What changed in this filing

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Item 1. Financial Statements

2022-04-25 compared with 2021-10-25 · 385 added, 555 removed, 776 unchanged (55% of the section changed)

2 unchanged sentences

(in millions, except per share data)

September 30,

Current assets

24 unchanged sentences

Redeemable noncontrolling interests in subsidiaries

Convertible senior notes (Note 10)

Stockholders' equity

Stockholders’

Preferred stock;

5 unchanged sentences

2,000 shares authorized;

1,004 shares and

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

2020, respectively

1,036 and 1,033 shares issued and outstanding as of

March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated deficit

Total stockholders' equity

Accumulated other comprehensive (loss) income

Retained earnings

Total stockholders’

Noncontrolling interests in subsidiaries

3 unchanged sentences

(in millions, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Automotive sales

Automotive regulatory credits

Automotive leasing

18 unchanged sentences

Interest expense

Other (expense) income, net

Other income, net

Income before income taxes

Provision for income taxes

Net income attributable to noncontrolling interests and

Net (loss) income attributable to noncontrolling interests and

redeemable noncontrolling interests in subsidiaries

Net income attributable to common stockholders

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

Net income per share of common stock

attributable to common stockholders

Weighted average shares used in computing net

3 unchanged sentences

(in millions)

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive income (loss):

Three Months Ended March 31,

Other comprehensive loss:

Foreign currency translation adjustment

Unrealized net loss on marketable securities

Comprehensive income

Comprehensive income attributable to

Comprehensive (loss) income attributable to

noncontrolling interests and redeemable

noncontrolling interests in subsidiaries

Comprehensive income attributable to common stockholders

Comprehensive income attributable to

common stockholders

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

C onsolidated Statements of Redeemable Noncontrolling Interests and Equity

Consolidated Statements of Redeemable Noncontrolling Interests and Equity

(in millions, except per share data)

2 unchanged sentences

Comprehensive

Stockholders'

Three Months Ended September 30, 2020

(Loss) Income

Balance as of June 30, 2020

Reclassification between equity and

mezzanine equity for convertible senior

Exercises of conversion feature of

convertible senior notes

Issuance of common stock for equity

incentive awards

Issuance of common stock through

at-the-market offering program,

net of issuance cost of $ 26

Stock-based compensation

Contributions from noncontrolling interests

Distributions to noncontrolling interests

Buy-out of noncontrolling interests

Other comprehensive income

Balance as of September 30, 2020

Noncontrolling

Comprehensive

Stockholders'

Nine Months Ended September 30, 2020

(Loss) Income

Stockholders’

Income (Loss)

Balance as of December 31, 2021

Adjustments for prior periods from

adopting ASU 2016-13

Reclassification between equity and

mezzanine equity for convertible senior

Exercises of conversion feature of

2 unchanged sentences

incentive awards

Issuance of common stock in Feb 2020

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 interests

Distributions to noncontrolling interests

Buy-out of noncontrolling interests

Other comprehensive income

Balance as of September 30, 2020

Noncontrolling

Comprehensive

Stockholders'

Three Months Ended September 30, 2021

Balance as of June 30, 2021

Exercises of conversion feature of

convertible senior notes

Settlements of warrants

Issuance of common stock for equity

incentive awards

Stock-based compensation

Distributions to noncontrolling interests

Net (loss) income

Other comprehensive loss

Balance as of September 30, 2021

Balance as of March 31, 2022

Noncontrolling

1 unchanged sentence

Comprehensive

Stockholders'

Nine Months Ended September 30, 2021

Stockholders’

Income (Loss)

Balance as of December 31, 2020

3 unchanged sentences

convertible senior notes

Settlements of warrants

Issuance of common stock for equity

1 unchanged sentence

Stock-based compensation

Contributions from noncontrolling interests

Distributions to noncontrolling interests

Distributions to noncontrolling

Other comprehensive loss

Balance as of September 30, 2021

Balance as of March 31, 2021

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

1 unchanged sentence

(in millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities

3 unchanged sentences

Inventory and purchase commitments write-downs

Foreign currency transaction net loss

Foreign currency transaction net unrealized gain

Non-cash interest and other operating activities

15 unchanged sentences

Proceeds from sales of digital assets

Purchase of intangible 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

Cash Flows from Financing Activities

Proceeds from issuances of common stock in public offerings, net of issuance costs

Proceeds from issuances of convertible and other debt

4 unchanged sentences

Debt issuance costs

Proceeds from investments by noncontrolling interests in subsidiaries

Distributions paid to noncontrolling interests in subsidiaries

Payments for buy-outs of noncontrolling interests in subsidiaries

Net cash (used in) provided by financing activities

Net cash used in by financing activities

Effect of exchange rate changes on cash and cash equivalents and restricted cash

Net (decrease) increase in cash and cash equivalents and restricted cash

Net decrease in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash, beginning of period

12 unchanged sentences

(i) automotive and (ii) energy generation and storage.

There continues to be widespread impact from the COVID-19 pandemic.

Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions.

On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply.

We have also previously been affected by temporary manufacturing closures, employment and compensation adjustments and impediments to administrative activities supporting our product deliveries and deployments.

We have also previously been, and are being, affected by temporary manufacturing closures, employment and compensation adjustments and impediments to administrative activities supporting our product deliveries and deployments.

In addition, we have experienced and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID‐19 pandemic and general global economic conditions.

The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible.

Note 2 –

1 unchanged sentence

Unaudited Interim Financial Statements

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 March 31, 2022, the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of redeemable noncontrolling interests and equity, and the consolidated statements of cash flows for the three months ended March 31, 2022 and 2021, as well as other information disclosed in the accompanying notes, are unaudited.

The consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements as of that date.

6 unchanged sentences

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets which could impact our estimates and assumptions.

The estimates used for, but not limited to, determining significant economic incentive for resale value guarantee arrangements, sales return reserves, the collectability of accounts receivable, inventory valuation, warranties, fair value of long-lived assets, goodwill, fair value of financial instruments, fair value and residual value of operating lease vehicles and solar energy systems subject to leases could be impacted.

We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q.

1 unchanged sentence

Actual results could differ materially from these estimates under different assumptions or conditions.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes.

Revenue Recognition

1 unchanged sentence

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Automotive sales without resale value guarantee

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Automotive Sales with and without Resale Value Guarantee

We recognize revenue when control transfers upon delivery to customers in accordance with ASC 606 as a sale with a right of return when we do not believe the customer has a significant economic incentive to exercise the resale value guarantee provided to them at contract inception.

The total sales return reserve on vehicles previously sold under our buyback options program was $ 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.

We recognize revenue when control transfers upon delivery to customers in accordance with ASC 606, Revenue from Contracts with Customers , 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 sold with resale value guarantees was $ 190 million and $ 223 million as of March 31, 2022 and December 31, 2021, respectively, of which $ 80 million and $ 91 million was short-term, respectively.

Deferred revenue is related to the access to our Full Self Driving (“FSD”) features, internet connectivity, Supercharger network and over-the-air software updates on automotive sales with and without resale value guarantee, which amounted to $ 2.56 billion and $ 2.38 billion as of March 31, 2022 and December 31, 2021, 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 $ 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.

Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was $ 66 million and $ 79 million for the three months ended March 31, 2022 and 2021, respectively.

Of the total deferred revenue on automotive sales with and without resale value guarantees as of March 31, 2022, we expect to recognize $ 948 million of revenue in the next 12 months.

The remaining balance will be recognized at the time of transfer of control of the product or over the performance period, which is generally the expected ownership life of the vehicle.

Automotive Regulatory Credits

2 unchanged sentences

Payments for automotive regulatory credits are typically received at the point control transfers to the customer, or in accordance with payment terms customary to the business.

We recognize revenue on the sale of automotive regulatory credits at the time control of the regulatory credits is transferred to the purchasing party as automotive sales revenue in the consolidated statements of operations.

Deferred revenue related to sales of automotive regulatory credits was $ 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.

We recognize revenue on the sale of automotive regulatory credits, which have negligible incremental costs associated with them, at the time control of the regulatory credits is transferred to the purchasing party.

Deferred revenue related to sales of automotive regulatory credits was immaterial as of March 31, 2022 and December 31, 2021, respectively.

Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was immaterial for the three months ended March 31, 2022 and 2021 , respectively.

During the three months ended March 31, 2022, we had also recognized $ 288 million in revenue due to changes in regulation which entitled us to additional consideration for credits sold previously.

Automotive Leasing Revenue

Direct Sales-Type Leasing Program

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.

For the three months ended March 31, 2022, we recognized $ 265 million of sales-type leasing revenue and $ 164 million of sales-type leasing cost of revenue.

For the three months ended March 31, 2021 , we recognized $ 42 million of sales-typing leasing revenue and $ 26 million 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

March 31, 2022

December 31, 2021

1 unchanged sentence

Unearned interest income

Allowance for expected credit losses

Net investment in sales-type leases

5 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 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.

As of March 31, 2022 and December 31, 2021, deferred revenue related to such customer payments amounted to $ 481 million and $ 399 million, respectively.

Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was $ 52 million and $ 33 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, 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 $ 154 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 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.

As of March 31, 2022 and December 31, 2021 , the aggregate balances of our gross unrecognized tax benefits were $ 562 million and $ 531 million, respectively, of which $ 493 million and $ 473 million, respectively, would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset that is currently fully offset by a valuation allowance.

The local government of Shanghai granted a beneficial corporate income tax rate of 15 % to certain eligible enterprises, compared to the 25 % statutory corporate income tax rate in China.

Our Gigafactory Shanghai subsidiary was granted this beneficial income tax rate of 15 % for 2019 through 2023.

We file income tax returns in the U.S., California and various state and foreign jurisdictions.

We file income tax returns in the U.S.

and various state and foreign jurisdictions.

We are currently under examination by the IRS for the years 2015 to 2018 .

Additional tax years within the 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.

Additional tax years within the periods 2004 to 2014 and 2019 to 2021 remain subject to examination for federal 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.

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

federal and state income tax purposes.

Our returns for 2004 and subsequent tax years remain subject to examination in U.S.

state and foreign jurisdictions.

The potential outcome of the current examination could result in a change to unrecognized tax benefits within the next twelve months.

However, we cannot reasonably estimate possible adjustments at this time.

Given the uncertainty in timing and outcome of our tax examinations, an estimate of the range of the reasonably possible change in gross unrecognized tax benefits within twelve months cannot be made at this time.

Net Income per Share of Common Stock Attributable to Common Stockholders

1 unchanged sentence

Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible senior notes using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income per share of common stock attributable to common stockholders when their effect is dilutive.

On January 1, 2021, we adopted ASU 2020-06 using the modified retrospective method.

Following this adoption, we utilize the if-converted method for diluted net income per share calculation of our convertible debt instruments (see Recent Accounting Pronouncements section below for further details).

During the three and 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.

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 net income attributable to common stockholders to net income used in computing basic and diluted net income per share of common stock (in millions):

Three Months Ended March 31,

Net income attributable to common stockholders

Buy-out of noncontrolling interest

Net income used in computing basic net

income per share of common stock

Dilutive convertible debt

Net income used in computing diluted net

income per share of common stock

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,

Three Months Ended March 31,

Weighted average shares used in computing

5 unchanged sentences

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 (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Stock-based awards

Convertible senior notes

(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 nine months ended September 30, 2021.

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 .

Restricted Cash

1 unchanged sentence

Our restricted cash is comprised primarily of cash held to service certain payments under various secured debt facilities.

In addition, restricted cash includes cash held as collateral for certain permits as well as sales to lease partners with a resale value guarantee, letters of credit, real estate leases, insurance policies, credit card borrowing facilities, certain operating leases and cash received from certain fund investors that have not been released for use by us.

We record restricted cash as other assets in the consolidated balance sheets and determine current or non-current classification based on the expected duration of the restriction.

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

September 30,

Cash and cash equivalents

3 unchanged sentences

Total as presented in the consolidated statements of cash flows

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 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.

As of March 31, 2022 and December 31, 2021 , we had $ 703 million and $ 627 million, respectively, of long-term government rebates receivable in Other non-current assets on our consolidated balance sheets.

MyPower Customer Notes Receivable

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 .

As of March 31, 2022 and December 31, 2021, the total outstanding balance of MyPower customer notes receivable, net of allowance for expected credit losses, was $ 293 million and $ 299 million, respectively, of which $ 10 million and $ 11 million were due in the next 12 months as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, the allowance for expected credit losses was $ 41 million.

Concentration of Risk

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.

Our cash balances are primarily invested in money market funds, U.S.

government securities , or on deposit at high credit quality financial institutions in the U.S.

These deposits are typically in excess of insured limits.

As of September 30, 2021 and December 31, 2020 , no entity represented 10 % or more of our total accounts receivable balance.

As of March 31, 2022 and December 31, 2021 , 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.

1 unchanged sentence

Operating Lease Vehicles

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 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.

We may in the future restart the practice of transacting in cryptocurrencies ("digital assets") for our products and services.

We account for such non-cash consideration at the time we enter into transactions with our customers in accordance with the non-cash consideration guidance included in the Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , based on the then current quoted market prices of the digital assets.

We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other .

We have ownership of and control over our digital assets and we may use third-party custodial services to secure it.

The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition.

We determine the fair value of our digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement , based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs).

We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired.

In determining if an impairment has occurred, we consider the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset.

If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.

Impairment losses are recognized within Restructuring and other in the consolidated statements of operations in the period in which the impairment is identified.

The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value.

Gains are not recorded until realized upon sale(s), at which point they are presented net of any impairment losses for the same digital assets held within Restructuring and other.

In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

See Note 3, Digital Assets, Net , for further information regarding digital assets.

The gross cost of operating lease vehicles as of March 31, 2022 and December 31, 2021 was $ 5.62 billion and $ 5.28 billion, respectively.

Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 877 million and $ 773 million as of March 31, 2022 and December 31, 2021 , respectively.

We provide a manufacturer’s warranty on all new and used vehicles and a warranty on the installation and components of the energy generation and storage systems we sell for periods typically between 10 to 25 years .

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These estimates are inherently uncertain given our relatively short history of sales, and changes to our historical or projected warranty experience may cause material changes to the warranty reserve in the future.

The warranty reserve does not include projected warranty costs associated with our vehicles subject to operating lease accounting and our solar energy systems under lease contracts or Power Purchase Agreements ("PPAs"), as the costs to repair these warranty claims are expensed as incurred.

The warranty reserve does not include projected warranty costs associated with our vehicles subject to operating lease accounting and our solar energy systems under lease contracts or Power Purchase Agreements (“PPAs”), as the costs to repair these warranty claims are expensed as incurred.

The portion of the warranty reserve expected to be incurred within the next 12 months is included within Accrued liabilities and other, while the remaining balance is included within Other long-term liabilities on the consolidated balance sheets.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Accrued warranty—beginning of period

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Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805).

This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606.

At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts.

The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years.

Adoption of the ASU should be applied prospectively.

Early adoption is also permitted, including adoption in an interim period.

If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption.

This ASU is currently not expected to have a material impact on our consolidated financial statements.

Recently adopted accounting pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards.

The amendments in the ASU include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments.

In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination.

We adopted ASU 2019-12 starting 2021, which did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No.

2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848).

The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The ASU is effective as of March 12, 2020 through December 31, 2022.

We continue to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

We adopted ASU 2020-04 during 2021.

The ASU has not and is currently not expected to have a material impact on our consolidated financial statements.

In May 2021, the FASB issued ASU No.

2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

The ASU addresses the previous lack of specific guidance in the accounting standards codification related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios.

The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for any periods after issuance to be applied as of the beginning of the fiscal year that includes the interim period.

We adopted the ASU during 2021 as of the beginning of our fiscal year, which did not have a material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The ASU simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments.

The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract.

The convertible debt instruments will be accounted for as a single liability measured at amortized cost.

This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest.

Further, the ASU made amendments to the EPS guidance in Topic 260 for convertible debt instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method.

The ASU also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting.

The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities.

The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020.

Adoption of the ASU can either be on a modified retrospective or full retrospective basis.

On January 1, 2021, we adopted the ASU using the modified retrospective method.

We recognized a cumulative effect of initially applying the ASU as an adjustment to the January 1, 2021 opening balance of accumulated deficit.

Due to the recombination of the equity conversion component of our convertible debt remaining outstanding, additional paid in capital and convertible senior notes (mezzanine equity) were reduced.

The removal of the remaining debt discounts recorded for this previous separation had the effect of increasing our net debt balance and the reduction of property, plant and equipment was related to previously capitalized interest.

The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

Accordingly, the cumulative effect of the changes made on our January 1, 2021 consolidated balance sheet for the adoption of the ASU was as follows (in millions):

December 31, 2020

Adjustments from

Adoption of ASU 2020-06

January 1, 2021

Property, plant and equipment, net

Current portion of debt and finance leases

Debt and finance leases, net of current portion

Mezzanine equity

Convertible senior notes

Additional paid-in capital

Accumulated deficit

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.

In November 2021, the FASB issued ASU No.

2021-10, Government Assistance (Topic 832).

This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model.

The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions.

The ASU is effective for annual periods beginning after December 15, 2021.

The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application.

We adopted the ASU prospectively on January 1, 2022.

The additional annual disclosures required are not expected to have a material impact on our consolidated financial statements.

Note 3 –

Digital Assets, Net

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 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.

During the three months ended March 31, 2022 and 2021, we purchased and/or received an immaterial amount and $ 1.50 billion, respectively, of digital assets.

During the three months ended March 31, 2022 and 2021, the impairment losses we recorded on such digital assets were immaterial and $ 27 million, respectively.

We also realized gains of $ 128 million in connection with selling a portion of our holdings in March 2021.

Such gains are presented net of impairment losses in Restructuring and other in the consolidated statements of operations.

As of March 31, 2022 and December 31, 2021 , the carrying value of our digital assets held was $ 1.26 billion, which reflects cumulative impairments of $ 101 million, each period.

The fair market value of such digital assets held as of March 31, 2022 was $ 1.96 billion.

Note 4 –

1 unchanged sentence

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

September 30, 2021

March 31, 2022

December 31, 2021

9 unchanged sentences

Gigafactory Nevada

Total infinite-lived

intangible assets

Total intangible assets

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

Three months ending December 31, 2021

Nine months ending December 31, 2022

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):

September 30, 2021

March 31, 2022

December 31, 2021

Money market funds (cash and

cash equivalents)

Money market funds

government securities

(cash and cash equivalents)

Corporate debt securities

(short-term marketable

Interest rate swap liabilities

2 unchanged sentences

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.

Our cash, cash equivalents and marketable securities classified by security type as of March 31, 2022 and December 31, 2021 consisted of the following (in millions):

March 31, 2022

Adjusted Cost

Gross Unrealized Gains

Gross Unrealized Losses

Cash and Cash Equivalents

Short-Term Marketable Securities

Money market funds

government securities

Corporate debt securities

Total cash, cash equivalents and short-term marketable securities

December 31, 2021

Adjusted Cost

Gross Unrealized Gains

Gross Unrealized Losses

Cash and Cash Equivalents

Short-Term Marketable Securities

Money market funds

Corporate debt securities

Total cash, cash equivalents and short-term marketable securities

We record gross realized gains, losses and credit losses as a component of Other income, net in the consolidated statements of operations.

For the three months ended March 31, 2022, we did not recognize any material gross realized gains, losses or credit losses.

The ending allowance balances for credit losses were immaterial as of March 31, 2022 and December 31, 2021.

We have determined that the gross unrealized losses on our marketable securities as of March 31, 2022 and December 31, 2021 were temporary in nature.

The following table summarizes the fair value of our marketable securities by stated contractual maturities as of March 31, 2022 (in millions):

Due in 1 year or less

Due in 1 year through 5 years

Due in 5 years through 10 years

Asset-backed securities

Interest Rate Swaps

We enter into fixed-for-floating interest rate swap agreements to swap variable interest payments on certain debt for fixed interest payments, as required by certain of our lenders.

We do not designate our interest rate swaps as hedging instruments.

Accordingly, our interest rate swaps are recorded at fair value on the consolidated balance sheets within Other non-current assets or Other long-term liabilities, with any changes in their fair values recognized as Other income (expense), net, in the consolidated statements of operations and with any cash flows recognized as operating activities in the consolidated statements of cash flows.

We had previously entered into fixed-for-floating interest rate swap agreements to swap variable interest payments on certain debt for fixed interest payments, as required by certain of our lenders.

We did not designate our interest rate swaps as hedging instruments.

Accordingly, our interest rate swaps were recorded at fair value on the consolidated balance sheets within Other non-current assets or Other long-term liabilities, with any changes in their fair values recognized as Other income, net, in the consolidated statements of operations and with any cash flows recognized as operating activities in the consolidated statements of cash flows.

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

September 30, 2021

March 31, 2022

December 31, 2021

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

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 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).

In addition, we estimate the fair values of our Solar Asset-backed Notes and Solar Loan-backed Notes based on rates currently offered for instruments with similar maturities and terms (Level III).

The carrying values of these financial instruments approximate their fair values, other than our 2.375 % Convertible Senior Notes due in 2022 (“2022 Notes”), 2.00 % Convertible Senior Notes due in 2024 (“2024 Notes”) (collectively referred to as “Convertible Senior Notes”

below), and Solar Asset and Loan-backed Notes.

We estimate the fair value of the Convertible Senior Notes using commonly accepted valuation methodologies and market-based risk measurements that are indirectly observable, such as credit risk (Level II).

In addition, we estimate the fair values of our Solar Asset and Loan-backed Notes based on rates currently offered for instruments with similar maturities and terms (Level III).

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

September 30, 2021

March 31, 2022

December 31, 2021

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Convertible Senior Notes (1)

Solar Asset-backed Notes

Solar Loan-backed Notes

Solar Asset and Loan-backed Notes

(1) The 2022 Notes were fully settled in the first quarter of 2022 .

Note 6 –

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 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.

During the three months ended March 31, 2022 and 2021, we recorded write-downs of $ 26 million and $ 23 million, respectively, in Cost of revenues in the consolidated statements of operations.

Note 7 –

1 unchanged sentence

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

September 30,

Machinery, equipment, vehicles and office furniture

5 unchanged sentences

Construction in progress is primarily comprised of construction of Gigafactory Berlin and Gigafactory Texas, expansion of Gigafactory Shanghai and equipment and tooling related to the manufacturing of our products.

We are currently constructing Gigafactory Berlin under conditional permits in anticipation of being granted final permits.

Completed assets are transferred to their respective asset classes and depreciation begins when an asset is ready for its intended use.

Interest on outstanding debt is capitalized during periods of significant capital asset construction and amortized over the useful lives of the related assets.

During the three and 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.

During the three months ended March 31, 2022 and 2021, we capitalized interest of an immaterial amount and $ 15 million, respectively.

Depreciation expense during the three months ended March 31, 2022 and 2021 was $ 551 million and $ 424 million, respectively.

Gross property, plant and equipment under finance leases as of March 31, 2022 and December 31, 2021 was $ 2.76 billion and $ 2.75 billion, respectively, with accumulated depreciation of $ 1.33 billion and $ 1.21 billion, 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 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.

As of March 31, 2022 and December 31, 2021, we had cumulatively capitalized gross costs of $ 2.00 billion and $ 1.98 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 September 30, 2021 and December 31, 2020, accrued liabilities and other current liabilities consisted of the following (in millions):

September 30,

Our accrued liabilities and other current liabilities consisted of the following (in millions):

Accrued purchases (1)

4 unchanged sentences

Operating lease liabilities, current portion

Accrued interest

Other current liabilities

(1) Accrued purchases primarily reflects receipts of goods and services that we had not been invoiced yet.

(1) Accrued purchases primarily reflects receipts of goods and services for which we had not yet been invoiced.

As we are invoiced for these goods and services, this balance will reduce and accounts payable will increase.

2 unchanged sentences

Other Long-Term Liabilities

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

September 30,

Our other long-term liabilities consisted of the following (in millions):

Operating lease liabilities

5 unchanged sentences

Note 10 –

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

The following is a summary of our debt and finance leases as of March 31, 2022 (in millions):

Net Carrying Value

3 unchanged sentences

Credit Agreement

Solar Bonds and other Loans

October 2021 - January 2031

Not applicable

March 2025 - January 2031

Total recourse debt

1 unchanged sentence

Automotive Asset-backed Notes

April 2022 - September 2025

Solar Asset-backed Notes

September 2024 - February 2048

September 2022 - September 2025

Solar Asset and Loan-backed Notes

December 2026 - February 2048

Cash Equity Debt

July 2033 - January 2035

Solar Loan-backed Notes

September 2048 - September 2049

Automotive Lease-backed Credit Facilities

11 unchanged sentences

Credit Agreement

Solar Bonds and other Loans

January 2022 - January 2031

2 unchanged sentences

Automotive Asset-backed Notes

August 2021 - August 2024

Solar Asset-backed Notes

September 2024 - February 2048

China Loan Agreements

June 2021 - December 2024

September 2022 - September 2025

Solar Asset and Loan-backed Notes

September 2024 - September 2049

Cash Equity Debt

July 2033 - January 2035

Solar Loan-backed Notes

September 2048 - September 2049

Warehouse Agreements

Automotive Lease-backed Credit Facilities

Not applicable

September 2023

Solar Term Loan

Automotive Lease-backed Credit Facility

September 2022 - November 2022

Solar Revolving Credit Facility and

June 2022 - February 2033

February 2033

Total non-recourse debt

1 unchanged sentence

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, 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.

(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 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, 2021.

Recourse debt refers to debt that is recourse to our general assets.

1 unchanged sentence

The differences between the unpaid principal balances and the net carrying values are due to debt discounts or deferred financing costs.

The debt discounts were updated as of January 1, 2021 for our convertible notes with the adoption of ASU 2020-06 as discussed in Note 2, Summary of Significant Accounting Policies .

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

2021 Notes, 2022 Notes and 2024 Notes

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.

As of March 31, 2022, we were in material compliance with all financial debt covenants.

2022 Notes and 2024 Notes

During the first quarter of 2022, the closing price of our common stock continued to exceed 130 % of the applicable conversion price of our 2024 Notes on at least 20 of the last 30 consecutive trading days of the quarter, causing the 2024 Notes to be convertible by their holders during the second quarter of 2022.

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 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.

During the first quarter of 2022, $ 29 million and $ 23 million in aggregate principal amount of the 2022 Notes and 2024 Notes, respectively, were converted and settled for $ 29 million and $ 23 million in cash for their par amount, and the issuance of 0.4 million and 0.3 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 2022 Notes and 2024 Notes were automatically settled with the respective conversions of the 2022 Notes and 2024 Notes, resulting in the receipt of 0.4 million and 0.3 million shares of our common stock, respectively.

In March 2022, the 2022 Notes were fully settled.

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, previously issued, 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

In April 2021, we fully repaid the $ 614 million in aggregate principal of our secured term loan facility in connection with the construction of Gigafactory Shanghai (the “Fixed Asset Facility”) and the facility was terminated.

In June 2021, our Working Capital Loan Contract entered in May 2020 (the “2020 China Working Capital Facility”) matured and the facility was terminated.

Solar Term Loan

In January 2021, our Solar Term Loan matured and was repaid.

Automotive Lease-backed Credit Facilities

In June 2021, we fully repaid $ 32 million in aggregate principal of our Automotive Lease-backed Credit Facilities and terminated one of the facilities.

Solar Revolving Credit Facility and other Loans

In April 2021, we fully repaid the $ 67 million in aggregate principal of our Solar Revolving Credit Facility and the facility was terminated.

Solar Asset and Loan-backed Notes

During the first quarter of 2022, we early repaid $ 380 million in aggregate principal of the Solar Asset and Loan-backed Notes and recorded an extinguishment of debt charge of $ 11 million related to the early repayments in Interest expense in the consolidated statement of operations.

Interest Expense

The following table presents the interest expense related to the contractual interest coupon, the amortization of debt issuance costs and the amortization of debt discounts on our convertible senior notes with cash conversion features, which include the 2021 Notes, the 2022 Notes and the 2024 Notes (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents the interest expense related to the contractual interest coupon and the amortization of debt issuance costs, which include the 1.25 % Convertible Senior Notes due in 2021 (fully settled in March 2021), the 2022 Notes and the 2024 Notes (in millions):

Three Months Ended March 31,

Contractual interest coupon

Amortization of debt issuance costs

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 nine months ended September 30, 2021.

Refer to discussion above for further details.

Note 11 –

2 unchanged sentences

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 five-for-one stock split effected in the form of a stock dividend in August 2020, 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 (“Stock Split”), to our CEO (the “2018 CEO Performance Award”).

The 2018 CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational milestones (performance conditions) and market conditions, assuming continued employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date.

2 unchanged sentences

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 September 30, 2021 is provided below.

The achievement status of the operational milestones as of March 31, 2022 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.

5 unchanged sentences

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.

(1) Achieved in the first quarter of 2022 and expected to be certified following the filing of this Quarterly Report on Form 10-Q.

In each quarter since the grant of the 2018 CEO Performance Award, we have recognized expense, generally on a pro-rated basis, for only the number of tranches (up to the maximum of 12 tranches) that corresponds to the number of operational milestones that have been achieved or have been determined probable of being achieved in the future, in accordance with the following principles.

6 unchanged sentences

Each quarter thereafter, we recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected full achievement time, except that upon the achievement of both a market capitalization milestone and operational milestone with respect to a tranche, all remaining expense for that tranche is immediately recognized.

As a result, we have experienced, and may experience in the future, significant catch-up expenses in quarters when one or more operational milestones are first determined to be probable of being achieved.

As a result, we have experienced significant catch-up expenses in quarters when one or more operational milestones were first determined to be probable of achievement.

Historically, the expected market capitalization achievement times were generally later than the related expected operational milestone achievement times.

Therefore, when market capitalization milestones are achieved earlier than originally forecasted, for example due to periods of rapid stock price appreciation, this has resulted, and may result in the future, in higher catch-up expenses and the remaining expenses being recognized over shorter periods of time at a higher per-quarter rate.

Therefore, when market capitalization milestones were achieved earlier than originally forecasted due to periods of rapid stock price appreciation, we had higher catch-up expenses and the remaining expenses were being recognized over shorter periods of time at a higher per-quarter rate.

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.

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.

During the three months ended March 31, 2022 , three operational milestones were achieved and consequently, we recognized an aggregate catch-up expense of $ 11 million.

As of March 31, 2022, we had $ 17 million of total unrecognized stock-based compensation expense remaining, which will be recognized over a weighted-average period of 0.5 years.

For the three months ended March 31, 2022 and 2021, we recorded stock-based compensation expense of $ 48 million and $ 299 million, respectively, related to the 2018 CEO Performance Award.

Other Performance-Based Grants

2021 Performance-Based Stock Option & Restricted Stock Unit ( “

RSU”) Awards

During the fourth quarter of 2021, the Compensation Committee of our Board of Directors granted to certain employees RSUs and stock options to purchase an aggregate 0.7 million shares of our common stock to create incentives for continued long-term success and to closely align compensation with our stockholders’

interests in the achievement of certain performance milestones by our company.

We begin recording stock-based compensation expense when the performance milestones become probable of achievement.

Following achievement, vesting occurs over a two-year period with continued employment.

During the three months ended March 31, 2022, the performance milestones related to this grant became probable of achievement and consequently, we recognized an aggregate catch-up expense of $ 30 million.

As of March 31, 2022, we had unrecognized stock-based compensation expense of $ 334 million , which will be recognized over a weighted-average period of 3.2 years.

For the three months ended March 31, 2022, we recorded $ 69 million of stock-based compensation expense related to this grant.

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of revenues

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Furthermore, if the arrangement is terminated due to a material breach by us, then additional amounts may become payable by us.

As we temporarily suspended most of our manufacturing operations at Gigafactory New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we were granted a one-year deferral of our obligation to be compliant with our applicable targets under such agreement on April 30, 2020, which was memorialized in an amendment to our agreement with the SUNY Foundation in July 2020.

In April 2021, we were granted an additional deferral through December 31, 2021, 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.

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 deferral of our obligation to be compliant with our applicable targets through December 31, 2021 in an amendment memorialized in August 2021.

The amendment also extended our overall agreement to spend or incur $ 5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York through December 31, 2029 .

On February 1, 2022, we reported to the State of New York that we had met and exceeded our annual requirements for jobs and investment in Buffalo and New York State.

As of March 31, 2022, we are currently in excess of such targets relating to investments and personnel in the State of New York and Buffalo and 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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If we are unwilling or unable to meet such target or obtain periodic project approvals, in accordance with the Chinese government’s standard terms for such arrangements, we would be required to revert the site to the local government and receive compensation for the remaining value of the land lease, buildings and fixtures.

We believe the capital expenditure requirement and the tax revenue target will be attainable even if our actual vehicle production was far lower than the volumes we are forecasting.

We expect to meet the capital expenditure and tax revenue requirements based on our current level of spend and sales.

Legal Proceedings

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The settlement, which does not involve an admission of any wrongdoing by any party, was approved by the Court on August 17, 2020.

Tesla received payment of approximately $ 43 million on September 16, 2020, which has been recognized in our consolidated statement of operations as a reduction to Selling, general and administrative operating expenses for costs previously incurred related to the acquisition of SolarCity.

Tesla received payment of approximately $ 43 million on September 16, 2020, which has been recognized in our consolidated statements of operations as a reduction to Selling, general and administrative operating expenses for costs previously incurred related to the acquisition of SolarCity.

On February 4, 2020, the Court issued a ruling that denied plaintiffs’

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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, and August 16, 2021, to be followed by certain post-trial proceedings, including post-trial argument on January 18, 2022 .

The trial was held from July 12 to July 23, 2021 and on August 16, 2021.

On October 22, 2021, the Court approved the parties’

joint stipulation that (a) the class is decertified and the action shall continue exclusively as a derivative action under Court of Chancery Rule 23.1 and (b) the direct claims against Elon Musk are dismissed with prejudice.

Following post-trial briefing, post-trial argument was held on January 18, 2022.

The matter is now submitted, and a decision is expected by middle of 2022 .

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

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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.

Defendants' answer was filed on December 3, 2019.

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.

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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.

On October 27, 2021, the Court approved the parties’

joint stipulation that, among other things, (a) all claims against Kimbal Musk and Steve Jurvetson in the Complaint are dismissed with prejudice;

(b) the class is decertified and the action shall continue exclusively as a derivative action under Court of Chancery Rule 23.1;

and (c) the direct claims against the remaining defendants are dismissed with prejudice.

On November 18, 2021, the remaining defendants (a) moved for partial summary judgment, (b) opposed plaintiff’s summary judgment motion and (c) opposed the plaintiff’s motion to amend his complaint.

In January 2022, the case was assigned to a different judge.

On February 24, 2022, the court (i) granted plaintiff’s motion to amend his complaint, and (ii) canceled oral argument on the summary judgment motions, stating that the court is “skeptical that this litigation can be resolved based on the undisputed facts”

and the “case is going to trial,”

but that the “parties may reassert their arguments made in support of summary judgment in their pre-trial and post-trial briefs.”

Trial is currently set for October 24-31, 2022.

Litigation Related to Directors’

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Defendants filed their answer on September 17, 2020.

Trial is set for December 2022.

Trial is set for September 11, 2023.

Litigation Relating to Potential Going Private Transaction

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The parties stipulated to certification of a class of stockholders, which the court granted on November 25, 2020.

Trial is set for May 2022.

On January 11, 2022, plaintiff filed a motion for partial summary judgment.

On April 1, 2022, the Court granted in part plaintiffs’

motion for partial summary judgment.

The Company disagrees with the ruling and accordingly, on April 22, 2022, asked the Court for reconsideration or, in the alternative, certification to file an interlocutory appeal.

Trial is set for January 17, 2023.

Between October 17, 2018 and March 8, 2021, seven derivative lawsuits were filed in the Delaware Court of Chancery, purportedly on behalf of Tesla, against Mr.

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Unless otherwise stated, the individual defendants named in the stockholder proceedings described above and the Company with respect to the stockholder class action proceedings described above believe that the claims in such proceedings have no merit and intend to defend against them vigorously.

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

Litigation Relating to Alleged Race Discrimination

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

On November 15, 2021, JPMorgan Chase Bank (“JP Morgan”) filed a lawsuit against Tesla in the Southern District of New York alleging breach of a stock warrant agreement that was entered into as part of a convertible notes offering in 2014.

In 2018, JP Morgan informed Tesla that it had adjusted the strike price based upon Mr.

Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private.

Tesla disputed JP Morgan’s adjustment as a violation of the parties’

In 2021, Tesla delivered shares to JP Morgan per the agreement, which they duly accepted.

JP Morgan now alleges that it is owed approximately $162 million as the value of additional shares that it claims should have been delivered as a result of the adjustment to the strike price in 2018.

On January 24, 2022, Tesla filed multiple counterclaims as part of its answer to the underlying lawsuit, asserting among other points that JP Morgan should have terminated the stock warrant agreement in 2018 rather than make an adjustment to the strike price that it should have known would lead to a commercially unreasonable result.

Tesla believes that the adjustments made by JP Morgan were neither proper nor commercially reasonable, as required under the stock warrant agreements.

Litigation and Investigations 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.

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.

On November 16, 2021, Tesla filed a post-trial motion for relief that included a request for a new trial or reduction of the jury’s damages.

The Court held a hearing on Tesla’s motion on January 19, 2022.

On April 13, 2022, the Court granted Tesla’s motion in part, reducing the total damages to $ 15 million and conditionally denied the motion for a new trial subject to the plaintiff’s acceptance of the reduced award.

The plaintiff has 30 days to decide whether to seek a new trial.

Tesla continues to believe that the facts and law do not justify the damages awarded and is assessing its next steps.

On February 9, 2022, shortly after the Diaz jury verdict, the California Department of Fair Employment and Housing (“DFEH”) filed a civil complaint against Tesla (and filed an amended complaint on March 11, 2022) in Alameda County, California Superior Court, alleging systemic race discrimination, hostile work environment and pay equity claims, among others.

DFEH’s amended complaint seeks monetary damages and injunctive relief.

On April 18, 2022, Tesla filed a:

(1) motion to stay the case, (2) motion to strike and (3) demurrer seeking dismissal of the lawsuit or, in the alternative, certain claims.

Additionally, on March 21, 2022, the United States Equal Employment Opportunity Commission (“EEOC”) updated Tesla on their investigation on similar topics to those of the DFEH.

Tesla intends to engage in additional dialogue with the EEOC before they make a final determination.

Certain Investigations and Other Matters

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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.

For example, the SEC had issued subpoenas to Tesla in connection with Elon Musk’s prior statement that he was considering taking Tesla private.

The take-private investigation was resolved and closed with a settlement entered into with the SEC in September 2018 and as further clarified in April 2019 in an amendment.

On December 4, 2019, the SEC (i) closed the investigation into the projections and other public statements regarding Model 3 production rates and (ii) issued a subpoena seeking information concerning certain financial data and contracts including Tesla’s regular financing arrangements.

Separately, the DOJ had also asked us to voluntarily provide it with information about the above matters related to taking Tesla private and Model 3 production rates.

Aside from the settlement, as amended, with the SEC relating to Mr.

Musk’s statement that he was considering taking Tesla private, there have not been any developments in these matters that we deem to be material, and to our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred.

On November 16, 2021, the SEC issued a subpoena to us seeking information on our governance processes around compliance with the SEC settlement, as amended.

Separately, the DOJ previously asked us to voluntarily provide it with information about the above matter related to taking Tesla private and Model 3 production rates.

We have not received any further requests from DOJ on these matters since we last provided information in May 2019.

There have not been any additional developments in these matters that we deem to be material, and to our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred.

As is our normal practice, we have been cooperating and will continue to cooperate with government authorities.

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If an unfavorable ruling or development were to occur, there exists the possibility of a material adverse impact on our business, results of operations, prospects, cash flows, financial position and brand.

Indemnification and Guaranteed Returns

Indemnifications

We are contractually obligated to compensate certain fund investors for any losses that they may suffer in certain limited circumstances resulting from reductions in investment tax credits claimed under U.S.

federal laws for the installation of solar power facilities and energy storage systems that are charged from a co-sited solar power facility (“ITC”s).

Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the U.S.

Internal Revenue Service (the “IRS”) for purposes of claiming ITCs.

For each balance sheet date, we assess and recognize, when applicable, a distribution payable for the potential exposure from this obligation based on all the information available at that time, including any audits undertaken by the IRS.

federal laws for the installation of solar power facilities and energy storage systems that are charged from a co-sited solar power facility.

We believe that any payments to the fund investors in excess of the amounts already recognized by us for this obligation are not probable or material based on the facts known at the filing date.

The maximum potential future payments that we could have to make under this obligation would depend on the difference between the fair values of the solar energy systems sold or transferred to the funds as determined by us and the values that the IRS would determine as the fair value for the systems for purposes of claiming ITCs.

We claim ITCs based on guidelines provided by the U.S.

Treasury department and the statutory regulations from the IRS.

We use fair values determined with the assistance of independent third-party appraisals commissioned by us as the basis for determining the ITCs that are passed-through to and claimed by the fund investors.

Since we cannot determine exactly how the IRS will evaluate system values used in claiming ITCs, we are unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date.

We are eligible to receive certain state and local incentives that are associated with renewable energy generation.

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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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Deferred revenue

Customer deposits

Current portion of debt and finance leases

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

United States

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

September 30,

United States

International

Other International

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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We also offer maintenance, installation, operation, financial and other services related to our products.

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 3.01 GWh of energy storage products and 260 megawatts of solar energy systems through the third quarter.

Additionally, we are increasingly focused on products and services based on artificial intelligence, robotics and automation.

In 2022, we have produced 305,407 vehicles and delivered 310,048 vehicles through the first quarter, despite ongoing supply chain challenges and factory shutdowns.

We are currently focused on increasing vehicle production and capacity, improving and developing battery technologies, improving our FSD capabilities, increasing the affordability and efficiency of our vehicles and expanding our global infrastructure.

In 2022, we have deployed 846 MWh of energy storage products and 48 megawatts of solar energy systems through the first 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.

During the three months ended March 31, 2022, we recognized total revenues of $18.76 billion, representing a $8.37 billion increase compared to the prior year.

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 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.

During the three months ended March 31, 2022, our net income attributable to common stockholders was $3.32 billion, representing a favorable change of $2.88 billion, compared to the prior year.

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.

We ended the first quarter of 2022 with $18.01 billion in cash and cash equivalents and marketable securities, representing an increase of $306 million from the end of 2021.

Our cash flows provided by operating activities during the three month period ended March 31, 2022 was $4.00 billion, representing an increase of $2.35 billion compared to $1.64 billion during the same period ended March 31, 2021.

Capital expenditures amounted to $1.77 billion during the three month period ended March 31, 2022, compared to $1.35 billion during the same period ended March 31, 2021.

Sustained growth has allowed our business to generally fund itself, but we will continue investing in a number of capital-intensive projects in upcoming periods.

Management Opportunities, Challenges and Risks

Management Opportunities, Challenges and Risks and 2022 Outlook

Impact of COVID-19 Pandemic

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We have also previously been affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our product deliveries and deployments.

Ultimately, we cannot predict the duration of the COVID-19 pandemic.

We have also previously been, and are being, affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our product deliveries and deployments.

The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible.

Ultimately, we cannot predict the duration of the COVID-19 pandemic or global economic trends.

We will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly.

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Gigafactory Berlin

Constructing manufacturing facilities

Gigafactory Texas

Constructing manufacturing facilities

In development

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In development

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.

We are focused on growing our manufacturing capacity, which includes 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.

The next phase of production growth will depend on the construction of Gigafactory Berlin and Gigafactory Texas, each of which is progressing as planned for production beginning in late 2021, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range.

Production at Gigafactory Berlin started in March 2022 and we began Model Y deliveries from Gigafactory Texas in April 2022, which incorporated our 4680 in-house made cells.

The next phase of production growth will depend on the ramp at Gigafactory Berlin and Gigafactory Texas, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range.

Consistent with our approach of innovating manufacturing techniques at our new factories, we expect as well to pioneer new methods related to the mass production of these cells and our unique structural battery pack concept.

Our goals are to improve vehicle performance, decrease production costs and increase affordability.

However, these plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by the number of concurrent international projects, any industry-wide component constraints which may increase the number of manufacturing and production design workaround solutions required and any future impact from events outside of our control such as the COVID-19 pandemic.

However, these plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by the number of concurrent international projects, any industry-wide component constraints which may increase the number of manufacturing and production design workaround solutions required, labor shortages and any future impact from events outside of our control such as the COVID-19 pandemic.

For example, recent spikes in COVID-19 cases in Shanghai resulted in temporary shutdowns to Gigafactory Shanghai as well as parts of our supply chain.

Moreover, we must meet ambitious technological targets with our plans for battery cells as well as for iterative manufacturing and design improvements for our vehicles with each new factory.

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affordability, and for example, have allowed us to competitively price our vehicles in China.

In addition to opening new factories in 2021, we will also continue to generate demand and brand awareness by improving our vehicles’

performance and functionality, including Autopilot, FSD and software features and introducing anticipated future vehicles.

Moreover, we expect to 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.

In addition to ramping production in 2022, we will also continue to generate demand and brand awareness by improving our vehicles’

performance and functionality, including through products based on artificial intelligence such as Autopilot and FSD, and other software features.

Moreover, we expect to continue to benefit from a 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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As our deliveries increase, we must work constantly to prevent our vehicle delivery capability from becoming a bottleneck on our total deliveries.

Increasing the exports of vehicles manufactured at Gigafactory Shanghai has been effective in mitigating the strain on our deliveries in markets outside of the United States, and we expect to benefit further from situating additional factories closer to local markets.

As we expand our manufacturing operations globally, we will have to continue to increase and staff our delivery, servicing and charging infrastructure accordingly, maintain our vehicle reliability and optimize our Supercharger locations to ensure cost effectiveness and customer satisfaction.

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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, including beginning construction of our Megafactory in Lathrop, California, 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 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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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.

In the first quarter of 2022, however, such growth to our solar business was impeded by import delays on certain solar components.

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, 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.

We are simultaneously ramping new products, including new iterations of our Megapack, 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 between $5.00 to $7.00 billion in 2022 and 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.

On the other hand, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects.

On the other hand, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and rising material prices and increasing supply chain and labor expenses resulting from changes in global trade conditions and labor availability associated with the COVID-19 pandemic.

Moreover, as our stock price has significantly increased, we have seen higher levels of early conversions of “in-the-money”

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Operating Expense Trends

As long as we see expanding sales, and excluding the potential impact of non-cash stock compensation expense attributable to the 2018 CEO Performance Award and impairment charges on certain assets as explained below, we generally expect operating expenses relative to revenues to decrease as we continue to increase operational efficiency and process automation.

In March 2018, our stockholders approved a performance-based stock option award to our CEO (the “2018 CEO Performance Award”), consisting of 12 vesting tranches contingent on the achievement of specified market capitalization and operational milestones.

We incur non-cash stock-based compensation expense for each tranche only after the related operational milestone initially becomes probable of being achieved based on a subjective assessment of our future financial performance, and if this happens following the grant date, we record at such time a cumulative catch-up expense that may be significant based on the length of time elapsed from the grant date.

Moreover, the remaining expense for that tranche is ratably recorded over the period remaining until the later of (i) the expected achievement of the relevant operational milestone (if it has not yet been achieved) and (ii) the expected achievement of the related market capitalization milestone (if it had not yet been achieved).

Upon the achievement of both milestones related to a tranche, all remaining associated expense is recognized immediately.

Because the market capitalization milestone achievements were generally expected to occur later than the related expected operational milestone achievements, the achievement of the former earlier than expected may increase the magnitude of any catch-up expense and/or accelerate the rate at which the remaining expense is recognized.

Since 2020, several operational milestones have become probable and/or have been achieved and all market capitalization milestones have been achieved, resulting in the recognition or acceleration of related expense earlier than anticipated and within a relatively short period of time.

See Note 11, Equity Incentive Plans—2018 CEO Performance Award , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding the stock-based compensation relating to the 2018 CEO Performance Award.

In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin and accepted bitcoin as a form of payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021.

As long as we see expanding sales, and excluding the potential impact of macroeconomic conditions including increased labor costs and impairment charges on certain assets as explained below, we generally expect operating expenses relative to revenues to decrease as we continue to increase operational efficiency and process automation.

We expect operating expenses to grow in 2022 as we are expanding our operations globally.

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

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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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 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.

For example, in the first quarter of 2021, we recorded approximately $27 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of $128 million on certain sales of bitcoin by us.

Critical Accounting Policies and Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S.

(“GAAP”).

The consolidated financial statements are prepared in accordance with GAAP.

The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures.

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Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets.

The estimates used for, but not limited to, determining significant economic incentive for resale value guarantee arrangements, sales return reserves, the collectability of accounts receivable, inventory valuation, fair value of long-lived assets, goodwill, fair value of financial instruments, fair value and residual value of operating lease vehicles and solar energy systems subject to leases could be impacted.

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Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

Automotive sales

Automotive regulatory credits

Automotive leasing

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Automotive & Services and Other Segment

Automotive sales revenue includes revenues related to cash deliveries of new Model S, Model X, Model 3 and Model Y vehicles, including access to our Supercharger network, internet connectivity, FSD features and over-the-air software updates, as well as sales of regulatory credits to other automotive manufacturers.

Cash deliveries are vehicles that are not subject to lease accounting.

Our revenue from regulatory credits fluctuates depending on when a contract is executed with a buyer and when the credits are delivered.

Automotive sales revenue includes revenues related to cash deliveries of new Model S, Model X, Model 3, and Model Y vehicles, including access to our Supercharger network, internet connectivity, FSD features and over-the-air software updates.

These deliveries are vehicles that are not subject to lease accounting.

Automotive regulatory credits includes sales of regulatory credits to other automotive manufacturers.

Our revenue from automotive regulatory credits is directly related to our new vehicle production, sales and pricing negotiated with our customers.

We monetize them proactively as new vehicles are sold based on standing arrangements with buyers of such credits, typically as close as possible to the production and delivery of the vehicle or changes in regulation impacting the credits.

Automotive leasing revenue includes the amortization of revenue for vehicles under direct operating lease agreements as well as those sold with resale value guarantees accounted for as operating leases under lease accounting.

We began offering direct leasing for Model Y vehicles in the third quarter of 2020.

Additionally, automotive leasing revenue includes direct sales-type leasing programs where we recognize all revenue associated with the sales-type lease upon delivery to the customer, which we introduced in volume during the third quarter of 2020.

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

Automotive sales revenue increased $4.33 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.

Additionally, automotive leasing revenue includes direct sales-type leasing programs where we recognize all revenue associated with the sales-type lease upon delivery to the customer.

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

Automotive sales revenue increased $7.33 billion, or 89%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to an increase of 111,915 Model 3 and Model Y cash deliveries, and an increase of 10,305 Model S and Model X cash deliveries year over year.

This was achieved from production ramping at both Gigafactory Shanghai and the Fremont Factory at a higher combined average selling price from a higher proportion of Model Y sales offset by regional sales mix.

There was also an increase in the average selling price of Model S and Model X compared to the prior period as deliveries of the new versions of Model S and Model X only began ramping in the second and fourth quarters of 2021, respectively.

Automotive regulatory credits revenue increased $161 million, or 31%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to changes in regulation which entitled us to additional consideration of $288 million in revenue for credits sold previously, in the absence of which we had a decrease in automotive regulatory credits revenue driven by lower sales of regulatory credits.

Automotive leasing revenue increased $371 million, or 125%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to an increase in direct sales-type leasing revenue and an increase in cumulative vehicles under our direct operating lease program .

Services and other revenue increased $386 million, or 43%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to non-warranty maintenance services revenue as our fleet continues to grow, increase in used vehicle revenue driven by increases in volume and average selling prices of used vehicles, retail merchandise revenue and insurance services 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 $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.

Energy generation and storage revenue increased by $122 million, or 25%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to an increase in deployments of Powerwall and Megapack.

This was partially offset by a decrease in solar cash and loan deployments driven by constraints in importing certain components .

Cost of Revenues and Gross Margin

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

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Automotive & Services and Other Segment

Cost of automotive sales revenue includes direct parts, material and labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network and reserves for estimated warranty expenses.

Cost of automotive sales revenue includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network and reserves for estimated warranty expenses.

Cost of automotive sales revenues also includes adjustments to warranty expense and charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand.

Cost of automotive leasing revenue includes the amortization of operating lease vehicles over the lease term, cost of goods sold associated with direct sales-type leases which were introduced in volume in the third quarter of 2020, as well as warranty expenses related to leased vehicles.

Cost of automotive leasing revenue includes the depreciation of operating lease vehicles, cost of goods sold associated with direct sales-type leases and warranty expense related to leased vehicles.

Cost of automotive leasing revenue also includes vehicle connectivity costs and allocations of electricity and infrastructure costs related to our Supercharger network for vehicles under our leasing programs.

Cost of services and other revenue includes costs associated with providing non-warranty after-sales services, costs to acquire and certify used vehicles, costs for retail merchandise, and costs to provide vehicle insurance.

Cost of services and other revenue includes costs associated with providing non-warranty after-sales services, costs of paid supercharging, cost of used vehicles including refurbishment costs, costs for retail merchandise, and costs to provide vehicle insurance.

Cost of services and other revenue also includes direct parts, material and labor costs and manufacturing overhead associated with the sales by our acquired subsidiaries to third party customers.

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

Cost of automotive sales revenue increased $4.46 billion, or 69%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to an increase of 111,915 Model 3 and Model Y cash deliveries, and an increase of 10,305 Model S and Model X cash deliveries year over year.

These increases were 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 ramped in capacity, where costs are lower from localized procurement and manufacturing in China as well as decrease in combined average Model S and Model X costs per unit driven by lower average cost for the new versions of Model S and Model X from ramping up production.

Cost of automotive leasing revenue increased $248 million, or 155%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to an increase in direct sales-type leasing cost of revenues from more sales in the current year and an increase in cumulative vehicles under our direct operating lease program.

Cost of services and other revenue increased $324 million, or 34%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to an increase in costs to support our increase in non-warranty maintenance services revenue, an increase in costs of retail merchandise and insurance services as our sales have increased and an increase in used vehicle cost of revenue driven by increases in volume and costs of non-Tesla used vehicles.

Gross margin for total automotive increased from 26.5% in the three months ended March 31, 2021 to 32.9% in the three months ended March 31, 2022.

The increase was primarily due to favorable changes in sales and production mix of Model Y as Gigafactory Shanghai ramped in capacity.

The average Model 3 and Model Y costs per unit have decreased due to localized procurement and manufacturing in China despite rising raw material, commodity, logistics and expedite costs.

There was also an increase in overall Model S and Model X cash deliveries at a lower combined average cost per unit year over year, as well as an increase of $161 million in sales of regulatory credits, which have negligible incremental costs associated with them.

Gross margin for total automotive & services and other segment increased from 23.4% in the three months ended March 31, 2021 to 30.5% in the three months ended March 31, 2022, primarily due to the automotive gross margin impacts discussed above and an improvement in our services and other gross margin.

Additionally, services and other was a lower percentage of the segment during the three months ended March 31, 2022 compared to the prior year.

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 $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.

Cost of energy generation and storage revenue increased by $93 million, or 16%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to increases in deployments of Powerwall and Megapack, partially offset by a decrease in solar cash and loan costs as deployments have decreased and reductions in average costs per unit of Solar Roof.

Gross margin for energy generation and storage increased from -20.4% in the three months ended March 31, 2021 to -11.7% in the three months ended March 31, 2022, primarily due to higher deployments of Powerwall which operated at a higher gross margin as well as an improvement in Solar Roof gross margin due to reductions in average costs per unit.

These increases were partially offset by a decrease from lower solar cash and loan deployments.

Research and Development Expense

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

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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 $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 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 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.

R&D expenses increased $199 million, or 30%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The increase was primarily due to a $90 million increase in facilities, outside services, freight and depreciation expense, a $75 million increase in employee and labor related expenses due to an increase in headcount, an $18 million increase in stock-based compensation expense, and a $13 million increase in R&D expensed materials.

These increases were to support our expanding product roadmap and technologies including our proprietary battery cells, and there were additional R&D expenses as we were in the pre-production phase at Gigafactory Texas and started production at Gigafactory Berlin only closer to the end of the current quarter.

R&D expenses as a percentage of revenue decreased from 6% in the three months ended March 31, 2021 to 5% in the three months ended March 31, 2022.

Our R&D expenses have decreased as a proportion of total revenues despite expanding product roadmap and technologies.

Selling, General and Administrative Expense

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

2 unchanged sentences

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 $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.

SG&A expenses decreased $64 million, or 6%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

This is primarily due to a decrease of $242 million in stock-based compensation expense, most of which is attributable to the lower stock-based compensation expense of $251 million on 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.

This was offset by an increase of $110 million in employee and labor related expenses from increased headcount and an increase of $68 million in office, information technology, facilities-related expenses, sales and marketing activities and other costs.

SG&A expenses as a percentage of revenue decreased from 10% in the three months ended March 31, 2021 to 5% in the three months ended March 31, 2022.

Our SG&A expenses have decreased as a proportion of total revenues due to operational efficiencies.

Restructuring and Other Expense

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

1 unchanged sentence

Not meaningful

As a percentage of revenues

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.

During the three months ended March 31, 2021, we realized gains of $128 million in connection with selling a portion of our holdings of bitcoin and recorded $27 million of impairment losses.

During the three months ended March 31, 2022, we did not record any impairment loss on bitcoin.

See Note 3, Digital Assets, Net , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Interest Expense

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

1 unchanged sentence

As a percentage of revenues

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.

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

Interest expense decreased by $38 million, or 38%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to the continued reduction in our overall debt balance.

See Note 10, Debt , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Other Income, Net

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

Other (expense) income, net

Other income, net

As a percentage of revenues

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.

Other 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 (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.

Other income, net, changed favorably by $28 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to favorable fluctuations in foreign currency exchange rates and offset by a $10 million decrease in gain on our interest rate swaps which were settled in the current period.

Provision for Income Taxes

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

1 unchanged sentence

Effective tax rate

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.

Our provision for income taxes increased by $277 million, or 401%, in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to the increase in our pre-tax income year over year.

Our effective tax rate decreased from 13% to 10% in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to 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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

Net income attributable to noncontrolling interests and

Net (loss) income attributable to noncontrolling interests and

redeemable noncontrolling interests in subsidiaries

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.

Not meaningful

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by $64 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to a decrease in allocations to financing fund investors.

Liquidity and Capital Resources

We expect to continue to generate net positive operating cash flow as we have done in the last three fiscal years.

The cash we generate from our core operations enables us to fund ongoing operations and production, our research and development projects for new products and technologies including our proprietary battery cells, additional manufacturing ramps at existing manufacturing facilities such as the Fremont Factory, Gigafactory Nevada, Gigafactory Shanghai and Gigafactory New York, the construction of Gigafactory Berlin and Gigafactory Texas, and the continued expansion of our retail and service locations, body shops, Mobile Service fleet, Supercharger network and energy product installation capabilities.

We expect to continue to generate net positive operating cash flow as we have done in the last four fiscal years.

The cash we generate from our core operations enables us to fund ongoing operations and production, our research and development projects for new products and technologies including our proprietary battery cells, additional manufacturing ramps at existing manufacturing facilities such as the Fremont Factory, Gigafactory Nevada, Gigafactory Shanghai and Gigafactory New York, the ramp of Gigafactory Berlin and Gigafactory Texas and the continued expansion of our retail and service locations, body shops, Mobile Service fleet, Supercharger network and energy product installation capabilities.

In addition, because a large portion of our future expenditures will be to fund our growth, we expect that if needed we will be able to adjust our capital and operating expenditures by operating segment.

2 unchanged sentences

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 September 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 March 31, 2022, 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.

2 unchanged sentences

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

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 and 2022 Outlook—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 between $5.00 to $7.00 billion in 2022 and each of the next two fiscal years.

In connection with our operations at Gigafactory New York, we have an agreement to spend or incur $5.00 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).

1 unchanged sentence

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 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.

As of March 31, 2022, we and our subsidiaries had outstanding $3.45 billion in aggregate principal amount of indebtedness, of which $1.17 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 and proceeds from equity offerings.

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

Our sources to fund our material cash requirements are predominantly from our deliveries and servicing of new and used vehicles, sales and installations of our energy storage products and solar energy systems, proceeds from debt facilities and proceeds from equity offerings, when applicable.

As of March 31, 2022, we had $17.51 billion of cash and cash equivalents.

Balances held in foreign currencies had a U.S.

dollar equivalent of $6.84 billion and consisted primarily of Chinese yuan, euros and Canadian dollars.

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

In addition, we had $2.36 billion of unused committed amounts under our credit facilities as of March 31, 2022.

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 or various other assets).

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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.

In addition, during the three months ended March 31, 2021, we accepted bitcoin as a form of payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021.

We may in the future restart the practice of transacting in digital assets for our products and services.

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

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

The fair market value of such digital assets held as of March 31, 2022 was $1.96 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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However, digital assets may be subject to volatile market prices, which may be unfavorable at the times when we may want or need to liquidate them.

Additionally, we held short-term marketable securities of $508 million as of March 31, 2022.

Summary of Cash Flows

Nine Months Ended

September 30,

Three Months Ended

(Dollars in millions)

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Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash used in by financing activities

Cash Flows from Operating Activities

Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as research and development and selling, general and administrative and working capital, especially inventory, which includes vehicles in transit.

Our operating cash inflows include cash from vehicle sales, customer lease payments, customer deposits, cash from sales of regulatory credits and energy generation and storage products.

Our operating cash inflows include cash from vehicle sales and related servicing, customer lease payments, customer deposits, cash from sales of regulatory credits and energy generation and storage products.

These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process, operating expenses, operating lease payments and interest payments on our financings.

Net cash provided by operating activities increased by $3.99 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.

Net cash provided by operating activities increased by $2.35 billion to $4.00 billion during the three months ended March 31, 2022 from $1.64 billion during the three months ended March 31, 2021.

This increase was primarily due to the increase in net income excluding non-cash expenses and gains of $2.94 billion, offset by the overall increase in net operating assets and liabilities of $590 million.

The increase in our net operating assets and liabilities was mainly driven by a larger increase of inventory in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 to support the ramp up in production at our factories and a larger increase in other non-current assets.

The increase in our net operating assets and other liabilities was partially offset by a larger increase of accounts payable and accrued liabilities .

Cash Flows from Investing Activities

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 investing activities and their variability across each period related primarily to capital expenditures, which were $1.77 billion for the three months ended March 31, 2022 and $1.35 billion for the three months ended March 31, 2021, mainly for the construction of Gigafactory Texas and Gigafactory Berlin and the expansions of Gigafactory Shanghai and the Fremont Factory.

We also paid $386 million for purchases of marketable securities in the three months ended March 31, 2022.

Additionally, net cash outflows related to digital assets were $1.23 billion in the three months ended March 31, 2021 from purchases of digital assets of $1.50 billion offset by proceeds from sales of digital assets of $272 million.

Cash Flows from Financing Activities

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.

Cash outflows from financing activities were $1.91 billion during the three months ended March 31, 2022 compared to $1.02 billion net cash used in financing activities during the three months ended March 31, 2021.

The change was primarily due to $890 million increase in cash outflows from repayments of convertible and other debt, net of proceeds from issuances of convertible and other debt.

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 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