What changed in this filing

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Item 1. Financial Statements

2023-10-23 compared with 2023-07-24 · 324 added, 518 removed, 465 unchanged (64% of the section changed)

2 unchanged sentences

(in millions, except per share data)

September 30,

2023 December 31,

Current assets

2 unchanged sentences

Accounts receivable, net 2,520 2,952

Inventory 13,721 12,839

Prepaid expenses and other current assets 2,708 2,941

6 unchanged sentences

Intangible assets, net 191 215

Goodwill 250 194

Other non-current assets 5,497 4,193

Total assets $ 93,941 $ 82,338

Current liabilities

11 unchanged sentences

Redeemable noncontrolling interests in subsidiaries 277 409

Stockholders’

Stockholders’ equity

Preferred stock;

5 unchanged sentences

6,000 shares authorized;

3,174 and 3,164 shares issued and outstanding as of

June 30, 2023 and December 31, 2022, respectively

3,179 and 3,164 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 34,201 32,177

1 unchanged sentence

Retained earnings 19,954 12,885

Total stockholders’

Total stockholders’ equity 53,466 44,704

Noncontrolling interests in subsidiaries 752 785

3 unchanged sentences

(in millions, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Automotive sales $ 18,582 $ 17,785 $ 57,879 $ 46,969

12 unchanged sentences

Total cost of revenues 19,172 16,072 58,384 42,068

Gross profit 4,178 5,382 13,222 15,076

Operating expenses

6 unchanged sentences

Interest expense ( 38 ) ( 53 ) ( 95 ) ( 158 )

Other income, net

Other income (expense), net 37 ( 85 ) 317 ( 1 )

Income before income taxes 2,045 3,636 7,782 9,736

Provision for income taxes 167 305 751 856

Net (loss) income attributable to noncontrolling

interests and redeemable noncontrolling interests

in subsidiaries

Net income 1,878 3,331 7,031 8,880

Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries 25 39 ( 38 ) 11

Net income attributable to common stockholders $ 1,853 $ 3,292 $ 7,069 $ 8,869

Net income per share of common stock

attributable to common stockholders (1)

Weighted average shares used in computing net

income per share of common stock (1)

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

Net income per share of common stock attributable to common stockholders

Basic $ 0.58 $ 1.05 $ 2.23 $ 2.84

Diluted $ 0.53 $ 0.95 $ 2.03 $ 2.55

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

Basic 3,176 3,146 3,171 3,120

Diluted 3,493 3,468 3,481 3,474

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

1 unchanged sentence

(in millions)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Net income $ 1,878 $ 3,331 $ 7,031 $ 8,880

Other comprehensive income (loss):

Foreign currency translation adjustment ( 289 ) ( 460 ) ( 343 ) ( 977 )

Unrealized net (loss) gain on investments

Unrealized net gain (loss) on investments 7 ( 5 ) 8 ( 19 )

Adjustment for net loss realized and included in net income — — 4 —

Comprehensive income 1,596 2,866 6,700 7,884

Comprehensive (loss) income attributable to

noncontrolling interests and redeemable

noncontrolling interests in subsidiaries

Comprehensive income attributable to

common stockholders

Comprehensive income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries 25 39 ( 38 ) 11

Comprehensive income attributable to common stockholders $ 1,571 $ 2,827 $ 6,738 $ 7,873

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

1 unchanged sentence

(in millions, except per share data)

Noncontrolling

Three Months Ended September 30, 2023 Redeemable

Noncontrolling

Common Stock Additional

Capital Accumulated

Comprehensive

Stockholders’

Three Months Ended June 30, 2023

Balance as of March 31, 2023

Exercises of conversion feature of

convertible senior notes

Issuance of common stock for equity

incentive awards

Earnings Total

Stockholders’

Noncontrolling

Shares Amount

Balance as of June 30, 2023 $ 288 3,174 $ 3 $ 33,436 $ ( 410 ) $ 18,101 $ 51,130 $ 764 $ 51,894

Exercises of conversion feature of convertible senior notes — 0 0 0 — — 0 — 0

Issuance of common stock for equity incentive awards — 5 0 254 — — 254 — 254

Stock-based compensation — — — 513 — — 513 — 513

1 unchanged sentence

Buy-outs of noncontrolling interests ( 5 ) — — ( 2 ) — — ( 2 ) — ( 2 )

Other comprehensive income

Balance as of June 30, 2023

Noncontrolling

Net income 4 — — — — 1,853 1,853 21 1,874

Other comprehensive loss — — — — ( 282 ) — ( 282 ) — ( 282 )

Balance as of September 30, 2023 $ 277 3,179 $ 3 $ 34,201 $ ( 692 ) $ 19,954 $ 53,466 $ 752 $ 54,218

Nine Months Ended September 30, 2023 Redeemable

Noncontrolling

Common Stock Additional

Capital Accumulated

Comprehensive

Stockholders’

Six Months Ended June 30, 2023

Earnings Total

Stockholders’

Noncontrolling

Shares Amount

Balance as of December 31, 2022 $ 409 3,164 $ 3 $ 32,177 $ ( 361 ) $ 12,885 $ 44,704 $ 785 $ 45,489

Exercises of conversion feature of

convertible senior notes

Issuance of common stock for equity

incentive awards

Exercises of conversion feature of convertible senior notes — 0 0 0 — — 0 — 0

Issuance of common stock for equity incentive awards — 15 0 548 — — 548 — 548

Stock-based compensation — — — 1,473 — — 1,473 — 1,473

1 unchanged sentence

Buy-outs of noncontrolling interests ( 8 ) — — 3 — — 3 ( 12 ) ( 9 )

Other comprehensive income

Balance as of June 30, 2023

Noncontrolling

Net (loss) income ( 100 ) — — — — 7,069 7,069 62 7,131

Other comprehensive loss — — — — ( 331 ) — ( 331 ) — ( 331 )

Balance as of September 30, 2023 $ 277 3,179 $ 3 $ 34,201 $ ( 692 ) $ 19,954 $ 53,466 $ 752 $ 54,218

Three Months Ended September 30, 2022 Redeemable

Noncontrolling

Common Stock Additional

Capital Accumulated

Comprehensive

Stockholders’

Three Months Ended June 30, 2022

Balance as of March 31, 2022

Exercises of conversion feature of

convertible senior notes

Earnings Total

Stockholders’

Noncontrolling

Shares Amount

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

Settlement of warrants — 29 0 0 — — 0 — 0

Issuance of common stock for equity

incentive awards

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 )

Buy-out of noncontrolling interests

Net (loss) income

Net income 11 — — — — 3,292 3,292 27 3,319

Other comprehensive loss — — — — ( 465 ) — ( 465 ) — ( 465 )

Balance as of June 30, 2022

Noncontrolling

Balance as of September 30, 2022 $ 421 3,158 $ 3 $ 31,592 $ ( 942 ) $ 9,198 $ 39,851 $ 852 $ 40,703

Nine Months Ended September 30, 2022 Redeemable

Noncontrolling

Common Stock Additional

Capital Accumulated

Comprehensive

Stockholders’

Six Months Ended June 30, 2022

Income (Loss)

Earnings Total

Stockholders’

Noncontrolling

Shares Amount

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

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

Issuance of common stock for equity incentive awards — 21 0 474 — — 474 — 474

Stock-based compensation — — — 1,323 — — 1,323 — 1,323

3 unchanged sentences

Other comprehensive loss — — — — ( 996 ) — ( 996 ) — ( 996 )

Balance as of June 30, 2022

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

Balance as of September 30, 2022 $ 421 3,158 $ 3 $ 31,592 $ ( 942 ) $ 9,198 $ 39,851 $ 852 $ 40,703

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

1 unchanged sentence

(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

Net income $ 7,031 $ 8,880

Adjustments to reconcile net income to net cash provided by operating activities:

2 unchanged sentences

Inventory and purchase commitments write-downs 361 118

Foreign currency transaction net unrealized gain

Foreign currency transaction net unrealized (gain) loss ( 317 ) 1

Non-cash interest and other operating activities 94 159

Digital assets gain, net

Digital assets loss, net — 106

Changes in operating assets and liabilities:

Accounts receivable 377 ( 426 )

Inventory ( 1,953 ) ( 4,492 )

Operating lease vehicles ( 1,858 ) ( 1,136 )

17 unchanged sentences

Cash Flows from Financing Activities

Repayments of convertible and other debt

Proceeds from issuances of debt 2,526 —

Repayments of debt ( 887 ) ( 3,000 )

Proceeds from exercises of stock options and other stock issuances 548 474

3 unchanged sentences

Payments for buy-outs of noncontrolling interests in subsidiaries ( 17 ) ( 19 )

Net cash used in financing activities

Net cash provided by (used in) financing activities 1,702 ( 3,032 )

Effect of exchange rate changes on cash and cash equivalents and restricted cash ( 142 ) ( 567 )

8 unchanged sentences

Notes to Consolidated Financial Statements

Note 1 –

Summary of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

Unaudited Interim Financial Statements

The consolidated financial statements of Tesla, Inc.

(“Tesla”, the “Company”, “we”, “us”

or “our”), including the consolidated balance sheet as of June 30, 2023, the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of redeemable noncontrolling interests and equity for the three and six months ended June 30, 2023 and 2022, and the consolidated statements of cash flows for the six months ended June 30, 2023 and 2022, as well as other information disclosed in the accompanying notes, are unaudited.

(“Tesla”, the “Company”, “we”, “us” or “our”), including the consolidated balance sheet as of September 30, 2023, 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, 2023 and 2022, and the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, as well as other information disclosed in the accompanying notes, are unaudited.

The consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements as of that date.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Automotive sales $ 18,582 $ 17,785 $ 57,879 $ 46,969

8 unchanged sentences

Automotive Sales Revenue

Deferred revenue is related to the access to our Full Self Driving (“FSD”) features and ongoing maintenance, internet connectivity, free Supercharging programs and over-the-air software updates primarily on automotive sales, which amounted to $ 3.17 billion and $ 2.91 billion as of June 30, 2023 and December 31, 2022, respectively.

Deferred revenue is related to the access to our Full Self Driving (“FSD”) features and ongoing maintenance, internet connectivity, free Supercharging programs and over-the-air software updates primarily on automotive sales, which amounted to $ 3.27 billion and $ 2.91 billion as of September 30, 2023 and December 31, 2022, 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, 2022 and 2021 was $ 256 million and $ 121 million for six months ended June 30, 2023 and 2022, respectively.

Of the total deferred revenue balance as of June 30, 2023, we expect to recognize $ 747 million of revenue in the next 12 months.

Revenue recognized from the deferred revenue balance as of December 31, 2022 and 2021 was $ 360 million and $ 169 million for nine months ended September 30, 2023 and 2022, respectively.

Of the total deferred revenue balance as of September 30, 2023, we expect to recognize $ 815 million of revenue in the next 12 months.

The remaining balance will be recognized at the time of transfer of control of the product or over the performance period.

We have been providing loans for financing our automotive deliveries in volume since fiscal year 2022.

As of June 30, 2023 and December 31, 2022 , we have recorded net financing receivables on the consolidated balance sheets, of which $ 234 million and $ 128 million, respectively, is recorded within Accounts receivable, net, for the current portion and $ 1.15 billion and $ 665 million, respectively, is recorded within Other non-current assets for the long-term portion.

As of September 30, 2023 and December 31, 2022, we have recorded net financing receivables on the consolidated balance sheets, of which $ 239 million and $ 128 million, respectively, is recorded within Accounts receivable, net, for the current portion and $ 1.11 billion and $ 665 million, respectively, is recorded within Other non-current assets for the long-term portion.

Automotive Regulatory Credits

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

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

Automotive Leasing Revenue

Direct Sales-Type Leasing Program

For the three and six months ended June 30, 2023, we recognized $ 76 million and $ 177 million, respectively, of sales-type leasing revenue and $ 57 million and $ 133 million, respectively, of sales-type leasing cost of revenue.

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

For the three and nine months ended September 30, 2023, we recognized $ 20 million and $ 197 million, respectively, of sales-type leasing revenue and $ 16 million and $ 149 million, respectively, of sales-type leasing cost of revenue.

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

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

June 30, 2023

December 31, 2022

September 30, 2023 December 31, 2022

Gross lease receivables $ 803 $ 837

8 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, deferred revenue related to such customer payments amounted to $ 1.10 billion and $ 863 million, respectively, mainly due to billings for milestone payments.

Revenue recognized from the deferred revenue balance as of December 31, 2022 and 2021 was $ 329 million and $ 79 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, 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 $ 814 million.

As of September 30, 2023 and December 31, 2022, deferred revenue related to such customer payments amounted to $ 1.05 billion and $ 863 million, respectively, mainly due to billings for milestone payments.

Revenue recognized from the deferred revenue balance as of December 31, 2022 and 2021 was $ 511 million and $ 132 million for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, 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 $ 1.91 billion.

Of this amount, we expect to recognize $ 709 million in the next 12 months and the rest over the remaining performance obligation period.

We have been providing loans for financing our energy generation products in volume since fiscal year 2022.

As of June 30, 2023 and December 31, 2022 , we have recorded net financing receivables on the consolidated balance sheets, of which $ 28 million and $ 24 million, respectively, is recorded within Accounts receivable, net, for the current portion and $ 504 million and $ 387 million, respectively, is recorded within Other non-current assets for the long-term portion.

As of September 30, 2023 and December 31, 2022, we have recorded net financing receivables on the consolidated balance sheets, of which $ 29 million and $ 24 million, respectively, is recorded within Accounts receivable, net, for the current portion and $ 541 million and $ 387 million, respectively, is recorded within Other non-current assets for the long-term portion.

We are subject to income taxes in the U.S.

and in many foreign jurisdictions.

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets that are not more likely than not to be realized.

The determination of the realizability of deferred tax assets requires significant judgment in assessing the likelihood of future tax consequences.

In completing our assessment of realizability of our deferred tax assets, we consider our history of losses measured at pre-tax income (loss) adjusted for permanent book-tax differences on a jurisdictional basis, volatility in actual earnings, excess tax benefits related to stock-based compensation in recent prior years, and impacts of the timing of reversal of existing temporary differences.

We also rely on our assessment of the Company’s projected future results of business operations, including uncertainty in future operating results relative to historical results, volatility in the market price of our common stock and its performance over time, variable macroeconomic conditions impacting our ability to forecast future taxable income, and changes in business that may affect the existence and magnitude of future taxable income.

Our valuation allowance assessment is based on our best estimate of future results considering all available information.

We monitor the realizability of the U.S.

deferred tax assets taking into account all relevant factors.

As of September 30, 2023, we continued to maintain a full valuation allowance on our U.S.

deferred tax assets.

We will release the valuation allowance when there is sufficient positive evidence to support a conclusion that it is more likely than not the deferred tax assets will be realized.

Depending on our operating results and the amount of stock-based compensation tax deductions available in the future, we may release the valuation allowance associated with the U.S.

deferred tax assets within the next year.

The timing and amount of the valuation allowance release could vary based on our assessment of all available evidence.

Release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and may result in a material decrease to income tax expense for the period the release is recorded.

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

As of June 30, 2023 and December 31, 2022 , the aggregate balances of our gross unrecognized tax benefits were $ 1.01 billion and $ 870 million, respectively, of which $ 601 million and $ 572 million, respectively, would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset that is currently fully offset by a valuation allowance.

As of September 30, 2023 and December 31, 2022, the aggregate balances of our gross unrecognized tax benefits were $ 1.04 billion and $ 870 million, respectively, of which $ 616 million and $ 572 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.

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 .

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 2022 remain subject to examination for federal income tax purposes.

6 unchanged sentences

The following table presents the reconciliation of net income attributable to common stockholders to net income used in computing basic and diluted net income per share of common stock (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Net income attributable to common stockholders $ 1,853 $ 3,292 $ 7,069 $ 8,869

3 unchanged sentences

Net income used in computing diluted net income per share of common stock $ 1,851 $ 3,292 $ 7,072 $ 8,862

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 three -for-one stock split effected in the form of a stock dividend in August 2022 (the “2022 Stock Split”) (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

The following table presents the reconciliation of basic to diluted weighted average shares used in computing net income per share of common stock attributable to common stockholders (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Weighted average shares used in computing net income per share of common stock, basic 3,176 3,146 3,171 3,120

1 unchanged sentence

Convertible senior notes 2 2 2 4

Warrants 11 19 11 39

Weighted average shares used in computing net income per share of common stock, diluted 3,493 3,468 3,481 3,474

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Stock-based awards 13 3 12 3

1 unchanged sentence

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,

2023 December 31,

2022 September 30,

2022 December 31,

Cash and cash equivalents $ 15,932 $ 16,253 $ 19,532 $ 17,576

Restricted cash included in prepaid expenses and other

current assets

Restricted cash included in prepaid expenses and other current assets 453 294 382 345

Restricted cash included in other non-current assets 205 377 235 223

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

As of June 30, 2023 and December 31, 2022 , we had $ 330 million and $ 753 million, respectively, of long-term government rebates receivable in Other non-current assets in our consolidated balance sheets.

As of September 30, 2023 and December 31, 2022, we had $ 328 million and $ 753 million, respectively, of long-term government rebates receivable in Other non-current assets in our consolidated balance sheets.

Financing Receivables

As of June 30, 2023 and December 31, 2022, the majority of our financing receivables were at current status with only immaterial balances being past due.

As of June 30, 2023, the majority of our financing receivables, excluding MyPower notes receivable, were originated in 2023 and 2022, and as of December 31, 2022, the majority of our financing receivables, excluding MyPower notes receivable, were originated in 2022.

As of June 30, 2023 and December 31, 2022 , the total outstanding balance of MyPower customer notes receivable, net of allowance for expected credit losses, was $ 272 million and $ 280 million, respectively, of which $ 7 million was due in the next 12 months as of June 30, 2023 and December 31, 2022.

As of June 30, 2023 and December 31, 2022 , the allowance for expected credit losses was $ 37 million.

As of September 30, 2023 and December 31, 2022, the majority of our financing receivables were at current status with only immaterial balances being past due.

As of September 30, 2023, the majority of our financing receivables, excluding MyPower notes receivable, were originated in 2023 and 2022, and as of December 31, 2022, the majority of our financing receivables, excluding MyPower notes receivable, were originated in 2022.

As of September 30, 2023 and December 31, 2022, the total outstanding balance of MyPower customer notes receivable, net of allowance for expected credit losses, was $ 268 million and $ 280 million, respectively, of which $ 6 million and $ 7 million were due in the next 12 months as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023 and December 31, 2022, the allowance for expected credit losses was $ 37 million.

Concentration of Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, investments, restricted cash, accounts receivable and other finance receivables.

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, investments, restricted cash, accounts receivable and financing receivables.

Our cash and investments balances are primarily comprised of deposits which are diversified among high credit quality financial institutions or invested in U.S.

1 unchanged sentence

These deposits are typically in excess of insured limits.

As of June 30, 2023 and December 31, 2022 , no entity represented 10 % or more of our total receivables balance.

As of September 30, 2023 and December 31, 2022, no entity represented 10% or more of our total receivables balance.

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

Operating Lease Vehicles

The gross cost of operating lease vehicles as of June 30, 2023 and December 31, 2022 was $ 7.13 billion and $ 6.08 billion, respectively.

Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 1.19 billion and $ 1.04 billion as of June 30, 2023 and December 31, 2022 , respectively.

Goodwill increased $ 69 million within the automotive segment from $ 194 million as of December 31, 2022 to $ 263 million as of June 30, 2023 primarily from a business combination.

The gross cost of operating lease vehicles as of September 30, 2023 and December 31, 2022 was $ 7.40 billion and $ 6.08 billion, respectively.

Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 1.28 billion and $ 1.04 billion as of September 30, 2023 and December 31, 2022, respectively.

Goodwill increased $ 56 million within the automotive segment from $ 194 million as of December 31, 2022 to $ 250 million as of September 30, 2023 primarily from a business combination and divestiture.

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

Three Months Ended June 30,

Six Months Ended June 30,

Accrued warranty—beginning of period

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Accrued warranty—beginning of period $ 4,465 $ 2,433 $ 3,505 $ 2,101

Warranty costs incurred ( 335 ) ( 236 ) ( 911 ) ( 574 )

Net changes in liability for pre-existing warranties,

including expirations and foreign exchange impact

Net changes in liability for pre-existing warranties, including expirations and foreign exchange impact 15 156 426 158

Provision for warranty 577 418 1,702 1,086

Accrued warranty—end of period

Accrued warranty—end of period $ 4,722 $ 2,771 $ 4,722 $ 2,771

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

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

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

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

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

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

Some of these measures are expected to materially affect our consolidated financial statements.

For the six months ended June 30, 2023, the impact was primarily a reduction of our material costs.

We will continue to evaluate the effects of IRA as more guidance is issued and the relevant implications to our consolidated financial statements.

Note 2 –

Fair Value of Financial Instruments

ASC 820, Fair Value Measurements (“ASC 820”

) 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.

For the nine months ended September 30, 2023, the impact was primarily a reduction of our material costs.

We will continue to evaluate the effects of the IRA as more guidance is issued and the relevant implications to our consolidated financial statements.

Note 2 – Fair Value of Financial Instruments

ASC 820, Fair Value Measurements (“ASC 820”) 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.

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

June 30, 2023

December 31, 2022

September 30, 2023 December 31, 2022

Fair Value Level I Level II Level III Fair Value Level I Level II Level III

Money market funds $ 1,153 $ 1,153 $ — $ — $ 2,188 $ 2,188 $ — $ —

2 unchanged sentences

Certificates of deposit and time deposits 4,788 — 4,788 — 4,253 — 4,253 —

Total $ 11,298 $ 1,153 $ 10,145 $ — $ 8,220 $ 2,188 $ 6,032 $ —

All of our money market funds were classified within Level I of the fair value hierarchy because they were valued using quoted prices in active markets.

government securities, certificates of deposit, time deposits and corporate debt 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 cash, cash equivalents and investments classified by security type as of June 30, 2023 and December 31, 2022 consisted of the following (in millions):

June 30, 2023

Adjusted Cost

Gross Unrealized Gains

Gross Unrealized Losses

Cash and Cash Equivalents

Short-Term Investments

Our cash, cash equivalents and investments classified by security type as of September 30, 2023 and December 31, 2022 consisted of the following (in millions):

September 30, 2023

Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Short-Term Investments

Cash $ 14,779 $ — $ — $ 14,779 $ 14,779 $ —

Money market funds 1,153 — — 1,153 1,153 —

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December 31, 2022

Adjusted Cost

Gross Unrealized Gains

Gross Unrealized Losses

Cash and Cash Equivalents

Short-Term Investments

Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Short-Term Investments

Cash $ 13,965 $ — $ — $ 13,965 $ 13,965 $ —

Money market funds 2,188 — — 2,188 2,188 —

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Total cash, cash equivalents and short-term investments $ 22,209 $ 1 $ ( 25 ) $ 22,185 $ 16,253 $ 5,932

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

For the three and six months ended June 30, 2023 and 2022, we did not recognize any material gross realized gains, losses or credit losses.

The ending allowance balances for credit losses were immaterial as of June 30, 2023 and December 31, 2022.

We have determined that the gross unrealized losses on our investments as of June 30, 2023 and December 31, 2022 were temporary in nature.

The following table summarizes the fair value of our investments by stated contractual maturities as of June 30, 2023 (in millions):

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

For the three and nine months ended September 30, 2023 and 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, 2023 and December 31, 2022.

We have determined that the gross unrealized losses on our investments as of September 30, 2023 and December 31, 2022 were temporary in nature.

The following table summarizes the fair value of our investments by stated contractual maturities as of September 30, 2023 (in millions):

Due in 1 year or less $ 9,734

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Due in 5 years through 10 years 28

Total $ 10,145

Disclosure of Fair Values

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

The carrying values of these financial instruments materially approximate their fair values, other than our 2.00 % Convertible Senior Notes due in 2024 (“2024 Notes”) and digital assets.

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

The carrying values of these financial instruments materially approximate their fair values, other than our 2.00 % Convertible Senior Notes due in 2024 (“2024 Notes”) and digital assets.

We estimate the fair value of the 2024 Notes using commonly accepted valuation methodologies and market-based risk measurements that are indirectly observable, such as credit risk (Level II).

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

June 30, 2023

December 31, 2022

Carrying Value

September 30, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

2024 Notes $ 37 $ 452 $ 37 $ 223

Digital assets, net $ 184 $ 311 $ 184 $ 191

Note 3 –

Note 3 – Inventory

Our inventory consisted of the following (in millions):

September 30,

2023 December 31,

Raw materials $ 5,817 $ 6,137

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Service parts 1,108 842

Total $ 13,721 $ 12,839

(1) Finished goods inventory includes vehicles in transit to fulfill customer orders, new vehicles available for sale, used vehicles and energy 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 six months ended June 30, 2023, we recorded write-downs of $ 66 million and $ 105 million, respectively, in Cost of revenues in the consolidated statements of operations.

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

Note 4 –

Property, Plant and Equipment, Net

During the three and nine months ended September 30, 2023, we recorded write-downs of $ 43 million and $ 148 million, respectively, in Cost of revenues in the consolidated statements of operations.

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

Note 4 – Property, Plant and Equipment, Net

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

September 30,

2023 December 31,

Machinery, equipment, vehicles and office furniture $ 15,077 $ 13,558

Tooling 2,865 2,579

Leasehold improvements 2,892 2,366

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Construction in progress 6,341 4,263

38,984 32,589

Accumulated depreciation ( 11,240 ) ( 9,041 )

Total $ 27,744 $ 23,548

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

Depreciation expense during the three and six months ended June 30, 2023 was $ 816 million and $ 1.54 billion, respectively.

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

Note 5 –

Accrued Liabilities and Other

Depreciation expense during the three and nine months ended September 30, 2023 was $ 897 million and $ 2.44 billion, respectively.

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

Note 5 – Accrued Liabilities and Other

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

September 30,

2023 December 31,

Accrued purchases (1) $ 2,708 $ 2,747

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Other current liabilities 434 354

Total $ 7,636 $ 7,142

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

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(2) Taxes payable includes value added tax, income tax, sales tax, property tax and use tax payables.

Note 6 –

Other Long-Term Liabilities

Note 6 – Other Long-Term Liabilities

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

September 30,

2023 December 31,

Operating lease liabilities $ 3,181 $ 2,164

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Total other long-term liabilities $ 7,321 $ 5,330

Note 7 –

The following is a summary of our debt and finance leases as of June 30, 2023 (in millions):

Net Carrying Value

Interest Rates

Note 7 – Debt

The following is a summary of our debt and finance leases as of September 30, 2023 (in millions):

Net Carrying Value Unpaid

Balance Unused

Amount (1) Contractual

Interest Rates Contractual

Maturity Date

Current Long-Term

Recourse debt:

RCF Credit Agreement

Not applicable

2024 Notes $ 37 $ — $ 37 $ — 2.00 % May 2024

RCF Credit Agreement — — — 5,000 Not applicable January 2028

Solar Bonds — 7 7 — 4.70 - 5.75 %

March 2025 - January 2031

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Automotive Asset-backed Notes 1,482 1,795 3,290 — 0.36 - 6.57 %

March 2025 - September 2025

Solar Asset-backed Notes

December 2026

July 2024 - August 2027

Solar Asset-backed Notes 4 10 14 — 4.80 % December 2026

Cash Equity Debt 29 340 378 — 5.25 - 5.81 %

July 2033 - January 2035

Automotive Lease-backed Credit Facilities

Not applicable

September 2024

Total non-recourse debt 1,515 2,145 3,682 —

Total debt 1,552 2,152 $ 3,726 $ 5,000

Finance leases 415 274

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

Net Carrying Value

Interest Rates

Net Carrying Value Unpaid

Balance Unused

Amount (2) Contractual

Interest Rates Contractual

Maturity Date

Current Long-Term

Recourse debt:

Credit Agreement

Not applicable

2024 Notes $ — $ 37 $ 37 $ — 2.00 % May 2024

Credit Agreement — — — 2,266 Not applicable July 2023

Solar Bonds — 7 7 — 4.70 - 5.75 %

March 2025 - January 2031

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December 2023 - September 2025

Solar Asset-backed Notes

December 2026

Solar Asset-backed Notes 4 13 17 — 4.80 % December 2026

Cash Equity Debt 28 359 397 — 5.25 - 5.81 %

July 2033 - January 2035

Automotive Lease-backed Credit Facilities

Not applicable

September 2024

Automotive Lease-backed Credit Facilities — — — 151 Not applicable September 2024

Total non-recourse debt 1,016 985 2,017 151

Total debt 1,016 1,029 $ 2,061 $ 2,417

Finance leases 486 568

Total debt and finance leases $ 1,502 $ 1,597

(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 our leased vehicles and our interests in those leases 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, 2022.

(2) 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 in the notes to the consolidated financial statements included in our report on Form 10-K for the year ended December 31, 2022.

(1) There are no restrictions on draw-down or use for general corporate purposes with respect to any available committed funds under our RCF Credit Agreement.

Refer to the notes to the consolidated financial statements included in our reporting on Form 10-K for the year ended December 31, 2022 for the terms of the facility.

(2) There were 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 as described in the notes to the consolidated financial statements included in our report on Form 10-K for the year ended December 31, 2022.

Recourse debt refers to debt that is recourse to our general assets of the respective guarantors.

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 June 30, 2023, we were in material compliance with all financial debt covenants.

During the first two quarters of 2023, the closing price of our common stock continued to exceed 130 % of the applicable conversion price of our 2024 Notes on at least 20 of the last 30 consecutive trading days of the quarter, causing the 2024 Notes to be convertible by their holders during the second and third quarters of 2023.

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.

Note 8 –

Equity Incentive Plans

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

As of September 30, 2023, we were in material compliance with all financial debt covenants.

During the first three quarters of 2023, 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 2023.

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.

Automotive Asset-backed Notes

In the third quarter of 2023, we transferred beneficial interests related to certain leased vehicles into special purpose entities and issued $ 2.53 billion in aggregate principal amount of Automotive Asset-backed Notes, with terms similar to our other previously issued Automotive Asset-backed Notes.

The proceeds from the issuance, net of debt issuance costs, were $ 2.52 billion.

Automotive Lease-backed Credit Facilities

In the third quarter of 2023, we terminated our Automotive Lease-backed Credit Facilities and the previously committed funds are no longer available for future borrowings.

Note 8 – Equity Incentive Plans

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 performance-based 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.

As of June 30, 2023, we had unrecognized stock-based compensation expense of $ 140 million, which will be recognized over a weighted-average period of 2.75 years.

For the three and six months ended June 30, 2023, we recorded $ 20 million and $ 45 million, respectively, of stock-based compensation expense related to this grant, net of forfeitures.

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

From time to time, the Compensation Committee of our Board of Directors grants certain employees performance-based restricted stock units (“RSUs”) and stock options.

As of September 30, 2023, we had unrecognized stock-based compensation expense of $ 525 million under these grants to purchase or receive an aggregate 4.7 million shares of our common stock.

For awards probable of achievement, we estimate the unrecognized stock-based compensation expense of $ 131 million will be recognized over a weighted-average period of 3 years.

For the three and nine months ended September 30, 2023, we recorded $ 10 million and $ 56 million, respectively, of stock-based compensation expense related to these grants, net of forfeitures.

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 these grants, net of forfeitures.

Summary Stock-Based Compensation Information

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Cost of revenues $ 181 $ 150 $ 554 $ 424

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Selling, general and administrative 95 88 283 328

Total $ 465 $ 362 $ 1,328 $ 1,141

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 9 –

Commitments and Contingencies

Note 9 – Commitments and Contingencies

Operating Lease Arrangements in Buffalo, New York and Shanghai, China

For a description of our operating lease arrangements in Buffalo, New York, and Shanghai, China, refer to Note 15, Commitments and Contingencies , in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of June 30, 2023, we expect to meet the requirements under these arrangements based on our current and anticipated level of operations.

As of September 30, 2023, we expect to meet the requirements under these arrangements based on our current and anticipated level of operations.

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.

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.

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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.

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.

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

Oral argument was held before the Supreme Court of Delaware on March 29, 2023, and on June 6, 2023, the Supreme Court of Delaware affirmed the Court of Chancery’s decision.

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.

They include claims for violations of the federal securities laws and breach of fiduciary duties by Tesla’s board of directors.

Those actions were consolidated and stayed pending the above-referenced Chancery Court litigation.

On October 16, 2023, these plaintiffs filed a voluntary dismissal of the action.

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.

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On September 20, 2019, the Court granted the motion to dismiss as to the corporate waste claim but denied the motion as to the breach of fiduciary duty and unjust enrichment claims.

Defendants’

answer was filed on December 3, 2019.

Defendants’ answer was filed on December 3, 2019.

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

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

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;

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.

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 was held November 14-18, 2022.

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 was held November 14-18, 2022.

Post-trial briefing and argument are now complete.

Litigation Related to Directors’

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.

Litigation Related to Directors’ Compensation

The suit asserts claims for breach of fiduciary duty and unjust enrichment and seeks declaratory and injunctive relief, unspecified damages and other relief.

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If the settlement is approved by the Court, this action will be fully settled and dismissed with prejudice.

Pursuant to the terms of the agreement, Tesla will provide notice of the proposed settlement to stockholders of record as of July 14, 2023.

The Court will hold a hearing regarding the settlement on October 13, 2023.

Pursuant to the terms of the agreement, Tesla provided notice of the proposed settlement to stockholders of record as of July 14, 2023.

The general terms, conditions and timing of this proposed settlement are further set forth in the Form 8-K filed on July 20, 2023, which includes, among other things, the court-approved notice of the proposed settlement.

The Court held a hearing regarding the settlement on October 13, 2023, after which it took the settlement and plaintiff counsels’ fee request under advisement.

The settlement is not expected to have an adverse impact on our results of operations, cash flows or financial position.

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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.

On January 16, 2019, Plaintiffs filed their consolidated complaint in the United States District Court for the Northern District of California and added as defendants the members of Tesla’s board of directors.

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

The consolidated complaint asserts claims for violations of the federal securities laws and seeks unspecified damages and other relief.

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After trial, plaintiffs filed a motion for judgment as a matter of law and a motion for new trial, which the Court denied and judgement was entered in favor of defendants on July 11, 2023.

On July 14, 2023, plaintiffs filed a notice of appeal.

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.

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Musk and the members of the Tesla board of directors as then constituted.

Those cases have also been consolidated and stayed pending the entry of judgment in 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’

The parties reached an agreement to stay the case until September 5, 2023.

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.

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

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

The parties reached an agreement to stay the case until December 5, 2023.

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’

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.

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

Tesla , a jury in the Northern District of California returned a verdict 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.

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

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.

On June 21, 2022, the plaintiff rejected the reduced award and, as a result, on June 27, 2022, the Court ordered a new trial on damages only, which commenced on March 27, 2023, after which a jury returned a verdict of $ 3,175,000 .

As a result, the damages awarded against Tesla were reduced from an initial $ 136.9 million (October 4, 2021) down to $ 15 million (April 13, 2022), and then further down to $ 3.175 million (April 3, 2023).

On February 9, 2022, shortly after the first 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 February 9, 2022, shortly after the first 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 cross complaint against CRD, alleging that it violated the Administrative Procedures Act by failing to follow statutory pre-requisites prior to filing suit and that cross complaint was subject to a sustained demurrer, which Tesla later amended and refiled.

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 engaged in a mandatory mediation with the EEOC in June 2023, which did not result in a resolution.

On September 28, 2023, the EEOC filed a civil complaint against Tesla in the United States District Court for the Northern District of California asserting claims for race harassment and retaliation and seeking, among other things, monetary and injunctive relief.

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’

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.

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Plaintiffs filed a response of January 13, 2023, and the defendants replied on February 17, 2023.

On September 15, 2023, the Court dismissed the action but granted plaintiffs leave to file an amended complaint.

Other Litigation Related to Our Products and Services

We are also subject to various lawsuits, including proposed class actions, that seek monetary and other injunctive relief.

We are also subject to various lawsuits that seek monetary and other injunctive relief.

These lawsuits include proposed class actions and other consumer claims that allege, among other things, defects and misrepresentations related to our products and services.

For example, on September 14, 2022, a proposed class action was filed against Tesla, Inc.

and related entities in the U.S.

District Court for the Northern District of California, alleging various claims about the Company’s driver assistance technology systems under state and federal law.

This case was later consolidated with several other proposed class actions, and a Consolidated Amended Complaint was filed on October 28, 2022, which seeks damages and other relief on behalf of all persons who purchased or leased from Tesla between January 1, 2016 to the present.

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District Court for the Eastern District of New York asserting similar state and federal law claims against the same defendants.

On March 22, 2023, the plaintiffs in the California consolidated action filed a motion for a preliminary injunction to order Tesla to (1) cease using the term “Full Self-Driving Capability”

(FSDC), (2) cease the sale and activation of FSDC and deactivate FSDC on Tesla vehicles, and (3) provide certain notices to consumers about proposed court-findings about the accuracy of the use of the terms Autopilot and FSDC.

On September 30, 2023, the Court dismissed this action with leave to amend the complaint.

On March 22, 2023, the plaintiffs in the California consolidated action filed a motion for a preliminary injunction to order Tesla to (1) cease using the term “Full Self-Driving Capability” (FSDC), (2) cease the sale and activation of FSDC and deactivate FSDC on Tesla vehicles, and (3) provide certain notices to consumers about proposed court-findings about the accuracy of the use of the terms Autopilot and FSDC.

Tesla opposed the motion.

On September 30, 2023, the Court denied the request for a preliminary injunction, compelled four of five plaintiffs to arbitration, and dismissed the claims of the fifth plaintiff with leave to amend the complaint.

Subsequently, on October 2, 2023, a similar proposed class action was filed in San Diego County Superior Court in California.

On February 27, 2023, a proposed class action was filed in the U.S.

District Court for the Northern District of California against Tesla, Inc., Elon Musk and certain current and former Company executives.

The complaint alleges that the defendants made material misrepresentations and omissions about the Company’s Autopilot and FSDC technologies and seeks money damages and other relief on behalf of persons who purchased Tesla stock between February 19, 2019 and February 17, 2023.

On April 13, 2023, a putative Tesla shareholder filed a related shareholder derivative complaint against the members of Tesla’s board of directors and certain current and former executives, alleging contribution for violations of the federal securities law, breach of fiduciary duties, waste, and unjust enrichment.

The complaint asserts derivative claims and seeks, among other relief, unspecified monetary damages, attorneys’

fees and costs.

An amended complaint was filed on September 5, 2023, naming only Tesla, Inc.

and Elon Musk as defendants.

The complaint asserted derivative claims and seeks, among other relief, unspecified monetary damages, attorneys’ fees and costs.

On July 19, 2023, the plaintiff in the shareholder derivative action voluntarily dismissed the complaint without prejudice.

On March 14, 2023, a proposed class action was filed in the U.S.

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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.

The SEC also has periodically issued subpoenas to us seeking information on our governance processes around compliance with the SEC settlement, as amended.

Separately, the company has received requests from the DOJ for documents related to Tesla’s Autopilot and FSD features.

Separately, the Company has received requests for information, including subpoenas, from the DOJ.

These have included requests for documents related to Tesla’s Autopilot and FSD features.

Additionally, the Company has received requests for information, including subpoenas from the DOJ, regarding certain matters associated with personal benefits, related parties, vehicle range and personnel decisions.

To our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred.

We cannot predict the outcome or impact of any ongoing matters.

Should the government decide to pursue an enforcement action, there exists the possibility of a material adverse impact on our business, results of operation, prospects, cash flows and financial position.

We are also subject to various other legal proceedings, risks and claims that arise from the normal course of business activities.

For example, during the second quarter of 2023, a foreign news outlet reported that it obtained certain misappropriated data including, purportedly, among other things, non-public Tesla business and personal information.

While Tesla’s investigation remains ongoing, we are working with certain law enforcement and other authorities.

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

Note 10 –

Variable Interest Entity Arrangements

The aggregate carrying values of the variable interest entities’

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

Tesla has made notifications to potentially affected individuals (current and former employees) and regulatory authorities and we are working with certain law enforcement and other authorities.

On August 5, 2023, a putative class action was filed in the United States District Court for the Northern District of California, purportedly on behalf of all U.S.

individuals impacted by the data incident, followed by several additional lawsuits, that each assert claims under various state laws and seeks monetary damages and other relief.

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

Note 10 – Variable Interest Entity Arrangements

The aggregate carrying values of the variable interest entities’ assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheets were as follows (in millions):

September 30,

2023 December 31,

Current assets

5 unchanged sentences

Other non-current assets 390 404

Total assets $ 4,760 $ 4,828

Current liabilities

7 unchanged sentences

Total liabilities $ 3,874 $ 2,215

Note 11 –

Segment Reporting and Information about Geographic Areas

Note 11 – Segment Reporting and Information about Geographic Areas

We have two operating and reportable segments:

1 unchanged sentence

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Automotive segment

Revenues $ 21,791 $ 20,337 $ 67,009 $ 54,545

Gross profit $ 3,797 $ 5,278 $ 12,395 $ 14,947

Energy generation and storage segment

Revenues $ 1,559 $ 1,117 $ 4,597 $ 2,599

Gross profit $ 381 $ 104 $ 827 $ 129

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

United States $ 10,893 $ 10,236 $ 33,472 $ 28,584

China 5,020 5,131 15,642 13,568

Other international 7,437 6,087 22,492 14,992

Total $ 23,350 $ 21,454 $ 71,606 $ 57,144

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

September 30,

2023 December 31,

United States $ 25,162 $ 21,667

Germany 4,008 3,547

China 2,786 2,978

Other international 1,081 845

Total $ 33,037 $ 29,037

The following table presents inventory by reportable segment (in millions):

September 30,

2023 December 31,

Automotive $ 11,398 $ 10,996

Energy generation and storage 2,323 1,843

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.

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 2023, we produced 920,508 consumer vehicles and delivered 889,015 consumer vehicles through the second quarter.

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

In 2023, we deployed 7.54 GWh of energy storage products and 133 megawatts of solar energy systems through the second quarter.

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

During the three and six months ended June 30, 2023, we recognized total revenues of $24.93 billion and $48.26 billion, respectively, representing increases of $7.99 billion and $12.57 billion, respectively, over the same periods ended June 30, 2022.

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

During the three and six months ended June 30, 2023, our net income attributable to common stockholders was $2.70 billion and $5.22 billion, respectively, representing a favorable change of $444 million and an unfavorable change of $361 million, respectively, over the same periods ended June 30, 2022.

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

We ended the second quarter of 2023 with $23.08 billion in cash and cash equivalents and investments, representing an increase of $890 million from the end of 2022.

Our cash flows provided by operating activities during the six months ended June 30, 2023 and 2022 were $5.58 billion and $6.35 billion, respectively, representing a decrease of $768 million.

Capital expenditures amounted to $4.13 billion during the six months ended June 30, 2023, compared to $3.50 billion during the same period ended June 30, 2022.

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 Uncertainties and 2023 Outlook

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

Model 3 / Model Y

Gigafactory Shanghai

Model 3 / Model Y

Gigafactory Berlin-Brandenburg

Gigafactory Texas

Gigafactory Nevada

Pilot production

Next Generation Platform

In development

Tesla Roadster

In development

We are focused on growing our manufacturing capacity, which includes capacity for manufacturing new vehicle models such as our Cybertruck and next generation platform, and ramping all of our production vehicles to their installed production capacities as well as increasing production rate and efficiency at our current factories.

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

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

These plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by new product and manufacturing technologies we introduce, the number of concurrent international projects, any industry-wide component constraints, labor shortages and any future impact from events outside of our control.

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, Sales, Deliveries and Infrastructure

Our cost reduction efforts, cost innovation strategies, and additional localized procurement and manufacturing are key to our vehicles’

affordability and have allowed us to competitively price our vehicles.

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 our upcoming Cybertruck.

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

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 can be compounded by inflationary pressures, rising energy prices, increases in interest rates and the liquidity of enterprise customers.

For example, inflationary pressures have increased across the markets in which we operate.

In an effort to curb this trend, central banks in developed countries raised interest rates rapidly and substantially, impacting the affordability of vehicle lease and finance arrangements.

Further, sales of vehicles in the automotive industry also tend to be cyclical in many markets, which may expose us to increased volatility as we expand and adjust our operations.

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.

These macroeconomic and industry trends have had, and will likely continue to have, an impact on the pricing of, and order rate for our vehicles, and in turn our operating margin.

We will continue to adjust accordingly to such developments, and we believe our ongoing cost reduction, including improved production innovation and efficiency at our newest factories and lower logistics costs, and focus on operating leverage will continue to benefit us in relation to our competitors, while our new products will help enable future growth.

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.

We are also committed to reducing the percentage of vehicles delivered in the third month of each quarter, which will help to reduce the cost per vehicle.

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, as other automotive manufacturers have announced their adoption of the North American Charging Standard (“NACS”) and agreements with us to utilize our Superchargers, we must correspondingly expand our network in order to ensure adequate availability to meet customer demands.

We also remain focused on continued enhancements of 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 announcement of a new Megafactory in Shanghai.

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 concerns over grid stability drive higher customer interest.

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.

As these product lines grow, we will have to maintain adequate battery cell supply for our energy storage products and ensure the availability of qualified 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, building or ramping manufacturing facilities on three continents, piloting the development and manufacture of new battery cell technologies, expanding our Supercharger network and investing in autonomy and other artificial intelligence enabled training and products, 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 $7.00 to $9.00 billion in 2023 and in each of the following 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.

We have and will continue to utilize such cash flows, among other things, to do more vertical integration, expand our product roadmap and provide financing options to our customers.

At the same time, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and other potential variables such as rising material prices and increases in supply chain and labor expenses resulting from changes in global trade conditions and labor availability.

Overall, we expect our ability to be self-funding to continue as long as macroeconomic factors support current trends in our sales.

Critical Accounting Policies and Estimates

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, 2022.

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, 2022.

Recent Accounting Pronouncements

See Note 1, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Results of Operations

Three Months Ended

Six Months Ended

(Dollars in millions)

Automotive sales

Automotive regulatory credits

Automotive leasing

Total automotive revenues

Services and other

Total automotive & services and other

segment revenue

Energy generation and storage segment revenue

Total revenues

Automotive & Services and Other Segment

Automotive sales revenue increased $6.75 billion, or 49%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to increases of 196,382 combined Model 3 and Model Y cash deliveries and 3,395 combined Model S and Model X cash deliveries year over year despite a negative impact from the United States dollar strengthening against other foreign currencies in the three months ended June 30, 2023 compared to the prior period.

This was achieved from production ramping of Model Y globally.

The increases were partially offset by lower average selling price on our vehicles driven by overall price reductions year over year.

Automotive sales revenue increased $10.11 billion, or 35%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to an increase of 304,760 combined Model 3 and Model Y cash deliveries year over year despite a negative impact from the United States dollar strengthening against other foreign currencies in the six months ended June 30, 2023 as compared to the prior period.

This was achieved from production ramping and partially offset by lower average selling price on our vehicles as mentioned above.

Automotive regulatory credits revenue decreased $62 million, or 18%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Automotive regulatory credits revenue decreased $220 million, or 22%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to the recognition of $288 million in revenue in the first quarter of 2022 primarily due to changes in regulation which entitled us to additional consideration for credits sold previously.

Automotive leasing revenue decreased $21 million, or 4%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Automotive leasing revenue decreased $125 million, or 10%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The decreases were primarily due to a decrease in direct sales-type leasing revenue driven by lower deliveries year over year, partially offset by an increase from our growing direct operating lease portfolio.

Services and other revenue increased $684 million, or 47%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Services and other revenue increased $1.24 billion, or 45%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The increases were primarily due to an increase in used vehicle revenue driven by increases in volume, non-warranty maintenance services revenue as our fleet continues to grow, paid Supercharging revenue, insurance services revenue and retail merchandise revenue, partially offset by decreases in average selling price of used Tesla and non-Tesla vehicles.

Energy Generation and Storage Segment

Energy generation and storage revenue increased $643 million, or 74%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Energy generation and storage revenue increased $1.56 billion, or 105%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The increases were primarily due to an increase in deployments of Megapack at a lower average selling price.

Cost of Revenues and Gross Margin

Three Months Ended

Six Months Ended

(Dollars in millions)

Cost of revenues

Automotive sales

Automotive leasing

Total automotive cost of revenues

Services and other

Total automotive & services and other

segment cost of revenues

Energy generation and storage segment

Total cost of revenues

Gross profit total automotive

Gross margin total automotive

Gross profit total automotive & services and other

Gross margin total automotive & services and other

Gross profit energy generation and storage segment

Gross margin energy generation and storage segment

Total gross profit

Total gross margin

Automotive & Services and Other Segment

Cost of automotive sales revenue increased $6.69 billion, or 66%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Cost of automotive sales revenue increased $11.20 billion, or 53%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Cost of automotive sales revenue increased in line with the growth in deliveries year over year, as discussed above.

The increase was partially offset by a decrease in the average combined cost per unit of our vehicles primarily due to decrease in material costs, lower manufacturing costs from better fixed cost absorption offset by higher outbound freight and duties.

Our costs of revenue were also positively impacted by the IRA manufacturing credits earned during the current periods and by the United States dollar strengthening against our foreign currencies as compared to the prior periods.

Cost of automotive leasing revenue decreased $30 million, or 8%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Cost of automotive leasing revenue decreased $105 million, or 14%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The decreases were primarily due to a decrease in direct sales-type leasing cost of revenue driven by lower deliveries year over year.

Cost of services and other revenue increased $574 million, or 41%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Cost of services and other revenue increased $990 million, or 37%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The increases were in line with the changes in services and other revenue as discussed above.

Gross margin for total automotive decreased from 27.9% to 19.2% in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Gross margin for total automotive decreased from 30.6% to 20.1% in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The decreases were primarily due to lower average selling price on our vehicles, margin headwinds from underutilization of new factories, and a decrease in regulatory credits revenue, partially offset by the overall favorable change in our average combined cost per unit of our vehicles as discussed above.

Gross margin for total automotive & services and other segment decreased from 25.7% to 18.2% in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Gross margin for total automotive & services and other segment decreased from 28.3% to 19.0% in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to the automotive gross margin decrease discussed above, partially offset by an improvement in our services and other gross margin.

Additionally, there was a higher proportion of services and other, which operated at a lower gross margin, within the segment during the first half of 2023 as compared to the prior year.

Energy Generation and Storage Segment

Cost of energy generation and storage revenue increased $462 million, or 60%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Cost of energy generation and storage revenue increased $1.14 billion, or 78%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, in line with the changes in Megapack deployments year over year, as discussed above.

These increases were partially offset by improvements in production ramping that drove down the average cost per MWh of Megapack.

Gross margin for energy generation and storage improved from 11.2% to 18.4% in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Gross margin for energy generation and storage improved from 1.7% to 14.7% in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The increases were driven by the changes in Megapack revenue and cost per MWh as described above.

Research and Development Expense

Three Months Ended

Six Months Ended

(Dollars in millions)

Research and development

As a percentage of revenues

Research and development (“R&D”) expenses increased $276 million, or 41%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

R&D expenses increased $182 million, or 12%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The overall increases were primarily driven by additional costs in the current period related to the pre-production phase for Cybertruck, AI and other programs.

R&D expenses as a percentage of revenue stayed consistent at 4% in the three and six months ended June 30, 2023 compared to the same periods in the prior year.

Our R&D expenses have increased proportionately with total revenues as we continue to expand our product roadmap and technologies.

Selling, General and Administrative Expense

Three Months Ended

Six Months Ended

(Dollars in millions)

Selling, general and administrative

As a percentage of revenues

Selling, general and administrative (“SG&A”) expenses increased $230 million, or 24%, in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

This was driven by a $135 million increase in employee and labor costs primarily from increased headcount, including professional services and an $81 million increase in facilities related expenses.

SG&A expenses increased $314 million, or 16%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

This was driven by a $183 million increase in employee and labor costs primarily from increased headcount, including professional services and a $166 million increase in facilities related expenses.

The increases were partially offset by a decrease of $52 million in stock-based compensation expense, primarily attributable to the lower stock-based compensation expense on the 2018 CEO Performance Award which was fully expensed as of December 31, 2022.

Restructuring and Other

Three Months Ended

Six Months Ended

(Dollars in millions)

Restructuring and other

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

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

Interest Income

Three Months Ended

Six Months Ended

(Dollars in millions)

Interest income

Interest income increased $212 million, or 815%, in the three months ended June 30, 2023 and increased $397 million, or 735%, in the six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022, respectively.

This increase was primarily due to higher interest earned on our cash and cash equivalents and short-term investments in the three and six months ended June 30, 2023 as compared to the prior periods.

This was driven by an increase in our short-term investments balance and rising interest rates.

Other (Expense) Income, Net

Three Months Ended

Six Months Ended

(Dollars in millions)

Other income, net

Other income, net, changed favorably by $300 million in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Other income, net, changed favorably by $196 million in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The favorable changes were primarily due to fluctuations in foreign currency exchange rates on our intercompany balances.

Provision for Income Taxes

Three Months Ended

Six Months Ended

(Dollars in millions)

Provision for income taxes

Effective tax rate

Our provision for income taxes increased by $118 million, or 58%, in the three months ended June 30, 2023 and increased by $33 million, or 6%, in the six months ended June 30, 2023 as compared to the three months ended June 30, 2022 and six months ended June 30, 2022, respectively, primarily due to the change in our pre-tax income year over year and changes in mix of jurisdictional earnings.

Our effective tax rate increased from 8% to 11% in the three months ended June 30, 2023 and increased from 9% to 10% in the six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022, respectively, primarily due to changes in mix of jurisdictional earnings.

See Note 1, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

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, the construction of future factories, and the continued expansion of our retail and service locations, body shops, Mobile Service fleet, Supercharger, including to support NACS, energy product installation capabilities and autonomy and other artificial intelligence enabled products.

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

For example, if our near-term manufacturing operations decrease in scale or ramp more slowly than expected, including due to global economic or business conditions, we may choose to correspondingly slow the pace of our capital expenditures.

Finally, we continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds.

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

Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following June 30, 2023, as well as in the long-term.

See the sections below for more details regarding the material requirements for cash in our business and our sources of liquidity to meet such needs.

Material Cash Requirements

From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw materials to be used in the manufacture of our products.

However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders under such contracts beyond the short-term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project.

As discussed in and subject to the considerations referenced in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Uncertainties and 2023 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 $7.00 to $9.00 billion in 2023 and in each of the following two fiscal years.

We also have certain obligations in connection with our operations at Gigafactory New York and Gigafactory Shanghai, as outlined in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Material Cash Requirements in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of June 30, 2023, we and our subsidiaries had outstanding $1.53 billion in aggregate principal amount of indebtedness, of which $1.02 billion is scheduled to become due in the succeeding 12 months.

For details regarding our indebtedness, refer to Note 7, 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 June 30, 2023, we had $15.30 billion and $7.78 billion of cash and cash equivalents and short-term investments, respectively.

Balances held in foreign currencies had a U.S.

dollar equivalent of $3.85 billion and consisted primarily of Chinese yuan, euros and Canadian dollar.

We had $5.16 billion of unused committed amounts under our credit facilities as of June 30, 2023.

Certain of such unused committed amounts are subject to satisfying specified conditions prior to draw-down (such as pledging to leased vehicles and our interests in those leases).

For details regarding our indebtedness, refer to Note 7 , Debt , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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

government and other investments, to do more vertical integration, expand our product roadmap and provide financing options to our customers.

Summary of Cash Flows

Six Months Ended

(Dollars in millions)

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Cash Flows from Operating Activities

Net cash provided by operating activities decreased by $768 million to $5.58 billion during the six months ended June 30, 2023 from $6.35 billion during the six months ended June 30, 2022.

This decrease was primarily due to unfavorable changes in net operating assets and liabilities of $683 million and the decrease in net income excluding non-cash expenses, gains and losses of $85 million.

Cash Flows from Investing Activities

Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $4.13 billion for the six months ended June 30, 2023 and $3.50 billion for the six months ended June 30, 2022, mainly for the expansions of Gigafactory Texas, Gigafactory Berlin-Brandenburg, Gigafactory Shanghai and the Fremont Factory.

We also purchased $1.81 billion and $476 million of investments, net of proceeds from maturities and sales, for the six months ended June 30, 2023 and June 30, 2022, respectively.

Cash Flows from Financing Activities

Net cash used in financing activities decreased by $1.76 billion to $561 million during the six months ended June 30, 2023 from $2.32 billion during the six months ended June 30, 2022.

The decrease was primarily due to a $1.68 billion decrease in repayments of convertible and other debt.

See Note 7, Debt , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding our debt obligations.

Total $ 13,721 $ 12,839

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

What changed 10-Q

Item 1. Financial Statements