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,~~July 20, 2020, there were ~~168,067,395~~186,361,726 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,			June 30,			December 31,
	2017			2016			2020			2019
Assets
Current assets
Cash and cash equivalents	$	3,530,030		$	3,393,216		$	8,615		$	6,268
Restricted cash		138,181			105,519
Accounts receivable, net		607,734			499,142			1,485			1,324
Inventory		2,471,382			2,067,454			4,018			3,552
Prepaid expenses and other current assets		321,406			194,465			1,218			959
Total current assets		7,068,733			6,259,796			15,336			12,103
Operating lease vehicles, net		3,834,234			3,134,080			2,524			2,447
Solar energy systems, leased and to be leased, net		6,287,965			5,919,880
Solar energy systems, net								6,069			6,138
Property, plant and equipment, net		9,394,397			5,982,957			11,009			10,396
Operating lease right-of-use assets								1,274			1,218
Intangible assets, net		372,238			376,145			312			339
Goodwill		45,236			—			196			198
MyPower customer notes receivable, net of current portion		463,878			506,302
Restricted cash, net of current portion		408,544			268,165
Other assets		231,849			216,751
Other non-current assets								1,415			1,470
Total assets	$	28,107,074		$	22,664,076		$	38,135		$	34,309
Liabilities
Current liabilities
Accounts payable	$	2,385,778		$	1,860,341		$	3,638		$	3,771
Accrued liabilities and other		1,477,784			1,210,028			3,110			3,222
Deferred revenue		951,734			763,126			1,130			1,163
Resale value guarantees		543,336			179,504
Customer deposits		686,084			663,859			713			726
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 debt and finance leases								3,679			1,785
Total current liabilities		6,468,940			5,827,005			12,270			10,667
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
Debt and finance leases, net of current portion								10,416			11,634
Deferred revenue, net of current portion		1,082,870			851,790			1,198			1,207
Resale value guarantees, net of current portion		2,410,220			2,210,423
Other long-term liabilities		2,382,830			1,891,449			2,870			2,691
Total liabilities		21,929,057			16,750,167			26,754			26,199
Commitments and contingencies (Note 14)
Commitments and contingencies (Note 12)
Redeemable noncontrolling interests in subsidiaries		402,943			367,039			613			643
Convertible senior notes (Note 11)		357			8,784
Convertible senior notes (Note 10)								44			—
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
Preferred stock; $0.001 par value; 100 shares authorized; 0 shares issued and outstanding								—			—
Common stock; $0.001 par value; 2,000 shares authorized; 186 and 181 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively								0			0
Additional paid-in capital		8,989,022			7,773,727			15,895			12,737
Accumulated other comprehensive gain (loss)		21,250			(23,740	)
Accumulated other comprehensive loss								(40	)		(36	)
Accumulated deficit		(4,298,960	)		(2,997,237	)		(6,000	)		(6,083	)
Total stockholders' equity		4,711,480			4,752,911			9,855			6,618
Noncontrolling interests in subsidiaries		1,063,237			785,175			869			849
Total liabilities and equity	$	28,107,074		$	22,664,076		$	38,135		$	34,309

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues
Automotive sales	$	4,911		$	5,168		$	9,804		$	8,677
Automotive leasing		268			208			507			423
Total automotive revenues		5,179			5,376			10,311			9,100
Energy generation and storage		370			369			663			693
Services and other		487			605			1,047			1,098
Total revenues		6,036			6,350			12,021			10,891
Cost of revenues
Automotive sales		3,714			4,254			7,413			7,110
Automotive leasing		148			106			270			223
Total automotive cost of revenues		3,862			4,360			7,683			7,333
Energy generation and storage		349			326			631			642
Services and other		558			743			1,206			1,429
Total cost of revenues		4,769			5,429			9,520			9,404
Gross profit		1,267			921			2,501			1,487
Operating expenses
Research and development		279			324			603			664
Selling, general and administrative		661			647			1,288			1,351
Restructuring and other		—			117			—			161
Total operating expenses		940			1,088			1,891			2,176
Income (loss) from operations		327			(167	)		610			(689	)
Interest income		8			10			18			19
Interest expense		(170	)		(172	)		(339	)		(330	)
Other expense, net		(15	)		(41	)		(69	)		(15	)
Income (loss) before income taxes		150			(370	)		220			(1,015	)
Provision for income taxes		21			19			23			42
Net income (loss)		129			(389	)		197			(1,057	)
Net income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries		25			19			77			53
Net income (loss) attributable to common stockholders	$	104		$	(408	)	$	120		$	(1,110	)
Net income (loss) per share of common stock attributable to common stockholders
Basic	$	0.56		$	(2.31	)		0.65		$	(6.40	)
Diluted	$	0.50		$	(2.31	)		0.59		$	(6.40	)
Weighted average shares used in computing net income (loss) per share of common stock
Basic		186			177			184			175
Diluted		207			177			203			175

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

Consolidated Statements of ~~Operations~~Redeemable Noncontrolling Interests and Equity

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Revenues

Automotive sales

$
2,076,731

$
1,917,442

$
6,125,643

$
3,849,558

Automotive leasing

286,158

231,285

813,462

507,085

Total automotive revenues

2,362,889

2,148,727

6,939,105

4,356,643

Energy generation and storage

317,505

23,334

818,229

50,009

Services and other

304,281

126,375

713,168

308,849

Total revenues

2,984,675

2,298,436

8,470,502

4,715,501

Cost of revenues

Automotive sales

1,755,622

1,355,102

4,724,849

2,895,483

Automotive leasing

175,224

161,959

516,683

310,176

Total automotive cost of revenues

1,930,846

1,517,061

5,241,532

3,205,659

Energy generation and storage

237,288

24,281

592,823

50,553

Services and other

367,401

120,359

852,446

295,310

Total cost of revenues

2,535,535

1,661,701

6,686,801

3,551,522

Gross profit

449,140

636,735

1,783,701

1,163,979

Operating expenses

Research and development

331,622

214,302

1,023,436

588,448

Selling, general and administrative

652,998

336,811

1,794,210

976,173

Total operating expenses

984,620

551,113

2,817,646

1,564,621

(Loss) income from operations

(535,480
)

85,622

(1,033,945
)

(400,642
)
Interest income

5,531

2,858

13,406

6,351

Interest expense

(117,109
)

(46,713
)

(324,896
)

(133,706
)
Other expense, net

(24,390
)

(11,756
)

(83,696
)

(9,952
)
(Loss) income before income taxes

(671,448
)

30,011

(1,429,131
)

(537,949
)
(Benefit) provision for income taxes

(285
)

8,133

40,640

15,628

Net (loss) income

(671,163
)

21,878

(1,469,771
)

(553,577
)
Net loss attributable to noncontrolling interests and
   redeemable noncontrolling interests in subsidiaries

(51,787
)

—

(183,721
)

—

Net (loss) income attributable to common stockholders

$
(619,376
)

$
21,878

$
(1,286,050
)

$
(553,577
)
Net (loss) income per share of common stock attributable to
   common stockholders, basic and diluted

Basic

$
(3.70
)

$
0.15

$
(7.80
)

$
(3.94
)
Diluted

$
(3.70
)

$
0.14

$
(7.80
)

$
(3.94
)
Weighted average shares used in computing net income (loss)
   per share of common stock, basic and diluted

Basic

167,294

148,991

164,897

140,581

Diluted

167,294

156,935

164,897

140,581

														Accumulated
	Redeemable							Additional						Other			Total			Noncontrolling
	Noncontrolling			Common Stock				Paid-In			Accumulated			Comprehensive			Stockholders'			Interests in			Total
Three Months Ended June 30, 2019	Interests			Shares		Amount		Capital			Deficit			Loss			Equity			Subsidiaries			Equity
Balance as of March 31, 2019	$	570			174	$	0	$	10,564		$	(5,923	)	$	(35	)	$	4,606		$	862		$	5,468
Conversion feature of Convertible Senior Notes due in 2024		—			—		—		491			—			—			491			—			491
Purchase of convertible note hedges		—			—		—		(476	)		—			—			(476	)		—			(476	)
Sales of warrants		—			—		—		174			—			—			174			—			174
Issuance of common stock for equity incentive awards and acquisitions, net of transaction costs		—			2		0		222			—			—			222			—			222
Issuance of common stock in May 2019 public offering at $243.00 per share, net of issuance costs of $15		—			3		0		848			—			—			848			—			848
Stock-based compensation		—			—		—		226			—			—			226			—			226
Contributions from noncontrolling interests		10			—		—		—			—			—			—			32			32
Distributions to noncontrolling interests		(26	)		—		—		—			—			—			—			(33	)		(33	)
Other		—			—		—		3			—			—			3			—			3
Net income (loss)		26			—		—		—			(408	)		—			(408	)		(7	)		(415	)
Other comprehensive income		—			—		—		—			—			29			29			—			29
Balance as of June 30, 2019	$	580			179	$	0	$	12,052		$	(6,331	)	$	(6	)	$	5,715		$	854		$	6,569

	Redeemable							Additional						Other			Total			Noncontrolling
	Noncontrolling			Common Stock				Paid-In			Accumulated			Comprehensive			Stockholders'			Interests in			Total
Six Months Ended June 30, 2019	Interests			Shares		Amount		Capital			Deficit			Loss			Equity			Subsidiaries			Equity
Balance as of December 31, 2018	$	556			173	$	0	$	10,249		$	(5,318	)	$	(8	)	$	4,923		$	834		$	5,757
Adjustments for prior periods from adopting ASC 842		—			—		—		—			97			—			97			—			97
Conversion feature of Convertible Senior Notes due in 2024		—			—		—		491			—			—			491			—			491
Purchase of convertible note hedges		—			—		—		(476	)		—			—			(476	)		—			(476	)
Sales of warrants		—			—		—		174			—			—			174			—			174
Issuance of common stock for equity incentive awards and acquisitions, net of transaction costs		—			3		0		315			—			—			315			—			315
Issuance of common stock in May 2019 public offering at $243.00 per share, net of issuance costs of $15		—			3		0		848			—			—			848			—			848
Stock-based compensation		—			—		—		456			—			—			456			—			456
Contributions from noncontrolling interests		41			—		—		—			—			—			—			48			48
Distributions to noncontrolling interests		(37	)		—		—		—			—			—			—			(61	)		(61	)
Buy-outs of noncontrolling interests		—			—		—		(8	)		—			—			(8	)		—			(8	)
Other		—			—		—		3			—			—			3			—			3
Net income (loss)		20			—		—		—			(1,110	)		—			(1,110	)		33			(1,077	)
Other comprehensive income		—			—		—		—			—			2			2			—			2
Balance as of June 30, 2019	$	580			179	$	0	$	12,052		$	(6,331	)	$	(6	)	$	5,715		$	854		$	6,569

													Accumulated
	Redeemable							Additional					Other			Total		Noncontrolling
	Noncontrolling			Common Stock				Paid-In		Accumulated			Comprehensive			Stockholders'		Interests in			Total
Three Months Ended June 30, 2020	Interests			Shares		Amount		Capital		Deficit			Loss			Equity		Subsidiaries			Equity
Balance as of March 31, 2020	$	632			185	$	0	$	15,390	$	(6,104	)	$	(113	)	$	9,173	$	867		$	10,040
Reclassification from mezzanine equity to equity for 1.25% Convertible Senior Notes due in 2021		—			—		—		16		—			—			16		—			16
Exercises of conversion feature of convertible senior notes		—			0		0		65		—			—			65		—			65
Issuance of common stock for equity incentive awards		—			1		0		57		—			—			57		—			57
Stock-based compensation		—			—		—		367		—			—			367		—			367
Distributions to noncontrolling interests		(13	)		—		—		—		—			—			—		(27	)		(27	)
Other		(2	)		—		—		—		—			—			—		—			—
Net income		(4	)		—		—		—		104			—			104		29			133
Other comprehensive income		—			—		—		—		—			73			73		—			73
Balance as of June 30, 2020	$	613			186	$	0	$	15,895	$	(6,000	)	$	(40	)	$	9,855	$	869		$	10,724

														Accumulated
	Redeemable							Additional						Other			Total			Noncontrolling
	Noncontrolling			Common Stock				Paid-In			Accumulated			Comprehensive			Stockholders'			Interests in			Total
Six Months Ended June 30, 2020	Interests			Shares		Amount		Capital			Deficit			Income			Equity			Subsidiaries			Equity
Balance as of December 31, 2019	$	643			181	$	0	$	12,737		$	(6,083	)	$	(36	)	$	6,618		$	849		$	7,467
Adjustments for prior periods from adopting ASU 2016-13		—			—		—		—			(37	)		—			(37	)		—			(37	)
Reclassification from equity to mezzanine equity for 1.25% Convertible Senior Notes due in 2021		—			—		—		(44	)		—			—			(44	)		—			(44	)
Exercises of conversion feature of convertible senior notes		—			—		—		65			—			—			65			—			65
Issuance of common stock for equity incentive awards		—			2		0		217			—			—			217			—			217
Issuance of common stock in February 2020 public offering at $767.00 per share, net of issuance costs of $28		—			3		0		2,309			—			—			2,309			—			2,309
Stock-based compensation		—			—		—		611			—			—			611			—			611
Contributions from noncontrolling interests		2			—		—		—			—			—			—			17			17
Distributions to noncontrolling interests		(27	)		—		—		—			—			—			—			(77	)		(77	)
Other		(2	)		—		—		—			—			—			—			—			—
Net income		(3	)		—		—		—			120			—			120			80			200
Other comprehensive loss		—			—		—		—			—			(4	)		(4	)		—			(4	)
Balance as of June 30, 2020	$	613			186	$	0	$	15,895		$	(6,000	)	$	(40	)	$	9,855		$	869		$	10,724

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

	Six Months Ended June 30,
	2020			2019
Cash Flows from Operating Activities
Net income (loss)	$	197		$	(1,057	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and impairment		1,120			1,047
Stock-based compensation		558			418
Amortization of debt discounts and issuance costs		94			82
Inventory and purchase commitments write-downs		88			116
Loss on disposals of fixed assets		12			48
Foreign currency transaction net loss (gain)		38			(11	)
Non-cash interest and other operating activities		110			157
Operating cash flow related to repayment of discounted convertible notes		—			(188	)
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable		(236	)		(168	)
Inventory		(535	)		(352	)
Operating lease vehicles		(330	)		(176	)
Prepaid expenses and other current assets		(301	)		(139	)
Other non-current assets		(16	)		42
Accounts payable and accrued liabilities		(372	)		87
Deferred revenue		(20	)		476
Customer deposits		5			(160	)
Other long-term liabilities		112			2
Net cash provided by operating activities		524			224
Cash Flows from Investing Activities
Purchases of property and equipment excluding finance leases, net of sales		(1,001	)		(530	)
Purchases of solar energy systems, net of sales		(46	)		(43	)
Receipt of government grants		1			—
Purchase of intangible assets		—			(5	)
Business combinations, net of cash acquired		—			31
Net cash used in investing activities		(1,046	)		(547	)
Cash Flows from Financing Activities
Proceeds from issuances of common stock in public offerings, net of issuance costs		2,309			848
Proceeds from issuances of convertible and other debt		4,946			5,008
Repayments of convertible and other debt		(4,226	)		(3,700	)
Collateralized lease repayments		(168	)		(219	)
Proceeds from exercises of stock options and other stock issuances		217			96
Principal payments on finance leases		(154	)		(143	)
Debt issuance costs		—			(30	)
Purchase of convertible note hedges		—			(476	)
Proceeds from issuance of warrants		—			174
Proceeds from investments by noncontrolling interests in subsidiaries		19			89
Distributions paid to noncontrolling interests in subsidiaries		(110	)		(149	)
Payments for buy-outs of noncontrolling interests in subsidiaries		(2	)		(8	)
Net cash provided by financing activities		2,831			1,490
Effect of exchange rate changes on cash and cash equivalents and restricted cash		14			5
Net increase in cash and cash equivalents and restricted cash		2,323			1,172
Cash and cash equivalents and restricted cash, beginning of period		6,783			4,277
Cash and cash equivalents and restricted cash, end of period	$	9,106		$	5,449
Supplemental Non-Cash Investing and Financing Activities
Equity issued in connection with business combination	$	—		$	207
Acquisitions of property and equipment included in liabilities	$	668		$	287
Leased assets obtained in exchange for finance lease liabilities	$	54		$	469
Leased assets obtained in exchange for operating lease liabilities	$	187		$	119

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

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

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

~~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,~~our company, manages resource allocations and measures performance among ~~two~~2 operating and reportable segments: (i) automotive and (ii) energy generation and storage.

As of and following June 30, 2020, there has continued to be widespread impact to the global economy from the coronavirus disease (“COVID-19”) pandemic. We had temporarily suspended operations at each of our manufacturing facilities worldwide at some point during the first half of 2020 as a result of government requirements or to accommodate related challenges for our employees, their families and our suppliers. Certain of our suppliers and partners, including Panasonic, our partner that manufactures lithium-ion battery cells for our products at our Gigafactory Nevada, also experienced such temporary suspensions. We had also instituted temporary labor cost reduction measures by furloughing certain of our hourly employees, reducing most salaried employees’ base salaries globally and reducing our bonus and commission structures while our U.S. operations were scaled back. Exiting the second quarter of 2020, however, we have resumed operations at all of our manufacturing facilities, continue to increase our output and add additional capacity, and are working with each of our suppliers and government agencies on meeting, ramping and sustaining our production. On the other hand, certain government regulations and public advisories, as well as shifting social behaviors, that have temporarily or sporadically limited or closed non-essential transportation, government functions, business activities and person-to-person interactions remain in place. In some cases, the relaxation of such trends has been followed by a return to stringent restrictions. We cannot predict the duration or direction of such trends, which have also adversely affected and may in the future affect our operations.

The consolidated balance sheet as of ~~September~~June 30, ~~2017,~~2020, the consolidated statements of operations, ~~and~~ the consolidated statements of comprehensive ~~loss~~income (loss), the consolidated statements of redeemable noncontrolling interests and equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 and the consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, ~~2016~~2019 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.~~2019.

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.

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

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

Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes. ~~Such reclassifications had no effect on previously reported results of operations. Starting in the fourth quarter of 2016, we~~Restricted cash and MyPower customer notes receivable have been reclassified ~~the revenue~~to other assets and ~~cost of revenue of our energy storage products from ‘services and other’ into ‘energy generation and storage’ for all periods presented in order to align with our reportable segments.~~

~~Prior to June 30, 2016, we offered~~ resale value guarantees ~~or similar buy-back terms~~has been reclassified to ~~all customers who purchase~~other liabilities.

Automotive Sales with and ~~who financed their vehicles through one~~without Resale Value Guarantee

Deferred revenue related to the access to our Supercharger network, internet connectivity and Full Self Driving (“FSD”) features and over-the-air software updates on automotive sales with and without resale value guarantee amounted to $1.61 billion and $1.47 billion as of ~~our specified commercial banking partners. Since~~ June 30, ~~2016, this program~~2020 and December 31, 2019, respectively. Deferred revenue is ~~available only in certain international markets. Under this program, customers have~~equivalent to the ~~option~~total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of ~~selling their vehicle back to us during~~ the ~~guarantee period for a determined resale value. Guarantee periods generally range~~balance sheet date. Revenue recognized from ~~36 to 39 months. Although we receive full payment~~the deferred revenue balance as of December 31, 2019 and 2018 was $149 million and $114 million for the ~~vehicle~~six months ended June 30, 2020 and 2019, respectively. Of the total deferred revenue on automotive sales ~~price at~~with and without resale value guarantees, we expect to recognize $876 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 ~~delivery,~~revenue recognition, we ~~are required to account~~reduce the transaction price and record a sales return reserve against revenue for these transactions as operating leases. 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 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~~estimated variable consideration related to ~~the vehicle~~future product returns. Such estimates are settled to automotive leasing revenue and the net book value of the leased vehicle is expensed to costs of automotive leasing revenue. If a customer returns the vehicle to us during the guarantee period, we purchase the vehicle from the customer in an amount equal to the resale value guarantee and settle any remaining deferred balances to automotive leasing revenue, and we reclassify the net book value of the vehicle on our balance sheet to used vehicle inventory. As of September 30, 2017 and December 31, 2016, $279.9 million and $179.5 million, respectively, of the guarantees were exercisable by customers within a 12-month period from each such date.

We also offer resale value guarantees in connection with automobile sales to certain leasing partners. As we have guaranteed the value of these vehicles and as the vehicles are leased to end-customers, we account for these transactions as interest bearing collateralized borrowings as required under ASC 840, ~~Leases~~. Under this program, cash is received for the full price of the vehicle and is recorded within resale value guarantees for the long-term portion and deferred revenue for the current portion. We accrete the deferred revenue amount to automotive leasing revenue on a straight-line basis over the guarantee period and accrue interest expense based on our borrowing rate. We capitalize vehicles under this program to operating lease vehicles, net, on the consolidated balance sheets, and we record depreciation from these vehicles to cost of automotive leasing revenues 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 borrowings within cash flows from financing activities in 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 resale value guarantee amount or paying a shortfall to the guarantee amount the leasing partner may realize on the sale of the vehicle. Any remaining balances within deferred revenue and resale value guarantee will be settled to automotive leasing revenue. In cases where the leasing partner retains ownership of the vehicle after the end of our guarantee period, we expense the net value of the leased vehicle to costs of automotive leasing revenue. The maximum amount we could be required to pay under this program, should we decide to repurchase all vehicles, was $1.18 billion and $855.9 million 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~~.

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

~~Activity~~ Due to price adjustments we made to our vehicle offerings during the three months ended June 30, 2020, we estimated that there is a greater likelihood that customers will exercise their buyback options that were provided prior to such adjustments. As a result, along with the estimated variable consideration related to normal future product returns for vehicles sold under the buyback options program in the second quarter, we adjusted our sales return reserve on vehicles previously sold under our buyback options program resulting in a reduction of automotive sales revenues of $60 million for the three months ended June 30, 2020. 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 $37 million for the three months ended June 30, 2020. The net impact was $23 million reduction in gross profit for the three months ended June 30, 2020.

With the exception of two programs which are discussed within the Automotive Leasing Revenue section, we recognize revenue when control transfers upon delivery to customers as a sale with a right of return as we do not believe the customer has a significant economic incentive to exercise the resale value guarantee provided to them. The total sales return reserve on vehicles previously sold under our buyback options program was $650 million and ~~similar programs consisted~~$639 million as of June 30, 2020 and December 31, 2019, respectively, of which $124 million and $93 million was short term, respectively.

In connection with the production and delivery of our zero emission vehicles in global markets, we have earned and will continue to earn various tradable automotive regulatory credits. We have sold these credits, and will continue to sell future credits, to automotive companies and other regulated entities who can use the credits to comply with emission standards and other regulatory requirements. For example, under California’s Zero Emission Vehicle Regulation and those of states that have adopted California’s standard, vehicle manufacturers are required to earn or purchase credits, referred to as ZEV credits, for compliance with their annual regulatory requirements. These laws provide that automakers may bank or sell to other regulated parties their excess credits if they earn more credits than the minimum quantity required by those laws. We also earn other types of saleable regulatory credits in the United States and abroad, including greenhouse gas, fuel economy and clean fuels credits. Payments for regulatory credits are typically received at the point control transfers to the customer, or in accordance with payment terms customary to the business.

We recognize revenue on the sale of automotive regulatory credits at the time control of the ~~following (in thousands):~~regulatory credits is transferred to the purchasing party as automotive revenue in the consolidated statements of operations. Deferred revenue related to sales of automotive regulatory credits was $0 million and $140 million as of June 30, 2020 and December 31, 2019, respectively. Revenue recognized from the deferred revenue balance as of December 31, 2019 was $140 million for the six months ended June 30, 2020.

Automotive leasing revenue includes revenue recognized under lease accounting guidance for our direct leasing programs as well as the two programs with resale value guarantees described below.

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

The maximum amount we could be required to pay under our collateralized lease borrowing program, should we decide to repurchase all vehicles, was$98 million and $214 million as of June 30, 2020 and December 31, 2019, respectively, including $61million within a 12-month period from June 30, 2020.As of June 30, 2020 and December 31, 2019, we had $106 million and $238 million, respectively, of collateralized lease borrowings recorded in accrued liabilities and other and other long-term liabilities, and $16million and $29 million, respectively, recorded in deferred revenue liability. For the three and six months ended June 30, 2020, we recognized $19 million and $52 million, respectively, of leasing revenue related to this program, and $50 million and $103 million, respectively, for the same periods in 2019. The net carrying amount of operating lease vehicles under this program was $88 million and $190 million as of June 30, 2020 and December 31, 2019, respectively.

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

As of June 30, 2020, we had an immaterial amount of resale value guarantees where exercise is probable recorded in accrued liabilities and other. As of December 31, 2019, we had $115 million of resale value guarantees where exercise is probable recorded in accrued liabilities and other. For the three and six months ended June 30, 2020, we recognized $66 million and $101 million, respectively, of leasing revenue related to this program, and $37 million and $85 million, respectively, for the same periods in 2019. The net carrying amount of operating lease vehicles under this program was immaterial as of June 30, 2020 and $83 million as of December 31, 2019. This portfolio will wind down completely in the third quarter of 2020.

As of June 30, 2020 and December 31, 2019, deferred revenue related to non-refundable customer prepayments, remote monitoring service, and operations and maintenance service amounted to $172 million and $156 million, respectively. Revenue recognized from the deferred revenue balance as of December 31, 2019 and 2018 was $28 million and $22 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, 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 $105 million. Of this amount, we expect to recognize $5 million in the next 12 months and the remaining over a period of up to 28 years.

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

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the aggregate balances of our gross unrecognized tax benefits were ~~$300.0~~$276 million and ~~$203.9~~$273 million, respectively, of which ~~$292.9~~$250 million and ~~$198.3~~$247 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 six months ended June 30, 2019, we increased net loss attributable to common stockholders by $8 million to arrive at the numerator used to calculate net loss per share. This adjustment represents the difference between the cash we paid to the 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 or have settled in cash the principal outstanding under ~~the~~our 0.25% Convertible Senior Notes due in 2019, ~~the~~ 1.25% Convertible Senior Notes due in 2021, 2.375% Convertible Senior Notes due in 2022, 2.00% Convertible Senior Notes due in 2024 and ~~the 2.375%~~our subsidiary’s 5.50% Convertible Senior Notes due in 2022, we use the treasury stock method applied using our average share price during the period when calculating their potential dilutive effect, if any. Furthermore, in connection with the offerings of our notes, we entered into convertible note hedges and warrants (see Note 10, Debt). However, our convertible note hedges are not included when calculating potentially dilutive shares since their effect is always anti-dilutive. Warrants which have a strike price above our average share price during the period were out of the money and were not included in the tables below.

The following table presents the computation of basic and diluted net income (loss) per share of common stock attributable to common stockholders (in millions, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020		2019
Net income (loss) per share of common stock attributable to common stockholders, basic
Net income (loss) attributable to common stockholders	$	104	$	(408	)	$	120	$	(1,110	)
Less: Buy-out of noncontrolling interest		—		—			—		8
Net income (loss) used in computing net income (loss) per share of common stock, basic		104		(408	)		120		(1,118	)
Weighted average shares used in computing net income (loss) per share of common stock, basic		186		177			184		175
Net income (loss) per share of common stock attributable to common stockholders, basic	$	0.56	$	(2.31	)	$	0.65	$	(6.40	)

Net income (loss) per share of common stock attributable to common stockholders, diluted
Net income (loss) attributable to common stockholders	$	104	$	(408	)	$	120	$	(1,110	)
Less: Buy-out of noncontrolling interest		—		—					8
Net income (loss) used in computing net income (loss) per share of common stock, diluted		104		(408	)		120		(1,118	)
Weighted average shares used in computing net income (loss) per share of common stock, basic		186		177			184		175
Add:
Stock-based awards		10		—			10		—
Convertible senior notes		8		—			7		—
Warrants		3		—			2		—
Weighted average shares used in computing net income (loss) per share of common stock, diluted		207		177			203		175
Net income (loss) per share of common stock attributable to common stockholders, diluted	$	0.50	$	(2.31	)	$	0.59	$	(6.40	)

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Stock-based awards		8,855,128		5,666,686		10,177,154		16,527,336		0		13		0		12
Convertible senior notes		1,908,572		—		2,559,810		1,959,492		0		1		0		1
Warrants		414,996		—		658,345		629,782

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

Depending on the day of the week on which the end of a fiscal quarter falls, our accounts receivable balance may fluctuate as we are waiting for certain customer payments to clear through our banking institutions and receipts of payments from our financing partners, which can take up to approximately two weeks based on the contractual payment terms with such partners. Our accounts receivable balances associated with our sales of regulatory credits, which are typically transferred to other manufacturers during the last few days of the quarter, is dependent on contractual payment terms. Additionally, government rebates, depending upon the specific jurisdictions issuing them, can take more than six months to be collected. These various factors may have a significant impact on our accounts receivable balance from period to period.

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 fair value of our restricted cash invested in commercial paper equals the carrying value using quoted prices in active markets (Level I). We record restricted cash as other assets in the consolidated balance sheets and determine current or non-current classification based on the expected duration of the restriction.

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

We have customer notes receivable under the legacy MyPower loan program. MyPower was offered by one of our subsidiaries to provide residential customers with the option to finance the purchase of a solar energy system through a 30-year loan. The outstanding balances, net of any allowance for credit losses, are presented on the consolidated balance sheet as a component of prepaid expenses and other current assets for the current portion and as other non-current assets for the long-term portion. We adopted ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASC 326”) on January 1, 2020 on a modified retrospective basis. Under ASC 326, expected credit loss for customer notes receivable are measured on a collective basis and are determined as the difference between the amortized cost basis and the present value of cash flows expected to be collected. In determining expected credit losses, we consider our historical level of credit losses, current economic trends, and reasonable and supportable forecasts that affect the collectability of the future cash flows. We write-off customer notes receivable when they are deemed uncollectible and the amount of potentially uncollectible amounts has been insignificant. Using a modified retrospective approach for the impact upon adoption, we recorded an increase to the allowance for credit losses of $37 million on January 1, 2020, with an offset to accumulated deficit. As of June 30, 2020 and December 31, 2019, the total outstanding balance of MyPower customer notes receivable, net of allowance

for credit losses, was $351 million and $402 million, respectively, of which $10 million and $9 million was due in the next 12 months as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, the allowance for credit losses was $45 million. In addition, there were 0 material non-accrual or past due customer notes receivable as of June 30, 2020.

Financial instruments that potentially subject us to a concentration of credit risk consist of cash and 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~~June 30, ~~2017, no customer~~2020, 1 entity represented 10% or more of our total accounts receivable ~~balance.~~balance, which was related to sales of regulatory credits. As of December 31, ~~2016, one customer~~2019, 0 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.

Although we have resumed operations at all of our manufacturing facilities, continue to increase our output and add additional capacity, and are working with each of our suppliers and government agencies on meeting, ramping and sustaining our production, our ability to sustain this trajectory depends, among other things, on the readiness and solvency of our suppliers and vendors through any macroeconomic factors resulting from the COVID-19 pandemic.

The gross cost of operating lease vehicles as of June 30, 2020 and December 31, 2019 was $2.93 billion and $2.85 billion, respectively. Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $408 million and $406 million, as of June 30, 2020 and December 31, 2019, respectively.

We provide a manufacturer’s warranty on all new and ~~certified~~ used vehicles and production powertrain components and systems ~~and energy products~~ we sell. In addition, we also provide a warranty on the installation and components of the ~~solar~~ energy generation and storage systems we sell for periods typically between 10 to 3025 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,~~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. Warranty expense is recorded as a component of cost of ~~revenues.~~revenues in the consolidated statements of operations. Due to the magnitude of our automotive business, accrued warranty balance was primarily related to our automotive segment. Accrued warranty activity consisted of the following (in ~~thousands)~~millions):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Accrued warranty—beginning of period	$	343,279		$	216,459		$	266,655		$	180,754		$	1,130		$	844		$	1,089		$	748
Warranty costs incurred		(39,481	)		(16,571	)		(87,881	)		(56,734	)		(62	)		(61	)		(143	)		(115	)
Net changes in liability for pre-existing warranties, including expirations and foreign exchange impact		4,768			(19,523	)		7,239			(12,889	)		9			5			12			42
Provision for warranty		60,156			46,454			182,709			115,688			120			153			239			266
Accrued warranty—end of period	$	368,722		$	226,819		$	368,722		$	226,819		$	1,197		$	941		$	1,197		$	941

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

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,~~December 2019, the FASB issued ASU No. ~~2015-14,~~ ~~Deferral~~2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ~~Effective Date~~,ASU include removing exceptions to ~~defer~~incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination. The amendments in the ASU are effective ~~date of ASU No. 2014-09 to interim and annual periods~~for fiscal years beginning after December 15, ~~2017, with~~2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. We have not early ~~adoption permitted.~~adopted this ASU as of June 30, 2020. The ASU is currently not expected to have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. The ASU is currently not expected to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions and forecasts. Subsequently, the FASB issued ASU No. ~~2016-08,~~ ~~Principal versus Agent Considerations, ASU No. 2016-10,~~ ~~Identifying Performance Obligations and Licensing, ASU No. 2016-11,~~ ~~Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant~~2018-19, 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 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,~~standards. Further, the FASB issued ASU No. ~~2016-02,~~ ~~Leases~~,2019-04, ASU No. 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02 and ASU 2020-03 to ~~require lessees to recognize all leases, with certain exceptions,~~provide additional guidance on the ~~balance sheet, while recognition on the statement of operations will remain similar to current lease accounting.~~credit losses standard. The ~~ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. The ASU is~~ASUs are effective for interim and annual periods beginning after December 15, ~~2018, with early adoption permitted.~~2019. Adoption of the ASUs is on a modified retrospective basis. We ~~currently expect to adopt~~adopted the ~~ASU~~ASUs 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.~~2020. The ~~ASU is effective for interim and~~

annual periods beginning after December 15, 2016, with early adoption permitted. Adoption of the ASU is modified retrospective. We adopted the ASU 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 adoptionASUs did not have a material impact on ~~the~~our consolidated financial statements.

~~In November 2016,~~ This ASU applies to all financial assets including loans, trade receivables and any other financial assets not excluded from the ~~FASB issued~~scope that have the contractual right to receive cash. The adoption of this ASU ~~No. 2016-18,~~ ~~Statement of Cash Flows: Restricted Cash, which requires entities~~did not have any impact except on MyPower customer notes receivable. Refer 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 effectiveMyPower Customer Notes Receivable above 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.further details.

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.~~2019. Adoption of the ASU is prospective. We ~~have not yet selected an adoption date, and~~adopted the ASU ~~will~~prospectively on January 1, 2020. The ASU did not have a ~~currently undetermined~~material impact on ~~the~~our consolidated financial statements.

In ~~May 2017,~~August 2018, the FASB issued ASU No. ~~2017-09,~~ ~~Scope of Modification~~2018-15, 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, with early adoption permitted.~~2019. Adoption of the ASU is either retrospective or prospective. We ~~plan to adopt~~adopted the ASU prospectively on January 1, ~~2018.~~

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Targeted Improvements to Accounting for Hedging Activities, to simplify the application of current hedge accounting guidance.~~2020. The ASU expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. Adoption of the ASU is generally modified retrospective. We are currently obtaining an understanding of the ASU and plan to adopt the ASU on January 1, 2019.

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

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

~~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 perioddid 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 of SolarCity for a total purchase price of $2.1 billion in stock~~. ~~We are currently finalizing our estimates of the fair values of the solar energy systems,~~ ~~leased and to be leased, identifiable intangible assets, deferred revenue, deferred taxes and noncontrolling interests assumed. Fair value adjustments recorded during the measurement period (a period not to exceed 12 months) may~~ have a material impact on our 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 including assets recognized from our acquisitions was as follows (in ~~thousands)~~millions):

September 30, 2017

December 31, 2016

Gross Carrying
Amount

Accumulated
Amortization

Other

Net Carrying
Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Finite-lived intangible assets:

Developed technology

$
125,889

$
(14,766
)

$
1,880

$
113,003

$
113,361

$
(1,740
)

$
111,621

Trade name

45,275

(7,707
)

233

37,801

43,500

(967
)

42,533

Favorable contracts and leases, net

112,817

(6,695
)

—

106,122

112,817

(864
)

111,953

Other

34,099

(6,624
)

1,005

28,480

26,679

(3,473
)

23,206

Total finite-lived intangible assets

318,080

(35,792
)

3,118

285,406

296,357

(7,044
)

289,313

Indefinite-lived intangible assets:

IPR&D

86,832

—

—

86,832

86,832

—

86,832

Total indefinite-lived
intangible assets

86,832

—

—

86,832

86,832

—

86,832

Total intangible assets

$
404,912

$
(35,792
)

$
3,118

$
372,238

$
383,189

$
(7,044
)

$
376,145

	June 30, 2020									December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Other		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Other		Net Carrying Amount
Finite-lived intangible assets:
Developed technology	$	291	$	(92	)	$	—	$	199	$	291	$	(72	)	$	1	$	220
Trade names		3		(1	)		—		2		3		(1	)		1		3
Favorable contracts and leases, net		113		(28	)		—		85		113		(24	)		—		89
Other		38		(17	)		—		21		38		(16	)		—		22
Total finite-lived intangible assets		445		(138	)		—		307		445		(113	)		2		334
Indefinite-lived intangible assets:
Gigafactory Nevada water rights		5		—			—		5		5		—			—		5
Total intangible assets	$	450	$	(138	)	$	—	$	312	$	450	$	(113	)	$	2	$	339

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

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

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

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)~~millions):

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

$
—

	June 30, 2020										December 31, 2019
	Fair Value			Level I		Level II			Level III		Fair Value			Level I		Level II			Level III
Money market funds (cash and cash equivalents)	$	4,071		$	4,071	$	—		$	—	$	1,632		$	1,632	$	—		$	—
Interest rate swap assets		—			—		—			—		1			—		1			—
Interest rate swap liabilities		(69	)		—		(69	)		—		(27	)		—		(27	)		—
Total	$	4,002		$	4,071	$	(69	)	$	—	$	1,606		$	1,632	$	(26	)	$	—

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 months ended September 30, 2017, 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 non-current assets or other long-term liabilities, with any changes in their fair values recognized as other ~~income (expense),~~expense, net, in the consolidated statements of operations and with any cash flows recognized as ~~investing~~operating activities in the consolidated statements of cash flows. Our interest rate swaps outstanding were as follows ~~as of September 30, 2017~~ (in ~~thousands)~~millions):

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 convertible senior notes, the~~our 1.25% Convertible Senior Notes due in 2021, 2.375% Convertible Senior Notes due in 2022, 2.00% Convertible Senior Notes due in 2024, our subsidiary’s NaN-Coupon Convertible Senior Notes due in 2020 and our subsidiary’s 5.50% Convertible Senior Notes due in 2022 (collectively referred to as “Convertible Senior Notes” below), 5.30% Senior Notes due in 2025, ~~the participation interest, the~~ solar asset-backed notes and ~~the~~ solar loan-backed notes approximate their fair values.

We estimate the fair value of the ~~convertible senior notes~~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~~our solar asset-backed notes and ~~the~~ solar loan-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)~~millions):

	September 30,		December 31,		June 30,		December 31,
	2017		2016		2020		2019
Raw materials	$	612,225	$	680,339	$	1,842	$	1,428
Work in process		277,155		233,746		420		362
Finished goods(1)		1,418,385		1,016,731		1,379		1,356
Service parts		163,617		136,638		377		406
Total	$	2,471,382	$	2,067,454	$	4,018	$	3,552

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.

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 or PPA contract with a customer has been executed and installation has been initiated. Additional costs incurred on the leased solar energy systems, including labor and overhead, are recorded within ~~construction in progress.~~solar energy systems under construction.

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~~six months ended ~~September~~June 30, ~~2017,~~2020, we recorded write-downs of ~~$26.2~~$37 million and ~~$93.0~~$82 million, respectively, in cost of revenues. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, we recorded write-downs of ~~$14.9~~$25 million and ~~$38.3~~$89 million, respectively, in cost of revenues.

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

	September 30,			December 31,			June 30,			December 31,
	2017			2016			2020			2019
Solar energy systems leased to customers	$	5,878,322		$	5,052,976
Solar energy systems in service							$	6,722		$	6,682
Initial direct costs related to customer solar energy system lease acquisition costs		65,283			12,774			103			102
		5,943,605			5,065,750			6,825			6,784
Less: accumulated depreciation and amortization		(168,571	)		(20,157	)		(839	)		(723	)
		5,775,034			5,045,593			5,986			6,061
Solar energy systems under construction		241,928			460,913			28			18
Solar energy systems to be leased to customers		271,003			413,374
Solar energy systems, leased and to be leased – net (1)	$	6,287,965		$	5,919,880
Solar energy systems pending interconnection								55			59
Solar energy systems, net (1)							$	6,069		$	6,138

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

	September 30,			December 31,			June 30,			December 31,
	2017			2016			2020			2019
Machinery, equipment, vehicles and office furniture	$	3,671,297		$	2,154,367		$	7,687		$	7,167
Tooling		1,112,484			794,793			1,711			1,493
Leasehold improvements		716,015			505,295			1,157			1,087
Land and buildings		1,557,697			1,079,452			3,172			3,024
Computer equipment, hardware and software		360,533			275,655			700			595
Construction in progress		3,488,046			2,147,332			1,012			764
Other		23,886			23,548
		10,929,958			6,980,442			15,439			14,130
Less: Accumulated depreciation and amortization		(1,535,561	)		(997,485	)
Less: Accumulated depreciation								(4,430	)		(3,734	)
Total	$	9,394,397		$	5,982,957		$	11,009		$	10,396

Construction in progress is primarily comprised of ~~tooling~~equipment and ~~equipment~~tooling related to the manufacturing of our ~~vehicles~~products, Gigafactory Shanghai expansion and ~~a portion of~~ Gigafactory 1Berlin 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~~six months ended ~~September~~June 30, ~~2017,~~2020, we capitalized ~~$37.3~~$10 million and ~~$96.0~~$20 million, respectively, of interest. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, we capitalized ~~$11.4~~$7 million and ~~$30.4~~$15 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~~six months ended ~~September~~June 30, ~~2017~~2020 was ~~$197.5~~$356 million and ~~$534.2~~$727 million, respectively. Depreciation ~~and amortization~~ expense during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019 was ~~$126.8~~$335 million and ~~$337.9 million.~~$634 million, respectively. Gross property plant and equipment under ~~capital~~finance leases as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 was ~~$612.3~~$2.12 billion and $2.08 billion, respectively, with accumulated depreciation of $617 million and ~~$112.6~~$483 million, respectively. ~~Accumulated depreciation~~

Panasonic has partnered with us on Gigafactory Nevada with investments in the production equipment that it uses to manufacture and supply us with battery cells. Under our arrangement with Panasonic, we plan to purchase the full output from their production equipment at negotiated prices. As the terms of the arrangement convey a finance lease under ASC 842, Leases, we account for their production equipment as leased assets when production commences. We account for each lease and any non-lease components associated with that lease as a single lease component for all asset classes, except production equipment classes embedded in supply agreements. This results in us recording the cost of their production equipment within property, plant and equipment, ~~under capital leases as~~net, on the consolidated balance sheets with a corresponding liability recorded to debt and finance leases. Depreciation on Panasonic production equipment is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of ~~these dates was $88.3 million~~the respective assets. As of June 30, 2020 and ~~$40.2 million, respectively.~~

WeDecember 31, 2019, we had cumulatively capitalized costs of ~~$2.85~~$1.75 billion and ~~$1.04~~$1.73 billion, respectively, ~~for Gigafactory 1 as~~ on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement.

In July 2020, we entered into a Purchase and Sale Agreement to purchase a property located near Austin, Texas.

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019, accrued liabilities and other current liabilities consisted of the following (in millions):

~~Other~~As of June 30, 2020 and December 31, 2019, other long-term liabilities consisted of the following (in ~~thousands)~~millions):

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

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

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

The following is a summary of our debt and finance leases as of ~~September~~June 30, ~~2017~~2020 (in ~~thousands)~~millions):

	Unpaid						Unused										Unpaid		Unused
	Principal		Net Carrying Value				Committed		Contractual				Net Carrying Value				Principal		Committed		Contractual			Contractual
	Balance		Current		Long-Term		Amount		Interest Rate			Maturity Date	Current		Long-Term		Balance		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	$	1,336	$	—	$	1,380	$	—		1.25	%	March 2021
2.375% Convertible Senior Notes due in 2022 ("2022 Notes")		977,500		—		834,834		—		2.375	%	March 2022		—		918		977		—		2.375	%	March 2022
2.00% Convertible Senior Notes due in 2024 ("2024 Notes")														—		1,425		1,839		—		2.00	%	May 2024
5.30% Senior Notes due in 2025 ("2025 Notes")		1,800,000		—		1,774,742		—		5.30	%	August 2025		—		1,784		1,800		—		5.30	%	August 2025
Credit Agreement		1,269,000		—		1,269,000		535,095	1% plus LIBOR			June 2020		—		1,550		1,550		575		1.2% - 3.3	%	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
1.625% Convertible Senior Notes due in 2019		566,000		—		506,535		—		1.625	%	November 2019
Zero-coupon Convertible Senior Notes due in 2020		103,000		—		85,182		—		0.0	%	December 2020
Related Party Promissory Notes due in February 2018		100,000		100,000		—		—		6.5	%	February 2018
Solar Bonds		32,016		6,424		25,135		—	2.6%-5.8%			March 2018- January 2031
Zero-Coupon Convertible Senior Notes due in 2020														35		—		36		—		0.0	%	December 2020
Solar Bonds and other Loans														5		53		60		—		3.6%-5.8	%	July 2020 - January 2031
Total recourse debt		7,410,395		136,442		6,749,742		535,095						1,376		5,730		7,642		575
Non-recourse debt:
Automotive Asset-backed Notes														650		667		1,323		—		2.0%-7.9	%	December 2020-May 2023
Solar Asset-backed Notes														37		1,098		1,162		—		3.1%-7.7	%	September 2024-February 2048
China Loan Agreements														945		517		1,462		1,388		3.5%-4.0	%	September 2020-December 2024
Cash Equity Debt														13		423		448		—		5.3%-5.8	%	July 2033-January 2035
Solar Loan-backed Notes														12		149		167		—		4.8%-7.5	%	September 2048-September 2049
Warehouse Agreements		556,992		154,191		402,801		43,008		2.7	%	September 2019		92		589		681		419		1.6%-2.2	%	September 2021
Solar Term Loans														158		—		158		—		4.5	%	January 2021
Canada Credit Facility		55,072		21,357		33,715		—	3.6%-4.5%			December 2020		18		7		25		—		4.2%-5.8	%	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
Solar Renewable Energy Credit and other Loans														16		67		83		—		3.5%-6.6	%	July 2020-June 2022
Total non-recourse debt		2,582,026		239,064		2,299,987		244,042						1,941		3,517		5,509		1,807
Total debt	$	9,992,421	$	375,506	$	9,049,729	$	779,137						3,317		9,247	$	13,151	$	2,382
Finance leases														362		1,169
Total debt and finance leases													$	3,679	$	10,416

The following is a summary of our debt and finance leases as of December 31, ~~2016~~2019 (in ~~thousands)~~millions):

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
	Net Carrying Value				Principal		Committed		Contractual			Contractual
	Current		Long-Term		Balance		Amount (1)		Interest Rates			Maturity Date
Recourse debt:
2021 Notes	$	—	$	1,304	$	1,380	$	—		1.25	%	March 2021
2022 Notes		—		902		978		—		2.375	%	March 2022
2024 Notes		—		1,383		1,840		—		2.00	%	May 2024
2025 Notes		—		1,782		1,800		—		5.30	%	August 2025
Credit Agreement		141		1,586		1,727		499		2.7%-4.8	%	June 2020-July 2023
Zero-Coupon Convertible Senior Notes due in 2020		97		—		103		—		0.0	%	December 2020
Solar Bonds and other Loans		15		53		70		—		3.6%-5.8	%	March 2020-January 2031
Total recourse debt		253		7,010		7,898		499
Non-recourse debt:
Automotive Asset-backed Notes		573		997		1,577		—		2.0%-7.9	%	February 2020- May 2023
Solar Asset-backed Notes		32		1,123		1,183		—		4.0%-7.7	%	September 2024-February 2048
China Loan Agreements		444		297		741		1,542		3.7%-4.0	%	September 2020-December 2024
Cash Equity Debt		10		430		454		—		5.3%-5.8	%	July 2033-January 2035
Solar Loan-backed Notes		11		164		182		—		4.8%-7.5	%	September 2048-September 2049
Warehouse Agreements		21		146		167		933		3.1%-3.6	%	September 2021
Solar Term Loans		8		152		161		—		5.4	%	January 2021
Canada Credit Facility		24		16		40		—		4.2%-5.9	%	November 2022
Solar Renewable Energy Credit and other Loans		23		67		89		6		4.5%-7.4	%	March 2020-June 2022
Total non-recourse debt		1,146		3,392		4,594		2,481
Total debt		1,399		10,402	$	12,492	$	2,980
Finance leases		386		1,232
Total debt and finance leases	$	1,785	$	11,634

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~~June 30, ~~2017,~~2020, 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 2020, we classified the ~~nine months ended September 30, 2017.~~

~~In June 2017, $144.8 million in aggregate principal amount~~ as current liabilities as the maturity date of the ~~2018 Notes were exchanged for 1,163,442 shares 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 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.~~

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~~2021 Notes is ~~initially convertible into 3.0534 shares~~March 2021. During the first two quarters 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, if2020, the closing price of our common stock ~~for~~exceeded 130% of the applicable conversion price of each of our 2021 Notes, 2022 Notes and 2024 Notes on at least 20 ~~trading days (whether or not consecutive) during~~of the last 30 consecutive trading days ~~immediately preceding the quarter is greater than or equal to 130%~~ of the ~~conversion price; (2)~~quarter; causing the 2021 Notes, 2022 Notes and 2024 Notes to be convertible by their holders during the ~~five-business day period following any five-consecutive trading day period in which~~second and third quarters of 2020. As the ~~trading price~~settlement of conversion of the ~~2022~~2021 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~~be in cash for the principal amount and, if applicable, ~~deliver~~cash and/or shares of our common stock ~~(subject to~~for any conversion premium at our ~~right to deliver cash in lieu of all or a portion of such shares~~election, we reclassified $44 million, representing the difference between the aggregate principal of our ~~common stock) based on a daily conversion value. If a fundamental change occurs prior to the maturity date, holders of the 2022~~2021 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~~carrying value as of ~~warrants are intended to reduce potential dilution~~June 30, 2020, as mezzanine equity from permanent equity on our consolidated balance sheet as of June 30, 2020. As the settlement of conversion of the 2022 Notes and ~~to effectively increase~~2024 Notes would be in cash, shares of our common stock or a combination thereof is at our election, the ~~overall conversion~~liability is classified as non-current. Should the closing price ~~from $327.50 to $655.00 per share. As~~conditions be met in a future quarter for any of these ~~transactions meet certain accounting criteria,~~notes, such notes will be convertible at their holders’ option during the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on our consolidated balance sheet.immediately following quarter.

In ~~August 2017,~~March 2020, we ~~issued $1,800.0~~upsized our senior asset-based revolving credit agreement (the “Credit Agreement”) by $100 million, which matures July 2023, to $2.525 billion. In June 2020, $197 million of commitment under the Credit Agreement expired in accordance with its terms and the total commitment decreased to $2.328 billion.

During the second quarter of 2020, $67 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,~~ were converted, pursuant to which we issued 223,320 shares of 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). As a result, we recognized a loss on debt extinguishment of $2.2 million.~~

~~Solar Bonds are senior unsecured obligations that are structurally subordinate~~common stock to the ~~indebtedness and other liabilities~~holders 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.~~such notes.

~~On August 31, 2016,~~In May 2020, one of our subsidiaries entered into ~~a Warehouse Agreement~~an additional Working Capital Loan Contract (the “2020 China Working Capital Facility”) with a ~~bank~~lender in China for ~~loans secured by~~an unsecured revolving facility of up to RMB 4.00 billion (or the future cash flows arising from certain leases and the related leased vehicles. On August 17, 2017, the Warehouse Agreement was amended to modify the interest rates and extend the availability period and the maturity date, by appending another Warehouse Agreement with substantially the same terms and that shares the same committed amount. Amountsequivalent amount drawn ~~under the Warehouse Agreements generally bear interest at (i) LIBOR plus a fixed margin or (ii) the commercial paper rate. The Warehouse Agreements are non-recourse to our other assets.~~

~~Pursuant to the Warehouse Agreements, an undivided beneficial interest~~ in ~~the future cash flows arising from certain leases and the related leased vehicles has been sold for legal purposes but continues~~U.S. dollars), to be ~~reported in the consolidated financial statements. The interest in the future cash flows arising from these leases and the~~used for expenditures related ~~vehicles is not available~~ to ~~pay the claims of~~production at 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~~Gigafactory Shanghai. Borrowed funds bear interest at an annual rate of: (i) for RMB-denominated loans, the market quoted interest rate published by an authority designated by the People’s Bank of China minus 0.35%, (ii) for U.S. dollar-denominated loans, the ~~lender’s cost~~sum of ~~funds~~one-year LIBOR plus ~~3.25%~~0.8%. The fee for undrawn commitments is 0.85% per annum. On March 31, 2017, the agreement was amended to extend the availability period and the maturity date. The term loan is secured by substantially all of the assets of the subsidiary and2020 China Working Capital Facility is non-recourse to our ~~other assets.~~

~~In January 2017,~~assets and will mature in June 2021, 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.

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 allfirst anniversary 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 outstandingfirst borrowing 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 the ~~2018~~0.25% Convertible Senior Notes ~~the~~due in 2019 ~~Notes,~~(matured in March 2019), the 2021 Notes, ~~and~~ the 2022 Notes and the 2024 Notes (in ~~thousands)~~millions):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Contractual interest coupon	$	10,899	$	6,615	$	28,306	$	23,330	$	19	$	16	$	39	$	26
Amortization of debt issuance costs		1,759		4,952		5,274		8,835		2		1		4		3
Amortization of debt discounts		29,888		24,660		83,852		75,493		44		33		88		61
Total	$	42,546	$	36,227	$	117,432	$	107,658	$	65	$	50	$	131	$	90

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

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

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

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

In ~~2010,~~June 2019, we adopted the ~~2010~~2019 Equity Incentive Plan (the ~~“2010~~“2019 Plan”). The ~~2010~~2019 Plan provides for the granting of stock options, restricted stock, RSUs, stock appreciation rights, performance units and ~~stock purchase rights~~performance shares to our employees, directors and consultants. ~~Options~~Stock options granted under the ~~2010~~2019 Plan may be either incentive stock options or ~~nonqualified~~nonstatutory stock options. Incentive stock options may only be granted ~~only~~ to our ~~employees, including officers. Nonqualified~~employees. Nonstatutory 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 our stock options 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~~June 30, ~~2017, there~~2020, 11 million shares were ~~15,014,437~~reserved and available for issuance under the 2019 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 $100.0 billion for the first tranche and increases by increments of $50.0 billion thereafter (based on both a six calendar month trailing average and a 30 calendar day trailing average, counting only trading days), has been met, and (ii) any one of the following 8 operational milestones focused on total revenue or 8 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. Upon vesting and exercise, including the payment of the exercise price of $350.02 per share, our CEO must hold shares ~~underlying outstanding equity awards.~~that he acquires for five years post-exercise, other than a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

The achievement status of the operational milestones as of June 30, 2020 was as follows:

Stock-based compensation expense associated with each tranche under the 2018 CEO Performance Award is recognized over the longer of (i) the expected achievement period for the operational milestone for such tranche and (ii) the expected achievement period for the related market capitalization milestone determined on the grant date, beginning at the point in time when the relevant operational milestone is considered probable of being met. If such operational milestone becomes probable any time after the grant date, we will recognize a cumulative catch-up expense from the grant date to that point in time. If the related market capitalization milestone is achieved earlier than its expected achievement period and the achievement of the related operational milestone, then the stock-based compensation expense will be recognized over the expected achievement period for the operational milestone, which may accelerate the rate at which such expense is recognized. The market capitalization milestone period and the valuation of each tranche were 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. Upon vesting of a tranche, all unamortized expense for the tranche will be recognized immediately. Additionally, stock-based compensation under the 2018 CEO Performance Award represents a non-cash expense and is recorded as a selling, general, and administrative operating expense in our consolidated statement of operations.

During the three months ended June 30, 2020, the first tranche of the 2018 CEO Performance Award vested upon certification by the Board of Directors that the first market capitalization milestone of $100.0 billion and the operational milestone of $20.0 billion annualized revenue had been met. Additionally, on July 24, 2020, the second tranche of the 2018 CEO Performance Award vested upon certification by the Board of Directors that the second market capitalization milestone of $150.0 billion and the operational milestone of $1.5 billion Adjusted EBITDA had been met. Therefore, the remaining unamortized expense of $95 million associated with such tranche, which was previously expected to be recognized ratably in future quarters through the first quarter of 2022 as determined on the grant date, will be accelerated into the third quarter of 2020. If the value of Tesla’s closing stock price continues near or higher than the levels seen in late July 2020, the third market capitalization milestone of $200.0 billion is expected to be met during the third quarter of 2020. In such event, subject to certification by our Board of Directors, the third tranche under the 2018 CEO Performance Award would vest. If the third tranche of the 2018 CEO Performance Award vests during the third quarter of 2020, the remaining unamortized expense of $118 million for that tranche, which was expected to be recognized ratably in future quarters through the first quarter of 2023 as determined on the grant date, would be accelerated into the third quarter of 2020.

As of June 30, 2020, we had $502 million of total unrecognized stock-based compensation expense for the operational milestones that were considered probable of achievement and achieved but not yet vested, which will be recognized over a weighted-average period of 2.9 years. As of June 30, 2020, we had unrecognized stock-based compensation expense of $1.08 billion for the operational milestones that were considered not probable of achievement. For the three and six months ended June 30, 2020, we recorded stock-based compensation expense of $167 million and $233 million, respectively, related to the 2018 CEO Performance Award, and $56 million and $111 million, respectively, for the same periods in 2019.

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 ~~four~~the following 4 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~~June 30, ~~2017,~~2020, 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~~June 30, ~~2017,~~2020, we had unrecognized stock-based compensation expense of ~~$17.1~~$4 million for the performance milestone that was considered not probable of achievement. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, and for the same periods in 2019, 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~~June 30, ~~2017,~~2020, 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 compensation expense as each milestone becomes probable of achievement. As of ~~September~~June 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, 2017,2020, we had unrecognized stock-based compensation expense of ~~$5.7~~$6 million for the performance milestone that was considered not probable of achievement. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, and for the same periods in 2019, we ~~recorded~~did not record any additional stock-based compensation expense ~~of $1.2 million and $4.3 million, respectively,~~ related to the 2012 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~~Performance Award.

~~Our Chief Executive Officer earns~~historically earned a base salary that ~~reflects~~reflected the ~~currently~~ applicable minimum wage requirements under California law, and he iswas subject to income taxes based on such base salary. However, he has never accepted his salary. Commencing in May 2019 at our CEO’s request, we eliminated altogether the earning and ~~currently does not accept~~accrual of his base salary.

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Cost of sales	$	10,166	$	8,939	$	27,663	$	21,837
Cost of revenues									$	52	$	35	$	85	$	62
Research and development		51,066		40,220		158,052		113,328		73		71		138		143
Selling, general and administrative		51,421		40,384		146,697		111,347		222		103		335		210
Restructuring and other										—		1		—		3
Total	$	112,653	$	89,543	$	332,412	$	246,512	$	347	$	210	$	558	$	418

We realized no0 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~~June 30, ~~2017,~~2020, we had ~~$1.1~~$1.66 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~~2.7 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~~through the Research Foundation for the State University of New York (the ~~“Foundation”~~“SUNY Foundation”) ~~where~~for a manufacturing facility constructed on behalf of the SUNY Foundation, ~~will construct a solar cell and panel manufacturing~~which was completed in April 2018. We use this facility, referred to as Gigafactory ~~2, with~~New York, primarily for the development and production of our ~~participation in~~Solar Roof and other solar products and components, energy storage components, and Supercharger components, and for other lessor-approved functions. Under the ~~design~~lease and ~~construction,~~a related research and development agreement, on behalf of the SUNY Foundation, we have and will continue to install certain utilities and other improvements and acquire certain ~~manufacturing~~ equipment designated by us to be used in the manufacturing facility. The Foundation will cover (i) construction costs related to the manufacturing facility in an amount up to $350.0 million, (ii) the acquisition and commissioning of the manufacturing equipment in an amount up to $274.7 million and (iii) $125.3 million for additional specified scope costs, in cases (i) and (ii) only, subject to the maximum funding allocation from the State of New York, and we will be responsible for any construction and equipment costs in excess of such amounts. The Foundation will own the manufacturing facility and the manufacturing equipment purchased by the Foundation. Following completion of the manufacturing facility, we will lease the manufacturing facility and the manufacturing equipment owned by the Foundation for an initial period of 10 years, with an option to renew, for $2 per year plus utilities.

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

~~The non-cash investing~~In April 2020, the government agency overseeing our agreement with the SUNY Foundation for the construction and ~~financing activities related~~use of Gigafactory New York issued guidance that all obligations relating to investment and employment targets under certain of its projects, including our obligation to be compliant with our applicable targets under such agreement on April 30, 2020, may be deferred for a one-year period upon such agency’s approval of an application for relief by the obligor. As we temporarily suspended most of our manufacturing operations at Gigafactory New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we were granted such deferral, which was memorialized in an amendment to our agreement with the SUNY Foundation in July 2020. Moreover, as we had exceeded our investment and employment obligations under this agreement prior to such mandated reduction of operations, we do not currently expect any issues meeting all applicable future obligations under this agreement. However, if our expectations as to the costs and timelines of our investment and operations at Buffalo or our production ramp of the Solar Roof prove incorrect, we may incur additional expenses or substantial payments to the SUNY Foundation.

We have an operating lease arrangement ~~during~~for an initial term of 50 years with the ~~three~~local government of Shanghai for land use rights where we are constructing Gigafactory Shanghai. Under the terms of the arrangement, we are required to spend RMB 14.08 billion in capital expenditures, and ~~nine months ended September 30, 2017 amounted~~ to ~~$1.9 million~~generate RMB 2.23 billion of annual tax revenues starting at the end of 2023. If we are unwilling or unable to meet such target or obtain periodic project approvals, in accordance with the Chinese government’s standard terms for such arrangements, we would be required to revert the site to the local government and ~~$83.5 million, respectively.~~receive compensation for the remaining value of the land lease, buildings and fixtures. We believe the capital expenditure requirement and the tax revenue target will be attainable even if our actual vehicle production was far lower than the volumes we are forecasting.

~~On March 28, 2014, a purported stockholder class action was~~Between September 1, 2016 and October 5, 2016, 7 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 ~~District Court dismissed~~plaintiffs filed an amended complaint. On March17, 2017, defendants filed a motion to dismiss the amended ~~complaint~~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, and ~~entered a~~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, and mediations were held on June 10, 2019. Plaintiffs and defendants filed respective motions for summary judgment ~~in our favor~~ on August ~~9, 2016.~~25, 2019, and further mediations were held on October 3, 2019. The ~~plaintiffs have filed a notice of appeal. The District~~ Court ~~has set~~held a hearing on the motions for summary judgment on November 4, 2019. On January 22, 2020, all of the director defendants except Elon Musk reached a settlement to resolve the lawsuit against them for an amount that would be paid entirely under the applicable insurance policy. The settlement, which does not involve an admission of any wrongdoing by any party, is subject to approval by the Court, and a fairness hearing is set for August 27, 2020. Tesla will receive such amount, which would be recognized as a gain in its financial statements, if the settlement is approved by the Court. On February 4, 2020, the Court issued a ruling that denied plaintiffs’ ~~notice~~previously-filed motion and granted in part and denied in part defendants’ previously-filed motion. Fact and expert discovery is complete, and the case was set for trial in March 2020 until it was postponed by the Court due to safety precautions concerning COVID-19. The current tentative dates for the trial are from March 29 to April 12, 2021, subject to change based on any further safety measures implemented by the Court.

These plaintiffs and others filed parallel actions in the U.S. District Court for the District of ~~appeal from~~Delaware on or about April21, 2017. They include claims for violations of the ~~dismissal for December 4, 2017.~~ 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 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 October10, 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 May4, 2016 to October6, 2017. The lawsuit claims that Tesla supposedly made materially false and misleading statements regarding ~~its~~Tesla’s preparedness to produce Model 3 vehicles. Plaintiffs filed an amended complaint on March23, 2018, and defendants filed a motion to dismiss on May25, 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 and on July 17, 2019 filed their opening brief. We filed our opposition on September 16, 2019. A hearing on the appeal before the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) was held on April 30, 2020, and the parties await a ruling. 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 case. On February 5, 2019, the Court stayed this new case pending a ruling on the motion to dismiss the complaint in such earlier filed federal case. After such earlier filed federal case was dismissed, defendants filed a motion on July 2, 2019 to dismiss this case as well. This case is now stayed pending a ruling from the appellate court on such earlier filed federal case with an agreement that if defendants prevail on appeal in such case, this case will be dismissed. 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 ~~of the State of Delaware by purported stockholders of Tesla challenging our acquisition of SolarCity. Following consolidation, the lawsuit names as defendants~~against Elon Musk and the members of Tesla’s board of directors as then constituted, alleging corporate waste, unjust enrichment, and ~~alleges, among other things,~~ that such board members breached their fiduciary duties ~~in connection with~~by approving the ~~acquisition.~~stock-based compensation plan. The complaint ~~asserts both derivative claims and direct claims on behalf of a purported class and~~ seeks, among other ~~relief, unspecified~~things, monetary damages ~~attorneys’ fees,~~ and ~~costs.~~rescission or reformation of the stock-based compensation plan. On ~~January 27, 2017, the~~August 31, 2018, defendants filed a motion to dismiss the ~~operative complaint. Rather than respond to the defendants’ motion, the plaintiffs~~complaint; plaintiff filed ~~an amended complaint. On March 17, 2017, the~~its opposition brief on November 1, 2018 and defendants filed a reply brief on December 13, 2018. The hearing on the motion to dismiss was held on May 9, 2019. On September 20, 2019, the ~~amended complaint; that~~Court granted the motion ~~is pending. These same plaintiffs filed a parallel action in~~to dismiss as to the ~~United States District Court for~~corporate waste claim but denied the ~~District of Delaware on April 21, 2017, adding claims for violations of~~motion as to 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~~breach 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~~and unjust enrichment claims. Our answer was filed ~~in the United States District Court~~on December 3, 2019, and trial is set for the District of Delaware by a purported Tesla stockholder challenging the SolarCity acquisition. The complaint alleges, among other things, that Tesla’s board of directors breached their fiduciary duties in connection with the acquisition and alleges violations of the federal securities laws.

October 2021. We believe ~~that~~the claims ~~challenging the SolarCity acquisition~~asserted in this lawsuit are without ~~merit.~~merit and intend to defend against them vigorously. We are unable to estimate the possible loss or range of loss, if any, associated with ~~these claims.~~this lawsuit.

On June 17, 2020, a purported Tesla stockholder filed a derivative action in the Delaware Court of Chancery, purportedly on behalf of Tesla, against certain of Tesla’s current and former directors regarding compensation awards granted to Tesla’s directors, other than Elon Musk, between 2017 and 2020. The suit asserts claims for breach of fiduciary duty and unjust enrichment and seeks declaratory and injunctive relief, unspecified damages, and other relief. Defendants’ response is due September 3, 2020. 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.

Securities Litigation Relating to ~~United States Treasury~~Potential Going Private Transaction

~~In July 2012, SolarCity, along~~Between August 10, 2018 and September 6, 2018, nine purported stockholder class actions were filed against Tesla and Elon Musk in connection with ~~other companies~~Mr. Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. All of the suits are now pending in the ~~solar energy industry, received~~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 ~~subpoena from~~purported class of purchasers of Tesla’s securities. Plaintiffs filed their consolidated complaint on January 16, 2019 and added as defendants the ~~United States Treasury Department’s Office~~members of Tesla’s board of directors. The now-consolidated purported stockholder class action was stayed while the Inspector General to deliver certain documents in SolarCity’s possession that relate to SolarCity’s applications for United States Treasury grants. In February 2013, two financing funds affiliated with SolarCity filed a lawsuit inissue of selection of lead counsel was briefed and argued before 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 United States governmentNinth Circuit. The Ninth Circuit ruled regarding lead counsel. Defendants filed a motion ~~seeking~~to dismiss the complaint on November 22, 2019. The hearing on the motion was held on March 6, 2020. On April 15, 2020, the Court denied defendants’ motion to dismiss. Trial is set for March 2022. We believe that 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 these claims.

Between October 17, 2018 and November 9, 2018, five derivative lawsuits were filed in the 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 against Mr. Musk and the members of the Tesla board of directors as then constituted. The Courts in both the Delaware federal court and Delaware Court of Chancery actions have consolidated their respective actions and stayed each consolidated action pending resolution of the above-referenced consolidated purported stockholder class action. We believe that the claims have no merit and intend to defend against them vigorously. We are unable to estimate the potential loss or range of loss, if any, associated with these lawsuits.

Beginning on March 7, 2019, various stockholders filed derivative suits in the Delaware Court of Chancery, purportedly on behalf of Tesla, naming Mr. Musk and Tesla’s board of directors as then constituted, also related to Mr. Musk’s August 7, 2018 Twitter post that is the basis of the above-referenced consolidated purported stockholder class action, as well as to Mr. Musk’s February 19, 2019 Twitter post regarding Tesla’s vehicle production. The suit asserts claims for breach of fiduciary duty and seeks declaratory and injunctive relief, unspecified damages, and other relief. Plaintiffs agreed to a stipulation that these derivative cases would be stayed pending the outcome of the above-referenced consolidated purported stockholder class action. In March 2019, plaintiffs in one of these derivative suits moved to lift the stay and for an expedited trial. Briefs were filed on March 13, 2019, and the hearing was held on March 18, 2019. Defendants prevailed, with the Court denying the plaintiffs’ request for an expedited trial and granting defendants’ request to continue to stay this suit pending the outcome of the above-referenced consolidated purported stockholder class action. On May 4, 2020, the same plaintiffs again filed a motion requesting to lift the stay and for an expedited trial. Briefs were filed on May 13, 2020 and May 15, 2020 and a hearing was held on May 19, 2020. Defendants again prevailed, with the Court denying plaintiffs’ request to lift the stay and for an expedited trial. The plaintiffs also sought leave to ~~assert a counterclaim against the~~file an amended complaint, which was granted. The Court entered an order implementing its ruling on May 21, 2020. The amended complaint asserts additional allegations of breach of fiduciary duty related to two ~~plaintiff funds on the grounds~~additional Twitter posts by Mr. Musk, dated July 29, 2019 and May 1, 2020, and seeks unspecified damages and declaratory and injunctive relief. We believe that the ~~United States government, in fact, paid~~claims have no merit and intend to defend against them ~~more, not less, than they were entitled~~vigorously. We are unable to ~~as a matter~~estimate the potential loss or range of ~~law. In September 2017, SolarCity~~loss, if any, associated with these lawsuits.

Certain Investigations and the United States government reached a global settlement of both the investigation and SolarCity’s lawsuit. In that settlement, SolarCity admitted no wrongdoing and agreed to return approximately 5% of the United States Treasury cash grants it had received between 2009 and 2013, amounting to $29.5 million. The investigation is now closed and SolarCity’s lawsuit has been dismissed.

~~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 had issued subpoenas to Tesla in connection with (a) Elon 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 take-private investigation was resolved and closed with a settlement entered into with the SEC in September 2018 and as further clarified in April 2019 in an amendment. On December 4, 2019, the SEC (i) closed the investigation into the projections and other public statements regarding Model 3 production rates and (ii) issued a subpoena seeking information concerning certain financial data and contracts including Tesla’s regular financing arrangements. Separately, the DOJ had also asked us to voluntarily provide it with information about the above matters related to taking Tesla private and Model 3 production rates.

Aside from the settlement, as amended, with the SEC 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.

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.~~investment tax credits (“ITC”s). 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~~June 30, ~~2017,~~2020, we had ~~$129.9~~$273 million of unused letters of credit ~~outstanding.~~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)~~millions):

					June 30,		December 31,
	September 30, 2017		December 31, 2016		2020		2019
Assets
Current assets
Cash and cash equivalents	$	71,973	$	44,091	$	72	$	106
Restricted cash		33,343		20,916
Accounts receivable, net		36,248		16,023		56		27
Rebates receivable		5,060		6,646
Prepaid expenses and other current assets		3,620		7,532		91		100
Total current assets		150,244		95,208		219		233
Operating lease vehicles, net		143,613		—		1,102		1,183
Solar energy systems, leased and to be leased, net		5,098,398		4,618,443
Other assets		52,866		35,826
Solar energy systems, net						4,894		5,030
Other non-current assets						170		156
Total assets	$	5,445,121	$	4,749,477	$	6,385	$	6,602
Liabilities
Accounts payable	$	31	$	20
Distributions payable to noncontrolling interests and redeemable noncontrolling interests		32,245		24,085
Accrued and other current liabilities		14,472		8,157
Current liabilities
Accrued liabilities and other					$	73	$	80
Deferred revenue						73		78
Customer deposits		4,274		1,169		13		9
Current portion of deferred revenue		51,768		17,114
Current portion of long-term debt		22,288		89,356
Current portion of debt and finance leases						713		608
Total current liabilities		125,078		139,901		872		775
Deferred revenue, net of current portion		280,044		178,783		230		264
Long-term debt, net of current portion		650,211		466,741
Other liabilities and deferred costs		60,740		82,917
Debt and finance leases, net of current portion						1,322		1,516
Other long-term liabilities						23		22
Total liabilities	$	1,116,073	$	868,342	$	2,447	$	2,577

~~Related party balances were comprised~~In February 2020, our CEO and a member of our Board of Directors purchased from us 13,037 and 1,250 shares, respectively, of our common stock in a public offering at the public offering price for an aggregate $10 million and $1 million, respectively.

In June 2020, our CEO entered into an indemnification agreement with us, for an interim term of 90 days. During the interim term, we are resuming our annual evaluation of all available options for providing directors’ and officers’ indemnity coverage, which we had suspended during the height of shelter-in-place requirements related to the COVID-19 pandemic. As part of such process, we intend to obtain a binding market quote for a directors’ and officers’ liability insurance policy with an aggregate coverage limit of $100 million, which we will weigh in selecting an indemnity coverage option for a customary term following the end of the ~~following (in thousands):~~

The ~~related party transactions were primarily issuances, maturities~~indemnification agreement provides that our CEO will provide, from his personal funds, directors’ and exchanges of debt held by Space Exploration Technologies Corporation (“SpaceX”), our Chief Executive Officer, SolarCity’s former Chief Executive Officer, SolarCity’s former Chief Technology Officer and an entity affiliated with our Chief Executive Officer. SpaceX is considered a related party because our Chief Executive Officer isofficers’ indemnity coverage to us during the ~~Chief Executive Officer, Chief Technology Officer, Chairman and a significant stockholder of SpaceX.~~

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

On April 11, 2017, our Chief Executive Officer, SolarCity’s former Chief Executive Officer and SolarCity’s former Chief Technology Officer exchanged their $100.0 million (collectively) in aggregate principal amount of 6.50% Solar Bonds due in February 2018 for promissory notesinterim term in the ~~same amounts~~event such coverage is not indemnifiable by us, up to a total of $100 million. In return, we will pay our CEO a one-time fee of $972,361. We will also exercise reasonable best efforts to obtain the market quote described above, and ~~with substantially~~will pay an additional amount to our CEO to reconcile the ~~same terms.~~

~~On April 18, 2017, our Chief Executive Officer converted all of his zero-coupon convertible senior notes due in 2020, which had an aggregate principal~~one-time fee to be equal to the market-based premium for such market quote as prorated for 90 days and further discounted by 50%, if the latter amount ~~of $10.0 million (see Note 12,~~ ~~Common Stock~~).is greater.

We have ~~two~~2 operating and reportable segments: (i) automotive and (ii) energy generation and storage. The automotive segment includes the design, development, manufacturing, sales, and leasing of electric vehicles as well as sales of ~~electric vehicles.~~automotive regulatory credits. Additionally, the automotive segment is also comprised of services and other, which includes non-warranty after-sales vehicle services, sales of used vehicles, retail merchandise, sales by our acquired subsidiaries to third party customers, and vehicle ~~sales, powertrain sales and services by Grohmann.~~insurance revenue. The energy generation and storage segment includes the design, manufacture, installation, sales, and ~~sale or lease~~leasing of ~~stationary~~solar energy generation and energy storage products and related services and sales of solar energy systems ~~or sale of electricity generated by our solar energy systems to customers.~~incentives. Our CODM does not evaluate operating segments using asset ~~and~~or liability information. The following table presents revenues and gross ~~margins~~profit by reportable segment (in ~~thousands)~~millions):

	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016			2017		2016			2020		2019		2020		2019
Automotive segment
Revenues	$	2,667,170	$	2,275,102		$	7,652,273	$	4,665,492		$	5,666	$	5,981	$	11,358	$	10,198
Gross profit	$	368,923	$	637,682		$	1,558,295	$	1,164,523		$	1,246	$	878	$	2,469	$	1,436
Energy generation and storage segment
Revenues	$	317,505	$	23,334		$	818,229	$	50,009		$	370	$	369	$	663	$	693
Gross profit	$	80,217	$	(947	)	$	225,406	$	(544	)	$	21	$	43	$	32	$	51

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
United States	$	1,582,143	$	1,432,456	$	4,380,393	$	2,891,419	$	3,090	$	3,480	$	5,858	$	5,810
China		563,561		314,941		1,531,082		567,357		1,400		690		2,300		1,469
Norway		225,461		135,200		482,965		236,009
Other		613,510		415,839		2,076,062		1,020,716		1,546		2,180		3,863		3,612
Total	$	2,984,675	$	2,298,436	$	8,470,502	$	4,715,501	$	6,036	$	6,350	$	12,021	$	10,891

The revenues in certain geographic areas were impacted by the price adjustments we made to our vehicle offerings during the second quarter of 2020 and the first half of 2019. Refer to Note 2, Summary of Significant Accounting Policies, for details.

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

					June 30,		December 31,
	September 30, 2017		December 31, 2016		2020		2019
United States	$	14,935,394	$	11,399,545	$	15,541	$	15,644
International		746,968		503,294		1,537		890
Total	$	15,682,362	$	11,902,839	$	17,078	$	16,534

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

Our mission is to accelerate the world’s transition to sustainable energy. We design, develop, manufacture, lease and sell high-performance fully electric vehicles, solar energy generation systems and energy storage products. We also offer maintenance, installation, operation, financial and other services related to our products.

~~Our production vehicle fleet includes our Model S premium sedan and our Model X sport utility vehicle, which are our highest-performance and most capable~~In the first half of 2020, we produced 184,944 vehicles and delivered 179,387 vehicles, including our one millionth cumulatively delivered vehicle in the second quarter. We remain focused on ramping our existing products, including Model ~~3, a lower priced sedan designed for the mass market. We continue to enhance~~Y, and constructing additional and diversified manufacturing capabilities while incrementally improving our ~~vehicle offerings with enhanced Autopilot options, Internet connectivity~~processes and ~~free over-the-air software updates to provide additional safety, convenience and performance features. We are also actively working on future vehicles, such as a 100%-electric semi-truck.~~reducing costs.

We lease and sell solar energy systems and sell renewable energy and energy products to our customers. We have partnered with Panasonic to provide capital and operational support to manufacture photovoltaic (“PV”) cells, and thus enable high volume integrated tile and PV cell production, at our Gigafactory 2 in Buffalo, New York. ~~We also plan to produce Solar Roof tiles at Gigafactory 2. Our~~In the first half of 2020, we deployed 679 MWh of energy storage products, ~~which~~driven by our Powerwall system and the ongoing rollout of our popular Megapack system, and 62 MW of solar energy systems. In the second quarter of 2020, we ~~manufacture~~further streamlined our retrofit solar processes to allow us to offer a better product at ~~Gigafactory 1, consist of Powerwall for residential applications~~improved pricing. We continue to focus on increasing our Solar Roof deployments and ~~Powerpack for commercial, industrial and utility-scale applications.~~installation capabilities.

~~Automotive Demand, Production and Deliveries~~Impact of Current Macroeconomic Factors

We ~~drive demand~~achieved a strong second quarter of 2020 in spite of the continuing widespread worldwide impact from the COVID-19 pandemic. We had temporarily suspended operations at each of our manufacturing facilities worldwide at some point during the first half of 2020 as a result of government requirements or to accommodate related challenges for our ~~vehicles~~employees, their families and our suppliers. Certain of our suppliers and partners, including Panasonic, our partner that manufactures lithium-ion battery cells for our products at our Gigafactory Nevada, also experienced such temporary suspensions. We had also instituted temporary labor cost reduction measures by ~~continually improving~~furloughing certain of our hourly employees, reducing most salaried employees’ base salaries globally and reducing our bonus and commission structures while our U.S. operations were scaled back. Exiting the second quarter of 2020, however, we have resumed operations at all of our manufacturing facilities, continue to increase our output and add additional capacity, and are working with each of our suppliers and government agencies on meeting, ramping and sustaining our production. Our ability to manufacture, deliver and install our products, increase our infrastructure, and plan and invest in our future roadmap during difficult external circumstances has been tested, and thus far we have met the challenge.

On the other hand, certain government regulations and public advisories, as well as shifting social behaviors, that have temporarily or sporadically limited or closed non-essential transportation, government functions, business activities and person-to-person interactions remain in place. In some cases, the relaxation of such trends has been followed by a return to stringent restrictions. We cannot predict the duration or direction of such trends, which have also adversely affected and may in the future affect our operations. For example, reduced operations or closures at motor vehicle departments, vehicle auction houses and municipal and utility company inspectors resulted in certain challenges in or postponements for our new vehicle deliveries, used vehicle sales, and energy product deployments in the first half of 2020. We may also be affected by global macroeconomic conditions and changing levels of consumer comfort and spend in the future, which could further impact demand in the worldwide transportation and automotive industries and for construction projects such as the addition of solar energy systems. Likewise, our ability to sustain our production trajectory depends on the ongoing status of various government regulations regarding manufacturing operations, the readiness and solvency of our suppliers and vendors, and a stable and motivated production workforce. Government-imposed travel or visa restrictions may also prevent personnel employed by us or our vendors from traveling to our sites to work on key projects, which may delay their progress.

Ultimately, we have always monitored macroeconomic conditions to remain flexible and optimize and evolve our business as appropriate, and we will continue to do so as we did in the first half of 2020. Because the impact of current conditions on a sustained basis is yet largely unknown, is rapidly evolving, and has been varied across geographic regions, this ongoing assessment will be particularly critical to allow us to accurately project demand and infrastructure requirements globally and deploy our production, workforce, and other resources accordingly.

We continued the ramp of Model Y at the Fremont Factory during the second quarter of 2020, and after only four cumulative months of production in the first half of the year primarily due to manufacturing suspensions, we exited the quarter at a weekly production rate comparable to that of Model 3 more than nine months into its ramp. We intend to add additional manufacturing capacity for Model 3 and Model Y at the Fremont Factory in the second half of 2020 as previously planned.

At Gigafactory Shanghai, we have continued to ramp our installed Model 3 capacity, and construction of the next phase to add Model Y manufacturing capacity remains on track. We are also continuing the construction of Gigafactory Berlin, where a localized version of Model Y will be the first vehicle we produce. Finally, we recently purchased a site near Austin, Texas for our Gigafactory Texas, where we expect to manufacture Model Y and Cybertruck. We have seen the early benefits of diversifying and localizing manufacturing facilities, including during the current COVID-19 pandemic, and our goal is to further improve our manufacturing resilience, efficiency, costs and technology with the development of each new factory. However, the construction of and ramp at these factories are subject to a number of uncertainties inherent in all new manufacturing operations, including ongoing compliance with regulatory requirements, maintenance of operational licenses and approvals for additional expansion, potential supply chain constraints, hiring, training and retention of qualified employees, and the pace of bringing production equipment and processes online with the capability to manufacture high-quality units at scale, and it is not yet certain whether and to what extent the COVID-19 pandemic may further affect such uncertainties and our projected timelines for completion.

In the second quarter of 2020, the maturity and adaptability of our business model, together with the advanced technology in our vehicles ~~through over-the-air software updates, expanding~~that enabled options for touchless test drives and deliveries, continued to allow us to market and deliver vehicles notwithstanding challenges impacting the automotive industry as a whole. We are adding to this advantage as we ramp and expand new offerings such as Model Y, and continuously update and improve our ~~retail, service~~vehicles’ functionality and ~~charging infrastructure,~~features based on user feedback. Recently, we further improved our stop sign and ~~by periodically developing~~traffic light recognition system for applicable FSD-optioned users and ~~introducing new~~increased the EPA-tested maximum range of Model S to 402 miles. We also expect our international manufacturing expansion to continue to drive demand. For example, Model 3 was the best-selling electric vehicle ~~variants and models. The worldwide automotive market~~during the second quarter of 2020 in China, where Gigafactory Shanghai allows us to offer locally-produced Model 3 vehicles with industry-leading standard equipment at a lower price point than competing mid-sized premium sedans even before the impact of government or tax incentives. Moreover, Germany is now among our largest European vehicle markets, which we believe bodes well for ~~alternative fuel vehicles is highly competitive and~~future manufacturing at Gigafactory Berlin. While we ~~expect it to become even more so, as many companies have announced plans to expand, and in some cases fully transition to, production~~cannot predict the magnitude or duration of ~~electric or environmentally friendly vehicles. We welcome the acceleration of the world’s transition to sustainable transport. Nonetheless,~~current macroeconomic conditions, we believe that we have actually gained key advantages with the ~~unique features~~flexibility and momentum we have shown in the first half of 2020, and we are also hopeful that the demonstrably positive environmental impact from the recent worldwide reduction in the transportation-related consumption of fossil fuels will facilitate greater awareness for the importance of sustainable energy and related products.

As is inherent in the automotive industry, we may be impacted by trade and environmental policies, political uncertainty and economic cycles involving geographic regions where we have significant operations, which are inherently unpredictable. We may also make certain adjustments to our prices from time to time in the ordinary course of business, including as we introduce new vehicles and variants and optimize the pricing among them and for affordability, and we made such adjustments in the second quarter of 2020 and more recently for Model Y. Such pricing changes may impact our vehicles’ resale values, and in turn our operating results.

We continue to optimize our vehicle manufacturing and logistics patterns to deliver our vehicles ~~our constant innovation, our growing brand,~~efficiently worldwide. Unusual logistical challenges such as those related to the increased affordability introduced with Model 3, and our future vehicles, will continue to generate incremental demand for our vehicles by making our vehicles accessible to larger and previously untapped consumer and commercial markets. For example,COVID-19 pandemic may strain such delivery patterns, which in the ~~third~~second quarter of ~~2017, we achieved all-time quarterly records for both net orders and~~2020 resulted in a heavy volume of deliveries ~~of Model S and X.~~

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

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

~~We are also making strides in other aspects of our vehicle production, deliveries and customer infrastructure. For example,~~ we expect to continue to lower the cost of manufacturing our vehicles over the next several quarters due to economies of scale, material cost reductions and more efficient manufacturing. We have achieved cost improvements through material cost reductions from both engineering and commercial actions and increased manufacturing efficiencies including better inventory control. This is also evidentultimately alleviate such challenges through increased ~~product reliability~~local production, including ~~vehicle, battery~~at Gigafactory Berlin 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, weat Gigafactory Texas.

We also continue to expand and invest in our ~~mobile repair services,~~servicing and ~~we plan~~charging locations and capabilities to ~~significantly increase~~keep pace with our customer vehicle fleet and ensure a convenient and efficient customer experience, marked by our expansion of the ~~number~~Supercharger network to over 2,000 stations at the end of ~~Superchargers~~the second quarter of 2020. However, if our customer vehicles, particularly in the rapidly growing Model 3 fleet and ~~Destination Charging connectors globally.~~newly launched Model Y fleet, experience unexpected reliability issues, it could outpace and overburden our servicing capabilities and parts inventory.

In the second quarter of 2020, we further increased the value proposition of our retrofit solar systems by improving the efficiency of our panels, additionally streamlining our ordering and contracting processes and passing on the savings to our customers, backed by lowest-price and money-back guarantees. We have also continued to expand our Solar Roof deployments and increase our installation capacity. Megapack, our up to 3 MWh energy storage system for commercial, industrial and utility and energy generation ~~products, including by cutting advertising spend~~customers, remains a popular offering as we expand its production and ~~increasingly selling these products in Tesla stores~~rollout. Together with ~~dedicated~~the international expansion of Autobidder, our proprietary real-time energy ~~product sales personnel, and we continue to leverage well-performing channel partnerships. Moreover, we are deemphasizing absolute growth~~trading platform for our ~~solar products,~~customers’ utility-scale systems, and the continuing expansion of our other systems such as Powerwall, we ~~are instead analyzing~~believe our ~~portfolio~~energy storage business is well-positioned for further growth.

In April 2020, the government agency overseeing our agreement with the SUNY Foundation for the construction and use of ~~residential~~Gigafactory New York issued guidance that all obligations relating to investment and ~~commercial solar~~employment targets under certain of its projects, including our obligation to ~~prioritize cash~~be compliant with our applicable targets under such agreement on April 30, 2020, may be deferred for a one-year period upon such agency’s approval of an application for relief by the obligor. As we temporarily suspended most of our manufacturing operations (including of Solar Roof) at Gigafactory New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we were granted such deferral, which was memorialized in an amendment to our agreement with the SUNY Foundation in July 2020. Moreover, as we had exceeded our investment and ~~profitability.~~employment obligations under this agreement prior to such mandated reduction of operations, we do not currently expect any issues meeting all applicable future obligations under this agreement. However, if our expectations set forth above or as to the costs and timelines of our investment and operations at Buffalo or our production ramp of the Solar Roof ~~installations will initially ramp slowly in~~prove incorrect, we may incur additional expenses or substantial payments to 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 for our energy products will continue to increase with new product offerings and product integration. Demand for our Powerwall and Powerpack products presently exceeds capacity. We are ramping up production for these products at our Gigafactory 1 over the next several quarters.SUNY Foundation.

~~We plan to continue to invest heavily in~~Our capital expenditures are typically difficult to project beyond the short term given the number and breadth of our core projects at any given time, and uncertainties in future global market conditions resulting from the COVID-19 pandemic currently makes projections more challenging. For example, the curve of any new product ramp, ~~installed production capacity and further increase vehicle production capacity in our Fremont Facility, including~~such as for Model ~~3, facilities~~Y and the Solar Roof, or the construction of new large-scale operations, such as Gigafactory Berlin and Gigafactory Texas, is inherently subject to uncertainty of timing, and if we are able to meet various milestones more quickly than expected, our related capital expenditures may be accelerated. We also continuously evaluate and may adjust our capital expenditures based on, among other things: our manufacturing ~~equipment at Gigafactory 1~~plans for our various products, which we may rebalance from time to time based on the mix of demand among them and other contingent factors; the pace and prioritization of current projects under development; and the addition of any new projects. Moreover, we are generally increasing the capital efficiency of our projects with experience, and we may find that our actual capital expenditures on new projects are different than previously expected.

Subject to the above, considering the expected pace of the manufacturing ramps for our products, construction and expansion of our factories, and pipeline of announced projects under development, and consistent with our current strategy of using partners to manufacture battery cells, as well as ~~new retail locations, service centers, delivery hubs~~considering all other infrastructure growth, we currently expect our average annual capital expenditures in 2020 and ~~Supercharger locations. Capital expenditures~~the two succeeding fiscal years to be $2.5 billion to $3.5 billion.

In March 2018, our stockholders approved the 2018 CEO Performance Award, with vesting contingent on our Board of Directors’ certification of the achievement of specified market capitalization and operational milestones. We will incur significant non-cash stock-based compensation expense for each tranche under this award after the related operational milestone initially becomes probable of being met, and if later than the grant date, we will also have to record a cumulative catch-up expense at such time. Such catch-up expense may be material depending on the length of time elapsed from the grant date. Moreover, as the expense for a tranche is recorded over the longer of (i) the expected achievement period of the relevant operational milestone and (ii) only if the related market capitalization milestone has not been achieved, its expected achievement period, the achievement of a market capitalization milestone earlier than expected may accelerate the rate at which such expense is recognized. Upon vesting of a tranche, all remaining associated expense will be recognized immediately. As of the date of this filing, three operational milestones and two market capitalization milestones have been achieved, of which two operational milestones and two market capitalization milestones have also been certified by our ~~automotive segment were $1.1~~Board of Directors. Consequently, two of the 12 tranches under this award have vested and become exercisable, subject to our CEO’s payment of the exercise price of $350.02 per share and the minimum five-year holding period generally applicable to any shares he acquires upon exercise.

During the second quarter of 2020, an operational milestone under the 2018 CEO Performance Award of Adjusted EBITDA of $4.5 billion became probable of being met and consequently, we recognized a catch-up expense of $79 million in such quarter. During the third quarter of ~~2017,~~2020, the second tranche vested and ~~we expect~~therefore the remaining unamortized expense of $95 million associated with such tranche, which was previously expected to ~~invest approximately$1.0 billion~~be recognized ratably in ~~capital expenditures for our automotive segment in~~future quarters through the ~~fourth~~first quarter of ~~2017.~~

~~We expect operating expenses to grow in 2017~~2022 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.determined on the grant date, will be accelerated into the third quarter of 2020. In addition, if the value of Tesla’s closing stock price continues near or higher than the levels seen in late July 2020, the third market capitalization milestone of $200.0 billion is expected to be met during the third quarter of 2020, meaning that the third tranche under the 2018 CEO Performance Award would vest upon certification by our Board of Directors. In such case, the remaining unamortized expense of $118 million for that tranche, which is currently expected to be recognized ratably in future quarters through the first quarter of 2023 as determined on the grant date, would be accelerated into the third quarter of 2020. See Note 11, Equity Incentive Plans—2018 CEO Performance Award, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding the stock-based compensation relating to the 2018 CEO Performance Award.

Excluding the impact of non-cash stock compensation expense from additional operational milestones and/or tranches under the 2018 CEO Performance Award becoming, as applicable, probable of being met or vested earlier than expected, and as long as macroeconomic factors facilitate increases in overall revenues from expanding sales, we expect operating expenses to increase as a result of the increased selling, general and administrative expenses incurred by our energy generation and storage segment. We expect selling, general and administrative expenses to continue to increase in absolute amounts while declining significantly as a percentage of revenue ~~due~~ to continue to decrease in the ~~significant increase in revenue primarily driven by the ramp in Model 3 sales and~~future as we focus on increasing operational efficiency ~~while continuing to expand our customer~~ and ~~corporate infrastructure.~~

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

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

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

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

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

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

Panasonic has partnered with us on Gigafactory 1 with investments in the production equipment that it uses to manufacture and supply us with battery cells. Under our arrangement with Panasonic, we plan to purchase the full output from their production equipment at negotiated prices. As these terms convey to us the right to use, as defined in ASC 840, ~~Leases~~, their production equipment, we consider them to be leased assets when production commences. This results in us recording the value of their production equipment within property, plant and equipment, net, on our consolidated balance sheets with a corresponding liability recorded to financing obligations. For all suppliers and partners for which we plan to purchase the full output from their production equipment located at Gigafactory 1, we will apply similar accounting. During the three and nine months ended September 30, 2017, we recorded $148.5 million and $415.0 million, respectively, on our 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 experienced bottlenecks in the assembly of battery modules at Gigafactory 1, which has negatively affected our production of Model 3. While we continue to make progress to resolve such issues at Gigafactory 1, 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 Foundation for the State University of New York (“Foundation”) for the construction of a factory capable of producing 1.0 gigawatts of solar cells annually in Buffalo, New York, referred to as Gigafactory 2. In December 2016, we entered into an agreement with Panasonic under which it will manufacture custom photovoltaic (“PV”) cells and modules for us, primarily at Gigafactory 2, and we will purchase certain quantities of PV cells and modules from Panasonic during the 10-year term.

The terms of our agreement with the Foundation require us to comply with a number of covenants, and any failure to comply with these covenants could obligate us to pay significant amounts to the Foundation and result in termination of the agreement. ~~Although we remain on track with our progress at Gigafactory 2,~~ our expectations as to the cost of building the facility, acquiring manufacturing equipment and supporting our manufacturing operations may prove incorrect, which could subject us to significant expenses to achieve the desired benefits.

~~In addition, we continue to expand production capacity at our Fremont Factory and are exploring additional production capacity in Asia and Europe~~.process automation.

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~~may be affected.

For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2019.

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

The COVID-19 pandemic impacted our business and financial results in the first half of 2020.

The temporary suspension of production at our factories during the six months ended June 30, 2020 had caused production limitations that negatively impacted our deliveries for the first half of 2020. While we have resumed operations at all of our factories worldwide, our temporary suspension at our factories resulted in idle capacity charges as we still incurred fixed costs such as depreciation, certain payroll related expenses, and property taxes. As part of our response strategy to the business disruptions and uncertainty around macroeconomic conditions caused by the COVID-19 pandemic, we had instituted cost reduction initiatives across our business globally to be commensurate to the scope of our operations while they were scaled back. This included temporary labor cost reduction measures such as furloughing certain of our hourly employees, reducing most salaries employees’ base salaries, and reducing our bonus and commission structures. Additionally, we suspended non-critical operating spend and opportunistically renegotiated supplier and vendor arrangements. As part of various governmental responses to the pandemic granted to companies globally, we received certain payroll related benefits which helped to reduce the impact of the COVID-19 pandemic on our financial results. Such payroll related benefits related to our direct headcount have been primarily netted against our idle capacity charges disclosed as well as marginally reduced our operating expenses. The impact of the idle capacity charges incurred in the current period were almost entirely offset by our cost savings initiatives and payroll related benefits.

	Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change					Three Months Ended June 30,				Change						Six Months Ended June 30,				Change
(Dollars in thousands)	2017		2016		$		%			2017		2016		$		%
(Dollars in millions)																			2020		2019		$			%			2020		2019		$			%
Automotive sales	$	2,076,731	$	1,917,442	$	159,289		8	%	$	6,125,643	$	3,849,558	$	2,276,085		59	%	$	4,911	$	5,168	$	(257	)		-5	%	$	9,804	$	8,677	$	1,127			13	%
Automotive leasing		286,158		231,285		54,873		24	%		813,462		507,085		306,377		60	%		268		208		60			29	%		507		423		84			20	%
Total automotive revenues		2,362,889		2,148,727		214,162		10	%		6,939,105		4,356,643		2,582,462		59	%		5,179		5,376		(197	)		-4	%		10,311		9,100		1,211			13	%
Services and other		304,281		126,375		177,906		141	%		713,168		308,849		404,319		131	%		487		605		(118	)		-20	%		1,047		1,098		(51	)		-5	%
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	%		5,666		5,981		(315	)		-5	%		11,358		10,198		1,160			11	%
Energy generation and storage segment revenue		317,505		23,334		294,171		1261	%		818,229		50,009		768,220		1536	%		370		369		1			0	%		663		693		(30	)		-4	%
Total revenues	$	2,984,675	$	2,298,436	$	686,239		30	%	$	8,470,502	$	4,715,501	$	3,755,001		80	%	$	6,036	$	6,350	$	(314	)		-5	%	$	12,021	$	10,891	$	1,130			10	%

Automotive sales revenue includes ~~revenue~~revenues related to ~~the sale~~cash deliveries of new Model S, Model X, Model 3 and Model Y vehicles, including access to our Supercharger network, internet connectivity, FSD features and over-the-air software updates, as well as sales of regulatory credits to other automotive manufacturers. Cash deliveries are vehicles that are not subject to lease accounting. Our revenue from regulatory credits fluctuates by quarter depending on when a contract is executed with a buyer and when the credits are delivered. For example, our revenue from regulatory credit sales in the three months ended June 30, 2019 was $111 million while it was $428 million in the three months ended June 30, 2020.

Automotive leasing revenue includes the amortization of revenue for Model S, Model X and Model 3 vehicles ~~including internet connectivity, Supercharger access, specified software updates~~under direct lease agreements as well as those sold with resale value guarantees accounted for as operating leases under lease accounting. We began offering direct leasing for Model 3 vehicles ~~equipped with Autopilot hardware~~in the second quarter of 2019 and we began offering direct leasing for Model Y vehicles in the third quarter of 2020.

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

Automotive sales revenue ~~increased by $159.3~~decreased $257 million, or 8%5%, in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016. This was~~2019, primarily due to a ~~23% increase~~decrease of 6,807 Model S and Model X cash deliveries and a decrease in ~~deliveries to 20,608 vehicles resulting from increased sales~~the average selling price of Model ~~X and S, at average selling prices that remained relatively consistent as~~3 from a higher sales mix of lower end trims in the three months ended June 30, 2020 compared to the ~~prior~~same period ~~as well as the roll-out of Model 3~~ in the ~~third quarter of 2017. The increase from new deliveries was~~prior year as we began delivering Standard Range variants internationally in June 2019. These decreases were partially offset by ~~a decrease~~an increase of ~~$147.6~~$317 million infrom additional sales of regulatory ~~credits.~~credits to $428 million in the three months ended June 30, 2020 and an increase of 3,691 Model 3 and Model Y cash deliveries despite production limitations as a result of temporary suspension of production at the Fremont Factory during the first half of 2020. We were able to increase deliveries year over year from additional Model 3 production capacity at Gigafactory Shanghai.

Automotive sales revenue increased ~~by $2.3~~$1.13 billion, or ~~59%~~13%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. This was~~2019, primarily due to an increase of 24,865 Model 3 and Model Y cash deliveries despite production limitations as a ~~68%~~result of temporary suspension of production at the Fremont Factory during the first half of 2020. We were able to increase deliveries year over year from additional Model 3 production capacity at Gigafactory Shanghai. Additionally, due to pricing adjustments we made to our vehicle offerings in ~~deliveries to 56,931~~the six months ended June 30, 2019, we estimated that there was a greater likelihood that customers would exercise their buyback options and adjusted our sales return reserve on vehicles ~~resulting~~previously sold under our buyback options program which resulted in a reduction of automotive sales revenue of $565 million. During the six months ended June 30, 2020, we made further pricing adjustments that similarly resulted in a reduction of automotive sales revenue of $60 million. There was also an increase of $455 million from ~~increased~~additional sales of ~~Model X and S, at average selling prices that remained relatively consistent as compared~~regulatory credits to ~~the prior period, as well as the roll-out of Model 3~~$782 million in the ~~third quarter of 2017.~~six months ended June 30, 2020. The ~~increase from new deliveries was~~increases in automotive sales revenue were partially 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~~average selling price of ~~revenue~~Model 3 from a higher sales mix of lower end trims as we began delivering Standard Range variants internationally in June 2019 and a decrease of 7,245 Model S and Model X ~~vehicles accounted for as operating leases, including~~cash deliveries in the ~~amortization of revenue for vehicles sold with resale value guarantees.~~ six months ended June 30, 2020 compared to the same period in the prior year.

Automotive leasing revenue increased ~~by $54.9~~$60 million, or ~~24%~~29%, in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016.~~2019. Automotive leasing revenue increased $84 million, or 20%, in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The ~~increase was~~increases in the three and six months ended June 30, 2020 compared to the same periods in the prior year were 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 our counterparty retains ownership, any remaining deferred revenue and ~~programs with a~~ resale value guarantee ~~as of September 30, 2017 as compared~~liabilities are released 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~~leasing 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 $177.9decreased $118 million, or

~~141%~~ 20%, in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016. This was primarily due to an increase in used vehicle sales as an organic result of increased automotive sales as well as from the expansion of our trade-in program.~~

2019. Services and other revenue ~~increased by $404.3~~decreased $51 million, or ~~131%~~5%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. This was~~2019. These decreases were primarily due to a decrease in the volume of used vehicle sales, offset by an increase in ~~used vehicle sales as an organic result of increased automotive sales as well as from the expansion of our trade-in program.~~average selling prices for traded-in 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.~~grow and an increase in sales by our acquired subsidiaries to third party customers.

Energy generation and storage revenue includes sales and leasing of solar energy ~~systems~~generation and energy storage products, ~~leasing revenue from solar energy systems under operating leases and power purchase agreements~~services related to such products, and sales of solar energy ~~system~~systems incentives.

Energy generation and storage revenue increased by ~~$294.2~~$1 million, or ~~1261%~~0%, in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016.~~2019. Energy generation and storage revenue ~~increased~~decreased by ~~$768.2~~$30 million, or ~~1536%~~4%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. These increases were~~2019, primarily due to ~~the inclusion~~a decrease in deployments of ~~revenue from SolarCity, which we acquired on November 21, 2016, of $273.0 million~~solar cash and ~~$752.8 million for the three and nine months ended September 30, 2017, respectively, as well as increases in sales of our energy storage products.~~loan jobs.

	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
(Dollars in thousands)	2017			2016			$		%			2017			2016			$		%
(Dollars in millions)																							2020			2019			$			%			2020			2019			$			%
Cost of revenues
Automotive sales	$	1,755,622		$	1,355,102		$	400,520		30	%	$	4,724,849		$	2,895,483		$	1,829,366		63	%	$	3,714		$	4,254		$	(540	)		-13	%	$	7,413		$	7,110		$	303			4	%
Automotive leasing		175,224			161,959			13,265		8	%		516,683			310,176			206,507		67	%		148			106			42			40	%		270			223			47			21	%
Total automotive cost of revenues		1,930,846			1,517,061			413,785		27	%		5,241,532			3,205,659			2,035,873		64	%		3,862			4,360			(498	)		-11	%		7,683			7,333			350			5	%
Services and other		367,401			120,359			247,042		205	%		852,446			295,310			557,136		189	%		558			743			(185	)		-25	%		1,206			1,429			(223	)		-16	%
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																								4,420			5,103			(683	)		-13	%		8,889			8,762			127			1	%
Energy generation and storage segment		237,288			24,281			213,007		877	%		592,823			50,553			542,270		1073	%		349			326			23			7	%		631			642			(11	)		-2	%
Total cost of revenues	$	2,535,535		$	1,661,701		$	873,834		53	%	$	6,686,801		$	3,551,522		$	3,135,279		88	%	$	4,769		$	5,429		$	(660	)		-12	%	$	9,520		$	9,404		$	116			1	%

Gross profit total automotive	$	432,043		$	631,666							$	1,697,573		$	1,150,984							$	1,317		$	1,016								$	2,628		$	1,767
Gross margin total automotive		18.3	%		29.4	%							24.5	%		26.4	%							25	%		19	%								25	%		19	%

Gross profit total automotive & services and other segment	$	368,923		$	637,682							$	1,558,295		$	1,164,523							$	1,246		$	878								$	2,469		$	1,436
Gross margin total automotive & services and other segment		13.8	%		28.0	%							20.4	%		25.0	%							22	%		15	%								22	%		14	%

Gross profit energy generation and storage segment	$	80,217		$	(947	)						$	225,406		$	(544	)						$	21		$	43								$	32		$	51
Gross margin energy generation and storage segment		25.3	%		-4.1	%							27.5	%		-1.1	%							6	%		12	%								5	%		7	%

Total gross profit	$	449,140		$	636,735							$	1,783,701		$	1,163,979							$	1,267		$	921								$	2,501		$	1,487
Total gross margin		15.0	%		27.7	%							21.1	%		24.7	%							21	%		15	%								21	%		14	%

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 ~~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, costs for retail merchandise, and costs to provide vehicle insurance. 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~~by our acquired subsidiaries to ~~other manufacturers.~~ third party customers.

Cost of ~~services and other~~automotive sales revenue ~~increased by $247.0~~decreased $540 million, or ~~205%~~13%, in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016. This was~~2019, primarily due to a decrease of 6,807 Model S and Model X cash deliveries and a decrease in average Model 3 costs per unit due to a higher sales mix of lower end trims, lower freight and duty costs from local production in China, and additional manufacturing efficiencies in the ~~increase~~production of Model 3 in ~~costs~~our Fremont Factory. The decrease in cost of ~~used vehicle~~automotive sales revenue was partially offset by idle capacity charges of $189 million as a result of temporary suspension of production at the ~~increase in volume, $69.4 million increase in costs to provide maintenance service as our fleet continues to grow,~~Fremont Factory and Gigafactory Nevada during the three months ended June 30, 2020 and an increase of $10.0 million due to 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 at the end of the second quarter of 2017.3,691 Model 3 and Model Y cash deliveries.

Cost of ~~services and other~~automotive sales revenue increased ~~by $557.1~~$303 million, or ~~189%~~4%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. This was~~2019, primarily due to ~~the increase~~a decrease in average Model 3 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~~per unit due to ~~the inclusion~~a higher sales mix of ~~Grohmann’s cost of engineering services. These increases were offset by a $10.1 million decrease~~lower end trims, lower freight and duty costs from local production 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%~~China, and additional manufacturing efficiencies in the ~~three months ended September 30, 2017 as compared to the three months ended September 30, 2016. This decrease was primarily due to the higher cost structure associated with the roll-out~~production of Model 3 in ~~the third quarter~~our Fremont Factory. There was also a decrease of ~~2017~~7,245 Model S and ~~lower sales of regulatory credits~~Model X cash deliveries 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, assix months ended June 30, 2020 compared to the same period in the prior year at lower costs per unit due to lower freight and duties from regional sales mix. The decreases in cost of automotive sales revenue were partially offset by an increase of 24,865 Model 3 and Model Y cash deliveries. Due to pricing adjustments we made to our vehicle offerings in the ~~overall~~six months ended June 30, 2019, we estimated that there was a greater likelihood that customers would exercise their buyback options and 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 cost of automotive sales revenue of $458 million. During the six months ended June 30, 2020, we made further pricing adjustments that similarly resulted in a reduction of cost of automotive sales revenue of $37 million. Additionally, there was an increase to cost of automotive sales revenue from idle capacity charges of $213 million as a result of temporary suspension of production at the Fremont Factory and Gigafactory Nevada during the six months ended June 30, 2020.

Cost of automotive leasing revenue increased $42 million, or 40%, in the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Cost of automotive leasing revenue increased $47 million, or 21%, in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The increases in the three and six months ended June 30, 2020 compared to the same periods in the prior year were primarily due to 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 our counterparty retains ownership, the net book value of the leased vehicle of the lease vehicle is expensed to cost of automotive leasing revenue. These increases were partially offset by a decrease ~~since they have~~in cumulative vehicles under our resale value guarantee leasing programs which are accounted for as operating leases.

Cost of services and other revenue decreased $185 million, or 25%, in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Cost of services and other revenue decreased $223 million, or 16%, in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The decreases were primarily due to decreased costs of used vehicle sales from lower sales volume and decreased costs of non-warranty maintenance services as a ~~dilutive effect on gross margin.~~result of additional operational efficiencies. These decreases were partially offset by an increase in cost of sales by our acquired subsidiaries to third party customers in line with the increase in revenue.

Gross margin for total automotive ~~decreased~~increased from ~~26.4%~~19% to ~~24.5%~~25% in the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~three and six months ended ~~September~~June 30, ~~2016. The roll-out~~2019, primarily due an increase of ~~Model 3~~$317 million and $455 million, respectively, in ~~the third quarter of 2017, lower~~ sales of regulatory credits and ~~higher current period early payoffs~~an improvement of Model 3 gross margin primarily from lower freight and ~~expirations of resale value guarantees, as compared to the same period~~duty costs from local production in China and additional manufacturing efficiencies in the ~~prior year, contributed to the lower gross margin. Lower material and manufacturing costs for~~production of Model 3 in our Fremont Factory. Additionally, improvement of Model S and Model X ~~as we further improved our vehicle production processes,~~gross margin from lower freight and ~~the recognition of Autopilot 2.0 revenue in the current period~~duties from regional sales mix helped contribute to higher total automotive gross margin. The increases were partially offset by idle capacity charges of $189 million and $213 million as a result of temporary suspension of production at the ~~overall decrease.~~Fremont Factory during the three and six months ended June 30, 2020, respectively.

Gross margin for total automotive & services and other segment ~~decreased~~increased from ~~28.0%~~15% to ~~13.8%~~22% in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016.~~2019. Gross margin for total automotive & services and other segment ~~decreased~~increased from ~~25.0%~~14% to ~~20.4%~~22% in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended

~~September~~ June 30, ~~2016. These decreases are driven by the factors impacting~~2019. The increases to gross margin ~~for total~~in the three and six months ended June 30, 2020 compared to the same periods in the prior year were primarily due to the automotive ~~as explained~~gross margin impacts discussed above ~~as well as higher costs~~and improved services and other gross margin from increased operational efficiencies in our non-warranty maintenance services business and improved used vehicle sales margins. Additionally, there was an increase due to a lower proportion of ~~maintenance service.~~services and other within the segment in the three and six months ended June 30, 2020, which operates at a lower gross margin than our automotive business.

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 by ~~$213.0~~$23 million, or ~~877%~~7%, in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016.~~ 2019, primarily due to higher costs from temporary manufacturing utilization of our Solar Roof ramp and idle capacity charges of $20 million as a result of temporary suspension of production at Gigafactory New York during the three months ended June 30, 2020, partially offset by a decrease in deployments of solar cash and loan jobs.

Cost of energy generation and storage revenue ~~increased~~decreased by ~~$542.3~~$11 million, or ~~1073%~~37%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. These increases were~~2019, primarily due to a decrease in deployments of solar cash and loan jobs and lower material costs per unit for storage products, offset by higher costs from temporary manufacturing utilization of our Solar Roof ramp and idle capacity charges of $20 million as a result of temporary suspension of production at Gigafactory New York during the ~~inclusion of~~six months ended June 30, 2020.

Gross margin for energy generation and storage ~~costs~~decreased from ~~SolarCity of $178.1 million and $497.5 million~~12% to 6% in the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, respectively,~~2020 as ~~well as increases in sales~~compared to the three months ended June 30, 2019, primarily due to idle capacity charges of ~~energy storage products~~$20 million as a result of ~~growing popularity~~temporary suspension of ~~our Powerpack and Powerwall offerings.~~production at Gigafactory New York during the three months ended June 30, 2020.

Gross margin for energy generation and storage ~~increased~~decreased from ~~-4.1%~~7% to ~~25.3%~~5% in the ~~three~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~three~~six months ended ~~September~~June 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 were2019, primarily due to idle capacity charges of $20 million as a result of temporary suspension of production at Gigafactory New York during the ~~inclusion of revenue and costs from SolarCity and improved~~six months ended June 30, 2020. This decrease is partially offset by an improvement in our energy storage gross margin as a result of ~~energy storage sales.~~lower materials costs.

	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
(Dollars in thousands)	2017			2016			$		%			2017			2016			$		%
(Dollars in millions)																							2020			2019			$			%			2020			2019			$			%
Research and development	$	331,622		$	214,302		$	117,320		55	%	$	1,023,436		$	588,448		$	434,988		74	%	$	279		$	324		$	(45	)		-14	%	$	603		$	664		$	(61	)		-9	%
As a percentage of revenues		11.1	%		9.3	%							12.1	%		12.5	%							5	%		5	%								5	%		6	%

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 $45 million, or ~~55%~~14%, in the three months ended ~~September~~June 30, ~~2017~~2020 compared to the three months ended June 30, 2019. The decrease was primarily due to a $27 million decrease in employee and labor related expenses, an $11 million decrease in professional and outside service expenses and a $4 million decrease in expensed materials.The decreases observed were driven by our continued focus on increasing operational efficiency and process automation and from our cost savings initiatives as part of our COVID-19 response strategy as discussed above.

R&D expenses as a percentage of revenue decreased from 5.1% to 4.6% in the three months ended June 30, 2020 as compared to the three months ended ~~September~~June 30, ~~2016. This increase~~2019. The decrease is primarily from a decrease in our R&D expenses as detailed above, offset by a decrease in total revenues as a result of temporary suspension of our factories during the first half of 2020.

R&D expenses decreased $61 million, or 9%, in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The decrease was primarily due to a ~~$69.0~~$49 million ~~increase~~decrease in employee and ~~labor-rated~~labor related expenses ~~from increased headcount as~~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~~$9 million decrease in ~~facilities expenses, depreciation expenses,~~ professional and outside service expenses, partially offset by an $8 million increase in facilities, freight and ~~expensed materials~~depreciation expenses.The decreases observed were driven by our continued focus on increasing operational efficiency and process automation and from our cost savings initiatives as part of our COVID-19 response strategy as discussed above.

R&D expenses as a percentage of revenue decreased from 6% to ~~support Solar Roof development as well as the development of future products.~~

~~Research and development expense increased by $435.0 million, or 74%,~~5% in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. This increase was~~2019. The decrease is primarily ~~due to~~from a ~~$216.5 million~~decrease in our R&D expenses as detailed above and an increase in ~~employee and labor-rated expenses~~total revenues 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.expanding sales.

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~~$14 million, or ~~94%~~2%, in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016. This~~2019. The increase was primarily due to an increase of $119 million in stock-based compensation expense, of which $111 million was attributable to the 2018 CEO Performance Award. We had recorded a ~~$148.1~~$79 million cumulative catch-up expense for the service provided from the grant date when an additional operational milestone was considered probable of being met in the second quarter of 2020 and the remaining unamortized expense of $22 million for the first tranche was recognized in the second quarter of 2020 upon vesting as the first market capitalization milestone was achieved (see Note 11, Equity Incentive Plans, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). The remainder of the increase in SG&A expense from the 2018 CEO Performance Award is attributed to the additional performance milestone that was deemed probable in the fourth quarter of 2019. The increase was partially offset by a decrease of $74 million in employee and ~~labor-rated~~labor related expenses ~~from increased headcount as~~and 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~~$46 million ~~increase~~decrease in office, information technology and facilities-related expenses ~~to support the growth of our business as well as~~and sales and marketing ~~activities to handle~~activities. The decreases observed were driven by our ~~expanding market presence~~continued focus on increasing operational efficiency and ~~a $53.0 million increase in professional~~process automation and ~~outside service expenses to support the growth~~from our cost savings initiatives as part of our ~~business.~~COVID-19 response strategy as discussed above.

~~Selling, general and administrative expense~~SG&A expenses as a percentage of revenue increased ~~by $818.0 million, or 84%,~~from 10% to 11% in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~three months ended ~~September~~June 30, ~~2016. This~~2019. The increase ~~was~~is primarily from a decrease in total revenues as a result of temporary suspension of our factories during the first half of 2020 and an increase in our SG&A expenses as detailed above.

SG&A expenses decreased $63 million, or 5%, in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 The decrease is primarily due to a ~~$437.0~~$123 million ~~increase~~decrease in employee and ~~labor-rated~~labor related expenses ~~from increased headcount as a result of our acquisitions as well as headcount growth from the expansion of our automotive~~ and ~~energy storage businesses. Additionally, the increase was due to a $210.3~~$64 million ~~increase~~decrease in office, information technology and facilities-related expenses ~~to support the growth of our business as well as~~and sales and marketing ~~activities~~activities. The decreases observed were driven by our continued focus on increasing operational efficiency and process automation and from our cost savings initiatives as part of our COVID-19 response strategy as discussed above. The decreases were partially offset by an increase of $125 million in stock-based compensation expense, of which $122 million was attributable to ~~handle our expanding~~the 2018 CEO Performance Award. We had recorded a $79 million cumulative catch-up expense for the service provided from the grant date when an additional operational milestone was considered probable of being met in the second quarter of 2020 and the remaining unamortized expense of $22 million for the first tranche was recognized in the second quarter of 2020 upon vesting as the first market ~~presence and a $108.0 million~~capitalization milestone was achieved (see Note 11, Equity Incentive Plans, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). The remainder of the increase in ~~professional~~SG&A expense from the 2018 CEO Performance Award is attributed to the additional performance milestone that was deemed probable in the fourth quarter of 2019.

SG&A expenses as a percentage of revenue decreased from 12% to 11% in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The decrease is primarily from a decrease in our SG&A expenses as detailed above and ~~outside service expenses to support the growth of our business.~~an increase in total revenues from expanding sales.

During the first half of 2019, we carried out certain restructuring actions in order to reduce costs and improve efficiency. As a result, we recognized $50 million of costs primarily related to employee termination expenses and losses from closing certain stores. These costs were substantially paid by the end of second quarter of 2019. During the second quarter of 2019, we recognized $47 million in impairment related to IPR&D as we abandoned further development efforts and $15 million for the related equipment. We also incurred a loss of $49 million for closing certain facilities. There were no restructuring actions in the three and six months ended June 30, 2020.

Interest expense ~~increased~~decreased by ~~$70.4~~$2 million, or ~~151%~~1%, in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016.~~ 2019.

Interest expense increased by ~~$191.2~~$9 million, or ~~143%~~3%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. These increases were~~ 2019, primarily due to ~~the inclusion of interest expenses from SolarCity of $48.7 million and $156.5 million for the three and nine months ended September 30, 2017, respectively. In addition,~~an increase in our average outstanding indebtedness ~~has increased in the three and nine months September 30, 2017~~ as compared to the ~~same period in the prior year.~~six months ended June 30, 2019.

	Three Months Ended September 30,						Change						Nine Months Ended September 30,						Change						Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
(Dollars in thousands)	2017			2016			$			%			2017			2016			$			%
(Dollars in millions)																									2020			2019			$		%			2020			2019			$			%
Other expense, net	$	(24,390	)	$	(11,756	)	$	(12,634	)		107	%	$	(83,696	)	$	(9,952	)	$	(73,744	)		741	%	$	(15	)	$	(41	)	$	26		-63	%	$	(69	)	$	(15	)	$	(54	)	360%
As a percentage of revenues		-0.8	%		-0.5	%								-1.0	%		-0.2	%								0	%		-1	%							-1	%		0	%

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),~~expense, net, ~~decreased~~changed favorably by ~~$12.6~~$26 million, ~~or 107%,~~ in the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the three months ended ~~September~~June 30, ~~2016. This decrease~~2019. The change was primarily due to a decrease in losses from interest rate swaps related to our debt facilities year-over-year and favorable fluctuations in foreign currency exchange ~~rates. Additionally, we recognized an $18.2 million loss in the current period for measurement period adjustments~~rates compared to the acquisition date fair values of certain liabilities as previously reported in our Form 10-K for the year ended December 31, 2016. However, there was a partially offsetting increase of $7.0 million from the losses recognized upon conversions of the 2018 Notes in the three months ended ~~September~~June 30, ~~2016.~~2019.

Other ~~income (expense),~~expense, net, ~~decreased~~changed unfavorably by ~~$73.7~~$54 million, ~~or 741%,~~ in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. This decrease~~2019. The change was primarily due to unfavorable fluctuations in foreign currency exchange ~~rates. Additionally, we recognized a $29.8 million loss in the current year for measurement period adjustments~~rates compared to the ~~acquisition date fair values of certain assets and liabilities as previously reported in our Form 10-K for the year~~six months ended ~~December 31, 2016 and a $9.7 million loss related to our interest rate swaps in the current year.~~June 30, 2019.

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~~$2 million, or ~~160%~~11%, in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2020 as compared to the ~~nine~~three months ended ~~September~~June 30, ~~2016. This~~2019. The increase is primarily due to an increase in discrete tax expense in the current period related to foreign return-to-provision items, partially offset by reduced taxable profits within certain foreign jurisdictions compared to the same period in the prior year.

Our provision for income taxes decreased by $19 million, or 45%, in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The decrease was primarily due to ~~the significant~~reduced taxable profits within certain foreign jurisdictions, partially offset by an increase in ~~taxable income in our international jurisdictions as a result of increased vehicle deliveries~~discrete tax expense in the current ~~year~~period related to foreign return-to-provision items compared to the same period in the prior year.

Our effective tax rate increased from -5% to 14% in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Our effective tax rate increased from -4% to 10% in the six months ended June 30, 2020 as compared to the six months ended June 30, 2020. The increases were primarily due to being in a pre-tax earnings position in the three and six months ended June 30, 2020 as compared to a pre-tax loss position for the same periods in the prior year.

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

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

Net income attributable to noncontrolling interests and redeemable noncontrolling interests increased by $6 million, or 32%, in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Net income attributable to noncontrolling interests and redeemable noncontrolling interests increased by $24 million, or 45%, in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The increases were primarily due to lower activities from new financing fund arrangements.

As of ~~September~~June 30, ~~2017,~~2020, we had ~~$3.53~~$8.62 billion of cash and cash equivalents. Balances held in foreign currencies had a U.S. dollar equivalent of ~~$535.4 million~~$3.60 billion and consisted primarily of Chinese yuan, euros and ~~Norwegian kroner.~~Canadian dollars. 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 in tooling and manufacturing equipment~~ for ~~the production ramp~~new products, establishment and/or increases of ~~our~~ Model 3 ~~vehicle,~~and Model Y production capacity at the Fremont Factory and at Gigafactory Shanghai, the continued expansion of Gigafactory Nevada, the construction of Gigafactory 1Berlin and Gigafactory Texas, the manufacturing ramp of the Solar Roof at Gigafactory New York, and the continued expansion of our retail ~~stores,~~and service ~~centers, mobile repair services~~locations, body shops, Mobile Service fleet and Supercharger network. ~~We are growing~~

As discussed in and subject to the considerations referenced in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Risks—Trends in Cash Flow, Capital Expenditures and Operating Expenses in this Quarterly Report on Form 10-Q, considering the expected pace of the manufacturing ramps for our ~~vehicle manufacturing capacity primarily~~products, construction and expansion of our factories, and pipeline of projects under development, and consistent with our current strategy of using a partner to ~~fulfill Model 3 production at 5,000 vehicles per week~~manufacture battery cells, as well as considering all other infrastructure growth, we currently expect our average annual capital expenditures in 2020 and ~~in a later phase~~the two succeeding fiscal years to ~~10,000 vehicles per week.~~ be $2.5 billion to $3.5 billion.

We expect that the cash we generate from our core operations will generally be sufficient to ~~invest approximately $1.0 billion in~~cover our future capital expenditures ~~during~~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 investment in Gigafactory Shanghai will continue to be funded through indebtedness arranged through local financial institutions in China, such as the ~~fourth quarter of 2017. We~~ RMB 9.0 billion (or the equivalent amount in U.S. dollars) fixed asset term facility and RMB 2.25 billion (or the equivalent amount in U.S. dollars) working capital revolving facility that our local subsidiary entered into in December 2019, and we expect the same with respect to Gigafactory Berlin. 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 at Gigafactory 2. We anticipate meeting these~~beginning April 30, 2018. In April 2020, the government agency overseeing this agreement issued guidance that all obligations ~~through~~relating to investment and employment targets under certain of its projects, including our obligation to be compliant with our applicable targets under such agreement on April 30, 2020, may be deferred for a one-year period upon such agency’s approval of an application for relief by the obligor.As we temporarily suspended most of our manufacturing operations at Gigafactory 2New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we were granted such deferral, which was memorialized in an amendment to this agreement in July 2020. Moreover, as we had exceeded our investment and ~~other~~employment obligations under this agreement prior to such mandated reduction of operations, ~~within the State of New York,~~we do not currently expect any issues meeting all applicable future obligations under this agreement, 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,~~retail and service ~~centers, delivery centers~~locations, body shops, Mobile Service fleet, and ~~the~~ Supercharger network. For example, if our near-term manufacturing operations are at a smaller scale or ramp more slowly than expected, including due to global economic conditions and levels of consumer comfort and spend impacting demand in the worldwide transportation, automotive and energy product industries, the pace of our capital expenditures may be correspondingly slowed. 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~~$1.83 billion of unused committed amounts under our credit facilities and financing funds as of June 30, 2020, 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). For details regarding our indebtedness and financing funds, refer to Note ~~11,~~ ~~Convertible~~10, Debt, and ~~Long-Term Debt Obligations~~Note 13, Variable Interest Entity Arrangements, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

	Nine Months Ended September 30,						Six Months Ended June 30,
(Dollars in thousands)	2017			2016
Net cash (used in) provided by operating activities	$	(570,545	)	$	324,380
(Dollars in millions)							2020			2019
Net cash provided by operating activities							$	524		$	224
Net cash used in investing activities	$	(3,457,091	)	$	(821,679	)	$	(1,046	)	$	(547	)
Net cash provided by financing activities	$	4,129,022		$	2,371,149		$	2,831		$	1,490

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~~customer lease payments, ~~directly from our customers,~~ customer deposits, ~~for vehicles,~~cash from sales of regulatory credits and energy generation and storage products. These cash inflows are offset by our payments ~~we make~~ to ~~our~~ suppliers for production materials and parts used in our manufacturing process, ~~employee compensation,~~operating expenses, operating lease payments and interest ~~expenses~~payments on our financings.

Net cash ~~from~~provided by operating activities increased by $300 million to $524 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017 decreased by $894.9~~2020 from $224 million ~~as compared to~~during the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019. This favorable change was primarily due to an increase in net income, excluding non-cash expenses and gains, of $1.42 billion and $188 million of the repayment of our 0.25% Convertible Senior Notes due in 2019 during the three months ended March 31, 2019 (which was classified as an operating activity, as this represented an interest payment on the discounted convertible notes),partially offset by an increase in working capital of ~~$846.4 million and~~$1.31 billion. The increase in working capital was mainly driven by a decrease in deferred revenue in the six months ended June 30, 2020 as compared to 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~~six months ended ~~September~~June 30, ~~2016, when we~~

~~began taking reservations for Model 3, and~~2019, due to delivery of regulatory credits under a previous arrangement where we had ~~larger increases to our~~received payment in advance, and a decrease in accounts payable and accrued liabilities ~~balances~~in the six months ended June 30, 2020 as compared to an increase in the same period in 2019, from releases of resale value guarantee liabilities and less sales related tax due as a result of quarter-over-quarter changes in deliveries. Additionally, there was a larger increase in inventory from buildup of raw materials, a larger increase in prepaid expenses and other current assets, and a larger increase in operating lease vehicles, as Model 3 direct leasing was introduced in the second quarter of 2019. The increase in working capital was partially offset by an increase in customer deposits in the six months ended June 30, 2020 as compared to a decrease for the same period in 2019.

~~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~~$1.00 billion ~~and $759.2 million for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, mainly for Model Y production at the Fremont Factory and ~~2016, respectively. The increase in capital expenditures was primarily due to payments~~construction of Gigafactory Shanghai and Gigafactory Berlin, and $530 million during the six months ended June 30, 2019, mainly for Model 3 ~~production equipment and the design,~~production. Design, acquisition and installation of solar energy systems ~~under operating leases with our customers, in~~amounted to $46 million and $43 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017. We also paid $109.1 million, net of cash acquired, for the acquisition of Grohmann in the nine months ended September 30, 2017~~.

~~In 2014, we began construction of our Gigafactory 1 facility in Nevada. During the nine months ended September 30, 2017, we used cash of $1.2 billion towards Gigafactory 1 construction.~~2020 and 2019, respectively.

~~During~~Cash flows from financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 consisted primarily of $2.31 billion from our February 2020 public offering of common stock, net of issuance costs,$724 million of net borrowings under loan agreements entered into by certain Chinese subsidiaries, $514 million of net borrowings under our vehicle lease-backed loan and security agreements (the “Warehouse Agreements”), and $217 million of proceeds from exercise of stock options and other stock issuances. These cash inflows were partially offset by $254 million of payments of the automotive asset-backed notes, $177 million of payments under the senior secured asset-based revolving credit agreement (the “Credit Agreement”), collateralized lease repayments of $168 million, and $154 million principal repayments of our finance leases.

Cash flows provided by financing activities ~~was $4.1 billion, which~~during the six months ended June 30, 2019 consisted primarily of ~~$966.4~~$1.82 billion from the issuance of 2.00% Convertible Senior Notes due in 2024 (“2024 Notes”), net of transaction costs, and $847 million from the issuance of ~~convertible senior notes, $1.8 billion~~common stock, net of underwriting discounts and offering costs, in registered public offerings, $230 million of net borrowings under the Warehouse Agreements, $200 million of net borrowings under the Credit Agreement, and $174 million from the issuance of ~~senior notes and $400.2 million from a public~~warrants in connection with the 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~~2024 Notes. These cash ~~provided by financing activities was $2.4 billion, which~~ consisted primarily of $1.7 billion of net proceeds from our May 2016 public offering of 7,915,004 shares of common stock, $1.7 billion of proceeds from our issuances of debt, which included $1.3 billion of borrowings under our Credit Agreement and $300 million of borrowings under our Warehouse Agreement, and $557.7 million of proceeds from vehicle sales to our bank leasing partners. These increasesinflows were partially offset by a $732 million portion of the repayment of our 0.25% Convertible Senior Notes due in 2019 that was classified as financing activity, a purchase of convertible note hedges of $476 million in connection with the offering of the 2024 Notes, and repayments of ~~borrowings under our Credit Agreement~~$228 million of ~~$1.1 billion and~~ the ~~settlement of $435.5 million for certain conversions of our 2018 Notes.~~automotive asset-backed notes.

Contractual obligations did not materially change during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 except for debt activity, as discussed in more detail in Note ~~11,~~ ~~Convertible~~10, Debt, and ~~Long-Term Debt Obligations~~.the aggregate impact of new and updated supplier arrangements for Gigafactory Shanghai and Gigafactory Berlin during the six months ended June 30, 2020. The following tables sets forth the aggregate impact from these supplier arrangements on our purchase obligations as of June 30, 2020 (in millions):

~~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, operating expenses and localized subsidiary debt denominated in currencies other than the ~~risk~~U.S. dollar (primarily the Chinese yuan, euro, British pound and Canadian dollar in relation to our current year operations). In general, we are a net receiver of currencies other than the U.S. dollar for our foreign subsidiaries. Accordingly, changes in exchange rates 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 as we do not typically hedge foreign currency risk.

We have also experienced, and will continue to experience, fluctuations in ~~foreign currency exchange rates against the functional currencies~~our net income (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~~six months ended ~~September~~June 30, ~~2017,~~2020, we recognized a net foreign currency ~~exchange~~ loss of ~~$35.9~~$38 million in other (expense) income, net, with our largest re-measurement exposures from the U.S. dollar, South Korean won and Mexican peso as our subsidiaries’ monetary assets and liabilities are denominated in various local currencies. For the six months ended June 30, 2019, we recognized a net foreign currency gain of $11 million in other (expense)income, ~~net.~~net, with our largest re-measurement exposures from the U.S. dollar, Japanese yen and Chinese yuan.

We considered the historical trends in foreign currency exchange rates and determined that it is reasonably possible that adverse changes in foreign currency exchange rates of 10% for all currencies could be experienced in the near-term. These ~~reasonably possible adverse~~ changes were applied to our total monetary assets and liabilities denominated in currencies other than our ~~functional~~local currencies ~~as of September 30, 2017~~at the balance sheet date to compute the ~~adverse~~ impact these changes would have had on our net income (loss) before income taxes. These changes would have resulted in an adverse impact ~~on our income before income taxes~~ of ~~$408.6 million.~~$246 million at June 30, 2020 and $362 million at December 31, 2019 assuming no foreign currency hedging.

We are exposed to interest rate risk ~~for~~on our borrowings that bear interest at floating rates. Pursuant to our risk management policies, in certain cases, we utilize derivative instruments to manage some of ~~our exposures to fluctuations in interest rates on certain floating-rate debt.~~this risk. We do not enter into ~~any~~ derivative instruments for trading or speculative purposes. A hypothetical 10% change in ~~our~~ interest rates on our floating rate debt would have increased or decreased our interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and 2019 by ~~$6.0 million.~~$3 million and $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~~June 30, ~~2017,~~2020, 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~~June 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Securities Litigation~~For a description of our material pending legal proceedings, please see Note 12, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

~~On March 28, 2014, a purported stockholder class action was filed in~~In addition, the ~~United States~~following matter is being disclosed pursuant to Item 103 of Regulation S-K because it relates to environmental regulations and aggregate civil penalties could potentially exceed $100,000.

The Bay Area Air Quality Management District ~~Court~~(the “BAAQMD”) has issued notices of violation to us relating to air permitting for the ~~Northern District~~Tesla Factory, but has not initiated formal proceedings. We dispute certain of ~~California against SolarCity~~these allegations 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, 2013are working to March 18, 2014. After a series of amendments to the original complaint, the District Court dismissed the amended complaint and entered a judgment in our favor on August 9, 2016. The plaintiffs have filed a notice of appeal. The 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.

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 connectionresolve them 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;BAAQMD. Further, we assert that motion is pending. These same plaintiffs filed a parallel action in the United States District Court for the District of Delaware on April 21, 2017, adding claims for violations of the federal securities laws.

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

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

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

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

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

~~From time~~no related adverse community or environmental impact. While we cannot predict the outcome of this matter, including the final amount of any penalties, it is not expected 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.~~business.

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

We have been, and may in the future be, adversely affected by the global COVID-19 pandemic, the duration and economic, governmental and social impact of which is difficult to predict, which may significantly harm our business, prospects, financial condition and operating results.

Commencing in the first quarter of 2020, there has been a widespread worldwide impact from the COVID-19 pandemic. We had temporarily suspended operations at each of our manufacturing facilities worldwide at some point during the first half of 2020 as a result of government requirements or to accommodate related challenges for our employees, their families and our suppliers. Certain of our suppliers and partners, including Panasonic, our partner that manufactures lithium-ion battery cells for our products at our Gigafactory Nevada, also experienced such temporary suspensions. We had also instituted temporary labor cost reduction measures by furloughing certain of our hourly employees, reducing most salaried employees’ base salaries globally and reducing our bonus and commission structures while our U.S. operations were scaled back. By the end of the second quarter of 2020, we had resumed operations at all of our manufacturing facilities.

Numerous government regulations and public advisories, as well as shifting social behaviors, that have temporarily or sporadically limited or closed non-essential transportation, government functions, business activities and person-to-person interactions remain in place. In some cases, the relaxation of such trends has been followed by a return to stringent restrictions. We cannot predict the duration or direction of such trends, which have also adversely affected and may in the future affect our operations. For example, reduced operations or closures at motor vehicle departments, vehicle auction houses and municipal and utility company inspectors resulted in certain challenges in or postponements for our new vehicle deliveries, used vehicle sales, and energy product deployments in the first half of 2020. We may also be affected by global macroeconomic conditions and changing levels of consumer comfort and spend in the future, which could further impact demand in the worldwide transportation and automotive industries and for construction projects such as the addition of solar energy systems. Likewise, our ability to sustain our production trajectory depends on the ongoing status of various government regulations regarding manufacturing operations, the readiness and solvency of our suppliers and vendors, and a stable and motivated production workforce. Government-imposed travel or visa restrictions may also prevent personnel employed by us or our vendors from traveling to our sites to work on key projects, which may delay their progress. Finally, it is possible that the contingencies generally inherent in the construction of and ramp at new facilities such as Gigafactory Shanghai, Gigafactory Berlin and Gigafactory Texas may be exacerbated by such conditions.

Ultimately, we have always monitored macroeconomic conditions to remain flexible and optimize and evolve our business as appropriate, and we will continue to do so. Because the impact of current conditions on a sustained basis is yet largely unknown, is rapidly evolving, and has been varied across geographic regions, this ongoing assessment will be particularly critical to allow us to accurately project demand and infrastructure requirements globally and deploy our production, workforce, and other resources accordingly. If current global market conditions continue or worsen, or if we cannot or do not maintain operations at a scope that is commensurate with such conditions or are later required to or choose to suspend such operations again, our business, prospects, financial condition, and operating results could be materially harmed.

We have experienced in the past, and may experience in the future, ~~significant~~ delays or other complications in the design, manufacture, launch, and production ramp of ~~new~~our vehicles, ~~and other products such as Model 3, our~~ energy ~~storage~~ products, and ~~the Solar Roof,~~product features, or may not realize our manufacturing cost targets, which could harm our brand, business, prospects, financial condition and operating results.

We have previously experienced ~~in the past~~ launch ~~manufacturing~~ and production ramp delays or other complications in connection with the introduction of 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.~~features. 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~~initial delays in producing Model X and an isolated supplier limitation in the ~~production~~manufacture of ~~these vehicles from~~Model 3. Similarly, during our initial ~~expectations. Similarly, in the third quarter of 2017, we experienced certain production bottlenecks in the production of~~ Model 3 ~~due to a small number~~production ramp, we had challenges ramping fully automated processes, such as portions of ~~manufacturing subsystems, including~~ the battery module assembly line, material flow system and the general assembly line, which we addressed by reducing the levels of automation and introducing semi-automated or manual processes. In addition, we have introduced in the past and may introduce in the future new manufacturing technologies, techniques and processes for our vehicles, such as aluminum spot welding systems and high-speed blow forming of certain difficult to stamp vehicle parts, and unique design features with different manufacturing challenges, such as large display screens, dual motor drivetrain, hardware for our Autopilot and FSD features, falcon-wing doors, and a heat pump and octovalve system for increased power efficiency. There is no guarantee that we will be able to successfully and timely introduce and scale any such new processes or features.

In particular, our future business depends in large part on the high-volume production of Model 3 and Model Y, which we believe are our vehicles with the largest markets. We have limited experience to date in manufacturing Model 3 at high volumes and continuously increasing its production rates, particularly across multiple vehicle manufacturing facilities, which we commenced in the fourth quarter of 2019 with Gigafactory Shanghai coming online. In order to be successful, we will need to implement, maintain and/or ramp efficient and cost-effective manufacturing capabilities, processes and supply chains and achieve the design tolerances, high quality and maximum output rates we have planned, including at Gigafactory ~~1, taking longer to bring online than expected. While~~Shanghai, and for Model Y, which we ~~continue to make progress resolving~~commenced manufacturing at the Fremont Factory in the first quarter of 2020. Bottlenecks such ~~early bottlenecks, it is difficult to predict exactly how long~~as those we have experienced in the past with new product ramps and other unexpected challenges may also arise as we ramp production, and it will ~~take for all bottlenecks~~be important that we address them promptly while continuing to ~~be cleared~~reduce our manufacturing costs. If we are not successful in doing so, or ~~when further~~if we experience issues ~~may arise. If such issues arise~~ with our ongoing manufacturing process improvements and cost-down efforts, we could face delays in establishing and/or ~~recur with respect to~~sustaining our Model 3 and Model Y ramps or ~~any~~be unable to meet our related cost and profitability targets.

Moreover, we will need to hire, train and compensate skilled employees to operate high-volume production facilities to support our vehicle ramp at the Fremont Factory and Gigafactory Shanghai, as well as at Gigafactory Nevada to support the manufacture of battery packs and drive units for certain of our ~~other production vehicles, we may experience further delays. In addition,~~vehicles. Finally, because our vehicle models, in particular Model 3 and Model Y, may share certain parts, suppliers or production facilities with each other, ~~models,~~ the volume or efficiency of production with respect to one model may impact also 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~~launching and/or ramping production of new vehicles, such as ~~ramping Model 3 on production manufacturing lines, and other products such as our announced~~ Tesla Semi, ~~truck~~Cybertruck and the new Tesla Roadster, our energy storage products and the Solar ~~Roof.~~ Roof, as well as future features and services such as new Autopilot or FSD features and the autonomous Tesla ride-hailing network. Likewise, we may encounter delays with the design, construction and regulatory or other approvals necessary to build and bring online future manufacturing facilities, including at Gigafactory Shanghai, Gigafactory Berlin and Gigafactory Texas.

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

~~We may experience 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 at significantly higher volumes than our present production capabilities for the Model S or Model X vehicles. We commenced production and initial customer deliveries of Model 3 in July 2017 and have announced our current expectation to achieve a production rate of 5,000 Model 3 vehicles per week by late in the first quarter of 2018.

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

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

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

We may be unable to meet our growing product sales, delivery, installation, vehicle ~~production~~servicing and ~~delivery~~charging plans, ~~both of~~or accurately project and manage this growth internationally, which could harm our business and prospects.

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

~~Concurrent with the significant planned increase in our vehicle production levels,~~ expand globally, we will also need to ~~continue~~ensure we are in compliance with any regulatory requirements applicable to ~~significantly increase deliveries~~the sale, installation and service of our ~~vehicles. Although~~products, the sale of electricity generated through our solar energy systems, dispatch of electricity from energy storage products and operation of Superchargers in various jurisdictions, which could take considerable time and expense. These plans require significant cash investments and management resources and there is no guarantee that they will ultimately generate additional sales or installations of our products.

We continuously evaluate, and as appropriate evolve, our retail operations and product offerings in order to maximize our reach and optimize our costs, vehicle line-up and model differentiation, and purchasing experience. However, there is no guarantee that each step in our evolving strategy will be perceived as intended by prospective customers accustomed to more traditional sales models. Likewise, while we ~~have~~are pioneering touchless vehicle deliveries and test drives in certain regions to allow prospective customers to experience our vehicles while promoting their comfort and convenience, there is no guarantee that such measures will be effective large-scale substitutes for traditional transactions. In particular, we are targeting with Model 3 and Model Y a ~~plan for delivering~~global mass demographic with a ~~significantly increased volumes~~broad range of ~~vehicles,~~potential customers, in which we have limited experience projecting demand and pricing our products. We currently produce numerous international variants at a limited number of factories, and if our specific demand expectations for these variants prove inaccurate, we may not be able to timely generate sales matched to the specific vehicles that we produce in the same timeframe or that are commensurate with our operations in a given region, which may negatively impact our deliveries and operating results in a particular period. Likewise, as we develop and grow our energy products and services worldwide, our success will depend on our ability to correctly forecast demand in different markets.

Moreover, because we do not have independent dealer networks, we are responsible for delivering aall of our vehicles to our customers and meeting their vehicle servicing needs. While we have substantially implemented and improved many aspects of our delivery and service operations, we still have relatively limited experience with, and may face difficulties in, such deliveries and servicing at high volumes, particularly in international markets as we expand. For example, significant transit time may be required to transport vehicles in volume into international markets, and we also saw challenges in initially ramping our logistical channels in China and Europe as we delivered Model 3 there for the first time in the first quarter of ~~vehicles, and no experience in delivering vehicles at the significantly higher~~2019. To accommodate growing volumes, we ~~anticipate for~~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 and may not ultimately be successful. Likewise, 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 our vehicles, particular higher-volume and newer additions to our fleet such as Model 3 and Model Y, it could overburden our servicing capabilities and parts inventory. Finally, the increasing number of Tesla vehicles also requires us to continue to rapidly increase the number of our Supercharger stations and connectors throughout the world.

We are also expanding our installation capabilities for the Solar Roof as we continue its ramp by training both our own personnel and third party installers. If we are not successful in matching our overall installation capability with production, or if we experience unforeseen delays in the production ramp or inaccurately forecast demand for the Solar Roof, our operating results may be negatively impacted.

There is no assurance that we will be able to ramp our business to meet our sales, delivery, servicing, charging and installation targets globally, that our projections on which such targets are based will prove accurate, or that the pace of growth or coverage of our customer infrastructure network will meet customer expectations. Moreover, we may ~~face difficulties meeting~~not be successful in managing our ~~delivery and growth plans into both existing markets as well as new markets into which we expand. If~~global operations if we are unable to ~~ramp up~~avoid cost overruns and other unexpected operating costs, adapt our products and conduct our operations to meet local requirements and regulations, implement required local infrastructure, systems and processes, and find and hire as needed additional sales, service, electrical installation, construction and administrative personnel. If we fail to manage our ~~delivery goals globally, this~~growth effectively, it 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. We operate in the automotive industry, which is generally susceptible to cyclicality and volatility.

Our growth is highly dependent upon the worldwide 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 target demographics for our vehicles, in particular the mass market demographic for Model 3 and Model Y, are highly competitive. If the market for electric vehicles in general and Tesla vehicles in particular does not develop as we expect, 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 relatively recently achieved high-volume production of vehicles, and are still at an earlier stage and have limited resources relative to our competitors. Moreover, 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:

For example, the market price of crude oil has fluctuated widely in 2020 and may continue to do so, and any corresponding changes in the cost of gasoline may impact the market for electric vehicles. In addition, sales of vehicles in the automotive industry tend to be cyclical in many markets, which may expose us to increased volatility, especially as we expand and adjust our operations and retail strategies. Moreover, travel restrictions and social distancing efforts in response to the COVID-19 pandemic may negatively impact the transportation and automotive industries for an unknown, but potentially lengthy, period of time. Specifically, it is uncertain as to how such macroeconomic factors will impact us as a company that has been experiencing growth and increasing market share in an industry that has globally been experiencing a recent decline in sales.

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~~thousands of purchased parts ~~which~~that we source globally from hundreds of direct ~~suppliers, the majority of whom are currently single source suppliers despite efforts~~suppliers. We attempt to ~~qualify~~mitigate our supply chain risk by entering into long-term agreements where it is practical and ~~obtain~~beneficial to do so, qualifying and obtaining components from multiple sources ~~whenever feasible. Any~~where sensible, and maintaining safety stock for key parts and assemblies and die banks for components with lengthy procurement lead times. However, our limited, and in most cases single-source, supply chain exposes us to multiple potential sources of delivery failure or component shortages for our production, 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, health epidemics such as the global COVID-19 pandemic, and other factors beyond our and our suppliers’ control could also affect these suppliers’ ability to deliver components to us on a timely basis or to remain solvent and operational. The loss of any supplier, particularly a single- or limited-source supplier, or the disruption in the supply of components from our suppliers, could lead to product design changes, production delays of key revenue-generating products, idle manufacturing facilities, and potential loss of access to important technology and parts for producing, servicing and supporting our products, any of which could result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, financial condition and operating results.

We may also be impacted by changes in our supply chain or production needs. We have experienced in the past, and may experience in the future, 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. Likewise, any significant ~~unanticipated demand would~~increases in our production, such as for Model 3 and our expectations for Model Y, has required and/or may in the future require us to procure additional components in a short amount of ~~time,~~time. Our suppliers may not ultimately be able to sustainably and ~~in the past~~ ~~we have also replaced~~ ~~certain suppliers~~ ~~because of their failure~~timely meet our cost, quality and volume needs, requiring us to ~~provide components that met our quality control standards.~~replace them with other sources. 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, supply chain exposes us to multiple potential sources of delivery failure or component shortages for the production of our products, such as those which we experienced in 2012 and 2016 in connection with our slower-than-planned Model S and Model X ramps. Furthermore, unexpected changes in business conditions, materials pricing, labor issues, wars, governmental changes, natural disasters such as the March 2011 earthquakes in Japan and other factors beyond our and our suppliers’ control, could also affect our suppliers’ ability to deliver components to us on a timely basis. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to product design changes and delays in product deliveries to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material and adverse effect on ~~our business, prospects, financial condition and operating results.~~

Changes 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 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.components. Additionally, we ~~are negotiating~~continuously negotiate with existing suppliers ~~for~~to obtain cost reductions ~~seeking~~and avoid unfavorable changes to terms, seek new and less expensive suppliers for certain parts, and ~~attempting~~attempt 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~~Outside of the foregoing discussion to apply generally to Model 3. However, because we plan to produce Model 3 at significantly higher volumes than Model S or Model X, the negative impact of any delays or other constraints with respect to our suppliers for Model 3 could be substantially greater than any such issues experienced with respect to our products to date. As some of our suppliers for Model S and Model X do not have the resources, equipment or capability to provide components for the Model 3 in line with our requirements,U.S., we have ~~engaged a significant number~~limited manufacturing experience and we may experience issues or delays increasing the level of ~~new suppliers,~~localized procurement at our Gigafactory Shanghai and ~~such suppliers will also have to ramp to achieve~~in the future at our ~~needs in a short period of time. There is no assurance that these suppliers will ultimately be able to meet our cost, quality and volume needs, or do so in a timely manner.~~ Gigafactory Berlin. Furthermore, as the scale of our vehicle production increases, we will need to accurately forecast, purchase, warehouse and transport components to our manufacturing facilities ~~components~~and servicing locations internationally and 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 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 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 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~~Any problems or delays in expanding Gigafactory 1Nevada or ramping and maintaining operations there could negatively affect the production and profitability of our products, such as Model 3.3, Model Y and our energy storage products. In addition, the battery cells produced there store large amounts of energy.

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~~at Gigafactory Nevada, where we also manufacture battery packs and drive units for ~~the Model 3~~certain vehicles and energy storage products and assemble our Megapack product. Production of lithium-ion cells at Gigafactory ~~1. While Gigafactory 1~~Nevada 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 exceeding our current expectations and Gigafactory 1 taking longer to ramp production and expand than we currently anticipate.~~ Nevada.

In order to ~~reach~~achieve our ~~planned~~ volume and gross margin targets for ~~Model 3,~~our vehicles and energy storage products, we must ~~have~~continue to sustain and ramp significant cell production ~~from~~at Gigafactory 1,Nevada, 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 the U.S. like~~Gigafactory Nevada. Moreover, although Panasonic is co-located with us at Gigafactory ~~1. We are now~~Nevada, it is free to make its own operational decisions, such as its determination to temporarily suspend its manufacturing there in response to the ~~early stages~~COVID-19 pandemic. In addition, we produce several components for Model 3 and Model Y, such as battery modules incorporating the lithium-ion cells produced by Panasonic and drive units (including to support Gigafactory Shanghai production), at Gigafactory Nevada. Some of ~~production~~the 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,~~production rate 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 we are unable to resolve ramping challenges and expand Gigafactory 1 production in a timely manner and at reasonable prices, and ifintroduce new lines. If we or Panasonic are unable to ~~attract,~~or otherwise do not maintain Gigafactory Nevada production, or if we are unable to cost-effectively ramp output additionally over time as needed or 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, Model Y 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.

~~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, 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 contain defects and errors or be subject to external attacks. Issues experienced by customers have included those related to the software for the 17 inch display screen, the panoramic roof and the 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 or any other failure of our products to perform as expected could harm our reputation and result in delivery delays, product recalls, product liability claims, 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 effectively as we rapidly grow our company, including internationally, we may not be able to produce, market, sell and service our products successfully.

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

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

While we have experienced and expect in the future to realize cost reductions by both us and our suppliers, there is no guarantee we will be able to achieve sufficient cost savings to reach our gross margin and profitability goals. We incur significant costs related

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

~~We are significantly dependent upon revenue generated from the sale of a limited fleet of electric vehicles, which currently includes Model S, Model X and Model 3.~~

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

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

The battery packs that we produce make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While we have designed the 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 a significant number of lithium-ion cells at our facilities and plan to produce~~the high volumes of lithium-ion cells and battery modules and packs manufactured at Gigafactory 1.Nevada are stored and recycled at our various facilities. Any mishandling of battery cells may cause disruption to the operation of ~~our~~such facilities. While we have implemented safety procedures related to the handling of the cells, there can be no assurance that a safety issue or fire related to the cells would not disrupt our operations. Such ~~damage~~disruptions 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 publicityissues 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 at or funding the ramp 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 production of our vehicles on a sustained basis, and in order to make them affordable in international markets by accessing local supply chains and workforces, we have established Gigafactory Shanghai in China. We are currently manufacturing Model 3 at Gigafactory Shanghai, and we are constructing its next phase to add Model Y manufacturing capacity there. The ramp and further expansion of Gigafactory Shanghai are subject to a number of uncertainties inherent in all new manufacturing operations, including ongoing compliance with regulatory requirements, maintenance of operational licenses and approvals for additional expansion, potential supply chain constraints, hiring, training and retention of qualified employees, and the pace of bringing production equipment and processes online with the capability to manufacture high-quality units at scale. We have limited experience to date with operating manufacturing facilities abroad, and only recently began 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 maintaining and complying with the terms of local debt financing that we intend will largely fund it, 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.

In particular, local manufacturing is critical to our expansion and sales in China, which is the largest market for electric vehicles in the world. Our vehicle sales in China have been negatively impacted in the past by certain tariffs on automobiles manufactured in the U.S., such as our vehicles. If we are not able to successfully and timely ramp Gigafactory Shanghai, we may continue to be exposed to the impact of such unfavorable tariffs, duties or costs to our detriment compared to locally-based competitors.

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

We have a global footprint with domestic and international operations and subsidiaries. Accordingly, we are subject to a variety of legal, political and regulatory requirements and social, environmental and economic conditions over which we have little control. For example, we may be impacted by trade policies, environmental conditions, political uncertainty and economic cycles involving geographic regions where we have significant operations, which are inherently unpredictable. 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.

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 of 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, copper and ~~copper,~~cobalt, as well as lithium-ion cells from suppliers. The prices for these materials fluctuate, and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased production of electric vehicles and energy storage products by our competitors, and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to lithium-ion cells. These risks include:

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

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

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 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 new Autopilot or FSD features take longer than expected to become enabled, are legally restricted or become subject to onerous regulation, our ability to develop, market and sell our products and services could be harmed. For example, the operation of our vehicles is highly dependent on software, which is inherently complex and 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, as well as the panoramic roof and the 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 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 customers.

Any product defects, delays or 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, breach of warranty claims, and significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operating results and prospects.

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, 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 claims in the event our vehicles do not perform or are claimed to not have performed as expected. ~~On extremely rare occasions,~~As is true for other automakers, our ~~cars~~vehicles 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 isor FSD features are engaged are the subject of significant public attention. We have experienced and we expect to continue to face claims arising from or related to misuse or claimed failures of new technologies that we are pioneering, including Autopilot and FSD features in our vehicles. ~~Finally,~~In addition, 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, in particular due to a high-speed crash, which could subject us to lawsuits, product recalls or redesign efforts, all of which would be time consuming and expensive.

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 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 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 and 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. ~~Many~~A significant and growing number of 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.~~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 ~~networks~~resources and ~~other resources~~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 are competing or preparing to compete with us in important and large markets for electric vehicles, such as in China and Europe. 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~~and Model Y face competition from existing and future automobile manufacturers in the extremely competitive entry-level premium sedan ~~market,~~and compact SUV markets, including ~~Audi,~~ BMW, Ford, Lexus, Mercedes, Volkswagen Group and ~~Mercedes.~~Volvo.

The solar and energy storage industries are highly competitive. We face competition from other manufacturers, developers, installers and ~~installers of~~service providers for solar and energy storage systems, as well as from large utilities. Decreases in the retail or wholesale prices of electricity from utilities or other renewable energy sources could make our products less attractive to customers and lead to an increased rate of residential customer defaults under our existing long-term leases and ~~power purchase agreements.~~PPAs. Moreover, prices for solar ~~panel~~product components and prices per kWh for lithium-ion battery ~~prices~~cells have declined and ~~are continuing~~may continue to ~~decline. As we increase our battery and solar panel manufacturing capabilities, including at Gigafactory 1 and Gigafactory 2, future price declines~~decline, which may ~~harm~~adversely impact our ability to ~~produce energy storage systems and solar panels at competitive prices.~~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, or are subject to negative publicity, then our financial condition, operating results, business prospects and ~~stock price~~access to capital may suffer materially.

Consumers may be less likely to purchase our products ~~now~~ if they are not convinced that our business will succeed or that our service and support and other operations will continue ~~for many years.~~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.~~succeed over the long term. Accordingly, in order to build and maintain our business, we must maintain confidence among customers, suppliers, analysts, ratings agencies and other parties in our ~~liquidity~~long-term financial viability and ~~long-term~~ business prospects. Maintaining such confidence may be particularly complicated by certain

factors including those that are largely outside of our control, such as our limited operating history, 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, and our quarterly production and sales performance compared with market expectations. ~~Many~~

In particular, Tesla’s products, business, results of ~~these factors~~operations, statements and actions are ~~largely outside our control, and any negative perceptions about our long-term business prospects, even if~~well-publicized by a range of third parties. Such attention includes frequent criticism, which is often exaggerated or unfounded, ~~would likely~~such as speculation regarding the sufficiency or stability of our management team. Any such negative perceptions, whether caused by us or not, could 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 compliance, residual, financing, and credit risks related to our ~~vehicle~~various financing programs, our business may suffer.

We offer financing arrangements for our vehicles in North America, Europe, and Asia primarily through various financial institutions. We also currently offer vehicle financing arrangements ~~for Model S and Model X~~directly through our local subsidiaries in the United States, Canada, Germany and the UK, ~~including leasing~~for certain models depending on the country. Such arrangements include leases directly ~~through certain~~with us, under which we typically receive only a very small portion of ~~those subsidiaries. The~~the total vehicle purchase price at the time of lease, followed by a stream of payments over the term of the lease. We have also offered various arrangements for customers of our solar energy systems, whereby they pay us a fixed payment to lease or finance the purchase of solar energy systems, or purchase electricity generated by our systems. If we do not successfully monitor and comply with applicable national, state, and/or local financial regulations and consumer protection laws governing these transactions, we may become subject to enforcement actions or penalties, either of which may harm our business.

Also, 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. We have made in the past and may make in the future certain adjustments to our prices from time to time in the ordinary course of business, including as we introduce new vehicles and variants and optimize the pricing among them. Such pricing changes may impact the residual values of our vehicles. The vehicle 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.~~program. We expect the ~~need for~~availability of leasing and other vehicle 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~~through 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.~~vehicle deliveries. Furthermore, if our vehicle leasing business grows substantially, our business may suffer if we cannot effectively manage the greater levels of residual ~~and credit risks~~risk resulting from growth. ~~Finally, if~~

Moreover, we ~~do not successfully monitor~~have provided resale value guarantees to vehicle customers and ~~comply~~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 ~~applicable national, state~~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 ~~local financial regulations~~liquidity could be negatively impacted.

Finally, our vehicle and ~~consumer protection laws governing lease transactions,~~solar energy system financing programs and our energy storage sales programs also require us to screen for and manage customer credit risk. In the event of a widespread economic downturn or other catastrophic event, our solar energy, energy storage and/or our vehicle customers may be unable or unwilling to satisfy their payment obligations to us on a timely basis or at all. If a significant number of our customers default, we may ~~become subject~~incur credit losses and/or have to ~~enforcement actions or penalties, either of~~recognize impairment charges with respect to the underlying assets, which may ~~harm~~be substantial. Any such credit losses and/or impairment charges could adversely affect our ~~business.~~operating results or financial condition.

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,~~Specific policies in place around the world include exempting the purchase of electric vehicles ~~is not currently subject to~~from import taxes, ~~taxes on non-recurring vehicle fees, the 25%~~ value added ~~tax~~taxes, 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 suchtaxes. 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 was reduced in phases during 2019 and ended on December 31, 2019. We believe that this sequential phase-out likely pulled forward some vehicle demand into the periods preceding each reduction. 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~~sometimes without warning. For example, the U.S. federal government currently offers ~~a 30%~~an 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~~facility; however, the ITC is currently scheduled to decline in phases, from 26% for qualifying solar systems for which construction began by December 31, 2020, to 10%, for commercial and ~~expire altogether~~utility systems and to 0% for customer-owned residential systems ~~by January 2022.~~for which construction begins after December 31, 2021. 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, altered or eliminated the benefit available under net energy metering, or have proposed to do so. ~~Such~~In addition, net energy metering has been contested and may continue to be contested on a nationwide basis in the U.S. before the Federal Energy Regulatory Commission (FERC). Any 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.

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,New York, could result in negative consequences for our business.

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

~~producing 1 gigawatt of PV cells annually, including for~~ our Solar ~~Roof.~~Roof and other solar products and components, energy storage components, and Supercharger components, and for other lessor-approved functions. Under this agreement, we are obligated to, among other things, directly employ specified minimum numbers of personnel in the State of New York ~~during the 10-year period following the arrival of manufacturing equipment, the receipt of certain permits and other specified items at Gigafactory 2,~~ 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~~beginning April 30, 2018. In April 2020, the ~~achievement~~government agency overseeing this agreement issued guidance that all obligations relating to investment and employment targets under certain of ~~full production output~~its projects, including our obligation to be compliant with our applicable targets under such agreement on April 30, 2020, may be deferred for a one-year period upon such agency’s approval of an application for relief by the obligor. As we temporarily suspended most of our manufacturing operations at Gigafactory ~~2. If~~New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we were granted such deferral, which was memorialized in an amendment to our agreement with the SUNY Foundation in July 2020. While we expect to have and grow significant operations at Gigafactory New York and the surrounding Buffalo area, including with our ramp and manufacture of the Solar Roof, if we fail in any year over the course of the term of the agreement to meet ~~these~~all applicable future obligations, we would be obligated to pay a “program payment” of $41.2 million to the SUNY Foundation infor such year. Any inability on our part to comply with ~~the~~applicable future requirements of this agreement may result in the payment of significant amounts to the SUNY Foundation, the termination of our lease at Gigafactory 2,New York, and/or the need to ~~secure an alternative supply~~adjust certain of ~~PV cells for products such as~~ our operations, in particular our production ramp of the Solar Roof. Moreover, if we are unable to utilize the 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.Roof or Supercharger components. 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~~ 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, expansion plans and technological innovation, 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, including outside of the U.S., 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 and hire key employees. 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. Likewise, as a result of our temporary suspension of various U.S. manufacturing operations in the first half of 2020, in April 2020 we temporarily furloughed certain hourly employees and ~~hire new ones.~~reduced most salaried employees’ base salaries. 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, including furloughed employees when our U.S. operations fully resume, and 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~~employees 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. We 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 our equity incentive and employee stock purchase plans. If we are unable to obtain the requisite stockholder approvals to obtain future increases to the number of awards that may be granted and shares that may be purchased under such plans, 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 or our intellectual property could be compromised, as a result of which our operating results and reputation could be harmed.

We are continuously expanding and improving our information technology systems, including implementing new internally developed systems and deploying such systems globally, 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. and abroad, including at Gigafactory Shanghai, such as systems for 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, segregation 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 and updating current 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, adequately protect our intellectual property 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 or intellectual property 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~~substantial laws and regulations that could impose substantial costs, legal prohibitions or unfavorable changes upon usour operations or products, and any failure to comply with these laws and regulations, including as they evolve, could negatively impact our ability to operate our manufacturing ~~facilities.~~facilities and substantially harm our business and operating results.

As a manufacturing company, including with respect to our current facilities such as the ~~Tesla~~Fremont Factory, Gigafactory 1Nevada, Gigafactory New York and Gigafactory 2,Shanghai and our future facilities at Gigafactory Berlin and Gigafactory Texas, we are or will be subject to complex environmental, manufacturing, health and safety laws and regulations at numerous jurisdictional levels in the ~~United States~~U.S., China, Germany and other locations abroad, including laws relating to the use, handling, storage, recycling, disposal and human exposure to hazardous ~~materials.~~materials and with respect to constructing, expanding and maintaining our facilities. 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 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 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 has been engaged in a campaign against the company. 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,~~In particular, we offer in our vehicles ~~are equipped with a suite of driver-assistance~~Autopilot and FSD features ~~called Autopilot, which help~~that today assist drivers with certain tedious and potentially dangerous aspects of road travel, but which currently require drivers to remain engaged. ~~Autopilot~~We are continuing to develop our FSD technology with the goal of achieving full self-driving capability in the future. 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, which ~~depending on the severity,~~ could adversely affect our business.

~~Moreover,~~Finally, as a manufacturer, installer and ~~installer of~~service provider with respect to 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~~are continued 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 ~~various~~comply with a variety of U.S. and international privacy and consumer protection ~~laws.~~laws to which we are subject could harm us.

Our privacy ~~policy~~notice 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 relating to the processing, collection, use, retention, security and transfer of personally identifiable information could result in regulatory or litigation-related actions against us, legal liability, fines, damages, ongoing audit requirements and other significant costs. ~~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 began to fully apply to the processing of personal information collected from individuals located in the European Union, and has created new compliance obligations and has significantly increased fines for noncompliance. Similarly, as of January 2020, the California Consumer Privacy Act imposes certain legal obligations on our use and processing of personal information related to California residents. Although we take steps to protect the security and integrity of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if, for example, third parties improperly obtain and use the personal information of our customers or we otherwise experience a data loss with respect to customers’ personal information. A major breach of our network security and systems 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.

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

It is not uncommon for employees of certain trades at companies 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 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. From time to time, labor unions have engaged in campaigns to organize certain of our operations, as part of which such unions have filed unfair labor practice charges against us with the National Labor Relations Board, and they may do so in the future. In September 2019, an administrative law judge issued a recommended decision for Tesla on certain issues and against us on certain others. The National Labor Relations Board has not yet adopted the recommendation and we have appealed certain aspects of the recommended decision. Any unfavorable ultimate outcome for Tesla may have a negative impact on the perception of Tesla’s treatment of our employees. Furthermore, we are directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and 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.

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

For energy storage products, we provide limited warranties against defects and to guarantee minimum energy retention levels. For example, we guarantee that each Powerwall 2 product will maintain at least 70-80% of its stated energy capacity after 10 years, and that each Powerpack 2 product will retain specified minimum energy capacities in each of its first 10 to 15 years of use. For our Solar Roof, we offer 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~~storage systems we sell. For components not manufactured by us, ~~install their systems.~~

Finally, customers who buy energy from us under solar energy system leases or power purchase agreements are covered by warranties equal to the length of the agreement term, which is typically 20 years. Systems purchased for cash are covered by a warranty of up to 10 years, with extended warranties available at additional cost. In addition, we pass through to our customers the inverter and panel manufacturers’ ~~warranties, which generally range from 5 to 25 years, subjecting us to the risk that the manufacturers may later cease operations or fail to honor their underlying~~ warranties. Finally, we ~~provide~~offer a performance guarantee

with our ~~leased~~financed solar energy systems that ~~compensates~~can compensate a customer on an annual basis if their system does not meet the electricity production guarantees set forth in their PPA or lease. Under these performance guarantees, we bear the risk of electricity 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~~to date and an estimate of the nature, frequency, and costs of future claims. Such estimates are inherently uncertain and changes to our historical or projected experience, especially with respect to products such as Model 3, Model Y, and Solar Roof that ~~are new~~we have 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 and use security measures designed to protect our systems against breaches and cyber-attacks. If these efforts are not successful, our business and operations could be disrupted and our operating results and reputation could be harmed.

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

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

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

We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God, and other claims against us, for which we may have no insurance coverage. As a general matter, we do not maintain as much insurance coverage as many other companies do, and in some cases, we do not maintain any at all. Additionally, the policies that we do have may include significant deductibles or self-insured retentions, 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~~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, may not be consistent or linear between periods. Additionally, our revenues from period to ~~produce vehicles at higher volumes, including ramping up~~period may fluctuate as we introduce existing products to 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~~June 30, ~~2017,~~2020, we and our subsidiaries had outstanding ~~$10.0~~$13.15 billion in aggregate principal amount of indebtedness (see Note ~~11,~~ ~~Convertible and Long-Term~~ 10, Debt ~~Obligations~~, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Our substantial consolidated indebtedness may increase our vulnerability to any generally adverse economic and industry conditions. We and our subsidiaries may, subject to the limitations in the terms of our existing and future indebtedness, incur additional debt, secure existing, or future debt or recapitalize our debt.

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

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

The design, manufacture, sale, installation, and/or servicing of automobiles, energy storage products and solar products is a ~~capital intensive business.~~capital-intensive 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, establishment and/or increases of Model 3 and Model Y production capacity at the Fremont Factory and at Gigafactory Shanghai, the continued expansion of Gigafactory Nevada, the construction of Gigafactory Berlin, the manufacturing ramp of the Solar Roof at Gigafactory New York, and the continued expansion of our retail and service ~~centers, build~~locations, body shops, Mobile Service fleet and ~~deploy Superchargers, expand Gigafactory 1,~~ ~~develop Gigafactory 2 and to make the investments in tooling and manufacturing capital required to introduce new vehicles, energy storage products and solar products.~~Supercharger network. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all. If we cannot raise additional funds when we need them, our financial condition, results of operations, business, and prospects could be materially and adversely affected.

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

~~Additionally,~~We are cooperating with certain government investigations as discussed in Note 12, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. To our knowledge, no government agency in any such ongoing investigation has concluded that any wrongdoing occurred. However, we ~~use capital from third-party fund investors~~cannot predict the outcome or impact of any such ongoing matters, and there exists the possibility that we could be subject to ~~reduce~~liability, penalties, and other restrictive sanctions and adverse consequences if the ~~cost~~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 ~~capital~~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, this settlement was amended to clarify certain of the previously-agreed disclosure procedures, which was subsequently approved by the Court. All other terms of the prior settlement were reaffirmed without modification. Although we intend to continue to comply with the terms and requirements of the settlement, if there is a lack of compliance or an alleged lack of compliance, additional enforcement actions or other legal proceedings may be instituted against us.

If we update or discontinue the use of our ~~solar energy system installations, improve our margins, offset future reductions in government incentives and maintain~~manufacturing equipment more quickly than expected, we may have to shorten the ~~price competitiveness~~useful lives of our solar energy systems. The availability of this tax-advantaged financing depends upon many factors, including the confidence of the investors in the solar energy industry and the quality and mix of our customer contracts, any ~~regulatory changes impacting the economics of our existing customer contracts, changes in legal and tax advantages or risks or government incentives associated with these financings, and our ability~~equipment to compete with other renewable energy companies for the limited number of potential fund investors. Moreover, interest rates are at historically low levels. If the rate of return required by investors risesbe 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 and mature the production of our products 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 ~~rise~~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 ~~interest~~currency exchange rates, itwhich could negatively affect our financial results.

We transact business globally in multiple currencies and have foreign currency risks related to our revenue, costs of revenue, operating expenses, and localized subsidiary debt denominated in currencies other than the U.S. dollar, currently primarily the Chinese yuan, euro, British pound and Canadian dollar. To the extent we have significant revenues denominated in such foreign currencies, any strengthening of the U.S. dollar would tend to reduce our revenues as measured in U.S. dollars, as we have historically experienced. In addition, a portion of our costs and expenses have been, and we anticipate will ~~reduce~~continue to be, denominated in foreign currencies, including the ~~present~~Japanese yen and Chinese yuan. If we do not have fully offsetting revenues in these currencies and if the value of the ~~customer payment streams underlying, and therefore the total value~~U.S. dollar depreciates significantly against these currencies, our costs as measured in U.S. dollars as a percent 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 installation of our customers’ systems, or our cost of capital couldrevenues will correspondingly increase and our ~~liquidity may~~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 ~~negatively impacted, any of which would have an adverse effect on our business, financial condition and results of operations.~~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. WeWhile we endeavor to obtain and protect the intellectual property rights that we expect will allow us to retain or advance our strategic initiatives, there can be no assurance that we will be able to adequately identify and protect the portions of intellectual property that are strategic to our business, or mitigate the risk of potential suits or other legal demands by our competitors. Accordingly, we may consider the entering into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur, and such licenses and associated litigation could significantly increase our operating expenses. In addition, if we are determined to have or believe there is a high likelihood that we have infringed upon a third party’s intellectual property rights, we may be required to cease making, selling, or incorporating certain components or intellectual property into the goods and services we offer, to pay substantial damages and/or license royalties, to redesign our products and services, and/or to establish and maintain alternative branding for our products and services. In the event that we were required to take one or more such actions, our business, prospects, operating results, and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity, and diversion of resources and management attention.

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

We may be impacted by natural disasters, wars, health epidemics, or other events outside of ~~disasters.~~

~~Our~~our control. For example, our corporate headquarters, the ~~Tesla~~Fremont Factory, and Gigafactory 1Nevada are located in seismically active regions in Northern California and ~~Nevada.~~Nevada, and our Gigafactory Shanghai is located in a flood-prone area. If major disasters such as earthquakes, floods, 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. In addition, the global COVID-19 pandemic has impacted economic markets, manufacturing operations, supply chains, employment and consumer behavior in nearly every geographic region and industry across the world, and we have been, and may in the future be, adversely affected as a result. We may incur expenses or delays relating to such ~~damages,~~events outside of our control, 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~~$1,794.99 per share and a low of ~~$178.19~~$211.00 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 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~~may provide from time to time guidance regarding our expected financial and business performance, ~~such as~~which may include 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 senior notes may dilute the ownership interest of existing stockholders, or may otherwise depress the price of our common stock.

The conversion of some or all of the ~~Tesla Convertible Notes~~convertible senior notes issued by us or ~~the SolarCity Convertible Notes~~our subsidiary would dilute the ownership interests of existing stockholders to the extent we deliver shares upon conversion of any of such notes. ~~Our 2018 Notes and the SolarCity Convertible Notes have been historically, and the other Tesla Convertible Notes may become in the future,~~Such convertible senior notes are 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 senior 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~~certain of the ~~Tesla Convertible Notes,~~convertible senior 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.~~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 senior 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~~in order to ~~a margin call that he could not avoid or~~ satisfy his loan obligations, such sales could cause our stock price to decline.

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

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

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

On September 11, 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.

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.

In April 2020, the government agency overseeing that certain Amended and Restated Agreement for Research & Development Alliance on Triex Module Technology, dated September 2, 2014, as amended (the “Gigafactory New York Lease Agreement”), between Silevo, LLC, a wholly-owned subsidiary of Tesla, and the SUNY Foundation, issued guidance that all obligations relating to investment and employment targets under certain of its projects may be deferred for a one-year period upon such agency’s approval of an application for relief by the obligor. As we had temporarily suspended most of our manufacturing operations at Gigafactory New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we applied for such deferral with respect to the Gigafactory New York Lease Agreement, and were granted such relief in June 2020.

On July 22, 2020, Silevo, LLC and Tesla Energy Operations, Inc., another wholly-owned subsidiary of Tesla, entered into an Eleventh Amendment to the Gigafactory New York Lease Agreement with the SUNY Foundation (the “Gigafactory New York Lease Amendment”). The Gigafactory New York Lease Amendment, among other things: (i) adds Tesla Energy Operations, Inc. as a party to the Gigafactory New York Lease Agreement, (ii) recognizes and effectuates the previously-granted deferral of the second annual measurement date for our minimum employment and investment requirements under the Gigafactory New York Lease Agreement by one year from April 30, 2020 to April 30, 2021, (iii) memorializes April 30, 2018 as the commencement date of the 10-year measurement period for the minimum employment and investment obligations under the Gigafactory New York Lease Agreement, and (iv) modifies the scope of personnel and investments that qualify for such minimum employment and investment obligations.

~~None.~~The foregoing summary is qualified in its entirety by reference to the text of the Gigafactory New York Lease Amendment, which is filed as Exhibit 10.6 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

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

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

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

Large accelerated filer	☒		Accelerated filer	☐

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

Emerging growth company	☐

		Page
PART I.		FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income ~~(Loss)~~(Loss)	6
	Consolidated Statements of ~~Cash Flows~~Redeemable Noncontrolling Interests and Equity	7
	~~Notes to~~ Consolidated ~~Financial~~ Statements of Cash Flow	89
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3136
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4052
Item 4.4	~~Controls~~Control and Procedures	4152

PART II.		OTHER INFORMATION

Item 1.	Legal ~~Proceedings~~Proceeding	4254
Item 1A.	Risk Factors	4355
Item 2.2	Unregistered Sales of Equity Securities and Use of Proceeds	5875
Item 3.3	Defaults Upon Senior Securities	5875
Item 4.	Mine Safety Disclosures	5875
Item 5.	Other Information	5875
Item 6.	Exhibits	5877

SIGNATURES		6179

	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	)

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

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

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

Six months ending December 31, 2020	$	25
2021		49
2022		48
2023		42
2024		27
Thereafter		116
Total	$	307

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

32.1*	Section 1350 Certifications	—	—	—	—	X

101.INS	XBRL Instance Document	—	—	—	—	X

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

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

10.1†	Second Lease Amendment, entered into on June 9, 2020, by and between Tesla, Inc. and Panasonic Energy of North America, a division of Panasonic Corporation of North America, with respect to the Amended and Restated Factory Lease dated January 1, 2017.	—	—	—	—	X

10.2†	Amended and Restated General Terms and Conditions for Gigafactory, entered into on June 10, 2020, by and among Registrant, Tesla Motors Netherlands B.V., Panasonic Corporation and Panasonic Corporation of North America.	—	—	—	—	X

10.3†	2020 Pricing Agreement (Gigafactory 2170 Cells), entered into on June 9, 2020, by and among Registrant, Tesla Motors Netherlands B.V., Panasonic Corporation and Panasonic Corporation of North America .	—	—	—	—	X

10.4	Indemnification Agreement, effective as of June 23, 2020, between Registrant and Elon R. Musk.	—	—	—	—	X

10.5†	Working Capital Loan Contact, dated as of May 7, 2020, between Industrial and Commercial Bank of China, China (Shanghai) Pilot Free Trade Zone Lingang Special Area Branch and Tesla (Shanghai) Co., Ltd.	—	—	—	—	X

10.6	Eleventh Amendment to Amended and Restated Agreement for Research & Development Alliance on Triex Module Technology, effective as of July 22, 2020, among the Research Foundation for the State University of New York, Silevo, LLC and Tesla Energy Operations, Inc.	—	—	—	—	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	—	—	—	—

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

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

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

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

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

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

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

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

		Tesla, Inc.

Date: ~~November 2, 2017~~July 28, 2020		/s/ ~~Deepak Ahuja~~Zachary J. Kirkhorn
		~~Deepak Ahuja~~ Zachary J. Kirkhorn
		Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)