What changed in this filing

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Item 1. Financial Statements

2022-10-24 compared with 2022-07-25 · 307 added, 253 removed, 1006 unchanged (36% of the section changed)

2 unchanged sentences

(in millions, except per share data)

September 30,

Current assets

33 unchanged sentences

3,158 and 3,100 shares issued and outstanding as of

June 30, 2022 and December 31, 2021, respectively

September 30, 2022 and December 31, 2021, respectively (1)

Additional paid-in capital

4 unchanged sentences

Total liabilities and equity

(1) Prior period results have been adjusted to reflect the three -for-one stock split effected in the form of a stock dividend in August 2022 .

See Note 1, Overview for details.

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

1 unchanged sentence

(in millions, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Automotive sales

20 unchanged sentences

Interest expense

Other income, net

Other (expense) income, net

Income before income taxes

Provision for income taxes

Net income (loss) attributable to noncontrolling

Net income attributable to noncontrolling

interests and redeemable noncontrolling interests

5 unchanged sentences

income per share of common stock (1)

(1) Prior period results have been adjusted to reflect the three -for-one stock split effected in the form of a stock dividend in August 2022 .

See Note 1, Overview for details.

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

1 unchanged sentence

(in millions)

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive (loss) income:

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive loss:

Foreign currency translation adjustment

1 unchanged sentence

Comprehensive income

Comprehensive income (loss) attributable to

Comprehensive income attributable to

noncontrolling interests and redeemable

9 unchanged sentences

Stockholders’

Three Months Ended June 30, 2022

Balance as of March 31, 2022

Three Months Ended September 30, 2022

Balance as of June 30, 2022

Exercises of conversion feature of

5 unchanged sentences

Distributions to noncontrolling interests

Buy-out of noncontrolling interests

Net (loss) income

Other comprehensive loss

Balance as of June 30, 2022

Balance as of September 30, 2022

Noncontrolling

2 unchanged sentences

Stockholders’

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Income (Loss)

7 unchanged sentences

Distributions to noncontrolling interests

Buy-out of noncontrolling interests

Buy-outs of noncontrolling interests

Net (loss) income

Other comprehensive loss

Balance as of June 30, 2022

Balance as of September 30, 2022

(1) Prior period results have been adjusted to reflect the three -for-one stock split effected in the form of a stock dividend in August 2022 .

See Note 1, Overview for details.

Noncontrolling

2 unchanged sentences

Stockholders’

Three Months Ended June 30, 2021

Balance as of March 31, 2021

Three Months Ended September 30, 2021

Income (Loss)

Balance as of June 30, 2021

Exercises of conversion feature of

4 unchanged sentences

Stock-based compensation

Contributions from noncontrolling interests

Distributions to noncontrolling interests

Other comprehensive income

Balance as of June 30, 2021

Other comprehensive loss

Balance as of September 30, 2021

Noncontrolling

2 unchanged sentences

Stockholders’

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Income (Loss)

11 unchanged sentences

Other comprehensive loss

Balance as of June 30, 2021

Balance as of September 30, 2021

(1) Prior period results have been adjusted to reflect the three -for-one stock split effected in the form of a stock dividend in August 2022 .

See Note 1, Overview for details.

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

1 unchanged sentence

(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

3 unchanged sentences

Inventory and purchase commitments write-downs

Foreign currency transaction net unrealized gain

Foreign currency transaction net unrealized loss

Non-cash interest and other operating activities

17 unchanged sentences

Purchases of marketable securities

Proceeds from maturities of marketable securities

Receipt of government grants

33 unchanged sentences

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.

On August 5, 2022, we increased the number of authorized shares of common stock by 4,000,000,000 shares and our Board of Directors declared a three -for-one split of the Company’s common stock effected in the form of a stock dividend (the “2022 Stock Split”).

Each stockholder of record on August 17, 2022 received a dividend of two additional shares of common stock for each then-held share, distributed after close of trading on August 24, 2022.

All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the 2022 Stock Split.

Note 2 –

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Unaudited Interim Financial Statements

The consolidated balance sheet as of June 30, 2022, the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of redeemable noncontrolling interests and equity for the three and six months ended June 30, 2022 and 2021 and the consolidated statements of cash flows for the six months ended June 30, 2022 and 2021, as well as other information disclosed in the accompanying notes, are unaudited.

The consolidated balance sheet as of September 30, 2022, 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, 2022 and 2021 and the consolidated statements of cash flows for the nine months ended September 30, 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.

15 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Automotive sales without resale value guarantee

11 unchanged sentences

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 $ 130 million and $ 223 million as of June 30, 2022 and December 31, 2021, respectively, of which $ 56 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 $ 2.66 billion and $ 2.38 billion as of June 30, 2022 and December 31, 2021, respectively.

The total sales return reserve on vehicles sold with resale value guarantees was $ 105 million and $ 223 million as of September 30, 2022 and December 31, 2021, respectively, of which $ 48 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 $ 2.80 billion and $ 2.38 billion as of September 30, 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, 2021 and 2020 was $ 121 million and $ 157 million for the six months ended June 30, 2022 and 2021, respectively.

Of the total deferred revenue on automotive sales with and without resale value guarantees as of June 30, 2022, we expect to recognize $ 1.02 billion of revenue in the next 12 months.

Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was $ 169 million and $ 230 million for the nine months ended September 30, 2022 and 2021, respectively.

Of the total deferred revenue on automotive sales with and without resale value guarantees as of September 30, 2022, we expect to recognize $ 1.09 billion 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.

We have been providing loans for financing our automotive deliveries during the six months ended June 30, 2022.

We have recorded net financing receivables of $ 320 million which are presented on the consolidated balance sheets as a component of Accounts receivable, net, for the current portion and as Other non-current assets for the long-term portion, as of June 30, 2022.

We have been providing loans for financing our automotive deliveries during the nine months ended September 30, 2022.

We have recorded net financing receivables on the consolidated balance sheets, of which $ 76 million is recorded within Accounts receivable, net, for the current portion and $ 398 million is recorded within Other non-current assets for the long-term portion, as of September 30, 2022.

Automotive Regulatory Credits

3 unchanged sentences

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 June 30, 2022 and December 31, 2021.

Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was immaterial for the six months ended June 30, 2022 and 2021.

During the six months ended June 30, 2022 , we had also recognized $ 288 million in revenue due to changes in regulation which entitled us to additional consideration for credits sold previously.

Deferred revenue related to sales of automotive regulatory credits was immaterial as of September 30, 2022 and December 31, 2021.

Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was immaterial for the nine months ended September 30, 2022 and 2021.

During the nine months ended September 30, 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 six months ended June 30, 2022, we recognized $ 133 million and $ 398 million, respectively, of sales-type leasing revenue and $ 82 million and $ 246 million, respectively, of sales-type leasing cost of revenue.

For the three and six months ended June 30, 2021 , we recognized $ 55 million and $ 97 million, respectively, of sales-typing leasing revenue and $ 36 million and $ 62 million, respectively, of sales-type leasing cost of revenue.

For the three and nine months ended September 30, 2022, we recognized $ 161 million and $ 559 million, respectively, of sales-type leasing revenue and $ 97 million and $ 343 million, respectively, of sales-type leasing cost of revenue.

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

Net investment in sales-type leases, which is the sum of the present value of the future contractual lease payments, is presented on the consolidated balance sheets as a component of Prepaid expenses and other current assets for the current portion and as Other non-current assets for the long-term portion.

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

June 30, 2022

September 30, 2022

December 31, 2021

9 unchanged sentences

We record as deferred revenue any non-refundable amounts that are collected from customers related to fees charged for prepayments and remote monitoring service and operations and maintenance service, which is recognized as revenue ratably over the respective customer contract term.

As of June 30, 2022 and December 31, 2021, deferred revenue related to such customer payments amounted to $ 678 million and $ 399 million, respectively.

Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was $ 79 million and $ 66 million for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 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 $ 211 million.

As of September 30, 2022 and December 31, 2021, deferred revenue related to such customer payments amounted to $ 665 million and $ 399 million, respectively.

Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was $ 132 million and $ 90 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 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 $ 212 million.

Of this amount, we expect to recognize $ 12 million in the next 12 months and the remaining over a period up to 25 years.

We have been providing loans for financing our energy generation products during the six months ended June 30, 2022.

We have recorded net financing receivables of $ 238 million which are presented on the consolidated balance sheets as a component of Accounts receivable, net, for the current portion and as Other non-current assets for the long-term portion, as of June 30, 2022.

We have been providing loans for financing our energy generation products during the nine months ended September 30, 2022.

We have recorded net financing receivables on the consolidated balance sheets, of which $ 18 million is recorded within Accounts receivable, net, for the current portion and $ 307 million is recorded within Other non-current assets for the long-term portion, as of September 30, 2022.

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.

As of June 30, 2022 and December 31, 2021 , the aggregate balances of our gross unrecognized tax benefits were $ 601 million and $ 531 million, respectively, of which $ 482 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.

As of September 30, 2022 and December 31, 2021 , the aggregate balances of our gross unrecognized tax benefits were $ 778 million and $ 531 million, respectively, of which $ 587 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.

2 unchanged sentences

and various state and foreign jurisdictions.

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

We are currently under examination by the Internal Revenue Service (“IRS”) for the years 2015 to 2018 .

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

12 unchanged sentences

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income attributable to common stockholders

3 unchanged sentences

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 June 30,

Six Months Ended June 30,

The following table presents the reconciliation of basic to diluted weighted average shares used in computing net income per share of common stock attributable to common stockholders, as adjusted to give effect to the 2022 Stock Split (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted average shares used in computing net income per share of common stock, basic

2 unchanged sentences

Weighted average shares used in computing net income per share of common stock, diluted

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Stock-based awards

3 unchanged sentences

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 and certain operating leases.

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

11 unchanged sentences

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

As of June 30, 2022 and December 31, 2021 , we had $ 759 million and $ 627 million, respectively, of long-term government rebates receivable in Other non-current assets on our consolidated balance sheets.

As of September 30, 2022 and December 31, 2021 , we had $ 671 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 June 30, 2022 and December 31, 2021 , the total outstanding balance of MyPower customer notes receivable, net of allowance for expected credit losses, was $ 287 million and $ 299 million, respectively, of which $ 8 million and $ 11 million were due in the next 12 months as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022 and December 31, 2021 , the allowance for expected credit losses was $ 41 million.

As of September 30, 2022 and December 31, 2021, the total outstanding balance of MyPower customer notes receivable, net of allowance for expected credit losses, was $ 280 million and $ 299 million, respectively, of which $ 6 million and $ 11 million were due in the next 12 months as of September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, the allowance for expected credit losses was $ 41 million .

Concentration of Risk

2 unchanged sentences

These deposits are typically in excess of insured limits.

As of June 30, 2022 and December 31, 2021 , no entity represented 10 % or more of our total receivables balance.

As of September 30, 2022 and December 31, 2021 , no entity represented 10 % or more of our total receivables balance.

We are dependent on our suppliers, including single source suppliers, and the inability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components from these suppliers, could have a material adverse effect on our business, prospects, financial condition and operating results.

Operating Lease Vehicles

The gross cost of operating lease vehicles as of June 30, 2022 and December 31, 2021 was $ 5.73 billion and $ 5.28 billion, respectively.

Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 955 million and $ 773 million as of June 30, 2022 and December 31, 2021 , respectively.

The gross cost of operating lease vehicles as of September 30, 2022 and December 31, 2021 was $ 5.83 billion and $ 5.28 billion, respectively.

Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 1.00 billion and $ 773 million as of September 30, 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 .

7 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Accrued warranty—beginning of period

23 unchanged sentences

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

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law and is effective for taxable years beginning after December 31, 2022.

The IRA includes multiple incentives to promote clean energy, electric vehicles, battery and energy storage manufacture or purchase, in addition to a new corporate alternative minimum tax of 15 % on adjusted financial statement income of corporations with profits greater than $ 1 billion.

These measures may materially affect our consolidated financial statements, and we will continue to evaluate the applicability and effect of the IRA as more guidance is issued.

Recently adopted accounting pronouncements

9 unchanged sentences

Digital Assets, Net

During the six months ended June 30, 2022 and 2021 , we purchased and/or received an immaterial amount and $ 1.50 billion, respectively, of digital assets.

As of June 30, 2022, we have converted approximately 75 % of our purchases into fiat currency.

During the three and six months ended June 30, 2022 , we recorded impairment loss of $ 170 million as well as realized gains of $ 64 million in connection with converting our holdings of digital assets into fiat currency.

During the six months ended June 30, 2021, we realized gains of $ 128 million in connection with converting our holdings of digital assets into fiat currency.

During the three and six months ended June 30, 2021 , we recorded $ 23 million and $ 50 million, respectively, of impairment losses on such digital assets.

During the nine months ended September 30, 2022 and 2021, we purchased and/or received an immaterial amount and $ 1.50 billion, respectively, of digital assets.

As of September 30, 2022 , we have converted approximately 75 % of our purchases into fiat currency.

During the nine months ended September 30, 2022, we recorded $ 170 million of impairment losses on such digital assets, and $ 51 million and $ 101 million during the three and nine months ended September 30, 2021, respectively.

During the nine months ended September 30, 2022 and 2021, we realized gains of $ 64 million and $ 128 million, respectively, in connection with converting our holdings of digital assets into fiat currency.

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

As of June 30, 2022 and December 31, 2021 , the carrying value of our digital assets held was $ 218 million and $ 1.26 billion, which reflects cumulative impairments of $ 169 million and $ 101 million, each period, respectively.

The fair market value of such digital assets held as of June 30, 2022 was $ 222 million.

As of September 30, 2022 and December 31, 2021 , the carrying value of our digital assets held was $ 218 million and $ 1.26 billion , which reflects cumulative impairments of $ 169 million and $ 101 million, each period, respectively.

The fair market value of such digital assets held as of September 30, 2022 was $ 226 million.

Note 4 –

1 unchanged sentence

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

June 30, 2022

September 30, 2022

December 31, 2021

10 unchanged sentences

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

Six months ending December 31, 2022

Three months ending December 31, 2022

Note 5 –

7 unchanged sentences

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

June 30, 2022

September 30, 2022

December 31, 2021

6 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 June 30, 2022 and December 31, 2021 consisted of the following (in millions):

June 30, 2022

Our cash, cash equivalents and marketable securities classified by security type as of September 30, 2022 and December 31, 2021 consisted of the following (in millions):

September 30, 2022

Adjusted Cost

16 unchanged sentences

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 and six months ended June 30, 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 June 30, 2022 and December 31, 2021.

We have determined that the gross unrealized losses on our marketable securities as of June 30, 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 June 30, 2022 (in millions):

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

For the three and nine months ended September 30, 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 September 30, 2022 and December 31, 2021.

We have determined that the gross unrealized losses on our marketable securities as of September 30, 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 September 30, 2022 (in millions):

Due in 1 year or less

4 unchanged sentences

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.

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 (expense) 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):

June 30, 2022

September 30, 2022

December 31, 2021

7 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Disclosure of Fair Values

Our financial instruments that are not re-measured at fair value include accounts receivable, MyPower customer notes receivable, accounts payable, accrued liabilities, customer deposits and debt.

Our financial instruments that are not re-measured at fair value include accounts receivable, MyPower customer notes receivable, financing receivables, accounts payable, accrued liabilities, customer deposits and debt.

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”

3 unchanged sentences

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

June 30, 2022

September 30, 2022

December 31, 2021

6 unchanged sentences

Our inventory consisted of the following (in millions):

September 30,

Raw materials

4 unchanged sentences

We write-down inventory for any excess or obsolete inventories or when we believe that the net realizable value of inventories is less than the carrying value.

During the three and six months ended June 30, 2022, we recorded write-downs of $ 23 million and $ 49 million, respectively, in Cost of revenues in the consolidated statements of operations.

During the three and six months ended June 30, 2021, we recorded write-downs of $ 33 million and $ 56 million, respectively, in Cost of revenues in the consolidated statements of operations.

During the three and nine months ended September 30, 2022, we recorded write-downs of $ 42 million and $ 91 million, respectively, in Cost of revenues in the consolidated statements of operations.

During the three and nine months ended September 30, 2021, we recorded write-downs of $ 22 million and $ 78 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

7 unchanged sentences

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

During the three and six months ended June 30, 2022, we capitalized interest of an immaterial amount.

During the three and six months ended June 30, 2021, we capitalized $ 23 million and $ 38 million, respectively, of interest.

Depreciation expense during the three and six months ended June 30, 2022 was $ 578 million and $ 1.13 billion , respectively.

Depreciation expense during the three and six months ended June 30, 2021 was $ 461 million and $ 885 million, respectively.

Gross property, plant and equipment under finance leases as of June 30, 2022 and December 31, 2021 was $ 2.77 billion and $ 2.75 billion, respectively, with accumulated depreciation of $ 1.44 billion and $ 1.21 billion, respectively.

During the three and nine months ended September 30, 2022, we capitalized interest of an immaterial amount.

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

Depreciation expense during the three and nine months ended September 30, 2022 was $ 620 million and $ 1.75 billion, respectively.

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

Gross property, plant and equipment under finance leases as of September 30, 2022 and December 31, 2021 was $ 2.76 billion and $ 2.75 billion, respectively, with accumulated depreciation of $ 1.56 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.

4 unchanged sentences

Depreciation on Panasonic production equipment is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the respective assets.

As of June 30, 2022 and December 31, 2021, we had cumulatively capitalized gross costs of $ 2.01 billion and $ 1.98 billion , respectively, on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement.

As of September 30, 2022 and December 31, 2021, we had cumulatively capitalized gross costs of $ 2.01 billion and $ 1.98 billion , respectively, on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement.

Note 8 –

1 unchanged sentence

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

September 30,

Accrued purchases (1)

11 unchanged sentences

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

September 30,

Operating lease liabilities

5 unchanged sentences

Note 10 –

The following is a summary of our debt and finance leases as of June 30, 2022 (in millions):

The following is a summary of our debt and finance leases as of September 30, 2022 (in millions):

Net Carrying Value

8 unchanged sentences

Automotive Asset-backed Notes

October 2022 - September 2025

Solar Asset and Loan-backed Notes

December 2026 - February 2048

December 2022 - September 2025

Solar Asset-backed Notes

December 2026

Cash Equity Debt

33 unchanged sentences

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

As of June 30, 2022, we were in material compliance with all financial debt covenants.

As of September 30, 2022, we were in material compliance with all financial debt covenants.

2022 Notes and 2024 Notes

During the first two quarters 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 and third quarters of 2022.

During each of the first three quarters 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, third and fourth quarters 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.

During the first two quarters of 2022, $ 29 million and $ 45 million in aggregate principal amount of the 2022 Notes and 2024 Notes, respectively, were converted and settled in cash for their par amount, and the issuance of 0.4 million and 0.7 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 0.7 million shares of our common stock, respectively.

During the nine months ended September 30, 2022 , $ 29 million and $ 46 million in aggregate principal amount of the 2022 Notes and 2024 Notes, respectively, were converted and settled in cash for their par amount, and the issuance of 1.2 million and 2.1 million shares of our common stock for the applicable conversion premium, respectively, as adjusted to give effect to the 2022 Stock Split.

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 1.2 million and 2.1 million shares of our common stock, respectively, as adjusted to give effect to the 2022 Stock Split.

In March 2022, the 2022 Notes were fully settled.

Additionally, during the nine months ended September 30, 2022 , we fully settled the warrants entered into in connection with the issuance of the 2022 Notes, resulting in the issuance of 37.0 million shares of our common stock, as adjusted to give effect to the 2022 Stock Split.

As adjusted to give effect to the 2022 Stock Split, each $ 1,000 of principal of the 2024 Notes is now convertible into 48.4140 shares of our common stock, which is equivalent to a conversion price of approximately $ 20.66 per share.

Under the note hedge transactions we entered in connection with the issuance of the 2024 Notes, we had the option to purchase 89.1 million shares at approximately $ 20.66 per share, as adjusted to give effect to the 2022 Stock Split.

Additionally, in connection with the issuance of the 2024 Notes, we sold warrants whereby the holders of the warrants had the option to purchase 89.1 million shares at approximately $ 40.50 per share, as adjusted to give effect to the 2022 Stock Split.

Taken together, the purchase of the convertible note hedges and the sale of the warrants are intended to effectively increase the overall conversion price from approximately $ 20.66 per share to approximately $ 40.50 per share.

Solar Asset and Loan-backed Notes

During the first two quarters 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.

During the nine months ended September 30, 2022, we early repaid $ 819 million in aggregate principal of the Solar Asset and Loan-backed Notes and recorded an extinguishment of debt charge of $ 24 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 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 (fully settled in March 2022) and the 2024 Notes (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Contractual interest coupon

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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 (“Stock Split”), to our CEO (the “2018 CEO Performance Award”).

grant of 304.0 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 (the “2020 Stock Split”) and the 2022 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.

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Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest expense, provision (benefit) for income taxes, depreciation and amortization and stock-based compensation.

Upon vesting and exercise, including the payment of the exercise price of $ 70.01 per share, our CEO must hold shares that he acquires for five years post-exercise, other than a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

The achievement status of the operational milestones as of June 30, 2022 is provided below.

Upon vesting and exercise, including the payment of the exercise price of $ 23.34 per share as adjusted to give effect to the 2020 Stock Split and the 2022 Stock Split, 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, 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.

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

As of June 30, 2022, we had $ 9 million of total unrecognized stock-based compensation expense remaining, which will be recognized over a weighted-average period of 0.3 years.

For the three and six months ended June 30, 2022, we recorded stock-based compensation expense of $ 8 million and $ 57 million, respectively, related to the 2018 CEO Performance Award, and $ 176 million and $ 475 million, respectively, for the same periods in 2021.

As of September 30, 2022 , we had $ 4 million of total unrecognized stock-based compensation expense remaining, all of which will be recognized over a weighted-average period of 0.3 years.

For the three and nine months ended September 30, 2022, we recorded stock-based compensation expense of $ 5 million and $ 62 million, respectively, related to the 2018 CEO Performance Award, and $ 190 million and $ 665 million, respectively, for the same periods in 2021.

Other Performance-Based Grants

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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’

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 2.2 million shares of our common stock, as adjusted to give effect to the 2022 Stock Split, 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.

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During the first quarter of 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 June 30, 2022, we had unrecognized stock-based compensation expense of $ 283 million, which will be recognized over a weighted-average period of 3 years.

For the three and six months ended June 30, 2022, we recorded $ 34 million and $ 103 million, respectively, of stock-based compensation expense related to this grant, net of forfeitures.

As of September 30, 2022, we had unrecognized stock-based compensation expense of $ 236 million, which will be recognized over a weighted-average period of 2.7 years.

For the three and nine months ended September 30, 2022, we recorded $ 31 million and $ 134 million, respectively, of stock-based compensation expense related to this grant, net of forfeitures.

Summary Stock-Based Compensation Information

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenues

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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 June 30, 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.

As of September 30, 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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On May 26, 2022, the plaintiff filed a notice of appeal.

The parties are in the process of submitting briefing before the Supreme Court of Delaware.

The parties have completed briefing and argument will be held before the Supreme Court of Delaware during the January 2023 session.

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

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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.

Trial is currently set for November 14-18, 2022.

Litigation Related to Directors’

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Defendants filed their answer on September 17, 2020.

Trial is set for September 11, 2023.

On September 20, 2022, the parties filed the Third Amended Stipulation and Proposed Order Governing Case Schedule, with trial from November 27, 2023, to December 1, 2023.

The Proposed Order is pending before the Court.

Litigation Relating to Potential Going Private Transaction

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Those cases have also been consolidated and stayed pending resolution of the above-referenced consolidated purported stockholder class action.

On October 21, 2022, a lawsuit was filed in the Delaware Court of Chancery by a purported shareholder of Tesla alleging, among other things, that board members breached their fiduciary duties in connection with their oversight of the Company’s 2018 settlement with the SEC, as amended.

Among other things, the plaintiff seeks reforms to the Company’s corporate governance and internal procedures, unspecified damages, and attorneys’

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.

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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.

On June 8, 2022, the Court denied Tesla’s motion to stay the case.

A hearing on the motion to strike and the demurrer seeking dismissal of the lawsuit is scheduled for August 24, 2022.

Additionally, on June 1, 2022 the EEOC issued a cause finding against Tesla that closely parallels the DFEH’s allegations.

Tesla will begin the mandatory pre-filing conciliation process with the EEOC.

On February 9, 2022, shortly after the Diaz jury verdict, the California Civil Rights Department (”CRD,”

formerly “DFEH”) filed a civil complaint against Tesla in Alameda County, California Superior Court, alleging systemic race discrimination, hostile work environment and pay equity claims, among others.

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

On September 22, 2022, Tesla filed a counter-claim against CRD, alleging that it violated the Administrative Procedures Act by failing to follow statutory pre-requisites prior to filing suit.

The case is now in discovery.

Additionally, on June 1, 2022 the Equal Employment Opportunity Commission (“EEOC”) issued a cause finding against Tesla that closely parallels the CRD’s allegations.

Tesla is in the process of setting up a mandatory mediation with the EEOC.

On June 16, 2022, two Tesla stockholders filed separate derivative actions in the U.S.

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Among other things, plaintiffs seek declaratory and injunctive relief, unspecified damages payable to Tesla, and attorneys’

We anticipate that the directors will move to dismiss both actions because neither shareholder made a demand upon the Tesla’s board of directors prior to filing suit.

On July 22, 2022, the Court consolidated the two cases and on September 6, 2022, plaintiffs filed a consolidated complaint.

We anticip ate that the directors will move to dismiss both actions because neither shareholder made a demand upon Tesla’s board of directors prior to filing suit.

Certain Investigations and Other Matters

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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 November 16, 2021, and June 13, 2022, the SEC issued subpoenas to us seeking information on our governance processes around compliance with the SEC settlement, as amended.

Since November 16, 2021, the SEC has periodically issued subpoenas 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.

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

September 30,

Current assets

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Automotive segment

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

United States

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

September 30,

United States

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

In 2022, we have produced 563,987 vehicles and delivered 564,743 vehicles through the second 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 1.98 GWh of energy storage products and 154 megawatts of solar energy systems through the second quarter.

In 2022, we have produced 929,910 vehicles and delivered 908,573 vehicles through the third quarter, despite ongoing supply chain and logistics challenges and factory shutdowns.

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

In 2022, we have deployed 4.08 GWh of energy storage products and 248 megawatts of solar energy systems through the third quarter.

We are currently focused on ramping production of energy storage products, improving our Solar Roof installation capability and efficiency, and increasing market share of retrofit and new build solar energy systems.

During the three and six months ended June 30, 2022, we recognized total revenues of $16.93 billion and $35.69 billion, respectively, representing increases of $4.98 billion and $13.34 billion, respectively, over the same periods ended June 30, 2021.

During the three and nine months ended September 30, 2022, we recognized total revenues of $21.45 billion and $57.14 billion, respectively, representing increases of $7.70 billion and $21.04 billion, respectively, over the same periods ended September 30, 2021.

We continue to ramp production, build new manufacturing capacity and expand our operations to enable increased deliveries and deployments of our products and further revenue growth.

During the three and six months ended June 30, 2022, our net income attributable to common stockholders was $2.26 billion and $5.58 billion, respectively, representing favorable changes of $1.12 billion and $4.00 billion, respectively, over the same periods ended June 30, 2021.

During the three and nine months ended September 30, 2022, our net income attributable to common stockholders was $3.29 billion and $8.87 billion, respectively, representing favorable changes of $1.67 billion and $5.67 billion, respectively, over the same periods ended September 30, 2021.

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

We ended the second quarter of 2022 with $18.92 billion in cash and cash equivalents and marketable securities, representing an increase of $1.21 billion from the end of 2021.

Our cash flows provided by operating activities during the six month period ended June 30, 2022 was $6.35 billion, representing an increase of $2.58 billion compared to $3.77 billion during the same period ended June 30, 2021.

Capital expenditures amounted to $3.50 billion during the six month period ended June 30, 2022, compared to $2.85 billion during the same period ended June 30, 2021.

We ended the third quarter of 2022 with $21.11 billion in cash and cash equivalents and marketable securities, representing an increase of $3.40 billion from the end of 2021.

Our cash flows provided by operating activities during the nine month period ended September 30, 2022 was $11.45 billion, representing an increase of $4.53 billion compared to $6.91 billion during the same period ended September 30, 2021.

Capital expenditures amounted to $5.30 billion during the nine month period ended September 30, 2022, compared to $4.67 billion during the same period ended September 30, 2021.

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

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Gigafactory Texas

In development

Gigafactory Nevada

Early production

Tesla Roadster

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In development

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.

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 production rate and capacity at our current factories.

Our 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 ramp at Gigafactory Berlin-Brandenburg and Gigafactory Texas and the upgrade and expansion of Gigafactory Shanghai, 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.

Beginning this quarter, at Gigafactory Texas, we began delivering to customers Model Ys with Tesla-made 4680 cells with a structural battery pack.

For example, in the second quarter of 2022, at Gigafactory Texas, we began delivering to customers some Model Ys with Tesla-made 4680 cells with a structural battery pack.

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

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In addition to our ongoing production ramp 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 political and regulatory uncertainty, including with respect to trade and the environment, all of which may also be compounded by any future global impact from the COVID-19 pandemic, inflationary pressures and potential increases in interest rates.

Moreover, as additional competitors enter the marketplace and help bring the world closer to sustainable transportation, we will have to continue to execute well to maintain our momentum.

performance and functionality, including through products based on artificial intelligence such as Autopilot and FSD, and other software features, and delivering new vehicles, such as the Tesla Semi in December 2022.

Moreover, we expect to continue to benefit from ongoing electrification of the automotive sector and increasing environmental awareness.

Moreover, as additional competitors enter the marketplace and help bring the world closer to sustainable transportation, we will have to adjust and continue to execute well to maintain our momentum.

Automotive—Deliveries and Customer Infrastructure

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

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

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.

As our production increases, we must work constantly to similarly increase vehicle delivery capability so that it does not become a bottleneck on our total deliveries.

In the third quarter of 2022, due to continuing challenges caused by vehicle transportation capacity during peak delivery periods, we began transitioning to a more even regional mix of vehicle builds each week, which led to an increase in cars in transit at the end of the quarter.

Increasing the exports of vehicles manufactured at Gigafactory Shanghai has also 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, including the recent production launch at Gigafactory Berlin-Brandenburg and Gigafactory Austin.

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

In particular, we remain focused on increasing the capability and efficiency of our servicing operations.

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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 the construction and ramp 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 the ramp of our Megafactory in Lathrop, California, but such production is also sensitive to global component constraints, particularly the industry-wide semiconductor shortage.

For Megapack, energy storage deployments can vary meaningfully quarter to quarter depending on the timing of specific project milestones.

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We remain committed to growing our retrofit solar energy business by offering a low-cost and simplified online ordering experience.

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

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

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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.

We expect operating expenses to continue 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.

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For any digital assets held now or in the future, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase.

For example, in the six month period ended June 30, 2022, we recorded $170 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of $64 million on certain conversions of bitcoin into fiat currency by us.

For example, in the nine month period ended September 30, 2022, we recorded $170 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of $64 million on certain conversions of bitcoin into fiat currency by us.

Critical Accounting Policies and Estimates

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To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected.

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

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.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

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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.

Automotive leasing revenue includes the amortization of revenue for vehicles under direct operating lease agreements.

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 $4.15 billion, or 44%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to an increase of 44,364 Model 3 and Model Y cash deliveries, and an increase of 12,658 Model S and Model X cash deliveries year over year.

Automotive sales revenue increased $6.39 billion, or 56%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to an increase of 96,737 Model 3 and Model Y cash deliveries, and an increase of 9,330 Model S and Model X cash deliveries year over year.

This was achieved from production ramping of Model Y at Gigafactory Shanghai and the Fremont Factory as well as the start of production at Gigafactory Berlin-Brandenburg and Gigafactory Texas in 2022, at a higher combined average selling price from a higher proportion of Model Y sales.

There was also an increase in production and an increase in the average selling price of Model S and Model X with a higher proportion of Model X sales, 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 sales revenue increased $11.48 billion, or 65%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to an increase of 156,279 Model 3 and Model Y cash deliveries, and an increase of 22,963 Model S and Model X cash deliveries year over year.

Automotive regulatory credits revenue decreased $10 million, or 3%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 primarily due to changes in pricing in certain regions.

Automotive regulatory credits revenue increased $151 million, or 17%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to changes in regulation which entitled us to additional consideration of $288 million in revenue in the first quarter of 2022 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 $256 million, or 77%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Automotive leasing revenue increased $627 million, or 100%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

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

Automotive sales revenue increased $17.87 billion, or 61%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to an increase of 253,016 Model 3 and Model Y cash deliveries, and an increase of 32,293 Model S and Model X cash deliveries year over year.

Automotive regulatory credits revenue increased $7 million, or 3%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 primarily due to the regional mix of the credits sold.

Automotive regulatory credits revenue increased $158 million, or 14%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to changes in regulation which entitled us to additional consideration of $288 million in revenue in the first quarter of 2022 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 $236 million, or 61%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Automotive leasing revenue increased $863 million, or 85%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

The changes for both periods are primarily due to an increase in direct sales-type leasing revenue and an increase in activities under our direct operating lease program.

Services and other revenue increased $515 million, or 54%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Services and other revenue increased $901 million, or 49%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The changes for both periods are primarily due to increase in used vehicle revenue driven by increases in volume and average selling prices of used Tesla vehicles, non-warranty maintenance services revenue as our fleet continues to grow, paid supercharging revenue, insurance services revenue and retail merchandise revenue.

Services and other revenue increased $751 million, or 84%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Services and other revenue increased $1.65 billion, or 60%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

The changes for both periods are primarily due to increase in used vehicle revenue driven by increases in volume and average selling prices of used Tesla and non-Tesla vehicles, paid supercharging revenue, non-warranty maintenance services revenue as our fleet continues to grow, insurance services revenue and retail merchandise revenue.

Energy Generation and Storage Segment

Energy generation and storage revenue includes sales and leasing of solar energy generation and energy storage products, financing of solar energy generation products, services related to such products and sales of solar energy systems incentives.

Energy generation and storage revenue increased $65 million, or 8%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to an increase in solar cash and loan deployments and Powerwall.

This was partially offset by lower deployments of Megapack.

Energy generation and storage revenue increased $187 million, or 14%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to an increase in deployments of Powerwall.

This was partially offset by lower deployments of Megapack.

Energy generation and storage revenue increased $311 million, or 39%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to an increase in Megapack, Powerwall and solar retrofit deployments.

Energy generation and storage revenue increased $498 million, or 24%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to an increase in Powerwall and Megapack deployments.

Cost of Revenues and Gross Margin

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

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

Cost of automotive sales revenue increased $3.03 billion, or 43%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, in line with the growth in revenue year over year, as discussed above.

There were also idle capacity charges of $168 million due to the temporary suspension of production at Gigafactory Shanghai as well as the ramping up of production in Gigafactory Texas during the three months ended June 30, 2022.

Further there was an increase in combined average Model 3 and Model Y costs per unit due to overall rising raw material, commodity, logistics and expedite costs and the ramping up of production at Gigafactory Berlin-Brandenburg and Gigafactory Texas during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Cost of automotive sales revenue increased $4.95 billion, or 61%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, in line with the growth in revenue year over year, as discussed above.

Further there was an increase in combined average Model 3 and Model Y costs per unit due to overall rising raw material, commodity, logistics and expedite costs and the ramping up of production at Gigafactory Berlin-Brandenburg and Gigafactory Texas as well as our proprietary battery cells manufacturing during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

These increases were partially offset by a 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 sales revenue increased $7.49 billion, or 55%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, in line with the growth in revenue year over year, as discussed above.

There were also idle capacity charges of $198 million due to the temporary suspension of production at Gigafactory Shanghai as well as the ramping up of production in Gigafactory Texas during the six months ended June 30, 2022.

Cost of automotive sales revenue increased $12.44 billion, or 57%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, in line with the growth in revenue year over year, as discussed above.

There were also idle capacity charges of $244 million primarily related to the temporary suspension of production at Gigafactory Shanghai as well as the ramping up of production in Gigafactory Texas and our proprietary battery cells manufacturing during the nine months ended September 30, 2022.

Cost of automotive leasing revenue increased $180 million, or 96%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Cost of automotive leasing revenue increased $428 million, or 123%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to an increase in cumulative vehicles under our direct operating lease program and an increase in direct sales-type leasing cost of revenues from more activities in the current year.

Cost of services and other revenue increased $424 million, or 43%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Cost of services and other revenue increased $748 million, or 38%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The change in both periods is primarily due to an increase in costs to support our increase in non-warranty maintenance services revenue, an increase in used vehicle cost of revenue driven by increases in volume and costs of used Tesla vehicles, an increase in costs of paid supercharging, insurance services and retail merchandise.

Gross margin for total automotive decreased from 28.4% to 27.9% in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

This was driven by the change in automotive sales revenue and cost of automotive sales revenue, as discussed earlier.

Gross margin for total automotive increased from 27.5% to 30.6% in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Cost of automotive leasing revenue increased $147 million, or 63%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Cost of automotive leasing revenue increased $575 million, or 99%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to an increase in cumulative vehicles under our direct operating lease program and an increase in direct sales-type leasing cost of revenues from more activities in the current year.

Cost of services and other revenue increased $669 million, or 74%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Cost of services and other revenue increased $1.42 billion, or 50%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

The change in both periods is primarily due to an increase in used vehicle cost of revenue driven by increases in volume and costs of used Tesla and non-Tesla vehicles, an increase in costs of paid supercharging, increase in non-warranty maintenance services revenue, insurance services and retail merchandise.

Gross margin for total automotive decreased from 30.5% to 27.9% in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

This was driven by the changes in automotive sales revenue and cost of automotive sales revenue, as discussed earlier.

Gross margin for total automotive increased from 28.6% to 29.6% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

This was driven by the growth in automotive sales revenue and cost of automotive sales revenue as well as increase from regulatory credits revenue, as discussed earlier.

Gross margin for total automotive & services and other segment stayed flat at 25.7% in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Gross margin for total automotive & services and other segment increased from 24.6% to 28.3% in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, 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 higher percentage of the segment gross margin during the three months and six months ended June 30, 2022 as compared to the prior year.

Gross margin for total automotive & services and other segment decreased from 28.2% to 26.0% in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to the automotive gross margin decrease discussed above and offset by an improvement in our services and other gross margin.

Gross margin for total automotive & services and other segment increased from 26.0% to 27.4% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to the automotive gross margin increase discussed above and an improvement in our services and other gross margin.

Additionally, services and other was a higher percentage of the segment gross margin during the three and nine months ended September 30, 2022 as 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 decreased $12 million, or 2%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, due to lower deployments of Megapack.

This was partially offset by higher solar cash and loan deployments and higher Powerwall deployments.

Cost of energy generation and storage revenue increased $81 million, or 6%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to increases in deployments of Powerwall and higher average cost of solar and cash and loan deployments due to increased component costs, partially offset by lower deployments of Megapack.

Gross margin for energy generation and storage increased from 2.5% to 11.2% in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Gross margin for energy generation and storage increased from -6.3% to 1.7% in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to higher deployments of Powerwall which operated at a higher gross margin.

This was partially offset by higher average cost of solar and cash and loan deployments due to increased component costs, as well as lower deployments of Megapack.

Cost of energy generation and storage revenue increased $210 million, or 26%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily due to increases in deployments of Megapack, Powerwall and solar retrofit deployments.

Cost of energy generation and storage revenue increased $291 million, or 13%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to increases in deployments of Powerwall and Megapack and higher average cost of solar cash and loan deployments due to increased component costs.

Gross margin for energy generation and storage increased from 0.4% to 9.3% in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Gross margin for energy generation and storage increased from -3.7% to 5.0% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

This was driven by the growth in energy generation and storage revenue and cost of energy generation and storage revenue, as discussed above.

Research and Development Expense

Three Months Ended

Six 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 $91 million, or 16%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

The increase was primarily due to a $47 million increase in employee and labor related expenses, an $18 million increase in stock-based compensation expense, a $14 million increase in facilities, outside services, freight and depreciation expense, and a $12 million increase in R&D expensed materials.

R&D expenses increased $122 million, or 20%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

The increase was primarily due to a $47 million increase in employee and labor related expenses, a $29 million increase in R&D expensed materials, a $24 million increase in facilities, outside services, freight and depreciation expense, and a $19 million increase in stock-based compensation expense.

These increases were to support our expanding product roadmap and technologies including our proprietary battery cells.

R&D expenses increased $290 million, or 23%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The increase was primarily due to a $122 million increase in employee and labor related expenses, a $107 million increase in facilities, freight and depreciation expense, a $36 million increase in stock-based compensation expense, and a $25 million increase in R&D expensed materials.

R&D expenses increased $412 million, or 22%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

The increase was primarily due to a $169 million increase in employee and labor related expenses, a $128 million increase in facilities, outside services, freight and depreciation expense, a $55 million increase in stock-based compensation expense and a $54 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 in the first quarter of 2022 as we were in the pre-production phase at Gigafactory Texas and started production at Gigafactory Berlin-Brandenburg only closer to the end of the first quarter of 2022.

R&D expenses as a percentage of revenue decreased from 5% to 4% in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

R&D expenses as a percentage of revenue decreased from 6% to 4% in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

R&D expenses as a percentage of revenue decreased from 4% to 3% in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

R&D expenses as a percentage of revenue decreased from 5% to 4% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

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

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

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Selling, general and administrative (“SG&A”) expenses generally consist of personnel and facilities costs related to our stores, marketing, sales, executive, finance, human resources, information technology and legal organizations, as well as fees for professional and contract services and litigation settlements.

SG&A expenses decreased $12 million, or 1%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

SG&A expenses decreased $33 million, or 3%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

This is primarily due to a decrease of $184 million in stock-based compensation expense, most of which is attributable to the lower stock-based compensation expense of $185 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 $109 million in employee and labor related expenses from increased headcount and an increase of $45 million in office, information technology, facilities-related expenses, sales and marketing activities and other costs.

SG&A expenses decreased $76 million, or 4%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

This was offset by an increase of $92 million in employee and labor related expenses from increased headcount and an increase of $53 million in office, information technology, facilities-related expenses and sales and marketing activities.

SG&A expenses decreased $109 million, or 4%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

This is primarily due to a decrease of $591 million in stock-based compensation expense, most of which is attributable to the lower stock-based compensation expense of $603 million on the 2018 CEO Performance Award.

1 unchanged sentence

This was offset by an increase of $311 million in employee and labor related expenses from increased headcount and an increase of $172 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 8% to 6% in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

SG&A expenses as a percentage of revenue decreased from 9% to 5% in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

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

SG&A expenses as a percentage of revenue decreased from 7% to 4% in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

SG&A expenses as a percentage of revenue decreased from 8% to 5% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Our SG&A expenses have decreased as a proportion of total revenues due to operational efficiencies, in addition to the decrease in expenses discussed above.

Restructuring and Other Expense

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

Restructuring and other

During the three and six months ended June 30, 2022, we recorded impairment loss of $170 million as well as realized gains of $64 million in connection with converting our holdings of digital assets into fiat currency.

During the six months ended June 30, 2021, we realized gains of $128 million in connection with converting our holdings of digital assets into fiat currency.

During the three and six months ended June 30, 2021, we recorded $23 million and $50 million, respectively, of impairment losses on bitcoin.

Not meaningful

During the nine months ended September 30, 2022, we recorded $170 million of impairment losses on such digital assets, and $51 million and $101 million during the three and nine months ended September 30, 2021, respectively.

During the nine months ended September 30, 2022 and 2021, we realized gains of $64 million and $128 million, respectively, in connection with converting our holdings of digital assets into fiat currency.

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

We also recorded other expenses of $36 million during the three months ended June 30, 2022, related to the recent employee terminations.

We also recorded other expenses of $36 million during the nine months ended September 30, 2022, related to employee terminations in the second quarter.

Interest Income

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

Interest income

Interest income increased $76 million, or 760%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Interest income increased $109 million, or 352%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

These increases were due to higher interest earned on cash and cash equivalents balances as of September 30, 2022 compared to September 30, 2021, driven by rising interest rates as well as an increase in our overall cash and cash equivalents balance during the periods presented.

Interest Expense

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

Interest expense

Interest expense decreased $31 million, or 41%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Interest expense decreased $69 million, or 40%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Interest expense decreased $73 million, or 58%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Interest expense decreased $142 million, or 47%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

These decreases were primarily due to the continued reduction in our overall debt balance offset by lower capitalized interest.

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

Other (Expense) Income, Net

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

Other income, net

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.

Other (expense) income, net

Not meaningful

Other (expense) income, net, consists primarily of foreign exchange gains and losses related to our foreign currency-denominated monetary assets and liabilities and changes in the fair values of our fixed-for-floating interest rate swaps.

We expect our foreign exchange gains and losses will vary depending upon movements in the underlying exchange rates.

Other income, net, changed unfavorably by $17 million in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Other income, net, changed favorably by $11 million in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Other (expense) income, net, changed unfavorably by $79 million in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Other (expense) income, net, changed unfavorably by $68 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

The change for both periods was primarily due to fluctuations in foreign currency exchange rates.

Additionally we did not have any outstanding interest rate swaps in the three months ended June 30, 2022 which resulted in no impacts from mark to market movements as compared to the prior period.

Provision for Income Taxes

Three Months Ended

Six 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 $90 million, or 78%, in the three months ended June 30, 2022 and increased by $367 million, or 199%, in the six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, primarily due to the increase in our pre-tax income year over year.

Our effective tax rate decreased from 9% to 8% in the three months ended June 30, 2022 and from 10% to 9% in the six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, primarily due to changes in mix of jurisdictional earnings.

Our provision for income taxes increased by $82 million, or 37%, in the three months ended September 30, 2022 and increased by $449 million, or 110%, in the nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, primarily due to the increase in our pre-tax income year over year.

Our effective tax rate decreased from 12% to 8% in the three months ended September 30, 2022 and from 11% to 9% in the nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 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

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in millions)

Net income (loss) attributable to noncontrolling

Net income attributable to noncontrolling

interests and redeemable noncontrolling interests

in subsidiaries

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased $26 million, or 72%, in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by $90 million, or 145%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased $2 million, or 5%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by $92 million, or 89%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

These changes were due to a decrease in allocations to financing fund investors.

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Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early.

Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following June 30, 2022, as well as in the long-term.

Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following September 30, 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.

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For details regarding these obligations, refer to Note 12, Commitments and Contingencies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

As of June 30, 2022, we and our subsidiaries had outstanding $3.18 billion in aggregate principal amount of indebtedness, of which $1.06 billion is scheduled to become due in the succeeding 12 months.

As of September 30, 2022, we and our subsidiaries had outstanding $2.41 billion in aggregate principal amount of indebtedness, of which $983 million 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.

1 unchanged sentence

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 June 30, 2022, we had $18.32 billion of cash and cash equivalents.

As of September 30, 2022, we had $19.53 billion of cash and cash equivalents.

Balances held in foreign currencies had a U.S.

dollar equivalent of $6.28 billion and consisted primarily of Chinese yuan, euros and Canadian dollars.

In addition, we had $2.44 billion of unused committed amounts under our credit facilities as of June 30, 2022.

In addition, we had $2.41 billion of unused committed amounts under our credit facilities as of September 30, 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 digital assets.

As with any investment and consistent with how we manage fiat-based cash and cash equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions.

The fair market value of our remaining holdings of digital assets as of June 30, 2022 was $222 million.

Additionally, we held short-term marketable securities of $591 million as of June 30, 2022.

The fair market value of our remaining holdings of digital assets as of September 30, 2022 was $226 million.

Additionally, we held short-term marketable securities of $1.58 billion as of September 30, 2022.

Summary of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

(Dollars in millions)

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

Net cash provided by operating activities increased by $2.58 billion to $6.35 billion during the six months ended June 30, 2022 from $3.77 billion during the six months ended June 30, 2021.

Net cash provided by operating activities increased by $4.53 billion to $11.45 billion during the nine months ended September 30, 2022 from $6.91 billion during the nine months ended September 30, 2021.

This increase was primarily due to the increase in net income excluding non-cash expenses, gains and losses of $5.91 billion, offset by the overall increase in net operating assets and liabilities of $1.38 billion.

The increase in our net operating assets and liabilities was mainly driven by a larger increase of inventory in the six months ended June 30, 2022 as compared to the six months ended June 30, 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 other long-term liabilities and, an increase of deferred revenue from higher vehicle deliveries.

The increase in our net operating assets and liabilities was mainly driven by a larger increase of inventory in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, partially offset by a larger increase of accounts payable and accrued liabilities, to support the ramp up in production at our factories and a larger increase in other non-current assets.

Additionally, the increase in our net operating assets and other liabilities was partially offset by a larger increase in other long-term liabilities.

Cash Flows from Investing Activities

Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $3.50 billion for the six months ended June 30, 2022 and $2.85 billion for the six months ended June 30, 2021, mainly for the expansions of Gigafactory Texas, the Fremont Factory, Gigafactory Berlin-Brandenburg, and Gigafactory Shanghai.

We also paid $476 million for purchases of marketable securities in the six months ended June 30, 2022.

Additionally, net cash inflows related to digital assets were $936 million in the six months ended June 30, 2022 from sales of digital assets.

Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $5.30 billion for the nine months ended September 30, 2022 and $4.67 billion for the nine months ended September 30, 2021, mainly for the expansions of Gigafactory Texas, the Fremont Factory, Gigafactory Berlin-Brandenburg, and Gigafactory Shanghai.

We also purchased $1.47 billion of marketable securities in the nine months ended September 30, 2022.

Additionally, net cash inflows related to sales of digital assets were $936 million in the nine months ended September 30, 2022.

Cash Flows from Financing Activities

Cash outflows from financing activities were $2.32 billion during six months ended June 30, 2022 compared to $2.57 billion net cash used in financing activities during the six months ended June 30, 2021.

The change was primarily due to $327 million decrease in cash outflows from repayments of convertible and other debt, net of proceeds from issuances of convertible and other debt.

Net cash used in financing activities decreased by $914 million to $3.03 billion during the nine months ended September 30, 2022 from $3.95 billion during the nine months ended September 30, 2021.

The decrease was primarily due to a $956 million decrease in 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.

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