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,~~April 22, 2019, there were ~~168,067,395~~173,720,801 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 our strategy, future operations, future financial position, future revenues, projected costs, profitability, expected cost reductions, capital adequacy, expectations regarding demand and acceptance for our technologies, growth opportunities and trends in the market 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. We do not assume any obligation to update any forward-looking statements.

	September 30,			December 31,			March 31,			December 31,
	2017			2016			2019			2018
Assets
Current assets
Cash and cash equivalents	$	3,530,030		$	3,393,216		$	2,198,169		$	3,685,618
Restricted cash		138,181			105,519			130,950			192,551
Accounts receivable, net		607,734			499,142			1,046,945			949,022
Inventory		2,471,382			2,067,454			3,836,850			3,113,446
Prepaid expenses and other current assets		321,406			194,465			464,908			365,671
Total current assets		7,068,733			6,259,796			7,677,822			8,306,308
Operating lease vehicles, net		3,834,234			3,134,080			1,972,502			2,089,758
Solar energy systems, leased and to be leased, net		6,287,965			5,919,880
Solar energy systems, net								6,241,637			6,271,396
Property, plant and equipment, net		9,394,397			5,982,957			9,850,929			11,330,077
Operating lease right-of-use assets								1,253,027			—
Intangible assets, net		372,238			376,145			273,568			282,492
Goodwill		45,236			—			74,312			68,159
MyPower customer notes receivable, net of current portion		463,878			506,302			413,181			421,548
Restricted cash, net of current portion		408,544			268,165			353,679			398,219
Other assets		231,849			216,751			801,867			571,657
Total assets	$	28,107,074		$	22,664,076		$	28,912,524		$	29,739,614
Liabilities
Current liabilities
Accounts payable	$	2,385,778		$	1,860,341		$	3,248,827		$	3,404,451
Accrued liabilities and other		1,477,784			1,210,028			2,276,951			2,094,253
Deferred revenue		951,734			763,126			762,810			630,292
Resale value guarantees		543,336			179,504			480,225			502,840
Customer deposits		686,084			663,859			768,276			792,601
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
Current portion of long-term debt and finance leases								1,705,711			2,567,699
Total current liabilities		6,468,940			5,827,005			9,242,800			9,992,136
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
Long-term debt and finance leases, net of current portion								9,787,950			9,403,672
Deferred revenue, net of current portion		1,082,870			851,790			1,157,343			990,873
Resale value guarantees, net of current portion		2,410,220			2,210,423			211,390			328,926
Other long-term liabilities		2,382,830			1,891,449			2,475,135			2,710,403
Total liabilities		21,929,057			16,750,167			22,874,618			23,426,010
Commitments and contingencies (Note 14)
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests in subsidiaries		402,943			367,039			570,284			555,964
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
Common stock; $0.001 par value; 2,000,000 shares authorized; 173,682 and 172,603 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively								174			173
Additional paid-in capital		8,989,022			7,773,727			10,563,746			10,249,120
Accumulated other comprehensive gain (loss)		21,250			(23,740	)
Accumulated other comprehensive loss								(35,019	)		(8,218	)
Accumulated deficit		(4,298,960	)		(2,997,237	)		(5,923,305	)		(5,317,832	)
Total stockholders' equity		4,711,480			4,752,911			4,605,596			4,923,243
Noncontrolling interests in subsidiaries		1,063,237			785,175			862,026			834,397
Total liabilities and equity	$	28,107,074		$	22,664,076		$	28,912,524		$	29,739,614

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2019			2018
Revenues
Automotive sales	$	2,076,731		$	1,917,442		$	6,125,643		$	3,849,558		$	3,508,741		$	2,561,881
Automotive leasing		286,158			231,285			813,462			507,085			215,120			173,436
Total automotive revenues		2,362,889			2,148,727			6,939,105			4,356,643			3,723,861			2,735,317
Energy generation and storage		317,505			23,334			818,229			50,009			324,661			410,022
Services and other		304,281			126,375			713,168			308,849			492,942			263,412
Total revenues		2,984,675			2,298,436			8,470,502			4,715,501			4,541,464			3,408,751
Cost of revenues
Automotive sales		1,755,622			1,355,102			4,724,849			2,895,483			2,856,209			2,091,397
Automotive leasing		175,224			161,959			516,683			310,176			117,092			104,496
Total automotive cost of revenues		1,930,846			1,517,061			5,241,532			3,205,659			2,973,301			2,195,893
Energy generation and storage		237,288			24,281			592,823			50,553			316,887			375,363
Services and other		367,401			120,359			852,446			295,310			685,533			380,969
Total cost of revenues		2,535,535			1,661,701			6,686,801			3,551,522			3,975,721			2,952,225
Gross profit		449,140			636,735			1,783,701			1,163,979			565,743			456,526
Operating expenses
Research and development		331,622			214,302			1,023,436			588,448			340,174			367,096
Selling, general and administrative		652,998			336,811			1,794,210			976,173			703,929			686,404
Restructuring and other														43,471			—
Total operating expenses		984,620			551,113			2,817,646			1,564,621			1,087,574			1,053,500
(Loss) income from operations		(535,480	)		85,622			(1,033,945	)		(400,642	)
Loss from operations														(521,831	)		(596,974	)
Interest income		5,531			2,858			13,406			6,351			8,762			5,214
Interest expense		(117,109	)		(46,713	)		(324,896	)		(133,706	)		(157,453	)		(149,546	)
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
Other income (expense), net														25,750			(37,716	)
Loss before income taxes														(644,772	)		(779,022	)
Provision for income taxes														22,873			5,605
Net loss														(667,645	)		(784,627	)
Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries														34,490			(75,076	)
Net loss attributable to common stockholders													$	(702,135	)	$	(709,551	)
Net loss per share of common stock attributable to common stockholders
Basic	$	(3.70	)	$	0.15		$	(7.80	)	$	(3.94	)	$	(4.10	)	$	(4.19	)
Diluted	$	(3.70	)	$	0.14		$	(7.80	)	$	(3.94	)	$	(4.10	)	$	(4.19	)
Weighted average shares used in computing net income (loss) per share of common stock, basic and diluted
Weighted average shares used in computing net loss per share of common stock
Basic		167,294			148,991			164,897			140,581			172,989			169,146
Diluted		167,294			156,935			164,897			140,581			172,989			169,146

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

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

Nine Months Ended September 30,

2017

2016

Cash Flows From Operating Activities

Net loss

$
(1,469,771
)

$
(553,577
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization

1,166,397

620,160

Stock-based compensation

332,412

246,512

Amortization of debt discounts and issuance costs

60,613

69,861

Inventory write-downs

98,347

50,289

Loss on disposal of fixed assets

59,640

12,181

Foreign currency transaction loss

35,933

10,422

Loss on the acquisition of SolarCity

29,796

—

Non-cash interest and other operating activities

109,729

15,798

Changes in operating assets and liabilities, net of effect of business combinations

Accounts receivable

(105,643
)

(110,510
)
Inventories

(418,970
)

(345,331
)
Operating lease vehicles

(1,083,140
)

(1,452,883
)
Prepaid expenses and other current assets

(123,832
)

34,636

MyPower customer notes receivable and other assets

17,628

(2,586
)
Accounts payable and accrued liabilities

170,326

697,528

Deferred revenue

329,007

256,187

Customer deposits

3,815

409,139

Resale value guarantee

141,044

322,244

Other long-term liabilities

76,124

44,310

Net cash (used in) provided by operating activities

(570,545
)

324,380

Cash Flows From Investing Activities

Purchases of property and equipment excluding capital leases, net of sales

(2,628,126
)

(759,190
)
Maturities of short-term marketable securities

—

16,667

Purchase of solar energy systems, leased and to be leased

(547,085
)

—

Increase in restricted cash

(172,733
)

(79,156
)
Business combination, net of cash acquired

(109,147
)

—

Net cash used in investing activities

(3,457,091
)

(821,679
)
Cash Flows From Financing Activities

Proceeds from issuance of common stock in public offering

400,175

1,701,734

Proceeds from issuance of convertible and other debt

5,401,158

1,685,279

Repayments of convertible and other debt

(2,442,942
)

(1,678,475
)
Repayments of borrowings under solar bonds issued to related parties

(165,000
)

—

Collateralized lease borrowings

416,427

557,669

Proceeds from exercise of stock options and other stock issuances

239,328

153,461

Principal payments on capital leases

(69,496
)

(30,447
)
Common stock and debt issuance costs

(50,530
)

(18,072
)
Purchase of convertible note hedges

(204,102
)

—

Proceeds from settlement of convertible note hedges

269,456

—

Proceeds from issuance of warrants

52,883

—

Payments for settlement of warrants

(219,538
)

—

Proceeds from investment by noncontrolling interests in subsidiaries

691,918

—

Distributions paid to noncontrolling interests in subsidiaries

(190,715
)

—

Net cash provided by financing activities

4,129,022

2,371,149

Effect of exchange rate changes on cash and cash equivalents

35,428

13,499

Net increase in cash and cash equivalents

136,814

1,887,349

Cash and cash equivalents, beginning of period

3,393,216

1,196,908

Cash and cash equivalents, end of period

$
3,530,030

$
3,084,257

Supplemental noncash investing and financing activities

Acquisition of property and equipment included in liabilities

$
963,664

$
459,472

Estimated fair value of facilities under build-to-suit leases

$
278,741

$
236,538

														Accumulated
	Redeemable							Additional						Other		Total			Noncontrolling
	Noncontrolling			Common Stock				Paid-In			Accumulated			Comprehensive		Stockholders'			Interests in			Total
	Interests			Shares		Amount		Capital			Deficit			Income		Equity			Subsidiaries			Equity
Balance as of December 31, 2017	$	397,734			168,797	$	169	$	9,178,024		$	(4,974,299	)	$	33,348	$	4,237,242		$	997,346		$	5,234,588
Adjustments for prior periods from adopting ASC 606		8,101			—		—		—			623,172			—		623,172			(89,084	)		534,088
Adjustments for prior periods from adopting Accounting Standards Update No. 2017-05		—			—		—		—			9,386			—		9,386			—			9,386
Reclass from mezzanine equity to equity for Convertible Senior Notes due in 2018		—			—		—		68			—			—		68			—			68
Exercises of conversion feature of convertible senior notes		—			—		—		(38	)		—			—		(38	)		—			(38	)
Common stock issued, net of shares withheld for employee taxes		—			953		1		94,017			—			—		94,018			—			94,018
Stock-based compensation		—			—		—		146,825			—			—		146,825			—			146,825
Contributions from noncontrolling interests		38,126			—		—		—			—			—		—			35,578			35,578
Distributions to noncontrolling interests		(10,960	)		—		—		—			—			—		—			(32,054	)		(32,054	)
Net loss		(27,166	)		—		—		—			(709,551	)		—		(709,551	)		(47,910	)		(757,461	)
Other comprehensive income		—			—		—		—			—			49,573		49,573			—			49,573
Balance as of March 31, 2018	$	405,835			169,750	$	170	$	9,418,896		$	(5,051,292	)	$	82,921	$	4,450,695		$	863,876		$	5,314,571

														Accumulated
	Redeemable							Additional						Other			Total			Noncontrolling
	Noncontrolling			Common Stock				Paid-In			Accumulated			Comprehensive			Stockholders'			Interests in			Total
	Interests			Shares		Amount		Capital			Deficit			Loss			Equity			Subsidiaries			Equity
Balance as of December 31, 2018	$	555,964			172,603	$	173	$	10,249,120		$	(5,317,832	)	$	(8,218	)	$	4,923,243		$	834,397		$	5,757,640
Adjustments for prior periods from adopting ASC 842		—			—		—		—			96,662			—			96,662			—			96,662
Exercises of conversion feature of convertible senior notes		—			0		0		3			—			—			3			—			3
Common stock issued, net of shares withheld for employee taxes		—			1,029		1		77,952			—			—			77,953			—			77,953
Issuance of common stock upon acquisitions and assumed awards		—			50		0		14,536			—			—			14,536			—			14,536
Stock-based compensation		—			—		—		229,724			—			—			229,724			—			229,724
Contributions from noncontrolling interests		30,420			—		—		—			—			—			—			16,401			16,401
Distributions to noncontrolling interests		(10,797	)		—		—		—			—			—			—			(28,565	)		(28,565	)
Buy-outs of noncontrolling interests		—			—		—		(7,589	)		—			—			(7,589	)		—			(7,589	)
Net income (loss)		(5,303	)		—		—		—			(702,135	)		—			(702,135	)		39,793			(662,342	)
Other comprehensive loss		—			—		—		—			—			(26,801	)		(26,801	)		—			(26,801	)
Balance as of March 31, 2019	$	570,284			173,682	$	174	$	10,563,746		$	(5,923,305	)	$	(35,019	)	$	4,605,596		$	862,026		$	5,467,622

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

	Three Months Ended March 31,
	2019			2018
Cash Flows from Operating Activities
Net loss	$	(667,645	)	$	(784,627	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment		467,577			416,233
Stock-based compensation		208,378			141,639
Amortization of debt discounts and issuance costs		40,108			39,345
Inventory write-downs		80,843			18,546
Loss on disposals of fixed assets		18,421			52,237
Foreign currency transaction (gains) losses		(39,130	)		47,661
Non-cash interest and other operating activities		116,050			(3,984	)
Operating cash flow related to repayment of discounted convertible notes		(188,107	)		—
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable		(99,640	)		(169,142	)
Inventory		(809,152	)		(322,081	)
Operating lease vehicles		13,012			(97,196	)
Prepaid expenses and other current assets		(46,103	)		(50,001	)
Other non-current assets		28,064			(57,583	)
Accounts payable and accrued liabilities		(27,577	)		317,983
Deferred revenue		317,888			45,795
Customer deposits		(25,173	)		67,359
Resale value guarantee		(47,394	)		—
Other long-term liabilities		19,974			(60,560	)
Net cash used in operating activities		(639,606	)		(398,376	)
Cash Flows from Investing Activities
Purchases of property and equipment excluding finance leases, net of sales		(279,932	)		(655,662	)
Purchases of solar energy systems		(25,261	)		(72,975	)
Business combinations, net of cash acquired		(650	)		—
Net cash used in investing activities		(305,843	)		(728,637	)
Cash Flows from Financing Activities
Proceeds from issuances of convertible and other debt		1,494,066			1,775,481
Repayments of convertible and other debt		(1,970,709	)		(1,389,388	)
Repayments of borrowings issued to related parties		—			(17,500	)
Collateralized lease (repayments) borrowings		(133,891	)		(87,092	)
Proceeds from exercises of stock options and other stock issuances		77,953			94,018
Principal payments on finance leases		(66,656	)		(18,787	)
Common stock and debt issuance costs		(7,757	)		(2,913	)
Proceeds from investments by noncontrolling interests in subsidiaries		46,821			73,704
Distributions paid to noncontrolling interests in subsidiaries		(85,257	)		(52,942	)
Payments for buy-outs of noncontrolling interests in subsidiaries		(7,589	)		(2,921	)
Net cash (used in) provided by financing activities		(653,019	)		371,660
Effect of exchange rate changes on cash and cash equivalents and restricted cash		4,878			10,102
Net decrease in cash and cash equivalents and restricted cash		(1,593,590	)		(745,251	)
Cash and cash equivalents and restricted cash, beginning of period		4,276,388			3,964,959
Cash and cash equivalents and restricted cash, end of period	$	2,682,798		$	3,219,708
Supplemental Non-Cash Investing and Financing Activities
Acquisitions of property and equipment included in liabilities	$	119,903		$	286,975
Estimated fair value of facilities under build-to-suit leases	$	—		$	56,169

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

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, manages resource allocations and measures performance among two operating and reportable segments: (i) automotive and (ii) energy generation and storage.

The consolidated balance sheet as of ~~September 30, 2017,~~March 31, 2019, the consolidated statements of operations, ~~and~~ the consolidated statements of comprehensive loss ~~for~~, the ~~three~~consolidated statements of redeemable noncontrolling interests and ~~nine months ended September 30, 2017 and 2016~~equity and the consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance ~~sheet~~sheets as of December 31, ~~2016~~2018 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.~~2018.

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.

~~Certain prior period balances have been reclassified~~Automotive Sales Revenue

Automotive sales revenue includes revenues related to ~~conform~~deliveries of new vehicles, and specific other features and services that meet the definition of a performance obligation include access to our Supercharger network, internet connectivity, Autopilot, full self-driving and over-the-air software updates. Deferred revenue activity related to the ~~current period presentation~~access to our Supercharger network, internet connectivity, Autopilot, full self-driving and over-the-air software updates on automotive sales with and without resale value guarantee amounted to $1.04 billion and $882.8 million as of March 31, 2019 and December 31, 2018, respectively. Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet date. Revenue recognized from the deferred revenue balance as of December 31, 2018 was $37.4 million for the three months ended March 31, 2019. Of the total deferred revenue on automotive sales with and without resale value guarantees, we expect to recognize $462.3 million of revenue in the next 12 months. The remaining balance will be recognized over the various performance periods of the obligations, which is up to the eight-year life of the vehicle.

At the time of revenue recognition, we reduce the transaction price and record a sales return reserve against revenue for estimated variable consideration related to future product returns. Such estimates are based on historical experience. On a quarterly basis, we assess the estimated market values of vehicles under our buyback options program to determine whether there will be changes to future product returns. As we accumulate more data related to the buyback values of our vehicles or as market conditions change, there may be material changes to their estimated values. Due to price adjustments we made to our vehicle offerings during the three months ended March 31, 2019, we estimated that there is a greater likelihood that customers will exercise their buyback options. As a result, we adjusted our sales return reserve on vehicles previously sold under our buyback options program resulting in a reduction of automotive sales revenues of $500.5 million. If customers elect to exercise the buyback option, we expect to be able to subsequently resell the returned vehicles, which resulted in a corresponding reduction in automotive cost of sales of $408.8 million. The net impact was $91.7 million reduction in gross profit.

We recognize revenue on the sale of regulatory credits at the time control of the regulatory credits is transferred to the purchasing party as automotive revenue in the consolidated ~~financial statements and the accompanying notes. Such reclassifications had no effect on previously reported results~~statement of operations. ~~Starting in~~Deferred revenue related to sales of automotive regulatory credits was $140.0 million and $0 as of March 31, 2019 and December 31, 2018, respectively. We expect to recognize the ~~fourth quarter~~deferred revenue as of ~~2016, we have reclassified~~March 31, 2019 over the next 2 to 3 years.

Automotive leasing revenue ~~and cost of~~includes revenue ofrecognized under lease accounting guidance for our ~~energy storage products from ‘services and other’ into ‘energy generation and storage’ for all periods presented in order to align~~direct leasing programs as well as the two programs with ~~our reportable segments.~~

~~Prior to June 30, 2016, we offered~~ resale value guarantees ~~or similar buy-back terms to all customers who purchase vehicles~~described below.

We have outstanding leases under our direct vehicle leasing programs in certain locations in the U.S., Canada and ~~who financed their vehicles through one~~Europe. As of ~~our specified commercial banking partners. Since June 30, 2016, this~~March 31, 2019, the direct vehicle leasing program is ~~available~~ only offered for new Model S and Model X leases to qualified customers in ~~certain international markets. Under this program,~~the U.S. and Canada. Qualifying customers are permitted to lease a vehicle directly from Tesla for up to 48 months. At the end of the lease term, customers have the option of ~~selling their~~either returning the vehicle ~~back~~ to us or purchasing it for a pre-determined residual value. We account for these leasing transactions as operating leases. We record leasing revenues to automotive leasing revenue on a straight-line basis over the contractual term, and we record the depreciation of these vehicles to cost of automotive leasing revenue.

We capitalize shipping costs and initial direct costs such as the incremental cost of contract administration, referral fees and sales commissions from the origination of automotive lease agreements as an element of operating lease vehicles, net, and subsequently amortize these costs over the term of the related lease agreement. Our policy is to exclude taxes collected from a customer from the transaction price of automotive contracts.

Vehicle Sales to Leasing Partners with a Resale Value Guarantee and a Buyback Option

We offer buyback options in connection with automotive sales with resale value guarantees with certain leasing partner sales in the United States. These transactions entail a transfer of leases, which we have originated with an end-customer, to our leasing partner. As control of the vehicles has not been transferred, these transactions were accounted for as interest bearing collateralized borrowings in accordance with ASC 840, Leases, prior to January 1, 2019. Under this program, cash is received for the full price of the vehicle and the collateralized borrowing value is generally recorded within resale value guarantees and the customer upfront deposit is recorded within deferred revenue. We amortize the deferred revenue amount to automotive leasing revenue on a straight-line basis over the option period and accrue interest expense based on our borrowing rate. We capitalize vehicles under this program to operating lease vehicles, net, on the consolidated balance sheet, and we record depreciation from these vehicles to cost of automotive leasing revenue during the period the vehicle is under a lease arrangement. Cash received for these vehicles, net of revenue recognized during the period, is classified as collateralized lease (repayments) borrowings within cash flows from financing activities in the consolidated statements of cash flows. With the adoption of ASC 842 on January 1, 2019, all new agreements under this program will be accounted for as operating leases under ASC 842 and there will be no material change in the timing and amount of revenue recognized over the term. Consequently, any cash flows for new agreements will be classified as operating cash activities on the consolidated statements 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 for the buyback option amount or paying a shortfall to the option amount the leasing partner may realize on the sale of the vehicle. Any remaining balances within deferred revenue and resale value guarantee ~~period~~will be settled to automotive leasing revenue. The end customers can extend the lease for a ~~determined resale value. Guarantee periods generally range from 36~~period of up to 396 months. ~~Although we receive full payment for~~In cases where the leasing partner retains ownership of the vehicle ~~sales price at~~after the ~~time~~end of ~~delivery,~~our option period, we ~~are~~expense the net value of the leased vehicle to cost of automotive leasing revenue. The maximum amount we could be required to ~~account for~~pay under this program, should we decide to repurchase all vehicles, was $415.0 million and $479.8 million as of March 31, 2019 and December 31, 2018, respectively, including $301.2 million within a 12-month period from March 31, 2019. As of March 31, 2019 and December 31, 2018, we had $470.0 million and $558.3 million, respectively, of such borrowings recorded in resale value guarantees and $85.6 million and $92.5 million, respectively, recorded in deferred revenue liability. For the three months ended March 31, 2019 and 2018, we recognized $52.9 million and $82.5 million, respectively, of leasing revenue related to this program. The net carrying amount of operating lease vehicles under this program was $396.0 million and $468.5 million as of March 31, 2019 and December 31, 2018.

Vehicle Sales to Customers with a Resale Value Guarantee where Exercise is Probable

For certain international programs where we have offered resale value guarantees to certain customers who purchased vehicles and where we expect the customer has a significant economic incentive to exercise the resale value guarantee provided to them, we continue to recognize these transactions as operating leases. The process to determine whether there is a significant economic incentive includes a comparison of a vehicle’s estimated market value at the time the option is exercisable with the guaranteed resale value to determine the customer’s economic incentive to exercise. We have not sold any vehicles under this program since the first half of 2017 and all current period activity relates to the exercise or cancellation of active transactions. The amount of sale proceeds equal to the resale value guarantee is deferred until the guarantee expires or is exercised. The remaining sale proceeds are deferred and recognized on a straight-line basis over the stated guarantee period to automotive leasing revenue. The guarantee period expires at the earlier of the end of the guarantee period or the pay-off of the initial loan. We capitalize the cost of these vehicles on the consolidated balance ~~sheets~~sheet as operating lease vehicles, net, and depreciate their value, less salvage value, to cost of automotive leasing revenue over 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~~cost 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~~the consolidated balance sheet to used vehicle inventory. As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016, $279.9~~2018, $136.6 million and ~~$179.5~~$149.7 million, respectively, of the guarantees were exercisable by customers within the next 12 months. For the three months ended March 31, 2019 and 2018, we recognized $47.5 million and $16.1 million, respectively, of leasing revenue related to this program. The net carrying amount of operating lease vehicles under this program was $169.2 million and $211.5 million as of March 31, 2019 and December 31, 2018.

Energy generation and storage sales revenues consists of the sale of solar energy systems and energy storage systems to residential, small commercial, and large commercial and utility grade customers. Upon adoption of the new lease standard (refer to Leases section below for details), energy generation and storage sales revenues will include agreements for solar energy systems and power purchase agreements (“PPAs”) that commence after January 1, 2019, as these are now accounted for under ASC 606. 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 March 31, 2019 and December 31, 2018, deferred revenue related to such customer payments amounted to $155.8 million and $148.7 million, respectively. Revenue recognized from the deferred revenue balance as of December 31, 2018 was $16.6 million for the three months ended March 31, 2019. We have elected the practical expedient to omit disclosure of the amount of the transaction price allocated to remaining performance obligations for energy generation and storage sales with an original expected contract length of one year or less and the amount that we have the right to invoice when that amount corresponds directly with the value to the performance to date. As of March 31, 2019, 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 $102.3 million. Of this amount, we expect to recognize $4.7 million in the next 12 months and the remaining over a ~~12-month~~ period up to 29 years.

Deferred revenue also includes the portion of rebates and incentives received from ~~each such date.~~utility companies and various local and state government agencies, which is recognized as revenue over the lease term. As of March 31, 2019 and December 31, 2018, deferred revenue from rebates and incentives amounted to $35.3 million and $36.8 million, respectively.

We capitalize initial direct costs from the execution of solar energy system sales and PPAs, which include the referral fees and sales commissions, as an element of solar energy systems, net, and subsequently amortize these costs over the term of the related sale or PPA.

In February 2016, the FASB issued ASU No. 2016-02 (“ASC 842”), Leases, to ~~leasing partners~~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. Subsequently, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend the guidance in ASU No. 2016-02. ASC 842 eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. This standard is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We adopted ASC 842 as of January 1, 2019 using the cumulative effect adjustment approach (“adoption of the new lease standard’). In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to carry forward the historical determination of contracts as leases, lease classification and not reassess initial direct costs for historical lease arrangements. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented. The finance lease classification under ASC 842 includes leases previously classified as capital leases under ASC 840.

Agreements for solar energy systems and PPAs that commence after January 1, 2019, where we are the lessor and are currently accounted for as operating leases no longer meet the definition of a ~~resale value guarantee~~

~~We also offer resale value guarantees~~lease upon the adoption of ASC 842 and will instead be accounted for in ~~connection~~accordance with ~~automobile sales~~ASC 606. Under these two types of arrangements, the customer is not responsible for the design of the energy system but rather approved the energy system benefits in terms of energy production to ~~certain leasing partners. As~~be received over the term. Accordingly, the revenue from the solar energy system agreements starting January 1, 2019 are now recognized as earned, based on the amount of electricity delivered at the contractual billing rates, assuming all other revenue recognition criteria have been met. Under the practical expedient available under ASC 606-10-55-18, we ~~have guaranteed~~recognize revenue based on the value of ~~these vehicles~~the service which is consistent with the billing amount. There is no change to the amount and astiming of revenue recognition for PPA arrangements.

We have lease agreements with lease and non-lease components, and have elected to utilize the ~~vehicles are leased~~practical expedient to ~~end-customers, we~~ account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease. Additionally, we have determined that the leases previously identified as build-to-suit leasing arrangements under legacy lease accounting (ASC 840), were derecognized pursuant to the transition guidance provided for build-to-suit leases in ASC 842. Accordingly, these ~~transactions~~leases have been reassessed as ~~interest bearing collateralized borrowings~~operating leases as ~~required~~of the adoption date under ASC ~~840,~~ ~~Leases. Under this program, cash is received~~842, and are included on the consolidated balance sheet as of March 31, 2019.

Operating lease assets are included within operating lease right-of-use assets, and the corresponding operating lease liabilities are included within accrued liabilities and other for the ~~full price of the vehicle~~current portion, and ~~is recorded~~ within ~~resale value guarantees~~other long-term liabilities for the long-term portion on our consolidated balance sheet as of March 31, 2019. Finance lease assets are included within property, plant and ~~deferred revenue~~equipment, net, and the corresponding finance lease liabilities are included within current portion of long-term debt and finance leases for the current ~~portion. We accrete~~portion, and within long-term debt and finance leases, net of current portion for the ~~deferred revenue amount to automotive leasing revenue on a straight-line basis over the guarantee period and accrue interest expense based~~long-term portion on our ~~borrowing rate.~~ consolidated balance sheet as of March 31, 2019.

We ~~capitalize vehicles under this program~~have elected not to ~~operating lease vehicles, net,~~present short-term leases on the consolidated balance ~~sheets, and we record depreciation from~~sheet as these ~~vehicles to cost of automotive leasing revenues during the period the vehicle is under~~leases have a lease ~~arrangement. Cash received~~term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

Adoption of the new lease standard on January 1, 2019 had a material impact on our interim unaudited consolidated financial statements. The most significant impacts related to the (i) recognition of right-of-use ("ROU") assets of $1.29 billion and lease liabilities of $1.24 billion for ~~these vehicles,~~operating leases on the consolidated balance sheet, and (ii) de-recognition of build-to-suit lease assets and liabilities of $1.62 billion and $1.74 billion, respectively, with the net impact of $96.7 million recorded to accumulated deficit, net of ~~revenue recognized during~~deferred tax impact, as of January 1, 2019. We also reclassified prepaid expenses and other current asset balances of $141.6 million and deferred rent balance, including tenant improvement allowances, and other liability balances of $69.7 million relating to our existing lease arrangements as of December 31, 2018, into the ~~period, is classified~~ROU asset balance as ~~collateralized~~of January 1, 2019. ROU assets represent our right to use an underlying asset for the lease ~~borrowings within cash flows~~term and lease liabilities represent our obligation to make lease payments arising from ~~financing activities in~~ the lease. The standard did not materially impact our consolidated ~~statements~~statement of operations and consolidated statement of cash flows.

~~At the end~~The cumulative effect of the ~~lease term, we settle~~changes made to our ~~liability in cash by either purchasing the vehicle from the leasing partner~~consolidated balance sheet as of January 1, 2019 for the ~~resale value guarantee amount or paying a shortfall to the guarantee amount the leasing partner may realize on the sale~~adoption 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,~~new lease standard was ~~$1.18 billion and $855.9 million~~ as ~~of September 30, 2017 and December 31, 2016, respectively, including~~ ~~$263.5 million within a 12-month period from September 30, 2017~~.

~~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~~.

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~~follows (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

	Balances at December 31, 2018			Adjustments from Adoption of New Lease Standard			Balances at January 1, 2019
Assets
Prepaid expenses and other current assets	$	365,671			(300	)	$	365,371
Property, plant and equipment, net		11,330,077			(1,617,373	)		9,712,704
Operating lease right-of-use assets		—			1,285,617			1,285,617
Other assets		571,657			(141,322	)		430,335
Liabilities
Accrued liabilities and other		2,094,253			117,717			2,211,970
Current portion of long-term debt and finance leases		2,567,699			—			2,567,699
Long-term debt and finance leases, net of current portion		9,403,672			—			9,403,672
Other long-term liabilities		2,710,403			(687,757	)		2,022,646
Equity
Accumulated deficit		(5,317,832	)		96,662			(5,221,170	)

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the aggregate balances of our gross unrecognized tax benefits were ~~$300.0~~$264.1 million and ~~$203.9~~$253.4 million, respectively, of which ~~$292.9~~$252.4 million and ~~$198.3~~$243.8 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.

Net ~~Loss~~Income (Loss) 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. During the three months ended March 31, 2019, we increased net loss attributable to common stockholders by $7.6 million to arrive at the numerator used to calculate net loss per share. This adjustment represents the difference between the cash we paid to a financing fund investor for their noncontrolling interest in one of our subsidiaries and the carrying amount of the noncontrolling interest on our consolidated balance sheet, in accordance with ASC 260, Earnings per Share. 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 we ~~expect~~intend 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 and the 2.375% Convertible Senior Notes due in 2022, we use the treasury stock method when calculating their potential dilutive effect, if any. Furthermore, in connection with the offerings of our bond hedges, we entered into convertible note hedges (see Note 10, Long-Term Debt Obligations). However, our convertible note hedges are not included when calculating potentially dilutive shares since their effect is always anti-dilutive.

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

We maintain certain cash balances restricted as to withdrawal or use. Our restricted cash is comprised primarily of cash as collateral for our sales to lease partners with a resale value guarantee, letters of credit, real estate leases, insurance policies, credit card borrowing facilities and certain operating leases. In addition, restricted cash includes cash received from certain fund investors that have not been released for use by us and cash held to service certain payments under various secured debt facilities. The following table totals cash and cash equivalents and restricted cash as reported on the consolidated balance sheets; the sums are presented on the consolidated statements of cash flows (in thousands):

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash, accounts receivable, convertible note hedges, and interest rate swaps. Our cash balances are primarily invested in money market funds or on deposit at high credit quality financial institutions in the ~~United States. At times, these~~U.S. These deposits ~~may be~~are typically in excess of insured limits. As of ~~September 30, 2017, no customer represented 10% or more of our total accounts receivable balance. As of~~March 31, 2019 and December 31, ~~2016, one customer~~2018, no entity 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~~highly-rated multinational banks. ~~We maintain reserves for any amounts that we consider uncollectible.~~

We are dependent on our suppliers, 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 from these suppliers, could have a material adverse effect on our business, prospects, financial condition and operating results.

Vehicles that are leased as part of our direct vehicle leasing program, vehicles delivered to leasing partners with a resale value guarantee and a buyback option, as well as vehicles delivered to customers with resale value guarantee where exercise is probable are classified as operating lease vehicles as the related revenue transactions are treated as operating leases (refer to the Resale Value Guarantees Financing Programs under ASC 842 section above for details). Operating lease vehicles are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the expected operating lease term. The total cost of operating lease vehicles recorded on the consolidated balance sheets as of March 31, 2019 and December 31, 2018 was $2.42 billion and $2.55 billion, respectively. Accumulated depreciation related to leased vehicles as of March 31, 2019 and December 31, 2018 was $446.3 million and $457.6 million, respectively.

We provide a manufacturer’s warranty on all new and ~~certified~~ used vehicles, production powertrain components and systems and energy storage products we sell. In addition, we also provide a warranty on the installation and components of the solar energy systems we sell for periods typically between 10 to 30 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 when 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 lease accounting and our solar energy systems under lease contracts or ~~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 liabilities and other while the remaining balance is included within other long-term liabilities on ~~our~~the consolidated balance ~~sheets.~~sheet. Warranty expense is recorded as a component of cost of ~~revenues.~~revenues in the consolidated statements of operations. Accrued warranty activity consisted of the following (in thousands):

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019 and 2018, warranty costs incurred for vehicles accounted for as operating leases or collateralized debt arrangements were ~~$10.8~~$5.6 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~~$5.8 million, respectively.

In ~~May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers, to replace the existing revenue recognition criteria for contracts with customers. In August 2015,~~June 2016, the FASB issued ASU No. ~~2015-14,~~2016-13, ~~Deferral~~Measurement of ~~the Effective Date~~Credit Losses on Financial Instruments, to ~~defer~~require financial assets carried at amortized cost to be presented at the ~~effective date of ASU No. 2014-09~~net amount expected to ~~interim~~be collected based on historical experience, current conditions and ~~annual periods beginning after December 15, 2017, with early adoption permitted.~~forecasts. Subsequently, the FASB issued ASU No. ~~2016-08,~~2018-19, ~~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~~Codification Improvements 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~~Topic 326, 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 asthat receivables arising from operating leases ~~or collateralized~~are within the scope of 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~~accounting standards. The ASUs ~~we currently estimate an increase to equity in the range of $550.0 million to $750.0 million, 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,~~2019, with early adoption permitted. Adoption of the ~~ASU~~ASUs is on a modified ~~retrospective.~~retrospective basis. We ~~adopted~~are currently obtaining an understanding of the ~~ASU~~ASUs and plan to adopt them on January 1, ~~2017, but the ASU did not have 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. We 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 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, 2018.2020.

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 and 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.~~permitted. Adoption of the ASU is prospective. We ~~have not yet selected~~are currently obtaining an ~~adoption date, and~~understanding of the ASU ~~will~~and plan to adopt the ASU prospectively on January 1, 2020. The ASU is currently not expected to have a ~~currently undetermined~~material impact on ~~the~~our consolidated financial statements.

In ~~May 2017,~~August 2018, the FASB issued ASU No. ~~2017-09,~~2018-15, ~~Scope of Modification~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract,. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to ~~provide guidance on which changes to the terms~~develop or ~~conditions of a share-based payment award require~~obtain internal-use software (and hosting arrangements that include an ~~entity to apply modification accounting.~~internal-use software license). The ASU is effective for interim and annual periods beginning after December 15, ~~2017,~~2019, with early adoption permitted. Adoption of the ASU is either retrospective or prospective. We are currently obtaining an understanding of the ASU and plan to adopt the ASU prospectively on January 1, ~~2018.~~2020.

In February 2016, the FASB issued ASU No. 2016-02, Leases, to require lessees to recognize all leases, with limited exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to legacy lease accounting, ASC 840. The ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. Subsequently, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend the guidance in ASU No. 2016-02. The ASUs are effective for

interim and annual periods beginning after December 15, 2018, with early adoption permitted. We adopted the ASUs on January 1, 2019 on a modified retrospective basis through a cumulative adjustment to our beginning accumulated deficit balance. Prior comparative periods have not been recast under this method, and we adopted all available practical expedients, as applicable. Further, solar leases that commence on or after January 1, 2019, where we are the lessor and which were accounted for as leases under ASC 840, will no longer meet the definition of a lease. Instead, solar leases commencing on or after January 1, 2019 will be accounted for under ASC 606. In addition to recognizing operating leases that were previously not recognized on the consolidated balance sheet, our build-to-suit leases were also de-recognized with a net decrease of approximately $96.7 million to our beginning accumulated deficit after income tax effects, as our build-to-suit leases no longer qualify for build-to-suit accounting and are instead recognized as operating leases. Upon adoption, our consolidated balance sheet include an overall reduction in assets of $473.3 million and a reduction in liabilities of $570.0 million. The adoption of the ASUs did not have a material impact on the consolidated statement of operations or the consolidated statement of cash flows.

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.~~will be prospective for us. We ~~are currently obtaining an understanding of the ASU and plan to adopt~~adopted the ASU on January 1, ~~2019.~~

~~On January 3, 2017, we completed our acquisition of Grohmann Engineering GmbH (now Tesla Grohmann Automation GmbH or “Grohmann”), a company that specializes in~~2019, and 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.

~~We accounted for the Grohmann acquisition using the purchase method of accounting for 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 periodASU did not ~~to exceed 12 months), 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):~~

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.

~~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):~~

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.

~~On November 21, 2016, we completed our acquisition~~In January 2018, the FASB issued ASU No. 2018-01, Land Easement Practical Expedient Transition to Topic 842, to permit an entity to elect a practical expedient to not re-evaluate land easements that existed or expired before the entity’s adoption of ~~SolarCity~~ASU No. 2016-02, Leases, and that were not accounted for ~~a total purchase price of $2.1 billion in stock~~. ~~We are currently finalizing our estimates of~~as leases. The ASU is effective for the ~~fair values of~~same periods as ASU No. 2016-02, and the ~~solar energy systems,~~ ~~leased and to be leased, identifiable intangible assets, deferred revenue, deferred taxes and noncontrolling interests assumed. Fair value adjustments recorded during the measurement period (a period~~ASU did not ~~to exceed 12 months) may~~ have a material impact on ~~our~~the consolidated financial statements. 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 three months ended September 30, 2017, we recorded an $18.2 million measurement period adjustment to the acquisition date fair values of certain liabilities as previously reported in our Form 10-K for the year ended December 31, 2016. The measurement period adjustments were recorded 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.

~~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 was as follows (in thousands):

	September 30, 2017									December 31, 2016							March 31, 2019										December 31, 2018
	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	$	152,431	$	(46,396	)	$	1,005		$	107,040	$	152,431	$	(40,705	)	$	1,205		$	112,931
Trade name		45,275		(7,707	)		233		37,801		43,500		(967	)		42,533
Trade names																		1,775		(624	)		143			1,294		45,275		(44,056	)		170			1,389
Favorable contracts and leases, net		112,817		(6,695	)		—		106,122		112,817		(864	)		111,953		112,817		(18,345	)		—			94,472		112,817		(16,409	)		—			96,408
Other		34,099		(6,624	)		1,005		28,480		26,679		(3,473	)		23,206		35,559		(12,485	)		662			23,736		35,559		(11,540	)		719			24,738
Total finite-lived intangible assets		318,080		(35,792	)		3,118		285,406		296,357		(7,044	)		289,313		302,582		(77,850	)		1,810			226,542		346,082		(112,710	)		2,094			235,466
Indefinite-lived intangible assets:
IPR&D		86,832		—			—		86,832		86,832		—			86,832		60,290		—			(13,264	)		47,026		60,290		—			(13,264	)		47,026
Total indefinite-lived intangible assets		86,832		—			—		86,832		86,832		—			86,832		60,290		—			(13,264	)		47,026		60,290		—			(13,264	)		47,026
Total intangible assets	$	404,912	$	(35,792	)	$	3,118	$	372,238	$	383,189	$	(7,044	)	$	376,145	$	362,872	$	(77,850	)	$	(11,454	)	$	273,568	$	406,372	$	(112,710	)	$	(11,170	)	$	282,492

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~~In April 2019, the ~~research~~

~~and~~Company determined that it would abandon further development efforts byon the ~~end of 2017, but there can be no assurance that~~IPR&D and will impair the ~~commercial feasibility will be achieved. The nature of~~remaining $47.0 million in 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.quarter ending June 30, 2019.

Total future amortization expense for intangible assets was estimated as follows (in thousands):

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. 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):

September 30, 2017

December 31, 2016

Fair Value

Level I

Level II

Level III

Fair Value

Level I

Level II

Level III

Money market funds

$
2,743,467

$
2,743,467

$
—

$
—

$
2,226,322

$
2,226,322

$
—

$
—

Interest rate swaps

(5,386
)

—

(5,386
)

—

1,490

—

1,490

—

Total

$
2,738,081

$
2,743,467

$
(5,386
)

$
—

$
2,227,812

$
2,226,322

$
1,490

$
—

	March 31, 2019										December 31, 2018
	Fair Value			Level I		Level II			Level III		Fair Value		Level I		Level II		Level III
Money market funds (cash and cash equivalents & restricted cash)	$	812,279			812,279	$	—		$	—	$	1,812,828	$	1,812,828	$	—	$	—
Interest rate swap (liability) asset, net		(7,867	)		—		(7,867	)		—		11,070		—		11,070		—
Total	$	804,412		$	812,279	$	(7,867	)	$	—	$	1,823,898	$	1,812,828	$	11,070	$	—

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 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 the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, there were no transfers between the levels of the fair value hierarchy.

We enter 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 do not designate our interest rate swaps as hedging instruments. Accordingly, our interest rate swaps are recorded at fair value on the consolidated balance sheets within other assets or other long-term liabilities, with any changes in their fair values recognized as other income (expense), net, in the consolidated statements of operations and with any cash flows recognized as investing activities in the consolidated statements of cash flows. Our interest rate swaps outstanding were as follows ~~as of September 30, 2017~~ (in thousands):

Our financial instruments that are not re-measured at fair value include accounts receivable, MyPower customer notes receivable, rebates receivable, accounts payable, accrued liabilities, customer deposits, ~~convertible senior notes, the 5.30% Senior Notes due in 2025,~~ the participation interest ~~solar asset-backed notes, solar loan-backed notes, Solar Bonds~~ and ~~long-term~~ debt. The carrying values of these financial instruments other than the participation interest, the convertible senior notes, the 5.30% Senior Notes due in 2025, the ~~participation interest, the~~ solar asset-backed notes, ~~and~~ the solar loan-backed notes and the automotive asset-backed notes approximate their fair values.

We estimate the fair value of the convertible senior notes and the 5.30% Senior Notes due in 2025 using commonly accepted valuation methodologies and market-based risk measurements that are indirectly observable, such as credit risk (Level II). In addition, we estimate the fair ~~value~~values of the participation interest, the solar asset-backed notes, ~~and~~ the solar loan-backed notes and the automotive asset-backed notes based on rates currently offered for instruments with similar maturities and terms (Level III). The following table presents the estimated fair values and the carrying values (in thousands):

Finished goods inventory included 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. As this was our first quarter delivering Model 3 vehicles outside of North America, finished goods inventory has increased as there are longer lead times associated with finite production capabilities at a single factory from which all Model 3 vehicles are shipped globally.

For solar energy systems, ~~leased 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.

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,~~March 31, 2019 and 2018, we recorded write-downs of ~~$26.2~~$64.2 million and ~~$93.0 million, respectively, in cost of revenues. During the three and nine months ended September 30, 2016, we recorded write-downs of $14.9 million and $38.3~~$17.3 million, respectively, in cost of revenues.

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

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

As of December 31, 2018, the table above included $1.69 billion of gross build-to-suit lease assets. As a result of the adoption of the new lease standard on January 1, 2019, we have de-recognized all build-to-suit lease assets and have reassessed these leases to be operating lease right-of-use assets within the consolidated balance sheet as of March 31, 2019 (see Note 2, Summary of Significant Accounting Policies). This includes construction in progress associated with certain build-to-suit lease costs incurred at our Buffalo manufacturing facility, referred to as Gigafactory 2.

Construction in progress is primarily comprised of tooling and equipment 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.~~ 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,~~March 31, 2019 and 2018, we capitalized ~~$37.3~~$7.5 million and ~~$96.0 million, respectively, of interest. During the three and nine months ended September 30, 2016, we capitalized $11.4 million and $30.4~~$18.8 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~~March 31, 2019 and 2018 was ~~$197.5~~$299.4 million and ~~$534.2~~$245.2 million, respectively. ~~Depreciation and amortization expense during the three and nine months ended September 30, 2016 was $126.8 million and $337.9 million.~~ Gross property and equipment under ~~capital~~finance leases as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 was ~~$612.3 million~~$1.72 billion and ~~$112.6 million,~~$1.52 billion, respectively. Accumulated depreciation on property and equipment under ~~capital~~finance leases as of these dates was ~~$88.3~~$276.8 million and ~~$40.2~~$231.6 million, respectively.

WePanasonic 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 a finance lease, as defined in ASC 842, Leases, their production equipment, we consider them to be leased assets when production commences. This results in us recording the cost of their production equipment within property, plant and equipment, net, on the consolidated balance sheets with a corresponding liability recorded to long-term debt and finance leases. For all suppliers and partners for which we plan to purchase the full output from their production equipment located at Gigafactory 1, we have applied similar accounting. As of March 31, 2019 and December 31, 2018, we had cumulatively capitalized costs of ~~$2.85~~$1.41 billion and ~~$1.04~~$1.24 billion, respectively, on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement. We had cumulatively capitalized total costs for Gigafactory 1, including costs under our Panasonic arrangement, of $4.92 billion and $4.62 billion as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018, respectively.

As of December 31, 2018, the table above included $1.66 billion of gross non-current build-to-suit lease liabilities. As a result of the adoption of the new lease standard on January 1, 2019, we have de-recognized all build-to-suit lease liabilities and have reassessed these leases to be operating lease right-of-use liabilities as of March 31, 2019. Due to price adjustments we made to our vehicle offerings during the three months ended March 31, 2019, we increased our sales return reserve significantly on vehicles previously sold under our buyback options program. Refer to Note 2, Summary of Significant Accounting Policies, 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.details on these transactions.

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 deposits also include prepayments on contracts that can be cancelled without significant penalties, such as vehicle maintenance plans. 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~~In the case of a vehicle, customer deposits are fully refundable up to the point the vehicle is placed into the production ~~cycle, and, in~~cycle. In the case of ~~solar~~an energy generation or ~~energy~~ storage ~~products,~~product, customer deposits are fully refundable prior to the entry into a purchase agreement or in certain cases for a limited time thereafter in(in accordance with applicable ~~laws.~~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~~March 31, 2019 and December 31, ~~2016,~~2018, we held ~~$686.1~~$768.3 million and ~~$663.9~~$792.6 million, respectively, in customer deposits.

The following is a summary of our debt as of ~~September 30, 2017~~March 31, 2019 (in thousands):

	Unpaid						Unused						Unpaid						Unused
	Principal		Net Carrying Value				Committed		Contractual				Principal		Net Carrying Value				Committed		Contractual			Contractual
	Balance		Current		Long-Term		Amount		Interest Rate			Maturity Date	Balance		Current		Long-Term		Amount (1)		Interest Rates			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		1,380,000		—		1,258,166		—		1.25	%	March 2021
2.375% Convertible Senior Notes due in 2022 ("2022 Notes")		977,500		—		834,834		—		2.375	%	March 2022		977,500		—		878,824		—		2.375	%	March 2022
5.30% Senior Notes due in 2025 ("2025 Notes")		1,800,000		—		1,774,742		—		5.30	%	August 2025		1,800,000		—		1,779,546		—		5.30	%	August 2025
Credit Agreement		1,269,000		—		1,269,000		535,095	1% plus LIBOR			June 2020		1,856,000		—		1,856,000		415,217	1% plus LIBOR			June 2020-July 2023
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
Vehicle and other Loans														75,498		498		75,000		—	1.8%-4.7%			June 2019-December 2021
1.625% Convertible Senior Notes due in 2019		566,000		—		506,535		—		1.625	%	November 2019		565,992		550,999		—		—		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
Zero-Coupon Convertible Senior Notes due in 2020														103,000		—		93,161		—		0.0	%	December 2020
Solar Bonds		32,016		6,424		25,135		—	2.6%-5.8%			March 2018- January 2031		24,313		3,396		21,432		—	3.0%-5.8%			March 2020 - January 2031
Total recourse debt		7,410,395		136,442		6,749,742		535,095						6,782,303		554,893		5,962,129		415,217
Non-recourse debt:
Warehouse Agreements		556,992		154,191		402,801		43,008		2.7	%	September 2019		174,243		40,591		133,652		925,757	3.9%-4.2%			September 2020
Canada Credit Facility		55,072		21,357		33,715		—	3.6%-4.5%			December 2020		64,894		30,819		34,075		—	3.6%-5.9%			November 2022
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
Term Loan due in 2019														164,798		164,798		—		—		6.1	%	April 2019 (2)
Term Loan due in 2021														166,805		7,117		158,835		—		6.3	%	January 2021
China Loan Agreement														11,172		11,172		—		510,328		3.9	%	March 2020
Cash equity debt														462,931		9,335		439,374		—	5.3%-5.8%			July 2033-January 2035
Solar asset-backed notes														1,202,253		30,327		1,141,961		—	4.0%-7.7%			September 2024-February 2048
Solar loan-backed notes														196,924		10,671		179,171		—	4.8%-7.5%			September 2048-September 2049
Automotive asset-backed notes														1,062,750		460,314		597,331		—	2.3%-7.9%			December 2019-June 2022
Solar Renewable Energy Credit and other Loans														36,438		32,559		3,495		18,132	4.4%-8.2%			September 2019-July 2021
Total non-recourse debt		2,582,026		239,064		2,299,987		244,042						3,543,208		797,703		2,687,894		1,454,217
Total debt	$	9,992,421	$	375,506	$	9,049,729	$	779,137					$	10,325,511	$	1,352,596	$	8,650,023	$	1,869,434

The following is a summary of our debt as of December 31, ~~2016~~2018 (in thousands):

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

	Unpaid							Unused
	Principal		Net Carrying Value					Committed		Contractual			Contractual
	Balance		Current		Long-Term			Amount (1)		Interest Rates			Maturity Date
Recourse debt:
0.25% Convertible Senior Notes due in 2019 ("2019 Notes")		920,000		912,625		—			—		0.25	%	March 2019
2021 Notes		1,380,000		—		1,243,496			—		1.25	%	March 2021
2022 Notes		977,500		—		871,326			—		2.375	%	March 2022
2025 Notes		1,800,000		—		1,778,756			—		5.30	%	August 2025
Credit Agreement		1,540,000		—		1,540,000			230,999	1% plus LIBOR			June 2020
Vehicle and other Loans		76,203		1,203		75,000			—	1.8%-7.6%			January 2019-December 2021
1.625% Convertible Senior Notes due in 2019		565,992		541,070		—			—		1.625	%	November 2019
Zero-Coupon Convertible Senior Notes due in 2020		103,000		—		91,799			—		0.0	%	December 2020
Solar Bonds		24,725		119		25,190			—	2.6%-5.8%			January 2019-January 2031
Total recourse debt		7,387,420		1,455,017		5,625,567			230,999
Non-recourse debt:
Warehouse Agreements		92,000		13,604		78,396			1,008,000	3.9%-4.2%			September 2020
Canada Credit Facility		73,220		31,766		41,454			—	3.6%-5.9%			November 2022
Term Loan due in 2019		180,624		180,624		—			—		6.1	%	January 2019
Term Loan due in 2021		169,050		6,876		161,453			—		6.0	%	January 2021
Cash equity debt		466,837		10,911		441,472	��		—	5.3%-5.8%			July 2033-January 2035
Solar asset-backed notes		1,214,071		28,761		1,154,914			—	4.0%-7.7%			September 2024-February 2048
Solar loan-backed notes		210,249		9,888		193,164			—	4.8%-7.5%			September 2048-September 2049
Automotive asset-backed notes		1,177,937		467,926		704,234			—	2.3%-7.9%			December 2019-June 2022
Solar Renewable Energy Credit and other Loans		26,742		16,612		9,836			17,633	5.1%-7.9%			December 2019-July 2021
Total non-recourse debt		3,610,730		766,968		2,784,923			1,025,633
Total debt	$	10,998,150	$	2,221,985	$	8,410,490		$	1,256,632

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,~~March 31, 2019, we were in material compliance with all financial debt ~~covenants. The following descriptions summarize~~covenants, which include minimum liquidity and expense-coverage balances and ratios.

During the ~~significant debt activity in~~first quarter of 2019, we repaid the ~~nine months ended September 30, 2017.~~

~~In June 2017, $144.8~~$920.0 million in aggregate principal amount of the ~~2018 Notes were exchanged for 1,163,442 shares~~2019 Notes.

On March 6, 2019, we amended and restated the senior asset-based revolving credit agreement (the “Credit Agreement”) to increase the total lender commitments by $500.0 million to $2.425 billion, and extend the term of ~~our common stock (see Note 12,~~ ~~Common Stock). As a result, we recognized a loss on debt extinguishment of $1.1 million.~~

~~In the third quarter of 2017, $42.7 million in aggregate principal amount~~substantially all of the ~~2018 Notes were exchanged or converted for 250,198 shares of our common stock (see Note 12,~~ ~~Common Stock) and $32.7 million in cash. As a result, we recognized a loss on debt extinguishment of $0.3 million.~~total commitments to July 2023.

In March 2017, we issued $977.5 million in aggregate principal amount of 2.375% convertible senior notes due in March 2022 in a public offering. The net proceeds from the issuance, after deducting transaction costs, were $965.9 million.

Each $1,000 of principal of the 2022 Notes is initially convertible into 3.0534 shares of our common stock, which is equivalent to an initial conversion price of approximately $327.50 per share, subject to adjustment upon 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) if 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 Notes in connection with such an event in certain circumstances. As of September 30, 2017, none of the conditions permitting the holders of the 2022 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 million shares of our common stock at a price of $327.50 per share. The cost of the convertible note hedge transactions was $204.1 million. In addition, 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 million shares of our common stock at a price of $655.00 per share. We received $52.9 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and the sale of 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 to $655.00 per share. As these transactions meet certain accounting criteria, 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.

In August 2017, we issued $1,800.0 million in aggregate principal amount of unsecured 5.30% senior notes due in August 2025 pursuant to Rule 144A 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.

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

On ~~April 26, 2017, our Chief Executive Officer converted all~~March 1, 2019, one 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). As a result, we recognized a loss on debt extinguishment of $2.2 million.~~

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.

Solar Bonds are senior unsecured obligations that are structurally subordinate 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.~~

~~On August 31, 2016,~~ our subsidiaries entered into a ~~Warehouse Agreement~~loan agreement with a ~~bank~~syndicate of lenders in China for ~~loans secured by~~an unsecured facility of up to RMB 3.50 billion (or the ~~future cash flows arising from certain leases~~equivalent amount drawn in U.S. dollars), to be used for expenditures related to the construction of 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 generallyproduction at our Gigafactory Shanghai. Borrowed funds bear interest at an annual rate of: (i) for RMB-denominated loans, 90% of the one-year rate published by the People’s Bank of China, and (ii) for U.S. dollar-denominated loans, the sum of one-year LIBOR plus ~~a fixed margin or (ii) the commercial paper rate.~~1.0%. The ~~Warehouse Agreements are~~loan facility is non-recourse to our ~~other~~ assets.

Pursuant to the Warehouse Agreements, an undivided beneficial interest 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 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 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.

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

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~~April 16, 2019, we extended the maturity 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~~Term Loan due in 2019 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.~~

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

~~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.2019.

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.

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.

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

~~In March 2017, we completed a public offering~~We have entered into various non-cancellable operating and finance lease agreements for certain of our ~~common stock~~offices, manufacturing and ~~issued~~warehouse facilities, retail and service locations, equipment, vehicles, and solar energy systems, worldwide. We determine if an arrangement is a ~~total of 1,536,259 shares~~lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for ~~total cash proceeds of $399.6 million (including 95,420 shares purchased~~use by ~~our Chief Executive Officer~~the lessor.

Our leases, where we are the lessee, often include options to extend the lease term for ~~$25.0 million), net of underwriting discounts and offering costs.~~

~~In April 2017, our Chief Executive Officer exercised his right under the indenture~~up 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~~ 10 years. Some of our ~~common stock~~leases also include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Certain operating leases provide for annual increases to lease payments based on an index or rate. We estimate the annual increase in lease payments based on the index or rate at the lease commencement date, for both our ~~Chief Executive Officer~~ historical leases and for new leases commencing after January 1, 2019. Differences between the estimated lease payment and actual payment are expensed as incurred. Lease expense for finance lease payments is recognized as amortization expense of the finance lease ROU asset and interest expense on the finance lease liability over the lease term.

The balances for the operating and finance leases where we are the lessee are presented as follows (in thousands) within our consolidated balance sheet:

The components of lease expense are as follows (in thousands) within our consolidated statement of operations:

Other information related to leases where we are the lessee is as follows (in ~~accordance with~~thousands):

Supplemental cash flow information related to leases where we are the ~~specified conversion rate, and~~lessee is as follows ~~we recorded an increase to additional paid-in capital~~(in thousands):

As of ~~$10.3 million (see Note 11,~~ March 31, 2019~~Convertible and Long-Term Debt Obligations~~).

~~In June 2017, we issued 1,163,442 shares~~, the maturities of our ~~common stock pursuant~~operating and finance lease liabilities (excluding short-term leases) are as follows (in thousands):

As of March 31, 2019, we have excluded from the table above an additional operating lease for a facility that has not yet commenced of $55.8 million. This operating lease is expected to ~~exchange agreements entered into with holders~~commence in the second half of ~~$144.8 million~~2019 for an initial lease term of 11.5 years.

As previously reported in ~~aggregate principal amount~~our Annual Report on Form 10-K for the year ended December 31, 2018 and under legacy lease accounting (ASC 840), future minimum lease payments under non-cancellable leases as of December 31, 2018 are as follows (in thousands):

Under the new lease standard, we are the lessor of certain vehicle arrangements as described in Note 2, Summary of Significant Accounting Policies. As of March 31, 2019, maturities of our operating lease receivables from customers for each of the next five years and thereafter were as follows (in thousands):

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2018 ~~Notes (see Note 11,~~ ~~Convertible~~ and ~~Long-Term Debt Obligations). As~~under legacy lease accounting (ASC 840), future minimum lease payments to be received from customers under non-cancellable leases as of December 31, 2018 are as follows (in thousands):

The above tables do not include vehicle sales to customers or leasing partners with a ~~result, we recorded an increase to additional paid-in capital~~resale value guarantee as the cash payments were received upfront. For our solar PPA arrangements, customers are charged solely based on actual power produced by the installed solar energy system at a predefined rate per kilowatt-hour of ~~$141.8 million. In addition, we amended and settled early~~power produced. The future payments from such arrangements are not included in the ~~associated portions~~above table as they are a function of the ~~bond hedges and warrants entered into~~power generated by the related solar energy systems 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.~~

Infuture. Following 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 amountadoption of the ~~2018 Notes (see~~new lease standard, solar energy system sales and PPAs that commence after January 1, 2019, where we are the lessor and were previously accounted for as leases, will no longer meet the definition of a lease and are therefore not included in the table as of March 31, 2019 (refer to Note ~~11,~~2, ~~Convertible and Long-Term Debt Obligations~~Summary of Significant Accounting Policies). 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 stock and the receipt of 169,890 ~~shares of our common stock~~.

In 2010, we adopted 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~~Stock options granted under the 2010 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options may only be granted ~~only~~ to our ~~employees, including officers.~~employees. Nonqualified stock options ~~and stock purchase rights~~ may be granted to our employees, ~~including~~ directors and consultants. Generally, our stock ~~option~~options and ~~RSU awards~~RSUs vest over ~~up to~~ four years and are exercisable over a maximum period of ~~ten~~10 years from their grant dates. Vesting typically terminates when the employment or consulting relationship ends.

As of ~~September 30, 2017, there~~March 31, 2019, 13,370,496 shares were ~~15,014,437~~reserved and available for issuance under the 2010 Plan.

In March 2018, our stockholders approved the Board of Directors’ grant of 20,264,042 stock option awards to our CEO (the “2018 CEO Performance Award”). The 2018 CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both 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, which begins at $100 billion for the first tranche and increases by increments of $50 billion thereafter, and (ii) any one of the following eight operational milestones focused on revenue or eight operational milestones focused on Adjusted EBITDA have been met for the previous four consecutive fiscal quarters on an annualized basis. 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.

As of March 31, 2019, two operational milestones: (i) $20.0 billion total annualized revenue and (ii) $1.5 billion annualized adjusted EBITDA have been achieved, subject to the formal certification by our Board of Directors, while no market capitalization milestones have been achieved. Consequently, no shares ~~underlying outstanding equity awards.~~subject to the 2018 CEO Performance Award have vested as of the date of this filing.

As of March 31, 2019, the following operational milestone was considered probable of achievement:

Stock-based compensation expense associated with the 2018 CEO Performance Award is recognized over the longer of the expected achievement period for each pair of market capitalization or operational milestones, beginning at the point in time when the relevant operational milestone is considered probable of being met. If additional operational milestones become probable, stock-based compensation expense will be recorded in the period it becomes probable including cumulative catch-up expense for the service provided since the grant date. The market capitalization milestone period and the valuation of each tranche are determined using a Monte Carlo simulation and is used as the basis for determining the expected achievement period. The probability of meeting an operational milestone is based on a subjective assessment of our future financial projections. Even though no tranches of the 2018 CEO Performance Award vest unless a market capitalization and a matching operational milestone are both achieved, stock-based compensation expense is recognized only when an operational milestone is considered probable of achievement regardless of how much additional market capitalization must be achieved in order for a tranche to vest. At our current market capitalization, even the first tranche of the 2018 CEO Performance Award will not vest unless our market capitalization were to more than double from the current level and stay at that increased level for a sustained period of time. Additionally, stock-based compensation represents a non-cash expense and is recorded as a selling, general, and administrative operating expense in our consolidated statement of operations.

As of March 31, 2019, we had $543.0 million of total unrecognized stock-based compensation expense for the operational milestones that were achieved but not vested or considered probable of achievement, which will be recognized over a weighted-average period of 2.9 years. As of March 31, 2019, we had unrecognized stock-based compensation expense of $1.51 billion for the operational milestones that were considered not probable of achievement. For the three months ended March 31, 2019, we recorded stock-based compensation expense of $55.0 million related to the 2018 CEO Performance Award. From March 21, 2018, when the grant was approved by our stockholders, through March 31, 2018, we recorded stock-based compensation expense of $6.7 million related to the 2018 CEO Performance Award.

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 stock option awards to certain employees (excluding our ~~Chief Executive Officer)~~CEO) to purchase an aggregate of 1,073,000 shares of our common stock. Each award consisted of the following four vesting tranches with athe vesting schedule based entirely on the attainment of the future performance milestones, assuming continued employment and service through each vesting date:

As of ~~September 30, 2017,~~March 31, 2019, the following performance milestones had been achieved:

We begin recognizing stock-based compensation expense as each performance milestone becomes probable of achievement. As of ~~September 30, 2017,~~March 31, 2019, we had unrecognized stock-based compensation expense of ~~$17.1~~$10.0 million for the performance milestone that was considered not probable of achievement. For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019 and 2018, we ~~recorded~~did not record any additional 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.

In August 2012, our Board of Directors granted 5,274,901 stock option awards to our ~~Chief Executive Officer~~CEO (the “2012 CEO ~~Grant”~~Performance Award”). The 2012 CEO ~~Grant~~Performance Award consists of 10 vesting tranches with a vesting schedule based entirely on the attainment of both performance conditions and market conditions, assuming continued employment and service through each vesting date. Each vesting tranche requires a combination of a pre-determined performance milestone and an incremental increase in our market capitalization of ~~$4.0~~$4.00 billion, as compared to our initial market capitalization of ~~$3.2~~$3.20 billion at the time of grant. As of ~~September 30, 2017,~~March 31, 2019, the market capitalization conditions for all of the vesting tranches and the following ~~eight~~ performance milestones had been achieved:

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

We begin recognizing ~~stock-based~~stock-based compensation expense as each milestone becomes probable of achievement. As of September 30, 2017, we had $1.0 million of total unrecognized stock-based compensation expense for the performance milestone that was considered probable of achievement, which will be recognized over a weighted-average period of 0.3 years. As of September 30, 2017,March 31, 2019, 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,~~March 31, 2019, we recorded no stock-based compensation expense related to the 2012 CEO Performance Award. For the three months ended March 31, 2018, we recorded stock-based compensation expense of ~~$1.2~~$0.1 million ~~and $4.3 million, respectively,~~ related to ~~the 2012~~this award.

Our CEO ~~Grant. For the three and nine months ended September 30, 2016, we recorded stock-based compensation expense of $4.6 million and $14.9 million, respectively, related to the 2012 CEO Grant.~~

~~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.

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

We realized no income tax ~~benefits~~benefit from stock option exercises in each of the periods presented due to ~~recurring~~cumulative losses and valuation allowances. As of ~~September 30, 2017,~~March 31, 2019, we had ~~$1.1~~$1.72 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~~3.0 years.

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.

~~As discussed in Note 8,~~ ~~Property, Plant and Equipment~~, weWe have ~~a build-to-suit~~an operating lease arrangement with the Research Foundation for the State University of New York (the ~~“Foundation”~~“SUNY Foundation”) where the SUNY Foundation ~~will construct~~is constructing a ~~solar cell and panel~~ manufacturing facility where we have housed the development and production of solar products and components, referred to as Gigafactory 2, with our participation in the design and construction, ~~install~~is installing certain utilities and other improvements and ~~acquire~~is acquiring certain manufacturing equipment designated by us to be used in the manufacturing facility. ~~The Foundation will cover (i) construction costs related to~~ Following the ~~manufacturing facility in an amount up to $350.0 million, (ii) the acquisition and commissioning~~adoption 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, andASC 842, 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~~no longer recognize the build-to-suit ~~lease arrangement,~~asset and related depreciation expense or the corresponding financing liability and related amortization for Gigafactory 2 in our consolidated financial statements. During the three months ended March 31, 2018, we ~~are required to achieve specific operational milestones during the initial term of the lease, which include employing a certain number of employees~~began production at the manufacturing facility, ~~within western New York and within the State~~although construction has not been fully completed as of New York within specified periods following the completion of the manufacturing facility. We are also required to spend or incur approximately $5.0 billion in combined capital, operational expenses and other costs in the State of New York over the 10 years following the achievement of full production. On an annual basis during the initial lease term, as measured on each anniversary of the commissioning of the manufacturing facility, if we fail to meet these specified investment and job creation requirements, then we would be obligated to pay a $41.2 million “program payment” to the 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 payable by us.March 31, 2019.

~~The non-cash investing and financing activities related to the arrangement during the three and nine months ended September 30, 2017 amounted to $1.9 million and $83.5 million, respectively.~~

~~On March 28, 2014, a purported stockholder class action was~~Between September 1, 2016 and October 5, 2016, seven lawsuits were filed in the ~~United States District~~Delaware Court ~~for~~of Chancery by purported stockholders of Tesla challenging our acquisition of SolarCity. Following consolidation, the ~~Northern District~~lawsuit names as defendants the members of ~~California against SolarCity~~Tesla’s board of directors as then constituted and ~~two of its officers.~~alleges, among other things, that board members breached their fiduciary duties in connection with the acquisition. The complaint ~~alleges violations of federal securities laws,~~asserts both derivative claims and ~~seeks unspecified compensatory damages and other relief~~direct claims on behalf of a purported class ~~of purchasers of SolarCity’s securities from March 6, 2013~~and seeks, among other relief, unspecified monetary damages, attorneys’ fees, and costs. On January27, 2017, defendants filed a motion to ~~March 18, 2014. After a series of amendments~~dismiss the operative complaint. Rather than respond to the ~~original complaint,~~defendants’ motion, the plaintiffs filed an amended complaint. On March17, 2017, defendants filed a motion to dismiss the amended complaint. On December13, 2017, the Court heard oral argument on the motion. On March28, 2018, the Court denied defendants’ motion to dismiss. Defendants filed a request for interlocutory appeal, but the Delaware Supreme Court denied that request without ruling on the merits but electing not to hear an appeal at this early stage of the case. Defendants filed their answer on May 18, 2018. The parties are proceeding with discovery. The case is set for trial in March 2020. The parties are also deciding on a mediation date.

These plaintiffs and others filed parallel actions in the U.S. District Court for the District of Delaware on or about April 21, 2017. They include claims for violations of the federal securities 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 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. litigation.

We believe that claims challenging the ~~claims~~SolarCity acquisition are without merit and

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

~~On August 15, 2016, a purported stockholder class action lawsuit was filed in the United States District Court for the Northern District~~Securities Litigation Relating to Production 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.Model 3 Vehicles

On October 10, 2017, a purported stockholder class action was filed in the ~~United States~~U.S. 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~~the Company’s preparedness to produce Model 3 vehicles. Plaintiffs filed an amended complaint on March 23, 2018, and defendants filed a motion to dismiss on May 25, 2018. The court granted defendants’ motion to dismiss with leave to amend. Plaintiffs filed their amended complaint on September 28, 2018, and defendants filed a motion to dismiss the amended complaint on February 15, 2019. The hearing on the motion to dismiss was held on March 22, 2019, and on March 25, 2019, the Court ruled in favor of defendants and dismissed the complaint with prejudice. On April 8, 2019, plaintiffs filed a notice of appeal. We continue to 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.

On October 26, 2018, in a similar action, a purported stockholder class action was filed in the Superior Court of California in Santa Clara County against Tesla, Elon Musk and seven initial purchasers in an offering of debt securities by Tesla in August 2017. The complaint alleges misrepresentations made by Tesla regarding the number of Model 3 vehicles Tesla expected to produce by the end of 2017 in connection with such offering, and seeks unspecified compensatory damages and other relief on behalf of a purported class of purchasers of Tesla securities in such offering. Tesla thereafter removed the case to federal court. On January 22, 2019, plaintiff abandoned its effort to proceed in state court, instead filing an amended complaint against Tesla, Elon Musk and seven initial purchasers in the debt offering before the same judge in the U.S. District Court for the Northern District of California who is hearing the above-referenced earlier filed federal court case. On February 5, 2019, the Court stayed this new case pending a ruling on the motion to dismiss the complaint in the above earlier filed case. Now that the above-referenced earlier filed federal court case has been dismissed, the parties are negotiating a briefing schedule for the motion to dismiss that defendants will be filing in this case. 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~~On June 4, 2018, a purported Tesla stockholder filed a putative class and ~~October 5, 2016, seven lawsuits were filed~~derivative action in the Delaware Court of Chancery against Mr. Musk and the members of Tesla’s board of directors as then constituted, alleging that such board members breached their fiduciary duties by approving the stock-based compensation plan. The complaint seeks, among other things, monetary damages and rescission or reformation of the ~~State~~stock-based compensation plan. On August 31, 2018, defendants filed a motion to 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 is set for May 9, 2019. We believe the claims asserted in this lawsuit are without merit and intend to defend against them vigorously.

Between August 10, 2018 and September 6, 2018, nine purported stockholder class actions were filed against Tesla and Elon Musk in connection with Elon Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. All of ~~Delaware by~~the 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 ~~stockholders~~class of ~~Tesla challenging our acquisition~~purchasers of ~~SolarCity. Following consolidation, the lawsuit names~~Tesla’s securities. Plaintiffs filed their consolidated complaint on January 16, 2019 and added as defendants the members of Tesla’s board of ~~directors~~directors. The now-consolidated purported stockholder class action is stayed while the issue of selection of lead counsel is briefed and ~~alleges, among other things,~~argued before the U.S. Court of Appeals for the Ninth Circuit. We believe that ~~board members breached their fiduciary duties in connection~~the claims have no merit and intend to defend against them vigorously. We are unable to estimate the potential loss, or range of loss, associated with ~~the acquisition. The complaint asserts both~~these claims.

Between October 17, 2018 and November 9, 2018, five 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~~lawsuits were 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~~Delaware Court of Chancery against Mr. Musk and the members of Tesla’s board of directors as then constituted in relation to statements made and actions connected to a potential going private transaction. In addition to these cases, on October 25, 2018, another derivative lawsuit was filed in the U.S. District Court for the District of Delaware ~~on April 21, 2017, adding claims for violations~~against Mr. Musk and the members 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~~as then constituted. The Courts in both the Delaware federal court and Delaware Court of Chancery actions have consolidated their ~~fiduciary duties in connection with the acquisition~~respective actions and ~~alleges violations~~stayed each consolidated action pending resolution of the ~~federal securities laws.~~

above-referenced consolidated purported stockholder class action. We believe that the claims ~~challenging the SolarCity acquisition are without merit.~~have no merit and intend to defend against them vigorously. We are unable to estimate the ~~possible~~potential loss, or range of loss, ~~if any,~~ associated with these claims.

~~In July 2012, SolarCity, along with other companies~~On March 7, 2019, various stockholders filed a derivative suit in the ~~solar energy industry, received a subpoena from the United States Treasury Department’s Office~~Delaware Court of Chancery, purportedly on behalf of the ~~Inspector General~~Company, naming Elon Musk and Tesla’s board of directors, also related to ~~deliver certain documents in SolarCity’s possession~~Mr. Musk’s August 7, 2018 Twitter post that ~~relate to SolarCity’s applications for United States Treasury grants. In February 2013, two financing funds affiliated with SolarCity filed a lawsuit in~~is 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 1603basis of the ~~American Recovery~~above-referenced consolidated purported stockholder class action as well as Mr. Musk’s February 19, 2019 Twitter post regarding Tesla’s vehicle production. The suit asserts claims for breach of fiduciary duty and ~~Reinvestment Act~~seeks declaratory and injunctive relief, unspecified damages, and other relief. Plaintiffs moved for expedited proceedings in connection with the declaratory and injunctive relief. Briefs were filed on March 13, 2019 and the hearing held on March 18, 2019. Defendants prevailed, with the Court denying plaintiffs’ request for an expedited trial and granting defendants’ request to stay this action pending the outcome of ~~2009. In February 2016,~~ the ~~United States government~~above-referenced consolidated purported stockholder class action.

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 ~~a motion seeking leave~~with the Court on September 29, 2018, in connection with the actions taken by the U.S. Securities and Exchange Commission (the “SEC”) relating to ~~assert a counterclaim against~~Elon Musk’s prior statement that he was considering taking Tesla private. Without admitting or denying any of the ~~two plaintiff funds~~SEC’s allegations, and with no restriction on Mr. Musk’s ability to serve as an officer or director on the ~~grounds that the United States government, in fact,~~Board (other than as its Chair), among other things, we and Mr. Musk paid ~~them more, not less, than they were entitled to as a matter~~civil penalties of ~~law. In September 2017, SolarCity and the United States government reached a global settlement of both the investigation and SolarCity’s lawsuit. In that settlement, SolarCity admitted no wrongdoing~~$20 million each and agreed ~~to return approximately 5%~~that an independent director will serve as Chair of the ~~United States Treasury cash grants it had received between 2009~~Board for at least three years, and ~~2013, amounting~~we appointed such an independent Chair of the Board and two additional independent directors to ~~$29.5 million. The investigation is now closed~~the Board, and ~~SolarCity’s lawsuit has been dismissed.~~further enhanced our disclosure controls and other corporate governance-related matters. On April 26, 2019, a proposed amendment to the settlement to modify certain of the previously-agreed disclosure procedures to clarify the application of such procedures was submitted to the Court for approval. All other terms of the prior settlement are proposed by the parties to be reaffirmed without modification.

~~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.

In particular, the ~~Securities~~SEC has issued subpoenas to Tesla in connection with (a) Mr. Musk’s prior statement that he was considering taking Tesla private and ~~Exchange Commission.~~ (b) certain projections that we made for Model 3 production rates during 2017 and other public statements relating to Model 3 production. The DOJ has also asked us to voluntarily provide it with information about each of these matters and is investigating. Aside from the settlement with the SEC (including the proposed amendment as described above) relating to Mr. Musk’s statement that he was considering taking Tesla private, there have not been any 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.~~brand.

We are contractually obligated to compensate certain fund investors for any losses that they may suffer in certain limited circumstances resulting from reductions in 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 payable for the potential exposure from this obligation based on all the information available at that time, including any guidelines issued by the U.S. Treasury Department on solar energy system valuations for purposes of claiming U.S. Treasury grants and any audits undertaken by the IRS. 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.

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.

As of ~~September 30, 2017,~~March 31, 2019, we had ~~$129.9~~$224.3 million of unused letters of credit outstanding.

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):

					March 31,		December 31,
	September 30, 2017		December 31, 2016		2019		2018
Assets
Current assets
Cash and cash equivalents	$	71,973	$	44,091	$	68,204	$	75,203
Restricted cash		33,343		20,916		70,705		130,927
Accounts receivable, net		36,248		16,023		29,647		18,702
Rebates receivable		5,060		6,646
Prepaid expenses and other current assets		3,620		7,532		9,038		10,262
Total current assets		150,244		95,208		177,594		235,094
Operating lease vehicles, net		143,613		—		199,842		155,439
Solar energy systems, leased and to be leased, net		5,098,398		4,618,443
Solar energy systems, net						5,112,908		5,116,728
Restricted cash, net of current portion						60,444		65,262
Other assets		52,866		35,826		58,098		55,554
Total assets	$	5,445,121	$	4,749,477	$	5,608,886	$	5,628,077
Liabilities
Current liabilities
Accounts payable	$	31	$	20	$	—	$	32
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
Accrued liabilities and other						89,156		132,774
Deferred revenue						25,735		21,345
Current portion of long-term debt and finance leases						678,644		662,988
Total current liabilities		125,078		139,901		793,535		817,139
Deferred revenue, net of current portion		280,044		178,783		182,374		177,451
Long-term debt, net of current portion		650,211		466,741
Other liabilities and deferred costs		60,740		82,917
Long-term debt and finance leases, net of current portion						1,170,357		1,237,707
Other long-term liabilities						24,358		26,400
Total liabilities	$	1,116,073	$	868,342	$	2,170,624	$	2,258,697

~~The related party transactions were primarily issuances, maturities~~Our convertible senior notes are not re-measured at fair value (refer to Note 4, Fair Value of Financial Instruments). As of March 31, 2019 and ~~exchanges~~December 31, 2018, the unpaid principal balance 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 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~~).to related parties is $3.0 million.

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, sales of electric vehicle components and systems to other manufacturers, retail merchandise, and sales ~~powertrain sales and services~~ by ~~Grohmann.~~our acquired subsidiaries to third party customers. 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 solar energy systems, or sale of electricity generated by our solar energy systems to customers.~~products. Our CODM does not evaluate operating segments using asset ~~and~~or liability information. The following table presents revenues and gross margins by reportable segment (in thousands):

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

The revenues in certain geographic areas were impacted by the price adjustments we made to our vehicle offerings during the three months ended March 31, 2019. Refer to Note 2, Summary of Significant Accounting Policies, for details.

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

During the first quarter of 2019, we carried out certain restructuring actions in order to reduce costs and improve efficiency. As a result, we recognized $43.5 million of costs primarily related to employee termination expenses and losses from closing certain stores. These costs were substantially paid by the end of first quarter of 2019.

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 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 and other services related to our products.

Our production vehicle fleet includes our Model S premium sedan and our Model X ~~sport utility vehicle,~~SUV, which are our highest-performance ~~and most capable~~ vehicles, and our Model 3, a ~~lower priced~~lower-priced sedan designed for the mass market. We continue to enhance our vehicle offerings with enhanced Autopilot options, ~~Internet~~internet connectivity and free over-the-air software updates to provide additional safety, convenience and performance features. ~~We are also actively working on~~In March 2019, we unveiled Model Y, a compact SUV utilizing the Model 3 platform, which we expect to produce at high volumes by the end of 2020. In addition, we have several future electric vehicles ~~such as~~in our product pipeline, including Tesla Semi, a ~~100%-electric semi-truck.~~pickup truck and a new version of the Tesla Roadster.

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

~~We drive demand for our~~Our goal is to produce the world’s highest quality vehicles ~~by continually improving our vehicles through over-the-air software updates, expanding our retail, service~~as quickly and ~~charging infrastructure,~~as cost-effectively as possible with a priority on workplace health and ~~by periodically developing and introducing new vehicle variants and models.~~safety. The worldwide automotive ~~market~~markets for alternative fuel vehicles isand self-driving technology are highly competitive and we expect itthem 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,so. However, we believe that the unique features and the safety aspects of our vehicles, our constant innovation, our growing brand, the increased affordability introduced with Model 3, the expansion of our global service and charging operations and infrastructure, and our future vehicles will continue to generate incremental demand for our vehicles by making ~~our vehicles~~them accessible to larger and previously untapped consumer and commercial markets. ~~For example,~~We believe that an increasingly important factor in our success will be the Autopilot features in our vehicles and eventually, our self-driving technology in which we are making significant strides through our proprietary and powerful full self-driving computer and remotely updateable artificial intelligence software, which we expect will facilitate the achievement of fully autonomous driving in our vehicles. While we are subject to regulatory constraints over which we have no control, our ultimate goal is an autonomously-driven future that improves safety for everyone on the road and provides our customers with convenience and additional income through participation in an autonomous Tesla ride-hailing network, which we will also operate with our own vehicles. We also believe that we have an advantage over our competitors with respect to our battery and powertrain technology, as our vehicles’ EPA-rated range per kWh is expected to be superior to that of other electric vehicles to be introduced in the near term, and we have the ability to improve our vehicles through over-the-air software updates.

On the other hand, we may be impacted by trade policies, political uncertainty and economic cycles involving geographic regions where we have significant operations. Sales of vehicles in the automotive industry also tend to be cyclical in many markets, which may expose us to increased volatility. In addition, the federal tax credit for the purchase of a qualified electric vehicle in the U.S. was reduced to $3,750 for any Tesla vehicle delivered during the first or second quarter of 2019, and will be further reduced to $1,875 for each Tesla vehicle delivered in the third or fourth quarter of ~~2017,~~2019 and to $0 for each Tesla vehicle delivered thereafter. We believe that this phase-out likely pulled forward some vehicle demand into 2018 and could create similar pull-forwards in 2019 before each further step reduction in the federal tax credit. In the long run, we ~~achieved all-time quarterly records~~do not expect a meaningful impact to our sales in the U.S., as we believe that each of our vehicle models offers a compelling proposition even without incentives. Finally, in the first quarter of 2019, we announced a global shift to exclusively transact our vehicle sales through the Internet (except for ~~both~~limited inventory sales), and we are in the process of optimizing our retail operations at our stores accordingly. We believe that this strategy will allow us to maximize our reach, decrease costs and vehicle prices, and improve the purchasing experience. However, prospective customers may initially be wary of this approach, which traditionally has not been used to sell vehicles at volume. We also made certain adjustments to our vehicle prices during the first quarter of 2019 to reflect the anticipated resulting changes to our cost structure, and as a limited accommodation to customers in consideration of the first reduction in the federal tax credit. As such pricing changes may impact our vehicles’ resale values, we increased our estimates of the volume of vehicles that may potentially be returned to us under pre-existing resale value guarantees provided to customers and partners for certain financing programs, which resulted in a net ~~orders~~reduction in gross profit in the first quarter of 2019.

In the first quarter of 2019, Model 3 was once again the best-selling premium vehicle in the United States. Vehicles traded in to us by Model 3 customers continue to validate a wider addressable market for this vehicle than existing owners of premium vehicles, and this trend has only increased following the introduction in the first quarter of 2019 of the $35,000 base price Model 3 Standard Range and Model 3 Standard Range Plus. Model 3 Standard Range is a software-limited version of Model 3 Standard Range Plus, which offers upgraded specifications at an excellent value and has been far more popular than Model 3 Standard Range. Moreover, we introduced Model 3 leasing in the United States in April 2019 in order to further expand the appeal of Model 3. Outside of the United States, where the mid-sized premium sedan market is significantly larger, we have only recently commenced deliveries of Model S3 in Europe and X.China as the first steps in our global expansion of this vehicle. Overall, we believe that we have only begun to explore the market opportunities for Model 3. We produce variants (including regional versions) of Model 3 in batches in accordance with the demand that we expect for them, however, and we have long lead times associated with procuring certain parts and finite production capabilities at a single factory from which all Model 3 vehicles are shipped globally, including to destinations with long transit times. If our specific Model 3 demand expectations prove inaccurate, including as we continue to expand the markets in which we offer Model 3, we may not be able to timely generate sales matched to the specific vehicles that we produce in the same timeframe, which may negatively impact our deliveries in a particular period.

~~The initial phase of manufacturing any new vehicle is always challenging, and the~~Our Model 3 production continued to ramp ~~is no exception, particularly given our focus on highly automated manufacturing processes that~~during the first quarter of 2019, and we expect ~~will ultimately result in higher volumes at significantly lower costs.~~to continue to grow 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 productionsustained rate of ~~5,000 Model 3~~7,000 vehicles per week at our Tesla Factory by the end of 2019. Furthermore, in January 2019 we commenced construction of our Gigafactory Shanghai in China. We expect to build a production process that is optimized and simplified for Model 3 production, comprised of stamping, body joining and paint shops and general assembly, at Gigafactory Shanghai to begin production of certain trims of Model 3 for China by the end of 2019. We believe that the efficiencies of local production, as well as avoiding certain tariffs on U.S.-manufactured vehicles, will allow us to offer Model 3 at a low average selling price in the largest market for electric vehicles in the world. Inclusive of and dependent upon how quickly we can ramp Gigafactory Shanghai, our next milestone is to be able to produce at least 500,000 units of all vehicle models combined in a continuous 12-month period ending no later than June 30, 2020. However, the timeframe for Gigafactory Shanghai is subject to a number of uncertainties, including regulatory approval, supply chain constraints, and the pace of installing production equipment and bringing the factory online. Ultimately, achieving increased Model 3 production cost-effectively will require that we timely address any bottlenecks, such as an isolated supplier limitation in the first quarter of ~~2018, although the precise progress of the~~2019, that may arise as we continue to ramp, ~~is difficult to predict given that~~and establish and maintain sustained supplier capacity, not only at our ~~production growth rate is similar to~~U.S. manufacturing facilities but also locally at Gigafactory Shanghai.

We experienced 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. Fordecline in Model S and Model X ~~we have made significant and sustained progress~~deliveries in the ~~production processes,~~first quarter of 2019 as compared to recent historical levels, which we believe was caused by weaker demand due to seasonality, a pull-forward of sales into the fourth quarter of 2019 in the United States as a result of the first federal tax credit reduction, and the discontinuation of our 75 kWh battery pack versions. We also saw mismatches between the mix of variants ordered and our manufacturing capacity allocated among such variants, including as a result of our adjustments to vehicle pricing during the first quarter of 2019. We have taken certain steps that we ~~produced 25,076~~believe will offset such issues, such as making our Model S and Model X lineup even more compelling by adopting a new generation of powertrain for these vehicles that features better range and acceleration than ever before—including in standard range versions that we re-introduced at the ~~third~~same time. This upgrade ensures the best performance characteristics with our flagship vehicles, even at the standard range trims, while preserving differentiation from Model 3.

Advancing our customer-facing infrastructure remains a top priority. Delivering vehicles to our customers and the related logistics, especially in our first quarter of ~~2017.~~

Model 3 deliveries outside of North America, presented challenges that among other things, caused vehicle deliveries to be deferred into the second quarter of 2019. However, we are working to eliminate the manufacturing and delivery patterns that contribute to such delays and logistical issues, by making these processes evenly spread out across each quarter. We are also ~~making strides~~continuing to optimize, expand and invest in ~~other aspects of~~ our servicing capabilities for our rapidly growing customer vehicle ~~production, deliveries~~fleet, in order to ensure a convenient and efficient customer ~~infrastructure. For example, we expect~~experience. We also plan 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.~~globally, and we recently introduced and began to deploy our 250 kilowatt V3 Supercharger technology to enable faster charging times while reducing our related costs. However, we will have to stabilize and sustain our delivery and logistics model to deliver an increasing number of vehicles, and we have only limited experience with this at scale, particularly in markets outside of North America. Moreover, if our growing fleet of customer vehicles, particularly Model 3, experiences unexpected reliability issues, it could outpace and overburden our servicing capabilities.

Finally, we recently unveiled Model Y, which we expect to build on the existing Model 3 platform, using manufacturing capacity at either the Tesla Factory or Gigafactory 1 that we believe will be less costly per unit of capacity than that of our original Model 3 lines. Given the specifications, performance and price we are planning for Model Y, and the growing compact SUV segment in which it will compete, Model Y presents an exciting opportunity for Tesla.

We are continuing to reduce customer acquisition costs of our energy generation products, ~~including~~ by ~~cutting advertising spend and increasingly~~focusing on selling these products ~~in Tesla stores with dedicated energy product sales personnel,~~directly 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 inefficiently. We have recently made the fourth quarter of 2017 as we move the production process from Fremont to Gigafactory 2. As we fine tune and standardize the production and installation process, we expect to ramp Solar Roof production considerably in 2018.

~~We believe that demand~~online buying experience for our energy products ~~will~~simpler and more accessible by standardizing the offerings for what has traditionally been a cumbersome customized process and offering highly competitive pricing, which should result in cost efficiencies and a larger market. As we continue to ~~increase with new product offerings~~implement this strategy, we expect that our retrofit solar system deployments will stabilize and ~~product integration. Demand for our Powerwall and Powerpack products presently exceeds capacity.~~ grow in the second half of the year.

We are ~~ramping up~~continuing with design iterations and testing on our Solar Roof product to improve our manufacturing capabilities, and we are continuing installations at a slow pace with the expectation that we will ramp production during 2019 and beyond.

We expect our energy storage products to continue to experience rapid growth, and we are targeting to more than double our deployments from 2018 to over 2 GWh in 2019. We continue to see global opportunities for projects, including to mitigate the costs of electricity and increase energy grid reliability. We are continuing to ramp production for these products at ~~our~~ Gigafactory 1, ~~over the next several quarters.~~including by re-routing certain cell production capacity that had temporarily been used for Model 3 back to these products, and we have seen further manufacturing efficiencies and improvements in our installation processes as we ramp.

~~We plan~~Capital expenditures in 2019 are projected to be approximately $2.0 to 2.5 billion, to continue to ~~invest heavily in capital expenditures to ramp installed production capacity~~develop our main projects including Gigafactory Shanghai, Model Y and ~~further increase vehicle production capacity in our Fremont Facility, including for Model 3, facilities and manufacturing equipment at Gigafactory 1~~Tesla Semi, as well as ~~new retail locations,~~to further expand our Supercharger and vehicle 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.~~repair networks.

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,Generally, 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 to continue to decrease in the future due to ~~the significant increase~~increases in ~~revenue primarily driven by the ramp in Model 3 sales~~expected revenues and as we focus on increasing operational ~~efficiency while continuing to expand~~efficiency.

In March 2018, our ~~customer~~stockholders approved a new 10-year CEO performance award for Elon Musk with vesting contingent on achieving market capitalization and ~~corporate infrastructure.~~operational milestones (the “2018 CEO Performance Award”). Consequently, we may incur significant additional non-cash stock-based compensation expense over the term of the award as each operational milestone becomes probable of vesting.

We offer ~~loans and leases~~financing arrangements for our vehicles in certain markets in North America, Europe and Asia primarily through various financial institutions. We ~~offered~~offer resale value guarantees or similar buy-back terms to ~~all direct~~certain customers who purchase vehicles and who ~~financed~~finance their ~~vehicle~~vehicles through one of our specified commercial banking partners. ~~Subsequent~~We also offer resale value guarantees in connection with automotive sales to ~~June 30, 2016, this program is~~certain leasing partners. Currently, both programs are available only in certain international markets. Resale value guarantees available for exercise within the 12 months following ~~September 30, 2017~~March 31, 2019 totaled ~~$279.9~~$136.6 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~~vehicles in a timely manner, all of which could adversely impact our cash flows. ~~Based on current market demand for our cars,~~To date, we ~~estimate the~~have only had an insignificant number of customers who exercised their resale value guarantees and returned their vehicles to us. However, resale prices ~~for~~may inherently fluctuate depending on various factors such as supply and demand of our used vehicles, ~~will continue to be above our resale value guarantee amounts.~~economic cycles and the pricing of new vehicles. Should market values of our vehicles or customer demand decrease, ~~these estimates~~the accuracy of our estimated rates of return may be impacted materially. As a result of pricing adjustments during the first quarter of 2019 as discussed above, we estimated a higher rate of return with respect to previously-delivered vehicles sold with a resale value guarantee, resulting in a net reduction in gross profit in such quarter. We adjusted our resale value guarantees for vehicles delivered subsequent to such pricing changes, for which we currently estimate the resale prices will continue to be above our associated resale value guarantee amounts.

We currently offer ~~vehicle leases~~leasing directly through our local subsidiaries for Model S, Model X and Model 3 in the U.S. ~~directly from Tesla Finance, our captive financing entity, as well as through leasing partners. Leasing through Tesla Finance is available~~and for Model S and Model X in ~~39 states and the District of Columbia.~~Canada. We also offer ~~financing arrangements~~leasing through ~~our entities~~leasing partners in ~~Canada, Germany and the United Kingdom.~~certain jurisdictions. 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.~~risk. 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,~~our customers the choice to either purchase and own solar energy systems or to purchase the energy that our solar energy systems produce through various contractual arrangements. These contractual arrangements include long-term leases and PPAs. In both structures, we install our solar energy systems at our customer’s premises and charge the customer a monthly fee, which alternatively may be prepaid at the customer’s option. In the lease structure, the monthly payment is fixed with a minimum production guarantee. In the PPA structure, we charge customers a fee per kilowatt-hour, or kWh, based on the amount of electricity the solar energy system actually produces. The leases and PPAs are typically for 20 years with a renewal option, and the specified monthly fees may be subject to annual escalations.

For customers who want to purchase and own solar energy systems, we also offer solar loans, whereby a third-party lender provides financing directly to a qualified customer to enable the customer to purchase and own a solar energy system designed, installed and serviced by us. We enter into a standard solar energy system sale and installation 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.

We ~~are developing~~continue to develop 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 and will invest in ~~construction of the building at~~ Gigafactory 1 ~~and~~ in the future to achieve additional production ~~equipment for battery, module and pack production.~~

output there. 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,~~a finance lease, as defined in ASC ~~840,~~842, Leases, we consider 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~~the consolidated balance sheets with a corresponding liability recorded to ~~financing obligations.~~long-term debt and finance leases. 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,~~March 31, 2019, we recorded ~~$148.5~~$173.1 million ~~and $415.0 million, respectively,~~ on ~~our~~the consolidated balance sheet.

While we currently believe that 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, we have in the past experienced bottlenecks in the assembly of battery modules and cell output at Gigafactory 1, which ~~has negatively affected~~impacted our production of Model 3. While we continue to ~~make progress to~~ resolve such issues at Gigafactory 1 as they arise, given the size and complexity of this undertaking, it is possible that future events could result in the cost of building and operating Gigafactory 1 exceeding our current expectations and Gigafactory 1 taking longer to expand than we currently anticipate.

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

components. The terms of ~~our~~such agreement ~~with the Foundation~~ require us to comply with a number of covenants, including that specified portions of the total jobs required to be employed directly by Tesla in the state of New York and the total cumulative investment required to be made by Tesla be met by April 30, 2019, the first anniversary of the SUNY Foundation’s substantial completion of its construction work at the facility. We fully expect to meet these covenants on time and will report our current status to the SUNY Foundation following such anniversary. Overall, we expect our significant operations at Gigafactory 2 and the surrounding Buffalo area to continue, including our ramp and manufacture of Solar Roof, which we are planning to scale over the remainder of 2019 and into 2020, as well as certain product development and other Tesla operations. In addition, Panasonic manufactures PV cells and modules at Gigafactory 2, which are among our various sources for our solar retrofit installations.

Although we remain on track with our covenants with the SUNY Foundation with respect to Tesla’s progress at and plans for Buffalo, any failure to comply with these covenants could obligate us to pay significant amounts to the SUNY Foundation and result in termination of the agreement. ~~Although we remain on track with our progress at Gigafactory 2,~~ ~~our~~Our expectations as to the ~~cost~~costs and timelines of ~~building the facility,~~our investment and operations at Buffalo, including those associated with acquiring ~~manufacturing~~ equipment and supporting our ~~manufacturing~~ operations with respect to our production of Solar Roof there, may prove incorrect, which could subject us to significant expenses to achieve the desired benefits.

We are constructing Gigafactory Shanghai in order to increase the affordability of Model 3 for customers in China by reducing transportation and manufacturing costs and eliminating certain tariffs on vehicles imported from the U.S. We broke ground in January 2019, and subject to a number of uncertainties, including regulatory approval, supply chain constraints, and the pace of installing production equipment and bringing the factory online, we expect to begin production of certain trims of Model 3 at Gigafactory Shanghai by the end of 2019. We expect much of the investment in Gigafactory Shanghai to be provided through local debt financing, including a RMB 3.5 billion term facility that our subsidiary entered into in March 2019, supported by limited direct capital expenditures by us. Moreover, we are targeting the capital expenditures per unit of production capacity at this factory to be less than that of our Model 3 production at the Tesla Factory, from which we have drawn learnings that should allow us to simplify our manufacturing layout and processes at Gigafactory Shanghai.

~~In addition, we~~We continue to expand production capacity at our ~~Fremont Factory~~existing facilities and ~~are exploring~~construct our planned facilities, and continually explore additional production capacity ~~in Asia and Europe~~.

The consolidated financial statements ~~have been~~are prepared in accordance with accounting principles generally accepted in the ~~United States~~U.S. (“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~~will be affected.

For a description of our critical accounting policies and estimates, refer to Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

	Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change					Three Months Ended March 31,				Change
(Dollars in thousands)	2017		2016		$		%			2017		2016		$		%			2019		2018		$			%
Automotive sales	$	2,076,731	$	1,917,442	$	159,289		8	%	$	6,125,643	$	3,849,558	$	2,276,085		59	%	$	3,508,741	$	2,561,881	$	946,860			37	%
Automotive leasing		286,158		231,285		54,873		24	%		813,462		507,085		306,377		60	%		215,120		173,436		41,684			24	%
Total automotive revenues		2,362,889		2,148,727		214,162		10	%		6,939,105		4,356,643		2,582,462		59	%		3,723,861		2,735,317		988,544			36	%
Services and other		304,281		126,375		177,906		141	%		713,168		308,849		404,319		131	%		492,942		263,412		229,530			87	%
Total automotive & services and other segment revenue		2,667,170		2,275,102		392,068		17	%		7,652,273		4,665,492		2,986,781		64	%		4,216,803		2,998,729		1,218,074			41	%
Energy generation and storage segment revenue		317,505		23,334		294,171		1261	%		818,229		50,009		768,220		1536	%		324,661		410,022		(85,361	)		-21	%
Total revenues	$	2,984,675	$	2,298,436	$	686,239		30	%	$	8,470,502	$	4,715,501	$	3,755,001		80	%	$	4,541,464	$	3,408,751	$	1,132,713			33	%

Automotive sales revenue includes ~~revenue~~revenues related to the sale of new Model S, Model X and Model 3 vehicles, including access to our Supercharger network, internet connectivity, ~~Supercharger access, specified~~Autopilot, full self-driving and over-the-air software updates, ~~for vehicles equipped with Autopilot hardware and~~as well as sales of regulatory credits to other automotive manufacturers. Our revenue from non-ZEV regulatory credits generally follows our production and delivery trends as we have long-term contracts with existing customers for the sale of these credits. However, as we do not have long-term contracts for ZEV credit sales, revenue from sale of ZEV credits fluctuate by quarter depending on when a contract is executed with a buyer. For example, our revenue from ZEV credit sales in the three months ended December 31, 2017 was $179.1 million while it was $0.8 million in the three months ended December 31, 2018.

Automotive leasing revenue includes the amortization of revenue for Model S and Model X vehicles under direct lease agreements as well as those sold with resale value guarantees accounted for as operating leases under lease accounting. We began offering leasing for Model 3 vehicles in the second quarter of 2019.

Services and other revenue consists of non-warranty after-sales vehicle services, sales of used vehicles, sales of electric vehicle components and systems to other manufacturers, retail merchandise, and sales by our acquired subsidiaries to third party customers.

Automotive sales revenue increased ~~by $159.3~~$946.9 million, or 8%37%, in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to ~~the~~ three months ended ~~September 30, 2016. This was~~March 31, 2018, primarily due to ~~a 23%~~an increase of approximately 42,750 Model 3 deliveries from our significant production ramp in ~~deliveries to 20,608 vehicles resulting from increased sales~~the second half of ~~Model X and S,~~2018, delivered at average selling prices that remained relatively consistent asyear-over-year. Additionally, there was an increase of $170.6 million in sales of non-ZEV regulatory credits to $200.6 million in the three months ended March 31, 2019 compared to $30.0 million in the same period in the prior ~~period, as well as the roll-out of Model 3~~year. The above increases in ~~the third quarter of 2017. The increase from new deliveries was~~revenue were offset by a decrease of ~~$147.6 million in sales of regulatory credits.~~

Automotive sales revenue increased by $2.3 billion, or 59%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This was primarily due to a 68% increase in deliveries to 56,931 vehicles resulting from increased sales of Model X and S, at average selling prices that remained relatively consistent as compared to the prior period, as well as the roll-out 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~~approximately 8,610 Model S and Model X deliveries at lower average selling prices due to price adjustments we made to our vehicle offerings in the three months ended March 31, 2019. Additionally, due to these price adjustments, we estimated that there is a greater likelihood that customers will exercise their buyback options. As a result, we adjusted our sales return reserve on vehicles ~~accounted for as operating leases, including~~previously sold under our buyback options program resulting in a reduction of automotive sales revenues of $500.5 million. Refer to Note 2, Summary of Significant Accounting Policies, to the ~~amortization of revenue for vehicles sold with resale value guarantees.~~ consolidated statements included elsewhere in the Quarterly Report on Form 10-Q.

Automotive leasing revenue increased ~~by $54.9~~$41.7 million, or 24%, in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended ~~September 30, 2016.~~March 31, 2018. The increase was primarily due to ~~a 41%~~an increase in cumulative vehicles under our direct vehicle leasing program and an increase in the number of vehicles under leasing programs where our counterparty has retained ownership of the vehicle during or at the end of the guarantee period when compared to the three months ended March 31, 2018. When our counterparty retains ownership, any remaining balances within deferred revenue and ~~programs with a~~ resale value guarantee ~~as of September 30, 2017 as compared~~are settled to ~~September 30, 2016,~~automotive leasing revenue. These increases were partially offset by a decrease ~~of $26.8 million of automotive leasing revenue upon early payoff and expiration of resale value guarantees~~ in ~~the three months ended September 30, 2017 as compared to the prior period.~~

Automotive leasing revenue increased by $306.4 million, or 60%, 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 incumulative vehicles under ~~leasing programs and programs with a~~our resale value guarantee ~~in the nine months ended September 30, 2017~~financing programs which are accounted for 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.operating leases.

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~~$229.5 million, or

~~141%~~ 87%, in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended ~~September 30, 2016. This~~March 31, 2018. The increase was primarily due to an increase in used vehicle sales asfrom an ~~organic result~~increased volume of ~~increased automotive sales as well as from the expansion of~~trade-in vehicles, partially offset by lower average selling prices for them due to price adjustments we made to our ~~trade-in program.~~

~~Services and other revenue increased by $404.3 million, or 131%,~~vehicle offerings in the ~~nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This was primarily due to~~current period and an increase in ~~used vehicle sales as an organic result~~trade-ins of ~~increased automotive sales as well as from the expansion of our trade-in program.~~relatively lower priced non-Tesla vehicles. 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~~was an increase in non-warranty maintenance services revenue as our fleet continues to grow.

Energy generation and storage revenue includes ~~sales~~sale of solar energy systems and energy storage products, leasing revenue from solar energy systems under operating leases and ~~power purchase agreements~~PPAs and ~~sales~~the sale of solar energy ~~system~~systems incentives.

Energy generation and storage revenue ~~increased~~decreased by ~~$294.2~~$85.4 million, or ~~1261%~~21%, in the three months ended ~~September 30, 2017~~March 31, 2019 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 wereMarch 31, 2018. The decrease was primarily due to ~~the inclusion of~~a decrease in revenue ~~from SolarCity, which we acquired on November 21, 2016, of $273.0 million and $752.8~~recognized for commercial projects, most predominantly $72.5 million for the ~~three~~South Australia battery project in the prior period, and ~~nine months ended September 30, 2017, respectively, as well as~~a decrease in deployments of cash and loan solar projects. These decreases were partially offset by increases in ~~sales~~deployments of ~~our energy storage products.~~Powerwall.

	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended March 31,						Change
(Dollars in thousands)	2017			2016			$		%			2017			2016			$		%			2019			2018			$			%
Cost of revenues
Automotive sales	$	1,755,622		$	1,355,102		$	400,520		30	%	$	4,724,849		$	2,895,483		$	1,829,366		63	%	$	2,856,209		$	2,091,397		$	764,812			37	%
Automotive leasing		175,224			161,959			13,265		8	%		516,683			310,176			206,507		67	%		117,092			104,496			12,596			12	%
Total automotive cost of revenues		1,930,846			1,517,061			413,785		27	%		5,241,532			3,205,659			2,035,873		64	%		2,973,301			2,195,893			777,408			35	%
Services and other		367,401			120,359			247,042		205	%		852,446			295,310			557,136		189	%		685,533			380,969			304,564			80	%
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																								3,658,834			2,576,862			1,081,972			42	%
Energy generation and storage segment		237,288			24,281			213,007		877	%		592,823			50,553			542,270		1073	%		316,887			375,363			(58,476	)		-16	%
Total cost of revenues	$	2,535,535		$	1,661,701		$	873,834		53	%	$	6,686,801		$	3,551,522		$	3,135,279		88	%	$	3,975,721		$	2,952,225		$	1,023,496			35	%

Gross profit total automotive	$	432,043		$	631,666							$	1,697,573		$	1,150,984							$	750,560		$	539,424
Gross margin total automotive		18.3	%		29.4	%							24.5	%		26.4	%							20	%		20	%

Gross profit total automotive & services and other segment	$	368,923		$	637,682							$	1,558,295		$	1,164,523							$	557,969		$	421,867
Gross margin total automotive & services and other segment		13.8	%		28.0	%							20.4	%		25.0	%							13	%		14	%

Gross profit energy generation and storage segment	$	80,217		$	(947	)						$	225,406		$	(544	)						$	7,774		$	34,659
Gross margin energy generation and storage segment		25.3	%		-4.1	%							27.5	%		-1.1	%							2	%		8	%

Total gross profit	$	449,140		$	636,735							$	1,783,701		$	1,163,979							$	565,743		$	456,526
Total gross margin		15.0	%		27.7	%							21.1	%		24.7	%							12	%		13	%

Cost of automotive sales revenue includes direct parts, material and 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 includes primarily ~~includes~~ the amortization of operating lease vehicles over the lease term, as well as warranty expenses recognized as incurred. 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~~Costs of services and other revenue includes costs associated with providing ~~maintenance~~ non-warranty after-sales services ~~to the fleet of Tesla vehicles,~~, costs to acquire and ~~sell~~certify used vehicles, and costs for retail merchandise. Cost of services and other revenue also includes direct parts, material and labor costs, ~~and~~ manufacturing overhead associated with the sales of electric vehicle ~~powertrain~~ components and systems to other ~~manufacturers.~~ manufacturers and sales by our acquired subsidiaries to third party customers.

Cost of ~~services and other~~automotive sales revenue increased ~~by $247.0~~$764.8 million, or ~~205%~~37%, in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended ~~September 30, 2016. This~~March 31, 2018, primarily due to an increase of approximately 42,750 Model 3 deliveries from our significant production ramp in the second half of 2018. The increase was partially offset by significant reductions in Model 3 average costs per unit compared to the prior period primarily due to temporary under-utilization of manufacturing capacity at lower production volumes in the first half of 2018 and other cost efficiencies. Additionally, due to price adjustments we made to our vehicle offerings during the three months ended March 31, 2019, we estimated that there is a greater likelihood that customers will exercise their buyback options. If customers elect to exercise the buyback option, we expect to be able to subsequently resell the returned vehicles, which resulted in a reduction of automotive cost of sales of $408.8 million. Refer to Note 2, Summary of Significant Accounting Policies, to the consolidated statements included elsewhere in the Quarterly Report on Form 10-Q.

Cost of automotive leasing revenue increased $12.6 million, or 12%, in the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase was primarily due to ~~the~~an increase in ~~costs of used~~cumulative vehicles under our direct vehicle ~~sales as a result of the increase in volume, $69.4 million increase in costs to provide maintenance service as our fleet continues to grow,~~leasing program and an increase in the number of ~~$10.0 million due to~~vehicles under leasing programs where our counterparty has retained ownership of the ~~inclusion of Grohmann’s cost of engineering services. These increases were offset by a $24.7 million decrease in cost of powertrain sales to Daimler as we discontinued the program~~vehicle during or at the end of the ~~second quarter~~guarantee period when compared to the prior period. When our counterparty retains ownership, the net book value of ~~2017.~~the leased vehicle of the lease vehicle is expensed to cost of automotive leasing revenue. These increases were partially offset by a decrease in our leasing portfolio under resale value guarantee financing programs that qualify under lease treatment.

Cost of services and other revenue increased ~~by $557.1~~$304.6 million, or ~~189%~~80%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This was primarily due to the increase in costs of used vehicle sales as a result of 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. These increases were offset by a $10.1 million decrease in cost of powertrain sales to Daimler as we discontinued the program at the end of the second quarter of 2017.

~~Gross margin for total automotive decreased from 29.4% to 18.3%~~ in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended ~~September 30, 2016. This decrease~~March 31, 2018. The increase was primarily due to the ~~higher~~ cost ~~structure associated with~~of used vehicle sales from the ~~roll-out~~increased volume of ~~Model 3~~trade-in vehicles. Additionally, there was an increase in the ~~third quarter~~cost of ~~2017~~our new service centers, additional service personnel in existing and ~~lower sales~~new service centers, Mobile Service capabilities, parts distribution centers and investment in new body shops to provide maintenance services to our rapidly growing fleet 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.vehicles.

Gross margin for total automotive ~~decreased from 26.4% to 24.5%~~remained relatively consistent at 20% in the ~~nine~~three months ended ~~September 30, 2017 as~~March 31, 2019 and 2018. Model 3 margins improved compared to the ~~nine months ended September 30, 2016. The roll-out~~prior period as we achieved significant manufacturing efficiencies in the production of Model 3 in the ~~third quarter~~second half of ~~2017,~~2018. This increase was partially offset by lower sales of regulatory credits and higher current period early payoffs and expirations of resale value guarantees, as compared to the same period in the prior year, contributed to the lower gross margin. Lower material and manufacturing costs for Model S and Model X asdeliveries at lower margins due to lower average selling prices from price adjustments we ~~further improved~~made to our vehicle ~~production processes, and the recognition of Autopilot 2.0 revenue~~offerings in the ~~current period partially offset~~three months ended March 31, 2019. Additionally, the ~~overall decrease.~~price adjustments also resulted in a reduction in gross automotive sales profit of $91.7 million from the adjustment of our sales return reserve on vehicles previously sold under our buyback options program.

Gross margin for total automotive & services and other segment decreased from ~~28.0%~~14% to ~~13.8%~~13% in the three months ended ~~September 30, 2017 as~~March 31, 2019 compared to the three months ended ~~September 30, 2016. Gross margin for total automotive & services and other segment decreased from 25.0% to 20.4% in the nine months ended September 30, 2017 as compared~~March 31, 2018 primarily due to the ~~nine months ended~~

~~September 30, 2016. These decreases are driven by the factors impacting~~automotive gross margin ~~for total automotive, as explained above, as well as higher costs of maintenance service.~~impacts discussed above.

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. In addition, where arrangements are accounted for as operating leases, the cost of revenue is primarily comprised of depreciation of the cost of leased solar energy systems, ~~and energy storage products, depreciation expense and~~ 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~~decreased by ~~$213.0~~$58.5 million, or ~~877%~~16%, in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended ~~September 30, 2016. Cost~~March 31, 2018 The decrease was primarily due to a decrease in cost of revenue for commercial energy storage projects, most predominantly $72.5 million for the South Australia battery project in the prior period, and a decrease in cost of revenue for cash and loan solar projects from lower deployments. These decreases were partially offset by increases in cost of revenue for Powerwall from increased deployments, increases in costs for our cash and loan solar energy system projects and higher costs from temporary manufacturing under-utilization of our Solar Roof ramp.

Gross margin for energy generation and storage ~~revenue increased by $542.3 million, or 1073%,~~decreased from 8% to 2% in the ~~nine~~three months ended ~~September 30, 2017 as~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2016. These increases were~~March 31, 2018. The decrease was primarily due to ~~the inclusion of~~lower margins in our cash and loan solar energy ~~generation and storage~~system business driven by higher fixed 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 of energy storage products~~per project as a result of ~~growing popularity of our Powerpack and Powerwall offerings.~~

~~Gross margin for energy generation and storage increased from -4.1% to 25.3%~~lower deployments in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. Gross margin for energy generation and storage increased from -1.1% to 27.5% 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 andMarch 31, 2019. Additionally, higher costs from ~~SolarCity and improved gross margin~~temporary manufacturing under-utilization of ~~energy storage sales.~~our Solar Roof ramp have further contributed to a decrease in margins.

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 increased by $117.3~~

R&D expenses decreased $26.9 million, or ~~55%~~7%, in the three months ended ~~September 30, 2017 as~~March 31, 2019 compared to the three months ended ~~September 30, 2016. This increase~~March 31, 2018. The decrease was primarily due to a ~~$69.0~~$20.3 million ~~increase~~decrease in employee and ~~labor-rated~~labor related expenses from ~~increased headcount as~~cost efficiency initiatives and a ~~result of our acquisitions as well as headcount growth from the expansion of our automotive and energy storage businesses. Additionally, there were increases~~$10.7 million decrease in ~~facilities expenses, depreciation expenses,~~ professional and outside service expenses, ~~and expensed materials to support Solar Roof development as well as the development of future products.~~

~~Research and development expense increased~~offset by ~~$435.0 million, or 74%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This increase was primarily due to a $216.5~~an $11.4 million increase in employee and labor-rated 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 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.stock-based compensation expense.

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~~litigation settlements.

SG&A expenses increased ~~by $316.2~~$17.5 million, or ~~94%~~3%, in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended ~~September 30, 2016. This~~March 31, 2018. The increase was primarily due to a ~~$148.1~~$51.6 million increase in employee and labor-rated 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, the increase was due to a $87.7 million increase in office, information technology and facilities-related expenses to support the growth of our business as well as sales and marketing activities to handle our expanding market presence and a $53.0 million increase in professional and outside service expenses to support the growth of our business.

~~Selling, general and administrative~~stock-based compensation expense ~~increased by $818.0 million, or 84%, in the nine months ended September 30, 2017 as compared~~related to the ~~nine months ended September 30, 2016. This increase was primarily due to~~2018 CEO Performance Award and stock awards granted for new hires and refresher employee stock grants, partially offset by a ~~$437.0~~$27.8 million ~~increase~~decrease in employee and ~~labor-rated~~labor related expenses from ~~increased~~decreased headcount asand certain other expenses.

During the first quarter of 2019, we carried out certain restructuring actions in order to reduce costs and improve efficiency. As a result, we recognized $43.5 million of ~~our acquisitions as well as headcount growth~~costs primarily related to employee termination expenses and losses from closing certain stores. These costs were substantially paid by the ~~expansion~~end of ~~our automotive and energy storage businesses. Additionally,~~first quarter of 2019. The restructuring actions during the ~~increase was due to a $210.3~~first quarter of 2019 will result in an estimated cost savings of approximately $180.0 million ~~increase~~for the remainder of 2019.

There were no restructuring actions in ~~office, information technology and facilities-related expenses to support~~ the growth of our business as well as sales and marketing activities 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.three months ended March 31, 2018.

Interest expense increased by ~~$70.4~~$7.9 million, or ~~151%~~5%, in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended ~~September 30, 2016. Interest expense increased by $191.2 million, or 143%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. These increases were~~March 31, 2018. The increase was primarily due to a decrease of $10.5 million in the ~~inclusion~~amount of interest ~~expenses~~we capitalized from ~~SolarCity~~the consolidated statement of ~~$48.7 million~~operations to property, plant, and ~~$156.5 million for~~equipment on the ~~three and nine months ended September 30, 2017, respectively. In addition,~~consolidated balance sheets. Lower capitalization results in higher interest expense. The amount of interest we capitalize is driven by our ~~average outstanding indebtedness has increased~~construction in ~~the three and nine months September 30, 2017 as compared~~progress balance, which decreased year-over-year due to ~~the same period in the prior year.~~our declining Model 3 capital expenditure ramp.

Other 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 income (expense), net, ~~decreased~~changed favorably by ~~$12.6~~$63.5 million to a gain of $25.8 million in the three months ended March 31, 2019 from a loss of $37.7 million in the three months ended March 31, 2018. The change was primarily due to favorable fluctuations in foreign currency exchange rates, offset by losses from interest rate swaps related to our debt facilities when compared to the prior period.

Our provision for income taxes increased by $17.3 million, or ~~107%~~308%, in the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended September 30, 2016. This decrease was primarily due to fluctuations in foreign currency exchange rates. Additionally, we recognized an $18.2 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 DecemberMarch 31, ~~2016. However, there was a partially offsetting increase of $7.0 million from the losses recognized upon conversions of the 2018 Notes in the three months ended September 30, 2016.~~

Other income (expense), net, decreased by $73.7 million, or 741%, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This decrease was primarily due to fluctuations 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~~2018. The increase was primarily due to the ~~significant~~ increase in taxable ~~income~~profits in ~~our international~~certain foreign jurisdictions ~~as a result of increased vehicle deliveries in the current year as compared to the prior year.~~year-over-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 to financing fund arrangements. The increase is mainly due to lower activity in our financing fund arrangements and a charge related to buyout of noncontrolling interests.

As of ~~September 30, 2017,~~March 31, 2019, we had ~~$3.53~~$2.20 billion of cash and cash equivalents. Balances held in foreign currencies had a U.S. dollar equivalent of ~~$535.4~~$410.1 million and consisted primarily of Chinese yuan, ~~euros~~Norwegian kroner, and ~~Norwegian kroner.~~euros. Our sources of cash are ~~predominately~~predominantly 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.~~systems, proceeds from debt facilities, proceeds from financing funds and proceeds from equity offerings.

Our sources of liquidity and cash flows enable us to fund ~~on-going~~ongoing operations, research and development projects ~~investments~~for new products, development of our main projects including Gigafactory Shanghai, Model Y and Tesla Semi, and expansion of our Supercharger and vehicle service and repair networks. We currently expect total 2019 capital expenditures to be approximately $2.0 to $2.5 billion.

In 2019 and beyond, we will continue to utilize our increasing experience and learnings from past and current product ramps to do so at a level of capital efficiency per dollar of spend that we expect to be significantly greater than historical levels. For example, based on our experience with ramping Model 3 at the Tesla Factory, we expect that the capital spend per unit of Model 3 manufacturing capacity at Gigafactory Shanghai will be less than that of our line in ~~tooling~~Fremont. Likewise, based on such experience and ~~manufacturing equipment for~~the substantial commonality of components we expect between Model Y and Model 3, we believe that the production ramp of ~~our~~Model Y will be significantly faster than that of Model 3 ~~vehicle,~~and cost less per unit of manufacturing capacity than that of Model 3 at Fremont. Considering the ~~continued construction~~pipeline of new products planned at this point, and consistent with our current strategy of using a partner to manufacture cells, as well as considering all other infrastructure growth and investments in Gigafactory 1, Gigafactory 2 and Gigafactory Shanghai, we currently estimate that capital expenditures will be between $2.5 to $3.0 billion annually for the ~~continued expansion~~next two fiscal years. Moreover, we expect that the cash we generate from our core operations will generally be sufficient to cover our future capital expenditures and to pay down our near-term debt obligations, although we may choose to seek alternative financing sources. For example, we expect that much of our ~~retail stores, service centers, mobile repair services and Supercharger network. We are growing~~investment in Gigafactory Shanghai will be funded through indebtedness arranged through local financial institutions in China, including a RMB 3.5 billion term facility that our ~~vehicle manufacturing capacity primarily to fulfill Model 3 production at 5,000 vehicles per week and~~subsidiary entered into in ~~a later phase to 10,000 vehicles per week. We expect to invest approximately $1.0 billion in capital expenditures during the fourth quarter of 2017. We~~March 2019. As always, we continually evaluate our capital expenditure needs and may decide it is best to raise additional capital to fund the rapid growth of our ~~business in the coming years.~~business.

We have an agreement to spend or incur ~~approximately~~ $5.0 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York during the 10-year period following ~~full production~~SUNY Foundation’s substantial completion of its construction work at Gigafactory 2. We anticipate meeting these obligations through our operations at ~~Gigafactory 2~~this facility and other operations within the State 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,~~segment, including future expansion of our product offerings ~~stores,~~and our Supercharger and vehicle service ~~centers, delivery centers~~ and ~~the Supercharger network.~~ repair networks. 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~~$2.11 billion of unused committed amounts under our credit facilities and financing funds as of March 31, 2019, some of which are subject to satisfying specified conditions prior to draw-down (such as ~~discussed~~pledging to our lenders sufficient amounts of qualified receivables, inventories, leased vehicles and our interests in ~~Note 11,~~ ~~Convertible~~those leases, solar energy systems and ~~Long-Term Debt Obligations~~,the associated customer contracts, our interests in financing funds or various other assets; and ~~Note 15,~~ ~~VIE Arrangements~~contributing or selling qualified solar energy systems and the associated customer contracts or qualified leased vehicles and our interests in those leases into the financing funds). Upon the draw-down of any unused committed amounts, there are no restrictions on the use of such funds for general corporate purposes. For details regarding our indebtedness and financing funds, refer to Note ~~11,~~ 10, ~~Convertible and~~ Long-Term Debt Obligations, and Note 14, Variable Interest Entity Arrangements, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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, especially inventory, which includes vehicles in transit. Our operating cash inflows include cash from vehicle sales, ~~and~~ lease payments directly from ~~our~~ customers, customer deposits, ~~for vehicles,~~ 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 lease payments and interest ~~expenses~~payments on our financings.

Net cash ~~from~~used in operating activities increased by $241.2 million to $639.6 million during the ~~nine~~three months ended ~~September 30, 2017 decreased by $894.9~~March 31, 2019 from $398.4 million ~~as compared~~during the three months ended March 31, 2018. This unfavorable change was primarily due to the ~~nine months ended September 30, 2016,~~increase in net operating assets and liabilities of $350.7 million and $188.1 million of the repayment of our 0.25% Convertible Senior Notes due toin 2019 was classified as an operating activity, as this represented an interest payment on the discounted convertible notes. These unfavorable changes were partially offset by the increase in net income, excluding non-cash expenses and gains, of $297.6 million. The increase in net operating assets and liabilities was mainly driven by an increase in ~~working capital~~inventory, as a result 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 production, and ~~we had larger increases to our~~a decrease in accounts payable and accrued ~~liabilities balances~~liabilities. The decrease in ~~the same period~~.cash from certain operating activities was partially offset by an increase in deferred revenue, as a result of increased Model 3 deliveries and receipt of regulatory credits which will be delivered at a future date.

~~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 billion and $759.2~~$305.8 million ~~for~~during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016, respectively. The increase~~$728.6 million during the three months ended March 31, 2018. Capital expenditures during the three months ended March 31, 2019 were primarily comprised of $279.9 million in ~~capital expenditures was primarily due to payments~~purchases of property and equipment, mainly for Model 3 production, ~~equipment~~ and $25.3 million for the design, acquisition and installation of solar energy systems ~~under operating leases~~ with ~~our customers, in~~customers.

Capital expenditures during the ~~nine~~three months ended ~~September 30, 2017. We also paid $109.1~~March 31, 2018 were $655.7 million ~~net~~from purchases of ~~cash acquired,~~property and equipment, mainly for Model 3 production, and $73.0 million for the design, acquisition and installation of ~~Grohmann in the nine months ended September 30, 2017~~.solar energy systems with customers.

In 2014, we began construction of ~~our~~ Gigafactory ~~1 facility in Nevada. During the nine months ended September 30, 2017, we~~1. We used ~~cash~~$67.8 million and $173.3 million of ~~$1.2 billion~~cash towards Gigafactory 1 ~~construction.~~construction during the three months ended March 31, 2019 and 2018, respectively.

~~During~~Cash flows used in financing activities during the ~~nine~~three months ended ~~September 30, 2017, net cash provided by financing activities was $4.1 billion, which~~March 31, 2019 consisted primarily of ~~$966.4~~a $731.9 million portion of the repayment of our 0.25% Convertible Senior Notes due in 2019 that was classified as financing activity, collateralized lease repayments of $133.9 million, and repayments of $115.2 million of the automotive asset-backed notes. These cash outflows were partially offset by $316.0 million of net borrowings under the senior secured asset-based revolving credit agreement (the “Credit Agreement”) and $82.2 million of net borrowings under our vehicle lease-backed loan and security agreements (the “Warehouse Agreements”). See Note 10, Long-Term Debt Obligations, and 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 regarding our debt obligations and collateralized borrowings, respectively.

Cash flows from financing activities during the three months ended March 31, 2018 consisted primarily of $546.1 million from the issuance of ~~convertible senior notes, $1.8 billion from the issuance of senior~~automobile lease-backed notes and ~~$400.2~~$177.0 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~~the 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~~Agreement. Additionally, there were ~~partially offset by our~~net repayments of ~~borrowings~~$337.6 million under ~~our Credit Agreement of $1.1 billion and~~ the ~~settlement of $435.5 million for certain conversions of our 2018 Notes.~~Warehouse Agreements.

Contractual obligations did not materially change during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 except for debt activity and lease activity, as discussed in more detail in Note ~~11,~~10, ~~Convertible and~~ Long-Term Debt Obligationsand Note 11, Leases.

~~The consolidated financial statements include all assets, liabilities and results of operations of~~During the ~~financing fund arrangements that~~periods presented, we ~~have entered into. We have~~did not ~~entered into any other transactions that~~ have ~~generated~~ relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose ~~entities. Accordingly, we do not have any~~entities, which were established for the purpose of facilitating off-balance sheet ~~arrangements.~~arrangements or other contractually narrow or limited purposes.

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

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 and operating expenses denominated in currencies other than the ~~risk~~U.S. dollar primarily the euro, Japanese yen, Canadian dollar, Chinese yuan and Norwegian krone. In general, we are a net receiver of currencies other than the U.S. dollar for our foreign subsidiaries. Accordingly, changes in exchange rates and, in particular, a strengthening of the U.S. dollar have in the past, and may in the future, negatively affect our revenue and other operating results as expressed in U.S. dollars.

We have also experienced, and will continue to experience, fluctuations in ~~foreign currency exchange rates against the functional currencies~~our net income (loss) 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~~and cash and cash equivalents balances). For the ~~euro and the Hong Kong dollar. In the nine~~three months ended ~~September 30, 2017,~~March 31, 2019, we recognized a net foreign currency ~~exchange loss~~gain of ~~$35.9~~$39.1 million in other income (expense), ~~net.~~net, with our largest re-measurement exposures from the U.S. dollar, euro and Chinese yuan as our subsidiaries are denominated in various local currencies. For the three months ended March 31, 2018, we recognized a net foreign currency loss of $47.7 million in other income (expense), net, with our largest re-measurement exposures from the euro, Japanese yen and Canadian dollar.

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 income (loss) before income taxes. These changes would have resulted in an adverse impact ~~on our income before income taxes~~ of ~~$408.6 million.~~$239.9 million at March 31, 2019 and $175.7 million at December 31, 2018.

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 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 would have increased our interest expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and 2018 by ~~$6.0 million.~~$2.3 million and $1.5 million, 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,~~March 31, 2019, 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 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 no changes 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 ended ~~September 30, 2017~~March 31, 2019 that have materially affected, or are 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 see Note 13, 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, the District Court dismissed the amended complaint and entered a judgment~~consolidated financial statements included elsewhere in ~~our favor~~this Quarterly Report 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. 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.Form 10-Q.

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 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.

~~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 of operations, prospects, cash flows, financial position and brand.

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 have experienced in the past, and may experience in the future, ~~significant~~ delays or other complications in the design, manufacture, launch, production, delivery and ~~production~~servicing ramp of new vehicles and ~~other~~energy products, ~~such~~ as ~~Model 3, our energy storage products and the Solar Roof,~~well as product features, which could harm our brand, business, prospects, financial condition and operating results.

We have previously experienced ~~in the past~~ launch, manufacturing, production and ~~production~~delivery ramp delays or other complications in connection with new vehicle models such as Model S, Model X and Model 3, ~~and~~ new vehicle features such as the all-wheel drive dual motor drivetrain on Model S and the second version of ~~autopilot hardware.~~Autopilot hardware, and a significant increase in automation introduced in the manufacture of Model 3. For example, ~~at times since the launch of Model X,~~ we encountered unanticipated challenges, such as certain supply chain constraints, that ~~forced us~~led to ~~decrease the production of these vehicles from our~~ initial ~~expectations.~~delays in producing Model X. Similarly, ~~in the third quarter of 2017,~~ we experienced certain ~~production bottlenecks~~challenges in the production of Model 3 ~~due~~that led to ~~a small number~~delays in its ramp. Moreover, in the areas of ~~manufacturing subsystems, including~~Model 3 production where we had challenges ramping fully automated processes, such as portions of the battery module assembly line, ~~at Gigafactory 1, taking longer~~material flow system and the general assembly line, we reduced the levels of automation and introduced semi-automated or manual processes, and we have also had 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 furtheraddress an isolated supplier limitation in the manufacture of Model 3. If issues ~~may arise. If such issues~~like these arise or recur, if our remediation measures and process changes do not continue to be successful, if we experience issues with ~~respect~~transitioning to full automation in certain production lines or to other planned manufacturing improvements, or if we experience issues or delays in building our Gigafactory Shanghai in China or commencing and ramping Model 3 production there, we could experience issues in sustaining the Model 3 ramp or delays in increasing Model 3 production further, including the introduction of new variants. Also, if we encounter difficulties in scaling our delivery or servicing capabilities for Model 3 or ~~any of~~future vehicles and products to high volumes in the U.S. or internationally, our ~~other production vehicles, we may experience further delays.~~financial condition and operating results could suffer. In addition, because our vehicle models share certain production facilities with other vehicle models, the volume or efficiency of production with respect to one model may impact the production of other models or lead to bottlenecks that impact the production of all models.

We may also experience similar future delays or other complications in bringing to market and ramping production of new vehicles, such as ~~ramping~~ Model ~~3 on production manufacturing lines, and other products such as our announced~~Y, the Tesla Semi, our planned pickup truck and new Tesla Roadster, our energy storage products and Solar Roof, as well as future features and services such as full self-driving and the ~~Solar Roof.~~autonomous Tesla ride-hailing network. Any significant additional delay or other complication in the production of and delivery capabilities for our current products or the development, manufacture, launch, production and ~~production~~delivery and servicing capability ramp of our future products, features and services, including complications associated with expanding our production capacity, supply chain and delivery systems or obtaining or maintaining regulatory approvals, could materially damage our brand, business, prospects, financial condition and operating results.

We have experienced in the past, and may experience in the future, delays in realizing our projected timelines 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~~are producing 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 since then have ~~announced~~achieved a stabilized production rate. At the Tesla Factory, we expect to continue to increase our ~~current expectation to achieve a~~Model 3 production rate to approximately 7,000 units per week on a sustained basis by the end of ~~5,000~~2019. Moreover, in China, we expect to commence production of certain trims of Model 3 ~~vehicles per week by late~~ for the local market in China in the ~~first quarter~~initial phase of ~~2018.~~our Gigafactory Shanghai by the end of 2019, and then progressively increase levels of localization through local sourcing and manufacturing. Inclusive of and dependent upon how quickly we can ramp Gigafactory Shanghai, our next milestone is to be able to produce at least 500,000 units of all vehicle models combined in a continuous 12-month period ending no later than June 30, 2020. However, the timeframe for commencing Model 3 production at Gigafactory Shanghai is subject to a number of uncertainties, including regulatory approval, supply chain constraints, and the pace of installing production equipment and bringing the factory online.

We have nolimited experience to date in manufacturing vehicles at the high volumes that we recently achieved and to which we anticipate ramping further for Model 3, and to be successful, we will need to complete the implementation and ramp of efficient ~~automated~~ and ~~low-cost~~cost-effective manufacturing capabilities, processes and supply chains necessary to support such ~~volumes.~~volumes, including at Gigafactory Shanghai. We are employing a higher degree of automation in the manufacturing processes for Model 3 than we have previously employed and to continue to implement additional automation. In some cases, we have temporarily reduced the levels of automation and introduced semi-automated or manual processes, at additional labor cost, and we have also had to address an isolated supplier limitation. Additional bottlenecks may also arise as we continue to ramp production at the Tesla Factory and commence the initial phase of Model 3 production at Gigafactory Shanghai, and it will be important that we address them promptly and in a cost-effective manner. Moreover, our Model 3 production plan has generally required ~~and will require~~to date significant investments of cash and management ~~resources.~~resources, and we are deploying certain additional resources as we further progress our ramp and begin production in new locations in the future, such as China.

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~~demand for and deliveries of ~~current and future~~ Model 3, ~~reservations,~~ as well as our business, prospects, operating results and financial condition, may be materially and adversely impacted.

We may be unable to meet our growing vehicle production, sales and delivery plans ~~both~~and servicing needs, any of which could harm our business and prospects.

Our plans call for sustaining and further ramping from our significant increases in vehicle production and deliveries, ~~to high volumes in a short amount of time.~~particularly for Model 3. Our ability to achieve these plans will depend upon a number of factors, including our ability to utilize installed manufacturing capacity to achieve the planned production yield, further install and ~~further~~ increase capacity asin accordance with our planned ~~while maintaining~~timelines and costs, maintain our desired quality levels and optimize design and production changes, ~~and~~as well as 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~~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~~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 increasing vehicle production levels, weour success will ~~also need~~depend on our ability to continue to significantly increase sales and deliveries of our vehicles. Although we have a plan for selling and delivering ~~a significantly~~ increased volumes of vehicles, we have limited experience in ~~delivering a high volume of vehicles,~~marketing, selling and ~~no experience in~~ delivering vehicles at the ~~significantly~~ higher volumes at which we ~~anticipate~~are manufacturing Model 3. We have announced a global shift to exclusively transact our vehicle sales through the Internet (except for ~~Model 3,~~limited inventory sales), and we are in the process of optimizing our retail operations at our stores accordingly. Such an approach has not traditionally been used to sell vehicles at volume. We may also face difficulties meeting our sales and delivery ~~and growth plans into~~goals in both existing markets as well as new markets into which we ~~expand.~~expand, such as Europe and China where we saw challenges in initially ramping our logistical channels as we began to deliver Model 3 there for the first time in the first quarter of 2019. In particular, we are targeting for the first time with Model 3 a mass demographic with a broad range of potential customers, in which we have limited experience projecting demand and pricing our products. We produce variants (including regional versions) of Model 3 in batches in accordance with the demand that we expect for them, and we have long lead times associated with procuring certain parts and finite production capabilities at a single factory from which all Model 3 vehicles are shipped globally, including to destinations with long transit times. If our specific Model 3 demand expectations prove inaccurate, including as we continue to expand the markets in which we offer Model 3, we may not be able to timely generate sales matched to the specific vehicles that we produce in the same timeframe, which may negatively impact our deliveries in a particular period.

Moreover, because we do not have independent dealer networks, we are responsible for delivering all of our vehicles to our customers and meeting their vehicle servicing needs. To date, we have limited experience with such deliveries and servicing at the scale to which we expect to grow, particularly in international markets. To accommodate our volumes, we have deployed a number of delivery models, such as deliveries to customers’ homes and workplaces, some of which have not been previously tested at scale and in different geographies. Moreover, significant transit time may be required to transport vehicles such as Model 3 in volume into new markets for the first time. To the extent that such factors lead to delays in our deliveries, our results may be negatively impacted. Finally, because of our unique expertise with our vehicles, we recommend that our vehicles be serviced by our service centers, Mobile Service technicians or certain authorized professionals that we have specifically trained and equipped. If we experience delays in adding such servicing capacity or experience unforeseen issues with the reliability of Model 3, which we recently commenced producing at volume, it could overburden our servicing capabilities. If we are unable to ramp up to meet our sales, delivery ~~goals~~and servicing targets globally, or our projections on which such targets are based are inaccurate, this could result in negative publicity and damage to our brand and have a material adverse effect on our business, prospects, financial condition and operating results.

Our future growth and success is dependent upon consumers’ willingness to adopt electric vehicles and specifically our vehicles, especially in the mass market demographic which we are targeting with Model 3.

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 our vehicles thus far, there is no guarantee of such future demand, or that our vehicles will not compete with one another in the market. Moreover, the Model 3 mass market demographic is larger, but more competitive, than the demographic for Model S and Model X, and additional electric vehicles are entering 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 our markets, our business, prospects, financial condition and operating results could be harmed. We have only recently begun high volume production of vehicles, are still at an earlier stage and have limited resources relative to our competitors, and the market for alternative fuel vehicles is rapidly evolving. As a result, the market for our vehicles could be affected by numerous factors, such as:

We are dependent on our suppliers, the majority of which are ~~single source~~single-source suppliers, and the inability of these suppliers to deliver necessary components of our products ~~in a timely manner~~according to our schedule and 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~~that we source globally from hundreds of direct ~~suppliers,~~suppliers. We attempt to mitigate our supply chain risk by entering into long-term agreements where it is practical and beneficial to do so, including agreements we entered into with Panasonic to be our manufacturing partner and supplier. Because the majority of ~~whom~~our suppliers are currently ~~single source~~single-source suppliers, ~~despite efforts to~~we also minimize our risk when we can qualify and obtain components from multiple sources, ~~whenever feasible. Any~~such as with respect to PV panels for our retrofit solar installations, which we purchase from a variety of suppliers. However, any significant ~~unanticipated demand would~~increases in our production may require us to procure additional components in a short amount of time, and in the past we have also replaced certain suppliers because of their failure to provide components that met our quality control standards. While we believe that we will be able to secure additional or alternate sources of supply for most of our components in a relatively short time frame, there is no assurance that we will be able to do so or develop our own replacements for certain highly customized components of our products. Moreover, we have signed long-term agreements with Panasonic to 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,~~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, tariffs, 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~~single- or ~~limited source~~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 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 to meet our quality targets and development timelines as well as due to our 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 negotiating with existing suppliers for cost reductions, seeking new and less expensive suppliers for certain parts, and attempting to redesign certain parts to make them less expensive to produce. If we are unsuccessful in our efforts to control and reduce supplier costs, our operating results will suffer.

~~We expect the foregoing discussion to apply generally to Model 3. However,~~In particular, because we ~~plan to produce~~are producing Model 3 at significantly higher volumes than ~~Model S or Model X,~~any of our other products to date, the negative impact of any delays or other constraints with respect to our suppliers for Model 3 could be substantially greater than any ~~such~~supply chain-related issues experienced with respect to our ~~products to date. As some of~~other products. We need our ~~suppliers for Model S and Model X do not have the resources, equipment or capability to provide components for the~~ Model 3 suppliers to sustainably ramp in ~~line~~accordance with our ~~requirements, we have engaged a significant number~~ongoing ramp of ~~new suppliers,~~the different variants of Model 3 and ~~such suppliers will also have~~deliver according to ~~ramp to achieve~~ our ~~needs in a short period of time.~~schedule. There is no assurance that these suppliers will ultimately be able to sustainably and timely meet our cost, quality and volume ~~needs,~~needs. For example, we may experience issues or ~~do so~~delays increasing the level of localization in ~~a timely manner.~~ China through local sourcing and manufacturing at our Gigafactory Shanghai. Furthermore, as the scale of our vehicle production increases, we will need to accurately forecast, purchase, warehouse and transport to our manufacturing facilities components at much higher ~~volumes than we have experience with.~~volumes. If we are unable to accurately match the timing and quantities of component purchases to our actual needs, including for our different model variants, or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain, we may incur unexpected production disruption, storage, transportation and write-off costs, which could have a material adverse effect on our financial condition and operating results.

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 other markets, our business, prospects, financial condition and operating results could be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, and could be affected by numerous external factors, such as:

Future problems or delays in expanding Gigafactory 1 or ramping operations there could negatively affect the production and profitability of our products, such as Model 3.3 and our energy storage products.

To lower the cost of cell production and produce cells in high volume, we ~~are integrating~~have vertically integrated the production of lithium-ion cells and finished battery packs for ~~the~~ Model 3 and energy storage products at Gigafactory 1. While Gigafactory 1 began producing lithium-ion cells for energy storage products in January 2017 and has since begun producing lithium-ion cells for Model 3, we have no other direct experience in the production of lithium-ion cells. Given the size and complexity of this undertaking, it is possible that future events could result in ~~the cost of~~issues or delays in further ramping our products and expanding ~~and operating~~production output at Gigafactory 1. Moreover, we expect that we will need additional production output at Gigafactory 1 ~~exceeding our current expectations and~~to support vehicle production at Gigafactory ~~1 taking longer to ramp~~Shanghai in part when we commence Model 3 production ~~and expand than we currently anticipate.~~there. In order to ~~reach~~achieve our ~~planned~~ volume and gross margin targets for Model 3 and the anticipated ramp in production of energy storage products, we must ~~have~~continue to sustain and ramp significant cell production ~~from~~at Gigafactory 1, which, among other things, requires Panasonic to successfully operate and further ramp its ~~all-new~~ cell production lines toat significant ~~volumes over a short period of time.~~volumes. 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~~relatively limited experience with cell production at ~~a factory in~~Gigafactory 1. In addition, we produce several components for Model 3, such as battery modules incorporating the ~~U.S. like~~lithium-ion cells produced by Panasonic, and drive units, at Gigafactory 1. ~~We are now in~~Some of the ~~early stages of production~~manufacturing lines for such components took longer than anticipated to ramp to their full capacity. While we have largely overcome this bottleneck after deploying multiple semi-automated lines and ~~have experienced the types of challenges that typically come with a production ramp. We expect that~~improving our original lines, additional bottlenecks may arise as we ~~will~~ continue to ~~experience challenges as we move through~~increase 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, if~~rate. If we are unable to ~~resolve ramping challenges and expand~~maintain Gigafactory 1 production, ~~in a timely manner~~ramp output additionally over time as needed, and ~~at reasonable prices, and~~do so cost-effectively, or if we or Panasonic are unable to attract, hire and retain a substantial number of highly skilled personnel, our ability to supply battery packs ~~to our vehicles, especially~~or other components for Model 3 and our other products could be negatively ~~impacted. Any such problems or delays with Gigafactory 1~~impacted, which could negatively affect our brand and harm our business, prospects, financial condition and operating results.

Any issues or delays in meeting our projected timelines, costs and production capacity for or funding the construction of Gigafactory Shanghai, or any difficulties in generating and maintaining local demand for vehicles manufactured there, could adversely impact our business, prospects, operating results and financial condition.

As part of our continuing work to increase Model 3 production on a sustained basis and make Model 3 affordable in the markets where we plan to offer it, we have begun construction of the initial phase of Gigafactory Shanghai and expect to commence production of certain trims of Model 3 for the local market in China by the end of 2019, and then progressively increase levels of localization through local sourcing and manufacturing. The timeframe for commencing Model 3 production at Gigafactory Shanghai is subject to a number of uncertainties, including regulatory approval, receipt and maintenance of certain manufacturing licenses, supply chain constraints, hiring and retention of qualified employees, and the pace of installing production equipment and bringing the factory online. We have limited experience to date with constructing manufacturing facilities abroad, and have only recently begun to sell Model 3 in China. If we experience any issues or delays in meeting our projected timelines, costs, capital efficiency and production capacity for Gigafactory Shanghai, or in securing and complying with the terms of local debt financing that we intend will largely fund its construction, or in generating and maintaining demand locally for the vehicles we manufacture at Gigafactory Shanghai, our business, prospects, operating results and financial condition could be adversely impacted.

If our vehicles or other products that we sell or install fail to perform as expected, our ability to develop, market and sell our products and services could be harmed.

If our vehicles or our energy products ~~were to~~ contain 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 full self-driving, take longer than expected to become enabled or are legally restricted, our ability to develop, market and sell our products and services could be harmed. For example, the operation of our vehicles is highly dependent on software, which is inherently complex and ~~could conceivably~~may contain latent defects and errors or be subject to external attacks. Issues experienced by vehicle customers have included those related to the software for the 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. 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 our customers. While we have performed extensive internal testing on the products we manufacture, we currently have a limited frame of reference by which to evaluate detailed long-term quality, reliability, durability and performance characteristics of our battery packs, powertrains, vehicles and energy storage products. 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.

Any product defects, delays or ~~any~~legal restrictions on product features, or other failure of our products to perform as expected, could harm our reputation and result in delivery delays, product recalls, product liability claims, and significant warranty and other expenses, and could have a material adverse impact on 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, 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 and adapt to new conditions 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 expect to continue to expand our operations significantly, including internationally ~~including by a planned transition to high volume vehicle~~and with our increasing 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.~~experience. Our future operating results depend to a large extent on our ability to manage our expansion and growth ~~successfully.~~successfully and to correctly forecast demand for our products in different markets. 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;~~costs, establish sufficient worldwide ~~automobile~~ ~~sales, delivery,~~ service and Supercharger facilities in a timely ~~manner;~~manner, adapt our products and conduct our operations to meet local ~~requirements;~~requirements, implement ~~the~~ required local infrastructure, systems and ~~processes;~~processes, and find and hire a significant number of additional manufacturing, engineering, service, electrical installation, construction and administrative personnel.

In particular, we plan to expand our manufacturing capabilities outside of the U.S., where we have limited experience operating a factory or managing related regulatory, financing and other challenges. For example, local manufacturing is critical to our expansion and sales in China, which is the largest market for electric vehicles in the world. Our sales of Model S and Model X in China have been negatively impacted by certain tariffs on automobiles manufactured in the U.S., such as our vehicles, and our costs for producing our vehicles in the U.S. have also been affected by import duties on certain components sourced from China. If we are not able to establish manufacturing activities in China and other jurisdictions to minimize the impact of such unfavorable tariffs, duties or costs, or ramp our production capabilities at Gigafactory 1 or other facilities to support such vehicle manufacturing activities, our ability to compete in such jurisdictions, and our operating results, business and prospects, will be harmed.

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~~are continuing to 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 and profitability ~~goals.~~goals, including for the least expensive variant of Model 3 that we have begun to produce, or our other financial targets. We incur significant costs related

to procuring the materials required to manufacture our vehicles, assembling vehicles and compensating our personnel. WeIf our efforts to continue to decrease manufacturing costs are not successful, 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~~3 both in the U.S. and ~~other financial targets. Furthermore, many~~internationally. 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 unable to continue to control and reduce our manufacturing costs, our operating results, business and prospects will be harmed.

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

We ~~are significantly dependent upon revenue generated~~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, nickel, copper and cobalt, as well as lithium-ion cells from ~~the sale~~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 ~~a limited fleet~~increased production of electric vehicles ~~which currently includes Model S, Model X~~ and ~~Model 3.~~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. 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 ~~planning significantly higher volumes than Model S~~not able to successfully defend 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 ofinsure against such claims.

Although we design our vehicles ~~offered in a manufacturer’s fleet and new and improved vehicle models~~ to be ~~introduced frequently. In order~~the safest vehicles on the road, product liability claims, even those without merit, 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 ~~meet these expectations,~~claims in the event our vehicles do not perform or are claimed to not have performed as expected. As is true for other automakers, our cars have been involved and we ~~may~~expect in the future will be ~~required~~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 ~~introduce on~~continue to face claims arising from or related to misuse or claimed failures of new technologies that we are pioneering, including Autopilot in our vehicles. Moreover, as our solar energy systems and energy storage products generate and store electricity, they have the potential to cause injury to people or property. A successful product liability claim against us could require us to pay a ~~regular basis new vehicle models as well as enhanced versions~~substantial monetary award. Our risks in this area are particularly pronounced given the relatively limited number of ~~existing vehicle models. To the extent~~vehicles and energy storage products delivered to date and limited field experience of our products. Moreover, a product ~~variety~~liability claim could generate substantial negative publicity about our products and ~~cycles do not meet consumer expectations, or cannot be produced on our projected timelines~~business and ~~cost and volume targets our future sales may be adversely affected. This~~ could have a material adverse effect on our brand, business, prospects and operating results. 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, not by insurance.

The markets in which we operate are highly competitive, 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. A significant and growing number of established and new automobile manufacturers, 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, as well as the market for self-driving technology and applications. 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 resources and networks than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. In particular, some competitors have also announced plans to compete with us in important and large markets for electric vehicles, such as China. 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 PPAs. Moreover, solar product component and lithium-ion battery prices have declined and are continuing to decline, which may adversely impact our ability to cost-effectively manufacture such components ourselves.

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 if they are not convinced that our business will succeed or that our service and support and other operations will continue in the long term. 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 and maintain our business, we must maintain confidence among customers, suppliers, analysts, ratings agencies and other parties in our long-term financial viability and business prospects. Maintaining such confidence may be particularly complicated by certain factors, such as our limited operating history, negative press, customer unfamiliarity with our products, any delays 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, our quarterly production and sales performance compared with market expectations, and any other negative publicity related to us. Many of these factors are largely outside our control, and any negative perceptions about our long-term business prospects, even if exaggerated or unfounded, such as speculation regarding the sufficiency or stability of our management team, could harm our business and make it more difficult to raise additional funds if needed.

Our plan to generate ongoing growth and demand, including by expanding and optimizing our vehicle service and charging operations and infrastructure, will require significant cash investments and management resources and may not meet expectations with respect to additional sales, installations or servicing of our products or availability of public charging solutions.

We plan to generate ongoing growth and demand, including by globally expanding and optimizing our vehicle service and charging operations and infrastructure. These plans 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 at scale, and which may pose legal, regulatory, labor, 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 Tesla vehicles will require us to continue to increase the number of our Supercharger stations and connectors significantly in locations throughout the world. If we fail to do so in a timely manner, 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 customer infrastructure network, or our expansion plans are not successful in continuing to grow demand, this could lead to a decrease or stagnation 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 global operations and expansion, including unfavorable regulatory, political, economic, tax and labor conditions, and with establishing ourselves in new markets, all of which could harm our business.

We currently have a global footprint, with domestic and international operations and subsidiaries in various countries and jurisdictions, and we continue to expand and optimize our vehicle service and charging capabilities internationally. Accordingly, we are subject to a variety of legal, political and regulatory requirements and social and economic conditions over which we have little control. For example, we may be impacted by trade policies, political uncertainty and economic cycles involving geographic regions where we have significant operations. Sales of vehicles in the automotive industry also tend to be cyclical in many markets, which may expose us to increased volatility as we expand and adjust our operations and retail strategies.

We are subject to a number of risks associated in particular 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, organizing local operating entities, 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. For example, in China, which is a key market for us, certain products such as automobiles manufactured in the U.S. have become subject to a recently increased tariff imposed by the government. While such increase has been temporarily suspended, the tariff could remain in place for an undetermined length of time, be further increased in the future and/or lead consumers to postpone or choose another vehicle brand subject to lower tariffs or no tariffs. Moreover, recently increased import duties on certain components used in our products that are sourced from China may increase our costs and negatively impact our 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 battery pack 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 and recycle a significant number of lithium-ion cells at our facilities and ~~plan to produce~~are producing 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:

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, as our solar energy systems and energy storage products generate and store electricity, they have the potential to cause injury to people or property. A successful product liability claim against us could require us to pay a substantial monetary award. Our risks in this area are particularly pronounced given the limited number of vehicles and energy storage products delivered to date and limited field experience of our products. Moreover, a product liability claim could generate substantial negative publicity about our products and business and could have material adverse effect on our brand, business, prospects and operating results. 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, not by insurance.

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.

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 and maintain our business, we must maintain confidence among customers, suppliers, analysts and other parties in our liquidity and long-term business prospects. Maintaining such confidence may be particularly complicated by certain

factors, such as our limited operating history, unfamiliarity with our products, competition and uncertainty regarding the future of electric vehicles or our other products and services and our quarterly production and sales performance compared with market expectations. Many of these factors are largely outside our control, and any negative perceptions about our long-term business prospects, even if exaggerated or unfounded, would likely 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 to effectively grow and manage the residual, financing and credit risks related to our vehicle financing programs, our business may suffer.

We offer ~~vehicle~~ financing arrangements for our vehicles in North America, Europe and Asia primarily through various financial institutions. We also currently offer leasing directly through our local subsidiaries for Model S and Model X ~~through our local subsidiaries~~ in the ~~United States,~~U.S. and Canada ~~Germany~~ and for Model 3 in the ~~UK, including leasing~~U.S. Under a lease held directly ~~through certain~~by us, we typically receive only a very small portion of ~~those subsidiaries.~~the total vehicle purchase price at the time of lease, followed by a stream of payments over the term of the lease. The profitability of any vehicles returned to us at the ~~leasing program~~end of their leases depends on our ability to accurately project our vehicles’ residual values at the outset of the leases, and such values may fluctuate prior to the end of their terms depending on various factors such as supply and demand of our used vehicles, economic cycles and the pricing of new vehicles. For example, we made certain adjustments to our vehicle prices during the first quarter of 2019 to reflect anticipated changes to our cost structure from optimizing our retail strategy, and as a limited accommodation to customers in consideration of the first reduction in the electric vehicle federal tax credit. Such pricing changes may impact the residual values of our vehicles. The leasing program also relies on our ability to secure adequate financing and/or business partners to fund and grow this program, and screen for and manage customer credit risk. We expect the ~~need for~~availability of 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.~~our vehicle customers. 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 transactions, we may become subject to enforcement actions or penalties, either of which may harm our business.

Moreover, we have provided resale value guarantees to 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, as with residual values for leased vehicles, are subject to similar 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 operating results, profitability and/or liquidity could be negatively impacted.

The unavailability, reduction or elimination of, or unfavorable determinations with respect to, government and economic incentives in the ~~United States~~U.S. and abroad supporting the development and adoption of electric vehicles, energy storage products or solar energy could have some impact on demand for our products and services.

We and our customers currently benefit from certain government and economic incentives supporting the development and adoption of electric vehicles. In the ~~United States~~U.S. 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 carbon dioxide and weight-based 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, under current regulations, a $7,500 federal tax credit that was available in the U.S. for the purchase of our vehicles is being reduced in phases during, and will sunset at the end of, 2019. We believe the first reduction in this tax credit pulled forward some near-term demand in the U.S. into 2018, and could create similar pull-forwards in 2019 before each further step reduction in the federal tax credit. Moreover, in July 2018, a previously available incentive for purchases of Model 3 in Ontario, Canada was cancelled and Tesla buyers in Germany lost access to electric vehicle incentives for a short period of time beginning late 2017. 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,~~Effective March 2016, 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~~consumers. Such developments ~~which~~ could have some negative impact on demand for our ~~vehicles.~~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 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 U.S. federal government currently offers a 30% ~~investment tax credit (“ITC”)~~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 in phases, ultimately to 10%, for commercial and ~~expire altogether~~utility systems and to 0% for customer-owned 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 and to form new financing funds for our solar and energy storage assets. Additionally, the enactment of the Tax Cuts and Jobs Act in the U.S. could potentially increase the cost, and decrease the availability, of renewable energy financing, by reducing the value of depreciation benefits associated with, and the overall investor tax capacity needed to monetize, renewable energy projects. Such changes could lower the overall investment willingness and capacity for such projects available in the market.

Moreover, we and our fund investors claim the ITC and certain state incentives in amounts based on the fair market value of our solar and energy storage systems. Although we obtain independent appraisals to support the claimed fair market values, the relevant governmental authorities have audited such values and in certain cases have determined that they 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 ~~or contribute additional assets,~~ to our funds or fund investors.

~~If we are unable to integrate SolarCity successfully into our business, we may not realize the anticipated benefits of our acquisition of SolarCity.~~

We have devoted to date, and continue to devote, 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 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 with respect to the manufacture of PV cells, including if we are unable~~ to comply with the terms of 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.

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

~~producing 1 gigawatt of PV cells annually, including for our Solar Roof.~~ solar products and components. Under this agreement, we are obligated to, among other things, directly employ specified minimum numbers of Tesla 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,~~ and spend or incur ~~approximately~~ $5.0 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York during the 10-year period following the ~~achievement~~substantial completion of ~~full production output~~all construction and related infrastructure, the arrival of manufacturing equipment, and the receipt of certain permits and other specified items at Gigafactory 2. IfWhile we expect significant operations at Gigafactory 2 and the surrounding Buffalo area to continue, including our ramp and manufacture of Solar Roof, if we fail in any year over the course of the term of the agreement to meet these obligations, we would be obligated to pay a “program payment” of $41.2 million to the SUNY Foundation in 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 SUNY Foundation, the termination of our lease at Gigafactory 2, 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 Solar Roof. Moreover, if we are unable to utilize the 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. Any of the foregoing events could have a material adverse effect on 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 retain key employees and hire qualified personnel, our ability to compete could be harmed.

The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our vehicles and services, and negatively impact our business, prospects and operating results. In particular, we are highly dependent on the services of Elon Musk, our Chief Executive Officer, and Jeffrey B. Straubel, our Chief ~~Technical~~Technology 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 depends upon our ability to attract and retain executive officers and other key technology, sales, marketing, engineering, manufacturing and support personnel, especially to support our high-volume manufacture of vehicles and expansion plans, and any failure ~~to do~~or delay in doing so could adversely impact our business, prospects, financial condition and operating results.

Key talent may leave 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, Nevada and other regions where we have operations, there is increasing 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 our ability to retain key employees and hire new ones. Moreover, we have in the past conducted reductions in force in order to optimize our organizational structure and reduce costs, and certain senior personnel have also departed for various reasons. Our continued success depends upon our continued ability to hire new employees in a timely manner, especially to support our expansion plans, and ~~ramp~~ to ~~high-volume manufacture of vehicles, and~~ retain current ~~employees.~~employees or replace departed senior employees with qualified and experienced individuals, which is typically a time-consuming process. Additionally, we 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 in retaining current employees or recruiting new ones could have an adverse effect on our ~~performance.~~performance and results.

Finally, our compensation philosophy for all of our personnel reflects our startup origins, with an emphasis on equity-based awards and benefits in order to closely align their incentives with the long-term interests of our stockholders. Each of our current equity incentive plan and employee stock purchase plan provides for an “evergreen” provision that permits our board of directors to increase on an annual basis, subject to specified limits, the number of equity-based awards that may be granted to, and shares of our common stock that may be purchased by, our personnel thereunder. The currently active plans are currently scheduled to expire in December 2019, and we will need to extend them or adopt new plans in order to continue to compensate our employees following their expiration, which will require the approval of our stockholders. Moreover, the new plans that our board of directors has approved in April 2019 subject to the approval of our stockholders do not contain evergreen provisions, which means that we will have to periodically seek and obtain approval from our stockholders for future increases to the number of awards that may be granted and shares that may be purchased under such plans. If we are unable to obtain the requisite stockholder approvals to approve and adopt these new plans and obtain future increases to the number of awards that may be granted and shares that may be purchased thereunder, and compensate our personnel in accordance with our compensation philosophy, our ability to retain and hire qualified personnel would be negatively impacted.

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

We are highly dependent on the services of Elon Musk, our Chief Executive Officer ~~Chairman of our Board of Directors~~ and largest stockholder. 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.

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 U.S., China and other locations 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. We also maintain information technology measures designed to protect us against intellectual property theft, data breaches and other cyber-attacks. 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 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 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 products’ systems could result in loss of confidence in us and our products and harm our business.

Our products contain complex information technology systems. For example, our vehicles and energy storage products are designed with built-in data connectivity to accept and install periodic remote updates from us to improve or update their functionality. We have designed, implemented and tested security measures intended to prevent unauthorized access to our information technology networks, our products and their systems. However, hackers have reportedly attempted, and may attempt in the future, to gain unauthorized access to modify, alter and 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 security of our products via our security vulnerability reporting policy, and we aim to remedy any reported and verified vulnerability. 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 exploited in the future before they can be identified, or that our remediation efforts are or will be successful.

Any unauthorized access to or control of our products 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 products, their systems or data, as well as other factors that may result in the perception that our products, their systems or data are capable of being “hacked,” could negatively affect our brand and harm our business, prospects, financial condition and operating results. We have been the subject of such reports in the past.

We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability to operate our manufacturing facilities.

As a manufacturing company, including with respect to facilities such as the Tesla Factory, Gigafactory 1, Gigafactory 2 and Gigafactory 2,Shanghai, we are and will be subject to complex environmental, manufacturing, health and safety laws and regulations at numerous jurisdictional levels in the ~~United States~~U.S., China and other locations abroad, including laws relating to the use, handling, storage, recycling, disposal and human exposure to hazardous materials. The costs of compliance, including remediating contamination if any is found on our properties and any changes to our operations mandated by

new or amended laws, may be significant. We may also face unexpected delays in obtaining permits and approvals required by such laws in connection with our manufacturing facilities, which would hinder our operation of these facilities. Such costs and delays may adversely impact our business prospects and operating results. Furthermore, any violations of these laws may result in substantial fines and penalties, remediation costs, third party damages, or a suspension or cessation of our operations.

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

It is ~~common~~not uncommon for employees 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 to organize the Fremont Factory, and~~(“UAW”) has been engaged in a campaign to organize manufacturing operations at Tesla. As part of that campaign, the UAW has filed with the National Labor Relations Board (“NLRB”) a series of unfair labor practice charges against Tesla on which a hearing recently concluded. We cannot predict the ~~company.~~timing of the NLRB’s decision, and an unfavorable 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 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 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.~~regulations, and any failures to comply could result in significant expenses, delays or fines. We are subject to laws and regulations applicable to the supply, manufacture, import, sale and service of automobiles internationally. For example, in countries outside of the ~~United States,~~U.S., we are required to meet ~~vehicle-specific~~standards relating to vehicle safety, ~~standards~~fuel economy and emissions, among other things, that are often materially different from requirements in the ~~United States,~~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.

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~~There is a ~~recently-introduced feature with~~variety of international, federal and state regulations that may apply to self-driving vehicles, which ~~domestic~~include many existing vehicle standards that were not originally intended to apply to vehicles that may not have a driver. Such regulations continue to rapidly change, which increases the likelihood of a patchwork of complex or conflicting regulations, or may delay products or restrict self-driving features 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~~availability, any of which ~~depending on the severity,~~ could adversely affect our business.

Moreover, as a manufacturer and installer of solar ~~panels~~generation 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~~PPAs 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 or use 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.

~~We are subject~~Failure to comply with various privacy and consumer protection ~~laws.~~laws to which we are subject could harm the Company.

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~~Substantial expenses and ~~costs~~operational changes may be required in connection with maintaining compliance with such ~~laws.~~laws, and in particular certain emerging privacy laws are still subject to a high degree of uncertainty as to their interpretation and application. For example, in May 2018, the General Data Protection Regulation (the “GDPR”) began to fully apply to the processing of personal information collected from individuals located in the European Union. The GDPR has created new compliance obligations and has significantly increased fines for noncompliance. Although we take steps 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 choose to or be compelled to undertake product recalls or take other similar actions, which could adversely affect our brand image and financial performance.

Any product recall ~~including for solar or charging equipment, in the future~~with respect to our products 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~~ have resulted from various causes, including 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, and internal tests that revealed potential unintended movements in the~~ Model X ~~second row and third row seats~~seat components that could cause unintended seat movement during a ~~collision. None~~collision, and concerns of ~~our past recalls have been related to our electric powertrain~~.corrosion in Model S power steering assist motor bolts. Furthermore, testing of our ~~vehicles~~products by government regulators or industry groups may require us to initiate ~~vehicle~~product recalls or may result in negative public perceptions about the safety of our ~~vehicles.~~products. In the future, we may at various times, voluntarily or involuntarily, initiate a recall if any of our products or our electric vehicle powertrain components that we have provided to other vehicle OEMs, including any systems or parts sourced from our suppliers, prove to be defective or noncompliant with applicable laws and regulations, such as 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 significant expense and could adversely affect 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.

Subject to separate limited warranties for the supplemental restraint system, battery and drive unit, we provide ~~four year~~four-year or ~~50,000 mile~~50,000-mile limited warranties for the purchasers of new Model 3, Model S and Model X vehicles and ~~pre-owned~~either a four-year or 50,000-mile limited warranty or a two-year or 100,000-mile maximum odometer limited warranty for the purchasers of used Model S or Model X vehicles certified and sold by us. The limited warranty for the battery and drive unit for new Model S and Model X vehicles 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.~~plans; the limited warranty for used Model S and Model X vehicles does not extend or otherwise alter the terms of the original battery and drive unit limited warranty for such used vehicles specified in their original New Vehicle Limited Warranty. For the battery and drive unit on our current new Model 3 vehicles, we offer an eight-year or 100,000-mile limited warranty for our Standard Range, Standard Range Plus or mid-range battery and an eight-year or 120,000-mile limited warranty for our long-range battery, with minimum 70% retention of battery capacity over the warranty period. 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.~~miles.

For energy storage products, we provide limited warranties against defects and to guarantee minimum energy retention levels. For example, we currently guarantee that each Powerwall 2 product will maintain at least ~~70-80%~~70% or 80% (depending on the region of installation) 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 currently offer a warranty on the glass tiles for the lifetime of a customer’s home and a separate warranty for 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 us install their systems.

Finally, customers who lease solar energy system leases or buy energy from us under ~~solar energy system leases or power purchase agreements~~PPAs 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 workmanship warranty of up to ~~10 years, with extended warranties available at additional cost.~~20 years. In addition, we pass through to our customers the inverter and panel manufacturers’ warranties, which generally range from 510 to 25 ~~years, subjecting us to the risk that the manufacturers may later cease operations or fail to honor their underlying warranties.~~years. 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. Under these performance guarantees, we bear the risk of production shortfalls resulting from an inverter or panel failure. These risks are exacerbated in the event the panel or inverter manufacturers cease operations or fail to honor their warranties.

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

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

We expect our period-to-period financial results to vary based on our operating costs, which we anticipate will ~~increase significantly in future periods~~fluctuate as the pace at which we ~~among other things,~~continue to design, develop and manufacture ~~current~~new products and ~~future products,~~ increase ~~the~~ production capacity atby expanding our current manufacturing facilities and adding future facilities such as Gigafactory Shanghai may not be consistent or linear between periods. Additionally, our revenues from period-to-period may fluctuate as we introduce existing products to ~~produce vehicles at higher volumes, including ramping up~~new markets for the ~~production of Model S, Model X~~first time and ~~Model 3, expand Gigafactory 1, open~~as we develop and introduce new Tesla stores and service centers 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.products. As a result of these factors, we believe that quarter-to-quarter comparisons of our financial results, especially in the ~~short-term,~~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.~~investors, who may be focused only on quarterly financial results. If any of this occurs, the trading price of our stock could fall substantially, either suddenly or over time.

~~Any unauthorized control or manipulation of our vehicles’ systems could result in loss of confidence in us and our vehicles and harm our business.~~

Our vehicles contain complex information technology systems. 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 of our vehicles. We have designed, implemented and tested security measures intended to prevent unauthorized access to our information technology networks, our vehicles and their systems. However, hackers have reportedly attempted, and may attempt in the future, to gain unauthorized

access to modify, alter and use such networks, vehicles and systems to gain control of, or to change, our vehicles’ functionality, user interface 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 identified in the future, 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, as well as other factors that may result in the perception that our vehicles, their systems or data are capable of being “hacked,” could negatively affect our brand and harm our business, prospects, financial condition and operating results. ~~We have been the subject of such reports in the past.~~

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.

As of ~~September 30, 2017,~~March 31, 2019, we and our subsidiaries had outstanding ~~$10.0~~$10.33 billion in aggregate principal amount of indebtedness (see Note ~~11,~~10, ~~Convertible and~~ Long-Term 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~~our 1.25% Convertible Senior Notes ~~2019~~due 2021 and 2.375% Convertible Senior Notes ~~2021 Notes and~~due 2022 ~~Notes (collectively,~~(together, 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 2018Moreover, our subsidiary’s 1.625% Convertible Senior 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~~Zero-Coupon Convertible Senior Notes due 2020 ~~issued by SolarCity Corporation (the “SolarCity~~(together, the “Subsidiary 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~~Subsidiary 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.

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 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 result in a default on our existing or future indebtedness and have a material adverse effect on our business, results of operations and financial condition.

Our debt agreements contain covenant restrictions that may limit our ability to operate our business.

The terms of certain of our credit facilities, including our senior secured asset based revolving credit agreement, contain, and any 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, and make certain voluntary prepayments of specified debt. In addition, under certain circumstances we are required to comply with a fixed charge coverage ratio. As a result of these covenants, our 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 holders to accelerate our obligation to repay the debt. If any of our debt is accelerated, we may not have sufficient funds available to repay it.

We may need or want to raise additional funds 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, our operations 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.~~business, and the specific timing of cash inflows and outflows may fluctuate substantially from period to period. 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~~for new products, continue to develop our main projects including Gigafactory Shanghai, Model Y and Tesla Semi, as well as further expand our Supercharger and vehicle service ~~centers, build~~ and ~~deploy Superchargers~~repair networks~~, 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~~enable our customers’ access to our solar energy ~~system installations, improve our margins, offset future reductions in government incentives and maintain the price competitiveness of our solar energy systems.~~systems with little or no upfront cost. 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 impacting the economics of our existing customer contracts, changes in ~~legal and~~law (including tax ~~advantages or~~law), 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, while interest rates ~~are~~remain at ~~historically~~ low ~~levels.~~levels, they have risen in recent periods. 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,~~ we may be unable to finance the installation of our solar energy systems for our lease or PPA 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 our business, financial condition and results of operations.

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 13, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Aside from the settlement with the SEC discussed below relating to Elon Musk’s statement that he was considering taking Tesla private, to our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred. However, we cannot predict the outcome or impact of any 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 DOJ, 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 the Board, 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, a proposed amendment to the settlement to modify certain of the previously-agreed disclosure procedures to clarify the application of such procedures was submitted to the Court for approval. All other terms of the prior settlement are proposed by the parties to be 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.

If we update or discontinue the use of our manufacturing equipment more quickly than expected, we may have to shorten the useful lives of any equipment to be retired as a result of any such update, and the resulting acceleration in our depreciation could negatively affect our financial results.

We have invested and expect to continue to invest significantly in what we believe is state of the art tooling, machinery and other manufacturing equipment for our various product lines, and we depreciate the cost of such equipment over their expected useful lives. However, manufacturing technology may evolve rapidly, and we may decide to update our manufacturing process with cutting-edge equipment more quickly than expected. Moreover, we are continually implementing learnings as our engineering and manufacturing expertise and efficiency increase, which may result in our ability to manufacture our products using less of our currently installed equipment. Alternatively, as we ramp production of Model 3 to higher levels, our learnings may cause us to discontinue the use of already installed equipment in favor 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 results of operations could be negatively impacted.

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 U.S., we have much higher revenues than costs denominated in other currencies such as the euro, Canadian dollar, Chinese yuan and Norwegian krone. 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.

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

We sell our vehicles directly to ~~consumers. We~~consumers using means that we believe will maximize our reach, currently including through our website and our own stores. While we intend to continue to leverage our most effective sales strategies, we may not be able to sell our vehicles through ~~this sales model~~our own stores in each state in the ~~United States~~U.S., as some states have laws that may be interpreted to impose limitations on this direct-to-consumer sales model. In ~~certain~~some states, ~~in which we are not able to obtain dealer licenses,~~ we have also opened galleries ~~which are~~to educate and inform customers about our products, but such locations do not ~~full retail locations.~~

actually transact in the sale of vehicles. The application of these state laws to our operations continues to be difficult to predict. Laws in some states have limited our ability to obtain dealer licenses from state motor vehicle regulators and may continue to do so.

In addition, decisions by regulators permitting us to sell vehicles 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 to prevent our distribution model. 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 of the state’s prohibition on direct sales as applied to our business.

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 our business, prospects, financial condition and results of operations.

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.

Tesla is a highly-visible public company whose products, business, results of operations, statements and actions are often scrutinized by critics whose influence could negatively impact the perception of our brand and the market value of our common stock.

Tesla is a highly-visible public company whose products, business, results of operations, statements and actions are well-publicized. Such attention includes frequent criticism of us by a range of third-parties. Our continued success depends on our ability to focus on executing on our mission and business plan while maintaining the trust of our current and potential customers, employees, stockholders and business partners. Any negative perceived actions of ours could influence the perception of our brand or our leadership by our customers, suppliers or investors, which could adversely impact our business prospects, operating results and the market value of our common stock.

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 an intra-day trading high of ~~$389.61~~$387.46 per share and a low of ~~$178.19~~$231.13 per share over the last 52 weeks. 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 and may continue to 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 the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. ~~For example, a shareholder~~Moreover, stockholder litigation like this ~~was~~has been filed against us in ~~2013.~~the past. While ~~the plaintiffs’ complaint was dismissed with prejudice,~~we are continuing to defend such actions vigorously, any judgment against us or any future ~~shareholder~~stockholder litigation could result in substantial costs and a diversion of our management’s attention and resources.

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~~ provide 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. 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 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 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 or the ~~SolarCity~~Subsidiary Convertible Notes 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~~Subsidiary Convertible Notes have been historically, and the other Tesla Convertible Notes may become in the future, convertible at the option of their holders prior to their scheduled terms under certain circumstances. If holders elect to convert their convertible notes, we could be required to deliver to them a significant number of shares of our common stock. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the convertible notes may encourage short selling by market participants because the conversion of such notes could be used to satisfy short positions, or 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.

Elon Musk has pledged shares of our common stock 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, 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 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 his loans. 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 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 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 notes 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, 2017, we issued 80,306 shares of our common stock to a holder of our 2018 Notes in exchange for $10.0 million in aggregate principal amount of 2018 Notes, pursuant to privately negotiated agreement. Such issuance was conducted 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 of 2018 Notes in the transaction.None.

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.

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 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.

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 Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss	6
	Consolidated Statements of Redeemable Noncontrolling Interests and Equity	7
	Consolidated Statements of Cash Flows	78
	Notes to Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3133
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4044
Item 4.	Controls and Procedures	4145

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4246
Item 1A.	Risk Factors	4347
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5866
Item 3.	Defaults Upon Senior Securities	5866
Item 4.	Mine Safety Disclosures	5866
Item 5.	Other Information	5866
Item 6.	Exhibits	5866

SIGNATURES		6168

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net (loss) income attributable to common stockholders	$	(619,376	)	$	21,878		$	(1,286,050	)	$	(553,577	)
Unrealized gain (loss) on derivatives:
Change in net unrealized gain	—				3,349		—				48,359
Less: Reclassification adjustment for net gains into net loss	—				(14,246	)		(5,570	)		(15,523	)
Net unrealized (loss) gain on derivatives		—			(10,897	)		(5,570	)		32,836
Foreign currency translation adjustment		10,289			2,014			50,560			(3,970	)
Other comprehensive income (loss)		10,289			(8,883	)		44,990			28,866
Comprehensive (loss) income	$	(609,087	)	$	12,995		$	(1,241,060	)	$	(524,711	)

	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Automotive sales without resale value guarantee	$	3,683,381		$	2,182,514
Automotive sales with resale value guarantee (1)		(390,621	)		299,038
Automotive regulatory credits		215,981			80,329
Energy generation and storage sales (2)		212,100			297,895
Services and other		492,942			263,412
Total revenues from sales and services		4,213,783			3,123,188
Automotive leasing		215,120			173,436
Energy generation and storage leasing (2)		112,561			112,127
Total revenues	$	4,541,464		$	3,408,751

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2019		2018
Stock-based awards		8,855,128		5,666,686		10,177,154		16,527,336		10,663,223		9,630,761
Convertible senior notes		1,908,572		—		2,559,810		1,959,492		1,088,699		1,527,584
Warrants		414,996		—		658,345		629,782		—		301,504

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
Nine months ending December 31, 2019			$	25,921
2020		35,954		32,692
2021		34,987		32,692
2022				32,692
2023				26,511
Thereafter		129,167		76,034
Total	$	285,406	$	226,542

							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
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

	March 31, 2019
Operating leases:
Operating lease right-of-use assets	$	1,253,027

Accrued liabilities and other	$	208,362
Other long-term liabilities		1,000,886
Total operating lease liabilities	$	1,209,248

Finance leases:
Solar energy systems, net	$	31,742
Property, plant and equipment, net		1,447,502
Total finance lease assets	$	1,479,244

Current portion of long-term debt and finance leases	$	353,115
Long-term debt and finance leases, net of current portion		1,137,927
Total finance lease liabilities	$	1,491,042

	Three Months Ended
	March 31, 2019
Operating lease expense:
Operating lease expense (1)	$	134,804

Finance lease expense:
Amortization of leased assets	$	57,265
Interest on lease liabilities		23,561
Total finance lease expense	$	80,826

Total lease expense	$	215,630

	March 31, 2019
Weighted-average remaining lease term:
Operating leases	6.7 years
Finance leases	4.5 years

Weighted-average discount rate:
Operating leases		6.4	%
Finance leases		6.6	%

	Three Months Ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	111,320
Operating cash flows from finance leases (interest payments)	$	22,820
Financing cash flows from finance leases	$	66,656
Leased assets obtained in exchange for new finance lease liabilities	$	217,847
Leased assets obtained in exchange for new operating lease liabilities	$	22,004

	Operating		Finance
	Leases		Leases
Nine months ending December 31, 2019	$	209,220	$	315,700
2020		258,435		413,362
2021		228,692		621,471
2022		182,345		277,952
2023		153,498		8,142
Thereafter		477,857		15,992
Total minimum lease payments		1,510,047		1,652,619
Less: Interest		300,799		161,577
Present value of lease obligations		1,209,248		1,491,042
Less: Current portion		208,362		353,115
Long-term portion of lease obligations	$	1,000,886	$	1,137,927

	September 30,			December 31,			March 31,			December 31,
	2017			2016			2019			2018
Machinery, equipment, vehicles and office furniture	$	3,671,297		$	2,154,367		$	6,584,307		$	6,328,966
Tooling		1,112,484			794,793			1,418,368			1,397,514
Leasehold improvements		716,015			505,295			987,916			960,971
Land and buildings		1,557,697			1,079,452			2,631,607			4,047,006
Computer equipment, hardware and software		360,533			275,655			525,138			487,421
Construction in progress		3,488,046			2,147,332			622,180			807,297
Other		23,886			23,548
		10,929,958			6,980,442			12,769,516			14,029,175
Less: Accumulated depreciation and amortization		(1,535,561	)		(997,485	)
Less: Accumulated depreciation								(2,918,587	)		(2,699,098	)
Total	$	9,394,397		$	5,982,957		$	9,850,929		$	11,330,077

Nine months ending December 31, 2019	$	392,255
2020		446,135
2021		293,069
2022		189,094
2023		188,787
Thereafter		2,469,055
Total	$	3,978,395

2019	$	501,625
2020		418,299
2021		270,838
2022		186,807
2023		188,809
Thereafter		2,469,732
Total	$	4,036,110


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

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

		Tesla, Inc.

Date: ~~November 2, 2017~~April 29, 2019		/s/ ~~Deepak Ahuja~~Zachary J. Kirkhorn
		~~Deepak Ahuja~~Zachary J. Kirkhorn
		Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)