Tesla Motors, Inc. – Fourth Quarter & Full Year 2011 Shareholder Letter

Model S deliveries to commence on schedule by July 2012
Model X Premiere – A new vehicle category
New Mercedes-Benz EV powertrain program
Solid Q4 results; 2011 revenue of $204 million
2012 revenue anticipated to be $550-600 million

February 15, 2012
Dear Fellow Shareholders,
We are pleased to report another quarter of solid performance throughout all areas of our company. Most
importantly, Model S development and testing remain on schedule to commence deliveries by July of this year.
Last week we revealed our Model X crossover, a unique blend of a minivan, SUV and sports car based upon our
Model S platform. The response from customers has been simply overwhelming. One day after the reveal, we hadreceived over 500 reservation requests.
We are also pleased to announce the start of a development program with Daimler for a new Mercedes-Benz
vehicle with a full Tesla powertrain. This represents an increase in the scope and scale of our deepening
relationship with Daimler. More details will follow as we complete the contractual arrangements.
Our financial results for Q4 and full year 2011 reflect the continued demand for the Roadster and success in ourPowertrain activities. Total revenues in the fourth quarter were $39 million, up 9% from Q4 of last year, and we
concluded 2011 with over $204 million in revenues, up 75% from the year before.
Our losses reflect the planned investments in R&D and corporate infrastructure to support the launch of Model S.
Our Q4 non-GAAP net loss was $0.69 per share, and $0.78 per share on a GAAP basis. For 2011, our non-GAAP
net loss was $2.21 per share, and $2.53 per share on a GAAP basis. Net losses will continue as planned until wereach volume sales of Model S in 2013.

Model S Development and Factory Preparation
Vehicle development and factory preparation remain
on track to support our goal of initial Model S
deliveries by July of this year. Almost 100% of thefactory equipment needed to manufacture Model S is
now in place. We are now fully assembling Beta
vehicles at the Tesla Factory, and have alreadycompleted 30 of about 50 Betas we plan to produce.
We continue to receive increasing quantities of diesand moulds for production of Model S parts in ourpress and plastics centers, and expect to have all ofthem fully commissioned by this spring.
Body Assembly Robotics – Tesla Factory
The detailed testing planned with these vehicles,
including testing for performance, safety and regulatory compliance, also remains on track. Notably, we achieved a
0 to 60 mph acceleration time of under 4.5 seconds in an outdoor test of the performance version of the Model S,
successfully confirming our modeling assumptions.
We expect to complete building our Beta vehicles and start building Release Candidate vehicles in the first quarter.
During this process we are continuing to fine-tune our production processes and incorporate a higher percentage
of production-intent components into the cars. Once Model S is qualified for street driving on U.S. roads, we
expect to make cars available to customers for test drives in early summer.

Store Expansion & Growing Model S Reservations
During the quarter, we opened three New Design stores in Bellevue, WA, Chicago, IL and Newport Beach, CA,
and a Tesla Gallery in Houston, TX. We now have stores or galleries in 20 locations globally. We expect to open
about 8-10 new stores and 10-15 new service centers this year, primarily in the U.S. The service centers,
complimented by our Tesla Ranger service, should enable us to provide service to our customers throughout theU.S.
The response to our store strategy continues to surpass our expectations – nearly 300,000 people visited our six
New Design locations during the month of December. This extraordinary level of consumer contact proves that ourstores represent an effective branding and sales strategy.
Reservations for Model S continued to grow during the quarter. Aided by our store growth, the October customer
event in Fremont, and the formalization of pricing, we added over 1,500 net new reservations during the quarter.
This brings our total count to over 8,000 reservations as of the end of December, with all U.S. Signature Series
reservations sold out in January!

Tesla Model X World Premiere
Last week, we hosted the world premiere of our Model X crossover vehicle with over a thousand guests. Model X
targets the design and performance-conscious consumer with a family.
Starting with the Model S platform, our design engineers were able to create a vehicle that is smaller than otherseven passenger vehicles on the outside, but has substantially more room inside. The design is then amped-up in
the Tesla way … we announced that Model X will offer an all-wheel drive system with a dual motor which we
anticipate will propel the vehicle from 0 to 60 mph in 4.4 seconds. This would make Model X faster than manysports cars. Matched with superior handling resulting from its low center of gravity, Model X should offer aremarkable combination of functionality, style and performance.

Model X should also offer exceptional levels of access and safety. With our innovative Falcon Wing doors, Model X
has very convenient access to its third row passenger seats. Model X is the only seven passenger crossovervehicle that allows third row access without folding the second row (thus avoiding the removal of a child seat in thesecond row). In addition, we expect that Model X’s exceptional handling and its all-weather, all-road capabilities
will make it a very safe vehicle.
Pricing for the Model X will be similar to a comparably
equipped Model S, and will also be offered with Signature
Series and performance versions. A Model X reservation
requires a minimum $5,000 refundable deposit - a serious
customer commitment. One day after the reveal, we received
over 500 reservation requests, representing almost $40
million in potential sales, and making Model X our mostpopular product introduction ever.

Tesla Model X – Falcon Wing Doors Deployed

These reservations came without Super Bowl ads orextensive marketing. Instead, a very compelling vehicle
garnered such massive media attention that for a period last
Friday, Model X was the third most searched term on Google.
Moreover, since the event we have seen a modest increasein Model S reservations as well, suggesting to us that Model
X is a complementary product to Model S, and that the riskof Model S cannibalization is low.

Since Model X leverages the Model S architecture and powertrain, we continue to anticipate that Model X can bebrought to production quickly. We plan to start Model X production in late 2013 and ramp to significant customer
deliveries in early 2014, with volumes targeted at 10,000-15,000 units per year. Importantly, much of theequipment we are currently installing at the Tesla Factory for Model S can also be used for Model X.

Powertrain Update; Daimler Partnership Deepens
We are pleased with our deepening partnership with Daimler. Daimler recently issued Tesla an initial purchaseorder to develop a full powertrain for a new, all-electric Mercedes-Benz. We anticipate that this vehicle program will
represent an increase in the scope and scale of our work with Daimler. While our prior programs have only usedTesla battery packs and chargers, this program will be for a full powertrain, which also includes the motor,
gearbox, inverter and all related software. We expect to recognize development services revenue from thisprogram starting in Q2. The full development services and production agreements are expected to be finalized
shortly. The key elements of the program, including launch timing, will be announced by Daimler at the appropriatetime.
The RAV4 EV program continues on schedule. We expect to complete all milestones in the Toyota RAV4 EV
development program on schedule in Q1, and plan to ship complete powertrain systems under the production
contract starting in Q2.
Today, there are more Tesla-produced pure EV battery packs in the hands of Daimler and Toyota than Roadsters.
This gives us a wealth of real-world data to compliment the nearly 20 million miles our customers haveaccumulated during Roadster driving.

Solid Financial Performance
Total revenues in Q4 were $39 million, up 9% from Q4 of last year. Full year revenues of $204 million were up
75% from 2010. Automotive sales in Q4 were up 12% from last year due to higher Roadster related revenue. Thiswas partially offset by declining powertrain component sales, as we wrapped up the production programs with
Daimler on A-Class and Smart EVs on schedule.
We delivered 150 Roadsters in Q4. As expected, unit deliveries declined slightly from last quarter, due to thesuccessful wind down of sales in the U.S. In the rest of the world sales rose sequentially, except for the U.K. Total
Roadster deliveries worldwide now exceed 2,150. We have now completed the assembly of the last gliders for theRoadster at Lotus. We expect to sell the remaining 330 Roadsters in Europe and Asia by the end of 2012.
Automotive gross margin at 23% was consistent with last quarter. Development services gross margin was only
6%, thus resulting in a total gross margin of 20%, down from last quarter. As shared before, timing differences
between recognition of revenue and the underlying costs of development services can cause the gross margin ofour development services contracts to vary from quarter to quarter. With the conclusion of the Toyota development
services contract this quarter, we expect development services margin to improve substantially in Q1. Full year
2011 total gross margin was very solid at 30%.
Our operating expenses continue to reflect our investments in the development of powertrain technology and new
products, as well as the build-out of our infrastructure. Our total Q4 operating expenses were $89 million on a
GAAP basis and $80 million on a non-GAAP basis, which excludes stock-based compensation expense.
Over two-thirds of our operating expenses relate to our investments in research and development (R&D). R&D
spending increased from last quarter, reflecting ongoing costs of developing the Model S, increased activity inpreparing the Tesla Factory and the build of Beta vehicles. Selling, general and administrative (SG&A) expenses
remained flat from last quarter, as higher store-related and marketing activities, including the opening of newstores, were offset by savings in G&A functions.
Capital expenditures were about $54 million in Q4 as we continued to build out the Tesla Factory and invest in
tooling for Model S. Full year 2011 capex was $198 million, below the low end of our guidance of between $220
and $245 million.
In total, our non-GAAP net loss for the quarter was $72 million, or $0.69 per share, based on 104.4 million
weighted common shares outstanding.
At the end of the year, we had cash and cash equivalents on our balance sheet of $304 million. Combining the
cash on hand with the additional $189 million we have left to draw on our loan facility with the Department ofEnergy, we now have approximately $493 million in available capital. We drew down $51 million from our DoE loan
facility in Q4. Our projects continue to be on track with the DoE per the terms of the loan agreement, and ourrelationship with the DoE remains strong.

2012 Financial Guidance
2012 is really a year of two halves for Tesla. Before Model S is launched, we expect that our quarterly revenue inthe first half of the year should be lower than Q4. This is based on a lower rate of Roadster sales due to its
availability only in Europe and Asia, as well as the transitions in our powertrain activities from existing Daimler andToyota projects to the new development program for Daimler and start of component sales for the Toyota RAV4
EV. After Model S deliveries begin, our revenues should increase significantly. On the expectation of delivering
5,000 Model S sedans in addition to our other ongoing Roadster and powertrain sales, we anticipate that full year
revenues will be in the range of $550-600 million, split about 10%/90% between the first and second halves of2012.
Gross margin is expected to vary quite a bit this year. Due to timing differences associated with revenue
recognition on the Toyota development services contract, we expect gross margin will be in the high 30% range inQ1. In Q2 we expect gross margin to be closer to the level for this quarter as we transition to the start ofcomponent production for Toyota RAV4 EV. The start of Model S deliveries causes a shift of our production
expenses from R&D expense to cost of revenues. Once deliveries begin, our gross margin should be heavily
influenced by capacity utilization. As we plan to slowly ramp our production in order to produce high quality cars,
we expect that our gross margin in Q3 will be positive, but likely not meaningful. In Q4, we expect margin to
improve significantly as volume ramps up, ultimately tracking toward our target of 25% gross margin uponachieving the manufacturing efficiencies associated with our objective of 20,000 deliveries in 2013.
R&D spending will start the year modestly above the Q4 level. As we have discussed in the past, this is due to theinclusion of factory spending in R&D and completion of all pre-production engineering and testing for Model S Beta
and Release Candidate vehicles - which adds $15-20 million per quarter in the first half of the year. We expect
R&D spending will drop in the second half of the year after the launch of Model S, although there will be somepick-up in spending on Model X during that period.
SG&A expenses are presently about equally split between G&A and sales & marketing (S&M) expenses. G&A
expenses should grow slightly each quarter in 2012 from last quarter, while S&M expenses should scale with thegrowth of new store and service center openings. Stock-based compensation should be about $40-45 million thisyear. We expect that capital expenditures should be about the same as last year at approximately $200-220
million. This includes about $30 million that shifted slightly from late 2011 to early 2012, based on the timing of
final payments for equipment and tooling.
We expect that reservations should continue to grow and changes in working capital should help improve cashfrom operations. Based on our current plans, we believe that we have adequate liquidity to reach profitability in
2013.

In Closing
While we hope the initial success of the Model X further demonstrates our company’s potential, we are maintaining
our immediate focus on delivering an awesome Model S to our customers by July. We look forward to showing theworld that electric vehicles can surpass 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 fourth quarter 2011 financial results conference call beginning at 2:30 p.m. PDT on
February 15, 2012, 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 in the “2012 Financial Guidance” section of this Shareholder
Letter, statements relating to the progress Tesla is making with respect to the development, testing, performance, attributes,
schedule of development and launch, and volume expectations of Model S; the schedule, development, features, anticipatedperformance, safety expectations, 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, spending and profitability 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 andToyota; 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 from those projected. The following important factors, without limitation, could cause actual results to differ materiallyfrom those in the forward-looking statements: Tesla’s future success depends on its ability to design and achieve market
acceptance of new vehicle models, specifically Model S and Model X; the risk of delays in the design, manufacture, launch andfinancing of Model S, including the build-out of its Model S manufacturing facility and the ability of its suppliers to meet quality
and part delivery expectations; the risk of a decline in revenues prior to the launch of Model 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 ofEnergy; risks associated with the ability to achieve the expected financial results from the production of powertrain systems for
the Toyota RAV4 EV; 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; 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 November 14, 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 liabilities. 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)

Dec 31,
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 (benefit from) 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)$Three Months Ended
Sept 30,
Dec 31,
2011
2010

32,677
6,698
39,375$43,235
14,431
57,666$29,172
7,114
36,286

Year Ended
Dec 31,
Dec 31,
2011
2010
$

148,568
55,674204,242$

97,07819,666
116,744

25,241
6,299
31,5407,835

32,752
7,690
40,442
17,224

23,401
1,564
24,965
11,321

115,482
27,165
142,647
61,59579,982
6,031
86,01330,731$

61,20627,556
88,762(80,927)
89
(43)
(495)
(81,376)
112(81,488) $54,083
27,61881,701(64,477)80(594)(64,991)87(65,078) $37,61725,34962,966(51,645)63
187(51,395)(37)(51,358)$

208,981
104,102
313,083(251,488)255(43)(2,646)(253,922)
489(254,411) $92,996
84,573
177,569(146,838)
258(992)(6,583)(154,155)
173(154,328)$(0.78) $(0.63) $(0.54)$(2.53) $(3.04)

104,392

104,077

94,240100,389

50,718Notes:(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

$

$

164
4,473
4,045
8,682

$

$

171
3,588
4,127
7,886

$

$

93
2,051
5,699
7,843

$

$

670
13,377
15,372
29,419

$

$

243
4,139
16,774
21,156(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)
Decem ber 31, 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$$

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$

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)

Dec 31,
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
Other Selected Financial Inform ation
Capital expenditures
Capital expenditures related to initial acquisitionof Fremont facility and assets
Total capital expenditures
Depreciation and amortization

Three Months Ended
Sept 30,
Dec 31,
2011
2010

27,08815,25453,772$

21,491 $(178,170)
93,60934,284(8,550)45,829$114,364 $(175,928)
446,000

127,817(180,297)
338,045$

54,262$

68,844$

23,648$

197,896$

40,203$54,262$

68,844$

23,648$

197,896$

65,210105,413

$

4,804

$

4,280

$

2,890

$

16,919$10,623

Dec 31,
2011
Cash and Investm ents
Cash and cash equivalents
Restricted cash - current
Short-term marketable securities
Restricted cash - noncurrent

Year Ended
Dec 31,
Dec 31,
2011
2010

$

255,266
23,47625,061
8,068

Sept 30,
2011$

213,328
55,30565,0605,754

Dec 31,
2010$

99,55873,5974,867

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

Dec 31,
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 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)

Three Months Ended
Sept 30,
Dec 31,
2011
2010

Year Ended
Dec 31,
Dec 31,
2011
2010

$

61,206 $(4,473)54,083 $(3,588)37,617(2,051)$

208,981 $(13,377)

92,996(4,139)$56,73350,495$35,566$

195,604$

88,857$27,556 $(4,045)27,618 $(4,127)25,349(5,699)$104,102 $(15,372)

84,573(16,774)$

23,511

23,491$

19,650$88,730$67,799$(81,488) $
8,682
649
(72,157) $(65,078) $
7,886
340
(56,852) $(51,358)
7,843
(587)
(44,102)$(254,411) $29,4192,750(222,242) $(154,328)
21,156
5,022(128,150)$(0.78) $0.08
0.01(0.63) $0.08
0.00(0.54)
0.08(0.01)$(2.53) $0.29
0.03(3.04)
0.42
0.09

$

(0.69) $(0.55) $(0.47)$(2.21) $(2.53)$

104,392$$

104,077

94,240$100,389

50,718

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.