Edgar Filing: Tesla, Inc.

tsla-10q_20180930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34756

Tesla, Inc.

(Exact name of registrant as specified in its charter)

Delaware

91-2197729

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3500 Deer Creek Road

Palo Alto, California

94304

(Address of principal executive offices)

(Zip Code)

(650) 681-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 26, 2018, there were 171,732,775 shares of the registrant’s common stock outstanding.

TESLA, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2018

INDEX

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income (Loss)	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	70

SIGNATURES		72

Forward-Looking Statements

The discussions in this Quarterly Report on Form 10-Q contain forward-looking statements reflecting our current expectations that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, profitability, expected cost reductions, capital adequacy, expectations regarding demand and acceptance for our technologies, growth opportunities and trends in the market in which we operate, prospects and plans and objectives of management. The words “anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”, “plans”, “projects”, “will”, “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission. We do not assume any obligation to update any forward-looking statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Tesla, Inc.

Consolidated Balance Sheets

(in thousands, except for par values)

(unaudited)

	September 30,			December 31,
	2018			2017
Assets
Current assets
Cash and cash equivalents	$	2,967,504		$	3,367,914
Restricted cash		158,627			155,323
Accounts receivable, net		1,155,001			515,381
Inventory		3,314,127			2,263,537
Prepaid expenses and other current assets		325,232			268,365
Total current assets		7,920,491			6,570,520
Operating lease vehicles, net		2,186,137			4,116,604
Solar energy systems, leased and to be leased, net		6,301,537			6,347,490
Property, plant and equipment, net		11,246,295			10,027,522
Intangible assets, net		291,476			361,502
Goodwill		65,226			60,237
MyPower customer notes receivable, net of current portion		422,897			456,652
Restricted cash, net of current portion		396,835			441,722
Other assets		431,819			273,123
Total assets	$	29,262,713		$	28,655,372
Liabilities
Current liabilities
Accounts payable	$	3,596,984		$	2,390,250
Accrued liabilities and other		1,990,095			1,731,366
Deferred revenue		570,920			1,015,253
Resale value guarantees		604,949			787,333
Customer deposits		905,838			853,919
Current portion of long-term debt and capital leases		2,106,538			796,549
Current portion of promissory notes issued to related parties		—			100,000
Total current liabilities		9,775,324			7,674,670
Long-term debt and capital leases, net of current portion		9,669,879			9,415,700
Solar bonds issued to related parties, net of current portion		100			100
Convertible senior notes issued to related parties		2,634			2,519
Deferred revenue, net of current portion		950,126			1,177,799
Resale value guarantees, net of current portion		455,762			2,309,222
Other long-term liabilities		2,555,319			2,442,970
Total liabilities		23,409,144			23,022,980
Commitments and contingencies (Note 12)
Redeemable noncontrolling interests in subsidiaries		551,264			397,734
Convertible senior notes (Note 10)		—			70
Equity
Stockholders' equity
Preferred stock; $0.001 par value; 100,000 shares authorized; no shares issued and outstanding		—			—
Common stock; $0.001 par value; 2,000,000 shares authorized; 171,578 and 168,797 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		171			169
Additional paid-in capital		9,957,711			9,178,024
Accumulated other comprehensive income		8,271			33,348
Accumulated deficit		(5,457,315	)		(4,974,299	)
Total stockholders' equity		4,508,838			4,237,242
Noncontrolling interests in subsidiaries		793,467			997,346
Total liabilities and equity	$	29,262,713		$	28,655,372

The accompanying notes are an integral part of these consolidated financial statements.

Tesla, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues
Automotive sales	$	5,878,305		$	2,076,731		$	11,558,051		$	6,125,643
Automotive leasing		220,461			286,158			633,713			813,462
Total automotive revenues		6,098,766			2,362,889			12,191,764			6,939,105
Energy generation and storage		399,317			317,505			1,183,747			818,229
Services and other		326,330			304,281			859,884			713,168
Total revenues		6,824,413			2,984,675			14,235,395			8,470,502
Cost of revenues
Automotive sales		4,405,919			1,755,622			9,027,055			4,724,849
Automotive leasing		119,283			175,224			360,694			516,683
Total automotive cost of revenues		4,525,202			1,930,846			9,387,749			5,241,532
Energy generation and storage		330,554			237,288			1,036,190			592,823
Services and other		444,992			367,401			1,212,335			852,446
Total cost of revenues		5,300,748			2,535,535			11,636,274			6,686,801
Gross profit		1,523,665			449,140			2,599,121			1,783,701
Operating expenses
Research and development		350,848			331,622			1,104,073			1,023,436
Selling, general and administrative		729,876			652,998			2,167,039			1,794,210
Restructuring and other		26,184			—			129,618			—
Total operating expenses		1,106,908			984,620			3,400,730			2,817,646
Income (loss) from operations		416,757			(535,480	)		(801,609	)		(1,033,945	)
Interest income		6,907			5,531			17,185			13,406
Interest expense		(175,220	)		(117,109	)		(488,348	)		(324,896	)
Other income (expense), net		22,876			(24,390	)		36,071			(83,696	)
Income (loss) before income taxes		271,320			(671,448	)		(1,236,701	)		(1,429,131	)
Provision (benefit) for income taxes		16,647			(285	)		35,959			40,640
Net income (loss)		254,673			(671,163	)		(1,272,660	)		(1,469,771	)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries		(56,843	)		(51,787	)		(157,086	)		(183,721	)
Net income (loss) attributable to common stockholders	$	311,516		$	(619,376	)	$	(1,115,574	)	$	(1,286,050	)
Net income (loss) per share of common stock attributable to common stockholders, basic and diluted
Basic	$	1.82		$	(3.70	)	$	(6.56	)	$	(7.80	)
Diluted	$	1.75		$	(3.70	)	$	(6.56	)	$	(7.80	)
Weighted average shares used in computing net income (loss) per share of common stock
Basic		170,893			167,294			170,019			164,897
Diluted		178,196			167,294			170,019			164,897

The accompanying notes are an integral part of these consolidated financial statements.

Tesla, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income (loss) attributable to common stockholders	$	311,516		$	(619,376	)	$	(1,115,574	)	$	(1,286,050	)
Unrealized gains (losses) on derivatives:
Reclassification adjustment for net losses into net loss		—			—			—			(5,570	)
Foreign currency translation adjustment		(10,274	)		10,289			(25,077	)		50,560
Other comprehensive (loss) income		(10,274	)		10,289			(25,077	)		44,990
Comprehensive income (loss)	$	301,242		$	(609,087	)	$	(1,140,651	)	$	(1,241,060	)

The accompanying notes are an integral part of these consolidated financial statements.

Tesla, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2018			2017
Cash Flows from Operating Activities
Net loss	$	(1,272,660	)	$	(1,469,771	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, amortization and impairment		1,404,313			1,166,397
Stock-based compensation		543,711			332,412
Amortization of debt discounts and issuance costs		120,873			60,613
Inventory write-downs		59,983			98,347
Loss on disposals of fixed assets		132,639			59,640
Foreign currency transaction (gains) losses		(6,614	)		35,933
Loss related to SolarCity acquisition		—			29,796
Non-cash interest and other operating activities		22,093			109,729
Changes in operating assets and liabilities, net of effect of business combinations:
Accounts receivable		(686,103	)		(105,643	)
Inventory		(1,110,611	)		(418,970	)
Operating lease vehicles		(188,948	)		(1,083,140	)
Prepaid expenses and other current assets		(31,532	)		(123,832	)
MyPower customer notes receivable and other assets		(62,399	)		17,628
Accounts payable and accrued liabilities		1,627,997			170,326
Deferred revenue		284,417			329,007
Customer deposits		9,471			3,815
Resale value guarantee		(57,621	)		141,044
Other long-term liabilities		74,232			76,124
Net cash provided by (used in) operating activities		863,241			(570,545	)
Cash Flows from Investing Activities
Purchases of property and equipment excluding capital leases, net of sales		(1,775,746	)		(2,628,126	)
Purchases of solar energy systems, leased and to be leased		(189,869	)		(547,085	)
Business combinations, net of cash acquired		(6,804	)		(109,147	)
Net cash used in investing activities		(1,972,419	)		(3,284,358	)
Cash Flows from Financing Activities
Proceeds from issuances of common stock in public offerings		—			400,175
Proceeds from issuances of convertible and other debt		3,946,575			5,401,158
Repayments of convertible and other debt		(3,111,242	)		(2,442,942	)
Repayments of borrowings under Solar Bonds issued to related parties		(100,000	)		(165,000	)
Collateralized lease (repayments) borrowings		(343,086	)		416,427
Proceeds from exercises of stock options and other stock issuances		219,945			239,328
Principal payments on capital leases		(105,867	)		(69,496	)
Common stock and debt issuance costs		(5,121	)		(50,530	)
Purchases of convertible note hedges		—			(204,102	)
Proceeds from settlement of convertible note hedges		—			269,456
Proceeds from issuances of warrants		—			52,883
Payments for settlements of warrants		(5	)		(219,538	)
Proceeds from investments by noncontrolling interests in subsidiaries		366,297			691,918
Distributions paid to noncontrolling interests in subsidiaries		(178,511	)		(190,715	)
Payments for buy-outs of noncontrolling interests in subsidiaries		(2,921	)		—
Net cash provided by financing activities		686,064			4,129,022
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(18,879	)		35,736
Net (decrease) increase in cash and cash equivalents and restricted cash		(441,993	)		309,855
Cash and cash equivalents and restricted cash, beginning of period		3,964,959			3,766,900
Cash and cash equivalents and restricted cash, end of period	$	3,522,966		$	4,076,755
Supplemental Non-Cash Investing and Financing Activities
Acquisitions of property and equipment included in liabilities	$	305,974		$	1,021,692
Estimated fair value of facilities under build-to-suit leases	$	61,709		$	173,075

The accompanying notes are an integral part of these consolidated financial statements.

Tesla, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 1 – Overview

Tesla, Inc. (“Tesla”, the “Company”, “we”, “us” or “our”) was incorporated in the State of Delaware on July 1, 2003. We design, develop, manufacture and sell high-performance fully electric vehicles and design, manufacture, install and sell solar energy generation and energy storage products. Our Chief Executive Officer, as the chief operating decision maker (“CODM”), organizes the Company, manages resource allocations and measures performance among two operating and reportable segments: (i) automotive and (ii) energy generation and storage.

Note 2 – Summary of Significant Accounting Policies

Unaudited Interim Financial Statements

The consolidated balance sheet as of September 30, 2018, the consolidated statements of operations and the consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2018 and 2017 and the consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated financial statements as of that date. The interim consolidated financial statements and the accompanying notes should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2017.

The interim consolidated financial statements and the accompanying notes have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future years or interim periods.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes as a result of the adoption of the Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash.

Revenue Recognition

Adoption of new accounting standards

ASU 2014-09, Revenue - Revenue from Contracts with Customers. On January 1, 2018, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) using the modified retrospective method. As a policy election, the new revenue standard was applied only to contracts that were not substantially completed as of the date of adoption. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the January 1, 2018 opening balance of accumulated deficit. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

A majority of our automotive sales revenue is recognized when control transfers upon delivery to customers. For certain vehicle sales where revenue was previously deferred either as an in-substance operating lease, such as certain vehicle sales to customers or leasing partners with a resale value guarantee, we now recognize revenue when the vehicles are shipped as a sale with a right of return. As a result, the corresponding operating lease asset, deferred revenue, and resale value guarantee balances as of December 31, 2017, were reclassified to accumulated deficit as part of our adoption entry. Furthermore, the warranty liability related to such vehicles has been accrued as a result of the change from in-substance operating leases to vehicle sales. Prepayments on contracts that can be cancelled without significant penalties, such as vehicle maintenance plans, have been reclassified from deferred revenue to customer deposits. Refer to the Automotive Revenue and Automotive Leasing Revenue sections below for further discussion of the impact on various categories of vehicle sales.

Following the adoption of the new revenue standard, the revenue recognition for our other sales arrangements, including sales of solar energy systems, energy storage products, services, and sales of used vehicles, remained consistent with our historical revenue recognition policy. Under our lease pass-through fund arrangements, we do not have any further performance obligations and therefore reclassified all investment tax credit (“ITC”) deferred revenue as of December 31, 2017, to accumulated deficit as part of our adoption entry. The corresponding effects of the changes to lease pass-through fund arrangements are also reflected in our non-controlling interests in subsidiaries. Additionally, we have considered the impact from any new revenue arrangements in the current year that would have been accounted for differently under ASC 605, Revenue Recognition, as an adjustment from adoption of the new revenue standard.

Accordingly, the cumulative effect of the changes made to our consolidated January 1, 2018 consolidated balance sheet for the adoption of the new revenue standard was as follows (in thousands):

	Balances at December 31, 2017			Adjustments from Adoption of New Revenue Standard			Balances at January 1, 2018
Assets
Inventory	$	2,263,537		$	(27,009	)	$	2,236,528
Prepaid expenses and other current assets		268,365			51,735			320,100
Operating lease vehicles, net		4,116,604			(1,808,932	)		2,307,672
Other assets		273,123			68,355			341,478
Liabilities
Accrued liabilities and other		1,731,366			74,487			1,805,853
Deferred revenue		1,015,253			(436,737	)		578,516
Resale value guarantees		787,333			(295,909	)		491,424
Customer deposits		853,919			56,081			910,000
Deferred revenue, net of current portion		1,177,799			(429,771	)		748,028
Resale value guarantees, net of current portion		2,309,222			(1,346,179	)		963,043
Other long-term liabilities		2,442,970			104,767			2,547,737
Redeemable noncontrolling interests in subsidiaries		397,734			8,101			405,835
Equity
Accumulated other comprehensive income		33,348			15,221			48,569
Accumulated deficit		(4,974,299	)		623,172			(4,351,127	)
Noncontrolling interests in subsidiaries		997,346			(89,084	)		908,262

In accordance with the new revenue standard requirements, the impact of adoption on our consolidated balance sheet was as follows (in thousands):

	September 30, 2018
	As Reported			Balances Without Adoption of New Revenue Standard			Effect of Change Higher / (Lower)
Assets
Accounts receivable	$	1,155,001		$	1,099,914		$	55,087
Inventory		3,314,127			3,431,185			(117,058	)
Prepaid expenses and other current assets		325,232			247,056			78,176
Operating lease vehicles, net		2,186,137			4,177,710			(1,991,573	)
Other assets		431,819			321,847			109,972
Liabilities
Accrued liabilities and other		1,990,095			1,896,319			93,776
Deferred revenue		570,920			1,080,243			(509,323	)
Resale value guarantees		604,949			978,515			(373,566	)
Customer deposits		905,838			850,229			55,609
Deferred revenue, net of current portion		950,126			1,387,829			(437,703	)
Resale value guarantees, net of current portion		455,762			2,016,861			(1,561,099	)
Other long-term liabilities		2,555,319			2,441,543			113,776
Redeemable noncontrolling interests in subsidiaries		551,264			544,315			6,949
Equity
Accumulated other comprehensive gain		8,271			13,875			(5,604	)
Accumulated deficit		(5,457,315	)		(6,287,370	)		830,055
Noncontrolling interests in subsidiaries		793,467			871,733			(78,266	)

In accordance with the new revenue standard requirements, the impact of adoption on our consolidated statement of operations and consolidated statement of comprehensive loss was as follows (in thousands):

	Three Months Ended September 30, 2018							Nine Months Ended September 30, 2018
	As Reported		Balances Without Adoption of New Revenue Standard		Effect of Change Higher / (Lower)			As Reported			Balances Without Adoption of New Revenue Standard		Effect of Change Higher / (Lower)
Revenues
Automotive sales	$	5,878,305	$	5,399,316	$	478,989		$	11,558,051		$	10,414,408	$	1,143,643
Automotive leasing		220,461		469,837		(249,376	)		633,713			1,237,239		(603,526	)
Energy generation and storage		399,317		408,205		(8,888	)		1,183,747			1,163,935		19,812
Cost of revenues
Automotive sales		4,405,919		4,076,044		329,875			9,027,055			8,231,328		795,727
Automotive leasing		119,283		307,957		(188,674	)		360,694			811,671		(450,977	)

Provision (benefit) for income taxes		16,647		16,984		(337	)		35,959			37,329		(1,370	)
Net income (loss)		254,673		174,812		79,861			(1,272,660	)