What changed in this filing

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Item 1. Financial Statements

2021-10-25 compared with 2021-07-27 · 342 added, 316 removed, 989 unchanged (40% of the section changed)

2 unchanged sentences

(in millions, except per share data)

September 30,

Current assets

Cash and cash equivalents

Short-term marketable securities

Accounts receivable, net

31 unchanged sentences

1,004 shares and

960 shares issued and outstanding as of June 30, 2021 and December 31,

960 shares issued and outstanding as of September 30, 2021 and December 31,

2020, respectively

8 unchanged sentences

(in millions, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Automotive sales

19 unchanged sentences

Interest expense

Other income (expense), net

Other (expense) income, net

Income before income taxes

3 unchanged sentences

Net income attributable to common stockholders

Net income per share of common stock attributable

to common stockholders (1)

Buy-out of noncontrolling interest

Net income used in computing net income per share of

Net income per share of common stock attributable to

common stockholders

Weighted average shares used in computing net

income per share of common stock

(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.

1 unchanged sentence

(in millions)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive income (loss):

12 unchanged sentences

Stockholders'

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

(Loss) Income

Balance as of March 31, 2020

Balance as of June 30, 2020

Reclassification between equity and

mezzanine equity for convertible

mezzanine equity for convertible senior

Exercises of conversion feature of

2 unchanged sentences

incentive awards

Issuance of common stock through

at-the-market offering program,

net of issuance cost of $ 26

Stock-based compensation

Distributions to noncontrolling

Net (loss) income

Contributions from noncontrolling interests

Distributions to noncontrolling interests

Buy-out of noncontrolling interests

Other comprehensive income

Balance as of June 30, 2020

Balance as of September 30, 2020

Noncontrolling

2 unchanged sentences

Stockholders'

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(Loss) Income

Balance as of December 31, 2019

2 unchanged sentences

Reclassification between equity and

mezzanine equity for convertible

mezzanine equity for convertible senior

Exercises of conversion feature of

3 unchanged sentences

Issuance of common stock in Feb 2020

2020 public offering, net of

issuance costs of $ 28

public offering, net of issuance costs

Issuance of common stock through

at-the-market offering program,

net of issuance cost of $ 26

Stock-based compensation

Contributions from noncontrolling

Distributions to noncontrolling

Net (loss) income

Other comprehensive loss

Balance as of June 30, 2020

Contributions from noncontrolling interests

Distributions to noncontrolling interests

Buy-out of noncontrolling interests

Other comprehensive income

Balance as of September 30, 2020

Noncontrolling

2 unchanged sentences

Stockholders'

Three Months Ended June 30, 2021

Balance as of March 31, 2021

Three Months Ended September 30, 2021

Balance as of June 30, 2021

Exercises of conversion feature of

4 unchanged sentences

Stock-based compensation

Contributions from noncontrolling

Distributions to noncontrolling

Other comprehensive income

Balance as of June 30, 2021

Distributions to noncontrolling interests

Other comprehensive loss

Balance as of September 30, 2021

Noncontrolling

2 unchanged sentences

Stockholders'

Six Months Ended June 30, 2021

Income (Loss)

Nine Months Ended September 30, 2021

Balance as of December 31, 2020

7 unchanged sentences

Stock-based compensation

Contributions from noncontrolling

Distributions to noncontrolling

Contributions from noncontrolling interests

Distributions to noncontrolling interests

Other comprehensive loss

Balance as of June 30, 2021

(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 .

Balance as of September 30, 2021

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

1 unchanged sentence

(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

3 unchanged sentences

Inventory and purchase commitments write-downs

Foreign currency transaction net (gain) loss

Foreign currency transaction net loss

Non-cash interest and other operating activities

15 unchanged sentences

Proceeds from sales of digital assets

Purchases of marketable securities

Receipt of government grants

Purchase of intangible assets

Business combinations, net of cash acquired

Net cash used in investing activities

33 unchanged sentences

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 September 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 nine months ended September 30, 2021 and 2020 and the consolidated statements of cash flows for the nine months ended September 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.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Automotive sales without resale value guarantee

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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.

The total sales return reserve on vehicles previously sold under our buyback options program was $ 526 million and $ 703 million as of September 30, 2021 and December 31, 2020, respectively, of which $ 201 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 $ 2.22 billion and $ 1.93 billion as of September 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.

Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 230 million and $ 223 million for the nine months ended September 30, 2021 and 2020, respectively.

Of the total deferred revenue on automotive sales with and without resale value guarantees as of September 30, 2021, we expect to recognize $ 1.39 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.

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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.

Deferred revenue related to sales of automotive regulatory credits was $ 20 million and $ 21 million as of September 30, 2021 and December 31, 2020, respectively.

We expect to recognize the majority of the deferred revenue as of September 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 nine months ended September 30, 2021 and 2020, respectively.

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

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

For the three and nine months ended September 30, 2020 , we recognized $ 59 million and $ 63 million, respectively, of sales-typing leasing revenue and $ 41 million and $ 44 million, respectively, of sales-type leasing cost of revenue.

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 sheets as a component of prepaid expenses and other current assets for the current portion and as other non-current assets for the long-term portion.

Lease receivables relating to sales-type leases are presented on the consolidated balance sheets as follows (in millions):

September 30, 2021

December 31, 2020

3 unchanged sentences

Prepaid expenses and other current assets

Other non-current assets

Net investment in sales-type leases

2 unchanged sentences

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.

As of September 30, 2021 and December 31, 2020, deferred revenue related to such customer payments amounted to $ 262 million and $ 187 million, respectively.

Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 90 million and $ 31 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 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 $ 152 million.

Of this amount, we expect to recognize $ 9 million in the next 12 months and the remaining over a period up to 26 years.

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.

As of September 30, 2021 and December 31, 2020, the aggregate balances of our gross unrecognized tax benefits were $ 411 million and $ 380 million, respectively, of which $ 359 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.

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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.

Additional tax years within the periods 2004 to 2014 and 2019 to 2020 remain subject to examination for federal income tax purposes, and 2004 and subsequent tax years 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.

Our returns for 2008 and subsequent tax years remain subject to examination in other U.S.

state and foreign jurisdictions.

6 unchanged sentences

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.

During the three and nine months ended September 30, 2021 , we increased net income attributable to common stockholders by $ 1 million and $ 8 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 ).

2 unchanged sentences

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,

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 (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted average shares used in computing

net income per share of common

net income per share of common stock, basic

Stock-based awards

1 unchanged sentence

Weighted average shares used in computing

net income per share of common stock,

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,

net income per share of common stock, diluted

Three Months Ended September 30,

Nine Months Ended September 30,

Stock-based awards

Convertible senior notes (1)

(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.

Certain convertible senior notes were calculated using the treasury stock method for the three and nine months ended September 30, 2020.

Refer to discussion above for further details .

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

September 30,

Cash and cash equivalents

Restricted cash included in prepaid expenses

and other current assets

Restricted cash included in prepaid expenses and other

current assets

Restricted cash included in other non-current assets

Total as presented in the consolidated statements of cash flows

Accounts Receivable and Allowance for Doubtful Accounts

Marketable Securities

Marketable securities may be comprised of a combination of U.S government securities and corporate debt securities and are all designated as available-for-sale and reported at estimated fair value, with unrealized gains and losses recorded in accumulated other comprehensive income which is included within stockholders’

Available-for-sale marketable securities with maturities greater than three months at the date of purchase are included in short-term marketable securities on our consolidated balance sheet.

Interest, dividends, amortization and accretion of purchase premiums and discounts on our marketable securities are included in other income (expense), net.

The cost of available-for-sale marketable securities sold is based on the specific identification method.

Realized gains and losses on the sale of available-for-sale marketable securities are recorded in other income (expense), net.

We regularly review all of our marketable securities for declines in fair value.

The review includes but is not limited to (i) the consideration of the cause of the decline, (ii) any currently recorded expected credit losses, and (iii) the creditworthiness of the respective security issuers.

Accoun ts 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.

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These various factors may have a significant impact on our accounts receivable balance from period to period.

As of September 30, 2021 and December 31, 2020, we had $ 384 million and $ 46 million of long-term government rebates receivables in Other non-current assets on our consolidated balance sheets.

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 .

As of September 30, 2021 and December 31, 2020, the total outstanding balance of MyPower customer notes receivable, net of allowance for credit losses, was $ 304 million and $ 334 million, respectively, of which $ 11 million and $ 9 million were due in the next 12 months as of September 30, 2021 and December 31, 2020, respectively.

As of September 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 September 30, 2021 and December 31, 2020 .

Concentration of 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.

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, marketable securities, 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.

As of September 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.

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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.

The gross cost of operating lease vehicles as of September 30, 2021 and December 31, 2020 was $ 4.85 billion and $ 3.54 billion, respectively.

Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 683 million and $ 446 million as of September 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.

During the nine months ended September 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.

22 unchanged sentences

Accrued warranty activity consisted of the following (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Accrued warranty—beginning of period

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Accumulated deficit

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.

The impact of adoption on our consolidated statements of operations for the three and nine months ended September 30, 2021 was primarily to decrease net interest expense by $ 5 million and $ 196 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 $ 0.01 for the three months ended September 30, 2021 and by $ 0.21 and $ 0.19 , respectively, for the nine months ended September 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 nine months ended September 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.

During the nine months ended September 30, 2021, we purchased and received $ 1.50 billion of bitcoin.

During the three and nine months ended September 30, 2021 , we recorded $ 51 million and $ 101 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 .

As of September 30, 2021, the carrying value of our digital assets held was $ 1.26 billion , which reflects cumulative impairments of $ 101 million.

The fair market value of such digital assets held as of September 30, 2021 was $ 1.83 billion.

Note 4 –

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

June 30, 2021

September 30, 2021

December 31, 2020

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

Six months ending December 31, 2021

Three months ending December 31, 2021

Note 5 –

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Our assets and liabilities that were measured at fair value on a recurring basis were as follows (in millions):

June 30, 2021

September 30, 2021

December 31, 2020

1 unchanged sentence

cash equivalents)

government securities

(cash and cash equivalents)

Corporate debt securities

(short-term marketable

Interest rate swap liabilities

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.

government securities and marketable securities are classified within Level II of the fair value hierarchy and the market approach was used to determine fair value of these investments.

Our interest rate swaps were classified within Level II of the fair value hierarchy because they were valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates.

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Our interest rate swaps outstanding were as follows (in millions):

June 30, 2021

September 30, 2021

December 31, 2020

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Our interest rate swaps activity was as follows (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

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.

The carrying values of these financial instruments other than 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 (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).

1 unchanged sentence

The following table presents the estimated fair values and the carrying values (in millions):

June 30, 2021

September 30, 2021

December 31, 2020

6 unchanged sentences

Our inventory consisted of the following (in millions):

September 30,

Raw materials

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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.

During the three and nine months ended September 30, 2021, we recorded write-downs of $ 36 million and $ 106 million, respectively, in cost of revenues and research and development expense in the consolidated statements of operations.

During the three and nine months ended September 30, 2020, we recorded write-downs of $ 26 million and $ 108 million , respectively, in cost of revenues in the consolidated statements of operations.

Note 7 –

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

September 30,

Machinery, equipment, vehicles and office furniture

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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.

During the three and nine months ended September 30, 2021, we capitalized $ 14 million and $ 52 million, respectively, of interest.

During the three and nine months ended September 30, 2020, we capitalized $ 13 million and $ 33 million, respectively, of interest.

Depreciation expense during the three and nine months ended September 30, 2021 was $ 495 million and $ 1.38 billion, respectively.

Depreciation expense during the three and nine months ended September 30, 2020 was $ 403 million and $ 1.13 billion, respectively.

Gross property, plant and equipment under finance leases as of September 30, 2021 and December 31, 2020 was $ 2.60 billion and $ 2.28 billion, respectively, with accumulated depreciation of $ 1.11 billion and $ 816 million, respectively.

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.

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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.

As of September 30, 2021 and December 31, 2020, we had cumulatively capitalized costs of $ 1.89 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):

As of September 30, 2021 and December 31, 2020, accrued liabilities and other current liabilities consisted of the following (in millions):

September 30,

Accrued purchases (1)

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Other Long-Term Liabilities

As of June 30, 2021 and December 31, 2020, other long-term liabilities consisted of the following (in millions):

As of September 30, 2021 and December 31, 2020, other long-term liabilities consisted of the following (in millions):

September 30,

Operating lease liabilities

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Note 10 –

The following is a summary of our debt and finance leases as of June 30, 2021 (in millions):

The following is a summary of our debt and finance leases as of September 30, 2021 (in millions):

Net Carrying Value

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Automotive Asset-backed Notes

August 2021 - March 2025

April 2022 - September 2025

Solar Asset-backed Notes

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September 2048 - September 2049

Warehouse Agreements

Not applicable

September 2022

Automotive Lease-backed Credit Facilities

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Total debt and finance leases

(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.

(1) There are no restrictions on draw-down or use for general corporate purposes with respect to any available committed funds under our credit facilities, except certain specified conditions prior to draw-down, including pledging to our lenders sufficient amounts of qualified receivables, inventories, leased vehicles and our interests in those leases, solar energy systems and the associated customer contracts 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.

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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.

As of September 30, 2021, we were in material compliance with all financial debt covenants.

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’

During each of the quarters of 2021 through September 30, 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, third and fourth quarters of 2021.

As we now expect to settle a portion of the 2024 Notes in the fourth quarter of 2021, we reclassified $ 6 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 September 30, 2021.

Should the closing price conditions continue to be met in a future quarter for the 2024 Notes, the 2024 Notes will be convertible at their holders’

option during the immediately following quarter.

In addition, the 2022 Notes will be convertible at their holders' option regardless of the closing price condition on or after December 15, 2021.

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.

During the nine months ended September 30, 2021, $ 422 million, $ 416 million and $ 1.14 billion in aggregate principal amount of the 2021 Notes, 2022 Notes and 2024 Notes, respectively, were converted and settled for $ 422 million, $ 416 million and $ 1.14 billion in cash for their par amount, and the issuance of 5.3 million, 5.7 million and 16.8 million shares of our common stock for the applicable 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, 5.7 million and 16.8 million shares of our common stock, respectively, during the nine months ended September 30, 2021.

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.

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.

Additionally, during the second and third quarters of 2021, we fully settled the warrants entered into in connection with the issuance of the 2021 Notes and partially settled the warrants entered into in connection with the issuance of the 2024 Notes, resulting in the issuance of 15.8 million and 18.7 million shares of our common stock, respectively.

In August 2021, we fully repaid the $ 1.80 billion in aggregate principal of the 2025 Notes and recorded an extinguishment of debt charge of $ 60 million related to the redemption.

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.

During the third quarter of 2021, we terminated the 2016 Warehouse Agreement and the committed funds are no longer available for future borrowings.

In September 2021, we transferred beneficial interests related to certain leased vehicles into an SPE and issued $ 904 million in aggregate principal amount of Automotive Asset-backed Notes, with terms similar to our other, previously issued, Automotive Asset-backed Notes.

The proceeds from the issuance, net of discounts and fees, were $ 900 million.

Solar Asset-backed Notes and Solar Loan-backed Notes

In October 2021, we early repaid $ 321 million and $ 53 million in aggregate principal of the Solar Asset-backed Notes and the Solar Loan-backed Notes, respectively.

China Loan Agreements

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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,

Three Months Ended September 30,

Nine Months Ended September 30,

Contractual interest coupon

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Amortization of debt discounts (1)

(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.

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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”).

grant of 101.3 million stock option awards, as adjusted to give effect to the five-for-one stock split effected in the form of a stock dividend in August 2020, 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.

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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.

The achievement status of the operational milestones as of September 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.

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Achievement Status

(1) Achieved in the third quarter of 2021 and expected to be certified following the filing of this Quarterly Report on Form 10-Q.

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.

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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.

All market capitalization milestones were achieved as of the second quarter of 2021.

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.

During the third quarter of 2021, the operational milestone of annualized Adjusted EBITDA of $ 12.0 billion became probable of being achieved and consequently, we recognized a catch-up expense of $ 124 million.

As of September 30, 2021, we had $ 55 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 0.4 years.

As of September 30, 2021, we had unrecognized stock-based compensation expense of $ 255 million for the operational milestones that were considered not probable of achievement.

For the three and nine months ended September 30, 2021, we recorded stock-based compensation expense of $ 190 million and $ 665 million, respectively, related to the 2018 CEO Performance Award, and $ 338 million and $ 571 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,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenues

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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.

In April 2021, we were granted an additional deferral through December 31, 2021, which was memorialized in an amendment to our agreement with the SUNY Foundation in August 2021, 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 and Buffalo, 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.

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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 .

The trial was held from July 12 to July 23, 2021, and August 16, 2021, to be followed by certain post-trial proceedings, including post-trial argument on January 18, 2022 .

These plaintiffs and others filed parallel actions in the U.S.

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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.

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.

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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.

Defendants' answer was filed on December 3, 2019.

On January 25, 2021, the Court conditionally certified certain claims and a class of Tesla stockholders as a class action.

On September 30, 2021, plaintiff filed a motion for leave to file a verified amended derivative complaint.

On October 1, 2021, defendants Kimbal Musk and Steve Jurvetson moved for summary judgment as to the claims against them.

Following the motion, plaintiff agreed to voluntarily dismiss the claims against Kimbal Musk and Steve Jurvetson.

Plaintiff also moved for summary judgment on October 1, 2021.

Oral argument on summary judgment is set for January 6, 2022 and trial is set for April 2022.

Litigation Related to Directors’

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We are unable to estimate the possible loss or range of loss, if any, associated with these claims.

Litigation Relating to Alleged Race Discrimination

On October 4, 2021, in a case captioned Diaz v.

Tesla , a jury in the Northern District of California returned a verdict of $136.9 million against Tesla on claims by a former contingent worker that he was subjected to race discrimination while assigned to work at Tesla's Fremont factory from 2015-2016.

The Company does not believe that the facts and law justify the verdict and intends to pursue next steps in post-trial motions and on appeal.

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.

We routinely cooperate with such regulatory and governmental requests, including subpoenas, formal and informal requests and other investigations and inquiries.

For example, 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.

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assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheets were as follows (in millions):

September 30,

Current assets

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The following table presents revenues and gross profit by reportable segment (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Automotive segment

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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,

Three Months Ended September 30,

Nine Months Ended September 30,

United States

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

September 30,

United States

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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.

In 2021, we have produced 624,582 vehicles and delivered 627,572 vehicles through the third 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.

In 2021, we have deployed 3.01 GWh of energy storage products and 260 megawatts of solar energy systems through the third 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 and new build solar energy systems.

During the three and nine months ended September 30, 2021, we recognized total revenues of $13.76 billion and $36.10 billion, respectively, representing increases of $4.99 billion and $15.31 billion, respectively, over the same periods ended September 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.

During the three and nine months ended September 30, 2021, our net income attributable to common stockholders was $1.62 billion and $3.20 billion, respectively, representing increases of $1.29 billion and $2.75 billion, respectively, over the same periods ended September 30, 2020.

We continue to focus on improving our profitability through production and operational efficiencies.

We ended the third quarter of 2021 with $16.07 billion in cash and cash equivalents, representing a decrease of $3.32 billion from the end of 2020.

Our cash flows provided by operating activities during the nine month period ended September 30, 2021 was $6.91 billion, representing an increase of $3.99 billion compared to our cash flows provided by operating activities during the same period ended September 30, 2020 of $2.92 billion, and capital expenditures amounted to $4.67 billion during the nine month period ended September 30, 2021, compared to $2.01 billion during the same period ended September 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.

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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 new versions of Model S and Model X are in production, and we are focused on ramping all of our production vehicles to their installed production capacities as well as increasing capacity at our current factories.

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.

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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.

Moreover, we expect to continue 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.

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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.

We continue to increase the production of our energy storage products to meet high levels of demand, including beginning construction of our Megafactory in Lathrop, California, 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.

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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.

In addition, we continue to improve our installation capabilities and price efficiencies for Solar Roof by on-boarding and training new installers, as well as collaborating with real estate developers and builders on new homes to reduce installation time and costs.

As these product lines grow, we will have to maintain adequate battery cell supply for our energy storage products and hire additional personnel, particularly skilled electricians, to support the ramp of Solar Roof.

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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.

We are simultaneously ramping new products in the new Model S and Model X, Model Y, Megapack 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 exceed $6 billion in 2021 and be between $5 to $7 billion in each of the next two fiscal years.

Our business has recently been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also facilitating positive cash generation.

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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.

For example, in the nine month period ended September 30, 2021, we recorded approximately $101 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

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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.

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.

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

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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.

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.

Automotive sales revenue increased $4.33 billion, or 59%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to an increase of 101,183 Model 3 and Model Y cash deliveries.

This increase was partially offset by a decrease from 5,855 fewer Model S and Model X cash deliveries in the three months ended September 30, 2021 compared to the prior period as deliveries of the new version of Model S only began ramping in the second quarter of 2021.

Additionally, there was a reduction in the average selling price of Model Y due to changes in regional sales mix compared to the prior period and a decrease of $118 million from sales of regulatory credits to $279 million in the three months ended September 30, 2021.

Automotive sales revenue increased $13.10 billion, or 76%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to an increase of 304,919 Model 3 and Model Y cash deliveries year over year from production ramping at both Gigafactory Shanghai and the Fremont Factory.

The increase in automotive sales revenue was partially offset by a decrease from 21,767 fewer Model S and Model X cash deliveries in the nine months ended September 30, 2021 compared to the prior period as deliveries of the new version of Model S only began ramping in the second quarter of 2021.

Additionally, there was a reduction in the average selling price of Model Y due to changes in regional sales mix compared to the prior period and a decrease of $28 million from additional sales of regulatory credits to $1.15 billion in the nine months ended September 30, 2021.

Automotive leasing revenue increased $120 million, or 45%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to increases in cumulative vehicles and purchase options exercised under our direct operating lease program compared to the prior period.

Automotive leasing revenue increased $242 million, or 31%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to an increase in cumulative vehicles under our direct operating lease program, 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 and an increase in purchase options exercised under our direct operating lease program compared to the prior period.

These increases were partially offset by the decrease 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 $313 million, or 54%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Services and other revenue increased $1.11 billion, or 68%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

These increases were primarily due to an increase in used vehicle revenue driven by increases in volume and average selling prices of 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.

Energy generation and storage revenue increased by $227 million, or 39%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Energy generation and storage revenue increased by $859 million, or 69%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

These increases were primarily due to increases in deployments of Megapack, solar cash and loan jobs and Powerwall, partially offset by a decrease in Powerpack deployments as we phase out the product following the introduction of Megapack .

Additionally, there was a reduction in average selling prices on our solar cash and loan jobs in the nine months ended September 30, 2021 compared to the prior period as a result of our low cost solar strategy introduced mid-2020.

Cost of Revenues and Gross Margin

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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.

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.

Cost of automotive sales revenue increased $2.79 billion, or 52%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to an increase of 101,183 Model 3 and Model Y cash deliveries, partially offset by a decrease in combined average Model 3 and Model Y costs per unit due to changes in regional production mix, as Gigafactory Shanghai has ramped in capacity, despite a higher proportion of Model Y compared to the prior period.

Additionally, there was a decrease of 5,855 Model S and Model X cash deliveries in the three months ended September 30, 2021 compared to the prior period.

Cost of automotive sales revenue increased $8.95 billion, or 70%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to an increase of 304,919 Model 3 and Model Y cash deliveries.

These increases were partially offset by a decrease of 21,767 Model S and Model X cash deliveries at higher costs per unit due to temporary under-utilization of manufacturing capacity at lower production volumes during our current production ramp of the new version of Model S.

Additionally, there was a decrease in combined average Model 3 and Model Y costs per unit due to changes in regional production mix, as Gigafactory Shanghai has ramped in capacity, despite a higher proportion of Model Y compared to the prior period and lower material, manufacturing, inbound freight and duty costs from localized procurement and manufacturing in China.

Cost of automotive leasing revenue increased $89 million, or 61%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to increases in cumulative vehicles and purchase options exercised under our direct operating lease program compared to the prior period.

Cost of automotive leasing revenue increased $167 million, or 40%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to increases in cumulative vehicles and purchase options exercised under our direct operating lease program compared to the prior period 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 partially offset by the decrease in cost of automotive leasing revenue associated with our resale value guarantee leasing programs accounted for as operating leases as those portfolios have declined.

Cost of services and other revenue increased $266 million, or 41%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to increases in costs to support our increase in non-warranty maintenance services revenue, used vehicle cost of revenue driven by increases in volume and values of trade-ins and costs of retail merchandise as our sales have increased.

Cost of services and other revenue increased $1.01 billion, or 54%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to increases in used vehicle cost of revenue driven by increases in volume and values of 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 28% to 30% in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Gross margin for total automotive increased from 26% to 29% in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The increases were primarily due to favorable changes in sales and production mix of Model 3 and Model Y as Gigafactory Shanghai has ramped in capacity.

The average Model 3 and Model Y costs per unit have decreased significantly due to lower material, manufacturing, inbound freight and duty costs from localized procurement and manufacturing in China.

Increased sales in Asia and exporting vehicles manufactured in Gigafactory Shanghai instead of the Fremont Factory to other regions have resulted in higher gross margins for both our Model 3 and Model Y product lines.

Gross margin for total automotive & services and other segment increased from 25% to 28% in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Gross margin for total automotive & services and other segment increased from 23% to 26% in the nine months ended September 30, 2021 as compared to the nine months ended September 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.

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 nine months ended September 30, 2021 as compared to the prior period.

Energy Generation and Storage Segment

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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.

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.

Cost of energy generation and storage revenue increased by $245 million, or 44%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

These increases were primarily due to increases in deployments of Megapack, solar cash and loan jobs, Solar Roof and Powerwall, partially offset by a decrease in Powerpack deployments as we phase out the product following the introduction of Megapack.

Cost of energy generation and storage revenue increased by $990 million, or 83%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

These increases were primarily due to increases in deployments of solar cash and loan jobs, Megapack, Solar Roof and Powerwall, partially offset by reductions in average costs per unit of solar cash and loan jobs and Solar Roof as deployments have increased and a decrease in Powerpack deployments as we phase out the product following the introduction of Megapack.

Gross margin for energy generation and storage decreased from 4% to 0% in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, 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, despite gross margin improvements compared to the prior period, partially offset by improved gross margins in our energy storage business.

Gross margin for energy generation and storage decreased from 4% to -4% in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, 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 despite improvements in gross margins compared to the prior period and increased service maintenance costs on solar energy systems where we are the lessor, partially offset by a higher proportion of Powerwall in our overall energy business which operated at higher gross margins.

Research and Development Expense

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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.

R&D expenses increased $245 million, or 67%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

The increase was primarily due to a $111 million increase in employee and labor related expenses due to an increase in headcount, a $60 million increase in facilities, outside services, freight and depreciation expenses, a $44 million increase in R&D expensed materials, and a $29 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.

R&D expenses increased $884 million, or 91%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The increase was primarily due to a $393 million increase in employee and labor related expenses due to an increase in headcount, a $221 million increase in R&D expensed materials, a $148 million increase in facilities, outside services, freight and depreciation expense and a $120 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 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.

R&D expenses as a percentage of revenue remained consistent at 4% in the three months ended September 30, 2021 and 2020.

R&D expenses as a percentage of revenue remained consistent at 5% in the nine months ended September 30, 2021 and 2020.

R&D expenses increased proportionately with the increase in total revenues from expanding sales.

Selling, General and Administrative Expense

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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.

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.

SG&A expenses increased $106 million, or 12%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

The increase is primarily due to an increase of $134 million in employee and labor related expenses from increased headcount and a $106 million increase in office, information technology, facilities-related expenses, sales and marketing activities and other costs.

The increases were partially offset by a decrease of $134 million in stock-based compensation expense, of which $148 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 and Note 14, Equity Incentive Plans , in our Annual Report on Form 10-K for the year ended December 31, 2020.

SG&A expenses increased $847 million, or 39%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The increase is primarily due to an increase of $445 million in employee and labor related expenses from increased headcount and a $223 million increase in office, information technology, facilities-related expenses, sales and marketing activities and other costs.

Additionally, there was an increase of $179 million in stock-based compensation expense, of which $94 million was attributable to the 2018 CEO Performance Award.

SG&A expenses as a percentage of revenue decreased from 10% to 7% in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

SG&A expenses as a percentage of revenue decreased from 10% to 8% in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

This was driven by the increase in total revenues from expanding sales, despite an increase in our SG&A expenses as detailed above.

Restructuring and Other Expense

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As a percentage of revenues

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.

During the three and nine months ended September 30, 2021, we recorded $51 million and $101 million, respectively, of impairment losses on bitcoin.

We also realized gains of $128 million in March 2021.

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.

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As a percentage of revenues

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.

Interest expense decreased by $37 million, or 23%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Interest expense decreased by $202 million, or 40%, in the nine months ended September 30, 2021 as compared to the nine months ended September 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.

Other Income (Expense), Net

These decreases were partially offset by an extinguishment of debt charge of $60 million related to the redemption of our 5.30% Senior Notes due in 2025.

Other (Expense) Income, Net

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Other income (expense), net

Other (expense) income, net

As a percentage of revenues

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.

Other (expense) income, 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.

Other (expense) income, net, changed favorably by $91 million in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to favorable fluctuations in foreign currency exchange rates.

Other (expense) income, net, changed favorably by $233 million in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to favorable fluctuations in foreign currency exchange rates and a $54 million favorable change in the mark-to-market remeasurement of our interest rate swaps.

Provision for Income Taxes

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Effective tax rate

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.

Our provision for income taxes increased by $37 million, or 20%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Our provision for income taxes increased by $198 million, or 95%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The increases were primarily due to the increases in taxable profits within our foreign jurisdictions year over year.

Our effective tax rate decreased from 34% to 12% in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Our effective tax rate decreased from 27% to 11% in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The decreases were primarily due to growth in pre-tax income and changes in mix of jurisdictional earnings.

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

1 unchanged sentence

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1 unchanged sentence

redeemable noncontrolling interests in subsidiaries

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.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests increased by $3 million, or 8%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by $12 million, or 10%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Our changes in net income attributable to noncontrolling interests and redeemable noncontrolling interests, which was related to activities in our financing fund arrangements, have been immaterial.

Liquidity and Capital Resources

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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.

Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following September 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.

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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).

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 exceed $6 billion in 2021 and be between $5 to $7 billion in each of the next two fiscal years.

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 and which was memorialized in an amendment to our agreement with the SUNY Foundation in August 2021).

We also have an operating lease arrangement with the local government of Shanghai pursuant to which we are required to spend RMB 14.08 billion in capital expenditures at Gigafactory 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.

As of September 30, 2021, we and our subsidiaries had outstanding $6.70 billion in aggregate principal amount of indebtedness, of which $1.22 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.

As of September 30, 2021, we had $16.07 billion of cash and cash equivalents.

Balances held in foreign currencies had a U.S.

dollar equivalent of $5.79 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.

In addition, we had $475 million of unused committed amounts under our credit facilities as of September 30, 2021.

For details regarding our indebtedness, refer to Note 10, Debt to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We continue adapting our investment strategy to meet our liquidity and risk objectives, such as investing in U.S.

government and other marketable securities, digital assets and providing product related financing.

In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin.

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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.

The fair market value of our bitcoin holdings as of September 30, 2021 was $1.83 billion.

We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash.

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Summary of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

(Dollars in millions)

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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.

Net cash provided by operating activities increased by $3.99 billion to $6.91 billion during the nine months ended September 30, 2021 from $2.92 billion during the nine months ended September 30, 2020.

This increase was primarily due to the increase in net income excluding non-cash expenses and gains of $3.27 billion and the overall decrease in net operating assets and liabilities of $721 million.

The decrease in our net operating assets and liabilities was mainly driven by a larger increase in accounts payable and accrued liabilities in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 from ramp up in production at Gigafactory Shanghai and the Fremont Factory and a larger increase in deferred revenue from higher vehicle deliveries.

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 and a larger increase in other non-current assets.

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 investing activities and their variability across each period related primarily to capital expenditures, which were $4.67 billion for the nine months ended September 30, 2021 and $2.01 billion for the nine months ended September 30, 2020, mainly for construction of Gigafactory Texas and Gigafactory Berlin and production expansion of Gigafactory Shanghai and the Fremont Factory.

Additionally, net cash activities related to digital assets were $1.23 billion in the nine months ended September 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.

Net cash used in financing activities during the nine months ended September 30, 2021 was $3.95 billion, which consisted primarily of $5.14 billion of net repayments under our various debt facilities and $311 million principal repayments of our finance leases .

These cash outflows were partially offset by $1.22 billion of net borrowings from our A utomotive Asset-backed Notes and $445 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.

Net cash provided by financing activities during the nine months ended September 30, 2020 was $7.28 billion, which consisted primarily of $7.28 billion from issuances of common stock, net of issuance costs, $361 million of proceeds from exercise of stock options and other stock issuances and $315 million net borrowings from our Automotive Asset-backed Notes.

These cash inflows were partially offset by $248 million principal repayments of our finance leases, collateralized lease repayments of $224 million and $173 million net payments to financing fund investors.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements