Notional Amount		Gross Asset at Fair Value		Gross Liability at Fair Value
Interest rate swaps	$	—	$	—	$	—	$	312	$	—	$	31

							Gross Gains				Gross Losses
	Aggregate Notional Amount		Gross Asset at Fair Value		Gross Liability at Fair Value		Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017		Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Interest rate swaps	$	659,309	$	5,611	$	10,997	$	440	$	2,989	$	1,641	$	12,836

	September 30, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
Convertible senior notes	$	3,695,516	$	4,686,863	$	2,957,288	$	3,205,641
Senior notes	$	1,774,742	$	1,759,500	$	—	$	—
Participation interest	$	17,313	$	16,813	$	16,713	$	15,025
Solar asset-backed notes	$	422,730	$	423,779	$	442,764	$	428,551
Solar loan-backed notes	$	236,726	$	250,124	$	137,024	$	132,129

	September 30, 2017		December 31, 2016
Accrued warranty reserve, net of current portion	$	238,949	$	149,858
Build-to-suit lease liability, net of current portion		1,621,593		1,323,293
Deferred rent expense		43,133		36,966
Financing obligation, net of current portion		72,278		84,360
Liability for receipts from an investor		59,421		76,828
Other noncurrent liabilities		347,456		220,144
Total long-term liabilities	$	2,382,830	$	1,891,449

	September 30, 2017		December 31, 2016
Solar Bonds issued to related parties	$	100	$	265,100
Convertible senior notes due to related parties	$	3,000	$	13,000
Promissory notes due to related parties	$	100,000	$	—
Due to related parties (primarily accrued interest, included in accrued and other current liabilities)	$	1,133	$	5,136


Production Location	Vehicle Model(s)	Production Status
Fremont Factory	Model S / Model X	Active
	Model 3 / Model Y	Active
Gigafactory Shanghai	Model 3 / Model Y	Active
Gigafactory Berlin-Brandenburg	Model Y	Active
Gigafactory Texas	Model Y	Active
	Cybertruck	Tooling
Gigafactory Nevada	Tesla Semi	Early production
TBD	Tesla Roadster	In development
TBD	Robotaxi & Others	In development

Exhibit Number		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date

4.1	Indenture, dated as of August 18, 2017, by and among the Registrant, SolarCity Corporation, and U.S. Bank National Association, as trustee.	8-K	001-34756	4.1	August 23, 2017

4.2	Form of 5.30% Senior Note due August 15, 2025.	8-K	001-34756	4.2	August 23, 2017

10.1	Purchase Agreement, dated as of August 11, 2017, by and among the Registrant, SolarCity Corporation and Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC as representatives of the several initial purchasers named therein.	8-K	001-34756	10.1	August 23, 2017

10.2	Seventh Amendment to the ABL Credit Agreement, dated as of August 11, 2017, by and among the Registrant, Tesla Motors Netherlands B.V., Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and the other agents party thereto.	8-K	001-34756	10.2	August 23, 2017

10.3†	Amended and Restated Loan and Security Agreement, dated as of August 17, 2017, by and among Tesla 2014 Warehouse SPV LLC, Tesla Finance LLC, the Lenders and Group Agents from time to time party thereto, and Deutsche Bank AG, New York Branch, as Administrative Agent.	—	—	—	—	X

10.4†	Loan and Security Agreement, dated as of August 17, 2017, by and among LML Warehouse SPV, LLC, Tesla Finance LLC, the Lenders and Group Agents from time to time party thereto, and Deutsche Bank AG, New York Branch, as Administrative Agent.	—	—	—	—	X

10.5†	Required Group Agent Action No. 38, dated as of August 22, 2017, by and among by and among Megalodon Solar, LLC, as borrower, Bank of America, N.A., as collateral agent and administrative agent, and the group agents party thereto.	—	—	—	—	X

10.6†	Required Group Agent Action No. 39, dated as of September 29, 2017, effective as of October 1, 2017, by and among by and among Megalodon Solar, LLC, as borrower, Bank of America, N.A., as collateral agent and administrative agent, and the group agents party thereto.	—	—	—	—	X

10.7**	Incentive Compensation Plan for July 1, 2017-December 31, 2017, for Jon McNeill.	—	—	—	—	X

31.1	Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer	—	—	—	—	X

31.2	Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer	—	—	—	—	X

32.1*	Section 1350 Certifications	—	—	—	—	X

101.INS	XBRL Instance Document	—	—	—	—	X

101.SCH	XBRL Taxonomy Extension Schema Document	—	—	—	—	X


Exhibit ~~Number~~				Incorporated by Reference							Filed ~~Herewith~~
Number	~~Exhibit Description~~	Exhibit Description	~~Form~~	Form	~~File No.~~	File No.	~~Exhibit~~	Exhibit	~~Filing Date~~	Filing Date	Herewith
~~101.CAL~~
31.1		Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer		—		—		—		—	X

31.2		Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer		—		—		—		—	X

32.1*		Section 1350 Certifications		—		—		—		—

101.INS		Inline XBRL Instance Document		—		—		—		—	X

101.SCH		Inline XBRL Taxonomy Extension Schema Document		—		—		—		—	X

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.		—		—		—		—	X

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document		—		—		—		—	X

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document		—		—		—		—	X

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document		—		—		—		—	X

104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)


		Tesla, Inc.

Date: ~~November 2, 2017~~October 24, 2022		/s/ ~~Deepak Ahuja~~Zachary J. Kirkhorn
		~~Deepak Ahuja~~Zachary J. Kirkhorn
		Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)