Tesla, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Tesla, Inc. C onsolidated Balance Sheets (in millions, except per share data) (unaudited) September 30, December 31, 2022 2021 Assets Current assets Cash and cash equivalents $ 19,532 $ 17,576 Short-term marketable securities 1,575 131 Accounts receivable, net 2,192 1,913 Inventory 10,327 5,757 Prepaid expenses and other current assets 2,364 1,723 Total current assets 35,990 27,100 Operating lease vehicles, net 4,824 4,511 Solar energy systems, net 5,562 5,765 Property, plant and equipment, net 21,926 18,884 Operating lease right-of-use assets 2,251 2,016 Digital assets, net 218 1,260 Intangible assets, net 228 257 Goodwill 191 200 Other non-current assets 3,236 2,138 Total assets $ 74,426 $ 62,131 Liabilities Current liabilities Accounts payable $ 13,897 $ 10,025 Accrued liabilities and other 6,246 5,719 Deferred revenue 1,928 1,447 Customer deposits 1,083 925 Current portion of debt and finance leases 1,457 1,589 Total current liabilities 24,611 19,705 Debt and finance leases, net of current portion 2,096 5,245 Deferred revenue, net of current portion 2,265 2,052 Other long-term liabilities 4,330 3,546 Total liabilities 33,302 30,548 Commitments and contingencies (Note 12) Redeemable noncontrolling interests in subsidiaries 421 568 Equity Stockholders’ equity Preferred stock; $ 0.001 par value; 100 shares authorized; no shares issued and outstanding — — Common stock; $ 0.001 par value; 6,000 shares authorized; 3,158 and 3,100 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively (1) 3 3 Additional paid-in capital 31,592 29,803 Accumulated other comprehensive (loss) income ( 942 ) 54 Retained earnings (1) 9,198 329 Total stockholders’ equity 39,851 30,189 Noncontrolling interests in subsidiaries 852 826 Total liabilities and equity $ 74,426 $ 62,131 (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. 4 Tesla, Inc. C onsolidated Statements of Operations (in millions, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues Automotive sales $ 17,785 $ 11,393 $ 46,969 $ 29,100 Automotive regulatory credits 286 279 1,309 1,151 Automotive leasing 621 385 1,877 1,014 Total automotive revenues 18,692 12,057 50,155 31,265 Energy generation and storage 1,117 806 2,599 2,101 Services and other 1,645 894 4,390 2,738 Total revenues 21,454 13,757 57,144 36,104 Cost of revenues Automotive sales 13,099 8,150 34,166 21,726 Automotive leasing 381 234 1,157 582 Total automotive cost of revenues 13,480 8,384 35,323 22,308 Energy generation and storage 1,013 803 2,470 2,179 Services and other 1,579 910 4,275 2,858 Total cost of revenues 16,072 10,097 42,068 27,345 Gross profit 5,382 3,660 15,076 8,759 Operating expenses Research and development 733 611 2,265 1,853 Selling, general and administrative 961 994 2,914 3,023 Restructuring and other — 51 142 ( 27 ) Total operating expenses 1,694 1,656 5,321 4,849 Income from operations 3,688 2,004 9,755 3,910 Interest income 86 10 140 31 Interest expense ( 53 ) ( 126 ) ( 158 ) ( 300 ) Other (expense) income, net ( 85 ) ( 6 ) ( 1 ) 67 Income before income taxes 3,636 1,882 9,736 3,708 Provision for income taxes 305 223 856 407 Net income 3,331 1,659 8,880 3,301 Net income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries 39 41 11 103 Net income attributable to common stockholders $ 3,292 $ 1,618 $ 8,869 $ 3,198 Net income per share of common stock attributable to common stockholders (1) Basic $ 1.05 $ 0.54 $ 2.84 $ 1.09 Diluted $ 0.95 $ 0.48 $ 2.55 $ 0.95 Weighted average shares used in computing net income per share of common stock (1) Basic 3,146 2,993 3,120 2,931 Diluted 3,468 3,369 3,474 3,391 (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. 5 Tesla, Inc. C onsolidated Statements of Comprehensive Income (in millions) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income $ 3,331 $ 1,659 $ 8,880 $ 3,301 Other comprehensive loss: Foreign currency translation adjustment ( 460 ) ( 86 ) ( 977 ) ( 243 ) Unrealized net loss on marketable securities ( 5 ) — ( 19 ) — Comprehensive income 2,866 1,573 7,884 3,058 Less: Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries 39 41 11 103 Comprehensive income attributable to common stockholders $ 2,827 $ 1,532 $ 7,873 $ 2,955 The accompanying notes are an integral part of these consolidated financial statements. 6 Tesla, Inc. Consolidated Statements of Redeemable Noncontrolling Interests and Equity (in millions, except per share data) (unaudited) Accumulated Redeemable Additional Other Total Noncontrolling Noncontrolling Common Stock Paid-In Comprehensive Retained Stockholders’ Interests in Total Three Months Ended September 30, 2022 Interests Shares (1) Amount (1) Capital Loss Earnings (1) Equity Subsidiaries Equity Balance as of June 30, 2022 $ 421 3,122 $ 3 $ 30,944 $ ( 477 ) $ 5,906 $ 36,376 $ 861 $ 37,237 Exercises of conversion feature of convertible senior notes — 0 0 0 — — 0 — 0 Settlements of warrants — 29 0 0 — — 0 — 0 Issuance of common stock for equity incentive awards — 7 0 229 — — 229 — 229 Stock-based compensation — — — 419 — — 419 — 419 Distributions to noncontrolling interests ( 11 ) — — — — — — ( 36 ) ( 36 ) Net income 11 — — — — 3,292 3,292 27 3,319 Other comprehensive loss — — — — ( 465 ) — ( 465 ) — ( 465 ) Balance as of September 30, 2022 $ 421 3,158 $ 3 $ 31,592 $ ( 942 ) $ 9,198 $ 39,851 $ 852 $ 40,703 Accumulated Redeemable Additional Other Total Noncontrolling Noncontrolling Common Stock Paid-In Comprehensive Retained Stockholders’ Interests in Total Nine Months Ended September 30, 2022 Interests Shares (1) Amount (1) Capital Income (Loss) Earnings (1) Equity Subsidiaries Equity Balance as of December 31, 2021 $ 568 3,100 $ 3 $ 29,803 $ 54 $ 329 $ 30,189 $ 826 $ 31,015 Exercises of conversion feature of convertible senior notes — 0 0 0 — — 0 — 0 Settlements of warrants — 37 0 0 — — 0 — 0 Issuance of common stock for equity incentive awards — 21 0 474 — — 474 — 474 Stock-based compensation — — — 1,323 — — 1,323 — 1,323 Distributions to noncontrolling interests ( 36 ) — — — — — — ( 84 ) ( 84 ) Buy-outs of noncontrolling interests ( 11 ) — — ( 8 ) — — ( 8 ) — ( 8 ) Net (loss) income ( 100 ) — — — — 8,869 8,869 110 8,979 Other comprehensive loss — — — — ( 996 ) — ( 996 ) — ( 996 ) Balance as of September 30, 2022 $ 421 3,158 $ 3 $ 31,592 $ ( 942 ) $ 9,198 $ 39,851 $ 852 $ 40,703 (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. 7 Accumulated Redeemable Additional Other Total Noncontrolling Noncontrolling Common Stock Paid-In Comprehensive Accumulated Stockholders’ Interests in Total Three Months Ended September 30, 2021 Interests Shares (1) Amount (1) Capital Income (Loss) Deficit (1) Equity Subsidiaries Equity Balance as of June 30, 2021 $ 605 2,952 $ 3 $ 28,205 $ 206 $ ( 3,610 ) $ 24,804 $ 841 $ 25,645 Exercises of conversion feature of convertible senior notes — 0 0 1 — — 1 — 1 Settlements of warrants — 53 0 0 — — 0 — 0 Issuance of common stock for equity incentive awards — 8 0 192 — — 192 — 192 Stock-based compensation — — — 524 — — 524 — 524 Distributions to noncontrolling interests ( 16 ) — — — — — — ( 30 ) ( 30 ) Net income 16 — — — — 1,618 1,618 25 1,643 Other comprehensive loss — — — — ( 86 ) — ( 86 ) — ( 86 ) Balance as of September 30, 2021 $ 605 3,013 $ 3 $ 28,922 $ 120 $ ( 1,992 ) $ 27,053 $ 836 $ 27,889 Accumulated Redeemable Additional Other Total Noncontrolling Noncontrolling Common Stock Paid-In Comprehensive Accumulated Stockholders’ Interests in Total Nine Months Ended September 30, 2021 Interests Shares (1) Amount (1) Capital Income (Loss) Deficit (1) Equity Subsidiaries Equity Balance as of December 31, 2020 $ 604 2,879 $ 3 $ 27,260 $ 363 $ ( 5,401 ) $ 22,225 $ 850 $ 23,075 Adjustments for prior periods from adopting ASU 2020-06 — — — ( 474 ) — 211 ( 263 ) — ( 263 ) Exercises of conversion feature of convertible senior notes — 2 0 6 — — 6 — 6 Settlements of warrants — 104 0 0 — — 0 — 0 Issuance of common stock for equity incentive awards — 28 0 444 — — 444 — 444 Stock-based compensation — — — 1,686 — — 1,686 — 1,686 Contributions from noncontrolling interests 2 — — — — — — — — Distributions to noncontrolling interests ( 42 ) — — — — — — ( 76 ) ( 76 ) Net income 41 — — — — 3,198 3,198 62 3,260 Other comprehensive loss — — — — ( 243 ) — ( 243 ) — ( 243 ) Balance as of September 30, 2021 $ 605 3,013 $ 3 $ 28,922 $ 120 $ ( 1,992 ) $ 27,053 $ 836 $ 27,889 (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. 8 Tesla, Inc. C onsolidated Statements of Cash Flows (in millions) (unaudited) Nine Months Ended September 30, 2022 2021 Cash Flows from Operating Activities Net income $ 8,880 $ 3,301 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and impairment 2,758 2,063 Stock-based compensation 1,141 1,563 Inventory and purchase commitments write-downs 118 128 Foreign currency transaction net unrealized loss 1 8 Non-cash interest and other operating activities 159 213 Digital assets loss (gain), net 106 ( 27 ) Changes in operating assets and liabilities: Accounts receivable ( 426 ) ( 148 ) Inventory ( 4,492 ) ( 1,175 ) Operating lease vehicles ( 1,136 ) ( 1,526 ) Prepaid expenses and other current assets ( 865 ) ( 287 ) Other non-current assets ( 1,580 ) ( 744 ) Accounts payable and accrued liabilities 4,659 2,764 Deferred revenue 856 452 Customer deposits 251 80 Other long-term liabilities 1,016 247 Net cash provided by operating activities 11,446 6,912 Cash Flows from Investing Activities Purchases of property and equipment excluding finance leases, net of sales ( 5,300 ) ( 4,672 ) Purchases of solar energy systems, net of sales ( 5 ) ( 28 ) Purchases of digital assets — ( 1,500 ) Proceeds from sales of digital assets 936 272 Purchase of intangible assets ( 9 ) — Purchases of marketable securities ( 1,467 ) ( 30 ) Proceeds from maturities of marketable securities 3 — Receipt of government grants — 6 Net cash used in investing activities ( 5,842 ) ( 5,952 ) Cash Flows from Financing Activities Proceeds from issuances of convertible and other debt — 7,633 Repayments of convertible and other debt ( 3,000 ) ( 11,589 ) Collateralized lease repayments — ( 9 ) Proceeds from exercises of stock options and other stock issuances 474 445 Principal payments on finance leases ( 369 ) ( 311 ) Debt issuance costs — ( 9 ) Proceeds from investments by noncontrolling interests in subsidiaries — 2 Distributions paid to noncontrolling interests in subsidiaries ( 118 ) ( 108 ) Payments for buy-outs of noncontrolling interests in subsidiaries ( 19 ) — Net cash used in financing activities ( 3,032 ) ( 3,946 ) Effect of exchange rate changes on cash and cash equivalents and restricted cash ( 567 ) ( 221 ) Net increase (decrease) in cash and cash equivalents and restricted cash 2,005 ( 3,207 ) Cash and cash equivalents and restricted cash, beginning of period 18,144 19,901 Cash and cash equivalents and restricted cash, end of period $ 20,149 $ 16,694 Supplemental Non-Cash Investing and Financing Activities Acquisitions of property and equipment included in liabilities $ 1,877 $ 2,040 Leased assets obtained in exchange for finance lease liabilities $ 36 $ 355 Leased assets obtained in exchange for operating lease liabilities $ 691 $ 670 The accompanying notes are an integral part of these consolidated financial statements. 9 Tesla, Inc. N otes to Consolidated Financial Statements (unaudited) Note 1 – Overview Tesla, Inc. (“Tesla”, the “Company”, “we”, “us” or “our”) was incorporated in the State of Delaware on July 1, 2003. We design, develop, manufacture and sell high-performance fully electric vehicles and design, manufacture, install and sell solar energy generation and energy storage products. Our Chief Executive Officer, as the chief operating decision maker (“CODM”), organizes our company, manages resource allocations and measures performance among two operating and reportable segments: (i) automotive and (ii) energy generation and storage. There continues to be widespread impact from the COVID-19 pandemic. Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. We have been affected by temporary manufacturing closures, employment and compensation adjustments and impediments to administrative activities supporting our product deliveries and deployments. In addition, we have experienced and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID‐19 pandemic and general global economic conditions. The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible. 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 – Summary of Significant Accounting Policies Unaudited Interim Financial Statements 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. The interim consolidated financial statements and the accompanying notes should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021. The interim consolidated financial statements and the accompanying notes have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future years or interim periods. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. 10 Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets which could impact our estimates and assumptions. The estimates used for, but not limited to, determining significant economic incentive for resale value guarantee arrangements, sales return reserves, the collectability of accounts receivable, inventory valuation, warranties, fair value of long-lived assets, goodwill, fair value of financial instruments, fair value and residual value of operating lease vehicles and solar energy systems subject to leases could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. Reclassifications Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes. Revenue Recognition Revenue by source The following table disaggregates our revenue by major source (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Automotive sales without resale value guarantee $ 17,624 $ 11,230 $ 46,467 $ 28,575 Automotive sales with resale value guarantee 161 163 502 525 Automotive regulatory credits 286 279 1,309 1,151 Energy generation and storage sales 966 662 2,186 1,698 Services and other 1,645 894 4,390 2,738 Total revenues from sales and services 20,682 13,228 54,854 34,687 Automotive leasing 621 385 1,877 1,014 Energy generation and storage leasing 151 144 413 403 Total revenues $ 21,454 $ 13,757 $ 57,144 $ 36,104 Automotive Segment Automotive Sales Revenue Automotive Sales with and without Resale Value Guarantee We recognize revenue when control transfers upon delivery to customers in accordance with ASC 606, 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 $ 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 $ 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 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. 11 Automotive Regulatory Credits We earn tradable credits in the operation of our automotive business under various regulations related to zero-emission vehicles, greenhouse gas, fuel economy and clean fuel. We sell these credits to other regulated entities who can use the credits to comply with emission standards and other regulatory requirements. Payments for automotive regulatory credits are typically received at the point control transfers to the customer, or in accordance with payment terms customary to the business. We recognize revenue on the sale of automotive regulatory credits, 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 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 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): September 30, 2022 December 31, 2021 Gross lease receivables $ 726 $ 427 Unearned interest income ( 83 ) ( 50 ) Allowance for expected credit losses ( 3 ) ( 1 ) Net investment in sales-type leases $ 640 $ 376 Reported as: Prepaid expenses and other current assets $ 145 $ 73 Other non-current assets 495 303 Net investment in sales-type leases $ 640 $ 376 Energy Generation and Storage Segment Energy Generation and Storage Sales We record as deferred revenue any non-refundable amounts that are collected from customers related to fees charged for prepayments and remote monitoring service and operations and maintenance service, which is recognized as revenue ratably over the respective customer contract term. As of 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 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. 12 Income Taxes There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. 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. Our Gigafactory Shanghai subsidiary was granted this beneficial income tax rate of 15 % for 2019 through 2023. We file income tax returns in the U.S. and various state and foreign jurisdictions. 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. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state income tax purposes. Our returns for 2004 and subsequent tax years remain subject to examination in U.S. state and foreign jurisdictions. Given the uncertainty in timing and outcome of our tax examinations, an estimate of the range of the reasonably possible change in gross unrecognized tax benefits within twelve months cannot be made at this time. Net Income per Share of Common Stock Attributable to Common Stockholders Basic net income per share of common stock attributable to common stockholders is calculated by dividing net income attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible senior notes using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income per share of common stock attributable to common stockholders when their effect is dilutive. Furthermore, in connection with the offerings of our convertible senior notes, we entered into convertible note hedges and warrants (see Note 10, Debt ). However, our convertible note hedges are not included when calculating potentially dilutive shares since their effect is always anti-dilutive. The strike price on the warrants were below our average share price during the period and were included in the tables below. Warrants are included in the weighted-average shares used in computing basic net income per share of common stock in the period(s) they are settled. The following table presents the reconciliation of net income attributable to common stockholders to net income used in computing basic and diluted net income per share of common stock (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income attributable to common stockholders $ 3,292 $ 1,618 $ 8,869 $ 3,198 Less: Buy-out of noncontrolling interest — — 8 — Net income used in computing basic net income per share of common stock 3,292 1,618 8,861 3,198 Less: Dilutive convertible debt ( 0 ) ( 1 ) ( 1 ) ( 8 ) Net income used in computing diluted net income per share of common stock $ 3,292 $ 1,619 $ 8,862 $ 3,206 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, 2022 2021 2022 2021 Weighted average shares used in computing net income per share of common stock, basic 3,146 2,993 3,120 2,931 Add: Stock-based awards 301 294 311 303 Convertible senior notes 2 13 4 36 Warrants 19 69 39 121 Weighted average shares used in computing net income per share of common stock, diluted 3,468 3,369 3,474 3,391 13 The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income per share of common stock attributable to common stockholders, because their effect was anti-dilutive, as adjusted to give effect to the 2022 Stock Split (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Stock-based awards 3 1 3 1 Convertible senior notes — 0 — 1 Restricted Cash We maintain certain cash balances restricted as to withdrawal or use. Our restricted cash is comprised primarily of cash held to service certain payments under various secured debt facilities. In addition, restricted cash includes cash held as collateral for certain permits as well as sales to lease partners with a resale value guarantee, letters of credit, real estate leases, deposits held for our insurance services 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, December 31, September 30, December 31, 2022 2021 2021 2020 Cash and cash equivalents $ 19,532 $ 17,576 $ 16,065 $ 19,384 Restricted cash included in prepaid expenses and other current assets 382 345 327 238 Restricted cash included in other non-current assets 235 223 302 279 Total as presented in the consolidated statements of cash flows $ 20,149 $ 18,144 $ 16,694 $ 19,901 Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable primarily include amounts related to receivables from financial institutions and leasing companies offering various financing products to our customers, sales of energy generation and storage products, sales of regulatory credits to other automotive manufacturers, government rebates already passed through to customers and maintenance services on vehicles owned by leasing companies. We provide an allowance against accounts receivable for the amount we expect to be uncollectible. We write-off accounts receivable against the allowance when they are deemed uncollectible. Depending on the day of the week on which the end of a fiscal quarter falls, our accounts receivable balance may fluctuate as we are waiting for certain customer payments to clear through our banking institutions and receipts of payments from our financing partners, which can take up to approximately two weeks based on the contractual payment terms with such partners. Our accounts receivable balances associated with our sales of regulatory credits, which are typically transferred to other manufacturers during the last few days of the quarter, is dependent on contractual payment terms. Additionally, government rebates can take up to a year or more to be collected depending on the customary processing timelines of the specific jurisdictions issuing them. These various factors may have a significant impact on our accounts receivable balance from period to period. 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 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 Credit Risk Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, marketable securities, restricted cash, accounts receivable and other finance receivables. Our cash balances are primarily on deposit at high credit quality financial institutions or invested in money market funds. These deposits are typically in excess of insured limits. As of September 30, 2022 and December 31, 2021 , no entity represented 10 % or more of our total receivables balance. 14 Supply Risk We are dependent on our suppliers, including single source suppliers, and the inability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components from these suppliers, could have a material adverse effect on our business, prospects, financial condition and operating results. Operating Lease Vehicles 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. Warranties We provide a manufacturer’s warranty on all new and used vehicles and a warranty on the installation and components of the energy generation and storage systems we sell for periods typically between 10 to 25 years . We accrue a warranty reserve for the products sold by us, which includes our best estimate of the projected costs to repair or replace items under warranties and recalls if identified. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given our relatively short history of sales, and changes to our historical or projected warranty experience may cause material changes to the warranty reserve in the future. The warranty reserve does not include projected warranty costs associated with our vehicles subject to operating lease accounting and our solar energy systems under lease contracts or Power Purchase Agreements (“PPAs”), as the costs to repair these warranty claims are expensed as incurred. The portion of the warranty reserve expected to be incurred within the next 12 months is included within Accrued liabilities and other, while the remaining balance is included within Other long-term liabilities on the consolidated balance sheets. Warranty expense is recorded as a component of Cost of revenues in the consolidated statements of operations. Due to the magnitude of our automotive business, accrued warranty balance is primarily related to our automotive segment. Accrued warranty activity consisted of the following (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Accrued warranty—beginning of period $ 2,433 $ 1,691 $ 2,101 $ 1,468 Warranty costs incurred ( 236 ) ( 140 ) ( 574 ) ( 381 ) Net changes in liability for pre-existing warranties, including expirations and foreign exchange impact 156 ( 64 ) 158 ( 22 ) Provision for warranty 418 249 1,086 671 Accrued warranty—end of period $ 2,771 $ 1,736 $ 2,771 $ 1,736 Recent Accounting Pronouncements Recently issued accounting pronouncements not yet adopted In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. This ASU is currently not expected to have a material impact on our consolidated financial statements. In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which we adopted on January 1, 2020. This ASU also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU would be applied prospectively. Early adoption is also permitted, including adoption in an interim period. This ASU is currently not expected to have a material impact on our consolidated financial statements. 15 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 In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application. We adopted the ASU prospectively on January 1, 2022. The additional annual disclosures required are not expected to have a material impact on our consolidated financial statements. Note 3 – Digital Assets, Net During the nine months ended September 30, 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 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 – Intangible Assets Information regarding our intangible assets including assets recognized from our acquisitions was as follows (in millions): September 30, 2022 December 31, 2021 Gross Carrying Amount Accumulated Amortization Other Net Carrying Amount Gross Carrying Amount Accumulated Amortization Other Net Carrying Amount Finite-lived intangible assets: Developed technology $ 299 $ ( 179 ) $ 2 $ 122 $ 299 $ ( 150 ) $ 3 $ 152 Trade names 2 ( 2 ) — — 2 ( 1 ) — 1 Favorable contracts and leases, net 113 ( 46 ) — 67 113 ( 40 ) — 73 Other 36 ( 22 ) 1 15 36 ( 21 ) 1 16 Total finite-lived intangible assets 450 ( 249 ) 3 204 450 ( 212 ) 4 242 Indefinite-lived intangible assets: Gigafactory Nevada water rights 15 — — 15 15 — — 15 Other 9 — — 9 — — — — Total infinite-lived intangible assets 24 — — 24 15 — — 15 Total intangible assets $ 474 $ ( 249 ) $ 3 $ 228 $ 465 $ ( 212 ) $ 4 $ 257 Total future amortization expense for finite-lived intangible assets was estimated as follows (in millions): Three months ending December 31, 2022 $ 12 2023 43 2024 28 2025 28 2026 27 Thereafter 66 Total $ 204 16 Note 5 – Fair Value of Financial Instruments ASC 820 , Fair Value Measurements , states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value. Our assets and liabilities that were measured at fair value on a recurring basis were as follows (in millions): September 30, 2022 December 31, 2021 Fair Value Level I Level II Level III Fair Value Level I Level II Level III Money market funds $ 7,729 $ 7,729 $ — $ — $ 9,548 $ 9,548 $ — $ — U.S. government securities 888 — 888 — — — — — Corporate debt securities 687 — 687 — 131 — 131 — Interest rate swap liabilities — — — — 31 — 31 — Total $ 9,304 $ 7,729 $ 1,575 $ — $ 9,710 $ 9,548 $ 162 $ — All of our money market funds were classified within Level I of the fair value hierarchy because they were valued using quoted prices in active markets. Our U.S. government securities and marketable securities are classified within Level II of the fair value hierarchy and the market approach was used to determine fair value of these investments. Our interest rate swaps were classified within Level II of the fair value hierarchy because they were valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates. 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 Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Short-Term Marketable Securities Cash $ 11,803 $ — $ — $ 11,803 $ 11,803 $ — Money market funds 7,729 — — 7,729 7,729 — U.S. government securities 889 — ( 1 ) 888 — 888 Corporate debt securities 706 — ( 19 ) 687 — 687 Total cash, cash equivalents and short-term marketable securities $ 21,127 $ — $ ( 20 ) $ 21,107 $ 19,532 $ 1,575 December 31, 2021 Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Short-Term Marketable Securities Cash $ 8,028 $ — $ — $ 8,028 $ 8,028 $ — Money market funds 9,548 — — 9,548 9,548 — Corporate debt securities 132 — ( 1 ) 131 — 131 Total cash, cash equivalents and short-term marketable securities $ 17,708 $ — $ ( 1 ) $ 17,707 $ 17,576 $ 131 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 $ 943 Due in 1 year through 5 years 576 Due in 5 years through 10 years 56 Total $ 1,575 17 Interest Rate Swaps We had previously entered into fixed-for-floating interest rate swap agreements to swap variable interest payments on certain debt for fixed interest payments, as required by certain of our lenders. We did not designate our interest rate swaps as hedging instruments. Accordingly, our interest rate swaps were recorded at fair value on the consolidated balance sheets within Other non-current assets or Other long-term liabilities, with any changes in their fair values recognized as Other (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): September 30, 2022 December 31, 2021 Aggregate Notional Amount Gross Asset at Fair Value Gross Liability at Fair Value Aggregate Notional Amount Gross Asset at Fair Value Gross Liability at Fair Value Interest rate swaps $ — $ — $ — $ 312 $ — $ 31 Our interest rate swaps activity was as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Gross losses $ — $ — $ — $ 9 Gross gains $ — $ 1 $ 10 $ 21 Disclosure of Fair Values 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” below), and Solar Asset and Loan-backed Notes. We estimate the fair value of the Convertible Senior Notes using commonly accepted valuation methodologies and market-based risk measurements that are indirectly observable, such as credit risk (Level II). In addition, we estimate the fair values of our Solar Asset and Loan-backed Notes based on rates currently offered for instruments with similar maturities and terms (Level III). The following table presents the estimated fair values and the carrying values (in millions): September 30, 2022 December 31, 2021 Carrying Value Fair Value Carrying Value Fair Value Convertible Senior Notes (1) $ 44 $ 574 $ 119 $ 2,016 Solar Asset and Loan-backed Notes $ 18 $ 18 $ 827 $ 834 (1) The 2022 Notes were fully settled in the first quarter of 2022. Note 6 – Inventory Our inventory consisted of the following (in millions): September 30, December 31, 2022 2021 Raw materials $ 5,381 $ 2,816 Work in process 2,237 1,089 Finished goods (1) 2,067 1,277 Service parts 642 575 Total $ 10,327 $ 5,757 (1) Finished goods inventory includes vehicles in transit to fulfill customer orders, new vehicles available for sale, used vehicles, energy storage products and Solar Roof products available for sale. We write-down inventory for any excess or obsolete inventories or when we believe that the net realizable value of inventories is less than the carrying value. During the three and nine months ended September 30, 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. 18 Note 7 – Property, Plant and Equipment, Net Our property, plant and equipment, net, consisted of the following (in millions): September 30, December 31, 2022 2021 Machinery, equipment, vehicles and office furniture $ 12,261 $ 9,953 Tooling 2,468 2,188 Leasehold improvements 2,102 1,826 Land and buildings 6,988 4,675 Computer equipment, hardware and software 1,879 1,414 Construction in progress 4,549 5,559 30,247 25,615 Less: Accumulated depreciation ( 8,321 ) ( 6,731 ) Total $ 21,926 $ 18,884 Construction in progress is primarily comprised of construction of Gigafactory Berlin-Brandenburg and Gigafactory Texas, expansion of Gigafactory Shanghai and equipment and tooling related to the manufacturing of our products. Completed assets are transferred to their respective asset classes and depreciation begins when an asset is ready for its intended use. Interest on outstanding debt is capitalized during periods of significant capital asset construction and amortized over the useful lives of the related assets. During the three and nine months ended September 30, 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. Under our arrangement with Panasonic, we plan to purchase the full output from their production equipment at negotiated prices. As the terms of the arrangement convey a finance lease under ASC 842, Leases , we account for their production equipment as leased assets when production commences. We account for each lease and any non-lease components associated with that lease as a single lease component for all asset classes, except production equipment classes embedded in supply agreements. This results in us recording the cost of their production equipment within Property, plant and equipment, net, on the consolidated balance sheets with a corresponding liability recorded to debt and finance leases. Depreciation on Panasonic production equipment is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the respective assets. As of 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 – Accrued Liabilities and Other Our accrued liabilities and other current liabilities consisted of the following (in millions): September 30, December 31, 2022 2021 Accrued purchases (1) $ 2,281 $ 2,045 Taxes payable (2) 1,114 1,122 Payroll and related costs 980 906 Accrued warranty reserve, current portion 840 703 Sales return reserve, current portion 263 265 Operating lease liabilities, current portion 426 368 Other current liabilities 342 310 Total $ 6,246 $ 5,719 (1) Accrued purchases primarily reflects receipts of goods and services for which we had not yet been invoiced. As we are invoiced for these goods and services, this balance will reduce and accounts payable will increase. (2) Taxes payable includes value added tax, sales tax, property tax, use tax and income tax payables. 19 Note 9 – Other Long-Term Liabilities Our other long-term liabilities consisted of the following (in millions): September 30, December 31, 2022 2021 Operating lease liabilities $ 1,895 $ 1,671 Accrued warranty reserve 1,931 1,398 Sales return reserve 57 133 Deferred tax liability 20 24 Other non-current liabilities 427 320 Total other long-term liabilities $ 4,330 $ 3,546 Note 10 – Debt The following is a summary of our debt and finance leases as of September 30, 2022 (in millions): Unpaid Unused Net Carrying Value Principal Committed Contractual Contractual Current Long-Term Balance Amount (1) Interest Rates Maturity Date Recourse debt: 2024 Notes $ — $ 44 $ 45 $ — 2.00 % May 2024 Credit Agreement — — — 2,266 Not applicable July 2023 Solar Bonds — 7 7 — 4.70 - 5.75 % March 2025 - January 2031 Total recourse debt — 51 52 2,266 Non-recourse debt: Automotive Asset-backed Notes 949 972 1,927 — 0.36 - 5.48 % December 2022 - September 2025 Solar Asset-backed Notes 4 14 18 — 4.80 % December 2026 Cash Equity Debt 26 370 406 — 5.25 - 5.81 % July 2033 - January 2035 Automotive Lease-backed Credit Facilities — — — 139 Not applicable September 2024 Other Loans — 11 11 — 5.10 % February 2033 Total non-recourse debt 979 1,367 2,362 139 Total debt 979 1,418 $ 2,414 $ 2,405 Finance leases 478 678 Total debt and finance leases $ 1,457 $ 2,096 The following is a summary of our debt and finance leases as of December 31, 2021 (in millions): Unpaid Unused Net Carrying Value Principal Committed Contractual Contractual Current Long-Term Balance Amount (1) Interest Rates Maturity Date Recourse debt: 2022 Notes $ 29 $ — $ 29 $ — 2.375 % March 2022 2024 Notes 1 89 91 — 2.00 % May 2024 Credit Agreement — 1,250 1,250 920 3.25 % July 2023 Solar Bonds 0 7 7 — 4.00 - 5.75 % January 2022 - January 2031 Total recourse debt 30 1,346 1,377 920 Non-recourse debt: Automotive Asset-backed Notes 1,007 1,706 2,723 — 0.12 %- 5.48 % September 2022 - September 2025 Solar Asset and Loan-backed Notes 27 800 844 — 2.87 %- 7.74 % September 2024 - September 2049 Cash Equity Debt 24 388 422 — 5.25 - 5.81 % July 2033 - January 2035 Automotive Lease-backed Credit Facilities — — — 167 Not applicable September 2023 Other Loans — 14 14 21 5.10 % February 2033 Total non-recourse debt 1,058 2,908 4,003 188 Total debt 1,088 4,254 $ 5,380 $ 1,108 Finance leases 501 991 Total debt and finance leases $ 1,589 $ 5,245 (1) There are no restrictions on draw-down or use for general corporate purposes with respect to any available committed funds under our credit facilities, except certain specified conditions prior to draw-down, including pledging to our lenders sufficient amounts of qualified receivables, inventories, leased vehicles and our interests in those leases or various other assets and as may be described below and in the notes to the consolidated financial statements included in our report on Form 10-K for the year ended December 31, 2021. Recourse debt refers to debt that is recourse to our general assets. Non-recourse debt refers to debt that is recourse to only assets of our subsidiaries. The differences between the unpaid principal balances and the net carrying values are due to debt discounts or deferred financing costs. As of September 30, 2022, we were in material compliance with all financial debt covenants. 20 2022 Notes and 2024 Notes 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 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 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Contractual interest coupon $ 0 $ 1 $ 1 $ 11 Amortization of debt issuance costs 0 1 1 4 Total $ 0 $ 2 $ 2 $ 15 21 Note 11 – Equity Incentive Plans 2018 CEO Performance Award In March 2018, our stockholders approved the Board of Directors’ 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. Each of the 12 vesting tranches of the 2018 CEO Performance Award will vest upon certification by the Board of Directors that both (i) the market capitalization milestone for such tranche, which begins at $ 100.0 billion for the first tranche and increases by increments of $ 50.0 billion thereafter (based on both a six calendar month trailing average and a 30 calendar day trailing average, counting only trading days), has been achieved, and (ii) any one of the following eight operational milestones focused on total revenue or any one of the eight operational milestones focused on Adjusted EBITDA have been achieved for the four consecutive fiscal quarters on an annualized basis and subsequently reported by us in our consolidated financial statements filed with our Forms 10-Q and/or 10-K. Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest expense, provision (benefit) for income taxes, depreciation and amortization and stock-based compensation. Upon vesting and exercise, including the payment of the exercise price of $ 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. Total Annualized Revenue Annualized Adjusted EBITDA Milestone (in billions) Achievement Status Milestone (in billions) Achievement Status $ 20.0 Achieved $ 1.5 Achieved $ 35.0 Achieved $ 3.0 Achieved $ 55.0 Achieved $ 4.5 Achieved $ 75.0 Probable $ 6.0 Achieved $ 100.0 - $ 8.0 Achieved $ 125.0 - $ 10.0 Achieved $ 150.0 - $ 12.0 Achieved $ 175.0 - $ 14.0 Achieved Stock-based compensation under the 2018 CEO Performance Award represents a non-cash expense and is recorded as a Selling, general, and administrative operating expense in our consolidated statements of operations. In each quarter since the grant of the 2018 CEO Performance Award, we have recognized expense, generally on a pro-rated basis, for only the number of tranches (up to the maximum of 12 tranches) that corresponds to the number of operational milestones that have been achieved or have been determined probable of being achieved in the future, in accordance with the following principles. On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed amount of expense for such tranche and (ii) the future time when the market capitalization milestone for such tranche was expected to be achieved, or its “expected market capitalization milestone achievement time.” Separately, based on a subjective assessment of our future financial performance, each quarter we determine whether it is probable that we will achieve each operational milestone that has not previously been achieved or deemed probable of achievement and if so, the future time when we expect to achieve that operational milestone, or its “expected operational milestone achievement time.” When we first determine that an operational milestone has become probable of being achieved, we allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected full achievement time.” The “expected full achievement time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market capitalization milestone achievement time (if the related market capitalization milestone had not yet been achieved). We immediately recognize a catch-up expense for all accumulated expense for the quarters from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved. Each quarter thereafter, we recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected full achievement time, except that upon the achievement of both a market capitalization milestone and operational milestone with respect to a tranche, all remaining expense for that tranche is immediately recognized. 22 As a result, we have experienced significant catch-up expenses in quarters when one or more operational milestones were first determined to be probable of achievement. Historically, the expected market capitalization achievement times were generally later than the related expected operational milestone achievement times. Therefore, when market capitalization milestones were achieved earlier than originally forecasted due to periods of rapid stock price appreciation, we had higher catch-up expenses and the remaining expenses were being recognized over shorter periods of time at a higher per-quarter rate. All market capitalization milestones were achieved as of the second quarter of 2021. During the first quarter of 2022, three operational milestones were achieved and consequently, we recognized an aggregate catch-up expense of $ 11 million. 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 2021 Performance-Based Stock Option & Restricted Stock Unit ( “ RSU”) Awards During the fourth quarter of 2021, the Compensation Committee of our Board of Directors granted to certain employees RSUs and stock options to purchase an aggregate 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. We begin recording stock-based compensation expense when the performance milestones become probable of achievement. Following achievement, vesting occurs over a two-year period with continued employment. During the 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 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cost of revenues $ 150 $ 99 $ 424 $ 310 Research and development 124 105 389 334 Selling, general and administrative 88 271 328 919 Total $ 362 $ 475 $ 1,141 $ 1,563 Our income tax benefits recognized from stock-based compensation arrangements in each of the periods presented were immaterial due to cumulative losses and valuation allowances. Note 12 – Commitments and Contingencies Operating Lease Arrangement in Buffalo, New York We have an operating lease through the Research Foundation for the State University of New York (the “SUNY Foundation”) with respect to Gigafactory New York. Under the lease and a related research and development agreement, we are continuing to further develop the facility. Under this agreement, we are obligated to, among other things, meet employment targets as well as specified minimum numbers of personnel in the State of New York and in Buffalo, New York and spend or incur $ 5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York during the 10-year period beginning April 30, 2018. On an annual basis during the initial lease term, as measured on each anniversary of such date, if we fail to meet these specified investment and job creation requirements, then we would be obligated to pay a $ 41 million “program payment” to the SUNY Foundation for each year that we fail to meet these requirements. Furthermore, if the arrangement is terminated due to a material breach by us, then additional amounts may become payable by us. 23 As we temporarily suspended most of our manufacturing operations at Gigafactory New York pursuant to a New York State executive order issued in March 2020 as a result of the COVID-19 pandemic, we were granted a deferral of our obligation to be compliant with our applicable targets through December 31, 2021 in an amendment memorialized in August 2021. The amendment also extended our overall agreement to spend or incur $ 5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York through December 31, 2029 . On February 1, 2022, we reported to the State of New York that we had met and exceeded our annual requirements for jobs and investment in Buffalo and New York State. As of 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. Operating Lease Arrangement in Shanghai, China We have an operating lease arrangement for an initial term of 50 years with the local government of Shanghai for land use rights where we are constructing Gigafactory Shanghai. Under the terms of the arrangement, we are required to spend RMB 14.08 billion in capital expenditures by the end of 2023 and to generate RMB 2.23 billion of annual tax revenues starting at the end of 2023. If we are unwilling or unable to meet such target or obtain periodic project approvals, in accordance with the Chinese government’s standard terms for such arrangements, we would be required to revert the site to the local government and receive compensation for the remaining value of the land lease, buildings and fixtures. We expect to meet the capital expenditure and tax revenue requirements based on our current level of spend and sales. Legal Proceedings Litigation Relating to the SolarCity Acquisition Between September 1, 2016 and October 5, 2016, seven lawsuits were filed in the Delaware Court of Chancery by purported stockholders of Tesla challenging our acquisition of SolarCity Corporation (“SolarCity”). Following consolidation, the lawsuit names as defendants the members of Tesla’s board of directors as then constituted and alleges, among other things, that board members breached their fiduciary duties in connection with the acquisition. The complaint asserts both derivative claims and direct claims on behalf of a purported class and seeks, among other relief, unspecified monetary damages, attorneys’ fees and costs. On January 22, 2020, all of the director defendants except Elon Musk reached a settlement to resolve the lawsuit against them for an amount to be paid entirely under the applicable insurance policy. The settlement, which does not involve an admission of any wrongdoing by any party, was approved by the Court on August 17, 2020. Tesla received payment of approximately $ 43 million on September 16, 2020, which has been recognized in our consolidated statements of operations as a reduction to Selling, general and administrative operating expenses for costs previously incurred related to the acquisition of SolarCity. On February 4, 2020, the Court issued a ruling that denied plaintiffs’ previously-filed motion for summary judgment and granted in part and denied in part defendants’ previously-filed motion for summary judgment. The case was set for trial in March 2020 until it was postponed by the Court due to safety precautions concerning COVID-19. The trial was held from July 12 to July 23, 2021 and on August 16, 2021. On October 22, 2021, the Court approved the parties’ joint stipulation that (a) the class is decertified and the action shall continue exclusively as a derivative action under Court of Chancery Rule 23.1 and (b) the direct claims against Elon Musk are dismissed with prejudice. Following post-trial briefing, post-trial argument was held on January 18, 2022. On April 27, 2022, the Court entered judgment in favor of Mr. Musk on all counts.  On May 26, 2022, the plaintiff filed a notice of appeal. 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. District Court for the District of Delaware on or about April 21, 2017. They include claims for violations of the federal securities laws and breach of fiduciary duties by Tesla’s board of directors. Those actions have been consolidated and stayed pending the above-referenced Chancery Court litigation. Litigation Relating to 2018 CEO Performance Award On June 4, 2018, a purported Tesla stockholder filed a putative class and derivative action in the Delaware Court of Chancery against Elon Musk and the members of Tesla’s board of directors as then constituted, alleging corporate waste, unjust enrichment and that such board members breached their fiduciary duties by approving the stock-based compensation plan awarded to Elon Musk in 2018. The complaint seeks, among other things, monetary damages and rescission or reformation of the stock-based compensation plan. On August 31, 2018, defendants filed a motion to dismiss the complaint; plaintiff filed its opposition brief on November 1, 2018; and defendants filed a reply brief on December 13, 2018. The hearing on the motion to dismiss was held on May 9, 2019. On September 20, 2019, the Court granted the motion to dismiss as to the corporate waste claim but denied the motion as to the breach of fiduciary duty and unjust enrichment claims. Defendants’ answer was filed on December 3, 2019. 24 On January 25, 2021, the Court conditionally certified certain claims and a class of Tesla stockholders as a class action. On September 30, 2021, plaintiff filed a motion for leave to file a verified amended derivative complaint. On October 1, 2021, defendants Kimbal Musk and Steve Jurvetson moved for summary judgment as to the claims against them. Following the motion, plaintiff agreed to voluntarily dismiss the claims against Kimbal Musk and Steve Jurvetson. Plaintiff also moved for summary judgment on October 1, 2021. On October 27, 2021, the Court approved the parties’ joint stipulation that, among other things, (a) all claims against Kimbal Musk and Steve Jurvetson in the Complaint are dismissed with prejudice; (b) the class is decertified and the action shall continue exclusively as a derivative action under Court of Chancery Rule 23.1; and (c) the direct claims against the remaining defendants are dismissed with prejudice. On November 18, 2021, the remaining defendants (a) moved for partial summary judgment, (b) opposed plaintiff’s summary judgment motion and (c) opposed the plaintiff’s motion to amend his complaint. In January 2022, the case was assigned to a different judge. On February 24, 2022, the court (i) granted plaintiff’s motion to amend his complaint, and (ii) canceled oral argument on the summary judgment motions, stating that the court is “skeptical that this litigation can be resolved based on the undisputed facts” and the “case is going to trial,” but that the “parties may reassert their arguments made in support of summary judgment in their pre-trial and post-trial briefs.” Trial is currently set for November 14-18, 2022. Litigation Related to Directors’ Compensation On June 17, 2020, a purported Tesla stockholder filed a derivative action in the Delaware Court of Chancery, purportedly on behalf of Tesla, against certain of Tesla’s current and former directors regarding compensation awards granted to Tesla’s directors, other than Elon Musk, between 2017 and 2020. The suit asserts claims for breach of fiduciary duty and unjust enrichment and seeks declaratory and injunctive relief, unspecified damages and other relief. Defendants filed their answer on September 17, 2020. 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 Between August 10, 2018 and September 6, 2018, nine purported stockholder class actions were filed against Tesla and Elon Musk in connection with Mr. Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. All of the suits are now pending in the U.S. District Court for the Northern District of California. Although the complaints vary in certain respects, they each purport to assert claims for violations of federal securities laws related to Mr. Musk’s statement and seek unspecified compensatory damages and other relief on behalf of a purported class of purchasers of Tesla’s securities. Plaintiffs filed their consolidated complaint on January 16, 2019 and added as defendants the members of Tesla’s board of directors. The now-consolidated purported stockholder class action was stayed while the issue of selection of lead counsel was briefed and argued before the Ninth Circuit. The Ninth Circuit ruled regarding lead counsel. Defendants filed a motion to dismiss the complaint on November 22, 2019. The hearing on the motion was held on March 6, 2020. On April 15, 2020, the Court denied defendants’ motion to dismiss. The parties stipulated to certification of a class of stockholders, which the court granted on November 25, 2020. On January 11, 2022, plaintiff filed a motion for partial summary judgment. On April 1, 2022, the Court granted in part plaintiffs’ motion for partial summary judgment. The Company disagrees with the ruling and accordingly, on April 22, 2022, asked the Court for reconsideration or, in the alternative, certification to file an interlocutory appeal. On June 16, 2022, in response to Tesla’s motions, the Court denied certification to appeal and declined to reconsider its opinion but clarified its summary judgment ruling to make clear that it had not ruled that any misstatements it identified met the required materiality element under the securities statute. The issue of materiality and reliance will both be questions for the jury to decide at trial, which is set for January 17, 2023. Between October 17, 2018 and March 8, 2021, seven derivative lawsuits were filed in the Delaware Court of Chancery, purportedly on behalf of Tesla, against Mr. Musk and the members of Tesla’s board of directors, as constituted at relevant times, in relation to statements made and actions connected to a potential going private transaction, with certain of the lawsuits challenging additional Twitter posts by Mr. Musk, among other things. Five of those actions were consolidated, and all seven actions have been stayed pending resolution of the above-referenced consolidated purported stockholder class action. In addition to these cases, two derivative lawsuits were filed on October 25, 2018 and February 11, 2019 in the U.S. District Court for the District of Delaware, purportedly on behalf of Tesla, against Mr. Musk and the members of the Tesla board of directors as then constituted. Those cases have also been consolidated and stayed pending resolution of the above-referenced consolidated purported stockholder class action. 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’ fees. Unless otherwise stated, the individual defendants named in the stockholder proceedings described above and the Company with respect to the stockholder class action proceedings described above believe that the claims in such proceedings have no merit and intend to defend against them vigorously. We are unable to reasonably estimate the possible loss or range of loss, if any, associated with these claims. 25 On November 15, 2021, JPMorgan Chase Bank (“JP Morgan”) filed a lawsuit against Tesla in the Southern District of New York alleging breach of a stock warrant agreement that was entered into as part of a convertible notes offering in 2014. In 2018, JP Morgan informed Tesla that it had adjusted the strike price based upon Mr. Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. Tesla disputed JP Morgan’s adjustment as a violation of the parties’ agreement. In 2021, Tesla delivered shares to JP Morgan per the agreement, which they duly accepted. JP Morgan now alleges that it is owed approximately $ 162 million as the value of additional shares that it claims should have been delivered as a result of the adjustment to the strike price in 2018. On January 24, 2022, Tesla filed multiple counterclaims as part of its answer to the underlying lawsuit, asserting among other points that JP Morgan should have terminated the stock warrant agreement in 2018 rather than make an adjustment to the strike price that it should have known would lead to a commercially unreasonable result. Tesla believes that the adjustments made by JP Morgan were neither proper nor commercially reasonable, as required under the stock warrant agreements. JP Morgan filed a motion for judgment on the pleadings, which Tesla opposed, and that motion is currently pending before the Court. Litigation and Investigations Relating to Alleged Discrimination and Harassment On October 4, 2021, in a case captioned Diaz v. Tesla , a jury in the Northern District of California returned a verdict of $ 136.9 million against Tesla on claims by a former contingent worker that he was subjected to race discrimination while assigned to work at Tesla’s Fremont Factory from 2015-2016. On November 16, 2021, Tesla filed a post-trial motion for relief that included a request for a new trial or reduction of the jury’s damages. The Court held a hearing on Tesla’s motion on January 19, 2022. On April 13, 2022, the Court granted Tesla’s motion in part, reducing the total damages to $ 15 million and conditionally denied the motion for a new trial subject to the plaintiff’s acceptance of the reduced award. On June 21, 2022, the plaintiff rejected the reduced award and, as a result, on June 27, 2022, the Court ordered a new trial to commence on March 27, 2023. 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 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. District Court for the Western District of Texas, purportedly on behalf of Tesla, against certain of Tesla’s current and former directors. Both suits assert claims for breach of fiduciary duty, unjust enrichment, and violation of the federal securities laws in connection with alleged race and gender discrimination and sexual harassment. Among other things, plaintiffs seek declaratory and injunctive relief, unspecified damages payable to Tesla, and attorneys’ fees. 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 We receive requests for information from regulators and governmental authorities, such as the National Highway Traffic Safety Administration, the National Transportation Safety Board, the SEC, the Department of Justice (“DOJ”) and various state, federal, and international agencies. We routinely cooperate with such regulatory and governmental requests, including subpoenas, formal and informal requests and other investigations and inquiries. For example, the SEC had issued subpoenas to Tesla in connection with Elon Musk’s prior statement that he was considering taking Tesla private. The take-private investigation was resolved and closed with a settlement entered into with the SEC in September 2018 and as further clarified in April 2019 in an amendment. 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. We have not received any further requests from DOJ on these matters since we last provided information in May 2019. There have not been any additional developments in these matters that we deem to be material, and to our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred. As is our normal practice, we have been cooperating and will continue to cooperate with government authorities. We cannot predict the outcome or impact of any ongoing matters. Should the government decide to pursue an enforcement action, there exists the possibility of a material adverse impact on our business, results of operation, prospects, cash flows and financial position. 26 We are also subject to various other legal proceedings and claims that arise from the normal course of business activities. If an unfavorable ruling or development were to occur, there exists the possibility of a material adverse impact on our business, results of operations, prospects, cash flows, financial position and brand. Indemnifications We are contractually obligated to compensate certain fund investors for any losses that they may suffer in certain limited circumstances resulting from reductions in investment tax credits claimed under U.S. federal laws for the installation of solar power facilities and energy storage systems that are charged from a co-sited solar power facility. We believe that any payments to the fund investors in excess of the amounts already recognized by us for this obligation are not probable or material based on the facts known at the filing date. We are eligible to receive certain state and local incentives that are associated with renewable energy generation. The amount of incentives that can be claimed is based on the projected or actual solar energy system size and/or the amount of solar energy produced. We also currently participate in one state’s incentive program that is based on either the fair market value or the tax basis of solar energy systems placed in service. State and local incentives received are allocated between us and fund investors in accordance with the contractual provisions of each fund. We are not contractually obligated to indemnify any fund investor for any losses they may incur due to a shortfall in the amount of state or local incentives actually received. Note 13 – Variable Interest Entity Arrangements We have entered into various arrangements with investors to facilitate the funding and monetization of our solar energy systems and vehicles. In particular, our wholly owned subsidiaries and fund investors have formed and contributed cash and assets into various financing funds and entered into related agreements. We have determined that the funds are variable interest entities (“VIEs”) and we are the primary beneficiary of these VIEs by reference to the power and benefits criterion under ASC 810, Consolidation . We have considered the provisions within the agreements, which grant us the power to manage and make decisions that affect the operation of these VIEs, including determining the solar energy systems and the associated customer contracts to be sold or contributed to these VIEs, redeploying solar energy systems and managing customer receivables. We consider that the rights granted to the fund investors under the agreements are more protective in nature rather than participating. As the primary beneficiary of these VIEs, we consolidate in the financial statements the financial position, results of operations and cash flows of these VIEs, and all intercompany balances and transactions between us and these VIEs are eliminated in the consolidated financial statements. Cash distributions of income and other receipts by a fund, net of agreed upon expenses, estimated expenses, tax benefits and detriments of income and loss and tax credits, are allocated to the fund investor and our subsidiary as specified in the agreements. Generally, our subsidiary has the option to acquire the fund investor’s interest in the fund for an amount based on the market value of the fund or the formula specified in the agreements. Upon the sale or liquidation of a fund, distributions would occur in the order and priority specified in the agreements. Pursuant to management services, maintenance and warranty arrangements, we have been contracted to provide services to the funds, such as operations and maintenance support, accounting, lease servicing and performance reporting. In some instances, we have guaranteed payments to the fund investors as specified in the agreements. A fund’s creditors have no recourse to our general credit or to that of other funds. None of the assets of the funds had been pledged as collateral for their obligations. 27 The aggregate carrying values of the VIEs’ assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheets were as follows (in millions): September 30, December 31, 2022 2021 Assets Current assets Cash and cash equivalents $ 69 $ 79 Accounts receivable, net 38 22 Prepaid expenses and other current assets 409 152 Total current assets 516 253 Solar energy systems, net 3,882 4,108 Other non-current assets 401 265 Total assets $ 4,799 $ 4,626 Liabilities Current liabilities Accrued liabilities and other $ 73 $ 74 Deferred revenue 9 10 Current portion of debt and finance leases 976 1,031 Total current liabilities 1,058 1,115 Deferred revenue, net of current portion 142 153 Debt and finance leases, net of current portion 1,341 2,093 Other long-term liabilities 8 11 Total liabilities $ 2,549 $ 3,372 Note 14 – Segment Reporting and Information about Geographic Areas We have two operating and reportable segments: (i) automotive and (ii) energy generation and storage. The automotive segment includes the design, development, manufacturing, sales and leasing of electric vehicles as well as sales of automotive regulatory credits. Additionally, the automotive segment is also comprised of services and other, which includes non-warranty after-sales vehicle services, sales of used vehicles, retail merchandise, sales by our acquired subsidiaries to third party customers and vehicle insurance revenue. The energy generation and storage segment includes the design, manufacture, installation, sales and leasing of solar energy generation and energy storage products and related services and sales of solar energy systems incentives. Our CODM does not evaluate operating segments using asset or liability information. The following table presents revenues and gross profit by reportable segment (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Automotive segment Revenues $ 20,337 $ 12,951 $ 54,545 $ 34,003 Gross profit $ 5,278 $ 3,657 $ 14,947 $ 8,837 Energy generation and storage segment Revenues $ 1,117 $ 806 $ 2,599 $ 2,101 Gross profit $ 104 $ 3 $ 129 $ ( 78 ) The following table presents revenues by geographic area based on the sales location of our products (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 United States $ 10,236 $ 6,414 $ 28,584 $ 16,043 China 5,131 3,113 13,568 9,015 Other 6,087 4,230 14,992 11,046 Total $ 21,454 $ 13,757 $ 57,144 $ 36,104 28 The following table presents long-lived assets by geographic area (in millions): September 30, December 31, 2022 2021 United States $ 20,903 $ 19,026 Germany 3,175 2,606 China 2,675 2,415 Other international 735 602 Total $ 27,488 $ 24,649 29 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Overview Our mission is to accelerate the world’s transition to sustainable energy. We design, develop, manufacture, lease and sell high-performance fully electric vehicles, solar energy generation systems and energy storage products. We also offer maintenance, installation, operation, financial and other services related to our products. Additionally, we are increasingly focused on products and services based on artificial intelligence, robotics and automation. 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 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 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 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. Management Opportunities, Challenges and Risks and 2022 Outlook Impact of COVID-19 Pandemic Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays, labor shortages and a shortfall of semiconductor supply. We have been affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our product deliveries and deployments. In addition, we have experienced and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID‐19 pandemic and general global economic conditions. The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible. Ultimately, we cannot predict the duration of the COVID-19 pandemic or global economic trends. We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and attempt to optimally project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly. 30 Automotive—Production The following is a summary of the status of production of each of our announced vehicle models in production and under development, as of the date of this Quarterly Report on Form 10-Q: Production Location Vehicle Model(s) Production Status Fremont Factory Model S / Model X Active Model 3 / Model Y Active Gigafactory Shanghai Model 3 / Model Y Active Gigafactory Berlin-Brandenburg Model Y Active Gigafactory Texas Model Y Active Cybertruck Tooling Gigafactory Nevada Tesla Semi Early production TBD Tesla Roadster In development TBD Robotaxi & Others 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 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. 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. However, these plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by the new product and manufacturing technologies we are introducing, the number of concurrent international projects, any industry-wide component constraints which may increase the number of manufacturing and production design workaround solutions required, labor shortages and any future impact from events outside of our control such as the COVID-19 pandemic. For example, spikes in COVID-19 cases in Shanghai resulted in limited production and temporary shutdowns to Gigafactory Shanghai as well as parts of our supply chain in the first and second quarters of 2022. Moreover, we have set ambitious technological targets with our plans for battery cells as well as for iterative manufacturing and design improvements for our vehicles with each new factory. Automotive—Demand and Sales Our cost reduction efforts and additional localized procurement and manufacturing are key to our vehicles’ affordability, and for example, have allowed us to competitively price our vehicles in China. In addition to 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, 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. 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, rising energy prices and increases in interest rates. 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. 31 Automotive—Deliveries and Customer Infrastructure 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. Energy Generation and Storage Demand, Production and Deployment The long-term success of this business is dependent upon increasing margins through greater volumes. We continue to increase the production of our energy storage products to meet high levels of demand, 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. For Powerwall, better availability and growing grid stability concerns drive higher customer interest, and we are emphasizing cross-selling with our residential solar energy products. We remain committed to growing our retrofit solar energy business by offering a low-cost and simplified online ordering experience. In addition, we continue to 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. Cash Flow and Capital Expenditure Trends Our capital expenditures are typically difficult to project beyond the short-term given the number and breadth of our core projects at any given time, and may further be impacted by uncertainties in future global market conditions. We are simultaneously ramping new products, including new iterations of our Megapack, ramping manufacturing facilities on three continents and piloting the development and manufacture of new battery cell technologies, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among our various products, increased capital efficiencies and the addition of new projects. Owing and subject to the foregoing as well as the pipeline of announced projects under development, all other continuing infrastructure growth and varying levels of inflation, we currently expect our capital expenditures to be between $6.00 to $8.00 billion in 2022 and each of the next two fiscal years. Our business has recently been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also facilitating positive cash generation. On the other hand, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and rising material prices and increasing supply chain and labor expenses resulting from changes in global trade conditions and labor availability associated with the COVID-19 pandemic. Overall, we expect our ability to be self-funding to continue as long as macroeconomic factors support current trends in our sales. Operating Expense Trends As long as we see expanding sales, and excluding the potential impact of 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 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. As with any investment and consistent with how we manage fiat-based cash and cash-equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions. Digital assets are considered indefinite-lived intangible assets under applicable accounting rules. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale. For any digital assets held now or in the future, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase. For example, in the 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. 32 Critical Accounting Policies and Estimates The consolidated financial statements are prepared in accordance with GAAP. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets which could impact our estimates and assumptions. The estimates used for, but not limited to, determining significant economic incentive for resale value guarantee arrangements, sales return reserves, the collectability of accounts receivable, inventory valuation, warranties, fair value of long-lived assets, goodwill, fair value of financial instruments, fair value and residual value of operating lease vehicles and solar energy systems subject to leases could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2021. Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Results of Operations Revenues Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Automotive sales $ 17,785 $ 11,393 $ 6,392 56 % $ 46,969 $ 29,100 $ 17,869 61 % Automotive regulatory credits 286 279 7 3 % 1,309 1,151 158 14 % Automotive leasing 621 385 236 61 % 1,877 1,014 863 85 % Total automotive revenues 18,692 12,057 6,635 55 % 50,155 31,265 18,890 60 % Services and other 1,645 894 751 84 % 4,390 2,738 1,652 60 % Total automotive & services and other segment revenue 20,337 12,951 7,386 57 % 54,545 34,003 20,542 60 % Energy generation and storage segment revenue 1,117 806 311 39 % 2,599 2,101 498 24 % Total revenues $ 21,454 $ 13,757 $ 7,697 56 % $ 57,144 $ 36,104 $ 21,040 58 % Automotive & Services and Other Segment Automotive sales revenue includes revenues related to cash and financing deliveries of new Model S, Model X, Model 3, and Model Y vehicles, including access to our Supercharger network, internet connectivity, FSD features and over-the-air software updates. These deliveries are vehicles that are not subject to lease accounting. Automotive regulatory credits includes sales of regulatory credits to other automotive manufacturers. Our revenue from automotive regulatory credits is directly related to our new vehicle production, sales and pricing negotiated with our customers. We monetize them proactively as new vehicles are sold based on standing arrangements with buyers of such credits, typically as close as possible to the production and delivery of the vehicle or changes in regulation impacting the credits. Automotive leasing revenue includes the amortization of revenue for vehicles under direct operating lease agreements. 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. 33 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 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. 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 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 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 $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 $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. 34 Cost of Revenues and Gross Margin Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Cost of revenues Automotive sales $ 13,099 $ 8,150 $ 4,949 61 % $ 34,166 $ 21,726 $ 12,440 57 % Automotive leasing 381 234 147 63 % 1,157 582 575 99 % Total automotive cost of revenues 13,480 8,384 5,096 61 % 35,323 22,308 13,015 58 % Services and other 1,579 910 669 74 % 4,275 2,858 1,417 50 % Total automotive & services and other segment cost of revenues 15,059 9,294 5,765 62 % 39,598 25,166 14,432 57 % Energy generation and storage segment 1,013 803 210 26 % 2,470 2,179 291 13 % Total cost of revenues $ 16,072 $ 10,097 $ 5,975 59 % $ 42,068 $ 27,345 $ 14,723 54 % Gross profit total automotive $ 5,212 $ 3,673 $ 14,832 $ 8,957 Gross margin total automotive 27.9 % 30.5 % 29.6 % 28.6 % Gross profit total automotive & services and other segment $ 5,278 $ 3,657 $ 14,947 $ 8,837 Gross margin total automotive & services and other segment 26.0 % 28.2 % 27.4 % 26.0 % Gross profit energy generation and storage segment $ 104 $ 3 $ 129 $ (78 ) Gross margin energy generation and storage segment 9.3 % 0.4 % 5.0 % -3.7 % Total gross profit $ 5,382 $ 3,660 $ 15,076 $ 8,759 Total gross margin 25.1 % 26.6 % 26.4 % 24.3 % Automotive & Services and Other Segment Cost of automotive sales revenue includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network and reserves for estimated warranty expenses. Cost of automotive sales revenues also includes adjustments to warranty expense and charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand. Cost of automotive leasing revenue includes the depreciation of operating lease vehicles, cost of goods sold associated with direct sales-type leases and warranty expense related to leased vehicles. Cost of automotive leasing revenue also includes vehicle connectivity costs and allocations of electricity and infrastructure costs related to our Supercharger network for vehicles under our leasing programs. Cost of services and other revenue includes costs associated with providing non-warranty after-sales services, costs of paid supercharging, cost of used vehicles including refurbishment costs, costs for retail merchandise, and costs to provide vehicle insurance. Cost of services and other revenue also includes direct parts, material and labor costs and manufacturing overhead associated with the sales by our acquired subsidiaries to third party customers. Cost of automotive sales revenue increased $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 $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. 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. 35 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 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 Cost of energy generation and storage revenue includes direct and indirect material and labor costs, warehouse rent, freight, warranty expense, other overhead costs and amortization of certain acquired intangible assets. Cost of energy generation and storage revenue also includes charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand. In agreements for solar energy system and PPAs where we are the lessor, the cost of revenue is primarily comprised of depreciation of the cost of leased solar energy systems, maintenance costs associated with those systems and amortization of any initial direct costs. 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. 36 Research and Development Expense Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Research and development $ 733 $ 611 $ 122 20 % $ 2,265 $ 1,853 $ 412 22 % As a percentage of revenues 3 % 4 % 4 % 5 % Research and development (“R&D”) expenses consist primarily of personnel costs for our teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expense, contract and professional services and amortized equipment expense. R&D expenses increased $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 $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 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. Selling, General and Administrative Expense Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Selling, general and administrative $ 961 $ 994 $ (33 ) -3 % $ 2,914 $ 3,023 $ (109 ) -4 % As a percentage of revenues 4 % 7 % 5 % 8 % 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 $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 $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. 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 $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 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. 37 Restructuring and Other Expense Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Restructuring and other $ — $ 51 $ (51 ) -100 % $ 142 $ (27 ) $ 169 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 nine months ended September 30, 2022, related to employee terminations in the second quarter. Interest Income Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Interest income $ 86 $ 10 $ 76 760 % $ 140 $ 31 $ 109 352 % 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 September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Interest expense $ (53 ) $ (126 ) $ 73 -58 % $ (158 ) $ (300 ) $ 142 -47 % 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 (Expense) Income, Net Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Other (expense) income, net $ (85 ) $ (6 ) $ (79 ) 1317 % $ (1 ) $ 67 $ (68 ) 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 (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. 38 Provision for Income Taxes Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Provision for income taxes $ 305 $ 223 $ 82 37 % $ 856 $ 407 $ 449 110 % Effective tax rate 8 % 12 % 9 % 11 % 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. Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2022 2021 $ % 2022 2021 $ % Net income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries $ 39 $ 41 $ (2 ) -5 % $ 11 $ 103 $ (92 ) -89 % 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. Liquidity and Capital Resources We expect to continue to generate net positive operating cash flow as we have done in the last four fiscal years. The cash we generate from our core operations enables us to fund ongoing operations and production, our research and development projects for new products and technologies including our proprietary battery cells, additional manufacturing ramps at existing manufacturing facilities such as the Fremont Factory, Gigafactory Nevada, Gigafactory Shanghai and Gigafactory New York, the ramp of Gigafactory Berlin-Brandenburg and Gigafactory Texas and the continued expansion of our retail and service locations, body shops, Mobile Service fleet, Supercharger network and energy product installation capabilities. In addition, because a large portion of our future expenditures will be to fund our growth, we expect that if needed we will be able to adjust our capital and operating expenditures by operating segment. For example, if our near-term manufacturing operations decrease in scale or ramp more slowly than expected, including due to global economic or business conditions, we may choose to correspondingly slow the pace of our capital expenditures. Finally, we continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early. Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following 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. Material Cash Requirements From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw materials to be used in the manufacture of our products. However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders under such contracts beyond the short-term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. 39 As discussed in and subject to the considerations referenced in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Risks and 2022 Outlook—Cash Flow and Capital Expenditure Trends in this Quarterly Report on Form 10-Q, we currently expect our capital expenditures to support our projects globally to be between $6.00 to $8.00 billion in 2022 and each of the next two fiscal years. In connection with our operations at Gigafactory New York, we have an agreement to spend or incur $5.00 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York through December 31, 2029 (pursuant to a deferral of our required timelines to meet such obligations that was granted in April 2021, and which was memorialized in an amendment to our agreement with the SUNY Foundation in August 2021). We also have an operating lease arrangement with the local government of Shanghai pursuant to which we are required to spend RMB 14.08 billion in capital expenditures at Gigafactory Shanghai by the end of 2023. For details regarding these obligations, refer to Note 12, Commitments and Contingencies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. As of 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. Sources and Conditions of Liquidity 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 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 $2.41 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). For details regarding our indebtedness, refer to Note 10, Debt to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We continue adapting our investment strategy to meet our liquidity and risk objectives, such as investing in U.S. government and other marketable securities, digital assets and providing product related financing. 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 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 Nine Months Ended September 30, (Dollars in millions) 2022 2021 Net cash provided by operating activities $ 11,446 $ 6,912 Net cash used in investing activities $ (5,842 ) $ (5,952 ) Net cash used in financing activities $ (3,032 ) $ (3,946 ) Cash Flows from Operating Activities Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as research and development and selling, general and administrative and working capital. Our operating cash inflows include cash from vehicle sales and related servicing, customer lease payments, customer deposits, cash from sales of regulatory credits and energy generation and storage products. These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process, operating expenses, operating lease payments and interest payments on our financings. 40 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 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 $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 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. 41