Tesla, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Tesla, Inc. Consolidated Balance Sheets (in millions, except per share data) (unaudited) September 30, 2023 December 31, 2022 Assets Current assets Cash and cash equivalents $ 15,932 $ 16,253 Short-term investments 10,145 5,932 Accounts receivable, net 2,520 2,952 Inventory 13,721 12,839 Prepaid expenses and other current assets 2,708 2,941 Total current assets 45,026 40,917 Operating lease vehicles, net 6,119 5,035 Solar energy systems, net 5,293 5,489 Property, plant and equipment, net 27,744 23,548 Operating lease right-of-use assets 3,637 2,563 Digital assets, net 184 184 Intangible assets, net 191 215 Goodwill 250 194 Other non-current assets 5,497 4,193 Total assets $ 93,941 $ 82,338 Liabilities Current liabilities Accounts payable $ 13,937 $ 15,255 Accrued liabilities and other 7,636 7,142 Deferred revenue 2,206 1,747 Customer deposits 894 1,063 Current portion of debt and finance leases 1,967 1,502 Total current liabilities 26,640 26,709 Debt and finance leases, net of current portion 2,426 1,597 Deferred revenue, net of current portion 3,059 2,804 Other long-term liabilities 7,321 5,330 Total liabilities 39,446 36,440 Commitments and contingencies (Note 9) Redeemable noncontrolling interests in subsidiaries 277 409 Equity Stockholders’ equity Preferred stock; $ 0.001 par value; 100 shares authorized; no shares issued and outstanding — — Common stock; $ 0.001 par value; 6,000 shares authorized; 3,179 and 3,164 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 3 3 Additional paid-in capital 34,201 32,177 Accumulated other comprehensive loss ( 692 ) ( 361 ) Retained earnings 19,954 12,885 Total stockholders’ equity 53,466 44,704 Noncontrolling interests in subsidiaries 752 785 Total liabilities and equity $ 93,941 $ 82,338 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents Tesla, Inc. Consolidated Statements of Operations (in millions, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues Automotive sales $ 18,582 $ 17,785 $ 57,879 $ 46,969 Automotive regulatory credits 554 286 1,357 1,309 Automotive leasing 489 621 1,620 1,877 Total automotive revenues 19,625 18,692 60,856 50,155 Energy generation and storage 1,559 1,117 4,597 2,599 Services and other 2,166 1,645 6,153 4,390 Total revenues 23,350 21,454 71,606 57,144 Cost of revenues Automotive sales 15,656 13,099 47,919 34,166 Automotive leasing 301 381 972 1,157 Total automotive cost of revenues 15,957 13,480 48,891 35,323 Energy generation and storage 1,178 1,013 3,770 2,470 Services and other 2,037 1,579 5,723 4,275 Total cost of revenues 19,172 16,072 58,384 42,068 Gross profit 4,178 5,382 13,222 15,076 Operating expenses Research and development 1,161 733 2,875 2,265 Selling, general and administrative 1,253 961 3,520 2,914 Restructuring and other — — — 142 Total operating expenses 2,414 1,694 6,395 5,321 Income from operations 1,764 3,688 6,827 9,755 Interest income 282 86 733 140 Interest expense ( 38 ) ( 53 ) ( 95 ) ( 158 ) 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 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 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. 5 Table of Contents Tesla, Inc. Consolidated Statements of Comprehensive Income (in millions) (unaudited) 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 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 Less: 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. 6 Table of Contents Tesla, Inc. Consolidated Statements of Redeemable Noncontrolling Interests and Equity (in millions, except per share data) (unaudited) Three Months Ended September 30, 2023 Redeemable Noncontrolling Interests Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Stockholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity 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 Distributions to noncontrolling interests ( 10 ) — — — — — — ( 33 ) ( 33 ) Buy-outs of noncontrolling interests ( 5 ) — — ( 2 ) — — ( 2 ) — ( 2 ) 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 Interests Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Stockholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity 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 — 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 Distributions to noncontrolling interests ( 24 ) — — — — — — ( 83 ) ( 83 ) Buy-outs of noncontrolling interests ( 8 ) — — 3 — — 3 ( 12 ) ( 9 ) 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 7 Table of Contents Three Months Ended September 30, 2022 Redeemable Noncontrolling Interests Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Stockholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity 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 — 7 0 229 — — 229 — 229 Stock-based compensation — — — 419 — — 419 — 419 Distributions to noncontrolling interests ( 11 ) — — — — — — ( 36 ) ( 36 ) Net income 11 — — — — 3,292 3,292 27 3,319 Other comprehensive loss — — — — ( 465 ) — ( 465 ) — ( 465 ) Balance as of September 30, 2022 $ 421 3,158 $ 3 $ 31,592 $ ( 942 ) $ 9,198 $ 39,851 $ 852 $ 40,703 Nine Months Ended September 30, 2022 Redeemable Noncontrolling Interests Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity 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 — 0 0 0 — — 0 — 0 Settlements of warrants — 37 0 0 — — 0 — 0 Issuance of common stock for equity incentive awards — 21 0 474 — — 474 — 474 Stock-based compensation — — — 1,323 — — 1,323 — 1,323 Distributions to noncontrolling interests ( 36 ) — — — — — — ( 84 ) ( 84 ) Buy-out of noncontrolling interests ( 11 ) — — ( 8 ) — — ( 8 ) — ( 8 ) Net (loss) income ( 100 ) — — — — 8,869 8,869 110 8,979 Other comprehensive loss — — — — ( 996 ) — ( 996 ) — ( 996 ) Balance as of September 30, 2022 $ 421 3,158 $ 3 $ 31,592 $ ( 942 ) $ 9,198 $ 39,851 $ 852 $ 40,703 The accompanying notes are an integral part of these consolidated financial statements. 8 Table of Contents Tesla, Inc. Consolidated Statements of Cash Flows (in millions) (unaudited) Nine Months Ended September 30, 2023 2022 Cash Flows from Operating Activities Net income $ 7,031 $ 8,880 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and impairment 3,435 2,758 Stock-based compensation 1,328 1,141 Inventory and purchase commitments write-downs 361 118 Foreign currency transaction net unrealized (gain) loss ( 317 ) 1 Non-cash interest and other operating activities 94 159 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 ) Prepaid expenses and other current assets 322 ( 865 ) Other non-current assets ( 2,655 ) ( 1,580 ) Accounts payable and accrued liabilities ( 24 ) 4,659 Deferred revenue 774 856 Customer deposits ( 95 ) 251 Other long-term liabilities 2,066 1,016 Net cash provided by operating activities 8,886 11,446 Cash Flows from Investing Activities Purchases of property and equipment excluding finance leases, net of sales ( 6,592 ) ( 5,300 ) Purchases of solar energy systems, net of sales — ( 5 ) Proceeds from sales of digital assets — 936 Purchase of intangible assets — ( 9 ) Purchases of investments ( 13,221 ) ( 1,467 ) Proceeds from maturities of investments 8,959 3 Proceeds from sales of investments 138 — Business combinations, net of cash acquired ( 64 ) — Net cash used in investing activities ( 10,780 ) ( 5,842 ) Cash Flows from Financing Activities 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 Principal payments on finance leases ( 340 ) ( 369 ) Debt issuance costs ( 23 ) — Distributions paid to noncontrolling interests in subsidiaries ( 105 ) ( 118 ) Payments for buy-outs of noncontrolling interests in subsidiaries ( 17 ) ( 19 ) 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 ) Net (decrease) increase in cash and cash equivalents and restricted cash ( 334 ) 2,005 Cash and cash equivalents and restricted cash, beginning of period 16,924 18,144 Cash and cash equivalents and restricted cash, end of period $ 16,590 $ 20,149 Supplemental Non-Cash Investing and Financing Activities Acquisitions of property and equipment included in liabilities $ 1,717 $ 1,877 Leased assets obtained in exchange for finance lease liabilities $ 1 $ 36 Leased assets obtained in exchange for operating lease liabilities $ 1,548 $ 691 The accompanying notes are an integral part of these consolidated financial statements. 9 Table of Contents Tesla, Inc. Notes to Consolidated Financial Statements (unaudited) 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 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. The interim consolidated financial statements and the accompanying notes should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022. The interim consolidated financial statements and the accompanying notes have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future years or interim periods. Reclassifications Certain prior period balances have been reclassified to conform to the current period presentation in the accompanying notes. Revenue Recognition Revenue by source The following table disaggregates our revenue by major source (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Automotive sales $ 18,582 $ 17,785 $ 57,879 $ 46,969 Automotive regulatory credits 554 286 1,357 1,309 Energy generation and storage sales 1,416 966 4,188 2,186 Services and other 2,166 1,645 6,153 4,390 Total revenues from sales and services 22,718 20,682 69,577 54,854 Automotive leasing 489 621 1,620 1,877 Energy generation and storage leasing 143 151 409 413 Total revenues $ 23,350 $ 21,454 $ 71,606 $ 57,144 Automotive Segment 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 $ 3.27 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 $ 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. 10 Table of Contents We have been providing loans for financing our automotive deliveries in volume since fiscal year 2022. 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 nine months ended September 30, 2022, we had also recognized $ 288 million in revenue due to changes in regulation which entitled us to additional consideration for credits sold previously. Automotive Leasing Revenue Direct Sales-Type Leasing Program For the three and nine months ended September 30, 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): September 30, 2023 December 31, 2022 Gross lease receivables $ 803 $ 837 Unearned interest income ( 84 ) ( 95 ) Allowance for expected credit losses ( 6 ) ( 4 ) Net investment in sales-type leases $ 713 $ 738 Reported as: Prepaid expenses and other current assets $ 178 $ 164 Other non-current assets 535 574 Net investment in sales-type leases $ 713 $ 738 Energy Generation and Storage Segment Energy Generation and Storage Sales We record as deferred revenue any non-refundable amounts that are collected from customers related to fees charged for prepayments, which is recognized as revenue ratably over the respective customer contract term. 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 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. 11 Table of Contents Income Taxes 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 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. Additional tax years within the periods 2004 to 2014 and 2019 to 2022 remain subject to examination for federal income tax purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state income tax purposes. Our returns for 2004 and subsequent tax years remain subject to examination in U.S. state and foreign jurisdictions. Given the uncertainty in timing and outcome of our tax examinations, an estimate of the range of the reasonably possible change in gross unrecognized tax benefits within twelve months cannot be made at this time. Net Income per Share of Common Stock Attributable to Common Stockholders The following table presents the reconciliation of net income attributable to common stockholders to net income used in computing basic and diluted net income per share of common stock (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income attributable to common stockholders $ 1,853 $ 3,292 $ 7,069 $ 8,869 Less: Buy-out of noncontrolling interest 2 — ( 3 ) 8 Net income used in computing basic net income per share of common stock 1,851 3,292 7,072 8,861 Less: Dilutive convertible debt ( 0 ) ( 0 ) ( 0 ) ( 1 ) Net income used in computing diluted net income per share of common stock $ 1,851 $ 3,292 $ 7,072 $ 8,862 12 Table of Contents 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 Add: Stock-based awards 304 301 297 311 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 (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Stock-based awards 13 3 12 3 Restricted Cash 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, 2021 Cash and cash equivalents $ 15,932 $ 16,253 $ 19,532 $ 17,576 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 Total as presented in the consolidated statements of cash flows $ 16,590 $ 16,924 $ 20,149 $ 18,144 Accounts Receivable and Allowance for Doubtful Accounts Depending on the day of the week on which the end of a fiscal quarter falls, our accounts receivable balance may fluctuate as we are waiting for certain customer payments to clear through our banking institutions and receipts of payments from our financing partners, which can take up to approximately two weeks based on the contractual payment terms with such partners. Our accounts receivable balances associated with our sales of regulatory credits, which are typically transferred to other manufacturers during the last few days of the quarter, is dependent on contractual payment terms. Additionally, government rebates can take up to a year or more to be collected depending on the customary processing timelines of the specific jurisdictions issuing them. These various factors may have a significant impact on our accounts receivable balance from period to period. As of September 30, 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 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. 13 Table of Contents 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 Credit Risk 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. government securities. These deposits are typically in excess of insured limits. As of September 30, 2023 and December 31, 2022, no entity represented 10% or more of our total receivables balance. Supply Risk We are dependent on our suppliers, including single source suppliers, and the inability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components from these suppliers, could have a material adverse effect on our business, prospects, financial condition and operating results. Operating Lease Vehicles The gross cost of operating lease vehicles as of September 30, 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 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. Warranties Accrued warranty activity consisted of the following (in millions): 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 15 156 426 158 Provision for warranty 577 418 1,702 1,086 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). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We adopted this ASU prospectively on January 1, 2023. This ASU has not and is currently not expected to have a material impact on our consolidated financial statements. 14 Table of Contents In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which we adopted on January 1, 2020. This ASU also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We adopted the ASU prospectively on January 1, 2023. 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 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. The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value. Our assets and liabilities that were measured at fair value on a recurring basis were as follows (in millions): September 30, 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 $ — $ — U.S. government securities 4,798 — 4,798 — 894 — 894 — Corporate debt securities 559 — 559 — 885 — 885 — 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. Our U.S. 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. 15 Table of Contents 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 — U.S. government securities 4,800 — ( 2 ) 4,798 — 4,798 Corporate debt securities 569 1 ( 11 ) 559 — 559 Certificates of deposit and time deposits 4,788 — — 4,788 — 4,788 Total cash, cash equivalents and short-term investments $ 26,089 $ 1 $ ( 13 ) $ 26,077 $ 15,932 $ 10,145 December 31, 2022 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 — U.S. government securities 897 — ( 3 ) 894 — 894 Corporate debt securities 907 — ( 22 ) 885 — 885 Certificates of deposit and time deposits 4,252 1 — 4,253 100 4,153 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 (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 Due in 1 year through 5 years 383 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, 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. 16 Table of Contents 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). In addition, we estimate the fair values of our digital assets based on quoted prices in active markets (Level I). The following table presents the estimated fair values and the carrying values (in millions): 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 – Inventory Our inventory consisted of the following (in millions): September 30, 2023 December 31, 2022 Raw materials $ 5,817 $ 6,137 Work in process 2,246 2,385 Finished goods (1) 4,550 3,475 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 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, 2022 Machinery, equipment, vehicles and office furniture $ 15,077 $ 13,558 Tooling 2,865 2,579 Leasehold improvements 2,892 2,366 Land and buildings 8,584 7,751 Computer equipment, hardware and software 3,225 2,072 Construction in progress 6,341 4,263 38,984 32,589 Less: 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 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. 17 Table of Contents Note 5 – Accrued Liabilities and Other Our accrued liabilities and other current liabilities consisted of the following (in millions): September 30, 2023 December 31, 2022 Accrued purchases (1) $ 2,708 $ 2,747 Taxes payable (2) 1,095 1,235 Payroll and related costs 1,192 1,026 Accrued warranty reserve, current portion 1,376 1,025 Sales return reserve, current portion 218 270 Operating lease liabilities, current portion 613 485 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. As we are invoiced for these goods and services, this balance will reduce and accounts payable will increase. (2) Taxes payable includes value added tax, income tax, sales tax, property tax and use tax payables. Note 6 – Other Long-Term Liabilities Our other long-term liabilities consisted of the following (in millions): September 30, 2023 December 31, 2022 Operating lease liabilities $ 3,181 $ 2,164 Accrued warranty reserve 3,346 2,480 Other non-current liabilities 794 686 Total other long-term liabilities $ 7,321 $ 5,330 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 Principal Balance Unused Committed Amount (1) Contractual Interest Rates Contractual Maturity Date Current Long-Term Recourse debt: 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 Total recourse debt 37 7 44 5,000 Non-recourse debt: Automotive Asset-backed Notes 1,482 1,795 3,290 — 0.36 - 6.57 % 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 Total non-recourse debt 1,515 2,145 3,682 — Total debt 1,552 2,152 $ 3,726 $ 5,000 Finance leases 415 274 Total debt and finance leases $ 1,967 $ 2,426 18 Table of Contents The following is a summary of our debt and finance leases as of December 31, 2022 (in millions): Net Carrying Value Unpaid Principal Balance Unused Committed Amount (2) Contractual Interest Rates Contractual Maturity Date Current Long-Term Recourse debt: 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 Total recourse debt — 44 44 2,266 Non-recourse debt: Automotive Asset-backed Notes 984 613 1,603 — 0.36 - 4.64 % December 2023 - September 2025 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 — — — 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 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 issuance costs. As of September 30, 2023, we were in material compliance with all financial debt covenants. 2024 Notes 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. 19 Table of Contents Note 8 – Equity Incentive Plans Other Performance-Based Grants 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Cost of revenues $ 181 $ 150 $ 554 $ 424 Research and development 189 124 491 389 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 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 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. On January 22, 2020, all of the director defendants except Elon Musk reached a settlement to resolve the lawsuit against them for an amount to be paid entirely under the applicable insurance policy. The settlement, which does not involve an admission of any wrongdoing by any party, was approved by the Court on August 17, 2020. Tesla received payment of approximately $ 43 million on September 16, 2020, which has been recognized in our consolidated statements of operations as a reduction to Selling, general and administrative operating expenses for costs previously incurred related to the acquisition of SolarCity. The trial was held from July 12 to July 23, 2021 and on August 16, 2021. On October 22, 2021, the Court approved the parties’ joint stipulation that (a) the class is decertified and the action shall continue exclusively as a derivative action under Court of Chancery Rule 23.1 and (b) the direct claims against Elon Musk are dismissed with prejudice. Following post-trial briefing, post-trial argument was held on January 18, 2022. 20 Table of Contents On April 27, 2022, the Court entered judgment in favor of Mr. Musk on all counts. On May 26, 2022, the plaintiff filed a notice of appeal. 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 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. On August 31, 2018, defendants filed a motion to dismiss the complaint; plaintiff filed its opposition brief on November 1, 2018; and defendants filed a reply brief on December 13, 2018. The hearing on the motion to dismiss was held on May 9, 2019. On September 20, 2019, the Court granted the motion to dismiss as to the corporate waste claim but denied the motion as to the breach of fiduciary duty and unjust enrichment claims. Defendants’ answer was filed on December 3, 2019. On January 25, 2021, the Court conditionally certified certain claims and a class of Tesla stockholders as a class action. On September 30, 2021, plaintiff filed a motion for leave to file a verified amended derivative complaint. On October 1, 2021, defendants Kimbal Musk and Steve Jurvetson moved for summary judgment as to the claims against them. Following the motion, plaintiff agreed to voluntarily dismiss the claims against Kimbal Musk and Steve Jurvetson. Plaintiff also moved for summary judgment on October 1, 2021. On October 27, 2021, the Court approved the parties’ joint stipulation that, among other things, (a) all claims against Kimbal Musk and Steve Jurvetson in the Complaint are dismissed with prejudice; (b) the class is decertified and the action shall continue exclusively as a derivative action under Court of Chancery Rule 23.1; and (c) the direct claims against the remaining defendants are dismissed with prejudice. On November 18, 2021, the remaining defendants (a) moved for partial summary judgment, (b) opposed plaintiff’s summary judgment motion and (c) opposed the plaintiff’s motion to amend his complaint. In January 2022, the case was assigned to a different judge. On February 24, 2022, the court (i) granted plaintiff’s motion to amend his complaint, and (ii) canceled oral argument on the summary judgment motions, stating that the court is “skeptical that this litigation can be resolved based on the undisputed facts” and the “case is going to trial,” but that the “parties may reassert their arguments made in support of summary judgment in their pre-trial and post-trial briefs.” Trial was held November 14-18, 2022. Post-trial briefing and argument are now complete. Litigation Related to Directors’ Compensation On June 17, 2020, a purported Tesla stockholder filed a derivative action in the Delaware Court of Chancery, purportedly on behalf of Tesla, against certain of Tesla’s current and former directors regarding compensation awards granted to Tesla’s directors, other than Elon Musk, between 2017 and 2020. The suit asserts claims for breach of fiduciary duty and unjust enrichment and seeks declaratory and injunctive relief, unspecified damages and other relief. Defendants filed their answer on September 17, 2020. Trial is currently set for November 27, 2023, to December 1, 2023. On July 14, 2023, the parties filed a Stipulation and Agreement of Compromise and Settlement, which does not involve an admission of any wrongdoing by any party. 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 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. 21 Table of Contents Litigation Relating to Potential Going Private Transaction Between August 10, 2018 and September 6, 2018, nine purported stockholder class actions were filed against Tesla and Elon Musk in connection with Mr. Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. 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. The consolidated complaint asserts claims for violations of the federal securities laws and seeks unspecified damages and other relief. The parties stipulated to certification of a class of stockholders, which the court granted on November 25, 2020. Trial started on January 17, 2023, and on February 3, 2023, a jury rendered a verdict in favor of the defendants on all counts. 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. Five of those actions were consolidated, and all seven actions have been stayed pending resolution of the above-referenced consolidated purported stockholder class action. In addition to these cases, two derivative lawsuits were filed on October 25, 2018 and February 11, 2019 in the U.S. District Court for the District of Delaware, purportedly on behalf of Tesla, against Mr. Musk and the members of the Tesla board of directors as then constituted. Those cases have also been consolidated and stayed pending resolution of the appeal 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’ fees. The parties reached an agreement to stay the case until December 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. In 2018, JP Morgan informed Tesla that it had adjusted the strike price based upon Mr. Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. Tesla disputed JP Morgan’s adjustment as a violation of the parties’ agreement. In 2021, Tesla delivered shares to JP Morgan per the agreement, which they duly accepted. JP Morgan now alleges that it is owed approximately $ 162 million as the value of additional shares that it claims should have been delivered as a result of the adjustment to the strike price in 2018. On January 24, 2022, Tesla filed multiple counterclaims as part of its answer to the underlying lawsuit, asserting among other points that JP Morgan should have terminated the stock warrant agreement in 2018 rather than make an adjustment to the strike price that it should have known would lead to a commercially unreasonable result. Tesla believes that the adjustments made by JP Morgan were neither proper nor commercially reasonable, as required under the stock warrant agreements. JP Morgan filed a motion for judgment on the pleadings, which Tesla opposed, and that motion is currently pending before the Court. Litigation and Investigations Relating to Alleged Discrimination and Harassment On October 4, 2021, in a case captioned Diaz v. Tesla , a jury in the Northern District of California returned a verdict 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 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 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. 22 Table of Contents 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’ fees. On July 22, 2022, the Court consolidated the two cases and on September 6, 2022, plaintiffs filed a consolidated complaint. On November 7, 2022, the defendants filed a motion to dismiss the case. 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 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. On October 5, 2022 a proposed class action complaint was filed in the U.S. District Court for the Eastern District of New York asserting similar state and federal law claims against the same defendants. 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. An amended complaint was filed on September 5, 2023, naming only Tesla, Inc. and Elon Musk as defendants. 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 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. District Court for the Northern District of California. Several similar complaints have also been filed in the same court and these cases have now all been consolidated. These complaints allege that Tesla violates federal antitrust and warranty laws through its repair, service, and maintenance practices and seeks, among other relief, damages for persons who paid Tesla for repairs services or Tesla compatible replacement parts from March 2019 to March 2023. On July 17, 2023, these plaintiffs filed a consolidated amended complaint. The Company intends to vigorously defend itself in these matters; however, we cannot predict the outcome or impact. We are unable to reasonably estimate the possible loss or range of loss, if any, associated with these claims, unless noted. 23 Table of Contents 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 local, 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 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, financial position or brand. 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. 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. 24 Table of Contents 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, 2022 Assets Current assets Cash and cash equivalents $ 78 $ 68 Accounts receivable, net 30 22 Prepaid expenses and other current assets 341 274 Total current assets 449 364 Solar energy systems, net 3,921 4,060 Other non-current assets 390 404 Total assets $ 4,760 $ 4,828 Liabilities Current liabilities Accrued liabilities and other $ 73 $ 69 Deferred revenue 10 10 Current portion of debt and finance leases 1,512 1,013 Total current liabilities 1,595 1,092 Deferred revenue, net of current portion 145 149 Debt and finance leases, net of current portion 2,134 971 Other long-term liabilities — 3 Total liabilities $ 3,874 $ 2,215 Note 11 – Segment Reporting and Information about Geographic Areas We have two operating and reportable segments: (i) automotive and (ii) energy generation and storage. The following table presents revenues and gross profit by reportable segment (in millions): 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 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 25 Table of Contents The following table presents long-lived assets by geographic area (in millions): September 30, 2023 December 31, 2022 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, 2022 Automotive $ 11,398 $ 10,996 Energy generation and storage 2,323 1,843 Total $ 13,721 $ 12,839 26 Table of Contents