TeslaMotors,Inc.AnnualReport2017Form10-K(NASDAQ:TSLA)

Published:March1st,2017

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UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION

Washington,D.C.20549

FORM10-K

(MarkOne)☒ ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934

ForthefiscalyearendedDecember31,2016OR

☐ TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934

Forthetransitionperiodfrom toCommissionFileNumber:001-34756

Tesla,Inc.(Exactnameofregistrantasspecifiedinitscharter)

Delaware 91-2197729(Stateorotherjurisdictionofincorporationororganization)

(I.R.S.EmployerIdentificationNo.)

3500DeerCreekRoadPaloAlto,California 94304

(Addressofprincipalexecutiveoffices) (ZipCode)(650)681-5000

(Registrant’stelephonenumber,includingareacode)SecuritiesregisteredpursuanttoSection12(b)oftheAct:

Titleofeachclass NameofeachexchangeonwhichregisteredCommonStock,$0.001parvalue TheNASDAQStockMarketLLC

SecuritiesregisteredpursuanttoSection12(g)oftheAct:None

Indicatebycheckmarkwhethertheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.Yes ☒No☐IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13or15(d)oftheAct.Yes ☐No☒Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934

(“ExchangeAct”)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes☒No☐

IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-Tduringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).Yes☒No☐

IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrant’sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.☐

Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfilerorasmallerreportingcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler,”and“smallerreportingcompany”inRule12b-2oftheExchangeAct:

Largeacceleratedfiler ☒ Acceleratedfiler ☐

Non-acceleratedfiler ☐(Donotcheckifasmallerreportingcompany) Smallerreportingcompany ☐Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).Yes ☐No☒Theaggregatemarketvalueofvotingstockheldbynon-affiliatesoftheregistrant,asofJune30,2016,thelastdayofregistrant’smostrecently

completedsecondfiscalquarter,was$24,663,024,104(basedontheclosingpriceforsharesoftheregistrant’sCommonStockasreportedbytheNASDAQGlobalSelectMarketonJune30,2016).SharesofCommonStockheldbyeachexecutiveofficer,director,andholderof5%ormoreoftheoutstandingCommonStockhavebeenexcludedinthatsuchpersonsmaybedeemedtobeaffiliates.Thisdeterminationofaffiliatestatusisnotnecessarilyaconclusivedeterminationforotherpurposes.

AsofJanuary31,2017,therewere161,670,428sharesoftheregistrant’sCommonStockoutstanding.DOCUMENTSINCORPORATEDBYREFERENCE

Portionsoftheregistrant’sProxyStatementforthe2017AnnualMeetingofStockholdersareincorporatedhereinbyreferenceinPartIIIofthisAnnualReportonForm10-Ktotheextentstatedherein.SuchproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionwithin120daysoftheregistrant’sfiscalyearendedDecember31,2016.

TESLA,INC.

ANNUALREPORTONFORM10-KFORTHEYEARENDEDDECEMBER31,2016

INDEX PagePARTI.

Item1. Business 1Item1A. RiskFactors 14Item1B. UnresolvedStaffComments 29Item2. Properties 30Item3. LegalProceedings 30Item4. MineSafetyDisclosures 31

PARTII.

Item5. MarketforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 32Item6. SelectedFinancialData 34Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 35Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 51Item8. FinancialStatementsandSupplementaryData 53Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 105Item9A. ControlsandProcedures 105Item9B. OtherInformation 105

PARTIII.

Item10. Directors,ExecutiveOfficersandCorporateGovernance 106Item11. ExecutiveCompensation 106Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 106Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 106Item14. PrincipalAccountantFeesandServices 106

PARTIV.

Item15. ExhibitsandFinancialStatementSchedules 106

Signatures 140

Forward-LookingStatements

ThediscussionsinthisAnnualReportonForm10-Kcontainforward-lookingstatementsreflectingourcurrentexpectationsthatinvolverisksanduncertainties.Theseforward-lookingstatementsinclude,butarenotlimitedto,statementsconcerningourstrategy,futureoperations,futurefinancialposition,futurerevenues,projectedcosts,profitability,expectedcostreductions,capitaladequacy,expectationsregardingdemandandacceptanceforourtechnologies,growthopportunitiesandtrendsinthemarketinwhichweoperate,prospectsandplansandobjectivesofmanagement.Thewords“anticipates”,“believes”,“could,”“estimates”,“expects”,“intends”,“may”,“plans”,“projects”,“will”,“would”andsimilarexpressionsareintendedtoidentifyforward-lookingstatements,althoughnotallforward-lookingstatementscontaintheseidentifyingwords.Wemaynotactuallyachievetheplans,intentionsorexpectationsdisclosedinourforward-lookingstatementsandyoushouldnotplaceunduerelianceonourforward-lookingstatements.Actualresultsoreventscoulddiffermateriallyfromtheplans,intentionsandexpectationsdisclosedintheforward-lookingstatementsthatwemake.Theseforward-lookingstatementsinvolverisksanduncertaintiesthatcouldcauseouractualresultstodiffermateriallyfromthoseintheforward-lookingstatements,including,withoutlimitation,theriskssetforthinPartI,Item1A,“RiskFactors”inthisAnnualReportonForm10-KandinourotherfilingswiththeSecuritiesandExchangeCommission.Wedonotassumeanyobligationtoupdateanyforward-lookingstatements.

PARTI

ITEM1. BUSINESS

OverviewWedesign,develop,manufactureandsellhigh-performancefullyelectricvehicles,andenergystoragesystems,aswellas

install,operateandmaintainsolarandenergystorageproducts.Wearetheworld’sonlyverticallyintegratedenergycompany,offeringend-to-endcleanenergyproducts,includinggeneration,storageandconsumption.Wehaveestablishedaglobalnetworkofvehiclestores,servicecentersandSuperchargerstationstoacceleratethewidespreadadoptionofourproducts.Ourvehicles,engineeringexpertiseacrossmultipleproductsandsystems,intensefocustoacceleratetheworld'stransitiontosustainabletransport,andbusinessmodeldifferentiatesusfromothermanufacturers.

Wecurrentlyproduceandselltwofullyelectricvehicles,theModelSsedanandtheModelXsportutilityvehicle(SUV).Bothvehiclesofferexceptionalperformance,functionalityandattractivestyling.WecommenceddeliveriesofModelSinJune2012andhavecontinuedtoimproveModelSbyintroducingperformance,all-wheeldrivedualmotor,andautopilotoptions,aswellasfreeover-the-airsoftwareupdates.

WecommenceddeliveriesofModelXinthethirdquarterof2015.ModelXoffersexceptionalsafety,seatingforuptosevenpeople,all-wheeldrive,andourautopilotfunctionality.WearecurrentlyrampingproductionanddeliveriesofModelXintheUnitedStates,EuropeandAsia.

OurnextvehicleintroductionistheModel3,alowerpricedsedandesignedforthemassmarket.WeintendtobeginvolumeproductionanddeliveriesofModel3inthesecondhalfof2017.Wealsointendtobringadditionalvehiclestomarketinthefuture.Theproductionoffullyelectricvehiclesthatmeetsconsumers’rangeandperformanceexpectationsrequiressubstantialdesign,engineering,andintegrationworkonalmosteverysystemofourvehicles.Ourdesignandvehicleengineeringcapabilities,combinedwiththetechnicaladvancementsofourpowertrainsystem,haveenabledustodesignanddevelopelectricvehiclesthatwebelieveovercomethedesign,styling,andperformanceissuesthathavehistoricallylimitedbroadconsumeradoptionofelectricvehicles.Asaresult,ourcustomersenjoyseveralbenefits,including: • LongRangeandRechargingFlexibility.Ourvehiclesofferrangesthatsignificantlyexceedthoseofanyother

commerciallyavailableelectricvehicle.Inaddition,ourvehiclesincorporateourproprietaryon-boardchargingsystem,permittingrechargingfromalmostanyavailableelectricaloutlet,andalsoofferfastchargingcapabilityfromourSuperchargernetwork.

• High-PerformanceWithoutCompromisedDesignorFunctionality.Ourvehiclesdeliverunparalleleddrivingexperienceswithinstantaneousandsustainedacceleration,anadvancedautopilotsystemwithactivesafetyandconveniencefeatures,andover-the-airsoftwareupdates.

• EnergyEfficiencyandCostofOwnership.Ourvehiclesofferanattractivecostofownershipwhencomparedtosimilarinternalcombustionengineorhybridelectricvehicles.Usingonlyanelectricpowertrainenablesustocreatemoreenergyefficientvehiclesthataremechanicallysimplerthancurrentlyavailablehybridorinternalcombustionenginevehicles.Thecosttofuelourvehiclesislesscomparedtointernalcombustionvehicles.Wealsoexpectourelectricvehicleswillhavelowerrelativemaintenancecoststhanothervehiclesduetofewermovingpartsandtheabsenceofcertaincomponents,includingoil,oilfilters,sparkplugsandenginevalves.

Wesellourvehiclesthroughourownsalesandservicenetworkwhichwearecontinuingtogrowglobally.Thebenefitswereceivefromdistributionownershipenableustoimprovetheoverallcustomerexperience,thespeedofproductdevelopmentandthecapitalefficiencyofourbusiness.WearealsocontinuingtobuildournetworkofSuperchargersanddestinationchargersinNorthAmerica,EuropeandAsiatoprovidebothfastchargingthatenablesconvenientlong-distancetravelaswellasotherconvenientchargingoptions.

Inadditiontomanufacturingandsellingourownvehicles,weleverageourtechnologyexpertiseinbatteries,powerelectronics,andintegratedsystemstomanufactureandsellenergystorageproducts.Werecentlyannouncedthelatestgenerationofourenergystorageproducts,the14kilowatthour(kWh)Powerwall2withanintegratedinverterforresidentialapplicationsandtheinfinitelyscalable200kWhPowerpack2.Inaddition,wealsoannouncedanaccompanyingbi-directionalinverterforcommercial,industrialandutilityapplications.Webeganproductionanddeliveriesofthesesecondgenerationproductsinthefourthquarterof2016.Similartoourelectricvehicles,ourenergystorageproductshavebeendevelopedtoreceiveover-the-airfirmwareandsoftwareupdatesthatenableadditionalfeaturesovertime.

Also,throughouracquisitionofSolarCityCorporation,whichclosedonNovember21,2016,wesellrenewableenergytoourcustomerstypicallyatpricesbelowutilityratesandarefocusedonreducingthecostofsolarenergyforourcustomers.Since2006,SolarCityhasinstalledsolarenergysystemsforover325,000customers.Ourlong-termagreementswithourcustomersgeneraterecurringpaymentsandcreateaportfolioofhigh-qualityreceivablesthatweleveragetofurtherreducethecostofmakingtheswitchtosolarenergy.TheelectricityproducedbyoursolarinstallationsrepresentsaverysmallfractionoftotalU.S.electricitygeneration.Withovertensofmillionsofsingle-familyhomesinourprimaryserviceterritories,andmanymoreinotherlocations,wehavealargeopportunitytoexpandandgrowthisbusiness.

WemanufactureourvehicleproductsprimarilyatourfacilitiesinFremont,California,Lathrop,California,Tilburg,NetherlandsandatourGigafactory1nearReno,Nevada.WearecurrentlyusingbatterypacksmanufacturedatGigafactory1forourenergystorageproducts,andwillbuildModel3batterypacksanddriveunitsatGigafactory1.WemanufactureoursolarproductsatourfactoriesinFremont,CaliforniaandBuffalo,NewYork(Gigafactory2).

OurProductsandServicesVehicles

ModelSModelSisafullyelectric,four-door,five-adultpassengersedanthatofferscompellingrangeandperformancewithzero

tailpipeemissions.Weofferperformanceandall-wheeldrivedualmotorsystemoptions.ModelS100Disthelongestrangeall-electricproductionsedanintheworld,andtheperformanceversionwiththeLudicrousspeedupgradeisthequickestacceleratingproductionvehicleever.

ModelSoffersauniquecombinationoffunctionality,convenience,safetyandstylingwithoutcompromisingperformanceandenergyefficiency.ModelSalsoincludespremiumluxuryfeatures,includinga17inchtouchscreendriverinterface,ouradvancedautopilothardwaretoenablebothactivesafetyandconveniencefeatures,andover-the-airsoftwareupdates.Webelievethecombinationofperformance,safety,styling,convenienceandenergyefficiencyofModelSpositionsitasacompellingalternativetoothervehiclesintheluxuryandperformancesegments.

ModelXModelXisthelongestrangeall-electricproductionsportutilityvehicleintheworld,andoffersexceptionalfunctionality

withhighperformancefeaturessuchasourfullyelectric,all-wheeldrivedualmotorsystemandourautopilotsystem..ModelXcanseatuptosevenadultsandincorporatesauniquefalconwingdoorsystemforsuperioraccesstothesecondandthirdseatingrows.AlthoughtheNationalHighwayTrafficSafetyAdministrationhasnotyetconductedcrashtestingonModelX,basedonourinternaltesting,weareconfidentthatModelXwillreceivethehighestsafetyrating.WebegancustomerdeliveriesofModelXinthethirdquarterof2015intheUnitedStates.ModelXissoldinallthemarketswhereModelSisavailable,includinginAsiaandEurope.

Model3Wearedevelopingathirdgenerationelectricvehicle,Model3,whichweunveiledinMarch2016andwillbeproducedatthe

TeslaFactory.WeintendtoofferthisvehicleatalowerpricepointandexpecttoproduceitatfarhighervolumesthanourModelSorModelX.Gigafactory1constructionandModel3developmentbothremainonplantosupportvolumeModel3productionanddeliveriesinthesecondhalfof2017.

FutureConsumerandCommercialEVsFollowingtheintroductionofModel3,wearealsoplanningtointroduceadditionalvehiclestoaddressabroadercross-

sectionoftheconsumervehiclemarket,aswellasintroducecommercialEVsinthecomingyears.

EnergyStorageUsingtheenergymanagementtechnologiesandmanufacturingprocessesdevelopedforourvehiclepowertrainsystems,we

developedenergystorageproductsforuseinhomes,commercialfacilitiesandutilitysites.Theapplicationsforthesebatterysystemsincludetheprovisionofbackuppower,gridindependence,peakdemandreduction,demandresponse,reducingintermittencyofrenewablegenerationandwholesaleelectricmarketservices.Webegansellingourresidentialsystemsin2013andourcommercialandutilitysystemsin2014,andhaverecentlycommencedproductionofthesecondgenerationofthesesystems.

Ourenergyproductportfolioincludessystemswithawiderangeofapplications,fromuseinhomestouseinlargegrid-

scaleprojects.Powerwall2isa14kWhrechargeablelithium-ionbatterydesignedtostoreenergyatahomeorsmallcommercialfacilityandcanbeusedforreducingdemand,self-consumptionofsolarpowergenerationandasbackuppower.Inaddition,weoffera200kWhPowerpacksystemwhichcanbeusedbycommercialandindustrialcustomersforpeakshaving,loadshifting,self-consumptionofsolargenerationanddemandresponse.ThePowerpacksystemisafullyintegratedenergystoragesolutionthatcanbeusedbyutilitiestosmoothandfirmtheoutputofrenewablepowergenerationsources,providedynamicenergycapacitytothegrid,deferoreliminatetheneedtoupgradetransmissioninfrastructureandalsoprovideforavarietyofgridservicesforutilities.Forgrid-scaleapplications,200kWhbatteryblockscanbegroupedtogethertoofferMWhandGWhinstallations.WebeganproductionofthesecondgenerationofenergystorageproductsatGigafactory1inthefourthquarterof2016.

Alongwithdesigningandmanufacturingenergystorageproducts,wecontinuetodevelopandadvanceoursoftwarecapabilitiesforthecontrolandoptimaldispatchofenergystoragesystemsacrossawiderangeofmarketsandapplications.

SolarEnergySystemsThemajorcomponentsofoursolarenergysystemsincludesolarpanelsthatconvertsunlightintoelectricalcurrent,inverters

thatconverttheelectricaloutputfromthepanelstoausablecurrentcompatiblewiththeelectricgrid,rackingthatattachesthesolarpanelstotherooforground,electricalhardwarethatconnectsthesolarenergysystemtotheelectricgridandourmonitoringdevice.Wepurchasethemajorityofsystemcomponentsfromvendors,maintainingmultiplesourcesforeachmajorcomponenttoensurecompetitivepricingandanadequatesupplyofmaterials.Wealsodesignandmanufactureothersystemcomponents.

OurSolarLeaseandSolarPPAcustomeragreementshavefueledourgrowthbyallowingourcustomerstopaylittleornoupfrontcoststoswitchtodistributedsolarenergy.Overthetermsofbothagreements,weownandoperatethesolarenergysystemandguaranteeitsperformance.OurcurrentstandardSolarLeasesandSolarPPAshave20-yearterms,andwetypicallyoffertheopportunitytorenewouragreements.Additionally,ourSolarLoanoffersthird-partyfinancingalternativestoallowcustomerstotakedirectadvantageoffederaltaxcreditstoreducetheirelectricitycosts.

InOctober2016,werevealedthesolarroof,integratingsolarenergyproductionwithaestheticallypleasinganddurableglassroofingtiles,designedtocomplementandpowercustomerhomesandcommercialbuildings.Wecurrentlyexpecttocommenceproductioninthesummerof2017atourGigafactory2inBuffalo,NewYork,andbegincustomerinstallationsofthesolarrooflaterin2017.

TechnologyVehicles

Ourcorecompetenciesarepowertrainengineering,vehicleengineering,innovativemanufacturingandenergystorage.Ourcoreintellectualpropertyresidesnotonlywithinourelectricpowertrain,butalsowithinourabilitytodesignavehiclethatutilizestheuniqueadvantagesofanelectricpowertrainandthelatestadvancementsinconsumertechnologies.Ourpowertrainconsistsofourbatterypack,powerelectronics,motor,gearboxandcontrolsoftware.WeofferseveralpowertrainvariantsfortheModelSandModelXthatincorporateyearsofresearchanddevelopment.Inaddition,wehavedesignedourvehiclestoincorporatethelatestadvancesinconsumertechnologies,suchasmobilecomputing,sensing,displays,andconnectivity.FurtherevolutionofourtechnologycontinuesforModel3andfuturevehicles.Inaddition,advancementsinbatteryarchitecture,thermalmanagementandpowerelectronicsthatwereoriginallycommercializedinourvehicles,arenowbeingleveragedinourenergystorageproducts.

BatteryPackWedesignourbatterypackstoachievehighenergydensityatalowcostwhilealsomaintainingsafety,reliabilityandlong

life.Ourproprietarytechnologyincludessystemsforhighdensityenergystorage,cooling,safety,chargebalancing,structuraldurability,andelectronicsmanagement.Wehavealsopioneeredadvancedmanufacturingtechniquestomanufacturelargevolumesofbatterypackswithhighqualityandlowcosts.

Wehavesignificantexpertiseinthesafetyandmanagementsystemsneededtouselithium-ioncellsintheautomotiveenvironment,andhaveactivelyworkedwithlithium-ioncellsupplierstofurtheroptimizecelldesignstoincreaseoverallperformance.Theseadvancementshaveenabledustoimprovecostandperformanceofourbatteriesovertime.Forexample,werecentlyupgradedthebatteryofourhighestrangeModelSto100kWh.

Ourengineeringandmanufacturingeffortshavebeenperformedwithalonger-termgoalofbuildingafoundationforfurtherdevelopment.Forinstance,wehavedesignedourbatterypacktopermitflexibilitywithrespecttobatterycellchemistryandformfactor.Insodoing,wecanleveragethesubstantialinvestmentsandadvancementsbeingmadegloballybybatterycellmanufacturerstocontinuetoimprovecost.WemaintainextensivetestingandR&Dcapabilitiesattheindividualcelllevel,thefullbattery-packlevel,andothercriticalbatterypacksystems.Asaresult,wehavebuiltanexpansivebodyofknowledgeonlithium-ioncellvendors,chemistrytypes,andperformancecharacteristics.Webelievethattheflexibilityofourdesigns,combinedwithourresearchandreal-worldperformancedata,willenableustocontinuetoevaluatenewbatterycellsastheybecomecommerciallyviable,andtherebyoptimizebatterypacksystemperformanceandcostforourcurrentandfuturevehicles.

PowerElectronicsThepowerelectronicsinourelectricvehiclepowertraingoverntheflowofhighvoltageelectricalcurrentthroughoutthe

vehicle.Thepowerelectronicshavetwoprimaryfunctions,poweringourelectricmotortogeneratetorquewhiledrivinganddeliveringenergyintothebatterypackwhilecharging.

Thefirstfunctionisaccomplishedthroughthedriveinverter,whichconvertsdirectcurrent(DC)fromthebatterypackintoalternatingcurrent(AC)todriveourinductionmotors.Thedriveinverteralsoprovides“regenerativebraking”functionality,whichcapturesenergyfromthewheelstochargethebatterypack.Teslahasdevelopedafamilyofdriveinverterdesignsthatarecustomizedtoourproprietarymotordesignstomostefficientlymeetthedemandsofeachofourvehicles.Theprimarytechnologicaladvantagestoourdesignsincludetheabilitytodrivelargeamountsofcurrentinasmallphysicalpackage.

Thesecondfunction,chargingthebatterypack,isaccomplishedbythecharger,whichconvertsalternatingcurrent(usuallyfromawalloutletorotherelectricitysource)intodirectcurrentthatcanbeacceptedbythebattery.Teslavehiclescanrechargeonawidevarietyofelectricitysourcesduetothedesignofthischarger,fromacommonhouseholdoutlettohighpowercircuitsmeantformoreindustrialuses.TeslavehiclescomewithaUniversalMobileConnectorthatallowsformultipledifferentchargingservicestobeused.WealsoofferaTeslaWallConnectorthatcanbesetuptoprovidehigherpowerchargingthantheUniversalMobileConnectors.

Ontheroad,customerscanalsochargeusingourSuperchargernetworkoratavarietyofdestinationsthathavedeployedourchargingequipment.Inaddition,ourvehiclescanchargeatavarietyofpublicchargingstationsaroundtheworld,eithernativelyorthroughasuiteofadapters.Thisflexibilityinchargingprovidescustomerswithadditionalmobility,whilealsoallowingthemtoconvenientlychargethevehicleovernightathome.

DualMotorPowertrainInOctober2014,welaunchedtheinitialversionofourdualmotorpowertrain,whichusestwoelectricmotorstoprovide

greaterefficiency,performance,andrangeinanall-wheeldriveconfiguration.Conventionalall-wheeldrivevehiclesdistributepowertothewheelsfromasingleenginedrivingacomplexmechanicaltransmissionsystem.Bycontrast,Tesla’sdualmotorpowertraindigitallyandindependentlycontrolstorquetothefrontandrearwheels.Thealmostinstantaneousresponseofthemotors,combinedwithlowcentersofgravity,providesdriverswithcontrolledperformanceandincreasedtractioncontrol.

VehicleControlandInfotainmentSoftwareTheperformanceandsafetysystemsofourvehiclesandtheirbatterypacksrequiresophisticatedcontrolsoftware.Thereare

numerousprocessorsinourvehiclestocontrolthesefunctions,andwewritecustomfirmwareformanyoftheseprocessors.Theflowofelectricitybetweenthebatterypackandthemotormustbetightlycontrolledinordertodelivertheperformanceandbehaviorexpectedinanautomobile.Forexample,softwarealgorithmsenablethevehicletomimicthe“creep”feelingwhichdriversexpectfromaninternalcombustionenginevehiclewithouthavingtoapplypressureontheaccelerator.Similaralgorithmscontroltraction,vehiclestabilityandthesustainedaccelerationandregenerativebrakingofthevehicle.Softwarealsoisusedextensivelytomonitorthechargestateofeachofthecellsofthebatterypackandtomanageallofitssafetysystems.Driversusetheinformationandcontrolsystemsinourvehiclestooptimizeperformance,customizevehiclebehavior,managechargingmodesandtimesandcontrolallinfotainmentfunctions.Wedevelopalmostallofthissoftware,includingmostoftheuserinterfaces,internally.

AutopilotSystemsWehavedevelopedanexpertiseinvehicleautopilotsystems,includingauto-steering,trafficawarecruisecontrol,lane

changing,automatedparkingandSummonanddriverwarningsystems.InOctober2014,webeganequippingallModelSvehicleswithhardwaretoallowfortheincrementalintroductionofautopilottechnology.InOctober2016,webeganequippingallTeslavehicleswithhardwareneededforfullself-drivingcapability,includingcamerasthatprovide360degreevisibility,updatedultrasonicsensorsforobjectdetection,aforward-facingradarwithenhancedprocessing,andapowerfulnewonboardcomputer.Ourautopilotsystemsrelieveourdriversofthemosttediousandpotentiallydangerousaspectsofroadtravel.Although,atpresent,thedriverisultimatelyresponsibleforcontrollingthevehicle,oursystemprovidessafetyandconveniencefunctionalitythatallowsourcustomerstorelyonitmuchlikethesystemthatairplanepilotsusewhenconditionspermit.Thishardwaresuite,alongwithover-the-airfirmwareupdatesandfielddatafeedbackloopsfromtheonboardcamera,radar,ultrasonics,andGPS,enablesthesystemtocontinuallylearnandimproveitsperformance.

EnergyStorageWeareleveragingmanyofthecomponentleveltechnologiesfromourvehiclestoadvanceourenergystorageproducts,

includinghighdensityenergystorage,cooling,safety,chargebalancing,structuraldurability,andelectronicsmanagement.Bytakingamodularapproachtothedesignofbatterysystems,weareabletomaximizemanufacturingcapacitytoproducebothPowerwallandPowerpackproducts.Additionally,wearemakingsignificantstridesintheareaofbi-directional,grid-tiedpowerelectronicsthatenableustointerconnectourbatterysystemsseamlesslywithglobalelectricitygridswhileprovidingfast-actingsystemsforpowerinjectionandabsorption.

SolarEnergySystemsWearecontinuallyinnovatinganddevelopingnewtechnologiestofacilitatethegrowthofoursolarenergysystems

business.Forexample,thesolarroofisbeingdesignedtoworkseamlesslywithTeslaPowerwall2andwehavedevelopedproprietarysoftwaretoreducesystemdesignandinstallationtimelinesandcosts.

DesignandEngineeringVehicles

Inadditiontothedesign,developmentandproductionofthepowertrain,wehavecreatedsignificantin-housecapabilitiesinthedesignandengineeringofelectricvehiclesandtheircomponentsandsystems.Wedesignandengineerbodies,chassis,interiors,heatingandcoolingandlowvoltageelectricalsystemsinhouseandtoalesserextentinconjunctionwithoursuppliers.Ourteamhascorecompetenciesincomputeraideddesignandcrashtestsimulationswhichreducestheproductdevelopmenttimeofnewmodels.

Additionally,ourteamhasexpertiseinlightweightmaterials,averyimportantcharacteristicforelectricvehiclesgiventheimpactofmassonrange.ModelSandModelXarebuiltwithalightweightaluminumbodyandchassiswhichincorporatesavarietyofmaterialsandproductionmethodsthathelpoptimizetheweightofthevehicle.

EnergyStorageWehaveanin-houseengineeringteamthatbothdesignsourenergystorageproductsthemselves,andworkswithour

residential,commercialandutilitycustomerstodesignbespokesystemsincorporatingourproducts.Ourteam’sexpertiseinelectrical,mechanical,civilandsoftwareengineeringenablesustocreateintegratedenergystoragesolutionsthatmeettheparticularneedsofallcustomertypes.

SolarEnergySystemsWealsohaveanin-houseengineeringteamthatdesignsacustomizedsolarenergysystemforeachofourcustomers,and

whichworkscloselywithourenergystorageengineeringteamstointegrateanenergystoragesystemwhenrequestedbythecustomer.Wehavedevelopedsoftwarethatsimplifiesandexpeditesthedesignprocessandoptimizesthedesigntomaximizetheenergyproductionofeachsystem.Ourengineerscompleteastructuralanalysisofeachbuildingandproduceafullsetofstructuraldesignandelectricalblueprintsthatcontainthespecificationsforallsystemcomponents.Additionally,wedesigncomplementarymountingandgroundinghardware.

SalesandMarketingVehicles

Company-OwnedStoresandGalleriesWemarketandsellourvehiclesdirectlytoconsumersthroughaninternationalnetworkofcompany-ownedstoresand

gallerieswhichwebelieveenablesustobettercontrolcostsofinventory,managewarrantyserviceandpricing,maintainandstrengthentheTeslabrand,andobtainrapidcustomerfeedback.OurTeslastoresandgalleriesarehighlyvisible,premiumoutletsinmajormetropolitanmarkets,someofwhichcombineretailsalesandservice.Wehavealsofoundthatopeningaservicecenterinanewgeographicareacanincreasedemand.Asaresult,wehavecomplementedourstorestrategywithsalesfacilitiesandpersonnelinservicecenterstomorerapidlyexpandourretailfootprint.Werefertotheseas“ServicePlus”locations.Includingallofourstores,galleries,ServicePlusandservicefacilities,weoperated265locationsaroundtheworldasofDecember31,2016.

TeslaSuperchargerNetworkWecontinuetobuildanetworkoffastchargers,eachcalledaTeslaSupercharger,throughoutNorthAmerica,Europe,Asia

andothermarketstoenableconvenient,long-distancetravel.OurSuperchargernetworkisastrategiccorporateinitiativedesignedtoprovidefastchargingtoenablelong-distancetravelandremoveabarriertothebroaderadoptionofelectricvehiclescausedbytheperceptionoflimitedvehiclerange.TheTeslaSuperchargerisanindustrialgrade,highspeedchargerdesignedtorechargeaTeslavehiclesignificantlymorequicklythanotherchargingoptions.Tosatisfygrowingdemand,SuperchargerstationstypicallyhavebetweenfourandfourteenSuperchargersandarestrategicallyplacedalongwell-travelledroutestoallowTeslavehicleownerstheabilitytoenjoylongdistancetravelwithconvenient,minimalstops.UseoftheSuperchargernetworkiseitherfreeorrequiresasmallfeetoSupercharge.AsofDecember31,2016,wehad790SuperchargerstationsopenworldwideandplantocontinueexpandingtheSuperchargernetwork.

DestinationChargingWeareworkingwithawidevarietyofhospitalitylocations,includinghotels,resortsandshoppingcenters,toofferan

additionalchargingoptionforourcustomers.ThesedestinationchargingpartnersdeployourwallconnectorsandprovidechargingtoTeslavehicleownersthatpatronizetheirbusinesses.AsofDecember31,2016,over4,140locationsaroundtheworldhadmorethan7,110Teslawallconnectorsinstalled.

OrdersandReservationsWetypicallycarryasmallinventoryofourvehiclesatourTeslastoreswhichareavailableforimmediatesale.Themajority

ofourcustomers,however,customizetheirvehiclebyplacinganorderwithusviatheInternet.Tobeginproductionormakeareservation,werequireaninitialpaymentwhichiscollectedoncethecustomerhasselectedthevehiclespecificationsandhasenteredintoapurchaseagreement.Werequireallremainingpaymentofthevehiclepurchasepriceuponvehicledeliverytothecustomer.

MarketingHistorically,wehavebeenabletogeneratesignificantmediacoverageofourcompanyandourvehicles,andwebelievewe

willcontinuetodoso.Todate,forvehiclesales,mediacoverageandwordofmouthhavebeentheprimarydriversofoursalesleadsandhavehelpedusachievesaleswithouttraditionaladvertisingandatrelativelylowmarketingcosts.

EnergyStorageWemarketandsellourenergystorageproductstoindividuals,commercialandindustrialcustomersandutilitiesthrougha

varietyofchannels.Powerwall2appearsinmanyofourstoresandgalleriesworldwide,whichgeneratesinterestintheproduct.IntheU.S.,wealsouseournationalsalesorganization,channelpartnernetworkandcustomerreferralprogramtomarketandsellPowerwall2.OutsideoftheU.S.,weuseourinternationalsalesorganizationandanetworkofchannelpartnerstomarketandsellPowerwall2.WealsosellPowerwall2directlytoutilitieswhoactasachanneltotheirend-customers.WesellPowerpacksystemstoutilityandcommercialcustomersthroughourinternationalsalesorganization,whichconsistsofexperiencedpowerindustryprofessionalsinallofourtargetmarkets,aswellasachannelpartnernetwork.

SolarEnergySystemsWeselloursolarproductsandservicesthroughanationalsalesorganizationthatincludesspecializedinternalcallcenters,

outsidesalesforce,achannelpartnernetworkandarobustcustomerreferralprogram.Inthefirstquarterof2017,wealsobeganofferingoursolarproductsandservicesinselectTeslastores.

ServiceandWarrantyVehicles

ServiceWeprovideserviceforourelectricvehiclesatourcompany-ownedservicecenters,atourServicePluslocationsor,in

certainareasforanadditionalcharge,throughTeslaRangermobiletechnicianswhoprovideservicesthatdonotrequireavehiclelift.Weownedandoperated135servicelocationsasofDecember31,2016.

Ourvehiclesaredesignedwiththecapabilitytowirelesslyuploaddatatousviaanon-boardsystemwithcellularconnectivity,allowingustodiagnoseandremedymanyproblemsbeforeeverlookingatthevehicle.Whenmaintenanceorserviceisrequired,acustomercanscheduleservicebycontactingoneofourTeslaservicecenters.OurTeslaRangerscanalsoperformanarrayofservicesfromtheconvenienceofacustomer’shomeorotherremotelocation.

Ourcompany-ownedservicecentersenableourtechnicianstoworkcloselywithourengineersandresearchanddevelopmentteamsinSiliconValleytoidentifyproblems,findsolutions,andincorporateimprovementsfasterthanincumbentautomobilemanufacturers.

NewVehicleLimitedWarranty,MaintenanceandExtendedServicePlansWeprovideafouryearor50,000mileNewVehicleLimitedWarrantywitheverynewvehicle,subjecttoseparatelimited

warrantiesforthesupplementalrestraintsystemandbatteryanddriveunit.Forthebatteryanddriveunitonourcurrentnewvehicles,weofferaneightyear,infinitemilewarranty,althoughthebattery’schargingcapacityisnotcovered.

InadditiontotheNewVehicleLimitedWarranty,weofferacomprehensivemaintenanceprogramforeverynewvehicle,whichincludesplanscoveringprepaidmaintenanceforuptofouryearsorupto50,000milesandanExtendedServiceplan.Themaintenanceplanscoverannualinspectionsandthereplacementofwearandtearparts,excludingtiresandthebattery.TheExtendedServiceplancoverstherepairorreplacementofvehiclepartsforuptoanadditionalfouryearsoruptoanadditional50,000milesaftertheNewVehicleLimitedWarranty.

OurNewVehicleLimitedWarrantyandExtendedServiceplansaresubjecttocertainlimitations,exclusionsorseparatewarranties,includingoncertainwearitems,suchastires,brakepads,paintandgeneralappearance,andbatteryperformance,andareintendedtocoverpartsandlabortorepairdefectsinmaterialorworkmanshipinthebody,chassis,suspension,interior,electronicsystems,battery,powertrainandbrakesystem.Inaddition,allprepaidmaintenanceandExtendedServiceplansmustbepurchasedwithinaspecifiedperiodoftimeaftervehiclepurchaseorwarrantyexpiration.

EnergyStorageWegenerallyprovideatenyear“nodefect”and“energyretention”warrantywitheveryPowerwall2andPowerpack2.For

Powerwall2,theenergyretentionwarrantyinvolvesusguaranteeingthattheenergycapacityoftheproductwillbe70%or80%(dependingontheregionofinstallation)ofitsnameplatecapacityafter10yearsofuse.ForPowerpack2,theenergyretentionwarrantyinvolvesusguaranteeingaminimumenergycapacityineachofitsfirst10yearsofuse,subjecttospecifiedthroughputcaps.Inaddition,weoffercertainextendedwarranties,whichcustomersareabletopurchasefromusatthetimetheypurchaseanenergystoragesystem,includinga20yearextendedprotectionplanforPowerwall2anda10or20year“capacitymaintenanceagreement”forPowerpack2.Weagreetorepairorreplaceourenergystorageproductsintheeventofavalidwarrantyclaim.IncircumstanceswhereweinstallaPowerwall2orPowerpack2system,wealsoprovidewarranties,generallyrangingfromonetofouryears,onourinstallationworkmanship.Allofthewarrantiesforourenergystoragesystemsaresubjecttocustomarylimitationsandexclusions.

SolarEnergySystemsWegenerallyprovidewarrantiesofbetweentento30yearsonthegeneratingandnon-generatingpartsofthesolarenergy

systemswesell,togetherwithapass-throughoftheinverterandmodulemanufacturers’warrantiesthatgenerallyrangefromfiveto30years.Whereweselltheelectricitygeneratedbyasolarenergysystem,wecompensatecustomersiftheirsystemproduceslessenergyoveraspecifiedperformanceperiodthanourguarantee.Wealsoprovideongoingserviceandrepairduringtheentiretermofthecustomerrelationship.

FinancialServicesVehicles

WeofferloansandleasesforourvehiclesinNorthAmerica,EuropeandAsiaprimarilythroughvariousfinancialinstitutions.WealsoofferfinancingarrangementsdirectlythroughourlocalsubsidiariesincertainareasoftheUnitedStates,Germany,CanadaandtheUK.Weintendtobroadenourfinancialservicesofferingsduringthenextfewyears.

CertainofourcurrentfinancingprogramsoutsideofNorthAmericaprovidecustomerswitharesalevalueguaranteeunderwhichthosecustomershavetheoptionofsellingtheirvehiclebacktousatapresetfuturedate,generallyduringtheperiodof36to39monthsfollowingdeliveryforapre-determinedresalevalue.Incertainmarkets,wealsoofferresalevalueguaranteestofinancialinstitutionswhichmayobligateustorepurchasethevehiclesforapre-determinedprice.

EnergyStorageThroughouracquisitionofSolarCity,weareabletouseavailablefinancialinstrumentsintheU.S.toofferaloanproductfor

energystoragesystemstoend-customers,particularlywhencombinedwithanewsolarinstallationtotakeadvantageofavailabletaxcreditsandincentivestoreducethecosttocustomer.

SolarEnergySystemsWeareanindustryleaderinofferinginnovativefinancingalternativesthatallowourcustomerstomaketheswitchtosolar

energywithlittletonoupfrontcostsunderourSolarLeaseandSolarPPA,ortotakedirectadvantageofavailabletaxcreditsandincentivestoreducethecostofowningasolarenergysystemthroughaSolarLoan.OurSolarLease,offerscustomersafixedmonthlyfeeatratesthattypicallytranslateintolowermonthlyutilitybillswithanelectricityproductionguarantee.OurSolarPPAchargescustomersafeeperkWhbasedontheamountofelectricityproducedbyoursolarenergysystemsatratestypicallylowerthantheirlocalutilityrate.BothourSolarLeaseandSolarPPAcreatehigh-quality,recurringcustomerpaymentsthatwemonetizethroughfinancingfundswehaveformedwithfundinvestorsandbyleveragingthevalueofourinterests.Inaddition,ourSolarLoanoffersthird-partyfinancingdirectlytoaqualifiedcustomertoenablethecustomertopurchaseandownasolarenergysysteminstalledbyus.Wearenotapartytotheloanagreementbetweenthecustomerandthethird-partylender,andthethird-partylenderhasnorecourseagainstuswithrespecttotheloan.

ManufacturingVehicles

WeconductvehiclemanufacturingandassemblyoperationsatourfacilitiesinFremont,California;Lathrop,California;andTilburg,Netherlands.Wearealsobuildingacellandbatterymanufacturingfacility,Gigafactory1,outsideofReno,Nevada.

TheTeslaFactoryinFremont,CAandManufacturingFacilityinLathrop,CAWemanufacturetheModelSandModelX,andcertaincomponentsthatarecriticaltoourintellectualpropertyandquality

standards,attheTeslaFactory.WewillalsomanufactureModel3attheTeslaFactory.TheTeslaFactorycontainsseveralmanufacturingoperations,includingstamping,machining,casting,plastics,bodyassembly,paintoperations,driveunitproduction,finalvehicleassemblyandend-of-linetesting.Inaddition,wemanufacturelithium-ionbatterypacks,electricmotors,gearboxesandcomponentsforourvehiclesattheTeslaFactory.Somemajorvehiclecomponentsystemsarepurchasedfromsuppliers;howeverwehaveahighlevelofverticalintegrationinourmanufacturingprocessesattheTeslaFactory.WemachinevariousaluminumcomponentsatourfacilityinLathrop,Californiaandarenearingcompletionofasiteexpansiontoincludeanaluminumcastingsoperation.

InsomeareasoftheTeslaFactory,wehavedesignedourinvestmentswithflexibilitytoaccommodatemultipleproducts.Forexample,ournewhighvolumepaintshopandnewstampinglinescansupportModelS,ModelXandModel3.OurfinalvehicleassemblylineisproducingbothModelSandModelX.WealsocontinuetomakesignificantadditionalinvestmentsattheTeslaFactorytobeabletostartproductionanddeliveriesofModel3,inthesecondhalfof2017.TheseinvestmentsincludeanewbodyassemblyshopandModel3finalvehicleassembly.

TheNetherlandsOurEuropeanheadquartersandmanufacturingfacilitiesarelocatedinAmsterdamandTilburg.Theentitiesthroughwhich

thesefacilitiesareoperatedholdtherightstomanufactureanddistributeallTeslaproductstocustomersinallmarketsoutsideoftheUnitedStatesandprovidecorporateoversightfunctionsforEuropeansales,service,andadministrativefunctions.OuroperationsinTilburgincludefinalassembly,testingandqualitycontrolforvehiclesdeliveredwithintheEuropeanUnion,apartsdistributionwarehouseforservicecentersthroughoutEurope,acenterforremanufacturingworkandacustomerservicecenter.

Gigafactory1outsideofReno,NevadaWearedevelopingGigafactory1asafacilitywhereweworktogetherwithoursupplierstointegratebatterymaterial,cell,

moduleandbatterypackproductioninonelocation.WeplantousethebatterypacksmanufacturedatGigafactory1forourvehicles,includingModel3andenergystorageproducts.WebrokegroundonGigafactory1inJune2014,beganassemblingourenergystorageproductsinthefourthquarterof2015,andbeganproductionoflithium-ionbatterycellsforourenergystorageproductsinthefirstquarterof2017.WealsointendtomanufactureModel3driveunitsatGigafactory1.

Gigafactory1isbeingbuiltinphasessothatTesla,Panasonic,andotherpartnerscanbeginmanufacturingimmediatelyinsidethefinishedsectionsandcontinuetoexpandthereafter.Gigafactory1iscurrentlyexpectedtoattainfullproductioncapacityby2020,whichisanticipatedtobesufficientfortheproductionofapproximately500,000vehiclesannuallyaswellasfortheproductionofourenergystorageproducts.

WebelievethatGigafactory1willallowustoachieveasignificantreductioninthecostofourbatterypacksonceweareinvolumeproductionwithModel3.WehavecommittedtoinvestheavilyoncapitalexpendituresforGigafactory1.PanasonichasagreedtopartnerwithusonGigafactory1withinvestmentsinproductionequipmentthatitwillusetomanufactureandsupplyuswithbatterycells.Wehaveagreedtoprepareandprovidetheland,buildingsandutilities,toinvestinproductionequipmentforbatterymoduleandpackproductionandtoberesponsiblefortheoverallmanagementofGigafactory1.

SupplyChainOurvehiclesusethousandsofpurchasedpartswhichwesourcegloballyfromhundredsofsuppliers.Wehavedeveloped

closerelationshipswithseveralkeysuppliersparticularlyintheprocurementofcellsandcertainotherkeysystemparts.Whileweobtaincomponentsfrommultiplesourcesinsomecases,similartootherautomobilemanufacturers,manyofthecomponentsusedinourvehiclesarepurchasedbyusfromasinglesource.Inaddition,whileseveralsourcesofthebatterycellwehaveselectedforourbatterypacksareavailable,wehavecurrentlyfullyqualifiedonlyonecellsupplierforthebatterypacksweuseinourproductionvehicles.Weareworkingtofullyqualifyadditionalcellsfromothermanufacturers.

Weusevariousrawmaterialsinourbusinessincludingaluminum,steel,cobalt,lithium,nickelandcopper.Thepricesfortheserawmaterialsfluctuatedependingonmarketconditionsandglobaldemandforthesematerials.Webelievethatwehaveadequatesuppliesorsourcesofavailabilityoftherawmaterialsnecessarytomeetourmanufacturingandsupplyrequirements.

EnergyStorageOurenergystorageproductsaremanufacturedatGigafactory1.Weleveragethesamesupplychainprocessand

infrastructureasweuseforourvehicles.Thebatteryarchitectureandmanyofthecomponentsusedinourenergystorageproductsarethesameorsimilartothoseusedinourvehicles’batterypack,enablingustotakeadvantageofmanufacturingefficienciesandsupplychaineconomiesofscale.Thepowerelectronicsandgrid-tieinverterforthePowerwallandPowerpacksystemsarealsomanufacturedatGigafactory1,allowingustoshipdeployment-readysystemsdirectlyfromGigafactory1.

SolarEnergySystemsWecurrentlypurchasemajorcomponentssuchassolarpanelsandinvertersdirectlyfrommultiplemanufacturers.We

typicallypurchasesolarpanelsandinvertersonanas-neededbasisfromoursuppliersatthen-prevailingpricespursuanttopurchaseordersissuedunderourmastercontractualarrangements.InDecember2016,weenteredintoalong-termagreementwithPanasonictomanufacturephotovoltaic(PV)cellsatourGigafactory2inBuffalo,NewYork,withnegotiatedpricingprovisionsandtheintenttomanufacture1gigawattofsolarpanelsannually.

GovernmentalPrograms,IncentivesandRegulationsVehicles

CaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthorityTaxIncentivesWehaveenteredintomultipleagreementsoverthepastfewyearswiththeCaliforniaAlternativeEnergyandAdvanced

TransportationFinancingAuthority(CAEATFA)thatprovidemulti-yearsalestaxexclusionsonpurchasesofmanufacturingequipmentthatwillbeusedforspecificpurposesincludingtheexpansionandongoingdevelopmentofModelS,ModelX,Model3andfutureelectricvehiclesandexpansionofelectricvehiclepowertrainproductioninCalifornia.Weestimatethecombinedtaxsavingsundertheseagreementswillbeapproximately$198million,ofwhich$100millionhasbeenrealizedasofDecember31,2016.

NevadaTaxIncentivesInconnectionwiththeconstructionofGigafactory1inNevada,wehaveenteredintoagreementswiththeStateofNevada

andStoreyCountyinNevadathatwillprovideabatementsforsalesandusetaxes,realandpersonalpropertytaxes,andemployerexcisetaxes,discountstothebasetariffenergyrates,andtransferabletaxcredits.TheseincentivesareavailablefortheapplicableperiodsendingonJune30,2034,subjecttocapitalinvestmentsbyTeslaanditspartnersforGigafactory1ofatleast$3.5billionintheaggregateonorbeforeJune30,2024,andcertainotherconditionsspecifiedintheagreements.Ifwedonotsatisfyoneormoreconditionsundertheagreements,Teslawillberequiredtorepaytotherespectivetaxingauthoritiestheamountsofthetaxincentivesincurred,plusinterest.

TeslaRegulatoryCreditsInconnectionwiththeproduction,deliveryandplacementintoserviceofourzeroemissionvehicles,charginginfrastructure

andsolarsystemsinglobalmarkets,wehaveearnedandwillcontinuetoearnvarioustradableregulatorycredits.Wehavesoldthesecredits,andwillcontinuetosellfuturecredits,toautomotivecompaniesandregulatedentities.Forexample,underCalifornia’sZero-EmissionVehicleRegulationandthoseofstatesthathaveadoptedCalifornia’sstandard,vehiclemanufacturersarerequiredtoearnorpurchasecreditsforcompliancewiththeirannualregulatoryrequirements.Theselawsprovidethatautomakersmaybankexcesscredits,referredtoasZEVcredits,iftheyearnmorecreditsthantheminimumquantityrequiredbythoselaws.Manufacturerswithasurplusofcreditsmayselltheircreditstootherregulatedparties.PursuanttotheU.S.EnvironmentalProtectionAgency’s(EPA)nationalgreenhousegas(GHG)emissionstandardsandsimilarstandardsadoptedbytheCanadiangovernment,carandtruckmanufacturersarerequiredtomeetfleet-wideaveragecarbondioxideemissionsstandards.Manufacturersmaysellexcesscreditstoothermanufacturers,whocanusethecreditstocomplywiththeseregulatoryrequirements.ManyU.S.stateshavealsoadoptedprocurementrequirementsforrenewableenergyproduction.TheserequirementsenablecompaniesdeployingsolarenergytoearntradablecreditsknownasSolarRenewableEnergyCertificates(SRECs).

Regulation—VehicleSafetyandTestingOurvehiclesaresubjectto,andcomplywithorareotherwiseexemptfrom,numerousregulatoryrequirementsestablishedby

NHTSA,includingallapplicableUnitedStatesFederalMotorVehicleSafetyStandards(FMVSS).ModelSandModelXfullycomplywithallFMVSSswithouttheneedforanyexemptions,andweexpectfutureTeslavehiclestoalsofullycomply.

Asamanufacturer,wemustself-certifythatourvehiclesmeetallapplicableFMVSS,aswellastheNHTSAbumperstandard,orotherwiseareexempt,beforethevehiclescanbeimportedorsoldintheUnitedStates.NumerousFMVSSapplytoourvehicles,suchascrash-worthinessrequirements,crashavoidancerequirements,andelectricvehiclerequirements.WearealsorequiredtocomplywithotherfederallawsadministeredbyNHTSA,includingtheCAFEstandards,TheftPreventionActrequirements,consumerinformationlabelingrequirements,EarlyWarningReportingrequirementsregardingwarrantyclaims,fieldreports,deathandinjuryreportsandforeignrecalls,andowner’smanualrequirements.

TheAutomobileInformationandDisclosureActrequiresmanufacturersofmotorvehiclestodisclosecertaininformationregardingthemanufacturer’ssuggestedretailprice,optionalequipmentandpricing.Inaddition,thislawallowsinclusionofcityandhighwayfueleconomyratings,asdeterminedbyEPA,aswellascrashtestratingsasdeterminedbyNHTSAifsuchtestsareconducted.

OurvehiclessoldinoutsideoftheU.S.aresubjecttoforeignsafetytestingregulations.ManyofthoseregulationsaredifferentfromthefederalmotorvehiclesafetystandardsapplicableintheUnitedStatesandmayrequireredesignand/orretesting.

Regulation—BatterySafetyandTestingOurbatterypackconformstomandatoryregulationsthatgoverntransportof“dangerousgoods”,definedtoincludelithium-

ionbatteries,whichmaypresentariskintransportation.Theregulationsvarybymodeofshippingtransportation,suchasbyoceanvessel,rail,truck,orair.Wehavecompletedtheapplicabletransportationtestsforourbatterypacks,demonstratingourcompliancewithapplicableregulations.

Weuselithiummetaloxidecellsinourhighvoltagebatterypacks.Thecellsdonotcontainanylead,mercury,cadmium,otherhazardousmaterials,heavymetals,ortoxicmaterials.Ourbatterypacksincludecertainpackagingmaterialsthatcontaintraceamountsofhazardouschemicalswhoseuse,storage,anddisposalisregulatedunderfederallaw.Wecurrentlyhaveanagreementwithathirdpartybatteryrecyclingcompanytorecycleourbatterypacks.

AutomobileManufacturerandDealerRegulationStatelawsregulatethemanufacture,distribution,andsaleofautomobiles,andgenerallyrequiremotorvehiclemanufacturers

anddealerstobelicensedinordertosellvehiclesdirectlytoconsumersinthestate.AsweopenadditionalTeslastoresandservicecenters,wesecuredealerlicenses(ortheirequivalent)andengageinsalesactivitiestosellourvehiclesdirectlytoconsumers.Afewstates,suchasMichiganandConnecticut,donotpermitautomobilemanufacturerstobelicensedasdealersortoactinthecapacityofadealer,orotherwiserestrictamanufacturer’sabilitytodeliverorservicevehicles.Tosellvehiclestoresidentsofstateswherewearenotlicensedasadealer,wegenerallyconductthesaleoutofthestateviatheinternet,phoneormail.Insuchstates,wehaveopened“galleries”thatserveaneducationalpurposeandarenotretaillocations.

AsweexpandourretailfootprintintheUnitedStates,someautomobiledealertradeassociationshavebothchallengedthelegalityofouroperationsincourtandusedadministrativeandlegislativeprocessestoattempttoprohibitorlimitourabilitytooperateexistingstoresorexpandtonewlocations.Weexpectthatthedealerassociationswillcontinuetomountchallengestoourbusinessmodel.Inaddition,weexpectthedealerassociationstoactivelylobbystatelicensingagenciesandlegislatorstointerpretexistinglawsorenactnewlawsinwaysnotfavorabletoTesla’sownershipandoperationofitsownretailandservicelocations,andweintendtoactivelyfightanysucheffortstolimitourabilitytosellourownvehicles.

WhilewehaveanalyzedtheprincipallawsintheU.S.,EU,China,Japan,UK,andAustraliarelatingtoourdistributionmodelandbelievewecomplywithsuchlaws,wehavenotperformedacompleteanalysisofalljurisdictionsinwhichwemaysellvehicles.Accordingly,theremaybelawsincertainjurisdictionsthatmayrestrictoursalesandserviceoperations.

EnergyStorageTheregulatoryregimeforenergystorageprojectsisstillunderdevelopment.Nevertheless,therearevariouspolicies,

incentivesandfinancialmechanismsatthefederal,stateandlocallevelthatsupporttheadoptionofenergystorage.Forexample,energystoragesystemsthatarechargedusingsolarenergyareeligibleforthe30%taxcreditunderSection48(a)(3)oftheInternalRevenueCode,ortheIRC,asdescribedbelow.Inaddition,Californiaandanumberofotherstateshaveadoptedprocurementtargetsforenergystorage,andbehindthemeterenergystoragesystemsqualifyforfundingundertheCaliforniaSelfGenerationIncentiveProgram.

TheFederalEnergyRegulatoryCommission(FERC)hasalsotakenstepstoenabletheparticipationofenergystorageinwholesaleenergymarkets.In2011and2013,FERCremovedmanybarriersforsystemslikeenergystoragetoprovidefrequencyregulationservice,thusincreasingthevaluethesesystemscanobtaininwholesaleenergymarkets.Morerecently,inlate2016,FERCreleasedaNoticeofProposedRulemakingthat,ifitbecomesafinalrule,wouldfurtherbreakdownbarrierspreventingenergystoragefromfullyparticipatinginwholesaleenergymarkets.Finally,inJanuary2017,FERCissuedastatementsupportingtheuseofenergystorageasbothelectrictransmissionandaselectricgenerationconcurrently,thusenablingenergystoragesystemstoprovidegreatervaluetotheelectricgrid.

SolarEnergySystemsGovernmentandUtilityProgramsandIncentivesU.S.federal,stateandlocalgovernmentshaveestablishedvariouspolicies,incentivesandfinancialmechanismstoreduce

thecostofsolarenergyandtoacceleratetheadoptionofsolarenergy.Theseincentivesincludetaxcredits,cashgrants,taxabatementsandrebates.

Thefederalgovernmentcurrentlyprovidesanuncappedinvestmenttaxcredit,orFederalITC,undertwosectionsoftheIRC:Section48andSection25D.Section48(a)(3)oftheIRCallowsataxpayertoclaimacreditof30%ofqualifiedexpendituresforacommercialsolarenergysystemthatcommencesconstructionbyDecember31,2019.Thecreditthendeclinesto26%in2020,22%in2021,andapermanent10%thereafter.WeclaimtheSection48commercialcreditwhenavailableforbothourresidentialandcommercialprojects,basedonownershipofthesolarenergysystem.Thefederalgovernmentalsoprovidesaccelerateddepreciationforeligiblecommercialsolarenergysystems.Section25DoftheIRCallowsahomeowner-taxpayertoclaimacreditof30%ofqualifiedexpendituresforaresidentialsolarenergysystemownedbythehomeownerthatisplacedinservicebyDecember31,2019.Thecreditthendeclinesto26%in2020and22%in2021,andisscheduledtoexpirethereafter.CustomerswhopurchasetheirsolarenergysystemsforcashorthroughourSolarLoanareeligibletoclaimtheSection25Dinvestmenttaxcredit.

InadditiontotheFederalITC,manyU.S.statesofferpersonalandcorporatetaxcreditsandincentiveavailableforsolarenergysystems.

Regulation–GeneralWearenota“regulatedutility”intheU.S.Tooperateoursystems,weobtaininterconnectionagreementsfromtheutilities.

Inalmostallcases,interconnectionagreementsarestandardformagreementsthathavebeenpre-approvedbythepublicutilitycommissionorotherregulatorybody.

Salesofelectricityandnon-saleequipmentleasesbythirdparties,suchasourSolarLeasesandSolarPPAs,faceregulatorychallengesinsomestatesandjurisdictions.

Regulation–NetMeteringForty-onestates,Washington,D.C.andPuertoRicohavearegulatorypolicyknownasnetenergymetering,ornetmetering,

availabletonewsolarcustomers.Netmeteringtypicallyallowssolarcustomerstointerconnecttheiron-sitesolarenergysystemstotheutilitygridandoffsettheirutilityelectricitypurchasesbyreceivingabillcreditforexcessenergygeneratedbytheirsolarenergysystemthatisexportedtothegrid.EachofthestateswherewecurrentlyservecustomershasadoptedanetmeteringpolicyexceptforTexas,wherecertainindividualutilitieshaveadoptednetmeteringorapolicysimilartonetmetering.Incertainjurisdictions,regulatorsorutilitieshavereducedoreliminatedthebenefitavailableundernetmetering,orhaveproposedtodoso.

Regulation–MandatedRenewableCapacityManystatesalsohaveadoptedprocurementrequirementsforrenewableenergyproduction,suchasanenforceablerenewable

portfoliostandard,orRPS,orotherpoliciesthatrequirecoveredentitiestoprocureaspecifiedpercentageoftotalelectricitydeliveredtocustomersinthestatefromeligiblerenewableenergysources,suchassolarenergysystems.Toprovecompliancewithsuchmandates,utilitiestypicallymustsurrenderrenewableenergycertificates.Asolarrenewableenergycertificate,orSREC,isatradablecreditthatrepresentsallofthecleanenergybenefitsofelectricitygeneratedfromasolarenergysystem.Everytimeasolarenergysystemgenerates1,000kWhofelectricity,oneSRECisissuedormintedbyagovernmentagency.TheSRECcanthenbesoldortradedseparatelyfromtheenergyproduced,generallythroughbrokersanddealersfacilitatingindividuallynegotiatedbilateralarrangements.

CompetitionVehicles

Theworldwideautomotivemarket,particularlyforalternativefuelvehicles,ishighlycompetitivetodayandweexpectitwillbecomeevenmoresointhefutureasweintroduceadditional,lowerpricedvehiclessuchasourModel3,andasweintroduceothertypesofvehicles.

Webelievetheprimarycompetitivefactorsinourmarketsincludebutarenotlimitedto: • technologicalinnovation; • productqualityandsafety; • serviceoptions; • productperformance; • designandstyling; • brandperception; • productprice;and • manufacturingefficiency.

Webelievethatourvehiclescompeteinthemarketbothbasedontheirtraditionalsegmentclassificationaswellasbasedontheirpropulsiontechnology.Forexample,ModelSandModelXcompeteprimarilyintheextremelycompetitivepremiumsedanandpremiumSUVmarketswithinternalcombustionvehiclesfrommoreestablishedautomobilemanufacturers,includingAudi,BMW,LexusandMercedes,andModel3willcompetewithsmalltomedium-sizedsedansfrommanufacturersincludingAudi,BMW,Lexus,Mercedes,HondaandToyota.Ourvehiclesalsocompetewithvehiclespropelledbyalternativefuels,principallyelectricity.

Manyestablishedandnewautomobilemanufacturershaveenteredorhaveannouncedplanstoenterthealternativefuelvehiclemarket.Overall,webelievetheseannouncementsandvehicleintroductionspromotethedevelopmentofthealternativefuelvehiclemarketbyhighlightingtheattractivenessofalternativefuelvehicles,particularlythosefueledbyelectricity,relativetotheinternalcombustionvehicle.BMW,Daimler,Nissan,Fiat,Ford,GeneralMotorsandMitsubishi,amongothers,haveelectricvehiclesavailabletoday,andothercurrentandprospectiveautomobilemanufacturersarealsodevelopingelectricvehicles.ElectricvehicleshavealsoalreadybeenbroughttomarketinChinaandotherforeigncountriesandweexpectanumberofthosemanufacturerstoentertheUnitedStatesmarketaswell.Inaddition,severalmanufacturers,includingGeneralMotors,Toyota,Ford,andHonda,areeachsellinghybridvehicles,includingplug-inversionsoftheirhybridvehicles.

EnergyStorageThemarketforenergystorageproductsisalsohighlycompetitive.Establishedcompanies,suchasAESEnergyStorage,LG

ChemandSamsung,aswellasvariousemergingcompanies,haveintroducedproductsthataresimilartoourproductportfolio.Thereareseveralcompaniesprovidingindividualcomponentsofenergystoragesystems(suchascells,batterymodules,andpowerelectronics)aswellasothersprovidingintegratedsystems.Wecompetewiththesecompaniesonprice,energydensityandefficiency.Webelievethatthesuperiorspecificationsofourproducts,ourstrongbrand,andthemodular,scalablenatureofourPowerpack2productgiveusacompetitiveadvantagewhenmarketingourproducts.

SolarEnergySystemsTheprimarycompetitorstooursolarenergybusinessarethetraditionallocalutilitycompaniesthatsupplyenergytoour

potentialcustomers.Wecompetewiththesetraditionalutilitycompaniesprimarilybasedonprice,predictabilityofpriceandtheeasebywhichcustomerscanswitchtoelectricitygeneratedbyoursolarenergysystemsratherthanfossilfuelbasedalternatives.Wealsocompetewithsolarenergycompaniesthatprovideproductsandservicesindistinctsegmentsofsolarenergyandenergy-relatedproducts.Manysolarenergycompaniesonlyinstallsolarenergysystems,whileothersonlyprovidefinancingfortheseinstallations.Intheresidentialsolarenergysysteminstallationmarket,ourprimarycompetitorsincludeVivintSolarInc.,SunrunInc.,TrinitySolar,Sungevity,Inc.,andmanysmallerlocalsolarcompanies.

IntellectualPropertyAspartofourbusiness,weseektoprotectourintellectualpropertyrightssuchaswithrespecttopatents,trademarks,

copyrights,tradesecrets,includingthroughemployeeandthirdpartynondisclosureagreements,andothercontractualarrangements.Additionally,wepreviouslyannouncedapatentpolicyinwhichweirrevocablypledgedthatwewillnotinitiatealawsuitagainstanypartyforinfringingourpatentsthroughactivityrelatingtoelectricvehiclesorrelatedequipmentforsolongassuchpartyisactingingoodfaith.Wemadethispledgeinordertoencouragetheadvancementofacommon,rapidly-evolvingplatformforelectricvehicles,therebybenefitingourselves,othercompaniesmakingelectricvehicles,andtheworld.

SegmentInformationWeoperateastworeportablesegments:automotiveandenergygenerationandstorage.

Theautomotivesegmentincludesthedesign,development,manufacturing,andsalesofelectricvehicles.Theenergygenerationandstoragesegmentincludesthedesign,manufacture,installation,andsaleorleaseofstationaryenergystorageproductsandsolarenergysystemstoresidentialandcommercialcustomers,orsaleofelectricitygeneratedbyoursolarenergysystemstocustomers.

EmployeesAsofDecember31,2016,Tesla,Inc.had17,782full-timeemployeesandSolarCityCorporationhad12,243full-time

employees.Todate,wehavenotexperiencedanyworkstoppages,andweconsiderourrelationshipwithouremployeestobegood.

AvailableInformation

Wefileorfurnishperiodicreportsandamendmentsthereto,includingourAnnualReportsonForm10-K,ourQuarterlyReportsonForm10-QandCurrentReportsonForm8-K;proxystatementsandotherinformationwiththeSecuritiesandExchangeCommission(SEC).Suchreports,amendments,proxystatementsandotherinformationmaybeobtainedbyvisitingthePublicReferenceRoomoftheSECat100FStreet,NE,Washington,D.C.20549.InformationontheoperationofthePublicReferenceRoomcanbeobtainedbycallingtheSECat1-800-SEC-0330.Inaddition,theSECmaintainsawebsite(www.sec.gov)thatcontainsreports,proxyandinformationstatements,andotherinformationregardingissuersthatfileelectronically.Ourreports,amendmentsthereto,proxystatementsandotherinformationarealsomadeavailable,freeofcharge,onourinvestorrelationswebsiteatir.tesla.comassoonasreasonablypracticableafterweelectronicallyfileorfurnishsuchinformationwiththeSEC.TheinformationpostedonourwebsiteisnotincorporatedbyreferenceintothisAnnualReportonForm10-K.

ITEM1A. RISKFACTORS

Youshouldcarefullyconsidertherisksdescribedbelowtogetherwiththeotherinformationsetforthinthisreport,whichcouldmateriallyaffectourbusiness,financialconditionandfutureresults.Therisksdescribedbelowarenottheonlyrisksfacingourcompany.Risksanduncertaintiesnotcurrentlyknowntousorthatwecurrentlydeemtobeimmaterialalsomaymateriallyadverselyaffectourbusiness,financialconditionandoperatingresults.

RisksRelatedtoOurBusinessandIndustryWehaveexperiencedinthepast,andmayexperienceinthefuture,significantdelaysorothercomplicationsinthedesign,manufacture,launchandproductionrampofnewvehiclesandotherproductssuchasourenergystorageproductsandthesolarroof,whichcouldharmourbrand,business,prospects,financialconditionandoperatingresults.Wehaveexperiencedinthepastlaunch,manufacturingandproductionrampdelaysorothercomplicationsinconnection

withnewvehiclemodelssuchasModelSandModelX,andnewvehiclefeaturessuchastheall-wheeldrivedualmotordrivetrainonModelSandthesecondversionofautopilothardware.Forexample,attimessincethelaunchofModelX,weencounteredunanticipatedchallenges,suchascertainsupplychainconstraints,thatforcedustodecreasetheproductionofthesevehiclesfromourinitialexpectations.Ifunexpectedissuesariseorrecurwithrespecttoanyofourproductionvehicles,wemayexperiencefurtherdelays.Inaddition,becauseourvehiclemodelssharecertainproductionfacilitieswithothermodels,thevolumeorefficiencyofproductionwithrespecttoonemodelmayimpacttheproductionofothermodels.

Wemayalsoexperiencesimilardelaysorothercomplicationsinbringingtomarketandrampingproductionofnewvehicles,suchasModel3,andotherproductssuchasourenergystorageproductsandthesolarroof.Anysignificantadditionaldelayorothercomplicationintheproductionofourcurrentproductsorthedevelopment,manufacture,launchandproductionrampofourfutureproducts,includingcomplicationsassociatedwithexpandingourproductioncapacity,supplychainorregulatoryapprovals,couldmateriallydamageourbrand,business,prospects,financialconditionandoperatingresults.

Wemayexperiencedelaysinrealizingourprojectedtimelinesandcostandvolumetargetsfortheproduction,launchandrampofourModel3vehicle,whichcouldharmourbusiness,prospects,financialconditionandoperatingresults.Ourfuturebusinessdependsinlargepartonourabilitytoexecuteonourplanstodevelop,manufacture,marketandsellthe

Model3vehicle,whichweintendtoofferatalowerpricepointandtoproduceatsignificantlyhighervolumesthanourpresentproductioncapabilitiesfortheModelSorModelXvehicles.WeunveiledaprototypeofModel3inMarch2016andhaveannouncedourgoaltoachievevolumeproductionanddeliveriesofthisvehicleinthesecondhalfof2017.

WehavenoexperiencetodateinmanufacturingvehiclesatthehighvolumesthatweanticipateforModel3,andtobesuccessful,wewillneedtoimplementefficient,automatedandlow-costmanufacturingcapabilities,processesandsupplychainsnecessarytosupportsuchvolumes.WewillalsoneedtodoextensivetestingtoensurethatModel3isincompliancewithourqualitystandardsandapplicableregulationspriortobeginningmassproductionanddeliveryofthevehicles.Moreover,ourModel3productionplanwillalsorequiresignificantinvestmentsofcashandmanagementresources.

OurproductionplanforModel3isbasedonmanykeyassumptions,including: • thatwewillbeabletobuildandequipanewdedicatedfinalassemblylineforhighvolumeproductionofModel3at

theTeslaFactorywithoutexceedingourprojectedcostsandonourprojectedtimeline; • thatwewillbeabletocontinuetoexpandGigafactory1inatimelymannertoproducehighvolumesofqualitylithium-

ioncellsandintegratesuchcellsintofinishedbatterypacksforModel3,allatcoststhatallowustosellModel3atourtargetgrossmargins;

• thattheequipmentandprocesseswhichweinstallforModel3productionwillbeabletoaccuratelymanufacturehighvolumesofModel3vehicleswithinspecifieddesigntolerancesandwithhighquality;

• thatwewillbeabletocontinuetoengagesuppliersforthenecessarycomponentsontermsandconditionsthatareacceptabletousandthatwewillbeabletoobtaincomponentsonatimelybasisandinthenecessaryquantitiestosupporthighvolumeproduction;

• thatwewillbeabletocompleteourfinaltooling,productionplanningandvalidationforModel3andthedeliveryoffinalcomponentdesignstooursuppliersinatimelymanner;and

• thatwewillbeabletoattract,recruit,hireandtrainskilledemployees,includingemployeesontheproductionline,tooperateourplannedhighvolumeproductionfacilitiestosupportModel3,includingattheTeslaFactoryandGigafactory1.

Ifoneormoreoftheforegoingassumptionsturnsouttobeincorrect,ourabilitytosuccessfullylaunchModel3ontimeandatvolumesandpricesthatareprofitable,aswellasourbusiness,prospects,operatingresultsandfinancialcondition,maybemateriallyandadverselyimpacted.

Wemaybeunabletomeetourgrowingvehicleproductionanddeliveryplans,bothofwhichcouldharmourbusinessandprospects.Ourplanscallforsignificantincreasesinvehicleproductionanddeliveriestohighvolumesinashortamountoftime.Our

abilitytoachievetheseplanswilldependuponanumberoffactors,includingourabilitytoaddproductionlinesandcapacityasplannedwhilemaintainingourdesiredqualitylevelsandoptimizedesignandproductionchanges,andoursuppliers’abilitytosupportourneeds.Inaddition,wehaveusedandmayuseinthefutureanumberofnewmanufacturingtechnologies,techniquesandprocessesforourvehicles,whichwemustsuccessfullyintroduceandscaleforhighvolumeproduction.Forexample,wehaveintroducedaluminumspotweldingsystemsandhigh-speedblowformingofcertaindifficulttostampvehicleparts.Wehavealsointroduceduniquedesignfeaturesinourvehicleswithdifferentmanufacturingchallenges,suchasa17inchdisplayscreen,dualmotordrivetrain,autopilothardwareandfalcon-wingdoors.Wehavelimitedexperiencedeveloping,manufacturing,sellingandservicing,andallocatingouravailableresourcesamong,multipleproductssimultaneously.Ifweareunabletorealizeourplans,ourbrand,business,prospects,financialconditionandoperatingresultscouldbemateriallydamaged.

Concurrentwiththesignificantplannedincreaseinourvehicleproductionlevels,wewillalsoneedtocontinuetosignificantlyincreasedeliveriesofourvehicles.Wehavelimitedexperienceindeliveringahighvolumeofvehicles,andnoexperienceindeliveringvehiclesatthesignificantlyhighervolumesweanticipateforModel3,andwemayfacedifficultiesmeetingourdeliveryandgrowthplansintobothexistingmarketsaswellasnewmarketsintowhichweexpand.Ifweareunabletorampuptomeetourdeliverygoalsglobally,thiscouldhaveamaterialadverseeffectonourbusiness,prospects,financialconditionandoperatingresults.

Wearedependentonoursuppliers,themajorityofwhicharesinglesourcesuppliers,andtheinabilityofthesesupplierstodelivernecessarycomponentsofourproductsinatimelymanneratprices,qualitylevels,andvolumesacceptabletous,orourinabilitytoefficientlymanagethesecomponents,couldhaveamaterialadverseeffectonourfinancialconditionandoperatingresults.Ourcurrentproductscontainnumerouspurchasedpartswhichwesourcegloballyfromhundredsofdirectsuppliers,the

majorityofwhomarecurrentlysinglesourcesuppliersdespiteeffortstoqualifyandobtaincomponentsfrommultiplesourceswheneverfeasible.Anysignificantunanticipateddemandwouldrequireustoprocureadditionalcomponentsinashortamountoftime,andinthepastwehavealsoreplacedcertainsuppliersbecauseoftheirfailuretoprovidecomponentsthatmetourqualitycontrolstandards.Whilewebelievethatwewillbeabletosecureadditionaloralternatesourcesofsupplyformostofourcomponentsinarelativelyshorttimeframe,thereisnoassurancethatwewillbeabletodosoordevelopourownreplacementsforcertainhighlycustomizedcomponentsofourproducts.Moreover,wehavesignedlong-termagreementswithPanasonictobeourmanufacturingpartnerandsupplierforlithium-ioncellsatGigafactory1inNevadaandPVcellsandpanelsatGigafactory2inBuffalo,NewYork.IfweencounterunexpecteddifficultieswithkeysupplierssuchasPanasonic,andifweareunabletofilltheseneedsfromothersuppliers,wecouldexperienceproductiondelaysandpotentiallossofaccesstoimportanttechnologyandpartsforproducing,servicingandsupportingourproducts.

Thislimitedsupplychainexposesustomultiplepotentialsourcesofdeliveryfailureorcomponentshortagesfortheproductionofourproducts,suchasthosewhichweexperiencedin2012and2016inconnectionwithourslower-than-plannedModelSandModelXramps.Furthermore,unexpectedchangesinbusinessconditions,materialspricing,laborissues,wars,governmentalchanges,naturaldisasterssuchastheMarch2011earthquakesinJapanandotherfactorsbeyondourandoursuppliers’control,couldalsoaffectoursuppliers’abilitytodelivercomponentstousonatimelybasis.Thelossofanysingleorlimitedsourcesupplierorthedisruptioninthesupplyofcomponentsfromthesesupplierscouldleadtoproductdesignchangesanddelaysinproductdeliveriestoourcustomers,whichcouldhurtourrelationshipswithourcustomersandresultinnegativepublicity,damagetoourbrandandamaterialandadverseeffectonourbusiness,prospects,financialconditionandoperatingresults.

Changesinoursupplychainhavealsoresultedinthepast,andmayresultinthefuture,inincreasedcost.Wehavealsoexperiencedcostincreasesfromcertainofoursuppliersinordertomeetourqualitytargetsanddevelopmenttimelinesaswellasduetodesignchangesthatwemade,andwemayexperiencesimilarcostincreasesinthefuture.Certainsuppliers,includingforModelX,havesoughttorenegotiatethetermsofthesupplyarrangements.Additionally,wearenegotiatingwithexistingsuppliersforcostreductions,seekingnewandlessexpensivesuppliersforcertainparts,andattemptingtoredesigncertainpartstomakethemlessexpensivetoproduce.Ifweareunsuccessfulinoureffortstocontrolandreducesuppliercosts,ouroperatingresultswillsuffer.

WeexpecttheforegoingdiscussiontoapplygenerallytoModel3.However,becauseweplantoproduceModel3atsignificantlyhighervolumesthanModelSorModelX,thenegativeimpactofanydelaysorotherconstraintswithrespecttooursuppliersforModel3couldbesubstantiallygreaterthananysuchissuesexperiencedwithrespecttoourproductstodate.Assomeofoursuppliersforourcurrentproductionvehiclesdonothavetheresources,equipmentorcapabilitytoprovidecomponentsfortheModel3inlinewithourrequirements,wehaveengagedasignificantnumberofnewsuppliers,andsuchsupplierswillalsohavetoramptoachieveourneedsinashortperiodoftime.Thereisnoassurancethatthesesupplierswillultimatelybeabletomeetourcost,qualityandvolumeneeds.Furthermore,asthescaleofourvehicleproductionincreases,wewillneedtoaccuratelyforecast,purchase,warehouseandtransporttoourmanufacturingfacilitiescomponentsatmuchhighervolumesthanwehaveexperiencewith.Ifweareunabletoaccuratelymatchthetimingandquantitiesofcomponentpurchasestoouractualproductionplansorcapabilities,orsuccessfullyimplementautomation,inventorymanagementandothersystemstoaccommodatetheincreasedcomplexityinoursupplychain,wemayhavetoincurunexpectedstorage,transportationandwrite-offcosts,whichcouldhaveamaterialadverseeffectonourfinancialconditionandoperatingresults.

Ourfuturegrowthandsuccessisdependentuponconsumers’willingnesstoadoptelectricvehiclesandspecificallyourvehicles,especiallyinthemassmarketdemographicwhichwearetargetingwithModel3.Ourgrowthishighlydependentupontheadoptionbyconsumersofalternativefuelvehiclesingeneralandelectricvehicles

inparticular.AlthoughwehavesuccessfullygrowndemandforModelSandModelXtodateandhaveseenverystronginitialdemandforModel3,andwebelievethatwewillbeabletocontinuetogrowdemandseparatelyforeachofthesevehiclesandtheirvariants,thereisnoguaranteeofsuchfuturedemandorthatourvehicleswillnotcompetewithoneanotherinthemarket.Moreover,themassmarketdemographicwhichwearetargetingwithModel3islarger,butmorecompetitive,thanforModelSandModelX.

IfthemarketforelectricvehiclesingeneralandTeslavehiclesinparticulardoesnotdevelopasweexpect,ordevelopsmoreslowlythanweexpect,ourbusiness,prospects,financialconditionandoperatingresultscouldbeharmed.Themarketforalternativefuelvehiclesisrelativelynew,rapidlyevolving,andcouldbeaffectedbynumerousexternalfactors,suchas: • perceptionsaboutelectricvehiclefeatures,quality,safety,performanceandcost; • perceptionsaboutthelimitedrangeoverwhichelectricvehiclesmaybedrivenonasinglebatterycharge; • competition,includingfromothertypesofalternativefuelvehicles,plug-inhybridelectricvehicles,andhighfuel-

economyinternalcombustionenginevehicles; • volatilityinthecostofoilandgasoline; • governmentregulationsandeconomicincentives;and • accesstochargingfacilities.

FutureproblemsordelaysinexpandingGigafactory1andoperatingitinlinewithourexpectationscouldnegativelyaffecttheproductionandprofitabilityofourbattery-basedproducts,suchasModel3orourenergystorageproducts.Tolowerthecostofcellproductionandproducecellsinhighvolume,weintendtointegratetheproductionoflithium-ion

cellsandfinishedbatterypacksforourvehiclesincludingModel3andenergystorageproductsatGigafactory1.WhileGigafactory1beganproducinglithium-ioncellsforenergystorageproductsinJanuary2017,wehavenootherdirectexperienceintheproductionoflithium-ioncells,includingthoseintendedforuseinvehicles.AlthoughwecontinuetoremainontrackwithourprogressatGigafactory1,giventhesizeandcomplexityofthisundertaking,itispossiblethatfutureeventscouldresultinthecostofexpandingandoperatingGigafactory1exceedingourcurrentexpectationsandGigafactory1takinglongertoexpandthanwecurrentlyanticipate.InordertobuildourModel3vehiclesatourplannedvolumeandtargetgrossmargin,wemusthavesignificantbatterycellproductionfromGigafactory1.IfweareunabletoexpandGigafactory1inatimelymanner,andattract,hireandretainasubstantialnumberofhighlyskilledpersonneltoworkthereinordertoproducehighvolumesofqualitylithium-ioncellsatreasonableprices,ourabilitytosupplybatterypackstoourvehicles,especiallyModel3,andotherbattery-basedproductsaccordingtoourscheduleand/oratapricethatallowsustosellthematourtargetgrossmarginsandinthequantitiesweestimatecouldbenegativelyimpacted.AnysuchfutureproblemsordelayswithGigafactory1couldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.

Ifourvehiclesorotherproductsthatcontainourvehiclepowertrainsorbatterypacksfailtoperformasexpected,ourabilitytodevelop,marketandsellourelectricvehiclescouldbeharmed.Ifourvehicles,otherOEMs’vehiclesthatcontainourpowertrainsorourenergystorageproductsweretocontaindefectsin

designandmanufacturethatcausethemnottoperformasexpectedorthatrequirerepair,ourabilitytodevelop,marketandsellourproductscouldbeharmed.Forexample,theoperationofourvehiclesishighlydependentonsoftware,whichisinherentlycomplexandcouldconceivablycontaindefectsanderrors.Issuesexperiencedbycustomershaveincludedthoserelatedtothesoftwareforthe17inchdisplayscreen,thepanoramicroofandthe12voltbatteryintheModelSandtheseatsanddoorsintheModelX.Althoughweattempttoremedyanyissuesweobserveinourvehiclesaseffectivelyandrapidlyaspossible,sucheffortsmaynotbetimely,mayhamperproductionormaynotbeuptothesatisfactionofourcustomers.Whilewehaveperformedextensiveinternaltesting,wecurrentlyhavealimitedframeofreferencebywhichtoevaluatedetailedlong-termquality,reliability,durabilityandperformancecharacteristicsofourbatterypacks,powertrains,vehiclesandenergystorageproducts.Therecanbenoassurancethatwewillbeabletodetectandfixanydefectsinourproductspriortotheirsaletoconsumers.

Anyproductdefectsoranyotherfailureofourproductstoperformasexpectedcouldharmourreputationandresultindeliverydelays,productrecalls,productliabilityclaims,significantwarrantyandotherexpenses,andcouldhaveamaterialadverseimpactonourbusiness,financialcondition,operatingresultsandprospects.OurModelXvehicleshavenotyetbeenevaluatedbyNHTSAforastarratingundertheNewCarAssessmentProgram,andwhilebasedonourinternaltestingweexpecttoobtaincomparableratingstothoseachievedbyModelS,thereisnoassurancethiswilloccur.

Ifwefailtoscaleourbusinessoperationsandotherwisemanagefuturegrowtheffectivelyaswerapidlygrowourcompany,especiallyinternationally,wemaynotbeabletoproduce,market,sellandserviceourproductssuccessfully.Anyfailuretomanageourgrowtheffectivelycouldmateriallyandadverselyaffectourbusiness,prospects,operatingresults

andfinancialcondition.Wecontinuetoexpandouroperationssignificantly,especiallyinternationally,includingbyaplannedtransitiontohighvolumevehicleproductionandtheworldwidesalesandservicingofasignificantlyhighernumberofvehiclesthanourcurrentvehiclefleetinthecomingyears,withthelaunchandrampofModel3.Furthermore,wearedevelopingandgrowingourenergystorageproductandsolarbusinessworldwide,includingincountrieswherewehavelimitedornopreviousoperatingexperienceinconnectionwithourvehiclebusiness.Ourfutureoperatingresultsdependtoalargeextentonourabilitytomanageourexpansionandgrowthsuccessfully.Wemaynotbesuccessfulinundertakingthisglobalexpansionifweareunabletocontrolexpensesandavoidcostoverrunsandotherunexpectedoperatingcosts;establishsufficientworldwidesales,serviceandSuperchargerfacilitiesinatimelymanner;adaptourproductstomeetlocalrequirements;implementtherequiredinfrastructure,systemsandprocesses;andfindandhireasignificantnumberofadditionalmanufacturing,engineering,service,electricalinstallation,constructionandadministrativepersonnel.

IfweareunabletocontinuetoreducethemanufacturingcostsofModelSandModelXorcontrolmanufacturingcostsforModel3,ourfinancialconditionandoperatingresultswillsuffer.AswehavegraduallyrampedproductionofModelSandModelX,manufacturingcostspervehiclehavedecreased.While

weexpectongoingcostreductionstoberealizedbybothusandoursuppliers,thereisnoguaranteewewillbeabletoachievesufficientcostsavingstoreachourgrossmarginandprofitabilitygoals.Weincursignificantcostsrelatedtoprocuringthematerialsrequiredtomanufactureourvehicles,assemblingvehiclesandcompensatingourpersonnel.Wemayalsoincursubstantialcostsorcostoverrunsinincreasingtheproductioncapabilityofourvehiclemanufacturingfacilities,suchasforModel3.Furthermore,ifweareunabletoachieveproductioncosttargetsonourModelXandModel3vehiclespursuanttoourplans,wemaynotbeabletomeetourgrossmarginandotherfinancialtargets.

Furthermore,manyofthefactorsthatimpactourmanufacturingcostsarebeyondourcontrol,suchaspotentialincreasesinthecostsofourmaterialsandcomponents,suchaslithium-ionbatterycellsoraluminumusedtoproducebodypanels.Ifweareunabletocontinuetocontrolandreduceourmanufacturingcosts,ouroperatingresults,businessandprospectswillbeharmed.

Wearesignificantlydependentuponrevenuegeneratedfromthesaleofalimitedfleetofelectricvehicles,whichcurrentlyincludestheModelSandModelXandwhichwillalsoincludeModel3inthenearterm.Wecurrentlygenerateasignificantpercentageofourrevenuesfromthesaleoftwoproducts:ModelSandModelX

vehicles.Model3,forwhichweareplanningtoachievevolumeproductionanddeliveriesinsecondhalfof2017,requiressignificantinvestmentpriortocommercialintroduction,andthereisnoguaranteethatitwillbecommerciallysuccessful.Historically,automobilecustomershavecometoexpectavarietyofvehiclesofferedinamanufacturer’sfleetandnewandimprovedvehiclemodelstobeintroducedfrequently.Inordertomeettheseexpectations,wemayinthefutureberequiredtointroduceonaregularbasisnewvehiclemodelsaswellasenhancedversionsofexistingvehiclemodels.Totheextentourproductvarietyandcyclesdonotmeetconsumerexpectations,ourfuturesalesmaybeadverselyaffected.

Ourvehiclesandenergystorageproductsmakeuseoflithium-ionbatterycells,whichhavebeenobservedtocatchfireorventsmokeandflame,andsucheventshaveraisedconcerns,andfutureeventsmayleadtoadditionalconcerns,aboutthebatteriesusedinautomotiveapplications.Thebatterypacksthatweproducemakeuseoflithium-ioncells.Onrareoccasions,lithium-ioncellscanrapidlyreleasethe

energytheycontainbyventingsmokeandflamesinamannerthatcanignitenearbymaterialsaswellasotherlithium-ioncells.

Whilewehavedesignedthebatterypacktopassivelycontainanysinglecell’sreleaseofenergywithoutspreadingtoneighboringcells,therecanbenoassurancethatafieldortestingfailureofourvehiclesorotherbatterypacksthatweproducewillnotoccur,whichcouldsubjectustolawsuits,productrecalls,orredesignefforts,allofwhichwouldbetimeconsumingandexpensive.Also,negativepublicperceptionsregardingthesuitabilityoflithium-ioncellsforautomotiveapplicationsoranyfutureincidentinvolvinglithium-ioncellssuchasavehicleorotherfire,evenifsuchincidentdoesnotinvolveourvehicles,couldseriouslyharmourbusiness.

Inaddition,westoreasignificantnumberoflithium-ioncellsattheTeslaFactoryandplantoproducehighvolumesofcellsandbatterymodulesandpacksatGigafactory1.Anymishandlingofbatterycellsmaycausedisruptiontotheoperationofourfacilities.Whilewehaveimplementedsafetyproceduresrelatedtothehandlingofthecells,therecanbenoassurancethatasafetyissueorfirerelatedtothecellswouldnotdisruptouroperations.Suchdamageorinjurycouldleadtoadversepublicityandpotentiallyasafetyrecall.Moreover,anyfailureofacompetitor’selectricvehicleorenergystorageproductmaycauseindirectadversepublicityforusandourproducts.Suchadversepublicitycouldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.

Increasesincosts,disruptionofsupplyorshortageofmaterials,inparticularforlithium-ioncells,couldharmourbusiness.Wemayexperienceincreasesinthecostorasustainedinterruptioninthesupplyorshortageofmaterials.Anysuchincrease,

supplyinterruptionorshortagecouldmateriallyandnegativelyimpactourbusiness,prospects,financialconditionandoperatingresults.Weusevariousmaterialsinourbusinessincludingaluminum,steel,lithium,cobalt,nickelandcopper,aswellaslithium-ioncellsfromsuppliers.Thepricesforthesematerialsfluctuate,andtheiravailablesupplymaybeunstable,dependingonmarketconditionsandglobaldemandforthesematerials,includingasaresultofincreasedproductionofelectricvehiclesandenergystorageproductsbyourcompetitors,andcouldadverselyaffectourbusinessandoperatingresults.Forinstance,weareexposedtomultiplerisksrelatingtolithium-ioncells.Theserisksinclude: • theinabilityorunwillingnessofcurrentbatterymanufacturerstobuildoroperatebatterycellmanufacturingplantsto

supplythenumbersoflithium-ioncellswerequire; • disruptioninthesupplyofcellsduetoqualityissuesorrecallsbybatterycellmanufacturersoranyissuesthatmay

arisewithrespecttocellsmanufacturedatourownfacilities; • anincreaseinthecost,ordecreaseintheavailablesupply,ofmaterialsusedinthecells;and • fluctuationsinthevalueoftheJapaneseyenagainsttheU.S.dollarasourbatterycellpurchasesforModelSandModel

XarecurrentlydenominatedinJapaneseyen.

Ourbusinessisdependentonthecontinuedsupplyofbatterycellsforthebatterypacksusedinourvehiclesandenergystorageproducts.Whilewebelieveseveralsourcesofthebatterycellsareavailableforsuchbatterypacks,andexpecttoeventuallyrelysubstantiallyonbatterycellsmanufacturedatourownfacilities,wehavetodatefullyqualifiedonlyaverylimitednumberofsuppliersforthecellsusedinsuchbatterypacksandhaveverylimitedflexibilityinchangingcellsuppliers.Inparticular,wehavefullyqualifiedonlyonesupplierforthecellsusedinbatterypacksforourcurrentproductionvehicles.Anydisruptioninthesupplyofbatterycellsfromsuchsupplierscoulddisruptproductionofourvehiclesandofthebatterypacksweproduceforotherautomobilemanufacturersuntilsuchtimeasadifferentsupplierisfullyqualified.Furthermore,fluctuationsorshortagesinpetroleumandothereconomicconditionsmaycauseustoexperiencesignificantincreasesinfreightchargesandmaterialcosts.Substantialincreasesinthepricesforourmaterialsorpriceschargedtous,suchasthosechargedbybatterycellsuppliers,wouldincreaseouroperatingcosts,andcouldreduceourmarginsifwecannotrecouptheincreasedcoststhroughincreasedvehicleprices.Anyattemptstoincreasevehiclepricesinresponsetoincreasedmaterialcostscouldresultincancellationsofvehicleordersandreservationsandthereforemateriallyandadverselyaffectourbrand,image,business,prospectsandoperatingresults.

Wemaybecomesubjecttoproductliabilityclaims,whichcouldharmourfinancialconditionandliquidityifwearenotabletosuccessfullydefendorinsureagainstsuchclaims.Productliabilityclaimscouldharmourbusiness,prospects,operatingresultsandfinancialcondition.Theautomobile

industryinparticularexperiencessignificantproductliabilityclaimsandwefaceinherentriskofexposuretoclaimsintheeventourvehiclesdonotperformasexpectedresultinginpersonalinjuryordeath.Wealsomayfacesimilarclaimsrelatedtoanymisuseorfailuresofnewtechnologiesthatwearepioneering,includingautopilotinourvehicles.Finally,asourenergystorageproductsandsolarenergysystemsgenerateandstoreelectricity,theyhavethepotentialtocauseinjurytopeopleorproperty.Asuccessfulproductliabilityclaimagainstuscouldrequireustopayasubstantialmonetaryaward.Ourrisksinthisareaareparticularlypronouncedgiventhelimitednumberofvehiclesandenergystorageproductsdeliveredtodateandlimitedfieldexperienceofourproducts.Moreover,aproductliabilityclaimcouldgeneratesubstantialnegativepublicityaboutourproductsandbusinessandcouldhavematerialadverseeffectonourbrand,business,prospectsandoperatingresults.Inmostjurisdictions,wegenerallyself-insureagainsttheriskofproductliabilityclaims,meaningthatanyproductliabilityclaimswilllikelyhavetobepaidfromcompanyfunds,notbyinsurance.

Themarketsinwhichweoperatearehighlycompetitive,andwemaynotbesuccessfulincompetingintheseindustries.Wecurrentlyfacecompetitionfromnewandestablisheddomesticandinternationalcompetitorsandexpecttofacecompetitionfromothersinthefuture,includingcompetitionfromcompanieswithnewtechnology.Theworldwideautomotivemarket,particularlyforalternativefuelvehicles,ishighlycompetitivetodayandweexpectitwill

becomeevenmoresointhefuture.Thereisnoassurancethatourvehicleswillbesuccessfulintherespectivemarketsinwhichtheycompete.ManyestablishedandnewautomobilemanufacturerssuchasBMW,Daimler,GeneralMotorsandToyota,aswellasothercompanies,haveenteredorarereportedtohaveplanstoenterthealternativefuelvehiclemarket,includinghybrid,plug-inhybridandfullyelectricvehicles.Mostofourcurrentandpotentialcompetitorshavesignificantlygreaterfinancial,technical,manufacturing,marketingandotherresourcesthanwedoandmaybeabletodevotegreaterresourcestothedesign,development,manufacturing,distribution,promotion,saleandsupportoftheirproducts.Virtuallyallofourcompetitorshavemoreextensivecustomerbasesandbroadercustomerandindustryrelationshipsthanwedoandalmostallofthesecompanieshavelongeroperatinghistoriesandgreaternamerecognitionthanwedo.Increasedcompetitioncouldresultinlowervehicleunitsales,pricereductions,revenueshortfalls,lossofcustomersandlossofmarketshare,whichcouldharmourbusiness,prospects,financialconditionandoperatingresults.Inaddition,uponthelaunchofourModel3vehicle,wewillfacecompetitionfromexistingandfutureautomobilemanufacturersintheextremelycompetitiveentry-levelpremiumsedanmarket,includingAudi,BMW,LexusandMercedes.

Thesolarandrenewableenergyindustriesarehighlycompetitivewithintheirmarkets,andalsocompetewithlargeutilities.Decreasesintheretailpricesofelectricityfromtheutilitiesorotherrenewableenergysourcescouldharmourabilitytooffercompetitivepricingandleadtoanincreasedrateofcustomerdefaultsunderourexistingcontracts.Moreover,solarpanelpriceshavedeclinedandarecontinuingtodecline.Asweincreaseoursolarpanelmanufacturing,includingatGigafactory2,futurepricedeclinesmayharmourabilitytocompeteandproducesolarpanelsatcompetitiveprices.

Ifweareunabletoestablishandmaintainconfidenceinourlong-termbusinessprospectsamongconsumers,analystsandwithinourindustry,thenourfinancialcondition,operatingresults,businessprospectsandstockpricemaysuffermaterially.Consumersmaybelesslikelytopurchaseourproductsnowiftheyarenotconvincedthatourbusinesswillsucceedorthat

ourserviceandsupportandotheroperationswillcontinueformanyyears.Similarly,suppliersandotherthirdpartieswillbelesslikelytoinvesttimeandresourcesindevelopingbusinessrelationshipswithusiftheyarenotconvincedthatourbusinesswillsucceed.Accordingly,inordertobuildandmaintainourbusiness,wemustmaintainconfidenceamongcustomers,suppliers,analystsandotherpartiesinourliquidityandlong-termbusinessprospects.Maintainingsuchconfidencemaybeparticularlycomplicatedbycertainfactors,suchasourlimitedoperatinghistory,unfamiliaritywithourproducts,competitionanduncertaintyregardingthefutureofelectricvehiclesorourotherproductsandservicesandourquarterlyproductionandsalesperformancecomparedwithmarketexpectations.Manyofthesefactorsarelargelyoutsideourcontrol,andanynegativeperceptionsaboutourlong-termbusinessprospects,evenifexaggeratedorunfounded,wouldlikelyharmourbusinessandmakeitmoredifficulttoraiseadditionalfundsifneeded.

OurplantoexpandournetworkofTeslastores,galleries,servicecentersandSuperchargerswillrequiresignificantcashinvestmentsandmanagementresourcesandmaynotmeetexpectationswithrespecttoadditionalsalesorinstallationsofourproductsoravailabilityofSuperchargers.OurplantoexpandournetworkofTeslastores,galleries,servicecentersandSuperchargerswillrequiresignificantcash

investmentsandmanagementresourcesandmaynotmeetourexpectationswithrespecttoadditionalsalesorinstallationsofourproducts.Thisongoingglobalexpansion,whichincludesplannedentryintomarketsinwhichwehavelimitedornoexperienceselling,delivering,installingand/orservicingourproducts,andwhichmayposelegal,regulatory,culturalandpoliticalchallengesthatwehavenotpreviouslyencountered,maynothavethedesiredeffectofincreasingsalesandinstallationsandexpandingourbrandpresencetothedegreeweareanticipating.Furthermore,theincreasingnumberofModelSandModelXvehicles,aswellasthesignificantincreaseinourvehiclefleetsizethatweexpectfromModel3,willrequireustocontinuetoincreasethenumberofourSuperchargerstationssignificantly.Ifwefailtodoso,ourcustomerscouldbecomedissatisfied,whichcouldadverselyaffectsalesofourvehicles.Wewillalsoneedtoensureweareincompliancewithanyregulatoryrequirementsapplicabletothesale,installationandserviceofourproducts,thesaleofelectricitygeneratedthroughoursolarenergysystems,andoperationofSuperchargersinthosejurisdictions,whichcouldtakeconsiderabletimeandexpense.IfweexperienceanydelaysorcannotmeetcustomerexpectationsinexpandingournetworkofTeslastores,galleries,servicecentersandSuperchargers,thiscouldleadtoadecreaseinsalesorinstallationsofourproductsandcouldnegativelyimpactourbusiness,prospects,financialconditionandoperatingresults.

Wefacerisksassociatedwithourinternationaloperationsandexpansion,includingunfavorableregulatory,political,taxandlaborconditions,andwithestablishingourselvesinnewmarkets,allofwhichcouldharmourbusiness.Wecurrentlyhaveinternationaloperationsandsubsidiariesinvariouscountriesandjurisdictionsthataresubjecttolegal,

political,andregulatoryrequirementsandsocialandeconomicconditionsthatmaybeverydifferentfromthoseaffectingusdomestically.Additionally,aspartofourgrowthstrategy,wewillcontinuetoexpandoursales,serviceandSuperchargerlocationsinternationally.Internationalexpansionrequiresustomakesignificantexpenditures,includingtheestablishmentoflocaloperatingentities,hiringoflocalemployeesandestablishingfacilitiesinadvanceofgeneratinganyrevenue.

Wearesubjecttoanumberofrisksassociatedwithinternationalbusinessactivitiesthatmayincreaseourcosts,impactourabilitytosellourproductsandrequiresignificantmanagementattention.Theserisksincludeconformingourproductstovariousinternationalregulatoryandsafetyrequirementsaswellaschargingandotherelectricinfrastructures,difficultyinestablishing,staffingandmanagingforeignoperations,challengesinattractingcustomers,foreigngovernmenttaxes,regulationsandpermitrequirements,ourabilitytoenforceourcontractualrights;traderestrictions,customsregulations,tariffsandpriceorexchangecontrols,andpreferencesofforeignnationsfordomesticallymanufacturedproducts.

Ifwefailtoeffectivelygrowandmanagetheresidual,financingandcreditrisksrelatedtoourvehiclefinancingprograms,ourbusinessmaysuffer.WeoffervehiclefinancingarrangementsthroughourlocalsubsidiariesintheUnitedStates,Canada,GermanyandtheUK,

includingleasingdirectlythroughcertainofthosesubsidiaries.Theprofitabilityoftheleasingprogramdependsonourabilitytoaccuratelyprojectresidualvalues,secureadequatefinancingand/orbusinesspartnerstofundandgrowthisprogram,andscreenforandmanagecustomercreditrisk.Weexpecttheneedforleasingandotherfinancingoptionstobesignificantlyhigherwiththevolumesweexpectforourvehiclesinthefuture,especiallyModel3,forwhichwealsoexpectahigherproportionofuptakeforsuchprogramsthanforModelSorModelX.Ifweareunabletoadequatelyfundourleasingprogramwithinternalfunds,orpartnersorotherexternalfinancingsources,andcompellingalternativefinancingprogramsarenotavailableforourcustomers,wemaybeunabletogrowoursales.Furthermore,ifourleasingbusinessgrowssubstantially,ourbusinessmaysufferifwecannoteffectivelymanagethegreaterlevelsofresidualandcreditrisksresultingfromgrowth.Finally,ifwedonotsuccessfullymonitorandcomplywithapplicablenational,stateand/orlocalfinancialregulationsandconsumerprotectionlawsgoverningleasetransactions,wemaybecomesubjecttoenforcementactionsorpenalties,eitherofwhichmayharmourbusiness.

Ourresalevalueguaranteeandleasingprogramsforourvehiclesexposeustotheriskthattheresalevaluesofvehiclesreturnedtousarelowerthanourestimatesandmayresultinlowerrevenues,grossmargin,profitabilityandliquidity.Wehaveprovidedresalevalueguaranteestomanyofourcustomers,underwhichsuchcustomersmayselltheirvehicles

backtousatcertainpointsintimeatpre-determinedresalevalues.Customerscanleaseourvehiclesthroughbothleasingpartnersandfromusdirectly,throughourcaptivefinancecompanies.Theresalevaluesofanyvehiclesresoldorreturnedtouspursuanttotheseprogramsmaybelowerthanourestimates,whicharebasedonalimitedsecondarymarketforourvehicles.Ifweincorrectlyestimatetheresidualvaluesofourvehicles,orthevolumeofvehiclesreturnedtousishigherthanourestimatesand/orwearenotabletoresellthemtimelyoratall,ourprofitabilityand/orliquiditycouldbenegativelyimpacted.Incaseswherecustomersretaintheirvehiclespasttheguaranteeperiod,ourgrossmarginwillbenegativelyimpactedasallremainingrevenuesandcostsrelatedtothevehiclewillberecognizedatnogrossprofit.

Weapplyleaseaccountingonsalesofvehicleswitharesalevalueguaranteeandonleasesmadedirectlybyusorbyourleasingpartners.Underleaseaccounting,werecognizetheassociatedrevenuesandcostsofthevehiclesaleovertimeratherthanfullyupfrontatvehicledelivery.Asaresult,theseprogramsgeneratelowerrevenuesintheperiodthecarisdeliveredandhighergrossmarginsduringtheperiodoftheresalevalueguaranteeascomparedtopurchasesinwhichtheresalevalueguaranteedoesnotapply.Ahigherthananticipatedprevalenceoftheseprogramscouldthereforehaveanadverseimpactonourneartermrevenuesandoperatingresults.Moreover,unlikethesaleofavehiclewitharesalevalueguaranteeorprogramswithleasingpartnerswhichdonotimpactourcashflowsandliquidityatthetimeofvehicledelivery,underaleasehelddirectlybyus,wemayreceiveonlyaverysmallportionofthetotalvehiclepurchasepriceatthetimeoflease,followedbyastreamofpaymentsoverthetermofthelease.Totheextentweexpandourleasingprogramwithoutsecuringexternalfinancingorbusinesspartnerstosupportsuchexpansion,ourcashflowandliquiditycouldalsobenegativelyimpacted.

Theunavailability,reductionoreliminationof,orunfavorabledeterminationswithrespectto,governmentandeconomicincentivesintheUnitedStatesandabroadsupportingthedevelopmentandadoptionofelectricvehiclesorsolarenergycouldhavesomeimpactondemandforourproductsandservices.Wecurrentlybenefitfromcertaingovernmentandeconomicincentivessupportingthedevelopmentandadoptionofelectric

vehicles.IntheUnitedStatesandabroad,suchincentivesinclude,amongotherthings,taxcreditsorrebatesthatencouragethepurchaseofelectricvehicles.InNorway,forexample,thepurchaseofelectricvehiclesisnotcurrentlysubjecttoimporttaxes,taxesonnon-recurringvehiclefees,the25%valueaddedtaxorthepurchasetaxesthatapplytothepurchaseofgas-poweredvehicles.Notably,thequantumofincentiveprogramspromotingelectricvehiclesisatinyfractionoftheamountofincentivesthatareprovidedtogas-poweredvehiclesthroughtheoilandgasindustries.Nevertheless,eventhelimitedbenefitsfromsuchprogramscouldbereduced,eliminatedorexhausted.Forexample,onJanuary1,2016,apreviouslyavailableincentiveinDenmarkthatfavoredthepurchaseofelectricvehiclesexpiredandwasreplacedwithanewlyphased-inincentivethatislessgenerousthantheincentivethatitreplaced.Moreover,undercurrentregulations,a$7,500federaltaxcreditavailableintheUnitedStatesforthepurchaseofqualifiedelectricvehicleswithatleast17kWhofbatterycapacity,suchasourvehicles,willbegintophaseoutwithrespecttoanyvehiclesdeliveredinthesecondcalendarquarterfollowingthequarterinwhichwedeliverour200,000thqualifyingvehicleintheUnitedStates.Inaddition,Californiaimplementedregulationsphasingouta$2,500cashrebateonqualifiedelectricvehiclesforhigh-incomeconsumers,whichbecameeffectiveinMarch2016.Incertaincircumstances,thereispressurefromtheoilandgaslobbyorrelatedspecialintereststobringaboutsuchdevelopments,whichcouldhavesomenegativeimpactondemandforourvehicles.

Inaddition,certaingovernmentalrebates,taxcreditsandotherfinancialincentivesthatarecurrentlyavailablewithrespecttooursolarandenergystorageproductbusinessesallowustolowerourinstallationcosts,costofcapitalandencourageinvestorstoinvestinoursolarfinancingfunds.However,theseincentivesmayexpireonaparticulardate,endwhentheallocatedfundingisexhaustedorbereducedorterminatedassolarenergyadoptionratesincrease,oftenwithoutwarning.Forexample,thefederalgovernmentcurrentlyoffersa30%investmenttaxcredit(“ITC”)fortheinstallationofsolarpowerfacilitiesandifinstalledconcurrently,forenergystoragesystems,whicharecurrentlyscheduledtodeclineto10%,andexpirealtogetherforresidentialsystems,byJanuary2022.Likewise,injurisdictionswherenetenergymeteringiscurrentlyavailable,ourcustomersreceivebillcreditsfromutilitiesforenergythattheirsolarenergysystemsgenerateandexporttothegridinexcessoftheelectricloadtheyuse.Severaljurisdictionshavereducedoreliminatedthebenefitavailableundernetenergymetering,orhaveproposedtodoso.Suchreductionsinorterminationofgovernmentalincentivescouldadverselyimpactourresultsofoperationsbyincreasingourcostofcapital,makinguslesscompetitiveforpotentialcustomers,andadverselyimpactourabilitytoattractinvestmentpartnersandtoformnewfinancingfundsforoursolarassets.

Moreover,weandourfundinvestorsclaimtheITCinamountsbasedonthefairmarketvalueofoursolarenergysystems.Althoughweobtainindependentappraisalstosupporttheclaimedfairmarketvalues,therelevantgovernmentalauthoritieshaveauditedsuchvaluesandincertaincaseshavedeterminedthattheyshouldbelower,andtheymaydosointhefuture.Suchdeterminationsmayresultinadversetaxconsequencesand/orourobligationtomakeindemnificationorotherpayments,orcontributeadditionalassets,toourfundsorfundinvestors.

IfweareunabletointegrateSolarCitysuccessfullyintoourbusiness,wemaynotrealizetheanticipatedbenefitsofouracquisitionofSolarCity.Wehavedevotedtodate,andcontinuetodevote,substantialattentionandresourcestointegratingintoourcompanythe

businessandoperationsofSolarCity,whichweacquiredinNovember2016.OurcompanyhasnopriorexperienceintegratingabusinessofthesizeandscaleofSolarCity.Iftheintegrationprocesstakeslongerthanexpectedorismorecostlythanexpected,wemayfailtorealizesomeoralloftheanticipatedbenefitsoftheacquisition.

Potentialdifficultieswemayencounterintheintegrationprocessincludethefollowing: • theinabilitytosuccessfullycombineourbusinesswiththatofSolarCityinamannerthatpermitsthecombined

companytoachievethesynergiesweexpectfromtheacquisition,whichwouldresultintheanticipatedbenefitsoftheacquisitionnotbeingrealizedpartlyorwhollyinthetimeframecurrentlyanticipatedoratall;

• complexitiesassociatedwithmanagingthecombinedbusinesses; • integratingpersonnelfromthetwocompanies; • creationofuniformstandards,controls,procedures,policiesandinformationsystems;and • potentialunknownliabilitiesandunforeseenincreasedexpenses,delaysorregulatoryconditionsassociatedwiththe

acquisition.

AnyfailurebyustorealizetheexpectedbenefitsofoursubstantialinvestmentsandcommitmentswithrespecttothemanufactureofPVcells,includingifweareunabletocomplywiththetermsofouragreementwiththeResearchFoundationfortheStateUniversityofNewYorkrelatingtoourGigafactory2,couldresultinnegativeconsequencesforourbusiness.AspartofouracquisitionofSolarCity,weacquiredcertainPVcellmanufacturingandtechnologyassets,andabuild-to-suit

leasearrangementwiththeResearchFoundationfortheStateUniversityofNewYork(the“Foundation”).ThisagreementwiththeFoundationprovidesfortheconstructionofGigafactory2inBuffalo,NewYork,whichatfullcapacityweexpectwillbecapableofproducing1gigawattofPVcells,includingforoursolarroof.Underthisagreement,weareobligatedto,amongotherthings,employspecifiedminimumnumbersofpersonnelintheStateofNewYorkduringthe10-yearperiodfollowingthearrivalofmanufacturingequipment,thereceiptofcertainpermitsandotherspecifieditemsatGigafactory2,andspendorincurapproximately$5billionincombinedcapital,operationalexpenses,costsofgoodssoldandothercostsintheStateofNewYorkduringthe10-yearperiodfollowingtheachievementoffullproductionoutputatGigafactory2.Ifwefailinanyyearoverthecourseofthetermoftheagreementtomeettheseobligations,wewouldbeobligatedtopaya“programpayment”of$41.2milliontotheFoundationinsuchyear.AnyinabilityonourparttocomplywiththerequirementsofthisagreementmayresultinthepaymentofsignificantamountstotheFoundation,theterminationofourleaseatGigafactory2,and/ortheneedtosecureanalternativesupplyofPVcellsforproductssuchasoursolarroof.Moreover,ifweareunabletoutilizetheothermanufacturingandtechnologyassetsthatwereacquiredintheSolarCityacquisitioninaccordancewithourexpectations,wemayhavetorecognizeaccountingchargespertainingtothewrite-offofsuchassets.Anyoftheforegoingeventscouldhaveamaterialadverseeffectonourbusiness,prospects,financialconditionandoperatingresults.

Weareexposedtofluctuationsincurrencyexchangerates,whichcouldnegativelyaffectourfinancialresults.Ourrevenuesandcostsdenominatedinforeigncurrenciesarenotcompletelymatched.AswehaveincreasedModelS

deliveriesinmarketsoutsideoftheUnitedStates,wehavemuchhigherrevenuesthancostsdenominatedinothercurrenciessuchastheeuro,Chineseyuan,Norwegiankroner,BritishpoundandCanadiandollar.AnystrengtheningoftheU.S.dollarwouldtendtoreduceourrevenuesasmeasuredinU.S.dollars,aswehavehistoricallyexperienced.Inaddition,aportionofourcostsandexpenseshavebeen,andweanticipatewillcontinuetobe,denominatedinforeigncurrencies,includingtheJapaneseyen.IfwedonothavefullyoffsettingrevenuesinthesecurrenciesandifthevalueoftheU.S.dollardepreciatessignificantlyagainstthesecurrencies,ourcostsasmeasuredinU.S.dollarsasapercentofourrevenueswillcorrespondinglyincreaseandourmarginswillsuffer.Moreover,whileweundertakelimitedhedgingactivitiesintendedtooffsettheimpactofcurrencytranslationexposure,itisimpossibletopredictoreliminatesuchimpact.Asaresult,ouroperatingresultscouldbeadverselyaffected.

Ifweareunabletoattractand/orretainkeyemployeesandhirequalifiedpersonnel,ourabilitytocompetecouldbeharmed.Thelossoftheservicesofanyofourkeyemployeescoulddisruptouroperations,delaythedevelopmentandintroductionof

ourvehiclesandservices,andnegativelyimpactourbusiness,prospectsandoperatingresults.Inparticular,wearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer,andJeffreyB.Straubel,ourChiefTechnicalOfficer.

Noneofourkeyemployeesisboundbyanemploymentagreementforanyspecifictermandwemaynotbeabletosuccessfullyattractandretainseniorleadershipnecessarytogrowourbusiness.Ourfuturesuccessdependsuponourabilitytoattractandretainexecutiveofficersandotherkeytechnology,sales,marketing,engineering,manufacturingandsupportpersonnelandanyfailuretodosocouldadverselyimpactourbusiness,prospects,financialconditionandoperatingresults.

KeytalentmayleaveTesladuetovariousfactors,suchasaverycompetitivelabormarketfortalentedindividualswithautomotiveexperience.CurrentlyinCalifornia,thereisincreasingcompetitionfortalentedindividualswiththespecializedknowledgeofelectricvehicles,softwareengineers,manufacturingengineersandotherskilledemployees.Thiscompetitionaffectsbothourabilitytoretainkeyemployeesandhirenewones.Ourcontinuedsuccessdependsuponourcontinuedabilitytohirenewemployeesinatimelymanner,especiallytosupportourexpansionplansandramptohigh-volumemanufactureofvehicles,andretaincurrentemployees.Additionally,wecompetewithbothmatureandprosperouscompaniesthathavefargreaterfinancialresourcesthanwedoandstart-upsandemergingcompaniesthatpromiseshort-termgrowthopportunities.Difficultiesinretainingcurrentemployeesorrecruitingnewonescouldhaveanadverseeffectonourperformance.

WearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer.WearehighlydependentontheservicesofElonMusk,ourChiefExecutiveOfficer,ChairmanofourBoardofDirectorsand

largeststockholder.AlthoughMr.MuskspendssignificanttimewithTeslaandishighlyactiveinourmanagement,hedoesnotdevotehisfulltimeandattentiontoTesla.Amongothercommitments,Mr.MuskalsocurrentlyservesasChiefExecutiveOfficerandChiefTechnicalOfficerofSpaceExplorationTechnologies,adeveloperandmanufacturerofspacelaunchvehicles.

Wearesubjecttovariousenvironmentalandsafetylawsandregulationsthatcouldimposesubstantialcostsuponusandnegativelyimpactourabilitytooperateourmanufacturingfacilities.Asamanufacturingcompany,includingwithrespecttofacilitiessuchastheTeslaFactory,Gigafactory1andGigafactory2,

wearesubjecttocomplexenvironmental,healthandsafetylawsandregulationsatnumerousjurisdictionallevelsintheUnitedStatesandabroad,includinglawsrelatingtotheuse,handling,storage,disposalandhumanexposuretohazardousmaterials.Thecostsofcompliance,includingremediatingcontaminationifanyisfoundonourpropertiesandanychangestoouroperationsmandatedbyneworamendedlaws,maybesignificant.Wemayalsofaceunexpecteddelaysinobtainingpermitsandapprovalsrequiredbysuchlawsinconnectionwithourmanufacturingfacilities,whichwouldhinderouroperationofthesefacilities.Suchcostsanddelaysmayadverselyimpactourbusinessprospectsandoperatingresults.Furthermore,anyviolationsoftheselawsmayresultinsubstantialfinesandpenalties,remediationcosts,thirdpartydamages,orasuspensionorcessationofouroperations.

Ourbusinessmaybeadverselyaffectedbyanydisruptionscausedbyunionactivities.Itiscommonforemployeesatcompanieswithsignificantmanufacturingoperationssuchasustobelongtoaunion,which

canresultinhigheremployeecostsandincreasedriskofworkstoppages.Moreover,regulationsinsomejurisdictionsoutsideoftheUnitedStatesmandateemployeeparticipationinindustrialcollectivebargainingagreementsandworkcouncilswithcertainconsultationrightswithrespecttotherelevantcompanies’operations.Althoughweworkdiligentlytoprovidethebestpossibleworkenvironmentforouremployees,theymaystilldecidetojoinorseekrecognitiontoformalaborunion,orwemayberequiredtobecomeaunionsignatory.Furthermore,wearedirectlyorindirectlydependentuponcompanieswithunionizedworkforces,suchaspartssuppliersandtruckingandfreightcompanies,andworkstoppagesorstrikesorganizedbysuchunionscouldhaveamaterialadverseimpactonourbusiness,financialconditionoroperatingresults.Ifaworkstoppageoccurs,itcoulddelaythemanufactureandsaleofourproductsandhaveamaterialadverseeffectonourbusiness,prospects,operatingresultsorfinancialcondition.

Ourproductsandservicesaresubjecttosubstantialregulations,whichareevolving,andunfavorablechangesorfailurebyustocomplywiththeseregulationscouldsubstantiallyharmourbusinessandoperatingresults.Motorvehiclesaresubjecttosubstantialregulationunderinternational,federal,state,andlocallaws.Weincursignificant

costsincomplyingwiththeseregulations,andmayberequiredtoincuradditionalcoststocomplywithanychangestosuchregulations.Wearesubjecttolawsandregulationsapplicabletotheimport,saleandserviceofautomobilesinternationally.Forexample,incountriesoutsideoftheUnitedStates,wearerequiredtomeetvehicle-specificsafetystandardsthatareoftenmateriallydifferentfromrequirementsintheUnitedStates,thusresultinginadditionalinvestmentintothevehiclesandsystemstoensureregulatorycomplianceinthosecountries.Thisprocessmayincludeofficialreviewandcertificationofourvehiclesbyforeignregulatoryagenciespriortomarketentry,aswellascompliancewithforeignreportingandrecallmanagementsystemsrequirements.

Additionally,ourvehiclesareequippedwitharangeofautopilotfeaturesthatassistdrivers,relievingthemofcertaintediousandpotentiallydangerousaspectsofroadtravel.Autopilotisarecently-introducedfeaturewithwhichdomesticandforeignregulatorshavelimitedexperience.Anycurrentorfutureproposedregulationsinthisarea,ifpassed,couldimpactwhetherandhowourcustomersareabletouseourvehiclesequippedforautopilot,andwhich,dependingontheseverityoftheregulations,couldadverselyaffectourbusiness.

Moreover,asaproviderofelectricitygeneratedbythesolarenergysystemsweinstallforcustomers,weareimpactedbyfederal,stateandlocalregulationsandpoliciesconcerningelectricitypricing,theinterconnectionofcustomer-generatedelectricitywiththeelectricgrid,andthesaleofelectricitygeneratedbythird-partyownedsystems.Forexample,existingorproposedregulationsandpolicieswouldpermitutilitiestolimittheamountofelectricitygeneratedbyourcustomerswiththeirsolarenergysystems,chargefeesandpenaltiestoourcustomersrelatingtothepurchaseofenergyotherthanfromthegrid,adjustelectricityratedesignssuchthatthepriceofoursolarproductsmaynotbecompetitivewiththatofelectricityfromthegrid,restrictusandourcustomersfromtransactingunderourpowerpurchaseagreementsorqualifyingforgovernmentincentivesandbenefitsthatapplytosolarpower,andlimitoreliminatenetenergymetering.Ifsuchregulationsandpoliciesremainineffectorareadoptedinotherjurisdictions,orifotherregulationsandpoliciesthatfacilitatetheconnectionofoursolarenergysystemstothegridaremodifiedoreliminated,theycoulddeterpotentialcustomersfrompurchasingoursolarproducts,threatentheeconomicsofourexistingcontractsandcauseustoceasesolarenergysystemsalesandoperationsintherelevantjurisdictions,whichcouldharmourbusiness,prospects,financialconditionandresultsofoperations.

Wearesubjecttovariousprivacyandconsumerprotectionlaws.Ourprivacypolicyispostedonourwebsite,andanyfailurebyusorourvendororotherbusinesspartnerstocomplywithit

orwithfederal,stateorinternationalprivacy,dataprotectionorsecuritylawsorregulationscouldresultinregulatoryorlitigation-relatedactionsagainstus,legalliability,fines,damagesandothercosts.Wemayalsoincursubstantialexpensesandcostsinconnectionwithmaintainingcompliancewithsuchlaws,inparticulardataprotectionlawsintheEU,whicharecurrentlyinastateoftransition.Althoughwetakestepstoprotectthesecurityofourcustomers’personalinformation,wemayberequiredtoexpendsignificantresourcestocomplywithdatabreachrequirementsifthirdpartiesimproperlyobtainandusethepersonalinformationofourcustomersorweotherwiseexperienceadatalosswithrespecttocustomers’personalinformation.Amajorbreachofournetworksecurityandsystemscouldhavenegativeconsequencesforourbusinessandfutureprospects,includingpossiblefines,penaltiesanddamages,reducedcustomerdemandforourvehicles,andharmtoourreputationandbrand.

Wemaybecompelledtoundertakeproductrecallsortakeotheractions,whichcouldadverselyaffectourbrandimageandfinancialperformance.Anyproductrecallinthefuturemayresultinadversepublicity,damageourbrandandadverselyaffectourbusiness,

prospects,operatingresultsandfinancialcondition.Forexample,weinitiatedaModelSrecallinNovember2015afterwediscoveredasinglefieldunitwithafrontseatbeltissue,andaModelXrecallinApril2016afteraninternaltestrevealedunintendedmovementinthethirdrowseatsduringacollision.Noneofourpastrecallshavebeenrelatedtoourelectricpowertrain.Inthefuture,wemayatvarioustimes,voluntarilyorinvoluntarily,initiatearecallifanyofourproductsorourelectricvehiclepowertraincomponentsthatweprovidetoothervehicleOEMs,includinganysystemsorpartssourcedfromoursuppliers,provetobedefectiveornoncompliantwithapplicablelawsandregulations,suchasfederalmotorvehiclesafetystandards.Suchrecalls,whethervoluntaryorinvoluntaryorcausedbysystemsorcomponentsengineeredormanufacturedbyusoroursuppliers,couldinvolvesignificantexpenseandcouldadverselyaffectourbrandimageinourtargetmarkets,aswellasourbusiness,prospects,financialconditionandresultsofoperations.

Ourcurrentandfuturewarrantyreservesmaybeinsufficienttocoverfuturewarrantyclaimswhichcouldadverselyaffectourfinancialperformance.Subjecttoseparatelimitedwarrantiesforthesupplementalrestraintsystem,batteryanddriveunit,weprovidefouryearor

50,000milelimitedwarrantiesforthepurchasersofnewModelSandModelXvehiclesandpre-ownedModelSvehiclescertifiedandsoldbyus.Thelimitedwarrantyforthebatteryanddriveunitcoversthedriveunitforeightyears,aswellasthebatteryforaperiodofeightyears(orforcertainoldervehicles,125,000milesifreachedsoonerthaneightyears),althoughthebattery’schargingcapacityisnotcoveredunderanyofourwarrantiesorExtendedServiceplans.Inaddition,customersofnewModelSandModelXvehicleshavetheopportunitytopurchaseanExtendedServiceplanfortheperiodaftertheendofthelimitedwarrantyfortheirnewvehiclestocoveradditionalservicesforuptoanadditionalfouryearsor50,000miles,provideditispurchasedwithinaspecifiedperiodoftime.

Forenergystorageproducts,weprovidelimitedwarrantiesagainstdefectsandtoguaranteecertainlevelsofminimumenergyretention.Forexample,weguaranteethateachPowerwall2productwillmaintainatleast70-80%ofitsstatedcapacityafter10years,andthateachPowerpack2productwillretainspecifiedminimumenergycapacitiesineachofitsfirst10yearsofuse(subjecttostatedthroughputcaps).Wealsoofferextendedwarrantiesforperiodsofupto20yearsatadditionalcostatthetimeofpurchase,includinga“capacitymaintenanceagreement”availableforthePowerpack2,aswellasworkmanshipwarrantiesandsystemavailabilityguaranteestocustomerswhoelecttohaveusinstalltheirsystemsorperformpreventativemaintenanceservices,respectively.

Finally,customerswhobuyenergyfromusundersolarenergysystemleasesorpowerpurchaseagreementsarecoveredbywarrantiesequaltothelengthoftheagreementterm,whichistypically20years.Systemspurchasedforcasharecoveredbyawarrantyofupto10years,withextendedwarrantiesavailableatadditionalcost.Inaddition,wepassthroughtoourcustomerstheinverterandpanelmanufacturers’warranties,whichgenerallyrangefrom5to25years,subjectingustotheriskthatthemanufacturersmaylaterceaseoperationsorfailtohonortheirunderlyingwarranties.Finally,weprovideaperformanceguaranteewithourleasedsolarenergysystemsthatcompensatesacustomeronanannualbasisiftheirsystemdoesnotmeettheelectricityproductionguaranteessetforthintheirlease.

Ifourwarrantyreservesareinadequatetocoverfuturewarrantyclaimsonourproducts,ourbusiness,prospects,financialconditionandoperatingresultscouldbemateriallyandadverselyaffected.Warrantyreservesincludemanagement’sbestestimateoftheprojectedcoststorepairortoreplaceitemsunderwarranty.Theseestimatesarebasedonactualclaimsincurredto-dateandanestimateofthenature,frequencyandcostsoffutureclaims.Suchestimatesareinherentlyuncertainandchangestoourhistoricalorprojectedexperience,especiallywithrespecttoproductssuchasModel3thatarenewand/orthatweexpecttoproduceatsignificantlygreatervolumesthanourpastproducts,maycausematerialchangestoourwarrantyreservesinthefuture.

Wearecurrentlyexpandingandimprovingourinformationtechnologysystemsandusesecuritymeasuresdesignedtoprotectoursystemsagainstbreachesandcyber-attacks.Iftheseeffortsarenotsuccessful,ourbusinessandoperationscouldbedisruptedandouroperatingresultsandreputationcouldbeharmed.Wearecurrentlyexpandingandimprovingourinformationtechnologysystems,includingimplementingnewinternally

developedsystems,toassistusinthemanagementofourbusiness.Inparticular,ourvolumeproductionofmultiplevehiclesnecessitatescontinueddevelopment,maintenanceandimprovementofourinformationtechnologysystemsintheUnitedStatesandabroad,whichincludeproductdatamanagement,procurement,inventorymanagement,productionplanningandexecution,sales,serviceandlogistics,dealermanagement,financial,taxandregulatorycompliancesystems.Theimplementation,maintenanceandimprovementofthesesystemsrequiresignificantmanagementtime,supportandcost.Moreover,thereareinherentrisksassociatedwithdeveloping,improvingandexpandingourcoresystemsaswellasimplementingnewsystems,includingthedisruptionofourdatamanagement,procurement,manufacturingexecution,finance,supplychainandsalesandserviceprocesses.Theserisksmayaffectourabilitytomanageourdataandinventory,procurepartsorsuppliesormanufacture,sell,deliverandservicevehicles,orachieveandmaintaincompliancewith,orrealizeavailablebenefitsunder,taxlawsandotherapplicableregulations.Wealsomaintaininformationtechnologymeasuresdesignedtoprotectusagainstsystemsecurityrisks,databreachesandcyber-attacks.

Wecannotbesurethatthesesystemsortheirrequiredfunctionalitywillbeeffectivelyimplemented,maintainedorexpandedasplanned.Ifwedonotsuccessfullyimplement,maintainorexpandthesesystemsasplanned,ouroperationsmaybedisrupted,ourabilitytoaccuratelyand/ortimelyreportourfinancialresultscouldbeimpaired,anddeficienciesmayariseinourinternalcontroloverfinancialreporting,whichmayimpactourabilitytocertifyourfinancialresults.Moreover,ourproprietaryinformationcouldbecompromisedandourreputationmaybeadverselyaffected.Ifthesesystemsortheirfunctionalitydonotoperateasweexpectthemto,wemayberequiredtoexpendsignificantresourcestomakecorrectionsorfindalternativesourcesforperformingthesefunctions.

Ourinsurancestrategymaynotbeadequatetoprotectusfromallbusinessrisks.Wemaybesubject,intheordinarycourseofbusiness,tolossesresultingfromproductsliability,accidents,actsofGodand

otherclaimsagainstus,forwhichwemayhavenoinsurancecoverage.Whilewecurrentlymaintaingeneralliability,automobile,property,workers’compensation,anddirectors’andofficers’insurancepolicies,asageneralmatter,wedonotmaintainasmuchinsurancecoverageasmanyothercompaniesdo,andinsomecases,wedonotmaintainanyatall.Additionally,thepoliciesthatwedohavemayincludesignificantdeductibles,andwecannotbecertainthatourinsurancecoveragewillbesufficienttocoverallfutureclaimsagainstus.Alossthatisuninsuredorwhichexceedspolicylimitsmayrequireustopaysubstantialamounts,whichcouldadverselyaffectourfinancialconditionandoperatingresults.

Ourfinancialresultsmayvarysignificantlyfromperiod-to-periodduetofluctuationsinouroperatingcosts.Weexpectourperiod-to-periodfinancialresultstovarybasedonouroperatingcostswhichweanticipatewillincrease

significantlyinfutureperiodsaswe,amongotherthings,design,developandmanufactureModel3,energystorageandsolarproductsandotherfutureproducts,increasetheproductioncapacityatourmanufacturingfacilitiestoproducevehiclesathighervolumes,includingrampinguptheproductionofModelSandModelX,expandGigafactory1,opennewTeslastoresandservicecenterswithmaintenanceandrepaircapabilities,opennewSuperchargerlocations,developGigafactory2,increaseoursalesandmarketingactivities,andincreaseourgeneralandadministrativefunctionstosupportourgrowingoperations.Asaresultofthesefactors,webelievethatquarter-to-quartercomparisonsofourfinancialresults,especiallyintheshort-term,arenotnecessarilymeaningfulandthatthesecomparisonscannotberelieduponasindicatorsoffutureperformance.Moreover,ourfinancialresultsmaynotmeetexpectationsofequityresearchanalystsorinvestors.Ifanyofthisoccurs,thetradingpriceofourstockcouldfallsubstantially,eithersuddenlyorovertime.

Anyunauthorizedcontrolormanipulationofourvehicles’systemscouldresultinlossofconfidenceinusandourvehiclesandharmourbusiness.Ourvehiclescontaincomplexinformationtechnologysystems.Forexample,ourvehiclesaredesignedwithbuilt-indata

connectivitytoacceptandinstallperiodicremoteupdatesfromustoimproveorupdatethefunctionalityofourvehicles.Wehavedesigned,implementedandtestedsecuritymeasuresintendedtopreventunauthorizedaccesstoourinformationtechnologynetworks,ourvehiclesandtheirsystems.However,hackershavereportedlyattempted,andmayattemptinthefuture,togainunauthorizedaccesstomodify,alterandusesuchnetworks,vehiclesandsystemstogaincontrolof,ortochange,ourvehicles’functionality,userinterfaceandperformancecharacteristics,ortogainaccesstodatastoredinorgeneratedbythevehicle.Weencouragereportingofpotentialvulnerabilitiesinthesecurityofourvehiclesviaoursecurityvulnerabilityreportingpolicy,andweaimtoremedyanyreportedandverifiedvulnerabilities.Accordingly,wehavereceivedreportsofpotentialvulnerabilitiesinthepastandhaveattemptedtoremedythem.However,therecanbenoassurancethatvulnerabilitieswillnotbeidentifiedinthefuture,orthatourremediationeffortsareorwillbesuccessful.

Anyunauthorizedaccesstoorcontrolofourvehiclesortheirsystemsoranylossofdatacouldresultinlegalclaimsorproceedings.Inaddition,regardlessoftheirveracity,reportsofunauthorizedaccesstoourvehicles,theirsystemsordata,aswellasotherfactorsthatmayresultintheperceptionthatourvehicles,theirsystemsordataarecapableofbeing“hacked,”couldnegativelyaffectourbrandandharmourbusiness,prospects,financialconditionandoperatingresults.Wehavebeenthesubjectofsuchreportsinthepast.

Servicingourindebtednessrequiresasignificantamountofcash,andwemaynothavesufficientcashflowfromourbusinesstopayoursubstantialindebtedness.AsofDecember31,2016,wehadoutstandinginaggregateprincipalamounts$205millionofthe2018Notes,$920million

ofthe2019Notesand$1.38billionofthe2021Notes(collectively,the“TeslaConvertibleNotes”).Inaddition,wehaveestablishedaseniorsecuredassetbasedrevolvingcreditagreement(the“CreditAgreement”)thatallowsustoborrow,undercertaincircumstances,upto$1.2billion.AsofDecember31,2016,wehad$969millioninborrowingsunderthecreditfacilitypursuanttotheCreditAgreement.Wearealsopartytoawarehousecreditfacilitywithlendercommitmentsof$600million(the“WarehouseFacility”),ofwhichwehadborrowed$390millionasofDecember31,2016.Moreover,asofDecember31,2016,oursubsidiarySolarCityCorporation,togetherwithitssubsidiaries,hadtotaloutstandingindebtednessof$3.6billion,includingunderitscreditfacilities(the“SolarCityCreditFacilities”).Suchoutstandingindebtednessincluded$364milliondrawnunderasecuredrevolvingcreditfacilitywithlendercommitmentsof$418.5millionasofDecember31,2016(includingcommitmentsexpiringasofsuchdate),whichmaturesinDecember2017,aswellas$230millioninaggregateprincipalamountof2.75%convertibleseniornotesdue2018,$566millioninaggregateprincipalamountof1.625%convertibleseniornotesdue2019and$113millioninaggregateprincipalamountofzerocouponconvertibleseniornotesdue2020(collectively,the“SolarCityConvertibleNotes”).Oursubstantialconsolidatedindebtednessmayincreaseourvulnerabilitytoanygenerallyadverseeconomicandindustryconditions,andweandoursubsidiariesmay,subjecttothelimitationsinthetermsofourexistingandfutureindebtedness,incuradditionaldebt,secureexistingorfuturedebtorrecapitalizeourdebt.

Pursuanttotheirterms,holdersmayconverttheirTeslaConvertibleNotesattheiroptionpriortothescheduledmaturitiesoftherespectiveTeslaConvertibleNotesundercertaincircumstances.The2018Noteshavebeenconvertibleattheirholders’optionduringeachquartercommencingwiththefourthquarterof2013,exceptthefirstquarterof2014.UponconversionoftheapplicableTeslaConvertibleNotes,wewillbeobligatedtomakecashpaymentsinrespectoftheprincipalamountsthereof,andwemayalsohavetodelivercashand/orsharesofourcommonstock,inrespectoftheconversionvalueinexcessofsuchprincipalamountsonsuchTeslaConvertibleNotes.Forexample,asofDecember31,2016,wehaverepaidincashapproximately$455millioninaggregateprincipalamountofthe2018Notesduetoearlyconversions.TheSolarCityConvertibleNotesarealsocurrentlyconvertibleintosharesofourcommonstockatconversionpricesrangingfrom$300.00to$759.36pershare.Inaddition,holdersoftheTeslaConvertibleNotesandtheSolarCityConvertibleNoteswillhavetherighttorequireustorepurchasetheirnotesupontheoccurrenceofafundamentalchangeatapurchasepriceequalto100%oftheprincipalamountofthenotes,plusaccruedandunpaidinterest,ifany,to,butnotincluding,thefundamentalchangepurchasedate.

Ourabilitytomakescheduledpaymentsoftheprincipalandinterestonourindebtednesswhendueortomakepaymentsuponconversionorrepurchasedemandswithrespecttoourconvertiblenotes,ortorefinanceourindebtednessaswemayneedordesire,dependsonourfutureperformance,whichissubjecttoeconomic,financial,competitiveandotherfactorsbeyondourcontrol.Ourbusinessmaynotcontinuetogeneratecashflowfromoperationsinthefuturesufficienttosatisfyourobligationsunderourexistingindebtedness,andanyfutureindebtednesswemayincur,andtomakenecessarycapitalexpenditures.Ifweareunabletogeneratesuchcashflow,wemayberequiredtoadoptoneormorealternatives,suchasreducingordelayinginvestmentsorcapitalexpenditures,sellingassets,refinancingorobtainingadditionalequitycapitalontermsthatmaybeonerousorhighlydilutive.Ourabilitytorefinanceexistingorfutureindebtednesswilldependonthecapitalmarketsandourfinancialconditionatsuchtime.Inaddition,ourabilitytomakepaymentsmaybelimitedbylaw,byregulatoryauthorityorbyagreementsgoverningourfutureindebtedness.Wemaynotbeabletoengageinanyoftheseactivitiesorengageintheseactivitiesondesirabletermsoratall,whichcouldresultinadefaultonourexistingorfutureindebtednessandhaveamaterialadverseeffectonourbusiness,resultsofoperationsandfinancialcondition.

Ourdebtagreementscontaincovenantrestrictionsthatmaylimitourabilitytooperateourbusiness.ThetermsofourCreditFacilityand/orcertainoftheSolarCityCreditFacilitiescontain,andanyofourotherfuturedebt

agreementsmaycontain,covenantrestrictionsthatlimitourabilitytooperateourbusiness,includingrestrictionsonourabilityto,amongotherthings,incuradditionaldebtorissueguarantees,createliens,repurchasestockormakeotherrestrictedpayments,andmakecertainvoluntaryprepaymentsofspecifieddebt.Inaddition,undercertaincircumstanceswearerequiredtocomplywithafixedchargecoverageratio.Asaresultofthesecovenants,ourabilitytorespondtochangesinbusinessandeconomicconditionsandengageinbeneficialtransactions,includingtoobtainadditionalfinancingasneeded,mayberestricted.Furthermore,ourfailuretocomplywithourdebtcovenantscouldresultinadefaultunderourdebtagreements,whichcouldpermittheholderstoaccelerateourobligationtorepaythedebt.Ifanyofourdebtisaccelerated,wemaynothavesufficientfundsavailabletorepayit.

Theclassificationofourconvertiblenotesmayhaveaneffectonourreportedfinancialresults.Our2018NotesandtheSolarCityConvertibleNoteshavebeenhistorically,andour2019Notesand2021Notesmay

becomeinthefuture,convertibleattheoptionoftheirholderspriortotheirscheduledtermsundercertaincircumstances.Evenifholdersdonotelecttoconverttheirconvertiblenotes,ifsuchnotesbecomeconvertiblepriortotheirscheduledmaturitydates,wewouldberequiredtoreclassifysuchnotesandtherelateddebtissuancecostsascurrentliabilitiesandcertainportionsofourequityoutsideofequitytomezzanineequity,whichwouldhaveanadverseimpactonourreportedfinancialresultsforsuchquarter,andcouldhaveanadverseimpactonthemarketpriceofourcommonstock.

Wemayneedorwanttoraiseadditionalfundsandthesefundsmaynotbeavailabletouswhenweneedthem.Ifwecannotraiseadditionalfundswhenweneedorwantthem,ouroperationsandprospectscouldbenegativelyaffected.Thedesign,manufacture,sale,installationand/orservicingofautomobiles,energystorageproductsandsolarproductsisa

capitalintensivebusiness.Untilweareconsistentlygeneratingpositivefreecashflows,wemayneedorwanttoraiseadditionalfundsthroughtheissuanceofequity,equity-relatedordebtsecuritiesorthroughobtainingcreditfromfinancialinstitutionstofund,togetherwithourprincipalsourcesofliquidity,thecostsofdevelopingandmanufacturingourcurrentorfuturevehicles,energystorageproductsand/orsolarproducts,topayanysignificantunplannedoracceleratedexpensesorfornewsignificantstrategicinvestments,ortorefinanceoursignificantconsolidatedindebtedness,evenifnotrequiredtodosobythetermsofsuchindebtedness.Weneedsufficientcapitaltofundourongoingoperations,continueresearchanddevelopmentprojects,establishsalesandservicecenters,buildanddeploySuperchargers,expandGigafactory1,developGigafactory2andtomaketheinvestmentsintoolingandmanufacturingcapitalrequiredtointroducenewvehicles,energystorageproductsandsolarproducts.Wecannotbecertainthatadditionalfundswillbeavailabletousonfavorabletermswhenrequired,oratall.Ifwecannotraiseadditionalfundswhenweneedthem,ourfinancialcondition,resultsofoperations,businessandprospectscouldbemateriallyandadverselyaffected.

Additionally,weusecapitalfromthird-partyfundinvestorstoreducethecostofcapitalofoursolarenergysysteminstallations,improveourmargins,offsetfuturereductionsingovernmentincentivesandmaintainthepricecompetitivenessofoursolarenergysystems.Theavailabilityofthistax-advantagedfinancingdependsuponmanyfactors,includingtheconfidenceoftheinvestorsinthesolarenergyindustryandthequalityandmixofourcustomercontracts,anyregulatorychangesimpactingtheeconomicsofourexistingcustomercontracts,changesinlegalandtaxadvantagesorrisksorgovernmentincentivesassociatedwiththesefinancings,andourabilitytocompetewithotherrenewableenergycompaniesforthelimitednumberofpotentialfundinvestors.Moreover,interestratesareathistoricallylowlevels.Iftherateofreturnrequiredbyinvestorsrisesasaresultofariseininterestrates,itwillreducethepresentvalueofthecustomerpaymentstreamsunderlying,andthereforethetotalvalueof,ourfinancingstructures,increasingourcostofcapital.Ifweareunabletoestablishnewfinancingfundsonfavorabletermsforthird-partyownershiparrangementstoenableourcustomers’accesstooursolarenergysystemswithlittleornoupfrontcost,wemaybeunabletofinanceinstallationofourcustomers’systems,orourcostofcapitalcouldincreaseandourliquiditymaybenegativelyimpacted,anyofwhichwouldhaveanadverseeffectonourbusiness,financialconditionandresultsofoperations.

Wemayfaceregulatorylimitationsonourabilitytosellvehiclesdirectlywhichcouldmateriallyandadverselyaffectourabilitytosellourelectricvehicles.Wesellourvehiclesdirectlytoconsumers.Wemaynotbeabletosellourvehiclesthroughthissalesmodelineachstatein

theUnitedStatesassomestateshavelawsthatmaybeinterpretedtoimposelimitationsonthisdirect-to-consumersalesmodel.Incertainstatesinwhichwearenotabletoobtaindealerlicenses,wehaveopenedgalleries,whicharenotfullretaillocations.

Theapplicationofthesestatelawstoouroperationscontinuestobedifficulttopredict.Lawsinsomestateshavelimitedourabilitytoobtaindealerlicensesfromstatemotorvehicleregulatorsandmaycontinuetodoso.

Inaddition,decisionsbyregulatorspermittingustosellvehiclesmaybesubjecttochallengesbydealerassociationsandothersastowhethersuchdecisionscomplywithapplicablestatemotorvehicleindustrylaws.Wehaveprevailedinmanyoftheselawsuitsandsuchresultshavereinforcedourcontinuingbeliefthatstatelawswerenotdesignedtopreventourdistributionmodel.Insomestates,therehavealsobeenregulatoryandlegislativeeffortsbyvehicledealerassociationstoproposebillsandregulationsthat,ifenacted,wouldpreventusfromobtainingdealerlicensesintheirstatesgivenourcurrentsalesmodel.Afewstateshavepassedlegislationthatclarifiesourabilitytooperate,butatthesametimelimitsthenumberofdealerlicenseswecanobtainorstoresthatwecanoperate.WehavealsofiledalawsuitinfederalcourtinMichiganchallengingtheconstitutionalityofthestate’sprohibitionondirectsalesasappliedtoourbusiness.

Internationally,theremaybelawsinjurisdictionswehavenotyetenteredorlawsweareunawareofinjurisdictionswehaveenteredthatmayrestrictoursalesorotherbusinesspractices.Evenforthosejurisdictionswehaveanalyzed,thelawsinthisareacanbecomplex,difficulttointerpretandmaychangeovertime.

Wemayneedtodefendourselvesagainstintellectualpropertyinfringementclaims,whichmaybetime-consumingandcouldcauseustoincursubstantialcosts.Others,includingourcompetitors,mayholdorobtainpatents,copyrights,trademarksorotherproprietaryrightsthatcould

prevent,limitorinterferewithourabilitytomake,use,develop,sellormarketourproductsandservices,whichcouldmakeitmoredifficultforustooperateourbusiness.Fromtimetotime,theholdersofsuchintellectualpropertyrightsmayasserttheirrightsandurgeustotakelicenses,and/ormaybringsuitsalleginginfringementormisappropriationofsuchrights.Wemayconsidertheenteringintolicensingagreementswithrespecttosuchrights,althoughnoassurancecanbegiventhatsuchlicensescanbeobtainedonacceptabletermsorthatlitigationwillnotoccur,andsuchlicensescouldsignificantlyincreaseouroperatingexpenses.Inaddition,ifwearedeterminedtohaveinfringeduponathirdparty’sintellectualpropertyrights,wemayberequiredtoceasemaking,sellingorincorporatingcertaincomponentsorintellectualpropertyintothegoodsandservicesweoffer,topaysubstantialdamagesand/orlicenseroyalties,toredesignourproductsandservices,and/ortoestablishandmaintainalternativebrandingforourproductsandservices.Intheeventthatwewererequiredtotakeoneormoresuchactions,ourbusiness,prospects,operatingresultsandfinancialconditioncouldbemateriallyadverselyaffected.Inaddition,anylitigationorclaims,whetherornotvalid,couldresultinsubstantialcosts,negativepublicityanddiversionofresourcesandmanagementattention.

Ourfacilitiesoroperationscouldbedamagedoradverselyaffectedasaresultofdisasters.Ourcorporateheadquarters,theTeslaFactoryandGigafactory1arelocatedinseismicallyactiveregionsinNorthern

CaliforniaandNevada.Ifmajordisasterssuchasearthquakesorothereventsoccur,orourinformationsystemorcommunicationsnetworkbreaksdownoroperatesimproperly,ourheadquartersandproductionfacilitiesmaybeseriouslydamaged,orwemayhavetostopordelayproductionandshipmentofourproducts.Wemayincurexpensesrelatingtosuchdamages,whichcouldhaveamaterialadverseimpactonourbusiness,operatingresultsandfinancialcondition.

RisksRelatedtotheOwnershipofourCommonStockThetradingpriceofourcommonstockislikelytocontinuetobevolatile.Thetradingpriceofourcommonstockhasbeenhighlyvolatileandcouldcontinuetobesubjecttowidefluctuationsin

responsetovariousfactors,someofwhicharebeyondourcontrol.Ourcommonstockhasexperiencedanintra-daytradinghighof$287.39pershareandalowof$178.19pershareoverthelast52weeks.Thestockmarketingeneral,andthemarketfortechnologycompaniesinparticular,hasexperiencedextremepriceandvolumefluctuationsthathaveoftenbeenunrelatedordisproportionatetotheoperatingperformanceofthosecompanies.Broadmarketandindustryfactorsmayseriouslyaffectthemarketpriceofcompanies’stock,includingours,regardlessofactualoperatingperformance.Inaddition,inthepast,followingperiodsofvolatilityintheoverallmarketandthemarketpriceofaparticularcompany’ssecurities,securitiesclassactionlitigationhasoftenbeeninstitutedagainstthesecompanies.Forexample,ashareholderlitigationlikethiswasfiledagainstusin2013.Whiletheplaintiffs’complaintwasdismissedwithprejudice,anyfutureshareholderlitigationcouldresultinsubstantialcostsandadiversionofourmanagement’sattentionandresources.

Wemayfailtomeetourpubliclyannouncedguidanceorotherexpectationsaboutourbusiness,whichcouldcauseourstockpricetodecline.Weoccasionallyprovideguidanceregardingourexpectedfinancialandbusinessperformance,suchasprojectionsregarding

salesandproduction,aswellasanticipatedfuturerevenues,grossmargins,profitabilityandcashflows.Correctlyidentifyingkeyfactorsaffectingbusinessconditionsandpredictingfutureeventsisinherentlyanuncertainprocessandourguidancemaynotultimatelybeaccurate.Ourguidanceisbasedoncertainassumptionssuchasthoserelatingtoanticipatedproductionandsalesvolumesandaveragesalesprices,supplierandcommoditycosts,andplannedcostreductions.Ifourguidanceisnotaccurateorvariesfromactualresultsduetoourinabilitytomeetourassumptionsortheimpactonourfinancialperformancethatcouldoccurasaresultofvariousrisksanduncertainties,themarketvalueofourcommonstockcoulddeclinesignificantly.

Transactionsrelatingtoourconvertiblenotesmaydilutetheownershipinterestofexistingstockholders,ormayotherwisedepressthepriceofourcommonstock.TheconversionofsomeoralloftheTeslaConvertibleNotesortheSolarCityConvertibleNoteswoulddilutetheownership

interestsofexistingstockholderstotheextentwedeliversharesuponconversionofanyofsuchnotes.Our2018NotesandtheSolarCityConvertibleNoteshavebeenhistorically,andtheotherTeslaConvertibleNotesmaybecomeinthefuture,convertibleattheoptionoftheirholderspriortotheirscheduledtermsundercertaincircumstances.Ifholderselecttoconverttheirconvertiblenotes,wecouldberequiredtodelivertothemasignificantnumberofsharesofourcommonstock.Anysalesinthepublicmarketofthecommonstockissuableuponsuchconversioncouldadverselyaffectprevailingmarketpricesofourcommonstock.Inaddition,theexistenceoftheconvertiblenotesmayencourageshortsellingbymarketparticipantsbecausetheconversionofsuchnotescouldbeusedtosatisfyshortpositions,oranticipatedconversionofsuchnotesintosharesofourcommonstockcoulddepressthepriceofourcommonstock.

Moreover,inconnectionwitheachissuanceoftheTeslaConvertibleNotes,weenteredintoconvertiblenotehedgetransactions,whichareexpectedtoreducethepotentialdilutionand/oroffsetpotentialcashpaymentswearerequiredtomakeinexcessoftheprincipalamountuponconversionoftheapplicableTeslaConvertibleNotes.Wealsoenteredintowarranttransactionswiththehedgecounterparties,whichcouldseparatelyhaveadilutiveeffectonourcommonstocktotheextentthatthemarketpricepershareofourcommonstockexceedstheapplicablestrikepriceofthewarrantsontheapplicableexpirationdates.Inaddition,thehedgecounterpartiesortheiraffiliatesmayenterintovarioustransactionswithrespecttotheirhedgepositions,whichcouldalsocauseorpreventanincreaseoradecreaseinthemarketpriceofourcommonstockortheconvertiblenotes.

ElonMuskhaspledgedsharesofourcommonstocktosecurecertainbankborrowings.IfMr.Muskwereforcedtosellthesesharespursuanttoamargincallthathecouldnotavoidorsatisfy,suchsalescouldcauseourstockpricetodecline.CertainbankinginstitutionshavemadeextensionsofcredittoElonMusk,ourChiefExecutiveOfficer,aportionofwhich

wasusedtopurchasesharesofcommonstockincertainofourpublicofferingsandprivateplacementsatthesamepricesofferedtothirdpartyparticipantsinsuchofferingsandplacements.Wearenotapartytotheseloans,whicharepartiallysecuredbypledgesofaportionoftheTeslacommonstockcurrentlyownedbyMr.Musk.IfthepriceofourcommonstockweretodeclinesubstantiallyandMr.Muskwereunabletoavoidorsatisfyamargincallwithrespecttohispledgedshares,Mr.MuskmaybeforcedbyoneormoreofthebankinginstitutionstosellsharesofTeslacommonstockinordertoremainwithinthemarginlimitationsimposedunderthetermsofhisloans.Anysuchsalescouldcausethepriceofourcommonstocktodeclinefurther.

Anti-takeoverprovisionscontainedinourgoverningdocuments,applicablelawsandourconvertiblenotescouldimpairatakeoverattempt.Ourcertificateofincorporationandbylawsaffordcertainrightsandpowerstoourboardofdirectorsthatcouldcontributeto

thedelayorpreventionofanacquisitionthatitdeemsundesirable.WearealsosubjecttoSection203oftheDelawareGeneralCorporationLawandotherprovisionsofDelawarelawthatlimittheabilityofstockholdersincertainsituationstoeffectcertainbusinesscombinations.Inaddition,thetermsofourconvertiblenotesrequireustorepurchasesuchnotesintheeventofafundamentalchange,includingatakeoverofourcompany.Anyoftheforegoingprovisionsandtermsthathastheeffectofdelayingordeterringachangeincontrolcouldlimittheopportunityforourstockholderstoreceiveapremiumfortheirsharesofourcommonstock,andcouldalsoaffectthepricethatsomeinvestorsarewillingtopayforourcommonstock.ITEM1B. UNRESOLVEDSTAFFCOMMENTS

None.

ITEM2. PROPERTIES

Thefollowingtablesetsforththelocation,approximatesizeandprimaryuseofourprincipalleasedandownedfacilities:

Location

ApproximateSize

(Building)inSquareFeet PrimaryUse

LeaseExpirationDate

Fremont,California 5,400,000 Manufacturing,administration,engineeringservices,partswarehousing,andvehicleservice

Ownedbuilding

Sparks,Nevada 1,100,000 * Gigafactory1forproductionoflithiumionbatterycellsandModel3driveunits

Ownedbuilding

Fremont,California 1,067,000 Futureexpansionofmanufacturingfacilities OwnedlandLivermore,California 635,533 Warehouse October2026Fremont,California 506,490 Administrationandmanufacturing September2029Tilburg,Netherlands 499,710 Administration,engineeringservices,powertraindevelopment

services,partswarehousing,finalvehicleassemblyandvehicleservice

November2023

Lathrop,California 430,770 Manufacturing OwnedbuildingLivermore,California 367,734 Warehouse October2016PaloAlto,California 350,000 Corporateheadquarters,administration,engineeringservicesand

powertraindevelopmentservices January2020

Sparks,Nevada 304,200 Warehouse December2019Fremont,California 302,400 R&Dandengineering March2028Lathrop,California 271,075 Manufacturing May2025Hawthorne,California 132,250 Vehicleengineeringanddesignservices December2022Lathrop,California 92,400 Warehouse September2019Amsterdam,Netherlands 71,142 Administration,salesandservicecenter February2024Beijing,China 24,003 Administration,salesandmarketingservices June2017* Gigafactory1ispartiallyconstructedwithcurrentoccupancyofapproximately1.1millionsquarefeet.

Inadditiontothepropertiesincludedinthetableabove,wealsoleasealargenumberofpropertiesinNorthAmerica,EuropeandAsiaforourretailandservicelocations,Superchargersitesandsolarinstallationandmaintenancewarehouses.

SolarCityhasitscorporateheadquartersandexecutiveofficesinSanMateo,California,whereitoccupiesapproximately68,025squarefeetofofficespaceunderaleasethatexpiresinDecember2021,witharenewaloption.SolarCityalsoleasesaregionalheadquartersinSaltLakeCity,Utah,andlargerofficesinSanFrancisco,SanRafaelandFremont,California.Inaddition,SolarCityleasessalesoffices,warehousesandmanufacturingfacilities,includingGigafactory2inBuffalo,NewYork,acrosstheUnitedStatesandinMexicoandChina.SolarCityalsoleasessalesandsupportofficesinOntario,Canada.

Ourpropertiesareusedtosupportbothofourreportingsegments.Wecurrentlyintendtoaddnewfacilitiesorexpandourexistingfacilitiesasweaddemployeesandexpandournetworkofstoresandgalleries,servicelocationsandSuperchargersites.Webelievethatsuitableadditionaloralternativespacewillbeavailableinthefutureoncommerciallyreasonabletermstoaccommodateourforeseeablefutureexpansion.ITEM3. LEGALPROCEEDINGSSecuritiesLitigation

InNovember2013,aputativesecuritiesclassactionlawsuitwasfiledagainstTeslainU.S.DistrictCourt,NorthernDistrictofCalifornia,allegingviolationsof,andseekingremediespursuantto,Sections10(b)and20(a)oftheSecuritiesExchangeActof1934andRule10b-5.ThecomplaintmadeclaimsagainstTeslaandourCEO,ElonMusk,soughtdamagesandattorney’sfeesonthebasisofallegationsthat,amongotherthings,TeslaandMr.Muskmadefalseand/ormisleadingrepresentationsandomissions,includingwithrespecttothesafetyofModelS.ThiscasewasbroughtonbehalfofaputativeclassconsistingofcertainpersonswhopurchasedTesla’ssecuritiesbetweenAugust19,2013andNovember17,2013.OnSeptember26,2014,thetrialcourt,uponthemotionofTeslaandMr.Musk,dismissedthecomplaintwithprejudice,andthereafterissuedaformalwrittenordertothateffect.Theplaintiffsappealedfromthetrialcourt’sorder,andonDecember21,2016,theCourtofAppealsaffirmedthetrialcourt’sdecisiondismissingthecomplaintwithprejudice.

OnMarch28,2014,apurportedstockholderclassactionwasfiledintheUnitedStatesDistrictCourtfortheNorthernDistrictofCaliforniaagainstSolarCityandtwoofitsofficers.Thecomplaintallegesviolationsoffederalsecuritieslaws,andseeksunspecifiedcompensatorydamagesandotherreliefonbehalfofapurportedclassofpurchasersofSolarCity’ssecuritiesfromMarch6,2013toMarch18,2014.Afteraseriesofamendmentstotheoriginalcomplaint,theDistrictCourtdismissedtheamendedcomplaintandenteredajudgmentinSolarCity’sfavoronAugust9,2016.Theplaintiffshavefiledanoticeofappeal.Webelievethattheclaimsarewithoutmeritandintendtodefendagainstthislawsuitvigorously.Weareunabletoestimatethepossibleloss,ifany,associatedwiththislawsuit.

OnAugust15,2016,apurportedstockholderclassactionlawsuitwasfiledintheUnitedStatesDistrictCourtfortheNorthernDistrictofCaliforniaagainstSolarCity,twoofitsofficersandaformerofficer.ThecomplaintallegesthatSolarCitymadeprojectionsoffuturesalesandinstallationsthatitfailedtoachieveandthattheseprojectionswerefraudulentwhenmade.TheplaintiffsclaimviolationsoffederalsecuritieslawsandseekunspecifiedcompensatorydamagesandotherreliefonbehalfofapurportedclassofpurchasersofSolarCity’ssecuritiesfromMay5,2015toFebruary16,2016.Webelievethattheclaimsarewithoutmeritandintendtodefendagainstthemvigorously.Weareunabletoestimatethepossibleloss,ifany,associatedwiththislawsuit.

LitigationRelatingtotheSolarCityAcquisitionBetweenSeptember1,2016andOctober5,2016,sevenlawsuitswerefiledintheCourtofChanceryoftheStateof

DelawarebypurportedstockholdersofTeslachallengingTesla’sacquisitionofSolarCity.OnOctober10,theCourtenteredordersconsolidatingtheselawsuitsandappointingleadplaintiffsandleadcounsel.TheconsolidatedlawsuitiscaptionedasInreTeslaMotors,Inc.,StockholdersLitigation,C.A.No.12711-VCS.ItnamesasdefendantsthemembersofTesla’sboardofdirectorsandalleges,amongotherthings,thatthemembersofTesla’sboardofdirectorsbreachedtheirfiduciarydutiesinconnectionwiththeSolarCityacquisition.ItassertsclaimsderivativelyonbehalfofTeslaanddirectlyonbehalfofaputativeclassofTeslastockholders.Itseeks,amongotherrelief,damagesinanunspecifiedamountandattorneys’feesandcosts.OnJanuary27,2017,defendantsfiledamotiontodismisstheoperativecomplaint.Afterreceivingthemotion,plaintiffsindicatedthattheyintendtofileanamendedcomplaintratherthanrespondtothedefendants’motiontodismiss.Teslabelievesthatthelawsuitiswithoutmerit.

ProceedingsRelatingtoUnitedStatesTreasuryInJuly2012,SolarCity,alongwithothercompaniesinthesolarenergyindustry,receivedasubpoenafromtheU.S.Treasury

Department’sOfficeoftheInspectorGeneraltodelivercertaindocumentsinSolarCity’spossessionthatweredated,created,revisedorreferredtoafterJanuary1,2007andthatrelatetoSolarCity’sapplicationsforU.S.TreasurygrantsorcommunicationswithcertainothersolarenergydevelopmentcompaniesorwithcertainfirmsthatappraisesolarenergypropertyforU.STreasurygrantapplicationpurposes.TheInspectorGeneralandtheCivilDivisionoftheU.S.DepartmentofJusticeareinvestigatingtheadministrationandimplementationoftheU.STreasurygrantprogramrelatingtothefairmarketvalueofthesolarenergysystemsthatSolarCitysubmittedinU.S.Treasurygrantapplications.SolarCityhasaccruedareserveforitspotentialliabilityassociatedwiththisongoinginvestigationasofDecember31,2016.

InFebruary2013,twoofSolarCity’sfinancingfundsfiledalawsuitintheUnitedStatesCourtofFederalClaimsagainsttheUnitedStatesgovernment,seekingtorecoverapproximately$14.0millionthattheUnitedStatesTreasurywasobligatedtopay,butfailedtopay,underSection1603oftheAmericanRecoveryandReinvestmentActof2009.InFebruary2016,thegovernmentfiledamotionseekingleavetoassertacounterclaimagainstthetwoplaintifffundsonthegroundsthatthegovernment,infact,paidthemmore,notless,thantheywereentitledtoasamatteroflaw.Webelievethatthegovernment’sclaimsarewithoutmeritandexpecttheplaintifffundstolitigatethecasevigorously.Trialinthecaseissetforthelatterhalfof2017.Weareunabletoestimatethepossibleloss,ifany,associatedwiththislawsuit.

OtherMattersFromtimetotime,wehavereceivedrequestsforinformationfromregulatorsandgovernmentalauthorities,suchasthe

NationalHighwayTrafficSafetyAdministration,theNationalTransportationSafetyBoardandtheSecuritiesandExchangeCommission.Wearealsosubjecttovariousotherlegalproceedingsthatarisefromthenormalcourseofbusinessactivities.Inaddition,fromtimetotime,thirdpartiesmayassertintellectualpropertyinfringementclaimsagainstusintheformoflettersandotherformsofcommunication.Ifanunfavorablerulingweretooccur,thereexiststhepossibilityofamaterialadverseimpactonourresultsofoperations,prospects,cashflows,financialpositionandbrand.ITEM4. MINESAFETYDISCLOSURES

Notapplicable.

PARTII

ITEM5. MARKETFORREGISTRANT’SCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOFEQUITYSECURITIES

MarketInformationOurcommonstockhastradedonTheNASDAQGlobalSelectMarketunderthesymbol“TSLA”sinceitbegantradingon

June29,2010.Ourinitialpublicofferingwaspricedat$17.00pershareonJune28,2010.Thefollowingtablesetsforth,forthetimeperiodindicated,thehighandlowclosingsalespriceofourcommonstockasreportedonTheNASDAQGlobalSelectMarket.

2016 2015 High Low High Low

FirstQuarter $ 238.32 $ 143.67 $ 225.48 $ 181.40SecondQuarter 265.42 193.15 271.41 186.05ThirdQuarter 234.79 194.47 286.65 195.00FourthQuarter 219.74 181.45 249.84 202.00Holders

AsofJanuary31,2017,therewere1,109holdersofrecordofourcommonstock.Asubstantiallygreaternumberofholdersofourcommonstockare“streetname”orbeneficialholders,whosesharesareheldbybanks,brokersandotherfinancialinstitutions.

DividendPolicyWehaveneverdeclaredorpaidcashdividendsonourcommonstock.Wecurrentlydonotanticipatepayinganycash

dividendsintheforeseeablefuture.Anyfuturedeterminationtodeclarecashdividendswillbemadeatthediscretionofourboardofdirectors,subjecttoapplicablelaws,andwilldependonourfinancialcondition,resultsofoperations,capitalrequirements,generalbusinessconditionsandotherfactorsthatourboardofdirectorsmaydeemrelevant.

StockPerformanceGraphThisperformancegraphshallnotbedeemed“filed”forpurposesofSection18oftheSecuritiesExchangeActof1934,as

amended(theExchangeAct),orincorporatedbyreferenceintoanyfilingofTesla,Inc.undertheSecuritiesActof1933,asamended,ortheExchangeAct,exceptasshallbeexpresslysetforthbyspecificreferenceinsuchfiling.

ThefollowinggraphshowsacomparisonfromJanuary1,2012throughDecember31,2016,ofthecumulativetotalreturnforourcommonstock,theNASDAQCompositeIndex,andagroupofallpubliccompaniessharingthesameSICcodeasuswhichisSICcode3711,“MotorVehiclesandPassengerCarBodies”(MotorVehiclesandPassengerCarBodiesPublicCompanyGroup).Suchreturnsarebasedonhistoricalresultsandarenotintendedtosuggestfutureperformance.DataforTheNASDAQCompositeIndexandtheMotorVehiclesandPassengerCarBodiesPublicCompanyGroupassumesaninvestmentof$100onJanuary1,2012andreinvestmentofdividends.Wehaveneverdeclaredorpaidcashdividendsonourcapitalstocknordoweanticipatepayinganysuchcashdividendsintheforeseeablefuture.

UnregisteredSalesofEquitySecurities

None.

PurchasesofEquitySecuritiesbytheIssuerandAffiliatedPurchasersNone.

ITEM6. SELECTEDCONSOLIDATEDFINANCIALDATA

Thefollowingselectedconsolidatedfinancialdatashouldbereadinconjunctionwith“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andourconsolidatedfinancialstatementsandtherelatednotesincludedelsewhereinthisAnnualReportonForm10-K(inthousands,exceptpersharedata).

YearEndedDecember31, 2016(2) 2015 2014 2013 2012

ConsolidatedStatementsofOperationsData: Totalrevenues $ 7,000,132 $ 4,046,025 $ 3,198,356 $ 2,013,496 $ 413,256Grossprofit 1,599,257 923,503 881,671 456,262 30,067Lossfromoperations (667,340) (716,629) (186,689) (61,283) (394,283)Netlossattributabletocommonstockholders $ (674,914) $ (888,663) $ (294,040) $ (74,014) $ (396,213)Netlosspershareofcommonstockattributabletocommonstockholders,basicanddiluted(1) $ (4.68) $ (6.93) $ (2.36) $ (0.62) $ (3.69)Weightedaveragesharesusedincomputingnetlosspershareofcommonstock,basicanddiluted(1) 144,212 128,202 124,539 119,421 107,349

(1) Dilutednetlosspershareofcommonstockiscomputedexcludingcommonstocksubjecttorepurchase,and,ifdilutive,

potentialsharesofcommonstockoutstandingduringtheperiod.Potentialsharesofcommonstockconsistofstockoptionstopurchasesharesofourcommonstock,theconversionofourconvertibleseniornotes(usingthetreasurystockmethod),warrantstopurchasesharesofourcommonstockissuedinconnectionwithour2018Notes,2019Notes,asdefinedinNote(1)below,and2021Notes,asdefinedinNote(1)below,(usingthetreasurystockmethod),warrantstopurchasesharesofourconvertiblepreferredstock(usingthetreasurystockmethod)andtheconversionofourconvertiblepreferredstockandconvertiblenotespayable(usingtheif-convertedmethod).Forpurposesofthesecalculations,potentialsharesofcommonstockhavebeenexcludedfromthecalculationofdilutednetlosspershareofcommonstockastheireffectisantidilutivesincewegeneratedanetlossineachperiod.

(2) WeacquiredSolarCityonNovember21,2016.TheresultsofSolarCityhavebeenincludedinourresultsofoperationfromthedateofacquisition.SeeNote3,AcquisitionofSolarCity,oftheNotestoConsolidatedFinancialStatementsforadditionalinformationregardingthistransaction.

AsofDecember31, 2016(3) 2015 2014 2013 2012 ConsolidatedBalanceSheetData:

Workingcapital(deficit)(1) $ 432,791 $ (29,029) $ 1,072,907 $ 585,665 $ (14,340)Totalassets(1) 22,664,076 8,067,939 5,830,667 2,411,186 1,114,190Totallong-termobligations(1)(2) 10,923,162 4,125,915 2,753,595 1,069,535 450,382

(1) InMay2013,weissued$660.0millionaggregateprincipalamountof2018Notesinapublicoffering.Inaccordancewith

accountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththe2018Notesfromthehostdebtinstrumentandinitiallyrecordedtheconversionoptionof$82.8millioninequity.Theholdersof2018Notesmayconverttheirnotesduringaquarteriftheclosingpriceofourcommonstockexceeded130%oftheapplicableconversionpriceofour2018Notesonatleast20ofthelast30consecutivetradingdaysoftheprecedingquarterAsofDecember31,2016,December31,2015andDecember31,2014our2018Noteshavemettheconversioncriteria;consequentlythecarryingvalueofour2018Notesof$196.2million,$612.5millionand$594.3millionhavebeenpresentedascurrentliabilities,respectively.InMarch2014,weissued$800.0millionprincipalamountof0.25%convertibleseniornotesdue2019(“2019Notes”)and$1.20billionprincipalamountof1.25%convertibleseniornotesdue2021(“2021Notes”)inapublicoffering.InApril2014,weissuedanadditional$120.0millionaggregateprincipalamountof2019Notesand$180.0millionaggregateprincipalamountof2021Notes,pursuanttotheexerciseinfulloftheoverallotmentoptionsoftheunderwritersofourMarch2014publicoffering.Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththenotesfromthehostdebtinstrumentandrecordedtheconversionoptionof$188.1millionforthe2019Notesand$369.4millionforthe2021Notesinstockholders’equityasofDecember31,2014

(2) AsofAugust31,2012,wehadfullydrawndownour$465.0millionunderourDepartmentofEnergyloanfacility.InMay2013,weusedaportionoftheNotesofferingproceedstorepayalloutstandingloanamountsunderthislfacility.

(3) WeacquiredSolarCityonNovember21,2016.ThefinancialpositionofSolarCityhavebeenincludedinourconsolidatedfinancialstatementsfromthedateofacquisition.SeeNote3,AcquisitionofSolarCity,oftheNotestoConsolidatedFinancialStatementsforadditionalinformationregardingthistransaction.

ITEM7. MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOF

OPERATIONSThefollowingdiscussionandanalysisshouldbereadinconjunctionwithourconsolidatedfinancialstatementsandthe

relatednotesthatappearelsewhereinthisAnnualReportonForm10-K.

Overviewand2016HighlightsOurmissionistoacceleratetheworld’stransitiontosustainableenergy.Wedesign,develop,manufacture,leaseandsell

high-performancefullyelectricvehicles,aswellasprovideenergystoragethroughtheofferingofPowerpackandPowerwall.Inaddition,throughouracquisitionofSolarCityCorporation,wealsoprovidesolarenergysystemstoresidentialandcommercialcustomers.

AsaresultofouracquisitionofSolarCity,wehavereclassifiedthepresentationofourhistoricenergystorageproductsrevenueandcostofrevenuefromservicesandothertoenergygenerationandstorage.Automotive

WeproduceandsellourModelSsedanandourModelXsportutilityvehicle.Wecontinuetoenhanceourvehicleofferingswithall-wheeldrivecapability,autopilotoptions,Internetconnectivityandfreeover-the-airsoftwareupdates.Startinginthefourthquarterof2016,weintroducedsecondgenerationofautopilotwhichhasimprovedhardwareandenhancedfunctionalitiesincludingbettersafetyandperformance.

In2016,ourproductioncapabilitycontinuedtoscaleandgainoperationalefficiencies.During2016,ourproductionvolumeincreasedby64%year-over-year.

Inthefourthquarterof2015,webegandeliveringModelXsportutilityvehicle.In2016,wegreatlyrampedtheproductionanddeliveriesofModelX.Also,inthefirstquarterof2016,weunveiledModel3,alowerpricedsedandesignedforthemassmarket,whichreceivedsignificantinterest.Todate,wehavesubstantiallycompletedthedesignandprototypesofModel3andareprojectingtostartproductionanddeliveriesinthesecondhalfof2017.EnergyGenerationandStorage

ThroughouracquisitionofSolarCityCorporation,orSolarCity,onNovember21,2016,weleaseandsellsolarenergysystemsandsellrenewableenergytoourcustomers,typicallyatpricesbelowutilityrates.Ourlong-termagreementswithourcustomersgenerateapredictableandreliablestreamofcashflows.TheoperatingresultsofSolarCityfromtheacquisitiondateofNovember21,2016throughDecember31,2016areincludedinourConsolidatedStatementsofOperations.Alsoin2016,weintroducedsolarroof,whichweplantobeginsellingandinstallinglaterin2017.

Inadditiontosolarenergysystems,wealsosellenergystorageproducts,whichconsistsofthePowerwallforresidentialapplicationsandthePowerpackforcommercial,industrialandutility-scaleapplications.In2016,wecompletedseveralofourgrid-scaleenergystorageprojects,includingtheSouthernCaliforniaEdisonMiraLomasubstationandtheAmericanSamoaIslandinstallation.

ManagementOpportunities,ChallengesandRisksand2017OutlookAutomotiveDemand,ProductionandDeliveries

During2016,weimprovedourexistingModelSsedanandModelXsportutilityvehiclebyintroducingnewvariantsthatimproverange,performance,safetyandvalue.Weintroducedseveralnewfeatures,includingupdatingthefrontfasciaofModelSinthesecondquarterof2016,toexpandingofferingsofourbatterysizetocatertoawiderrangeofconsumers.Weexpecttointroducefurthernewvehiclevariantsandover-the-air-functionalityovertime.Wealsoexpectthatthedemandforourvehicleswillcontinuetoincreaseasweimproveourvehicles,andexpandourretail,serviceandcharginginfrastructureandaswedevelopnewproducts.Inaddition,theintroductionofModel3wouldalsogenerateincrementaldemandbyofferingalessexpensivealternative.

Duringthethirdquarterof2016,wediscontinuedourresalevalueguaranteeprograminNorthAmerica.Theresalevalueguaranteewasoriginallyintroducedin2013tohelptoreassurecustomersthatTeslavehicleswouldretainvalueovertime.

Wecontinuetomakeprogressinincreasingvehicleproduction.FortheyearendedDecember31,2016,weproducedapproximately84,000vehicles,anincreaseof64%fromtheprioryear.Thisincreasewasachieveddespitethefactthatwefacedchallengesin2016withModelXproduction,includingpartshortages.InJanuary2017,wecompletedtheacquisitionofGrohmannEngineeringGmbH,aGermanmanufacturingcompanywithexpertiseinautomatedproduction.Weexpectthisacquisitionwillfacilitateandexpandvehicleproduction.

Inthefirstquarterof2016,weannouncedourtargettoincreaseoverallvehicleproductionlevelto500,000vehiclesin2018.Increasingproductionwillrequireadditionalcapital.WehavestartedtheinstallationofModel3manufacturingequipmentinFremontandatGigafactory1,andweareontracktosupportvolumeproductionanddeliveriesinthesecondhalfof2017.

Inadditiontoexpandingourvehicleproductionanddeliveries,weexpecttocontinuetolowerthecostofmanufacturingourvehiclesoverthenextseveralquartersduetoeconomiesofscale,materialcostreductionsandmoreefficientmanufacturing.ThedecreasingtrendincostofmanufacturingvehiclesisexpectedtoimprovetotalautomotivegrossmarginovertimeandmitigatesomeofthehigherrampupcostsassociatedwiththelaunchofModel3.Wehaveachievedcostimprovementsthroughmaterialcostreductionsfrombothengineeringandcommercialactionsandincreasedmanufacturingefficienciesincludingbetterinventorycontroloverutilizationandminimizationofscrappingmaterials.Thisisalsoevidentthroughincreasedproductreliabilityincludingvehicle,batteryanddriveunitsthatresultedinareductionofourwarrantyexpense.Inaddition,weexpectthattheacquisitionofGrohmannwillfurtherincreaseourproductionautomationandefficiency.

Inordertoaccommodateamuchlargerfleetofcustomervehiclesasweincreasedeliveriesandtoprovidetimelycustomerservice,weareexpandingoursales,serviceandcharginginfrastructureworldwide.Inparticular,wecontinuetoopennewTeslaretailandservicelocationsaroundtheworld.AsofDecember31,2016,wehadatotalof265salesandservicelocations,andexpectourlong-termvehiclesalesoutsideofNorthAmericatobeoverhalfofourworldwidetotalautomotiverevenue.Aswehavelessexperienceininternationalmarkets,wemayfacedifficultiesmeetingourfutureinternationalexpansionplanswithrespecttotimingandexpectedsales.

EnergyGenerationandStorageDemandWebelievethatdemandforourenergyproductswillcontinuetoincrease.Weplantoreducecustomeracquisitioncostsby

cuttingadvertisingspendandincreasinglysellingsolarproductsinTeslastores.Inthefourthquarterof2016,werevealedthesolarroofproduct,ofwhichweexpecttobeginproductionandinstallationlaterin2017.Inaddition,inthefourthquarterof2016,wealsoannouncedoursecondgenerationenergystorageproducts,Powerpack2andPowerwall2,whichoffersignificantpriceadvantageperkWhandhigherenergydensity.

TrendsinCashFlow,CapitalExpendituresandOperatingExpenses

Weplantobuild500,000vehiclesin2018.Giventhisplan,wecontinuetoinvestheavilyincapitalexpenditures.Ourcapitalexpenditureneedsincludeexpendituresforthetooling,productionequipmentandconstructionoftheModel3productionlines,equipmenttosupportcellproductionattheGigafactory1,aswellasnewretaillocations,servicecentersandSuperchargerlocations.Weexpecttoinvestbetween$2.0billionand$2.5billionincapitalexpendituresaheadofthestartofModel3productionin2017.

AsofDecember31,2016and2015,thenetbookvalueofourSuperchargernetworkwas$207.2millionand$166.6million,respectively,andasofDecember31,2016,ourSuperchargernetworkincluded790locationsglobally.WeplantocontinueinvestinginourSuperchargernetworkfortheforeseeablefuture,includinginNorthAmerica,EuropeandAsia,andexpectsuchspendingtocontinuetobeaminimalportionoftotalcapitalspending.During2017,weexpectthatthisinvestmentwillgrowourSuperchargernetworkgreatly.WeallocateSuperchargerrelatedexpensestocostoftotalautomotiverevenuesandselling,general,andadministrativeexpenses.Thesecostswereimmaterialforallperiodspresented.

Weexpectoperatingexpensestogrowin2017,drivenbyengineering,design,andtestingexpensesrelatedtoModel3,suppliercontractsandhighersalesandservicecostsassociatedwithexpandingourworldwidegeographicpresence.Inaddition,weexpectoperatingexpensestoincreaseasaresultoftheincreasedselling,generalandadministrativeexpensesincurredbyourenergygenerationandstoragesegment.Weexpectselling,generalandadministrativeexpensestocontinuetoincreaseinabsolutedollarsbutdeclineovertimeasapercentageofrevenueaswefocusonincreasingoperationalefficiencywhilecontinuingtoexpandourcustomerandcorporateinfrastructure.Overtime,wealsoexpecttotaloperatingexpensestodecreaseasapercentageofrevenue.

AutomotiveFinancingOptionsWeofferloansandleasesforourvehiclesincertainmarketsinNorthAmerica,EuropeandAsiaprimarilythroughvarious

financialinstitutions.Weofferaresalevalueguaranteeinconnectionwithcertainloansofferedbyfinancialinstitutions.During2016,wediscontinuedtheresalevalueguaranteeinNorthAmerica,butcontinuetoofferitinselectedEuropeanandAsianmarkets.Resalevalueguaranteesavailableforexerciseduringfiscalyear2017total$179.5millioninvalue.

Vehicledeliverieswiththeresalevalueguaranteedonotimpactournear-termcashflowsandliquidity,sincewereceivethefullamountofcashforthevehiclesalespriceatdelivery.However,thisprogramrequiresthedeferralofrevenuesandcostsintofutureperiodsastheyareconsideredleasesforaccountingpurposes.Whilewedonotassumeanycreditriskrelatedtothecustomer,ifacustomerexercisestheoptiontoreturnthevehicletous,weareexposedtoliquidityriskthattheresalevalueofvehiclesundertheseprogramsmaybelowerthanourguarantee,orthevolumeofvehiclesreturnedtousmaybehigherthanourestimates,orwemaybeunabletoreselltheusedcarsinatimelymanner,allofwhichcouldadverselyimpactourcashflows.Basedoncurrentmarketdemandforourcars,weestimatetheresalepricesforourvehicleswillcontinuetobeaboveourresalevalueguaranteeamounts.Shouldmarketvaluesofourvehiclesorcustomerdemanddecrease,theseestimatesmaybeimpactedmaterially.

WecurrentlyoffervehicleleasesintheU.S.directlyfromTeslaFinance,ourcaptivefinancingentity,aswellasthroughaleasingpartner.LeasingthroughTeslaFinanceisnowavailablein39statesandtheDistrictofColumbia.WealsoofferfinancingarrangementsthroughourentitiesinCanada,GermanyandtheU.K.Leasingthroughbothourcaptivefinancingentitiesandourleasingpartnersexposesustoresidualvalueriskandwilladverselyimpactournear-termoperatingresultsbyrequiringthedeferralofrevenuesandcostsintofutureperiodsunderleaseaccounting.Inaddition,forleasesoffereddirectlyfromourcaptivefinancingentities(butnotforthoseofferedthroughourleasingpartner),weonlyreceivealimitedportionofcashforthevehiclepriceatdeliveryandwillassumecustomercreditrisk.Weplantocontinueexpandingourfinancingofferings,includingourleasefinancingoptionsandthefinancialsourcestosupportthem,andtosupporttheoverallfinancingneedsofourcustomers.Totheextentthatweareunabletoarrangesuchoptionsforourcustomersontermsthatareattractive,oursales,financialresults,andcashflowcouldbenegativelyimpacted.

EnergyGenerationandStorageFinancingoptions

ThroughSolarCity,weofferSolarLoans,wherebyathird-partylenderprovidesfinancingdirectlytoaqualifiedcustomertoenablethecustomertopurchaseandownasolarenergysysteminstalledbyus.Weenterintoastandardsolarenergysystemsaleagreementwiththecustomer.Separately,thecustomerentersintoaloanagreementwithoneofthethird-partylenders,whofinancesthefullpurchaseprice.Wearenotapartytotheloanagreementbetweenthecustomerandthethird-partylender,andthethird-partylenderhasnorecourseagainstuswithrespecttotheloan.Ifweareunabletocontinuetoofferthird-partyfinancingorotherfinancingalternativestoourcustomersoncompetitiveterms,ourgrowthmayslowandourfinancialandoperatingresultsmaybeadverselyimpacted.

Gigafactory1andManufacturingWearedevelopingGigafactory1asafacilitywhereweworktogetherwithoursupplierstointegrateproductionofbattery

material,cells,modulesandbatterypacksinonelocationforbothvehiclesandenergystorageproducts.WebrokegroundonGigafactory1inJune2014,beganassemblingourenergystorageproductsinthefirstportionofthefacilityinthefourthquarterof2015,andbeganproductionoflithium-ionbatterycellsforourenergystorageproductsinthefirstquarterof2017.WecontinuetoinvestinconstructionofthebuildingatGigafactoryandinproductionequipmentforbattery,moduleandpackproduction.

PanasonichasagreedtopartnerwithusonGigafactory1withinvestmentsinproductionequipmentthatitwillusetomanufactureandsupplyuswithbatterycells.UnderourarrangementwithPanasonic,weplantopurchasethefulloutputfromtheirproductionequipmentlocatedatGigafactory1atnegotiatedprices.AsthesetermsconveyarighttousetheproductionrelatedassetsasdefinedwithinASC840,Leases,wewillconsidertheseleasedassetsbeginningwiththestartofcellproductioninearly2017.Thiswillresultinusrecordingthevalueofsuchassetswithinproperty,plantandequipment,net,inourConsolidatedBalanceSheetwithacorrespondingliabilityrecordedtofinancingobligations.ForallsuppliersandpartnersforwhichweplantopurchasethefulloutputfromtheirproductionequipmentlocatedatGigafactory1,wewillrecordthevalueofsuchassetsonourConsolidatedBalanceSheet.Basedonourcurrentassessment,asofDecember31,2016,approximately$300millionisexpectedtoberecordedonourConsolidatedBalanceSheetduringthefirstquarterof2017.

AlthoughwecontinuetoremainontrackwithourprogressatGigafactory1,giventhesizeandcomplexityofthisundertaking,itispossiblethatfutureeventscouldresultinthecostofbuildingandoperatingGigafactory1exceedingourcurrentexpectationsandGigafactory1takinglongertoexpandthanwecurrentlyanticipate.Inaddition,wecontinuetoexpandproductioncapacityatourFremontFactoryandareexploringadditionalproductioncapacityinAsiaandEurope.

Gigafactory2andManufacturingThroughouracquisitionofSolarCity,wehaveanagreementwiththeResearchFoundationfortheStateUniversityofNew

Yorkfortheconstructionofanapproximately1millionsquarefootmanufacturingfacilitycapableofproducing1gigawattofsolarpanelsannuallyonanapproximately88.24acresitelocatedinBuffalo,NewYork,referredtoasGigafactory2.InDecember2016,weenteredintoaProductionPricingAgreement:Phases1-3(thePhase1-3Agreement)withPanasonicCorporation,PanasonicCorporationofNorthAmericaandSanyoElectronicCo.,Ltd(collectively,Panasonic).ThisagreementprovidesthatPanasonicwillmanufacturecustomphotovoltaic(PV)cellsandmodulesforus,primarilyatGigafactory2,andthatwewillpurchasecertainamountsofPVcellsandmodulesformPanasonicduringthe10-yearterm,withtheintenttoproducePVcellsandmodulestotalingapproximately1gigawattannuallybeginningin2019.

ThetermsofouragreementwiththeResearchFoundationfortheStateUniversityofNewYork,amongotherthings,requireustocomplywithanumberofcovenantsduringthetermoftheagreement.AnyfailuretocomplywiththesecovenantscouldobligateustopaysignificantamountstotheFoundationandresultinterminationoftheagreement.AlthoughwecontinuetoremainontrackwithourprogressatGigafactory2,ourexpectationsastothecostofbuildingthefacility,acquiringmanufacturingequipmentandsupportingourmanufacturingoperationsmayproveincorrect,whichcouldsubjectustosignificantexpensestoachievethedesiredbenefits.CriticalAccountingPoliciesandEstimates

OurconsolidatedfinancialstatementsarepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates,orGAAP.Thepreparationoftheseconsolidatedfinancialstatementsrequiresustomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenues,costsandexpensesandrelateddisclosures.Webaseourestimatesonhistoricalexperience,asappropriate,andonvariousotherassumptionsthatwebelievetobereasonableunderthecircumstances.Changesintheaccountingestimatesarereasonablylikelytooccurfromperiodtoperiod.Accordingly,actualresultscoulddiffersignificantlyfromtheestimatesmadebyourmanagement.Weevaluateourestimatesandassumptionsonanongoingbasis.Totheextentthattherearematerialdifferencesbetweentheseestimatesandactualresults,ourfuturefinancialstatementpresentation,financialcondition,resultsofoperationsandcashflowswillbeaffected.Webelievethatthefollowingcriticalaccountingpoliciesinvolveagreaterdegreeofjudgmentandcomplexitythanourotheraccountingpolicies.Accordingly,thesearethepolicieswebelievearethemostcriticaltounderstandingandevaluatingourconsolidatedfinancialconditionandresultsofoperations.

RevenueRecognitionWerecognizerevenueforproductsandserviceswhen:(i)apersuasiveevidenceofanarrangementexists;(ii)deliveryhas

occurredandtherearenouncertaintiesregardingcustomeracceptance;(iii)pricingorfeesarefixedordeterminable;and(iv)collectionisreasonablyassured.

AutomotiveSegmentAutomotiverevenueincludesrevenuesrelatedtodeliveriesofnewvehicles,salesofregulatorycreditstootherautomotive

manufacturers,andspecificotherelementsthatmeetthedefinitionofadeliverableundermultiple-elementaccountingguidanceincludingfreeinternetconnectivity,freeaccesstoourSuperchargernetwork,andfreefutureovertheairsoftwareupdates.Thesedeliverablesarevaluedonastand-alonebasisandwerecognizetheirrevenueoverourperformanceperiod,whichisgenerallytheeight-yearlifeofthevehicle,exceptforinternetconnectivitywhichisoverthefreefouryearperiod.Ifweselladeliverableseparately,weusethatpricingtodetermineitsfairvalue;otherwise,weuseourbestestimatedsellingpricebyconsideringcostsusedtodevelopanddelivertheservice,thirdpartypricingofsimilaroptions,andotherinformationwhichmaybeavailable.

Startinginthethirdquarterof2016,westartedtoseparatelypresentautomotiveleasingrevenueandrelatedcostofrevenue.Allpriorperiodshavebeenreclassifiedtoconformtothispresentation.Automotiveleasingrevenueincludesrevenuerecognizedunderleaseaccountingguidanceforourdirectleasingprogramsaswellasprogramswithresalevalueguarantees.See“Vehiclesalestocustomerswitharesalevalueguarantee,”“Vehiclesalestoleasingpartnerswitharesalevalueguarantee”and“DirectVehicleLeasingProgram”forfurtherdetails.

Servicesandotherrevenueconsistsofrepairandmaintenanceservices,serviceplansandmerchandise,salesofpre-ownedTeslavehicles,salesofelectricvehiclepowertraincomponentsandsystemstoothermanufacturers,andsalesofnon-Teslavehicletrade-ins.

VehiclesalestocustomerswitharesalevalueguaranteeWeofferedresalevalueguaranteesorsimilarbuy-backtermstoallcustomerswhopurchasevehiclesandwhofinancedtheir

vehiclethroughoneofourspecifiedcommercialbankingpartners.SubsequenttoJune30,2016,thisprogramisavailableonlyincertaininternationalmarkets.Underthisprogram,customershavetheoptionofsellingtheirvehiclebacktousduringtheguaranteeperiodforadeterminedresalevalue.Guaranteeperiodsgenerallyrangefrom36to39months.Althoughwereceivefullpaymentforthevehiclesalespriceatthetimeofdelivery,wearerequiredtoaccountforthesetransactionsasoperatingleases.Theamountofsaleproceedsequaltotheresalevalueguaranteeisdeferreduntiltheguaranteeexpiresorisexercised.Theremainingsaleproceedsaredeferredandrecognizedonastraight-linebasisoverthestatedguaranteeperiodtoautomotiveleasingrevenue.Theguaranteeperiodexpiresattheearlieroftheendoftheguaranteeperiodorthepay-offoftheinitialloan.WecapitalizethecostofthesevehiclesonourConsolidatedBalanceSheetsasoperatingleasevehicles,net,anddepreciatetheirvalue,lesssalvagevalue,tocostofautomotiveleasingrevenueoverthesameperiod.

Incaseswhencustomerretainsownershipofthevehicleattheendoftheguaranteeperiod,theresalevalueguaranteeliabilityandanyremainingdeferredrevenuebalancesrelatedtothevehiclearesettledtoautomotiveleasingrevenueandthenetbookvalueoftheleasedvehicleisexpensedtocostsofautomotiveleasingrevenue.Incaseswhencustomersreturnthevehiclebacktousduringtheguaranteeperiod,wepurchasethevehiclefromthecustomeratanamountequaltotheresalevalueguaranteeandsettleanyremainingdeferredbalancestoautomotiveleasingrevenueandwereclassifythenetbookvalueofthevehicleonourbalancesheettopre-ownedvehicleinventory.AsofDecember31,2016,$179.5millionofguaranteesareexercisablebycustomerswithinthenexttwelvemonths.

VehiclesalestoleasingpartnerswitharesalevalueguaranteeWealsoofferresalevalueguaranteesinconnectionwithautomobilesalestocertainbankleasingpartners.Aswehave

guaranteedthevalueofthesevehiclesandasthevehiclesareleasedtoend-customers,weaccountforthesetransactionsasinterestbearingcollateralizedborrowingsasrequiredunderAccountingStandardsCodification(ASC)840-Leases.Underthisprogram,cashisreceivedforthefullpriceofthevehicleandisrecordedwithinresalevalueguaranteeforthelong-termportionanddeferredrevenueforthecurrentportion.Weaccretethedeferredrevenueamounttoautomotiveleasingrevenueonastraightlinebasisovertheguaranteeperiodandaccrueinterestexpensebasedonourborrowingrate.WecapitalizevehiclesunderthisprogramtoleasedvehiclesonourConsolidatedBalanceSheetsandrecorddepreciationfromthesevehiclestocostofautomotiveleasingrevenuesduringtheperiodthevehicleisunderaleasearrangement.Cashreceivedforthesevehicles,netofrevenuerecognizedduringtheperiod,isclassifiedascollateralizedleaseborrowingswithincashflowsfromfinancingactivitiesinourConsolidatedStatementsofCashFlows.

Attheendoftheleaseterm,wesettleourliabilityincashbyeitherpurchasingthevehiclefromtheleasingpartnerfortheresalevalueguaranteeamount,orpayingashortfalltotheguaranteeamounttheleasingpartnermayrealizeonthesaleofthevehicle.Anyremainingbalanceswithindeferredrevenueandresalevalueguaranteewillbesettledtoautomotiveleasingrevenue.Incaseswherethebankretainsownershipofthevehicleaftertheendofourguaranteeperiod,weexpensethenetvalueoftheleasedvehicletocostsofautomotiveleasingrevenue.Themaximumcashwecouldberequiredtopayunderthisprogram,assumingwerepurchaseofallvehiclesunderthisprogramis$855.9millionatDecember31,2016.

AsofDecember31,2016andDecember31,2015,wehad$1.18billionand$527.5millionofsuchborrowingsrecordedintheresalevalueguaranteeliabilityand$289.1millionand$120.5millionrecordedindeferredrevenueliability.

Atleastannually,weassesstheestimatedmarketvaluesofvehiclesunderourresalevalueguaranteeprogramtodetermineifwehavesustainedalossonanyofthesecontracts.Asweaccumulatemoredatarelatedtotheresalevaluesofourvehiclesorasmarketconditionschange,theremaybesignificantchangestotheirestimatedvalues.

DirectVehicleLeasingProgramWeofferavehicleleasingprogramincertainlocationsintheNorthAmericaandEurope.Qualifyingcustomersare

permittedtoleaseavehicledirectlyfromTeslaforupto48months.Attheendoftheleaseterm,customershavetheoptionofeitherreturningthevehicletousorpurchasingifforapre-determinedresidualvalue.Weaccountfortheseleasingtransactionsasoperatingleasesandrecognizeleasingrevenuesoverthecontractualtermandrecordthedepreciationofthesevehiclestocostofautomotiverevenues.AsofDecember31,2016and2015,wehaddeferred$67.2millionand$25.8millionoflease-relatedupfrontpaymentswhichwillberecognizedonastraight-linebasisoverthecontractualtermoftheindividualleases.

MaintenanceandServicePlansWeofferaprepaidmaintenanceprogramforourvehicles,whichincludesplanscoveringmaintenanceforuptoeightyears

orupto100,000miles,providedtheseservicesarepurchasedwithinaspecifiedperiodoftime.Themaintenanceplanscoverannualinspectionsandthereplacementofwearandtearparts,excludingtiresandthebattery.Paymentscollectedinadvanceoftheperformanceofserviceareinitiallyrecordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesaswefulfillourperformanceobligations.

Wealsoofferanextendedserviceplan,whichcoverstherepairorreplacementofvehiclepartsforanadditionalfouryearsoruptoanadditional50,000miles,aftertheendofourinitialNewVehicleLimitedWarranty,providedtheyarepurchasedwithinaspecifiedperiodoftime.Paymentscollectedinadvanceoftheperformanceofserviceareinitiallyrecordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesratablyovertheservicecoverageperiods.

EnergyGenerationandStorageSegmentForsolarenergysystemsandcomponentssaleswhereincustomerspaythefullpurchaseprice,eitherdirectlyorthroughthe

SolarLoanprogram,revenueisrecognizedwhenweinstallasolarenergysystemandthesolarenergysystempassesinspectionbytheutilityortheauthorityhavingjurisdiction,providedallotherrevenuerecognitioncriteriahavebeenmet.Ininstanceswheretherearemultipledeliverablesinasinglearrangement,weallocatethearrangementconsiderationtothevariouselementsinthearrangementbasedontherelativesellingpricemethod.CostsincurredonresidentialinstallationsbeforethesolarenergysystemsarecompletedareincludedininventoriesasworkinprogressinourConsolidatedBalanceSheets.However,anyfeesthatarepaidorpayablebyustoaSolarLoanlenderwouldberecognizedasanoffsetagainstsolarenergysystemsandcomponentssalesrevenue,inaccordancewithASC605-50,CustomerPaymentsandIncentives .Revenueforenergystorageproductsaleisrecognizedwhentheproductisdeliveredorinstalled,providedallotherrevenuerecognitioncriteriahavebeenmet.

Forrevenuearrangementswherewearethelessorunderoperatingleaseagreementsforsolarenergysystems,includingenergystorageproducts,werecordleaserevenuefromminimumleasepayments,includingupfrontrebatesandincentivesearnedfromsuchsystems,onastraight-linebasisoverthelifeoftheleaseterm,assumingallotherrevenuerecognitioncriteriaaremet.Forincentivesthatareearnedbasedontheamountofelectricitygeneratedbythesystem,werecordrevenueastheamountsareearned.ThedifferencebetweenthepaymentsreceivedandtherevenuerecognizedisrecordedasdeferredrevenueonourConsolidatedBalanceSheets.

Forsolarenergysystemswherecustomerspurchaseelectricityfromusunderpowerpurchaseagreements,wehavedeterminedthattheseagreementsshouldbeaccountedfor,insubstance,asoperatingleasespursuanttoASC840.Revenueisrecognizedbasedontheamountofelectricitydeliveredatratesspecifiedunderthecontracts,assumingallotherrevenuerecognitioncriteriaaremet.

Wecapitalizeinitialdirectcostsfromtheoriginationofsolarenergysystemleasesorpowerpurchaseagreements(theincrementalcostofcontractadministration,referralfeesandsalescommissions)asanelementofsolarenergysystems,leasedandtobeleased–net,andsubsequentlyamortizethesecostsoverthetermoftherelatedleaseorpowerpurchaseagreement.

InventoryValuationInventoriesarestatedatthelowerofcostormarket.Costiscomputedusingstandardcostforvehiclesandenergystorage

products,whichapproximatesactualcostonafirst-in,first-outbasis.Inaddition,costforsolarenergysystemsarerecordedusingactualcost.Werecordinventorywrite-downsforexcessorobsoleteinventoriesbaseduponassumptionsaboutoncurrentandfuturedemandforecasts.Ifourinventoryonhandisinexcessofourfuturedemandforecast,theexcessamountsarewrittenoff.

Wealsoreviewinventorytodeterminewhetheritscarryingvalueexceedsthenetamountrealizableupontheultimatesaleoftheinventory.Thisrequiresustodeterminetheestimatedsellingpriceofourvehicleslesstheestimatedcosttoconvertinventoryonhandintoafinishedproduct.Onceinventoryiswritten-down,anew,lower-costbasisforthatinventoryisestablishedandsubsequentchangesinfactsandcircumstancesdonotresultintherestorationorincreaseinthatnewlyestablishedcostbasis.

Shouldourestimatesoffuturesellingpricesorproductioncostschange,additionalandpotentiallymaterialincreasestothisreservemayberequired.Asmallchangeinourestimatesmayresultinamaterialchargetoourreportedfinancialresults.

WarrantiesWeprovideamanufacturer’swarrantyonallvehicles,productionpowertraincomponentsandsystems,andenergy

generationandstorageproductswesell.Atthetimeofdelivery,weaccrueforamanufacturer’swarrantywhichincludesourbestestimateoftheprojectedcoststorepairortoreplaceitemsunderwarranty.Theseestimatesarebasedonactualclaimsincurredto-dateandanestimateofthenature,frequencyandcostsoffutureclaims.

Theseestimatesareinherentlyuncertainandchangestoourhistoricalorprojectedwarrantyexperiencemaycausematerialchangestoourwarrantyreserveinthefuture.Forthesolarenergysystemsthatwesell,weprovideawarrantyontheinstallationandcomponentsforperiodstypicallybetween10to30years.Themanufacturer’swarrantyonthesolarenergysystems’components,whichistypicallypassed-throughtocustomers,rangesfrom5to30years.Theportionofthewarrantyprovisionexpectedtobeincurredwithin12monthsisclassifiedasacurrentliability.

Ourwarrantyreservesdonotincludeprojectedwarrantycostsassociatedwithourvehiclesandsolarenergysystemsaccountedforasoperatingleasesorcollateralizeddebtarrangements.Anycoststorepairthesevehiclesandsystemsareexpensedasincurred.WarrantyexpenseisrecordedasacomponentofcostofautomotiverevenueforAutomotiverelatedsaleandcostofenergygenerationandstoragerevenueforsolarenergyandstoragesystems.

Stock-BasedCompensationWeusethefairvaluemethodofaccountingforourstockoptionsandrestrictedstockunits(RSUs)grantedtoemployeesand

ourEmployeeStockPurchasePlan(ESPP)tomeasurethecostofemployeeservicesreceivedinexchangeforthestock-basedawards.ThefairvalueofstockoptionsandESPPareestimatedonthegrantdateandofferingdateusingtheBlack-Scholesoption-pricingmodel.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfairmarketvalueofourcommonstock.Theresultingcostisrecognizedovertheperiodduringwhichanemployeeisrequiredtoprovideserviceinexchangefortheawards,usuallythevestingperiodwhichisgenerallyfouryearsforstockoptionsandRSUsandsixmonthsfortheESPP.Stock-basedcompensationexpenseisrecognizedonastraight-linebasis,netofestimatedforfeitures.

TheBlack-Scholesoption-pricingmodelrequiresinputssuchastherisk-freeinterestrate,expectedtermandexpectedvolatility.Further,theforfeitureratealsoaffectstheamountofaggregatecompensation.Theseinputsaresubjectiveandgenerallyrequiresignificantjudgment.

Weestimateourforfeitureratebasedonananalysisofouractualforfeitureexperienceandwillcontinuetoevaluatetheappropriatenessoftheforfeitureratebasedonactualforfeitureexperience,analysisofemployeeturnoverbehaviorandotherfactors.Quarterlychangesintheestimatedforfeitureratecanhaveasignificanteffectonreportedstock-basedcompensationexpense,asthecumulativeeffectofadjustingtherateforallexpenseamortizationisrecognizedintheperiodtheforfeitureestimateischanged.Ifarevisedforfeiturerateishigherthanthepreviouslyestimatedforfeiturerate,anadjustmentismadethatwillresultinadecreasetothestock-basedcompensationexpenserecognizedintheconsolidatedfinancialstatements.Ifarevisedforfeiturerateislowerthanthepreviouslyestimatedforfeiturerate,anadjustmentismadethatwillresultinanincreasetothestock-basedcompensationexpenserecognizedintheconsolidatedfinancialstatements.

Asweaccumulateadditionalemployeestock-basedawardsdataovertimeandasweincorporatemarketdatarelatedtoourcommonstock,wemaycalculatesignificantlydifferentvolatilities,expectedlivesandforfeiturerates,whichcouldmateriallyimpactthevaluationofourstock-basedawardsandthestock-basedcompensationexpensethatwewillrecognizeinfutureperiods.Stock-basedcompensationexpenseisrecordedinourcostofrevenues,researchanddevelopmentexpenses,andselling,generalandadministrativeexpenses.

InAugust2012,ourBoardofDirectorsgranted5,274,901stockoptionstoourCEO(the“2012CEOGrant”).The2012CEOGrantconsistsoftenvestingtrancheswithavestingschedulebasedentirelyontheattainmentofbothperformanceconditionsandmarketconditions,assumingcontinuedemploymentandservicetousthrougheachvestingdate.

Eachofthetenvestingtranchesrequiresacombinationofoneofthetenpre-determinedperformancemilestonesandanincrementalincreaseinourmarketcapitalizationof$4.0billion,ascomparedtotheinitialmarketcapitalizationof$3.2billionmeasuredatthetimeofthe2012CEOGrant.

Thetermofthe2012CEOGrantistenyears,soanytranchesthatremainunvestedattheexpirationofthe2012CEOGrantwillbeforfeited.Inaddition,unvestedoptionswillbeforfeitedifourCEOisnolongerinthatrole,whetherforcauseorotherwise.

Wemeasuredthefairvalueofthe2012CEOGrantusingaMonteCarlosimulationapproachwiththefollowingassumptions:risk-freeinterestrateof1.65%,expectedtermoftenyears,expectedvolatilityof55%anddividendyieldof0%.

Stock-basedcompensationexpenseassociatedwiththe2012CEOGrantisrecognizedforeachpairofperformanceandmarketconditionsoverthelongeroftheexpectedachievementperiodoftheperformanceandmarketconditions,beginningatthepointintimethattherelevantperformanceconditionisconsideredprobableofbeingmet.

AsofDecember31,2016,themarketconditionsforsevenvestingtranchesandthefollowingperformancemilestoneswereachievedandapprovedbyourBoardofDirectors,andthereforefiveoftentranchesofthe2012CEOGrantwerevestedasofsuchdate: • SuccessfulcompletionoftheModelXAlphaPrototype; • SuccessfulcompletionoftheModelXBetaPrototype; • CompletionofthefirstModelXProductionVehicle; • Aggregatevehicleproductionof100,000vehicles;and • SuccessfulcompletionoftheModel3AlphaPrototype.

AsofDecember31,2016,thefollowingperformancemilestoneswereconsideredprobableofachievement: • SuccessfulcompletionoftheModel3BetaPrototype; • CompletionofthefirstModel3ProductionVehicle; • Aggregatevehicleproductionof200,000vehicles;and • Aggregatevehicleproductionof300,000vehicles.

WeexpectthatthenextperformancemilestonetobeachievedwillbethesuccessfulcompletionoftheModel3BetaPrototype,whichwouldbeachieveduponthedeterminationbyourBoardofDirectorsthataneligibleprototypehasbeencompleted.CandidatesforsuchprototypeareamongthevehiclesthatwearecurrentlybuildingaspartofourongoingtestingofourModel3vehicledesignandmanufacturingprocesses.

Astheabovefourperformancemilestoneswereconsideredprobableofachievement,werecordedstock-basedcompensationexpenseof$15.8million,$10.6millionand$25.0millionfortheyearsendedDecember31,2016,2015and2014.

Additionally,nocashcompensationhaseverbeenreceivedbyourCEOforhisservicestotheCompany.

IncomeTaxesWearesubjecttofederalandstatetaxesintheUnitedStatesandinmanyforeignjurisdictions.Significantjudgmentis

requiredindeterminingourprovisionforincometaxes,ourdeferredtaxassetsandliabilitiesandanyvaluationallowancerecordedagainstournetdeferredtaxassets.Wemaketheseestimatesandjudgmentsaboutourfuturetaxableincomethatarebasedonassumptionsthatareconsistentwithourfutureplans.Taxlaws,regulations,andadministrativepracticesmaybesubjecttochangeduetoeconomicorpoliticalconditionsincludingfundamentalchangestothetaxlawsapplicabletocorporatemultinationals.TheU.S.,manycountriesintheEuropeanUnion,andanumberofothercountriesareactivelyconsideringchangesinthisregard.AsofDecember31,2016,wehadrecordedafullvaluationallowanceonournetU.S.deferredtaxassetsbecauseweexpectthatitismorelikelythannotthatourU.S.deferredtaxassetswillnotberealizedintheforeseeablefuture.Shouldtheactualamountsdifferfromourestimates,theamountofourvaluationallowancecouldbemateriallyimpacted.

Furthermore,significantjudgmentisrequiredinevaluatingourtaxpositions.Intheordinarycourseofbusiness,therearemanytransactionsandcalculationsforwhichtheultimatetaxsettlementisuncertain.Asaresult,werecognizetheeffectofthisuncertaintyonourtaxattributesbasedonourestimatesoftheeventualoutcome.Theseeffectsarerecognizedwhen,despiteourbeliefthatourtaxreturnpositionsaresupportable,webelievethatitismorelikelythannotthatthosepositionsmaynotbefullysustaineduponreviewbytaxauthorities.WearerequiredtofileincometaxreturnsintheUnitedStatesandvariousforeignjurisdictions,whichrequiresustointerprettheapplicabletaxlawsandregulationsineffectinsuchjurisdictions.Suchreturnsaresubjecttoauditbythevariousfederal,stateandforeigntaxingauthorities,whomaydisagreewithrespecttoourtaxpositions.Webelievethatourconsiderationisadequateforallopenaudityearsbasedonourassessmentofmanyfactors,includingpastexperienceandinterpretationsoftaxlaw.Wereviewandupdateourestimatesinlightofchangingfactsandcircumstances,suchastheclosingofataxaudit,thelapseofastatuteoflimitationsorachangeinestimate.Totheextentthatthefinaltaxoutcomeofthesemattersdiffersfromourexpectations,suchdifferencesmayimpactincometaxexpenseintheperiodinwhichsuchdeterminationismade.Theeventualimpactonourincometaxexpensedependsinpartifwestillhaveavaluationallowancerecordedagainstourdeferredtaxassetsintheperiodthatsuchdeterminationismade.

PrinciplesofConsolidationOurconsolidatedfinancialstatementsreflectouraccountsandoperationsandthoseofoursubsidiariesinwhichwehavea

controllingfinancialinterest.InaccordancewiththeprovisionsofFinancialAccountingStandardsBoard,orFASB,ASC810Consolidation,weconsolidateanyvariableinterestentity,orVIE,ofwhichwearetheprimarybeneficiary.WeformVIEswithourfinancingfundinvestorsintheordinarycourseofbusinessinordertofacilitatethefundingandmonetizationofcertainattributesassociatedwithoursolarenergysystems.Thetypicalconditionforacontrollingfinancialinterestownershipisholdingamajorityofthevotinginterestsofanentity;however,acontrollingfinancialinterestmayalsoexistinentities,suchasVIEs,througharrangementsthatdonotinvolvecontrollingvotinginterests.ASC810requiresavariableinterestholdertoconsolidateaVIEifthatpartyhasthepowertodirecttheactivitiesoftheVIEthatmostsignificantlyimpacttheVIE’seconomicperformanceandtheobligationtoabsorblossesoftheVIEthatcouldpotentiallybesignificanttotheVIEortherighttoreceivebenefitsfromtheVIEthatcouldpotentiallybesignificanttotheVIE.WedonotconsolidateaVIEinwhichwehaveamajorityownershipinterestwhenwearenotconsideredtheprimarybeneficiary.WehavedeterminedthatwearetheprimarybeneficiaryofanumberofVIEs.WeevaluateourrelationshipswithalltheVIEsonanongoingbasistoensurethatwecontinuetobetheprimarybeneficiary.Allintercompanytransactionsandbalanceshavebeeneliminatedinconsolidation.

NoncontrollingInterestsandRedeemableNoncontrollingInterestsNoncontrollinginterestsandredeemablenoncontrollinginterestsrepresentthird-partyinterestsinthenetassetsundercertain

fundingarrangements,orfunds,thatSolarCityentersintotofinancethecostsofsolarenergysystemsunderoperatingleases.Wehavedeterminedthatthecontractualprovisionsofthefundsrepresentsubstantiveprofitsharingarrangements.WehavefurtherdeterminedthattheappropriatemethodologyforcalculatingthenoncontrollinginterestandredeemablenoncontrollinginterestbalancesthatreflectsthesubstantiveprofitsharingarrangementsisabalancesheetapproachusingtheHLBVmethod.We,therefore,determinetheamountofthenoncontrollinginterestsandredeemablenoncontrollinginterestsinthenetassetsofthefundsateachbalancesheetdateusingtheHLBVmethod,whichispresentedonourConsolidatedBalanceSheetsasnoncontrollinginterestsinsubsidiariesandredeemablenoncontrollinginterestsinsubsidiaries.UndertheHLBVmethod,theamountsreportedasnoncontrollinginterestsandredeemablenoncontrollinginterestsinourconsolidatedbalancesheetsrepresenttheamountsthethird-partieswouldhypotheticallyreceiveateachbalancesheetdateundertheliquidationprovisionsofthefunds,assumingthenetassetsofthefundswereliquidatedattheirrecordedamountsdeterminedinaccordancewithGAAPanddistributedtothethird-parties.Thethird-parties’interestsintheresultsofoperationsofthefundsaredeterminedasthedifferenceinthenoncontrollinginterestandredeemablenoncontrollinginterestbalancesinourConsolidatedBalanceSheetsbetweenthestartandendofeachreportingperiod,aftertakingintoaccountanycapitaltransactionsbetweenthefundsandthethird-parties.However,theredeemablenoncontrollinginterestbalanceisatleastequaltotheredemptionamount.TheredeemablenoncontrollinginterestbalanceispresentedastemporaryequityinthemezzaninesectionofourConsolidatedBalanceSheetssincethesethird-partieshavetherighttoredeemtheirinterestsinthefundsforcashorotherassets.

BusinessCombinationsWeallocatethefairvalueofpurchaseconsiderationtothetangibleassetsacquired,liabilitiesassumedandintangibleassets

acquiredbasedontheirestimatedfairvalues.Theexcessofthefairvalueofpurchaseconsiderationoverthefairvaluesoftheseidentifiableassetsandliabilitiesisrecordedasgoodwill.Theexcessofthefairvaluesoftheseidentifiableassetsandliabilitiesoverthefairvalueofpurchaseconsiderationisrecordedasgainfrombargainpurchaseinotherincomeandexpense,netinourConsolidatedStatementsofOperations.Whendeterminingthefairvaluesofassetsacquiredandliabilitiesassumed,managementmakessignificantestimatesandassumptions,especiallywithrespecttointangibleassetsandcertaintangibleassetssuchassolarenergysystemsacquiredaspartofourSolarCityacquisition.

Criticalestimatesinvaluingcertaintangibleandintangibleassetsincludebutarenotlimitedtofutureexpectedcashflowsfromtheunderlyingassetsanddiscountrates.Management’sestimatesoffairvaluearebaseduponassumptionsbelievedtobereasonable,butwhichareinherentlyuncertainandunpredictableand,asaresult,actualresultsmaydifferfromestimates.

Otherestimatesassociatedwiththeaccountingforacquisitionsmaychangeasadditionalinformationbecomesavailableregardingtheassetsacquiredandliabilitiesassumed,asmorefullydiscussedinNote3ofNotestoConsolidatedFinancialStatementsincludedinItem8ofthisAnnualReportonForm10-K.

ResultsofOperationsRevenues YearEndedDecember31, Change2016vs.2015 Change2015vs.2014 (Dollarsinthousands) 2016 2015 2014 $ % $ % Automotive

Automotive $5,589,007 $3,431,587 $2,874,448 $2,157,420 63% $ 557,139 19%Automotiveleasing 761,759 309,386 132,564 452,373 146% 176,822 133%Servicesandother 467,972 290,575 187,136 177,397 61% 103,439 55%Totalautomotiverevenue 6,818,738 4,031,548 3,194,148 2,787,190 69% 837,400 26%

Energygenerationandstorage Energygenerationandstorage 181,394 14,477 4,208 166,917 1153% 10,269 244%

Totalrevenues $7,000,132 $4,046,025 $3,198,356 $2,954,107 73% $ 847,669 27%AutomotiveSegment

AutomotiverevenueincludesrevenuesrelatedtosaleofnewModelSandModelXvehicles,includinginternetconnectivity,Superchargeraccess,andspecifiedsoftwareupdatesforcarsequippedwithautopilothardware,aswellassalesofregulatorycreditstootherautomotivemanufacturers.AutomotiveleasingrevenueincludestheamortizationofrevenueforModelSandModelXvehiclessoldwithresalevalueguaranteesaccountedforasoperatingleasesunderleaseaccounting.

Servicesandotherrevenueconsistsofsalesofelectricvehiclepowertraincomponentsandsystemstoothermanufacturers,maintenanceservicesandsalesofpre-ownedvehicles.

2016comparedto2015Automotiverevenueincreased$2.16billion,or63%to$5.59billionduringtheyearendedDecember31,2016comparedto

theyearendedDecember31,2015,primarilyrelatedtoa55%increaseinvehicledeliveriestoapproximately50,700.TheincreaseinvolumeisprimarilyduetoafullyearofModelXdeliveriesin2016,aswellasincreasedproductionandsalesofModelS.Further,therewasanoverallincreaseinaveragesellingpriceof6.1%primarilyduetotheintroductionofModelXwhicharehigherpricedvehiclescomparedtoModelS.Inaddition,thereisanincreaseof$133.4millionto$302.3millionofthesaleofregulatorycreditsfromtheyearendedDecember31,2015tothecorrespondingperiodin2016.Theseincreaseswerepartiallyoffsetbynegativeimpactfromthemovementofforeigncurrencyexchangerates.

Automotiveleasingrevenueincreased$452.4million,or146%,to$761.8millionduringtheyearendedDecember31,2016comparedtotheyearendedDecember31,2015.Theincreasewasprimarilyduetoan83%increaseincumulativevehicledeliveriesunderleasingprogramsandprogramswitharesalevalueguaranteefromtheyearendedDecember31,2015totheyearendedDecember31,2016.Inaddition,duringtheyearendedDecember31,2016,werecognized$112.6millioninautomotiveleasingrevenueupontheexpirationofresalevalueguarantees.

Serviceandotherrevenueincreased$177.4million,or61%,to$468.0millionduringtheyearendedDecember31,2016comparedtotheyearendedDecember31,2015,primarilyduetoanincreaseof$117.4millioninpre-ownedvehiclesalesaswereceivedmoretrade-insandanincreaseinmaintenanceservicerevenueof$66.6millionasourfleetcontinuestogrow.

2015comparedto2014AutomotiverevenueduringtheyearsendedDecember31,2015and2014were$3.43billionand$2.87billion.Automotive

leasingrevenueduringtheyearsendedDecember31,2015and2014were$309.4millionand$132.6million.Theincreaseofautomotiverevenueandautomotiveleasingrevenuewasprimarilydrivenbytherampinvehicledeliveries.

ServiceandotherrevenueduringtheyearsendedDecember31,2015and2014were$290.6millionand$187.1million,relatedprimarilytoincreasesinpre-ownedvehiclesalesandmaintenanceservicerevenue.

EnergyGenerationandStorageSegmentEnergygenerationandstoragerevenueincludessaleofsolarenergysystemsandenergystorageproducts,leasingrevenue

fromsolarenergysystemsunderoperatingleasesandpowerpurchaseagreementsandthesaleofsolarenergysystemsincentives.

Energygenerationandstoragerevenueincreased$166.9million,or1,153%,primarilydueto$84.1millionasaresultoftheinclusionofrevenuefromSolarCityfromtheacquisitiondateofNovember21,2016throughDecember31,2016,aswellasanincreaseof$82.8millioninenergystoragerevenueaswerampedupourenergystoragesaleseffortandcompletedseveralutilityscaleprojectssuchasSouthernCaliforniaEdisonMiraLomasubstation.

CostofRevenuesandGrossProfit YearEndedDecember31, Change2016vs.2015 Change2015vs.2014 (Dollarsinthousands) 2016 2015 2014 $ % $ % Costofrevenues Automotive

Automotive $4,268,087 $2,639,926 $2,058,344 $1,628,161 62% $ 581,582 28%Automotiveleasing 481,994 183,376 87,405 298,618 163% 95,971 110%Servicesandother 472,462 286,933 166,931 185,529 65% 120,002 72%

TotalAutomotivecostofrevenue 5,222,543 3,110,235 2,312,680 2,112,308 68% 797,555 34%

Energygenerationandstorage Energygenerationandstoragecostofrevenue 178,332 12,287 4,005 166,045 1351% 8,282 207%

Totalcostofrevenues $5,400,875 $3,122,522 $2,316,685 $2,278,353 73% $ 805,837 35% Grossprofittotalautomotive $1,596,195 $ 921,313 $ 881,468 Grossmargintotalautomotive 23.4% 22.9% 27.6% Grossprofitenergygenerationandstorage 3,062 2,190 203 Grossmarginenergygenerationandstorage 1.7% 15.1% 4.8% Totalgrossprofit $1,599,257 $ 923,503 $ 881,671 Totalgrossmargin 22.8% 22.8% 27.6% AutomotiveSegment

Costofautomotiverevenueincludesdirectparts,materialandlaborcosts,manufacturingoverhead,includingdepreciationcostsoftoolingandmachinery,shippingandlogisticcosts,vehicleconnectivitycosts,allocationsofelectricityandinfrastructurecostsrelatedtoourSuperchargernetwork,andreservesforestimatedwarrantyexpenses.Costofautomotiverevenuesalsoincludesadjustmentstowarrantyexpenseandchargestowritedownthecarryingvalueofourinventorywhenitexceedsitsestimatednetrealizablevalueandtoprovideforobsoleteandon-handinventoryinexcessofforecasteddemand.

Costofautomotiveleasingrevenueincludesprimarilytheamortizationofoperatingleasevehiclesovertheleaseterm,aswellaswarrantyexpensesrecognizedasincurred.Costofservicesandotherrevenueincludesdirectparts,materialandlaborcosts,manufacturingoverheadassociatedwiththesalesofelectricvehiclepowertraincomponentsandsystemstoothermanufacturersandenergyproducts,costsassociatedwithprovidingmaintenanceservices,andcoststoacquireandcertifypre-ownedvehicles.

2016comparedto2015Costofautomotiverevenuesincreased$1.63billion,or62%,to$4.27billionduringtheyearendedDecember31,2016

comparedtotheyearendedDecember31,2015.Theincreasewasprimarilyduetoa55%increaseinvehicledeliveriesasaresultofafullyearofModelXdeliveriesaswellasincreaseddeliveriesforModelS.Inaddition,theincreaseisduetoproductmixasModelXhasahighercoststructurethanModelS.Theincreaseincostofautomotiverevenueispartiallyoffsetbyareductionofwarrantyexpenseof$20.0millionresultingfrombettervehiclereliability.

Costofautomotiveleasingrevenueincreased$298.6million,or163%,to$482.0millionduringtheyearendedDecember31,2016comparedtotheyearendedDecember31,2015.Theincreaseisprimarilyduetoan83%increaseincumulativevehicledeliveriesunderleasingprogramsandprogramswithresalevalueguaranteesfromtheyearendedDecember31,2015totheyearendedDecember31,2016.Inaddition,duringtheyearendedDecember31,2016,werecognized$114.3millionincostofautomotiveleasingrevenuesupontheexpirationofresalevalueguarantees.

Costofservicesandotherrevenueincreased$185.5million,or65%,to$472.5millionduringtheyearendedDecember31,2016comparedtotheyearendedDecember31,2015,primarilyduetoanincreaseof$120.8millionincostofpre-ownedvehiclesalesduetoincreaseinvolume,andanincreaseof$64.9millionincosttoprovidemaintenanceserviceasourfleetcontinuestogrow.

GrossprofitfortheAutomotivesegmentincreasedfrom$921.3millionfortheyearendedDecember31,2015to$1.60billionfortheyearendedDecember31,2016.Automotivegrossmarginincreasedfrom22.9%fortheyearendedDecember31,2015,to23.4%fortheyearendedDecember31,2016.Theincreasewasprimarilyduetolowermaterialandmanufacturingcostsaswefurtherimproveourproductionprocesses,partiallyoffsetbyanegativeimpactfromthemovementinforeignexchangeandincreasedexpenditurestobuildoutourservicecentersandprovidemaintenance.

2015Comparedto2014Costofautomotiverevenuesincreased$581.6million,or28%,to$2.64billionduringtheyearendedDecember31,2015

comparedtotheyearendedDecember31,2014.TheincreaseincostofautomotiverevenueswasdrivenprimarilybyincreasedModelSdeliveries.

Costofautomotiveleasingrevenueincreased$96.0million,or110%,to$183.4millionduringtheyearendedDecember31,2015comparedtotheyearendedDecember31,2014.TheincreaseisprimarilyduetoanincreaseincumulativevehicledeliveriesunderleasingprogramsandprogramswithresalevalueguaranteesasvolumeofModelSincreased.

FortheyearsendedDecember31,2015and2014,costsofservicesandotherrevenuewere$286.9millionand$166.9million.Theincreaseincostofservicesandotherrevenueswasdrivenprimarilybygreaterpre-ownedvehiclesalesandincreasedmaintenanceandrepairservices.

Grossprofitfortheautomotivesegmentincreasedfrom$881.5millionfromtheyearendedDecember31,2014to$921.3millionfortheyearendedDecember31,2015.GrossmarginfortheyearsendedDecember31,2015and2014were22.9%and27.6%.Thelowermarginin2015ascomparedto2014wasprimarilyduetoproductandregionalmixshift,asagreaterpercentageofsaleswerederivedfromvehiclemodelswithloweraveragesellingprices,andincreasedmanufacturingcostsrelatedtotherampinproductionofthesmalldriveunitfordualmotorModelSvehiclesandstartofModelXproduction,obsoleteinventoryandlowerZEVcreditsrevenue.Thismargindecreasewaspartiallyoffsetbyanincreasingamountofrevenuesfromvehiclesaccountedforasleasesincludingdirectleasevehiclesandthoseunderourresalevalueguaranteeprogramswhichhaveasignificantlyhighergrossmarginandfrommaterialcostsavings.Servicesandothergrossmarginwerealsodownyearoveryear,primarilydrivenbyaplannedpricereductionforpowertrainsalestoDaimler.

EnergyGenerationandStorageSegmentCostofenergygenerationandstoragerevenueincludesdirectmaterialandlaborcosts,overheadofsolarenergysystemsand

energystorageproductsandthedepreciationexpenseandmaintenancecostsassociatedwithleasedsolarenergysystems.

Costofenergygenerationandstoragerevenueincreased$166.0millionto$178.3millionduringtheyearendedDecember31,2016comparedtotheyearendedDecember31,2015.Theincreaseisduetoanincreaseof$67.0millionasaresultoftheinclusionofSolarCity’sfinancialresultsfromtheacquisitiondateofNovember21,2016toDecember31,2016.Theremainingincreasewasduetoincreaseinthesaleofenergystorageproductsandincreasedexpenditurestoincreasethecapacityofenergystorageproducts.

Costofenergygenerationandstoragerevenuein2014wasinsignificant.Grossprofitandrelatedmarginforenergygenerationandstoragewasalsoinsignificantinallperiodspresented.

ResearchandDevelopmentExpenses YearEndedDecember31, Change2016vs.2015 Change2015vs.2014 (Dollarsinthousands) 2016 2015 2014 $ % $ % Researchanddevelopment $834,408 $717,900 $464,700 116,508 16% 253,200 54%Asapercentageofrevenues 11.9% 17.7% 14.5%

Researchanddevelopment(R&D)expensesconsistprimarilyofpersonnelcostsforourteamsinengineeringandresearch,supplychain,quality,manufacturingengineeringandmanufacturingtestorganizations,prototypingexpense,contractandprofessionalservicesandamortizedequipmentexpense.

R&Dexpensesincreased$116.5million,or16%,to$834.4millionduringtheyearendedDecember31,2016comparedtotheyearendedDecember31,2015.Theincreaseof$116.5millionwasprimarilyduetoa$78.2millionincreaseinemployeeandlaborrelatedexpensesduetoa15%headcountincreaseasweexpandedourvehiclebusinessintheU.S.andinternationally,anda$65.0millionincreaseinstock-basedcompensationexpenserelatedtoanincreaseinheadcountandnumberofemployeestockawardsgrantedfornewhireandrefresheremployeestockgrants.Thisispartiallyoffsetbya$25.9milliondecreaseinexpensedmaterialsrelatedtoourModelXdevelopment,whichwasprimarilyincurredin2015.Theoverallincreasealsoincludes$11.0millionrelatedtoSolarCity.

R&Dexpensesincreased$253.2million,or54%,to$717.9millionduringtheyearendedDecember31,2015comparedtotheyearendedDecember31,2014.TheincreaseinR&Dexpensesconsistedprimarilyofa$93.9millionincreaseinexpensedmaterialsprimarilytosupportourModelXdevelopmentandModelSimprovements,a$75.9millionincreaseinemployeecompensationexpenses,a$30.6millionincreaseinfacilitiesanddepreciationcosts,a$20.1millionincreaseincostsrelatedtoModelX,autopilotanddualmotorpowertrainengineering,designandtestingactivitiesanda$22.8millionincreaseinstock-basedcompensationexpenserelatedtoincreasedheadcountandincreasingvaluesofawardsgranted.

Selling,GeneralandAdministrativeExpenses YearEndedDecember31, Change2016vs.2015 Change2015vs.2014 (Dollarsinthousands) 2016 2015 2014 $ % $ % Selling,generalandadministrative $1,432,189 $922,232 $603,660 509,957 55% 318,572 53%Asapercentageofrevenues 20.5% 22.8% 18.9%

Selling,generalandadministrative(SG&A)expensesconsistprimarilyofpersonnelandfacilitiescostsrelatedtoourstores,marketing,sales,executive,finance,humanresources,informationtechnologyandlegalorganizations,aswellaslitigationsettlementsandfeesforprofessionalandcontractservices.

SG&Aexpensesincreased$510.0million,or55%,to$1.43billionduringtheyearendedDecember31,2016comparedtotheyearendedDecember31,2015.TheincreaseinSG&Aexpenseswasprimarilyduetoa$247.2millionincreaseinemployeeandlaborrelatedexpensesduetoa61.3%increaseinheadcountasweexpandedourbusinessintheU.S.andinternationally,a$91.0millionincreaseinoffice,informationtechnologyandfacilities-relatedcoststosupportthegrowthofourbusinessaswellassalesandmarketingactivitiestohandleourexpandingmarketpresence,anda$58.1millionincreaseinstock-basedcompensationexpenserelatedtoincreasednumberofemployeestockawardsgrantedfornewhireandexistingemployees.Theincreaseincludes$74.3millionrelatedtoSolarCity.

SG&Aexpensesincreased$318.6million,or53%,to$922.2millionduringtheyearendedDecember31,2015comparedtotheyearendedDecember31,2014.TheincreaseinourSG&Aexpensesconsistedprimarilyofa$138.4millionincreaseinemployeecompensationexpensesrelatedtohighersales,serviceandmarketingheadcounttosupportsalesactivitiesworldwideandhighergeneralandadministrativeheadcounttosupporttheexpansionofthebusiness,$126.1millionincreaseinoffice,informationtechnologyandfacilities-relatedcoststosupportthegrowthofourbusinessaswellassalesandmarketingactivitiestohandleourexpandingmarketpresence,a$41.8millionincreaseinprofessionalandoutsideservicescosts,anda$12.2millionincreaseinstockbasedcompensation.

InterestExpense YearEndedDecember31, Change2016vs.2015 Change2015vs.2014 (Dollarsinthousands) 2016 2015 2014 $ % $ % Interestexpense $ (198,810) $ (118,851) $ (100,886) (79,959) 67% (17,965) 18%Asapercentageofrevenues -2.8% -2.9% -3.2%

InterestexpensefortheyearendedDecember31,2016increased$80.0million,or67%,fromtheyearendedDecember31,2015.TheincreaseascomparedtotheyearendedDecember31,2015consistedprimarilyofa$33.1millionincreaseininterestexpenseonvehiclessalesthatweaccountforascollateralizedborrowing,a$28.5millionincreaseininterestexpenseonbuild-to-suitleasesanda$22.0millionincreaseininterestexpenseassociatedwithSolarCity’sindebtedness,financingobligationsandcapitalleaseobligations.

InterestexpensefortheyearendedDecember31,2015was$118.9million,ascomparedto$100.9millionduringtheyearendedDecember31,2014.Theincreaseascomparedtothesameperiodsin2014wasduetotheissuanceof$920.0millionaggregateprincipalamountof2019Notesand$1.38billionaggregateprincipalamountof2021Notesduringthefirsthalfof2014.

OtherIncome(Expense),Net

YearEndedDecember31, Change2016vs.2015 Change2015vs.2014 (Dollarsinthousands) 2016 2015 2014 $ % $ % Otherincome(expense),net $111,272 $ (41,652) $ 1,813 152,924 -367% (43,465) -2397%Asapercentageofrevenues 1.6% -1.0% *

*=lessthan1%

Otherincome(expense),net,consistsprimarilyofforeignexchangegainsandlossesrelatedtoourforeigncurrency-denominatedassetsandliabilities.Weexpectourforeignexchangegainsandlosseswillvarydependinguponmovementsintheunderlyingexchangerates.Additionally,otherincome(expense),net,includesagainfromtheacquisitionofSolarCityfortheyearendedDecember31,2016.

Otherincome,net,was$111.3millionintheyearendedDecember31,2016,ascomparedtootherexpense,net,of$41.7millionduringthesameperiodin2015,representingincreasesof$152.9million.DuringtheyearendedDecember31,2016,werecognizedagainfromtheacquisitionofSolarCityof$88.7millionandalossonconversionofour2018Notesof$7.2million.Theremainderofthechangeinotherincome(expense),net,wasprimarilyresultoffluctuationsingains(losses)fromforeigncurrencyexchange.

Otherexpensewas$41.7millionintheyearendedDecember31,2015,ascomparedtoanincomeof$1.8millionduringthesameperiodin2014.Fluctuationsinotherincome(expense)from2014to2015areprimarilytheresultofgains(losses)fromforeigncurrencyexchangeof($45.6)millionand$2.0millionfortheyearsendedDecember31,2015and2014.Foreigncurrencylossesduring2015relatedprimarilytochangesintheexchangeratesofeuro,Norwegiankrone,Canadiandollars,andChineseyuan.

ProvisionforIncomeTaxes YearEndedDecember31, Change2016vs.2015 Change2015vs.2014 (Dollarsinthousands) 2016 2015 2014 $ % $ % Provisionforincometaxes $ 26,698 $ 13,039 $ 9,404 13,659 105% 3,635 39%Asapercentageoflossbeforeincometaxes -3.6% -1.5% -3.3%

OurprovisionforincometaxesfortheyearsendedDecember31,2016,2015,and2014was$26.7million,$13.0million,and$9.4million.Theincreasesintheprovisionforincometaxesweredueprimarilytotheincreaseintaxableincomeinourinternationaljurisdictions.

Netlossattributabletononcontrollinginterestsandredeemablenoncontrollinginterests

ThenetlossallocationtononcontrollinginterestsandredeemablenoncontrollinginterestsfortheyearendedDecember31,2016was$98.1millionandwasrelatedtoSolarCity’sfinancingarrangements.LiquidityandCapitalResources

Liquidity

AsofDecember31,2016,wehad$3.39billioninprincipalsourcesofliquidityavailablefromourcashandcashequivalents,whichincluded$2.2billionofmoneymarketfunds.Thisbalanceincluded$969.0milliondrawnunderourassetbasedlineofcreditand$390.0milliondrawnunderourWarehouseAgreementwhichweenteredintoinAugust2016tosupporttheTeslaFinancedirectleasingprogram.Inaddition,thebalanceincluded$213.5millionofcashassumedaspartoftheSolarCityacquisition.AmountsheldinforeigncurrencieshadaU.S.dollarequivalentof$827.1millionasofDecember312016,andconsistedprimarilyofEuro,ChineseyuanandCanadiandollars.

Sourcesofcasharepredominatelyfromourdeliveriesofvehicles,proceedsfromretailfinancingactivities,andsalesof

energygenerationandstorageproducts.Inaddition,throughouracquisitionofSolarCity,weexpecttogenerateadditionalliquiditythroughthesaleofsolarenergysystemstocustomersandfinancingfundscreatedtomonetizethecashflows,taxattributesandotherincentivesgeneratedbysolarenergysystemsdeployedunderoperatingleasesorpowerpurchaseagreements.Weexpectthatourcurrentsourcesofliquidity,includingcashandcashequivalents,togetherwithourcurrentprojectionsofcashflowfromoperatingactivities,willprovideuswithadequateliquidityoveratleastthenext12monthsbasedonourcurrentplans.Wemayraisefundsinthefuture,includingthroughpotentialequityordebtofferings,subjecttomarketconditionsandrecognizingthatwecannotbecertainthatadditionalfundswouldbeavailabletousonfavorabletermsoratall.Theamountandtimingoffundsthatwemayraiseisundeterminedandwillvarybasedonanumberoffactors,includingourliquidityneedsaswellasaccesstocurrentandfuturesourcesofliquidity.

Thesecurrentsourcesofliquidityandcashflowsenableustofundourongoingoperationsandresearchanddevelopment

projects,theinitialinvestmentsintoolingandmanufacturingcapitalforourplannedModel3;thecontinuedconstructionofGigafactory1;andtheexpansionofourretailstores,servicecentersandSuperchargernetwork.Weareplanningtoproduce500,000totalvehiclesin2018,whichisapproximatelydoubleourpriorgrowthplan.Wecontinuallyevaluateourcapitalexpenditureneeds.Weexpecttoinvestbetween$2.0billionand$2.5billionincapitalexpendituresaheadofthestartofModel3productionin2017.

AspartoftheSolarCityacquisition,wehaveanagreementtospendorincurapproximately$5.0billionincombinedcapital,

operationalexpenses,costsofgoodssoldandothercostsintheStateofNewYorkduringthe10-yearperiodfollowingfullproductionatGigafactory2.WeanticipatemeetingtheseobligationsthroughouroperationsatGigafactory2andotheroperationswithintheStateofNewYorkoverthe10-yeartermoftheagreement,andwedonotbelievethatwefaceasignificantriskofdefault.

CapitalResources

AsofDecember31,2016,wehavethefollowingcreditfacilitiesavailable:

• Seniorsecuredasset-basedrevolvingCreditAgreement(the“CreditAgreement”)uptothelesserof$1.20billion,orthevalueofthesecuredassetsasdeterminedmonthlypursuanttotheCreditAgreement,reducedbytheamountoflettersofcreditoutstandingissuedundertheCreditAgreement,AsofDecember31,2016,theoutstandingamountundertheCreditAgreementis$969.0million.

• LoanandSecurityAgreement(“WarehouseAgreement”)uptothelesserof$600.0millionortheamountbasedonthesecuritizationvalueofcertainvehicleleasesoriginatedbyTesla.AsofDecember31,2016,thesecuritizationvalueofsuchleaseswassufficienttosupportanoutstandingamountundertheWarehouseAgreementof$390.0million.

Inaddition,asaresultoftheacquisitionofSolarCity,additionalcreditfacilitiesareincludedinourConsolidatedFinancial

StatementsasofDecember31,2016.SolarCityhasfinancingfundcommitmentsfromseveralfundinvestorsthatcanbedrawninthefutureupontheachievementofspecificfundingcriteria.AsofDecember31,2016,SolarCityhadenteredinto63financingfundsthathadatotalof$481.4millionofundrawncommittedcapital.

ForadditionaldetailsregardingourandSolarCity’srecourseandnon-recourseindebtedness,refertoNote13,Convertible

andLong-termDebtObligations,toourConsolidatedFinancialStatementsincludedelsewhereinthisannualreportonForm10-K.

SummaryofCashFlows

YearEndedDecember31, (Dollarsinthousands) 2016 2015 2014 Netcashusedinoperatingactivities $ (123,829) $ (524,499) $ (57,337)Netcashusedininvestingactivities (1,416,430) (1,673,551) (990,444)Netcashprovidedbyfinancingactivities 3,743,976 1,523,523 2,143,130

CashFlowsfromOperatingActivities

Ourcashflowsfromoperatingactivitiesaresignificantlyaffectedbyourcashinvestmentstosupportthegrowthofourbusinessinareassuchasmanufacturing,researchanddevelopmentandselling,generalandadministrative.Ouroperatingcashflowsarealsoaffectedbyourworkingcapitalneedstosupportgrowthandfluctuationsininventory,personnelrelatedexpenditures,accountspayableandothercurrentassetsandliabilities.

Ouroperatingcashinflowsincludecashfromsalesandleasesofourvehicles,customerdepositsforvehicles,including

Model3,salesofregulatorycredits,salesofpowertraincomponentsandsystems,andenergygenerationandstorageproducts.Thesecashinflowsareoffsetbypaymentswemaketooursuppliersforproductionmaterialsandpartsusedinourmanufacturingprocess,employeecompensation,operatingleasesandinterestexpenseonourfinancings.

DuringtheyearendedDecember31,2016,cashusedinoperatingactivitieswas$123.8millionandwasprimarilyaresultof

netlossincurredof$773.0million,anincreaseinaccountspayableandaccruedliabilitiesof$750.6millionasourbusinessexpands,anincreaseindeferredrevenueof$383.0millionasthenumberofvehicledeliverieswithresalevalueguaranteeincreased,anincreaseincustomerdepositsof388.4millionprimarilyasaresultofModel3reservationsandanincreaseinresalevalueguaranteesof$326.9million.Theseincreaseswerepartiallyoffsetbyanincreaseininventoriesandoperatingleasevehiclesof$2.47billionasweexpandourprogramfordirectleaseandvehicleswithresalevalueguarantees.Cashusedinoperatingactivitiesalsoincludednon-cashadjustmentsof$1.34billion,whichprimarilyconsistedofdepreciationexpenseof$947.1millionandstock-basedcompensationof$334.2million.Inaddition,duringthefourthquarterof2016,werecognizedagainof$88.7millionrelatedtotheSolarCityacquisition.

DuringtheyearendedDecember31,2015,cashusedinoperatingactivitieswas$524.5millionandwasprimarilyaresultof

netlossincurredof$888.7million,andanincreaseofinventoriesandoperatingleasevehiclesof$1.57billionasweexpandedourprogramfordirectleaseandvehicleswithresalevalueguarantee.Thesedecreaseswerepartiallyoffsetbyanincreaseinresalevalueguaranteesof$442.3millionanddeferredrevenueof$322.2millionasthenumbervehicleswithresalevalueguaranteeincreased.Cashusedbyoperatingactivitiesalsoincludednon-cashadjustmentsof$857.5million.

DuringtheyearendedDecember31,2014,cashusedinoperatingactivitieswas$57.3millionandwasprimarilyaresultof

netlossincurredof$294.0million,andanincreaseofinventoriesandoperatingleasevehiclesof$1.05billionasweexpandedourprogramfordirectleaseandvehicleswithresalevalueguarantee.Thesedecreaseswerepartiallyoffsetbyanincreaseinresalevalueguaranteeof$249.5millionanddeferredrevenueof$209.7millionasthenumbervehicleswithresalevalueguaranteeincreased.Cashusedbyoperatingactivitiesalsoincludednon-cashadjustmentsof$493.5million.Thedecreaseinoperatingcashflowsin2015ascomparedto2014wasduetoanincreaseinoverallinventorytosupportgrowth,andincreaseinoperatingleasevehicles,partiallyoffsetbyproceedsfromsales,andhigheroperatingexpensesinR&DandSG&A.

CashFlowsfromInvestingActivitiesCashflowsfrominvestingactivitiesprimarilyrelatetocapitalexpenditurestosupportourgrowthinoperations,including

investmentsinmanufacturingequipmentandtooling,thecontinuedconstructionofourGigafactory,andourstores,servicecentersandSuperchargernetworkinfrastructure.Cashusedininvestingactivitieswas$1.42billion,$1.67billionand$990.4millionfortheyearsendedDecember31,2016,2015and2014.Cashflowsfrominvestingactivitiesandvariabilitybetweeneachyearrelatedprimarilytocapitalexpenditures,whichwere$1.28billion,$1.63billionand$969.9millionfor2016,2015and2014.Inaddition,weincreasedourrestrictedcashof$206.1millionasaresultoftheassumedrestrictedcashfromtheSolarCityacquisition.Thedecreasesincashflowsfrominvestingactivitiesin2016waspartiallyoffsetbytheassumedcashof$213.5millionasaresultoftheSolarCityacquisition.

In2014,webeganconstructionofGigafactory1inNevada.In2016,weusedcashof$455.3milliontowardsGigafactory1

constructionandexpecttospendatotalofapproximately$770.0millionduring2017.

CashFlowsfromFinancingActivities

DuringtheyearsendedDecember31,2016,2015and2014,netcashprovidedbyfinancingactivitieswas$3.74billion,$1.52billionand$2.14billion.CashflowsfromfinancingactivitiesduringtheyearendedDecember31,2016consistedprimarilyof$1.70billionnetproceedsfromourMay2016publicofferingof7,915,004sharesofcommonstock,$995.4millionofproceedsfromissuanceofdebt,netofrepayments,andproceedsfromcollateralizedborrowingof$769.7million.Thenetproceedsfromissuanceofdebtduring2016primarilyconsistedofthefollowing:$834.0millionofnetborrowingundertheAsset-BasedCreditFacility,$390.0millionborrowingundertheWarehouseAgreementFacility,partiallyoffsetbysettlementof$454.7millionforcertainconversionofour2018Notes.Further,wealsoreceived$201.5millionofproceedsfrominvestmentbyfundinvestorsandpaiddistributionstofundinvestorsof$21.3million.

CashflowsfromfinancingactivitiesduringtheyearendedDecember31,2015consistedprimarilyof$738.3millionnet

proceedsfromAugust2015publicofferingof3,099,173sharesofcommonstockand$568.7millionreceivedfromvehiclesalestoourbankleasingpartners.Thedecreaseincashprovidedfromfinancingin2015ascomparedto2014wasprimarilydueto$2.1billioninnetproceedsreceivedin2014fromtheissuanceofour2019and2021Notes.

CommonStockOfferingInMay2016,wecompletedapublicofferingofcommonstockandsoldatotalof7,915,004sharesofourcommonstockfor

totalcashproceedsofapproximately$1.7billion,netofunderwritingdiscountsandofferingcosts.

InAugust2015,wecompletedapublicofferingofcommonstockandsoldatotalof3,099,173sharesofourcommonstockfortotalcashproceedsofapproximately$738.3million(whichincludes82,645sharesor$20.0millionsoldtoElonMusk,ourChiefExecutiveOfficer(CEO)),netofunderwritingdiscountsandofferingcosts.

ContractualObligationsWearepartytocontractualobligationsinvolvingcommitmentstomakepaymentstothirdparties,includingcertaindebt

financingarrangementsandleases,primarilyforstores,servicecenters,certainmanufacturingandcorporateoffices.Thesealsoinclude,aspartofournormalbusinesspractices,contractswithsuppliersforpurchasesofcertainrawmaterials,components,andservicestofacilitateadequatesupplyofthesematerialsandservicesandcapacityreservationcontracts.

Thefollowingtablesetsforth,asofDecember31,2016certainsignificantobligationsthatwillaffectourfutureliquidity(inthousands):

YearEndedDecember31, Total 2017 2018 2019 2020 2021 Thereafter

Operatingleaseobligations(1) $ 925,977 $ 165,457 $ 150,925 $ 125,148 $ 102,804 $ 88,950 $ 292,693Capitalleaseobligations,includinginterest 122,573 38,712 33,730 23,793 7,333 2,746 16,259Purchaseobligations(2)(3) 7,293,507 2,755,762 92,625 79,239 3,871 3,831 15,471Long-termdebt(4)(5) 8,198,241 1,074,553 1,333,675 1,817,434 1,229,656 1,634,897 1,108,026Total $16,540,298 $4,034,484 $1,610,955 $2,045,614 $1,343,664 $1,730,424 $1,432,449(1) Theoperatingleaseobligationsamountincludes$257.5millionrecordedasotherlong-termliabilitiesinourConsolidated

BalanceSheetsinaccordancewithbuilt-to-suitaccounting.(2) AmountsdonotincludefuturecashpaymentsforpurchaseobligationswhichwererecordedinAccountspayableorAccrued

liabilitiesasofDecember31,2016.(3) Thesetotalsrepresentaquantificationofaggregateamountspursuanttopurchaseordersissuedunderbindingand

enforceableagreementswithallvendorsasofDecember31,2016,aswellasanyotherestimableandcalculablepurchaseobligationspursuanttosuchagreements,includinganyadditionalamountswemayhavetopayvendorsifwedonotmeetcertainminimumpurchaseobligations.IncaseswherenopurchaseorderswereoutstandingunderbindingandenforceableagreementsasofDecember31,2016,wehaveincludedestimatedamountsbasedonourbestestimatesandassumptionsordiscussionswiththerelevantvendorsasofsuchdate,and/oramountsorassumptionsincludedinsuchagreementsforpurposesofdiscussionorreference.Incertaincases,suchestimatedamountsweresubjecttounsatisfiedmarketconditionsandcontingentevents.Wherethetimingofpaymentsarenotknownorestimable,wehaveincludedtheamountonlyinthetotalcolumn.IfcontractswherenopurchaseorderswereoutstandingunderbindingandenforceableagreementswereterminatedonorpriortoDecember31,2016,ourobligationsundersuchcontractswouldhavebeensubstantiallylower.

(4) Duringthefourthquarterof2016,theclosingpriceofourcommonstockexceeded130%oftheapplicableconversionpriceofour2018Notesonatleast20ofthelast30consecutivetradingdaysofthequarter;therefore,holdersof2018Notesmayconverttheirnotesduringthefirstquarterof2017.Assuch,weclassifiedthe$205.0millionprincipalbalanceofour2018NotesascurrentliabilitiesonourConsolidatedBalanceSheetasofDecember31,2016andhaveincludedrelatedcontractualpaymentsintheyearendedDecember31,2017categoryinthetableabove.

(5) Long-termdebtreportedaboveincludesSolarCity’stotalconsolidatedindebtednessof$3.58billionasofDecember31,2016,representingoutstandingrecourseindebtednessof$1.62billionandnon-recourseindebtednessof$1.95billion.Long-termdebtreportedabovealsoincludesourremainingnon-recourseindebtednessof$457.3million.Recoursedebtreferstodebtthatisrecoursetothegeneralassetsofthedebtissuer.Non-recoursedebtreferstodebtthatisrecourseonlytospecifiedassetsofthedebtissuerand/oritssubsidiaries.SolarCity’snon-recoursecreditfacilitieshavebeenstructuredtobesupportedsolelybythesolarassetsthatarepledgedascollateral,and,todate,havenotexperiencedanyfailuretopaysuchnon-recourseindebtedness.

Thecontractualobligationstableaboveexcludesuncertaintaxbenefitsofapproximately$198.3millionthataredisclosedinNote16inthenotestoourConsolidatedFinancialStatementsbecausetheseuncertaintaxpositions,ifrecognized,wouldbeanadjustmenttothedeferredtaxassets.

Off-BalanceSheetArrangementsDuringtheperiodspresented,wedidnothaverelationshipswithunconsolidatedentitiesorfinancialpartnerships,suchas

entitiesoftenreferredtoasstructuredfinanceorspecialpurposeentities,whichwouldhavebeenestablishedforthepurposeoffacilitatingoff-balancesheetarrangementsorothercontractuallynarroworlimitedpurposes.ITEM7A. QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISKForeignCurrencyRisk

Wetransactbusinessgloballyinmultiplecurrencies.Ourinternationalrevenues,aswellascostsandexpensesdenominatedinforeigncurrencies,exposeustotheriskoffluctuationsinforeigncurrencyexchangeratesagainstthefunctionalcurrenciesofourforeignsubsidiariesandagainsttheU.S.dollar.Uponconsolidation,asforeignexchangeratesvary,revenuesandexpensesmaybesignificantlyimpactedandwemayrecordsignificantgainsorlossesontheremeasurementofmonetaryassetsandliabilities,includingintercompanybalances.AsofDecember31,2016,ourlargestcurrencyexposuresarefromtheEuro,Japaneseyen,andBritishPounds.Werecordedforeignexchangegainof$26.1millioninotherincome(expense),net,fortheyearendedDecember31,2016relatedtotheimpactofchangesinexchangeratesonforeigncurrencydenominatedmonetaryassetsandliabilities.

Weconsideredthehistoricaltrendsincurrencyexchangeratesanddeterminedthatitwasreasonablypossiblethatadversechangesinexchangeratesof10%forallcurrenciescouldbeexperiencedinthenearterm.Thesereasonablypossibleadversechangesinexchangeratesof10%wereappliedtototalmonetaryassetsandliabilitiesdenominatedincurrenciesotherthanthefunctionalcurrenciesasofDecember31,2016tocomputetheadverseimpactthesechangeswouldhavehadonourincomebeforeincometaxesinthenearterm.Thesechangeswouldhaveresultedinanadverseimpactonincomebeforeincometaxesofapproximately$41.6million,recordedtootherincome(expense),net,principallyfromintercompanyandcashbalances.

InNovember2015,weimplementedaprogramtohedgetheforeigncurrencyexposureriskrelatedtocertainforecastedinventorypurchasesdenominatedinJapaneseyen.Thederivativeinstrumentsweuseareforeigncurrencyforwardcontractsandaredesignatedascashflowhedgeswithmaturitydatesof12monthsorless.Wedonotenterintoderivativecontractsfortradingorspeculativepurposes.Wedocumenteachhedgerelationshipandassessitsinitialeffectivenessattheinceptionofthehedgecontractandwemeasureitsongoingeffectivenessonaquarterlybasisusingregressionanalysis.Duringthetermofaneffectivehedgecontract,werecordgainsandlosseswithinaccumulatedothercomprehensiveloss.Wereclassifythesegainsorlossestocostsofautomotivesalesintheperiodtherelatedfinishedgoodsinventoryissoldoroverthedepreciationperiodforthosesalesaccountedforasleases.Althoughourcontractsareconsideredeffectivehedges,wemayexperiencesmallamountsofineffectivenessduetotimingdifferencesbetweenouractualinventorypurchasesandthesettlementdateoftherelatedforeigncurrencyforwardcontracts.IneffectivenessrelatedtothehedgesisimmaterialasofDecember31,2016.AsofDecember31,2016,wehavenooutstandingforeigncurrencyforwardcontracts,andhadrecordedacumulativegainof$5.6milliontoAOCIrelatedtoouroutstandingforeigncurrencycashflowhedges.

InterestRateRiskWehadcashandcashequivalentstotaling$3.4billionasofDecember31,2016.Asignificantportionofourcash

equivalentswereinvestedinmoneymarketfunds.Cashandcashequivalentsareheldforworkingcapitalpurposes.Wedonotenterintoinvestmentsfortradingorspeculativepurposes.Wedonothaveanymaterialexposuretochangesinthefairvalueofourcashequivalentsasaresultofchangesininterestratesduetotheshort-termnatureofourcashequivalents.

Weareexposedtointerestrateriskforourborrowingsthatbearinterestatfloatingratesplusaspecifiedmargin.Pursuanttoourriskmanagementpolicies,incertaincases,weutilizederivativeinstrumentstomanagesomeofourexposurestofluctuationsininterestratesoncertainfloating-ratedebt.Wedonotenterintoanyderivativeinstrumentsfortradingorspeculativepurposes.Inparticular,ahypothetical10%changeinourinterestrateswouldhaveimmaterialimpactoninterestexpensefortheyearendedDecember31,2016.

ITEM8. FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA

Thesectionsentitled“ReportofIndependentRegisteredPublicAccountingFirm,”“ConsolidatedBalanceSheets,”“ConsolidatedStatementsofOperations,”“ConsolidatedStatementsofEquity,”“ConsolidatedStatementsofCashFlows”and“NotestoConsolidatedFinancialStatements”inPartII,Item8oftheAnnualReportonForm10-KofSolarCityCorporation(FileNo.001-35758)forthefiscalyearendedDecember31,2016,filedwiththeSecuritiesandExchangeCommissiononMarch1,2017,areherebyincorporatedbyreferenceintothisAnnualReportonForm10-KandarefiledasExhibit99.1hereto.

IndextoConsolidatedFinancialStatements PageReportofIndependentRegisteredPublicAccountingFirm 54ConsolidatedBalanceSheets 55ConsolidatedStatementsofOperations 56ConsolidatedStatementsofComprehensiveLoss 57ConsolidatedStatementsofRedeemableNoncontrollingInterestsandEquity 58ConsolidatedStatementsofCashFlows 59NotestoConsolidatedFinancialStatements 60

ReportofIndependentRegisteredPublicAccountingFirm

TotheBoardofDirectorsandStockholdersofTesla,Inc.

Inouropinion,basedonourauditsand,withrespecttotheDecember31,2016balancesheet,thereportofotherauditors,theaccompanyingconsolidatedbalancesheetsandtherelatedconsolidatedstatementsofoperations,ofcomprehensiveloss,ofredeemablenoncontrollinginterestsandequityandofcashflowspresentfairly,inallmaterialrespects,thefinancialpositionofTesla,Inc.anditssubsidiariesatDecember31,2016andDecember31,2015,andtheresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,2016inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Alsoinouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2016,basedoncriteriaestablishedinInternalControl-IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).TheCompany'smanagementisresponsibleforthesefinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedinManagement'sReportonInternalControloverFinancialReportingappearingunderItem9A.OurresponsibilityistoexpressopinionsonthesefinancialstatementsandontheCompany'sinternalcontroloverfinancialreportingbasedonourintegratedaudits.Wedidnotauditthepre-acquisitionhistoricalbasisbalancesheetofSolarCityCorporation,awhollyownedsubsidiary,asofDecember31,2016,whichreflectstotalassetsandtotalliabilitiesof$9.1billionand$6.9billion,respectively,asofDecember31,2016.Thepre-acquisitionhistoricalbasisbalancesheetofSolarCityCorporationwasauditedbyotherauditorswhosereportthereonhasbeenfurnishedtous,andouropiniononthefinancialstatementsexpressedherein,insofarasitrelatestothepre-acquisitionhistoricalbasisamountsincludedforSolarCityCorporationasofDecember31,2016,isbasedsolelyonthereportoftheotherauditors.WeauditedtheadjustmentsnecessarytoconverttheDecember31,2016pre-acquisitionhistoricalbasisbalancesheetofSolarCityCorporationtothebasisreflectedintheCompany’sconsolidatedfinancialstatements.WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatementandwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditsofthefinancialstatementsincludedexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements,assessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,andevaluatingtheoverallfinancialstatementpresentation.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditsalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditsandthereportofotherauditorsprovideareasonablebasisforouropinions.

Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(iii)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.

Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.

AsdescribedinManagement’sReportonInternalControloverFinancialReporting,managementhasexcludedSolarCityCorporationfromitsassessmentofinternalcontroloverfinancialreportingasofDecember31,2016becauseitwasacquiredbytheCompanyinapurchasebusinesscombinationduring2016.WehavealsoexcludedSolarCityCorporationfromourauditofinternalcontroloverfinancialreporting.SolarCityCorporationisawholly-ownedsubsidiarywhosetotalassetsandtotalrevenuesrepresent$8.78billion(ofwhich$352.9millionrepresentsintangibleassetssubjecttomanagement’sassessmentandourauditofinternalcontroloverfinancialreporting)and$84.1million,respectively,oftherelatedconsolidatedfinancialstatementamountsasofandfortheyearendedDecember31,2016./s/PricewaterhouseCoopersLLPSanJose,CaliforniaMarch1,2017

Tesla,Inc.

ConsolidatedBalanceSheets(inthousands,exceptpersharedata)

December31, December31, 2016 2015

Assets Currentassets

Cashandcashequivalents $ 3,393,216 $ 1,196,908Restrictedcash 105,519 22,628Accountsreceivable,net 499,142 168,965 Inventory 2,067,454 1,277,838Prepaidexpensesandothercurrentassets 194,465 115,667

Totalcurrentassets 6,259,796 2,782,006Operatingleasevehicles,net 3,134,080 1,791,403Solarenergysystems,leasedandtobeleased,net 5,919,880 —Property,plantandequipment,net 5,982,957 3,403,334Intangibleassets,net 376,145 12,816MyPowercustomernotesreceivable,netofcurrentportion 506,302 —Restrictedcash,netofcurrentportion 268,165 31,522Otherassets 216,751 46,858

Totalassets $ 22,664,076 $ 8,067,939LiabilitiesandEquity Currentliabilities

Accountspayable $ 1,860,341 $ 916,148 Accruedliabilitiesandother 1,210,028 422,798 Deferredrevenue 763,126 423,961 Resalevalueguarantees 179,504 136,831 Customerdeposits 663,859 283,370 Currentportionoflong-termdebtandcapitalleases 984,211 627,927 Currentportionofsolarbondsissuedtorelatedparties 165,936 —Totalcurrentliabilities 5,827,005 2,811,035

Long-termdebtandcapitalleases,netofcurrentportion 5,860,049 2,021,093Solarbondsissuedtorelatedparties,netofcurrentportion 99,164 —Convertibleseniornotesissuedtorelatedparties 10,287 —Deferredrevenue,netofcurrentportion 851,790 446,105 Resalevalueguarantees,netofcurrentportion 2,210,423 1,293,741Otherlong-termliabilities 1,891,449 364,976

Totalliabilities 16,750,167 6,936,950Commitmentsandcontingencies(Note17) Redeemablenoncontrollinginterestsinsubsidiaries 367,039 —Convertibleseniornotes(Notes13) 8,784 47,285Stockholders'equity:

Preferredstock;$0.001parvalue;100,000sharesauthorized;nosharesissuedandoutstanding — —Commonstock;$0.001parvalue;2,000,000sharesauthorizedasofDecember31,2016and2015;161,561and131,425sharesissuedandoutstandingasofDecember31,2016and2015,respectively 161 131 Additionalpaid-incapital 7,773,727 3,409,452Accumulatedothercomprehensiveloss (23,740) (3,556)Accumulateddeficit (2,997,237 ) (2,322,323 )

Totalstockholders'equity 4,752,911 1,083,704Noncontrollinginterestsinsubsidiaries 785,175 —Totalliabilitiesandequity $ 22,664,076 $ 8,067,939

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Tesla,Inc.

ConsolidatedStatementsofOperations(inthousands,exceptpersharedata)

YearEndedDecember31, 2016 2015 2014 Revenues

Automotive $ 5,589,007 $ 3,431,587 $ 2,874,448Automotiveleasing 761,759 309,386 132,564

Totalautomotiverevenue 6,350,766 3,740,973 3,007,012Energygenerationandstorage 181,394 14,477 4,208Servicesandother 467,972 290,575 187,136

Totalrevenues 7,000,132 4,046,025 3,198,356Costofrevenues

Automotive 4,268,087 2,639,926 2,058,344Automotiveleasing 481,994 183,376 87,405

Totalautomotivecostofrevenues 4,750,081 2,823,302 2,145,749Energygenerationandstorage 178,332 12,287 4,005Servicesandother 472,462 286,933 166,931

Totalcostofrevenues 5,400,875 3,122,522 2,316,685Grossprofit 1,599,257 923,503 881,671

Operatingexpenses Researchanddevelopment 834,408 717,900 464,700Selling,generalandadministrative 1,432,189 922,232 603,660

Totaloperatingexpenses 2,266,597 1,640,132 1,068,360Lossfromoperations (667,340) (716,629) (186,689)

Interestincome 8,530 1,508 1,126Interestexpense (198,810) (118,851) (100,886)Otherincome(expense),net 111,272 (41,652) 1,813

Lossbeforeincometaxes (746,348) (875,624) (284,636)Provisionforincometaxes 26,698 13,039 9,404Netloss (773,046) (888,663) (294,040)Netlossattributabletononcontrollinginterestsandredeemablenoncontrollinginterests (98,132) — —Netlossattributabletocommonstockholders $ (674,914) $ (888,663) $ (294,040)Netlosspershareofcommonstockattributabletocommonstockholders,basicanddiluted $ (4.68) $ (6.93) $ (2.36)Weightedaveragesharesusedincomputingnetlosspershareofcommonstock,basicanddiluted 144,212 128,202 124,539

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Tesla,Inc.

ConsolidatedStatementsofComprehensiveLoss(inthousands)

YearEndedDecember31, 2016 2015 2014 Netlossattributabletocommonstockholders $ (674,914) $ (888,663) $ (294,040)Othercomprehensivegain(loss),netoftax:

Unrealizedgains(losses)onderivativesandshort-termmarketablesecurities:

Changeinnetunrealizedgain(loss) 43,220 7,443 —Less:Reclassificationadjustmentfornet(gains)lossesintonetloss (44,904) 22 (22)

Netunrealizedgain(loss)onderivativesandshort-termmarketablesecurities (1,684) 7,465 (22)Foreigncurrencytranslationadjustment (18,500) (10,999) —

Othercomprehensiveloss (20,184) (3,534) (22)Comprehensiveloss $ (695,098) $ (892,197) $ (294,062)

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Tesla,Inc.

ConsolidatedStatementsofRedeemableNoncontrollingInterestsandEquity(inthousands,exceptpersharedata)

Accumulated Redeemable CommonStock Additional Other Total Noncontrolling Noncontrolling Paid-In Accumulated Comprehensive Stockholders' Interestsin Total Interests Shares Amount Capital Deficit Loss Equity Subsidiaries Equity

BalanceasofDecember31,2013 $ - 123,091 $ 123 $ 1,806,617 $ (1,139,620) $ - $ 667,120 — $ 667,120Conversionfeatureofconvertibleseniornotesdue2019and2021 — — — 548,603 — — 548,603 — 548,603Purchaseofbondhedges — — — (603,428) — — (603,428) — (603,428)Salesofwarrant — — — 389,160 — — 389,160 — 389,160Reclassfromequitytomezzanineequity — — — (58,199 ) — — (58,199 ) — (58,199 )Commonstockissued,netofshareswithheldforemployeetaxes — 2,597 3 100,434 — — 100,437 — 100,437Stock-basedcompensation — — — 162,079 — — 162,079 — 162,079Netloss — — — — (294,040) — (294,040) — (294,040)Othercomprehensiveloss — — — — — (22) (22 ) — (22)BalanceasofDecember31,2014 — 125,688 126 2,345,266 (1,433,660) (22) 911,710 — 911,710Reclassfrommezzanineequitytoequityfor2018Notes — — — 10,910 — — 10,910 — 10,910 IssuanceofcommonstockinAugust2015secondarypublicofferingat$242pershare,netofissuancecostsof$11,122 — 3,099 3 738,405 — — 738,408 — 738,408Commonstockissued,netofshareswithheldforemployeetaxes — 2,638 2 106,533 — — 106,535 106,535Stock-basedcompensation — — — 208,338 — — 208,338 — 208,338Netloss — — — — (888,663) — (888,663) — (888,663)Othercomprehensiveloss — — — — — (3,534) (3,534) — (3,534)BalanceasofDecember31,2015 — 131,425 131 3,409,452 (2,322,323) (3,556) 1,083,704 — 1,083,704 Reclassfrommezzanineequitytoequityfor2018Notes — — — 38,501 — — 38,501 — 38,501 Exerciseofconversionfeatureofconvertibleseniornotesdue2018 — — — (15,056 ) — — (15,056 ) — (15,056 )Commonstockissued,netofshareswithheldforemployeetaxes — 11,096 11 163,817 — — 163,828 — 163,828IssuanceofcommonstockinMay2016publicofferingat$215.00pershare,netofissuancecostsof$14,595 — 7,915 8 1,687,139 — — 1,687,147 — 1,687,147 IssuanceofcommonstockuponacquisitionofSolarCityandassumedawards — 11,125 11 2,145,977 — — 2,145,988 — 2,145,988 Stock-basedcompensation — — — 347,357 — — 347,357 — 347,357Assumptionofcappedcall — — — (3,460) — — (3,460) — (3,460)Assumptionofnoncontrollingintereststhroughacquisition 315,943 — — — — — — 750,574 1,066,517 Contributionsfromnoncontrollingintereststhroughacquisition 100,996 — — — — — — 100,531 201,527Distributionstononcontrollingintereststhroughacquisition (7,137) — — — — — — (10,561 ) (17,698 )Netloss (42,763 ) — — — (674,914) — (674,914) (55,369 ) (773,046)Othercomprehensiveloss — — — — — (20,184 ) (20,184 ) — (20,184 )BalanceasofDecember31,2016 $ 367,039 161,561 $ 161 $ 7,773,727 $ (2,997,237) $ (23,740 ) $ 4,752,911 $ 785,175 $ 5,905,125

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Tesla,Inc.

ConsolidatedStatementsofCashFlows(inthousands)

YearEndedDecember31, 2016 2015 2014 CashFlowsFromOperatingActivities Netloss $ (773,046) $ (888,663) $ (294,040)Adjustmentstoreconcilenetlosstonetcashusedinoperatingactivities:

Depreciationandamortization 947,099 422,590 231,931 Stock-basedcompensation 334,225 197,999 156,496 Amortizationofdiscountonconvertibledebt 87,286 72,063 69,734Inventorywrite-downs 65,520 44,940 15,609Lossondisposalofpropertyandequipment 34,633 37,723 14,178Foreigncurrencytransaction(gain)loss (29,183) 55,765 (1,891)GainontheacquisitionofSolarCity (88,727) — —Non-cashinterestandotheroperatingactivities (7,775) 26,373 7,471 Changesinoperatingassetsandliabilities,netofeffectofbusinesscombinations

Accountsreceivable (216,565) 46,267 (183,658)Inventoriesandoperatingleasevehicles (2,465,703 ) (1,573,860 ) (1,050,264 )Prepaidexpensesandothercurrentassets 56,806 (29,595) (60,637)MyPowernotesreceivable 3,468 — —Otherassets (52,821) (24,362) (4,493)Accountspayableandaccruedliabilities 750,640 263,345 414,856 Deferredrevenue 382,962 322,203 209,681 Customerdeposits 388,361 36,721 106,230 Resalevalueguarantee 326,934 442,295 249,492 Otherlong-termliabilities 132,057 23,697 61,968Netcashusedinoperatingactivities (123,829) (524,499) (57,337)

CashFlowsFromInvestingActivities Purchasesofpropertyandequipmentexcludingcapitalleases,netofsales (1,280,802 ) (1,634,850 ) (969,885)Purchaseofsolarenergysystem,leasedtobeleased (159,669) — —Purchasesofshort-terminvestmentsandmarketablesecurities — — (205,841)Maturitiesofshort-termmarketablesecurities 16,667 — —Maturitiesofshort-termmarketablesecurities — — 189,131 Increaseinotherrestrictedcash (206,149) (26,441) (3,849)Cashacquiredthrough(usedin)businesscombinations 213,523 (12,260) —

Netcashusedininvestingactivities (1,416,430 ) (1,673,551 ) (990,444)CashFlowsFromFinancingActivities Proceedsfromissuanceofcommonstockinpublicoffering 1,701,734 730,000 —Proceedsfromissuanceofconvertibleandotherdebt 2,852,964 318,972 2,300,000Repaymentsofconvertibleandotherdebt (1,857,594 ) — —Collateralizedleaseborrowing 769,709 568,745 3,271 Proceedsfromexerciseofstockoptionsandotherstockissuances 163,817 106,611 100,455 Principalpaymentsoncapitalleases (46,889) (203,780) (11,179)Commonstockanddebtissuancecosts (20,042) (17,025) (35,149)Proceedsfromissuanceofwarrants — — 389,160 Proceedsfromissuanceofcommonstockinprivateplacement — 20,000 —Purchaseofconvertiblenotehedges — — (603,428)Proceedsfrominvestmentbynoncontrollinginterestsinsubsidiaries 201,527 — —Distributionspaidtononcontrollinginterestsinsubsidiaries (21,250) — —

Netcashprovidedbyfinancingactivities 3,743,976 1,523,523 2,143,130Effectofexchangeratechangesoncashandcashequivalents (7,409) (34,278) (35,525)Netincrease(decrease)incashandcashequivalents 2,196,308 (708,805) 1,059,824Cashandcashequivalentsatbeginningofyear 1,196,908 1,905,713 845,889 Cashandcashequivalentsatendofyear $ 3,393,216 $ 1,196,908 $ 1,905,713Supplementalnoncashinvestingactivities Sharesissuedinconnectionofbusinesscombinationandassumedvestedawards $ 2,145,977 — —Acquisitionofpropertyandequipmentincludedinaccountspayableandaccruedliabilities 663,771 267,334 254,393 Estimatedfairvalueoffacilitiesunderbuild-to-suitlease 307,879 174,749 50,076SupplementalDisclosures Cashpaidduringtheperiodforinterest $ 38,693 $ 32,060 $ 20,539Cashpaidduringtheperiodfortaxes,netofrefunds 16,385 9,461 3,120

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Tesla,Inc.

NotestoConsolidatedFinancialStatements

Note1-OverviewoftheCompanyTesla,Inc.(“Tesla”,the“Company”,“we”,“us”or“our”)wasincorporatedinthestateofDelawareonJuly1,2003.We

design,develop,manufactureandsellhigh-performancefullyelectricvehiclesandenergyproducts.Inaddition,asaresultofouracquisitionofSolarCityCorporation(“SolarCity”)onNovember21,2016,wealsoareengagedinthedesign,manufacture,installationandsaleorleaseofsolarenergysystemstoresidentialandcommercialcustomers,orsaleofelectricitygeneratedbyoursolarenergysystemstocustomers.Asaresultoftheacquisition,theCompany’sChiefExecutiveOfficer,asthechiefoperatingdecisionmaker(“CODM”),hasorganizedthecompany,managesresourceallocations,andmeasuresperformanceoftheCompany’sactivitiesamongtwosegments:(i)automotiveand(ii)energygenerationandstorage.Wehavewholly-ownedsubsidiariesinNorthAmerica,EuropeandAsia.Note2-SummaryofSignificantAccountingPolicies

BasisofPresentationandPreparationPrinciplesofConsolidation

TheaccompanyingconsolidatedfinancialstatementshavebeenpreparedinconformitywithU.S.generallyacceptedaccountingprinciples,orGAAP,andreflecttheaccountsandoperationsofCompanyandthoseofoursubsidiariesinwhichwehaveacontrollingfinancialinterest.InaccordancewiththeprovisionsofFinancialAccountingStandardsBoard,orFASB,AccountingStandardsCodification,orASC,810,Consolidation,weconsolidateanyvariableinterestentity,orVIE,ofwhichwearetheprimarybeneficiary.SolarCityformsVIEswithfinancingfundinvestorsintheordinarycourseofbusinessinordertofacilitatethefundingandmonetizationofcertainattributesassociatedwithsolarenergysystems.Thetypicalconditionforacontrollingfinancialinterestownershipisholdingamajorityofthevotinginterestsofanentity;however,acontrollingfinancialinterestmayalsoexistinentities,suchasVIEs,througharrangementsthatdonotinvolvecontrollingvotinginterests.ASC810requiresavariableinterestholdertoconsolidateaVIEifthatpartyhasthepowertodirecttheactivitiesoftheVIEthatmostsignificantlyimpacttheVIE’seconomicperformanceandtheobligationtoabsorblossesoftheVIEthatcouldpotentiallybesignificanttotheVIEortherighttoreceivebenefitsfromtheVIEthatcouldpotentiallybesignificanttotheVIE.WedonotconsolidateaVIEinwhichwehaveamajorityownershipinterestwhenwearenotconsideredtheprimarybeneficiary.WehavedeterminedthatwearetheprimarybeneficiaryofanumberofVIEs(seeNote3,Acquisitions,andNote18,VIEArrangements).WeevaluateourrelationshipswithalltheVIEsonanongoingbasistoreassessifwecontinuetobetheprimarybeneficiary.Allintercompanytransactionsandbalanceshavebeeneliminatedinconsolidation.

ReclassificationsCertainpriorperiodbalanceshavebeenreclassifiedtoconformtothecurrentperiodpresentationinourconsolidated

financialstatementsandtheaccompanyingnotes.Suchreclassificationshadnoeffectonpreviouslyreportedresultsofoperationsoraccumulateddeficit.StartinginQ4,wehavereclassifiedtherevenueandcostofrevenueofourenergystorageproductsfrom‘servicesandother’into‘energygenerationandstorage’forallperiodspresented.

UseofEstimatesThepreparationoffinancialstatementsinconformitywithGAAPrequiresmanagementtomakeestimatesandassumptions

thataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentliabilitiesandaccompanyingnotes.Estimatesareusedfor,butnotlimitedto,determiningthesellingpriceofproductsandservicesinmultipleelementrevenuearrangementsanddeterminingtheamortizationperiodoftheseelements,thecollectabilityofaccountsreceivable,inventoryvaluation,fairvalueoflong-livedassets,fairvalueoffinancialinstruments,residualvalueofoperatingleasevehicles,depreciablelivesofpropertyandequipmentandsolarenergysystems,thefairvalueandresidualvalueofsolarenergysystemssubjecttoleases,warrantyliabilities,incometaxes,contingencies,theaccruedliabilityforsolarenergysystemperformanceguarantees,thedeterminationofleasepass-throughfinancingobligations,thediscountratesusedtodeterminethefairvalueofinvestmenttaxcredits,incometaxes,thevaluationofbuild-to-suitleaseassetsandthefairvalueofinterestrateswaps,andinputsusedtovaluestock-basedcompensation.Inaddition,estimatesandassumptionsareusedfortheaccountingforbusinesscombinations,includingthefairvalueandusefullivesofacquiredtangibleandintangibleassets,includingsolarenergysystems,leasedandtobeleased,thefairvalueofassumeddebt,andthefairvalueofnoncontrollinginterests.Managementbasesitsestimatesonhistoricalexperienceandonvariousotherassumptionsbelievedtobereasonable,theresultsofwhichformthebasisformakingjudgmentsaboutthecarryingvaluesofassetsandliabilities.Actualresultscoulddifferfromthoseestimates.

SummaryofSignificantAccountingPolicies

RevenueRecognitionWerecognizerevenueforproductsandserviceswhen:(i)apersuasiveevidenceofanarrangementexists;(ii)deliveryhas

occurredandtherearenouncertaintiesregardingcustomeracceptance;(iii)pricingorfeesarefixedordeterminable;and(iv)collectionisreasonablyassured.

AutomotiveRevenueAutomotiverevenueincludesrevenuesrelatedtodeliveriesofnewvehicles,salesofregulatorycreditstootherautomotive

manufacturers,andspecificotherelementsthatmeetthedefinitionofadeliverableundermultiple-elementaccountingguidanceincludingfreeaccesstoourSuperchargernetwork,freeinternetconnectivity,andfuturefreeover-the-airsoftwareupdates.Thesedeliverablesarevaluedonastand-alonebasisandwerecognizetheirrevenueoverourperformanceperiod,whichisgenerallytheeight-yearlifeofthevehicle,exceptforinternetconnectivitywhichisoverthefreefouryearperiod.Ifweselladeliverableseparately,weusethatpricingtodetermineitsfairvalue;otherwise,weusethirdpartypricingofsimilaroptions,ourbestestimatedsellingpricebyconsideringcostsusedtodevelopanddelivertheservice,andotherinformationwhichmaybeavailable.

AsofDecember31,2016,and2015wehaddeferred$291.2millionand$138.2millionrelatedtothepurchaseofvehiclemaintenanceandserviceplans,accesstoourSuperchargernetwork,internetconnectivity,autopilotandover-the-airsoftwareupdates.

Atthetimeofrevenuerecognition,werecordareserveagainstrevenueforestimatedfutureproductreturns.Suchestimatesarebasedonhistoricalexperienceandareimmaterialinallperiodspresented.

AutomotiveLeasingRevenueAutomotiveleasingrevenueincludesrevenuerecognizedunderleaseaccountingguidanceforourdirectleasingprogramsas

wellasprogramswithresalevalueguarantees.See“ResaleValueGuaranteesandOtherFinancingPrograms”and“DirectVehicleLeasingProgram”forfurtherdetails.

ResaleValueGuaranteesandOtherFinancingProgramsVehiclesalestocustomerswitharesalevalueguaranteeWeofferedresalevalueguaranteesorsimilarbuy-backtermstoallcustomerswhopurchasevehiclesandwhofinancedtheir

vehiclethroughoneofourspecifiedcommercialbankingpartners.SubsequenttoJune30,2016,thisprogramisavailableonlyincertaininternationalmarkets.Underthisprogram,customershavetheoptionofsellingtheirvehiclebacktousduringtheguaranteeperiodforadeterminedresalevalue.Guaranteeperiodsgenerallyrangefrom36to39months.Althoughwereceivefullpaymentforthevehiclesalespriceatthetimeofdelivery,wearerequiredtoaccountforthesetransactionsasoperatingleases.Theamountofsaleproceedsequaltotheresalevalueguaranteeisdeferreduntiltheguaranteeexpiresorisexercised.Theremainingsaleproceedsaredeferredandrecognizedonastraight-linebasisoverthestatedguaranteeperiodtoautomotiveleasingrevenue.Theguaranteeperiodexpiresattheearlieroftheendoftheguaranteeperiodorthepay-offoftheinitialloan.WecapitalizethecostofthesevehiclesonourConsolidatedBalanceSheetsasoperatingleasevehicles,net,anddepreciatetheirvalue,lesssalvagevalue,tocostofautomotiveleasingrevenueoverthesameperiod.

Incaseswhenacustomerretainsownershipofavehicleattheendoftheguaranteeperiod,theresalevalueguaranteeliabilityandanyremainingdeferredrevenuebalancesrelatedtothevehiclearesettledtoautomotiveleasingrevenueandthenetbookvalueoftheleasedvehicleisexpensedtocostsofautomotiveleasingrevenue.Incaseswhencustomersreturnthevehiclebacktousduringtheguaranteeperiod,wepurchasethevehiclefromthecustomerinanamountequaltotheresalevalueguaranteeandsettleanyremainingdeferredbalancestoautomotiveleasingrevenueandwereclassifythenetbookvalueofthevehicleonourbalancesheettopre-ownedvehicleinventory.AsofDecember31,2016andDecember31,2015,$179.5millionand$136.8millionoftheguaranteeswereexercisablebycustomerswithinthenexttwelvemonths.

VehiclesalestoleasingpartnerswitharesalevalueguaranteeWealsoofferresalevalueguaranteesinconnectionwithautomobilesalestocertainleasingpartners.Aswehaveguaranteed

thevalueofthesevehiclesandasthevehiclesareleasedtoend-customers,weaccountforthesetransactionsasinterestbearingcollateralizedborrowingsasrequiredunderASC840-Leases.Underthisprogram,cashisreceivedforthefullpriceofthevehicleandisrecordedwithinresalevalueguaranteesforthelong-termportionanddeferredrevenueforthecurrentportion.Weaccretethedeferredrevenueamounttoautomotiveleasingrevenueonastraight-linebasisovertheguaranteeperiodandaccrueinterestexpensebasedonourborrowingrate.Wecapitalizevehiclesunderthisprogramtooperatingleasevehicles,net,onourConsolidatedBalanceSheetsandwerecorddepreciationfromthesevehiclestocostofautomotiveleasingrevenuesduringtheperiodthevehicleisunderaleasearrangement.Cashreceivedforthesevehicles,netofrevenuerecognizedduringtheperiod,isclassifiedascollateralizedleaseborrowingswithincashflowsfromfinancingactivitiesinourConsolidatedStatementsofCashFlows.

Attheendoftheleaseterm,wesettleourliabilityincashbyeitherpurchasingthevehiclefromtheleasingpartnerfortheresalevalueguaranteeamount,orpayingashortfalltotheguaranteeamounttheleasingpartnermayrealizeonthesaleofthevehicle.Anyremainingbalanceswithindeferredrevenueandresalevalueguaranteewillbesettledtoautomotiveleasingrevenue.Incaseswheretheleasingpartnerretainsownershipofthevehicleaftertheendofourguaranteeperiod,weexpensethenetvalueoftheleasedvehicletocostsofautomotiveleasingrevenue.Themaximumcashwecouldberequiredtopayunderthisprogram,shouldwedecidetorepurchaseallvehiclesis$855.9millionatDecember31,2016.

AsofDecember31,2016andDecember31,2015,wehad$1.18billionand$527.5millionofsuchborrowingsrecordedinresalevalueguaranteesand$289.1millionand$120.5millionrecordedindeferredrevenueliability,respectively.AsofDecember31,2016andDecember31,2015,wehadatotalof$57.0millionand$33.6millioninaccountreceivablesfromourleasingpartners.

Onaquarterlybasis,weassesstheestimatedmarketvaluesofvehiclesunderourresalevalueguaranteeprogramtodetermineifwehavesustainedalossonanyofthesecontracts.Asweaccumulatemoredatarelatedtotheresalevaluesofourvehiclesorasmarketconditionschange,theremaybematerialchangestotheirestimatedvalues.

Accountactivityrelatedtoourresalevalueguaranteeandsimilarprogramsconsistedofthefollowingfortheperiods

presented(inthousands):

YearendedDecember31, 2016 2015 OperatingLeaseVehicles Operatingleasevehicles—beginningofperiod $ 1,556,529 $ 684,590Netincreaseinoperatingleasevehicles 1,355,128 1,047,220Depreciationexpenserecordedincostofautomotiveleasingrevenues (255,167) (130,355)Additionaldepreciationexpenserecordedincostofautomotiveleasingrevenuesasaresultofearlycancellationofresalevalueguarantee

(13,495) (21,487)

Additionaldepreciationexpenserecordedincostofautomotiveleasingrevenuesresultofexpiration (114,264) —Increasestoinventoryfromvehiclesreturnedunderourtrade-inprogramandexercisesofresalevalueguarantee

(66,670) (23,439)

Operatingleasevehicles—endofperiod $ 2,462,061 $ 1,556,529 DeferredRevenue Deferredrevenue—beginningofperiod $ 679,132 $ 381,096Netincreaseindeferredrevenuefromnewvehicledeliveriesandreclassificationofcollateralizedborrowingfromlong-termtoshort-term

715,011 553,765

Amortizationofdeferredrevenueandshort-termcollateralizedborrowingrecordedinautomotiveleasingrevenue

(457,113) (229,624)

Additionalrevenuerecordedinautomotiveleasingrevenueasaresultofearlycancellationofresalevalueguarantee

(5,192) (12,352)

Recognitionofdeferredrevenueresultingfromreturnofvehicleundertrade-inprogram,expiration,andexercisesofresalevalueguarantee

(15,186) (13,753)Deferredrevenue—endofperiod $ 916,652 $ 679,132 ResaleValueGuarantee Resalevalueguaranteeliability—beginningofperiod $ 1,430,573 $ 487,880Increaseinresalevalueguarantee 1,267,445 1,013,733Reclassificationfromlong-termtoshort-termcollateralizedborrowing (116,078) (29,612)Additionalrevenuerecordedinautomotiveleasingrevenueasaresultofearlycancellationofresalevalueguarantee

(16,543) (11,042)

Releaseofresalevalueguaranteeresultingfromreturnofvehicleundertrade-inprogramandexercises (62,919) (30,386)Releaseofresalevalueguaranteeresultingfromexpirationofresalevalueguarantee (112,551) —Resalevalueguaranteeliability—endofperiod $ 2,389,927 $ 1,430,573

DirectVehicleLeasingProgram

WeofferaleasingprogramintheUnitedStates,Canada,theUKandGermany.QualifyingcustomersarepermittedtoleaseavehicledirectlyfromTeslagenerallyfor36or48months.Attheendoftheleaseterm,customershavetheoptionofeitherreturningthevehicletousorpurchasingitforadeterminedresidualvalue.Weaccountfortheseleasingtransactionsasoperatingleasesandrecognizeleasingrevenuesoverthecontractualtermandrecordthedepreciationofthesevehiclestocostofautomotiveleasingrevenues.AsofDecember31,2016andDecember31,2015,wehaddeferred$67.2millionand$25.8millionoflease-relatedupfrontpaymentswhichwillberecognizedonastraight-linebasisoverthecontractualtermoftheindividualleases.LeaserevenuesarerecordedinautomotiveleasingrevenueandfortheyearsendedDecember31,2016,2015and2014,werecognized$112.7millionand$41.2millionand$4.4million.

RegulatoryCreditsCaliforniaandcertainotherstateshavelawsinplacerequiringvehiclemanufacturerstoensurethataportionofthevehicles

deliveredforsaleinthatstateduringeachmodelyeararezeroemissionvehicles.Theselawsandregulationsprovidethatamanufacturerofzeroemissionvehiclesmayearnregulatorycredits(ZEVcredits)andmaysellexcesscreditstoothermanufacturerswhoapplysuchcreditstocomplywiththeseregulatoryrequirements.Similarregulationsexistatthefederallevelthatrequirecompliancerelatedtogreenhousegasemissionsandalsoallowforthesaleofexcesscreditsbyonemanufacturertoothermanufacturers.Asamanufacturersolelyofzeroemissionvehicles,wehaveearnedemissioncredits,suchasZEVandGHGcreditsonvehicles,andweexpecttocontinuetoearnthesecreditsinthefuture.Weenterintocontractualagreementswiththirdpartiestopurchaseourregulatorycredits.

WerecognizerevenueonthesaleofthesecreditsatthetimelegaltitletothecreditsistransferredtothepurchasingpartyasautomotiverevenueinourConsolidatedStatementsofOperations.Revenuefromthesaleofregulatorycreditstotaled$302.3million,$168.7million,and$216.3millionfortheyearsendedDecember31,2016,2015and2014.

Additionally,wehaveenteredintoagreementswiththeStateofNevadaandStoreyCountyinNevadathatwillprovideabatementsforsalesandusetaxes,realandpersonalpropertytaxes,andemployerexcisetaxes,discountstothebasetariffenergyrates,andtransferabletaxcredits.TheseincentivesareavailablefortheapplicableperiodsbeginningonOctober17,2014andendingonJune30,2034,subjecttocapitalinvestmentsbyTeslaanditspartnersforGigafactory1ofatleast$3.5billionintheaggregateonorbeforeJune30,2024,andcertainotherconditionsspecifiedintheagreements.Ifwedonotsatisfyoneormoreconditionsundertheagreement,Teslawillberequiredtorepaytotherespectivetaxingauthoritiestheamountsofthetaxincentivesincurred,plusinterest.AsofDecember31,2016,wehaveearned$45millionoftransferabletaxcreditsundertheseagreements.Werecordthesecreditsasearnedwhenwehaveevidencethereisamarketfortheirsale.Creditsareappliedasacostoffsettoeitheremployeeexpenseortocapitalassets,dependingonthesourceofthecredits.CreditsearnedfromemployeehiresorcapitalspendingbyourpartnersatGigafactory1arerecordedasareductiontooperatingexpenses.

EnergyGenerationandStorageRevenueForsolarenergysystemsandcomponentssaleswhereincustomerspaythefullpurchaseprice,eitherdirectlyorthroughthe

SolarLoanprogram,revenueisrecognizedwhenweinstallasolarenergysystemandthesolarenergysystempassesinspectionbytheutilityortheauthorityhavingjurisdiction,providedallotherrevenuerecognitioncriteriahavebeenmet.Ininstanceswheretherearemultipledeliverablesinasinglearrangement,weallocatethearrangementconsiderationtothevariouselementsinthearrangementbasedontherelativesellingpricemethod.Costsincurredonresidentialinstallationsbeforethesolarenergysystemsarecompletedareincludedininventoriesasworkinprogressinourconsolidatedbalancesheets.However,anyfeesthatarepaidorpayablebyustoaSolarLoanlenderwouldberecognizedasanoffsetagainstsolarenergysystemsandcomponentssalesrevenue,inaccordancewithASC605-50,CustomerPaymentsandIncentives .

Forrevenuearrangementswherewearethelessorunderoperatingleaseagreementsforsolarenergysystems,werecordleaserevenuefromminimumleasepayments,includingupfrontrebatesandincentivesearnedfromsuchsystems,onastraight-linebasisoverthelifeoftheleaseterm,assumingallotherrevenuerecognitioncriteriaaremet.Forincentivesthatareearnedbasedontheamountofelectricitygeneratedbythesystem,werecordrevenueastheamountsareearned.ThedifferencebetweenthepaymentsreceivedandtherevenuerecognizedisrecordedasdeferredrevenueonourConsolidatedBalanceSheets.

Forsolarenergysystemswherecustomerspurchaseelectricityfromusunderpowerpurchaseagreements,wehavedeterminedthattheseagreementsshouldbeaccountedfor,insubstance,asoperatingleasespursuanttoASC840.Revenueisrecognizedbasedontheamountofelectricitydeliveredatratesspecifiedunderthecontracts,assumingallotherrevenuerecognitioncriteriaaremet.

Werecordasdeferredrevenueanyamountsthatarecollectedfromcustomers,includingleaseprepayments,inexcessofrevenuerecognized.Deferredrevenuealsoincludestheportionofrebatesandincentivesreceivedfromutilitycompaniesandvariouslocalandstategovernmentagencies,whicharerecognizedasrevenueovertheleaseterm,aswellasthefeeschargedforremotemonitoringservice,whichisrecognizedasrevenueratablyovertherespectivecustomercontractterm.AsofDecember31,2016,deferredrevenuerelatedtosuchcustomerpaymentsamountedto$268.2million.AsofDecember31,2016,deferredrevenuefromrebatesandincentiveswasnotmaterial.

Wecapitalizeinitialdirectcostsfromtheoriginationofsolarenergysystemleasesorpowerpurchaseagreements(theincrementalcostofcontractadministration,referralfeesandsalescommissions)asanelementofsolarenergysystems,leasedandtobeleased–net,andsubsequentlyamortizethesecostsoverthetermoftherelatedleaseorpowerpurchaseagreement.

ServiceandOtherRevenueServicesandotherrevenueconsistsofvehiclerepairandmaintenanceservices,vehicleserviceplansandmerchandise,sales

ofpre-ownedTeslavehicles,salesofelectricvehiclepowertraincomponentsandsystemstoothermanufacturers,andsalesofnon-Teslavehicletrade-ins.CostofRevenue

AutomotiveCostofautomotiverevenuesincludesdirectparts,materialandlaborcosts,manufacturingoverhead,includingamortized

toolingcosts,shippingandlogisticcosts,vehicleinternetconnectivitycosts,allocationsofelectricityandinfrastructurecostsrelatedtoourSuperchargernetwork,andreservesforestimatedwarrantyexpenses.Costofrevenuesalsoincludesadjustmentstowarrantyexpenseandchargestowritedownthecarryingvalueofourinventorywhenitexceedsitsestimatednetrealizablevalueandtoprovideforon-handinventorythatiseitherobsoleteorisinexcessofforecasteddemand.

AutomotiveLeasingCostofautomotiveleasingrevenueincludesprimarilytheamortizationofoperatingleasevehiclesovertheleaseterm,as

wellaswarrantyexpensesrecognizedasincurred.

EnergyGenerationandStorageEnergygenerationandstoragecostofrevenueincludesdirectanddirectmaterialandlaborcosts,warehouserent,freight,

warrantyexpense,otheroverheadcostsandamortizationofcertainacquiredintangibleassets.Inaddition,wherethearrangementisaccountedforasoperatingleases,thecostofrevenueisprimarilycomprisedofdepreciationofthecostofleasedsolarenergysystems,maintenancecostsassociatedwiththosesystems,andamortizationofanyinitialdirectcosts.

ServicesandOtherCostofservicesandotherrevenueincludesdirectparts,materialandlaborcosts,manufacturingoverheadassociatedwiththe

salesofelectricvehiclepowertraincomponentsandsystemstoothermanufacturers,costsassociatedwithprovidingmaintenanceanddevelopmentservices,andcostassociatedwithsalesofpre-ownedvehicles.

SalesandotherUseTaxesTaxesassessedbyvariousgovernmententities, suchas sales,useandvalue-added taxes, collectedat the timeof saleare

excludedfromAutomotivenetsalesandrevenue.

TransportationCostsAmountsbilledtocustomersrelatedtoshippingandhandlingareclassifiedasautomotiverevenue,andrelatedtransportation

costsareincludedintotalcostofautomotiverevenues.

ResearchandDevelopmentCosts

Researchanddevelopmentcostsareexpensedasincurred.Marketing,PromotionalandAdvertisingCosts

Marketing,promotionalandadvertisingcostsareexpensedasincurredandareincludedasanelementofselling,generalandadministrativeexpenseinourConsolidatedStatementsofOperations.Weincurredmarketing,promotionalandadvertisingcostsof$48.0million,$58.3millionand$48.9millionfortheyearendedDecember31,2016,2015and2014,respectively.

IncomeTaxes

Incometaxesarecomputedusingtheassetandliabilitymethod,underwhichdeferredtaxassetsandliabilitiesaredeterminedbasedonthedifferencebetweenthefinancialstatementandtaxbasesofassetsandliabilitiesusingenactedtaxratesineffectfortheyearinwhichthedifferencesareexpectedtoaffecttaxableincome.Valuationallowancesareestablishedwhennecessarytoreducedeferredtaxassetstotheamountexpectedtoberealized.

Werecordliabilitiesrelatedtouncertaintaxpositionswhen,despiteourbeliefthatourtaxreturnpositionsaresupportable,webelievethatitismorelikelythannotthatthosepositionsmaynotbefullysustaineduponreviewbytaxauthorities.Accruedinterestandpenaltiesrelatedtounrecognizedtaxbenefitsareclassifiedasincometaxexpense.

ComprehensiveIncome(Loss)ComprehensiveIncome(loss)iscomprisedofnetlossandothercomprehensiveincome(loss).Othercomprehensiveincome

(loss)consistsofunrealizedgainsandlossesonderivatives,ouravailable-for-salemarketablesecurities,andforeigncurrencytranslationadjustmentthathavebeenexcludedfromthedeterminationofnetloss.

Stock-basedCompensationWerecognizecompensationexpenseforcostsrelatedtoallshare-basedpayments,includingstockoptions,restrictedstock

units(RSUs)andouremployeestockpurchaseplan(theESPP).ThefairvalueofstockoptionsandtheESPPareestimatedonthegrantdateandofferingdateusinganoptionpricingmodel,respectively.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfairmarketvalueofourcommonstock.Stock-basedcompensationexpenseisrecognizedonastraight-linebasisovertherequisiteserviceperiod,netofestimatedforfeitures.Stock-basedcompensationassociatedwithassumedawardsasaresultoftheSolarCityacquisitionismeasuredasoftheacquisitiondateusingtherelevantassumptionsandrecognizedonastraight-linebasisovertheremainingrequisitionserviceperiod,netofestimatedforfeitures.

Forperformance-basedawards,stock-basedcompensationexpenseisrecognizedovertheexpectedperformanceachievementperiodofindividualperformancemilestoneswhentheachievementofeachindividualperformancemilestonebecomesprobable.

Forperformance-basedawardswithavestingschedulebasedentirelyontheattainmentofbothperformanceandmarketconditions,thestock-basedcompensationexpenseisrecognizedforeachpairofperformanceandmarketconditionsoverthelongeroftheexpectedachievementperiodoftheperformanceandmarketconditions,beginningatthepointintimethattherelevantperformanceconditionisconsideredprobableofbeingmet(seeNote15–EquityIncentivePlans).

NoncontrollingInterestsandRedeemableNoncontrollingInterestsNoncontrollinginterestsandredeemablenoncontrollinginterestsrepresentthird-partyinterestsinthenetassetsundercertain

fundingarrangements,orfunds,thatSolarCityentersintotofinancethecostsofsolarenergysystemsunderoperatingleases.Wehavedeterminedthatthecontractualprovisionsofthefundsrepresentsubstantiveprofitsharingarrangements.WehavefurtherdeterminedthattheappropriatemethodologyforcalculatingthenoncontrollinginterestandredeemablenoncontrollinginterestbalancesthatreflectsthesubstantiveprofitsharingarrangementsisabalancesheetapproachusingtheHypotheticalLiquidationBookValue(HLBV)method.UndertheHLBVmethod,theamountsreportedasnoncontrollinginterestsandredeemablenoncontrollinginterestsinourConsolidatedBalanceSheetsrepresenttheamountsthethird-partieswouldhypotheticallyreceiveateachbalancesheetdateundertheliquidationprovisionsofthefunds,assumingthenetassetsofthefundswereliquidatedattheirrecordedamountsdeterminedinaccordancewithGAAPanddistributedtothethird-parties.Thethird-parties’interestsintheresultsofoperationsofthefundsaredeterminedasthedifferenceinthenoncontrollinginterestandredeemablenoncontrollinginterestbalancesinourConsolidatedBalanceSheetsbetweenthestartandendofeachreportingperiod,aftertakingintoaccountanycapitaltransactionsbetweenthefundsandthethird-parties.However,theredeemablenoncontrollinginterestbalanceisatleastequaltotheredemptionamount.TheredeemablenoncontrollinginterestbalanceispresentedastemporaryequityinthemezzaninesectionofourConsolidatedBalanceSheetssincethesethird-partieshavetherighttoredeemtheirinterestsinthefundsforcashorotherassets.

NetIncome(Loss)perShareofCommonStockAttributabletoCommonStockholdersOurbasicanddilutednetincome(loss)pershareofcommonstockattributabletocommonstockholdersiscalculatedby

dividingnetincome(loss)attributabletocommonstockholdersbytheweighted-averagesharesofcommonstockoutstandingfortheperiod.Potentiallydilutiveshares,whicharebasedonthenumberofsharesunderlyingoutstandingstockoptionsandwarrantsaswellasourConvertibleSeniorNotes,includingtheassumedawardsandconvertiblenotesfromtheSolarCityacquisition,usingthetreasurystockmethodortheif-convertedmethod,asapplicable,arenotincludedwhentheireffectisantidilutive.

Thefollowingtablepresentsthepotentialweightedcommonsharesoutstandingthatwereexcludedfromthecomputationofbasicanddilutednetlosspershareofcommonstockattributabletocommonstockholdersfortheperiods,relatedtothefollowingsecurities:

YearEndedDecember31, 2016 2015 2014

Employeesharebasedawards 12,091,473 15,592,736 14,729,749 Convertibleseniornotes 841,191 2,431,265 2,344,998WarrantsissuedMay2013 262,702 1,049,791 921,985

BusinessCombinations

WeaccountforbusinessacquisitionsunderASC805,BusinessCombinations.Thecostofanacquisitionismeasuredatthefairvalueoftheassetsgiven,equityinstrumentsissuedandliabilitiesassumedattheacquisitiondate.Coststhataredirectlyattributabletotheacquisitionareexpensedasincurred.Identifiableassets,includingintangibleassets,liabilitiesassumed,includingcontingentliabilities,inanacquisitionaremeasuredinitiallyattheirfairvaluesattheacquisitiondate.Anynoncontrollinginterestsintheacquiredbusinessarealsoinitiallymeasuredatfairvalue.Werecognizegoodwilliftheaggregatefairvalueofthetotalpurchaseconsiderationandthenoncontrollinginterestsisinexcessoftheaggregatefairvalueoftheidentifiableassetsacquiredandtheliabilitiesassumed.Werecognizeabargainpurchasegaininotherincomeandexpense,net,inourConsolidatedStatementofOperations,iftheaggregatefairvalueoftheidentifiableassetsacquiredandtheliabilitiesassumedisinexcessofthefairvalueofthetotalpurchaseconsideration.Weincludetheresultsofoperationsofthebusinessthatweacquireasoftherespectivedateofacquisition.

CashandCashEquivalentsAllhighlyliquidinvestmentswithanoriginalmaturityofthreemonthsorlessatthedateofpurchaseareconsideredtobe

cashequivalents.Wecurrentlyinvestourcashequivalentsprimarilyinmoneymarketfunds.RestrictedCashandDeposits

Wemaintaincertaincashamountsrestrictedastowithdrawaloruse.CurrentandnoncurrentrestrictedcashasofDecember31,2016,and2015wascomprisedprimarilyofcashascollateralrelatedtooursalestoleasepartnerswitharesalevalueguaranteeandforlettersofcreditincludingforourrealestateleases,andinsurancepolicies.Inaddition,restrictedcashasofDecember31,2016,includescashreceivedfromcertainfundinvestorsthathadnotbeenreleasedforusebyus,cashheldtoservicecertainpaymentsundervarioussecureddebtfacilities,includingmanagementfees,principalandinterestpayments,andbalancescollateralizingoutstandinglettersofcredit,outstandingcreditcardborrowingfacilitiesandobligationsundercertainoperatingleases.AccountsReceivableandAllowanceforDoubtfulAccounts

Accountsreceivableprimarilyincludeamountsrelatedtosalesofpowertrainsystems,saleofenergygenerationandstorageproducts,receivablesfromfinancialinstitutionsandleasingcompaniesofferingvariousfinancingproductstoourcustomers,regulatorycreditstootherautomotivemanufacturers,andfrommaintenanceservicesonvehiclesownedbyleasingcompanies.Weprovideanallowanceagainstamountsreceivabletotheamountwereasonablybelievewillbecollected.Wewriteoffaccountsreceivablewhentheyaredeemeduncollectible.

Wetypicallydonotcarryaccountsreceivablerelatedtoourvehicleandrelatedsalesascustomerpaymentsareduepriortovehicledelivery,exceptfortheamountsduefromcommercialfinancialinstitutionsforapprovedfinancingarrangementsbetweenourcustomersandthefinancialinstitutions.

CustomerNotesReceivableAspartoftheSolarCityacquisition,weacquiredcertaincustomernotesreceivableunderthelegacyMyPowerloan

program.Theoutstandingbalances,netofanyallowanceforpotentiallyuncollectibleamounts,arepresentedonourConsolidatedBalanceSheetsasacomponentofprepaidexpensesandothercurrentassetsforthecurrentportionandasMyPowercustomernotesreceivable,netofcurrentportion,forthelong-termportion.Indeterminingtheallowanceandcreditqualityforcustomernotesreceivable,weidentifysignificantcustomerswithknowndisputesorcollectionissuesandalsoconsiderourhistoricallevelofcreditlossesandcurrenteconomictrendsthatmightimpacttheleveloffuturecreditlosses.Customernotesreceivablethatareindividuallyimpairedarecharged-offasawrite-offofallowanceforlosses.AsofDecember31,2016,therewerenosignificantcustomerswithknowndisputesorcollectionissues,andtheamountofpotentiallyuncollectibleamountswasinsignificant.Accordingly,wedidnotestablishanallowanceforlossesagainstcustomernotesreceivable.Inaddition,therewerenomaterialnon-accrualorpastduecustomernotesreceivableasofDecember31,2016.

ConcentrationofRiskCreditRisk

Financialinstrumentsthatpotentiallysubjectustoaconcentrationofcreditriskconsistofcash,cashequivalents,restrictedcash,accountsreceivable,customernotesreceivableandinterestrateswaps.OurcashequivalentsareprimarilyinvestedinmoneymarketfundswithhighcreditqualityfinancialinstitutionsintheUnitedStates.Attimes,thesedepositsandsecuritiesmaybeinexcessofinsuredlimits.

AsofDecember31,2016,and2015,ouraccountsreceivablewerederivedprimarilyfromamountstobereceivedfromfinancialinstitutionsandleasingcompaniesofferingvariousfinancingproductstoourcustomers,salesofregulatorycredits,aswellasthedevelopmentandsalesofpowertraincomponentsandsystemstoautomotiveoriginalequipmentmanufacturers(OEMs).Inaddition,ouraccountsreceivablewerealsoderivedfromthesaleofourenergygenerationandstorageproducts,includinganyreceivablesfromleasingsolarenergysystemsaswellaspowerpurchaseagreements.Theassociatedriskofconcentrationismitigatedbyplacingliensontherelatedsolarenergysystems.Theassociatedriskofconcentrationforinterestrateswapsismitigatedbytransactingwithseveralhighlyratedmultinationalbanks.Wemaintainreservesforanyamountsthatweconsidertobeuncollectable.

AtDecember31,2016,onecustomerrepresentedapproximately10%ofourtotalaccountsreceivablebalance.AtDecember31,2015,thesamecustomerrepresentedapproximately15%ofourtotalaccountsreceivablebalance.

SupplyRiskThemajorityofoursuppliersarecurrentlysinglesourcesuppliers,despiteeffortstoqualifyandobtaincomponentsfrom

multiplesourceswheneverfeasible.Thelossofanysingleorlimitedsourcesupplierorthedisruptioninthesupplyofcomponentsfromthesesupplierscouldleadtovehicledesignchanges,increasedcostsanddelaysinvehicledeliveriestoourcustomers,whichcouldhurtourrelationshipswithourcustomersandresultinnegativepublicity,damagetoourbrandandamaterialandadverseeffectonourbusiness,prospects,financialconditionandoperatingresults.

InventoryValuationInventoriesarestatedatthelowerofcostormarket.Costiscomputedusingstandardcostforvehiclesandenergystorage

products,whichapproximatesactualcostonafirst-in,first-outbasis.Inaddition,costforsolarenergysystemsarerecordedusingactualcost.Werecordinventorywrite-downsforexcessorobsoleteinventoriesbaseduponassumptionsaboutoncurrentandfuturedemandforecasts.Ifourinventoryonhandisinexcessofourfuturedemandforecast,theexcessamountsarewrittenoff.

Wealsoreviewinventorytodeterminewhetheritscarryingvalueexceedsthenetamountrealizableupontheultimatesaleoftheinventory.Thisrequiresustodeterminetheestimatedsellingpriceofourvehicleslesstheestimatedcosttoconvertinventoryonhandintoafinishedproduct.Onceinventoryiswritten-down,anew,lower-costbasisforthatinventoryisestablishedandsubsequentchangesinfactsandcircumstancesdonotresultintherestorationorincreaseinthatnewlyestablishedcostbasis.

Shouldourestimatesoffuturesellingpricesorproductioncostschange,additionalandpotentiallymaterialincreasestothisreservemayberequired.Asmallchangeinourestimatesmayresultinamaterialchargetoourreportedfinancialresults.

OperatingLeaseVehiclesVehiclesdeliveredunderourresalevalueguaranteeprogram,vehiclesthatareleasedaspartofourleasingprogramsaswell

asanyvehiclesthataresoldwithasignificantbuy-backguaranteeareclassifiedasoperatingleasevehiclesastherelatedrevenuetransactionsaretreatedasoperatingleases.Operatingleasevehiclesarerecordedatcostlessaccumulateddepreciation.Depreciationiscomputedusingthestraight-linemethodovertheexpectedoperatingleaseterm.ThetotalcostofoperatingleasevehiclesrecordedintheConsolidatedBalanceSheetsasofDecember31,2016and2015was$3.53billionand$2.00billion.AccumulateddepreciationrelatedtoleasedvehiclesasofDecember31,2016,and2015was$399.5millionand$216.5million.

SolarEnergySystems,LeasedandToBeLeasedWe,throughtheacquisitionofSolarCity,aretheoperatinglessorofthesolarenergysystemsunderleasesthatqualifyas

operatingleases.OurleasesareaccountedforinaccordancewithASC840,Leases.Todetermineleaseclassification,weevaluateleasetermstodeterminewhetherthereisatransferofownershiporbargainpurchaseoptionattheendofthelease,whethertheleasetermisgreaterthan75%oftheusefullife,orwhetherthepresentvalueofminimumleasepaymentsexceed90%ofthefairvalueatleaseinception.Weutilizeperiodicappraisalstoestimateusefullifeandfairvaluesatleaseinception,andresidualvaluesatleasetermination.Solarenergysystemsarestatedatcost,lessaccumulateddepreciation.

Depreciationandamortizationiscalculatedusingthestraight-linemethodovertheestimatedusefullivesoftherespectiveassetsasfollows:

Solarenergysystemsleasedtocustomers 30to35yearsInitialdirectcostsrelatedtocustomersolarenergysystemleaseacquisitioncosts Leaseterm(20years)

Solarenergysystemsheldforleasetocustomersareinstalledsystemspendinginterconnectionwiththerespectiveutility

companiesandwillbedepreciatedassolarenergysystemsleasedtocustomerswhentherespectivesystemshavebeeninterconnectedandplacedinservice.Solarenergysystemsunderconstructionrepresentssystemsthatareunderinstallation,whichwillbedepreciatedassolarenergysystemsleasedtocustomerswhentherespectivesystemsarecompleted,interconnectedandsubsequentlyleasedtocustomers.Initialdirectcostsrelatedtocustomersolarenergysystemleaseacquisitioncostsarecapitalizedandamortizedoverthetermoftherelatedcustomerleaseagreements.

Property,PlantandEquipmentProperty,plantandequipment,includingleaseholdimprovements,arerecognizedatcostlessaccumulateddepreciationand

amortization.Depreciationisgenerallycomputedusingthestraight-linemethodovertheestimatedusefullivesoftherelatedassetsasfollows:

Machinery,equipment,vehiclesandofficefurniture 2to12yearsBuildingandbuildingimprovements 20to30yearsComputerequipmentandsoftware 3to10years

Depreciationfortoolingiscomputedusingtheunits-of-productionmethodwherebycapitalizedcostsareamortizedoverthe

totalestimatedproductivelifeoftherelatedassets.AsofDecember31,2016,theestimatedproductivelifefortoolingwas250,000vehiclesbasedonourcurrentestimatesofproduction.

Leaseholdimprovementsareamortizedonastraight-linebasisovertheshorteroftheirestimatedusefullivesorthetermoftherelatedlease.

Upontheretirementorsaleofourproperty,plantandequipment,thecostandrelatedaccumulateddepreciationareremovedfromourConsolidatedBalanceSheetsandtheresultinggainorlossisreflectedinourConsolidatedStatementsofOperations.Maintenanceandrepairexpendituresareexpensedasincurred,whilemajorimprovementsthatincreasethefunctionality,outputorexpectedlifeoftheassetarecapitalizedanddepreciatedratablytoexpenseovertheidentifiedusefullife.Landisnotdepreciated.

Interestexpenseonoutstandingdebtiscapitalizedduringtheperiodofsignificantcapitalassetconstruction.Capitalizedinterestonconstructioninprogressisincludedinproperty,plantandequipment,netandisamortizedoverthelifeoftherelatedassets.

Furthermore,wearedeemedtobetheowner,foraccountingpurposes,duringtheconstructionphaseofcertainlong-livedassetsunderbuild-to-suitleasearrangementsbecauseofourinvolvementwiththeconstruction,ourexposuretoanypotentialcostoverrunsandourothercommitmentsunderthearrangements.Inthesecases,werecognizeabuild-to-suitleaseassetunderconstructionandacorrespondingbuild-to-suitleaseliabilityonourConsolidatedBalanceSheets.Long-LivedAssetsIncludingAcquiredIntangibleAssets

Wereviewpropertyandequipment,long-termprepaymentsandintangibleassets,forimpairmentwhenevereventsorchangesincircumstancesindicatethecarryingamountofanasset(orassetgroup)maynotberecoverable.Wemeasurerecoverabilityoftheseassetsbycomparingthecarryingamountstothefutureundiscountedcashflowstheassetsareexpectedtogenerate.Ifpropertyandequipmentandintangibleassetsareconsideredtobeimpaired,theimpairmenttoberecognizedequalstheamountbywhichthecarryingvalueoftheassetsexceedstheirfairvalue.Wehavemadenomaterialadjustmentstoourlong-livedassetsinanyoftheyearspresented.

Intangibleassetswithdefinitelivesareamortizedovertheirestimatedusefullives.Weamortizeouracquiredintangibleassetsonastraight-linebasiswithdefinitelivesoverperiodsrangingfromtwotothirtyyears.

In-processresearchanddevelopment(IPR&D)isanintangibleassetaccountedasanindefinite-livedassetuntilthe

completionorabandonmentoftheassociatedresearchanddevelopmenteffort.Duringthedevelopmentperiod,weconductanIPR&DimpairmenttestannuallyandwhenevereventsorchangesinfactsandcircumstancesindicatethatitismorelikelythannotthattheIPR&Disimpaired.Eventswhichmightindicateimpairmentinclude,butarenotlimitedto,adversecostfactors,deteriorating

financialperformance,strategicdecisionsmadeinresponsetoeconomic,market,andcompetitiveconditions,theimpactoftheeconomicenvironmentonusandourcustomerbase,and/orotherrelevanteventssuchaschangesinmanagement,keypersonnel,litigations,orcustomers.CapitalizationofSoftwareCosts

Forcostsincurredindevelopmentofinternalusesoftware,wecapitalizecostsincurredduringtheapplicationdevelopmentstage.Costsrelatedtopreliminaryprojectactivitiesandpost-implementationactivitiesareexpensedasincurred.Internal-usesoftwareisamortizedonastraight-linebasisoveritsestimatedusefullifeofthreetotenyears.Weevaluatetheusefullivesoftheseassetsonanannualbasisandtestsforimpairmentwhenevereventsorchangesincircumstancesoccurthatcouldimpacttherecoverabilityoftheseassets.

ForeignCurrencyWedeterminethefunctionalandreportingcurrencyofeachofourinternationalsubsidiariesandtheiroperatingdivisions

basedontheprimarycurrencyinwhichtheyoperate.IncaseswherethefunctionalcurrencyisnottheUSdollar,werecognizeacumulativetranslationadjustmentcreatedbythedifferentratesweapplytoaccumulateddeficits,includingcurrentperiodincomeorloss,andthebalancesheet.Foreachsubsidiary,weapplydailyfunctionalcurrencyratetotheirincomeorlossandthemonthendfunctionalcurrencyratetotranslatethebalancesheet.

BeginningJanuary1,2015,thefunctionalcurrencyofeachofourforeignsubsidiarieschangedtotheirlocalcountry’scurrency.Thischangewasbasedontheculminationoffactsandcircumstancesthathavedevelopedasweexpandedourforeignoperationsoverthepastyear.Theadjustmentof$10.0millionattributabletothecurrentratetranslationofnon-monetaryassetsasofthedateofthechangeisincludedinaccumulatedothercomprehensivelossonourConsolidatedBalanceSheet.

Foreigncurrencytransactiongainsandlossesarearesultoftheeffectofexchangeratechangesontransactionsdenominatedincurrenciesotherthanthefunctionalcurrency.Transactiongainsandlossesarerecognizedinotherincome(expense),net,intheConsolidatedStatementsofOperations.FortheyearsendedDecember31,2016,2015,and2014werecordedforeigncurrencytransactiongains(loss)of$26.1million,($45.6)millionand$2.0million.Warranties

Weprovideamanufacturer’swarrantyonallnewandcertifiedpre-ownedvehicles,productionpowertraincomponentsandsystems,andenergyproductswesell.Inaddition,wealsoprovideawarrantyontheinstallationandcomponentsofthesolarenergysystemswesellforperiodstypicallybetween10to30years.Weaccrueawarrantyreserve,whichincludesourbestestimateoftheprojectedcoststorepairortoreplaceitemsunderwarranty.Theseestimatesarebasedonactualclaimsincurredto-dateandanestimateofthenature,frequencyandcostsoffutureclaims.Theseestimatesareinherentlyuncertainandchangestoourhistoricalorprojectedwarrantyexperiencemaycausematerialchangestoourwarrantyreserveinthefuture.Theportionofthewarrantyprovisionexpectedtobeincurredwithin12monthsisclassifiedascurrentwithinaccruedliabilitiesandother,whiletheremainingamountisclassifiedaslong-termwithinotherlong-termliabilities.

Accruedwarrantyactivityconsistedofthefollowingfortheperiodspresented(inthousands):

YearEndedDecember31, 2016 2015 2014 Accruedwarranty—beginningofperiod $ 180,754 $ 129,043 $ 53,182Assumedwarrantyliabilityfromacquisition 31,366 — —Warrantycostsincurred (79,147) (52,760) (39,903)Netchangesinliabilityforpre-existingwarranties,includingexpirationsandforeignexchangeimpact

(20,084) 1,470 18,599

Provisionforwarranty 153,766 103,001 97,165Accruedwarranty—endofperiod $ 266,655 $ 180,754 $ 129,043

Ourwarrantyreservesdonotincludeprojectedwarrantycostsassociatedwithourvehiclessubjecttoleaseaccountingand

solarenergysystemsunderleasecontractsorpowerpurchaseagreements,asthecoststorepairthesewarrantyclaimsareexpensedasincurred.Thewarrantyreserveincreasedprimarilyduetoincrementalvehicledeliveries,offsetbyactualclaimsandanoveralldecreaseinaccrualratesforvehicles,batteries,anddriveunitsduetoimprovedreliability.Inaddition,fortheyearendedDecember31,2016,wealsoassumedwarrantyliabilitiesof$31.4millionasaresultoftheSolarCityacquisition.FortheyearendedDecember31,2016andDecember31,2015warrantycostsincurredforvehiclesaccountedforasoperatingleasesorcollateralizeddebtarrangementswere$19.0millionand$9.5million.Warrantyexpenseisrecordedasacomponentcostofrevenue.

SolarEnergySystemsPerformanceGuaranteesSolarCityguaranteescertainspecifiedminimumsolarenergyproductionoutputforcertainsolarenergysystemsleasedor

soldtocustomers,generallyforatermofupto30years.Wemonitorthesolarenergysystemstoensurethattheseoutputsarebeingachieved.Weevaluateifanyamountsareduetoitscustomersandmakeanypaymentsperiodicallyasspecifiedinthecustomercontracts.AsofDecember31,2016,wehadrecordedliabilitiesof$6.6millionunderaccruedliabilitiesandotherinourConsolidatedBalanceSheet,relatingtotheseguaranteesbasedonourassessmentofthecurrentexposure.

SolarRenewableEnergyCreditsWeaccountforsolarrenewableenergycredits,orSRECs,whentheyarepurchasedbyusorsoldtothirdparties.ForSRECs

generatedbysolarenergysystemsownedbyusandmintedbygovernmentagencies,wedonotrecognizeanyspecificallyidentifiablecostsforthoseSRECsastherearenospecificincrementalcostsincurredtogeneratetheSRECs.ForSRECspurchasedbyus,wecarrytheseSRECsattheircost,subjecttoimpairmenttesting.WerecognizerevenuefromthesaleofanSRECwhentheSRECistransferredtothebuyer,andthecostoftheSREC,ifany,isthenrecordedwithincostofrevenue.

DeferredITCsRevenueSolarCityhassolarenergysystemsthatareeligibleforinvestmenttaxcredits,orITCs,thataccruetoeligiblepropertyunder

theIRC.UnderSection50(d)(5)oftheIRCandtherelatedregulations,alessorofqualifyingpropertymayelecttotreatthelesseeastheownerofsuchpropertyforthepurposesofclaimingtheITCsassociatedwithsuchproperty.TheseregulationsenabletheITCstobeseparatedfromtheownershipofthepropertyandallowthetransferoftheITCs.Undertheleasepass-throughfundarrangements,SolarCitycanmakeataxelectiontopass-throughtheITCstotheinvestor,whoisthelegallesseeoftheproperty.WearethereforeabletomonetizetheseITCstoinvestorswhocanutilizetheminreturnforcashpayments.WeconsiderthemonetizationofITCstoconstituteoneofthekeyelementsofrealizingthevalueassociatedwithsolarenergysystems.WethereforeviewtheproceedsfromthemonetizationofITCstobeacomponentofrevenuegeneratedfromsolarenergysystems.

Forleasepass-throughfundarrangements,SolarCityallocatesaportionoftheaggregatepaymentsreceivedfromtheinvestorstotheestimatedfairvalueoftheassignedITCsandthebalancetothefuturecustomerleasepaymentsthatarealsoassignedtotheinvestors.TheestimatedfairvalueoftheITCsisdeterminedbydiscountingtheestimatedcashflowsimpactsoftheITCsusinganappropriatediscountratethatreflectsamarketinterestrate.

WerecognizetherevenueassociatedwiththemonetizationofITCsinaccordancewithASC605-10-S99.TherevenueassociatedwiththemonetizationoftheITCsisrecognizedwhen(1)persuasiveevidenceofanarrangementexists,(2)deliveryhasoccurredorserviceshavebeenrendered,(3)thesalespriceisfixedordeterminableand(4)collectionoftherelatedreceivableisreasonablyassured.TheITCsaresubjecttorecaptureundertheIRCiftheunderlyingsolarenergysystemeitherceasestobeaqualifyingpropertyorundergoesachangeinownershipwithinfiveyearsofitsplacedinservicedate.Therecaptureamountdecreasesontheanniversaryoftheplacedinservicedate.AswehaveanobligationtoensurethesolarenergysystemisinserviceandoperationalforatermoffiveyearstoavoidanyrecaptureoftheITCs,werecognizerevenueastherecaptureprovisionslapseassumingtheotheraforementionedrevenuerecognitioncriteriahavebeenmet.ThemonetizedITCsareinitiallyrecordedasdeferredrevenueonourConsolidatedBalanceSheets,andsubsequently,one-fifthofthemonetizedITCsisrecognizedasrevenuefromoperatingleasesandsolarenergysystemsincentivesinourConsolidatedStatementsofOperationsoneachanniversaryofthesolarenergysystem’s“placedinservicedate”overthenextfiveyears.

SolarCityguaranteestheirfinancingfundinvestorsthatintheeventofasubsequentrecaptureofITCsbythetaxingauthorityduetoournoncompliancewiththeapplicableITCguidelines,wewouldcompensatethemforanyrecapturedITCs.Wehaveconcludedthatthelikelihoodofarecaptureeventisremoteand,consequently,havenotrecordedanyliabilityinourConsolidatedBalanceSheetforanypotentialrecaptureexposure.

RecentAccountingPronouncements

InMay2014,theFinancialAccountingStandardsBoard(“FASB”)issuedAccountingStandardsUpdate(“ASU”)No.2014-09,RevenuefromContractswithCustomers(Topic606),whichamendstheexistingaccountingstandardsforrevenuerecognition.Thenewguidanceprovidesanewmodeltodeterminewhenandoverwhatperiodrevenueisrecognized.Underthisnewmodel,revenueisrecognizedasgoodsorservicesaredeliveredinanamountthatreflectstheconsiderationweexpecttocollect.InMarch2016,theFASBissuedanASU,RevenuefromContractswithCustomers:PrincipalversusAgentConsiderations(ReportingRevenueGrossversusNet),whichclarifiestheprincipalversusagentguidanceinthenewrevenuerecognitionstandard.InApril2016,theFASBissuedanotherASU,RevenuefromContractswithCustomers:IdentifyingPerformanceObligationsandLicensing,whichclarifiestheguidanceonaccountingforlicensesofintellectualpropertyandidentifyingperformanceobligationsinthenewrevenuerecognitionstandard.InMay2016,theFASBissuedanotherASU,RevenuefromContractswithCustomers:Narrow-ScopeImprovementsandPracticalExpedient,whichclarifiesthetransition,collectability,noncashconsiderationandthepresentationofsalesandothersimilartaxesinthenewrevenuerecognitionstandard.TheguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2017;earlyadoptionispermittedforperiodsbeginningafterDecember15,2016.Thenewstandardisrequiredtobeappliedretrospectivelytoeachpriorreportingperiodpresentedorretrospectivelywiththecumulativeeffectofinitiallyapplyingitrecognizedatthedateofinitialapplication.Wehavenotyetselectedatransitionmethodandareevaluatingtheimpactofadoptingthisguidance.

InAugust2014,theFASBissuedASUNo.2014-15,PresentationofFinancialStatements–GoingConcern:DisclosureofUncertaintiesaboutanEntity’sAbilitytoContinueasaGoingConcern(“ASU2014-15”).ASU2014-15requiresmanagementtoevaluatewhetherthereissubstantialdoubtabouttheentity’sabilitytocontinueasagoingconcernand,ifso,providecertainfootnotedisclosures.ASU2014-15iseffectiveforannualperiodsendingafterDecember15,2016,includinginterimreportingperiodsthereafter.WeadoptedASU2014-15asofDecember31,2016,butitdidnotimpactourconsolidatedfinancialstatements.

InApril2015,theFASBissuedanASUonsimplifyingthepresentationofdebtissuancecosts,whichrequiresthatdebtissuancecostsrelatedtoarecognizeddebtliabilitybepresentedinthebalancesheetasadirectdeductionfromthecarryingamountofthatdebtliability,consistentwithdebtdiscounts.WehaveretrospectivelyadoptedtheASUasofMarch31,2016,andasaresult,onourDecember31,2015ConsolidatedBalanceSheet,wereclassified$9.6millionasareductioninprepaidexpensesandothercurrentassets,alongwith$15.0millionreductioninotherassets,withacorrespondingreductionintheaggregatecarryingvalueofourlong-termdebtliabilities.Similarly,asaresultofthechangeincarryingvalueoflongtermdebt,$5.2millionwasreclassifiedoutofadditionalpaidincapitalandintomezzanineequityonourDecember31,2015ConsolidatedBalanceSheet.

InFebruary2016,theFASBissuedASUNo.2016-02,Leases(Topic842).TheASUiseffectiveforreportingperiodsbeginningafterDecember15,2018andearlyadoptionispermitted.TheASUwillrequirelesseestoreportmostleasesasassetsandliabilitiesonthebalancesheet,whilelessoraccountingwillremainsubstantiallyunchanged.TheASUrequiresamodifiedretrospectivetransitionapproachforexistingleases,wherebythenewruleswillbeappliedtotheearliestyearpresented.WearecurrentlyevaluatingthepotentialimpactofadoptingtheASUonourconsolidatedfinancialstatements.

InMarch2016,theFASBissuedASUNo.2016-09,Compensation—StockCompensation(Topic718):ImprovementstoEmployeeShare-BasedPaymentAccounting(“ASU2016-09”).ASU2016-09simplifiesseveralaspectsoftheaccountingforshare-basedpaymenttransactions,includingtheincometaxconsequences,classificationofawardsaseitherequityorliabilities,andclassificationonthestatementofcashflows.ASU2016-09willbecomeeffectiveforusbeginningwiththefirstquarterof2017.UponadoptionoftheASU,weplantoaccountforforfeituresasincurred.Theadoptionofthisguidanceisnotexpectedtohaveamaterialimpactonourconsolidatedfinancialstatements.SeeNote16,Incometaxes,foradditionalinformationregardingtheimpactoftheadoptionofthisguidance.

InAugust2016,theFASBissuedASUNo.2016-15,StatementofCashFlows:ClassificationofCertainCashReceiptsandCashPayments(Topic230).TheASUaddressesthefollowingeightspecificcashflowissues:debtprepaymentordebtextinguishmentcosts;settlementofzero-coupondebtinstrumentsorotherdebtinstrumentswithcouponinterestratesthatareinsignificantinrelationtotheeffectiveinterestrateoftheborrowing;contingentconsiderationpaymentsmadeafterabusinesscombination;proceedsfromthesettlementofinsuranceclaims;proceedsfromthesettlementofcorporate-ownedlifeinsurancepolicies(includingbank-ownedlifeinsurancepolicies);distributionsreceivedfromequitymethodinvestees;beneficialinterestsinsecuritizationtransactions;andseparatelyidentifiablecashflowsandapplicationofthepredominanceprinciple.TheASUiseffectiveforfiscalyears,andinterimperiodswithinthosefiscalyears,beginningafterDecember15,2017,withearlyadoptionpermitted.WearecurrentlyevaluatingthepotentialimpactofadoptingtheASUonourconsolidatedfinancialstatements.

InNovember2016,theFASBissuedASUNo.2016-18,StatementofCashFlows:RestrictedCash(Topic230).TheASUrequiresthatastatementofcashflowsexplainthechangeduringtheperiodinthetotalofcash,cashequivalents,andamountsgenerallydescribedasrestrictedcashorrestrictedcashequivalents.Therefore,amountsgenerallydescribedasrestrictedcashandrestrictedcashequivalentsshouldbeincludedwithcashandcashequivalentswhenreconcilingthebeginning-of-periodandend-of-periodtotalamountsshownonthestatementofcashflows.TheASUiseffectiveforfiscalyears,andinterimperiodswithinthosefiscalyears,beginningafterDecember15,2017,withearlyadoptionpermitted.WearecurrentlyevaluatingthepotentialimpactofadoptingtheASUonourconsolidatedfinancialstatements.

InOctober2016,theFASBissuedASUNo.2016-16,IncomeTaxes:Intra-EntityTransfersofAssetsOtherThanInventory(Topic740).TheASUrequirestherecognitionofcurrentanddeferredincometaxesforintra-entitytransfersofassetsotherthaninventory.TheASUiseffectiveforfiscalyears,andinterimperiodswithinthosefiscalyears,beginningafterDecember15,2017,withearlyadoptionpermitted.WearecurrentlyevaluatingtheimpactoftheASUonourconsolidatedfinancialstatements.Note3-AcquisitionofSolarCity

TransactionOverview

OnNovember21,2016(the“AcquisitionDate”),wecompletedouracquisitionofSolarCity.Asoftheacquisitiondate,ourCEOwasthechairofSolarCity’sBoardofDirectors.PursuanttotheAgreementandPlanofMerger(the“MergerAgreement”),eachissuedandoutstandingshareofSolarCitycommonstockwasconvertedinto0.110(the“ExchangeRatio”)sharesofTeslacommonstock.SolarCityoptionsandrestrictedstockunitawardswereassumedbyTeslaandconvertedintocorrespondingequityawardsinrespectofTeslacommonstockbasedontheExchangeRatio,withtheawardsretainingthesamevestingandothertermsandconditionsasineffectimmediatelypriortotheacquisition.

FairValueofConsiderationTransferred

Theacquisitiondatefairvalueoftheconsiderationtransferredtotaled$2.1billion,whichconsistedofthefollowing(inthousands,exceptforshareandpershareamounts):

TotalfairvalueofTeslacommonstockissued(11,124,497sharesissuedat$185.04pershare) $ 2,058,477FairvalueofreplacementTeslastockoptionsandrestrictedstockunitsforvestedSolarCityawards

87,500

Totalpurchaseprice $ 2,145,977

Inaddition,wealsoassumedunvestedSolarCityawardsof$95.9millionwhichwillberecognizedasstock-basedcompensationexpenseovertheremainingrequisiteserviceperiod.PerASC805,BusinessCombinations,thereplacementofstockoptionsorothershare-basedpaymentawardsinconjunctionwithabusinesscombinationrepresentsamodificationofshare-basedpaymentawardsthatmustbeaccountedforinaccordancewithASC718,Compensation—StockCompensation.Asaresultofourobligationtoissuereplacementawards,aportionofthefair-value-basedmeasureofreplacementawardsisincludedinmeasuringthepurchaseconsiderationtransferredinthebusinesscombination.Todeterminetheportionofthereplacementawardsthatispartofthepurchaseconsideration,wemeasuredthefairvalueofboththereplacementawardsandthehistoricalawardsasoftheAcquisitionDate,inaccordancewithASC718.Thefairvalueofthereplacementawards,whethervestedorunvested,wasincludedinthepurchaseconsiderationtotheextentthatpre-acquisitionserviceshadbeenrendered.

Transactioncostsof$21.7millionwereexpensedasincurredinselling,generalandadministrativeexpenseofour

ConsolidatedStatementsofOperations.FairValueofAssetsAcquiredandLiabilitiesAssumed

WeaccountedfortheacquisitionusingthepurchasemethodofaccountingforbusinesscombinationsunderASC805,BusinessCombinations.ThetotalpurchasepriceisallocatedtothetangibleandidentifiableintangibleassetsacquiredandliabilitiesandnoncontrollinginterestsassumedbasedontheirestimatedfairvaluesasoftheAcquisitionDate.

Aswefinalizethefairvalueofassetsacquiredandliabilitiesassumed,additionalpurchasepriceadjustmentsmaybe

recordedduringthemeasurementperiod(aperiodnottoexceed12months)in2017.Fairvalueestimatesarebasedonacomplexseriesofjudgmentsaboutfutureeventsanduncertaintiesandrelyheavilyonestimatesandassumptions.Thejudgmentsusedtodeterminetheestimatedfairvalueassignedtoeachclassofassetsacquiredandliabilitiesassumed,aswellasassetlivesandtheexpectedfuturecashflowsandrelateddiscountrates,canmaterialityimpactourresultsofoperations.Specifically,weuseddiscountedcashflowsmodeltovaluetheacquiredsolarenergysystems,leasedandtobeleased,aswellasthenoncontrollinginterestsinsubsidiaries.Significantinputsusedforthemodelincludedtheamountofcashflows,theexpectedperiodofthecashflowsandthediscountrates.Thefinalizationofthepurchaseaccountingassessmentmayresultinachangeinthevaluationofassetacquired,liabilitiesassumedandtaxesmayhaveamaterialimpactonourresultsofoperationsandfinancialposition.

Thepreliminaryallocationofthepurchasepriceisbasedonmanagement’sestimateoftheacquisition-datefairvaluesoftheassetsacquiredandliabilitiesassumed,asfollows(inthousands):

Assetsacquired: Cashandcashequivalents $ 213,523Accountsreceivable 74,619Inventory 191,878Solarenergysystems,leasedandtobeleased 5,781,496Property,plantandequipment 1,056,312MyPowernotes,netofcurrentportion 509,712Restrictedcash 129,196Intangibleassets 356,510Prepaidexpensesandotherassets,currentandnon-current 199,864

Totalassetsacquired $ 8,513,110Liabilitiesassumed: Accountspayable $ 230,078Accruedliabilities 238,590Debtandcapitalleases,currentandnon-current 3,403,840Financingobligations 121,290Deferredrevenue,currentandnon-current 271,128Otherliabilities 950,423

Totalliabilitiesassumed $ 5,215,349Netassetsacquired $ 3,297,761

Noncontrollinginterestsredeemableandnon-redeemable $ 1,066,517Cappedcalloptionsassociatedwith2014convertiblenotes (3,460)

Totalnetassetsacquired $ 2,234,704GainonacquisitionofSolarCityCorporation (88,727)

Totalpurchaseprice $ 2,145,977

Thetotalpreliminarypurchaseallocationreflectsourpreliminaryestimatesandissubjecttorevisionasadditionalinformationinrelationtothefairvalueoftheinventories,solarenergysystems,leasedtobeleased,identifiableintangibleassets,deferredrevenue,deferredtaxes,andnoncontrollinginterestsassumedbecomesavailable.

Gainonacquisition

Theaccountingguidancerequiresthatagainresultingfromthefairvalueofacquirednetassetsbeinggreaterthantheconsiderationpaidtoacquirethenetassetsberecordedasagainincludedintheresultsofoperationsontheacquisitiondate.Werecognizedagainonacquisitionof$88.7millioninthefourthquarterof2016,whichisrecordedinotherincome(expense),netonourConsolidatedStatementsofOperations.

Wereassessedtherecognitionandmeasurementofidentifiableassetsandliabilitiesacquiredandconcludedthatallacquiredassetsandliabilitieswererecognizedandthatthevaluationproceduresandresultingestimatesoffairvalueswereappropriate.TheprimaryfactorcontributingtothegainrelatestothechangeintheoverallpriceofourcommonstockfromthetimethattheMergerAgreementwasexecutedonJuly31,2016totheacquisitiondate.Duringthistime,ourstockpricedecreasedfrom$230.01to$185.04,whichinturnreducedthefairvalueoftheconsideration.

Identifiableintangibleassets

Apreliminaryassessmentofthefairvalueofidentifiedintangibleassetsandtheirrespectiveusefullivesareasfollows(inthousands,exceptforestimatedusefullife):

AsofDecember31,2016

ApproximateFairValue

EstimatedUsefulLife(inyears)

Developedtechnology $ 113,361 7 Tradename 43,500 5 Favorablecontractsandleases,net 112,817 15IPR&D 86,832 N/A

Totalintangibleassets $ 356,510

Acquiredin-processresearchanddevelopment(IPR&D)isanintangibleassetaccountedforasanindefinite-livedassetuntilthecompletionorabandonmentoftheassociatedresearchanddevelopmenteffort.IftheresearchanddevelopmenteffortassociatedwiththeIPR&Dissuccessfullycompletedandcommercialfeasibilityisreached,thentheIPR&Dintangibleassetwillbeamortizedoveritsestimatedusefullifetobedeterminedatthedatetheeffortiscompleted.TheresearchanddevelopmenteffortsassociatedwiththeseIPR&Dintangibleassetsareexpectedtobecompletedinthesecondhalfof2017.ThefairvalueoftheIPR&Disdeterminedusingthereplacementcostmethodunderthecostapproach.ThereplacementcostisestimatedbasedonthehistoricalacquisitioncostofthetechnologyandhistoricalR&Dexpensesincurred,adjustedforanestimateddeveloper’sprofit,opportunitycostandobsolescencefactorinaccordancewithacceptedvaluationmethodologies.Atthetimeofacquisition,weexpectthatallacquiredIPR&Dwillreachtechnologicalfeasibility,buttherecanbenoassurancethatthecommercialviabilityoftheseproductswillactuallybeachieved.Thenatureoftheeffortstodeveloptheacquiredtechnologiesintocommerciallyviableproductsconsistsprincipallyofplanning,designing,andtestingthetechnologyforviabilityinmanufacturing.Ifcommercialviabilitywerenotachieved,wewouldlikelylooktootheralternativetechnologies.IftherelatedR&DprojectisnotcompletedinatimelymannerortheR&Dprojectisterminatedorabandoned,wemayhaveanimpairmentrelatedtotheIPR&D,calculatedastheexcessoftheasset’scarryingvalueoveritsfairvalue.UnauditedProFormaFinancialInformation

Ourconsolidatedfinancialstatementsfor2016includeSolarCity’sresultsofoperationsfromtheAcquisitionDatethroughDecember31,2016.NetrevenuesandoperatinglossattributabletoSolarCityduringthisperiodandincludedinourconsolidatedfinancialstatementswere$84.1millionand$68.2million,respectively.

ThefollowingunauditedproformainformationgiveseffecttotheacquisitionofSolarCityasiftheacquisitionhadoccurredonJanuary1,2015andhadbeenincludedinourConsolidatedStatementsofOperationsfor2015and2016.

YearEnded 2016 2015

Revenue $ 7,539,077 $ 4,354,324Netlossattributabletocommonstockholders (609,395) (1,017,223)Netlosspershareofcommonstock,basicandDiluted $ (4.23) $ (7.30)Weighted-averagesharesusedincomputingnetlosspershareofcommonstock,basicanddiluted 144,212 139,327

Theunauditedproformafinancialinformationincludesadjustmentstogiveeffecttoproformaeventsthataredirectly

attributabletotheacquisition.Theproformafinancialinformationincludesadjustmentstoamortizationanddepreciationforsolarenergysystems,leasedtobeleased,intangibleassetsacquired,theeffectofacquisitionondeferredrevenueandnoncontrollinginterests,andtransactioncostsrelatedtotheacquisition.Theunauditedproformafinancialinformationispresentedforillustrativepurposesonlyandisnotnecessarilyindicativeoftheresultsofoperationsoffutureperiods.Theunauditedproformafinancialinformationdoesnotgiveeffecttothepotentialimpactofcurrentfinancialconditions,regulatorymatters,oranyanticipatedsynergies,operatingefficiencies,orcostsavingsthatmaybeassociatedwiththeacquisition.Consequently,actualresultswilldifferfromtheunauditedproformafinancialinformationpresented.

Note4–IntangibleAssets

Informationregardingouracquiredintangibleassetsisasfollows(inthousands):

AsofDecember31,2016

GrossCarrying

Amount AccumulatedAmortization

NetCarryingAmount

Finite-livedintangibleassets: Developedtechnology $ 113,361 $ (1,740) $ 111,621Tradename 43,500 (967) 42,533Favorablecontractsandleases,net 112,817 (864) 111,953Other 26,679 (3,473) 23,206Totalfinite-livedintangibleassets: $ 296,357 $ (7,044) $ 289,313

Indefinite-livedintangibleassets: IPR&D 86,832 — 86,832Totalinfinite-livedintangibleassets: 86,832 — 86,832Totalintangibleassets $ 383,189 $ (7,044) $ 376,145

AsofDecember31,2016,totalfutureamortizationexpenseforintangibleassetsisestimatedasfollows(inthousands):

Total

2017 $ 33,8432018 33,8432019 33,8432020 33,8432021 32,878Thereafter 121,063Total $289,313

Note5-FairValueofFinancialInstruments

ASC820,FairValueMeasurements,clarifiesthatfairvalueisanexitprice,representingtheamountthatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipants.Assuch,fairvalueisamarket-basedmeasurementthatshouldbedeterminedbasedonassumptionsthatmarketparticipantswoulduseinpricinganassetoraliability.

Asabasisfordeterminingthefairvalueofcertainofourassetsandliabilities,wefollowathree-tierfairvaluehierarchywhichprioritizestheinputsusedinmeasuringfairvalueasfollows:(LevelI)observableinputssuchasquotedpricesinactivemarkets;(LevelII)inputsotherthanthequotedpricesinactivemarketsthatareobservableeitherdirectlyorindirectly;and(LevelIII)unobservableinputsinwhichthereislittleornomarketdatawhichrequiresustodevelopourownassumptions.Thishierarchyrequiresustouseobservablemarketdata,whenavailable,andtominimizetheuseofunobservableinputswhendeterminingfairvalue.Ourfinancialassetsandfinancialliabilitiesthataremeasuredatfairvalueonarecurringbasisconsistofcashequivalents,marketablesecuritiesandinterestrateswaps.

AsofDecember31,2016and2015,thefairvaluehierarchyforourfinancialassetsandfinancialliabilitiesthatarecarriedatfairvaluewasasfollows,andunrealizedgains(losses)onfinancialassetsandliabilitiespresentedinthetablebelowforallperiodspresentedwerelessthan$1.0million(inthousands):

December31,2016 December31,2015 FairValue LevelI LevelII LevelIII FairValue LevelI LevelII LevelIII Moneymarketfunds $2,226,322 $2,226,322 $ — $ — $ 297,810 $ 297,810 $ — $ —U.S.treasurybills — — — — 16,664 16,664 — —Interestrateswaps 1,490 — 1,490 — — — — —Total $2,227,812 $2,226,322 $ 1,490 $ — $ 314,474 $ 314,474 $ — $ —

Allofourcashequivalentsandcurrentrestrictedcash,whicharecomprisedprimarilyofmoneymarketfunds,areclassifiedwithinLevelIofthefairvaluehierarchybecausetheyarevaluedusingquotedmarketpricesormarketpricesforidenticalsecurities.Ourrestrictedshort-termmarketablesecuritiesareclassifiedwithinLevelIofthefairvaluehierarchy.

WehaveclassifiedtheinterestrateswapswithinLevelIIbecausetheirfairvaluesaredeterminedusingalternativepricing

sourcesormodelsthatutilizedmarketobservableinputs,includingcurrentandforwardinterestrates.

DuringtheyearsendedDecember31,2016and2015,therewerenotransfersbetweenthelevelsofthefairvaluehierarchy.DerivativeFinancialInstruments

CashFlowHedgesInNovember2015,weimplementedaprogramtohedgetheforeigncurrencyexposureriskrelatedtocertainforecasted

inventorypurchasesdenominatedinJapaneseyen.Thederivativeinstrumentsweuseareforeigncurrencyforwardcontractsandaredesignatedascashflowhedgeswithmaturitydatesof12monthsorless.Wedonotenterintoderivativecontractsfortradingorspeculativepurposes.

ThebankcounterpartiesinallcontractsexposeTeslatocredit-relatedlossesintheeventoftheirnonperformance.However,tomitigatethatrisk,TeslaonlycontractswithcounterpartieswhomeettheCompany’sminimumrequirementsunderitscounterpartyriskassessmentprocess.Teslamonitorsratings,creditspreads,andpotentialdowngradesonatleastaquarterlybasis.Basedonouron-goingassessmentofcounterpartyrisk,theCompanywilladjustitsexposuretovariouscounterparties.Wegenerallyenterintomasternettingarrangements,whichreducecreditriskbypermittingnetsettlementoftransactionswiththesamecounterparty.However,wedonothaveanymasternettingarrangementsinplacewithcollateralfeatures.

Wedocumenteachhedgerelationshipandassessitsinitialeffectivenessattheinceptionofthehedgecontractandwemeasureitsongoingeffectivenessonaquarterlybasisusingregressionanalysis.Duringthetermofaneffectivehedgecontract,werecordgainsandlosseswithinaccumulatedothercomprehensiveincome(loss).Wereclassifythesegainsorlossestocostsofautomotiverevenuesintheperiodtherelatedfinishedgoodsinventoryissoldorascostofautomotiveleasingrevenueoverthedepreciationperiodforthosesalesaccountedforasleases.Althoughourcontractsareconsideredeffectivehedges,wemayexperiencesmallamountsofineffectivenessduetotimingdifferencesbetweenouractualinventorypurchasesandthesettlementdateoftherelatedforeigncurrencyforwardcontracts.Wehaverecordednoamountsrelatedtohedgeineffectivenesswithinotherincome(expense),netinourConsolidatedStatementsofOperations,duringtheyearsendedDecember31,2016and2015.

TherewerenooutstandinghedgingcontractsasofDecember31,2016.Thenetnotionalamountofthesecontractswas$322.6millionatDecember31,2015.OutstandingcontractsarerecognizedaseitherassetsorliabilitiesontheConsolidatedBalanceSheetatfairvaluewithinprepaidexpensesandothercurrentassetsorwithinaccruedliabilitiesandother,dependingonournetposition.Thenetgainof$5.6millioninaccumulatedothercomprehensiveincome(loss)asofDecember31,2016,isexpectedtoberecognizedtocostsofautomotivesalesintheperiodtherelatedfinishedgoodsinventoryissoldoroverthedepreciationperiodforthosesalesaccountedforasleasesinthenexttwelvemonths.ThetotalfairvaluesofforeigncurrencycontractsdesignatedascashflowhedgesasofDecember31,2016andDecember31,2015waszeroand$7.3millionandwasdeterminedusingLevelIIinputsandrecordedinprepaidexpensesandothercurrentassetsonourConsolidatedBalanceSheets.DuringtheyearendedDecember31,2016,wereclassified$44.9millionofgainsfromaccumulatedothercomprehensiveincome(loss)intocostofautomotiverevenue.Noamountswerereclassifiedfromaccumulatedothercomprehensiveincome(loss)intoearningsfortheyearendedDecember31,2015.

InterestRateSwapsSolarCityentersintofixed-for-floatinginterestrateswapagreementstoswapvariableinterestpaymentsoncertaindebtfor

fixedinterestpayments,asrequiredbyitslenders.Theseinterestrateswapsarenotdesignatedashedginginstruments.Accordingly,allinterestrateswapsarerecognizedatfairvalueonourConsolidatedBalanceSheetswithinotherassetsorotherlong-termliabilities,withanychangesinfairvaluerecognizedasotherincome(expense),netinourConsolidatedStatementsofOperationsandwithanycashflowsrecognizedasinvestingactivitiesinourConsolidatedStatementsofCashflows.AsofDecember31,2016,theaggregatenotionalamountoftheseinterestrateswaps,thegrossassetatfairvalue,andthegrossliabilityatfairvaluewas$789.6million,$10.6million,and$12.1million,respectively.DuringtheyearendedDecember31,2016,werecognized$7.0millionofgainsrelatedtotheseinterestrateswaps.

FairValueDisclosure

Ourfinancialinstrumentsthatarenotre-measuredatfairvalueincludeaccountsreceivable,customernotesreceivable,rebatesreceivable,accountspayable,accruedliabilities,customerdeposits,convertibleseniornotes,participationinterest,solarasset-backednotes,solarloan-backednotes,SolarBondsandlong-termdebt.Thecarryingvaluesofthesefinancialinstrumentsotherthancustomernotesreceivable,convertibleseniornotes,theparticipationinterest,solarasset-backednotes,SolarBonds,andlong-termdebtapproximatedtheirfairvalue.

Weestimatethefairvalueofconvertibleseniornotesbasedonacommonlyacceptedvaluationmethodologyandmarket-

basedriskmeasurementsthatareindirectlyobservable,suchascreditrisk(LevelII).Inaddition,weestimatethefairvalueofcustomernotesreceivable,theparticipationinterest,solarasset-backednotes,solarloan-backednotesandSolarBondsbasedonratescurrentlyofferedforinstrumentswithsimilarmaturitiesandterms(LevelIII).Thefollowingtablepresentstheirestimatedfairvaluesandtheircarryingvalues(inthousands):

December31,2016 December31,2015 CarryingValue FairValue CarryingValue FairValue

MyPowercustomernotesreceivable $ 513,002 $ 513,002 — —Convertibleseniornotes 2,957,288 3,205,641 $ 2,505,868 $ 3,423,257Participationinterest 16,713 15,025 — —Solarasset-backednotes 442,764 428,551 — —Solarloan-backednotes 137,024 132,129 — —

Note6-InventoryAsofDecember31,2016and2015,ourinventoryconsistedofthefollowing(inthousands):

December31, December31,

2016 2015 Rawmaterials $ 680,339 $ 528,935Workinprocess 233,746 163,830Finishedgoods 1,016,731 476,512Serviceparts 136,638 108,561Total $ 2,067,454 $ 1,277,838

Finishedgoodsinventoryincludesvehiclesintransittofulfillcustomerorders,newvehiclesavailableforimmediatesaleat

ourretailandservicecenterlocations,pre-ownedTeslavehicles,andenergystorageproducts.

Forsolarenergysystems,leasedandtobeleased,wecommencetransferringcomponentpartsfrominventorytoconstructioninprogress,acomponentofsolarenergysystems,leasedandtobeleased,oncealeasecontractwithacustomerhasbeenexecutedandinstallationhasbeeninitiated.Additionalcostsincurredontheleasedsystems,includinglaborandoverhead,arerecordedwithinconstructioninprogress.

Wewritedowninventoryasaresultofexcessandobsoleteinventories,orwhenwebelievethatthenetrealizablevalueofinventoriesislessthanthecarryingvalue.DuringtheyearsendedDecember31,2016,2015and2014,werecordedwrite-downsof$52.8million,$44.9millionand$15.6millionincostofrevenues.Note7–SolarEnergySystems,LeasedandToBeLeased–Net

Solarenergysystems,leasedandtobeleased,netconsistedofthefollowing(inthousands):

December31, 2016 Solarenergysystemsleasedtocustomers $ 5,052,976Initialdirectcostsrelatedtocustomersolarenergysystemleaseacquisitioncosts 12,774 $ 5,065,750Less:accumulateddepreciationandamortization (20,157) $ 5,045,593Solarenergysystemsunderconstructions 460,913Solarenergysystemstobeleasedtocustomers 413,374Solarenergysystems,leasedandtobeleased–net(1)(2) $ 5,919,880

(1) IncludedinsolarenergysystemsleasedtocustomersasofDecember31,2016,was$36.0millionrelatedtocapital

leasedassetswithanaccumulateddepreciationof$0.2million. (2) Includedinsolarenergysystems,leasedandtobeleased,asofDecember31,2016,was$21.3millionrelatedto

energystoragesystemswithanaccumulateddepreciationof$0.1million.

Note8-Property,PlantandEquipment

AsofDecember31,2016and2015,ourproperty,plantandequipment,net,consistedofthefollowing(inthousands):

December31, December31, 2016 2015 Machinery,equipment,vehiclesandofficefurniture $ 2,154,367 $ 1,694,910

Tooling 794,793 550,902Leaseholdimprovements 505,295 338,392Landandbuildings 1,079,452 521,537Computerequipment,hardwareandsoftware 275,655 175,512Constructioninprogress 2,147,332 693,207Other 23,548 — $ 6,980,442 $ 3,974,460Less:Accumulateddepreciationandamortization (997,485) (571,126)Total $ 5,982,957 $ 3,403,334

Constructioninprogressiscomprisedprimarilyoftoolingandequipmentrelatedtothemanufacturingofourvehicles,a

portionofGigafactory1construction,andrelatedcapitalizedinterest.Inaddition,constructioninprogressalsoincludedcertainbuild-to-suitleasearrangementfortheBuffalomanufacturingfacilitiesacquiredthroughourSolarCityacquisitionduringthefourthquarterof2016.Completedassetsaretransferredtotheirrespectiveassetclassanddepreciationbeginswhentheassetisreadyforitsintendeduse.Interestexpenseonoutstandingdebtiscapitalizedduringtheperiodofsignificantcapitalassetconstruction.Capitalizedinterestonconstructioninprogressisincludedinproperty,plantandequipment,net,andisamortizedoverthelifeoftherelatedassets.DuringtheyearsendedDecember31,2016and2015,wecapitalized$46.7millionand$41.5millionofinterestexpense,respectively.

Wearesometimesinvolvedinconstructionatourleasedfacilitiesprimarilyrelatedtoretailstores,servicecenters,andcertainmanufacturingfacilities.InaccordancewithASC840,Leases,forbuild-to-suitleasearrangementswhereweareinvolvedintheconstructionofstructuralimprovementspriortothecommencementoftheleaseortakesomelevelofconstructionrisk,weareconsideredtheowneroftheassetsandlandduringtheconstructionperiod.Accordingly,uponcommencementofourconstructionactivities,werecordaconstructioninprogressassetandacorrespondingfinancingliability.Oncetheconstructioniscompleted,iftheleasemeetscertain“sale-leaseback”criteria,wewillremovetheassetandrelatedfinancialobligationfromthebalancesheetandtreatthebuildingleaseasanoperatinglease.Ifuponcompletionofconstruction,theprojectdoesnotmeetthe“sale-leaseback”criteria,theleasedpropertywillbetreatedasacapitalleaseandincludedinbuildingandbuildingimprovementsinthetableabove.

Inaddition,aspartoftheSolarCityacquisition,weassumedabuild-to-suitleasearrangementwiththeResearchFoundationfortheStateUniversityofNewYork,ortheFoundation,fortheconstructionlocatedinBuffalo,NewYork.SeeNote17,Commitmentandcontingencies,forBuild-to-SuitleasearrangementwiththeFoundation.

AsofDecember31,2016andDecember31,2015,thetableaboveincludes$1.32billionand$206.1millionofbuild-to-suitassets.AsofDecember31,2016andDecember31,2015,correspondingfinancingobligationsof$3.8millionand$1.3millionarerecordedinaccruedliabilitiesand$1.3billionand$201.3millionarerecordedinotherlong-termliabilities.

DepreciationandamortizationexpenseduringtheyearsendedDecember31,2016,2015and2014were$477.3million,$278.7millionand$155.9million.TotalpropertyandequipmentassetsundercapitalleaseasofDecember31,2016and2015were$112.6millionand$58.1million.Accumulateddepreciationrelatedtoassetsundercapitalleaseasofthesedateswere$40.2millionand$22.7million.

Wehaveincurred$825.3millionand$317.5millionofcostsforourGigafactory1asofDecember31,2016and2015.

Note9–Non-cancellableOperatingLeasePaymentsReceivable

AsofDecember31,2016,futureminimumleasepaymentstobereceivedfromcustomersundernon-cancellableoperatingleasesforeachofthenextfiveyearsandthereafterwereasfollows(inthousands):

2017 $ 279,4202018 250,7912019 191,7292010 147,9892021 145,423Thereafter 2,122,127Total $ 3,137,479

Theabovetabledoesnotincludevehiclesalestocustomersorleasingpartnerswitharesalevalueguaranteeasthecash

paymentswerereceivedupfront.

Inaddition,weassumedthroughouracquisitionofSolarCityandwillcontinuetoenterintopowerpurchaseagreementswithourcustomersthatareaccountedforasleases.Thesecustomersarechargedsolelybasedonactualpowerproducedbytheinstalledsolarenergysystematapredefinedrateperkilowatt-hourofpowerproduced.Thefuturepaymentsfromsucharrangementsarenotincludedintheabovetableastheyareafunctionofthepowergeneratedbytherelatedsolarenergysystemsinthefuture.Furthermore,theabovetabledoesnotincludeperformance-basedincentivesreceivablefromvariousutilitycompanies.Theamountofcontingentrentalsrecognizedasrevenuefortheyearspresentedwerenotmaterial.Note10-AccruedLiabilitiesandOther

AsofDecember31,2016and2015,ouraccruedliabilitiesandothercurrentliabilitiesconsistedofthefollowing(inthousands):

December31, December31, 2016 2015 Accruedpurchases $ 585,019 $ 140,540Payrollandrelatedcosts 218,792 86,859Taxespayable 152,897 101,206Financingobligation,currentportion 52,031 —Accruedwarrantyandother 201,289 94,193Total $ 1,210,028 $ 422,798

TaxespayableincludesValueAddedTax,salestax,propertytax,usetaxandincometaxpayables.

AccruedpurchasesreflectprimarilyliabilitiesrelatedtotheconstructionofGigafactory1,alongwithengineeringdesignandtestingaccruals.Astheseservicesareinvoiced,thisbalancewillreduceandaccountspayablewillincrease.Note11–OtherLong-termLiabilities

Otherlong-termliabilitiesconsistedofthefollowing(inthousands):

December31,

2016 December31,

2015 Accruedwarrantyreserve,netofcurrentportion $ 149,858 $ 117,057Build-to-suitleaseliability,netofcurrentportion 1,323,293 201,389Deferredrentexpense 36,966 17,342Financingobligation,netofcurrentportion 84,360 —Liabilityforreceiptsfromaninvestor 76,828 —Othernoncurrentliabilities 220,144 29,188Totallong-termliabilities $ 1,891,449 $ 364,976

Foradditionaldetailonbuild-to-suitleaseliability,netofcurrentportion,pleaseseeNote8,Property,plan,andequipment.

Theliabilityforreceiptsfromaninvestorrepresentsamountsreceivedfromaninvestorunderaleasepass-throughfundarrangementformonetizationofITCsforassetsnotyetplacedinservice.Thisamountisreclassifiedtodeferredrevenuewhentheassetsareplacedinservice.Note12-CustomerDeposits

Customerdepositsprimarilyconsistofcashpaymentsfromcustomersatthetimetheyplaceanorderforavehicleandadditionalpaymentsuptothepointofdeliveryincludingthefairvalueofcustomertrade-invehiclesthatareapplicabletowardanewvehiclepurchase.Customerdepositamountsandtimingvarydependingonthevehiclemodelandcountryofdelivery.Customerdepositsarefullyrefundableuptothepointthevehicleisplacedintotheproductioncycle.Customerdepositsareincludedincurrentliabilitiesuntilrefundedoruntiltheyareappliedtoacustomer’spurchasebalanceattimeofdelivery.

AsofDecember31,2016and2015,weheld$663.9millionand$283.4millionincustomerdeposits.TheincreaseisprimarilyduetoModel3deposits.Note13-ConvertibleandLong-termDebtObligations

ThefollowingisasummaryofourdebtasofDecember31,2016(inthousands):

Unpaid Unused Principal NetCarryingValue Committed

Balance Current Long-Term Amount InterestRate MaturityDatesRecoursedebt: 1.5%ConvertibleSeniorNotesduein2018 $ 205,013 $ 196,229 — — 1.5% June20180.25%ConvertibleSeniorNotesduein2019 920,000 — 827,620 — 0.25% March20191.25%ConvertibleSeniorNotesduein2021 1,380,000 — 1,132,029 — 1.25% March2021CreditAgreement 969,000 — 969,000 181,000 1%plusLIBOR June2020

SecuredRevolvingCreditFacility 364,000 366,247 — 24,305 4.0%-6.0%

January2017-December2017

VehicleandOtherLoans 23,771 17,235 6,536 — 2.9%-7.6% March2017-June2019

2.75%ConvertibleSeniorNotesduein2018 230,000 — 212,223 — 2.8% November20181.625%ConvertibleSeniorNotesduein2019 566,000 — 483,820 — 1.6% November2019Zero-couponConvertibleSeniorNotesduein2020 113,000 — 89,418 — 0.0% December2020

SolarBonds 332,060 181,582 148,948 * 1.1%-6.5% January2017-January2031

Totalrecoursedebt 5,102,844 761,293 3,869,594 205,305 Non-recoursedebt: WarehouseAgreement 390,000 73,708 316,292 210,000 Various September2018CanadaCreditFacility 67,342 18,489 48,853 — 3.6%-4.5% December2020TermLoandueinDecember2017 75,467 75,715 — 52,173 4.2% December2017TermLoandueinJanuary2021 183,388 5,860 176,169 — 4.5% January2021MyPowerRevolvingCreditFacility 133,762 133,827 — 56,238 4.1%-6.6% January2017RevolvingAggregationCreditFacility 424,757 — 427,944 335,243 4.0%-4.8% December2018

SolarRenewableEnergyCreditTermLoan 38,124 12,491 26,262 — 6.6%-9.9% April2017-July2021

CashEquityDebtI 119,753 3,272 115,464 — 5.7% July2033CashEquityDebtII 206,901 5,376 189,424 — 5.3% July2034CashEquityDebtIII 170,000 4,994 161,853 5.8% January2035SolarAsset-backedNotes,Series2013-1 41,899 3,329 38,346 — 4.8% November2038SolarAsset-backedNotes,Series2014-1 60,768 3,016 57,417 — 4.6% April2044

SolarAsset-backedNotes,Series2014-2 186,851 7,055 173,625 —

4.0%-ClassA5.4%-ClassB July2044

SolarAsset-backedNotes,Series2015-1 119,199 1,511 110,238 —

4.2%-ClassA5.6%-ClassB August2045

SolarAsset-backedNotes,Series2016-1 50,119 1,202 47,025 —

5.3%-ClassA7.5%-ClassB September2046

SolarLoan-backedNotes,Series2016-A 140,586 3,514 133,510 —

4.8%-ClassA6.9%-ClassB September2048

Totalnon-recoursedebt 2,408,916 353,359 2,022,422 653,654 Totaldebt $ 7,511,760 $ 1,114,652 $ 5,892,016 $ 858,959

* Outofthe$350.0millionauthorizedtobeissued,$17.9millionremainedavailabletobeissued.SeebelowandNote21,

RelatedPartyTransactions,forSolarBondsissuedtorelatedparties.

Recoursedebtreferstodebtthatisrecoursetoourgeneralassets.Non-recoursedebtreferstodebtthatisrecoursetoonlyspecifiedassetsoroursubsidiaries.Thedifferencesbetweentheunpaidprincipalbalancesandthenetcarryingvaluesareduetodebtdiscountsanddeferredfinancingcosts.AsofDecember31,2016,wewereincompliancewithallfinancialdebtcovenants.Ourdebtisdescribedfurtherbelow.

RecourseDebtFacilities:TeslaDebtFacilities:

0.25%and1.25%ConvertibleSeniorNotesduein2019and2021andBondHedgeandWarrantTransactionsInMarch2014,weissued$800.0millionprincipalamountof0.25%convertibleseniornotesduein2019(2019Notes)and

$1.20billionprincipalamountof1.25%convertibleseniornotesduein2021(2021Notes)inapublicoffering.InApril2014,weissuedanadditional$120.0millionaggregateprincipalamountof2019Notesand$180.0millionaggregateprincipalamountof2021Notes,pursuanttotheexerciseinfulloftheoverallotmentoptionsoftheunderwritersofourMarch2014publicoffering.Thetotalnetproceedsfromtheseofferings,afterdeductingtransactioncosts,wereapproximately$905.8millionfrom2019Notesand$1.36billionfrom2021Notes.Weincurred$14.2millionand$21.4millionofdebtissuancecostsinconnectionwiththe2019Notesandthe2021Notes,andareamortizingtointerestexpenseusingtheeffectiveinterestmethodoverthecontractualtermsofthesenotes.InApril2015,theFASBissuednewauthoritativeaccountingguidanceonsimplifyingthepresentationofdebtissuancecosts,whichweretrospectivelyadoptedasofMarch31,2016andreclassifieddebtissuancecostsinconnectionwiththenotestorelateddebtliability.Theinterestratesarefixedat0.25%and1.25%perannumandarepayablesemi-annuallyinarrearsonMarch1andSeptember1ofeachyear,commencingonSeptember1,2014.

Each$1,000ofprincipalofthesenotesisinitiallyconvertibleinto2.7788sharesofourcommonstock,whichisequivalenttoaninitialconversionpriceofapproximately$359.87pershare,subjecttoadjustmentupontheoccurrenceofspecifiedevents.HoldersofthesenotesmayconverttheirnotesattheiroptiononorafterDecember1,2018forthe2019NotesandonorafterDecember1,2020forthe2021Notes.Further,holdersofthesenotesmayconverttheirnotesattheiroptionpriortotherespectivedatesabove,onlyunderthefollowingcircumstances:(1)duringanyfiscalquarterbeginningafterthefiscalquarterendingJune30,2014,ifthelastreportedsalepriceofourcommonstockforatleast20tradingdays(whetherornotconsecutive)duringthelast30consecutivetradingdaysofimmediatelyprecedingfiscalquarterisgreaterthanorequalto130%oftheconversionpriceoftheapplicablenotesoneachapplicabletradingday;(2)duringthefivebusinessdayperiodfollowinganyfiveconsecutivetradingdayperiodinwhichthetradingpricefortheapplicablenotesislessthan98%oftheaverageoftheclosingsalepriceofourcommonstockforeachdayduringsuchfivetradingdayperiod;or(3)ifwemakespecifieddistributionstoholdersofourcommonstockorifspecifiedcorporatetransactionsoccur.Uponconversionofthe2019Notes,wewouldpayordeliverasapplicable,cash,sharesofourcommonstockoracombinationofcashandsharesofourcommonstock,atourelection.Uponconversionofthe2021Notes,wewouldpaytheholdersincashfortheprincipalamountand,ifapplicable,sharesofourcommonstock(subjecttoourrighttodelivercashinlieuofalloraportionofsuchsharesofourcommonstock)basedonadailyconversionvalue.Ifafundamentalchangeoccurspriortothematuritydate,holdersofthesenotesmayrequireustorepurchasealloraportionoftheirnotesforcashatarepurchasepriceequalto100%oftheprincipalamountofthenotes,plusanyaccruedandunpaidinterest.Inaddition,ifspecificcorporateeventsoccurpriortotheapplicablematuritydate,wewillincreasetheconversionrateforaholderwhoelectstoconverttheirnotesinconnectionwithsuchacorporateeventincertaincircumstances.Duringthefourthquarterof2016,theclosingpriceofourcommonstockdidnotmeetorexceed130%oftheapplicableconversionpriceofour2019Notesand2021Notesonatleast20ofthelast30consecutivetradingdaysofthequarter;furthermore,nootherconditionsallowingholdersofthesenotestoconverthavebeenmetasofDecember31,2016.Therefore,the2019Notesand2021Notesarenotconvertibleduringthefirstquarterof2017andareclassifiedaslong-termdebt.Shouldtheclosingpriceconditionsbemetinthefirstquarterof2016orafuturequarter,the2019and/orthe2021Noteswillbeconvertibleattheirholders’optionduringtheimmediatelyfollowingquarter.AsofDecember31,2016,theif-convertedvalueofthe2019Notesand2021Notesdidnotexceedtheprincipalvalueofthosenotes.

AsofDecember31,2015,thecarryingvalueandtheoutstandingprincipalofour2019Notesare$788.0millionand$920.0

million,respectively.AsofDecember31,2015,thecarryingvalueandtheoutstandingprincipalofour2021Notesare$1.08billionand$1.38billion,respectively.

Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththenotesfromtherespectivehostdebtinstrumentandinitiallyrecordedtheconversionoptionof$188.1millionforthe2019Notesand$369.4millionforthe2021Notesinstockholders’equity.Theresultingdebtdiscountsonthe2019Notesand2021Notesarebeingamortizedtointerestexpenseataneffectiveinterestrateof4.89%and5.96%,respectively,overthecontractualtermsofthenotes.

InconnectionwiththeofferingofthesenotesinMarch2014,weenteredintoconvertiblenotehedgetransactionswhereby

wehavetheoptiontopurchaseinitially(subjecttoadjustmentforcertainspecifiedevents)atotalofapproximately5.6millionsharesofourcommonstockatapriceofapproximately$359.87pershare.Thetotalcostoftheconvertiblenotehedgetransactionswas$524.7million.Inaddition,wesoldwarrantswherebytheholdersofthewarrantshavetheoptiontopurchaseinitially(subjecttoadjustmentforcertainspecifiedevents)atotalofapproximately2.2millionsharesofourcommonstockatapriceof$512.66forthe2019Notesandatotalofapproximately3.3millionsharesofourcommonstockatapriceof$560.64persharefor2021Notes.Wereceived$338.4millionincashproceedsfromthesaleofthesewarrants.Similarly,inconnectionwiththeissuanceofadditionalnotesinApril2014,weenteredintoconvertiblenotehedgetransactionsandpaidanaggregate$78.7million.Inaddition,wesoldwarrantstopurchase(subjecttoadjustmentforcertainspecifiedevents)atotalofapproximately0.3millionsharesofourcommonstockatapriceof$512.66pershareforthewarrantsrelatingto2019Notes,andatotalofapproximately0.5millionsharesofourcommonstockatastrikepriceof$560.64pershareforthewarrantsrelatingto2021Notes.Wereceivedaggregateproceedsofapproximately$50.8millionfromthesaleofthewarrants.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedtoreducepotentialdilutionand/oroffsetpotentialcashpaymentsupontheconversionofthesenotesandtoeffectivelyincreasetheoverallconversionpricefrom$359.87to$512.66pershareinthecaseofwarrantsrelatingto2019Notesandfrom$359.87to$560.64inthecaseofwarrantsrelatingto2021Notes.Asthesetransactionsmeetcertainaccountingcriteria,theconvertiblenotehedgesandwarrantsarerecordedinstockholders’equityandarenotaccountedforasderivatives.Thenetcostincurredinconnectionwiththeconvertiblenotehedgeandwarranttransactionswasrecordedasareductiontoadditionalpaid-incapitalontheConsolidatedBalanceSheetasofDecember31,2016.

1.50%ConvertibleSeniorNotesduein2018andBondHedgeandWarrantTransactionsInMay2013,weissued$660.0millionaggregateprincipalamountof2018Notesinapublicoffering.Thenetproceedsfrom

theoffering,afterdeductingtransactioncosts,wereapproximately$648.0million.Weincurred$12.0millionofdebtissuancecostsinconnectionwiththeissuanceofthe2018Notesandareamortizingtointerestexpenseusingtheeffectiveinterestmethodoverthecontractualtermofthe2018Notes.Theinterestunderthe2018Notesisfixedat1.50%perannumandispayablesemi-annuallyinarrearsonJune1andDecember1ofeachyear,commencingonDecember1,2013.

Each$1,000ofprincipalofthe2018Notesisinitiallyconvertibleinto8.0306sharesofourcommonstock,whichisequivalenttoaninitialconversionpriceofapproximately$124.52pershare,subjecttoadjustmentupontheoccurrenceofspecifiedevents.Holdersofthe2018Notesmayconverttheir2018NotesattheiroptiononorafterMarch1,2018.Further,holdersofthe2018Notesmayconverttheir2018NotesattheiroptionpriortoMarch1,2018,onlyunderthefollowingcircumstances:(1)duringanyfiscalquarterbeginningafterthefiscalquarterendingSeptember30,2013,ifthelastreportedsalepriceofourcommonstockforatleast20tradingdays(whetherornotconsecutive)duringthelast30consecutivetradingdaysoftheimmediatelyprecedingfiscalquarterisgreaterthanorequalto130%oftheconversionpriceoneachapplicabletradingday;(2)duringthefivebusinessdayperiodfollowinganyfiveconsecutivetradingdayperiodinwhichthetradingpriceforthe2018Notesislessthan98%oftheaverageoftheclosingsalepriceofourcommonstockforeachdayduringsuchfivetradingdayperiod;or(3)ifwemakespecifieddistributionstoholdersofourcommonstockorifspecifiedcorporatetransactionsoccur.Uponconversion,wewouldpaytheholdersincashfortheprincipalamountofthe2018Notesand,ifapplicable,sharesofourcommonstock(subjecttoourrighttodelivercashinlieuofalloraportionofsuchsharesofourcommonstock)basedonacalculateddailyconversionvalue.Ifafundamentalchangeoccurspriortothematuritydate,holdersofthe2018Notesmayrequireustorepurchasealloraportionoftheir2018Notesforcashatarepurchasepriceequalto100%oftheprincipalamountofthe2018Notes,plusanyaccruedandunpaidinterest.Inaddition,ifspecificcorporateeventsoccurpriortothematuritydate,wewillincreasetheconversionrateforaholderwhoelectstoconvertits2018Notesinconnectionwithsuchacorporateeventincertaincircumstances.

AsofDecember31,2015,thecarryingvalueandtheoutstandingprincipalofour2018Notesare$612.5millionand$659.8

million,respectively.

Inaccordancewithaccountingguidanceonembeddedconversionfeatures,wevaluedandbifurcatedtheconversionoptionassociatedwiththe2018Notesfromthehostdebtinstrumentandrecordedtheconversionoptionof$82.8millioninstockholders’equity.Theresultingdebtdiscountonthe2018Notesisbeingamortizedtointerestexpenseataneffectiveinterestrateof4.29%overthecontractualtermofthe2018Notes.

Inconnectionwiththeofferingofthe2018Notes,weenteredintoconvertiblenotehedgetransactionswherebywehadthe

optiontopurchaseinitially(subjecttocertainspecifiedevents)atotalofapproximately5.3millionsharesofourcommonstockatapriceofapproximately$124.52pershare.Thecostoftheconvertiblenotehedgetransactionswas$177.5million.Inaddition,wesoldwarrantswherebytheholdersofthewarrantshavetheoptiontopurchaseinitially(subjecttocertainspecifiedevents)atotalofapproximately5.3millionsharesofourcommonstockatapriceof$184.48pershare.Wereceived$120.3millionincashproceedsfromthesaleofthesewarrants.Takentogether,thepurchaseoftheconvertiblenotehedgesandthesaleofwarrantsareintendedtooffsetanyactualdilutionfromtheconversionofthe2018Notesandtoeffectivelyincreasetheoverallconversionpricefrom$124.52to$184.48pershare.Asthesetransactionsmeetcertainaccountingcriteria,theconvertiblenotehedgesandwarrantsarerecordedinstockholders’equityandarenotaccountedforasderivatives.Thenetcostincurredinconnectionwiththeconvertiblenotehedgeandwarranttransactionswasrecordedasareductiontoadditionalpaid-incapitalontheConsolidatedBalanceSheetasofDecember31,2016.

Duringthefourthquarteroffiscal2016,theclosingpriceofourcommonstockexceeded130%oftheapplicableconversionpriceofour2018Notesonatleast20ofthelast30consecutivetradingdaysofsuchquarter;therefore,holdersof2018Notesmayconverttheirnotesduringthefirstquarteroffiscal2017.Assuch,weclassifiedthe$196.2millioncarryingvalueofour2018Notesascurrentliabilitiesandclassified$8.8million,representingthedifferencebetweentheaggregateprincipalofour2018Notesof$205.0millionandthecarryingvalueof2018Notes,asmezzanineequityonourConsolidatedBalanceSheetasofDecember31,2016.Shouldtheclosingpriceconditionsbemetinafuturequarter,2018Noteswillbeconvertibleattheirholders’optionduringtheimmediatelyfollowingquarter.

Duringfiscal2016,werepaid$454.7millioninaggregateprincipalamountofour2018Notespursuanttoconversionsbytheirholders.AsofDecember31,2016,wehadremainingoutstanding$205.0millioninaggregateprincipalamountofthe2018Notes.AsofDecember31,2016,therewerealsooutstandingacorrespondingamountofconvertiblenotehedgetransactions,aswellaswarrantstoissueupto2.2millionsharesat$184.48pershareasofDecember31,2016,ineachcaseissuedinconnectionwiththeofferingofthe2018Notes.

Asset-BasedCreditAgreementInJune2015,weenteredintoaseniorsecuredasset-basedrevolvingcreditagreement(the“CreditAgreement”)witha

syndicateofbanks.TheCreditAgreementprovidesforaseniorsecuredasset-basedrevolvingcreditfacility(the“CreditFacility”),whichwemaydrawuponasneeded.InOctober2015,lendersincreasedtheirtotalfundingcommitmentstousundertheCreditFacilitybyuptoanadditional$250.0million,subjecttocertainconditions,fortotalcommitmentsupto$750million.Inaddition,theCreditAgreementprovidesfora$200.0millionletterofcreditsub-facilityanda$40.0millionswing-lineloansub-facility.TheCreditAgreementiscollateralizedbyapledgeofcertainofouraccountsreceivable,inventory,andequipment,andavailabilityundertheCreditAgreementisbasedonthevalueofsuchassets,asreducedbycertainreserves.Duringfiscal2016,weamendedtheCreditAgreementandincreasedtheavailabilityandthecommitmentsundertheCreditAgreementfrom$750.0millionto$1.2billion.

Borrowedfundsbearinterest,atouroption,atanannualrateof(a)1%plusLIBORor(b)thehighestof(i)thefederalfundsrateplus0.50%,(ii)thelenders“primerate”or(iii)1%plusLIBOR.Thefeeforundrawnamountsis0.25%perannum.Interestispayablequarterly.TheCreditAgreementterminates,andalloutstandingloansbecomedueandpayable,inJune2020.AsofDecember31,2016,wehad$969.0millionborrowingsundertheCreditFacilityandzeroborrowingsundertheswing-lineloansub-facility.

AsofDecember31,2015,wehad$135.0millioninborrowingsundertheCreditFacility.Wearerequiredtomeetvariouscovenants,includingmeetingcertainreportingrequirements,suchasthecompletionand

presentationofauditedConsolidatedFinancialStatementsforourborrowings.AsofDecember31,2016wewereincompliancewithallcovenantscontainedintheCreditAgreement.

AssumedDebtfromourSolarCityAcquisition:SecuredRevolvingCreditFacility

SolarCityhasenteredintoarevolvingcreditagreementwithasyndicateofbankstofundworkingcapital,lettersofcreditandgeneralcorporateneeds.Borrowedfundsbearinterest,atouroption,atanannualrateof(a)3.25%plusLIBORor(b)2.25%plusthehighestof(i)thefederalfundsrateplus0.50%,(ii)BankofAmerica’spublished“primerate”or(iii)LIBORplus1.00%.Thefeeforundrawncommitmentsis0.375%perannum.ThesecuredrevolvingcreditfacilityissecuredbycertainofSolarCity’saccountsreceivable,inventory,machinery,equipmentandotherassets.

VehicleandOtherLoansSolarCityhasenteredintovariousvehicleandotherloanagreementswithvariousfinancialinstitutions.Thevehicleloansare

securedbythevehiclesfinanced.

2.75%ConvertibleSeniorNotesDueIn2018

InOctober2013,SolarCityissued$230.0millioninaggregateprincipalof2.75%convertibleseniornotesdueonNovember1,2018throughapublicoffering.

Each$1,000ofprincipaloftheconvertibleseniornotesisnowconvertibleinto1.7838sharesofourcommonstock,whichisequivalenttoaconversionpriceof$560.64pershare,subjecttoadjustmentupontheoccurrenceofspecifiedeventsrelatedtodividends,tenderoffersorexchangeoffers.Holdersoftheconvertibleseniornotesmayconverttheirconvertibleseniornotesattheiroptionatanytimeuptoandincludingthesecondscheduledtradingdaypriortomaturity.Ifcertaineventsthatwouldconstituteamake-wholefundamentalchange,suchassignificantchangesinownership,corporatestructureortradabilityofourcommonstock,occurpriortothematuritydate,wewouldincreasetheconversionrateforaholderwhoelectstoconvertitsconvertibleseniornotesinconnectionwithsuchaneventincertaincircumstances.Themaximumconversionrateiscappedat2.3635sharesforeach$1,000ofprincipaloftheconvertibleseniornotes,whichisequivalenttoaminimumconversionpriceof$423.10pershare.Theconvertibleseniornotesdonothaveacashconversionoption.Theconvertibleseniornoteholdersmayrequireustorepurchasetheirconvertibleseniornotesforcashonlyundercertaindefinedfundamentalchanges.1.625%ConvertibleSeniorNotesDuein2019

InSeptember2014,SolarCityissued$500.0millionandinOctober2014,SolarCityissuedanadditional$66.0millioninaggregateprincipalof1.625%convertibleseniornotesdueonNovember1,2019throughaprivateplacement

Each$1,000ofprincipaloftheconvertibleseniornotesisnowconvertibleinto1.3169sharesofourcommonstock,whichisequivalenttoaconversionpriceof$759.36pershare,subjecttothesameadjustmentmechanismasdiscussedabove.Themaximumconversionrateiscappedat1.7449sharesforeach$1,000ofprincipaloftheconvertibleseniornotes,whichisequivalenttoaminimumconversionpriceof$573.10pershare.Theconvertibleseniornotesdonothaveacashconversionoption.Theconvertibleseniornoteholdersmayrequireustorepurchasetheirconvertibleseniornotesforcashonlyundercertaindefinedfundamentalchanges.

InconnectionwiththeissuanceoftheconvertibleseniornotesinSeptember2014andinOctober2014,SolarCityenteredintocappedcalloptionagreementstoreducethepotentialequitydilutionuponconversionoftheconvertibleseniornotes.Specifically,upontheexerciseofthecappedcalloptions,wewouldnowreceivesharesofourcommonstockequalto745,377sharesmultipliedby(a)(i)thelowerof$1,146.18orthethenmarketpriceofourcommonstockless(ii)$759.36anddividedby(b)thethenmarketpriceofourcommonstock.Theresultsofthisformulaarethatwewouldreceivemoresharesasthemarketpriceofourcommonstockexceeds$759.36andapproaches$1,146.18,butwewouldreceivefewersharesasthemarketpriceofourcommonstockexceeds$1,146.18.Consequently,iftheconvertibleseniornotesareconverted,thenthenumberofsharestobeissuedbyuswouldbeeffectivelypartiallyoffsetbythesharesreceivedbyusunderthecappedcalloptionsastheyareexercised.Wecanalsoelecttoreceivetheequivalentvalueofcashinlieuofshares.ThecappedcalloptionsexpireonvariousdatesrangingfromSeptember4,2019toOctober29,2019,andtheformulaabovewouldbeadjustedintheeventofamerger;atenderoffer;nationalization;insolvency;delistingofourcommonstock;changesinlaw;failuretodeliver;insolvencyfiling;stocksplits,combinations,dividends,repurchasesorsimilarevents;oranannouncementofcertainoftheprecedingactions.Althoughintendedtoreducethenetnumberofsharesissuedafteraconversionoftheconvertibleseniornotes,thecappedcalloptionswereseparatelynegotiatedtransactions,arenotapartofthetermsoftheconvertibleseniornotes,donotaffecttherightsoftheconvertibleseniornoteholdersandwilltakeeffectregardlessofwhethertheconvertibleseniornotesareactuallyconverted.Thecappedcalloptionsmeetthecriteriaforequityclassificationbecausetheyareindexedtoourcommonstockandwealwayscontrolwhethersettlementwillbeinsharesorcash.Zero-CouponConvertibleSeniorNotesDuein2020

InDecember2015,SolarCityissued$113.0millioninaggregateprincipalofzero-couponconvertibleseniornotesdueonDecember1,2020throughaprivateplacement.$13.0millionoftheconvertibleseniornoteswereissuedtorelatedpartiesandareseparatelypresentedontheConsolidatedBalanceSheets(seeNote21,RelatedPartyTransactions).

Each$1,000ofprincipaloftheconvertibleseniornotesisnowconvertibleinto3.3333sharesofourcommonstock,which

isequivalenttoaconversionpriceof$300.00pershare,subjecttothesameadjustmentmechanismasdiscussedabove.Themaximumconversionrateiscappedat4.2308sharesforeach$1,000ofprincipaloftheconvertibleseniornotes,whichisequivalenttoaminimumconversionpriceof$236.36pershare.Theconvertibleseniornotesdonothaveacashconversionoption.Theconvertibleseniornoteholdersmayrequireustorepurchasetheirconvertibleseniornotesforcashonlyundercertaindefinedfundamentalchanges.OnorafterJune30,2017,theconvertibleseniornoteswillberedeemablebyusintheeventthattheclosingpriceofourcommonstockexceeds200%oftheconversionpricefor45consecutivetradingdaysendingwithinthreetradingdaysofsuchredemptionnoticeataredemptionpriceofparplusaccruedandunpaidinterestto,butexcluding,theredemptiondate

SolarBonds

InOctober2014,SolarCitycommencedissuingSolarBonds,whichareseniorunsecuredobligationsofSolarCitythatarestructurallysubordinatetotheindebtednessandotherliabilitiesofSolarCity’ssubsidiaries.SolarBondshavebeenissuedundermultipleseriesthathavevariousfixedtermsandinterestrates.InSeptember2015,SolarCitycommencedissuingSolarBondswithvariableinterestratesthatresetquarterlyandthatcanberedeemedquarterlyattheoptionofthebondholderorus,with30-dayadvancenotice.

InMarch2016,SpaceExplorationTechnologiesCorporation,orSpaceX,purchased$90.0millioninaggregateprincipalamountof4.40%SolarBondsdueinMarch2017.InJune2016,SpaceXpurchasedanadditional$75.0millioninaggregateprincipalamountof4.40%SolarBondsdueinJune2017.

InAugust2016,ourChiefExecutiveOfficer,SolarCity’sChiefExecutiveOfficerandSolarCity’sChiefTechnologyOfficerpurchased$100.0millioninaggregateprincipalamountof6.50%SolarBondsdueinFebruary2018

SpaceX,ourChiefExecutiveOfficer,SolarCity’sChiefExecutiveOfficerandSolarCity’sChiefTechnologyOfficerwereconsideredrelatedparties;SolarCityhasalsoissuedSolarBondstootherrelatedparties;andsuchSolarBondsareseparatelypresentedontheConsolidatedBalanceSheets(seeNote21,RelatedPartyTransactions).Non-RecourseDebtFacilitiesCanadaCreditAgreement

InDecember2016,weenteredintoaCreditAgreementwithRoyalBankofCanada(the“CanadaCreditAgreement”).UndertheCreditAgreement,weborrowed$67.3millionwhichissecuredbyaninterestincertainvehicleleases.AmountdrawnundertheCanadaCreditagreementhasaraterangeof3.6%to4.5%andaresubjecttovariouscustomaryeventsofdefault,covenantsandlimitations,includinganadvanceratelimitandarequiredreserveaccount.Thetermoftheloanisreflectiveofthetermoftheunderlyingvehicleleases,upto48months.

WarehouseAgreement

InAugust2016,weenteredintoaLoanandSecurityAgreement(the“WarehouseAgreement”)withDeutscheBankasadministrativeagentandacommittedlender.UndertheWarehouseAgreement,whichsupportstheTeslaFinancedirectvehicleleasingprogram,andissecuredbyaninterestincertainleasesandvehiclesundersuchprogram,wewereinitiallyentitledtoborrowupto$300.0millionintotalprincipalamount.InDecember2016,weamendedtheWarehouseAgreementandincreasedthetotalfacilitylimitto$600.0million.SubjecttoextensioninaccordancewiththetermsoftheWarehouseAgreement,theabilitytodrawundertheWarehouseAgreementexpiresonAugust31,2017,andthefullamountoutstandingundertheWarehouseAgreementisdueSeptember20,2018.AsofDecember31,2016,wehad$390.0millioninborrowingsoutstandingundertheWarehouseAgreement.

AmountsdrawnundertheWarehouseAgreementgenerallybearinterestataratebasedonLIBORplusafixedmargin.Wearesubjecttovariouscustomaryeventsofdefaultandfinancial,leaseportfolioperformanceandothercovenantsandlimitations,includinganadvanceratelimit,arequiredreserveaccount,andvariousperformancetriggersandexcessconcentrationlimits.

PursuanttotheWarehouseAgreement,anundividedbeneficialinterestinthefuturecashflowsarisingfromcertainleases

andtherelatedleasedvehicleshasbeensoldforlegalpurposesbutcontinuestobereportedinourconsolidatedfinancialstatements.TheinterestinthefuturecashflowsarisingfromtheseleasesandtherelatedvehiclesisnotavailabletopaytheclaimsofourcreditorsotherthanpursuanttoobligationstothelendersundertheWarehouseAgreement.WeretaintherighttoreceivetheexcesscashflowsnotneededtopayobligationsundertheWarehouseAgreement.

AssumedDebtfromourSolarCityAcquisition:TermLoanDueinDecember2017

OnMarch31,2016,asubsidiaryofSolarCityenteredintoanagreementforatermloanof$50.0million.Thetermloanbearsinterestatanannualrateofthelender’scostoffundsplus3.25%.Thefeeforundrawncommitmentsis0.85%perannum.Thetermloanissecuredbysubstantiallyalloftheassetsandcashflowsofthesubsidiaryandisnon-recoursetoourotherassetsorcashflows.

TermLoanDueinJanuary2021

InJanuary2016,asubsidiaryofSolarCityenteredintoanagreementwithasyndicateofbanksforatermloanof$160.0million.Thetermloanbearsinterestatanannualrateofthree-monthLIBORplus3.50%.Thetermloanissecuredbysubstantiallyalloftheassetsofthesubsidiary,includingitsinterestsincertainfinancingfunds,andisnon-recoursetoourotherassets.

MyPowerRevolvingCreditFacility

OnJanuary9,2015,asubsidiaryofSolarCityenteredintoa$200.0millionrevolvingcreditagreementwithasyndicateofbankstoobtainfundingfortheMyPowercustomerloanprogram.TheMyPowerrevolvingcreditfacilityinitiallyprovidedupto$160.0millionofClassAnotesandupto$40.0millionofClassBnotes.TheClassAnotesbearinterestatanannualrateof(i)forthefirst$160.0million,2.50%and(ii)fortheremaining$40.0million,3.00%;ineachcase,plus(a)thecommercialpaperrateor(b)1.50%plusadjustedLIBOR.TheClassBnotesbearinterestatanannualrateof5.00%plusLIBOR.ThefeeforundrawncommitmentsundertheClassAnotesis0.50%perannumforthefirst$160.0millionofundrawncommitmentsand0.75%perannumfortheremaining$40.0millionofundrawncommitments,ifany.ThefeeforundrawncommitmentsundertheClassBnotesis0.50%perannum.TheMyPowerrevolvingcreditfacilityissecuredbythepaymentsowedtoSolarCityoritssubsidiariesunderMyPowercustomerloansandisnon-recoursetoourotherassets.OnJanuary272017,theMyPowerrevolvingcreditfacilitymatured,andthetotaloutstandingprincipalamountwasfullyrepaid.

RevolvingAggregationCreditFacility

OnMay4,2015,asubsidiaryofSolarCityenteredintoanagreementwithasyndicateofbanksforarevolvingaggregationcreditfacilitywithatotalcommittedamountof$500.0million.OnMarch23,2016,theagreementwasamendedtomodifytheinterestrates,extendtheavailabilityperiodandextendthematuritydate.Therevolvingaggregationcreditfacilitybearsinterestatanannualrateof3.25%plus(i)forcommercialpaperloans,thecommercialpaperrateand(ii)forLIBORloans,atouroption,three-monthLIBORordailyLIBOR.TherevolvingaggregationcreditfacilityissecuredbycertainassetsandcashflowsofcertainsubsidiariesofSolarCityandisnon-recoursetoourotherassetsorcashflows.

SolarRenewableEnergyCreditTermLoan

OnMarch31,2016,asubsidiaryofSolarCityenteredintoanagreementforatermloanof$15.0million.Thetermloanbearsinterestatanannualrateofone-monthLIBORplus9.00%or,atouroption,8.00%plusthehighestof(i)theFederalFundsRateplus0.50%,(ii)theprimerateor(iii)one-monthLIBORplus1.00%.Thetermloanissecuredbysubstantiallyalloftheassetsofthesubsidiary,includingitsrightsunderforwardcontractstosellsolarrenewableenergycredits,andisnon-recoursetoourotherassets.

OnJuly14,2016,thesamesubsidiaryenteredintoanagreementforanothertermloanwithatotalcommittedamountof$36.4million.Thetermloanbearsinterestatanannualrateofone-monthLIBORplus5.75%or,atouroption,4.75%plusthehighestof(i)theFederalFundsRateplus0.50%,(ii)theprimerateor(iii)one-monthLIBORplus1.00%.Thetermloanissecuredbysubstantiallyalloftheassetsofthesubsidiary,includingitsrightsunderforwardcontractstosellsolarrenewableenergycredits,andisnon-recoursetoourotherassets.

FromtheacquisitiondatethroughDecember31,2016,SolarCityrepaid$1.3millionoftheprincipaloutstandingunderthetermloans.

CashEquityDebtI

InconnectionwiththecashequityfinancingonMay2,2016,SolarCityissued$121.7millioninaggregateprincipalofdebtthatbearsinterestatafixedrateof5.65%perannum.Thisdebtissecuredby,amongotherthings,theinterestsincertainfinancingfundsandisnon-recoursetoourotherassets.

CashEquityDebtII

InconnectionwiththecashequityfinancingonSeptember8,2016,SolarCityissued$210.0millioninaggregateprincipalofdebtthatbearsinterestatafixedrateof5.25%perannum.Thisdebtissecuredby,amongotherthings,theinterestsincertainfinancingfundsandisnon-recoursetoourotherassets.CashEquityDebtIII

InconnectionwiththecashequityfinancingonDecember16,2016,weissued$170.0millioninaggregateprincipalofdebtthatbearsinterestatafixedrateof5.81%perannum.Thisdebtissecuredby,amongotherthings,ourinterestsincertainfinancingfundsandisnon-recoursetoourotherassets.SolarAsset-backedNotes,Series2013-1

InNovember2013,SolarCitypooledandtransferredqualifyingsolarenergysystemsandtheassociatedcustomercontractsintoaSpecialPurposeEntity(SPE)andissued$54.4millioninaggregateprincipalofSolarAsset-backedNotes,Series2013-1,backedbythesesolarassetstoinvestors.TheSPEiswhollyownedbySolarCityandisconsolidatedinourfinancialstatements.AsofDecember31,2016,thesesolarassetshadacarryingvalueof$93.0millionandareincludedundersolarenergysystems,leasedandtobeleased,net,intheConsolidatedBalanceSheets.TheSolarAsset-backedNoteswereissuedatadiscountof0.05%.ThecashflowsgeneratedbythesesolarassetsareusedtoservicethemonthlyprincipalandinterestpaymentsontheSolarAsset-backedNotesandsatisfytheSPE’sexpenses,andanyremainingcashisdistributedtoawhollyownedsubsidiaryofours.Werecognizerevenueearnedfromtheassociatedcustomercontractsinaccordancewithourrevenuerecognitionpolicy.TheSPE’sassetsandcashflowsarenotavailabletotheothercreditorsofours,andthecreditorsoftheSPE,includingtheSolarAsset-backedNoteholders,havenorecoursetoourotherassets.SolarCitycontractedwiththeSPEtoprovideoperationsandmaintenanceandadministrativeservicesforthequalifyingsolarenergysystems.

InconnectionwiththepoolingoftheassetsthatweretransferredtotheSPEinNovember2013,SolarCityterminatedaleasepass-througharrangementwithaninvestor.Theleasepass-througharrangementhadbeenaccountedforasaborrowingandanyamountsoutstandingfromtheleasepass-througharrangementwererecordedasaleasepass-throughfinancingobligation.Thebalancethatwasthenoutstandingfromtheleasepass-througharrangementwas$56.4million.SolarCitypaidtheinvestoranaggregateof$40.2million,andtheremainingbalanceistobepaidovertime.Theremainingbalanceispaidusingthenetcashflowsgeneratedbythesameassetspreviouslyleasedundertheleasepass-througharrangement,afterpaymentoftheprincipalandinterestontheSolarAsset-backedNotesandexpensesrelatedtotheassetsandtheNotes,includingassetmanagementfees,custodialfeesandtrusteefees,andwascontractuallydocumentedasarighttoparticipateinfuturecashflowsoftheSPE.ThisrighttoparticipateinfutureresidualcashflowsgeneratedbytheassetsoftheSPE(Participatinginterest)hasbeenrecordedasacomponentofotherlong-termliabilitiesforthenoncurrentportionandasacomponentofaccruedliabilitiesforthecurrentportion.WeaccountfortheparticipationinterestasaliabilitybecausetheinvestorhasnovotingormanagementrightsintheSPE,theparticipationinterestwouldterminateupontheinvestorachievingaspecifiedreturnandtheinvestorhastheoptiontoputtheparticipationinteresttousonAugust3,2021fortheamountnecessaryfortheinvestortoachievethespecifiedreturn,whichwouldrequireustosettletheparticipationinterestincash.Inaddition,underthetermsoftheparticipationinterest,wehavetheoptiontopurchasetheparticipationinterestfromtheinvestorfortheamountnecessaryfortheinvestortoachievethespecifiedreturn.SolarAsset-backedNotes,2014-1

InApril2014,SolarCitypooledandtransferredqualifyingsolarenergysystemsandtheassociatedcustomercontractsintoaSPEandissued$70.2millioninaggregateprincipalofSolarAsset-backedNotes,Series2014-1,backedbythesesolarassetstoinvestors.TheSPEiswhollyownedbySolarCityandisconsolidatedinourfinancialstatements.AsofDecember31,2016,thesesolarassetshadacarryingvalueof$113.6millionandareincludedundersolarenergysystems,leasedandtobeleased,net,intheConsolidatedBalanceSheets.TheSolarAsset-backedNoteswereissuedatadiscountof0.01%.ThecashflowsgeneratedbythesesolarassetsareusedtoservicethemonthlyprincipalandinterestpaymentsontheSolarAsset-backedNotesandsatisfytheSPE’sexpenses,andanyremainingcashisdistributedtoawhollyownedsubsidiaryofours.Werecognizerevenueearnedfromtheassociatedcustomercontractsinaccordancewithourrevenuerecognitionpolicy.TheSPE’sassetsandcashflowsarenotavailabletotheothercreditorsofours,andthecreditorsoftheSPE,includingtheSolarAsset-backedNoteholders,havenorecoursetoourotherassets.SolarCitycontractedwiththeSPEtoprovideoperationsandmaintenanceandadministrativeservicesforthequalifyingsolarenergysystems.

SolarAsset-backedNotes,Series2014-2

InJuly2014,SolarCitypooledandtransferredqualifyingsolarenergysystemsandtheassociatedcustomercontractsintoaSPEandissued$160.0millioninaggregateprincipalofSolarAsset-backedNotes,Series2014-2,ClassA,and$41.5millioninaggregateprincipalofSolarAsset-backedNotes,Series2014-2,ClassB,backedbythesesolarassetstoinvestors.TheSPEiswhollyownedbySolarCityandisconsolidatedinourfinancialstatements.AsofDecember31,2016,thesesolarassetshadacarryingvalueof$265.6millionandareincludedundersolarenergysystems,leasedandtobeleased—net,intheConsolidatedBalanceSheets.TheSolarAsset-backedNoteswereissuedatadiscountof0.01%.Thesesolarassetsandtheassociatedcustomercontractsareleasedtoaninvestorunderaleasepass-througharrangementthatwehaveaccountedforasaborrowing.Therentpaidbytheinvestorundertheleasepass-througharrangementisused(and,followingtheexpirationoftheleasepass-througharrangement,thecashgeneratedbythesesolarassetswillbeused)toservicethesemi-annualprincipalandinterestpaymentsontheSolarAsset-backedNotesandsatisfytheSPE’sexpenses,andanyremainingcashisdistributedtoawhollyownedsubsidiaryofours.Werecognizerevenueearnedfromtheassociatedcustomercontractsinaccordancewithourrevenuerecognitionpolicy.TheSPE’sassetsandcashflowsarenotavailabletotheothercreditorsofours,andthecreditorsoftheSPE,includingtheSolarAsset-backedNoteholders,havenorecoursetoourotherassets.SolarCitycontractedwiththeSPEtoprovideoperationsandmaintenanceandadministrativeservicesforcertainofthequalifyingsolarenergysystems.SolarAsset-backedNotes,Series2015-1

InAugust2015,SolarCitypooledandtransferreditsinterestsincertainfinancingfundsintoaSPEandissued$103.5millioninaggregateprincipalofSolarAsset-backedNotes,Series2015-1,ClassA,and$20.0millioninaggregateprincipalofSolarAsset-backedNotes,Series2015-1,ClassB,backedbythesesolarassetstoinvestors.TheSPEiswhollyownedbySolarCityandisconsolidatedinourfinancialstatements.TheSolarAsset-backedNoteswereissuedatadiscountof0.05%forClassAand1.46%forClassB.ThecashdistributedbytheunderlyingfinancingfundstotheSPEareusedtoservicethesemi-annualprincipalandinterestpaymentsontheSolarAsset-backedNotesandsatisfytheSPE’sexpenses,andanyremainingcashisdistributedtoawhollyownedsubsidiaryofours.TheSPE’sassetsandcashflowsarenotavailabletotheothercreditorsofours,andthecreditorsoftheSPE,includingtheSolarAsset-backedNoteholders,havenorecoursetoourotherassets.SolarAsset-backedNotes,Series2016-1

InFebruary2016,SolarCitytransferredqualifyingsolarenergysystemsandtheassociatedcustomercontractsintoaSPEandissued$52.2millioninaggregateprincipalofSolarAsset-backedNotes,Series2016-1,backedbythesesolarassetstoinvestors.TheSPEiswhollyownedbySolarCityandisconsolidatedinourfinancialstatements.AsofDecember31,2016,thesesolarassetshadacarryingvalueof$87.7millionandareincludedundersolarenergysystems,leasedandtobeleased,net,intheConsolidatedBalanceSheets.TheSolarAsset-backedNoteswereissuedatadiscountof6.71%.Thesesolarassetsandtheassociatedcustomercontractsareleasedtoaninvestorunderaleasepass-througharrangementthatwehaveaccountedforasaborrowing.Therentpaidbytheinvestorundertheleasepass-througharrangementisused(and,followingtheexpirationoftheleasepass-througharrangement,thecashgeneratedbythesesolarassetswillbeused)toservicethesemi-annualprincipalandinterestpaymentsontheSolarAsset-backedNotesandsatisfytheSPE’sexpenses,andanyremainingcashisdistributedtoawhollyownedsubsidiaryofours.Werecognizerevenueearnedfromtheassociatedcustomercontractsinaccordancewithourrevenuerecognitionpolicy.TheSPE’sassetsandcashflowsarenotavailabletotheothercreditorsofours,andthecreditorsoftheSPE,includingtheSolarAsset-backedNoteholders,havenorecoursetoourotherassets.SolarCitycontractedwiththeSPEtoprovideoperationsandmaintenanceandadministrativeservicesforcertainofthequalifyingsolarenergysystems.SolarLoan-backedNotes,Series2016-A

OnJanuary21,2016,SolarCitypooledandtransferredcertainMyPowercustomernotesreceivableintoaSPEandissued$151.6millioninaggregateprincipalofSolarLoan-backedNotes,Series2016-A,ClassA,and$33.4millioninaggregateprincipalofSolarLoan-backedNotes,Series2016-A,ClassB,backedbythesenotesreceivabletoinvestors.TheSPEiswhollyownedbyusandisconsolidatedinourfinancialstatements.TheSolarLoan-backedNoteswereissuedatadiscountof3.22%forClassAand15.90%forClassB.ThepaymentsreceivedbytheSPEunderthesenotesreceivableareusedtoservicethesemi-annualprincipalandinterestpaymentsontheSolarLoan-backedNotesandsatisfytheSPE’sexpenses,andanyremainingcashisdistributedtoawhollyownedsubsidiaryoftheCompany.TheSPE’sassetsandcashflowsarenotavailabletotheothercreditorsofours,andthecreditorsoftheSPE,includingtheSolarLoan-backedNoteholders,havenorecoursetoourotherassets.

InterestExpense

Thefollowingtablepresentstheaggregateamountofinterestexpenserecognizedrelatingtothecontractualinterestcouponandamortizationofthedebtissuancecostsanddebtdiscountonconvertiblenoteswithcashconversionfeatures,whichincludesthe2018Notes,the2019Notes,andthe2021Notes(inthousands):

2016 2015 2014 Contractualinterestcoupon $ 27,060 $ 32,061 $ 26,019Amortizationofdebtissuancecosts 8,567 8,102 5,288Amortizationofdebtdiscount 99,811 97,786 79,479Total $ 135,438 $ 137,949 $ 110,786

PledgedAssets

AsofDecember31,2016and2015,wehavepledgedorrestricted$2.30billionand$1.43billionprincipallyfromfinishedgoodsandrawmaterialsinventory,aswellascertainpropertyandequipment,directleasevehicles,receivablesandcashascollateralforlettersofcreditincludingourCreditArrangement,realestateleases,andinsurancepolicies.Note14-CommonStock

InAugust2015,wecompletedapublicofferingofcommonstockandsoldatotalof3,099,173sharesofourcommonstockfortotalcashproceedsofapproximately$738.3million(whichincludes82,645sharesor$20.0millionsoldtoourCEO,netofunderwritingdiscountsandofferingcosts).

InMay2016,wecompletedapublicofferingofcommonstockandsoldatotalof7,915,004sharesofourcommonstockfor

totalcashproceedsofapproximately$1.7billion,netofunderwritingdiscountsandofferingcosts.OnNovember21,2016,wecompletedtheacquisitionofSolarCity(seeNote3)andexchanged11,124,497sharesofour

commonstockfor101,131,791sharesofSolarCitycommonstockinaccordancewiththetermsoftheMergerAgreement.Note15-EquityIncentivePlans

In2010,weadoptedthe2010EquityIncentivePlan(the“2010Plan”).The2010Planprovidesforthegrantingofstockoptions,RSUsandstockpurchaserightstoouremployees,directorsandconsultants.Optionsgrantedunderthe2010Planmaybeeitherincentiveoptionsornonqualifiedstockoptions.Incentivestockoptionsmaybegrantedonlytoouremployeesincludingofficersanddirectors.Nonqualifiedstockoptionsandstockpurchaserightsmaybegrantedtoouremployeesandconsultants.Generally,ourstockoptionsandRSUsvestoverfouryearsandareexercisableoveraperiodnottoexceedthecontractualtermoftenyearsfromthedatethestockoptionsaregranted.Continuedvestingtypicallyterminateswhentheemploymentorconsultingrelationshipends.Inaddition,asaresultofouracquisitionofSolarCity,wehaveassumeditsequityawardplans,anditsoutstandingequityawardsasoftheAcquisitionDate.TheequityawardsofSolarCitywereconvertedintoequityawardstoacquireTeslacommonstockinshareamountsandpricesbasedontheExchangeRatio,withtheequityawardsretainingthesamevestingandothertermsandconditionsasineffectimmediatelypriortotheacquisition.Thevestingandothertermsandconditionsoftheassumedequityawardsaresubstantiallythesameasthoseofthe2010Plan.

AsofDecember31,2016,4,698,501ofcommonshareswerereservedandavailableforfutureissuanceunderthe2010Plan.

ThefollowingtablesummarizesstockoptionandRSUactivityunderthe2010Plan:

OutstandingStockOptions OutstandingRSUs Weighted- Weighted- Weighted- Average Average Average Remaining *Aggregate Grant Numberof Exercise Contractual Intrinsic Number DateFair Options Price Life(Years) Value ofRSUs Value

Balance,December31,2015 20,015,180 $ 46.14 2,439,674 $ 219.90 Assumedthroughacquisition 1,304,104 283.35 382,611 185.04 Granted 853,960 211.10 2,797,973 202.59 Exercised (8,735,830) 12.84 — — Cancelled (561,992) 218.58 (519,908) 215.07 Released — — (1,018,261) 212.96 Balance,December31,2016 12,875,422 $ 96.50 5.8 $ 1.72 4,082,089 $ 207.11 Vestedandexpectedtovest,December31,2016 12,875,422 $ 96.50 5.8 $ 1.72 4,082,089 Exercisableandvested,December31,2016 7,817,124 $ 77.70 5.2 $ 1.19 — *Aggregateintrinsicvalueinbillions

Theaggregateintrinsicvaluerepresentsthetotalpretaxintrinsicvalue(i.e.,thedifferencebetweenourcommonstockpriceandtheexerciseprice,multipliedbythenumberofin-the-moneyoptions)thatwouldhavebeenreceivedbytheoptionholdershadalloptionholdersexercisedtheiroptions.Thetotalintrinsicvalueofoptionsexercisedwas$1.68billion,$395.6millionand$446.9millionfortheyearsendedDecember31,2016,2015and2014.

FairValueAssumptionsWeutilizethefairvaluemethodinrecognizingstock-basedcompensationexpense.Underthefairvaluemethod,we

estimatedthefairvalueofeachoptionawardandtheESPPonthegrantdategenerallyusingtheBlack-Scholesoptionpricingmodelandtheweighted-averageassumptionsnotedinthefollowingtable.

YearEndedDecember31, 2016 2015 2014

Risk-freeinterestrate: Stockoptions 1.5% 1.6% 1.9%ESPP 0.6% 0.3% 0.1%

Expectedterm(inyears): Stockoptions 6.2 5.4 6.0ESPP 0.5 0.5 0.5

Expectedvolatility: Stockoptions 47% 48% 55%ESPP 41% 42% 46%

Dividendyield: Stockoptions 0.0% 0.0% 0.0%ESPP 0.0% 0.0% 0.0%

Therisk-freeinterestratethatweuseisbasedontheUnitedStatesTreasuryyieldineffectatthetimeofgrantforzero

couponUnitedStatesTreasurynoteswithmaturitiesapproximatingeachgrant’sexpectedlife.Givenourlimitedhistorywithemployeegrants,weusethe“simplified”methodinestimatingtheexpectedtermforouremployeegrants.The“simplified”method,aspermittedbytheSECStaff,iscalculatedastheaverageofthetime-to-vestingandthecontractuallifeoftheoptions.

Beginningin2015,ourexpectedvolatilityisderivedfromourimpliedvolatilityonpubliclytradedoptionsofourcommonstockandthehistoricalvolatilityofourcommonstock.Priorto2015,ourexpectedvolatilitywasderivedfromourimpliedvolatilityonpubliclytradedoptionsofourcommonstockandthehistoricalvolatilitiesofseveralunrelatedpubliccompanieswithinindustriesrelatedtoourbusiness,includingtheautomotiveOEM,automotiveretail,automotivepartsandbatterytechnologyindustries,becausewehadlimitedtradinghistoryonourcommonstock.Whenmakingtheselectionsofourpeercompanieswithinindustriesrelatedtoourbusinesstobeusedinthevolatilitycalculation,wealsoconsideredthestageofdevelopment,sizeandfinancialleverageofpotentialcomparablecompanies.Ourhistoricalvolatilityandimpliedvolatilityareweightedbasedoncertainqualitativefactorsandcombinedtoproduceasinglevolatilityfactor.

Theweighted-averagegrant-datefairvalueforoptionawardsgrantedduringtheyearsendedDecember31,2016,2015and2014was$98.7,$108.28and$94.01pershare.Theweighted-averagegrant-datefairvalueforESPPgrantedduringtheyearsendedDecember31,2016,2015and2014was$51.31,$58.77and$74.07pershare.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfairmarketvalueofourcommonstock.

2014Performance-basedStockOptionsGrantsIn2014,tocreateincentivesforcontinuedlongtermsuccessbeyondtheModelSprogramandtocloselyalignexecutivepay

withourstockholders’interestsintheachievementofsignificantmilestonesbyourCompany,theCompensationCommitteeofourBoardofDirectorsgrantedstockoptionstocertainemployeestopurchaseanaggregate1,073,000sharesofourcommonstock.Eachsuchgrantconsistsoffourvestingtrancheswithavestingschedulebasedentirelyontheattainmentoffutureperformancemilestones,assumingcontinuedemploymentandservicetousthrougheachvestingdate. • 1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstModelXProduction

Vehicle; • 1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievingaggregatevehicleproductionof100,000

vehiclesinatrailing12-monthperiod; • 1/4thofthesharessubjecttotheoptionsarescheduledtovestuponcompletionofthefirstModel3Production

Vehicle;and • 1/4thofthesharessubjecttotheoptionsarescheduledtovestuponachievementofannualizedgrossmarginofgreater

than30.0%inanythreeyears

AsofDecember31,2016,thefollowingperformancemilestonewasachievedandapprovedbyourBoardofDirectors. • CompletionofthefirstModelXProductionVehicle

AsofDecember31,2016,thefollowingperformancemilestonewasconsideredprobableofachievement. • CompletionofthefirstModel3ProductionVehicle;and • Achievingaggregatevehicleproductionof100,000vehiclesinatrailing12-monthperiod

Webeginrecordingstock-basedcompensationexpenseaseachmilestonebecomesprobable.AsofDecember31,2016,wehadunrecognizedcompensationexpenseof$17.5millionforthoseperformancemilestonesthatwerenotconsideredprobableofachievement.FortheyearsendedDecember31,2016,2015and2014,werecordedstock-basedcompensationexpenseof$25.3million,$10.4millionand$10.7millionrelatedtothisgrant.2012CEOGrant

InAugust2012,ourBoardofDirectorsgranted5,274,901stockoptionstoourCEO(the“2012CEOGrant”).The2012CEOGrantconsistsoftenvestingtrancheswithavestingschedulebasedentirelyontheattainmentofbothperformanceconditionsandmarketconditions,assumingcontinuedemploymentandservicetousthrougheachvestingdate.

Eachofthetenvestingtranchesrequiresacombinationofoneofthetenpre-determinedperformancemilestonesandanincrementalincreaseinourmarketcapitalizationof$4.0billion,ascomparedtotheinitialmarketcapitalizationof$3.2billionmeasuredatthetimeofthe2012CEOGrant.

AsofDecember31,2016,themarketconditionsforsevenvestingtranchesandthefollowingfiveperformancemilestoneswereachievedandapprovedbyourBoardofDirectors: • SuccessfulcompletionoftheModelXAlphaPrototype; • SuccessfulcompletionoftheModelXBetaPrototype; • CompletionofthefirstModelXProductionVehicle; • Aggregatevehicleproductionof100,000vehicles;and • SuccessfulcompletionoftheModel3AlphaPrototype.

AsofDecember31,2016,thefollowingperformancemilestoneswereconsideredprobableofachievement: • SuccessfulcompletionoftheModel3BetaPrototype; • CompletionofthefirstModel3ProductionVehicle;

• Aggregatevehicleproductionof200,000vehicles;and • Aggregatevehicleproductionof300,000vehicles.

WeexpectthatthenextperformancemilestonetobeachievedwillbethesuccessfulcompletionoftheModel3BetaPrototype,whichwouldbeachieveduponthedeterminationbyourBoardofDirectorsthataneligibleprototypehasbeencompleted.CandidatesforsuchprototypeareamongthevehiclesthatwearecurrentlybuildingaspartofourongoingtestingofourModel3vehicledesignandmanufacturingprocesses.

Webeginrecordingstock-basedcompensationexpenseaseachmilestonebecomesprobable.AsofDecember31,2016,wehad$4.9millionoftotalunrecognizedcompensationexpenseforthoseperformancemilestonesthatwereconsideredprobableofachievementandwillberecognizedoveraweighted-averageperiodof2.3years.AsofDecember31,2016,wehadunrecognizedcompensationexpenseof$6.1millionforthoseperformancemilestonesthatwerenotconsideredprobableofachievement.FortheyearsendedDecember31,2016,2015,and2014,werecordedstock-basedcompensationexpenseof$15.8million,$10.6millionand$25.0million.

OurCEOearnsabasesalarythatreflectsthecurrentlyapplicableminimumwagerequirementsunderCalifornialaw,andheissubjecttoincometaxesbasedonsuchbasesalary.However,hehasneveracceptedandcurrentlydoesnotaccepthissalary.

SummaryStockBasedCompensationInformationThefollowingtablesummarizesthestock-basedcompensationexpensebylineitemintheconsolidatedstatementsof

operations(inthousands):

YearEndedDecember31, 2016 2015 2014 Costofsales $ 30,400 $ 19,244 $ 17,454Researchanddevelopment 154,632 89,309 62,601Selling,generalandadministrative 149,193 89,446 76,441Total $ 334,225 $ 197,999 $ 156,496

Werealizednoincometaxbenefitfromstockoptionexercisesineachoftheperiodspresentedduetorecurringlossesand

valuationallowances.

AsofDecember31,2016,wehad$772.9millionoftotalunrecognizedcompensationexpense,net,ofestimatedforfeitures,relatedtonon-performanceawardsthatwillberecognizedoveraweighted-averageperiodof2.8years.

EmployeeStockPurchasePlanEmployeesareeligibletopurchasecommonstockthroughpayrolldeductionsofupto15%oftheireligiblecompensation,

subjecttoanyplanlimitations.Thepurchasepriceofthesharesoneachpurchasedateisequalto85%ofthelowerofthefairmarketvalueofourcommonstockonthefirstandlasttradingdaysofeachsix-monthofferingperiod.DuringtheyearsendedDecember31,2016,2015and2014,weissued321,788,220,571and163,600sharesundertheESPPfor$51.7million,$37.5millionand$28.6million,respectively.Atotalof3,615,749sharesofcommonstockhavebeenreservedforissuanceundertheESPP,andtherewere1,794,063sharesavailableforissuanceundertheESPPasofDecember31,2016.Note16-IncomeTaxes

Aprovisionforincometaxesof$26.7million,$13.0millionand$9.4millionhasbeenrecognizedfortheyearsendedDecember31,2016,2015and2014,respectively,relatedprimarilytooursubsidiarieslocatedoutsideoftheUnitedStates.OurlossbeforeincometaxesfortheyearsendedDecember31,2016,2015and2014wasasfollows(inthousands):

YearEndedDecember31, 2016 2015 2014 Domestic $ 130,718 $ 415,694 $ 60,451Noncontrollinginterestandredeemablenoncontrollinginterest 98,132 — —Foreign 517,498 459,930 224,185Lossbeforeincometaxes $ 746,348 $ 875,624 $ 284,636

ThecomponentsoftheprovisionforincometaxesfortheyearsendedDecember31,2016,2015and2014,consistedofthe

following(inthousands):

YearEndedDecember31, 2016 2015 2014 Current:

Federal $ — $ — $ —State 568 525 257 Foreign 53,962 10,342 9,203

Totalcurrent 54,530 10,867 9,460Deferred:

Federal — — —State — — —Foreign (27,832) 2,172 (56)

Totaldeferred (27,832) 2,172 (56)Totalprovisionforincometaxes $ 26,698 $ 13,039 $ 9,404

Deferredtaxassets(liabilities)asofDecember31,2016and2015consistedofthefollowing(inthousands):

December31, December31, 2016 2015 Deferredtaxassets:

Netoperatinglosscarry-forwards $ 648,652 $ 404,377Researchanddevelopmentcredits 208,499 73,068Othertaxcredits 106,530 30,079Deferredrevenue 268,434 162,272Inventoryandwarrantyreserves 95,570 53,410Depreciationandamortization — 66Stock-basedcompensation 120,955 71,009FinancialInstruments — 35,073Investmentincertainfinancingfunds 237,759 —Accrualsandothers 67,769 29,547Totaldeferredtaxassets 1,754,168 858,901Valuationallowance (1,022,705) (668,432)Deferredtaxassets,netofvaluationallowance 731,463 190,469

Deferredtaxliabilities: Depreciationandamortization (679,969) (188,240)Other (3,779) (4,309)FinancialInstruments (22,033) —Totaldeferredtaxliabilities (705,781) (192,549)Deferredtaxassets,netofvaluationallowanceanddeferredtaxliabilities $ 25,682 $ (2,080)

ReconciliationofstatutoryfederalincometaxestooureffectivetaxesfortheyearsendedDecember31,2016,2015and

2014isasfollows(inthousands):

YearEndedDecember31, 2016 2015 2014 Taxatstatutoryfederalrate $ (261,222) $ (306,470) $ (99,622)Statetax,netoffederalbenefit 568 525 257 Nondeductibleexpenses 26,547 16,711 15,238Foreignincomeratedifferential 206,470 172,259 86,734U.S.taxcredits (162,865) (43,911) (26,895)Noncontrollinginterestsandredeemablenoncontrollinginterestsadjustment 21,964 — —Investmentincertainfinancingbonds (31,055) — —Otherreconcilingitems 785 1,232 877 Changeinvaluationallowance 225,506 172,693 32,815Provisionforincometaxes $ 26,698 $ 13,039 $ 9,404

AsofDecember31,2016,werecordedavaluationallowanceof$1.02billionfortheportionofthedeferredtaxassetthatwe

donotexpecttoberealized.Thevaluationallowanceonournetdeferredtaxesincreasedby$354.3millionduringtheyearendedDecember31,2016.ThevaluationallowanceincreaseisprimarilyduetoadditionalU.S.deferredtaxassetsincurredinthecurrentyearthatcannotberealized,inclusiveof$169.3millionincreaserelatingtotheSolarCityacquisition,andoffsetbyimmaterialvaluationallowancereleasesinforeignjurisdictions.Managementbelievesthatbasedontheavailableinformation,itismorelikelythannotthattheU.S.deferredtaxassetswillnotberealized,suchthatafullvaluationallowanceisrequiredagainstallU.S.deferredtaxassets.Wehavenet$33.1millionofdeferredtaxassetsinforeignjurisdictionswhichwebelievearemore-likely-than-nottobefullyrealizedgiventheexpectationoffutureearningsinthesejurisdictions.

AsofDecember31,2016,wehadapproximately$4.34billionoffederaland$3.01billionofstatenetoperatinglosscarry-forwardsavailabletooffsetfuturetaxableincome,whichwillnotbegintosignificantlyexpireuntil2024forfederaland2017forstatepurposes.AportionoftheselossesweregeneratedbySolarCitypriortoouracquisitionandthereforearesubjecttochangeofcontrolprovisionswhichlimittheamountofacquiredtaxattributesthatcanbeutilizedinagiventaxyear.Wedonotexpectthesechangeofcontrollimitationstosignificantlyimpactourabilitytoutilizetheseattributes.Theportionofnetoperatinglosscarryforwardsrelatedtostockoptionsisapproximately$2.39billionand$1.42billionforfederalandstatepurposes,respectively,ofwhichthetaxbenefitswillbecreditedtoadditionalpaid-incapitalwhenrealized.UpontheadoptionofASUNo.2016-09,alltaxeffectsrelatedtoshare-basedpaymentswillberecognizedthroughearnings,subjecttonormalvaluationallowanceconsiderations.Weexpectthatanypotentialtaxbenefits,uponadoptionofASUNo.2016-09,wouldincreaseourdeferredtaxassetwhichwouldbeoffsetwithafullvaluationallowance.

Wehaveresearchanddevelopmenttaxcreditsofapproximately$153.0millionand$163.6millionforfederalandstateincometaxpurposes,respectively.Ifnotutilized,thefederalresearchanddevelopmenttaxcreditswillexpireinvariousamountsbeginningin2024.However,thestateresearchanddevelopmenttaxcreditscanbecarriedforwardindefinitely.Inaddition,wehaveothergeneralbusinesstaxcreditsofapproximately$105.5millionforfederalincometaxpurposes,whichwillnotbegintosignificantlyexpireuntil2033.

TheCompanyhasanimmaterialamountofundistributedforeignearningsasofDecember31,2016.Inaddition,wehavenotrecognizedadeferredtaxliabilityfortheremittanceofanyundistributedforeignearningstotheUnitedStatesassuchearningsareintendedtobeindefinitelyreinvestedinoperationsoutsidetheUnitedStates.

Federalandstatelawscanimposesubstantialrestrictionsontheutilizationofnetoperatinglossandtaxcreditcarry-forwardsintheeventofan“ownershipchange,”asdefinedinSection382oftheInternalRevenueCode.Wedeterminedthatnosignificantlimitationwouldbeplacedontheutilizationofournetoperatinglossandtaxcreditcarry-forwardsduetoanypriorownershipchanges.

UncertainTaxPositionsTheaggregatechangesinthebalanceofourgrossunrecognizedtaxbenefitsduringtheyearsendedDecember31,2016,

2015and2014wereasfollows(inthousands):

January1,2014 $ 13,370Increasesinbalancesrelatedtoprioryeartaxpositions 56Increasesinbalancesrelatedtocurrentyeartaxpositions 27,951December31,2014 41,377Increaseinbalancesrelatedtoprioryeartaxpositions 6,626Increasesinbalancesrelatedtocurrentyeartaxpositions 51,124December31,2015 99,127Increaseinbalancesrelatedtoprioryeartaxpositions 28,677Increasesinbalancesrelatedtocurrentyeartaxpositions 62,805Assumeduncertaintaxpositionsthroughacquisition 13,327December31,2016 $ 203,936

Accruedinterestandpenaltiesrelatedtounrecognizedtaxbenefitsareclassifiedasincometaxexpenseandwasimmaterial.

AsofDecember31,2016,unrecognizedtaxbenefitsof$198.3million,ifrecognized,wouldnotaffectoureffectivetaxrateasthetaxbenefitswouldincreaseadeferredtaxassetwhichiscurrentlyfullyoffsetwithafullvaluationallowance.Wedonotanticipatethattheamountofexistingunrecognizedtaxbenefitswillsignificantlyincreaseordecreasewithinthenext12months.WefileincometaxreturnsintheUnitedStates,California,variousstatesandforeignjurisdictions.Taxyears2003to2015remainsubjecttoexaminationforfederalpurposes,andtaxyears2003to2015remainsubjecttoexaminationforCaliforniapurposes.AllnetoperatinglossesandtaxcreditsgeneratedtodatearesubjecttoadjustmentforU.S.federalandCaliforniapurposes.Taxyears2007to2015remainopenforexaminationinotherU.S.stateandforeignjurisdictions.

TheUnitedStatesTaxCourthasissuedadecisioninAlteraCorpv.Commissionerrelatedtothetreatmentofshare-basedcompensationexpenseinacost-sharingarrangement.Asthisdecision,canbeoverturneduponappeal,wehavenotrecordedanyimpactasofDecember31,2016.Inaddition,anypotentialtaxbenefitswouldincreaseourdeferredtaxassetwhichwouldbeoffsetwithafullvaluationallowance.

Note17-CommitmentsandContingenciesOperatingLeases

Wehaveenteredintovariousnon-cancelableoperatingleaseagreementsforcertainofouroffices,manufacturingandwarehousefacilities,retailandservicelocations,equipment,vehicles,solarenergysystemsandsuperchargersites,throughouttheworldwithvariousexpirationdatesthroughDecember2030.

IncludedwithinOperatingLeasescommitmentsinthetablebelowarepaymentsdueunderoperatingleasesthathavebeenaccountedforasbuild-to-suitarrangementsandareincludedinproperty,plant,andequipmentinourConsolidatedBalanceSheets.

RentexpensefortheyearsendedDecember31,2016,2015and2014was$116.8million,$68.2millionand$46.3million.

CapitalLeasesforEquipmentWehaveenteredintovariousagreementstoleaseequipmentundercapitalleasesupto60months.Theequipmentunderthe

leasesarecollateralfortheleaseobligationsandareincludedwithinproperty,plantandequipment,netontheConsolidatedBalanceSheetsunderthecategoriesofcomputerequipmentandsoftwareandofficefurnitureandequipment.

FutureminimumcommitmentsforleasesasofDecember31,2016areasfollows(inthousands):

Operating Capital Leases Leases 2017 $165,457 $38,712 2018 150,925 33,7302019 125,148 23,7932020 102,804 7,3332021 88,950 2,746Thereafter 292,693 16,259Totalminimumleasepayments 925,977 122,573Less:Amountsrepresentinginterestnotyetincurred 9,592Presentvalueofcapitalleaseobligations 112,981Less:Currentportion 35,497Long-termportionofcapitalleaseobligations $ 77,484

Build-to-SuitLeaseArrangementinBuffalo,NewYorkAsdiscussedinNote8,Property,PlantandEquipment,aspartoftheSolarCityacquisition,weassumedabuild-to-suitlease

arrangementwiththeResearchFoundationfortheStateUniversityofNewYork,ortheFoundation,wheretheFoundationwillconstructthemanufacturingfacilityandinstallcertainutilitiesandotherimprovements,withourparticipationinthedesignandconstructionofthemanufacturingfacility,andacquirecertainmanufacturingequipmentdesignatedbyustobeusedinthemanufacturingfacility.TheFoundationwillcover(i)constructioncostsrelatedtothemanufacturingfacilityinanamountupto$350.0million,(ii)theacquisitionandcommissioningofthemanufacturingequipmentinanamountupto$348.1millionand(iii)$51.9millionforadditionalspecifiedscopecosts,incases(i)and(ii)only,subjecttothemaximumfundingallocationfromtheStateofNewYork,andwewillberesponsibleforanyconstructionandequipmentcostsinexcessofsuchamounts.WewillownthemanufacturingfacilityandmanufacturingequipmentpurchasedbytheFoundation.Followingcompletionofthemanufacturingfacility,wewillleasethemanufacturingfacilityandthemanufacturingequipmentownedbytheFoundationfromtheFoundationforaninitialperiodof10years,withanoptiontorenew,for$2peryearplusutilities.

Underthetermsofthebuild-to-suitleasearrangement,wearerequiredtoachievespecificoperationalmilestonesduringtheinitialtermofthelease,whichincludeemployingacertainnumberofemployeesatthefacility,withinwesternNewYorkandwithintheStateofNewYorkwithinspecifiedtimeperiodsfollowingthecompletionofthefacility.Wearealsorequiredtospendorincurapproximately$5.0billionincombinedcapital,operationalexpensesandothercostsintheStateofNewYorkoverthe10yearsfollowingtheachievementoffullproduction.Onanannualbasisduringtheinitialleaseterm,asmeasuredoneachanniversaryofthecommissioningofthefacility,ifwefailtomeetitsspecifiedinvestmentandjobcreationobligations,thenwewouldbeobligatedtopaya$41.2million“programpayment”totheFoundationforeachyearthatwefailtomeettheserequirements.Furthermore,iftheagreementisterminatedduetoamaterialbreachbyus,thenadditionalamountsmightbepayablebyus.

Duetoourinvolvementwiththeconstructionofthefacility,ourexposuretoanypotentialcostoverrunsanditsothercommitmentsundertheagreement,wearedeemedtobetheownerofthefacilityandthemanufacturingequipmentownedbytheFoundationforaccountingpurposesduringtheconstructionphase.Accordingly,asofDecember31,2016,werecordedanon-cashbuild-to-suitleaseassetunderconstructionof$783.9million,andacorrespondingbuild-to-suitleaseliabilityonourconsolidatedbalancesheets.Thenon-cashinvestingandfinancingactivitiesrelatedtothearrangementfromtheAcquisitionDatethroughDecember31,2016amountedto$5.6million.

EnvironmentalLiabilitiesInconnectionwithourTeslaFactorylocatedinFremont,California,weareobligatedtopayfortheremediationofcertain

environmentalconditionsexistingatthetimewepurchasedthepropertyfromNewUnitedMotorManufacturing,Inc.(NUMMI).Teslaisresponsibleforthefirst$15millionofremediationcostsandanycostsinexcessof$30millionorcostsincurredaftertheten-yearanniversaryofclosing.NUMMIisresponsibleforremediationcostsbetween$15millionand$30millionforupto10yearsfromtheclosingdate.

LegalProceedings

Fromtimetotime,wearesubjecttovariouslegalproceedingsthatarisefromthenormalcourseofbusinessactivities.Inaddition,fromtimetotime,thirdpartiesmayassertintellectualpropertyinfringementclaimsagainstusintheformoflettersandotherformsofcommunication.Ifanunfavorablerulingweretooccur,thereexiststhepossibilityofamaterialadverseimpactonourresultsofoperations,prospects,cashflows,financialpositionandbrand.

InNovember2013,aputativesecuritiesclassactionlawsuitwasfiledagainstTeslainU.S.DistrictCourt,NorthernDistrictofCalifornia,allegingviolationsof,andseekingremediespursuantto,Sections10(b)and20(a)oftheSecuritiesExchangeActof1934andRule10b-5.ThecomplaintmadeclaimsagainstTeslaandourCEO,ElonMusk,soughtdamagesandattorney’sfeesonthebasisofallegationsthat,amongotherthings,TeslaandMr.Muskmadefalseand/ormisleadingrepresentationsandomissions,includingwithrespecttothesafetyofModelS.ThiscasewasbroughtonbehalfofaputativeclassconsistingofcertainpersonswhopurchasedTesla’ssecuritiesbetweenAugust19,2013andNovember17,2013.OnSeptember26,2014,thetrialcourt,uponthemotionofTeslaandMr.Musk,dismissedthecomplaintwithprejudice,andthereafterissuedaformalwrittenordertothateffect.Theplaintiffsappealedfromthetrialcourt’sorder,andonDecember21,2016,theCourtofAppealsaffirmedthetrialcourt’sdecisiondismissingthecomplaintwithprejudice.

OnMarch28,2014,apurportedstockholderclassactionwasfiledintheUnitedStatesDistrictCourtfortheNorthernDistrictofCaliforniaagainstSolarCityandtwoofitsofficers.Thecomplaintallegesviolationsoffederalsecuritieslaws,andseeksunspecifiedcompensatorydamagesandotherreliefonbehalfofapurportedclassofpurchasersofSolarCity’ssecuritiesfromMarch6,2013toMarch18,2014.Afteraseriesofamendmentstotheoriginalcomplaint,theDistrictCourtdismissedtheamendedcomplaintandenteredajudgmentinSolarCity’sfavoronAugust9,2016.Theplaintiffshavefiledanoticeofappeal.Webelievethattheclaimsarewithoutmeritandintendtodefendagainstthislawsuitvigorously.Weareunabletoestimatethepossibleloss,ifany,associatedwiththislawsuit.

OnAugust15,2016,apurportedstockholderclassactionlawsuitwasfiledintheUnitedStatesDistrictCourtfortheNorthernDistrictofCaliforniaagainstSolarCity,twoofitsofficersandaformerofficer.ThecomplaintallegesthatSolarCitymadeprojectionsoffuturesalesandinstallationsthatitfailedtoachieveandthattheseprojectionswerefraudulentwhenmade.TheplaintiffsclaimviolationsoffederalsecuritieslawsandseekunspecifiedcompensatorydamagesandotherreliefonbehalfofapurportedclassofpurchasersofSolarCity’ssecuritiesfromMay5,2015toFebruary16,2016.Webelievethattheclaimsarewithoutmeritandintendtodefendagainstthemvigorously.Weareunabletoestimatethepossibleloss,ifany,associatedwiththislawsuit.

BetweenSeptember1,2016andOctober5,2016,sevenlawsuitswerefiledintheCourtofChanceryoftheStateofDelawarebypurportedstockholdersofTeslachallengingTesla’sacquisitionofSolarCity.OnOctober10,theCourtenteredordersconsolidatingtheselawsuitsandappointingleadplaintiffsandleadcounsel.TheconsolidatedlawsuitiscaptionedasInreTeslaMotors,Inc.,StockholdersLitigation,C.A.No.12711-VCS.ItnamesasdefendantsthemembersofTesla’sboardofdirectorsandalleges,amongotherthings,thatthemembersofTesla’sboardofdirectorsbreachedtheirfiduciarydutiesinconnectionwiththeSolarCityacquisition.ItassertsclaimsderivativelyonbehalfofTeslaanddirectlyonbehalfofaputativeclassofTeslastockholders.Itseeks,amongotherrelief,damagesinanunspecifiedamountandattorneys’feesandcosts.OnJanuary27,2017,defendantsfiledamotiontodismisstheoperativecomplaint.Afterreceivingthemotion,plaintiffsindicatedthattheyintendtofileanamendedcomplaintratherthanrespondtothedefendants’motiontodismiss.Teslabelievesthatthelawsuitiswithoutmerit.

InJuly2012,SolarCity,alongwithothercompaniesinthesolarenergyindustry,receivedasubpoenafromtheU.S.TreasuryDepartment’sOfficeoftheInspectorGeneraltodelivercertaindocumentsinSolarCity’spossessionthatweredated,created,revisedorreferredtoafterJanuary1,2007andthatrelatetoSolarCity’sapplicationsforU.S.TreasurygrantsorcommunicationswithcertainothersolarenergydevelopmentcompaniesorwithcertainfirmsthatappraisesolarenergypropertyforU.STreasurygrantapplicationpurposes.TheInspectorGeneralandtheCivilDivisionoftheU.S.DepartmentofJusticeareinvestigatingtheadministrationandimplementationoftheU.STreasurygrantprogramrelatingtothefairmarketvalueofthesolarenergysystemsthatSolarCitysubmittedinU.S.Treasurygrantapplications.SolarCityhasaccruedareserveforitspotentialliabilityassociatedwiththisongoinginvestigationasofDecember31,2016.

InFebruary2013,twoofSolarCity’sfinancingfundsfiledalawsuitintheUnitedStatesCourtofFederalClaimsagainsttheUnitedStatesgovernment,seekingtorecoverapproximately$14.0millionthattheUnitedStatesTreasurywasobligatedtopay,butfailedtopay,underSection1603oftheAmericanRecoveryandReinvestmentActof2009.InFebruary2016,thegovernmentfiledamotionseekingleavetoassertacounterclaimagainstthetwoplaintifffundsonthegroundsthatthegovernment,infact,paidthemmore,notless,thantheywereentitledtoasamatteroflaw.Webelievethatthegovernment’sclaimsarewithoutmeritandexpecttheplaintifffundstolitigatethecasevigorously.Trialinthecaseissetforthelatterhalfof2017.Weareunabletoestimatethepossibleloss,ifany,associatedwiththislawsuit.

Fromtimetotime,wehavereceivedrequestsforinformationfromregulatorsandgovernmentalauthorities,suchastheNationalHighwayTrafficSafetyAdministration,theNationalTransportationSafetyBoardandtheSecuritiesandExchangeCommission.Wearealsosubjecttovariousotherlegalproceedingsthatarisefromthenormalcourseofbusinessactivities.Inaddition,fromtimetotime,thirdpartiesmayassertintellectualpropertyinfringementclaimsagainstusintheformoflettersandotherformsofcommunication.Ifanunfavorablerulingweretooccur,thereexiststhepossibilityofamaterialadverseimpactonourresultsofoperations,prospects,cashflows,financialpositionandbrand.

IndemnificationandGuaranteedReturnsAsdisclosedinNote18,VIEArrangements,andNote19,LeasePass-ThroughFinancingObligation,wearecontractually

committedtocompensatecertainfundinvestorsforanylossesthattheymaysufferincertainlimitedcircumstancesresultingfromreductionsinU.S.TreasurygrantsorITCs.Generally,suchobligationswouldariseasaresultofreductionstothevalueoftheunderlyingsolarenergysystemsasassessedbytheU.S.TreasuryDepartmentforpurposesofclaimingU.S.TreasurygrantsorasassessedbytheIRSforpurposesofclaimingITCsorU.S.Treasurygrants.Foreachbalancesheetdate,weassessandrecognize,whenapplicable,thepotentialexposurefromthisobligationbasedonalltheinformationavailableatthattime,includinganyguidelinesissuedbytheU.S.TreasuryDepartmentonsolarenergysystemvaluationsforpurposesofclaimingU.S.TreasurygrantsandanyauditsundertakenbytheIRS.Webelievethatanypaymentstothefundinvestorsinexcessoftheamountalreadyrecognizedbyusforthisobligationarenotprobablebasedonthefactsknownatthereportingdate.

ThemaximumpotentialfuturepaymentsthatwecouldhavetomakeunderthisobligationwoulddependonthedifferencebetweenthefairvaluesofthesolarenergysystemssoldortransferredtothefundsasdeterminedbyusandthevaluesthattheU.S.TreasuryDepartmentwoulddetermineasfairvalueforthesystemsforpurposesofclaimingU.S.TreasurygrantsorthevaluestheIRSwoulddetermineasthefairvalueforthesystemsforpurposesofclaimingITCsorU.S.Treasurygrants.WeclaimU.S.TreasurygrantsbasedonguidelinesprovidedbytheU.S.TreasurydepartmentandthestatutoryregulationsfromtheIRS.Weusefairvaluesdeterminedwiththeassistanceofindependentthird-partyappraisalscommissionedbyusasthebasisfordeterminingtheITCsthatarepassed-throughtoandclaimedbythefundinvestors.SincewecannotdeterminefuturerevisionstoU.S.TreasuryDepartmentguidelinesgoverningsystemvaluesorhowtheIRSwillevaluatesystemvaluesusedinclaimingITCsorU.S.Treasurygrants,weareunabletoreliablyestimatethemaximumpotentialfuturepaymentsthatitcouldhavetomakeunderthisobligationasofeachbalancesheetdate.

Weareeligibletoreceivecertainstateandlocalincentivesthatareassociatedwithrenewableenergygeneration.Theamountofincentivesthatcanbeclaimedisbasedontheprojectedoractualsolarenergysystemsizeand/ortheamountofsolarenergyproduced.Wealsocurrentlyparticipateinonestate’sincentiveprogramthatisbasedoneitherthefairmarketvalueorthetaxbasisofsolarenergysystemsplacedinservice.Stateandlocalincentivesreceivedareallocatedbetweenusandfundinvestorsinaccordancewiththecontractualprovisionsofeachfund.Wearenotcontractuallyobligatedtoindemnifyanyfundinvestorforanylossestheymayincurduetoashortfallintheamountofstateorlocalincentivesactuallyreceived.

AsdisclosedinNote18,wearecontractuallyrequiredtomakepaymentstoonefundinvestortoensurethatthefundinvestorachievesaspecifiedminimuminternalrateofreturn.ThefundinvestorhasalreadyreceivedasignificantportionoftheprojectedeconomicbenefitsfromU.S.Treasurygrantdistributionsandtaxdepreciationbenefits.Thecontractualprovisionsofthefundstatethatthefundhasanindefinitetermunlessthemembersagreetodissolvethefund.Basedonourcurrentfinancialprojectionsregardingtheamountandtimingoffuturedistributionstothefundinvestor,wedonotexpecttomakeanypaymentsasaresultofthisguaranteeandhasnotaccruedanyliabilitiesforthisguarantee.Theamountofpotentialfuturepaymentsunderthisguaranteeisdependentontheamountandtimingoffuturedistributionstothefundinvestorandfuturetaxbenefitsthataccruetothefundinvestor.Duetotheuncertaintiessurroundingestimatingtheamountsofthesefactors,weareunabletoestimatethemaximumpotentialpaymentsunderthisguarantee.Todate,thefundinvestorhasachievedthespecifiedminimuminternalrateofreturnasdeterminedinaccordancewiththecontractualprovisionsofthefund.

AsdisclosedinNote19,theleasepass-throughfinancingfundshaveaone-timeleasepaymentresetmechanismthatoccursaftertheinstallationofallsolarenergysystemsinafund.Asaresultofthismechanism,wemayberequiredtorefundmasterleaseprepaymentspreviouslyreceivedfrominvestors.Anyrefundsofmasterleaseprepaymentswouldreducetheleasepass-throughfinancingobligation.

LettersofCreditAsofDecember31,2016,wehad$105.1millionofunusedlettersofcreditoutstanding.

Note18–VIEArrangements

SolarCityentersintovariousarrangementswithinvestorstofacilitatefundingandmonetizationofsolarenergysystems.ThesearrangementsincludethosedescribedinthisNote,aswellasthosedescribedinNote19,LeasePass-ThroughFinancingObligation.

FundArrangementsSolarCityhasanumberoffinancingfundsthatwereformedbywhollyownedsubsidiariesofSolarCityandfund

investors.Thesearrangementswerecreatedtofacilitatefundingandmonetizationofsolarenergysystems.Thefollowingtableshowsthenumberoffundsbyinvestorclassification,carryingvalueofthesolarenergysystemsinthefunds,totalinvestorcontributionsreceivedandundrawninvestorcontributionsasofDecember31,2016(inthousands,exceptfornumberoffunds,andunaudited)forfundsthathavebeendeterminedtobeVIEs:

InvestorClassification Numberoffunds

TotalInvestorContributionsReceived

UndrawnInvestorContributions

CarryingValueofSolarEnergySystems

Financialinstitutions 34 $ 2,623,918 $ 106,850 $ 3,085,024Corporations 8 1,020,058 130,209 1,353,193Utilities 4 278,888 35,033 178,280Otherinvestors 1 1,788 — 1,946Total 47 $ 3,924,652 $ 272,092 $ 4,618,443

WehavedeterminedthatthefundsareVIEsandwearetheprimarybeneficiaryoftheseVIEsbyreferencetothepowerand

benefitscriterionunderASC810,Consolidation.Wehaveconsideredtheprovisionswithinthecontractualagreements,whichgrantitpowertomanageandmakedecisionsthataffecttheoperationoftheseVIEs,includingdeterminingthesolarenergysystemsandassociatedcustomercontractstobesoldorcontributedtotheseVIEsandtheredeploymentofsolarenergysystemsandmanagementofcustomerreceivables.Weconsiderthattherightsgrantedtothefundinvestorsunderthecontractualagreementsaremoreprotectiveinnatureratherthanparticipating.

AstheprimarybeneficiaryoftheseVIEs,weconsolidateinourfinancialstatementsthefinancialposition,resultsofoperationsandcashflowsoftheseVIEs,andallintercompanybalancesandtransactionsbetweenusandtheseVIEsareeliminatedintheconsolidatedfinancialstatements.Cashdistributionsofincomeandotherreceiptsbyafund,netofagreeduponexpenses,estimatedexpenses,taxbenefitsanddetrimentsofincomeandlossandtaxcredits,areallocatedtothefundinvestorandoursubsidiaryasspecifiedincontractualagreements.

Generally,oursubsidiaryhastheoptiontoacquirethefundinvestor’sinterestinthefundforanamountbasedonthemarketvalueofthefundortheformulaspecifiedinthecontractualagreements.

AsofDecember31,2016,wewerecontractuallyrequiredtomakepaymentstoafundinvestorinordertoensuretheinvestorisprojectedtoachieveaspecifiedminimumreturnannually.TheamountsofanypotentialfuturepaymentsunderthisguaranteearedependentontheamountsandtimingoffutureDistributionstotheinvestorfromthefund,thetaxbenefitsthataccruetotheinvestorfromthefund’sactivitiesandtheamountandtimingofourpurchaseoftheinvestor’sinterestinthefundortheamountandtimingofthedistributionstotheinvestoruponliquidationofthefund.Duetouncertaintiesassociatedwithestimatingtheamountandtimingofdistributionstotheinvestorandthepossibilityandtimingoftheliquidationofthefund,weareunabletodeterminethepotentialmaximumfuturepaymentsthatitwouldhavetomakeunderthisguarantee.

Uponthesaleorliquidationofafund,distributionswouldoccurintheorderandpriorityspecifiedinthecontractualagreements.

Pursuanttomanagementservices,maintenanceandwarrantyarrangements,wehavebeencontractedtoprovideservicestothefunds,suchasoperationsandmaintenancesupport,accounting,leaseservicingandperformancereporting.Insomeinstances,wehaveguaranteedpaymentstotheinvestorsasspecifiedinthecontractualagreements.Afund’screditorshavenorecoursetoourgeneralcreditortothatofotherfunds.Noneoftheassetsofthefundshadbeenpledgedascollateralfortheirobligations.

WepresentthesolarenergysystemsintheVIEsundersolarenergysystems,leasedandtobeleased–netinourConsolidatedBalanceSheets.TheaggregatecarryingvaluesoftheVIEs’assetsandliabilities,aftereliminationofintercompanytransactionsandbalances,inourConsolidatedBalanceSheetswereasfollows(inthousands):

December31,2016 Assets Currentassets:

CashandCashequivalents $ 44,091Restrictedcash 20,916Accountsreceivable-net 16,023Rebatesreceivable 6,646Prepaidexpensesandothercurrentassets 7,532

Totalcurrentassets 95,208Solarenergysystems,leasedandtobeleased-net 4,618,443Otherassets 35,826Totalassets $ 4,749,477Liabilities Currentliabilities:

AccountsPayable $ 20Distributionspayabletononcontrollinginterestsandredeemablenoncontrollinginterests 24,085Accruedandothercurrentliabilities 8,157Customerdeposits 1,169Currentportionofdeferredrevenue 17,114Currentportionoflong-termdebt 89,356

Totalcurrentliabilities 139,901Deferredrevenue,netofcurrentportion 178,783Long-termdebt,netofcurrentportion 466,741Otherliabilitiesanddeferredcosts 82,917TotalLiabilities $ 868,342

Wearecontractuallyobligatedtomakecertainfundinvestorswholeiftheysuffercertainlossesresultingfromthe

disallowanceorrecaptureofITCsorU.S.Treasurygrants.WeaccountfordistributionsduetothefundinvestorsarisingfromareductionofanticipatedITCsorU.S.TreasurygrantsreceivedunderdistributionspayabletononcontrollinginterestsandredeemablenoncontrollinginterestsinourConsolidatedBalanceSheets.AsofDecember31,2016,wehadaccrued$0.3millionforthisobligation.Note19-LeasePass-ThroughFinancingObligation

ThroughDecember31,2016,SolarCityhadenteredintoeighttransactionsreferredtoas“leasepass-throughfundarrangements.”Underthesearrangements,ourwhollyownedsubsidiariesfinancethecostofsolarenergysystemswithinvestorsthrougharrangementscontractuallystructuredasmasterleasesforaninitialtermrangingbetween10and25years.Thesesolarenergysystemsaresubjecttoleaseorpowerpurchaseagreementswithcustomerswithaninitialtermnotexceeding20years.Thesesolarenergysystemsareincludedundersolarenergysystems,leasedandtobeleased–netinourConsolidatedBalanceSheets.

Thecostofthesolarenergysystemsundertheleasepass-throughfundarrangementsasofDecember31,2016was$785.3million.TheaccumulateddepreciationrelatedtotheseassetsasofDecember31,2016was$2.1million.Thetotalleasepass-throughfinancingobligationasofDecember31,2016was$122.3million,ofwhich$51.5millionwasclassifiedascurrentliabilities.

Underleasepass-throughfundarrangements,theinvestorsmakealargeupfrontpaymenttothelessor,whichisoneofour

subsidiaries,andinsomecases,subsequentperiodicpayments.WeallocateaportionoftheaggregatepaymentsreceivedfromtheinvestorstotheestimatedfairvalueoftheassignedITCs,andthebalancetothefuturecustomerleasepaymentsthatarealsoassignedtotheinvestors.TheestimatedfairvalueoftheITCsaredeterminedbydiscountingtheestimatedcashflowsimpactoftheITCsusinganappropriatediscountratethatreflectsamarketinterestrate.WehaveanobligationtoensurethesolarenergysystemisinserviceandoperationalforatermoffiveyearstoavoidanyrecaptureoftheITCs.TheamountsallocatedtoITCsareinitiallyrecordedasdeferredrevenueonourConsolidatedBalanceSheets,andsubsequently,one-fifthoftheamountsallocatedtoITCsisrecognizedasrevenuefromoperatingleasesandsolarenergysystemsincentivesonourConsolidatedStatementsofOperationsoneachanniversaryofthesolarenergysystem’splacedinservicedateoverthenextfiveyears.

Weaccountfortheresidualofthepaymentsreceivedfromtheinvestorsasaborrowingbyrecordingtheproceedsreceivedasaleasepass-throughfinancingobligation,whichisrepaidfromcustomerpaymentsandincentiverebatesthatareexpectedtobereceivedbytheinvestors.Underthisapproach,wecontinuetoaccountforthearrangementwiththecustomersinitsconsolidatedfinancialstatements,whetherthecashgeneratedfromthecustomerarrangementsisreceivedbyusorpaiddirectlytotheinvestors.Aportionoftheamountsreceivedbytheinvestorsfromcustomerpaymentsandincentiverebatesisappliedtoreducetheleasepass-throughfinancingobligation,andthebalanceisallocatedtointerestexpense.Theincentiverebatesandcustomerpaymentsarerecognizedintorevenueconsistentwithourrevenuerecognitionaccountingpolicy.Interestiscalculatedontheleasepass-throughfinancingobligationusingtheeffectiveinterestratemethod.Theeffectiveinterestrateistheinterestratethatequatesthepresentvalueofthecashamountstobereceivedbyaninvestoroverthemasterleasetermwiththepresentvalueofthecashamountspaidbytheinvestortous,adjustedforanypaymentsmadebyus.Theleasepass-throughfinancingobligationisnon-recourseoncetheassociatedassetshavebeenplacedinserviceandallthecustomerarrangementshavebeenassignedtotheinvestors.

AsofDecember31,2016,thefutureminimumleasepaymentstobereceivedfromtheinvestorsbasedonthesolarenergysystemscurrentlyundertheleasepass-throughfundarrangements,foreachofthenextfiveyearsandthereafter,wereasfollows(inthousands):

2017 $ 37,2082018 37,6532019 36,3712020 35,6222021 35,413Thereafter 381,289Total $ 563,556

Fortwooftheleasepass-throughfundarrangements,oursubsidiarieshavepledgeditsassetstotheinvestorsassecurityfor

theirobligationsunderthecontractualagreements.

Foreachoftheleasepass-throughfundarrangements,wearerequiredtocomplywithcertainfinancialcovenantsspecifiedinthecontractualagreements,whichwehadmetasofDecember31,2016.

Undertheleasepass-throughfundarrangements,weareresponsibleforanywarranties,performanceguarantees,accountingandperformancereporting.

Undertheleasepass-throughfundarrangements,thereisaone-timefutureleasepaymentresetmechanismthatissettooccurafterallofthesolarenergysystemsaredeliveredandplacedinserviceinafund.Thisresetdateoccurswhentheinstalledcapacityofthesolarenergysystemsandplacedin-servicedatesareknownoronanagreedupondate.Aspartofthisresetprocess,theleaseprepaymentisupdatedtoreflectcertainspecifiedconditionsastheyexistatsuchdate,includingthefinalinstalledcapacity,costandin-servicedatesofthesolarenergysystems.Asaresultofthisresetprocess,wemaybeobligatedtorefundaportionofaninvestor’smasterleaseprepaymentsormaybeentitledtoreceiveanadditionalmasterleaseprepaymentfromaninvestor.Anyadditionalmasterleaseprepaymentsbyaninvestorwouldberecordedasanadditionalleasepass-throughfinancingobligation,whileanyrefundsofmasterleaseprepaymentswouldreducetheleasepass-throughfinancingobligation.

Note20-DefinedContributionPlan

Wehavea401(k)savingsplan(“the401(k)plan”)whichqualifiesasadeferredsalaryarrangementundersection401(k)oftheInternalRevenueCode.Underthe401(k)plan,participatingemployeesmayelecttocontributeupto100%oftheireligiblecompensation,subjecttocertainlimitations.WeassumedtheSolarCity401(k)plan,ortheRetirementPlan,availabletoemployeeswhomeettheRetirementPlan’seligibilityrequirements.ParticipantsmayelecttocontributeapercentageoftheircompensationtotheRetirementPlan,uptoastatutorylimit.Participantsarefullyvestedintheircontributions.WedidnotmakeanycontributionstotheRetirementPlanduringtheyearsendedDecember31,2016,2015and2014.Note21–RelatedPartyTransactions

ThroughtheSolarCityacquisition,wehaveenteredintothefollowingrelatedpartytransactions(inthousands):

December31,2016 Solarbondsissuedtorelatedparties $ 265,100Convertibleseniornotesduetorelatedparties 13,000Duetorelatedparties(primarilyaccruedinterestontheSolarBondsandConvertibleSeniornotes,includedinaccruedandothercurrentliabilities) $ 5,136

TherelatedpartytransactionswereprimarilyissuancesandmaturitiesofSolarBondsheldbySpaceX,ourChiefExecutive

Officer,SolarCity’sChiefExecutiveOfficer,andSolarCity’sChiefTechnologyOfficerandissuancesofconvertibleseniornotestoanentityaffiliatedwithourChiefExecutiveOfficerandSolarCity’sChiefExecutiveOfficer.SpaceXisconsideredarelatedpartybecauseourChiefExecutiveOfficeristheChiefExecutiveOfficer,ChiefTechnologyOfficer,Chairman,andasignificantstockholderofSpaceX.

AsofDecember31,2016,SpaceXheld$90.0millioninaggregateprincipalamountof4.40%SolarBondsdueinMarch2017and$75.0millioninaggregateprincipalamountof4.40%SolarBondsdueinJune2017.Inaddition,ourChiefExecutiveOfficer,SolarCity’sChiefExecutiveOfficer,andSolarCity’sChiefTechnologyOfficercollectivelyheld$100.0millioninaggregateprincipalamountof6.50%SolarBondsdueinFebruary2018.

FromtheAcquisitionDatethroughDecember31,2016,theinterestexpenserecognizedfordebtheldbyrelatedpartieswasnotmaterial.Note22-QuarterlyResultsofOperations(Unaudited)

ThefollowingtableincludesselectedquarterlyresultsofoperationsdatafortheyearsendedDecember31,2016and2015(inthousands,exceptpershareamounts):

Threemonthsended March31 June30 September30 December31 2016 Totalrevenues $ 1,147,048 $ 1,270,017 $ 2,298,436 $ 2,284,631Grossprofit 252,468 274,776 636,735 435,278Netincome(loss)attributabletocommonstockholders (282,267) (293,188) 21,878 (121,337)Netincome(loss)pershareofcommonstockattributabletocommonstockholders,basic (2.13) (2.09) 0.15 (0.78)Netincome(loss)pershareofcommonstockattributabletocommonstockholders,diluted (2.13) (2.09) 0.14 (0.78)2015 Totalrevenues $ 939,880 $ 954,976 $ 936,789 $ 1,214,379Grossprofit 260,073 213,370 231,496 218,564Netlossattributabletocommonstockholders (154,181) (184,227) (229,858) (320,397)Netlosspershareofcommonstockattributabletocommonstockholders,basic (1.22) (1.45) (1.78) (2.44)Netlosspershareofcommonstockattributabletocommonstockholders,diluted (1.22) (1.45) (1.78) (2.44)

Netlosspershareofcommonstockattributabletocommonstockholders,basicanddilutedforthefourquartersofeach

fiscalyearmaynotsumtothetotalfortheyearbecauseofthedifferentnumbersofsharesoutstandingduringeachperiod.Note23–SegmentReportingandInformationaboutGeographicAreas

Weoperateastworeportablesegments:automotiveandenergygenerationandstorage.Theautomotivereportablesegmentincludesthedesign,development,manufacturing,andsalesofelectricvehicles.Theenergygenerationandstoragereportablesegmentincludesthedesign,manufacture,installation,andsaleorleaseofstationaryenergystorageproductsandsolarenergysystemstoresidentialandcommercialcustomers,orsaleofelectricitygeneratedbyoursolarenergysystemstocustomers.

Ourchiefoperatingdecisionmaker(CODM)doesnotevaluateoperatingsegmentsusingassetinformation.

Thefollowingtablessetforthtotalrevenuesandgrossmarginbyreportablesegment(inthousands):

YearEndedDecember31, 2016 2015 2014 Automotive:

Revenues $ 6,818,738 $ 4,031,548 $ 3,194,148Grossprofit 1,596,195 921,313 881,468

Energygenerationandstorage: Revenues 181,394 14,477 4,208Grossprofit 3,062 2,190 203

Thefollowingtablessetforthtotalrevenuesandlong-livedassetsbygeographicarea(inthousands):

TotalRevenues

YearEndedDecember31, 2016 2015 2014 UnitedStates $ 4,200,706 $ 1,957,397 $ 1,471,643China 1,065,255 318,513 477,082Norway 335,572 356,419 412,198Other 1,398,599 1,413,696 837,433

Total $ 7,000,132 $ 4,046,025 $ 3,198,356RevenuesareattributedtogeographicareasbasedonwheretheCompany’sproductsareshipped.

Long-livedAssets

YearEndedDecember31, 2016 2015 UnitedStates $ 11,399,545 $ 3,119,478International 503,294 283,856

Total $ 11,902,839 $ 3,403,334Note24-SubsequentEvents

AcquisitionofGrohmannEngineeringGmbH

OnJanuary3,2017,wecompletedtheacquisitionofGrohmannEngineeringGmbHforapproximately$150millionincash.Managementiscurrentlydeterminingthefairvalueofassetsacquiredandliabilitiesassumednecessarytoevaluatethepurchasepriceallocationforthistransaction.NewDebtFacility

OnJanuary27,2017,asubsidiaryoftheCompanyissued$145.0millioninaggregateprincipalofsolarloan-backednoteswithafinalmaturitydateofSeptember2049.Thesolarloan-backednotesaresecuredbycertaincustomerloansundertheMyPowerprogram.

ITEM9. CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGANDFINANCIAL

DISCLOSURENotapplicable.

ITEM9A. CONTROLSANDPROCEDURESEvaluationofDisclosureControlsandProcedures

WeconductedanevaluationasofDecember31,2016,underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,oftheeffectivenessofthedesignandoperationofourdisclosurecontrolsandprocedures.Baseduponthatevaluation,ourChiefExecutiveOfficerandChiefFinancialOfficerconcludedthat,asofDecember31,2016,ourdisclosurecontrolsandprocedureswereeffectivetoprovidereasonableassurance.

Management’sReportonInternalControloverFinancialReportingOurmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.Internal

controloverfinancialreportingisaprocessdesignedby,orunderthesupervisionof,ourChiefExecutiveOfficerandChiefFinancialOfficertoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciplesandincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthatinreasonabledetailaccuratelyandfairlyreflectthetransactionsanddispositionsofourassets;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatourreceiptsandexpendituresarebeingmadeonlyinaccordancewithauthorizationsofourmanagementanddirectors;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,useordispositionofourassetsthatcouldhaveamaterialeffectonthefinancialstatements.

Underthesupervisionandwiththeparticipationofourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,weconductedanevaluationoftheeffectivenessofourinternalcontroloverfinancialreportingbasedoncriteriaestablishedin“InternalControl—IntegratedFramework(2013)”issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).OurmanagementconcludedthatourinternalcontroloverfinancialreportingwaseffectiveasofDecember31,2016.

WeacquiredSolarCityonNovember21,2016inapurchasebusinesscombination.WeexcludedfromourassessmentofinternalcontroloverfinancialreportingasofDecember31,2016,theinternalcontroloverfinancialreportingofSolarCity.AssociatedwithSolarCityaretotalassetsof$8.78billion(ofwhich$352.9millionrepresentsintangibleassetssubjecttoourinternalcontroloverfinancialreportingasofDecember31,2016)andtotalrevenuesof$84.1millionincludedinourconsolidatedfinancialstatementsasofandforthefiscalyearendedDecember31,2016.

Ourindependentregisteredpublicaccountingfirm,PricewaterhouseCoopersLLP,hasauditedtheeffectivenessofourinternalcontroloverfinancialreportingasofDecember31,2016asstatedintheirreportwhichisincludedherein.

LimitationsontheEffectivenessofControlsBecauseofinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatementsand

projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.

ChangesinInternalControloverFinancialReportingTherewasnochangeinourinternalcontroloverfinancialreportingwhichoccurredduringthefourthfiscalquarterofthe

yearendedDecember31,2016whichhasmateriallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.

ITEM9B. OTHERINFORMATIONNone

PARTIII

ITEM10. DIRECTORS,EXECUTIVEOFFICERSANDCORPORATEGOVERNANCETheinformationrequiredbythisItem10ofForm10-Kwillbeincludedinour2017ProxyStatementtobefiledwiththe

SECinconnectionwiththesolicitationofproxiesforour2017AnnualMeetingofStockholders(2017ProxyStatement)andisincorporatedhereinbyreference.The2017ProxyStatementwillbefiledwiththeSECwithin120daysaftertheendofthefiscalyeartowhichthisreportrelates.

ITEM11. EXECUTIVECOMPENSATIONTheinformationrequiredbythisItem11ofForm10-Kwillbeincludedinour2017ProxyStatementandisincorporated

hereinbyreference.

ITEM12. SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS

TheinformationrequiredbythisItem12ofForm10-Kwillbeincludedinour2017ProxyStatementandisincorporatedhereinbyreference.

ITEM13. CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTORINDEPENDENCETheinformationrequiredbythisItem13ofForm10-Kwillbeincludedinour2017ProxyStatementandisincorporated

hereinbyreference.

ITEM14. PRINCIPALACCOUNTANTFEESANDSERVICESTheinformationrequiredbythisItem14ofForm10-Kwillbeincludedinour2017ProxyStatementandisincorporated

hereinbyreference.ITEM15. EXHIBITSANDFINANCIALSTATEMENTSCHEDULES(a)Thefollowingdocumentsarefiledaspartofthisreport:1. FinancialStatements.See“IndextoConsolidatedFinancialStatements”inPartII,Item8ofthisAnnualReport.2. Allfinancialstatementscheduleshavebeenomitted,sincetherequiredinformationisnotapplicableorisnotpresentin

amountssufficienttorequiresubmissionoftheschedule,orbecausetheinformationrequiredisincludedintheconsolidatedfinancialstatementsandnotesthereto.

3. Exhibits.Theexhibitslistedintheaccompanying“IndextoExhibits”arefiledorincorporatedbyreferenceaspartofthisAnnualReportonForm10-K.

INDEXTOEXHIBITS

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

2.1

AgreementandPlanofMerger,datedasofJuly31,2016,amongtheRegistrant,SolarCityCorporationandDSubsidiary,Inc.

8-K 001-34756 2.1 August1,2016

3.1AmendedandRestatedCertificateofIncorporationoftheRegistrant.

— — — —

X

3.2

CertificateofAmendmenttotheAmendedandRestatedCertificateofIncorporationoftheRegistrant.

— — — —

X

3.3AmendedandRestatedBylawsoftheRegistrant.

8-K 001-34756 3.3 February1,2017

4.1SpecimencommonstockcertificateoftheRegistrant.

— — — —

X

4.2

FifthAmendedandRestatedInvestors’RightsAgreement,datedasofAugust31,2009,betweenRegistrantandcertainholdersoftheRegistrant’scapitalstocknamedtherein.

S-1 333-164593 4.2 January29,2010

4.3

AmendmenttoFifthAmendedandRestatedInvestors’RightsAgreement,datedasofMay20,2010,betweenRegistrantandcertainholdersoftheRegistrant’scapitalstocknamedtherein.

S-1/A 333-164593 4.2A May27,2010

4.4

AmendmenttoFifthAmendedandRestatedInvestors’RightsAgreementbetweenRegistrant,ToyotaMotorCorporationandcertainholdersoftheRegistrant’scapitalstocknamedtherein.

S-1/A 333-164593 4.2B May27,2010

4.5

AmendmenttoFifthAmendedandRestatedInvestor’sRightsAgreement,datedasofJune14,2010,betweenRegistrantandcertainholdersoftheRegistrant’scapitalstocknamedtherein.

S-1/A 333-164593 4.2C June15,2010

4.6

AmendmenttoFifthAmendedandRestatedInvestor’sRightsAgreement,datedasofNovember2,2010,betweenRegistrantandcertainholdersoftheRegistrant’scapitalstocknamedtherein.

8-K 001-34756 4.1 November4,2010

4.7

WaivertoFifthAmendedandRestatedInvestor’sRightsAgreement,datedasofMay25,2011,betweenRegistrantandcertainholdersoftheRegistrant’scapitalstocknamedtherein.

S-1/A 333-174466 4.2E June2,2011

4.8

AmendmenttoFifthAmendedandRestatedInvestor’sRightsAgreement,datedasofMay30,2011,betweenRegistrantandcertainholdersoftheRegistrant’scapitalstocknamedtherein.

8-K 001-34756 4.1 June1,2011

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.9

SixthAmendmenttoFifthAmendedandRestatedInvestors’RightsAgreement,datedasofMay15,2013amongtheRegistrant,theElonMuskRevocableTrustdatedJuly22,2003andcertainotherholdersofthecapitalstockoftheRegistrantnamedtherein.

8-K 001-34756 4.1 May20,2013

4.10

WaivertoFifthAmendedandRestatedInvestor’sRightsAgreement,datedasofMay14,2013,betweentheRegistrantandcertainholdersofthecapitalstockoftheRegistrantnamedtherein.

8-K 001-34756 4.2 May20,2013

4.11

WaivertoFifthAmendedandRestatedInvestor’sRightsAgreement,datedasofAugust13,2015,betweentheRegistrantandcertainholdersofthecapitalstockoftheRegistrantnamedtherein.

8-K 001-34756 4.1 August19,2015

4.12

WaivertoFifthAmendedandRestatedInvestors’RightsAgreement,datedasofMay18,2016,betweentheRegistrantandcertainholdersofthecapitalstockoftheRegistrantnamedtherein.

8-K 001-34756 4.1 May24,2016

4.13

Indenture,datedasofMay22,2013,byandbetweentheRegistrantandU.S.BankNationalAssociation.

8-K 001-34756 4.1 May22,2013

4.13

FirstSupplementalIndenture,datedasofMay22,2013,byandbetweentheRegistrantandU.S.BankNationalAssociation.

8-K 001-34756 4.2 May22,2013

4.15

Formof1.50%ConvertibleSeniorNoteDueJune1,2018(includedinExhibit4.4).

8-K 001-34756 4.3 May22,2013

4.16

SecondSupplementalIndenture,datedasofMarch5,2014,byandbetweentheRegistrantandU.S.BankNationalAssociation.

8-K 001-34756 4.2 March5,2014

4.17

Formof0.25%ConvertibleSeniorNoteDueMarch1,2019(includedinExhibit4.6).

8-K 001-34756 4.3 March5,2014

4.18

ThirdSupplementalIndenture,datedasofMarch5,2014,byandbetweentheRegistrantandU.S.BankNationalAssociation.

8-K 001-34756 4.4 March5,2014

4.19

Formof1.25%ConvertibleSeniorNoteDueMarch1,2021(includedinExhibit4.8).

8-K 001-34756 4.5 March5,2014

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.20

Indenture,datedasofOctober21,2013,byandbetweenSolarCityCorporationandWellsFargoBankNationalAssociation,includingtheformofconvertibleseniornotescontainedtherein.

8-K(1) 001-35758 4.1 October21,2013

4.21

FirstSupplementalIndenture,datedasofNovember21,2016,betweenSolarCityCorporationandWellsFargoBank,NationalAssociation,astrusteetotheIndenture,datedasofOctober21,2013,betweenSolarCityCorporationandWellsFargoBank,NationalAssociation,astrustee.

8-K 001-34756 4.1 November21,2016

4.22

Indenture,datedasofSeptember30,2014,betweenSolarCityandWellsFargoBank,NationalAssociation

8-K(1) 001-35758 4.1 October6,2014

4.23

FirstSupplementalIndenture,datedasofNovember21,2016,betweenSolarCityCorporationandWellsFargoBank,NationalAssociation,astrusteetotheIndenture,datedasofSeptember30,2014,betweenSolarCityCorporationandWellsFargoBank,NationalAssociation,astrustee.

8-K 001-34756 4.2 November21,2016

4.24

Indenture,datedasofDecember7,2015,betweenSolarCityCorporationandWellsFargoBank,NationalAssociation

8-K(1) 001-35758 4.1 December7,2015

4.25

FirstSupplementalIndenture,datedasofNovember21,2016,betweenSolarCityCorporationandWellsFargoBank,NationalAssociation,astrusteetotheIndenture,datedasofDecember7,2015,betweenSolarCityCorporationandWellsFargoBank,NationalAssociation,astrustee.

8-K 001-34756 4.3 November21,2016

4.26 Indenture,datedasofOctober15,2014,betweenSolarCityCorporationandU.S.BankNationalAssociation,astrustee.

S-3ASR(1) 333-199321 4.1 October15,2014

4.27 ThirdSupplementalIndenture,datedasofOctober15,2014,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.00%SolarBonds,Series2014/3-3.

8-K(1) 001-35758 4.4 October15,2014

4.28 FourthSupplementalIndenture,datedasofOctober15,2014,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.00%SolarBonds,Series2014/4-7

8-K(1) 001-35758 4.5 October15,2014

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.29 SeventhSupplementalIndenture,datedasofJanuary29,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.00%SolarBonds,Series2015/3-3.

8-K(1) 001-35758 4.4 January29,2015

4.30 EighthSupplementalIndenture,datedasofJanuary29,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.00%SolarBonds,Series2015/4-7.

8-K(1) 001-35758 4.5 January29,2015

4.31 NinthSupplementalIndenture,datedasofMarch9,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.00%SolarBonds,Series2015/5-5.

8-K(1) 001-35758 4.2 March9,2015

4.32 TenthSupplementalIndenture,datedasofMarch9,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.00%SolarBonds,Series2015/6-10.

8-K(1) 001-35758 4.3 March9,2015

4.33 EleventhSupplementalIndenture,datedasofMarch9,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.75%SolarBonds,Series2015/7-15.

8-K(1) 001-35758 4.4 March9,2015

4.34 ThirteenthSupplementalIndenture,datedasofMarch19,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.60%SolarBonds,Series2015/C2-3.

8-K(1) 001-35758 4.3 March19,2015

4.35 FourteenthSupplementalIndenture,datedasofMarch19,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C3-5.

8-K(1) 001-35758 4.4 March19,2015

4.36 FifteenthSupplementalIndenture,datedasofMarch19,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C4-10.

8-K(1) 001-35758 4.5 March19,2015

4.37 SixteenthSupplementalIndenture,datedasofMarch19,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C5-15.

8-K(1) 001-35758 4.6 March19,2015

4.38 EighteenthSupplementalIndenture,datedasofMarch26,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C7-3.

8-K(1) 001-35758 4.3 March26,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.39 NineteenthSupplementalIndenture,datedasofMarch26,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C8-5.

8-K(1) 001-35758 4.4 March26,2015

4.40 TwentiethSupplementalIndenture,datedasofMarch26,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C9-10.

8-K(1) 001-35758 4.5 March26,2015

4.41 Twenty-FirstSupplementalIndenture,datedasofMarch26,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C10-15.

8-K(1) 001-35758 4.6 March26,2015

4.42 Twenty-FourthSupplementalIndenture,datedasofApril2,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C12-3.

8-K(1) 001-35758 4.3 April2,2015

4.43 Twenty-FifthSupplementalIndenture,datedasofApril2,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C13-5.

8-K(1) 001-35758 4.4 April2,2015

4.44 Twenty-SixthSupplementalIndenture,datedasofApril2,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C14-10.

8-K(1) 001-35758 4.5 April2,2015

4.45 Twenty-EighthSupplementalIndenture,datedasofApril9,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C17-3.

8-K(1) 001-35758 4.3 April9,2015

4.46 Twenty-NinthSupplementalIndenture,datedasofApril9,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C18-5.

8-K(1) 001-35758 4.4 April9,2015

4.47 ThirtiethSupplementalIndenture,datedasofApril9,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C19-10.

8-K(1) 001-35758 4.5 April9,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.48 Thirty-FirstSupplementalIndenture,datedasofApril9,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C20-15.

8-K(1) 001-35758 4.6 April9,2015

4.49 Thirty-ThirdSupplementalIndenture,datedasofApril14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C22-3.

8-K(1) 001-35758 4.3 April14,2015

4.50 Thirty-FourthSupplementalIndenture,datedasofApril14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C23-5.

8-K(1) 001-35758 4.4 April14,2015

4.51 Thirty-FifthSupplementalIndenture,datedasofApril14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C24-10.

8-K(1) 001-35758 4.5 April14,2015

4.52 Thirty-SixthSupplementalIndenture,datedasofApril14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C25-15.

8-K(1) 001-35758 4.6 April14,2015

4.53 Thirty-EighthSupplementalIndenture,datedasofApril21,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C27-10.

8-K(1) 001-35758 4.3 April21,2015

4.54 Thirty-NinthSupplementalIndenture,datedasofApril21,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C28-15.

8-K(1) 001-35758 4.4 April21,2015

4.55 Forty-FirstSupplementalIndenture,datedasofApril27,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C30-3.

8-K(1) 001-35758 4.3 April27,2015

4.56 Forty-SecondSupplementalIndenture,datedasofApril27,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C31-5.

8-K(1) 001-35758 4.4 April27,2015

4.57 Forty-ThirdSupplementalIndenture,datedasofApril27,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C32-10.

8-K(1) 001-35758 4.5 April27,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.58 Forty-FourthSupplementalIndenture,datedasofApril27,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C33-15.

8-K(1) 001-35758 4.6 April27,2015

4.59 Forty-SixthSupplementalIndenture,datedasofMay1,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.00%SolarBonds,Series2015/10-3.

8-K(1) 001-35758 4.3 May1,2015

4.60 Forty-SeventhSupplementalIndenture,datedasofMay1,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.00%SolarBonds,Series2015/11-5.

8-K(1) 001-35758 4.4 May1,2015

4.61 Forty-EighthSupplementalIndenture,datedasofMay1,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.00%SolarBonds,Series2015/12-10.

8-K(1) 001-35758 4.5 May1,2015

4.62 Forty-NinthSupplementalIndenture,datedasofMay1,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.75%SolarBonds,Series2015/13-15.

8-K(1) 001-35758 4.6 May1,2015

4.63 FiftiethSupplementalIndenture,datedasofMay11,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C34-3.

8-K(1) 001-35758 4.2 May11,2015

4.64 Fifty-FirstSupplementalIndenture,datedasofMay11,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C35-5.

8-K(1) 001-35758 4.3 May11,2015

4.65 Fifty-SecondSupplementalIndenture,datedasofMay11,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C36-10.

8-K(1) 001-35758 4.4 May11,2015

4.66 Fifty-ThirdSupplementalIndenture,datedasofMay11,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C37-15.

8-K(1) 001-35758 4.5 May11,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.67 Fifty-FourthSupplementalIndenture,datedasofMay14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.50%SolarBonds,Series2015/14-2.

8-K(1) 001-35758 4.2 May14,2015

4.68 Fifty-FifthSupplementalIndenture,datedasofMay18,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C38-3.

8-K(1) 001-35758 4.2 May18,2015

4.69 Fifty-SixthSupplementalIndenture,datedasofMay18,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C39-5.

8-K(1) 001-35758 4.3 May18,2015

4.70 Fifty-SeventhSupplementalIndenture,datedasofMay18,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C40-10.

8-K(1) 001-35758 4.4 May18,2015

4.71 Fifty-EighthSupplementalIndenture,datedasofMay18,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C41-15.

8-K(1) 001-35758 4.5 May18,2015

4.72 Fifty-NinthSupplementalIndenture,datedasofMay26,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C42-3.

8-K(1) 001-35758 4.2 May26,2015

4.73 SixtiethSupplementalIndenture,datedasofMay26,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C43-5.

8-K(1) 001-35758 4.3 May26,2015

4.74 Sixty-FirstSupplementalIndenture,datedasofMay26,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C44-10.

8-K(1) 001-35758 4.4 May26,2015

4.75 Sixty-SecondSupplementalIndenture,datedasofMay26,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C45-15.

8-K(1) 001-35758 4.5 May26,2015

4.76 Sixty-FourthSupplementalIndenture,datedasofJune8,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C46-3.

8-K(1) 001-35758 4.2 June10,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.77 Sixty-FifthSupplementalIndenture,datedasofJune8,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C47-5.

8-K(1) 001-35758 4.3 June10,2015

4.78 Sixty-SixthSupplementalIndenture,datedasofJune8,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C48-10.

8-K(1) 001-35758 4.4 June10,2015

4.79 Sixty-SeventhSupplementalIndenture,datedasofJune8,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C49-15.

8-K(1) 001-35758 4.5 June10,2015

4.80 Sixty-EighthSupplementalIndenture,datedasofJune16,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C50-3.

8-K(1) 001-35758 4.2 June16,2015

4.81 Sixty-NinthSupplementalIndenture,datedasofJune16,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C51-5.

8-K(1) 001-35758 4.3 June16,2015

4.82 SeventiethSupplementalIndenture,datedasofJune16,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C52-10.

8-K(1) 001-35758 4.4 June16,2015

4.83 Seventy-FirstSupplementalIndenture,datedasofJune16,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C53-15.

8-K(1) 001-35758 4.5 June16,2015

4.84 Seventy-SecondSupplementalIndenture,datedasofJune22,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C54-3.

8-K(1) 001-35758 4.2 June23,2015

4.85 Seventy-ThirdSupplementalIndenture,datedasofJune22,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C55-5.

8-K(1) 001-35758 4.3 June23,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.86 Seventy-FourthSupplementalIndenture,datedasofJune22,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C56-10.

8-K(1) 001-35758 4.4 June23,2015

4.87 Seventy-FifthSupplementalIndenture,datedasofJune22,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C57-15.

8-K(1) 001-35758 4.5 June23,2015

4.88 Seventy-EighthSupplementalIndenture,datedasofJune29,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C59-3.

8-K(1) 001-35758 4.3 June29,2015

4.89 Seventy-NinthSupplementalIndenture,datedasofJune29,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C60-5.

8-K(1) 001-35758 4.4 June29,2015

4.90 EightiethSupplementalIndenture,datedasofJune29,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C61-10.

8-K(1) 001-35758 4.5 June29,2015

4.91 Eighty-FirstSupplementalIndenture,datedasofJune29,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C62-15.

8-K(1) 001-35758 4.6 June29,2015

4.92 Eighty-ThirdSupplementalIndenture,datedasofJuly14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C64-3.

8-K(1) 001-35758 4.3 July14,2015

4.93 Eighty-FourthSupplementalIndenture,datedasofJuly14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C65-5.

8-K(1) 001-35758 4.4 July14,2015

4.94 Eighty-FifthSupplementalIndenture,datedasofJuly14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C66-10.

8-K(1) 001-35758 4.5 July14,2015

4.95 Eighty-SixthSupplementalIndenture,datedasofJuly14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C67-15.

8-K(1) 001-35758 4.6 July14,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.96 Eighty-EighthSupplementalIndenture,datedasofJuly20,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C69-3.

8-K(1) 001-35758 4.3 July21,2015

4.97 Eighty-NinthSupplementalIndenture,datedasofJuly20,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C70-5.

8-K(1) 001-35758 4.4 July21,2015

4.98 NinetiethSupplementalIndenture,datedasofJuly20,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C71-10.

8-K(1) 001-35758 4.5 July21,2015

4.99 Ninety-FirstSupplementalIndenture,datedasofJuly20,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C72-15.

8-K(1) 001-35758 4.6 July21,2015

4.100 Ninety-ThirdSupplementalIndenture,datedasofJuly31,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.00%SolarBonds,Series2015/18-3.

8-K(1) 001-35758 4.3 July31,2015

4.101 Ninety-FourthSupplementalIndenture,datedasofJuly31,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.00%SolarBonds,Series2015/19-5.

8-K(1) 001-35758 4.4 July31,2015

4.102 Ninety-FifthSupplementalIndenture,datedasofJuly31,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.00%SolarBonds,Series2015/20-10.

8-K(1) 001-35758 4.5 July31,2015

4.103 Ninety-SixthSupplementalIndenture,datedasofJuly31,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.75%SolarBonds,Series2015/21-15.

8-K(1) 001-35758 4.6 July31,2015

4.104 Ninety-EighthSupplementalIndenture,datedasofAugust3,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C74-3.

8-K(1) 001-35758 4.3 August3,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.105 Ninety-NinthSupplementalIndenture,datedasofAugust3,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C75-5.

8-K(1) 001-35758 4.4 August3,2015

4.106 OneHundredthSupplementalIndenture,datedasofAugust3,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C76-10.

8-K(1) 001-35758 4.5 August3,2015

4.107 OneHundred-and-FirstSupplementalIndenture,datedasofAugust3,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C77-15.

8-K(1) 001-35758 4.6 August3,2015

4.108 OneHundred-and-ThirdSupplementalIndenture,datedasofAugust10,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C79-3.

8-K(1) 001-35758 4.3 August10,2015

4.109 OneHundred-and-FourthSupplementalIndenture,datedasofAugust10,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C80-5.

8-K(1) 001-35758 4.4 August10,2015

4.110 OneHundred-and-FifthSupplementalIndenture,datedasofAugust10,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C81-10.

8-K(1) 001-35758 4.5 August10,2015

4.111 OneHundred-and-SixthSupplementalIndenture,datedasofAugust10,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C82-15.

8-K(1) 001-35758 4.6 August10,2015

4.112 OneHundred-and-EighthSupplementalIndenture,datedasofAugust17,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C84-3.

8-K(1) 001-35758 4.3 August17,2015

4.113 OneHundred-and-NinthSupplementalIndenture,datedasofAugust17,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C85-5.

8-K(1) 001-35758 4.4 August17,2015

4.114 OneHundred-and-TenthSupplementalIndenture,datedasofAugust17,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C86-10.

8-K(1) 001-35758 4.5 August17,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.115 OneHundred-and-EleventhSupplementalIndenture,datedasofAugust17,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C87-15.

8-K(1) 001-35758 4.6 August17,2015

4.116 OneHundred-and-ThirteenthSupplementalIndenture,datedasofAugust24,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C89-3.

8-K(1) 001-35758 4.3 August24,2015

4.117 OneHundred-and-FourteenthSupplementalIndenture,datedasofAugust24,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C90-5.

8-K(1) 001-35758 4.4 August24,2015

4.118 OneHundred-and-FifteenthSupplementalIndenture,datedasofAugust24,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C91-10.

8-K(1) 001-35758 4.5 August24,2015

4.119 OneHundred-and-SixteenthSupplementalIndenture,datedasofAugust24,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C92-15.

8-K(1) 001-35758 4.6 August24,2015

4.120 OneHundred-and-EighteenthSupplementalIndenture,datedasofAugust31,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C94-3.

8-K(1) 001-35758 4.3 August31,2015

4.121 OneHundred-and-NineteenthSupplementalIndenture,datedasofAugust31,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C95-5.

8-K(1) 001-35758 4.4 August31,2015

4.122 OneHundred-and-TwentiethSupplementalIndenture,datedasofAugust31,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C96-10.

8-K(1) 001-35758 4.5 August31,2015

4.123 OneHundred-and-Twenty-FirstSupplementalIndenture,datedasofAugust31,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C97-15.

8-K(1) 001-35758 4.6 August31,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.124 OneHundred-and-Twenty-SecondSupplementalIndenture,datedasofSeptember11,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’sSolarBonds,Series2015/R1.

8-K(1) 001-35758 4.2 September11,2015

4.125 OneHundred-and-Twenty-ThirdSupplementalIndenture,datedasofSeptember11,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’sSolarBonds,Series2015/R2.

8-K(1) 001-35758 4.3 September11,2015

4.126 OneHundred-and-Twenty-FourthSupplementalIndenture,datedasofSeptember11,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’sSolarBonds,Series2015/R3.

8-K(1) 001-35758 4.4 September11,2015

4.127 OneHundred-and-Twenty-SixthSupplementalIndenture,datedasofSeptember14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C99-3.

8-K(1) 001-35758 4.3 September15,2015

4.128 OneHundred-and-Twenty-SeventhSupplementalIndenture,datedasofSeptember14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C100-5.

8-K(1) 001-35758 4.4 September15,2015

4.129 OneHundred-and-Twenty-EighthSupplementalIndenture,datedasofSeptember14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C101-10.

8-K(1) 001-35758 4.5 September15,2015

4.130 OneHundred-and-Twenty-NinthSupplementalIndenture,datedasofSeptember14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C102-15.

8-K(1) 001-35758 4.6 September15,2015

4.131 OneHundred-and-Thirty-FirstSupplementalIndenture,datedasofSeptember28,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C104-3.

8-K(1) 001-35758 4.3 September29,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.132 OneHundred-and-Thirty-SecondSupplementalIndenture,datedasofSeptember28,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C105-5.

8-K(1) 001-35758 4.4 September29,2015

4.133 OneHundred-and-Thirty-ThirdSupplementalIndenture,datedasofSeptember28,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C106-10.

8-K(1) 001-35758 4.5 September29,2015

4.134 OneHundred-and-Thirty-FourthSupplementalIndenture,datedasofSeptember28,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C107-15.

8-K(1) 001-35758 4.6 September29,2015

4.135 OneHundred-and-Thirty-SixthSupplementalIndenture,datedasofOctober13,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C109-3.

8-K(1) 001-35758 4.3 October13,2015

4.136 OneHundred-and-Thirty-SeventhSupplementalIndenture,datedasofOctober13,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C110-5.

8-K(1) 001-35758 4.4 October13,2015

4.137 OneHundred-and-Thirty-EighthSupplementalIndenture,datedasofOctober13,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C111-10.

8-K(1) 001-35758 4.5 October13,2015

4.138 OneHundred-and-Thirty-NinthSupplementalIndenture,datedasofOctober13,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C112-15.

8-K(1) 001-35758 4.6 October13,2015

4.139 OneHundred-and-Forty-FirstSupplementalIndenture,datedasofOctober30,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.00%SolarBonds,Series2015/23-3.

8-K(1) 001-35758 4.3 October30,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.140 OneHundred-and-Forty-SecondSupplementalIndenture,datedasofOctober30,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.00%SolarBonds,Series2015/24-5.

8-K(1) 001-35758 4.4 October30,2015

4.141 OneHundred-and-Forty-ThirdSupplementalIndenture,datedasofOctober30,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.00%SolarBonds,Series2015/25-10.

8-K(1) 001-35758 4.5 October30,2015

4.142 OneHundred-and-Forty-FourthSupplementalIndenture,datedasofOctober30,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.75%SolarBonds,Series2015/26-15.

8-K(1) 001-35758 4.6 October30,2015

4.143 OneHundred-and-Forty-SixthSupplementalIndenture,datedasofNovember4,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C114-3.

8-K(1) 001-35758 4.3 November4,2015

4.144 OneHundred-and-Forty-SeventhSupplementalIndenture,datedasofNovember4,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C115-5.

8-K(1) 001-35758 4.4 November4,2015

4.145 OneHundred-and-Forty-EighthSupplementalIndenture,datedasofNovember4,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C116-10.

8-K(1) 001-35758 4.5 November4,2015

4.146 OneHundred-and-Forty-NinthSupplementalIndenture,datedasofNovember4,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C117-15.

8-K(1) 001-35758 4.6 November4,2015

4.147 OneHundred-and-Fifty-FirstSupplementalIndenture,datedasofNovember16,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C119-3.

8-K(1) 001-35758 4.3 November17,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.148 OneHundred-and-Fifty-SecondSupplementalIndenture,datedasofNovember16,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C120-5.

8-K(1) 001-35758 4.4 November17,2015

4.149 OneHundred-and-Fifty-ThirdSupplementalIndenture,datedasofNovember16,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C121-10.

8-K(1) 001-35758 4.5 November17,2015

4.150 OneHundred-and-Fifty-FourthSupplementalIndenture,datedasofNovember16,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C122-15.

8-K(1) 001-35758 4.6 November17,2015

4.151 OneHundred-and-Fifty-SixthSupplementalIndenture,datedasofNovember30,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C124-3.

8-K(1) 001-35758 4.3 November30,2015

4.152 OneHundred-and-Fifty-SeventhSupplementalIndenture,datedasofNovember30,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C125-5.

8-K(1) 001-35758 4.4 November30,2015

4.153 OneHundred-and-Fifty-EighthSupplementalIndenture,datedasofNovember30,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C126-10.

8-K(1) 001-35758 4.5 November30,2015

4.154 OneHundred-and-Fifty-NinthSupplementalIndenture,datedasofNovember30,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C127-15.

8-K(1) 001-35758 4.6 November30,2015

4.155 OneHundred-and-Sixty-FirstSupplementalIndenture,datedasofDecember14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C129-3.

8-K(1) 001-35758 4.3 December14,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.156 OneHundred-and-Sixty-SecondSupplementalIndenture,datedasofDecember14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C130-5.

8-K(1) 001-35758 4.4 December14,2015

4.157 OneHundred-and-Sixty-ThirdSupplementalIndenture,datedasofDecember14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C131-10.

8-K(1) 001-35758 4.5 December14,2015

4.158 OneHundred-and-Sixty-FourthSupplementalIndenture,datedasofDecember14,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C132-15.

8-K(1) 001-35758 4.6 December14,2015

4.159 OneHundred-and-Sixty-SixthSupplementalIndenture,datedasofDecember28,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s2.65%SolarBonds,Series2015/C134-3.

8-K(1) 001-35758 4.3 December28,2015

4.160 OneHundred-and-Sixty-SeventhSupplementalIndenture,datedasofDecember28,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.60%SolarBonds,Series2015/C135-5.

8-K(1) 001-35758 4.4 December28,2015

4.161 OneHundred-and-Sixty-EighthSupplementalIndenture,datedasofDecember28,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.70%SolarBonds,Series2015/C136-10.

8-K(1) 001-35758 4.5 December28,2015

4.162 OneHundred-and-Sixty-Ninth

SupplementalIndenture,datedasofDecember28,2015,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.45%SolarBonds,Series2015/C137-15.

8-K(1) 001-35758 4.6 December28,2015

4.163 OneHundred-and-Seventy-FirstSupplementalIndenture,datedasofJanuary29,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s3.00%SolarBonds,Series2016/2-3.

8-K(1) 001-35758 4.3 January29,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.164 OneHundred-and-Seventy-SecondSupplementalIndenture,datedasofJanuary29,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.00%SolarBonds,Series2016/3-5.

8-K(1) 001-35758 4.4 January29,2016

4.165 OneHundred-and-Seventy-ThirdSupplementalIndenture,datedasofJanuary29,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.00%SolarBonds,Series2016/4-10.

8-K(1) 001-35758 4.5 January29,2016

4.166 OneHundred-and-Seventy-FourthSupplementalIndenture,datedasofJanuary29,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.75%SolarBonds,Series2016/5-15.

8-K(1) 001-35758 4.6 January29,2016

4.167 OneHundred-and-Seventy-SixthSupplementalIndenture,datedasofFebruary26,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.50%SolarBonds,Series2016/7-3.

8-K(1) 001-35758 4.3 February26,2016

4.168 OneHundred-and-Seventy-SeventhSupplementalIndenture,datedasofFebruary26,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.25%SolarBonds,Series2016/8-5.

8-K(1) 001-35758 4.4 February26,2016

4.169 OneHundred-and-Seventy-EighthSupplementalIndenture,datedasofMarch21,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.40%SolarBonds,Series2016/9-1.

8-K(1) 001-35758 4.2 March21,2016

4.170 OneHundred-and-Seventy-NinthSupplementalIndenture,datedasofMarch21,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.25%SolarBonds,Series2016/10-5.

8-K(1) 001-35758 4.3 March21,2016

4.171 OneHundred-and-EightiethSupplementalIndenture,datedasofJune10,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s4.40%SolarBonds,Series2016/11-1.

8-K(1) 001-35758 4.2 June10,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

4.172 OneHundred-and-Eighty-FirstSupplementalIndenture,datedasofJune10,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s5.25%SolarBonds,Series2016/12-5.

8-K(1) 001-35758 4.3 June10,2016

4.173 OneHundred-and-Eighty-SecondSupplementalIndenture,datedasofAugust17,2016,byandbetweenSolarCityCorporationandtheTrustee,relatedtoSolarCityCorporation’s6.50%SolarBonds,Series2016/13-18M

8-K(1) 001-35758 4.2 August17,2016

10.1**

FormofIndemnificationAgreementbetweentheRegistrantanditsdirectorsandofficers

S-1/A 333-164593 10.1 June15,2010

10.2** 2003EquityIncentivePlan S-1/A 333-164593 10.2 May27,2010

10.3**FormofStockOptionAgreementunder2003EquityIncentivePlan.

S-1 333-164593 10.3 January29,2010

10.4**GrantNoticeandStockOptionAgreementbetweentheRegistrantandElonMusk.

S-1/A 333-164593 10.3A March29,2010

10.5**

AmendedandRestated2010EquityIncentivePlan,effectiveasofFebruary1,2017.

— — — —

X

10.6**FormofStockOptionAgreementunder2010EquityIncentivePlan.

— — — —

X

10.7**

FormofRestrictedStockUnitAwardAgreementunder2010EquityIncentivePlan.

— — — —

X

10.8**

AmendedandRestated2010EmployeeStockPurchasePlan,effectiveasofFebruary1,2017.

— — — —

X

10.9**

2007SolarCityCorporationStockPlanandformofagreementsusedthereunder.

S-1(1) 333-184317 10.2 October5,2012

10.10**

2012SolarCityCorporationEquityIncentivePlanandformofagreementsusedthereunder.

S-1(1) 333-184317 10.3 October5,2012

10.11**2010ZepSolar,Inc.EquityIncentivePlanandformofagreementsusedthereunder.

S-8(1) 333-192996 4.5 December20,2013

10.12**OfferLetterbetweentheRegistrantandElonMuskdatedOctober13,2008.

S-1 333-164593 10.9 January29,2010

10.13**OfferLetterbetweentheRegistrantandJeffreyB.StraubeldatedMay6,2004.

S-1 333-164593 10.12 January29,2010

10.14**OfferLetterbetweentheRegistrantandJasonWheelerdatedOctober8,2015.

10-K 001-34756 10.12 February24,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.15

CommercialLeasebetweentheRegistrantandTheBoardofTrusteesofTheLelandStanfordJr.UniversitydatedAugust6,2009.

S-1 333-164593 10.22 January29,2010

10.16

LetterAgreementbetweentheRegistrantandNewUnitedMotorManufacturing,Inc.datedMay26,2010.

S-1/A 333-164593 10.45 May27,2010

10.17

AmendmentNo.1totheLetterAgreementbetweentheRegistrantandNewUnitedMotorManufacturing,Inc.datedJune15,2010.

10-Q 001-34756 10.3 November12,2010

10.18

AmendmentNo.2totheLetterAgreementbetweentheRegistrantandNewUnitedMotorManufacturing,Inc.datedOctober1,2010.

10-Q 001-34756 10.4 November12,2010

10.19

AmendmentNo.3totheLetterAgreementbetweentheRegistrantandNewUnitedMotorManufacturing,Inc.datedOctober8,2010.

10-Q 001-34756 10.5 November12,2010

10.20

AmendmentNo.4totheLetterAgreementbetweentheRegistrantandNewUnitedMotorManufacturing,Inc.datedOctober13,2010.

10-Q 001-34756 10.6 November12,2010

10.21

AmendmentNo.5totheLetterAgreementbetweentheRegistrantandNewUnitedMotorManufacturing,Inc.datedOctober15,2010.

10-Q 001-34756 10.7 November12,2010

10.22†

AmendmentNo.6totheLetterAgreementbetweentheRegistrantandNewUnitedMotorManufacturing,Inc.datedOctober19,2010.

10-Q 001-34756 10.8 November12,2010

10.23

SaleandPurchaseAgreementbetweenRegistrantandNewUnitedMotorManufacturing,Inc.,datedAugust13,2010.

10-Q 001-34756 10.1 November12,2010

10.24

AddendumNo.1totheSaleandPurchaseAgreementbetweenRegistrantandNewUnitedMotorManufacturing,Inc.,datedSeptember23,2010.

10-Q 001-34756 10.2 November12,2010

10.25†

SupplyAgreementbetweenPanasonicCorporationandtheRegistrantdatedOctober5,2011.

10-K -001-34756 10.50 February27,2012

10.26†

AmendmentNo.1toSupplyAgreementbetweenPanasonicCorporationandtheRegistrantdatedOctober29,2013.

10-K 001-34756 10.35A February26,2014

10.27

FormofCallOptionConfirmationrelatingto1.50%ConvertibleSeniorNoteDueJune1,2018.

8-K 001-34756 10.1 May22,2013

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.28

FormofWarrantConfirmationrelatingto1.50%ConvertibleSeniorNoteDueJune1,2018.

8-K 001-34756 10.2 May22,2013

10.29

IndemnificationAgreement,datedasofFebruary27,2014,byandbetweentheRegistrantandJ.P.MorganSecuritiesLLC.

8-K 001-34756 10.1 March5,2014

10.30

FormofCallOptionConfirmationrelatingto0.25%ConvertibleSeniorNotesDueMarch1,2019.

8-K 001-34756 10.2 March5,2014

10.31

FormofCallOptionConfirmationrelatingto1.25%ConvertibleSeniorNotesDueMarch1,2021.

8-K 001-34756 10.3 March5,2014

10.32

FormofWarrantConfirmationrelatingto0.25%ConvertibleSeniorNotesDueMarch1,2019.

8-K 001-34756 10.4 March5,2014

10.33

FormofWarrantConfirmationrelatingto1.25%ConvertibleSeniorNotesDueMarch1,2021.

8-K 001-34756 10.5 March5,2014

10.34

AgreementbetweenPanasonicCorporationandtheRegistrantdatedJuly31,2014.

10-Q 001-34756 10.1 November7,2014

10.35†

GeneralTermsandConditionsbetweenPanasonicCorporationandtheRegistrantdatedOctober1,2014.

8-K 001-34756 10.2 October11,2016

10.36

LetterAgreement,datedasofFebruary24,2015,regardingadditionofco-partytoGeneralTermsandConditions,ProductionPricingAgreementandInvestmentLetterAgreementbetweenPanasonicCorporationandtheRegistrant.

10-K 001-34756 10.25A February24,2016

10.37†

AmendmenttoGigafactoryGeneralTerms,datedMarch1,2016,byandamongtheRegistrant,PanasonicCorporationandPanasonicEnergyCorporationofNorthAmerica.

8-K 001-34756 10.1 October11,2016

10.38†

ProductionPricingAgreementbetweenPanasonicCorporationandtheRegistrantdatedOctober1,2014.

10-Q 001-34756 10.3 November7,2014

10.39†

InvestmentLetterAgreementbetweenPanasonicCorporationandtheRegistrantdatedOctober1,2014.

10-Q 001-34756 10.4 November7,2014

10.40

AmendmenttoGigafactoryDocuments,datedApril5,2016,byandamongtheRegistrant,PanasonicCorporation,PanasonicCorporationofNorthAmericaandPanasonicEnergyCorporationofNorthAmerica.

10-Q 001-34756 10.2 May10,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.41

ABLCreditAgreement,datedasofJune10,2015,byandamongtheRegistrant,TeslaMotorsNetherlandsB.V.,certainoftheRegistrant’sandTeslaMotorsNetherlandsB.V.’sdirectorindirectsubsidiariesfromtimetotimepartythereto,asborrowers,WellsFargoBank,NationalAssociation,asdocumentationagent,JPMorganChaseBank,N.A.,GoldmanSachsBankUSA,MorganStanleySeniorFundingInc.andBankofAmerica,N.A.,assyndicationagents,thelendersfromtimetotimepartythereto,andDeutscheBankAGNewYorkBranch,asadministrativeagentandcollateralagent.

8-K 001-34756 10.1 June12,2015

10.42

FirstAmendment,datedasofNovember3,2015,toABLCreditAgreement,datedasofJune10,2015,byandamongtheRegistrant,TeslaMotorsNetherlandsB.V.,certainoftheRegistrant’sandTeslaMotorsNetherlandsB.V.’sdirectorindirectsubsidiariesfromtimetotimepartythereto,asborrowers,andthedocumentationagent,syndicationagents,administrativeagent,collateralagentandlendersfromtimetotimepartythereto.

10-Q 001-34756 10.1 November5,2015

10.43

SecondAmendment,datedasofDecember31,2015,toABLCreditAgreement,datedasofJune10,2015,byandamongtheRegistrant,TeslaMotorsNetherlandsB.V.,certainoftheRegistrant’sandTeslaMotorsNetherlandsB.V.’sdirectorindirectsubsidiariesfromtimetotimepartythereto,asborrowers,andthedocumentationagent,syndicationagents,administrativeagent,collateralagentandlendersfromtimetotimepartythereto.

10-K 001-34756 10.28B February24,2016

10.44

ThirdAmendment,datedasofFebruary9,2016,toABLCreditAgreement,datedasofJune10,2015,byandamongtheRegistrant,TeslaMotorsNetherlandsB.V.,certainoftheRegistrant’sandTeslaMotorsNetherlandsB.V.’sdirectorindirectsubsidiariesfromtimetotimepartythereto,asborrowers,andthedocumentationagent,syndicationagents,administrativeagent,collateralagentandlendersfromtimetotimepartythereto.

10-K 001-34756 10.28C February24,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.45

FourthAmendmenttoCreditAgreement,datedasofJuly31,2016,byandamongtheRegistrant,TeslaMotorsNetherlandsB.V.,thelenderspartytheretoandDeutscheBankAGNewYorkBranch,asadministrativeagentandcollateralagent.

8-K 001-34756 10.1 August1,2016

10.46

FifthAmendmenttoCreditAgreement,datedasofDecember15,2016,amongtheRegistrant,TeslaMotorsNetherlandsB.V.,thelenderspartytheretoandDeutscheBankAG,NewYorkBranch,asadministrativeagentandcollateralagent.

8-K 001-34756 10.1 December20,2016

10.47†

AgreementforTaxAbatementandIncentives,datedasofMay7,2015,byandbetweenTeslaMotors,Inc.andtheStateofNevada,actingbyandthroughtheNevadaGovernor’sOfficeofEconomicDevelopment.

10-Q 001-34756 10.1 August7,2015

10.48†

LoanandSecurityAgreement,datedasofAugust31,2016,byandamongTesla2014WarehouseSPVLLC,TeslaFinanceLLC,theLendersandGroupAgentsfromtimetotimepartythereto,andDeutscheBankAG,NewYorkBranch,asAdministrativeAgent.

10-Q 001-34756 10.2 November2,2016

10.49†

AmendmentNo.1toLoanandSecurityAgreement,datedasofNovember1,2016,byandamongTesla2014WarehouseSPVLLC,TeslaFinanceLLC,andDeutscheBankAG,NewYorkBranch,asAdministrativeAgent.

10-Q 001-34756 10.3 November2,2016

10.50

AmendmentNo.2toLoanandSecurityAgreement,datedasofDecember15,2016,amongTeslaFinanceLLC,Tesla2014WarehouseSPVLLC,thelendersandgroupagentspartytheretoandDeutscheBankAG,NewYorkBranch,asAdministrativeAgent.

8-K 001-34756 10.2 December20,2016

10.51

AssumptionAgreement,datedasofDecember15,2016,amongTesla2014WarehouseSPVLLC,Citibank,N.A.asGroupAgentandcertainlendersaffiliatedtherewith,andDeutscheBankAG,NewYorkBranch,asAdministrativeAgent.

8-K 001-34756 10.3 December20,2016

10.52† AmendedandRestatedCreditAgreementamongSolarCityCorporation,BankofAmerica,N.A.andotherbanksandfinancialinstitutionspartythereto,datedasofNovember1,2013.

10-K/A(1) 001-35758 10.10e September4,2014

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.53 FirstAmendmenttotheAmendedandRestatedCreditAgreement,datedasofJune27,2014,byandamongSolarCityCorporation,BankofAmerica,N.A.andotherbanksandfinancialinstitutionspartythereto.

10-Q(1) 001-35758 10.10f August7,2014

10.54† SecondAmendmenttotheAmendedandRestatedCreditAgreement,datedasofJuly11,2014,byandamongSolarCityCorporation,BankofAmerica,N.A.andotherbanksandfinancialinstitutionspartythereto.

10-Q(1) 001-35758 10.10g August7,2014

10.55 ThirdAmendmenttotheAmendedandRestatedCreditAgreement,datedasofSeptember23,2014,byandamongSolarCityCorporation,theLenderspartyheretoandBankofAmerica,N.A.,asadministrativeagent.

10-Q(1) 001-35758 10.10h November6,2014

10.56† FourthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofOctober10,2014,byandamongSolarCityCorporation,theLenderspartyheretoandBankofAmerica,N.A.,asadministrativeagent.

10-Q(1) 001-35758 10.10i November6,2014

10.57† FifthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofDecember19,2014,byandamongSolarCityCorporation,theLenderspartyheretoandBankofAmerica,N.A.,asadministrativeagent.

10-K(1) 001-35758 10.10j February24,2015

10.58† SixthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofJune24,2015,byandamongSolarCityCorporation,theLenderspartyheretoandBankofAmerica,N.A.,asadministrativeagent.

10-Q(1) 001-35758 10.10k July30,2015

10.59 SeventhAmendmenttotheAmendedandRestatedCreditAgreement,datedasofJuly24,2015,byandamongSolarCityCorporation,theLenderspartytheretoandBankofAmerica,N.A.,asadministrativeagent.

10-Q(1) 001-35758 10.10l October30,2015

10.60 EighthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofNovember17,2015,byandamongSolarCityCorporation,theLenderspartytheretoandBankofAmerica,N.A.,asadministrativeagent.

10-K(1) 001-35758 10.10m February10,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.61 NinthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofDecember14,2015,byandamongSolarCityCorporation,theLenderspartytheretoandBankofAmerica,N.A.,asadministrativeagent.

10-K(1) 001-35758 10.10n February10,2016

10.62 TenthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofMarch29,2016,byandamongSolarCityCorporation,theLenderspartytheretoandBankofAmerica,N.A.,asadministrativeagent.

10-Q(1) 001-35758 10.10o May9,2016

10.63 EleventhAmendmenttotheAmendedandRestatedCreditAgreement,datedasofApril19,2016,byandamongSolarCityCorporation,theLenderspartytheretoandBankofAmerica,N.A.,asadministrativeagent.

10-Q(1) 001-35758 10.10p May9,2016

10.64 TwelfthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofJuly24,2016,byandamongSolarCityCorporation,theLenderspartytheretoandBankofAmerica,N.A.,asadministrativeagent.

10-Q(1) 001-35758 10.10q August9,2016

10.65 ThirteenthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofJuly25,2016,byandamongSolarCityCorporation,theLenderspartytheretoandBankofAmerica,N.A.,asadministrativeagent.

10-Q(1) 001-35758 10.10r August9,2016

10.66 FourteenthAmendmenttotheAmendedandRestatedCreditAgreement,datedasofDecember29,2016,byandamongSolarCityCorporation,theLenderspartytheretoandBankofAmerica,N.A.,asadministrativeagent.

10-K(1) 001-35758 10.10s March1,2017

10.67

AmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofSeptember2,2014,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,Inc.

10-Q(1) 001-35758 10.16 November6,2014

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.68

FirstAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofOctober31,2014,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,Inc.

10-K(1) 001-35758 10.16a February24,2015

10.69

SecondAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofDecember15,2014,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,Inc.

10-K(1) 001-35758 10.16b February24,2015

10.70

ThirdAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofFebruary12,2015,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,Inc.

10-Q(1) 001-35758 10.16c May6,2015

10.71

FourthAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofMarch30,2015,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,Inc.

10-Q(1) 001-35758 10.16d May6,2015

10.72

FifthAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofJune30,2015,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,LLC.

10-Q(1) 001-35758 10.16e July30,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.73

SixthAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofSeptember1,2015,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,LLC.

10-Q(1) 001-35758 10.16f October30,2015

10.74

SeventhAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofOctober9,2015,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,LLC.

10-Q(1) 001-35758 10.16g October30,2015

10.75

EighthAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofOctober26,2015,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,LLC.

10-Q(1) 001-35758 10.16h October30,2015

10.76

NinthAmendmenttoAmendedandRestatedAgreementForResearch&DevelopmentAllianceonTriexModuleTechnology,effectiveasofDecember9,2015,byandbetweenTheResearchFoundationForTheStateUniversityofNewYork,onbehalfoftheCollegeofNanoscaleScienceandEngineeringoftheStateUniversityofNewYork,andSilevo,LLC.

10-K(1) 001-35758 10.16i February10,2016

10.77†

LoanAgreement,datedasofMay4,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthelenderspartythereto.

10-Q(1) 001-35758 10.19 July30,2015

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.78†

MajorityGroupAgentActionNo.1,datedasofMay18,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthelenderspartythereto.

10-Q(1) 001-35758 10.19a July30,2015

10.79†

RequiredGroupAgentActionNo.2,datedasofJune26,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthelenderspartythereto.

10-Q(1) 001-35758 10.19b July30,2015

10.80

RequiredGroupAgentActionNo.3,datedasofJuly13,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthelenderspartythereto.

10-Q(1) 001-35758 10.19c October30,2015

10.81

RequiredGroupAgentActionNo.4,datedasofAugust25,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthelenderspartythereto.

10-Q(1) 001-35758 10.19d October30,2015

10.82†

RequiredGroupAgentActionNo.5,datedasofAugust27,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthelenderspartythereto.

10-Q(1) 001-35758 10.19e October30,2015

10.83†

RequiredGroupAgentActionNo.7,datedasofSeptember30,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthelenderspartythereto.

10-Q(1) 001-35758 10.19f October30,2015

10.84†

RequiredGroupAgentActionNo.8,datedasofOctober23,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,asadministrativeagent,andthegroupagentspartythereto.

10-K(1) 001-35758 10.19g February10,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.85

RequiredGroupAgentActionNo.9,datedasofNovember25,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthelenderspartythereto.

10-K(1) 001-35758 10.19h February10,2016

10.86†

RequiredGroupAgentActionNo.10,datedasofDecember18,2015,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-K(1) 001-35758 10.19i February10,2016

10.87

RequiredGroupAgentActionNo.11,datedasofJanuary7,2016,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19j May9,2016

10.88†

RequiredGroupAgentActionNo.12,datedasofFebruary29,2016,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19k May9,2016

10.89†

RequiredGroupAgentActionNo.13,datedasofMarch23,2016,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19l May9,2016

10.90†

RequiredGroupAgentActionNo.14,datedasofMarch30,2016,byandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19m May9,2016

10.91†

RequiredGroupAgentActionNo.15,datedasofApril25,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19n August9,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.92†

RequiredGroupAgentActionNo.16,datedasofMay2,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19o August9,2016

10.93†

RequiredGroupAgentActionNo.17,datedasofMay16,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19p August9,2016

10.94†

AdministrativeAgentActionNo.18,datedasofMay27,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19q August9,2016

10.95

RequiredGroupAgentActionNo.19,datedasofJune1,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19r August9,2016

10.96†

AdministrativeAgentActionNo.20,datedasofJune27,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19s August9,2016

10.97†

RequiredGroupAgentActionNo.21,datedasofJuly29,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19t November9,2016

10.98†

RequiredGroupAgentActionNo.22,datedasofSeptember8,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19u November9,2016

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.99

RequiredGroupAgentActionNo.23,datedasofSeptember15,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19v November9,2016

10.100†

RequiredGroupAgentActionNo.24,datedasofSeptember20,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19w November9,2016

10.101†

AdministrativeAgentActionNo.25,datedasofSeptember30,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19x November9,2016

10.102†

RequiredGroupAgentActionNo.26,datedasofOctober5,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-Q(1) 001-35758 10.19y November9,2016

10.103†

RequiredGroupAgentActionNo.27,datedasofNovember1,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-K(1) 001-35758 10.19z March1,2017

10.104†

RequiredGroupAgentActionNo.28,datedasofDecember9,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-K(1) 001-35758 10.19aa March1,2017

10.105†

RequiredGroupAgentActionNo.29,datedasofDecember16,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-K(1) 001-35758 10.19bb March1,2017

ExhibitNumber

IncorporatedbyReference Filed

Herewith ExhibitDescription Form FileNo. Exhibit FilingDate

10.106†

RequiredGroupAgentActionNo.30,datedasofDecember28,2016,byandamongbyandamongMegalodonSolar,LLC,asborrower,SolarCityCorporation,aslimitedguarantor,BankofAmerica,N.A.,ascollateralagentandadministrativeagent,andthegroupagentspartythereto.

10-K(1) 001-35758 10.19cc March1,2017

12.1StatementregardingComputationofRatioofEarningstoFixedCharges

— — — —

X

21.1 ListofSubsidiariesoftheRegistrant — — — — X

23.1

ConsentofPricewaterhouseCoopersLLP,IndependentRegisteredPublicAccountingFirm

— — — —

X

23.2

ConsentofErnst&YoungLLP,IndependentRegisteredPublicAccountingFirm

— — — —

X

31.1Rule13a-14(a)/15(d)-14(a)CertificationofPrincipalExecutiveOfficer

— — — —

X

31.2Rule13a-14(a)/15(d)-14(a)CertificationofPrincipalFinancialOfficer

— — — —

X

32.1* Section1350Certifications — — — —

99.1CertainExcerptsfromAnnualReportonForm10-KofSolarCityCorporation

— — — —

X

101.INS XBRLInstanceDocument

101.SCHXBRLTaxonomyExtensionSchemaDocument

101.CALXBRLTaxonomyExtensionCalculationLinkbaseDocument.

101.DEFXBRLTaxonomyExtensionDefinitionLinkbaseDocument

101.LABXBRLTaxonomyExtensionLabelLinkbaseDocument

101.PREXBRLTaxonomyExtensionPresentationLinkbaseDocument

* Furnishedherewith** Indicatesamanagementcontractorcompensatoryplanorarrangement† Confidentialtreatmenthasbeenrequestedforportionsofthisexhibit(1) IndicatesafilingofSolarCityCorporation

SIGNATURES

PursuanttotherequirementsofSection13or15(d)theSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized. Tesla,Inc. Date:March1,2017 /s/ElonMusk ElonMusk ChiefExecutiveOfficer (PrincipalExecutiveOfficer)

PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.Signature Title Date

/s/ElonMusk ChiefExecutiveOfficerandDirector(Principal March1,2017ElonMusk ExecutiveOfficer)

/s/JasonWheeler ChiefFinancialOfficer(PrincipalFinancialOfficer) March1,2017JasonWheeler

/s/EricBranderiz ChiefAccountingOfficer(PrincipalAccountingOfficer) March1,2017

EricBranderiz

/s/BradW.Buss Director March1,2017BradW.Buss

/s/RobynDenholm Director March1,2017RobynDenholm

/s/IraEhrenpreis Director March1,2017IraEhrenpreis

/s/AntonioJ.Gracias Director March1,2017AntonioJ.Gracias

/s/StephenT.Jurvetson Director March1,2017StephenT.Jurvetson

/s/KimbalMusk Director March1,2017KimbalMusk

141