Tesla, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Overview Our mission is to accelerate the world’s transition to sustainable energy. We design, develop, manufacture, lease and sell high-performance fully electric vehicles, solar energy generation systems and energy storage products. We also offer maintenance, installation, operation, financial and other services related to our products. Additionally, we are increasingly focused on products and services based on artificial intelligence, robotics and automation. In 2023, we produced 1,350,996 consumer vehicles and delivered 1,324,074 consumer vehicles through the third quarter. We are currently focused on increasing vehicle production, capacity and delivery capabilities, reducing costs, improving and developing our vehicles and battery technologies, vertically integrating and localizing our supply chain, 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 11.52 GWh of energy storage products and 182 megawatts of solar energy systems through the third quarter. We are currently focused on ramping production of energy storage products, improving our Solar Roof installation capability and efficiency, and increasing market share of retrofit solar energy systems. During the three and nine months ended September 30, 2023, we recognized total revenues of $23.35 billion and $71.61 billion, respectively, representing increases of $1.90 billion and $14.46 billion, respectively, over the same periods ended September 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 nine months ended September 30, 2023, our net income attributable to common stockholders was $1.85 billion and $7.07 billion, respectively, representing unfavorable changes of $1.44 billion and $1.80 billion, respectively, over the same periods ended September 30, 2022. We continue to focus on further cost reductions and operational efficiencies while maximizing delivery volumes. We ended the third quarter of 2023 with $26.08 billion in cash and cash equivalents and investments, representing an increase of $3.89 billion from the end of 2022. Our cash flows provided by operating activities during the nine months ended September 30, 2023 and 2022 were $8.89 billion and $11.45 billion, respectively, representing a decrease of $2.56 billion. Capital expenditures amounted to $6.59 billion during the nine months ended September 30, 2023, compared to $5.30 billion during the same period ended September 30, 2022, representing an increase of $1.29 billion. Sustained growth has allowed our business to generally fund itself, and we will continue investing in a number of capital-intensive projects and research and development 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 Active Model 3 / Model Y Active Gigafactory Shanghai Model 3 / Model Y Active Gigafactory Berlin-Brandenburg Model Y Active Gigafactory Texas Model Y Active Cybertruck Pilot production Gigafactory Nevada Tesla Semi Pilot production Various Next Generation Platform In development TBD Tesla Roadster In development 27 Table of Contents 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 Texas and Gigafactory Berlin-Brandenburg, 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. For example, during the third quarter of 2023, we experienced a sequential decline in production volumes due to pre-planned shutdowns for upgrades at various factories. 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. Additionally, our suppliers’ liquidity and allocation plans may be affected by current challenges in the North American automotive industry, which could reduce our access to components or result in unfavorable changes to cost. 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. 28 Table of Contents 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 and the ongoing ramp at our Megafactory in Lathrop, California. For Megapack, energy storage deployments can vary meaningfully quarter to quarter depending on the timing of specific project milestones. 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 exceed $9.00 billion in 2023 and be between $7.00 to $9.00 billion in each of the following two fiscal years. Our business has 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 generally 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. 29 Table of Contents Results of Operations Revenues Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2023 2022 $ % 2023 2022 $ % Automotive sales $ 18,582 $ 17,785 $ 797 4 % $ 57,879 $ 46,969 $ 10,910 23 % Automotive regulatory credits 554 286 268 94 % 1,357 1,309 48 4 % Automotive leasing 489 621 (132) (21) % 1,620 1,877 (257) (14) % Total automotive revenues 19,625 18,692 933 5 % 60,856 50,155 10,701 21 % Services and other 2,166 1,645 521 32 % 6,153 4,390 1,763 40 % Total automotive & services and other segment revenue 21,791 20,337 1,454 7 % 67,009 54,545 12,464 23 % Energy generation and storage segment revenue 1,559 1,117 442 40 % 4,597 2,599 1,998 77 % Total revenues $ 23,350 $ 21,454 $ 1,896 9 % $ 71,606 $ 57,144 $ 14,462 25 % Automotive & Services and Other Segment Automotive sales revenue increased $797 million, or 4%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to an increase of 89,649 combined Model 3 and Model Y cash deliveries from production ramping of Model Y globally, partially offset by a decrease of 2,162 combined Model S and Model X cash deliveries year over year. Additionally, there was a lower average selling price on our vehicles driven by overall price reductions year over year, sales mix, and a negative impact from the United States dollar strengthening against other foreign currencies in the three months ended September 30, 2023 compared to the prior period. Automotive sales revenue increased $10.91 billion, or 23%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to an increase of 394,409 combined Model 3 and Model Y cash deliveries from production ramping of Model Y globally. The increase was partially offset by lower average selling price on our vehicles for the same factors mentioned above. Automotive regulatory credits revenue increased $268 million, or 94%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Automotive regulatory credits revenue increased $48 million, or 4%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. In the first quarter of 2022, we recognized $288 million in revenue primarily due to changes in regulation which entitled us to additional consideration for credits sold previously. Automotive leasing revenue decreased $132 million, or 21%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Automotive leasing revenue decreased $257 million, or 14%, in the nine months ended September 30, 2023 as compared to the nine months ended September 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 $521 million, or 32%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Services and other revenue increased $1.76 billion, or 40%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increases were primarily due to higher used vehicle revenue driven by increases in volume, non-warranty maintenance services revenue, body shop and part sales revenue, paid Supercharging revenue and insurance services revenue, all of which are primarily attributable to our growing fleet. Additionally, there was an increase in retail merchandise revenue, partially offset by decreases in the average selling price of used vehicles. Energy Generation and Storage Segment Energy generation and storage revenue increased $442 million, or 40%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Energy generation and storage revenue increased $2.00 billion, or 77%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increases were primarily due to an increase in deployments of Megapack. 30 Table of Contents Cost of Revenues and Gross Margin Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2023 2022 $ % 2023 2022 $ % Cost of revenues Automotive sales $ 15,656 $ 13,099 $ 2,557 20 % $ 47,919 $ 34,166 $ 13,753 40 % Automotive leasing 301 381 (80) (21) % 972 1,157 (185) (16) % Total automotive cost of revenues 15,957 13,480 2,477 18 % 48,891 35,323 13,568 38 % Services and other 2,037 1,579 458 29 % 5,723 4,275 1,448 34 % Total automotive & services and other segment cost of revenues 17,994 15,059 2,935 19 % 54,614 39,598 15,016 38 % Energy generation and storage segment 1,178 1,013 165 16 % 3,770 2,470 1,300 53 % Total cost of revenues $ 19,172 $ 16,072 $ 3,100 19 % $ 58,384 $ 42,068 $ 16,316 39 % Gross profit total automotive $ 3,668 $ 5,212 $ 11,965 $ 14,832 Gross margin total automotive 18.7 % 27.9 % 19.7 % 29.6 % Gross profit total automotive & services and other segment $ 3,797 $ 5,278 $ 12,395 $ 14,947 Gross margin total automotive & services and other segment 17.4 % 26.0 % 18.5 % 27.4 % Gross profit energy generation and storage segment $ 381 $ 104 $ 827 $ 129 Gross margin energy generation and storage segment 24.4 % 9.3 % 18.0 % 5.0 % Total gross profit $ 4,178 $ 5,382 $ 13,222 $ 15,076 Total gross margin 17.9 % 25.1 % 18.5 % 26.4 % Automotive & Services and Other Segment Cost of automotive sales revenue increased $2.56 billion, or 20%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Cost of automotive sales revenue increased $13.75 billion, or 40%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. Cost of automotive sales revenue increased in line with the change 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 sales mix, a decrease in material costs and lower manufacturing costs from better fixed cost absorption. 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 $80 million, or 21%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Cost of automotive leasing revenue decreased $185 million, or 16%, in the nine months ended September 30, 2023 as compared to the nine months ended September 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 $458 million, or 29%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Cost of services and other revenue increased $1.45 billion, or 34%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increases were in line with the changes in services and other revenue as discussed above. 31 Table of Contents Gross margin for total automotive decreased from 27.9% to 18.7% in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Gross margin for total automotive decreased from 29.6% to 19.7% in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The decreases were primarily due to lower average selling price on our vehicles partially offset by the favorable change in our average combined cost per unit of our vehicles as discussed above and an increase in regulatory credits revenue. Gross margin for total automotive & services and other segment decreased from 26.0% to 17.4% in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Gross margin for total automotive & services and other segment decreased from 27.4% to 18.5% in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to the automotive gross margin decrease discussed above while there was an improvement in our services and other gross margin. Energy Generation and Storage Segment Cost of energy generation and storage revenue increased $165 million, or 16%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Cost of energy generation and storage revenue increased $1.30 billion, or 53%, in the nine months ended September 30, 2023 as compared to the nine months ended September 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 increased from 9.3% to 24.4% in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Gross margin for energy generation and storage increased from 5.0% to 18.0% in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increases were driven by an improvement in our Megapack gross margin from lower average cost per MWh and a higher proportion of Megapack, which operated at a higher gross margin, within the segment as compared to the prior year periods. Research and Development Expense Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2023 2022 $ % 2023 2022 $ % Research and development $ 1,161 $ 733 $ 428 58 % $ 2,875 $ 2,265 $ 610 27 % As a percentage of revenues 5 % 3 % 4 % 4 % Research and development (“R&D”) expenses increased $428 million, or 58%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. R&D expenses increased $610 million, or 27%, in the nine months ended September 30, 2023 as compared to the nine months ended September 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 increased from 3% to 5% in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. R&D expenses as a percentage of revenue stayed consistent at 4% in the nine months ended September 30, 2023 and 2022. The growth of our R&D expenses have outpaced the growth of our revenue in pre-production periods and as we continue to invest more heavily in our product roadmap and technologies. Selling, General and Administrative Expense Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2023 2022 $ % 2023 2022 $ % Selling, general and administrative $ 1,253 $ 961 $ 292 30 % $ 3,520 $ 2,914 $ 606 21 % As a percentage of revenues 5 % 4 % 5 % 5 % Selling, general and administrative (“SG&A”) expenses increased $292 million, or 30%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. This was driven by a $126 million increase in employee and labor costs primarily from increased headcount, including professional services and a $108 million increase in facilities related expenses. 32 Table of Contents SG&A expenses increased $606 million, or 21%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This was driven by a $309 million increase in employee and labor costs primarily from increased headcount, including professional services and a $273 million increase in facilities related expenses. Restructuring and Other Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2023 2022 $ % 2023 2022 $ % Restructuring and other $ — $ — $ — — % $ — $ 142 $ (142) (100) % During the nine months ended September 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 nine months ended September 30, 2022. Interest Income Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2023 2022 $ % 2023 2022 $ % Interest income $ 282 $ 86 $ 196 228 % $ 733 $ 140 $ 593 424 % Interest income increased $196 million, or 228%, in the three months ended September 30, 2023 and increased $593 million, or 424%, in the nine months ended September 30, 2023 as compared to the three and nine months ended September 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 nine months ended September 30, 2023 as compared to the prior periods due to rising interest rates and our increasing portfolio balance. Other Income (Expense), Net Three Months Ended September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2023 2022 $ % 2023 2022 $ % Other income (expense), net $ 37 $ (85) $ 122 (144) % $ 317 $ (1) $ 318 (31800) % Other income, net, changed favorably by $122 million in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Other income, net, changed favorably by $318 million in the nine months ended September 30, 2023 as compared to the nine months ended September 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 September 30, Change Nine Months Ended September 30, Change (Dollars in millions) 2023 2022 $ % 2023 2022 $ % Provision for income taxes $ 167 $ 305 $ (138) (45) % $ 751 $ 856 $ (105) (12) % Effective tax rate 8 % 8 % 10 % 9 % Our provision for income taxes decreased by $138 million, or 45%, in the three months ended September 30, 2023 and decreased by $105 million, or 12%, in the nine months ended September 30, 2023 as compared to the three and nine months ended September 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 remains at 8% in the three months ended September 30, 2023 and increased from 9% to 10% in the nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022, respectively, primarily due to changes in mix of jurisdictional earnings. 33 Table of Contents 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 five 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, 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 September 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 exceed $9.00 billion in 2023 and be between $7.00 to $9.00 billion 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 September 30, 2023, we and our subsidiaries had outstanding $3.73 billion in aggregate principal amount of indebtedness, of which $1.56 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 September 30, 2023, we had $15.93 billion and $10.15 billion of cash and cash equivalents and short-term investments, respectively. Balances held in foreign currencies had a U.S. dollar equivalent of $3.86 billion and consisted primarily of Chinese yuan, euros and Canadian dollar. We had $5.00 billion of unused committed amounts under our revolving credit facility as of September 30, 2023. 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. 34 Table of Contents 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 Nine Months Ended September 30, (Dollars in millions) 2023 2022 Net cash provided by operating activities $ 8,886 $ 11,446 Net cash used in investing activities $ (10,780) $ (5,842) Net cash provided by (used in) financing activities $ 1,702 $ (3,032) Cash Flows from Operating Activities Net cash provided by operating activities decreased by $2.56 billion to $8.89 billion during the nine months ended September 30, 2023 from $11.45 billion during the nine months ended September 30, 2022. This decrease was primarily due to unfavorable changes in net operating assets and liabilities of $1.33 billion and the decrease in net income excluding non-cash expenses, gains and losses of $1.23 billion. Cash Flows from Investing Activities Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $6.59 billion for the nine months ended September 30, 2023 and $5.30 billion for the nine months ended September 30, 2022, mainly for global factory expansion and machinery and equipment as we expand our product roadmap. We also purchased $4.12 billion and $1.46 billion of investments, net of proceeds from maturities and sales, for the nine months ended September 30, 2023 and September 30, 2022, respectively. Additionally, net cash inflows related to sales of digital assets were $936 million in the nine months ended September 30, 2022. Cash Flows from Financing Activities Net cash from financing activities changed by $4.73 billion to $1.70 billion net cash provided by financing activities during the nine months ended September 30, 2023 from $3.03 billion net cash used in financing activities during the nine months ended September 30, 2022. The change was primarily due to a $2.53 billion increase in proceeds from issuances of debt and a $2.11 billion decrease in repayments of 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. 35 Table of Contents