Tesla, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Tesla, Inc. C onsolidated Balance Sheets (in millions, except per share data) (unaudited) June 30, December 31, 2021 2020 Assets Current assets Cash and cash equivalents $ 16,229 $ 19,384 Accounts receivable, net 2,129 1,886 Inventory 4,733 4,101 Prepaid expenses and other current assets 1,602 1,346 Total current assets 24,693 26,717 Operating lease vehicles, net 3,748 3,091 Solar energy systems, net 5,883 5,979 Property, plant and equipment, net 15,665 12,747 Operating lease right-of-use assets 1,734 1,558 Digital assets, net 1,311 — Intangible assets, net 283 313 Goodwill 203 207 Other non-current assets 1,626 1,536 Total assets $ 55,146 $ 52,148 Liabilities Current liabilities Accounts payable $ 7,558 $ 6,051 Accrued liabilities and other 4,778 3,855 Deferred revenue 1,693 1,458 Customer deposits 812 752 Current portion of debt and finance leases 1,530 2,132 Total current liabilities 16,371 14,248 Debt and finance leases, net of current portion 7,871 9,556 Deferred revenue, net of current portion 1,318 1,284 Other long-term liabilities 3,336 3,330 Total liabilities 28,896 28,418 Commitments and contingencies (Note 12) Redeemable noncontrolling interests in subsidiaries 605 604 Convertible senior notes (Note 10) — 51 Equity Stockholders' equity Preferred stock; $ 0.001 par value; 100 shares authorized; no shares issued and outstanding — — Common stock; $ 0.001 par value; 2,000 shares authorized; 984 shares and 960 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 1 1 Additional paid-in capital 28,205 27,260 Accumulated other comprehensive income 206 363 Accumulated deficit ( 3,608 ) ( 5,399 ) Total stockholders' equity 24,804 22,225 Noncontrolling interests in subsidiaries 841 850 Total liabilities and equity $ 55,146 $ 52,148 The accompanying notes are an integral part of these consolidated financial statements. 4 Tesla, Inc. C onsolidated Statements of Operations (in millions, except per share data) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenues Automotive sales $ 9,874 $ 4,911 $ 18,579 $ 9,804 Automotive leasing 332 268 629 507 Total automotive revenues 10,206 5,179 19,208 10,311 Energy generation and storage 801 370 1,295 663 Services and other 951 487 1,844 1,047 Total revenues 11,958 6,036 22,347 12,021 Cost of revenues Automotive sales 7,119 3,714 13,576 7,413 Automotive leasing 188 148 348 270 Total automotive cost of revenues 7,307 3,862 13,924 7,683 Energy generation and storage 781 349 1,376 631 Services and other 986 558 1,948 1,206 Total cost of revenues 9,074 4,769 17,248 9,520 Gross profit 2,884 1,267 5,099 2,501 Operating expenses Research and development 576 279 1,242 603 Selling, general and administrative 973 661 2,029 1,288 Restructuring and other 23 — ( 78 ) — Total operating expenses 1,572 940 3,193 1,891 Income from operations 1,312 327 1,906 610 Interest income 11 8 21 18 Interest expense ( 75 ) ( 170 ) ( 174 ) ( 339 ) Other income (expense), net 45 ( 15 ) 73 ( 69 ) Income before income taxes 1,293 150 1,826 220 Provision for income taxes 115 21 184 23 Net income 1,178 129 1,642 197 Net income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries 36 25 62 77 Net income attributable to common stockholders $ 1,142 $ 104 $ 1,580 $ 120 Net income per share of common stock attributable to common stockholders (1) Basic $ 1.18 $ 0.11 $ 1.64 $ 0.13 Diluted $ 1.02 $ 0.10 $ 1.41 $ 0.12 Weighted average shares used in computing net income per share of common stock (1) Basic 971 928 966 921 Diluted 1,119 1,036 1,126 1,016 (1) Prior period results have been adjusted to reflect the five -for-one stock split effected in the form of a stock dividend in August 2020 . The accompanying notes are an integral part of these consolidated financial statements. 5 Tesla, Inc. C onsolidated Statements of Comprehensive Income (in millions) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income $ 1,178 $ 129 $ 1,642 $ 197 Other comprehensive income (loss): Foreign currency translation adjustment 63 73 ( 157 ) ( 4 ) Comprehensive income 1,241 202 1,485 193 Less: Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries 36 25 62 77 Comprehensive income attributable to common stockholders $ 1,205 $ 177 $ 1,423 $ 116 The accompanying notes are an integral part of these consolidated financial statements. 6 Tesla, Inc. C onsolidated Statements of Redeemable Noncontrolling Interests and Equity (in millions, except per share data) (unaudited) 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 (1) Amount (1) Capital (1) Deficit (Loss) Income Equity Subsidiaries Equity Balance as of March 31, 2020 $ 632 927 $ 1 $ 15,389 $ ( 6,104 ) $ ( 113 ) $ 9,173 $ 867 $ 10,040 Reclassification between equity and mezzanine equity for convertible senior notes — — — 16 — — 16 — 16 Exercises of conversion feature of convertible senior notes — 1 0 65 — — 65 — 65 Issuance of common stock for equity incentive awards — 4 0 57 — — 57 — 57 Stock-based compensation — — — 367 — — 367 — 367 Distributions to noncontrolling interests ( 13 ) — — — — — — ( 27 ) ( 27 ) Other ( 2 ) — — — — — — — — Net (loss) income ( 4 ) — — — 104 — 104 29 133 Other comprehensive income — — — — — 73 73 — 73 Balance as of June 30, 2020 $ 613 932 $ 1 $ 15,894 $ ( 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 (1) Amount (1) Capital (1) Deficit Loss Equity Subsidiaries Equity Balance as of December 31, 2019 $ 643 905 $ 1 $ 12,736 $ ( 6,083 ) $ ( 36 ) $ 6,618 $ 849 $ 7,467 Adjustments for prior periods from adopting ASU 2016-13 — — — — ( 37 ) — ( 37 ) — ( 37 ) Reclassification between equity and mezzanine equity for convertible senior notes — — — ( 44 ) — — ( 44 ) — ( 44 ) Exercises of conversion feature of convertible senior notes — 1 0 65 — — 65 — 65 Issuance of common stock for equity incentive awards — 11 0 217 — — 217 — 217 Issuance of common stock in Feb 2020 public offering, net of issuance costs of $ 28 — 15 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 (loss) income ( 3 ) — — — 120 — 120 80 200 Other comprehensive loss — — — — — ( 4 ) ( 4 ) — ( 4 ) Balance as of June 30, 2020 $ 613 932 $ 1 $ 15,894 $ ( 6,000 ) $ ( 40 ) $ 9,855 $ 869 $ 10,724 7 Accumulated Redeemable Additional Other Total Noncontrolling Noncontrolling Common Stock Paid-In Accumulated Comprehensive Stockholders' Interests in Total Three Months Ended June 30, 2021 Interests Shares Amount Capital (1) Deficit Income Equity Subsidiaries Equity Balance as of March 31, 2021 $ 601 963 $ 1 $ 27,623 $ ( 4,750 ) $ 143 $ 23,017 $ 847 $ 23,864 Exercises of conversion feature of convertible senior notes — 1 0 ( 6 ) — — ( 6 ) — ( 6 ) Settlements of warrants — 17 0 — — — 0 — 0 Issuance of common stock for equity incentive awards — 3 0 69 — — 69 — 69 Stock-based compensation — — — 519 — — 519 — 519 Contributions from noncontrolling interests 2 — — — — — — — — Distributions to noncontrolling interests ( 14 ) — — — — — — ( 26 ) ( 26 ) Net income 16 — — — 1,142 — 1,142 20 1,162 Other comprehensive income — — — — — 63 63 — 63 Balance as of June 30, 2021 $ 605 984 $ 1 $ 28,205 $ ( 3,608 ) $ 206 $ 24,804 $ 841 $ 25,645 Accumulated Redeemable Additional Other Total Noncontrolling Noncontrolling Common Stock Paid-In Accumulated Comprehensive Stockholders' Interests in Total Six Months Ended June 30, 2021 Interests Shares Amount Capital Deficit Income (Loss) Equity Subsidiaries Equity Balance as of December 31, 2020 $ 604 960 $ 1 $ 27,260 $ ( 5,399 ) $ 363 $ 22,225 $ 850 $ 23,075 Adjustments for prior periods from adopting ASU 2020-06 — — — ( 474 ) 211 — ( 263 ) — ( 263 ) Exercises of conversion feature of convertible senior notes — 1 0 5 — — 5 — 5 Settlements of warrants — 17 0 — — — 0 — 0 Issuance of common stock for equity incentive awards — 6 0 252 — — 252 — 252 Stock-based compensation — — — 1,162 — — 1,162 — 1,162 Contributions from noncontrolling interests 2 — — — — — — — — Distributions to noncontrolling interests ( 26 ) — — — — — — ( 46 ) ( 46 ) Net income 25 — — — 1,580 — 1,580 37 1,617 Other comprehensive loss — — — — — ( 157 ) ( 157 ) — ( 157 ) Balance as of June 30, 2021 $ 605 984 $ 1 $ 28,205 $ ( 3,608 ) $ 206 $ 24,804 $ 841 $ 25,645 (1) Prior period results have been adjusted to reflect the five -for-one stock split effected in the form of a stock dividend in August 2020 . The accompanying notes are an integral part of these consolidated financial statements. 8 Tesla, Inc. C onsolidated Statements of Cash Flows (in millions) (unaudited) Six Months Ended June 30, 2021 2020 Cash Flows from Operating Activities Net income $ 1,642 $ 197 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and impairment 1,302 1,120 Stock-based compensation 1,088 558 Inventory and purchase commitments write-downs 88 88 Foreign currency transaction net (gain) loss ( 1 ) 38 Non-cash interest and other operating activities 60 216 Digital assets gain, net ( 78 ) — Changes in operating assets and liabilities: Accounts receivable ( 283 ) ( 236 ) Inventory ( 687 ) ( 535 ) Operating lease vehicles ( 916 ) ( 330 ) Prepaid expenses and other current assets ( 131 ) ( 301 ) Other non-current assets ( 289 ) ( 16 ) Accounts payable and accrued liabilities 1,592 ( 372 ) Deferred revenue 279 ( 20 ) Customer deposits 52 5 Other long-term liabilities 47 112 Net cash provided by operating activities 3,765 524 Cash Flows from Investing Activities Purchases of property and equipment excluding finance leases, net of sales ( 2,853 ) ( 1,001 ) Purchases of solar energy systems, net of sales ( 22 ) ( 46 ) Purchases of digital assets ( 1,500 ) — Proceeds from sales of digital assets 272 — Receipt of government grants 6 1 Net cash used in investing activities ( 4,097 ) ( 1,046 ) Cash Flows from Financing Activities Proceeds from issuances of common stock in public offerings, net of issuance costs — 2,309 Proceeds from issuances of convertible and other debt 4,862 4,946 Repayments of convertible and other debt ( 7,408 ) ( 4,226 ) Collateralized lease repayments ( 8 ) ( 168 ) Proceeds from exercises of stock options and other stock issuances 253 217 Principal payments on finance leases ( 196 ) ( 154 ) Debt issuance costs ( 5 ) — Proceeds from investments by noncontrolling interests in subsidiaries 2 19 Distributions paid to noncontrolling interests in subsidiaries ( 65 ) ( 110 ) Payments for buy-outs of noncontrolling interests in subsidiaries — ( 2 ) Net cash (used in) provided by financing activities ( 2,565 ) 2,831 Effect of exchange rate changes on cash and cash equivalents and restricted cash ( 179 ) 14 Net (decrease) increase in cash and cash equivalents and restricted cash ( 3,076 ) 2,323 Cash and cash equivalents and restricted cash, beginning of period 19,901 6,783 Cash and cash equivalents and restricted cash, end of period $ 16,825 $ 9,106 Supplemental Non-Cash Investing and Financing Activities Acquisitions of property and equipment included in liabilities $ 1,768 $ 668 Leased assets obtained in exchange for finance lease liabilities $ 177 $ 54 Leased assets obtained in exchange for operating lease liabilities $ 341 $ 187 The accompanying notes are an integral part of these consolidated financial statements. 9 Tesla, Inc. N otes to Consolidated Financial Statements (unaudited) Note 1 – Overview Tesla, Inc. (“Tesla”, the “Company”, “we”, “us” or “our”) was incorporated in the State of Delaware on July 1, 2003. We design, develop, manufacture and sell high-performance fully electric vehicles and design, manufacture, install and sell solar energy generation and energy storage products. Our Chief Executive Officer, as the chief operating decision maker (“CODM”), organizes our company, manages resource allocations and measures performance among two operating and reportable segments: (i) automotive and (ii) energy generation and storage. Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. We have also previously been affected by temporary manufacturing closures, employment and compensation adjustments and impediments to administrative activities supporting our product deliveries and deployments. Note 2 – Summary of Significant Accounting Policies Unaudited Interim Financial Statements The consolidated balance sheet as of June 30, 2021, the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of redeemable noncontrolling interests and equity for the three and six months ended June 30, 2021 and 2020 and the consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2020 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, 2020. The interim consolidated financial statements and the accompanying notes have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future years or interim periods. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets which could impact our estimates and assumptions. 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. 10 Revenue Recognition Revenue by source The following table disaggregates our revenue by major source (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Automotive sales without resale value guarantee $ 9,332 $ 4,423 $ 17,345 $ 8,790 Automotive sales with resale value guarantee 188 60 362 232 Automotive regulatory credits 354 428 872 782 Energy generation and storage sales 653 225 1,036 398 Services and other 951 487 1,844 1,047 Total revenues from sales and services 11,478 5,623 21,459 11,249 Automotive leasing 332 268 629 507 Energy generation and storage leasing 148 145 259 265 Total revenues $ 11,958 $ 6,036 $ 22,347 $ 12,021 Automotive Segment Automotive Sales Revenue Automotive Sales with and without Resale Value Guarantee We recognize revenue when control transfers upon delivery to customers in accordance with ASC 606 as a sale with a right of return when we do not believe the customer has a significant economic incentive to exercise the resale value guarantee provided to them at contract inception. The total sales return reserve on vehicles previously sold under our buyback options program was $ 592 million and $ 703 million as of June 30, 2021 and December 31, 2020, respectively, of which $ 215 million and $ 202 million was short term, respectively. Deferred revenue is related to the access to our Supercharger network, internet connectivity, Full Self Driving (“FSD”) features and over-the-air software updates on automotive sales with and without resale value guarantee, which amounted to $ 2.13 billion and $ 1.93 billion as of June 30, 2021 and December 31, 2020, respectively. Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet date. Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 157 million and $ 149 million for the six months ended June 30, 2021 and 2020, respectively. Of the total deferred revenue on automotive sales with and without resale value guarantees as of June 30, 2021, we expect to recognize $ 1.32 billion of revenue in the next 12 months. The remaining balance will be recognized over the performance period which is generally the expected ownership life of the vehicle or the eight-year life of the vehicle. Automotive Regulatory Credits We earn tradable credits in the operation of our automotive business under various regulations related to zero-emission vehicles, greenhouse gas, fuel economy and clean fuel. We sell these credits to other regulated entities who can use the credits to comply with emission standards and other regulatory requirements. Payments for automotive regulatory credits are 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 regulatory credits is transferred to the purchasing party as automotive sales revenue in the consolidated statements of operations. Deferred revenue related to sales of automotive regulatory credits was $ 42 million and $ 21 million as of June 30, 2021 and December 31, 2020, respectively. We expect to recognize the majority of the deferred revenue as of June 30, 2021 in the next 12 months . Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was immaterial and $ 140 million for the six months ended June 30, 2021 and 2020, respectively. 11 Automotive Leasing Revenue Direct Sales-Type Leasing Program For the three and six months ended June 30, 2021, we recognized $ 55 million and $ 97 million, respectively, of sales-type leasing revenue and $ 36 million and $ 62 million, respectively, of sales-type leasing cost of revenue. There was no material sales-type leasing revenue or associated cost of revenue recognized in the three and six months ended June 30, 2020 as we introduced this offering in volume during the third quarter of 2020. Net investment in sales-type leases, which is the sum of the present value of the future contractual lease payments, is presented on the consolidated balance sheet as a component of Prepaid expenses and other current assets for the current portion and as Other assets for the long-term portion. Lease receivables relating to sales-type leases are presented on the consolidated balance sheet as follows (in millions): June 30, 2021 December 31, 2020 Gross lease receivables $ 178 $ 102 Unearned interest income ( 18 ) ( 11 ) Net investment in sales-type leases $ 160 $ 91 Reported as: Prepaid expenses and other current assets $ 30 $ 17 Other assets 130 74 Net investment in sales-type leases $ 160 $ 91 Energy Generation and Storage Segment Energy Generation and Storage Sales We record as deferred revenue any non-refundable amounts that are collected from customers related to fees charged for prepayments and remote monitoring service and operations and maintenance service, which is recognized as revenue ratably over the respective customer contract term. As of June 30, 2021 and December 31, 2020, deferred revenue related to such customer payments amounted to $ 217 million and $ 187 million, respectively. Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 66 million and $ 28 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, 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 $ 149 million. Of this amount, we expect to recognize $ 8 million in the next 12 months and the remaining over a period up to 27 years. Income Taxes There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of June 30, 2021 and December 31, 2020, the aggregate balances of our gross unrecognized tax benefits were $ 396 million and $ 380 million, respectively, of which $ 357 million and $ 353 million, respectively, would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset that is currently fully offset by a valuation allowance. The local government of Shanghai granted a beneficial corporate income tax rate of 15 % to certain eligible enterprises, compared to the 25 % statutory corporate income tax rate in China. Our Gigafactory Shanghai subsidiary was granted this beneficial income tax rate of 15 % for 2019 through 2023. We file income tax returns in the U.S., California and various state and foreign jurisdictions. We are currently under examination by the IRS for the years 2015 to 2018 . Additional tax years within the period 2004 to 2014 and 2019 remain subject to examination for federal income tax purposes, and tax years 2004 to 2019 remain subject to examination for California income tax purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and California income tax purposes. Tax years 2008 to 2020 remain subject to examination in other U.S. state and foreign jurisdictions. The potential outcome of the current examination could result in a change to unrecognized tax benefits within the next twelve months. However, we cannot reasonably estimate possible adjustments at this time. 12 Net Income per Share of Common Stock Attributable to Common Stockholders Basic net income per share of common stock attributable to common stockholders is calculated by dividing net income attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible senior notes using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income per share of common stock attributable to common stockholders when their effect is dilutive. On January 1, 2021, we adopted ASU 2020-06 using the modified retrospective method. Following this adoption, we utilize the if-converted method for diluted net income per share calculation of our convertible debt instruments (see Recent Accounting Pronouncements section below for further details). During the three and six months ended June 30, 2021 , we increased net income attributable to common stockholders by $ 2 million and $ 6 million, respectively, to arrive at the numerator used to calculate diluted net income per share, which represents the interest expense recognized on the convertible debt instruments that were subject to this change in methodology. Prior to the adoption, we applied the treasury stock method when calculating the potential dilutive effect, if any, of the following convertible senior notes which we intended to settle or have settled in cash the principal outstanding: our 1.25 % Convertible Senior Notes due in 2021 (“2021 Notes”), 2.375 % Convertible Senior Notes due in 2022 (“2022 Notes”), 2.00 % Convertible Senior Notes due in 2024 (“2024 Notes”) and our subsidiary’s 5.50 % Convertible Senior Notes due in 2022 . Furthermore, in connection with the offerings of our convertible senior 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. The strike price on the warrants were below our average share price during the period and were in the money and included in the tables below. Warrants have been included in the weighted-average shares used in computing basic net income per share of common stock in the period(s) they are settled. The following table presents the reconciliation of basic to diluted weighted average shares used in computing net income per share of common stock attributable to common stockholders, as adjusted to give effect to the five -for-one stock split effected in the form of a stock dividend in August 2020 (the “Stock Split”) (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Weighted average shares used in computing net income per share of common stock, basic 971 928 966 921 Add: Stock-based awards 93 53 95 50 Convertible senior notes (1) 10 39 16 35 Warrants 45 16 49 10 Weighted average shares used in computing net income per share of common stock, diluted 1,119 1,036 1,126 1,016 The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income per share of common stock attributable to common stockholders, because their effect was anti-dilutive, as adjusted to give effect to the Stock Split (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Stock-based awards 1 1 0 2 Convertible senior notes (1) 0 1 1 2 (1) Under the modified retrospective method of adoption of ASU 2020-06, the dilutive impact of convertible senior notes was calculated using the if-converted method for the three and six months ended June 30, 2021. Certain convertible senior notes were calculated using the treasury stock method for the three and six months ended June 30, 2020. Refer to discussion above for further details . 13 Restricted Cash We maintain certain cash balances restricted as to withdrawal or use. Our restricted cash is comprised primarily of cash held to service certain payments under various secured debt facilities. In addition, restricted cash includes cash held as collateral for certain permits as well as sales to lease partners with a resale value guarantee, letters of credit, real estate leases, insurance policies, credit card borrowing facilities, certain operating leases and cash received from certain fund investors that have not been released for use by us. 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): June 30, December 31, June 30, December 31, 2021 2020 2020 2019 Cash and cash equivalents $ 16,229 $ 19,384 $ 8,615 $ 6,268 Restricted cash included in prepaid expenses and other current assets 326 238 203 246 Restricted cash included in other non-current assets 270 279 288 269 Total as presented in the consolidated statements of cash flows $ 16,825 $ 19,901 $ 9,106 $ 6,783 Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable primarily include amounts related to receivables from financial institutions and leasing companies offering various financing products to our customers, sales of energy generation and storage products, sales of regulatory credits to other automotive manufacturers, government rebates already passed through to customers and maintenance services on vehicles owned by leasing companies. We provide an allowance against accounts receivable for the amount we expect to be uncollectible. We write-off accounts receivable against the allowance when they are deemed uncollectible. Depending on the day of the week on which the end of a fiscal quarter falls, our accounts receivable balance may fluctuate as we are waiting for certain customer payments to clear through our banking institutions and receipts of payments from our financing partners, which can take up to approximately two weeks based on the contractual payment terms with such partners. Our accounts receivable balances associated with our sales of regulatory credits, which are typically transferred to other manufacturers during the last few days of the quarter, is dependent on contractual payment terms. Additionally, government rebates can take up to a year or more to be collected depending on the customary processing timelines of the specific jurisdictions issuing them. These various factors may have a significant impact on our accounts receivable balance from period to period. MyPower Customer Notes Receivable As of June 30, 2021 and December 31, 2020, the total outstanding balance of MyPower customer notes receivable, net of allowance for credit losses, was $ 315 million and $ 334 million, respectively, of which $ 11 million and $ 9 million were due in the next 12 months as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021 and December 31, 2020, the allowance for credit losses was $ 45 million. In addition, there were no material non-accrual or past due customer notes receivable as of June 30, 2021 and December 31, 2020 . Concentration of Risk Credit Risk Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash, accounts receivable, convertible note hedges, and interest rate swaps. Our cash balances are primarily invested in money market funds or on deposit at high credit quality financial institutions in the U.S. These deposits are typically in excess of insured limits. As of June 30, 2021 and December 31, 2020 , no entity represented 10 % or more of our total accounts receivable balance. The risk of concentration for our convertible note hedges and interest rate swaps is mitigated by transacting with several highly-rated multinational banks. Supply Risk We are dependent on our suppliers, including single source suppliers, and the inability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components from these suppliers, could have a material adverse effect on our business, prospects, financial condition and operating results. 14 Operating Lease Vehicles The gross cost of operating lease vehicles as of June 30, 2021 and December 31, 2020 was $ 4.34 billion and $ 3.54 billion, respectively. Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 595 million and $ 446 million as of June 30, 2021 and December 31, 2020 , respectively. Digital Assets, Net During the six months ended June 30, 2021, we purchased an aggregate of $ 1.50 billion in bitcoin. In addition, during the three months ended March 31, 2021, we accepted bitcoin as a payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021. We may in the future restart the practice of transacting in cryptocurrencies ("digital assets") for our products and services. We account for such non-cash consideration at the time we enter into transactions with our customers in accordance with the non-cash consideration guidance included in the Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , based on the then current quoted market prices of the digital assets. We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other . We have ownership of and control over our digital assets and we may use third-party custodial services to secure it. The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition. We determine the fair value of our digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement , based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired. In determining if an impairment has occurred, we consider the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset. If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined. Impairment losses are recognized within Restructuring and other in the consolidated statements of operations in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale(s), at which point they are presented net of any impairment losses for the same digital assets held within Restructuring and other. In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. See Note 3, Digital Assets, Net , for further information regarding digital assets. Warranties We provide a manufacturer’s warranty on all new and used vehicles and a warranty on the installation and components of the energy generation and storage systems we sell for periods typically between 10 to 25 years. We accrue a warranty reserve for the products sold by us, which includes our best estimate of the projected costs to repair or replace items under warranties and recalls if identified. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given our relatively short history of sales, and changes to our historical or projected warranty experience may cause material changes to the warranty reserve in the future. The warranty reserve does not include projected warranty costs associated with our vehicles subject to operating lease accounting and our solar energy systems under lease contracts or Power Purchase Agreements ("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 the consolidated balance sheets. Warranty expense is recorded as a component of Cost of revenues in the consolidated statements of operations. Due to the magnitude of our automotive business, accrued warranty balance is primarily related to our automotive segment. Accrued warranty activity consisted of the following (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Accrued warranty—beginning of period $ 1,534 $ 1,130 $ 1,468 $ 1,089 Warranty costs incurred ( 125 ) ( 62 ) ( 241 ) ( 143 ) Net changes in liability for pre-existing warranties, including expirations and foreign exchange impact 7 9 6 12 Provision for warranty 275 120 458 239 Accrued warranty—end of period $ 1,691 $ 1,197 $ 1,691 $ 1,197 15 Recent Accounting Pronouncements Recently adopted accounting pronouncements In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU include removing exceptions to 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. We adopted ASU 2019-12 starting 2021, which did not 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 continue to 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. We adopted ASU 2020-04 during 2021. The ASU has not and is currently not expected to have a material impact on our consolidated financial statements. In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The ASU addresses the previous lack of specific guidance in the accounting standards codification related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios. The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for any periods after issuance to be applied as of the beginning of the fiscal year that includes the interim period. We adopted the ASU during 2021 as of the beginning of our fiscal year, which did not have a material impact on our consolidated financial statements. ASU 2020-06 In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments. The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, the ASU made amendments to the EPS guidance in Topic 260 for convertible debt instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020. Adoption of the ASU can either be on a modified retrospective or full retrospective basis. On January 1, 2021, we adopted the ASU using the modified retrospective method. We recognized a cumulative effect of initially applying the ASU as an adjustment to the January 1, 2021 opening balance of accumulated deficit. Due to the recombination of the equity conversion component of our convertible debt remaining outstanding, additional paid in capital and convertible senior notes (mezzanine equity) were reduced. The removal of the remaining debt discounts recorded for this previous separation had the effect of increasing our net debt balance and the reduction of property, plant and equipment was related to previously capitalized interest. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. 16 Accordingly, the cumulative effect of the changes made on our January 1, 2021 consolidated balance sheet for the adoption of the ASU was as follows (in millions): Balances at December 31, 2020 Adjustments from Adoption of ASU 2020-06 Balances at January 1, 2021 Assets Property, plant and equipment, net $ 12,747 $ ( 45 ) $ 12,702 Liabilities Current portion of debt and finance leases 2,132 50 2,182 Debt and finance leases, net of current portion 9,556 219 9,775 Mezzanine equity Convertible senior notes 51 ( 51 ) — Equity Additional paid-in capital 27,260 ( 474 ) 26,786 Accumulated deficit ( 5,399 ) 211 ( 5,188 ) The impact of adoption on our consolidated statements of operations for the three and six months ended June 30, 2021 was primarily to decrease net interest expense by $ 46 million and $ 191 million, respectively, and to decrease depreciation expense by immaterial amounts. This had the effect of increasing our basic and diluted net income per share of common stock attributable to common stockholders by $ 0.05 and $ 0.04 , respectively, for the three months ended June 30, 2021 and by $ 0.20 and $ 0.18 , respectively, for the six months ended June 30, 2021 . The change in methodology to determine the denominator used in the calculation of diluted net income per share of common stock attributable to common stockholders contributed less than $ 0.01 of the increase by requiring the use of the if-converted method as discussed above, for the three and six months ended June 30, 2021. Note 3 – Digital Assets, Net During the six months ended June 30, 2021, we purchased and received $ 1.50 billion of bitcoin. During the three and six months ended June 30, 2021, we recorded $ 23 million and $ 50 million, respectively, of impairment losses on such digital assets. We also realized gains of $ 128 million in March 2021. Such gains are presented net of impairment losses in Restructuring and other in the consolidated statement of operations. As of June 30, 2021, the carrying value of our digital assets held was $ 1.31 billion, which reflects cumulative impairments of $ 50 million. The fair market value of such digital assets held as of June 30, 2021 was $ 1.47 billion . Note 4 – Intangible Assets Information regarding our intangible assets including assets recognized from our acquisitions was as follows (in millions): June 30, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization Other Net Carrying Amount Gross Carrying Amount Accumulated Amortization Other Net Carrying Amount Finite-lived intangible assets: Developed technology $ 299 $ ( 131 ) $ 4 $ 172 $ 302 $ ( 111 ) $ 3 $ 194 Trade names 2 ( 1 ) — 1 3 ( 1 ) — 2 Favorable contracts and leases, net 113 ( 36 ) — 77 113 ( 32 ) — 81 Other 36 ( 19 ) 1 18 38 ( 18 ) 1 21 Total finite-lived intangible assets 450 ( 187 ) 5 268 456 ( 162 ) 4 298 Indefinite-lived intangible assets: Gigafactory Nevada water rights 15 — — 15 15 — — 15 Total intangible assets $ 465 $ ( 187 ) $ 5 $ 283 $ 471 $ ( 162 ) $ 4 $ 313 Total future amortization expense for finite-lived intangible assets was estimated as follows (in millions): Six months ending December 31, 2021 $ 25 2022 50 2023 43 2024 28 2025 28 Thereafter 94 Total $ 268 17 Note 5 – Fair Value of Financial Instruments 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 millions): June 30, 2021 December 31, 2020 Fair Value Level I Level II Level III Fair Value Level I Level II Level III Money market funds (cash and cash equivalents) $ 11,477 $ 11,477 $ — $ — $ 13,847 $ 13,847 $ — $ — Interest rate swap liabilities 37 — 37 — 58 — 58 — Total $ 11,514 $ 11,477 $ 37 $ — $ 13,905 $ 13,847 $ 58 $ — All of our 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. Interest Rate Swaps 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), net, in the consolidated statements of operations and with any cash flows recognized as operating activities in the consolidated statements of cash flows. Our interest rate swaps outstanding were as follows (in millions): June 30, 2021 December 31, 2020 Aggregate Notional Amount Gross Asset at Fair Value Gross Liability at Fair Value Aggregate Notional Amount Gross Asset at Fair Value Gross Liability at Fair Value Interest rate swaps $ 317 $ — $ 37 $ 554 $ — $ 58 Our interest rate swaps activity was as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Gross losses $ 9 $ 3 $ 9 $ 42 Gross gains $ — $ — $ 20 $ — Disclosure of Fair Values Our financial instruments that are not re-measured at fair value include accounts receivable, MyPower customer notes receivable, accounts payable, accrued liabilities, customer deposits and debt. The carrying values of these financial instruments other than our 2021 Notes, 2022 Notes, 2024 Notes, 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 (“2025 Notes”), Solar Asset-backed Notes and Solar Loan-backed Notes approximate their fair values. We estimate the fair value of the Convertible Senior Notes and the 2025 Notes 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 values of our Solar Asset-backed Notes and 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 millions): June 30, 2021 December 31, 2020 Carrying Value Fair Value Carrying Value Fair Value Convertible Senior Notes $ 304 $ 3,271 $ 1,971 $ 24,596 2025 Notes $ 1,787 $ 1,861 $ 1,785 $ 1,877 Solar Asset-backed Notes $ 1,095 $ 1,116 $ 1,115 $ 1,137 Solar Loan-backed Notes $ 128 $ 136 $ 146 $ 152 18 Note 6 – Inventory Our inventory consisted of the following (in millions): June 30, December 31, 2021 2020 Raw materials $ 2,067 $ 1,508 Work in process 858 493 Finished goods (1) 1,318 1,666 Service parts 490 434 Total $ 4,733 $ 4,101 (1) Finished goods inventory includes vehicles in transit to fulfill customer orders, new vehicles available for sale, used vehicles, energy storage products and Solar Roof products available for sale. For solar energy systems, we commence transferring component parts from inventory to construction in progress, a component of solar energy systems, 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 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 six months ended June 30, 2021, we recorded write-downs of $ 35 million and $ 70 million, respectively, in Cost of revenues and Research and development expenses. During the three and six months ended June 30, 2020, we recorded write-downs of $ 37 million and $ 82 million, respectively, in Cost of revenues. Note 7 – Property, Plant and Equipment, Net Our property, plant and equipment, net, consisted of the following (in millions): June 30, December 31, 2021 2020 Machinery, equipment, vehicles and office furniture $ 9,156 $ 8,493 Tooling 2,038 1,811 Leasehold improvements 1,596 1,421 Land and buildings 3,725 3,662 Computer equipment, hardware and software 1,148 856 Construction in progress 3,826 1,621 21,489 17,864 Less: Accumulated depreciation ( 5,824 ) ( 5,117 ) Total $ 15,665 $ 12,747 Construction in progress is primarily comprised of construction of Gigafactory Berlin and Gigafactory Texas, expansion of Gigafactory Shanghai and equipment and tooling related to the manufacturing of our products. We are currently constructing Gigafactory Berlin under conditional permits in anticipation of being granted final permits. 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 six months ended June 30, 2021, we capitalized $ 23 million and $ 38 million, respectively, of interest. During the three and six months ended June 30, 2020, we capitalized $ 10 million and $ 20 million, respectively, of interest. Depreciation expense during the three and six months ended June 30, 2021 was $ 461 million and $ 885 million, respectively. Depreciation expense during the three and six months ended June 30, 2020 was $ 356 million and $ 727 million, respectively. Gross property, plant and equipment under finance leases as of June 30, 2021 and December 31, 2020 was $ 2.43 billion and $ 2.28 billion, respectively, with accumulated depreciation of $ 1.01 billion and $ 816 million, respectively. 19 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, 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 the respective assets. As of June 30, 2021 and December 31, 2020, we had cumulatively capitalized costs of $ 1.79 billion and $ 1.77 billion, respectively, on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement. Note 8 – Accrued Liabilities and Other As of June 30, 2021 and December 31, 2020, accrued liabilities and other current liabilities consisted of the following (in millions): June 30, December 31, 2021 2020 Accrued purchases (1) $ 1,437 $ 901 Taxes payable (2) 834 777 Payroll and related costs 840 654 Accrued warranty reserve, current portion 608 479 Sales return reserve, current portion 382 417 Operating lease liabilities, current portion 325 286 Accrued interest 60 77 Other current liabilities 292 264 Total $ 4,778 $ 3,855 (1) Accrued purchases primarily reflects receipts of goods and services that we had not been invoiced yet. As we are invoiced for these goods and services, this balance will reduce and accounts payable will increase. (2) Taxes payable includes value added tax, sales tax, property tax, use tax and income tax payables. Note 9 – Other Long-Term Liabilities As of June 30, 2021 and December 31, 2020, other long-term liabilities consisted of the following (in millions): June 30, December 31, 2021 2020 Operating lease liabilities $ 1,407 $ 1,254 Accrued warranty reserve 1,083 989 Sales return reserve 378 500 Deferred tax liability 63 151 Other non-current liabilities 405 436 Total other long-term liabilities $ 3,336 $ 3,330 20 Note 10 – Debt The following is a summary of our debt and finance leases as of June 30, 2021 (in millions): Unpaid Unused Net Carrying Value Principal Committed Contractual Contractual Current Long-Term Balance Amount (1) Interest Rates Maturity Date Recourse debt: 2022 Notes $ 130 $ — $ 131 $ — 2.375 % March 2022 2024 Notes 7 166 174 — 2.00 % May 2024 2025 Notes — 1,787 1,800 — 5.30 % August 2025 Credit Agreement — 1,878 1,878 280 3.3 % July 2023 Solar Bonds and other Loans 2 7 9 — 4.0 - 5.8 % October 2021 - January 2031 Total recourse debt 139 3,838 3,992 280 Non-recourse debt: Automotive Asset-backed Notes 869 1,455 2,333 — 0.2 - 7.9 % August 2021 - March 2025 Solar Asset-backed Notes 41 1,054 1,122 — 2.9 - 7.7 % September 2024 - February 2048 Cash Equity Debt 20 402 434 — 5.3 - 5.8 % July 2033 - January 2035 Solar Loan-backed Notes 13 115 134 — 4.8 - 7.5 % September 2048 - September 2049 Warehouse Agreements — — — 1,100 Not applicable September 2022 Automotive Lease-backed Credit Facilities — — — 173 Not applicable September 2022 Other Loans — 14 14 23 5.1 % February 2033 Total non-recourse debt 943 3,040 4,037 1,296 Total debt 1,082 6,878 $ 8,029 $ 1,576 Finance leases 448 993 Total debt and finance leases $ 1,530 $ 7,871 21 The following is a summary of our debt and finance leases as of December 31, 2020 (in millions): Unpaid Unused Net Carrying Value Principal Committed Contractual Contractual Current Long-Term Balance Amount (1) Interest Rates Maturity Date Recourse debt: 2021 Notes $ 419 $ — $ 422 $ — 1.25 % March 2021 2022 Notes 115 366 503 — 2.375 % March 2022 2024 Notes 171 856 1,282 — 2.00 % May 2024 2025 Notes — 1,785 1,800 — 5.30 % August 2025 Credit Agreement — 1,895 1,895 278 3.3 % July 2023 Solar Bonds and other Loans 4 49 55 — 3.6 %- 5.8 % January 2021 - January 2031 Total recourse debt 709 4,951 5,957 278 Non-recourse debt: Automotive Asset-backed Notes 777 921 1,705 — 0.6 %- 7.9 % August 2021 - August 2024 Solar Asset-backed Notes 39 1,076 1,141 — 3.0 %- 7.7 % September 2024 - February 2048 China Loan Agreements — 616 616 1,372 4.0 % June 2021 - December 2024 Cash Equity Debt 18 408 439 — 5.3 %- 5.8 % July 2033 - January 2035 Solar Loan-backed Notes 13 133 152 — 4.8 %- 7.5 % September 2048 - September 2049 Warehouse Agreements 37 257 294 806 1.7 %- 1.8 % September 2022 Solar Term Loan 151 — 151 — 3.7 % January 2021 Automotive Lease-backed Credit Facility 14 19 33 153 1.9 %- 5.9 % September 2022 - November 2022 Solar Revolving Credit Facility and other Loans — 81 81 23 2.7 %- 5.1 % June 2022 - February 2033 Total non-recourse debt 1,049 3,511 4,612 2,354 Total debt 1,758 8,462 $ 10,569 $ 2,632 Finance leases 374 1,094 Total debt and finance leases $ 2,132 $ 9,556 (1) There are no restrictions on draw-down or use for general corporate purposes with respect to any available committed funds under our credit facilities and financing funds, except certain specified conditions prior to draw-down, including pledging to our lenders sufficient amounts of qualified receivables, inventories, leased vehicles and our interests in those leases, solar energy systems and the associated customer contracts, our interests in financing funds or various other assets and as may be described below and in the notes to the consolidated financial statements included in our report on Form 10-K for the year ended December 31, 2020. Recourse debt refers to debt that is recourse to our general assets. Non-recourse debt refers to debt that is recourse to only assets of our subsidiaries. The differences between the unpaid principal balances and the net carrying values are due to debt discounts or deferred financing costs. The debt discounts were updated as of January 1, 2021 for our convertible notes with the adoption of ASU 2020-06 as discussed in Note 2, Summary of Significant Accounting Policies . As of June 30, 2021, we were in material compliance with all financial debt covenants, which include minimum liquidity and expense-coverage balances and ratios. 2021 Notes, 2022 Notes and 2024 Notes During the first two quarters of 2021, the closing price of our common stock continued to exceed 130 % of the applicable conversion price of each of our 2022 Notes and 2024 Notes on at least 20 of the last 30 consecutive trading days of the quarter; causing the 2022 Notes and 2024 Notes to be convertible by their holders during the second and third quarters of 2021. As we now expect to settle a portion of the 2024 Notes in the third quarter of 2021, we reclassified $ 7 million of the carrying value of the 2024 Notes from debt and finance leases, net of current portion to current portion of debt and finance leases on our consolidated balance sheet as of June 30, 2021. Should the closing price conditions continue to be met in a future quarter for any of these notes, such notes will be convertible at their holders’ option during the immediately following quarter. 22 On January 1, 2021, we adopted ASU 2020-06 using the modified retrospective method. As a result of this adoption, we have de-recognized the remaining debt discounts on the 2022 Notes and 2024 Notes and therefore no longer recognize any amortization of debt discounts as interest expense (see Note 2, Summary of Significant Accounting Policies ). During the first two quarters of 2021, $ 422 million, $ 372 million and $ 1.11 billion in aggregate principal amount of the 2021 Notes, 2022 Notes and 2024 Notes, respectively, were settled for $ 422 million, $ 372 million and $ 1.11 billion in cash for their par amount, and the issuance of 5.3 million, 5.1 million and 16.4 million shares of our common stock for the conversion premium, respectively. The note hedges we entered into in connection with the issuance of the 2021 Notes, 2022 Notes and 2024 Notes were automatically settled with the respective conversions of the 2021 Notes, 2022 Notes and 2024 Notes, resulting in the receipt of 5.3 million, 5.1 million and 16.4 million shares of our common stock, respectively. In March 2021, the 2021 Notes were fully settled. Additionally, during the second quarter of 2021, we settled portions of the warrants entered into in connection with the issuance of the 2021 Notes and 2024 Notes, resulting in the issuance of 7.9 million and 9.2 million shares of our common stock, respectively. 2025 Notes On July 16, 2021, we issued a notice of redemption to the holders of the 2025 Notes informing the holders that we will redeem the notes in full in August 2021 at a redemption price equal to 102.65 % of outstanding principal amount, plus accrued and unpaid interest, if any. Automotive Asset-backed Notes and Warehouse Agreements In March 2021, we transferred beneficial interests related to certain leased vehicles into an SPE and issued $ 1.08 billion in aggregate principal amount of Automotive Asset-backed Notes, with terms similar to our other Automotive Asset-backed Notes. The proceeds from the issuance, net of discounts and fees, were $ 1.07 billion. In conjunction with this financing we repaid the remaining outstanding balance of our vehicle lease-backed loan and security agreement ( the "2016 Warehouse Agreement"), for which committed funds remained available for future borrowings. China Loan Agreements In April 2021, we fully repaid the $ 614 million in aggregate principal of our secured term loan facility in connection with the construction of Gigafactory Shanghai (the “Fixed Asset Facility”) and the facility was terminated. In June 2021, our Working Capital Loan Contract entered in May 2020 (the “2020 China Working Capital Facility”) matured and the facility was terminated. Solar Term Loan In January 2021, our Solar Term Loan matured and was repaid. Automotive Lease-backed Credit Facilities In June 2021, we fully repaid $ 32 million in aggregate principal of our Automotive Lease-backed Credit Facilities and terminated one of the facilities. Solar Revolving Credit Facility and other Loans In April 2021, we fully repaid the $ 67 million in aggregate principal of our Solar Revolving Credit Facility and the facility was terminated. Interest Expense 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 include the 2021 Notes, the 2022 Notes and the 2024 Notes (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Contractual interest coupon $ 3 $ 19 $ 10 $ 39 Amortization of debt issuance costs 1 2 3 4 Amortization of debt discounts (1) — 44 — 88 Total $ 4 $ 65 $ 13 $ 131 (1) Under the modified retrospective method of adoption of ASU 2020-06, there was neither amortization of debt discounts, nor losses on extinguishment of debt recognized for the three and six months ended June 30, 2021. Refer to discussion above for further details. 23 Note 11 – Equity Incentive Plans 2018 CEO Performance Award In March 2018, our stockholders approved the Board of Directors’ grant of 101.3 million stock option awards, as adjusted to give effect to the Stock Split, 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 achieved, and (ii) any one of the following eight operational milestones focused on total revenue or any one of the eight operational milestones focused on Adjusted EBITDA have been achieved for the four consecutive fiscal quarters on an annualized basis and subsequently reported by us in our consolidated financial statements filed with our Forms 10-Q and/or 10-K. Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest expense, provision (benefit) for income taxes, depreciation and amortization and stock-based compensation. Upon vesting and exercise, including the payment of the exercise price of $ 70.01 per share, our CEO must hold shares 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, 2021 is provided below. Although an operational milestone is deemed achieved in the last quarter of the relevant annualized period, it may be certified only after the financial statements supporting its achievement have been filed with our Forms 10-Q and/or 10-K. Total Annualized Revenue Annualized Adjusted EBITDA Milestone (in billions) Achievement Status Milestone (in billions) Achievement Status $ 20.0 Achieved $ 1.5 Achieved $ 35.0 Achieved $ 3.0 Achieved $ 55.0 Probable $ 4.5 Achieved $ 75.0 - $ 6.0 Achieved $ 100.0 - $ 8.0 Probable $ 125.0 - $ 10.0 Probable $ 150.0 - $ 12.0 - $ 175.0 - $ 14.0 - 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. In each quarter since the grant of the 2018 CEO Performance Award, we have recognized expense, generally on a pro-rated basis, for only the number of tranches (up to the maximum of 12 tranches) that corresponds to the number of operational milestones that have been achieved or have been determined probable of being achieved in the future, in accordance with the following principles. On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed amount of expense for such tranche and (ii) the future time when the market capitalization milestone for such tranche was expected to be achieved, or its “expected market capitalization milestone achievement time.” Separately, based on a subjective assessment of our future financial performance, each quarter we determine whether it is probable that we will achieve each operational milestone that has not previously been achieved or deemed probable of achievement and if so, the future time when we expect to achieve that operational milestone, or its “expected operational milestone achievement time.” When we first determine that an operational milestone has become probable of being achieved, we allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected full achievement time.” The “expected full achievement time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market capitalization milestone achievement time (if the related market capitalization milestone had not yet been achieved). We immediately recognize a catch-up expense for all accumulated expense for the quarters from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved. Each quarter thereafter, we recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected full achievement time, except that upon the achievement of both a market capitalization milestone and operational milestone with respect to a tranche, all remaining expense for that tranche is immediately recognized. 24 As a result, we have experienced, and may experience in the future, significant catch-up expenses in quarters when one or more operational milestones are first determined to be probable of being achieved. Historically, the expected market capitalization achievement times were generally later than the related expected operational milestone achievement times. Therefore, when market capitalization milestones are achieved earlier than originally forecasted, for example due to periods of rapid stock price appreciation, this has resulted, and may result in the future, in higher catch-up expenses and the remaining expenses being recognized over shorter periods of time at a higher per-quarter rate. As of June 30, 2021, all market capitalization milestones were achieved. During the first quarter of 2021, the operational milestone of annualized revenue of $ 55.0 billion became probable of being achieved and consequently, we recognized a catch-up expense of $ 116 million. During the second quarter of 2021, the operational milestone of annualized Adjusted EBITDA of $ 10.0 billion became probable of being achieved and consequently, we recognized a catch-up expense of $ 124 million. As of June 30, 2021, we had $ 105 million of total unrecognized stock-based compensation expense for the operational milestones that were considered probable of achievement, which will be recognized over a weighted-average period of 0.7 years. As of June 30, 2021, we had unrecognized stock-based compensation expense of $ 396 million for the operational milestones that were considered not probable of achievement. For the three and six months ended June 30, 2021, we recorded stock-based compensation expense of $ 176 million and $ 475 million, respectively, related to the 2018 CEO Performance Award, and $ 167 million and $ 233 million, respectively, for the same periods in 2020. Summary Stock-Based Compensation Information The following table summarizes our stock-based compensation expense by line item in the consolidated statements of operations (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Cost of revenues $ 108 $ 52 $ 211 $ 85 Research and development 104 73 229 138 Selling, general and administrative 262 222 648 335 Total $ 474 $ 347 $ 1,088 $ 558 Our income tax benefits recognized from stock-based compensation arrangements in each of the periods presented were immaterial due to cumulative losses and valuation allowances. Note 12 – Commitments and Contingencies Operating Lease Arrangement in Buffalo, New York We have an operating lease through the Research Foundation for the State University of New York (the “SUNY Foundation”) with respect to Gigafactory New York. Under the lease and a related research and development agreement, we are continuing to further develop the facility. Under this agreement, we are obligated to, among other things, meet employment targets as well as specified minimum numbers of personnel in the State of New York and in Buffalo, New York and spend or incur $ 5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York during the 10-year period beginning April 30, 2018. On an annual basis during the initial lease term, as measured on each anniversary of such date, if we fail to meet these specified investment and job creation requirements, then we would be obligated to pay a $ 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 may become payable by us. As we temporarily suspended most of our manufacturing operations at Gigafactory New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we were granted a one-year deferral of our obligation to be compliant with our applicable targets under such agreement on April 30, 2020, which was memorialized in an amendment to our agreement with the SUNY Foundation in July 2020. In April 2021, we were granted an additional deferral through December 31, 2021, subject only to memorialization in writing by us and the SUNY Foundation, as our operations at Gigafactory New York have not yet fully ramped due to a number of factors related to the pandemic. Given that we would have met all targets originally required as of April 30, 2020 if they had been measured prior to the mandated reduction of operations in March 2020, and we are currently in excess of such targets relating to investments and personnel in the State of New York, we do not currently expect any issues meeting our applicable obligations following this expected deferral or in the years beyond. However, if our expectations as to the costs and timelines of our investment and operations at Buffalo or our production ramp of the Solar Roof prove incorrect, we may incur additional expenses or be required to make substantial payments to the SUNY Foundation. 25 Operating Lease Arrangement in Shanghai, China We have an operating lease arrangement for an initial term of 50 years with the local government of Shanghai for land use rights where we are constructing Gigafactory Shanghai. Under the terms of the arrangement, we are required to spend RMB 14.08 billion in capital expenditures by the end of 2023, and to generate RMB 2.23 billion of annual tax revenues starting at the end of 2023. If we are unwilling or unable to meet such target or obtain periodic project approvals, in accordance with the Chinese government’s standard terms for such arrangements, we would be required to revert the site to the local government and receive compensation for the 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. Legal Proceedings Litigation Relating to the SolarCity Acquisition Between September 1, 2016 and October 5, 2016, seven lawsuits were filed in the Delaware Court of Chancery by purported stockholders of Tesla challenging our acquisition of SolarCity Corporation (“SolarCity”). Following consolidation, the lawsuit names as defendants the members of Tesla’s board of directors as then constituted and alleges, among other things, that board members breached their fiduciary duties in connection with the acquisition. The complaint asserts both derivative claims and direct claims on behalf of a purported class and seeks, among other relief, unspecified monetary damages, attorneys’ fees and costs. On January 27, 2017, 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, defendants filed a motion to dismiss the amended complaint. On December 13, 2017, the Court heard oral argument on the motion. On March 28, 2018, the Court denied defendants’ motion to dismiss. Defendants filed a request for interlocutory appeal, and 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 on August 25, 2019, and further mediations were held on October 3, 2019. The Court 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 to be paid entirely under the applicable insurance policy. The settlement, which does not involve an admission of any wrongdoing by any party, was approved by the Court on August 17, 2020. Tesla received payment of approximately $ 43 million on September 16, 2020, which has been recognized in our consolidated statement of operations as a reduction to Selling, general and administrative operating expenses for costs previously incurred related to the acquisition of SolarCity. On February 4, 2020, the Court issued a ruling that denied plaintiffs’ previously-filed motion for summary judgment and granted in part and denied in part defendants’ previously-filed motion for summary judgment. The case was set for trial in March 2020 until it was postponed by the Court due to safety precautions concerning COVID-19. The trial was held from July 12 to July 23, 2021, to be followed by certain post-trial proceedings . These plaintiffs and others filed parallel actions in the U.S. District Court for the District of Delaware on or about April 21, 2017. They include claims for violations of the federal securities laws and breach of fiduciary duties by Tesla’s board of directors. Those actions have been consolidated and stayed pending the above-referenced Chancery Court litigation. Securities Litigation Relating to Production of Model 3 Vehicles On October 10, 2017, a purported stockholder class action was filed in the U.S. District Court for the Northern District of California against Tesla, two of its current officers and a former officer. The complaint alleges violations of federal securities laws and seeks unspecified compensatory damages and other relief on behalf of a purported class of purchasers of Tesla securities from May 4, 2016 to October 6, 2017. The lawsuit claims that Tesla supposedly made materially false and misleading statements regarding Tesla’s preparedness to produce Model 3 vehicles. Plaintiffs filed an amended complaint on March 23, 2018, and defendants filed a motion to dismiss on May 25, 2018. The court granted defendants’ motion to dismiss with leave to amend. Plaintiffs filed their amended complaint on September 28, 2018, and defendants filed a motion to dismiss the amended complaint on February 15, 2019. The hearing on the motion to dismiss was held on March 22, 2019, and on March 25, 2019, the Court ruled in favor of defendants and dismissed the complaint with prejudice. On April 8, 2019, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) and on July 17, 2019 filed their opening brief. We filed our opposition on September 16, 2019, and plaintiffs filed their reply on October 8, 2019. A hearing on the appeal was held before a three-judge panel on April 30, 2020. On January 26, 2021, the panel affirmed the District Court’s dismissal of the complaint with prejudice. On March 5, 2021, the Ninth Circuit denied plaintiffs’ request for a rehearing before the full court, and a mandate issued on March 16, 2021. 26 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 the 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. The case was then stayed pending a ruling from the Ninth Circuit on the earlier-filed federal case, with an agreement that if defendants prevailed on the appeal, plaintiffs would dismiss the later-filed case. Following the Ninth Circuit’s affirmance discussed above, the plaintiffs dismissed the later-filed case with prejudice on April 15, 2021. Litigation Relating to 2018 CEO Performance Award On June 4, 2018, a purported Tesla stockholder filed a putative class and derivative action in the Delaware Court of Chancery against Elon Musk and the members of Tesla’s board of directors as then constituted, alleging corporate waste, unjust enrichment and that such board members breached their fiduciary duties by approving the stock-based compensation plan. The complaint seeks, among other things, monetary damages and rescission or reformation of the stock-based compensation plan. On August 31, 2018, defendants filed a motion to dismiss the complaint; plaintiff filed its opposition brief on November 1, 2018; and defendants filed a reply brief on December 13, 2018. The hearing on the motion to dismiss was held on May 9, 2019. On September 20, 2019, the Court granted the motion to dismiss as to the corporate waste claim but denied the motion as to the breach of fiduciary duty and unjust enrichment claims. Our answer was filed on December 3, 2019, and trial is set for April 2022. Litigation Related to Directors’ Compensation On June 17, 2020, a purported Tesla stockholder filed a derivative action in the Delaware Court of Chancery, purportedly on behalf of Tesla, against certain of Tesla’s current and former directors regarding compensation awards granted to Tesla’s directors, other than Elon Musk, between 2017 and 2020. The suit asserts claims for breach of fiduciary duty and unjust enrichment and seeks declaratory and injunctive relief, unspecified damages and other relief. Defendants filed their answer on September 17, 2020. Trial is set for December 2022. Litigation Relating to Potential Going Private Transaction Between August 10, 2018 and September 6, 2018, nine purported stockholder class actions were filed against Tesla and Elon Musk in connection with Mr. Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. All of the suits are now pending in the U.S. District Court for the Northern District of California. Although the complaints vary in certain respects, they each purport to assert claims for violations of federal securities laws related to Mr. Musk’s statement and seek unspecified compensatory damages and other relief on behalf of a purported class of purchasers of Tesla’s securities. Plaintiffs filed their consolidated complaint on January 16, 2019 and added as defendants the members of Tesla’s board of directors. The now-consolidated purported stockholder class action was stayed while the issue of selection of lead counsel was briefed and argued before the Ninth Circuit. The Ninth Circuit ruled regarding lead counsel. Defendants filed a motion to dismiss the complaint on November 22, 2019. The hearing on the motion was held on March 6, 2020. On April 15, 2020, the Court denied defendants’ motion to dismiss. The parties stipulated to certification of a class of stockholders, which the court granted on November 25, 2020. Trial is set for May 2022. Between October 17, 2018 and March 8, 2021, seven derivative lawsuits were filed in the Delaware Court of Chancery, purportedly on behalf of Tesla, against Mr. Musk and the members of Tesla’s board of directors, as constituted at relevant times, in relation to statements made and actions connected to a potential going private transaction, with certain of the lawsuits challenging additional Twitter posts by Mr. Musk, among other things. Five of those actions were consolidated, and all seven actions have been stayed pending resolution of the above-referenced consolidated purported stockholder class action. In addition to these cases, two derivative lawsuits were filed on October 25, 2018 and February 11, 2019 in the U.S. District Court for the District of Delaware, purportedly on behalf of Tesla, against Mr. Musk and the members of the Tesla board of directors as then constituted. Those cases have also been consolidated and stayed pending resolution of the above-referenced consolidated purported stockholder class action. Unless otherwise stated, the individual defendants named in the stockholder proceedings described above and the Company with respect to the stockholder class action proceedings described above believe that the claims in such proceedings have no 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. 27 Certain Investigations and Other Matters 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 SEC had issued subpoenas to Tesla in connection with (a) Elon Musk’s prior statement that he was considering taking Tesla private and (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. Indemnification and Guaranteed Returns We are contractually obligated to compensate certain fund investors for any losses that they may suffer in certain limited circumstances resulting from reductions in investment tax credits claimed under U.S. federal laws for the installation of solar power facilities and energy storage systems that are charged from a co-sited solar power facility (“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. Internal Revenue Service (the “IRS”) for purposes of claiming ITCs. 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 audits undertaken by the IRS. We believe that any payments to the fund investors in excess of the 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 IRS would determine as the fair value for the systems for purposes of claiming ITCs. We claim ITCs 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 exactly how the IRS will evaluate system values used in claiming ITCs, we are unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date. We are eligible to receive certain state and local incentives that are associated with renewable energy generation. The amount of incentives that can be claimed is based on the projected or actual solar energy system size and/or the amount of solar energy produced. We also currently participate in one state’s incentive program that is based on either the fair market value or the tax basis of solar energy systems placed in service. State and local incentives received are allocated between us and fund investors in accordance with the contractual provisions of each fund. We are not contractually obligated to indemnify any fund investor for any losses they may incur due to a shortfall in the amount of state or local incentives actually received. Note 13 – Variable Interest Entity Arrangements We 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 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 and the associated customer contracts to be sold or contributed to these VIEs, redeploying solar energy systems 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. 28 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 millions): June 30, December 31, 2021 2020 Assets Current assets Cash and cash equivalents $ 89 $ 87 Accounts receivable, net 51 28 Prepaid expenses and other current assets 112 105 Total current assets 252 220 Solar energy systems, net 4,654 4,749 Other non-current assets 202 182 Total assets $ 5,108 $ 5,151 Liabilities Current liabilities Accrued liabilities and other $ 68 $ 63 Deferred revenue 11 11 Customer deposits 16 14 Current portion of debt and finance leases 890 797 Total current liabilities 985 885 Deferred revenue, net of current portion 167 168 Debt and finance leases, net of current portion 1,857 1,346 Other long-term liabilities 15 19 Total liabilities $ 3,024 $ 2,418 Note 14 – Segment Reporting and Information about Geographic Areas We have two operating and reportable segments: (i) automotive and (ii) energy generation and storage. The automotive segment includes the design, development, manufacturing, sales, and leasing of electric vehicles as well as sales of 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 insurance revenue. The energy generation and storage segment includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products and related services and sales of solar energy systems incentives. Our CODM does not evaluate operating segments using asset or liability information. The following table presents revenues and gross profit by reportable segment (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Automotive segment Revenues $ 11,157 $ 5,666 $ 21,052 $ 11,358 Gross profit $ 2,864 $ 1,246 $ 5,180 $ 2,469 Energy generation and storage segment Revenues $ 801 $ 370 $ 1,295 $ 663 Gross profit $ 20 $ 21 $ ( 81 ) $ 32 29 The following table presents revenues by geographic area based on the sales location of our products (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 United States $ 5,205 $ 3,090 $ 9,629 $ 5,858 China 2,859 1,400 5,902 2,300 Other 3,894 1,546 6,816 3,863 Total $ 11,958 $ 6,036 $ 22,347 $ 12,021 The following table presents long-lived assets by geographic area (in millions): June 30, December 31, 2021 2020 United States $ 17,460 $ 15,989 International 4,088 2,737 Total $ 21,548 $ 18,726 30 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Overview 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. In 2021, we have produced 386,759 vehicles and delivered 386,181 vehicles through the second quarter. We are currently focused on increasing vehicle production and capacity, improving and developing battery technologies, improving our FSD and Autopilot capabilities, increasing the affordability and efficiency of our vehicles and expanding our global infrastructure. In 2021, we have deployed 1.72 GWh of energy storage products and 177 megawatts of solar energy systems through the second quarter. We are currently focused on ramping production of energy storage products, improving our Solar Roof installation capability and efficiency and increasing market share of retrofit solar energy systems. During the three and six months ended June 30, 2021, we recognized total revenues of $11.96 billion and $22.35 billion, respectively, representing increases of $5.92 billion and $10.33 billion, respectively, over the same periods ended June 30, 2020. We continue to ramp production, build new manufacturing capacity and expand our operations to enable increased deliveries and deployments of our products and further revenue growth. During the three and six months ended June 30, 2021, our net income attributable to common stockholders was $1.14 billion and $1.58 billion, respectively, representing favorable changes of $1.04 billion and $1.46 billion, respectively, over the same periods ended June 30, 2020. We continue to focus on operational efficiencies, while we have seen an acceleration of non-cash stock-based compensation expense due to continued increases in our market capitalization and updates to our business outlook. We ended the second quarter of 2021 with $16.23 billion in cash and cash equivalents, representing a decrease of $3.16 billion from the end of 2020. Our cash flows provided by operating activities during the six month period ended June 30, 2021 was $3.77 billion, representing a favorable change of $3.24 billion compared to our cash flows provided by operating activities during the same period ended June 30, 2020 of $524 million, and capital expenditures amounted to $2.85 billion during the six month period ended June 30, 2021, compared to $1.00 billion during the same period ended June 30, 2020. Sustained growth has allowed our business to generally fund itself, but we will continue investing in a number of capital-intensive projects in upcoming periods. Management Opportunities, Challenges and Risks Impact of COVID-19 Pandemic Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. We have also previously been affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our product deliveries and deployments. Ultimately, we cannot predict the duration of the COVID-19 pandemic. We will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly. 31 Automotive—Production The following is a summary of the status of production of each of our announced vehicle models in production and under development, as of the date of this Quarterly Report on Form 10-Q: Production Location Vehicle Model(s) Production Status Fremont Factory Model S / Model X Active Model 3 / Model Y Active Gigafactory Shanghai Model 3 / Model Y Active Gigafactory Berlin Model Y Constructing manufacturing facilities Gigafactory Texas Model Y Constructing manufacturing facilities Cybertruck In development TBD Tesla Semi In development Tesla Roadster In development Our new version of Model S is in production, and we are focused on commencing the updated Model X deliveries and ramping all of our production vehicles to their installed production capacities. Our current production continues to be affected by the industry-wide semiconductor and other component shortages, requiring additional workaround manufacturing and production design solutions to be implemented which may be difficult to sustain. The next phase of production growth will depend on the construction of Gigafactory Berlin and Gigafactory Texas, each of which is progressing as planned for production beginning in late 2021, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range. Consistent with our approach of innovating manufacturing techniques at our new factories, we expect as well to pioneer new methods related to the mass production of these cells and our unique structural battery pack concept. Our goals are to improve vehicle performance, decrease production costs and increase affordability. However, these plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by the number of concurrent international projects, any industry-wide component constraints which may increase the number of manufacturing and production design workaround solutions required and any future impact from events outside of our control such as the COVID-19 pandemic. Moreover, we must meet ambitious technological targets with our plans for battery cells as well as for iterative manufacturing and design improvements for our vehicles with each new factory. Automotive—Demand and Sales Our cost reduction efforts and additional localized procurement and manufacturing are key to our vehicles’ affordability, and for example have allowed us to competitively price our vehicles in China. In addition to opening new factories in 2021, we will also continue to generate demand and brand awareness by improving our vehicles’ performance and functionality, including Autopilot, FSD and software features, and introducing anticipated future vehicles. Moreover, we expect to benefit from a recent spike in demand in the automotive industry generally, as well as ongoing electrification of the automotive sector and increasing environmental awareness. However, we operate in a cyclical industry that is sensitive to trade, environmental and political uncertainty, all of which may also be compounded by any future global impact from the COVID-19 pandemic. Moreover, as additional competitors enter the marketplace and help bring the world closer to sustainable transportation, we will have to continue to execute well to maintain our momentum. Automotive—Deliveries and Customer Infrastructure As our deliveries increase, we must work constantly to prevent our vehicle delivery capability from becoming a bottleneck on our total deliveries. Increasing the exports of vehicles manufactured at Gigafactory Shanghai has been effective in mitigating the strain on our deliveries in markets outside of the United States, and we expect to benefit further from situating additional factories closer to local markets. As we expand our manufacturing operations globally, we will have to continue to increase and staff our delivery, servicing and charging infrastructure accordingly, maintain our vehicle reliability and optimize our Supercharger locations to ensure cost effectiveness and customer satisfaction. In particular, we remain focused on increasing the capability and efficiency of our servicing operations. 32 Energy Generation and Storage Demand, Production and Deployment The long-term success of this business is dependent upon increasing margins through greater volumes. We continue to increase the production of our energy storage products to meet high levels of demand, but such production is also sensitive to global component constraints. For Megapack, energy storage deployments can vary meaningfully quarter to quarter depending on the timing of specific project milestones. For Powerwall, better availability and growing grid stability concerns drive higher customer interest, and we are emphasizing cross-selling with our residential solar energy products. We remain committed to growing our retrofit solar energy business by offering a low-cost and simplified online ordering experience. In addition, we continue to improve our installation capabilities for Solar Roof by on-boarding and training a large number of installers and reducing the installation time dramatically. As these product lines grow, we will have to maintain adequate battery cell supply for our energy storage products and hire additional personnel, particularly skilled electricians, to support the ramp of Solar Roof. Cash Flow and Capital Expenditure Trends Our capital expenditures are typically difficult to project beyond the short term given the number and breadth of our core projects at any given time, and may further be impacted by uncertainties in future global market conditions. We are simultaneously ramping new products in the new Model S and Model X, Model Y and Solar Roof, constructing or ramping manufacturing facilities on three continents and piloting the development and manufacture of new battery cell technologies, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among our various products, increased capital efficiencies and the addition of new projects. Owing and subject to the foregoing as well as the pipeline of announced projects under development and all other continuing infrastructure growth, we currently expect our capital expenditures to be $4.50 to $6.00 billion in 2021 and each of the next two fiscal years. Given the breadth of our various planned projects in 2021, as we make progress on such projects we expect that our actual spend will be on the higher end of this range in 2021. Our business has recently been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also facilitating positive cash generation. On the other hand, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects. Moreover, as our stock price has significantly increased, we have seen higher levels of early conversions of “in-the-money” convertible senior notes, which obligates us to deliver cash and or shares pursuant to the terms of those notes. Overall, we expect our ability to be self-funding to continue as long as macroeconomic factors support current trends in our sales. Operating Expense Trends As long as we see expanding sales, and excluding the potential impact of non-cash stock compensation expense attributable to the 2018 CEO Performance Award and impairment charges on certain assets as explained below, we generally expect operating expenses relative to revenues to decrease as we continue to increase operational efficiency and process automation. In March 2018, our stockholders approved a performance-based stock option award to our CEO (the “2018 CEO Performance Award”), consisting of 12 vesting tranches contingent on the achievement of specified market capitalization and operational milestones. We incur non-cash stock-based compensation expense for each tranche only after the related operational milestone initially becomes probable of being achieved based on a subjective assessment of our future financial performance, and if this happens following the grant date, we record at such time a cumulative catch-up expense that may be significant based on the length of time elapsed from the grant date. Moreover, the remaining expense for that tranche is ratably recorded over the period remaining until the later of (i) the expected achievement of the relevant operational milestone (if it has not yet been achieved) and (ii) the expected achievement of the related market capitalization milestone (if it had not yet been achieved). Upon the achievement of both milestones related to a tranche, all remaining associated expense is recognized immediately. Because the market capitalization milestone achievements were generally expected to occur later than the related expected operational milestone achievements, the achievement of the former earlier than expected may increase the magnitude of any catch-up expense and/or accelerate the rate at which the remaining expense is recognized. Since 2020, several operational milestones have become probable and/or have been achieved and all market capitalization milestones have been achieved, resulting in the recognition or acceleration of related expense earlier than anticipated and within a relatively short period of time. 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. 33 In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin and accepted bitcoin as a form of payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021. We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash. As with any investment and consistent with how we manage fiat-based cash and cash-equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions. Digital assets are considered indefinite-lived intangible assets under applicable accounting rules. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale. For any digital assets held now or in the future, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase. For example, in the six month period ended June 30, 2021, we recorded approximately $50 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of $128 million on certain sales of bitcoin by us. Critical Accounting Policies and Estimates The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the 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 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 our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected. 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 resale 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. 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, 2020. 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, 2020. Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Results of Operations Effects of COVID-19 Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chain issues, such as a shortfall of semiconductor supply. 34 During 2020, we were also affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our product deliveries and deployments. 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 instituted cost reduction initiatives across our business globally to be commensurate to the scope of our operations while they were scaled back in the first half of 2020. 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 disclosed idle capacity charges and they marginally reduced our operating expenses. The impact of the idle capacity charges incurred during the first half of 2020 were almost entirely offset by our cost savings initiatives and payroll related benefits. Revenues Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Automotive sales $ 9,874 $ 4,911 $ 4,963 101 % $ 18,579 $ 9,804 $ 8,775 90 % Automotive leasing 332 268 64 24 % 629 507 122 24 % Total automotive revenues 10,206 5,179 5,027 97 % 19,208 10,311 8,897 86 % Services and other 951 487 464 95 % 1,844 1,047 797 76 % Total automotive & services and other segment revenue 11,157 5,666 5,491 97 % 21,052 11,358 9,694 85 % Energy generation and storage segment revenue 801 370 431 116 % 1,295 663 632 95 % Total revenues $ 11,958 $ 6,036 $ 5,922 98 % $ 22,347 $ 12,021 $ 10,326 86 % Automotive & Services and Other Segment Automotive sales revenue includes revenues related to 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 depending on when a contract is executed with a buyer and when the credits are delivered. Automotive leasing revenue includes the amortization of revenue for vehicles under direct operating 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 Y vehicles in the third quarter of 2020. Additionally, automotive leasing revenue includes direct sales-type leasing programs where we recognize all revenue associated with the sales-type lease upon delivery to the customer, which we introduced in volume during the third quarter of 2020. Services and other revenue consists of non-warranty after-sales vehicle services, sales of used vehicles, retail merchandise, sales by our acquired subsidiaries to third party customers and vehicle insurance revenue. Automotive sales revenue increased $4.96 billion, or 101%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to an increase of 107,272 Model 3 and Model Y cash deliveries and an increase in the average selling price of Model 3 in the three months ended June 30, 2021 compared to the same period in the prior year. These increases were partially offset by a decrease from 7,532 fewer Model S and Model X cash deliveries in the three months ended June 30, 2021 compared to the prior period as we started delivering the new Model S as well as reductions in the average selling price of Model Y due to the regional sales mix compared to the prior period. There was also a decrease of $74 million from sales of regulatory credits to $354 million in the three months ended June 30, 2021. Automotive sales revenue increased $8.78 billion, or 90%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to an increase of 203,736 Model 3 and Model Y cash deliveries year over year from production ramping at both Gigafactory Shanghai and the Fremont Factory. There was also an increase of $90 million from additional sales of regulatory credits to $872 million in the six months ended June 30, 2021. The increases in automotive sales revenue were partially offset by a decrease from 15,912 fewer Model S and Model X cash deliveries in the six months ended June 30, 2021 compared to the prior period as we started delivering the new Model S as well as reductions in the average selling price of Model Y due to the regional sales mix compared to the prior period. 35 Automotive leasing revenue increased $64 million, or 24%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Automotive leasing revenue increased $122 million, or 24%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These increases were primarily due to an increase in cumulative vehicles under our direct operating lease program and the introduction of direct sales-type leasing programs which we began offering in volume during the third quarter of 2020 where we recognize all revenue associated with the sales-type lease upon delivery to the customer. These increases were partially offset by the decreases in automotive leasing revenue associated with our resale value guarantee leasing programs accounted for as operating leases as those portfolios have declined. Services and other revenue increased $464 million, or 95%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Services and other revenue increased $797 million, or 76%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These increases were primarily due to an increase in used vehicle revenue driven by an increase in trade-ins, non-warranty maintenance services revenue as our fleet continues to grow and retail merchandise revenue. Energy Generation and Storage Segment Energy generation and storage revenue includes sales and leasing of solar energy generation and energy storage products, services related to such products and sales of solar energy systems incentives. Energy generation and storage revenue increased by $431 million, or 116%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Energy generation and storage revenue increased by $632 million, or 95%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These increases were primarily due to increases in deployments of solar cash and loan jobs, Megapack and Powerwall, partially offset by reduced average selling prices on our solar cash and loan jobs as a result of our low cost solar strategy introduced mid-2020. Cost of Revenues and Gross Margin Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Cost of revenues Automotive sales $ 7,119 $ 3,714 $ 3,405 92 % $ 13,576 $ 7,413 $ 6,163 83 % Automotive leasing 188 148 40 27 % 348 270 78 29 % Total automotive cost of revenues 7,307 3,862 3,445 89 % 13,924 7,683 6,241 81 % Services and other 986 558 428 77 % 1,948 1,206 742 62 % Total automotive & services and other segment cost of revenues 8,293 4,420 3,873 88 % 15,872 8,889 6,983 79 % Energy generation and storage segment 781 349 432 124 % 1,376 631 745 118 % Total cost of revenues $ 9,074 $ 4,769 $ 4,305 90 % $ 17,248 $ 9,520 $ 7,728 81 % Gross profit total automotive $ 2,899 $ 1,317 $ 5,284 $ 2,628 Gross margin total automotive 28 % 25 % 28 % 25 % Gross profit total automotive & services and other segment $ 2,864 $ 1,246 $ 5,180 $ 2,469 Gross margin total automotive & services and other segment 26 % 22 % 25 % 22 % Gross profit energy generation and storage segment $ 20 $ 21 $ (81 ) $ 32 Gross margin energy generation and storage segment 2 % 6 % -6 % 5 % Total gross profit $ 2,884 $ 1,267 $ 5,099 $ 2,501 Total gross margin 24 % 21 % 23 % 21 % Automotive & Services and Other Segment 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 revenues also includes adjustments to warranty expense and charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand. Cost of automotive leasing revenue includes the amortization of operating lease vehicles over the lease term, cost of goods sold associated with direct sales-type leases which were introduced in volume in the third quarter of 2020, as well as warranty expenses related to leased vehicles. Cost of automotive leasing revenue also includes vehicle connectivity costs and allocations of electricity and infrastructure costs related to our Supercharger network for vehicles under our leasing programs. Cost of services and other revenue includes costs associated with providing non-warranty after-sales services, costs to acquire and 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 by our acquired subsidiaries to third party customers. 36 Cost of automotive sales revenue increased $3.41 billion, or 92%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to an increase of 107,272 Model 3 and Model Y cash deliveries and higher outbound freight and duties in China as Model 3 vehicles manufactured in Gigafactory Shanghai were exported to other regions offset by a decrease in combined average Model 3 and Model Y costs per unit due to lower material, manufacturing, inbound freight and duty costs from localized procurement and manufacturing in China. There was also reductions in Model Y average costs per unit as compared to the prior period due to temporary under-utilization of manufacturing capacity at lower production volumes during our production ramp in the first half of 2020, in addition to idle capacity charges of $189 million due to the temporary suspension of production at the Fremont Factory and Gigafactory Nevada during the three months ended June 30, 2020. Additionally, there was a decrease of 7,532 Model S and Model X cash deliveries in the three months ended June 30, 2021 compared to the prior period as we started delivering the new Model S. Cost of automotive sales revenue increased $6.16 billion, or 83%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to an increase of 203,736 Model 3 and Model Y cash deliveries and higher outbound freight and duties in China as Model 3 vehicles manufactured in Gigafactory Shanghai were exported to other regions offset by a decrease in combined average Model 3 and Model Y costs per unit due to lower material, manufacturing, inbound freight and duty costs from localized procurement and manufacturing in China. There were also reductions in Model Y average costs per unit as compared to the prior period due to temporary under-utilization of manufacturing capacity at lower production volumes during our production ramp in the first half of 2020, in addition to idle capacity charges of $213 million due to the temporary suspension of production at the Fremont Factory and Gigafactory Nevada during the six months ended June 30, 2020. Additionally, there was a decrease of 15,912 Model S and Model X cash deliveries in the six months ended June 30, 2021 compared to the prior period as we started delivering the new Model S. Cost of automotive leasing revenue increased $40 million, or 27%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Cost of automotive leasing revenue increased $78 million, or 29%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These increases were primarily due to an increase in cumulative vehicles under our direct operating lease program and the introduction of direct sales-type leasing programs which we began offering in volume during the third quarter of 2020 where we recognize all cost of revenue associated with the sales-type lease upon delivery to the customer. These increases were also partially offset by the decreases in cost of automotive lease revenue associated with our resale value guarantee leasing programs which are accounted for as operating leases as those portfolios have declined. Cost of services and other revenue increased $428 million, or 77%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Cost of services and other revenue increased $742 million, or 62%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These increases were primarily due to increases in used vehicle cost of revenue driven by an increase in trade-ins, costs to support our increase in non-warranty maintenance services revenue and costs of retail merchandise as our sales have increased. Gross margin for total automotive increased from 25% to 28% in the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020. There were increases from improvements of Model 3 and Model Y gross margins primarily from lower material, manufacturing, inbound freight and duty costs from localized procurement and manufacturing in China offset by higher outbound freight and duties in China as Model 3 vehicles manufactured in Gigafactory Shanghai were exported to other regions. There were also reductions in Model Y average costs per unit as compared to the prior period due to temporary under-utilization of manufacturing capacity at lower production volumes during our production ramp in the first half of 2020, in addition to idle capacity charges of $189 million and $213 million in cost of automotive sales revenue due to the temporary suspension of production at the Fremont Factory and Gigafactory Nevada during the three and six months ended June 30, 2020, respectively . These increases were partially offset by reductions in the average selling price of Model Y due to the regional sales mix compared to the prior period, in addition to impacts from sales of regulatory credits as discussed earlier. Gross margin for total automotive & services and other segment increased from 22% to 26% in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Gross margin for total automotive & services and other segment increased from 22% to 25% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These increases were primarily due to the automotive gross margin impacts discussed above and an improvement in our services and other gross margin. Additionally, there was a lower proportion of services and other, which operated at a lower gross margin than our automotive business, within the segment in the three and six months ended June 30, 2021 as compared to the prior period. Energy Generation and Storage Segment Cost of energy generation and storage revenue includes direct and indirect material and labor costs, warehouse rent, freight, warranty expense, other overhead costs and amortization of certain acquired intangible assets. Cost of energy generation and storage revenue also includes charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand. In agreements for solar energy system and PPAs where we are the lessor, the cost of revenue is primarily comprised of depreciation of the cost of leased solar energy systems, maintenance costs associated with those systems and amortization of any initial direct costs. 37 Cost of energy generation and storage revenue increased by $432 million, or 124%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Cost of energy generation and storage revenue increased by $745 million, or 118%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These increases were primarily due to increases in deployments of solar cash and loan jobs, Solar Roof, Megapack and Powerwall and increased service maintenance costs on solar energy systems where we are the lessor, partially offset by reductions in average costs per unit of Solar Roof and solar cash and loan jobs as deployments increased. Although our average costs per unit of Solar Roof improved compared to the prior period, they still remain significant and contribute disproportionately to our cost of energy generation and storage revenue. Gross margin for energy generation and storage decreased from 6% to 2% in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Gross margin for energy generation and storage decreased from 5% to -6% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These decreases were primarily due to a higher proportion of Solar Roof in our overall energy business which operated at lower gross margins as a result of temporary manufacturing underutilization during product ramp, increased service maintenance costs on solar energy systems where we are the lessor and lower gross margins in our energy storage business as we are ramping Megapack. Research and Development Expense Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Research and development $ 576 $ 279 $ 297 106 % $ 1,242 $ 603 $ 639 106 % As a percentage of revenues 5 % 5 % 6 % 5 % Research and development (“R&D”) expenses consist primarily of personnel costs for our teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expense, contract and professional services and amortized equipment expense. R&D expenses increased $297 million, or 106%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase was primarily due to a $135 million increase in employee and labor related expenses due to an increase in headcount and increased payroll taxes related to appreciation of our stock price, a $76 million increase in R&D expensed materials, a $52 million increase in facilities, outside services, freight and depreciation expenses and a $31 million increase in stock-based compensation expense. These increases were to support our expanding product roadmap such as the new versions of Model S and Model X and technologies including our proprietary battery cells. R&D expenses as a percentage of revenue stayed consistent at 5% in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The is primarily due to the increase in total revenues from expanding sales. R&D expenses increased $639 million, or 106%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase was primarily due to a $282 million increase in employee and labor related expenses due to an increase in headcount and increased payroll taxes related to appreciation of our stock price, a $177 million increase in R&D expensed materials, a $91 million increase in stock-based compensation expense and an $88 million increase in facilities, outside services, freight and depreciation expense. These increases were to support our expanding product roadmap such as the new versions of Model S and Model X and technologies including our proprietary battery cells. R&D expenses as a percentage of revenue increased from 5% to 6% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase is primarily due to the increase in our R&D expenses as detailed above, partially offset by an increase in total revenues from expanding sales. Selling, General and Administrative Expense Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Selling, general and administrative $ 973 $ 661 $ 312 47 % $ 2,029 $ 1,288 $ 741 58 % As a percentage of revenues 8 % 11 % 9 % 11 % Selling, general and administrative (“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 fees for professional and contract services and litigation settlements. 38 SG&A expenses increased $312 million, or 47%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase is primarily due to an increase of $186 million in employee and labor related expenses from increased headcount and increased payroll taxes related to appreciation of our stock price, an $86 million increase in office, information technology, facilities-related expenses, sales and marketing activities and other costs. There was also an increase of $40 million in stock-based compensation expense, of which $9 million was attributable to the 2018 CEO Performance Award. See Note 11, Equity Incentive Plans , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. SG&A expenses as a percentage of revenue decreased from 11% to 8% in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. This was driven by the increase in total revenue from expanding sales, despite an increase in our SG&A expenses as detailed above. SG&A expenses increased $741 million, or 58%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase is primarily due to an increase of $313 million in stock-based compensation expense, of which $242 million was attributable to the 2018 CEO Performance Award. The increase in expense under the 2018 CEO Performance Award was primarily due to an increase in catch-up expense of $160 million recognized in the six months ended June 30, 2021, when the operational milestone of annualized revenue of $55.0 billion and Adjusted EBITDA of $10.0 billion became probable of being achieved as compared to the six months ended June 30, 2020. An additional $82 million was recognized in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, due to operational milestones being achieved earlier as well as the market capitalization milestones being achieved earlier than originally forecasted (see Note 11, Equity Incentive Plans , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Additionally, there was an increase of $311 million in employee and labor related expenses from increased headcount and increased payroll taxes related to appreciation of our stock price, a $117 million increase in office, information technology, facilities-related expenses, sales and marketing activities and other costs. SG&A expenses as a percentage of revenue decreased from 11% to 9% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. This was driven by the increase in total revenue from expanding sales, despite an increase in our SG&A expenses as detailed above. Restructuring and Other Expense Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Restructuring and other $ 23 $ — $ 23 Not meaningful $ (78 ) $ — $ (78 ) Not meaningful As a percentage of revenues 0 % 0 % 0 % 0 % During the six months ended June 30, 2021 we realized gains of $128 million through sales of bitcoin. Also, during the three and six months ended June 30, 2021, we recorded $23 million and $50 million, respectively, of impairment losses on bitcoin. See Note 2, Summary of Significant Accounting Policies , and Note 3, Digital Assets, Net , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. Interest Expense Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Interest expense $ (75 ) $ (170 ) $ 95 -56 % $ (174 ) $ (339 ) $ 165 -49 % As a percentage of revenues 1 % 3 % 1 % 3 % Interest expense decreased by $95 million, or 56%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Interest expense decreased by $165 million, or 49%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. These decreases were primarily due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, on January 1, 2021, whereby we have de-recognized the remaining debt discounts on the 2022 Notes and 2024 Notes and therefore no longer recognize any amortization of debt discounts as interest expense, as well as the continued reduction in our overall debt balance. See Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. 39 Other Income (Expense), Net Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Other income (expense), net $ 45 $ (15 ) $ 60 -400 % $ 73 $ (69 ) $ 142 -206 % As a percentage of revenues 0 % 0 % 0 % 1 % Other income (expense), net, consists primarily of foreign exchange gains and losses related to our foreign currency-denominated monetary assets and liabilities and changes in the fair values of our fixed-for-floating interest rate swaps. We expect our foreign exchange gains and losses will vary depending upon movements in the underlying exchange rates. Other income (expense), net, changed favorably by $60 million in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to favorable fluctuations in foreign currency exchange rates. Other income (expense), net, changed favorably by $142 million in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to favorable fluctuations in foreign currency exchange rates and a $53 million favorable change in the mark-to-market remeasurement of our interest rate swaps. Provision for Income Taxes Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Provision for income taxes $ 115 $ 21 $ 94 448 % $ 184 $ 23 $ 161 700 % Effective tax rate 9 % 14 % 10 % 10 % Our provision for income taxes is $115 million with pre-tax income of $1.29 billion, resulting in quarterly effective tax rate of 9% for the three months ended June 30, 2021. The provision for income taxes increased by $94 million, compared to $21 million provision for income taxes with pre-tax income of $150 million, resulting in quarterly effective tax rate of 14% for the three months ended June 30, 2020. The increase in income taxes was primarily due to the substantial increase in pre-tax income, combined with changes in forecasted annual tax rate with mix of jurisdictional earnings. Our provision for income taxes is $184 million with pre-tax income of $1.83 billion, resulting in year-to-date effective tax rate of 10% for the six months ended June 30, 2021. The provision for income taxes increased by $161 million, compared to $23 million provision for income taxes with pre-tax income of $220 million, resulting year to date effective tax rate of 10% for the six months ended June 30, 2020. The increase in income taxes was primarily due to the substantial increase in pre-tax income, combined with changes in forecasted annual tax rate with mix of jurisdictional earnings. See Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests Three Months Ended June 30, Change Six Months Ended June 30, Change (Dollars in millions) 2021 2020 $ % 2021 2020 $ % Net income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries $ 36 $ 25 $ 11 44 % $ 62 $ 77 $ (15 ) -19% Our net income 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 $11 million, or 44%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The change was primarily due to lower activities from new financing fund arrangements. Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by $15 million, or 19%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The change was primarily due to a decrease in distributions to financing fund investors offset by lower activities from new financing fund arrangements. 40 Liquidity and Capital Resources We expect to continue to generate net positive operating cash flow as we have done in the last three fiscal years. The cash we generate from our core operations enables us to fund ongoing operations and production, our research and development projects for new products and technologies including our proprietary battery cells, additional manufacturing ramps at existing manufacturing facilities such as the Fremont Factory, Gigafactory Nevada, Gigafactory Shanghai and Gigafactory New York, the construction of Gigafactory Berlin and Gigafactory Texas, and the continued expansion of our retail and service locations, body shops, Mobile Service fleet, Supercharger network and energy product installation capabilities. In addition, because a large portion of our future expenditures will be to fund our growth, we expect that if needed we will be able to adjust our capital and operating expenditures by operating segment. For example, if our near-term manufacturing operations decrease in scale or ramp more slowly than expected, including due to global economic or business conditions, we may choose to correspondingly slow the pace of our capital expenditures. Finally, we continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early. Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following June 30, 2021, including to pay down near-term debt obligations, as well as in the long-term. See the sections below for more details regarding the material requirements for cash in our business and our sources of liquidity to meet such needs. Material Cash Requirements From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw materials to be used in the manufacture of our products. However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders under such contracts beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. As discussed in and subject to the considerations referenced in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Risks—Cash Flow and Capital Expenditure Trends in this Quarterly Report on Form 10-Q, we currently expect our capital expenditures to support our projects globally to be $4.50 to $6.00 billion in 2021 and in each of the next two fiscal years. Given the breadth of our various planned projects in 2021, as we make progress on such projects we expect that our actual spend will be on the higher end of this range in 2021. In connection with our operations at Gigafactory New York, we have an agreement to spend or incur $5.0 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York through December 31, 2029 (pursuant to a deferral of our required timelines to meet such obligations that was granted in April 2021 subject only to memorialization in writing by us and the SUNY Foundation). We also have an operating lease arrangement with the local government of Shanghai pursuant to which we are required to spend RMB 14.08 billion in capital expenditures at Gigafactory Shanghai by the end of 2023. For details regarding these obligations, refer to Note 12, Commitments and Contingencies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. As of June 30, 2021, we and our subsidiaries had outstanding $8.03 billion in aggregate principal amount of indebtedness, of which $1.09 billion is scheduled to become due in the succeeding 12 months. For details regarding our indebtedness, refer to Note 10, Debt , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Sources and Conditions of Liquidity Our sources to fund our material cash requirements are predominantly from our deliveries of vehicles, sales and installations of our energy storage products and solar energy systems, proceeds from debt facilities, proceeds from financing funds and proceeds from equity offerings. As of June 30, 2021, we had $16.23 billion of cash and cash equivalents. Balances held in foreign currencies had a U.S. dollar equivalent of $4.87 billion and consisted primarily of Chinese yuan, euros and Canadian dollars. In addition, we had $1.58 billion of unused committed amounts under our credit facilities and financing funds as of June 30, 2021. Certain of such unused committed amounts are subject to satisfying specified conditions prior to draw-down (such as pledging to our lenders sufficient amounts of qualified receivables, inventories, leased vehicles and our interests in those leases, solar energy systems and the associated customer contracts, our interests in financing funds or various other assets; and 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 10, Debt , and Note 13, Variable Interest Entity Arrangements to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 41 In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin. In addition, during the three months ended March 31, 2021, we accepted bitcoin as a form of payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021. We may in the future restart the practice of transacting in digital assets for our products and services. The fair market value of our bitcoin holdings as of June 30, 2021 was $1.47 billion. We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash. As with any investment and consistent with how we manage fiat-based cash and cash-equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions. However, digital assets may be subject to volatile market prices, which may be unfavorable at the times when we may want or need to liquidate them. Summary of Cash Flows Six Months Ended June 30, (Dollars in millions) 2021 2020 Net cash provided by operating activities $ 3,765 $ 524 Net cash used in investing activities $ (4,097 ) $ (1,046 ) Net cash (used in) provided by financing activities $ (2,565 ) $ 2,831 Cash Flows from Operating Activities 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 and working capital, especially inventory, which includes vehicles in transit. Our operating cash inflows include cash from vehicle sales, customer lease payments, customer deposits, cash from sales of regulatory credits and energy generation and storage products. These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process, operating expenses, operating lease payments and interest payments on our financings. Net cash provided by operating activities increased by $3.24 billion to $3.77 billion during the six months ended June 30, 2021 from $524 million during the six months ended June 30, 2020. This increase was primarily due to the increase in net income excluding non-cash expenses and gains of $1.88 billion and the overall decrease in net operating assets and liabilities of $1.36 billion. The decrease in our net operating assets and liabilities was mainly driven by an increase in accounts payable and accrued liabilities in the six months ended June 30, 2021 as compared to a decrease in the six months ended June 30, 2020 from ramp up in production at Gigafactory Shanghai and the Fremont Factory. The decrease in our net operating assets and liabilities was partially offset by a larger increase in operating lease vehicles as Model Y direct leasing was introduced in the third quarter of 2020. Cash Flows from Investing Activities Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $2.85 billion for the six months ended June 30, 2021, mainly for construction of Gigafactory Texas and Gigafactory Berlin and expansion of Gigafactory Shanghai and $1.00 billion for the six months ended June 30, 2020, mainly for Model Y production at the Fremont Factory and construction of Gigafactory Shanghai and Gigafactory Berlin. Additionally, net cash activities related to digital assets were $1.23 billion in the six months ended June 30, 2021 from purchases of digital assets for $1.50 billion and proceeds from sales of digital assets of $272 million. Cash Flows from Financing Activities Net cash used in financing activities during the six months ended June 30, 2021 was $2.57 billion, which consisted primarily of $1.95 billion of cash repayments upon conversions of our convertible senior notes, $614 million of repayments under our Fixed Asset Facility, $294 million of repayments under our 2016 Warehouse Agreement, $151 million repayment of Solar Term Loan upon maturity and $196 million principal repayments of our finance leases. These cash outflows were partially offset by $623 million of net borrowings from the A utomotive Asset-backed Notes and $253 million of proceeds from exercise of stock options and other stock issuances. See Note 10, Debt to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding our debt obligations. Net cash provided by financing activities during the six months ended June 30, 2020 was $2.83 billion, which 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 (the "China Loan Agreements"), $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. 42