Tesla Motors, Inc. – Fourth Quarter & Full Year 2012 Shareholder Letter

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Achieved 20,000 annualized production rate
Record new Model S reservations
Model S unanimously named Motor Trend Car of the Year®
Q4 revenue increases sequentially by 500% to $306 million
Rapid growth of Model S sales and service network
First profit now expected Q1 2013 versus prior guidance of late 2013

February 20, 2013
Dear Fellow Shareholders:
We started 2012 with a few Model S prototypes in hand and the goal of going from producing hundreds ofRoadsters per year to producing hundreds of Model S vehicles per week. During the year, we successfullycompleted homologation of the car, started initial deliveries on time in June and ramped the production rate to our
year-end target of 400 vehicles per week. Along the way, Model S picked up almost every major automobile award,®
including the first ever unanimous designation as the Motor Trend Car of the Year . Tesla powered cars have now
been driven more than 40 million miles.
With our production now reliably at an annualized rate of 20,000 units per
year and thousands of Model S vehicles on the road, our plan for 2013 is tointroduce Model S to customers around the world. Many of our reservation
holders and potential customers have yet to experience Model S. That willchange this year, with our growing network of stores and galleries, service
locations and Supercharger sites, along with first deliveries in Europe andAsia scheduled for later this year.
We will also continue to implement production and delivery efficiencies
throughout the year. We have already made significant progress thisquarter. As a result, we expect to be slightly profitable (excluding only noncash option and warrant-related expenses) in Q1 2013.

Achieved 2013 Production Rate Goals
Our most significant achievement in Q4 was the successful ramp of production volume to more than 400 vehicles
per week for three consecutive weeks in December, and this has continued at a consistent rate in Q1. This has
established a production level that will allow us to achieve our goal of 20,000 Model S deliveries in 2013. We
produced over 2,750 vehicles during the quarter and more than 3,100 vehicles during the full year, while
maintaining our stringent quality standards.
To quadruple the pace of production during the quarter, we dramatically improved our manufacturing processes,
and made significant strides in improving initial end-of-line quality. We were also able to overcome many of ourpast supply chain challenges and methodically stabilized the supplier base.
In the quarter, we also began to scale our delivery strategies. Both personal home delivery and factory pick-up
were very popular delivery options for customers. However, we faced some challenges scheduling deliveries near
the end of Q4 as our peak production coincided with vacations during the holiday season. As a result, we deliveredapproximately 2,400 Model S vehicles during the quarter and about 2,650 for the year. We have improved thedelivery process in Q1 of 2013, and will continue to make enhancements to the process throughout the year.

Growing Model S Demand
New reservation activity once again hit record levels during the quarter driven by holiday traffic to our stores,
multiple Car-of-the-Year awards, the start of European marketing, and visibility of customer cars on the road andrelated word-of-mouth enthusiasm. As a result, we added more than 6,000 new reservations in Q4, up from almost
2,900 in Q3. During the quarter, we also announced a U.S.
price increase for new reservations made after Decemberst31 .

Tesla Store in Toronto

We invited a large number of reservation holders to
configure their cars during the quarter. Converting thesereservations to firm, non-refundable orders increased
cancellations, as expected. After deliveries andcancellations, our net reservations at year end, were over
15,000, up from about 13,000 at the end of Q3. New
reservations continue at a steady, although slower pace in
Q1 2013, as compared to December, due in part to the pullahead of reservations into Q4 by customers seeking to
avoid the price increase. Q1 cancellations are likely toremain elevated as the remaining older reservation holders
are invited to configure their vehicles within a set timeframeor pay the higher price just like new reservation holders.

Targeted Model S Infrastructure Investments
To expand and support our growing customer base, we continue to make targeted investments in stores andgalleries, service centers and Superchargers. Because our distribution and service strategies are lessexpensive to build and operate than the traditional dealer model, we are able to expand this support network
in a cost effective manner.
We opened eight stores and galleries during the fourth quarter in Chicago, Illinois; Morristown and Paramus,
New Jersey; San Diego and Los Angeles, California; Seattle, Washington; Toronto, Canada; and Miami,
Florida. Visitor traffic soared during the holiday season, as we welcomed more than 1.6 million visitors to ournineteen new-design stores and galleries in North America during Q4. This was almost as many people who
visited our stores and galleries during the entire first three quarters of 2012.
At year end, we had 32 stores and galleries
around the world. We plan to open 15 to 20
more stores and galleries this year with about
half the openings in Europe and Asia tosupport our expansion into these regions
during the second half of 2013. Notably, we
have already started construction of our first
store in Beijing, China in preparation for its
opening this spring. We also opened eight

Tesla Fremont Service Centernew service locations during the quarter, for a total of 29 locations at the end of Q4. We plan to double thisnumber by the end of 2013 to keep pace with the growing fleet of customer cars.
Following the successful launch of our Supercharger network in California, we opened the first two
Superchargers on the east coast in Q4, in Milford, Connecticut and Newark, Delaware. These
Superchargers allow for fast and convenient travel between Boston, New York and Washington, D.C. As
expected, our customers are enjoying the speed and convenience of charging for free during road trips.
Construction planning is underway to install additional Superchargers in 2013. Our plan is to expand
coverage on the U.S. West and East Coasts, and around the rest of the country.

Quarterly Results
Total revenues for Q4 were $306 million, a 500% increase over Q3. During the quarter we delivered approximately
2,400 Model S vehicles. We delivered the remaining North American Signature Series cars and shipped exclusively
cars with the 85 kWh battery pack. We also saw strong demand for options such as the Performance version andTech Package. Finally, we sold most of our remaining Roadsters
during the quarter.
In Q4, we completed various milestones under the Mercedes-Benz BClass EV program which contributed to total development services
revenue of $12 million. We also continued to deliver full electric
powertrains at a steady pace to Toyota for the RAV4 EV program.
From Q3 to Q4, total gross margin rose from (17)% to almost 8%, as aresult of a higher Model S production rate, the move to production
prices for certain Model S parts, sale of regulatory credits and healthy
margin contribution from development services. Still, as expected, we
Unique 3rd Row Seat Option
experienced significant early-stage cost inefficiencies in Q4 as a resultof several factors. These factors included lower fixed cost absorption,
manufacturing inefficiencies during the initial production ramp and higher logistics costs as our supply chain tooktime to mature. We also had higher component prices as many vendors were not supplying parts at production
prices early in the quarter due to their own manufacturing inefficiencies. Elevated costs during the initial ramp
phase of a new factory and a new vehicle, as well as subsequent efficiency improvements, are typical in theautomotive industry and consistent with our own past experience with the Roadster.
Since we are now producing cars at steady state production, we have shifted our focus to cost reduction. As aresult, the cost of producing Model S is beginning to decline. Our operations in 2013 are already more efficientcompared to Q4, as we continue to stabilize and improve the production process. In addition, further cost reduction
efforts undertaken by both us and our suppliers will continue to reduce costs in Q1 and in upcoming quarters.
Consequently, we expect gross margin to continue to improve towards our 25% target by year-end.
Research and development (R&D) expenses were $62 million on a non-GAAP basis and $69 million on a GAAP
basis. A significant portion of the R&D costs in Q4 were non-recurring, as we completed engineering, design andtesting of our vehicle and components both internally and at our suppliers. As a result, Q1 R&D spending is
expected to decline by about 15% from Q4 2012.
Selling, general and administrative (SG&A) expenses were $40 million on a non-GAAP basis and $46 million on a
GAAP basis. Much of the increase in selling expenses was again driven by the expansion of our store network andservice infrastructure. General and administrative expenses also rose slightly in Q4, driven primarily by higher
information technology costs. Q1 SG&A spending will continue to rise moderately primarily due to the growth in ourstores and service centers.

Our non-GAAP net loss for the quarter was just under $75 million, or $(0.65) per share, based on 113.8
million weighted common shares outstanding. Our GAAP net loss was $90 million, or $(0.79) per share forthe quarter.
We ended the year with more than $221 million in total cash, after having made the first quarterly principal paymentof $12.7 million to repay the loan to the U.S. Department of Energy (DoE) on schedule. Our short term restrictedcash is primarily for the second DoE loan payment due in March 2013. In Q4 2012, our negative free cash flow
(cash from operations plus capital expenditures) was $102 million, down by almost 40% from the prior quarter. In
the month of December we generated positive free cash flow, through growing sales and careful working capitalmanagement.

2013 Outlook
We plan to deliver about 20,000 Model S units in 2013. We expect to start the year with about 4,500 deliveries in
Q1, as we gave the manufacturing team the first week of the year off to celebrate their accomplishments during
2012.
We plan to start European deliveries of the Model S this summer and Asian deliveries later this year. We have now
started delivering Model S with the 60 kWh battery pack. These cars have an EPA-rated range of 208 miles on asingle charge. Delivery of cars with the 40 kWh battery pack is expected to begin later this summer.
As we enter 2013, production efficiency is improving substantially as labor inputs decline and initial end-of-line
production quality improves. We expect first quarter material, labor and overhead costs to be substantially lower
than in the fourth quarter of 2012, and for thistrend to continue in 2013.
As a result of these actions and the favorable
impact of regulatory credits, Q1 gross margin is
projected to improve to the mid-teens percentage
range. We expect our gross margin to continue
to rise into the second half of the year to ourtarget of 25%, despite a much lower contribution
from regulatory credits.
Longer term, regulatory credit revenue should
decline relative to our automotive sales as wegrow our sales outside the United States andearn fewer credits on the smaller battery packs.
While we will pursue opportunities to monetize
the credits we earn from the sales of our vehicles,
we do not need to rely on such sales to be asignificant contributor to gross margin, and ourbusiness model is not predicated on such credits.
In the first quarter of 2013, we expect to generate slightly positive net income, on a non-GAAP basis. We also
expect to be near breakeven on cash flow from operations. These targets would be achieved through a
combination of improved gross margin and lower R&D expenses. The achievement of operational andmanufacturing efficiencies will drive some adjustments in our personnel, primarily affecting contractor andtemporary employees. At the same time, we are continuing to hire and convert to full time key talent whererequired.

In 2013, we plan to spend significantly less on capital expenditures than we did in 2012, as we have concluded the
majority of our investment in the Tesla Factory and Model S tooling. This reduction will be partially offset by
expenditures related to expanding our service and store network, investing in new capital equipment and tooling to
reduce variable costs and new product development.
To conclude, 2012 was indeed the Year of Model S. This year, we are on a journey to expand the presence ofModel S and turn profitable.

Sincerely,

Elon Musk, Chairman, Product Architect and CEO

Deepak Ahuja, Chief Financial OfficerWebcast Information
Tesla will provide a live webcast of its fourth quarter and year ended 2012 financial results conference call beginning at
2:30 p.m. PT on February 20, 2013, 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 “2013 Outlook” section of this Shareholder
Letter; statements regarding profitability in Q1 2013 and cost reduction efforts; statements relating to the progress Tesla
is making with respect to the development, European and Asian launch expectations, schedule for the introduction of
future options and variants, quality improvements, delivery and volume expectations of Model S; the ability of our
suppliers to supply quality parts at reduced costs; the ability to achieve vehicle volume, revenue, gross margin, spending,
profitability and cash flow targets; the expected growth rate in reservations and cancellations, and future store, service
center and Tesla Supercharger expected costs, openings and expansion plans are “forward-looking statements” that are
subject to risks and uncertainties. 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 success depends on its ability to design and achieve market acceptance of Model S and othernew vehicle models, specifically Model X; the risk of delays in the manufacture, production and delivery ramp of Model S
vehicles; the ability of suppliers to meet quality and part delivery expectations; consumers’ willingness to adopt electricvehicles and electric cars in particular; 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 andstrengthen its relationships with strategic partners such as Daimler, Toyota and Panasonic; and Tesla’s ability to executeon its plans for its new interactive retail strategy and for new store, service center and Tesla Supercharger openings.
More information 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 our quarterly report on Form 10-Q filed on November 7, 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

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

Press Contact:
Shanna Hendriks
Tesla Motors
shendriks@teslamotors.com

Tesla Motors, Inc.
Condensed Consolidated Statem ents of Operations(Unaudited)(In thousands, except per share data)

Dec 31,
2012
Revenues
Automotive sales
Development services
Total revenues
Cost of revenues
Automotive sales
Development services
Total cost of revenues (1)Gross profit (loss)
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 (benefit from) income taxes
Net loss
Net loss per common share, basic and diluted (2)Shares used in per share calculation, basic anddiluted (2)$Three Months Ended
Sept 30,
Dec 31,
2012
2011

294,377
11,955306,332$

278,710
3,765
282,475
23,85750,023
81
50,104$32,677
6,698
39,375

Year Ended
Dec 31,
Dec 31,
2012
2011
$

385,699
27,557413,256$

148,568
55,674204,242

58,86558,865(8,761)

25,241
6,299
31,5407,835

371,658
11,531
383,189
30,067

115,482
27,165
142,647
61,595$68,83245,908
114,740(90,883)
85
(27)
746
(90,079)(147)(89,932) $61,90137,79899,699(108,460)
38(78)(2,188)(110,688)
116(110,804) $61,20627,556
88,762(80,927)
89
(43)
(495)
(81,376)
112(81,488)$273,978
150,372
424,350(394,283)
288(254)(1,828)(396,077)
136(396,213) $208,981
104,102
313,083(251,488)255(43)(2,646)(253,922)
489(254,411)$(0.79) $(1.05) $(0.78)$(3.69) $(2.53)

113,763

105,556

104,392

107,349

100,389

Notes:(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

$

$

1,638
7,159
5,619
14,416

$

$

471
6,356
5,648
12,475

$

$

164
4,473
4,045
8,682

$

$

2,194
26,58021,37150,145$$670
13,377
15,372
29,419(2) On October 3, 2012, the Company completed its follow -on public offering, pursuant to w hich the Company sold 7,964,601 shares ofcommon stock.

Tesla Motors, Inc.
Condensed Consolidated Balance Sheets(Unaudited)(In thousands)
Decem ber 31, Decem ber 31,
2012
2011
AssetsCash and cash equivalents
Restricted cash - current
Short-term marketable securities
Accounts receivable
Inventory
Prepaid expenses and other current assets
Operating lease vehicles, net
Property and equipment, net
Restricted cash - noncurrent
Other assets
Total assets$$

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$$

201,890
19,094
26,842
268,504
8,438
10,071
552,229
5,159
21,963
1,114,190$

343,180
4,964
138,817
10,692
14,330452,337
25,170989,490
124,700
1,114,190$$$

255,266
23,47625,061
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)

Dec 31,
2012

Three Months Ended
Sept 30,
Dec 31,
2012
2011

Year Ended
Dec 31,
Dec 31,
2012
2011

Selected Cash Flow Inform ation
Cash flow s used in operating activities$
Cash flow s provided by (used in) investing activities
Cash flow s provided by financing activities(28,839) $(69,408)
214,444(94,952) $(70,088)
40,179(27,088)
15,25453,772$(234,861) $(238,150)
419,635(114,364)(175,928)
446,000

Other Selected Financial Inform ation
Cash flow s used in operating activities
Capital expenditures
Free cash flow

(94,952) $(68,472)(163,424) $(27,088)(54,262)(81,350)$$(28,839) $(72,703)(101,542) $$(234,861) $(270,448)(505,309) $(114,364)(197,896)(312,260)$

12,793

7,521

4,804

$

28,825

16,919Depreciation and amortization$$

Dec 31,
2012
Cash and Investm ents
Cash and cash equivalents
Restricted cash - current
Short-term marketable securities
Restricted cash - noncurrent$

201,890
19,094
5,159$

Sept 30,
2012$

85,693
22,861
4,688

Dec 31,
2011$

255,266
23,47625,061
8,068$

Tesla Motors, Inc.
Reconciliation of GAAP to Non-GAAP Financial Inform ation(Unaudited)(In thousands, except per share data)

Dec 31,
2012
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)

Three Months Ended
Sept 30,
Dec 31,
2012
2011

Year Ended
Dec 31,
Dec 31,
2012
2011

$

68,832 $(7,159)61,901 $(6,356)

61,206(4,473)$273,978 $(26,580)

208,981(13,377)$

61,67355,545$56,733$247,398$

195,604$

45,908 $(5,619)37,798 $(5,648)27,556(4,045)$150,372 $(21,371)

104,102(15,372)$

40,28932,150$23,511$129,001$

88,730$(89,932) $14,416
958(74,558) $(110,804) $12,475
1,205(97,124) $(81,488)
8,682
649(72,157)$(396,213) $50,145
1,854(344,214) $(254,411)
29,4192,750(222,242)$(0.79) $0.13
0.01(1.05) $0.12
0.01(0.78)
0.08
0.01

$

(3.69) $0.47
0.02(2.53)
0.29
0.03

$

(0.65) $(0.92) $(0.69)$(3.20) $(2.21)$

113,763$$

105,556

104,392$

107,349

100,389

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.