Tesla Motors, Inc. – Third Quarter 2011 Shareholder Letter
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Start of Model S deliveries on track for no later than July 2012
Model S customer reservations continue accelerating
Supplier partnerships in place to achieve gross margin of 25% in 2013
Total cash position improved from last quarter
LOI from Daimler for a full powertrain for an electric Mercedes
Multiple agreements signed for sale of Model S ZEV/GHG credits
Full year revenue guidance raised to between $195M and $200M

November 2, 2011

Dear Fellow Shareholders,
We are pleased to report another quarter of strong performance. Total revenues in the third quarter were $58
million, up 85% from Q3 of last year. Automotive sales grew by almost 11% from last quarter due to solid
Roadster demand and powertrain component sales. Total gross margin was 30%, our fifth consecutive quarter ofachieving 30% or higher gross margin.
The highlight of the quarter was our Model S Beta reveal. We opened the doors of our Fremont factory during theweekend of October 1st to thousands of reservation holders, media and investors. Participants rode in Model S
Beta vehicles and toured the Tesla Factory. They witnessed firsthand the progress we have made in developing
the Model S and our manufacturing facility.
The Model S development program remains on schedule for first customer deliveries of the Model S no later thanJuly 2012. In addition, we continue to have confidence in our long term target gross margin of 25% for Model S
upon realizing the manufacturing efficiencies associated with an annualized sales run rate of 20,000 units.
Our non-GAAP net loss of $0.55 per share this quarter, or $0.63 per share on a GAAP basis, reflects ourcontinued investments in R&D and corporate infrastructure to support the launch of Model S. As we’ve discussed
since our IPO, net losses will obviously continue until we reach volume sales of the Model S in 2013.
We are excited about the many bargains available for used tooling and equipment, some of which are locatedquite near to our Fremont factory. We believe in purchasing used tooling and equipment for pennies on the dollar
and buying low cost desks from IKEA, rather than spending large sums of money on architectural and interior
design.

Strong Roadster Demand & Margin
We continue to experience strong demand for
the Roadster. During the quarter, we delivered
184 Roadsters, up 22% from the same quarterlast year. We sold more Roadsters in the UnitedStates than we have in any quarter over the
past two years. Total deliveries worldwide now
exceed 2,000.
We also generated over $28 million in Roadsterrelated revenue in this quarter, up 56% from thesame quarter last year, and slightly higher thanTesla Roadster in Sydney, Australia

the prior quarter, due to higher volume, higher average selling prices, slightly lower lease mix and solid service
revenue. Automotive gross margin rose to 24%, primarily due to higher average selling prices, additional service
revenue and ongoing cost control on the Roadster.
The only slightly negative aspect of Roadster sales was ongoing disproportionately lower sales in the UK due tothe continuing adverse impact on the Roadster via reruns of “Top Gear”, the UK’s leading car show. As a result,
we had an excess inventory of right hand drive versions of the Roadster and continue to incur additional costs tocorrect the consumer misperception.
Our Roadster owners have now driven their cars 16 million electrically powered miles, the equivalent of traveling to
the moon and back over 30 times. As the world’s longest running electric vehicle program, the Roadster has
helped us understand real world consumer behavior related to electric vehicles, service requirements and overallvehicle performance. This experience will pay great dividends when we bring the Model S to market.

Showcasing Model S Development and Factory Preparation
During the weekend of October 1st, we welcomed almost
3,000 Model S reservation holders, journalists and investors
to our Tesla Factory.
The highlight of the event was the test rides in the Model S
Beta vehicles. Guests were able to experience theacceleration and handling of the car, and see the features of
the 17-inch touchscreen. The Model S also showcased thetwo rear facing child seats and plenty of storage space under
the hood. The response has been positive—including fromthe automotive press. Please check out the review from
MotorTrend, in particular.

Tesla Model S Interior with 17-inch Touch Screen

We announced two significant improvements to the Model S at the event. First, we intend to make a performanceversion of the Model S available at the start of production. We anticipate that this option will enable the Model S toaccelerate from 0 to 60 in about 4.4 seconds, faster than a standard Porsche 911 Carrera! Second, weannounced an aerodynamic wheel option that is intended to extend the range of the Model S up to almost 320
miles. This range is almost four times more than any other fully electric vehicle on the market (except, of course,
the Tesla Roadster). We also released a more detailed set of Model S features.
Guests were also able to view the progress being made in getting the Tesla Factory ready to manufacture theModel S. Roughly 90% of the factory equipment and robots needed to manufacture the Model S have now been
installed. This includes installations in thestamping, plastics, paint, body and final
assembly shops, which were operational in
dry-cycle mode. Customers were also able tosee several of the Model S Beta bodies wind
their way through final assembly on
automated guided vehicles and overhead
conveyors.

CEO Elon Musk Introduces the Seven-Passenger Model S

The public display of the Model S Beta
vehicles was tangible evidence that our Betabuild continues on schedule. During the Beta
phase, cars will be produced using
increasing maturity of production parts andmanufacturing processes. We plan toproduce about 50 Beta vehicles in this phasefor more testing, validation, systems integration and marketing efforts. After the Beta phase, we plan to beginbuilding Release Candidate cars during the first half of 2012. During that phase of the program, we intend to finetune production and assembly processes to build high quality cars for sales to our customers.
Our confidence in the progress of both the Model S Beta phase and the Tesla Factory permits us to be more
specific in our timing guidance for first customer deliveries. We are on plan to deliver the first Model S vehicles tocustomers no later than July 2012.
We also recently finalized a long term supply contract with Panasonic for cells used in the Model S, which gives us
increased visibility into our variable costs. As a result, we continue to have confidence in our long term target
gross margin of 25% for Model S upon realizing the manufacturing efficiencies associated with an annualized
sales run rate of 20,000 units.

Retail Footprint & Reservations Growing

Tesla in Houston Galleria
Tesla in Houston Galleria

We are continuing to expand our company-owned
retail network. We opened a new store in
Eindhoven, Netherlands during the quarter and justrecently unveiled a gallery in Houston, Texas. We
now have 20 locations globally. Additional stores
utilizing the new store concept will open during thefourth quarter in Bellevue, Washington, Chicago,
Illinois and Newport Beach, California. Our existing
locations in some of these markets will be
converted into service centers in preparation for the
Model S launch.

Our goals with the new store concept are toengage, excite and inform future electric vehicle
buyers. The response to this new strategy continues to surpass our expectations -- over 170,000 people havevisited our two new stores in San Jose, California and Denver, Colorado during the third quarter alone.

7,000
6,000

Cumulative
Model S Reservations

5,000
4,000
3,000
2,000
1,000
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11

Reservations growth for Model S continued to accelerate, as we added about 1,150 net new reservations during
the quarter. This brings our total count to about 6,500 reservations as of the end of September. It is likely that theanticipation of the Model S Beta reveal stimulated an increase in reservations; however, we are continuing to see
strong ongoing interest as we begin to display the Model S at some of our stores. These reservations require aminimum $5,000, refundable deposit.

Model X Advanced Engineering on Plan
We are excited about how the design and functionality of the Model X is beginning to mature. Our vision for the
Model X is a vehicle that combines the functionality of a minivan with a design as cool as an SUV. We remain onplan for an exclusive showing later this year.
Since we are leveraging the Model S architecture and powertrain for Model X, we continue to anticipate that Model
X can be brought to production quickly for first customer deliveries in late 2013, with volumes ramping to 10,000 15,000 units per year beginning in 2014, and at prices comparable to Model S. Importantly, much of the equipment
we are currently installing at the Tesla Factory for the Model S will also be used for the Model X.

Solid Powertrain Execution
We continued to execute well on our existing powertrain contracts during the third quarter. Our production
agreements with Daimler and our development services agreement with Toyota produced combined revenue ofover $29 million in the period. Powertrain component
related sales accounted for almost $15 million thisquarter, a new quarterly revenue record. We still
expect to complete all deliveries under the Smartfortwo and A-Class programs on schedule by the endof this year.

Body Assembly Robotics – Tesla Factory

We continue to make good progress on thedevelopment of the RAV4 EV with Toyota. Onceagain, we met all of the milestones planned for thequarter in the development contract for the RAV4
EV’s full powertrain system. This drove solid
development services revenue of over $14 million for
the third quarter.

Overall,the RAV4 EV development program remains on schedule and should be completed by early 2012, as
planned. Thereafter, we plan to begin shipping complete powertrain systems for the RAV4 EV to Toyota, under amulti-year contract of approximately $100 million.
We are also pleased to announce the receipt of a letter of intent from Daimler for a full powertrain program for avehicle in the Mercedes line. Details of this deal remain confidential, but will be announced in the coming months.

Strong Financial Performance & Improved Outlook
Given the strong demand we continue to see for Tesla Roadsters and solid execution in our powertrain activities,
we now project that full year revenues will be between $195 and $200 million, up from our prior guidance of $180
to $190 million. Total gross margin this quarter was 30%, down only slightly from Q2 due to lower mix and margin
contribution from development services revenue. As we have mentioned in the past, timing differences between
recognition of revenue and the underlying costs of development services can cause the gross margin of ourdevelopment contracts to vary from quarter to quarter.

Our operating expenses continue to reflect ourinvestments in new vehicle development and thebuild-out of our infrastructure. Our total operating
expenses were $82 million on a GAAP basis and$74 million on a non-GAAP basis, which
excludes stock-based compensation expense. A
full reconciliation between the non-GAAP and
GAAP information is included at the end of thisShareholder Letter.
Almost two-thirds of our operating expenses
relate to our investments in research andTesla Model S – Redefining the Premium Sedan
development. R&D spending increased veryslightly from last quarter, reflecting ongoing costsof developing the Model S and increased activity in preparing the Tesla Factory.Since pre-production costs are
expensed under GAAP, the development activities on the Model S and Model X drive our net losses. Sales ofModel S will enable us to grow our revenue very substantially starting next year and set the foundation for further
growth in future years. Consequently, these continuing pre-production losses in the short term reflect our strategic
decision to ramp up our business to the next level.
Selling, general and administrative expenses also rose from last quarter driven by higher store-related andmarketing activities, including the opening of new stores and hiring of support staff. We expect our operating
expenses to rise slightly as we continue to prepare the Tesla Factory for production, refine the Model S, continue
the advanced engineering work on Model X, and add more stores.
Capital expenditures were about $69 million this quarter as we continued to build out the Tesla Factory and invest
in tooling for Model S. We now expect our capital expenditures for 2011 to be at the lower end of our previous
guidance of between $220 and $245 million. This is despite continued controlled expenditure on certain projects
that we believe best serve the company by remaining confidential at this time.
In total, our non-GAAP net loss for the quarter was almost $57 million, or $0.55 per share, reflecting 104.1 million
weighted common shares outstanding. The increase from 97.8 million weighted common shares outstanding lastquarter reflects an entire quarter of the incremental 8.1 million shares issued in our follow-on offering andconcurrent private placements in June. We therefore expect that our share count will remain relatively stable at thislevel.
We will provide guidance for 2012 in our Shareholder Letter for Q4 2011 results. This outlook will include somecommentary about the first and second halves of 2012, given the impact of the start of deliveries of Model S in the
middle of the year.

Sufficient Capital Resources for Model S and Model X
At the end of the third quarter we had cash resources on our balance sheet of $334 million, higher than lastquarter’s balance of $331 million. During the quarter we drew down almost $91 million from our DoE loan facility.
Our projects continue to be on track with the DoE per the terms of the loan agreement, and our relationship with
the DoE remains strong.
Combining our $334 million of cash on hand, with the additional $240 million we have left to draw on our loan
facility with the DoE, we now have approximately $574 million in available capital resources. We believe thatthese funds will be sufficient to develop and deliver Model S and Model X, based on our current plans.

In Closing
We are continuing to hire outstanding people and are pleased with the progress our growing team continues tomake throughout our business. We remain focused on delighting our customers by delivering vehicles andpowertrains that are truly exceptional.
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 third quarter 2011 financial results conference call beginning at 2:30 p.m. PDT on
November 2, 2011 at ir.teslamotors.com. This webcast will also be available for replay for approximately two weeks thereafter.
Forward-Looking Statements
Certain statements in this shareholder letter, including statements relating to the progress Tesla is making with respect to thedevelopment, testing, performance, attributes, schedule of development and launch, and volume expectations of Model S; theschedule, development, volume expectations and pricing of, and the ability of Tesla to leverage the Model S platform for, Model
X; the ability to achieve revenue, gross margin and spending targets; the ability of Tesla to produce vehicles at the Tesla
Factory in Fremont, California as well as the plans and schedule for the Tesla Factory and the equipment there; the schedules
related to, and the financial results expected from,Tesla’s development programs with Daimler and Toyota; our ability to
execute multiple product development programs simultaneously; the sufficiency of current available funds to develop Model S
and Model X; and the ability of Tesla to execute on its new interactive retail strategy and future store opening 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 fromthose 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 newvehicle models, specifically Model S and Model X; the risk of delays in the design, manufacture, launch and financing of Model
S, including the build-out of its planned Model S manufacturing facility; the risk of a decline in revenues prior to the launch ofModel S; 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 results from theproduction of powertrain systems for the Toyota RAV4 EV; risks associated with sales and anticipated delivery schedule of theTesla Roadster; 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 andeconomic incentives for electric vehicles; Tesla’s ability to establish, maintain and strengthen its relationships with strategic
partners such as Daimler, Toyota and Panasonic; and Tesla’s ability to execute on its plans for its new interactive retail strategy
and for new store 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 thesection captioned “Risk Factors” in its quarterly report on Form 10-Q filed on August 12, 2011 and its registration statement on
Form S-1 filed on June 2, 2011. Tesla disclaims any obligation to update information contained in these forward-looking
statements whether as a result of new information, future events, or otherwise.
Non-GAAP Financial Information
Consolidated financial information has been presented in accordance with GAAP as well as on a non-GAAP basis. On a nonGAAP basis, financial measures exclude non-cash items such as stock-based compensation as well as the change in fair value
related to Tesla’s warrant liability. Management believes that it is useful to supplement its GAAP financial statements with thisnon-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 historicalperformance as well as comparisons to the operating results of other companies. In addition, Tesla believes these non-GAAP
financial measures are useful to investors because they allow for greater transparency into the indicators used by management
as a basis for its financial and operational decision making. Non-GAAP information is not prepared under a comprehensive setof 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.
Investor Relations Contact:
Jeff Evanson
650-681-5050
ir@teslamotors.com

Press Contact:
Khobi Brooklyn
Tesla Motors
kbrooklyn@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
Sept 30,
June 30,
Sept 30,
2011
2011
2010
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 expense, net
Loss before income taxes
Provision for income taxes
Net loss
Net loss per common share, basic and diluted(2)(3)(4)
Shares used in per share calculation, basic anddiluted (2)(3)(4)$

43,235
14,431
57,666$39,02819,14358,171$

23,3507,891
31,241

Nine Months Ended
Sept 30,
Sept 30,
2011
2010
$

115,891
48,976
164,867$

67,906
12,55280,45832,752
7,690
40,442
17,22430,5289,135
39,66318,50819,457
2,488
21,945
9,296

90,241
20,866111,10753,76056,581
4,467
61,04819,410$54,083
27,61881,701(64,477)80(594)(64,991)87(65,078) $52,531
24,716
77,247(58,739)46(71)(58,764)
139(58,903) $26,69820,432
47,130(37,834)
100
(298)
3,180
(34,852)
83(34,935)$

147,776
76,545
224,321(170,561)
166(2,150)(172,545)
377(172,922) $55,37959,224
114,603(95,193)
195(992)(6,770)(102,760)
210(102,970)$(0.63) $(0.60) $(0.38)$(1.75) $(2.86)

104,077

97,757

92,271

99,04036,052

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

$

$

171
3,588
4,127
7,886

$

$

181
3,018
3,727
6,926

$

$

72
1,256
2,483
3,811

$

$

506
8,904
11,327
20,737

$

$

150
2,088
11,075
13,313(2) On July 2, 2010, the Company completed its initial public offering (IPO), pursuant to w hich the Company sold 11,880,600 shares ofcommon stock. Concurrent w ith the closing of the IPO, the Company issued 2,941,176 shares of common stock to Toyota Motor
Corporation in a private placement.
Upon the completion of the IPO, all convertible preferred stock automatically converted into 70,226,844 shares of common stock.
Additionally, 445,047 shares of common stock w ere issued upon the net exercise of all outstanding w arrants, excluding the
Department of Energy w arrant.
(3) On November 2, 2010, the Company sold 1,418,573 shares of common stock to Panasonic Corporation in a private placement.
(4) On June 8, 2011, the Company completed its follow -on public offering, pursuant to w hich the Company sold 6,095,000 shares ofcommon stock. Concurrent w ith the closing of the offering, the Company issued 1,416,000 shares of common stock to Elon Musk and637,475 shares of common stock to an affiliate of Daimler AG in a private placement.

Tesla Motors, Inc.
Condensed Consolidated Balance Sheets(Unaudited)(In thousands)
Septem ber 30, Decem ber 31,
2011
2010
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$$

213,328
55,30565,06018,25049,216
10,962
11,672
248,1225,754
22,581
700,250

86,312
5,802
65,2158,189
1,049
225,000
14,565406,132
294,118
700,250

$

$

$

$

99,55873,597
6,710
45,182
10,839
7,963
114,636
4,867
22,730386,082

49,896
7,418
30,755
6,088
775
71,82812,274179,034
207,048
386,082

Tesla Motors, Inc.
Supplem ental Consolidated Financial Inform ation(Unaudited)(In thousands)
Three Months Ended
Sept 30,
June 30,
Sept 30,
2011
2011
2010
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

Nine Months Ended
Sept 30,
Sept 30,
2011
2010

$

21,491
178,170
93,609$22,48823,122
264,335$

45,957
154,679
249,895$

87,276
191,181392,227$

93,533
171,747
292,216

Other Selected Financial Inform ation
Capital expenditures
Capital expenditures related to initial acquisitionof Fremont facility and assets
Total capital expenditures$

68,844$54,314$

10,768$143,634$

23,055$68,844$54,314$55,71066,478$143,634$

58,71081,765

Depreciation and amortization

$

4,280

$

4,317

$

3,109

$

12,115$

7,733

Sept 30,
2011
Cash and Investm ents
Cash and cash equivalents
Restricted cash - current
Short-term marketable securities
Restricted cash - noncurrent$

213,328
55,30565,0605,754June 30,2011$

319,380
11,251
5,433

Tesla Motors, Inc.
Reconciliation of GAAP to Non-GAAP Financial Inform ation(Unaudited)(In thousands, except per share data)
Three Months Ended
Sept 30,
June 30,
Sept 30,
2011
2011
2010
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 liabilities
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 liabilities
Net loss per com m on share, basic anddiluted (Non-GAAP)

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

Nine Months Ended
Sept 30,
Sept 30,
2011
2010

$

54,083 $(3,588)52,531 $(3,018)26,698(1,256)$

147,776 $(8,904)55,379(2,088)$50,49549,513$25,442$

138,872$

53,291$

27,618 $(4,127)

24,716 $(3,727)

20,432(2,483)$76,545 $(11,327)

59,224(11,075)$

23,491

20,989$17,949$65,218$48,149$(65,078) $
7,886
340
(56,852) $(58,903) $
6,926
340
(51,637) $(34,935)
3,811(3,071)(34,195)$(172,922) $20,7372,101(150,084) $(102,970)
13,313
5,610(84,047)$(0.63) $0.08
0.00(0.60) $0.07
0.00(0.38)
0.04(0.03)$(1.75) $0.21
0.02(2.86)
0.37
0.15

$

(0.55) $(0.53) $(0.37)$(1.52) $(2.34)$

104,077$$

97,757

92,271$

99,04036,052

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 liabilities. 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.