ACG 6175 CMBA Final Examination – Summer 2015

Final Examination – ACG6175 CMBA Summer 2015

By submitting this examination for grading I affirm that I have not discussed this examination

with any other person, nor accessed or employed any information not included in the materials

presented below.

Required:

Write your answers in standard English.

Include any computations you make in completing your answers.

Be specific.

1) Decompose Tesla’s ROE for the annual periods 2012-2014. Note any trends you observe.

2) Tesla notes that Q1 automotive revenue includes $51 million from the sale of ZEV credits.*

Assuming that 2012-2014 annual revenues are comprised of the same percentage of ZEV

revenues as was the case in Q1 of 2015, re-compute Tesla’s income after removing the effect of

the ZEV sales and decompose ROE using the revised data.

3) Compare your new calculations to your ROE decomposition from question 1.

4) Comment on the quality of Tesla’s earnings.

5) Given that Tesla has consistently generated losses, how has the company managed to survive?

Read Tesla’s Stockholder Letter for the first quarter of 2015. Tesla repeatedly refers to “nonGAAP”

results.

6) What are the specific departures Tesla makes from GAAP in computing these numbers?

7) Why do you think the company keeps referring to “non-GAAP” measures?

*Here’s how ZEV (zero emission vehicle) credits work: Every major auto manufacturer in the

U.S. is required to sell a given percentage of zero-emission vehicles (by 2025 it will reach 15%).

Failure to meet this standard results in a fine. Manufacturers receive zero emission vehicle

“credits” for each ZEV sold. ZEV sales were, however, only 1% of automotive sales in 2014.

This means many manufacturers fall below the threshold. They can, however, buy “credits” from

other companies in order to keep from paying the fines. Since Tesla only sells ZEVs it has “extra”

credits that it can sell.

Tesla Motors, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

Year Ended December 31,

2014 2013 2012

Revenues

Automotive sales $3,192,723 $1,997,786 $385,699

Development services 5,633 15,710 27,557

Total revenues 3,198,356 2,013,496 413,256

Cost of revenues

Automotive sales 2,310,011 1,543,878 371,658

Development services 6,674 13,356 11,531

Total cost of revenues 2,316,685 1,557,234 383,189

Gross profit 881,671 456,262 30,067

Operating expenses

Research and development 464,700 231,976 273,978

Selling, general and administrative 603,660 285,569 150,372

Total operating expenses 1,068,360 517,545 424,350

Loss from operations (186,689) (61,283) (394,283)

Interest income 1,126 189 288

Interest expense (100,886) (32,934) (254)

Other income (expense), net 1,813 22,602 (1,828)

Loss before income taxes (284,636) (71,426) (396,077)

Provision for income taxes 9,404 2,588 136

Net loss $(294,040) $(74,014) $(396,213)

Net loss per share of common stock, basic and

diluted $(2.36) $(0.62) $(3.69)

Weighted average shares used in computing net

loss per share of

common stock, basic and diluted 124,539,343 119,421,414 107,349,188

$(0.32) $(0.11)

Consolidated Balance Sheets

(in thousands, except share and per share data)

December 31, December 31, December 31,

2014 2013 2012

Assets

Current assets

Cash and cash equivalents $1,905,713 $845,889 $201,890

Restricted cash and marketable securities 17,947 3,012 19,094

Accounts receivable 226,604 49,109 26,842

Inventory 953,675 340,355 268,504

Prepaid expenses and other current assets 94,718 27,574 8,438

Total current assets 3,198,657 1,265,939 524,768

Operating lease vehicles, net 766,744 382,425 10,071

Property, plant and equipment, net 1,829,267 738,494 552,229

Restricted cash 11,374 6,435 5,159

Other assets 43,209 23,637 21,963

Total assets $5,849,251 $2,416,930 $1,114,190

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable $777,946 $303,969 $303,382

Accrued liabilities 268,884 108,252 39,798

Deferred revenue 191,651 91,882 1,905

Capital lease obligations, current portion 9,532 7,722 4,365

Customer deposits 257,587 163,153 138,817

Convertible senior notes 601,566 182 50,841

Total current liabilities 2,107,166 675,160

Capital lease obligations, less current portion 12,267 12,855 539,108

Deferred revenue, less current portion 292,271 181,180 10,692

Convertible senior notes, less current portion 1,806,518 586,119 9,965

Resale value guarantee 487,879 236,299 3,060

Other long-term liabilities 173,244 58,197 401,495

Total liabilities 4,879,345 1,749,810 25,170

Commitments and contingencies (Note 11) 989,490

Convertible senior notes (Notes 6) 58,196 -

Stockholders' equity:

Preferred stock; $0.001 par value; 100,000,000

shares authorized; no shares

issued and outstanding - -

Common stock; $0.001 par value; 2,000,000,000 shares -

authorized as of

December 31, 2014 and 2013,

respectively; 125,687,607 and 123,090,990

shares issued and outstanding as of December 31,

2014 and 2013, respectively 126 123 115

Additional paid-in capital 2,345,266 1,806,617 1,190,191

Accumulated deficit (1,433,682) (1,139,620) (1,065,606)

Total stockholders' equity 911,710 667,120 124,700

Total liabilities and stockholders' equity $5,849,251 $2,416,930 $1,114,190 

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

2014 2013 2012

Cash Flows From Operating Activities

Net loss $(294,040) $(74,014) $(396,213)

Adjustments to reconcile net loss to net cash

provided by (used in)

operating activities:

Depreciation and amortization 231,931 106,083 28,825

Stock-based compensation 156,496 80,737 50,145

Amortization of discount on convertible debt 69,734 9,143 -

Inventory write-downs 15,609 8,918 4,929

loan origination costs - 5,558 -

Change in fair value of DOE warrant liability - (10,692) 1,854

Fixed asset disposal 14,178 1,796 154

Other non-cash operating activities 7,471 1,815 1,406

Foreign currency transaction (gain) loss (1,891) (13,498) 143

Changes in operating assets and liabilities

Accounts receivable (183,658) (21,705) (17,303)

Inventories and operating lease vehicles (1,050,264) (460,561) (194,726)

Prepaid expenses and other current assets (60,637) (17,533) 1,121

Other assets (4,493) (434) (482)

Accounts payable 252,781 20,995 189,944

Accrued liabilities 162,075 66,418 9,603

Deferred revenue 209,681 268,098 (526)

Customer deposits 106,230 24,354 47,056

Resale value guarantee 249,492 236,299 -

Other long-term liabilities 61,968 33,027 10,255

Net cash provided by (used in) operating

activities (57,337) 264,804 (263,815)

Cash Flows From Investing Activities

Purchases of property and equipment excluding

capital leases (969,885) (264,224) (239,228)

Withdrawals out of our dedicated DOE account,

net - 14,752 8,620

(Increase) decrease in other restricted cash (3,849) 55 (1,330)

Purchases of short-term marketable securities (205,841) - (14,992)

Maturities of short-term marketable

securities 189,131 - 40,000

Net cash used in investing activities (990,444) (249,417) (206,930)

Cash Flows From Financing Activities

Proceeds from issuance of convertible debt 2,300,000 660,000 -

Proceeds from issuance of common stock in

public offering - 360,000 221,496

Proceeds from issuance of warrants 389,160 120,318 -

Proceeds from exercise of stock options and

other stock issuances 100,455 95,307 24,885

Proceeds from issuance of common stock in

private placement - 55,000 -

Principal payments on DOE loans - (452,337) (12,710)

Purchase of convertible note hedges (603,428) (177,540)

-

Common stock and convertible debt issuance

costs (35,149) (16,901)

-

Principal payments on capital leases and

other debt (11,179) (8,425) (2,832)

Collateralized lease borrowing 3,271

-

-

Proceeds from DOE loans

-

- 188,796

Net cash provided by financing activities 2,143,130 635,422 419,635

Effect of exchange rate changes on cash and

cash equivalents (35,525) (6,810) (2,266)

Net increase (decrease) in cash and cash

equivalents 1,059,824 643,999 (53,376)

Cash and cash equivalents at beginning of

period 845,889 201,890 255,266

Cash and cash equivalents at end of period $1,905,713 $845,889 $201,890 

Tesla Motors – First Quarter 2015 Shareholder Letter

• Produced 11,160 vehicles, exceeding plan while improving efficiency

• Record quarterly deliveries of 10,045 vehicles

• Achieved gross margin target, despite strong dollar

• Launched All-Wheel Drive Model S 85D and 70D

• Introduced Tesla Energy products

• Model X on track for start of deliveries in late Q3

May 6, 2015

Dear Fellow Shareholders:

In 2015, we have already expanded our product portfolio with exciting new products and features while continuing to execute on

our long-term plans. We ramped the manufacturing and availability of All-Wheel Drive Model S 85D, introduced 70D, and are

building release candidate prototypes of Model X. Last week, we also launched our new Tesla Energy business, introducing a

suite of energy storage products with a vision that we believe will help to eventually transform the global energy paradigm. Both

our vehicle and Tesla Energy businesses will benefit from our Gigafactory project, which should start producing initial quantities

of battery packs in 2016.

We also significantly improved manufacturing efficiency and reduced per unit vehicle costs while achieving a higher average

weekly production rate during Q1. These efforts, combined with a favorable product mix, helped us reach our Q1 non-GAAP

automotive gross margin target, despite the significant negative impact of a strong dollar. We were also able to accelerate yearover-year

revenue growth in Q1, while improving operational efficiency as reflected in lower than expected growth of operating

expenses. Overall, these achievements represent a strong start to a very big year at Tesla.

Expanding the Market for Model S

We continue to see growing Model S demand. In Q1, both North American and European orders were much higher than Q1 last

year, despite limited availability of 85D and before the announcement of 70D. While we still have work to do in China, we saw

encouraging signs of a return to growth in orders there as well.

Recently, order rates have accelerated even further with greater availability of 85D and the launch of 70D. This is especially

encouraging as potential customers in many markets have yet to experience these products first hand. 70D has only been

shown in North America, and our all-wheel drive cars will not be available in right hand drive markets until Q3. We remain

confident in our ability to deliver approximately 55,000 Model S and Model X vehicles combined in 2015, as increased availability

of all our Model S variants continue to drive demand. To sustainably scale for increased deliveries, our inventory of in-transit

customer-configured cars must increase, and in Q1 we added 1,100 such vehicles to the pipeline.

Our ability to continually innovate and reduce costs enabled us to

recently launch the new Model S 70D. As a very compelling value

in the premium sedan segment, the All-Wheel Drive 70D expands

the market for Model S. 70D has 240 miles of EPA-rated range,

superior all-weather performance, and a 0-60 mph time of 5.2

seconds. It also includes a comprehensive list of standard

features such as Autopilot safety technology, access to our

Supercharger network, and turn-by-turn navigation for $75,000,

before tax credits and fuel cost savings. So far we are pleased

with the increased demand that has been created by the 70D and

the little effect it has had on the demand for our other Model S

variants.

 All-Wheel Drive Model S 85D

Model S customers benefit from our free data connectivity and unique over-the-air software updates, which allow us to improve

customer cars over time. In March, we introduced our second significant software update of Q1, enabling new active safety

capabilities, adding intelligent range and charge management features, and boosting performance by increasing acceleration

and top speed. Additional software updates are scheduled in Q2 that will include more Autopilot safety and convenience

features for appropriately equipped cars.

The expansion of our customer support network continues at a rapid pace. With 425 Supercharger locations and 100 service

locations globally, driving a Model S is becoming more compelling every day. So far, our customers have Supercharged 111

million miles globally.

Improving Production Capabilities

In Q1, we manufactured 11,160 vehicles, 10% better than guidance, as we averaged more than 1,000 cars per production week.

We successfully increased production on our new small drive unit line, which was critical to meeting the demand for our all-wheel

drive cars. Our production launches of 85D and 70D proceeded more smoothly than our prior launches, highlighting the

flexibility and increasing maturity of our manufacturing capabilities. With a more stable production cadence in Q1, we

implemented efficiency improvements and reduced labor hours by more than 20% per car by the end of the quarter.

During the quarter, we also made significant progress on the installation of a new body shop, paint shop and stamping presses

that will establish extra capacity for both Model X and Model S. We are now building and testing release candidate Model X

prototypes with increasing design maturity, and are pleased with the progress of this program.

These developments, along with our maturing production capabilities, boost our confidence in the launch and production ramp of

Model X, which is on track for start of deliveries in late Q3.

In addition, steady construction progress continues at the Gigafactory, and together with Panasonic, we now expect to start

complete battery manufacturing, from cells to modules to battery packs, in 2016.

Tesla Energy

In Q1, we made substantial progress on our 2nd generation Tesla Energy

grid battery products. This led to our April 30th launch of the $250/kWh

industrial Powerpack and the $350/kWh residential Powerwall, and these

attractive prices include controls, cooling and DC/DC power electronics.

The customer response to these products and the Tesla Energy vision

broadly has been extremely positive.

We are now preparing our supply chain and production teams to start

volume builds on these new products in Q3. Production will begin at the

Tesla Factory in Fremont, and in Q1 2016 will expand into the

Gigafactory and accelerate significantly.

The total addressable market size for Tesla Energy products is enormous

and much easier to scale globally than vehicle sales. We are pursuing

product certification in multiple markets simultaneously and plan to ramp

deliveries in the US, EU and Australia in Q4. When combined with low

cost renewable energy, Tesla Energy batteries provide an achievable

pathway to a 100% zero carbon energy system. Tesla Powerwall

Q1 Results

Starting this quarter, our income statement reflects the new classifications of revenues and costs of revenues to segregate our

new vehicle business from our other business activities. “Automotive” revenue and related costs now reflect activities related to

the sale or lease of new vehicles including regulatory credits, data connectivity and Supercharging. “Services and other”

revenues and related costs include activities such as powertrain sales, service revenue, Tesla Energy and pre-owned Tesla

vehicle sales. As usual, we have presented both GAAP and non-GAAP financial information in this letter. A full explanation of

our non-GAAP information and reconciliation to GAAP are included in the tables and accompanying footnotes.

Total non-GAAP revenue was $1.10 billion for the quarter, up 55% from a year ago, while GAAP revenue was $940 million. We

achieved a Q1 total company gross margin of 28.2% on a non-GAAP basis and 27.7% on a GAAP basis.

Automotive revenue was $1.06 billion on a non-GAAP basis, and is comprised of GAAP Automotive revenue of $893.3 million

plus a net increase of $163.7 million in deferred revenue and other long-term liabilities as a result of lease accounting. 10,045

Model S vehicles were delivered in Q1, in line with our April announcement of approximately 10,030 deliveries. The average

selling price of Model S increased slightly during the quarter, reflecting a full quarter of sales of P85D and the introduction of 85D.

This mix improvement was partially offset by the effect of the strong dollar, which negatively impacted both our average selling

price and thus revenue by slightly more than 3% from the prior quarter. As in previous quarters, we offered small discounts

when selling vehicles used for either marketing or as service loaners. These discounts were consistent with last quarter. Q1

Automotive revenue included $66 million of total regulatory credit revenue, of which $51 million came from the sale of ZEV

credits. In Q1, Tesla directly leased 592 cars to customers, which was worth $63 million of aggregate retail value.

Q1 Automotive gross margin excluding ZEV credits was on plan at 26.0% on a non-GAAP basis, and 25.0% on a GAAP

basis. The 330 basis points of sequential improvement in non-GAAP gross margin was driven by lower manufacturing costs and

richer mix, offset partially by the strong dollar, expedited shipping costs related to port delays and an increase in warranty

reserves of about $200 per car.

Q1 Services and other revenue was $46.6 million, up 47% from a year ago. This includes $22 million of powertrain sales to

Daimler and $20 million of service revenue. Q1 Services and other gross margin was negative 3.2%, as compared to 12.1% last

quarter. This sequential reduction in gross margin was primarily driven by a planned price reduction for powertrain sales to

Daimler.

We improved our operational efficiency in Q1, achieving record deliveries and developing new products while managing to grow

operating expenses at a slower rate than expected. Our operating expenses in Q1 were $324 million on a non-GAAP basis, up

9.1% from Q4, and $363 million on a GAAP basis.

Our Q1 non-GAAP net loss was $45 million, or a loss of $0.36 per basic share based on 125.9 million basic shares, while our Q1

GAAP net loss was $154 million or a loss of $1.22 per basic share. Both figures include a $22 million loss, or $0.17 per basic

share, related to mostly unrealized losses from revaluation of our foreign currency holdings due to the strong dollar.

Cash and cash equivalents were $1.51 billion at the end of the

quarter, down $396 million sequentially, as capital expenditures

were $426 million in the quarter. Capital expenditures were

primarily for the capacity expansion and tooling associated with

Model X and all-wheel drive vehicles, as well as the Gigafactory.

Our Q1 GAAP net cash outflow from operations was $132

million primarily due to the $78 million in cash inflows from

vehicle sales to our bank leasing partners which we are required

to classify as a financing activity, and a $63 million increase in

inventory from customer-configured cars that were in transit for

deliveries in Q2.

During the quarter, we closed on a $100 million warehouse line

in connection with our direct leasing program, and drew down

$78 million of the line by quarter end. We anticipate closing on

additional financing lines in the coming months. Gigafactory Construction Progress

Outlook

In Q2, we expect to produce about 12,500 vehicles, representing a 12% sequential increase. We plan to deliver 10,000 to

11,000 vehicles in Q2, and we are still on track to deliver approximately 55,000 Model S and X cars in 2015. As part of our

strategy to optimize operational efficiency while scaling for higher deliveries, we are shipping cars using less expensive rail,

rather than by truck, to more regions in the United States and Canada. Also, we are now producing cars based on a uniform

regional production mix throughout the quarter. This enables a more stable cadence of deliveries and in turn improves customer

satisfaction while reducing cost. Both of these actions should lead to an increase of in-transit customer-configured finished

goods inventory.

In Q2, we expect to directly lease about the same percentage of cars that we did in Q1. As always, we will use lease accounting

for these cars leased directly through Tesla even in our non-GAAP financial results, as such treatment is consistent with the cash

collected on these transactions. We expect to sell about $15 million of our regulatory credits in Q2, including about $5 million of

ZEV credit sales.

We expect the Model S average transaction price to decline in Q2 as the dollar has strengthened by about 4% against the euro

from the time we last adjusted Model S pricing. This will impact our Q2 gross margin by slightly more than 100 basis points. As

a result, we expect non-GAAP automotive gross margin, excluding ZEV credits, to be just under 25% for the quarter at current

exchange rates. We also expect some average price pressure from a less rich product mix, but our continuing efforts to improve

efficiency and reduce manufacturing costs should offset this impact on gross margin.

In response to the continued strength of the dollar, we have just announced a price increase of about 5% in most European

markets. Since this price increase applies to new orders to be delivered in Q3 and beyond, it will not impact our Q2 results.

We expect Services and other gross margin to be slightly better than breakeven in Q2, and continue to improve to about 5% by

Q4. The improvement will come from cost reductions on Daimler powertrains as well as increased sales of Tesla Energy and

pre-owned Model S vehicles.

Our operating leverage is expected to improve this year, with revenue and gross profit both growing more quickly than operating

expenses. Operating expenses should grow roughly 10% sequentially in Q2, and 45-50% for the full year as we invest in

product development, including the Model 3, and expand our sales capability.

We still plan to invest about $1.5 billion in capital expenditures this year as we expand production capacity, purchase Model X

tooling, continue to build the Gigafactory, and expand our stores, service centers and the Supercharger network.

2015 is off to a strong start, and we are excited about the many opportunities ahead. We expect to continue to develop many

more innovative and exciting products in the coming years.

Elon Musk, Chairman & CEO Deepak Ahuja, Chief Financial Officer

Webcast Information

Tesla will provide a live webcast of its first quarter 2015 financial results conference call beginning at 2:30 p.m. PT on May 6,

2015, at ir.teslamotors.com. This webcast will also be available for replay for approximately one year thereafter.

Forward-Looking Statements

Certain statements in this shareholder letter, including statements in “Outlook” section; statements regarding gross margin and

profitability, statements relating to the progress Tesla is making with respect to product development, including future Autopilot

features and Model X development and launch plans; statements regarding growth in the number of Tesla store, service center

and Supercharger locations; statements relating to the production and delivery of Tesla Energy products, as well as future

products; growth in demand and orders for Tesla vehicles and the catalysts for that growth; the ability to achieve vehicle demand,

volume, production, delivery, revenue, leasing, gross margin, spending, capital expenditure and profitability targets; productivity

improvements and capacity expansion plans; Tesla Gigafactory timing, partnerships, plans and output expectations, including

those related to cell and battery pack production; and our ability to secure additional financing lines for our leasing programs are

“forward-looking statements” that are subject to risks and uncertainties. These forward-looking statements are based on

management’s current expectations, and as a result of certain risks and uncertainties, actual results may differ materially from

those projected. The following important factors, without limitation, could cause actual results to differ materially from those in the

forward-looking statements: Tesla’s future success depends on its ability to design and achieve market acceptance of Model S

and its variants, as well as new vehicle models, specifically Model X and Model 3; the risk of delays in the manufacture,

production and delivery of Model S and Model X vehicles, and production and delivery of Model 3 vehicles; adverse foreign

exchange movements; the ability of suppliers to meet quality and part delivery expectations at increasing volumes; any failures by

Tesla vehicles to perform as expected or if product recalls occur; Tesla’s ability to continue to reduce or control manufacturing

and other costs; consumers’ willingness to adopt electric vehicles; competition in the automotive market generally and the

alternative fuel vehicle market in particular; Tesla’s ability to establish, maintain and strengthen the Tesla brand; Tesla’s ability to

manage future growth effectively as we rapidly grow, especially internationally; the unavailability, reduction or elimination of

government and economic incentives for electric vehicles; Tesla’s ability to establish, maintain and strengthen its relationships

with strategic partners such as Panasonic; potential difficulties in finalizing, performing and realizing potential benefits under

definitive agreements for the Tesla Gigafactory site, obtaining permits and incentives, negotiating terms with technology,

materials and other partners for Gigafactory, and maintaining Gigafactory implementation schedules, output and costs estimates;

and Tesla’s ability to execute on its retail strategy and for new store, service center and Tesla Supercharger openings. More

information on potential factors that could affect our financial results is included from time to time in our Securities and Exchange

Commission filings and reports, including the risks identified under the section captioned “Risk Factors” in our quarterly report on

Form 10-K filed with the SEC on February 26, 2015. Tesla disclaims any obligation to update information contained in these

forward-looking statements whether as a result of new information, future events, or otherwise.

Investor Relations Contact: Press Contact:

Jeff Evanson Khobi Brooklyn

Investor Relations – Tesla Communications – Tesla

[email protected] [email protected]

Tesla Motors, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

Mar 31,

2015

Dec 31,

2014

Mar 31,

2014

Revenues

Automotive (1A) $ 893,320 $ 890,396 $ 588,871

Services and other 46,560 66,265 31,671

Total revenues 939,880 956,661 620,542

Cost of revenues

Automotive (1B) 631,745 636,698 436,254

Services and other 48,062 58,266 29,160

Total cost of revenues (2) 679,807 694,964 465,414

Gross profit 260,073 261,697 155,128

Operating expenses

Research and development (2) 167,154 139,565 81,544

Selling, general and administrative (2) 195,365 196,970 117,551

Total operating expenses 362,519 336,535 199,095

Loss from operations (102,446) (74,838) (43,967)

Interest income 184 219 141

Interest expense (26,574) (28,703) (11,883)

Other income (expense), net (22,305) (588) 6,718

Loss before income taxes (151,141) (103,910) (48,991)

Provision for income taxes 3,040 3,719 809

Net loss $ (154,181) $ (107,629) $ (49,800)

$ (1.22) $ (0.86) $ (0.40)

 125,947 125,497 123,473

Notes:

(1)

(A) Net increase in deferred revenue and other long-term

liabilities as a result of lease accounting and therefore not

recognized in automotive sales $ 163,676 $ 138,973 $ 92,506

(B) Net increase in operating lease vehicles as a result of

lease accounting and therefore not recognized in

automotive cost of sales $ 113,823 $ 110,234 $ 69,743

Under lease accounting, w arranty costs are expensed as incurred instead of accrued at the time of sale.

(2) Includes stock-based compensation expense of the follow ing for the periods presented:

Cost of revenues $ 4,601 $ 5,053 $ 3,106

Research and development 19,792 17,595 13,545

Selling, general and administrative 18,633 21,869 20,387

Total stock-based compensation expense $ 43,026 $ 44,517 $ 37,038

Due to the application of lease accounting for Model S vehicles w ith the resale value guarantee or similar buyback

terms, the follow ing is supplemental information for the periods presented:

Three Months Ended

Net loss per common share, basic and diluted

Shares used in per share calculation, basic and diluted

Tesla Motors, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

Mar 31, Dec 31,

2015 2014

Assets

Cash and cash equivalents $ 1,510,076 $ 1,905,713

Restricted cash and marketable securities - current 20,693 17,947

Accounts receivable 200,052 226,604

Inventory 1,054,840 953,675

Prepaid expenses and other current assets 135,756 94,718

Operating lease vehicles, net (1) 912,061 766,744

Property and equipment, net 2,224,191 1,829,267

Restricted cash - noncurrent 13,846 11,374

Other assets 48,515 43,209

Total assets $ 6,120,030 $ 5,849,251

Liabilities and Stockholders' Equity

Accounts payable and accrued liabilities $ 1,086,099 $ 1,046,830

Deferred revenue (2) 539,324 483,922

Customer deposits 249,476 257,587

Capital lease obligations 20,886 21,799

Long-term debt 2,509,383 2,408,084

Other long-term liabilities (3) 834,588 661,123

Total liabilities 5,239,756 4,879,345

Mezzanine equity (4) 54,277 58,196

Stockholders' equity 825,997 911,710

Total liabilities and stockholders' equity $ 6,120,030 $ 5,849,251

Notes:

(1)

Beginning balance $ 689,689 $ 376,979

First quarter 103,022 69,743

Second quarter 68,752

Third quarter 63,981

Fourth quarter 110,234

Ending balance $ 792,711 $ 689,689

Model S leasing program

Beginning balance $ 81,636 $ -

First quarter 35,687 -

Second quarter 11,214

Third quarter 23,824

Fourth quarter 46,598

Ending balance $ 117,323 $ 81,636

(2)

Beginning balance $ 376,471 $ 227,868

First quarter 45,334 38,188

Second quarter 33,586

Third quarter 27,993

Fourth quarter 48,836

Ending balance $ 421,805 $ 376,471

(3)

Beginning balance $ 487,879 $ 236,298

First quarter 118,341 54,318

Second quarter 54,575

Third quarter 52,551

Fourth quarter 90,137

Ending balance $ 606,220 $ 487,879

(4)

Includes the follow ing increase in operating lease vehicles related to deliveries of Model S and subject to lease

accounting, net of depreciation recognized in automotive cost of sales, for the follow ing periods:

Resale value guarantee program (and other vehicles with similar buy-back terms)

Includes the follow ing increase in deferred revenue related to deliveries of Model S w ith the resale value guarantee or

similar buy-back terms and subject to lease accounting, net of revenue amortized to automotive sales, for the follow ing

periods:

Includes the follow ing increase in other long-term liabilities related to deliveries of Model S w ith the resale value

guarantee or similar buy-back terms and subject to lease accounting for the follow ing periods:

Our common stock price exceeded the conversion threshold price of our convertible senior notes due 2018 (2018

Notes) issued in May 2013; therefore, the 2018 Notes are convertible at the holder’s option during the second quarter

of 2015. As such, the carrying value of the 2018 Notes w as classified as a current liability as of March 31, 2015 and

the difference betw een the principal amount and the carrying value of the 2018 Notes w as reflected as convertible

debt in mezzanine equity on our condensed consolidated balance sheet as of March 31, 2015.

Tesla Motors, Inc.

Supplemental Consolidated Financial Information

(Unaudited)

(In thousands)

Mar 31,

2015

Dec 31,

2014

Mar 31,

2014

Selected Cash Flow Information

Cash flow s provided by (used in) operating activities (1) $ (131,794) $ (86,402) $ 58,723

Cash flow s used in investing activities (432,344) (372,231) (329,180)

 186,156 11,325 1,816,559

Other Selected Financial Information

Cash flow s provided by (used in) operating activities (1) $ (131,794) $ (86,402) $ 58,723

Capital expenditures (426,060) (368,661) (141,364)

Free cash flow (cash flow from operations plus capital

expenditures) (1) $ (557,854) $ (455,063) $ (82,641)

Depreciation and amortization $ 77,112 $ 67,976 $ 44,268

Mar 31,

2015

Dec 31,

2014

Mar 31,

2014

Cash and Investments

Cash and cash equivalents $ 1,510,076 $ 1,905,713 $ 2,393,908

Short-term marketable securities $ - $ - $ 189,111

Restricted cash and marketable securities - current 20,693 17,947 1,049

Restricted cash - noncurrent 13,846 11,374 7,102

(1) During the three months ended June 30, 2014, w e began separately presenting the effect of exchange rate changes on our cash and cash

 equivalents in our condensed consolidated statement of cash flow s due to our grow ing operations in foreign currency environments.

 Prior period amounts have been reclassified to conform to the current period presentation.

Supplemental Model S Direct Leasing Program Information

(in thousands, except for vehicle deliveries)

Mar 31,

2015

Dec 31,

2014

Vehicles delivered 592 647

$ 107 $ 101

$ 63,359 $ 65,246

$ 6,469 $ 2,993

(1) Aggregate value is the product of multiplying vehicles delivered by the average per unit price of vehicles delivered

Direct leasing revenue recognized

Three Months Ended

Cash flow s provided by financing activities

Three Months Ended

Average per unit price of vehicles delivered

Aggregate value of vehicles delivered (1)

Non-GAAP Financial Information

This letter includes non-GAAP financial information because we plan and manage our business using such information. Our non-GAAP

measures align the recognition of revenues and costs related to a vehicle sale with the time when the customer take delivery of the car

and cash is received or owed to us. This contrasts with the approach of other automotive manufacturers who under GAAP accounting

recognize revenue when the vehicle is sold into dealership inventory rather than to end customers, even though in the case of a captive

finance lease they may not collect cash for several years on a consolidated basis.

Our non-GAAP revenue and gross profit is determined by adding back the deferred revenue and related costs for cars sold with

residual value guarantee and where we have collected, or will collect from a bank intermediary in a matter of days, the purchase price

of the car in cash. For cars leased directly by Tesla, we recognize lease revenue and related costs over the lease term and the same

way for both GAAP and non-GAAP purposes. Our non-GAAP expense and per share information also exclude non-cash interest

expense and stock-based compensation.

Tesla Motors, Inc.

Reconciliation of GAAP to Non-GAAP Financial Information

(Unaudited)

(In thousands, except per share data)

Mar 31,

2015

Dec 31,

2014

Mar 31,

2014

Net loss (GAAP) $ (154,181) $ (107,629) $ (49,800)

Stock-based compensation expense 43,026 44,517 37,038

Non-cash interest expense related to convertible notes and other borrow ing 19,510 20,826 8,393

Net loss (Non-GAAP) including lease accounting (91,645) (42,286) (4,369)

Model S gross profit deferred due to lease accounting (1)(2) 46,396 26,072 21,384

Net income (loss) (Non-GAAP) $ (45,249) $ (16,214) $ 17,015

$ (1.22) $ (0.86) $ (0.40)

Stock-based compensation expense 0.34 0.35 0.30

Non-cash interest expense related to convertible notes and other borrow ing 0.15 0.17 0.07

Model S gross profit deferred due to lease accounting (1)(2) 0.37 0.21 0.17

$ (0.36) $ (0.13) $ 0.14

 125,947 125,497 123,473

$ (1.22) $ (0.86) $ (0.36)

Stock-based compensation expense 0.34 0.35 0.26

Non-cash interest expense related to convertible notes and other borrow ing 0.15 0.17 0.07

Net loss (Non-GAAP) including lease accounting (0.73) (0.34) (0.03)

Model S gross profit deferred due to lease accounting (1)(2) 0.37 0.21 0.15

$ (0.36) $ (0.13) $ 0.12

Shares used in per share calculation, diluted (Non-GAAP) 125,947 125,497 140,221

Net income (loss) per share, diluted (Non-GAAP)

(2) Under GAAP, w arranty costs are expensed as incurred for Model S vehicle deliveries w ith the resale value guarantee or similar buyback

terms and subject to lease accounting. For Non-GAAP purposes, an estimated incremental w arranty reserve of $6.8 million, $5.5

million and $2.1 million is included for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

Additionally, stock-based compensation of $1.7 million, $1.0 million and $0.7 million is excluded for non-GAAP purposes for the three

months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

(1) Includes deliveries of Model S w ith the resale value guarantee or similar buy-back terms and not deliveries under the Model S leasing

program.

Three Months Ended

Net loss per share, basic (GAAP)

Net income (loss) per share, basic (Non-GAAP)

Shares used in per share calculation, basic (GAAP and Non-GAAP)

Net loss per share, diluted (GAAP)

Tesla Motors, Inc.

Reconciliation of GAAP to Non-GAAP Financial Information

(Unaudited)

(In thousands, except per share data)

Mar 31,

2015

Dec 31,

2014

Mar 31,

2014

Revenues (GAAP) $ 939,880 $ 956,661 $ 620,542

Model S revenue deferred due to lease accounting (1) 163,676 138,973 92,506

$ 1,103,556 $ 1,095,634 $ 713,048

Gross profit (GAAP) $ 260,073 $ 261,697 $ 155,128

Model S gross profit deferred due to lease accounting (1)(2) 46,396 26,072 21,384

Stock-based compensation expense 4,601 5,053 3,106

$ 311,070 $ 292,822 $ 179,617

Research and development expenses (GAAP) $ 167,154 $ 139,565 $ 81,544

Stock-based compensation expense (19,792) (17,595) (13,545)

$ 147,362 $ 121,970 $ 67,999

Selling, general and administrative expenses (GAAP) $ 195,365 $ 196,970 $ 117,551

Stock-based compensation expense (18,633) (21,869) (20,387)

$ 176,732 $ 175,101 $ 97,164

(2) Under GAAP, w arranty costs are expensed as incurred for Model S vehicle deliveries w ith the resale value guarantee or

similar buy-back terms and subject to lease accounting. For Non-GAAP purposes, an estimated incremental w arranty reserve

of $6.8 million, $5.5 million and $2.1 million is included for the three months ended March 31, 2015, December 31, 2014 and

March 31, 2014, respectively. Additionally, stock-based compensation of $1.7 million, $1.0 million and $0.7 million is excluded for

non-GAAP purposes for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

(1) Includes deliveries of Model S w ith the resale value guarantee or similar buy-back terms and not deliveries under the Model

S leasing program.

Three Months Ended

Revenues (Non-GAAP)

Gross profit (Non-GAAP)

Research and development expenses (Non-GAAP)

Selling, general and administrative expenses (Non-GAAP)