Tesla Motors, Inc. – Second Quarter 2012 Shareholder Letter
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First Model S deliveries to customers, ahead of announced schedule
Model S receives excellent reviews
Model S reservations exceeded 11,500 at quarter end – accelerating since May
Production on plan for 2012 goal of 5,000 deliveriesStore and service center openings accelerating into summer
Daimler Mercedes-Benz EV program on schedule

July 25, 2012
Dear Fellow Shareholders,
It has been an incredibly busy quarter at Tesla. We started Model S deliveries ahead of schedule and launched our
Get Amped Tour of Model S across the United States. This tour is designed to give 5,000 test drives in 45 days.
We also ramped powertrain deliveries for the Toyota RAV4 EV and began to recognize revenue on the MercedesBenz EV program. Also, our Roadsters continued to sell well despite economic headwinds in Europe.
It is clear that Model S has been well received with overwhelmingly positive response from reservation holders,investors, auto journalists and the media. Our key objective for the rest of the year is to ramp production with afocus on quality and to rollout the Model S experience to a broader audience through customer deliveries, test
drives and store openings.

Model S Receives Excellent Reviews
We officially commenced Model S customer deliveries on June 22nd with an event at our Tesla Factory in Fremont,
California. That weekend, over 550 reservation holders had a chance to drive Model S on a test drive course that
included freeway driving, tight turns, smooth and rough roads, and general city driving. What did our guests thinkof Model S? In their words …
¾¾¾“Model S is amazing! - I drive a very nice car … until now. I say ‘until now’ because this blows me away.”“Model S wants to go fast, but it also wants to let you know that everything’s okay. It’s under control,
everything's gonna be fine.”“I went on the rough part of the road and I felt like I was sailing” and “I put my foot on the accelerator andthe thing took off like a rocket.”

The positive media response has really captured theexcitement of Model S. Chris Woodyard from USA Today
wrote:¾¾¾¾“Tesla’s Model S electric is spectacular.”“The car is a flat-out joy to drive. And you’ll wantto run it flat-out.”“It wasn’t just the car’s performance that amazedus, although that alone probably would havedone the trick. It’s the car overall.”“Inside and out, there are little touches that
impress everywhere.”

One of Our First Model S Customers

Our goal for Model S was not just to build the best EV in the world, but to build the best premium sedan in theworld. Frank Markus of Motor Trend reflected this in the headline of his Model S review: “Rocket Scientists Launchan Out-of-This-World Sedan That Happens to be Electric.” He wrote:¾¾¾“So is it the best car in the world? This fourth production example built may not be, but I’d rank it among
the top few percentile.”“The Model S bolts away from a stop like any EV, but it accelerates from 60 to 80 mph like a big gasser,
continuing to pull strongly past 100 mph.”“Trust me -- after a walk through the factory, a visit to a dealer showroom, and an hour-and-a-half spent
driving the car on a mix of roads, my eyes are wide and my jaw has dropped.”

June 23rd marked the start of our Get Amped Model S Test Drive Tour. Throughout the summer, Model S vehicles
will visit 15 major United States and Canadian cities, providing about 5,000 test drives to reservation holders andtheir guests. So far we have visited San Francisco, Los Angeles, Seattle, Washington DC, Scottsdale, Portland,
Denver and New York City. Over the next four weeks we will be visiting Chicago, Miami and other cities throughout
the United States and Canada.

Building the Tesla Brand
We continue to open Tesla Stores and Service
Centers to put infrastructure in place to support a
broader base of Model S customers. In Q2, we
opened three new Tesla stores in Oslo, Norway,
White Plains, New York, and Santa Monica,
California. In July, we have already opened two
additional locations in Scottsdale, Arizona andPortland, Oregon. We plan to open about five more
stores or galleries this year at strategic locations inNorth America, several of which will be in thenortheast corridor of the United States. So far thisyear, we have welcomed over one million visitors to
our ten new design stores and galleries in the UnitedStates and are exceeding our expectations for driving
customer traffic.

White Plains, New York StoreIn addition to our Tesla Ranger service, where our technicians cometo the customer, we currently operate 18 service centers globally. We
are aggressively expanding this coverage with additional service
center openings. In June, we opened our Fremont mega-service
center, complete with customer lounge, parts distribution, customer
delivery center, service technician training, and global service
headquarters. By year-end, we plan to more than double the numberof service locations around the world from today’s levels.
In June, we also announced a partnership with Wells Fargo toprovide retail financing for our customers in the United States. Morethan just offering traditional financing, our goal is to streamline the carbuying process and offer competitive rates. We want buying a Tesla
to be a transparent and enjoyable experience.

Fremont Mega-Service Center

Model S reservations at quarter end were over 11,500, and are now
at about 12,200. The start of Model S deliveries, test drives andfavorable media reviews led to a record number of retail reservations in June and has us on track for July to beanother record month. This accelerating pace of reservations makes us confident that demand will surpass 20,000
Model S units for full year 2013 deliveries. We also plan to disclose quarterly reservations through the end of theyear after which point deliveries will become the natural focus of our reporting.

Model S Production on Schedule for 2012 Goals
During the quarter we completed all regulatory tests, including crash safety assessments, required for the sale ofModel S in the United States. Development and testing continue to homologate Model S for the rest of the world,with initial focus on Canada and Europe.
At Tesla, we listen to our customers. In response to some constructive feedback regarding the interior of Model S,
we kicked off the “Opportunity Console” program with several variations of a center console enhancement forcustomer consideration. We have been collecting feedback on these variations and plan to offer some new optionsin this area. With our level of vertical integration and manufacturing flexibility, it is relatively easy for us to rapidly
add these options.
In July, we received and tuned for production the last of the Fuji stamping dies. With almost all of ourmanufacturing equipment in place, we are currently taking time to produce each car to our highest standards while
we work with our suppliers and refine our manufacturing processes to enable quality at larger volumes. As ourcapabilities scale, we plan to continue making customer deliveries on a methodical ramp with a target to deliver
5,000 units this year.

Quarterly Results
Our Q2 revenues were $27 million. Automotive sales were $22 million, a 15% increase from the prior quarter, whichreflects continued sales of the remaining Roadsters internationally, start of Model S deliveries in the United States
and ramp up of powertrain component sales to Toyota for the RAV4 EV. We sold 89 Roadsters in the quarter,
bringing the total Roadsters sold to over 2,350. We anticipate selling out of Roadsters by the end of this year while
our international sales team transitions to support the upcoming launch of Model S in Europe and Asia.
During the quarter, we made good progress in the development of the full electric powertrain for the Mercedes Benz
EV, resulting in the first recognition of development services revenue on this program. Development services
revenue in Q2 was $5 million, significantly lower than the prior quarter due to completion of the Toyota RAV4 EV
program in the prior quarter and the start of the Daimler program in Q2.
Overall gross margin for Q2 was 18%, driven by strong development services margin. Automotive gross margin
was lower at 9%, mainly due to planned ramp up costs associated with production of Model S and Toyota RAV4 EV
components and the impact of the weak euro on Roadster revenues. The initial Model S deliveries have a lower
gross margin as planned. We expect gross margin will improve significantly as we move into full production mode
and absorb more of the fixed overheads.
Research and development (R&D) expenses were $68 million on a non-GAAP basis and $75 million on a GAAP
basis. This 8% sequential increase in non-GAAP R&D expenses was primarily due to our continuing investments inModel S pre-production activities, including manufacturing preparedness, process validation, prototype builds andextensive testing at both the car and component levels.
Selling, general and administrative (SG&A) expenses were $31 million on a non-GAAP basis and $36 million on a
GAAP basis, reflecting increased expenses for the expansion of our store network and the Model S delivery
infrastructure. Capital expenditures were slightly below plan at about $61 million in Q2 as we continued to build out
the Tesla Factory and invest in tooling for Model S components. Most of the remaining supplier payments are
expected to be made in Q3 per normal payment terms.

Our non-GAAP net loss for the quarter was $93 million, or $(0.89) per share and GAAP net loss was $106 million,or $(1.00) per share, based on 105.2 million weighted common shares outstanding.
We concluded the quarter with $266 million in cash resources. This reflects $233 million in total cash on hand,including our Department of Energy (DoE) dedicated accounts, and the additional $33 million left to draw on ourloan facility with the DoE. We drew down $71 million from our DoE loan facility in Q2. Our relationship with the
DoE remains strong and we remain on track to draw all remaining funds in the next few months.

Updated 2012 Financial Guidance
We are maintaining our revenue guidance of $560 - $600 million and our Model S volume projection of 5,000 units
for 2012. We expect to deliver approximately 500 vehicles to customers in Q3 with the balance delivered in Q4. In
June we were producing cars at the rate of about 5 per week. The pace of production has approximately doubled asof this week and we are ramping methodically. This plan gives us more time in Q3 to ensure quality production andallows us and our suppliers time to ramp operations commensurate with our delivery schedules.
We are reaffirming our gross margin target of 25% in 2013 upon achieving the manufacturing efficiencies andplanned cost reductions associated with our objective of 20,000 deliveries in 2013. We anticipate that our
automotive sales gross margin will become
positive just before the end of Q3 of this year
since until then our cost of automotive sales
will reflect the full burden of operating our
Tesla Factory, including depreciation for our
manufacturing facility and equipment, allocatedacross only a limited number of vehicles. In
Q4, we expect automotive sales gross margin
to improve significantly mainly due to higher
volume, as well as cost efficiencies andplanned cost reductions.
We expect that R&D spending should decline
sequentially in Q3 by about 20% as our Model
S manufacturing expenses will be reflected in
Get Amped Tour, Denver
cost of goods sold rather than in R&D and as
one time Model S development expenses decline. Selling, general and administrative expenses should continue torise moderately on a quarterly basis as we continue to increase our vehicle selling and servicing capabilities.
We remain on plan for capital expenditures of about $210 million for the year. For the rest of 2012, this spending
will cover final payments on Model S related tooling and equipment, Model X development, and increases in ourstores, galleries, service centers and overall operational capabilities to handle high volume sales. We currently
expect to be close to free cash flow breakeven in Q4 of this year.

In Closing
We are thrilled that our customers, investors and the media have now had a chance to see for themselves just how
compelling Model S is. We are also excited to have delivered the first group of Model S cars. We continue to focus
on our long term goals of increasing quality production of the Model S so that we can achieve all of our goals todeliver on our volume, cash flow and profitability commitments.
If you have a chance, come by for a test drive. We want you to experience for yourselves how electric vehicles cansurpass their internal combustion counterparts in every way.

Thank you for your interest in Tesla Motors.

Sincerely,

Elon Musk, Chairman, Product Architect and CEO

Deepak Ahuja, Chief Financial OfficerWebcast Information
Tesla will provide a live webcast of its second quarter 2012 financial results conference call beginning at 2:30 p.m. PDT on July25, 2012, at ir.teslamotors.com. This webcast will also be available for replay for approximately one year thereafter.
Forward-Looking Statements
Certain statements in this shareholder letter, including statements in the “Updated 2012 Financial Guidance” section of thisShareholder Letter; statements relating to the progress Tesla is making with respect to the development, testing, performance,
attributes, ability to add future options, quality expectations, safety expectations, schedule of development, test drives,
production ramp and volume expectations of Model S; the schedule, development, features, anticipated performance, safety
expectations, volume expectations and pricing of, and the ability of Tesla to leverage the Model S platform for, Model X; theability of our suppliers to supply quality parts consistent with our production ramp of Model S; the ability to achieve vehicle
volume, revenue, gross margin, spending and profitability and free cash flow targets (defined as cash flow from operations lesscapital expenditures); the ability of Tesla to produce vehicles in volume at the Tesla Factory in Fremont, California; theschedules related to, the financial results, including the total value, expected from, and the expected benefits from working on
the development programs with Daimler and Toyota; our ability to execute multiple product development programs
simultaneously; and future store and service center opening plans are “forward-looking statements” that are subject to risks anduncertainties. These forward-looking statements are based on management’s current expectations, and as a result of certain
risks and uncertainties actual results may differ materially from those projected. The following important factors, without
limitation, could cause actual results to differ materially from those in the forward-looking statements: Tesla’s future successdepends on its ability to design and achieve market acceptance of new vehicle models, specifically Model S and Model X; therisk of delays in the manufacture, production ramp and financing of Model S; the ability of suppliers to meet quality and partdelivery expectations; consumers’ willingness to adopt electric vehicles and electric cars in particular; Tesla’s ability to fully draw
down on its facility from the U.S. Department of Energy; risks associated with the ability to achieve the expected financial resultsfrom the production of powertrain systems for the Toyota RAV4 EV and vehicles for Daimler; competition in the automotive
market generally and the alternative fuel vehicle market in particular; Tesla’s ability to establish, maintain and strengthen the
Tesla brand; the unavailability, reduction or elimination of governmental and economic incentives for electric vehicles; Tesla’s
ability to establish, maintain and strengthen its relationships with strategic partners such as Daimler, Toyota and Panasonic; andTesla’s ability to execute on its plans for its new interactive retail strategy and for new store and service center openings. Moreinformation on potential factors that could affect the Company’s financial results is included from time to time in Tesla’s
Securities and Exchange Commission filings and reports, including the risks identified under the section captioned “Risk
Factors” in its quarterly report on Form 10-Q filed on May 10, 2012. Tesla disclaims any obligation to update information
contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

Investor Relations Contact:
Jeff Evanson
650-681-5050
ir@teslamotors.com

Press Contact:
Christina Ra
Tesla Motors
cra@teslamotors.com

For additional information, please visit ir.teslamotors.com.

Tesla Motors, Inc.
Condensed Consolidated Statem ents of Operations(Unaudited)(In thousands, except per share data)
Three Months Ended
June 30,
Mar 31,
June 30,
2012
2012
2011
Revenues
Automotive sales
Development services
Total revenues
Cost of revenues
Automotive sales
Development services
Total cost of revenues (1)Gross profit
Operating expenses
Research and development (1)Selling, general and administrative (1)Total operating expenses
Loss from operations
Interest income
Interest expense
Other income (expense), net
Loss before income taxes
Provision for income taxes
Net loss
Net loss per common share, basic and diluted
Shares used in per share calculation, basic anddiluted$22,054
4,599
26,653$

20,1501,741
21,891
4,762

19,245
10,92230,167$39,02819,14358,171Six Months Ended
June 30,
June 30,
2012
2011
$

41,29915,521
56,820$72,65634,545
107,201

13,932
6,025
19,957
10,21030,5289,135
39,66318,50834,082
7,766
41,848
14,972

57,48913,17670,66536,536$74,85436,083110,937(106,175)
74
(84)
691
(105,494)
109(105,603) $68,39130,582
98,973(88,763)90(65)(1,076)(89,814)59(89,873) $52,531
24,716
77,247(58,739)46(71)(58,764)
139(58,903)$143,245
66,665
209,910(194,938)
164
(149)
(385)
(195,308)
168(195,476) $93,69348,928142,621(106,085)
86(1,556)(107,555)
289(107,844)$(1.00) $(0.86) $(0.60)$(1.86) $(1.12)

105,242

104,784

97,757105,01396,478Notes:(1) Includes stock-based compensation expense of the follow ing for the periods presented:
Cost of revenues
Research and development
Selling, general and administrative
Total stock-based compensation expense

$

$

78
7,133
5,332
12,543

$

$

7
5,932
4,772
10,711

$

$

181
3,018
3,727
6,926

$

$

85
13,065
10,10423,254

$

$

335
5,317
7,200
12,852

Tesla Motors, Inc.
Condensed Consolidated Balance Sheets(Unaudited)(In thousands)
June 30,
2012
AssetsCash and cash equivalents
Short-term marketable securities
Restricted cash - current
Accounts receivable
Inventory
Prepaid expenses and other current assets
Operating lease vehicles, net
Property and equipment, net
Restricted cash - noncurrent
Other assets
Total assets$

210,554
21,96011,023
66,6696,920
11,783421,859
3,973
22,128776,869$

Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities
Deferred revenue
Reservation payments
Common stock w arrant liability
Capital lease obligations
Long-term debt
Other long-term liabilities
Total liabilities
Stockholders' equity
Total liabilities and stockholders' equity

Decem ber 31,
2011$

112,214
5,377
133,4478,529
7,181
431,792
16,114
714,654
62,215776,869

$

$

$

$

$

255,266
25,061
23,476
9,539
50,082
9,414
11,757
298,414
8,068
22,371
713,448

88,2505,491
91,761
8,838
3,897
276,251
14,915
489,403
224,045
713,448

Tesla Motors, Inc.
Supplem ental Consolidated Financial Inform ation(Unaudited)(In thousands)
Three Months Ended
June 30,
Mar 31,
June 30,
2012
2012
2011
Selected Cash Flow Inform ation
Cash flow s used in operating activities
Cash flow s used in investing activities
Cash flow s provided by financing activities

Six Months Ended
June 30,
June 30,
2012
2011

$

60,981
19,21572,180$50,08779,44092,831$

22,48823,122
264,335$

111,068
98,655
165,011$65,78513,011
298,618

Other Selected Financial Inform ation
Capital expenditures$

61,286$

67,987$54,314$

129,273$

74,790Depreciation and amortization

$

4,348

$

4,163

$

4,317

$

8,511

June 30,
2012
Cash
Cash and cash equivalents
Restricted cash - current
Short-term marketable securities
Restricted cash - noncurrent$

210,554
21,9603,973

Mar 31,
2012$

218,570
39,19925,009
3,805

7,835

Tesla Motors, Inc.
Reconciliation of GAAP to Non-GAAP Financial Inform ation(Unaudited)(In thousands, except per share data)
Three Months Ended
June 30,
Mar 31,
June 30,
2012
2012
2011
Research and developm ent expenses(GAAP)
Stock-based compensation expense
Research and developm ent expenses(Non-GAAP)
Selling, general and adm inistrative
expenses (GAAP)
Stock-based compensation expense
Selling, general and adm inistrative
expenses (Non-GAAP)Net loss (GAAP)
Stock-based compensation expense
Change in fair value of w arrant liability
Net loss (Non-GAAP)Net loss per com m on share, basic anddiluted (GAAP)
Stock-based compensation expense
Change in fair value of w arrant liability
Net loss per com m on share, basic anddiluted (Non-GAAP)

Shares used in per share calculation,
basic and diluted (GAAP and Non-GAAP)

Six Months Ended
June 30,
June 30,
2012
2011

$

74,854 $(7,133)

68,391 $(5,932)52,531(3,018)$143,245 $(13,065)

93,693(5,317)$67,72162,459$49,513$130,180$

88,376$36,083 $(5,332)30,582 $(4,772)

24,716(3,727)$

66,665 $(10,104)

48,928(7,200)$30,75125,810$20,989$56,561$

41,728$(89,873) $10,711(155)(79,317) $(58,903)
6,926
340(51,637)$$(105,603) $12,543(154)(93,214) $(195,476) $23,254(309)(172,531) $(107,844)
12,852
1,761(93,231)$$$(1.00) $0.11(0.00)(0.86) $0.10(0.00)(0.60)
0.07
0.00

$

(1.86) $0.22(0.00)(1.12)
0.13
0.02

$

(0.89) $(0.76) $(0.53)$(1.64) $(0.97)

105,242$$

104,784

97,757$105,01396,478

Non-GAAP Financial Inform ation
Consolidated financial information has been presented in accordance w ith GAAP as w ell as on a non-GAAP basis. On a non-GAAP
basis, financial measures exclude non-cash items such as stock-based compensation as w ell as the change in fair value related toTesla’s w arrant liability. Management believes that it is useful to supplement its GAAP financial statements w ith this non-GAAP
information because management uses such information internally for its operating, budgeting and financial planning purposes. These
non-GAAP financial measures also facilitate management’s internal comparisons to Tesla’s historical performance as w ell ascomparisons to the operating results of other companies. Non-GAAP information is not prepared under a comprehensive set ofaccounting rules and therefore, should only be read in conjunction w ith financial information reported under U.S. GAAP w hen
understanding Tesla's operating performance. A reconciliation betw een GAAP and non-GAAP financial information is provided above.