What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-24 compared with 2023-10-23 · 89 added, 114 removed, 122 unchanged (62% of the section changed)

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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.

We also offer maintenance, installation, operation, charging, insurance, financial and other services related to our products.

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

In 2024, we produced approximately 433,000 consumer vehicles and delivered approximately 387,000 consumer vehicles through the first quarter.

We are focused on profitable growth, including by leveraging existing factories and production lines to introduce new and more affordable products, increasing vehicle production, utilized capacity and delivery capabilities, reducing costs, improving and developing our vehicles and battery technologies, vertically integrating and localizing our supply chain, further improving and deploying our FSD capabilities, including through our planned robotaxi product, and expanding our global infrastructure, including our service and charging infrastructure.

In 2024, we deployed 4.05 GWh of energy storage products through the first quarter.

We are focused on ramping the production and increasing the market penetration of our energy storage products.

During the three months ended March 31, 2024, we recognized total revenues of $21.30 billion, representing a decrease of $2.03 billion, compared to the prior year.

During the three months ended March 31, 2024, our net income attributable to common stockholders was $1.13 billion, representing an unfavorable change of $1.38 billion, compared to the same period in the prior year.

We continue to ramp production and build and optimize our manufacturing capacity, expand our operations while focusing on further cost reductions and operational efficiencies to enable increased deliveries and deployments of our products, and invest in research and development to accelerate our AI, software, and fleet-based profits for further revenue growth.

We ended the first quarter of 2024 with $26.86 billion in cash and cash equivalents and investments, representing a decrease of $2.23 billion from the end of 2023.

Our cash flows provided by operating activities during the three months ended March 31, 2024 and 2023 were $242 million and $2.51 billion, respectively, representing a decrease of $2.27 billion.

Capital expenditures amounted to $2.77 billion during the three months ended March 31, 2024, compared to $2.07 billion during the same period ended March 31, 2023, representing an increase of $701 million.

Overall 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 2024 Outlook

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Gigafactory Texas Model Y Active

Cybertruck Pilot production

Cybertruck Active

Gigafactory Nevada Tesla Semi Pilot production

Various Next Generation Platform In development

TBD Tesla Roadster In development

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

The next phase of production growth will depend on the ramp at Gigafactory 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.

TBD Roadster In development

We are focused on growing our manufacturing capacity, which includes capacity for manufacturing new vehicle models such as our Cybertruck and future vehicles utilizing aspects of our next generation platform, and ramping the production at our Gigafactories 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 continued ramp at our factories and be initiated by advances in autonomy and the introduction of new products, including those built on our next generation vehicle platform, 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.

For example, during the first quarter of 2024, we experienced a sequential decline in production volumes partially caused by the early phase of the production ramp of the updated Model 3 at our Fremont factory, and factory shutdowns at Gigafactory Berlin-Brandenburg resulting from shipping diversions caused by the Red Sea conflict and an arson attack.

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.

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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.

We will also continue to generate demand by improving our vehicles’ performance and functionality, including through product offerings and features based on artificial intelligence such as Autopilot, FSD (Supervised), and other software, and delivering new vehicles, such as our Cybertruck.

In addition, we have been increasing awareness, and expanding our vehicle financing programs, including attractive leasing terms for our customers.

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.

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, interest rate fluctuations and the liquidity of enterprise customers.

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

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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.

Changes in government and economic incentives in relation to electric vehicles may also impact our sales.

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.

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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.

The long-term success of this business is dependent upon incremental volume growth.

We continue to increase the production of our energy storage products to meet high levels of demand, including the construction 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.

As these product lines grow, we will have to maintain adequate battery cell supply for our energy storage products.

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.

We are simultaneously developing and 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 $10.00 billion in 2024 and be between $8.00 to $10.00 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.

Our business has generally 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, invest in autonomy 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.

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Results of Operations

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

Three Months Ended March 31, Change

(Dollars in millions) 2024 2023 $ %

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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.

Automotive sales revenue decreased $2.42 billion, or 13%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to lower average selling price on our vehicles driven by overall price reductions year over year.

Additionally, there was a decrease of approximately 27,000 combined Model 3 and Model Y cash deliveries partially due to the early phase of the production ramp of the updated Model 3 at our Fremont factory and factory shutdowns resulting from shipping diversions caused by the Red Sea conflict and an arson attack at Gigafactory Berlin-Brandenburg.

The decreases were partially offset by an increase of approximately 7,000 deliveries of other models as we ramped our production of Cybertruck.

Automotive regulatory credits revenue decreased $79 million, or 15%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Automotive leasing revenue decreased $88 million, or 16%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

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

Services and other revenue increased $451 million, or 25%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The increase was primarily due to increases in non-warranty maintenance services and collision revenue, insurance services revenue, paid Supercharging revenue and part sales revenue.

Additionally, there was higher used vehicle revenue driven by increases in volume partially offset by a decrease in 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.

Energy generation and storage revenue increased $106 million, or 7%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The increase was primarily due to an increase in average selling price of Megapack partially offset by a decrease in solar deployments.

Cost of Revenues and Gross Margin

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

Three Months Ended March 31, Change

(Dollars in millions) 2024 2023 $ %

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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.

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.

Cost of automotive sales revenue decreased $1.53 billion, or 10%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Cost of automotive sales revenue decreased due to a decrease in the average combined cost per unit of our vehicles primarily from lower raw material costs, freight and duties in addition to the changes in deliveries year over year as discussed.

Additionally, there were higher costs for Cybertruck and the updated Model 3 at our Fremont factory as a result of the temporary under-utilization of manufacturing capacity as production ramps.

Cost of automotive leasing revenue decreased $64 million, or 19%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The decrease was 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 $505 million, or 30%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The increase was generally in line with the changes in services and other revenue as discussed above.

Gross margin for total automotive decreased from 21.1% to 18.5% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The decrease was driven by the changes in automotive sales revenue and cost of revenue as well as a decrease in regulatory credits revenue, as discussed above.

Gross margin for total automotive & services and other segment decreased from 19.9% to 16.7% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to the automotive gross margin decrease discussed above.

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.

Cost of energy generation and storage revenue decreased $129 million, or 9%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The decrease was due to an increase in IRA manufacturing credits recognized year over year.

Gross margin for energy generation and storage increased from 11.0% to 24.6% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The increase was driven by the changes in energy generation and storage revenue and cost of revenue as discussed above.

Research and Development Expense

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

Three Months Ended March 31, Change

(Dollars in millions) 2024 2023 $ %

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As a percentage of revenues 5 % 3 %

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.

Research and development (“R&D”) expenses increased $380 million, or 49%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The overall increase was primarily driven by additional costs year over year related to AI, advancement of our proprietary battery cell technologies and other programs.

R&D expenses as a percentage of revenue increased from 3% to 5% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 as we continue to expand our product roadmap and technologies.

Selling, General and Administrative Expense

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

Three Months Ended March 31, Change

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As a percentage of revenues 6 % 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.

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.

Selling, general and administrative (“SG&A”) expenses increased $298 million, or 28%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

This was driven by a $176 million increase in employee and labor costs primarily from increased headcount, including professional services, a $62 million increase in facilities related expenses and a $41 million increase in promotions, advertising and other marketing expenses.

Interest Income

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

Three Months Ended March 31, Change

(Dollars in millions) 2024 2023 $ %

Interest income $ 350 $ 213 $ 137 64 %

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.

Interest income increased $137 million, or 64%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

This increase was primarily due to higher interest earned on our cash and cash equivalents and short-term investments in the three months ended March 31, 2024 as compared to the prior period 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

Three Months Ended March 31, Change

(Dollars in millions) 2024 2023 $ %

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.

Other income (expense), net $ 108 $ (48) $ 156 Not meaningful

Other income (expense), net, changed favorably by $156 million in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

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

As our intercompany balances are significant in nature and as we do not typically hedge foreign currency risk, we can experience significant fluctuations in foreign currency exchange rate gains and losses from period to period.

Provision for Income Taxes

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

Three Months Ended March 31, Change

(Dollars in millions) 2024 2023 $ %

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Effective tax rate 26 % 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.

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.

Our provision for income taxes increased by $148 million in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Our effective tax rate increased from 9% to 26% in the three months ended March 31, 2024 as compared to the prior period.

These increases are primarily due to the impact of releasing the valuation allowance on our U.S.

deferred tax assets in the fourth quarter of 2023 and changes in mix of jurisdictional earnings.

See Note 9, Income Taxes , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Liquidity and Capital Resources

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

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

Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following March 31, 2024, as well as in the long-term.

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

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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, 2023.

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.

As of March 31, 2024, we and our subsidiaries had outstanding $4.90 billion in aggregate principal amount of indebtedness, of which $2.14 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.

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, interest income, and proceeds from debt facilities and equity offerings, when applicable.

As of March 31, 2024, we had $11.81 billion and $15.06 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.

dollar equivalent of $3.47 billion and consisted primarily of Chinese yuan and euros.

We had $5.00 billion of unused committed credit amounts as of March 31, 2024.

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

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

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

government securities 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,

Three Months Ended March 31,

(Dollars in millions) 2024 2023

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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.

Net cash provided by operating activities decreased by $2.27 billion to $242 million during the three months ended March 31, 2024 from $2.51 billion during the three months ended March 31, 2023.

This decrease was primarily due to unfavorable changes in net operating assets and liabilities of $1.19 billion and the decrease in net income excluding non-cash expenses, gains and losses of $1.08 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 investing activities and their variability across each period related primarily to capital expenditures, which were $2.77 billion for the three months ended March 31, 2024 and $2.07 billion for the three months ended March 31, 2023, mainly for global factory expansion, machinery and equipment and AI related capital expenditures as we expand or enhance our product roadmap.

We also purchased $2.31 billion and $411 million of short-term investments, net of proceeds from maturities, for the three months ended March 31, 2024 and 2023, respectively.

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.

Net cash from financing activities changed by $429 million to $196 million net cash provided by financing activities during the three months ended March 31, 2024 from $233 million net cash used in financing activities during the three months ended March 31, 2023.

The change was primarily due to a $776 million increase in proceeds from issuances of debt, partially offset by a $289 million increase in repayments of debt and a $94 million increase in payments for buy-outs of noncontrolling interests in subsidiaries.

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.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis