Tesla Motors, Inc. – First Quarter 2014 Shareholder Letter
•
•
•
•
•
•
•

Record Q1 Model S production of 7,535 vehicles
Delivered 6,457 Model S vehicles, slightly exceeding guidance
Net income of $17M and $0.12 EPS (non-GAAP), loss of $50M and $(0.40) EPS (GAAP)
Expansion in Asia starts with first deliveries into China$2.3B raised in convertible notes offerings
Significant Gigafactory and capacity expansion progress
On track for more than 35,000 deliveries in 2014

May 7, 2014
Dear Fellow Shareholders:This year we are engaged in the most rapid expansion in Tesla’s history. In Q1, we produced a record 7,535 Model S
vehicles for global delivery. We also slightly exceeded guidance by delivering 6,457 cars while also filling the pipeline ofdeliveries into Europe and Asia to support growing global demand.
We are pressing forward on a variety of initiatives to continue our growth in 2014 and beyond. We are expanding ourfactory capacity to support increased Model S production later this year and the introduction of Model X next year.
Extensive development work on Model X is underway and we expect to have production design prototypes ready in Q4.
Meanwhile, we are opening new stores, service centers and Superchargers at a faster rate, and later this year we will kickoff construction of the Gigafactory. 2014 is already a very busy year.

Growing Global Demand & Scaling Customer Support
In Q1, we saw a significant sequential increase inworldwide net orders for Model S. This upward trend was
driven by our greater global footprint and increasing
consumer awareness of Model S. Overall, our customers
have now driven Model S more than 275 million miles,
saving nearly 14 million gallons of gasoline.
Our entry into China has been greeted enthusiastically.
After working for more than a year to secure proper
government approvals, licenses and facilities, wedelivered the first cars in China at customer events in
Beijing and Shanghai last month. Each event enjoyed
China Deliveries Event & Supercharger
ample media coverage, complete with delighted Model S
owners receiving their cars. Tesla received further media
attention thanks to the Shanghai government’s announcement that Model S drivers in the city will be entitled to free license
plates, thereby avoiding the usual public auction price of $10,000 to $15,000 per plate. Since Model S pricing in China wasalready very competitive, this makes the car’s value proposition even more compelling.
We plan to expand in China as fast as possible because we believe the country could be one of our largest markets within a
few years. We are also encouraged by how fast we have been able to develop our infrastructure in China when the proper
support is in place. With the help of the Shanghai government, for example, we were able to construct a Supercharger
station within just a few weeks of site selection. At the start of China deliveries we had three Supercharging sites open,
each powered by clean electricity from solar panels. Our plans are to install a large Supercharger network in China.

To support our global growth, we are aggressively accelerating the rate at which we open stores and service centers. This
year we plan to increase the number of locations from 2013 by more than 75%. Our Supercharging network will grow at aneven faster pace. We recently energized our 100th Supercharger, located in New Jersey, and plan to install 200 more
Superchargers globally this year. Our customers have now driven nearly 15 million Supercharged miles for free.
North American net orders grew sequentially by more than 10% in the quarter. As always, we are pursuing our expansion
through a direct-sales model to accelerate the transition to sustainable transportation. Selling directly allows us to mosteffectively communicate the unique benefits of electric cars to potential customers, as well as improve the buying andservicing experience.
While consumers and the vast majority of jurisdictions have overwhelmingly welcomed our direct-sales model, there are stilla few states in the U. S. where we face resistance. In those states, we continue to fight to protect our customers’ ability tobuy directly from Tesla. We believe strongly in the fairness of our position, which has been supported by a long list of
consumer activists, economists and influential policy makers. In late April, three directors of the Federal Trade Commission
published a blog post that explained the many reasons why Tesla’s ability to sell directly is superior for consumers and why
efforts to undercut that ability represent “bad policy.”

In-Vehicle Paperless Lease AcceptanceOur goal is to streamline the process of acquiring a Tesla andcontinually reduce the total monthly cost of ownership. Hence
we are working to offer financial products delivered in innovative
ways. For example, last month we launched Tesla Finance todirectly offer leasing for small and medium-sized businesses.
This program is straightforward and transparent, and it allows
businesses to take advantage of tax deductions for their lease
payments. The whole program is designed to be user friendly,with a simplified lease contract and an electronic acceptanceprocess that can even be completed on the Model S 17-inch
touchscreen. Leasing through Tesla is now available in 21 of ourhighest volume states and the District of Columbia. We plan toexpand this offering further to more states in the U. S. as well as
Canada shortly.

Expanding Vehicle Offerings and Production to Meet Demand
As we grow globally, we are also expanding our vehicle portfolio. Our addressable market will increase with the launch of
the right hand drive Model S in the United Kingdom next month, and in Japan and Hong Kong later this summer. Model X
efforts are on track to ramp up production in the spring of 2015. We have just completed the final studio release of thevehicle. The tooling process has started with several suppliers and we expect production design prototypes to be ready in
Q4 of this year.
We also continue to improve Model S. During Q1, we voluntarily added a titanium underbody shield and aluminum deflector
plates to the bottom of all new Model S cars and also made this available as a free retrofit for existing vehicles. While thischange was not necessary from a safety perspective, our goal is to give our customers complete peace of mind.
To meet the growing demand for Model S, we have been expanding our internal production capability and have secured
production increases from our suppliers, including increased cell supplies from Panasonic. Production is now at almost 700
vehicles per week, up 15% from our weekly production rate at the end of Q4. By the end of 2014, we expect the production
rate to rise to 1,000 vehicles per week.
The Gigafactory project is on course to begin battery cell and pack production in 2017. We have not yet finalized theultimate location for the Gigafactory and we are going to start work on at least two locations in parallel in order to minimizerisk of delays arising after groundbreaking. Planning discussions with Panasonic and other potential production and supply
chain partners continue to go well and we are pleased with the high interest level in the project. By the time the Gigafactory
reaches full, annualized production in 2020, we expect battery pack production capacity to reach 50 GWh and cell
production capacity to be 35 GWh. At that level of production, we do not anticipate any commodity supply constraints.

Q1 Results
As usual, this letter includes both GAAP and non-GAAP
financial information because we plan and manage ourbusiness using this non-GAAP information. Non-GAAP
financials exclude stock-based compensation and noncash interest expense, and add back the deferred
revenue and related costs for cars sold with a resale
value guarantee (RVG). The option to obtain financing
via our bank partners and get an RVG from Tesla
remains popular with our U.S. customers. We delivered
1,181 cars with an RVG in Q1.
Non-GAAP revenue was $713 million for the quarter up
27% from a year ago, while GAAP revenue was $621
Munich Service Center
million. The average selling price of Model S remained
strong. Automotive revenue included $15 million of Toyota powertrain sales and almost $12 million of regulatory credit
sales, but no zero emission vehicle (ZEV) credit sales as expected.
During Q1, we achieved a non-GAAP automotive gross margin of 25.4%, and 25.3% on a GAAP basis. This represents a
20 basis point improvement in non-GAAP automotive gross margin sequentially, despite booking an unplanned $2 million
reserve for underbody shield retrofits.
Research and development (R&D) expenses were $68 million on a non-GAAP basis and $82 million on a GAAP basis.
Non-GAAP R&D expense was up 17% from Q4, as Model X engineering work accelerated and efforts continued to adapt
Model S for growing international markets.
Selling, general and administrative (SG&A) expenses were $97 million on a non-GAAP basis and $118 million on a GAAP
basis. The 11% sequential increase in non-GAAP SG&A expense was driven mainly by the expansion of our customer
support infrastructure.
Q1 non-GAAP net income was $17 million, or $0.12 per share based on 140.2 million diluted shares, while Q1 GAAP net
loss was $50 million or $(0.40) per share. Both results include a $6.7 million net gain from a favorable foreign currency
impact.
We generated $61 million of cash flow from operations during the quarter. This was after consuming $63 million fromincreased inventory of in-transit finished vehicles built to specific customer orders. Capital expenditures in the quarter
totaled $141 million.
Cash at quarter end, including cash equivalents and short-term marketable securities, increased to almost $2.6 billion, inpart because we issued $2 billion of senior convertible notes with five and seven year maturities. Q2 financials will reflect
an additional cash inflow of $267 million from the exercise of the convertible notes overallotment option by our underwriters.
We used a small portion of the gross proceeds to invest in bond hedge transactions, offset by proceeds from a sale ofrelated warrants. As a result, we should avoid any actual dilution from the convertible notes until our common stock climbs
over $500 per share. A table published on our website shows the potential dilution from our note offerings at various
projected stock prices.

Q2 & 2014 Outlook
We expect to deliver about 7,500 Model S vehicles in Q2
as we move toward our goal of more than 35,000 Model
S deliveries for the year. We also plan to produce 8,500
to 9,000 cars in the quarter, representing a 13% to 19%
increase over Q1. Planned production is again higher
than deliveries because of the growing pipeline of intransit cars to Asia and Europe that have been built-toorder for customers. This includes cars destined for righthand drive markets. The quarterly gap between
production and deliveries is expected to decline in future
quarters. Battery cell supply will still constrain our
production in Q2 but should improve in Q3.
Tesla Store – Oslo, Norway
We have started Tesla leasing, but due to the lead times
between vehicle orders and deliveries we expect to only lease about 200 cars in Q2. Many new orders for leased vehicles
received in Q2 will be delivered in Q3, so the number of leased vehicles should grow over time.
For leased vehicles, we will recognize lease revenue over the term of the lease in both our GAAP and non-GAAP financials.
In contrast, automotive OEMs recognize full revenue for the price of the vehicle, even if that vehicle is eventually leased,because the vehicle is first sold to an independent dealer. Therefore, to facilitate comparisons with other automakers, weplan to include a supplemental table in future shareholder letters that summarizes the quarterly aggregate price of vehicles
leased to customers.
We have just commenced production of Tesla powertrains for the Mercedes B-Class vehicle, a significant milestone in thedevelopment of the program. We expect to ramp up production shortly and see continued growth during the year.
We expect non-GAAP automotive gross margin to increase slightly from Q1 to Q2. As manufacturing efficiency and part
costs continue to improve, we believe a 28% non-GAAP automotive gross margin by Q4 of this year is still an achievabletarget.
Q2 operating expenses are expected to grow sequentially by about 30% for R&D and 15% for SG&A. Despite the start ofleasing vehicles, investments in R&D and geographic expansion, we expect to be marginally profitable in Q2 on a nonGAAP basis. Based on our current stock price, the diluted shares outstanding are projected to be about 142 to 144 million
in Q2.
We still plan to invest $650-850 million for the year in capital expenditures for increased production capacity, growth in ourstore, service center and Supercharger footprints, Model X and S development and start of Gigafactory construction. With
all these initiatives, we expect to be slightly free cash flow negative in 2014, before considering the equity required forleasing.
This should be another year of focused execution of our aggressive expansion plans.

Elon Musk, Chairman & CEO

Deepak Ahuja, Chief Financial OfficerWebcast Information
Tesla will provide a live webcast of its first quarter 2014 financial results conference call beginning at 2:30 p.m. PT on May 7, 2014, at
ir.teslamotors.com. This webcast will also be available for replay for approximately one year thereafter.
Non-GAAP Financial Information
Consolidated financial information has been presented in accordance with GAAP as well as on a non-GAAP basis. On a non-GAAP basis,
financial measures exclude non-cash items such as stock-based compensation, the change in fair value related to Tesla’s warrant liability,
non-cash interest expense related to Tesla's convertible senior notes as well as one-time expenses associated with the early repayment of
the Department of Energy Loan. Non-GAAP financial measures also exclude the impact of lease accounting on Model S related revenues
and cost of revenues, as this perspective is useful in understanding the underlying cash flow activity and timing of vehicle deliveries.
Management believes that it is useful to supplement its GAAP financial statements with 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 well as comparisons to the operating results of othercompanies. Non-GAAP information is not prepared under a comprehensive set of accounting rules and therefore, should only be read in
conjunction with financial information reported under U.S. GAAP when understanding Tesla's operating performance. A reconciliation
between GAAP and non-GAAP financial information is provided below.
Forward-Looking Statements
Certain statements in this shareholder letter, including statements in the “Q2 & 2014 Outlook” section; statements regarding profitability
and free cash flow and cost reduction; statements relating to the progress Tesla is making with respect to product development (including
Model X development and production ramp plans), growth in China, right hand drive market launch expectations, schedule for the
introduction of future options and variants, delivery and volume expectations of Model S; the ability to achieve vehicle demand, volume,
production, revenue, leasing, gross margin, spending, profitability and cash flow targets; future store, service center and Tesla
Supercharger expected costs, openings and expansion plans; expansion plans for Tesla Finance; commodity supply constraint
expectations; and Tesla Gigafactory plans and expectations 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 todiffer 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 other new vehicle models, specifically Model X; the risk of delays in the manufacture, production and deliveryof Model S vehicles; the ability of suppliers to meet quality and part delivery expectations at increasing volumes; Tesla’s ability to continue
to reduce or control manufacutring and other costs; consumers’ willingness to adopt electric vehicles; 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; Tesla’s
ability to manage future growth effectively as we rapidly grow, especially internationally; the unavailability, reduction or elimination of
government and economic incentives for electric vehicles; Tesla’s ability to establish, maintain and strengthen its relationships withstrategic partners such as Daimler, Toyota and Panasonic; and Tesla’s ability to execute on its retail strategy and for new store, service
center and Tesla Supercharger openings. More information on potential factors that could affect our financial results is included from time
to time in our Securities and Exchange Commission filings and reports, including the risks identified under the section captioned “Risk
Factors” in our annual report on Form 10-K filed with the SEC on February 26, 2014. 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
Investor Relations – Tesla
ir@teslamotors.com

	  Press Contact:
Simon Sproule
Communications – Tesla
ssproule@teslamotors.com

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

Mar 31,
2014
Revenues
Automotive sales (1A)
Development services
Total revenues
Cost of revenues
Automotive sales (1B)
Development services
Total cost of revenues (2)Gross profit
Operating expenses
Research and development (2)Selling, general and administrative (2)Total operating expenses
Loss from operations
Interest income
Interest expense
Other income, net (3)Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Net income (loss) per common share, basic (4)$618,811
1,731
620,542$

610,851
4,368
615,219

Mar 31,
2013$

555,203
6,589
561,792

462,471
2,943
465,414155,128

453,578
5,051
458,629
156,590

461,818
3,654
465,472
96,320$81,544
117,551
199,095(43,967)
141(11,883)
6,718(48,991)809(49,800)$

68,454
101,489
169,943(13,353)92(6,229)4,584(14,906)
1,358(16,264)$

54,85947,045
101,904(5,584)10(118)
17,091
11,399151
11,248$(0.40)$(0.13)$

Shares used in per share calculation, basic (4)Net income (loss) per common share, diluted (4)Shares used in per share calculation, diluted (4)Three Months Ended
Dec 31,
2013

123,473$(0.40)
123,473

122,802$(0.13)
122,802

0.10
114,712$0.00
124,265

Notes:(1) Due to the application of lease accounting for Model S vehicles with the resale value guarantee, the following is supplemental
information for the periods presented:(A) Net increase in deferred revenue and other long-term liabilities
as a result of lease accounting and therefore not recognized in
automotive sales$

92,506$

146,125(B) Net increase in operating lease vehicles as a result of leaseaccounting and therefore not recognized in automotive cost of
sales

$

69,743$

114,221

Under lease accounting, warranty costs are expensed as incurred instead of accrued at the time of sale.
(2) Includes stock-based compensation expense of the following for the periods presented:
Cost of revenues
Research and development
Selling, general and administrative
Total stock-based compensation expense

$

$

3,106
13,545
20,38737,038$$

3,455
10,57814,05628,089

$

$

1,536
7,644
5,688
14,868(3) Other income, net, for the three months ended March 31, 2013 includes the gain from the elimination of the $10.7 million
Department of Energy (DoE) common stock warrant liability and a $6.4 million favorable foreign currency exchange impact. Other
income, net, for the three months ended March 31, 2014 and December 31, 2013 include a $6.7 million and $4.6 million offavorable foreign currency exchange impact, respectively.
(4) In May 2013, the Company completed a public offering pursuant to which the Company sold 3,902,862 shares of common stock.
Concurrent with the closing of the offering, the Company sold 596,272 shares of common stock to Elon Musk in a private
placement at the public offering price.

Tesla Motors, Inc.
Condensed Consolidated Balance Sheets(Unaudited)(In thousands)
Mar 31,
2014
AssetsCash and cash equivalents
Short-term marketable securities
Restricted cash - current
Accounts receivable
Inventory
Prepaid expenses and other current assets
Operating lease vehicles, net (1)Property and equipment, net
Restricted cash - noncurrent
Other assets
Total assets
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities
Deferred revenue (2)Customer deposits
Capital lease obligations
Long-term debt (4)Other long-term liabilities (3)Total liabilities
Convertible debt (4)Stockholders' equity
Total liabilities and stockholders' equity

$

$

$

$

Dec 31,2013

2,393,908
189,111
1,049
72,380450,730
48,869451,729
849,389
7,102
36,1434,500,410$

504,452
323,557
198,006
20,9692,109,843
361,586
3,518,413
69,942912,055
4,500,410$$$

845,889
3,012
49,109340,355
27,574382,425
738,494
6,435
23,6372,416,930

412,221273,062
163,153
20,577586,301
294,495
1,749,809
667,1212,416,930

Notes:(1) Includes the following increase in operating lease vehicles related to deliveries of Model S with the resale value guarantee and subject
to lease accounting, net of depreciation recognized in automotive cost of sales, for the following periods:

Beginning BalanceFirst quarter
Second quarter
Third quarter
Fourth quarter$

376,979
69,743-$

123,919
138,839
114,221

Ending Balance$

446,722$376,979(2) Includes the following increase in deferred revenue related to deliveries of Model S with the resale value guarantee and subject to leaseaccounting, net of revenue amortized to automotive sales for the following periods:
Beginning BalanceFirst quarter
Second quarter
Third quarter
Fourth quarter$

227,868
38,188-$74,45584,577
68,836

Ending Balance$

266,056$

227,868(3) Includes the following increase in other long-term liabilities related to deliveries of Model S with the resale value guarantee and subject
to lease accounting for the following periods:
Beginning BalanceFirst quarter
Second quarter
Third quarter
Fourth quarter$

236,298
54,318-$72,35786,65277,289Ending Balance$

290,616$

236,298(4) Our common stock price exceeded the conversion threshold price of our convertible senior notes due 2018 (Notes) issued in May 2013;
therefore, the Notes are convertible at the holder’s option during the second quarter of 2014. As such, the carrying value of the Notes
was classified as a current liability as of March 31, 2014 and the difference between the principal amount and the carrying value of theNotes was reflected as convertible debt in mezzanine equity on our condensed consolidated balance sheet as of March 31, 2014.

Tesla Motors, Inc.
Supplemental Consolidated Financial Information(Unaudited)(In thousands)

Mar 31,
2014
Selected Cash Flow Information
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows provided by financing activities
Other Selected Financial Information
Cash flows provided by operating activities
Capital expenditures
Free cash flow (cash flow from operations plus capital
expenditures)
Depreciation and amortization

Three Months Ended
Dec 31,
2013$

60,640(329,180)
1,816,559$

129,763(89,507)
10,517$64,079(55,236)
3,684$

60,640(141,364)$

129,763(89,435)$

64,079(57,727)$(80,724)$

40,328

$

6,352

$

44,268$37,585$

17,850Mar 31,
2014
Cash and Investments
Cash and cash equivalents
Short-term marketable securities
Restricted cash - current
Restricted cash - noncurrent

Mar 31,2013$

Dec 31,2013

2,393,908
189,111
1,049
7,102

$

Mar 31,
2013

845,889
3,012
6,435

$

214,417
16,7195,044

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

Mar 31,
2014
Net income (loss) (GAAP)
Stock-based compensation expense
Change in fair value of warrant liability
Non-cash interest expense related to convertible notes$

Net income (Non-GAAP)$Net income (loss) per share, basic (GAAP)
Stock-based compensation expense
Change in fair value of warrant liability
Non-cash interest expense related to convertible notes$

Model S gross profit deferred due to lease accounting (1)$Shares used in per share calculation, basic (GAAP and Non-GAAP)$

21,38417,015(0.40)
0.30-$

Net income per share, diluted (Non-GAAP)$(16,264)
28,089-$$29,79645,920(0.13)
0.23
-

0.07

0.03

0.17
0.14

0.24
0.37

(0.36)
0.26
0.07(0.03)
0.15
0.12
140,221

Mar 31,
2013$

11,24814,868(10,692)

4,299
16,124$

123,473

Net income (loss) per share, diluted (GAAP) (2)Stock-based compensation expense
Change in fair value of warrant liability
Non-cash interest expense related to convertible notes
Net income (loss) (Non-GAAP) including lease accounting
Model S gross profit deferred due to lease accounting (1)Shares used in per share calculation, diluted (Non-GAAP)(49,800)
37,038
8,393(4,369)Net income (loss) (Non-GAAP) including lease accounting
Model S gross profit deferred due to lease accounting (1)Net income per share, basic (Non-GAAP)

Three Months Ended
Dec 31,
2013

15,424$$(0.12)
0.20
0.03
0.11
0.22
0.33
137,784

0.10
0.13(0.09)
0.13$

122,802$15,424$

114,712
$

0.09
0.12
(0.09)
0.12
0.12

$

124,265(1) Under GAAP, warranty costs are expensed as incurred for Model S vehicle deliveries with lease accounting. For Non-GAAP purposes, anestimated incremental warranty reserve of $2.1 million and $3.2 million is included for the three months ended March 31, 2014 and December 31,
2013, respectively. Additionally, stock-based compensation of $0.7 million and $1.1 million is excluded for non-GAAP purposes for the threemonths ended March 31, 2014 and December 31, 2013, respectively.
(2) Net income used in the calculation of GAAP diluted net income per share for the three months ended March 31, 2013 is $556,000 and
excludes the $10.7 million gain from the elimination of the DoE common stock warrant liability.

Tesla Motors, Inc.
Reconciliation of GAAP to Non-GAAP Financial Information(Unaudited)(In thousands)

Mar 31,
2014
Revenues (GAAP)
Model S revenue deferred due to lease accounting
Revenues (Non-GAAP)$

Gross profit (GAAP)
Model S gross profit deferred due to lease accounting (1)Stock-based compensation expense
Gross profit (Non-GAAP)

Three Months Ended
Dec 31,
2013$$

620,542
92,506
713,048$

155,128$

21,384
3,106
179,618

Research and development expenses (GAAP)
Stock-based compensation expense
Research and development expenses (Non-GAAP)$

Selling, general and administrative expenses (GAAP)
Stock-based compensation expense
Selling, general and administrative expenses (Non-GAAP)

$

$

$

Mar 31,
2013$$

615,219
146,125
761,344$561,792
561,792$

156,590$

96,320$29,796
3,455
189,841$

1,536
97,856

81,544(13,545)
67,999$117,551(20,387)
97,164$$$68,454(10,578)
57,876$

101,489(14,056)
87,433$$$54,859(7,644)47,21547,045(5,688)41,357(1) Under GAAP, warranty costs are expensed as incurred for Model S vehicle deliveries with lease accounting. For Non-GAAP purposes, anestimated incremental warranty reserve of $2.1 million and $3.2 million is included for the three months ended March 31, 2014 and December 31,
2013, respectively. Additionally, stock-based compensation of $0.7 million and $1.1 million is excluded for non-GAAP purposes for the three months
ended March 31, 2014 and December 31, 2013, respectively.