10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

OR

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

Commission File Number: 001-34756

Tesla Motors, Inc.

(Exact name of registrant as specified in its charter)

Delaware	91-2197729
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3500 Deer Creek Road Palo Alto, California	94304
(Address of principal executive offices)	(Zip Code)

(650) 681-5000

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer	☒		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐

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

As of October 25, 2016, there were 149,891,190 shares of the registrant’s Common Stock outstanding.

TESLA MOTORS, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2016

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	4
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015	5
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2016 and 2015	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	54
SIGNATURES		55

Forward-Looking Statements

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Tesla Motors, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

	September 30,			December 31,
	2016			2015
Assets
Current assets
Cash and cash equivalents	$	3,084,257		$	1,196,908
Restricted cash and marketable securities		23,711			22,628
Accounts receivable		326,895			168,965
Inventory		1,604,571			1,277,838
Prepaid expenses and other current assets		132,978			115,667
Total current assets		5,172,412			2,782,006
Operating lease vehicles, net		2,949,297			1,791,403
Property, plant and equipment, net		4,309,048			3,403,334
Restricted cash		90,994			31,522
Other assets		70,646			59,674
Total assets	$	12,592,397		$	8,067,939
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,606,284		$	916,148
Accrued liabilities		695,018			422,798
Deferred revenue		625,899			423,961
Resale value guarantees		204,054			136,831
Customer deposits		690,364			283,370
Current portion of long-term debt and capital leases		260,771			627,927
Total current liabilities		4,082,390			2,811,035
Long-term debt and capital leases		2,443,420			2,021,093
Deferred revenue		581,202			446,105
Resale value guarantees		2,056,068			1,293,741
Other long-term liabilities		737,559			364,976
Total liabilities		9,900,639			6,936,950
Commitments and contingencies (Note 10)
Convertible senior notes (Notes 8)		11,270			47,285
Stockholders' equity:
Preferred stock; $0.001 par value; 100,000 shares authorized; no shares issued and    outstanding		—			—
Common stock; $0.001 par value; 2,000,000 shares authorized as of September 30, 2016 and    December 31, 2015; 149,825 and 131,425 shares issued and outstanding as of    September 30, 2016 and December 31, 2015		150			131
Additional paid-in capital		5,530,928			3,409,452
Accumulated other comprehensive income (loss)		25,310			(3,556	)
Accumulated deficit		(2,875,900	)		(2,322,323	)
Total stockholders' equity		2,680,488			1,083,704
Total liabilities and stockholders' equity	$	12,592,397		$	8,067,939

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

4

Tesla Motors, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues
Automotive	$	1,917,442		$	769,015		$	3,849,558		$	2,417,247
Automotive leasing		231,285			83,540			507,085			206,718
Total automotive revenue		2,148,727			852,555			4,356,643			2,623,965
Services and other		149,709			84,234			358,858			207,680
Total revenues		2,298,436			936,789			4,715,501			2,831,645
Cost of revenues
Automotive		1,355,102			582,545			2,895,483			1,808,576
Automotive leasing		161,959			46,184			310,176			118,284
Total automotive cost of revenues		1,517,061			628,729			3,205,659			1,926,860
Services and other		144,640			76,564			345,863			199,846
Total cost of revenues		1,661,701			705,293			3,551,522			2,126,706
Gross profit		636,735			231,496			1,163,979			704,939
Operating expenses
Research and development		214,302			178,791			588,448			527,657
Selling, general and administrative		336,811			236,367			976,173			633,578
Total operating expenses		551,113			415,158			1,564,621			1,161,235
Income (loss) from operations		85,622			(183,662	)		(400,642	)		(456,296	)
Interest income		2,858			327			6,351			758
Interest expense		(46,713	)		(29,308	)		(133,706	)		(80,234	)
Other expense, net		(11,756	)		(15,431	)		(9,952	)		(24,503	)
Income (loss) before income taxes		30,011			(228,074	)		(537,949	)		(560,275	)
Provision for income taxes		8,133			1,784			15,628			7,991
Net income (loss)	$	21,878		$	(229,858	)	$	(553,577	)	$	(568,266	)
Net income (loss) per share of common stock:
Basic	$	0.15		$	(1.78	)	$	(3.94	)	$	(4.47	)
Diluted	$	0.14		$	(1.78	)	$	(3.94	)	$	(4.47	)
Weighted average shares used in computing net income (loss) per    share of common stock:
Basic		148,991			129,006			140,581			127,225
Diluted		156,935			129,006			140,581			127,225

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

5

Tesla Motors, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net income (loss)	$	21,878		$	(229,858	)	$	(553,577	)	$	(568,266	)
Other comprehensive income (loss):
Unrealized net gain on derivatives and short-term marketable    securities, net of tax		3,349			11			48,359			219
Reclassification adjustment for net gains included in net    income (loss)		(14,246	)		—			(15,523	)		—
Foreign currency translation adjustment		2,014			(9,192	)		(3,970	)		(24,182	)
Other comprehensive income (loss)		(8,883	)		(9,181	)		28,866			(23,963	)
Comprehensive income (loss)	$	12,995		$	(239,039	)	$	(524,711	)	$	(592,229	)

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

6

Tesla Motors, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2016			2015
Cash Flows From Operating Activities
Net loss	$	(553,577	)	$	(568,266	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		620,160			278,867
Stock-based compensation		246,512			142,359
Amortization of discount on convertible debt		63,924			51,376
Inventory write-downs		50,289			23,303
Loss on disposal of property and equipment		12,181			8,800
Non-cash interest and other operating activities		21,735			11,011
Foreign currency transaction loss		10,422			35,583
Changes in operating assets and liabilities, net of impact of business acquisition
Accounts receivable		(110,510	)		78,373
Inventories and operating lease vehicles		(1,798,214	)		(1,091,382	)
Prepaid expenses and other current assets		34,636			(35,962	)
Other assets		(2,586	)		(14,297	)
Accounts payable and accrued liabilities		697,528			89,238
Deferred revenue		256,187			186,255
Customer deposits		409,139			20,314
Resale value guarantees		322,244			249,548
Other long-term liabilities		44,310			40,230
Net cash provided by (used in) operating activities		324,380			(494,650	)
Cash Flows From Investing Activities
Purchases of property and equipment excluding capital leases, net of sales		(759,190	)		(1,223,628	)
Maturities of short-term marketable securities		16,667			—
Business acquisition		—			(12,260	)
Increase in other restricted cash		(79,156	)		(23,383	)
Net cash used in investing activities		(821,679	)		(1,259,271	)
Cash Flows From Financing Activities
Proceeds from issuance of common stock in public offerings		1,701,734			750,000
Proceeds from issuance of convertible and other debt		1,685,279			183,972
Repayments of convertible and other debt		(1,678,475	)		—
Collateralized lease borrowing		557,669			359,951
Proceeds from exercise of stock options and other stock issuances		153,461			94,026
Principal payments on capital leases		(30,447	)		(72,906	)
Common stock and debt issuance costs		(18,072	)		(16,558	)
Net cash provided by financing activities		2,371,149			1,298,485
Effect of exchange rate changes on cash and cash equivalents		13,499			(24,241	)
Net increase (decrease) in cash and cash equivalents		1,887,349			(479,677	)
Cash and cash equivalents at beginning of period		1,196,908			1,905,713
Cash and cash equivalents at end of period	$	3,084,257		$	1,426,036
Supplemental noncash investing activities
Acquisition of property and equipment included in accounts payable and accrued    liabilities	$	459,472		$	313,850
Estimated fair value of facilities under build-to-suit leases	$	236,538		$	64,552

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

7

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 - Overview of the Company

Tesla Motors, Inc. (Tesla, we, us or our) was incorporated in the state of Delaware on July 1, 2003. We design, develop, manufacture and sell high-performance fully electric vehicles and energy products. We have wholly-owned subsidiaries in North America, Europe and Asia. The primary purpose of these subsidiaries is to market, manufacture, sell and/or service our vehicles and energy products.

Note 2 - Summary of Significant Accounting Policies

Public Offering

In May 2016, we completed a public offering of common stock and sold a total of 7,915,004 shares of our common stock for total cash proceeds of approximately $1.7 billion, net of underwriting discounts and offering costs.

Acquisition

On July 31, 2016, we entered into a definitive agreement to acquire SolarCity Corporation, which designs, finances and installs solar power systems. Pursuant to the definitive agreement, each issued and outstanding share of the common stock of SolarCity would be converted into the right to receive 0.110 (the Exchange Ratio) shares of Tesla common stock. SolarCity options and restricted stock unit awards would be converted into corresponding equity awards in respect of Tesla common stock based on the Exchange Ratio, with the awards retaining the same vesting and other terms and conditions as in effect immediately prior to consummation of the Merger. This acquisition is subject to various closing conditions, including the receipt by each company, at a separate meeting of its stockholders scheduled to take place on November 17, 2016, of the affirmative vote of at least the minimum number of its non-interested stockholders as specified in the definitive agreement.

Basis of Consolidation

The consolidated financial statements include the accounts of Tesla and its wholly-owned subsidiaries. Intercompany balances and transactions between consolidated entities have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities and accompanying notes.  Estimates are used for, but not limited to, determining the selling price of products and services in multiple element revenue arrangements and determining the amortization period of these elements, residual value of operating lease vehicles, inventory valuation, warranties, fair value of financial instruments, depreciable lives of property and equipment, inputs used to value stock-based compensation including volatility, expected terms of stock option awards and forfeiture rates, income taxes, and contingencies. Actual results could differ from those estimates.

Unaudited Interim Financial Statements

The accompanying consolidated balance sheet as of September 30, 2016, the consolidated statements of operations and consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015 and the consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015, and other information disclosed in the related notes are unaudited. The consolidated balance sheet as of December 31, 2015, was derived from our audited consolidated financial statements at that date. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission.

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

8

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2014-09,  Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. The new guidance provides a new model to determine when and over what period revenue is recognized. Under this new model, revenue is recognized as goods or services are delivered in an amount that reflects the consideration we expect to collect.  In March 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the principal versus agent guidance in the new revenue recognition standard. In April 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the guidance on accounting for licenses of intellectual property and identifying performance obligations in the new revenue recognition standard. In May 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedient, which clarifies the transition, collectability, noncash consideration and the presentation of sales and other similar taxes in the new revenue recognition standard. The guidance is effective for fiscal years beginning after December 15, 2017; early adoption is permitted for periods beginning after December 15, 2016. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method and are evaluating the impact of adopting this guidance.

In August 2014, the FASB issued Accounting Standards Update No. ASU 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, provide certain footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, including interim reporting periods thereafter. We do not anticipate that adopting this guidance will have an impact on the financial statements and are currently evaluating the potential impact to our footnote disclosures.

In April 2015, the FASB issued new authoritative accounting guidance on simplifying the presentation of debt issuance costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We have retrospectively adopted this standard as of March 31, 2016, and as a result, on the December 31, 2015, consolidated balance sheet we reclassified $9.6 million as a reduction in prepaid expenses and other current assets, along with $15.0 million reduction in other assets, with a corresponding reduction in the aggregate carrying value of the Company’s long term debt liabilities. Similarly, as a result of the change in carrying value of long term debt, $5.2 million was reclassified out of additional paid in capital and into mezzanine equity on the December 31, 2015 consolidated balance sheet.

In February 2016, the FASB issued Accounting Standards Update No. 2016 - 02, Leases (Topic 842). The new standard is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The standard will require lessees to report most leases as assets and liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The standard requires a modified retrospective transition approach for existing leases, whereby the new rules will be applied to the earliest year presented. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In August 2016, the FASB issued Accounting Standards Update No. ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230).  ASU 2016-15 addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted.  We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

9

Revenue Recognition

We recognize revenue for products and services when: (i) a persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) pricing or fees are fixed or determinable; and (iv) collection is reasonably assured.

Automotive revenue includes revenues related to deliveries of new vehicles, sales of regulatory credits to other automotive manufacturers, and specific other elements that meet the definition of a deliverable under multiple-element accounting guidance including free internet connectivity, free access to our Supercharger network, and free future over the air software updates. These deliverables are valued on a stand-alone basis and we recognize their revenue over our performance period, which is generally the eight-year life of the vehicle, except for internet connectivity which is over the free four year period. If we sell a deliverable separately, we use that pricing to determine its fair value; otherwise, we use our best estimated selling price by considering costs used to develop and deliver the service, third party pricing of similar options, and other information which may be available.

Starting in the third quarter of 2016, we started to separately present automotive leasing revenue and related cost of revenue. All prior periods have been reclassified to conform to this presentation.  Automotive leasing revenue includes revenue recognized under lease accounting guidance for our direct leasing programs as well as programs with resale value guarantees. See “Resale Value Guarantees and Other Financing Programs” and “Vehicle Leasing Program” for further details.

Services and other revenue consists of repair and maintenance services, service plans and merchandise, sales of pre-owned Tesla vehicles, sales of electric vehicle powertrain components and systems to other manufacturers, Tesla Energy products, and sales of non-Tesla vehicle trade-ins.

As of September 30, 2016, we had deferred $57.5 million, $84.7 million, $52.7 million, and $8.0 million related to the purchase of vehicle maintenance and service plans, access to our Supercharger network, internet connectivity, and future software updates, respectively. As of December 31, 2015, we had deferred $53.6 million, $49.5 million, $32.4 million, and $2.7 million related to these same performance obligations, respectively.

Resale Value Guarantees and Other Financing Programs

Vehicle sales to customers with a residual value guarantee

Through June 30, 2016, we offered resale value guarantees or similar buy-back terms to all customers who purchase vehicles and who financed their vehicle through one of our specified commercial banking partners. Subsequent to June 30, 2016, this program is available only in certain international markets.  Under this program, customers have the option of selling their vehicle back to us during the guarantee period for a determined resale value. Guarantee periods generally range from 36 to 39 months.  Although we receive full payment for the vehicle sales price at the time of delivery, we are required to account for these transactions as operating leases.  The amount of sale proceeds equal to the resale value guarantee is deferred until the guarantee expires or is exercised.  The remaining sale proceeds are deferred and recognized on a straight line basis over the stated guarantee period to automotive leasing revenue. The guarantee period expires at the earlier of the end of the guarantee period or the pay-off of the initial loan.  We capitalize the cost of these vehicles to operating lease vehicles on our Consolidated Balance Sheets as operating lease vehicles, net, and depreciate their value, less salvage value, to cost of automotive leasing revenue over the same period.  

In cases when a customer retains ownership of a vehicle at the end of the guarantee period, the resale value guarantee liability and any remaining deferred revenue balances related to the vehicle are settled to automotive leasing revenue and the net book value of the leased vehicle is expensed to costs of automotive leasing revenue. In cases when customers return the vehicle back to us during the guarantee period, we purchase the vehicle from the customer in an amount equal to the resale value guarantee and settle any remaining deferred balances to automotive leasing revenue and we reclassify the net book value of the vehicle on our balance sheet to pre-owned vehicle inventory. As of September 30, 2016 and December 31, 2015, $204.1 million and $136.8 million of the guarantees were exercisable by customers within the next twelve months.

10

Vehicle sales to leasing partners with a residual value guarantee

We also offer resale value guarantees in connection with automobile sales to certain bank leasing partners.  As we have guaranteed the value of these vehicles and as the vehicles are leased to end-customers, we account for these transactions as interest bearing collateralized borrowings as required under ASC 840 - Leases.  Under this program, cash is received for the full price of the vehicle and is recorded within resale value guarantees for the long-term portion and deferred revenue for the current portion.  We accrete the deferred revenue amount to automotive leasing revenue on a straight line basis over the guarantee period and accrue interest expense based on our borrowing rate.  We capitalize vehicles under this program to operating lease vehicles, net, on our Consolidated Balance Sheets and we record depreciation from these vehicles to cost of automotive leasing revenues during the period the vehicle is under a lease arrangement.  Cash received for these vehicles, net of revenue recognized during the period, is classified as collateralized lease borrowings within cash flows from financing activities in our Consolidated Statements of Cash Flows.

At the end of the lease term, we settle our liability in cash by either purchasing the vehicle from the leasing partner for the resale value guarantee amount, or paying a shortfall to the guarantee amount the leasing partner may realize on the sale of the vehicle.  Any remaining balances within deferred revenue and resale value guarantee will be settled to automotive revenue.  In cases where the bank retains ownership of the vehicle after the end of our guarantee period, we expense the net value of the leased vehicle to costs of automotive leasing revenue.  The maximum cash we could be required to pay under this program, should we decide to repurchase all vehicles, is $742.0 million at September 30, 2016.

As of September 30, 2016 and December 31, 2015, we had $1.0 billion and $527.5 million of such borrowings recorded in resale value guarantees and $250.4 million and $120.5 million recorded in deferred revenue liability, respectively. As of September 30, 2016 and December 31, 2015, we had a total of $79.5 million and $33.6 million in account receivables from our leasing partners.

On a quarterly basis, we assess the estimated market values of vehicles under our resale value guarantee program to determine if we have sustained a loss on any of these contracts. As we accumulate more data related to the resale values of our vehicles or as market conditions change, there may be material changes to their estimated values.

11

Account activity related to our resale value guarantee and similar programs consisted of the following for the periods presented (in thousands):

	Three Months Ended			Nine Months Ended
	September 30, 2016			September 30, 2016
Operating Lease Vehicles
Operating lease vehicles—beginning of period	$	2,126,581		$	1,556,529
Net increase in operating lease vehicles		375,287			1,085,551
Depreciation expense recorded in cost of automotive leasing revenues		(71,454	)		(179,087	)
Additional depreciation expense recorded in cost of automotive leasing revenues as    a result of early cancellation of resale value guarantee		(5,509	)		(11,166	)
Additional depreciation expense recorded in cost of automotive leasing revenues    result of expiration and exercises of resale value guarantee		(55,009	)		(55,009	)
Increases to inventory from vehicles returned under our trade-in program		(18,718	)		(45,640	)
Operating lease vehicles—end of period	$	2,351,178		$	2,351,178
Deferred Revenue
Deferred revenue—beginning of period	$	851,684		$	679,132
Net increase in deferred revenue from new vehicle deliveries and reclassification of    collateralized borrowing from long-term to short-term		188,113			574,226
Amortization of deferred revenue and short-term collateralized borrowing recorded in    automotive leasing revenue		(125,411	)		(330,093	)
Additional revenue recorded in automotive leasing revenue as a result of early    cancellation of resale value guarantee		(1,521	)		(4,333	)
Recognition of deferred revenue resulting from return of vehicle under trade-in program		(3,456	)		(9,523	)
Deferred revenue—end of period	$	909,409		$	909,409
Resale Value Guarantee
Resale value guarantee liability—beginning of period	$	2,007,347		$	1,430,573
Increase in resale value guarantee		361,434			1,013,369
Reclassification from long-term to short-term collateralized borrowing		(33,129	)		(79,171	)
Additional revenue recorded in automotive leasing revenue as a result of early    cancellation of resale value guarantee		(4,291	)		(10,110	)
Release of resale value guarantee resulting from return of vehicle under trade-    in program		(15,516	)		(38,816	)
Release of resale value guarantee resulting from expiration and exercises of resale    value guarantee		(55,722	)		(55,722	)
Resale value guarantee liability—end of period	$	2,260,123		$	2,260,123

Vehicle Leasing Program

We offer a leasing program in the United States, Canada, the UK and Germany. Qualifying customers are permitted to lease a vehicle directly from Tesla generally for 36 or 48 months. At the end of the lease term, customers have the option of either returning the vehicle to us or purchasing it for a determined residual value. We account for these leasing transactions as operating leases and recognize leasing revenues over the contractual term and record the depreciation of these vehicles to cost of automotive leasing revenues. As of September 30, 2016 and December 31, 2015, we had deferred $61.6 million and $25.8 million of lease-related upfront payments which will be recognized on a straight-line basis over the contractual term of the individual leases. Lease revenues are recorded in automotive leasing revenue and were $31.4 million and $72.0 million for the three and nine months ended September 30, 2016. Lease revenues for the three and nine months ended September 30, 2015, were $11.5 million and $27.4 million, respectively.

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Warranties

We provide a manufacturer’s warranty on all new and certified pre-owned vehicles, production powertrain components and systems, and energy products we sell.  We accrue a manufacturer’s warranty reserve which includes our best estimate of the projected costs to repair or to replace items under warranty. These estimates are based on actual claims incurred to-date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain and changes to our historical or projected warranty experience may cause material changes to our warranty reserve in the future. The portion of the warranty provision expected to be incurred within 12 months is classified as current within accrued liabilities, while the remaining amount is classified as long-term within other long-term liabilities.

Accrued warranty activity consisted of the following for the periods presented (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Accrued warranty—beginning of period	$	216,459		$	164,595		$	180,754		$	129,043
Warranty costs incurred		(16,571	)		(21,593	)		(56,734	)		(50,666	)
Net changes in liability for pre-existing warranties, including    expirations and foreign exchange impact		(19,523	)		1,306			(12,889	)		12,635
Provision for warranty		46,454			26,026			115,688			79,322
Accrued warranty—end of period	$	226,819		$	170,334		$	226,819		$	170,334

Our warranty reserves do not include projected warranty costs associated with our vehicles subject to lease accounting, as costs to repair these vehicles are expensed as incurred. The warranty reserve increased primarily due to incremental vehicle deliveries, offset by actual claims and an overall decrease in accrual rates for vehicles, batteries, and drive units due to improved reliability. For the three and nine months ended September 30, 2016, warranty costs incurred for vehicles subject to lease accounting were $7.2 million and $12.3 million, and for the three and nine months ended September 30, 2015, costs were $1.8 million and $6.0 million. Warranty expense is recorded as a component of cost of automotive revenue and cost of automotive leasing revenue.  

Inventory Valuation

Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. We record inventory write-downs for excess or obsolete inventories based upon assumptions about current and future demand forecasts. If our inventory on hand is in excess of our future demand forecast, the excess amounts are written off.

We also review inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our vehicles less the estimated cost to convert inventory on hand into a finished product. After inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Should our estimates of future selling prices or production costs change, additional and potentially material increases to this reserve may be required. A small change in our estimates may result in a material charge to our reported financial results.

Concentration of Risk

Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash and accounts receivable. Our cash equivalents are primarily invested in money market funds with high credit quality financial institutions in the United States. At times, these deposits and securities may be in excess of insured limits. We invest cash not required for use in operations in high credit quality securities based on our investment policy. Our investment policy provides guidelines and limits regarding credit quality, investment concentration, investment type, and maturity that we believe will provide liquidity while reducing risk of loss of capital. Our investments are currently of a short-term nature and include U.S. treasury bills.

As of September 30, 2016 and December 31, 2015, our accounts receivable were derived primarily from amounts to be received from financial institutions and leasing companies offering various financing products to our customers, sales of regulatory credits, as well as the development and sales of powertrain components and systems to automotive original equipment manufacturers (OEMs).  As of September 30, 2016, we have two customers who individually account for 17% and 14% of our accounts receivable, respectively. 

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Supply Risk

The majority of our suppliers are currently single source suppliers, despite efforts to qualify and obtain components from multiple sources whenever feasible. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to vehicle design changes, increased costs and delays in vehicle deliveries to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, financial condition and operating results.

Stock-Based Compensation

We use the fair value method of accounting for our stock options and restricted stock units (RSUs) granted to employees and our Employee Stock Purchase Plan (ESPP) to measure the cost of employee services received in exchange for the stock-based awards. The fair value of stock options and ESPP are estimated on the grant date and offering date using the Black-Scholes option-pricing model. The fair value of RSUs is measured on the grant date based on the closing fair market value of our common stock. The resulting cost is recognized over the service period, which is generally four years for stock options and RSUs and six months for the ESPP. Stock-based compensation expense is recognized on a straight-line basis, net of estimated forfeitures.

For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable.

For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the implicit or derived service period of the performance and market conditions, beginning at the point in time that the relevant performance condition is considered probable of being met.

Derivative Financial Instruments

In November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated in Japanese yen.  The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months or less. We do not enter into derivative contracts for trading or speculative purposes.  

The bank counterparties in all contracts expose Tesla to credit-related losses in the event of their nonperformance. However, to mitigate that risk, Tesla only contracts with counterparties who meet the Company’s minimum requirements under its counterparty risk assessment process. Tesla monitors ratings, credit spreads, and potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, the Company will adjust its exposure to various counterparties. We generally enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. However, we do not have any master netting arrangements in place with collateral features.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and losses on derivatives, net of any reclassifications, our available-for-sale marketable securities, and foreign currency translation adjustment that have been excluded from the determination of net income (loss).

Net Income (Loss) per Share of Common Stock

Our basic and diluted net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the number of shares underlying outstanding stock options and warrants as well as our convertible senior notes, are not included when their effect is antidilutive.

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The following table sets forth the computation of basic and diluted net income (loss) per share for the three months ended September 30, 2016 (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016			2015
Basic net income per share
Net income (loss)	$	21,878	$	(229,858	)	$	(553,577	)	$	(568,266	)
Weighted-average shares used in computing basic net income    (loss) per share		148,991		129,006			140,581			127,225
Basic net income (loss) per share	$	0.15	$	(1.78	)	$	(3.94	)	$	(4.47	)
Diluted net income per share
Net income (loss)	$	21,878	$	(229,858	)	$	(553,577	)	$	(568,266	)
Weighted-average shares used in computing basic net income    (loss) per share		148,991		129,006			140,581			127,225
Add:
Employee share based awards		5,911		—			—			—
Convertible senior notes		1,571		—			—			—
Warrants issued in May 2013		462		—			—			—
Weighted-average shares used in computing diluted net income    (loss) per share		156,935		129,006			140,581			127,225
Diluted net income (loss) per share	$	0.14	$	(1.78	)	$	(3.94	)	$	(4.47	)

The following table presents the potential weighted common shares outstanding that were excluded from the computation of diluted net income (loss) per share of common stock for the periods presented:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Employee share based awards		5,666,686		14,917,083		16,527,336		15,426,144
Convertible senior notes		—		2,710,738		1,959,492		2,454,778
Warrants issued May 2013		—		1,463,838		629,782		1,084,627

Since we expect to settle the principal amount of our outstanding convertible senior notes in cash, we use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $124.52, $359.87 and $359.87 per share for the convertible senior notes due 2018 (2018 Notes), convertible senior notes due 2019 (2019 Notes), and convertible senior notes due 2021 (2021 Notes).

Income Taxes

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of September 30, 2016 and December 31, 2015, the aggregate balances of our gross unrecognized tax benefits were $162.8 million and $99.3 million. $158.1 million and $95.7 million of these aggregate balances would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset which is currently offset by a full valuation allowance.

Note 3 - Fair Value of Financial Instruments

The carrying values of our financial instruments including cash equivalents, marketable securities, accounts receivable, accounts payable, and accrued liabilities approximate their fair value due to their short-term nature. As a basis for determining the fair value of certain of our assets and liabilities, we follow a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level III) unobservable inputs in which there is little or no market data which requires us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Our financial assets that are measured at fair value on a recurring basis consist of cash equivalents and marketable securities.

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All of our cash equivalents and current restricted cash, which are comprised primarily of money market funds, are classified within Level I of the fair value hierarchy because they are valued using quoted market prices or market prices for identical securities. Our restricted short-term marketable securities are classified within Level I of the fair value hierarchy.

As of September 30, 2016 and December 31, 2015, the fair value hierarchy for our financial assets that are carried at fair value was as follows (in thousands), and unrealized gains (losses) on all financial assets for all periods presented were less than $1.0 million:

	September 30, 2016								December 31, 2015
	Fair Value		Level I		Level II		Level III		Fair Value		Level I		Level II		LevelIII
Money market funds	$	2,391,562	$	2,391,562	$	—	$	—	$	297,810	$	297,810	$	—	$	—
U.S. treasury bills		—		—		—		—		16,664		16,664		—		—
Total	$	2,391,562	$	2,391,562	$	—	$	—	$	314,474	$	314,474	$	—	$	—

As of September 30, 2016, the estimated fair value of our 2018 Notes, 2019 Notes, and 2021 Notes was $363.0 million (par value $224.3 million), $834.9 million (par value $920.0 million), and $1.19 billion (par value $1.38 billion). As of December 31, 2015 the estimated fair value of our 2018 Notes, 2019 Notes, and 2021 Notes was $1.29 billion (par value $659.8 million), $864.8 million (par value $920.0 million), and $1.27 billion (par value $1.38 billion). These fair values represent Level II valuations. When determining the estimated fair value of our long-term debt, we used a commonly accepted valuation methodology and market-based risk measurements that are indirectly observable, such as credit risk. As of September 30, 2016, the $200 million carrying value of our Credit Agreement liability and $300 million carrying value under our Warehouse Agreement approximates the fair value of the borrowings based upon the borrowing rate available to us for debt with similar terms and consideration of credit and default risk using Level II inputs.

Derivative Financial Instruments

In November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated in Japanese yen. The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months or less. We do not enter into derivative contracts for trading or speculative purposes.

We document each hedge relationship and assess its initial effectiveness at the inception of the hedge contract and we measure its ongoing effectiveness on a quarterly basis using regression analysis. During the term of an effective hedge contract, we record gains and losses within accumulated other comprehensive income (loss). We reclassify these gains or losses to cost of automotive revenue in the period the related finished goods inventory is sold to cost of automotive leasing revenue or over the depreciation period for those sales accounted for as leases. Although our contracts are considered effective hedges, we may experience small amounts of ineffectiveness due to timing differences between our actual inventory purchases and the settlement date of the related foreign currency forward contracts. Ineffectiveness related to the hedges is immaterial as of September 30, 2016.

The net notional amount of these contracts was $95.4 million at September 30, 2016. Outstanding contracts are recognized as either assets or liabilities on the Consolidated Balance Sheet at fair value within prepaid expenses and other current assets or within accrued liabilities, depending on our net position. The cumulative gain of $40.3 million in accumulated other comprehensive income (loss) as of September 30, 2016 is expected to be recognized within cost of automotive revenue in the next twelve months. The total fair values of foreign currency contracts designated as cash flow hedges as of September 30, 2016 is $19.2  million and was determined using Level II inputs and recorded in prepaid expenses and other current assets on our Consolidated Balance Sheets. During the three months and nine months ended September 30, 2016, $14.2 million and $15.5 million has been reclassified to costs of automotive revenue.

Note 4 - Inventory

As of September 30, 2016 and December 31, 2015, our inventory consisted of the following (in thousands):

	September 30,		December 31,
	2016		2015
Raw materials	$	353,751	$	528,935
Work in process		329,938		163,830
Finished goods		791,600		476,512
Service parts		129,282		108,561
Total	$	1,604,571	$	1,277,838

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Finished goods inventory includes vehicles in transit to fulfill customer orders, new vehicles available for immediate sale at our retail and service center locations, pre-owned Tesla vehicles, and energy products. The increase in finished goods is primarily due to 97% more vehicles in transit to customers as of September 30, 2016.

Note 5 - Property, Plant and Equipment

As of September 30, 2016 and December 31, 2015, our property, plant and equipment, net, consisted of the following (in thousands):

	September 30,			December 31,
	2016			2015
Machinery, equipment and office furniture	$	2,004,316		$	1,694,910
Tooling		780,140			550,902
Leasehold improvements		422,110			338,392
Building and building improvements		706,112			461,303
Land		63,238			60,234
Computer equipment and software		218,079			175,512
Construction in progress		1,027,159			693,207
		5,221,154			3,974,460
Less: Accumulated depreciation and amortization		(912,106	)		(571,126	)
Total	$	4,309,048		$	3,403,334

Construction in progress is comprised primarily of tooling and equipment related to the manufacturing of vehicles, a portion of Gigafactory construction, and related capitalized interest. Completed assets are transferred to their respective asset class and depreciation begins when the asset is ready for its intended use. Interest expense on outstanding debt is capitalized during the period of significant capital asset construction. Capitalized interest on construction in progress is included in property, plant and equipment, net, and is amortized over the life of the related assets. During the three and nine months ended September 30, 2016, we capitalized $11.4 million and $30.4 million of interest expense. During the three and nine months ended September 30, 2015, we capitalized $11.8 million and $32.4 million of interest expense, respectively.

We are sometimes involved in construction at our leased facilities primarily related to retail stores, service centers, and certain manufacturing facilities. In accordance with Accounting Standards Codification 840, Leases, for build-to-suit lease arrangements where we are involved in the construction of structural improvements prior to the commencement of the lease or take some level of construction risk, we are considered the owner of the assets and land during the construction period. Accordingly, upon commencement of our construction activities, we record a construction in progress asset and a corresponding financing liability. Once the construction is completed, if the lease meets certain “sale-leaseback” criteria, we will remove the asset and related financial obligation from the balance sheet and treat the building lease as an operating lease. If upon completion of construction, the project does not meet the “sale-leaseback” criteria, the leased property will be treated as a capital lease and included in building and building improvements in the table above. As of September 30, 2016 and December 31, 2015, the table above includes $443.1 million and $206.1 million of build-to-suit assets. As of September 30, 2016 and December 31, 2015, corresponding financing obligations of $2.6 million and $1.3 million are recorded in accrued liabilities and $454.2 million and $201.3 million are recorded in other long-term liabilities.

Depreciation and amortization expense during the three and nine months ended September 30, 2016, was $126.8 million and $337.9 million. Depreciation and amortization expense during the three and nine months ended September 30, 2015, was $71.8 million and $184.7 million. Total property and equipment assets under capital lease as of September 30, 2016 and December 31, 2015 were $80.5 million and $58.1 million. Accumulated depreciation related to assets under capital lease as of these dates were $36.1 million and $22.7 million.

We have incurred $608.4 million of costs for our Gigafactory as of September 30, 2016.

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Note 6 - Accrued Liabilities

As of September 30, 2016 and December 31, 2015, our accrued liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2016		2015
Taxes payable	$	129,044	$	101,206
Accrued purchases		358,292		140,540
Payroll and related costs		89,859		86,859
Warranty and other		117,823		94,193
Total	$	695,018	$	422,798

Taxes payable includes Value Added Tax, sales tax, property tax, and income tax payables.  

Accrued purchases reflects primarily liabilities related to the construction of the Gigafactory along with engineering design and testing accruals. As these services are invoiced, this balance will reduce and accounts payable will increase.

Note 7 - Customer Deposits

Customer deposits include cash payments from customers at the time they place an order for a vehicle and additional payments up to the point of delivery including the fair value of customer trade-in vehicles that are applicable toward a new vehicle purchase. Customer deposit amounts and timing vary depending on the vehicle model and country of delivery. Customer deposits are fully refundable up to the point the vehicle is placed into the production cycle. Customer deposits are included in current liabilities until refunded or until they are applied to a customer’s purchase balance at time of delivery.  

As of September 30, 2016 and December 31, 2015, we held customer deposits of $690.4 million and $283.4 million.  The increase is primarily due to Model 3 deposits.  

Note 8 - Convertible and Long-term Debt Obligations

0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant Transactions

In March 2014, we issued $800.0 million principal amount of 0.25% convertible senior notes due 2019 (2019 Notes) and $1.20 billion principal amount of 1.25% convertible senior notes due 2021 (2021 Notes) in a public offering. In April 2014, we issued an additional $120.0 million aggregate principal amount of 2019 Notes and $180.0 million aggregate principal amount of 2021 Notes, pursuant to the exercise in full of the overallotment options of the underwriters of our March 2014 public offering. The total net proceeds from these offerings, after deducting transaction costs, were approximately $905.8 million from 2019 Notes and $1.36 billion from 2021 Notes. We incurred $14.2 million and $21.4 million of debt issuance costs in connection with the 2019 Notes and the 2021 Notes and are amortizing to interest expense using the effective interest method over the contractual terms of these notes. In April 2015, the FASB issued new authoritative accounting guidance on simplifying the presentation of debt issuance costs, which we retrospectively adopted as of March 31, 2016 and reclassified debt issuance costs in connection with the notes to related debt liability. The interest rates are fixed at 0.25% and 1.25% per annum and are payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2014.  

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Each $1,000 of principal of these notes is initially convertible into 2.7788 shares of our common stock, which is equivalent to an initial conversion price of approximately $359.87 per share, subject to adjustment upon the occurrence of specified events. Holders of these notes may convert their notes at their option on or after December 1, 2018 for the 2019 Notes and on or after December 1, 2020 for the 2021 Notes. Further, holders of these notes may convert their notes at their option prior to the respective dates above, only under the following circumstances: (1) during any fiscal quarter beginning after the fiscal quarter ending June 30, 2014, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the applicable notes on each applicable trading day; (2) during the five business day period following any five consecutive trading day period in which the trading price for the applicable notes is less than 98% of the average of the closing sale price of our common stock for each day during such five trading day period; or (3) if we make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon conversion of the 2019 Notes, we would pay or deliver as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. Upon conversion of the 2021 Notes, we would pay the holders in cash for the principal amount and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock) based on a daily conversion value. If a fundamental change occurs prior to the maturity date, holders of these notes may require us to repurchase all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount of the notes, plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the applicable maturity date, we will increase the conversion rate for a holder who elects to convert their notes in connection with such a corporate event in certain circumstances. During the third quarter of 2016, the closing price of our common stock did not meet or exceed 130% of the applicable conversion price of our 2019 Notes and 2021 Notes on at least 20 of the last 30 consecutive trading days of the quarter; furthermore, no other conditions allowing holders of these notes to convert have been met as of September 30, 2016. Therefore, the 2019 Notes and 2021 Notes are not convertible during the fourth quarter of 2016 and are classified as long-term debt. Should the closing price conditions be met in a future quarter, the 2019 and/or the 2021 Notes will be convertible at their holders’ option during the immediately following quarter. As of September 30, 2016, the if-converted value of the 2019 Notes and 2021 Notes did not exceed the principal value of those notes.

In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the notes from the respective host debt instrument and initially recorded the conversion option of $188.1 million for the 2019 Notes and $369.4 million for the 2021 Notes in stockholders’ equity. The resulting debt discounts on the 2019 Notes and 2021 Notes are being amortized to interest expense at an effective interest rate of 4.89% and 5.96%, respectively, over the contractual terms of the notes. 

In connection with the offering of these notes in March 2014, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 5.6 million shares of our common stock at a price of approximately $359.87 per share. The total cost of the convertible note hedge transactions was $524.7 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 2.2 million shares of our common stock at a price of $512.66 for the 2019 Notes and a total of approximately 3.3 million shares of our common stock at a price of $560.64 per share for 2021 Notes. We received $338.4 million in cash proceeds from the sale of these warrants. Similarly, in connection with the issuance of additional notes in April 2014, we entered into convertible note hedge transactions and paid an aggregate $78.7 million. In addition, we sold warrants to purchase (subject to adjustment for certain specified events) a total of approximately 0.3 million shares of our common stock at a price of $512.66 per share for the warrants relating to 2019 Notes, and a total of approximately 0.5 million shares of our common stock at a price of $560.64 per share for the warrants relating to 2021 Notes. We received aggregate proceeds of approximately $50.8 million from the sale of the warrants. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to reduce potential dilution and/or offset potential cash payments upon the conversion of these notes and to effectively increase the overall conversion price from $359.87 to $512.66 per share in the case of warrants relating to 2019 Notes and from $359.87 to $560.64 in the case of warrants relating to 2021 Notes. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on the consolidated balance sheet.

1.50% Convertible Senior Notes and Bond Hedge and Warrant Transactions

In May 2013, we issued $660.0 million aggregate principal amount of 2018 Notes in a public offering. The net proceeds from the offering, after deducting transaction costs, were approximately $648.0 million. We incurred $12.0 million of debt issuance costs in connection with the issuance of the 2018 Notes and are amortizing to interest expense using the effective interest method over the contractual term of the 2018 Notes. The interest under the 2018 Notes is fixed at 1.50% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013.

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Each $1,000 of principal of the 2018 Notes is initially convertible into 8.0306 shares of our common stock, which is equivalent to an initial conversion price of approximately $124.52 per share, subject to adjustment upon the occurrence of specified events. Holders of the 2018 Notes may convert their 2018 Notes at their option on or after March 1, 2018. Further, holders of the 2018 Notes may convert their 2018 Notes at their option prior to March 1, 2018, only under the following circumstances: (1) during any fiscal quarter beginning after the fiscal quarter ending September 30, 2013, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period following any five consecutive trading day period in which the trading price for the 2018 Notes is less than 98% of the average of the closing sale price of our common stock for each day during such five trading day period; or (3) if we make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon conversion, we would pay the holders in cash for the principal amount of the 2018 Notes and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock) based on a calculated daily conversion value. If a fundamental change occurs prior to the maturity date, holders of the 2018 Notes may require us to repurchase all or a portion of their 2018 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2018 Notes, plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its 2018 Notes in connection with such a corporate event in certain circumstances.

In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the 2018 Notes from the host debt instrument and recorded the conversion option of $82.8 million in stockholders’ equity. The resulting debt discount on the 2018 Notes is being amortized to interest expense at an effective interest rate of 4.29% over the contractual term of the 2018 Notes.

In connection with the offering of the 2018 Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to certain specified events) a total of approximately 5.3 million shares of our common stock at a price of approximately $124.52 per share. The cost of the convertible note hedge transactions was $177.5 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially (subject to certain specified events) a total of approximately 5.3 million shares of our common stock at a price of $184.48 per share. We received $120.3 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any actual dilution from the conversion of the 2018 Notes and to effectively increase the overall conversion price from $124.52 to $184.48 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on the consolidated balance sheet as of December 31, 2015.

During first three quarters of fiscal 2016, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20 of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes may convert their notes during the fourth quarter of fiscal 2016. As such, we classified the $213.0 million carrying value of our 2018 Notes as current liabilities and classified $11.3 million, representing the difference between the aggregate principal of our 2018 Notes of $224.3 million and the carrying value of 2018 Notes, as mezzanine equity on our consolidated balance sheet as of September 30, 2016. Should the closing price conditions be met in a future quarter, 2018 Notes will be convertible at their holders’ option during the immediately following quarter.

During the three and nine months ended September 30, 2016, we repaid $421.8 million and $435.5 million in aggregate principal amount of our 2018 Notes pursuant to conversions by their holders.  As of September 30, 2016, we had remaining outstanding $224.3 million in aggregate principal amount of the 2018 Notes. As of September 30, 2016, there were also outstanding a corresponding amount of convertible note hedge transactions, as well as warrants to issue up to 2.2 million shares at $184.48 per share as of September 30, 2016, in each case issued in connection with the offering of the 2018 Notes.  

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Convertible Senior Notes Carrying Value and Interest Expense

In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the Notes from the respective host debt instrument and initially recorded the conversion option for the 2018, 2019, and 2021 Notes in stockholders’ equity. The resulting debt discounts on the 2018 Notes, 2019 Notes, and 2021 Notes are being amortized to interest expense at the effective interest rate over the contractual terms of the Notes.

	September 30, 2016						December 31, 2015
	2018 Notes		2019 Notes		2021 Notes		2018 Notes		2019 Notes		2021 Notes
	(in thousands, except years and percentages)
Carrying value	$	212,993	$	817,480	$	1,118,885	$	612,476	$	788,004	$	1,080,867
Unamortized discount and issuance costs		11,270		102,520		261,115		47,285		131,996		299,133
Principal amount	$	224,263	$	920,000	$	1,380,000	$	659,761	$	920,000	$	1,380,000
Remaining amortization period (years)		1.7		2.4		4.4
Effective interest rate on liability component		4.29%		4.89%		5.96%
Initial equity component	$	82,800	$	188,100	$	369,400
If converted, value in excess of par value	$	143,195

Asset-Based Credit Agreement

In June 2015, we entered into a senior secured asset-based revolving credit agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreement provides for a senior secured asset-based revolving credit facility (the “Credit Facility”), which we may draw upon as needed. In October 2015, lenders increased their total funding commitments to us under the Credit Facility by up to an additional $250.0 million, subject to certain conditions, for total commitments up to $750 million. In addition, the Credit Agreement provides for a $200.0 million letter of credit sub-facility and a $40.0 million swing-line loan sub-facility. The Credit Agreement is collateralized by a pledge of certain of our accounts receivable, inventory, and equipment, and availability under the Credit Agreement is based on the value of such assets, as reduced by certain reserves. In February 2016, we amended the Credit Agreement and increased the availability and the commitments under the Credit Agreement from $750.0 million to $1.0 billion.

Borrowed funds bear interest, at our option, at an annual rate of (a) 1% plus LIBOR or (b) the highest of (i) the federal funds rate plus 0.50%, (ii) the lenders “prime rate” or (iii) 1% plus LIBOR. The fee for undrawn amounts is 0.25% per annum. Interest is payable quarterly. The Credit Agreement terminates, and all outstanding loans become due and payable, in June 2020. As of September 30, 2016, we had $200.0 million in borrowings under the Credit Facility and zero borrowings under the swing-line loan sub-facility.

We are required to meet various covenants, including meeting certain reporting requirements, such as the completion and presentation of audited consolidated financial statements for our borrowings. As of September 30, 2016 we were in compliance with all covenants contained in the Credit Agreement.

Loan and Security Agreement

On August 31, 2016, we entered into a Loan and Security Agreement (the “Warehouse Agreement”) with Deutsche Bank as administrative agent and a committed lender.  Under the Warehouse Agreement, which will support the Tesla Finance direct vehicle leasing program, and is secured by an interest in certain leases and vehicles under such program, we may borrow up to $300.0 million in total principal amount. Subject to extension in accordance with the terms of the Warehouse Agreement, the ability to draw under the Warehouse Agreement expires on August 31, 2017, and the full amount outstanding under the Warehouse Agreement is due September 20, 2018. As of September 30, 2016, we had $300.0 million in borrowings outstanding under the Warehouse Agreement.

Amounts drawn under the Warehouse Agreement generally bear interest at a rate based on LIBOR plus a fixed margin. We are subject to various customary events of default and financial, lease portfolio performance and other covenants and limitations, including an advance rate limit, a required reserve account,  and various performance triggers and excess concentration limits.

Pledged Assets

As of September 30, 2016 and December 31, 2015, we have pledged or restricted $1.9 billion and $1.4 billion principally from finished goods and raw materials inventory, as well as certain property and equipment, direct lease vehicles, receivables and cash as collateral for letters of credit including our Credit Agreement, real estate leases, and insurance policies.

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Interest Expense

The following table presents the aggregate amount of interest expense recognized on a prior secured credit facility to support our direct leasing program, which was terminated in December 2015, the Credit Agreement, the Warehouse Agreement, the 2018 Notes, the 2019 Notes, and the 2021 Notes relating to the contractual interest coupon and amortization of the debt issuance costs and debt discount (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Contractual interest coupon	$	6,615	$	8,362	$	23,330	$	23,410
Amortization of debt issuance costs		4,952		1,945		8,835		5,202
Amortization of debt discount		24,660		24,802		75,493		72,653
Total	$	36,227	$	35,109	$	107,658	$	101,265

Note 9 - Equity Incentive Plans

In July 2003, we adopted the 2003 Equity Incentive Plan. Concurrent with the effectiveness of our registration statement on Form S-1 on June 28, 2010, we adopted the 2010 Equity Incentive Plan (the Plan) and all remaining common shares reserved for future grant or issuance under the 2003 Equity Incentive Plan were added to the 2010 Equity Incentive Plan. The Plan provides for the granting of stock options, RSUs and stock purchase rights to our employees, directors and consultants. Options granted under the Plan may be either incentive options or nonqualified stock options. Incentive stock options may be granted only to our employees including officers and directors. Nonqualified stock options and stock purchase rights may be granted to our employees and consultants. Generally, our stock options and RSUs vest over four years and are exercisable over a period not to exceed the contractual term of ten years from the date the stock options are granted. Continued vesting typically terminates when the employment or consulting relationship ends. As of September 30, 2016, there were 15,483,680 shares of outstanding stock awards under the Plan. As of September 30, 2016 and December 31, 2015, 645,553 and 2,816,785 shares were available for grant relating to stock options and RSUs.

Performance-based Stock Option Grant

In 2014, to create incentives for continued long term success beyond the Model S program and to closely align executive pay with our stockholders’ interests in the achievement of significant milestones by our Company, the Compensation Committee of our Board of Directors granted stock options to certain employees to purchase an aggregate 1,073,000 shares of our common stock. Each such grant consists of four vesting tranches with a vesting schedule based entirely on the attainment of future performance milestones, assuming continued employment and service to us through each vesting date.

• 1/4th of the shares subject to the options are scheduled to vest upon completion of the first Model X Production Vehicle;

• 1/4th of the shares subject to the options are scheduled to vest upon achieving aggregate vehicle production of 100,000 vehicles in a trailing 12-month period;

• 1/4th of the shares subject to the options are scheduled to vest upon completion of the first Model 3 Production Vehicle; and

• 1/4th of the shares subject to the options are scheduled to vest upon achievement of annualized gross margin of greater than 30.0% in any three years.

As of September 30, 2016, the following performance milestone was achieved and approved by our Board of Directors.

• Completion of the first Model X Production Vehicle

As of September 30, 2016, the following performance milestone was considered probable of achievement.

• Completion of the first Model 3 Production Vehicle; and

• Achieving aggregate vehicle production of 100,000 vehicles in a trailing 12-month period

We begin recording stock-based compensation expense as each milestone becomes probable. For the three and nine months ended September 30, 2016, we recorded stock-based compensation expense of $11.6 million and $22.8 million related to this grant. For the three and nine months ended September 30, 2015, we recorded stock-based compensation expense of $2.7 million and $10.4 million related to this grant.

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2012 CEO Grant

In August 2012, our Board of Directors granted 5,274,901 stock options to our CEO (2012 CEO Grant). The 2012 CEO Grant consists of ten vesting tranches with a vesting schedule based entirely on the attainment of both performance conditions and market conditions, assuming continued employment and service to us through each vesting date.

Each of the ten vesting tranches requires a combination of one of the ten pre-determined performance milestones and an incremental increase in our market capitalization of $4.0 billion, as compared to the initial market capitalization of $3.2 billion measured at the time of the 2012 CEO Grant.

As of September 30, 2016, the market conditions for seven vesting tranches and the following five performance milestones were achieved and approved by our Board of Directors:

• Successful completion of the Model X Alpha Prototype;

• Successful completion of the Model X Beta Prototype;

• Completion of the first Model X Production Vehicle;

• Aggregate vehicle production of 100,000 vehicles; and

• Successful completion of the Model 3 Alpha Prototype.

As of September 30, 2016, the following performance milestones were considered probable of achievement:

• Successful completion of the Model 3 Beta Prototype;

• Completion of the first Model 3 Production Vehicle;

• Aggregate vehicle production of 200,000 vehicles; and  

• Aggregate vehicle production of 300,000 vehicles.

We begin recording stock-based compensation expense as each milestone becomes probable. We recorded stock-based compensation expense of $4.6 million for the three months period ended September 30, 2016 and $14.9 million for the nine months period ended September 30, 2016 related to this grant. For the three and nine months ended September 30, 2015, we recorded stock-based compensation expense of $6.8 million and $9.5 million related to this grant.

Our CEO earns a base salary that reflects the currently applicable minimum wage requirements under California law, and he is subject to income taxes based on such base salary. However, he has never accepted and currently does not accept his salary.

Summary Stock-Based Compensation Information

The following table summarizes our stock-based compensation expense by line item in the Consolidated Statements of Operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of revenues	$	8,939	$	3,828	$	21,837	$	13,249
Research and development		40,220		24,153		113,328		63,857
Selling, general and administrative		40,384		28,052		111,347		65,288
Total	$	89,543	$	56,033	$	246,512	$	142,394

Note 10 - Commitments and Contingencies

Legal Proceedings

From time to time, we are subject to various legal proceedings that arise from the normal course of business activities. In addition, from time to time, third parties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand.

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In November 2013, a putative securities class action lawsuit was filed against Tesla in U.S. District Court, Northern District of California, alleging violations of, and seeking remedies pursuant to, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint made claims against Tesla and our CEO, Elon Musk, sought damages and attorney’s fees on the basis of allegations that, among other things, Tesla and Mr. Musk made false and/or misleading representations and omissions, including with respect to the safety of Model S. This case was brought on behalf of a putative class consisting of certain persons who purchased Tesla’s securities between August 19, 2013 and November 17, 2013. On September 26, 2014, the trial court, upon the motion of Tesla and Mr. Musk, dismissed the complaint with prejudice, and thereafter issued a formal written order to that effect. The plaintiffs have appealed from the trial court’s order, and that appeal is pending.

From time to time, we have received requests for information from regulators and governmental authorities, such as the National Highway Traffic Safety Administration, the National Transportation Safety Board and the Securities and Exchange Commission.  We are also subject to various other legal proceedings that arise from the normal course of business activities. In addition, from time to time, third parties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand.

Note 11 – Subsequent events

Land Purchase

In October 2016, we purchased 24.5 acres of land that is adjacent to our factory in Fremont, California for $30.8 million which will be used for the future expansion of our manufacturing facilities. 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q.  

Overview

We design, develop, manufacture, and sell high-performance fully electric vehicles, and energy products. We are currently producing and selling our Model S sedan and our Model X sport utility vehicle. We continue to enhance our vehicle offerings with all-wheel drive capability, autopilot options, and free over-the-air software updates.  We commenced customer deliveries of Model X in September 2015 and continue to ramp production. We unveiled Model 3, a lower priced sedan designed for the mass market, in the first quarter of 2016 which received significant interest. 

In addition to our automotive products, we continue to sell our energy products, the Powerwall for residential applications and the Powerpack for commercial, industrial and utility-scale applications.  We began production and deliveries of these products in the third quarter of 2015. We transitioned the production of these products from the Tesla Factory to the Gigafactory during the fourth quarter of 2015.

Our primary source of revenue is from the sale of our vehicles. During the quarter ended September 30, 2016, we recognized total revenues of $2.30 billion, an increase of $1.36 billion over total revenues of $936.8 million for the quarter ended September 30, 2015, primarily driven by growth of vehicle deliveries worldwide, including increasing production and deliveries of Model X. Gross margin for the quarter ended September 30, 2016 was 27.7%, an increase from 24.7% for the quarter ended September 30, 2015.

We continue to increase our sales and service footprint worldwide and expand our Supercharging and destination charging networks. With the continued global expansion of our customer support infrastructure, selling, general and administrative expenses were $ 336.8 million for the quarter ended September 30, 2016, compared to $236.4 million for the quarter ended September 30, 2015.

Management Opportunities, Challenges and Risks

Demand, Production and Deliveries

We are currently producing and selling both the Model S sedan and the Model X sport utility vehicle.  We have broadened the appeal of these vehicles by introducing new variants that improve range, performance, and value, as well as enhanced autopilot functionality, and we expect to introduce further new vehicle versions and functionality over time.  Overall, we expect that demand for our vehicles will continue to increase worldwide as more people drive and become aware of our vehicles, as we grow our customer sales, service and charging infrastructure, as we continue to offer less expensive vehicles such as Model 3, and as we continue to develop our vehicles. Additionally, we believe that demand for our energy products will continue to increase.

We continue to make progress in increasing vehicle production and plan to continue increasing total vehicle production to support approximately 50,000 deliveries in the second half of this year. In the third quarter of 2016, we produced approximately 25,180 vehicles, including approximately 10,450 Model X vehicles. Total third quarter production increased 37% from the second quarter.  Although our Model X production ramp has faced challenges, including supplier part shortages, we continue to make steady progress increasing Model X production.

In addition, we are on track to achieve volume production and deliveries of Model 3 in the second half of 2017.  We expect our production will increase considerably each year for the next several years, and are targeting an overall vehicle production level of 500,000 vehicles, including Model S, Model X and Model 3, in 2018.  Increasing production five-fold over the next two years will be challenging and will likely require additional capital, but this is our goal and we are working hard to achieve it.  

In addition to expanding our vehicle production and deliveries, we expect to continue to lower the cost of manufacturing our vehicles over the next several quarters due to economies of scale, material cost reductions and more efficient manufacturing. We expect that this trend will contribute to improve total automotive gross margin over time, excluding the impact of foreign currency movements. Significant cost improvements for Model S have been achieved relating to material cost reductions from both engineering and commercial actions, and manufacturing efficiencies, excluding the impact of newly introduced Model S variants and Model X. However, during our product introductions over the last few years, we sometimes encountered manufacturing inefficiencies and supplier constraints which negatively impacted our gross margin. If we are not able to continue to achieve the planned cost reductions from our various cost savings and process improvement initiatives or continue to ramp Model X efficiently, our ability to reach our gross margin goals would be negatively affected.

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We are expanding our sales, service and charging infrastructure worldwide to accommodate a much larger fleet of vehicles and provide timely customer services in areas with a high concentration of Tesla customers.  In particular, we continue to open additional retail and service locations and should have approximately 265 locations worldwide by the end of 2016.  Because we sell our vehicles in many countries throughout North America, Europe and Asia, and our retail and service expansion will primarily occur in geographic areas in which we already have a presence, we expect our long-term sales outside of North America will be over half of our worldwide total automotive revenue.As compared to markets in the United States, we have less experience in international markets, and thus we may face difficulties meeting our future international expansion plans with respect to timing and expected sales. If we experience unexpected difficulties or delays in finding or opening desirable locations for stores and service centers, we may not be able to meet our delivery plans and sales goals.

Trends in Cash Flow, Capital Expenditures and Operating Expenses

We have advanced our 500,000 total unit build plan by two years to 2018.  Given this plan, we continue to invest heavily in capital expenditures.  Our capital expenditure needs include expenditures for the tooling, production equipment and construction of the Model 3 production lines, equipment to support cell production at the Gigafactory, as well as new retail locations service centers and Supercharger locations.

We currently expect operating expenses to grow by approximately 30% in 2016 as compared to 2015, excluding any potential impact from the future SolarCity acquisition.  This increase is driven by engineering, design, and testing expenses related to Model 3 supplier contracts and higher sales and service costs associated with expanding our geographic presence. We expect selling, general and administrative expenses to continue to increase in absolute dollars but decline over time as a percentage of revenue as we focus on increasing operational efficiency while continuing to expand our customer and corporate infrastructure. Over time, we also expect total operating expenses to decrease as a percentage of revenue.  

As of September 30, 2016 and December 31, 2015, the net book value of our Supercharger network was $193.9 million and $166.6 million, and as of September 30, 2016 our Supercharger network included 715 locations globally. We plan to continue investing in our Supercharger network for the foreseeable future, including in North America, Europe and Asia, and expect such spending to continue to be a minimal portion of total capital spending during 2016. During 2016, we expect that this investment will grow our Supercharger network over 40%. We allocate Supercharger related expenses to cost of total automotive revenues and selling, general, and administrative expenses. These costs were immaterial for all periods presented.

Customer Financing Options

We offer loans and leases in North America, Europe and Asia primarily through various financial institutions. We offer a resale value guarantee in connection with certain loans offered by financial institutions and as of September 30, 2016 had approximately 24,400 vehicles under this program. We recently discontinued the resale value guarantee in North America, but continue to offer it in selected European and Asian markets. Resale value guarantees available for exercise within the next 12 months total $204.1 million in value and relate to approximately 4,390 vehicles.

Vehicle deliveries with the resale value guarantee do not impact our near-term cash flows and liquidity, since we receive the full amount of cash for the vehicle sales price at delivery. However, this program requires the deferral of revenues and costs into future periods as they are considered leases for accounting purposes.

While we do not assume any credit risk related to the customer, if a customer exercises the option to return the vehicle to us, we are exposed to liquidity risk that the resale value of vehicles under these programs may be lower than our guarantee, or the volume of vehicles returned to us may be higher than our estimates, or we may be unable to resell the used cars in a timely manner, all of which could adversely impact our cash flows. Alternatively, in cases where customers retain their vehicles past the expiration of the guarantee period, the remaining deferred revenues and costs will be recognized at no gross profit.

Based on current market demand for our cars, we estimate the resale prices for our vehicles will continue to be above our resale value guarantee amounts. Should market values of our vehicles or customer demand decrease, these estimates may be impacted materially.

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We currently offer leases in the U.S. directly from our captive financing entity, as well as through a leasing partner. Leasing through Tesla Finance is now available in 39 states and the District of Columbia. We also offer financing arrangements through entities in Canada, Germany and the U.K.  As of September 30, 2016, we have active leases for approximately 9,070 vehicles through our captive financing entities and approximately 13,990 vehicles through our leasing partner. Leasing through both our captive financing entities and our leasing partner exposes us to residual value risk and will adversely impact our near-term operating results by requiring the deferral of revenues and costs into future periods under lease accounting. In addition, for leases offered directly from our captive financing entities (but not for those offered through our bank partner), we only receive a limited portion of cash for the vehicle price at delivery and will assume customer credit risk.  We plan to continue expanding our financing offerings, including our lease financing options and the financial sources to support them, and to support the overall financing needs of our customers. To the extent that we are unable to arrange such options for our customers on terms that are attractive, our sales, financial results, and cash flow could be negatively impacted.  

The Gigafactory and Manufacturing

We are developing the Gigafactory as a facility where we work together with our suppliers to integrate production of battery material, cells, modules and battery packs in one location. We broke ground on the Gigafactory in June 2014 and began assembling our energy products in the first portion of the facility in the fourth quarter of 2015.  We currently expect to produce cells at the Gigafactory beginning in the fourth quarter of 2016 for use initially in our energy products and later for our vehicles. Our revised vehicle build plan also includes an adjustment of our cell production plans at the Gigafactory.  We continue to invest in construction of the building and utilities at the Gigafactory and in production equipment for battery, module and pack production. We are responsible for the overall management of the Gigafactory and will engage with partners who have significant experience in battery cell and material production. Panasonic has agreed to partner with us on the Gigafactory with investments in production equipment that it will use to manufacture and supply us with battery cells. Under our arrangement with Panasonic, we plan to purchase the full output from their production equipment located at the Gigafactory at negotiated prices.  As these terms convey a right to use the production related assets as defined within ASC 840 – Leases, we will consider these leased assets beginning with the start of cell production in 2016. This will result in us recording the value of such assets within property, plant, and equipment in our consolidated balance sheet with a corresponding liability recorded to financing obligations. For all suppliers and partners for which we plan to purchase the full output from their production equipment located at the Gigafactory, we will record the value of such assets on our Consolidated Balance Sheet.  Based on our current assessment, as of September 30, 2016, approximately $300 million is expected to be recorded on our Consolidated Balance Sheet by fourth quarter of 2016.

Although we continue to remain on track with our progress at the Gigafactory, given the size and complexity of this undertaking, it is possible that future events could result in the cost of building and operating the Gigafactory exceeding our current expectations and the Gigafactory taking longer to bring online than we currently anticipate. In addition, we continue to expand production capacity at our Fremont facility and are exploring additional production capacity in Asia and Europe.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

For a description of our critical accounting policies and estimates, please refer to the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission (SEC). In addition, please refer to Note 2, “Summary of Significant Accounting Policies,” to our Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q which also includes discussion of Recent Accounting Pronouncements that may impact us.

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Results of Operations

Revenues

	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
(dollar amounts in thousands)	2016		2015		$		%		2016		2015		$		%
Revenues
Automotive	$	1,917,442	$	769,015	$	1,148,427		149%	$	3,849,558	$	2,417,247	$	1,432,311		59%
Automotive leasing		231,285		83,540		147,745		177%		507,085		206,718		300,367		145%
Services and other		149,709		84,234		65,475		78%		358,858		207,680		151,178		73%
Total revenues	$	2,298,436	$	936,789	$	1,361,647		145%	$	4,715,501	$	2,831,645	$	1,883,856		67%

Automotive revenue includes revenues related to sale of new Model S and Model X vehicles, including internet connectivity, Supercharger access, and specified software updates for cars equipped with Autopilot hardware, as well as sales of regulatory credits to other automotive manufacturers.  Automotive leasing revenue includes the amortization of revenue for cars sold with resale value guarantees accounted for as operating lease under lease accounting, and Model S and Model X leasing revenue.

Services and other revenue consists of sales of electric vehicle powertrain components and systems to other manufacturers, maintenance and development services, energy products, and pre-owned vehicles.

Automotive revenue increased $1.1 billion, or 149%, to $1.9 billion during the three months ended September 30, 2016 compared to the three months ended September 30, 2015, primarily related to a 132% increase in vehicle deliveries from approximately 7,220 for the three months ended September 30, 2015 to approximately 16,790 for the three months ended September 30, 2016.  The increase in vehicle deliveries is primarily due to the introduction of Model X as well as increased production and sale of Model S.  In addition, there was an increase in average selling price of 5.3% primarily due to the introduction of Model X which are higher priced vehicles compared to Model S, partially offset by an increase in sales of lower priced 60 kWh vehicles.  Revenue recognized from the sale of regulatory credits increased by $114.7 million from three months ended September 30, 2015 to the corresponding period in 2016.

Automotive revenue increased $1.4 billion, or 59%, to $3.8 billion during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily related to a 52% increase in vehicle deliveries from approximately 22,450 for the nine months ended September 30, 2015 to approximately 34,140 for the nine months ended September 30, 2016.  The increase in volume is primarily due to the introduction of Model X.  Further, there was an increase in average selling price of 5.1% primarily due to the introduction of Model X which are higher priced vehicles compared to Model S. Revenue recognized from the sale of regulatory credits increased by $113.9 million from the nine months ended September 30, 2015 to the corresponding period in 2016.

Automotive leasing revenue increased $147.7 million, or 177%, to $231.3 million during the three months ended September 30, 2016 compared to the three months ended September 30, 2015, and increased $300.4 million, or 145%, to $507.1 million during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.  The increase during both periods was primarily due to a 119% increase in cumulative vehicle deliveries under leasing programs and programs with a resale value guarantee from approximately 22,000 on a cumulative basis through September 30, 2015, to approximately 48,000 on a cumulative basis through September 30, 2016.  In addition, during the three and nine months ended September 30, 2016, we recognized $55.0 million in automotive leasing revenue upon the expiration of resale value guarantees.  

Service and other revenue increased $65.5 million, or 78%, to $149.7 million during the three months ended September 30, 2016 compared to the three months ended September 30, 2015, primarily due to an increase of $21.9 million in energy product sales, an increase of $21.2 million in pre-owned vehicle sales, an increase in maintenance service revenue of $13.6 million, and an increase of $10.0 million in sales of electric vehicle powertrain components and systems to other manufacturers.  Service and other revenue increased $151.2 million, or 73%, to $358.9 million during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.  The increase was related primarily to an increase of $59.7 million in pre-owned vehicle sales, an increase of $53.3 million in maintenance service revenue, and an increase of $47.0 million in energy product sales.

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Cost of Revenues and Gross Profit

	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
(dollar amounts in thousands)	2016		2015		$		%		2016		2015		$		%
Cost of revenues
Automotive	$	1,355,102	$	582,545	$	772,557		133%	$	2,895,483	$	1,808,576	$	1,086,907		60%
Automotive leasing		161,959		46,184		115,775		251%		310,176		118,284		191,892		162%
Services and other		144,640		76,564		68,076		89%		345,863		199,846		146,017		73%
Total cost of revenues	$	1,661,701	$	705,293	$	956,408		136%	$	3,551,522	$	2,126,706	$	1,424,816		67%
Gross profit	$	636,735	$	231,496	$	405,239		175%	$	1,163,979	$	704,939	$	459,040		65%
Gross margin		27.7%		24.7%						24.7%		24.9%

Cost of automotive revenues includes direct parts, material and labor costs, manufacturing overhead, including amortized tooling costs, royalty fees, shipping and logistic costs, vehicle connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network, and reserves for estimated warranty expenses. Cost of automotive revenues also includes adjustments to warranty expense and charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand.  Cost of automotive leasing revenue includes primarily the amortization of operating lease vehicles over the lease term, as well as warranty expenses recognized as incurred.  Cost of services and other revenue includes direct parts, material and labor costs, manufacturing overhead associated with the sales of electric vehicle powertrain components and systems to other manufacturers and energy products, costs associated with providing maintenance and development services, and cost to acquire and certify pre-owned vehicle. 

Cost of automotive revenues increased $772.6 million, or 133%, to $1.4 billion during the three months ended September 30, 2016 compared to the three months ended September 30, 2015.  The increase was primarily due to a 132% increase in vehicle deliveries from 7,220 for the three months ended September 30, 2015 to approximately 16,790 for the three months ended September 30, 2016, as a result of the introduction of Model X and increased Model S deliveries. Cost of automotive revenues increased $1.1 billion, or 60%, to $2.9 billion during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.  The increase was primarily related to a 52% increase in vehicle deliveries from approximately 22,450 for the nine months ended September 30, 2015 to approximately 34,140 for the nine months ended September 30, 2016 as a result of the introduction of Model X. The increases were partially offset by a decrease in warranty estimate related to improved reliability of our vehicles.  

Cost of automotive leasing revenue increased $115.8 million, or 251%, to $162.0 million during the three months ended September 30, 2016 compared to the three months ended September 30, 2015, and increased $191.9 million, or 162%, to $310.2 million during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.  The increase is primarily due to a 119% increase in cumulative vehicle deliveries under leasing programs and programs with resale value guarantee from approximately 22,000 on a cumulative basis through September 30, 2015, to approximately 48,000 on a cumulative basis through September 30, 2016 under our leasing program and programs with a resale value guarantee.  In addition, during the three months ended September 30, 2016, we recognized $55.0 million in cost of automotive leasing revenues upon the expiration of resale value guarantees.

Cost of services and other revenue increased $68.1 million, or 89%, to $144.6 million during the three months ended September 30, 2016 compared to the three months ended September 30, 2015, primarily due to an increase of $20.1 million in cost of pre-owned vehicle sales, an increase of $23.3 million of energy related product cost of sale, and an increase of $18.8 million in cost to provide maintenance service.  Cost of services and other revenue increased $146.0 million, or 73%, to $345.9 million during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.  The increase in cost of services and other was driven primarily by an increase of $58.5 million in cost of pre-owned vehicle sales, an increase of $48.4 million in cost of energy product sales, and an increase of $42.4 million in cost to provide maintenance services.  

Gross margin

Gross margin increased 3.0 percentage points to 27.7% during the three months ended September 30, 2016 compared to the three months ended September 30, 2015, primarily due to an increase in regulatory credits sold to other automotive manufacturers, an increase in manufacturing efficiencies, and an updated warranty estimate due to improved reliability of our vehicles.

Gross margin decreased 0.2 percentage points to 24.7% during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily due to the introduction of Model X which had a lower margin as we ramped up production, partially offset by an increase in regulatory credits sales and an updated warranty estimate due to improved reliability of our vehicles.

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Research and Development Expenses

	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
(dollar amounts in thousands)	2016		2015		$		%		2016		2015		$		%
Research and development	$	214,302	$	178,791	$	35,511		20%	$	588,448	$	527,657	$	60,791		12%
As a percentage of revenues		9.3%		19.1%						12.5%		18.6%

Research and development (R&D) expenses consist primarily of personnel costs for our teams in engineering and research, supply chain, quality, manufacturing engineering and manufacturing test organizations, prototyping expense, contract and professional services and amortized equipment expense.

R&D expenses increased $35.5 million, or 20%, to $214.3 million during the three months ended September 30, 2016 compared to the three months ended September 30, 2015.   The increase in R&D expenses consisted primarily of a $17.5 million increase in outside services for engineering, design and tooling for Model 3, a $16.1 million increase in stock-based compensation expense related to an 11% increase in headcount and number of employee stock awards granted for new hire and refresher employee stock grants, a $14.8 million increase in employee and labor related expenses due to headcount increase as we expand our business in the U.S. and internationally, partially offset by a $23.2 million decrease in expensed materials related to our Model X development, which was primarily incurred in 2015.  

R&D expenses increased $60.8 million, or 12%, to $588.4 million during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.  The increase in R&D expenses consisted primarily of a $49.5 million increase in stock-based compensation expense related to increased headcount and number of awards granted for new hire and refresher employee stock grants, a $52.3 million increase in employee and labor related expenses, a $13.1 million increase in outside services, partially offset by a $51.5 million decrease in expensed materials related to our Model X development, which was primarily incurred in 2015.

Selling, General and Administrative

	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
(dollar amounts in thousands)	2016		2015		$		%		2016		2015		$		%
Selling, general and administrative	$	336,811	$	236,367	$	100,444		42%	$	976,173	$	633,578	$	342,595		54%
As a percentage of revenues		14.7%		25.2%						20.7%		22.4%

Selling, general and administrative (SG&A) expenses consist primarily of personnel and facilities costs related to our Tesla stores, marketing, sales, executive, finance, human resources, information technology and legal organizations, as well as litigation settlements and fees for professional and contract services.

SG&A expenses increased $100.4 million, or 42%, to $366.8 million during the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The increase in our SG&A expenses represents additional investment made by us to support the growing sales activities worldwide and the expansion of our business, including increased headcount to support an expanded retail, service and Supercharger footprint as well as the general growth of the business. The increase in our SG&A expenses consisted primarily of a $56.4 million increase in employee and labor related expenses due to a 57% increase in headcount as we expand our business in the U.S. and internationally, a $29.1 million increase in office, information technology and facilities-related costs to support the growth of our business as well as sales and marketing activities to handle our expanding market presence, and a $12.3 million increase in stock-based compensation expense related to increased number of employee stock awards granted for new hire and existing employees.

SG&A expenses increased $342.6 million, or 54%, to $976.2 million during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.  The increase in our SG&A expenses represents additional investment made by us to support the growing sales activities worldwide and the expansion of our business, including increased headcount to support an expanded retail, service and Supercharger footprint as well as the general growth of the business.  Specifically, the increase consisted primarily of a $199.0 million increase in employee and labor related expenses due to a 57% increase in our headcount, a $95.6 million increase in office, information technology and facilities-related, and a $46.1 million increase in stock-based compensation related to increased number of awards granted for new hire and existing employees.

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Interest Expense

	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change
(dollar amounts in thousands)	2016			2015			$			%		2016			2015			$			%
Interest expense	$	(46,713	)	$	(29,308	)	$	(17,405	)		59%	$	(133,706	)	$	(80,234	)	$	(53,472	)		67%
As a percentage of revenues		-2.0%			-3.1%								-2.8%			-2.8%

Interest expense for the three and nine months ended September 30, 2016 was $46.7 million and $133.7 million, as compared to $29.3 million and $80.2 million during the three and nine months ended September 30, 2015, representing increases of 59% and 67%, respectively. These  increases as compared to the same periods in 2015 was due to an increase in interest expense on vehicles sales that we account for as collateralized borrowing, increased interest expense on build-to-suit leases, and on higher balances of outstanding debt.

Other Expense, Net

	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
(dollar amounts in thousands)	2016			2015			$		%		2016			2015			$		%
Other income (expense), net	$	(11,756	)	$	(15,431	)	$	3,675		-24%	$	(9,952	)	$	(24,503	)	$	14,551		-59%
As a percentage of revenues	*				-1.6%						*			*

* = less than 1%

Other expense, net, consists primarily of foreign exchange gains and losses related to our foreign currency-denominated assets and liabilities. We expect our foreign exchange gains and losses will vary depending upon movements in the underlying exchange rates.

Other expense was $11.8 million and $10.0 million in the three and nine months ended September 30, 2016, as compared to $15.4 million and $24.5 million during the same period in 2015, representing decreases of 24% and 59%, respectively.  During the three and nine months ended September 30, 2016, we recognized a $7 million loss recognized on the conversion of our 2018 Notes.  The remainder of the change in other expense, net, was primarily result of fluctuations in gains (losses) from foreign currency exchange.

Provision for Income Taxes

	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
(dollar amounts in thousands)	2016		2015		$		%		2016		2015		$		%
Provision for income taxes	$	8,133	$	1,784	$	6,349		356%	$	15,628	$	7,991	$	7,637		96%
As a percentage of revenues	*		*						*		*

* = less than 1%

Our provision for income taxes for the three and nine months ended September 30, 2016, was $8.1 million and $15.6 million, compared to $1.8 million and $8.0 million during the three and nine months ended September 30, 2015, representing increases of 356% and 96%, respectively. The increases in the provision for income taxes were due primarily to an increase in taxable income in our international jurisdictions.

Liquidity and Capital Resources  

As of September 30, 2016, we had $3.1 billion in principal sources of liquidity available from our cash and cash equivalents, which included $2.4 billion of money market funds.  This balance included $200 million drawn under our asset based line of credit and an additional $300 million drawn under our Warehouse Agreement which we entered into in August 2016 to support the Tesla Finance direct leasing program.  Amounts held in foreign currencies had a U.S. dollar equivalent of $634.1 million as of September 30, 2016, and consisted primarily of Chinese yuan, Hong Kong dollars, euros and Japanese yen.

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Sources of cash are predominately from our deliveries of vehicles, as well as customer deposits for vehicles, sales of regulatory credits, proceeds from retail financing activities, sales of energy products, and non-warranty repair and maintenance services. In the short term, we expect that our current sources of liquidity, including cash and cash equivalents, together with our current projections of cash flow from operating and retail financing activities, will provide us with adequate liquidity based on our current plans. We may raise funds in the future, including through potential equity or debt offerings, subject to market conditions and recognizing that we cannot be certain that additional funds would be available to us on favorable terms or at all. The amount and timing of funds that we may raise is undetermined and would vary based on a number of factors, including our liquidity needs as well as access to current and future sources of liquidity.

These current sources of liquidity and cash flows enable us to fund our ongoing operations and research and development projects, the initial investments in tooling and manufacturing capital for our planned Model 3; the continued construction of our Gigafactory; and the expansion of our retail stores, service centers and Supercharger network.  We advanced our 500,000 total unit build plan by two years to 2018, which is approximately double our prior growth plan.  Given this plan, we are currently in the process of evaluating our capital expenditure needs, but expect it will be approximately $1.8 billion for the full year of 2016.  

As of September 30, 2016, we have two credit facilities available: (1) senior secured asset-based revolving Credit Agreement (“Credit Agreement”) up to the lesser of $1.0 billion or the value of the secured assets as determined monthly pursuant to the Credit Agreement, and (2) a Loan and Security Agreement (“Warehouse Agreement”) of borrowing up to $300 million to support our vehicle leasing program.  As of September 30, 2016, the outstanding amounts under the credit facilities are $200 million and $300 million under the Credit Agreement and the Warehouse Agreement, respectively.  

During the three and nine months ended September 30, 2016, we paid $421.8 million and $435.5 million for certain conversions of our 2018 Notes, reducing the outstanding aggregate principal amount of our 2018 Notes to $224.3 million.  

During the three months ended September 30, 2016, we increased our funding limit by over 80% with a banking partner for vehicle leasing, where we receive cash for the full price of the vehicles upon delivery.  We plan to add a new vehicle leasing partner in the fourth quarter of 2016.  

In addition, on July 31, 2016, we entered into a definitive agreement to acquire all outstanding common stock of SolarCity Corporation in exchange for Tesla common stock.  If the acquisition is completed, the operation of the combined company could require additional capital depending on future conditions.  

Summary of Cash Flows (in thousands)

	Nine Months Ended September 30,
	2016			2015
Net cash provided by (used in) operating activities	$	324,380		$	(494,650	)
Net cash used in investing activities		(821,679	)		(1,259,271	)
Net cash provided by financing activities		2,371,149			1,298,485

Cash Flows from Operating Activities

Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as manufacturing, research and development and selling, general and administrative. Our operating cash flows are also affected by our working capital needs to support growth and fluctuations in inventory, personnel related expenditures, accounts payable and other current assets and liabilities.

Our operating cash inflows include cash from sales of our vehicles, customer deposits for vehicles, including Model 3, sales of regulatory credits, sales of powertrain components and systems, and energy products. These cash inflows are offset by payments we make to our suppliers for production materials and parts used in our manufacturing process, employee compensation, operating leases and interest expense on our financings.

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During the nine months ended September 30, 2016, cash provided by operating activities was $324.4 million and was primarily a result of net loss incurred of $553.6 million, increase in accounts payable and accrued liabilities of $697.5 million as our business expands, an increase in customer deposits of $409.1 million primarily as a result of Model 3 reservations, an increase in resale value guarantee of $322.2 million and deferred revenue of $256.2 million as the number of vehicle deliveries with resale value guarantee increased.  These increases were partially offset by an increase in inventories and operating lease vehicles of $1.8 billion as we expand our program for direct lease and vehicles with resale value guarantee.  Cash provided by operating activities also included non-cash adjustments of $1.0 billion.    

During the nine months ended September 30, 2015, cash used in operating activities was $494.7 million and was primarily a result of net loss incurred of $568.3 million, and an increase of inventories and operating lease vehicles of $1.1 billion as we expanded our program for direct lease and vehicles with resale value guarantee.  These decreases were partially offset by an increase in resale value guarantee of $249.5 million and deferred revenue of $186.3 million as the number vehicles with resale value guarantee increased.  Cash used by operating activities also included non-cash adjustments of $551.3 million.

Cash Flows from Investing Activities

Cash flows from investing activities primarily relate to capital expenditures to support our growth in operations, including investments in manufacturing equipment and tooling, the continued construction of our Gigafactory, and our stores, service centers and Supercharger network infrastructure.  Cash used in investing activities was $821.7 million and $1.3 billion for the nine months ended September 30, 2016 and 2015. Cash flows from investing activities and variability between each year related primarily to capital expenditures, which were $759.2 million and $1.2 billion for the nine months ended September 30, 2016 and 2015.

In 2014, we began construction of our Gigafactory facility in Nevada.  Tesla’s contribution to total capital expenditures are expected to be about $2.0 billion. In the nine months ended September 30, 2016 we used cash of $222.1 million towards Gigafactory construction and expect to spend a total of approximately $550.0 million during 2016.

Cash Flows from Financing Activities

During the nine months ended September 30, 2016 and 2015, net cash provided by financing activities was $2.4 billion and $1.3 billion. Cash flows from financing activities during the nine months ended September 30, 2016 consisted primarily of $1.7 billion net proceeds from our May 2016 public offering of 7,915,004 shares of common stock, proceeds from issuance of debt of $1.7 billion which consisted of $1.3 billion of borrowing under our Credit Agreement, $300 million borrowing Warehouse Agreement, and proceeds received from vehicle sales to our bank leasing partners of $557.7 million. These increases were partially offset by repayment of borrowing under our Credit Agreement of $1.1 billion and settlement of $435.5 million for certain conversions of our 2018 Notes.  Cash flows from financing activities during the nine months ended September 30, 2015 consisted primarily of $738.3 million net proceeds from August 2015 public offering of 3,099,173 shares of common stock and $360.0 million received from vehicle sales to our bank leasing partners.  

0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant Transactions

In 2014, we issued $920.0 million principal amount of 0.25% convertible senior notes due 2019 (2019 Notes) and $1.38 billion principal amount of 1.25% convertible senior notes due 2021 (2021 Notes) in a public offering. The total net proceeds from these offerings, after deducting transaction costs, were approximately $905.8 million from 2019 Notes and $1.36 billion from 2021 Notes. The interest rates are fixed at 0.25% and 1.25% per annum for the 2019 and 2021 Notes and are payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2014.

In connection with the offering of these notes in 2014, we purchased convertible note hedges for an aggregate $603.4 million and sold warrants for an aggregate $389.2 million. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to reduce potential dilution and/or offset potential cash payments upon the conversion of the 2019 Notes and 2021 Notes.

During the third quarter of 2016, the closing price of our common stock did not meet or exceed 130% of the applicable conversion price of our 2019 Notes and 2021 Notes on at least 20 of the last 30 consecutive trading days of the quarter; furthermore, no other conditions allowing holders of these notes to convert have been met as of September 30, 2016. Therefore, the 2019 Notes and 2021 Notes are not convertible during the third quarter of 2016 and are classified as long-term debt. Should the closing price conditions be met in the third quarter of 2016 or a future quarter, the 2019 Notes and/or the 2021 Notes will be convertible at their holders’ option during the immediately following quarter.

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1.50% Convertible Senior Notes and Bond Hedge and Warrant Transactions

In May 2013, we issued $660.0 million aggregate principal amount of 1.50% convertible senior notes due 2018 (the 2018 Notes) in a public offering. The net proceeds from the offering, after deducting transaction costs, were approximately $648.0 million. The interest under the 2018 Notes is fixed at 1.50% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013.

In connection with the offering of the 2018 Notes, we purchased convertible note hedges for an aggregate $177.5 million and sold warrants for an aggregate $120.3 million. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to reduce potential dilution and/or offset potential cash payments upon the conversion of the 2018 Notes.

During the third quarter of 2016, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20 of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes may convert their notes during the third quarter of 2016. As such, we classified the $213.0 million carrying value of our 2018 Notes as current liabilities and classified $11.3 million, representing the difference between the aggregate principal of our 2018 Notes of $224.3 million and the carrying value of 2018 Notes, as mezzanine equity on our Consolidated Balance Sheet as of September 30, 2016. Should the closing price conditions be met again in a future quarter, the 2018 Notes will be convertible at their holders’ option during the immediately following quarter.  For the nine months ended September 30, 2016, we paid a total of $435.5 million related to conversions of the 2018 Notes.

For more information on the 2018 Notes, 2019 Notes, and 2021 Notes see Note 8 to our Consolidated Financial Statements included under Part 1, Item 1 of this Quarterly Report on Form 10-Q.  

Contractual Obligations

We are party to contractual obligations involving commitments to make payments to third parties, including certain debt financing arrangements and leases, primarily for stores, service centers, certain manufacturing and corporate offices. These also include, as part of our normal business practices, contracts with suppliers for purchases of certain raw materials, components, and services to facilitate adequate supply of these materials and services and capacity reservation contracts.

				Three months ended December 31,		Year ended December 31,
(amounts in thousands)	Total			2016		2017		2018		2019		2020 and thereafter
Operating lease obligations	$	644,921		$	27,921	$	108,422	$	100,345	$	83,850	$	324,383
Capital lease obligations,    including interest		56,752			6,282		22,289		16,793		8,552		2,836
Purchase obligations(1)(2)		3,071,461	(3)		482,098		390,895		40,959		—		—
2018 Notes, including interest(4)		229,873			229,873		—		—		—		—
2019 Notes, including interest		925,557			579		2,300		2,300		920,378		—
2021 Notes, including interest		1,456,229			4,347		17,250		17,250		17,250		1,400,132
Total	$	6,384,793	(3)	$	751,100	$	541,156	$	177,647	$	1,030,030	$	1,727,351

(1) Amounts do not include future cash payments for purchase obligations which were recorded in Accounts payable or Accrued liabilities at September 30, 2016.

(2) These totals represent a quantification of aggregate amounts pursuant to purchase orders issued under binding and enforceable agreements with all vendors as of September 30, 2016, as well as any other estimable and calculable purchase obligations pursuant to such agreements, including any additional amounts we may have to pay vendors if we do not meet certain minimum purchase obligations. Where the timing of payments are not known or estimable, we have included the amount only in the total column.

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(3) In 2014, Panasonic agreed to partner with us on the Gigafactory with investments in production equipment that it will use to manufacture and supply us with battery cells. The parties had agreed to one such investment to be made by Panasonic, with additional investments to be made from time to time if and as agreed to by the parties. As of September 30, 2016, the quantities, cost and timing of potential purchases we may make under this arrangement were subject to a number of factors, such as future vehicle demand, that could not be determined with certainty. Additionally, as of September 30, 2016, any obligation to make payments to Panasonic pursuant to this arrangement was subject to the achievement of certain technological and engineering milestones and other contingent events. Based solely on certain preliminary assumptions made at the time the arrangement was entered into in 2014 for purposes of reference and further ongoing discussion as of September 30, 2016, the potential battery cell purchases that we may have to make from Panasonic pursuant to and during the term of the one investment agreement existing at September 30, 2016 would equal approximately $1.7 billion in the aggregate. Additionally, as the timing of our purchases were unknown as of September 30, 2016, we have included the amount only in the total column.

(4) During the third quarter of 2016, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20 of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes may convert their notes during the fourth quarter of 2016. As such, we classified the $224.3 million principal balance of our 2018 Notes as current liabilities on our condensed consolidated balance sheet as of September 30, 2016 and have included related contractual payments in the three months ended December 31, 2016 category in the table above.

Off-Balance Sheet Arrangements

During the periods presented, we did not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

We transact business globally in multiple currencies. Our international revenues, as well as costs and expenses denominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates against the functional currencies of our foreign subsidiaries and against the U.S. dollar. Upon consolidation, as foreign exchange rates vary, revenues and expenses may be significantly impacted and we may record significant gains or losses on the remeasurement of monetary assets and liabilities, including intercompany balances. As of September 30, 2016, our largest currency exposures are from the euro, Chinese yuan, Hong Kong dollars, and Japanese yen. We recorded foreign exchange loss of $3.9 million in other income (expense), net, for the nine months ended September 30, 2016 related to the impact of changes in exchange rates on foreign currency denominated monetary assets and liabilities.

We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 10% for all currencies could be experienced in the near term. These reasonably possible adverse changes in exchange rates of 10% were applied to total monetary assets and liabilities denominated in currencies other than the functional currencies as of September 30, 2016 to compute the adverse impact these changes would have had on our income before income taxes in the near term. These changes would have resulted in an adverse impact on income before income taxes of approximately $259.0 million, recorded to other income (expense), net, principally from intercompany and cash balances.

In November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated in Japanese yen. The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months or less. We do not enter into derivative contracts for trading or speculative purposes. We document each hedge relationship and assess its initial effectiveness at the inception of the hedge contract and we measure its ongoing effectiveness on a quarterly basis using regression analysis. During the term of an effective hedge contract, we record gains and losses within accumulated other comprehensive loss. We reclassify these gains or losses to costs of automotive sales in the period the related finished goods inventory is sold or over the depreciation period for those sales accounted for as leases. Although our contracts are considered effective hedges, we may experience small amounts of ineffectiveness due to timing differences between our actual inventory purchases and the settlement date of the related foreign currency forward contracts. Ineffectiveness related to the hedges is immaterial as of September 30, 2016. As of September 30, 2016 we had recorded a cumulative gain of $19.2 million to AOCI related to our outstanding foreign currency cash flow hedges. If the U.S. dollar had strengthened by 10% as of September 30, 2016, the gain recorded in AOCI related to our cumulative foreign exchange contracts before tax effect would have been reduced by approximately $10.4 million.

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Interest Rate Risk

We had cash and cash equivalents totaling $3.1 billion as of September 30, 2016. A significant portion of our cash and cash equivalents were invested in money market funds. Cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value as a result of changes in interest rates due to the short term nature of our cash equivalents.

As of September 30, 2016, we had $2.5 billion aggregate principal amount of convertible senior notes outstanding, which are fixed rate instruments. Therefore, our results of operations are not subject to fluctuations in interest rates. However, the fair value of our debt will fluctuate with movements of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. Based upon quoted market prices and Level 2 inputs, the fair value of our total debt was $2.4 billion as of September 30, 2016.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 30, 2016, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting which occurred during the period covered by this Quarterly Report on Form 10-Q, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Securities Litigation

In November 2013, a putative securities class action lawsuit was filed against Tesla in U.S. District Court, Northern District of California, alleging violations of, and seeking remedies pursuant to, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint made claims against Tesla and our CEO, Elon Musk, sought damages and attorney’s fees on the basis of allegations that, among other things, Tesla and Mr. Musk made false and/or misleading representations and omissions, including with respect to the safety of Model S. This case was brought on behalf of a putative class consisting of certain persons who purchased Tesla’s securities between August 19, 2013 and November 17, 2013. On September 26, 2014, the trial court, upon the motion of Tesla and Mr. Musk, dismissed the complaint with prejudice, and thereafter issued a formal written order to that effect. The plaintiffs have appealed from the trial court’s order, and that appeal is pending.

Litigation Relating to the Pending SolarCity Acquisition

Between September 1, 2016 and October 5, 2016, seven lawsuits were filed in the Court of Chancery of the State of Delaware by purported stockholders of Tesla challenging Tesla’s proposed acquisition of SolarCity (the “SolarCity Acquisition”). These lawsuits are captioned as City of Riviera Beach Police Pension Fund v. Elon Musk, et al., C.A, No. 12711-VCS; Ellen Prasinos v. Elon Musk, et al., C.A. No. 12723-VCS; Arkansas Teacher Retirement System, et al. v. Elon Musk, et al., C.A. No. 12740-VCS; P. Evan Stephens v. Elon Musk, et al., C.A. No. 1275-VCS; Pyare Diwana v. Elon Musk, et. al., C.A. No. 12796-VCS; Nguyen v. Elon Musk, et. al., C.A. No. 12804-VCS; and Wolf v. Elon Musk, et. al., C.A. No. 12805-VCS (collectively, the “Actions”). Each of the Actions names as defendants the members of Tesla’s board of directors, and certain of the Actions also name as defendants D Subsidiary, Inc., Tesla’s wholly-owned subsidiary which would merge with and into SolarCity, SolarCity, certain members of SolarCity’s board of Directors, Evercore Group L.L.C., Tesla’s financial advisor in connection with the SolarCity Acquisition, and The Goldman Sachs Group, Inc. The Actions seek to assert claims derivatively on behalf of Tesla, alleging, among other things, that the members of Tesla’s board of directors breached their fiduciary duties in connection with the SolarCity Acquisition and, in some cases, that SolarCity and members of SolarCity’s board of directors, Evercore, and The Goldman Sachs Group, Inc. aided and abetted breaches of fiduciary duties and that certain individual defendants would be unjustly enriched by the SolarCity Acquisition. Certain of the Actions also assert putative class action claims against the members of Tesla’s board of directors, including on the ground that the preliminary joint proxy statement/prospectus filed on August 31, 2016, including as amended, allegedly failed to disclose material facts in connection with the SolarCity Acquisition. The Actions seek, among other relief, damages in an unspecified amount, rescission of the SolarCity Acquisition, and attorneys’ fees and costs. Certain of the plaintiffs have filed motions for a preliminary injunction to prevent Tesla from consummating the SolarCity Acquisition or any vote thereon and motions for expedited proceedings. On September 23, 2016, the Court set a schedule for consolidation of the Actions and determination of a plaintiffs’ leadership structure, and the Court scheduled a hearing for October 14, 2016, to consider any motion for expedited proceedings. On October 10, the Court entered orders consolidating the Actions and appointing lead plaintiffs and lead counsel. On October 11, 2016, lead counsel informed the Court that they do not intend to move for expedited proceedings, and the Court canceled the previously scheduled hearing to consider any such motion. Tesla believes that the Actions are without merit.

Other Matters

From time to time, we have received requests for information from regulators and governmental authorities, such as the National Highway Traffic Safety Administration, the National Transportation Safety Board and the Securities and Exchange Commission.  We are also subject to various other legal proceedings that arise from the normal course of business activities. In addition, from time to time, third parties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand.

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ITEM 1A. RISK FACTORS

You should carefully consider the risks described below together with the other information set forth in this report, which could materially affect our business, financial condition and future results. The risks described below are not the only risks facing our company. In addition, you should read and consider the risks associated with the proposed SolarCity Acquisition, which can be found in our Registration Statement on Form S-4 (No. 333-213390) in the section entitled “Risk Factors,” which section, other than the introductory paragraph and the paragraphs entitled “Risks Related to the Business of the Combined Company Following the Merger —Tesla’s stock price may be negatively impacted by risks and conditions that apply to Tesla, which are different from the risks and conditions applicable to SolarCity” and “Other Risk Factors of Tesla and SolarCity,” is incorporated by reference into this Quarterly Report on Form 10-Q and is filed as Exhibit 99.1 hereto. Such risk factors form a part of this Quarterly Report. Moreover, risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.

Risks Related to Our Business and Industry

We have experienced in the past, and may experience in the future, significant delays or other complications in the design, manufacture, launch and production ramp of new vehicles and other products such as our energy products, which could harm our brand, business, prospects, financial condition and operating results.

We have experienced delays or other complications in connection with new vehicle models in the past, such as production ramp delays for Model S in 2012 and the All-Wheel Drive Dual Motor Model S, and the launch and ramp of Model X. For example, while we commenced Model X deliveries late in the third quarter of 2015, at times we encountered unanticipated challenges, such as certain supply chain constraints, in ramping production of Model X vehicles that forced us to decrease the production of these vehicles from our initial expectations. If unexpected issues arise or recur with respect to any of our production vehicles, we may experience further delays. In addition, since our vehicle models share certain production facilities with the other models, the volume or efficiency of production with respect to one model may impact the production of other models.

We may also experience similar delays or other complications in bringing to market and ramping production of new vehicles, such as Model 3, and other products such as our energy products. Any significant additional delay or other complication in the production of our current products or the development, manufacture, launch and production ramp of our future products, including complications associated with expanding our production capacity, supply chain or regulatory approvals, could materially damage our brand, business, prospects, financial condition and operating results.

We may experience delays in realizing our projected timelines and cost and volume targets for the production, launch and ramp of our Model 3 vehicle, which could harm our business, prospects, financial condition and operating results.

Our future business depends in large part on our ability to execute on our plans to develop, manufacture, market and sell the Model 3 vehicle, which we intend to offer at a lower price point and to produce at significantly higher volumes than our present production capabilities for the Model S or Model X vehicles. We unveiled a prototype of Model 3 in March 2016 and have announced our goal to achieve volume production and deliveries of this vehicle in late 2017.

We have no experience to date in manufacturing vehicles at the high volumes that we anticipate for Model 3, and to be successful, we will need to develop efficient, automated, low-cost manufacturing capabilities, processes and supply chains necessary to support such volumes. Additionally, various aspects of the Model 3 component procurement and manufacturing plans are still being determined. While critical long lead time equipment and components have been sourced, we are currently evaluating, qualifying and selecting some of our suppliers for the planned production of Model 3. We will also need to do extensive testing to ensure that Model 3 is in compliance with our quality standards and applicable regulations prior to beginning mass production and delivery of the vehicles. Moreover, our Model 3 production plan will also require significant investments of cash and management resources.

Our production plan for Model 3 is based on many key assumptions, including:

• that we will be able to develop, build and equip a new dedicated final assembly line for high volume production of Model 3 at the Tesla Factory without exceeding our projected costs and on our projected timeline;

• that we will be able to continue to build and bring online the Gigafactory in a timely manner to produce high volumes of quality lithium-ion cells and integrate such cells into finished battery packs for Model 3, all at costs that allow us to sell Model 3 at our target gross margins;

• that the equipment and processes which we select and install for Model 3 production will be able to accurately manufacture high volumes of Model 3 vehicles within specified design tolerances and with high quality;

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• that we will be able to continue to engage suppliers for the necessary components on terms and conditions that are acceptable to us and that we will be able to obtain components on a timely basis and in the necessary quantities to support high volume production;

• that we will be able to complete our final tooling, production planning and validation for Model 3 and the delivery of final component designs to our suppliers in a timely manner; and

• that we will be able to attract, recruit, hire and train skilled employees, including employees on the production line, to operate our planned high volume Model 3 production facilities at the Tesla Factory and the Gigafactory.

If one or more of the foregoing assumptions turns out to be incorrect, our ability to successfully launch Model 3 on time and at volumes and prices that are profitable, as well as our business, prospects, operating results and financial condition, may be materially and adversely impacted.

We may be unable to meet our growing vehicle production and delivery plans, both of which could harm our business and prospects.

Our plans call for significant increases in vehicle production and deliveries to high volumes in a short amount of time. Our ability to achieve these plans will depend upon a number of factors, including our ability to add production lines and capacity as planned while maintaining our desired quality levels and optimize design and production changes, and our suppliers’ ability to support our needs. Due to the complexity of our supply chain, if we are unable to accurately match the timing and quantities of component purchases to our production plans, or change components or suppliers, we may have to incur unexpected costs to maintain, store and pay for components in excess of our needs or capabilities. We have limited experience developing, manufacturing, selling and servicing, and allocating our available resources among, multiple products simultaneously. If we are unable to realize our plans, or experience any delays or disruption in our production of our vehicles, our brand, business, prospects, financial condition and operating results could be materially damaged.

In addition, we have used and may use in the future a number of new manufacturing technologies, techniques and processes for our vehicles, which we must successfully introduce and scale for high volume production. For example, we have introduced aluminum spot welding systems and high-speed blow forming of certain difficult to stamp vehicle parts. Our vehicles also have unique design features, such as a 17 inch display screen, dual motor drivetrain and autopilot hardware introduced in Model S and falcon-wing doors and other unique features introduced in Model X, each of which poses different manufacturing challenges.

Concurrent with the significant planned increase in our vehicle production levels, we will also need to continue to significantly increase deliveries of our vehicles. We have limited experience in delivering a high volume of vehicles, and no experience in delivering vehicles at the significantly higher volumes we anticipate for Model 3, and we may face difficulties meeting our delivery and growth plans into both existing markets as well as new markets into which we expand. If we are unable to ramp up to meet our delivery goals globally, this could have a material adverse effect on our business, prospects, financial condition and operating results.

Our long-term success will be dependent upon our ability to achieve market acceptance of our vehicles, including Model S and Model X, and new vehicle models such as Model 3.

There is no guarantee that Model S, Model X or our future vehicles such as Model 3 will continue to be successfully accepted by the general public, especially in the long-term. Although we have successfully grown demand for Model S to date and have seen strong initial demand for Model X and Model 3, and we believe that we will be able to continue to grow demand for these vehicles, there is no guarantee that future demand for Model S or Model X, or new vehicle models such as Model 3, of which we have unveiled only a prototype to date, will meet consumer expectations. To the extent that our vehicles do not meet such expectations, our future sales could be harmed.

While we believe that there will continue to be separate and strong demand for each of our vehicles, we have limited experience in selling multiple vehicle models at the same time. Although we believe that each of our vehicles and their variants meet a distinct segment of the automotive market, if our vehicles in fact compete with one another in the market, then our ability to sell each vehicle model at planned quantities or prices may be impacted.

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Future problems or delays in bringing the Gigafactory online and operating it in line with our expectations could negatively affect the production and profitability of our products, such as Model 3 or energy products.

To lower the cost of cell production and produce cells in high volume, we intend to integrate the production of lithium-ion cells and finished battery packs for our vehicles, including Model 3, and energy products at our new Gigafactory. We have no direct experience in the production of lithium-ion cells. Although we continue to remain on track with our progress at the Gigafactory, given the size and complexity of this undertaking, it is possible that future events could result in the cost of building and operating the Gigafactory exceeding our current expectations and the Gigafactory taking longer to bring online than we currently anticipate. Also, our recently revised vehicle build plan includes an adjustment of our plans at the Gigafactory. In order to build our Model 3 vehicles at our planned volume and target gross margin, we must have significant battery cell production from our Gigafactory. If we are unable to complete building the Gigafactory in a timely manner, and attract, hire and retain a substantial number of highly skilled personnel to work there in order to produce high volumes of quality lithium-ion cells at reasonable prices, our ability to supply battery packs to our vehicles, especially Model 3, and other products according to our schedule and/or at a price that allows us to sell them at our target gross margins and in the quantities we estimate could be negatively impacted. Any such future problems or delays with the Gigafactory could negatively affect our brand and harm our business, prospects, financial condition and operating results.

If our vehicles or other products that contain our vehicle powertrains or battery packs fail to perform as expected, our ability to develop, market and sell our electric vehicles could be harmed.

If our vehicles, vehicles that contain our powertrains or our energy products were to contain defects in design and manufacture that cause them not to perform as expected or that require repair, our ability to develop, market and sell our products could be harmed. For example, the operation of our vehicles is highly dependent on software, which is inherently complex and could conceivably contain defects and errors. Issues experienced by customers have included those related to the software for the 17 inch display screen, the panoramic roof and the 12 volt battery in the Model S and the seats and doors in the Model X. Although we attempt to remedy any issues we observe in our vehicles as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not be up to the satisfaction of our customers. While we have performed extensive internal testing, we currently have a limited frame of reference by which to evaluate detailed long-term quality, reliability, durability and performance characteristics of our battery packs, powertrains, vehicles and energy products. There can be no assurance that we will be able to detect and fix any defects in our products prior to their sale to consumers.

Any product defects or any other failure of our products to perform as expected could harm our reputation and result in delivery delays, product recalls, product liability claims, significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operating results and prospects. Our Model X vehicles have not yet been evaluated by NHTSA for a star rating under the New Car Assessment Program, and while based on our internal testing we expect to obtain comparable ratings to those achieved by Model S, there is no assurance this will occur.

We are dependent on our suppliers, the majority of which are single source suppliers, and the inability of these suppliers to deliver, or their refusal to deliver, necessary components of our products in a timely manner at prices, quality levels, and volumes acceptable to us could have a material adverse effect on our financial condition and operating results.

Our current products contain numerous purchased parts which we source globally from hundreds of direct suppliers, the majority of whom are currently single source suppliers despite efforts to qualify and obtain components from multiple sources whenever feasible. Furthermore, we do not maintain long-term agreements with a number of our suppliers. This limited supply chain exposes us to multiple potential sources of delivery failure or component shortages for the production of our products. We have experienced in the past and may experience in the future delays due to supply chain disruptions with respect to our current products and future products we may produce, such as those we have experienced in 2012 and 2016 in connection with our slower-than-planned Model S and Model X ramps.

Unexpected changes in business conditions, materials pricing, labor issues, wars, governmental changes, natural disasters such as the March 2011 earthquakes in Japan and other factors beyond our and our suppliers’ control, could also affect our suppliers’ ability to deliver components to us on a timely basis. Moreover, any significant unanticipated demand may require us to procure additional components in a short amount of time, and in the past we have also replaced certain suppliers because of their failure to provide components that met our quality control standards. While we believe that we will be able to secure additional or alternate sources of supply for most of our components in a relatively short time frame, there is no assurance that we will be able to do so or develop our own replacements for certain highly customized components of our vehicles. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to vehicle design changes and delays in vehicle deliveries to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, financial condition and operating results.

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Changes in our supply chain have also resulted in the past, and may result in the future, in increased cost. We have also experienced cost increases from certain of our suppliers in order to meet our quality targets and development timelines as well as due to design changes that we made, and we may experience similar cost increases in the future. Certain suppliers, including for Model X, have experienced delays in meeting our demand or quality requirements, or have sought to renegotiate the terms of the supply arrangements. Additionally, we are negotiating with existing suppliers for cost reductions, seeking new and less expensive suppliers for certain parts, and attempting to redesign certain parts to make them less expensive to produce. If we are unsuccessful in our efforts to control and reduce supplier costs, our operating results will suffer. 

Moreover, we have signed an agreement with Panasonic to be our partner in the Gigafactory and be responsible for, among other things, manufacturing cells from there for use in our products. If we encounter unexpected difficulties with our current suppliers, including Panasonic, and if we are unable to fill these needs from other suppliers, we could experience production delays and potential loss of access to important technology and parts for producing, servicing and supporting our products, which could have a material adverse effect on our financial condition and operating results.

We expect the foregoing discussion to apply generally to Model 3. However, because we plan to produce Model 3 at significantly higher volumes than Model S or Model X, the negative impact of any delays or other constraints with respect to our suppliers for Model 3 could be substantially greater than any such issues experienced with respect to Model S, Model X or our energy products. As some of our current suppliers may not have the resources, equipment or scalability to provide components for the Model 3 in line with our requirements, we may need to engage a significant number of new suppliers with whom we have relatively little or no experience, and such suppliers may have to ramp to achieve our needs in a short period of time. There is no assurance that these suppliers will ultimately be able to meet our cost, quality and volume needs.

Our future growth is dependent upon consumers’ willingness to adopt electric vehicles, especially in the mass market demographic which we are targeting with Model 3.

Our growth is highly dependent upon the adoption by consumers of alternative fuel vehicles in general and electric vehicles in particular, especially in the mass market demographic which we are targeting with Model 3.

If the market for electric vehicles in general and Tesla vehicles in particular does not develop as we expect, or develops more slowly than we expect, our business, prospects, financial condition and operating results will be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, and could be affected by numerous external factors, such as:

• perceptions about electric vehicle features, quality, safety, performance and cost;

• perceptions about the limited range over which electric vehicles may be driven on a single battery charge;

• competition, including from other types of alternative fuel vehicles, plug-in hybrid electric vehicles, and high fuel-economy internal combustion engine vehicles;

• volatility in the cost of oil and gasoline;

• government regulations and economic incentives; and

• access to charging facilities.

If we fail to scale our business operations and otherwise manage future growth effectively as we rapidly grow our company, especially internationally, we may not be able to produce, market, sell and service our products successfully.

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We continue to expand our operations significantly, especially internationally, including by a planned transition to high volume vehicle production and the worldwide sales and servicing of a significantly higher number of vehicles than our current vehicle fleet in the coming years, with the launch and ramp of Model 3. Furthermore, we are developing and growing our energy product business worldwide, including in countries where we have limited or no previous operating experience in connection with our vehicle business. Our future operating results depend to a large extent on our ability to manage our expansion and growth successfully. We may not be successful in undertaking this global expansion if we are unable to control expenses and avoid cost overruns and other unexpected operating costs; establish sufficient worldwide sales, service and Supercharger facilities in a timely manner; adapt our products to meet local requirements; implement the required infrastructure, systems and processes; and find and hire a significant number of additional manufacturing, engineering, service and administrative personnel.

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If we are unable to continue to reduce the manufacturing costs of Model S and Model X or control manufacturing costs for Model 3, our financial condition and operating results will suffer.

As we have gradually ramped production of Model S and Model X, manufacturing costs per vehicle have decreased.  While we expect ongoing cost reductions to be realized by both us and our suppliers, there is no guarantee we will be able to achieve sufficient cost savings to reach our gross margin and profitability goals. We incur significant costs related to procuring the raw materials required to manufacture our vehicles, assembling vehicles and compensating our personnel. We may also incur substantial costs or cost overruns in increasing the production capability of our vehicle manufacturing facilities, such as for Model 3. Furthermore, if we are unable to achieve production cost targets on our Model X and Model 3 vehicles pursuant to our plans, we may not be able to meet our gross margin and other financial targets.

Furthermore, many of the factors that impact our manufacturing costs are beyond our control, such as potential increases in the costs of our raw materials and components, such as lithium-ion battery cells or aluminum used to produce body panels. If we are unable to continue to control and reduce our manufacturing costs, our operating results, business and prospects will be harmed.

Although we are significantly dependent upon revenue generated from the sale of the Model S and Model X in the near term, our future success will be dependent upon our ability to design and achieve market acceptance of Model 3 and future vehicles with broad public appeal.

We currently generate a significant percentage of our revenues from the sale of our Model S and Model X vehicles. The Model 3, for which we are planning to achieve volume production and deliveries in late 2017, requires significant investment prior to commercial introduction, and there is no guarantee that it will be commercially successful. The market for vehicles in the price range we expect for Model 3 is larger, but more competitive, than the markets for Model S and Model X. There can be no assurance that Model 3 or our future electric vehicles will meet the expectations of our customers or of a broad customer base. To the extent that we are not able to build the production Model 3 to the expectations created by the prototype we unveiled in March 2016, including the announced vehicle specifications and cost to customers, customers may cancel their reservations, our future sales could be harmed and investors may lose confidence in us. Furthermore, historically, automobile customers have come to expect new and improved vehicle models to be introduced frequently. In order to meet these expectations, we may in the future be required to introduce on a regular basis new vehicle models as well as enhanced versions of existing vehicle models. To the extent our product cycles do not meet consumer expectations, our future sales may be adversely affected.

Reservations for Model 3 may be cancelled prior to their sale and are fully refundable to customers, and significant cancellations could harm our financial condition, business, prospects and operating results.

We have received a significant number of reservations for Model 3, all of which are subject to customer cancellations up until such time that the customer enters into a purchase agreement. As Model 3 will have a significantly lower price point than our previous vehicles and we do not expect to achieve volume production and deliveries of Model 3 before late 2017, we will for a lengthy period of time be subject to a number of factors that may result in cancellations of these reservations, including potential changes in customer financial position and preferences, competitive developments, and any unanticipated deviations from the expected price point, vehicle features or performance characteristics. There can be no assurance that any reservation will ultimately result in the sale of a vehicle, or that our number of reservations at any given time will accurately reflect the future demand for and sales of the Model 3. Furthermore, all amounts received by us in connection with reservations taken prior to the ramp of our vehicles have historically been refundable. Given the substantial number of Model 3 reservations, significant cancellations could harm our financial condition, business, prospects and operating results.

We may fail to meet our publicly announced guidance or other expectations about our business, which could cause our stock price to decline.

We occasionally provide guidance regarding our expected financial and business performance, such as projections regarding sales and production, as well as anticipated future revenues, gross margins, profitability and cash flows. Correctly identifying key factors affecting business conditions and predicting future events is inherently an uncertain process and our guidance may not ultimately be accurate. Our guidance is based on certain assumptions such as those relating to anticipated production and sales volumes and average sales prices, supplier and commodity costs, and planned cost reductions. If our guidance is not accurate or varies from actual results due to our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our common stock could decline significantly.

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Our vehicles make use of lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame, and such events have raised concerns, and future events may lead to additional concerns, about the batteries used in automotive applications.

The battery packs that we produce make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells.

While we have designed the battery pack to passively contain any single cell’s release of energy without spreading to neighboring cells, there can be no assurance that a field or testing failure of our vehicles or other battery packs that we produce will not occur, which could subject us to lawsuits, product recalls, or redesign efforts, all of which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications or any future incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve our vehicles, could seriously harm our business.

In addition, we store a significant number of lithium-ion cells at the Tesla Factory and plan to produce high volumes of cells and battery modules and packs at our Gigafactory. Any mishandling of battery cells may cause disruption to the operation of our facilities. While we have implemented safety procedures related to the handling of the cells, there can be no assurance that a safety issue or fire related to the cells would not disrupt our operations. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any failure of a competitor’s electric vehicle or energy product may cause indirect adverse publicity for us and our products. Such adverse publicity could negatively affect our brand and harm our business, prospects, financial condition and operating results.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial results.

Our revenues and costs denominated in foreign currencies are not completely matched. As we have increased Model S deliveries in markets outside of the United States, we have much higher revenues than costs denominated in other currencies such as the euro, Chinese renminbi, Norwegian kroner, British pound and Canadian dollar. Any strengthening of the U.S. dollar would tend to reduce our revenues as measured in U.S. dollars, as we have historically experienced. In addition, a portion of our costs and expenses have been, and we anticipate will continue to be, denominated in foreign currencies, including the Japanese yen. If we do not have fully offsetting revenues in these currencies and if the value of the U.S. dollar depreciates significantly against these currencies, our costs as measured in U.S. dollars as a percent of our revenues will correspondingly increase and our margins will suffer. Moreover, while we undertake limited hedging activities intended to offset the impact of currency translation exposure, it is impossible to predict or eliminate such impact. As a result, our operating results could be adversely affected.

Our resale value guarantee and leasing programs for our vehicles expose us to the risk that the resale values of vehicles returned to us are lower than our estimates and may result in lower revenues, gross margin, profitability and liquidity.

We have provided resale value guarantees to many of our customers, under which such customers may sell their vehicles back to us at certain points in time at pre-determined resale values. Customers can lease our vehicles through both leasing partners and from us directly, through our captive finance companies. The resale values of any vehicles resold or returned to us pursuant to these programs may be lower than our estimates, which are based on a limited secondary market for our vehicles. If the volume of vehicles returned to us is higher than our estimates and/or we are not able to resell them timely or at all, our liquidity could be negatively impacted. In cases where customers retain their vehicles past the guarantee period, our gross margin will be negatively impacted as all remaining revenues and costs related to the vehicle will be recognized at no gross profit.

We apply lease accounting on sales of vehicles with a resale value guarantee and on leases made directly by us or by our leasing partners. Under lease accounting, we recognize the associated revenues and costs of the vehicle sale over time rather than fully upfront at vehicle delivery. As a result, these programs generate lower revenues in the period the car is delivered and higher gross margins during the period of the resale value guarantee as compared to purchases in which the resale value guarantee does not apply. A higher than anticipated prevalence of these programs could therefore have an adverse impact on our near term revenues and operating results. Moreover, unlike the sale of a vehicle with a resale value guarantee or programs with leasing partners which do not impact our cash flows and liquidity at the time of vehicle delivery, under a lease held directly by us, we may receive only a very small portion of the total vehicle purchase price at the time of lease, followed by a stream of payments over the term of the lease. To the extent we expand our leasing program without securing external financing or business partners to support such expansion, our cash flow and liquidity could also be negatively impacted.

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If we fail to effectively grow and manage the residual, financing and credit risks related to our direct vehicle leasing programs, our business may suffer.

We offer vehicle financing arrangements through our local subsidiaries in the United States, Canada, Germany and the UK, including leasing directly through certain of those subsidiaries. The profitability of the leasing program depends on our ability to accurately project residual values, secure adequate financing and/or business partners to fund and grow this program, and manage customer credit risk. If actual residual values of our vehicles are below our estimates, we may suffer lower profitability or potentially have losses. If we are unable to adequately fund our leasing program with internal funds, or partners or other external financing sources, and compelling alternative financing programs are not available for our customers, we may be unable to grow our sales. For example, in certain cases purchasing lease contracts from us is at the discretion of our partners and there is no guarantee that our partners will accept such contracts at the volumes and times requested by us. Additionally, if we do not properly screen customers for their creditworthiness, we may be exposed to excessive credit risks and associated losses. Furthermore, if our leasing business grows substantially, our business may suffer if we cannot effectively manage the greater levels of residual and credit risks resulting from growth. Finally, if we do not successfully monitor and comply with applicable national, state and/or local financial regulations and consumer protection laws governing lease transactions, we may become subject to enforcement actions or penalties, either of which may harm our business.

Increases in costs, disruption of supply or shortage of raw materials, in particular for lithium-ion cells, could harm our business.

We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials. Any such increase, supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating results. We use various raw materials in our business including aluminum, steel, nickel and copper. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to lithium-ion cells. These risks include:

• the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells we require;

• disruption in the supply of cells due to quality issues or recalls by battery cell manufacturers;

• an increase in the cost of raw materials used in the cells; and

• fluctuations in the value of the Japanese yen against the U.S. dollar as our battery cell purchases for Model S and Model X are currently denominated in Japanese yen. 

Our business is dependent on the continued supply of battery cells for the battery packs used in our vehicles and energy products. While we believe several sources of the battery cells are available for such battery packs, we have fully qualified only a very limited number of suppliers for the cells used in such battery packs and have very limited flexibility in changing cell suppliers. In particular, we have fully qualified only one supplier for the cells used in battery packs for our production vehicles. Any disruption in the supply of battery cells from such vendors could disrupt production of our vehicles and of the battery packs we produce for other automobile manufacturers until such time as a different supplier is fully qualified. Furthermore, fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials or prices charged to us, such as those charged by our battery cell manufacturers, would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices. Any attempts to increase vehicle prices in response to increased raw material costs could result in cancellations of vehicle orders and reservations and therefore materially and adversely affect our brand, image, business, prospects and operating results.

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

Product liability claims could harm our business, prospects, operating results and financial condition. The automobile industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected resulting in personal injury or death. We also may face similar claims related to any misuse or failures of new technologies that we are pioneering, including autopilot in our vehicles and our energy products. A successful product liability claim against us could require us to pay a substantial monetary award. Our risks in this area are particularly pronounced given the limited number of vehicles and energy products delivered to date and limited field experience of our products. Moreover, a product liability claim could generate substantial negative publicity about our products and business and could have material adverse effect on our brand, business, prospects and operating results. In most jurisdictions, we self-insure against the risk of product liability claims, meaning that any product liability claims will have to be paid from company funds, not by insurance.

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The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from new and established U.S. and international competitors and expect to face competition from others in the future, including competition from companies with new technology.

The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in the future. There is no assurance that our vehicles will be successful in the respective markets in which they compete. Many established and new automobile manufacturers such as BMW, Daimler, General Motors and Toyota, as well as other large companies, have entered or are reported to have plans to enter the alternative fuel vehicle market, including hybrid, plug-in hybrid and fully electric vehicles. Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do and almost all of these companies have longer operating histories and greater name recognition than we do. Increased competition could result in lower vehicle unit sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results. In addition, upon the launch of our Model 3 vehicle, we will face competition from existing and future automobile manufacturers in the extremely competitive entry-level premium sedan market, including Audi, BMW, Lexus and Mercedes.

Demand in the automobile industry is volatile, which may lead to lower vehicle unit sales and adversely affect our operating results.

Volatility of demand in the automobile industry may materially and adversely affect our business, prospects, operating results and financial condition. The markets in which we currently compete and plan to compete in the future have been subject to considerable volatility in demand in recent periods. As a current low volume vehicle producer, we have less financial resources than more established automobile manufacturers to withstand changes in the market and disruptions in demand, and there is no guarantee that we will be able to successfully transition to a high volume producer with the production of the Model 3. Volatility in demand may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, prospects, financial condition and operating results. These effects may have a more pronounced impact on our business given our relatively smaller scale and financial resources as compared to many incumbent automobile manufacturers.

If we are unable to establish and maintain confidence in our long-term business prospects among consumers, analysts and within our industry, then our financial condition, operating results, business prospects and stock price may suffer materially.

Consumers may be less likely to purchase our products now if they are not convinced that our business will succeed or that our operations will continue for many years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, in order to build and maintain our business, we must maintain confidence among customers, suppliers, analysts and other parties in our liquidity and long-term business prospects. Maintaining such confidence may be particularly complicated by certain factors, such as our limited operating history, unfamiliarity with our products, competition and uncertainty regarding the future of electric vehicles and our quarterly production and sales performance compared with market expectations. Many of these factors are largely outside our control, and any negative perceptions about our long-term business prospects, even if exaggerated or unfounded, would likely harm our business and make it more difficult to raise additional funds if needed.

Our plan to expand our network of Tesla stores and galleries, service centers and Superchargers will require significant cash investments and management resources and may not meet expectations with respect to additional sales of our electric vehicles or availability of Superchargers.

Our plan to expand our network of Tesla stores, galleries, service centers and Superchargers will require significant cash investments and management resources and may not meet our expectations with respect to additional sales of our vehicles. This ongoing global expansion, which includes planned entry into markets in which we have limited or no experience selling, delivering or servicing vehicles, and which may pose legal, regulatory, cultural and political challenges that we have not previously encountered, may not have the desired effect of increasing sales and expanding our brand presence to the degree we are anticipating. Furthermore, the increasing number of Model S and Model X vehicles, as well as the significant increase in our vehicle fleet size that we expect from Model 3, will require us to continue to increase the number our Supercharger stations significantly. If we fail to do so, our customers could become dissatisfied, which could adversely affect sales of our vehicles. We will also need to ensure we are in compliance with any regulatory requirements applicable to the sale and service of our vehicles and operation of Superchargers in those jurisdictions, which could take considerable time and expense. If we experience any delays or cannot meet customer expectations in expanding our network of Tesla stores, galleries, service centers and Superchargers, this could lead to a decrease in sales of our vehicles and could negatively impact our business, prospects, financial condition and operating results.

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We face risks associated with our international operations and expansion, including unfavorable regulatory, political, tax and labor conditions and establishing ourselves in new markets, all of which could harm our business.

We currently have international operations and subsidiaries in various countries and jurisdictions that are subject to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. Additionally, as part of our growth strategy, we will continue to expand our sales, service and Supercharger locations internationally. We have limited experience, however, selling and servicing our products internationally, as well as limited experience installing and operating Superchargers internationally. Furthermore, international expansion requires us to make significant expenditures, including the establishment of local operating entities, hiring of local employees and establishing facilities in advance of generating any revenue.

We are subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our electric vehicles and require significant management attention. These risks include conforming our vehicles to various international regulatory and safety requirements, difficulty in establishing, staffing and managing foreign operations, challenges in attracting customers, foreign government taxes, regulations and permit requirements, our ability to enforce our contractual rights; trade restrictions, customs regulations, tariffs and price or exchange controls, and preferences of foreign nations for domestically produced vehicles.

Additionally, as we have expanded into new international markets, we historically faced challenges with ensuring that our charging equipment works successfully with the charging infrastructure in such markets, including in Norway and China. If customers experience problems with the way our charging equipment works with the local charging infrastructure, or we are unable to adapt our equipment to resolve such problems, then the viability and acceptance of our vehicles in such markets could be materially and adversely affected. If we fail to successfully address these risks, our business, prospects, operating results and financial condition could be materially harmed.

The unavailability, reduction or elimination of government and economic incentives in the U.S. and abroad supporting the development and adoption of electric vehicles could have some impact on demand for our vehicles.

We currently benefit from certain government and economic incentives supporting the development and adoption of electric vehicles. In the United States and abroad, such incentives include, among other things, tax credits or rebates that encourage the purchase of electric vehicles. In Norway, for example, the purchase of electric vehicles is not currently subject to import taxes, taxes on non-recurring vehicle fees, the 25% value added tax or the purchase taxes that apply to the purchase of gas-powered vehicles. Notably, the quantum of incentive programs promoting electric vehicles is a tiny fraction of the amount of incentives that are provided to gas-powered vehicles through the oil and gas industries.  Nevertheless, even the limited benefits from such programs could be reduced, eliminated or exhausted.  For example, on January 1, 2016, a previously available incentive in Denmark that favored the purchase of electric vehicles expired and was replaced with a newly phased-in incentive that is less generous than the incentive that it replaced. Moreover, under current regulations, a $7,500 federal tax credit available in the United States for the purchase of qualified electric vehicles with at least 17 kWh of battery capacity, such as our vehicles, will begin to phase out with respect to any vehicles delivered in the second calendar quarter following the quarter in which we deliver our 200,000th qualifying vehicle in the United States. In addition, California implemented regulations phasing out a $2,500 cash rebate on qualified electric vehicles for high-income consumers, which became effective in March 2016. In certain circumstances, there is pressure from the oil and gas lobby or related special interests to bring about such developments, which could have some negative impact on demand for our vehicles.

If we are unable to attract and/or retain key employees and hire qualified personnel, our ability to compete could be harmed.

The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our vehicles and services, and negatively impact our business, prospects and operating results. In particular, we are highly dependent on the services of Elon Musk, our Chief Executive Officer, and JB Straubel, our Chief Technical Officer.

None of our key employees is bound by an employment agreement for any specific term and we may not be able to successfully attract and retain senior leadership necessary to grow our business. Our future success depends upon our ability to attract and retain executive officers and other key technology, sales, marketing, engineering, manufacturing and support personnel and any failure to do so could adversely impact our business, prospects, financial condition and operating results.

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Key talent may leave Tesla due to various factors, such as a very competitive labor market for talented individuals with automotive experience. Currently in California, there is increasing competition for talented individuals with the specialized knowledge of electric vehicles, software engineers, manufacturing engineers and other skilled employees. This competition affects both our ability to retain key employees and hire new ones. Our continued success depends upon our continued ability to hire new employees in a timely manner, especially to support our expansion plans and ramp to high-volume manufacture of vehicles, and retain current employees. Additionally, we compete with both mature and prosperous companies that have far greater financial resources than we do and start-ups and emerging companies that promise short-term growth opportunities. Difficulties in retaining current employees or recruiting new ones could have an adverse effect on our performance.

We are highly dependent on the services of Elon Musk, our Chief Executive Officer.

We are highly dependent on the services of Elon Musk, our Chief Executive Officer, Chairman of our Board of Directors and largest stockholder. Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla. Mr. Musk also currently serves as Chief Executive Officer and Chief Technical Officer of Space Exploration Technologies, a developer and manufacturer of space launch vehicles, and Chairman of SolarCity, a solar provider.

We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability to operate our manufacturing facilities.

As an automobile manufacturer, we are subject to complex environmental, health and safety laws and regulations at numerous jurisdictional levels in the United States and abroad, including laws relating to the use, handling, storage, disposal and human exposure to hazardous materials. The costs of compliance, including remediating contamination if any is found on our properties and any changes to our operations mandated by new or amended laws, may be significant. We may also face unexpected delays in obtaining permits and approvals required by such laws in connection with our manufacturing facilities, which would hinder our operation of these facilities. Such costs and delays may adversely impact our business prospects and operating results. Furthermore, any violations of these laws may result in substantial fines and penalties, remediation costs, third party damages, or a suspension or cessation of our operations.

Our business may be adversely affected by any disruptions caused by union activities.

It is common for employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. Moreover, regulations in some jurisdictions outside of the United States mandate employee participation in industrial collective bargaining agreements and work councils with certain consultation rights with respect to the relevant companies’ operations. Although we work diligently to provide the best possible work environment for our employees, they may still decide to join or seek recognition to form a labor union, or we may be required to become a union signatory. Furthermore, we are directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our products and have a material adverse effect on our business, prospects, operating results or financial condition.

Our vehicles are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and operating results.

Motor vehicles are subject to substantial regulation under international, federal, state, and local laws. We incur significant costs in complying with these regulations, and may be required to incur additional costs to comply with any changes to such regulations. We are subject to laws and regulations applicable to the import, sale and service of automobiles internationally. For example, in countries outside of the United States, we are required to meet vehicle-specific safety standards that are often materially different from U.S. requirements, thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance in those countries. This process may include official review and certification of our vehicles by foreign regulatory agencies prior to market entry, as well as compliance with foreign reporting and recall management systems requirements.

Additionally, our vehicles are equipped with a range of autopilot features that assist drivers, relieving them of certain tedious and potentially dangerous aspects of road travel. Autopilot is a completely new feature with which U.S. and foreign regulators have limited experience. Any current or future proposed regulations in this area, if passed, could impact whether and how our customers are able to use our vehicles equipped for autopilot, and which, depending on the severity of the regulations, could adversely affect our business.

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We are subject to various privacy and consumer protection laws.

Our privacy policy is posted on our website, and any failure by us or our vendor or other business partners to comply with it or with federal, state or international privacy, data protection or security laws or regulations could result in regulatory or litigation-related actions against us, legal liability, fines, damages and other costs. We may also incur substantial expenses and costs in connection with maintaining compliance with such laws, in particular data protection laws in the EU, which are currently in a state of transition. Although we take steps to protect the security of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if third parties improperly obtain and use the personal information of our customers or we otherwise experience a data loss with respect to customers’ personal information. A major breach of our network security and systems could have negative consequences for our business and future prospects, including possible fines, penalties and damages, reduced customer demand for our vehicles, and harm to our reputation and brand.

We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and financial performance.

Any product recall in the future may result in adverse publicity, damage our brand and adversely affect our business, prospects, operating results and financial condition. For example, we recently initiated a Model S recall in November 2015 after we discovered a single field unit with a front seat belt issue, and a Model X recall in April 2016 after an internal test revealed unintended movement in the third row seats during a collision.  None of our past recalls have been related to our electric powertrain, and none of the underlying issues has resulted in a vehicle crash or personal injury reported to us. In the future, we may at various times, voluntarily or involuntarily, initiate a recall if any of our vehicles or our electric powertrain components that we provide to other OEMs, including any systems or parts sourced from our suppliers, prove to be defective or noncompliant with applicable federal motor vehicle safety standards. Such recalls, whether voluntary or involuntary or caused by systems or components engineered or manufactured by us or our suppliers, could involve significant expense and could adversely affect our brand image in our target markets, as well as our business, prospects, financial condition and results of operations.

Our current and future warranty reserves may be insufficient to cover future warranty claims which could adversely affect our financial performance.

If our warranty reserves are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition and operating results could be materially and adversely affected. Warranty reserves include management’s best estimate of the projected costs to repair or to replace items under warranty. These estimates are based on actual claims incurred to-date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain and changes to our historical or projected experience may cause material changes to our warranty reserves in the future. Subject to separate limited warranties for the supplemental restraint system and battery, we provide four year or 50,000 mile limited warranties for the purchasers of new Model S and Model X vehicles and pre-owned Model S vehicles certified and sold by us. These limited warranties also cover the drive unit for eight years and the battery for a period of eight years or 125,000 miles or unlimited miles, depending on the size of the vehicle’s battery and/or the date of delivery, although the battery’s charging capacity is not covered under these warranties or any Extended Service plan.

In addition, customers of new Model S and Model X vehicles have the opportunity to purchase an Extended Service plan for the period after the end of the limited warranty for their new vehicles to cover additional services for an additional four years or 50,000 miles, provided it is purchased within a specified period of time. The limited warranties and Extended Service plans we offer for the Model S and Model X are subject to certain limitations, exclusions or separate warranties, including certain wear items, such as tires, brake pads, paint and general appearance, and battery performance, and is intended to cover parts and labor to repair defects in material or workmanship in the vehicle including the body, chassis, suspension, interior, electronic systems, powertrain and brake system. Additionally, in 2013, as part of our ongoing efforts to improve the customer ownership experience, we expanded the battery pack warranty and also eliminated the annual service requirement that was needed to keep the limited warranty on new Model S and Model X vehicles in effect. Should this change in warranty coverage lead to an increase in warranty claims, we may need to record additional warranty reserves, which would negatively affect our profitability.

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We are currently expanding and improving our information technology systems and use security measures designed to protect our systems against breaches and cyber-attacks. If these efforts are not successful, our business and operations could be disrupted and our operating results and reputation could be harmed.

We are currently expanding and improving our information technology systems, including implementing new internally developed systems, to assist us in the management of our business. In particular, our volume production of multiple vehicles necessitates continued development, maintenance and improvement of our information technology systems in the U.S. and abroad, which include product data management, procurement, inventory management, production planning and execution, sales, service and logistics, dealer management, financial, tax and regulatory compliance systems. The implementation, maintenance and improvement of these systems require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving and expanding our core systems as well as implementing new systems, including the disruption of our data management, procurement, manufacturing execution, finance, supply chain and sales and service processes. These risks may affect our ability to manage our data and inventory, procure parts or supplies or manufacture, sell, deliver and service vehicles, or achieve and maintain compliance with, or realize available benefits under, tax laws and other applicable regulations. We also maintain information technology measures designed to protect us against system security risks, data breaches and cyber-attacks.

We cannot be sure that these systems or their required functionality will be effectively implemented, maintained or expanded as planned. If we do not successfully implement, maintain or expand these systems as planned, our operations may be disrupted, our ability to accurately and/or timely report our financial results could be impaired, and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results. Moreover, our proprietary information could be compromised and our reputation may be adversely affected. If these systems or their functionality do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.

Our insurance strategy may not be adequate to protect us from all business risks.

We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. While we currently maintain general liability, automobile, property, workers’ compensation, and directors’ and officers’ insurance policies, as a general matter, we do not maintain as much insurance coverage as many other companies do, and in some cases, we do not maintain any at all. Additionally, the policies that we do have may include significant deductibles, and we cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which could adversely affect our financial condition and operating results.

Our financial results may vary significantly from period-to-period due to fluctuations in our operating costs.

We expect our period-to-period financial results to vary based on our operating costs which we anticipate will increase significantly in future periods as we, among other things, design, develop and manufacture Model 3, energy products and other future products, increase the production capacity at our manufacturing facilities to produce vehicles at higher volumes, including ramping up the production of Model X, develop the Gigafactory, open new Tesla service centers with maintenance and repair capabilities, open new Supercharger locations, increase our sales and marketing activities, and increase our general and administrative functions to support our growing operations. As a result of these factors, we believe that quarter-to-quarter comparisons of our financial results, especially in the short-term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our financial results may not meet expectations of equity research analysts or investors. If any of this occurs, the trading price of our stock could fall substantially, either suddenly or over time.

Any unauthorized control or manipulation of our vehicles’ systems could result in loss of confidence in us and our vehicles and harm our business.

Our vehicles contain complex information technology systems. For example, our vehicles are designed with built-in data connectivity to accept and install periodic remote updates from us to improve or update the functionality of our vehicles. We have designed, implemented and tested security measures intended to prevent unauthorized access to our information technology networks, our vehicles and their systems. However, hackers have reportedly attempted, and may attempt in the future, to gain unauthorized access to modify, alter and use such networks, vehicles and systems to gain control of, or to change, our vehicles’ functionality, user interface and performance characteristics, or to gain access to data stored in or generated by the vehicle. We encourage reporting of potential vulnerabilities in the security of our vehicles via our security vulnerability reporting policy, and we aim to remedy any reported and verified vulnerabilities. Accordingly, we have received reports of potential vulnerabilities in the past and have attempted to remedy them. However, there can be no assurance that vulnerabilities will not be identified in the future, or that our remediation efforts are or will be successful.

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Any unauthorized access to or control of our vehicles or their systems or any loss of data could result in legal claims or proceedings. In addition, regardless of their veracity, reports of unauthorized access to our vehicles, their systems or data, as well as other factors that may result in the perception that our vehicles, their systems or data are capable of being “hacked,” could negatively affect our brand and harm our business, prospects, financial condition and operating results. We have been the subject of such reports in the past.

We may need or want to raise additional funds and these funds may not be available to us when we need them. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected.

The design, manufacture, sale and servicing of automobiles and energy products is a capital intensive business. Until we are consistently generating positive free cash flows, we may need or want to raise additional funds through the issuance of equity, equity-related or debt securities or through obtaining credit from financial institutions to fund, together with our principal sources of liquidity, the costs of developing and manufacturing our current or future vehicles and/or energy products, to pay any significant unplanned or accelerated expenses or for new significant strategic investments. We need sufficient capital to fund our ongoing operations, continue research and development projects, establish sales and service centers, build and deploy Superchargers, develop the Gigafactory and to make the investments in tooling and manufacturing capital required to introduce new vehicles and energy products. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all. If we cannot raise additional funds when we need them, our financial condition, results of operations, business and prospects could be materially and adversely affected.

We may face regulatory limitations on our ability to sell vehicles directly which could materially and adversely affect our ability to sell our electric vehicles.

We sell our vehicles directly to consumers. We may not be able to sell our vehicles through this sales model in each state in the United States as some states have laws that may be interpreted to impose limitations on this direct-to-consumer sales model. In certain states in which we are not able to obtain dealer licenses, we have opened galleries, which are not full retail locations.

The application of these state laws to our operations continues to be difficult to predict. Laws in some states have limited our ability to obtain dealer licenses from state motor vehicle regulators and may continue to do so.

In addition, decisions by regulators permitting us to sell vehicles may be subject to challenges by dealer associations and others as to whether such decisions comply with applicable state motor vehicle industry laws. We have prevailed in many of these lawsuits and such results have reinforced our continuing belief that state laws were not designed to prevent our distribution model. In some states, there have also been regulatory and legislative efforts by vehicle dealer associations to propose bills and regulations that, if enacted, would prevent us from obtaining dealer licenses in their states given our current sales model. A few states have passed legislation that clarifies our ability to operate, but at the same time limits the number of dealer licenses we can obtain or stores that we can operate. We have also filed a lawsuit in federal court in Michigan challenging the constitutionality of the state’s prohibition on direct sales as applied to our business.

Internationally, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our sales or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change over time.

We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and could cause us to incur substantial costs.

Others, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market our products and services, which could make it more difficult for us to operate our business. From time to time, we may receive communications from holders of patents or trademarks regarding their proprietary rights. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights and urge us to take licenses. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required to cease making, selling or incorporating certain components or intellectual property into the goods and services we offer, pay substantial damages, seek a license, if available, from the holder of the infringed intellectual property right, redesign our products; and/or establish and maintain alternative branding for our products and services.

In the event that we were required to take one or more such actions, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.

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Our facilities or operations could be damaged or adversely affected as a result of disasters.

Our corporate headquarters, the Tesla Factory and the Gigafactory are located in seismically active regions in Northern California and Nevada. If major disasters such as earthquakes or other events occur, or our information system or communications network breaks down or operates improperly, our headquarters and production facilities may be seriously damaged, or we may have to stop or delay production and shipment of our products. We may incur expenses relating to such damages, which could have a material adverse impact on our business, operating results and financial condition.

Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial indebtedness.

As of September 30, 2016, we had outstanding in aggregate principal amounts $224.3 million of the 2018 Notes, $920.0 million of the 2019 Notes and $1.38 billion of the 2021 Notes.  In addition, we have established a senior secured asset based revolving credit agreement (the “Credit Agreement”) that allows us to borrow, under certain circumstances, up to $1.0 billion.  As of September 30, 2016, we had $200.0 million in borrowings under the credit facility pursuant to the Credit Agreement. Our substantial indebtedness may increase our vulnerability to any generally adverse economic and industry conditions. Finally, during the third quarter of 2016, we also entered into a warehouse credit facility (the “Warehouse Facility”) for a principal amount of up to $300 million.  As of September 30, 2016, we had borrowed $300 million under this facility.

Our ability to make scheduled payments of the principal and interest on our indebtedness when due or to make payments upon conversion of the notes, or to refinance the notes or our borrowings under the Credit Agreement or the Warehouse Facility, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under the notes, the Credit Agreement or the Warehouse Facility, and any future indebtedness we may incur and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance the notes or existing or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on the notes, the Credit Agreement, the Warehouse Facility or future indebtedness.

Pursuant to their terms, holders may convert their Notes at their option at any time prior to the final three-month period of the scheduled term of the respective Notes only under certain circumstances. For example, holders may generally convert their Notes at their option during a quarter (and only during such quarter) if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding quarter is greater than or equal to 130% of the conversion price for such series of Notes on each applicable trading day. As a result of this conversion feature, the 2018 Notes have been convertible at their holders’ option during each quarter commencing with the fourth quarter of 2013, except the first quarter of 2014. Neither this nor any other conversion feature has been met with respect to the 2019 Notes and 2021 Notes, and consequently the 2019 Notes and 2021 have not been convertible at their holders’ option. Upon conversion of the notes, we will be obligated to make cash payments in respect of the principal amounts thereof, and we may also have to deliver cash and/or shares of our common stock, in respect of the conversion value in excess of such principal amounts on the notes. For example, as of September 30, 2016, we have repaid in cash approximately $436 million in aggregate principal amount of the 2018 Notes. Any further conversions of the notes prior to their maturity, or acceleration of the repayment of the notes or future indebtedness after any applicable notice or grace periods could have a material adverse effect on our business, results of operations and financial condition.

In addition, holders of the notes will have the right to require us to purchase their Notes upon the occurrence of a fundamental change at a purchase price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change purchase date. However, we may not have enough available cash or be able to obtain financing at the time we are required to make purchases of notes surrendered therefor or notes being converted. In addition, our ability to purchase the notes or to pay cash upon conversions of the notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to purchase notes at a time when the purchase is required by the indenture or to pay cash payable on future conversions of the notes as required by the indenture would constitute a default under the indenture. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the notes or make cash payments upon conversions thereof.

51

Our debt agreements contain covenant restrictions that may limit our ability to operate our business.

The terms of our Credit Facility contain, and any of our other future debt agreements may contain, covenant restrictions that limit our ability to operate our business, including restrictions on our ability to, among other things, incur additional debt or issue guarantees, create liens, repurchase stock or make other restricted payments, and make certain voluntary prepayments of specified debt. In addition, under certain circumstances we are required to comply with a fixed charge coverage ratio.

As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be restricted, and we may be prevented from engaging in transactions that might otherwise be beneficial to us. In addition, our failure to comply with our debt covenants could result in a default under our debt agreements, which could permit the holders to accelerate our obligation to repay the debt. If any of our debt is accelerated, we may not have sufficient funds available to repay it.

We may still incur substantially more debt or take other actions, which would intensify the risks discussed immediately above.

We and our subsidiaries may, subject to the limitations in the terms of our Credit Facility, incur additional debt, secure existing or future debt, recapitalize our debt or take a number of other actions that are not limited by the terms of the indenture governing our convertible senior notes that could have the effect of diminishing our ability to make payments on the notes and under the Credit Agreement when due. If we incur any additional debt, the related risks that we and our subsidiaries face could intensify.

The classification of our convertible senior notes may have a material effect on our reported financial results.

As described in the Risk Factor “Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial indebtedness,” our 2018 Notes have been historically, and our 2019 Notes and 2021 Notes may become in the future, convertible at the option of their holders prior to their scheduled terms under certain circumstances. If holders elect to convert their notes, we could be required to pay them significant amounts in cash and/or deliver to them a significant number of shares of our common stock. Certain holders with respect to a significant portion of our 2018 Notes have exercised their conversion rights, and other holders of our notes may do so in the future. Even if holders do not elect to convert their notes, the notes become convertible prior to their scheduled maturity dates, we would be required to reclassify such notes and the related debt issuance costs as current liabilities and certain portions of our equity outside of equity to mezzanine equity, which would have an adverse impact on our reported financial results for such quarter, and could have an adverse impact on the market price of our common stock.

Risks Related to the Ownership of our Common Stock

The trading price of our common stock is likely to continue to be volatile.

The trading price of our common stock has been highly volatile and could continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control. Our common stock has experienced an intra-day trading high of $269.34 per share and a low of $141.05 per share over the last 52 weeks. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. For example, a shareholder litigation like this was filed against us in 2013. While the trial court dismissed the plaintiffs’ complaint with prejudice, this litigation (if the trial court’s order is successfully appealed) or others like it could result in substantial costs and a diversion of our management’s attention and resources.

52

Conversion of our convertible senior notes may dilute the ownership interest of existing stockholders, including holders who had previously converted their notes, or may otherwise depress the price of our common stock.

The conversion of some or all of our convertible senior notes will dilute the ownership interests of existing stockholders to the extent we deliver shares upon conversion of any of the notes. As described in the Risk Factor “Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt,” our convertible senior notes have been historically, and may become in the future, convertible at the option of their holders prior to their scheduled terms under certain circumstances. If holders elect to convert their notes, we could be required to pay them significant amounts in cash and/or deliver to them a significant number of shares of our common stock. Certain holders with respect to a significant portion of our 2018 Notes have exercised their conversion rights, and other holders of our notes may do so in the future. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the notes may encourage short selling by market participants because the conversion of the notes could be used to satisfy short positions, or anticipated conversion of the notes into shares of our common stock could depress the price of our common stock.

The convertible note hedge and warrant transactions we entered into in connection with the issuance of our convertible senior notes may affect the value of the notes and our common stock.

In connection with each issuance of our convertible senior notes, we entered into convertible note hedge transactions with the hedge counterparties. The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlay the applicable notes. The convertible note hedge transactions are expected to reduce the potential dilution and/or offset potential cash payments we are required to make in excess of the principal amount upon conversion of the applicable notes. We also entered into warrant transactions with the hedge counterparties relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments. However, the warrant transactions could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the applicable strike price of the warrants on the applicable expiration dates.

In addition, the hedge counterparties or their affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the applicable notes (and are likely to do so during any observation period related to a conversion of notes). This activity could also cause or prevent an increase or a decrease in the market price of our common stock or the notes.

We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the prices of the notes or the shares of our common stock. In addition, we do not make any representation that the hedge counterparties have engaged or will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Mr. Musk has pledged shares of our common stock to secure certain bank borrowings. If Mr. Musk were forced to sell these shares pursuant to a margin call that he could not avoid or satisfy, such sales could cause our stock price to decline.

Certain banking institutions have made extensions of credit to Elon Musk, our Chief Executive Officer, a portion of which was used to purchase shares of common stock in certain of our public offerings and private placements at the same prices offered to third party participants in such offerings and placements. We are not a party to these loans, which are partially secured by pledges of a portion of the Tesla common stock currently owned by Mr. Musk. If the price of our common stock were to decline substantially and Mr. Musk were unable to avoid or satisfy a margin call with respect to his pledged shares, Mr. Musk may be forced by one or more of the banking institutions to sell shares of Tesla common stock in order to remain within the margin limitations imposed under the terms of his loans. Any such sales could cause the price of our common stock to decline further.

Anti-takeover provisions contained in our governing documents, applicable laws and our convertible senior notes could impair a takeover attempt.

Our certificate of incorporation and bylaws afford certain rights and powers to our board of directors that could contribute to the delay or prevention of an acquisition that it deems undesirable. We are also subject to Section 203 of the Delaware General Corporation Law and other provisions of Delaware law that limit the ability of stockholders in certain situations to effect certain business combinations. In addition, the terms of the convertible senior notes require us to repurchase the notes in the event of a fundamental change, including a takeover of our company. Any of the foregoing provisions and terms that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In May 2013, in connection with the offering of the 2018 Notes, we sold certain warrants to each of Goldman, Sachs & Co. (“Goldman Sachs”) and Morgan Stanley & Co. LLC (“Morgan Stanley”), whereby each of Goldman Sachs and Morgan Stanley received the option to purchase an aggregate of approximately 5.3 million shares of our common stock at a price of $184.48 per share. In the third quarter of 2016, pursuant to the terms of such warrants, each of Goldman Sachs and Morgan Stanley partially terminated such warrants and elected to receive shares of our common stock as payment for our obligations with respect to the partially terminated portions of such warrants. Pursuant to the terms of the warrants, we issued to Goldman Sachs 597,735 shares, to Morgan Stanley 223,730 shares, and to Goldman Sachs 199,105 shares, on July 28, 2016, August 3, 2016 and August 12, 2016, respectively. The foregoing shares of common stock were issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 3(a)(9) of the Securities Act.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

See Index to Exhibits at end of this Quarterly Report on Form 10-Q for the information required by this Item.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Tesla Motors, Inc.
Date: November 1, 2016	/s/ Jason Wheeler
	Jason Wheeler
	Chief Financial Officer
	(Principal Financial Officer, Principal Accounting Officer and Duly Authorized Officer)

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INDEX TO EXHIBITS

Exhibit Number		Incorporated by Reference				Filed Herewith
	Exhibit Description	Form	File No.	Exhibit	Filing Date
2.1	Agreement and Plan of Merger, dated as of July 31, 2016, among Tesla Motors, Inc., SolarCity Corporation and D Subsidiary, Inc.	8-K	001-34756	2.1	August 1, 2016
10.1	Fourth Amendment to Credit Agreement, dated as of July 31, 2016, by and among Tesla Motors, Inc., Tesla Motors Netherlands B.V., the lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent and collateral agent	8-K	001-34756	10.1	August 1, 2016
10.2†	Loan and Security Agreement, dated as of August 31, 2016, by and among Tesla 2014 Warehouse SPV LLC, Tesla Finance LLC, the Lenders and Group Agents from time to time party thereto, and Deutsche Bank AG, New York Branch, as Administrative Agent	—	—	—	—	X
10.3†	Amendment No. 1 to Loan and Security Agreement, dated as of November 1, 2016, by and among Tesla 2014 Warehouse SPV LLC, Tesla Finance LLC, and Deutsche Bank AG, New York Branch, as Administrative Agent	—	—	—	—	X
31.1	Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer	—	—	—	—	X
31.2	Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer	—	—	—	—	X
32.1*	Section 1350 Certifications	—	—	—	—	X
99.1	Certain Excerpts from Registration Statement on Form S-4 (No. 333-213390) of Tesla Motors, Inc.	—	—	—	—	X
101.INS	XBRL Instance Document	—	—	—	—	X
101.SCH	XBRL Taxonomy Extension Schema Document	—	—	—	—	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	—	—	—	—	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	—	—	—	—	X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	—	—	—	—	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	—	—	—	—	X

*Furnished herewith
†Confidential treatment has been requested for portions of this exhibit

56

EX-10.2

EXHIBIT 10.2

Confidential Treatment Requested by Tesla Motors, Inc.

EXECUTION COPY

_____________________________________________________________________

LOAN AND SECURITY AGREEMENT
(Warehouse SUBI Certificate)

among

TESLA 2014 WAREHOUSE SPV LLC,
as Borrower,

TESLA FINANCE LLC,
in its individual capacity and as Servicer,

THE PERSONS FROM TIME TO TIME PARTY HERETO,
as Lenders and as Group Agents,

and

DEUTSCHE BANK AG, NEW YORK BRANCH,
as Administrative Agent

Dated as of August 31, 2016

_____________________________________________________________________

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Table of Contents

section	heading		page
ARTICLE I	DEFINITIONS		1
SECTION	1.01	Certain Defined Terms	1
SECTION	1.02	Computation of Time Periods	39
SECTION	1.03	Interpretive Provisions	39
ARTICLE II	THE FACILITY		40
SECTION	2.01	Loans; Payments	40
SECTION	2.02	Interest; Breakage Fees	42
SECTION	2.03	Invoices; Payments	42
SECTION	2.04	Deposits; Distributions	42
SECTION	2.05	Payments and Computations, Etc	44
SECTION	2.06	Reserve Account	45
SECTION	2.07	Withdrawals from Reserve Account	46
SECTION	2.08	Reports	46
SECTION	2.09	Reallocation and Repurchase of Warehouse SUBI Assets	47
SECTION	2.10	Procedures for Extension of Scheduled Expiration Date	49
SECTION	2.11	Reduction of the Facility Limit	49
SECTION	2.12	Optional Prepayment	50
SECTION	2.13	Intended Tax Treatment	50
ARTICLE III	COLLATERAL AND SECURITY INTEREST		50
SECTION	3.01	Grant of Security Interest; Collateral	50
SECTION	3.02	Protection of the Administrative Agent’s Security Interest	52
SECTION	3.03	Termination of Security Interest and Release of Collateral under Certain Circumstances	52
ARTICLE IV	REPRESENTATIONS AND WARRANTIES		53
SECTION	4.01	Representations and Warranties of Borrower	53
SECTION	4.02	Representations and Warranties of the Servicer	57
ARTICLE V	CONDITIONS PRECEDENT		60
SECTION	5.01	Conditions to Closing	60
SECTION	5.02	Conditions to Loan Increases	63
SECTION	5.03	Condition Subsequent	64
ARTICLE VI	COVENANTS		65
SECTION	6.01	Covenants of the Borrower	65
SECTION	6.02	Negative Covenants of the Borrower	71
SECTION	6.03	Covenants of the Servicer	73
SECTION	6.04	Negative Covenants of the Servicer	79
ARTICLE VII	SERVICING AND COLLECTIONS		81
SECTION	7.01	Maintenance of Information and Computer Lease Documents	81
SECTION	7.02	Protection of the Interests of the Secured Parties	81

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Confidential Treatment Requested by Tesla Motors, Inc.

Table of Contents

SECTION	7.03	Maintenance of Writings and Lease Documents	83
SECTION	7.04	Information	83
SECTION	7.05	Performance of Undertakings Under the Leases	83
SECTION	7.06	Administration and Collections	84
ARTICLE VIII	EVENTS OF DEFAULT		85
SECTION	8.01	Events of Default	85
SECTION	8.02	Remedies Upon the Occurrence of an Event of Default	87
ARTICLE IX	THE ADMINISTRATIVE AGENT		89
SECTION	9.01	Authorization and Action	89
SECTION	9.02	Administrative Agent’s Reliance, Etc	90
SECTION	9.03	Administrative Agent and Affiliates	90
SECTION	9.04	Indemnification of Administrative Agent	90
SECTION	9.05	Delegation of Duties	90
SECTION	9.06	Action or Inaction by Administrative Agent	91
SECTION	9.07	Notice of Defaults and Events of Default; Action by Administrative Agent	91
SECTION	9.08	Non-Reliance on Administrative Agent and Other Parties	91
SECTION	9.09	Successor Administrative Agent	91
ARTICLE X	THE GROUP AGENTS		92
SECTION	10.01	Authorization and Action	92
SECTION	10.02	Group Agent’s Reliance, Etc	93
SECTION	10.03	Group Agent and Affiliates	93
SECTION	10.04	Indemnification of Group Agents	93
SECTION	10.05	Delegation of Duties	93
SECTION	10.06	Action or Inaction by Group Agent	94
SECTION	10.07	Notice of Events of Default	94
SECTION	10.08	Non-Reliance on Group Agent and Other Parties	94
SECTION	10.09	Successor Group Agent	95
SECTION	10.10	Reliance on Group Agent	95
ARTICLE XI	INDEMNIFICATION		96
SECTION	11.01	Indemnification	96
SECTION	11.02	Tax Indemnification	99
SECTION	11.03	Additional Costs	102
SECTION	11.04	Procedures for Indemnification; Etc	103
SECTION	11.05	Other Costs and Expenses	104
ARTICLE XII	MISCELLANEOUS		105
SECTION	12.01	Term of Agreement	105
SECTION	12.02	Waivers; Amendments	105
SECTION	12.03	No Implied Waiver; Cumulative Remedies	105
SECTION	12.04	No Discharge	105
SECTION	12.05	Notices	106
SECTION	12.06	Governing Law; Submission to Jurisdiction	106

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Confidential Treatment Requested by Tesla Motors, Inc.

Table of Contents

SECTION	12.07	Integration	107
SECTION	12.08	Counterparts; Severability	107
SECTION	12.09	Set-Off	107
SECTION	12.10	Successors and Assigns	107
SECTION	12.11	Confidentiality	111
SECTION	12.12	Payments Set Aside	112
SECTION	12.13	No Petition	112
SECTION	12.14	Characterization of the Transactions Contemplated by this Agreement	112
SECTION	12.15	WAIVER OF JURY TRIAL	112
SECTION	12.16	Loans	113
SECTION	12.17	TFL or Tesla Motors, Inc. Liability	113
SECTION	12.18	Limitation on Consequential, Indirect and Certain Other Damages	113
SECTION	12.19	Ratable Payments	113
SECTION	12.20	No Third Party Beneficiaries; Hedge Counterparties	113

Schedule 1	Schedule of Litigation
Schedule 2	Schedule of Corporate and Limited Liability Company Names, Trade
	Names or Assumed Names
Schedule 3	Description of Electronic Lease Vault
Schedule 4	Ineligible Assignees
Schedule 5	Insurance Requirements
Schedule 6	Notice Addresses
Schedule 7	Credit and Collection Policy
Schedule 8	[Reserved]
Schedule 9	Short-Term Note Rate
Exhibit A	Form of Loan Request
Exhibit B	Form of Control Agreement
Exhibit C	Form of Compliance Certificate
Exhibit D	Form of Notice of Warehouse SUBI Lease Allocation
Exhibit E	Form of Pool Cut Report
Exhibit F	Form of Notice of Securitization Take-Out
Exhibit G	Form of Securitization Take-Out Certificate
Exhibit H	[RESERVED]
Exhibit I	[RESERVED]
Exhibit J	[RESERVED]
Exhibit K	[RESERVED]
Exhibit L	[RESERVED]
Exhibit M	Form of Assignment and Acceptance Agreement
Exhibit N	Form of Assumption Agreement

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of August 31, 2016 by and among the following parties:

(i) Tesla 2014 WAREHOUSE SPV LLC, a Delaware limited liability company, as Borrower (the “Borrower”);

(ii) TESLA FINANCE LLC, a Delaware limited liability company, in its individual capacity (“TFL”) and as Servicer (as defined below);

(iii) DEUTSCHE BANK AG, NEW YORK BRANCH,  as Administrative Agent;

(iv) DEUTSCHE BANK AG, NEW YORK BRANCH, as a Committed Lender; and

(v) DEUTSCHE BANK AG, NEW YORK BRANCH, as Group Agent.

R E C I T A L S:

WHEREAS, the Borrower desires to purchase or otherwise acquire from TFL the Warehouse SUBI Certificate (as defined below) and the Warehouse SUBI represented thereby from time to time pursuant to the Warehouse SUBI Sale Agreement (as defined below);

WHEREAS, the Borrower desires to fund such purchases and acquisitions through the borrowing of Loans (as defined below) from the Lenders subject to the terms of this Agreement;

WHEREAS, the Borrower desires to pledge such Warehouse SUBI Certificate and the special unit of beneficial interest in certain leases and leased vehicles represented thereby to secure such Loans; and

WHEREAS, the Servicer has agreed to service and administer all such contracts, related receivables and property in accordance with the terms hereof and of the Warehouse SUBI Servicing Agreement (as defined below).

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01  Certain Defined Terms.  As used in this Agreement, the following terms shall have the following respective meanings:

“48+ Month Limit” shall have the meaning specified in the Fee Letter.

“Additional Costs” shall have the meaning specified in Section 11.03.

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

“Additional Warehouse SUBI Assets” shall mean those Trust Assets allocated by the Trust to the Warehouse SUBI from time to time after the Closing Date in accordance with the Warehouse SUBI Supplement.

“Administrative Agent” shall mean Deutsche Bank AG, New York Branch, in its capacity as contractual representative for the Group Agents and the Lenders hereunder, and any successor thereto in such capacity appointed pursuant to Article IX.

“Administrative Charge” shall mean, with respect to any Lease, any payment (whether or not part of the fixed monthly payment) payable by the applicable Lessee representing an Excess Mileage Fee or Excess Wear and Tear Fee.

“Administrative Trustee” shall have the meaning specified in the Trust Agreement.

“Advance Rate” has the meaning specified in the Fee Letter.

“Adverse Claim” shall mean a lien, security interest, charge or encumbrance, or other similar right or claim in, of or on any Person’s assets or properties in favor of any other Person.

“Affected Person” shall mean the Administrative Agent, each Group Agent, each Lender, each Program Support Provider and their respective Affiliates, permitted assignees, successors and participants.

“Affiliate” shall mean with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, another Person or a Subsidiary of such other Person.  A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock or otherwise.  No Lender Party shall, solely as a result of its status as a Lender Party, be deemed to be an Affiliate of the Borrower or TFL.

“AIFM Regulation” means Regulation (EU) No 231/2013.

“AIFMD” means the European Union Alternative Investment Fund Managers Directive (Directive 2011/61/EU).

“Alternate Base Rate” shall mean, for any day, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall at all times be equal to the greatest of (i) the Prime Rate on such day, (ii) (x) the rate equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it, plus (y) one-half of one percent (1/2%) and (iii) (x) the rate appearing on Reuters Screen LIBOR01 Page (or on any successor or substitute page of such

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Confidential Treatment Requested by Tesla Motors, Inc.

service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Administrative Agent from time to time in accordance with its customary practices for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m. (London time) on such day as the rate for U.S. dollar deposits with a maturity of thirty (30) days, plus (y) one percent (1.00%).

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Tesla Parties or their respective Subsidiaries from time to time concerning or relating to bribery or corruption.

“Assignment and Acceptance Agreement” shall mean an assignment and acceptance agreement entered into by a Committed Lender, an Eligible Assignee, such Committed Lender’s Group Agent and the Administrative Agent, and, if required, the Borrower, pursuant to which such Eligible Assignee may become a party to this Agreement, in substantially the form of Exhibit M hereto.

“Assumption Agreement” has the meaning set forth in Section 12.10.

“Automotive Lease Guide” shall mean (a) if available, the publication of such name which includes residual factors or any successor to such publication consented to by the Administrative Agent and each Group Agent or (b) if such publication described in clause (a) is not available, any other publication reasonably acceptable to the Borrower and the Administrative Agent.

“Available Amounts” shall mean, with respect to any Payment Date and the related Settlement Period, the sum of the following amounts, without duplication: (i) Collections, (ii) Residual Advances, (iii) Monthly Payment Advances, (iv) amounts transferred from the Reserve Account for such Payment Date, (v) Repurchase Amounts, (vi) Reallocation Proceeds, (vii) Interest Rate Hedge Receipts received for such Payment Date and (viii) after an Event of Default, all other amounts available in the Warehouse SUBI Collection Account on such Payment Date.

“Available Facility Limit” shall mean the Facility Limit minus the Loan Balance.

“Back-Up Servicer” shall mean, initially, the entity designated as such pursuant to Section 5.03, in its capacity as back-up servicer under the Transaction Documents, and any successor thereto in such capacity  appointed pursuant to the Warehouse SUBI Servicing Agreement; provided, however, that if the Back-Up Servicer is terminated as provided in Section 4.3(b) of the Warehouse SUBI Servicing Agreement, then thereafter no Back-Up Servicer shall be required, no Back-up Servicing Fee shall be payable and all references to the Back-Up Servicer shall be ignored (except to the extent provided in Section 4.3(b) of the Warehouse SUBI Servicing Agreement).

“Back-Up Servicing Fee” shall mean, with respect to the Warehouse SUBI, if there is a Back-Up Servicer, the fee payable on each Payment Date with respect to each Settlement Period equal to the amount designated pursuant to Section 5.03.

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

“Back-Up Servicing Fee Rate” shall mean the rate designated pursuant to Section 5.03.

“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

“Bank Interest Rate” shall mean, for any day during any Interest Period for any Loan (or any portion thereof), an interest rate per annum equal to the Eurodollar Rate on such day; provided, however, that if any Lender shall have notified the Borrower that the introduction of or any change in, or in the interpretation of, any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to fund such Loan at the Bank Interest Rate set forth above (and such Lender shall not have subsequently notified the Borrower that such circumstances no longer exist), the Bank Interest Rate for each day on and after such notice that has not been withdrawn by such Lender shall be an interest rate per annum equal to the Alternate Base Rate in effect on such day; and provided, further, however, that at all times following the occurrence and during the continuation of an Event of Default the Bank Interest Rate shall be the Default Rate.

“Bankruptcy Code” shall mean the United States Bankruptcy Code, Title 11 United States Code.

“Base Residual Value” shall mean, with respect to any Leased Vehicle and the related Lease, the lesser of (i) the TFL Residual Value, and (ii) the Mark-to-Market MRM Residual Value.

“Base RV Limit” shall have the meaning specified in the Fee Letter.

“Borrower” shall have the meaning specified in the preamble to this Agreement.

“Breakage Fee” shall mean (i) for any Interest Period for which a repayment of a Loan is made for any reason on any day other than a Payment Date, or (ii) to the extent that the Borrower shall, for any reason, fail to borrow on the date specified by the Borrower in connection with any request for funding pursuant to Article II of this Agreement, the amount, if any, by which (A) the additional Interest and Usage Fee Amount (calculated without taking into account any Breakage Fee or any shortened duration of such Interest Period pursuant to the definition thereof) which would have accrued during such Interest Period on the repaid principal amount of such Loan relating to such Interest Period had such reductions not been made (or, in the case of clause (ii) above, the amounts so failed to be borrowed in connection with any such request for funding by the Borrower), exceeds (B) the income, if any, received by the related Lender from the investment of the proceeds of such repaid principal amount of such Loan (or such amounts failed to be borrowed by the Borrower).  A certificate as to the amount of any

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Confidential Treatment Requested by Tesla Motors, Inc.

Breakage Fee (including the computation of such amount) shall be submitted by such Lender to the Borrower and the Administrative Agent and shall be conclusive and binding for all purposes, absent manifest error.

“Business Day” shall mean (i) with respect to any matters relating to the determination of the Eurodollar Rate, a day on which banks are open for business in the City of New York and on which dealings in Dollars are carried on in the London interbank market, and (ii) for all other purposes, any day other than a Saturday, Sunday or other day on which banking institutions or trust companies in the State of New York generally, the City of New York, Chicago, Illinois or Palo Alto, California, are authorized or obligated by law, executive order or governmental decree to be closed.

“Certificate of Title” shall mean any certificate, instrument or other document or record issued or maintained by a state or other governmental authority in respect of any motor vehicle for the purpose of evidencing the ownership of, or any Adverse Claim in or against, such motor vehicle.

“Change in Control” shall mean the occurrence of any of the following:

(i)an event or series of events by which any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding Elon Musk and any of his heirs, beneficiaries or trusts), becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of equity interests representing a majority of the voting power for election of members of the board of directors or equivalent governing body of the Tesla Motors, Inc. on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or

(ii)Tesla Motors, Inc. ceases to directly or indirectly own and control, 100% of the equity and voting interests of TFL free and clear of all Adverse Claims; or

(iii)TFL ceases to directly or indirectly own 100% of the equity and voting interests of the Borrower free and clear of all Adverse Claims.

“Closing Date” shall mean August 31, 2016.

“Collateral” shall have the meaning specified in Section 3.01(a).

“Collection Account Bank” shall mean the depository institution at which the Warehouse SUBI Collection Account is established.

“Collections” shall mean, with respect to any Settlement Period, all amounts, whether in the form of wire transfer or other form of electronic transfer or payment, cash, checks

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Confidential Treatment Requested by Tesla Motors, Inc.

or other instruments received by the Borrower or the Servicer or in a Permitted Lockbox, a Permitted Account or the Warehouse SUBI Collection Account received on or with respect to the Warehouse SUBI Leases and Warehouse SUBI Leased Vehicles during such Settlement Period, (a) including the following: (i) Monthly Lease Payments, Payments Ahead, Pull-Forward Payments, Prepayments, Administrative Charges and any other payments under the Warehouse SUBI Leases (other than Supplemental Servicing Fees); (ii) Net Liquidation Proceeds; and (iii) any Net Insurance Proceeds not included in Net Liquidation Proceeds, but (b) excluding such amounts received following such Settlement Period in respect of Warehouse SUBI Leases and Warehouse SUBI Leased Vehicles that have been repurchased or reallocated on or prior to the related Payment Date pursuant to Section 2.2 of the Warehouse SUBI Servicing Agreement, Section 4.01 or 4.02 hereof or Section 2.7 of the Warehouse SUBI Sale Agreement.

“Commitment” of any Committed Lender shall mean:

(a)with respect to Deutsche Bank AG, New York Branch, in its capacity as a Committed Lender, an amount equal to $300,000,000, as such amount may be reduced or increased in accordance with this Agreement from time to time; and

(b)with respect to any other Committed Lender, an amount equal to the amount set forth as its “Commitment Amount” in the Assignment and Acceptance Agreement or Assumption Agreement pursuant to which such Committed Lender became a party hereto or as otherwise agreed in writing by such Lender, in each case as such amount may be reduced or increased in accordance with this Agreement from time to time;

provided that any reduction (or termination) of the Facility Limit pursuant to the terms of this Agreement pursuant to Section 2.11 shall reduce ratably (or terminate) each Committed Lender’s Commitment and any acceleration of the Loans shall terminate each Committed Lender’s Commitment.

“Commitment Amount” shall mean, with respect to any Committed Lender, the amount described in clause (a) or (b) of the definition of “Commitment” applicable to such Committed Lender.

“Committed Lenders” shall mean Deutsche Bank AG, New York Branch, and each other Person that becomes a party hereto as a Committed Lender pursuant to an Assignment and Acceptance Agreement, an Assumption Agreement or otherwise in accordance with this Agreement.

“Competitor” shall mean any Person that has as a majority of its business the manufacture of automobiles, or any Affiliate of that entity.

“Conduit Lender” shall mean each commercial paper conduit that becomes a party hereto as a Conduit Lender pursuant to an Assumption Agreement or otherwise in accordance with this Agreement.

“Connection Income Taxes” shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.  

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Confidential Treatment Requested by Tesla Motors, Inc.

“Control” shall have the meaning specified in Section 8-106 (or other section of similar content as Section 8-106 of the UCC) of the Relevant UCC.

“Control Agreement” shall mean a control agreement substantially in the form of Exhibit B hereto or otherwise in form and substance reasonably satisfactory to the Administrative Agent among the Borrower, the Servicer or the Administrative Agent, as secured party, and the depositary institution at which one or more Eligible Accounts subject to the Control Agreement are maintained, as securities intermediary or deposit bank.

“Credit and Collection Policy” shall mean the credit and collection policies and practices related to the Warehouse SUBI Leases and Warehouse SUBI Leased Vehicles maintained by the Servicer on behalf of the Trust pursuant to the Warehouse SUBI Servicing Agreement and attached hereto as Schedule 7, as such credit and collection policies and practices may be amended from time to time in accordance with Section 6.04(d).  If the Back-Up Servicer becomes the Successor Servicer under the Warehouse SUBI Servicing Agreement, the Credit and Collection Policy shall be, with respect to such Successor Servicer, those collection policies that the Back-Up Servicer uses to service similar assets and which at all times shall be consistent with the collection practices used by servicers of comparable size and experience.

“Credit Loss” shall mean, with respect to any Settlement Period, the aggregate Securitization Value (determined as of the first day of such Settlement Period) of Warehouse SUBI Leases that became Defaulted Leases during such Settlement Period, net of all Net Liquidation Proceeds received during such Settlement Period with respect to Warehouse SUBI Leases that are Defaulted Leases.

“Credit Loss Ratio” shall mean, for any Settlement Period, a fraction, expressed as a percentage, the numerator of which equals the Credit Loss for such Settlement Period and the denominator of which equals the aggregate Securitization Value of all Warehouse SUBI Leases as of the first day of such Settlement Period.

“Credit Loss Ratio Trigger” shall have the meaning specified in the Fee Letter.

“CRR” means Regulation No 575/2013 of the European Parliament and of the Council as published in the Official Journal of the European Union on 27 June 2013 as amended from time to time and as implemented by the Member States of the European Union, together with the Corrigendum to Regulation 575/2013.

“Cut-Off Date” shall mean, (i) with respect to the Leases and Leased Vehicles allocated to the Warehouse SUBI on the Initial Loan Date, the close of business on July 31, 2016 and (ii) with respect to the Leases and Leased Vehicles thereafter allocated to the Warehouse SUBI, the close of business on the last day of the calendar month immediately preceding the calendar month during which such Leases and Leased Vehicles are allocated to the Warehouse SUBI, or such other date agreed to by the Borrower and the Administrative Agent in connection with the foregoing.

“Debt” shall mean, as to any Person, at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by

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Confidential Treatment Requested by Tesla Motors, Inc.

bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under capital leases, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (vi) all net obligations of such Person in respect of interest rate or currency hedges, (vii) all reimbursement obligations of such Person in respect of any letters of credit and (viii) all Debt of others Guaranteed by such Person.

“Default” shall mean an event which, but for the lapse of time or the giving of notice, or both, would constitute an Event of Default.

“Default Rate” shall mean, on any date, an interest rate per annum equal to the sum of the Alternate Base Rate on such date plus 2.0%.

“Defaulted Lease” shall mean (x) any Lease that, by its terms, is delinquent more than 120 days, or (y) with respect to any Lease that is delinquent less than 120 days, the Servicer has (i) determined, in accordance with the Credit and Collection Policy, that eventual payment in full is unlikely, or (ii) repossessed the related Leased Vehicle, or (z) a Lease with respect to which the Servicer has received notification that the related Lessee is the subject of a bankruptcy proceeding.

“Defaulted Vehicle” shall mean a Warehouse SUBI Leased Vehicle the related Lease for which is a Defaulted Lease.

“Delaware Trustee” shall have the meaning specified in the Trust Agreement.

“Delayed Amount” shall have the meaning specified in Section 2.01.

“Delayed Funding Date” shall have the meaning specified in Section 2.01.

“Delayed Funding Notice” shall have the meaning specified in Section 2.01.

“Delayed Funding Notice Date” shall have the meaning specified in Section 2.01.

“Delaying Group” shall have the meaning specified in Section 2.01.

“Delaying Lender” shall have the meaning specified in Section 2.01.

“Delinquency Ratio” shall mean, for any Settlement Period, the ratio (expressed as a percentage) of (i) the aggregate Securitization Value of Warehouse SUBI Leases that are Delinquent Leases as of the last day of such Settlement Period to (ii) the aggregate Securitization Value of all Warehouse SUBI Leases as of the last day of such Settlement Period.

“Delinquency Ratio Trigger” shall have the meaning specified in the Fee Letter.

“Delinquent Lease” shall mean a Lease with respect to which all or any portion of any Monthly Lease Payment or other payment due thereunder remains unpaid for more than 60 days from the due date of such payment, but excludes Defaulted Leases.

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Confidential Treatment Requested by Tesla Motors, Inc.

“Deposit Date” shall mean, with respect to a Settlement Period, the Business Day immediately preceding the related Payment Date.

“Designated Person” shall mean a person or entity:  

(i) listed in the annex to, or otherwise the subject of the provisions of, any Executive Order;

(ii)named as a “Specially Designated National and Blocked Person” (“SDN”) on the most current list published by OFAC at its official website or any replacement website or other replacement official publication of such list (“SDN List”) or is otherwise the subject of any Sanctions Laws and Regulations; or

(iii)in which an entity or person on the SDN List has 50% or greater ownership interest or that is otherwise controlled by an SDN.

“Determination Date” shall mean, with respect to any Payment Date, the 15^th day of the calendar month in which such Payment Date occurs, or, if such 15^th day is not a Business Day, the next succeeding Business Day.

“Dollars” or “$” shall mean the lawful currency of the United States of America.

“Early Lease Termination Date” shall mean, with respect to any Lease, the date on which such Lease is terminated prior to its Lease Maturity Date (including in connection with a Lease Pull-Forward) for a reason other than becoming a Defaulted Lease.

“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein and Norway.

“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

“Electronic Chattel Paper” shall have the meaning specified in Section 9-102(a) of the UCC (or other section of similar content of the Relevant UCC).

“Electronic Lease Vault” shall mean the Electronic Chattel Paper vault system described in Schedule 3, using the eOriginal process for all vehicle leases originated by or for the Trust, including the Leases.

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Confidential Treatment Requested by Tesla Motors, Inc.

“Eligible Account” shall mean either (i) a segregated trust account with the trust department of a depository institution organized under the laws of the United States of America or any State thereof or the District of Columbia (or any domestic branch of a foreign bank), having a short-term deposit rating of at least “A-1” by S&P and at least “P-1” by Moody’s, having trust powers and acting as trustee for funds deposited in such account, or (ii) a segregated deposit account with a depository institution organized under the laws of the United States of America or any State thereof (or any domestic branch of a foreign bank) the long-term deposit obligations of which are rated “AA+” or higher by S&P and “Aa3” or higher by Moody’s and the short-term debt obligations of which are rated “A-1” by S&P and “P-1” by Moody’s, or (iii) a segregated securities account with a securities intermediary organized under the laws of the United States of America or any State thereof (or any domestic branch of a foreign bank) the long-term deposit obligations of which are rated “AA+” or higher by S&P and “Aa3” or higher by Moody’s and the short-term debt obligations of which are rated “A-1” by S&P and “P-1” by Moody’s.

“Eligible Assignee” shall mean a Person that is neither a Competitor nor a Person listed on Schedule 4 hereto nor an Affiliate thereof.

“Eligible Interest Rate Hedge” shall mean an Interest Rate Hedge in form and substance acceptable to the Administrative Agent which is entered into pursuant to and in compliance with Section 6.01(m) and which (i) in the case of an interest rate swap, designates “USD-LIBOR-BBA” (as defined in the ISDA Definitions) as the floating rate option with a designated maturity of one month; (ii) provides that any payments made by the Eligible Interest Rate Hedge Provider shall be made directly to the Warehouse SUBI Collection Account; (iii) includes an acknowledgment by the Eligible Interest Rate Hedge Provider of the collateral assignment of the applicable Interest Rate Hedge by the Borrower to the Administrative Agent, (iv) provides that it may not be amended, terminated, waived or assigned by the Eligible Interest Rate Hedge Provider without the prior written consent of the Administrative Agent and each Group Agent, (v) has an amortizing notional amount in accordance with an amortization schedule acceptable to the Administrative Agent, and (vi) which is not required to be “cleared” and does not require any posting of “margin.”  

“Eligible Interest Rate Hedge Provider” shall mean, with respect to an Interest Rate Hedge, (a) Deutsche Bank AG, New York Branch, or an Affiliate thereof or (b) a financial institution that has applicable ratings equal to at least the Required Ratings.

“Eligible Investments” shall mean book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence:

(a)obligations of the United States or any agency thereof, provided such obligations are guaranteed as to the timely payment of principal and interest by the full faith and credit of the United States;

(b)general obligations of or obligations guaranteed by any state of the United States or the District of Columbia that at the time of acquisition thereof are assigned the highest ratings by S&P and Moody’s;

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Confidential Treatment Requested by Tesla Motors, Inc.

(c)interests in any money market mutual fund which at the date of investment in such fund has the highest fund rating by each of Moody’s and S&P which has issued a rating for such fund (which, for S&P, shall mean a rating of “AAAm” or “AAAmg”);

(d)commercial paper which at the date of investment has ratings of at least “A‑1” by S&P and “P-1” by Moody’s (including commercial paper meeting the foregoing criteria issued by a Committed Lender);

(e)certificates of deposit, demand or time deposits, Federal funds or banker’s acceptances issued by any depository institution or trust company incorporated under the laws of the United States or of any state thereof (or any U.S. branch or agency of a foreign bank) and subject to supervision and examination by Federal or state banking authorities, provided that the short-term unsecured deposit obligations of such depository institution or trust company at the date of investment are then rated at least “P-1” by Moody’s and “A-1” by S&P;

(f)demand or time deposits of, or certificates of deposit issued by, any bank, trust company, savings bank or other savings institution, which deposits are fully insured by the Federal Deposit Insurance Corporation, provided that the long-term unsecured debt obligations of such bank, trust company, savings bank or other savings institution are rated at the date of investment at least “Aa2” by Moody’s and “AA-” by S&P; and

(g)such other investments approved by the Administrative Agent and each Group Agent.

“Eligible Lease” shall mean a Lease as to which the following are true:

(i)was originated in the United States by or for the Trust (A) in the ordinary course of the Trust’s business without the involvement of any motor vehicle dealer that is not an Affiliate of a Tesla Party, and (B) pursuant to a Lease Origination Agreement which provides for recourse to Tesla Motors, Inc. in the event of certain defects in the Lease, but not for default by the Lessee;

(ii)the Lease and the related Leased Vehicle are owned by the Trust or a Trustee (or a co-trustee) on behalf of the Trust, free of all Liens;

(iii)the Lease was originated in compliance with, and complies with, all material applicable legal requirements, including, to the extent applicable, the Federal Consumer Credit Protection Act, Regulation M of the Board of Governors of the Federal Reserve, all federal and state leasing and consumer protection laws and all state and federal usury laws;

(iv)all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by the originator of such Lease in connection with (A) the origination of such Lease, (B) the execution, delivery and performance by such originator of such Lease and (C) the acquisition by the Trust or a Trustee (or a co-trustee) on behalf of the Trust of

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Confidential Treatment Requested by Tesla Motors, Inc.

such Lease and the related Leased Vehicle, have been duly obtained, effected or given and are in full force and effect as of such date of origination or acquisition;

(v)the Lease (A) is the legal, valid and binding full-recourse payment obligation of the related Lessee, enforceable against such Lessee in accordance with its terms, except as such enforceability may be limited by (I) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting the enforcement of creditors’ rights in general, or (II) general principles of equity (whether considered in a suit at law or in equity) and (B) is Electronic Chattel Paper and is not Tangible Chattel Paper, and there exists a single, authoritative copy of the record or records comprising such Electronic Chattel Paper, which copy is unique and identifiable (all within the meaning of Section 9-105 of the UCC (or other section of similar content of the Relevant UCC)), held in the Electronic Lease Vault;

(vi) (A) no right of rescission, setoff, counterclaim or any other defense (including defenses arising out of violations of usury laws) of the related Lessee to payment of the amounts due thereunder has been asserted or threatened with respect thereto and (B) the Lease has not been satisfied, subordinated, rescinded, canceled or terminated;

(vii)the Lease is a closed-end Lease that (A) requires equal monthly payments to be made within not less than 24, and not more than 48 months of the date of origination of such Lease, and (B) requires such payments to be made by the related Lessee within 21 days after the billing date for such payment;

(viii)the Lease is payable solely in Dollars;

(ix)the related Lessee is a Person located in one or more of the 50 states of the United States or the District of Columbia and is not (i) TFL or any of its Affiliates, or (ii) the United States of America or any State or local government or any agency or political subdivision thereof;

(x)the Lease requires the related Lessee to maintain insurance against loss or damage to the related Leased Vehicle under an insurance policy that names the Trust or a Trustee (or a co-trustee) on behalf of the Trust as a loss payee;

(xi)the related Leased Vehicle is titled in the name of the Trust or a Trustee (or a co-trustee) on behalf of the Trust or such other name (which may be an abbreviation of any of the foregoing or other designation) as may be required by the related registrar of title or applicable requirements of Law to reflect the interest of the Trust therein (or properly completed applications for such title have been submitted to the appropriate titling authority) and all transfer and similar taxes imposed in connection therewith have been paid;

(xii)the Lease is fully assignable by the originator and does not require the consent of the related Lessee as a condition to any transfer, sale or assignment of the rights of the originator under such Lease;

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Confidential Treatment Requested by Tesla Motors, Inc.

(xiii)the Lease has not been extended or otherwise been compromised, and the provisions thereof have not been adjusted, waived or modified, in each case in any material respect, except in accordance with the Credit and Collection Policy;

(xiv)the Lease was originated in accordance with all material requirements of the Credit and Collection Policy;

(xv)the Lease is not (a) more than 29 days past due, (b) a Delinquent Lease, (c) a Defaulted Lease or (d) a Lease as to which any of the payments shall have been waived (other than deferrals and waivers of late payment charges or fees owing to the Servicer as Supplemental Servicing Fees permitted under the Warehouse SUBI Servicing Agreement);

(xvi)the Lease is a “true lease”, as opposed to a lease intended as security, under the laws of the State in which it was originated;

(xvii)the Lease fully amortizes to an amount equal to the TFL Residual Value based on the related lease rate, which is calculated on a constant yield basis, and provides for level payments over its term (except for the payment of such TFL Residual Value);

(xviii)the Securitization Value of the Lease, as of its origination date, is greater than $30,000 but not greater than $200,000;

(xix)no selection procedures reasonably anticipated to be adverse to the Lender Parties were utilized in selecting such Lease from among the Leases allocated to the UTI meeting the other selection criteria set forth in this definition;

(xx)the related Leased Vehicle was sold by Tesla Motors, Inc. to the Trust or by a Subsidiary of Tesla Motors, Inc. originating the Lease to the Trust, in each case without any fraud or material misrepresentation by Tesla Motors, Inc. or such Subsidiary;

(xxi)the Lease does not contain a confidentiality provision that purports to restrict the ability of the Administrative Agent or any Lender to exercise its rights under this Agreement, including its right to review the Lease;

(xxii)with respect to which the related Lessee has not been identified on the records of TFL as being the subject of an Event of Bankruptcy;

(xxiii)with respect to which there is no material breach, default, violation or event of acceleration existing under the Lease, and there is no event which, with the passage of time, or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration;

(xxiv)the Lessee of which (x) receives a statement, invoice or other instruction directing payment to a Permitted Lockbox or a Permitted Account or (y) authorizes the Servicer to debit the Lessee’s account for each scheduled payment;

(xxv)with respect to which a scheduled payment has been made;

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Confidential Treatment Requested by Tesla Motors, Inc.

(xxvi)with respect to which TFL is not required to perform any additional service for, or perform or incur any additional obligation to, the related Lessee in order to enforce the related Lease;

(xxvii)the related Leased Vehicle is new on the date of origination of such Lease;

(xxviii)the Lessee of which (or, if the Lessee is an entity, the natural person who is the co-lessee or guarantor under the Lease and an owner of the Lessee) has a FICO Score of not less than 600;

(xxix)the Lessee of which is a Lessee of no more than two other existing Leases; and

(xxx)the Lease provides that the Excess Mileage Fee applies if mileage exceeds a threshold not greater than 15,000 miles per year.

“Entitlement Holder” shall have the meaning specified in Section 8-102(a)(7) of the UCC (or other section of similar content of the Relevant UCC).

“ERISA” shall mean the Employee Retirement Income Security Act of 1974.

“ERISA Affiliate” shall mean, with respect to TFL or the Borrower, as the case may be, any Person which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Internal Revenue Code of which TFL or the Borrower is a member, or (ii) solely for the purposes of potential liability under Section 412 of the Internal Revenue Code, described in Section 414(m) or (o) of the Internal Revenue Code of which TFL or the Borrower is a member.

“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Eurodollar Rate” means with respect to an Interest Period, an interest rate per annum equal to the rate for one-month deposits in Dollars, which rate is designated as “LIBOR01” on the Reuters Money 3000 Service as of 11:00 a.m., London time, two (2) LIBOR Business Days prior to the first day of such Interest Period; provided, however, that (a) in the event that no such rate is shown, the LIBOR Rate shall be determined by reference to such other comparable available service for displaying Eurodollar rates as may be reasonably selected by the Administrative Agent; (b) in the event that the rate appearing on such page or as so determined by the Administrative Agent shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement, and (c) if no such service is available, the LIBOR Rate shall be the rate per annum equal to the average (rounded upward to the nearest 1/100^th of 1%) of the rate at which the Administrative Agent offers deposits in Dollars at or about 10:00 a.m., New York City time, two (2) LIBOR Business Days prior to the beginning of the related Interest Period, in the interbank eurocurrency market where the eurocurrency and foreign currency and

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Confidential Treatment Requested by Tesla Motors, Inc.

exchange operations in respect of its Eurodollar loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the applicable portion of the Loan Balance to be accruing interest at the LIBOR Rate during such Interest Period.

“European Union” means the supranational organization of states established with that name by the Treaty on European Union (signed in Maastricht on 7 February 1992) as enlarged or reduced by the Treaty of Accession (signed in Athens on 16 April 2003), and as may be enlarged from time to time by the agreement of the member states thereof.

“eVault Letter Agreement” shall mean that certain letter agreement relating to Warehouse SUBI Leases dated on or about August 31, 2016, by and among TFL, the Trust, the Administrative Agent and eOriginal, Inc.

“Event of Bankruptcy” shall mean, for any Person:

(i)that such Person shall admit in writing its inability to, pay its debts as they become due; or

(ii)a proceeding shall have been instituted seeking a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator or other similar official of such Person or for all or substantially all of its property, or for the winding-up or liquidation of its affairs and (A) an order for relief is entered or (B) such proceeding remains unstayed or undismissed for a period of 60 days in a court having jurisdiction in the premises; or

(iii)the commencement by such Person of a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or such Person’s consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator or other similar official of such Person or for all or substantially all of its property, or any general assignment for the benefit of creditors; or

(iv)the holders of the equity of such Person or the board of directors or board of managers or other governing body of such Person shall adopt any resolution for such Person authorizing any of the actions set forth in the preceding clause (iii).

“Event of Default” shall mean an event described in Section 8.01.

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Confidential Treatment Requested by Tesla Motors, Inc.

“Excess Concentration Amount” shall mean, with respect to all Warehouse SUBI Leases that are Eligible Leases on such date, the sum of, without duplication, the amounts (if any) by which:

(i)the aggregate Securitization Value of all Warehouse SUBI Leases that are Eligible Leases with Lease Maturity Dates occurring more than 48 months from the date of origination of such Leases exceeds the 48+ Month Limit;

(ii)the aggregate Base Residual Value of all Warehouse SUBI Leases that are Eligible Leases scheduled to reach their Lease Maturity Date in any one (1) month exceeds the Single Month Maturity Limit;

(iii)the aggregate Base Residual Value of all Warehouse SUBI Leases that are Eligible Leases scheduled to reach their Lease Maturity Date in any 6 consecutive months exceeds the Six Month Maturity Limit;

(iv)the aggregate Base Residual Value of all Warehouse SUBI  Leases that are Eligible Leases exceeds the Base RV Limit;

(v)the aggregate Securitization Value of all Warehouse SUBI Leases that are Eligible Leases that cause the weighted average FICO Score of all Lessees (or, if a Lessee is an entity, the natural person who is the co-lessee or guarantor under the applicable Lease and an owner of such Lessee) of all Warehouse SUBI Leases that are Eligible Leases to be less than the WA FICO Limit; in determining which Warehouse SUBI Lease causes such weighted average FICO Score to be less than the WA FICO Limit, the Warehouse SUBI Lease or Warehouse SUBI Leases most recently originated or purchased by the Trust shall be treated as causing such breach;

(vi)the aggregate Securitization Value of all Warehouse SUBI Leases that are Eligible Leases with respect to which the FICO Score of the related Lessee (or, if a Lessee is an entity, the natural person who is the co-lessee or guarantor under the applicable Lease and an owner of such Lessee) of such Eligible Leases is less than the Minimum FICO Limit Score exceeds the Minimum FICO Limit;  

(vii) the aggregate Securitization Value of all Warehouse SUBI Leases originated in any state (other than California) that are Eligible Leases exceeds the Single State (Non-CA) Limit; and

(viii)the aggregate Securitization Value of all Warehouse SUBI Leases originated in the State of California that are Eligible Leases exceeds the Single State (CA) Limit.

“Excess Mileage Fee” shall mean, with respect to any Lease or Leased Vehicle, any applicable charge for excess mileage.

“Excess Wear and Tear Fee” shall mean, with respect to any Lease or Leased Vehicle, any applicable charge for excess wear and tear.

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Confidential Treatment Requested by Tesla Motors, Inc.

“Excluded Taxes” shall mean any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Recipient with respect to an interest in a Loan or Commitment (or its interest as an agent hereunder) pursuant to a law in effect on the date on which (i) such Recipient acquires such interest in the Loan or Commitment (or agency interest) or (ii) such Recipient changes its lending office, except in each case to the extent that, pursuant to Section 11.02, amounts with respect to such Taxes were payable either to such Recipient's assignor immediately before such Lender became a party hereto or to such Recipient immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 11.02(f) and (d) any Taxes imposed under FATCA.

“Facility Limit” shall mean $300,000,000, as such amount may be reduced from time to time in accordance with Section 2.11 or terminated in accordance with Section 8.02 or Section 12.01.

“FATCA” shall mean Sections 1471 through 1474 of the Internal Revenue Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code, any published intergovernmental agreement entered into in connection with the implementation of such sections of the Internal Revenue Code and any fiscal or regulatory legislation adopted pursuant to such published intergovernmental agreements.

“Fee Letter” shall mean the Fee Letter dated as of the Closing Date among TFL, the Borrower, the Administrative Agent, the Group Agents and the Lenders, setting forth the upfront fee and certain other fees and expenses payable to the Administrative Agent and the Lenders by TFL and the Borrower.

“FICO Score” shall mean statistical credit scores based on methodology developed by Fair, Isaac & Company, and which are obtained by lenders in connection with lease applications to help assess a lessee’s creditworthiness.

“Financial Asset” shall have the meaning specified in Section 8-102(a)(9) of the UCC (or other section of similar content of the Relevant UCC).

“Foreign Lender” shall mean a Lender that is not a U.S. Person.

“GAAP” shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements or pronouncements by such other entity as approved by a significant segment of the accounting profession, which are in effect from time to time.

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Confidential Treatment Requested by Tesla Motors, Inc.

“Governmental Authority” shall mean any nation or government, any state, county, city, town, district, board, bureau, office commission, any other municipality or other political subdivision thereof (including any educational facility, utility or other Person operated thereby), and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Group” shall mean, for any Committed Lender, Conduit Lender or Group Agent from time to time party hereto, (a) in the case of any Committed Lender, such Committed Lender, its Related Conduit Lender(s) (if any) and its Group Agent, (b) in the case of any Conduit Lender, such Conduit Lender, its Related Committed Lender’s other Related Conduit Lender(s) (if any), its Related Committed Lender and its Group Agent and (c) in the case of any Group Agent, such Group Agent and the Committed Lender and Conduit Lender(s) (if any) for whom such Group Agent acts as agent hereunder.

“Group Agent” shall mean each Person acting as agent on behalf of a Group and designated as the Group Agent for such Group on the signature pages to this Agreement or any other Person who becomes a party to this Agreement as a Group Agent for any Group pursuant to an Assumption Agreement, an Assignment and Acceptance Agreement or otherwise in accordance with this Agreement.

“Group Agent Account” shall mean, with respect to any Group, the account(s) designated in writing by the applicable Group Agent to the Borrower, the Servicer and the Administrative Agent for purposes of receiving payments to or for the account of the members of such Group hereunder.

“Guarantee” shall mean, as to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise), or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.  The term “Guarantee” used as a verb has a corresponding meaning.

“Indemnified Amounts” shall have the meaning specified in Section 11.01.

“Indemnified Parties” shall mean the Administrative Agent, the Group Agents, the Lenders, the Affected Persons and their respective assigns (if such assign is permitted under the Transaction Documents), officers, directors, agents and employees.

“Indemnified Taxes” shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower hereunder and (b) to the extent not otherwise described in (a), Other Taxes.

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Confidential Treatment Requested by Tesla Motors, Inc.

“Indemnifying Party” shall have the meaning specified in Section 11.01.

“Initial Loan Balance” shall mean the principal amount of the initial Loans made by the Lenders to the Borrower on the Initial Loan Date.

“Initial Loan Date” shall mean the first Business Day on which Leases are allocated to the Warehouse SUBI and the Lenders fund the initial Loans under this Agreement.

“Insurance Expenses” shall mean any Insurance Proceeds (i) applied to the repair of the related Warehouse SUBI Leased Vehicle, or (ii) released to the related Lessee in accordance with applicable law.

“Insurance Policy” shall mean any insurance policy (including any self-insurance), including any residual value insurance policy, guaranteed automobile protection policy, comprehensive, collision, public liability, physical damage, personal liability, contingent and excess liability, accident, health, credit, life or unemployment insurance or any other form of insurance or self‑insurance, to the extent that any such policy or self‑insurance covers or applies to the Trust, the Warehouse SUBI, any Warehouse SUBI Lease, any Warehouse SUBI Leased Vehicle, any Lease or the ability of a Lessee to make required payments with respect to the related Warehouse SUBI Lease or the related Warehouse SUBI Leased Vehicle.

“Insurance Proceeds” shall mean, with respect to any Warehouse SUBI Leased Vehicle, Warehouse SUBI Lease or Lessee, amounts paid to the Servicer, the Trust or a Trustee on behalf of the Trust under an Insurance Policy and any rights thereunder or proceeds therefrom (including any self‑insurance or applicable deductible).

“Interest” shall mean, for any Interest Period (or portion thereof), the amount of interest accrued on the Loan Balance during such Interest Period (or portion thereof) in accordance with Section 2.02.

“Interest Carryover Shortfall” shall mean, with respect to any Payment Date, the sum of (a) the excess of (i) the Interest Distributable Amount for the preceding Payment Date over (ii) the amount that was actually paid to the Lenders in respect of Interest, Usage Fee Amount and Unused Fee Amount on such preceding Payment Date, and (b) interest on such excess, to the extent permitted by applicable law, by reference to the Default Rate for the period from such preceding Payment Date to but excluding the current Payment Date.

“Interest Distributable Amount” shall mean, with respect to any Payment Date, an amount equal to the sum of (i) the aggregate amount of Interest, Usage Fee Amount and Unused Fee Amount accrued during the related Interest Period and (ii) the Interest Carryover Shortfall for such Payment Date.

“Interest Period” shall mean each period commencing on the first day of each calendar month (or, in the case of the initial Interest Period hereunder, the Closing Date) and ending on the last day of such calendar month (or in the case of the initial Interest Period, the last day of September, 2016, or in the case of the final Interest Period hereunder, the final Payment Date).

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Confidential Treatment Requested by Tesla Motors, Inc.

“Interest Rate” shall mean, for any day during any Interest Period for any Loan (or any portion thereof):

(a) if such Loan (or such portion thereof) is being funded by a Conduit Lender on such day through the issuance of Short-Term Notes, the applicable Short-Term Note Rate; or

(b) if such Loan (or such portion thereof) is being funded on such day by any Lender other than a Conduit Lender, or by a Conduit Lender other than through the issuance of Short-Term Notes (including if a Conduit Lender is then funding such Loan (or such portion thereof) under a Program Support Agreement or if a Committed Lender is then funding such Loan (or such portion thereof)), the applicable Bank Interest Rate.

“Interest Rate Hedge” shall mean interest rate swap or interest rate cap transactions between the Borrower and one or more Eligible Interest Rate Hedge Providers which satisfies the definition of Eligible Interest Rate Hedge.

“Interest Rate Hedge Payment” shall mean, with respect to an Interest Rate Hedge and any Payment Date, any net amount required to be paid (other than an Interest Rate Hedge Termination Payment) under such Interest Rate Hedge by the Borrower to an Interest Rate Hedge provider in respect of such Payment Date.

“Interest Rate Hedge Provider” means any Person that has entered into an Interest Rate Hedge with the Borrower.

“Interest Rate Hedge Receipt” shall mean any net payment made to the Warehouse SUBI Collection Account by an Interest Rate Hedge provider pursuant to an Interest Rate Hedge.

“Interest Rate Hedge Termination Payment” shall mean, with respect to an Interest Rate Hedge, the payment due by the Borrower to the related Interest Rate Hedge provider or by such Interest Rate Hedge provider to the Borrower, including any interest that may accrue thereon, upon the occurrence of an “early termination date” under such Interest Rate Hedge.

“Interest Rate Hedge Trigger Event” shall mean the Eurodollar Rate is greater than 2.0% per annum for a period of five consecutive Business Days (measured at the close of each such Business Day).

“Internal Revenue Code” shall mean the U.S. Internal Revenue Code of 1986.

“Lease” shall mean any lease contract for a Leased Vehicle entered into for or by the Trust or a Trustee on behalf of the Trust.

“[***]” shall mean [***], an [***].

“[***] Subservicing Agreement” shall mean the Servicing Agreement dated as of December 18, 2013 between [***] as subservicer and the Servicer.

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Confidential Treatment Requested by Tesla Motors, Inc.

“Lease Documents” shall mean, with respect to each Lease, (i) the Lease (the electronic authoritative copy being held in the Electronic Lease Vault), (ii) any documentation of the Lessee’s insurance coverage customarily maintained by the Servicer, (iii) a copy of the application or application information of the related Lessee, together with supporting information customarily maintained by the Servicer which may include the following: factory invoices related to new vehicles, credit scoring information or Trust purchase documentation, and odometer statements required by applicable law, (iv) the original Certificate of Title (or a copy of the application therefor if the Certificate of Title has not yet been delivered by the applicable Registrar of Titles) or such other documents, if any, that the Servicer keeps on file in accordance with its customary practices indicating that title to the related Leased Vehicle is in the name of the Trust (or such other name as directed by the Servicer pursuant to Section 1(d) of the Warehouse SUBI Servicing Agreement), and (v) any and all other documents that the Servicer keeps on file in accordance with its customary practices related to such Lease or the related Leased Vehicle or Lessee, including any written agreements modifying such Lease (including any extension agreements).  Any of the items set forth in (i) through (v) may be photocopies or other images thereof (including in electronic form) that the Servicer may keep on file in accordance with its customary servicing procedures.

“Lease Implicit Rate” shall mean, with respect to any Lease, the annual rate of finance charges used to determine the periodic rental payments stated in such Lease.

“Lease Maturity Date” shall mean with respect to any Lease, the date on which such Lease is scheduled to terminate as set forth in such Lease at its date of origination.

“Lease Origination Agreement” shall mean an agreement between TFL and Tesla Motors, Inc. or a Subsidiary of Tesla Motors, Inc. under which Tesla Motors, Inc. or such Subsidiary originates Leases for the Trust, as the designee of TFL.

“Lease Pool” shall mean the Leases allocated to the Warehouse SUBI on any Warehouse SUBI Lease Allocation Date.

“Lease Pull-Forward” shall mean, as of any date, any Lease that has been terminated by the related Lessee before the related Lease Maturity Date under any “pull-forward”, “pull-ahead” or other marketing program in order to allow such Lessee, among other things, (i) to enter into a new lease contract for a new Tesla vehicle, or (ii) to purchase a new Tesla vehicle; provided that the Lessee is not in default on any of its obligations under the related Lease.

“Leased Vehicle” shall mean a Tesla automobile, together with all accessories, parts and additions constituting a part thereof, and all accessions thereto, leased to a Lessee pursuant to a Lease.

“Lender Party” shall mean any Lender, any Group Agent, the Administrative Agent or any Program Support Provider.

“Lenders” shall mean the Conduit Lenders and the Committed Lenders.

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Confidential Treatment Requested by Tesla Motors, Inc.

“Lessee” shall mean each Person that is a lessee under a Lease, including any Person that executes a guarantee on behalf of such lessee.

“Lessee Partial Monthly Payment” shall mean, in connection with the payment by a Lessee of less than 100% of the Monthly Lease Payment due with respect to a Warehouse SUBI Lease, the actual amount paid by the Lessee toward such Monthly Lease Payment.

“Lessor” shall mean the Trust, as lessor under a Lease.

“LIBOR Business Day” means any day of the year other than a Saturday, Sunday or any day on which banking institutions in San Francisco, California, New York, New York or London, England generally are required or authorized to be closed.

“Lien” shall mean any security interest, lien, charge, pledge, equity or encumbrance of any kind, other than tax liens, mechanics’ liens, any liens that attach to property by operation of law and statutory purchase liens to the extent not past due.

“Limited Liability Company Agreement” shall mean the Limited Liability Company Agreement of the Borrower dated as of October 10, 2014, as amended and restated as of July 28, 2016.

“Liquidation Expenses” shall mean reasonable out-of-pocket expenses (not to exceed, for any vehicle, the Liquidation Proceeds for such vehicle) incurred by the Servicer in connection with the attempted realization of the full amounts due or to become due under any Lease, including expenses of any collection effort (whether or not resulting in a lawsuit against the Lessee under such Lease) or other expenses incurred prior to repossession, recovery or return of the Leased Vehicle, expenses incurred in connection with the sale or other disposition of a Leased Vehicle that has been repossessed or recovered or has become a Terminated Lease and expenses incurred in connection with making claims under any related Insurance Policy.

“Liquidation Proceeds” shall mean gross amounts received by the Servicer (including Excess Mileage Fees, Excess Wear and Tear Fees and sales proceeds referred to in clause (i) of the definition of Off-Lease Net Liquidation Proceeds) in connection with the attempted realization of the full amounts due or to become due under any Lease and of the full value of the related Leased Vehicle, whether from the sale or other disposition of the related Leased Vehicle (irrespective of whether or not such proceeds exceed the related Base Residual Value), the proceeds of any repossession, recovery or collection effort, the proceeds of recourse or similar payments payable under the related Lease Origination Agreement, receipt of Insurance Proceeds, application of the related Security Deposit, the proceeds of any disposition fees or otherwise.

“Liquidity Agent” shall mean any Person acting as the administrator, administrative agent, program administrator or in any similar capacity with respect to a Conduit Lender’s Short-Term Note issuance program.

“Liquidity Agreement” shall mean any agreement entered into in connection with this Agreement pursuant to which a Liquidity Provider agrees to make purchases or advances to,

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Confidential Treatment Requested by Tesla Motors, Inc.

or purchase assets from, a Conduit Lender in order to provide liquidity for such Conduit Lender’s interests hereunder.

“Liquidity Provider” shall mean each bank or other financial institution that provides liquidity support to a Conduit Lender pursuant to a Liquidity Agreement.

“Loan” shall mean a loan made under this Agreement by a Lender to the Borrower.

“Loan Balance” shall mean at any time the outstanding principal amount of all Loans.

“Loan Increase Date” shall mean, (i) with respect to the Warehouse SUBI Assets allocated to the Warehouse SUBI on the Initial Loan Date, the Initial Loan Date, and (ii) with respect to any subsequent Loan, the date on which such Loan is made pursuant to Section 2.01(b) and 5.02.

“Loan Maturity Date” shall mean the Payment Date in September 2018.

“Loan Request” shall mean a loan request in substantially the form of Exhibit A to this Agreement.

“Mark to Market Adjustment” shall mean, as of any Mark to Market Adjustment Date, the sum of the following amounts calculated for each Warehouse SUBI Leased Vehicle and the related Lease:  (i) the Base Residual Value of such Leased Vehicle as determined prior to such Mark to Market Adjustment Date less (ii) the Mark-to-Market MRM Residual Value of such Leased Vehicle determined as of such Mark to Market Adjustment Date (including such date) for such Leased Vehicle; provided that if at any time the foregoing calculation results in a number less than the zero, then the Mark to Market Adjustment at such time shall be zero.

“Mark to Market Adjustment Date” shall mean the last day of each January, April, July and October.

“Mark-to-Market MRM Residual Value” shall mean, with respect to any Warehouse SUBI Leased Vehicle and the related Lease, as of any date, the lowest expected value of such Leased Vehicle at the related Lease Maturity Date using a residual value estimate produced by Automotive Lease Guide (assuming that the vehicle is in “average” condition) based on the “Maximum Residualizable MSRP,” which consists of the MSRP of the typically equipped vehicle and value adding options, giving only partial credit or no credit for those options that add little or no value to the resale price of the vehicle, calculated as of the time of origination of the related Lease and as of the last day of each calendar month immediately preceding each Mark to Market Adjustment Date prior to and, if applicable, including such date.

“Material Adverse Effect” shall mean a material adverse effect on (i) the financial condition or operations of the Tesla Parties, taken as a whole, (ii) the ability of any Tesla Party to perform its material obligations under this Agreement or any other Transaction Document, (iii) the legality, validity or enforceability of any material provision of this Agreement or any other Transaction Document, (iv) the Administrative Agent’s security interest in all or any significant

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Confidential Treatment Requested by Tesla Motors, Inc.

portion of the Collateral, or (v) the collectability of all or any significant portion of the Warehouse SUBI Assets; provided, that, for purposes of clause (i), a Material Adverse Effect shall not include effects arising out of acts of terrorism or war or the escalation or worsening thereof, weather conditions, or other force majeure events.

“Matured Lease” as of any date shall mean any Lease that has reached its Lease Maturity Date.

“Matured Vehicle” as of any date shall mean any Leased Vehicle the related Lease of which has reached its Lease Maturity Date, which Leased Vehicle has been returned to the Servicer.

“Maximum Loan Balance” shall mean, as of any date, the product of

(x) the Advance Rate,

multiplied by

(y) the amount equal to

(A) the Securitization Value of all Warehouse SUBI Leases on such date (determined as of the last day of the Settlement Period immediately preceding such date or, with respect to any new Lease Pool allocated to the Warehouse SUBI on such date, as of the related Cut-Off Date),

minus

(B) without duplication, the sum of (1) the aggregate Securitization Value of all Warehouse SUBI Leases that are Defaulted Leases, (2) the aggregate Securitization Value of all Terminated Leases, (3) the aggregate Securitization Value of all Warehouse SUBI Leases that are Delinquent Leases, (4) the aggregate Securitization Value of all Warehouse SUBI Leases that are not Eligible Leases, (5) the Excess Concentration Amount as of such date, and (6) the aggregate Securitization Value of all Warehouse SUBI Leases and/or Warehouse SUBI Leased Vehicles required to be purchased by the Servicer or required to be reallocated by the Borrower to the UTI  on such date, in each case, to the extent included in clause (y)(A).

“Member State” means a member state of the European Union.

“Minimum FICO Limit” shall have the meaning specified in the Fee Letter.

“Minimum FICO Limit Score” shall have the meaning specified in the Fee Letter.

“Monthly Lease Payment” shall mean, with respect to any Lease, the amount of each fixed monthly payment payable by the related Lessee in accordance with the terms thereof, net of any portion of such fixed monthly payment that represents an Administrative Charge.

“Monthly Payment Advance” shall mean, when TFL is the Servicer, with respect to any Warehouse SUBI Lease and any Settlement Period, an amount advanced by the Servicer

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Confidential Treatment Requested by Tesla Motors, Inc.

equal to the difference between the Monthly Lease Payment due and the Lessee Partial Monthly Payment.

“Monthly Remittance Condition” shall mean (i) TFL is the Servicer, (ii) no Event of Default or Servicer Default has occurred, and (iii) TFL has the Required Ratings.

“Moody’s” shall mean Moody’s Investors Service, Inc., together with its successors.

“MSRP” shall mean, with respect to any Leased Vehicle, the manufacturer’s suggested retail price.

“Multiemployer Plan” shall mean, with respect to any Person, a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding five years contributed to by such Person or any ERISA Affiliate on behalf of its employees and which is covered by Title IV of ERISA.

“Net Insurance Proceeds” shall mean Insurance Proceeds net of related Insurance Expenses.

“Net Liquidation Proceeds” shall mean Liquidation Proceeds net of related Liquidation Expenses.

“Nonrecoverable Advance” means any Residual Advance or Monthly Payment Advance made pursuant to Section 2.4 of the Warehouse SUBI Servicing Agreement that the Servicer believes, in its good faith judgment, is not, or if made would not be, ultimately recoverable from Net Liquidation Proceeds or otherwise from the related Lease and the related Leased Vehicle.

“Notice of Termination” shall have the meaning specified in Section 8.02(a).

“Notice of Warehouse SUBI Lease Allocation” shall have the meaning specified in the Warehouse SUBI Sale Agreement.

“OFAC” shall mean the U.S. Department of the Treasury’s Office of Foreign Assets Control.

“Official Body” shall mean any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, federal or state regulatory authority, tribunal, grand jury or arbitrator, in each case, whether foreign or domestic.

“Off-Lease Net Liquidation Proceeds” shall mean for each Terminated Vehicle sold during or prior to any Settlement Period, (i) the sales proceeds received in such Settlement Period from the sale of the Terminated Vehicle, minus (ii) related Liquidation Expenses.

“Off-Lease Residual Value Net Liquidation Proceeds” shall mean, for each Warehouse SUBI Lease that has reached its Turn In Date during any of the three consecutive

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Confidential Treatment Requested by Tesla Motors, Inc.

Settlement Periods ended on the last day of the calendar month immediately preceding any RVPR Calculation Date, an amount equal to (i) the sum of (A) the proceeds received during such three consecutive Settlement Periods resulting solely from the sale of the related Leased Vehicle at auction, or from a sale to the related Lessee, but excluding, in each case, any such proceeds arising from a sale or other disposition to, or advances made by, TFL or any Affiliate of TFL, and (B) any applicable Excess Wear and Tear Fees and Excess Mileage Fees received during such three consecutive Settlement Periods, but excluding any such fees paid or advanced by or on behalf of TFL or any Affiliate of TFL, minus (ii) any reconditioning expenses related to the foregoing.  Notwithstanding the foregoing, the “Off-Lease Residual Value Net Liquidation Proceeds” of any Leased Vehicle the Turn In Date for which is more than 60 days after the related Lease Maturity Date shall be zero. For the avoidance of doubt, “Off-Lease Residual Value Net Liquidation Proceeds” do not relate to (or include) any Lease that has reached its Turn In Date if, at any time of determination, the related Leased Vehicle has remained in TFL’s auction inventory.

“Other Connection Taxes” shall mean, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising solely from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced this Agreement, or sold or assigned an interest in any Loan or this Agreement).

“Other Taxes” shall mean all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment.

“Participant” shall have the meaning specified in Section 12.10(g).

“Participant Register” shall have the meaning specified in Section 12.10(h).

“Payments Ahead” shall mean any payment of all or a part of one or more Monthly Lease Payments remitted by a Lessee with respect to a Lease in excess of the Monthly Lease Payment due with respect to such Lease, which amount the Lessee has instructed the Servicer to apply to Monthly Lease Payments due in one or more subsequent Settlement Periods; provided, however, that Payments Ahead shall exclude Pull-Forward Payments.

“Payment Date” shall mean the twentieth (20^th) day of each calendar month or, if such day is not a Business Day, the next succeeding Business Day, commencing on October 20, 2016.

“Payoff Date” shall mean the first date following the Termination Date on which the Loan Balance has been indefeasibly reduced to zero and all accrued Interest, Usage Fee Amount, Unused Fee Amount and all other Secured Obligations have been indefeasibly paid in full.

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

“PBGC” shall mean the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.

“Percentage” shall mean, at any time with respect to any Committed Lender, a fraction (expressed as a percentage), (a) the numerator of which is (i) prior to the termination of all Commitments hereunder, its Commitment Amount at such time or (ii) if all Commitments hereunder have been terminated, the aggregate principal amount of all Loans being funded by the Lenders in such Committed Lender’s Group at such time, and (b) the denominator of which is (i) prior to the termination of all Commitments hereunder, the aggregate Commitment Amounts of all Committed Lenders at such time or (ii) if all Commitments hereunder have been terminated, the aggregate principal amount of all Loans at such time.

“Permitted Account” shall mean each demand deposit or other account approved by the Administrative Agent and each Group Agent and maintained in the United States with a bank for depositing payments made by (or on behalf of) Lessees including payments made by wire transfer or other methods of electronic payment or transfer.

“Permitted Lockbox” shall mean a post office box approved by the Administrative Agent and each Group Agent and located in the United States maintained by a bank for the purpose of receiving payments made by (or on behalf of) the Lessees.

“Person” shall mean any legal person, including any individual, corporation, partnership, joint venture, association, limited liability company, joint stock company, trust, business trust, bank, trust company, estate (including any beneficiaries thereof), unincorporated organization or government or any agency or political subdivision thereof.

“Plan” shall mean a “defined benefit plan” (as defined in Section 3(35) of ERISA), which is subject to Title IV of ERISA or Section 412 of the Internal Revenue Code (other than a Multiemployer Plan) with respect to which the Borrower, TFL or any of its ERISA Affiliates, respectively was an “employer” (as defined in Section 3(5) of ERISA) during the current year or immediately preceding five years.

“Pool Cut Report” shall mean a report substantially in the form of Exhibit E hereto.

“Portfolio Performance Condition” shall mean, on any date of determination, the occurrence of any one or more of the following events:

(i)the annualized average of the Delinquency Ratios for any three (3) consecutive Settlement Periods shall exceed [***]; or

(ii)the Residual Value Performance Ratio, as of any Statistically Significant RVPR Calculation Date shall be less than [***]; or

(iii)the annualized average of the Credit Loss Ratios for the three (3) most recent Settlement Periods shall exceed [***];

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Confidential Treatment Requested by Tesla Motors, Inc.

provided, however, that a Portfolio Performance Condition shall no longer be deemed to be continuing if:

(x) with respect to the Portfolio Performance Condition referred to in clause (i), the annualized average of the Delinquency Ratios for the three (3) most recent consecutive Settlement Periods subsequent to the occurrence of such Condition shall be less than or equal to 3.5%,

(y) with respect to the Portfolio Performance Condition referred to in clause (ii), the Residual Value Performance Ratio as of the first Statistically Significant RVPR Calculation Date subsequent to the occurrence of such Condition shall be greater than or equal to 40%,

(z) with respect to the Portfolio Performance Condition referred to in clause (iii), the annualized average of the Credit Loss Ratios for the three (3) most recent Settlement Periods subsequent to the occurrence of such Condition shall be less than or equal to 2.0%.

“Potential Servicer Default” shall mean an event which, but for the lapse of time or the giving of notice, or both, would constitute a Servicer Default.

“Prepayment” shall mean payment by a Lessee or other obligor in connection with an early termination of a Lease.

“Prime Rate” shall mean, as of any date of determination, a per annum rate equal to the “Prime Rate” listed in “Money Rates” section of The Wall Street Journal (Northeast edition), changing when and as such rate changes.

“Principal Carryover Shortfall” shall mean, with respect to any Payment Date, the excess of the Principal Distributable Amount for the preceding Payment Date over the amount that was actually paid to the Lenders in reduction of the Loan Balance on such preceding Payment Date, plus interest thereon at the Default Rate for the period from the preceding Payment Date to such Payment Date.

“Principal Distributable Amount” shall mean, for any Payment Date, the aggregate amount of principal payable on the Loans, equal to the sum of (i) the Principal Distribution Amount and (ii) the Principal Carryover Shortfall for such Payment Date.  Notwithstanding the above, the Principal Distributable Amount shall not exceed the Loan Balance.

“Principal Distribution Amount” shall mean, with respect to any Payment Date, (i) prior to the Termination Date, the amount (if any) by which the Loan Balance (before giving effect to any payment pursuant to Section 2.04(c) in respect thereof on such Payment Date, but after giving effect to any increase in respect thereof if such Payment Date is a Loan Increase Date) exceeds the Maximum Loan Balance for such Payment Date or (ii) on or after the Termination Date, all remaining Available Amounts after giving effect to the payments pursuant to Sections 2.04(c)(i) through (v) on such Payment Date.

“Proceeds” shall mean “proceeds” as defined in Section 9-102(a) of the UCC (or other section of similar content of the Relevant UCC).

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

“Program Support Agreement” shall mean any Liquidity Agreement and any other agreement entered into by any Program Support Provider providing for: (a) the issuance of one or more letters of credit for the account of a Conduit Lender, (b) the issuance of one or more surety bonds for which a Conduit Lender is obligated to reimburse the applicable Program Support Provider for any drawings thereunder, (c) the sale by any Conduit Lender to any Program Support Provider of any Loan (or portions thereof or participation interest therein) and/or (d) the making of loans and/or other extensions of credit to a Conduit Lender in connection with such Conduit Lender’s Short-Term Note issuance program, together with any letter of credit, surety bond or other instrument issued thereunder.

“Program Support Provider” shall mean any Liquidity Agent, any Liquidity Provider and any other Person now or hereafter extending credit or having a commitment to extend credit to or for the account of, or to make purchases from, a Conduit Lender pursuant to any Program Support Agreement.

“Pull-Forward Payment” shall mean, with respect to any Lease Pull-Forward, the Monthly Lease Payments not yet due with respect to the affected Lease.

“Quarterly Report Date” shall mean the Determination Date in each of the months of February, May, August and November.

“Rating Agencies” shall mean S&P and/or Moody’s.

“Reallocation Proceeds” shall mean (i) the proceeds allocated from the UTI to the Warehouse SUBI in connection with a Securitization Take-Out (if any), or (ii) the payment by TFL in connection with the reallocation of any Lease from the Warehouse SUBI to the UTI (such payment to be not less than the Securitization Value of such Lease) arising from a breach of TFL’s statements and representations made in Section 4.02 or the Warehouse SUBI Sale Agreement or from any covenant of TFL under Section 6.03 or 6.04 hereof or under Section 2.1, 2.2(a)-(c) or 2.3 of the Warehouse SUBI Servicing Agreement.

“Recipient” shall mean (a) the Administrative Agent, (b) each Group Agent and (c) each Lender.

“Register” shall have the meaning set forth in Section 12.10.

“Regulatory Requirement” shall mean (i) the adoption after the date hereof of any applicable law, rule or regulation (including any applicable law, rule or regulation regarding capital adequacy or liquidity coverage) or any change therein after the date hereof, (ii) any change after the date hereof in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency; provided that for purposes of this definition, (x) the United States bank regulatory rule titled Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance: Regulatory Capital; Impact of Modification to Generally Accepted Accounting Principles; Consolidation of Asset-Backed Commercial Paper Programs; and Other Related Issues, adopted on December 15, 2009, (y) the Dodd-Frank Wall

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Confidential Treatment Requested by Tesla Motors, Inc.

Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder, issued in connection therewith or in implementation thereof, and (z) all requests, rules, guidelines and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, shall in each case be deemed to be a “Regulatory Requirement”, regardless of the date enacted, adopted, issued or implemented.

“Related Committed Lender” shall mean, with respect to any Conduit Lender, each Committed Lender which is, or pursuant to any Assignment and Acceptance Agreement or Assumption Agreement or otherwise pursuant to this Agreement becomes, included as a Committed Lender in such Conduit Lender’s Group, as designated on its signature page hereto or in such Assignment and Acceptance Agreement, Assumption Agreement or other agreement executed by such Committed Lender, as the case may be.

“Related Conduit Lender” shall mean, with respect to any Committed Lender, each Conduit Lender which is, or pursuant to any Assignment and Acceptance Agreement or Assumption Agreement or otherwise pursuant to this Agreement becomes, included as a Conduit Lender in such Committed Lender’s Group, as designated on its signature page hereto or in such Assignment and Acceptance Agreement, Assumption Agreement or other agreement executed by such Committed Lender, as the case may be.

“Relevant UCC” shall mean the Uniform Commercial Code as in effect from time to time in all applicable jurisdictions.

“Repurchase Amount” shall mean, with respect to any Lease to be repurchased by the Servicer or reallocated to the UTI pursuant to Section 2.2 of the Warehouse SUBI Servicing Agreement, Section 4.01 or 4.02 hereof or Section 2.7 of the Warehouse SUBI Sale Agreement, the Securitization Value of such Lease as of the end of the Settlement Period preceding the Deposit Date in which such repurchase or reallocation occurs.

“Required Aggregate Notional Principal Amount” shall mean, at any time with respect to all Eligible Interest Rate Hedges in full force and effect at such time, an aggregate notional amount at such time and at all future Payment Dates equal to (a) upon the occurrence of the Interest Rate Hedge Trigger Event or upon entering into or terminating any Interest Rate Hedge thereafter pursuant to Section 6.01(m), the Loan Balance at such time and the expected Loan Balance on each future Payment Date, in accordance with an amortization schedule agreed between the Borrower and the Administrative Agent, and (b) at any other time after the occurrence of the Interest Rate Hedge Trigger Event, an amount not less than 90% and not greater than 110% of the Loan Balance on such date and not less than 90% and not greater than 110% of the expected Loan Balance on such future Payment Date.

“Required Discount Rate” shall have the meaning specified in the Fee Letter.

“Required Ratings” shall mean both of (1) either a short term rating from S&P of at least “A-1” or a long-term unsecured rating from S&P of at least “AA+” and (2) either a short term rating from Moody’s of at least “P-1” or a long-term unsecured rating from Moody’s of at least “Aa1.”

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

“Required Reserve Account Balance” shall mean, as of any date, an amount equal to the product of (a) 1.0% times (b) the aggregate Securitization Value of all outstanding Warehouse SUBI Leases on such date, after giving effect to the allocation (if any) of a Lease Pool to the Warehouse SUBI on such date and a Securitization Take-Out (if any) on such date; provided that (1) on any date on and after the date on which any Commitments terminate, the Required Reserve Account Balance shall be an amount equal to the Required Reserve Account Balance in effect on the day immediately preceding such date on which such Commitments terminate, and (2) on any date on and after the payment of all funds in the Reserve Account to the Lenders following the maturity of the Loan Balance has been accelerated after the occurrence of an Event of Default, the Required Reserve Account Balance shall be zero.

“Requirements of Law” means, for any Person, any law, treaty, rule or regulation, or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether federal, state or local (including usury laws and the federal Truth in Lending Act).

“Reserve Account” shall mean the account with such name established and maintained pursuant to Section 2.06.

“Residual Advance” shall mean, with respect to any Warehouse SUBI Lease and the Settlement Period during which such Lease becomes a Terminated Lease, an advance by TFL equal to the Securitization Value of such Lease as of the end of such Settlement Period.

“Residual Value Performance Ratio” shall mean, for any RVPR Calculation Date, a fraction expressed as a percentage, (a) the numerator of which is the aggregate Off-Lease Residual Value Net Liquidation Proceeds received during the three consecutive Settlement Periods with respect to all Warehouse SUBI Leases that have reached their respective Lease Maturity Dates during any of the three consecutive Settlement Periods ended on the last day of the calendar month immediately preceding such RVPR Calculation Date and (b) the denominator of which is the sum of the Mark-to-Market MRM Residual Values, in each case, with respect to each related Leased Vehicle determined as of the most recent Mark to Market Adjustment Date (including such date) for all Warehouse SUBI Leases that have reached their respective Lease Maturity Dates during any of the three consecutive Settlement Periods ended on the last day of the calendar month immediately preceding such RVPR Calculation Date.  

“Residual Value Performance Ratio Trigger” shall have the meaning specified in the Fee Letter.

“Response Date” shall have the meaning specified in Section 2.10.

“Responsible Officer” shall mean any of the president, chief executive officer, chief financial officer, treasurer or any vice president of the Borrower or TFL, as the case may be.

“Retained Interest” means, to the extent required by the Retention Requirements, a material net economic interest of not less than five percent (5.0%) of the aggregate Securitization Value of all Warehouse SUBI Leases.

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

“Retention Requirements” means each of: (a) Article 405 of the CRR, together with (i) the Commission Delegated Regulation (EU) 625/2014 of 13 March 2014 and any regulatory technical standards, implementing technical standards or related documents published by the European Banking Authority, European Central Bank (or any other successor or replacement agency or authority) and any delegated regulations of the European Commission; and (ii) to the extent informing the interpretation of Article 405 of the CRR, the guidelines and related documents previously published in relation to the preceding European Union risk retention legislation by the European Banking Authority (and/or its predecessor, the Committee of European Banking Supervisors); (b) Article 17 of the AIFMD, as supplemented by Article 51 of the AIFM Regulation; (c) Article 254 of the Solvency II Regulation and (d) in relation to each of the foregoing, any guidance published in relation thereto and any implementing laws or regulations in force in any Member State of the European Union.

“RVPR Calculation Date” shall mean the last day of each January, April, July and October, commencing October 31, 2016.

“S&P” shall mean Standard & Poor’s Rating Group, together with its successors.

“Sanctioned Country” means, at any time, a country or territory which is the subject or target of any Sanctions.

“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, or by the United Nations Security Council, the European Union or any EU member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.

“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.

“Scheduled Expiration Date” shall mean August 31, 2017, unless such date shall be extended from time to time in accordance with Section 2.10.

“Secured Obligations” shall mean, at any time, (i) all accrued and unpaid Interest Distributable Amounts at such time, (ii) the Loan Balance at such time, (iii) the Borrower’s obligations under all Interest Rate Hedges, and (iv) all other fees and amounts (whether due or accrued) owing to the Secured Parties under this Agreement or the Fee Letter or any other Transaction Document at such time.

“Secured Parties” shall mean the Lenders, the Group Agents, the Administrative Agent, the Interest Rate Hedge providers and each other Indemnified Party and Affected Person.

“Securitization Take-Out” shall have the meaning specified in Section 2.09(b).

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Confidential Treatment Requested by Tesla Motors, Inc.

“Securitization Take-Out Certificate” shall have the meaning specified in Section 2.09(b).

“Securitization Take-Out Collateral” shall mean, with respect to any Securitization Take-Out, all or a portion of the Warehouse SUBI Leases selected by the Borrower and satisfying the conditions set forth in Section 2.09(b) and employing no adverse selection procedures in connection with such Securitization Take-Out (excluding, however, any Lease subject to a repurchase or reallocation obligation) that the Borrower has agreed to reallocate to the UTI in connection with a securitization or other type of financing or refinancing and that are designated by the Borrower and specified in the related Securitization Take-Out Certificate.

“Securitization Take-Out Date” shall mean, with respect to any Securitization Take-Out, the date on which such Securitization Take-Out occurs.

“Securitization Take-Out Price” shall mean, with respect to Warehouse SUBI Leases reallocated to the UTI pursuant to a Securitization Take-Out, the Securitization Value of such Leases.

“Securitization Value” shall mean, with respect to any Lease and any date, determined as of the last day of the Settlement Period immediately preceding such date (or, with respect to any Lease allocated to the Warehouse SUBI on such date, as of the related Cut-Off Date), until reset on the last day of the succeeding Settlement Period, an amount equal to the sum of the present values of (i) all remaining Monthly Lease Payments scheduled to be due after the day on which such Securitization Value is determined (or, in the case of the Securitization Value of any Lease allocated to the Warehouse SUBI on such date, after the related Cut-Off Date), calculated in each case assuming that such Monthly Lease Payments will be paid on a timely basis and (ii) the Base Residual Value (discounted from the date that is one month after the Lease Maturity Date of such Lease), in each case calculated by discounting such sum by the Required Discount Rate applicable on the day on which such Securitization Value is determined.

“Security Deposit” shall mean, with respect to any Lease, the refundable security deposit specified in such Lease.

“Servicer” shall mean TFL, in its capacity as Servicer under the Warehouse SUBI Servicing Agreement and this Agreement, together with its successors and assigns in such capacity.

“Servicer Default” shall have the meaning specified in the Warehouse SUBI Servicing Agreement.

“Servicing Agreement” shall mean the Servicing Agreement dated as of November 6, 2013 between the Trust and TFL as Servicer.

“Servicing Fee” shall mean, with respect to the Warehouse SUBI, the fee payable on each Payment Date with respect to each Settlement Period equal to one-twelfth of the product of (i) the Servicing Fee Rate and (ii) the daily average Securitization Value of the Warehouse SUBI Leases during such Settlement Period; provided that, during any period when the Back-Up

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Servicer is acting as Servicer, the Servicing Fee with respect to any Settlement Period shall not be less than the amount designated pursuant to Section 5.03.

“Servicing Fee Rate” shall mean 1.0% per annum.

“Settlement Period” shall mean with respect to any Determination Date, any Payment Date or any other date, the immediately preceding calendar month.  With respect to any Determination Date or Payment Date, the “related Settlement Period” shall mean the Settlement Period ending on the last day of the month preceding the month in which such Determination Date or Payment Date occurs.

“Settlement Statement” shall mean the monthly statement prepared by the Servicer substantially in the form of Exhibit A to the Fee Letter.

“Short-Term Note Rate” shall mean, with respect to any Conduit Lender for any period (including any day, Interest Period or portion thereof) for any Loan, the rate identified on Schedule 9 hereto or the rate designated as the “Short-Term Note Rate” for such Conduit Lender in an Assignment and Acceptance Agreement or Assumption Agreement in each case which is agreed to by the Borrower and pursuant to which such Person became or becomes a party hereto as a Conduit Lender, or any other writing or agreement provided by such Conduit Lender to the Borrower, the Servicer, the Administrative Agent and the applicable Group Agent and agreed to by the Borrower from time to time.  Notwithstanding the foregoing, at all times following the occurrence and during the continuation of an Event of Default, the Short-Term Note Rate shall be an interest rate per annum equal to the Default Rate.

“Short-Term Notes” shall mean the short-term commercial paper notes issued or to be issued by or on behalf of a Conduit Lender to fund or maintain the Loans or investments in other financial assets.

“Single Month Maturity Limit” shall have the meaning specified in the Fee Letter.

“Single State (CA) Limit” shall have the meaning specified in the Fee Letter.

“Single State (Non-CA) Limit” shall have the meaning specified in the Fee Letter.

“Six Month Maturity Limit” shall have the meaning specified in the Fee Letter.

“Solvent” means, as to any Person at any time, having a state of affairs such that (i) the fair value of the property owned by such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (ii) the present fair salable value of the property owned by such Person in an orderly liquidation of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (iii) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as theymature in the normal course ofbusiness; (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s abilityto pay as such debts and liabilitiesmature; and (v) such Person isnot engaged in business

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute unreasonably small capital.

“State” shall mean any state of the United States of America or the District of Columbia.

“Statistically Significant RVPR Calculation Date” shall mean any RVPR Calculation Date if, during the three Settlement Periods ended on the last day of the calendar month immediately preceding such RVPR Calculation Date, at least fifty (50) Leases reached their Turn In Dates during such three Settlement Periods.

“SUBI Trustee” shall have the meaning specified in the Trust Agreement.

“Subsidiary” shall mean, for any Person, any corporation or other business organization more than 50% of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more such corporations or organizations owned or controlled, directly or indirectly, by such Person and one or more of its Subsidiaries, and any partnership of which such Person or any such corporation or organization is a general partner.

“Successor Servicer” shall have the meaning specified in the Warehouse SUBI Servicing Agreement.

“Successor Servicer Engagement Fee” shall mean the fee in the amount to be designated pursuant to Section 5.03 payable to the Back-Up Servicer upon its becoming the Successor Servicer under the Warehouse SUBI Servicing Agreement.

“Supplemental Servicing Fees” shall mean all late payments, NSF check fees and other similar administrative fees payable by a Lessee under the terms of a Lease.

“Tangible Chattel Paper” shall have the meaning specified in Section 9-102(a) of the UCC (or other section of similar content of the Relevant UCC).

“Taxes” shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Terminated Lease” shall mean a Warehouse SUBI Lease that has reached its Lease Maturity Date or Early Lease Termination Date.

“Terminated Vehicle” shall mean a Warehouse SUBI Leased Vehicle the related Lease for which is a Terminated Lease.

“Termination Date” shall mean the earlier to occur of (i) the occurrence of an Event of Default and (ii) the Scheduled Expiration Date.

“Tesla Party” shall mean any of Tesla Motors, Inc., TFL, the Borrower or the Trust.

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

“TFL” shall have the meaning specified in the preamble to this Agreement.

“TFL Net Worth” shall mean, as of any date, the amount of any capital stock, paid in capital and similar equity accounts plus (or minus in the case of a deficit) the capital surplus and retained earnings of TFL and its Subsidiaries (including the Borrower) on a consolidated basis, all as determined in accordance with GAAP.

“TFL Residual Value” shall mean, with respect to any Leased Vehicle, the expected value of such Leased Vehicle at the Lease Maturity Date of the related Lease as determined by TFL at the time of the origination of such Lease and set forth in such Lease.

“TFL Tangible Net Worth” shall mean, as of any date, the difference of (i) TFL Net Worth, minus (ii) the aggregate amount of TFL’s deferred tax assets and intangible assets, including  goodwill, franchises, licenses, patents, trademarks, tradenames, copyrights and service marks.

“TFL Total Debt” shall mean, as of any date, the aggregate amount of all Debt of TFL and its Subsidiaries (including the Borrower) on a consolidated basis, all as determined in accordance with GAAP but without regard to whether such Debt is required to be included in the consolidated financial statements of TFL under GAAP and including any Debt incurred by the Borrower under this Agreement.

“TFL Total Debt to Tangible Net Worth Ratio” shall mean, as of any date, the ratio of the TFL Total Debt on such date to the TFL Tangible Net Worth on such date.

“Transaction Documents” shall mean the Trust Agreement, the Warehouse SUBI Supplement, the Warehouse SUBI Servicing Agreement, the [***] Subservicing Agreement, the eVault Letter Agreement, the Warehouse SUBI Sale Agreement, this Agreement, the Fee Letter, each Loan Request, each Settlement Statement, each Notice of Warehouse SUBI Lease Allocation, each Interest Rate Hedge and each other agreement, report, certificate or other document delivered by any Tesla Party pursuant to or in connection with any of the foregoing.

“Trust” shall mean Tesla Lease Trust, a Delaware statutory trust, together with its successors and assigns.

“Trust Agreement” shall mean that certain Trust Agreement, dated as of November 6, 2013, between TFL, as Settlor and Initial Beneficiary, and U.S. Bank Trust National Association, as UTI Trustee, Administrative Trustee and Delaware Trustee, as the same may be amended from time to time.

“Trust Assets” shall have the meaning specified in the Trust Agreement.

“Trustee” shall mean U.S. Bank Trust in its capacity as Administrative Trustee, Delaware Trustee, UTI Trustee or any SUBI Trustee of the Trust.

“Trustee Bank” shall mean U.S. Bank Trust in its individual capacity.

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

“Turn In Date” shall mean, with respect to any Lease, (a) the date on which the related Leased Vehicle is returned to TFL by the related Lessee if (but only if) such date is (i) no earlier than 90 days prior to the Lease Maturity Date for such Lease, or (ii) on, or any date after, the Lease Maturity Date for such Lease, or (b) the Lease Maturity Date if the related Leased Vehicle has not been purchased by the related Lessee or returned to TFL by such date.

“Unused Fee” shall mean, with respect to any Commitment of any Committed Lender, an amount equal to the product of (i)the Unused Fee Rate, times (ii) the excess, if any, of (x) such Committed Lender’s Commitment Amount on such day, over (y) the outstanding principal amount of Loans of the Lenders in such Committed Lender’s Group on such day times (iii) 1/360.

“Unused Fee Amount” shall mean, for any Interest Period (or portion thereof) the amount of the Unused Fee accrued during such Interest Period (or portion thereof).

“Unused Fee Rate” shall have the meaning specified in the Fee Letter.

“U.S. Bank Trust” shall mean U.S. Bank Trust National Association, a national banking association.

“U.S. Person” shall mean a “United States Person” as defined in Section 7701(a)(30) of the Internal Revenue Code.

“Usage Fee” shall mean, with respect to any Lender, for each day an amount equal to the product of (i)the Usage Fee Rate on such day, times (ii) the outstanding principal amount of such Lender’s Loans on such day, times (iii) 1/360.

“Usage Fee Amount” shall mean, for any Interest Period (or portion thereof) the amount of the Usage Fee accrued during such Interest Period (or portion thereof).

“Usage Fee Rate” shall have the meaning specified in the Fee Letter.

“UTI” shall mean the undivided interest in the Trust, excluding any special units of beneficial interest.

“UTI Beneficiary” shall mean the beneficiary of the UTI.

“UTI Trustee” shall have the meaning specified in the Trust Agreement.

“WA FICO Limit” shall have the meaning specified in the Fee Letter.

“Warehouse SUBI” shall mean the special unit of beneficial interest in the Trust created by the Warehouse SUBI Supplement and identified as the “Warehouse SUBI.”

“Warehouse SUBI Assets” shall mean: (i) cash related to the Warehouse SUBI or the Warehouse SUBI Assets, including all Collections; (ii) the Warehouse SUBI Leases; (iii) the Warehouse SUBI Leased Vehicles; (iv) all other Trust Assets to the extent related to or associated with the foregoing; and (v) all proceeds of the foregoing, including (A) payments

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made in respect of the Terminated Vehicles and Defaulted Vehicles (including Residual Advances), (B) proceeds of the sale or other disposition of the Warehouse SUBI Leased Vehicles to Lessees or others upon expiration or termination of the Warehouse SUBI Leases, (C) payments in respect of the Warehouse SUBI Leased Vehicles under any Insurance Policy, (D) the Certificates of Title relating to the Warehouse SUBI Leased Vehicles, (E) all rights (but not obligations) of the Trust, TFL and the related Lessor with respect to the Warehouse SUBI Leases and the Warehouse SUBI Leased Vehicles, including rights to (1) any incentive or other payments made by any Person to fund a portion of the payments made related to a Warehouse SUBI Lease or a Warehouse SUBI Leased Vehicle (including Pull-Forward Payments) and (2) proceeds arising from any repurchase obligations arising under any Warehouse SUBI Lease, (F) any Security Deposit related to a Warehouse SUBI Lease to the extent not payable to the Lessee pursuant to such lease, (G) all Insurance Proceeds and Liquidation Proceeds, (H) such other assets as may be designated “Warehouse SUBI Assets” in the Warehouse SUBI Supplement and identified by the Servicer in Notices of Warehouse SUBI Lease Allocation delivered from time to time pursuant to the Warehouse SUBI Supplement, and (I) all proceeds of the foregoing.

“Warehouse SUBI Certificate” shall mean a certificate representing the beneficial interest in the Warehouse SUBI.

“Warehouse SUBI Collection Account” shall mean the Warehouse SUBI Collection Account established and maintained pursuant to Section 7.06(d).

“Warehouse SUBI Lease” shall mean a Lease allocated to the Warehouse SUBI.

“Warehouse SUBI Lease Allocation Date” shall mean each date on which TFL directs the UTI Trustee to reallocate Leases and the related Leased Vehicles from the UTI to the Warehouse SUBI pursuant to the Warehouse SUBI Supplement.

“Warehouse SUBI Leased Vehicle” shall mean a Leased Vehicle allocated to the Warehouse SUBI.

“Warehouse SUBI Sale Agreement” shall mean the Warehouse SUBI Sale Agreement, dated as of the date hereof, by and between TFL, as seller, and the Borrower, as buyer.

“Warehouse SUBI Servicing Agreement” shall mean the Warehouse SUBI Servicing Agreement dated as of the date hereof by and among the Trust, TFL, as the UTI Beneficiary, the Servicer, the Back-Up Servicer and the Borrower.

“Warehouse SUBI Supplement” shall mean the Warehouse SUBI Supplement to Trust Agreement, dated as of the Closing Date, by and among TFL, as Settlor and Initial Beneficiary, U.S. Bank Trust as SUBI Trustee, Administrative Trustee and UTI Trustee, and Borrower (for the limited purposes set forth therein).

“Withholding Agent” shall mean the Borrower and the Administrative Agent.

“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority

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from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

SECTION 1.02  Computation of Time Periods.  Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding.”

SECTION 1.03Interpretive Provisions.  For all purposes of this Agreement, the singular includes the plural and the plural the singular; words importing gender include other genders; references to “writing” include printing, typing, lithography and other means of reproducing words in a visible form; the term “including” means “including without limitation;” the term “or” is not exclusive; and references to the article and section headings of any Transaction Document are for convenience of reference only, and shall not define or limit or otherwise affect the terms and provisions thereof. All accounting terms not specifically defined herein shall be construed in accordance with GAAP.  If the due date of any notice, certificate or report required to be delivered by any party to any of the Transaction Documents falls on a day that is not a Business Day, the due date for such notice, certificate or report shall be automatically extended to the next succeeding day that is a Business Day.  Any reference in this Agreement to any agreement means such agreement as it may be amended, restated, supplemented or otherwise modified from time to time.  Any reference in this Agreement to any law, statute, regulation, rule or other legislative action shall mean such law, statute, regulation, rule or other legislative action (and any successor thereto) as amended, supplemented or otherwise modified from time to time, and shall include any rule or regulation promulgated thereunder.  Any reference in this Agreement to a Person shall include the permitted successors or assignees of such Person.

SECTION 1.04  Acknowledgement and Consent to Bail-In of EEA Financial Institutions.  Notwithstanding anything to the contrary in any Transaction Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Transaction Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a)the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

(b)the effects of any Bail-in Action on any such liability, including, if applicable;

(i)a reduction in full or in part or cancellation of any such liability;

(ii)a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such

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shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Transaction Document; or

(iii)the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.

ARTICLE II

THE FACILITY

SECTION 2.01  Loans; Payments.

(a)On the terms and subject to the conditions hereinafter set forth (including in Sections 2.01(b) and 2.01(e) and Article V, the Conduit Lenders, ratably, in accordance with the aggregate of the Commitments of the Related Committed Lenders with respect to each such Conduit Lender, severally and not jointly, may, in their sole discretion, make Loans to the Borrower on a revolving basis, and if and to the extent any Conduit Lender does not make any such requested Loan or if any Group does not include a Conduit Lender, the Related Committed Lender(s) for such Conduit Lender or the Committed Lender for such Group, as the case may be, shall, ratably in accordance with their respective Commitments, severally and not jointly, make such Loans to the Borrower from time to time on the Initial Loan Date and, until the occurrence of the Scheduled Expiration Date or an Event of Default, on each subsequent Loan Increase Date.  Each Lender shall make available the proceeds of any Loan it makes to the Borrower by wire transfer of immediately available funds.  

(b)Subject to the conditions specified in this Section and in Sections 5.01 and 5.02 (as applicable), on any Loan Increase Date, the Loan Balance may be increased through the funding of additional Loans, up to a Loan Balance at any one time not to exceed the Facility Limit; provided, however, that (i) the aggregate principal amount of any Loans to be made on any Loan Increase Date shall not exceed the Available Facility Limit on such Loan Increase Date (before giving effect to such Loans), (ii) the aggregate outstanding principal amount of the Loans of the Lenders in any Group shall not exceed the Commitment Amount of the Related Committed Lenders of such Group, (iii) the aggregate outstanding principal amount of the Loans of any Committed Lender shall not exceed its Commitment Amount, and (iv) the aggregate outstanding principal amount of all Loans shall not exceed the Maximum Loan Balance, determined after giving effect to such additional Loans on such date.  Each Loan shall be in a minimum amount equal to the lesser of (x) $1,000,000 and (y) the Available Facility Limit (before giving effect to such Loan).

(c)The principal of the Loans shall be payable in installments equal to the Principal Distributable Amount on each Payment Date subject to and in accordance with Section 2.04(c).  Notwithstanding the foregoing, the entire unpaid principal amount of the Loans shall be due and payable, if not previously paid, on the Loan Maturity Date.

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(d)On each Warehouse SUBI Lease Allocation Date, Leases and the related Leased Vehicles shall be allocated from the UTI to the Warehouse SUBI pursuant to the Warehouse SUBI Supplement.  In furtherance of the foregoing:

(i)at least three (3) Business Days preceding each Warehouse SUBI Lease Allocation Date (or, in the case of the initial Warehouse SUBI Lease Allocation Date, on the Initial Loan Date), the Borrower and the Servicer shall deliver to the Administrative Agent an executed Notice of Warehouse SUBI Lease Allocation in substantially the form of Exhibit D to this Agreement, together with a Pool Cut Report as to the related Lease Pool;

(ii)the Borrower and the Servicer shall have taken any actions necessary or advisable, and reasonably requested in writing by the Administrative Agent as soon as practicable, to maintain the Administrative Agent’s perfected security interest in the Collateral; and

(iii)solely with respect to any Leases and Leased Vehicles to be allocated to the Warehouse SUBI on any Warehouse SUBI Lease Allocation Date, the Administrative Agent shall have received a copy of a report produced by Automotive Lease Guide (in form and substance reasonably satisfactory to the Lenders) setting forth the Mark-to-Market MRM Residual Value of the Leased Vehicle related to each such Lease, in each case, as of the most recent Mark to Market Adjustment Date;

provided that, notwithstanding the foregoing, if any Warehouse SUBI Lease Allocation Date is a Loan Increase Date, this Section 2.01(d) shall apply with respect to such Warehouse SUBI Lease Allocation Date and the related Lease Pool and the Borrower and the Servicer, as applicable, in addition to the conditions set forth in Section 5.02 with respect to such Warehouse SUBI Lease Allocation Date and the related Lease Pool.

(e)After the Borrower delivers a Loan Request pursuant to Section 5.02, a Lender (or its Group Agent) may, not later than 4:00 p.m. (New York time) on the day after the Borrower’s delivery of such Loan Request, deliver a written notice (a “Delayed Funding Notice”, the date of such delivery, the “Delayed Funding Notice Date” and such Lender, a “Delaying Lender”) to the Borrower and the Administrative Agent of its intention to fund its share of the related Loan Increase (such share, the “Delayed Amount”) on a date (the date of such funding, the “Delayed Funding Date”) that is on or before the thirty-fifth (35th) day following the date of the proposed Loan Increase Date (or if such day is not a Business Day, then on the next succeeding Business Day) rather than on the requested Loan Increase Date.  Any Group containing a Delaying Lender shall be referred to as a “Delaying Group” with respect to such Loan Increase Date.  On each Delayed Funding Date, subject to the satisfaction of the conditions set forth in Section 5.02, the Committed Lenders shall (or, in the case of a Group with a Conduit Lender, the Conduit Lender in such Group may in its sole discretion) fund their ratable amounts of such requested Loans.  Notwithstanding anything to the contrary contained in this Agreement or any other Related Document, the parties acknowledge and agree that the failure of any Lender to fund its Loan on the requested Loan Increase Date will constitute a default on the part of such Lender if any Delaying Lender has timely delivered a Delayed Funding Notice to the Borrower

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with respect to such Loan Request. Nothing contained herein shall prevent the Borrower from revoking any Loan Request related to any Delayed Funding Notice.

SECTION 2.02  Interest; Breakage Fees.

(a)The outstanding principal amount of each Loan shall accrue interest on each day at the then applicable Interest Rate.  Whether any Loan is funded or maintained hereunder at the Short-Term Note Rate or Bank Interest Rate shall be determined in the sole discretion of the applicable Group Agent for the Lender funding or maintaining such Loan.  The Borrower shall pay all Interest, Usage Fees, Unused Fees and Breakage Fees accrued during each Interest Period on the immediately following Payment Date in accordance with the terms and priorities for payment set forth in Section 2.04; provided, however, that all Interest, Usage Fees, Unused Fees and Breakage Fees accrued during any Interest Period shall be due and payable by the Borrower on the immediately following Payment Date without regard to whether Collections or other funds of the Borrower are then available for payment thereof.  Notwithstanding any provision of this Agreement to the contrary, this Agreement shall not require the payment or permit the collection of Interest in excess of the maximum permitted by applicable law; and Interest shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason.

(b)If any portion of any Loan is repaid other than on a Payment Date or the Borrower fails to borrow any portion of any Loan requested in a Loan Request, the Borrower shall pay to the Lenders any Breakage Fees incurred by the Lenders.

SECTION 2.03  Invoices; Payments.  No later than the second Business Day of each month, each Group Agent will provide the Borrower, the Servicer and the Administrative Agent with an invoice showing the Interest, Usage Fee Amount, Unused Fee Amount and other Secured Obligations due (or estimated to be due) to its Group pursuant to this Agreement and the Fee Letter on the Payment Date occurring in such month.  The Borrower hereby agrees to pay to such Group Agent for the account of its related Secured Parties, as and when due in accordance with this Agreement and the Fee Letter, the Interest Distributable Amount, the Principal Distributable Amount and the other Secured Obligations payable to such Group.  Nothing in this Agreement shall limit in any way the obligations of the Borrower to pay the amounts set forth in this Section 2.03.

SECTION 2.04  Deposits; Distributions.

(a)All Collections shall be deposited into the Warehouse SUBI Collection Account as provided in the Warehouse SUBI Servicing Agreement. All Repurchase Amounts, Residual Advances, Monthly Payment Advances and Reallocation Proceeds shall also be deposited into the Warehouse SUBI Collection Account as provided in the Warehouse SUBI Servicing Agreement.

(b)On each Payment Date, subject to Section 2.07, the Servicer shall cause to be deposited to the Warehouse SUBI Collection Account from the Reserve Account, an amount equal to the lesser of (i) the amount of cash or other immediately available funds on deposit in the Reserve Account on such Payment Date and (ii) the amount, if any, by which (x) the amounts

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required to be applied pursuant to clauses firstthroughsixth of Section 2.04(c) on such Payment Date and for any preceding Payment Date (to the extent not previously paid) exceeds (y) the Available Amounts for such Payment Date (other than Available Amounts attributable to amounts transferred from the Reserve Account for such Payment Date); provided, however, that on the first Payment Date to occur after the Termination Date, the Servicer shall transfer the entire amount in the Reserve Account to the Warehouse SUBI Collection Account.

(c)On each Payment Date, the Servicer (or, if the Administrative Agent has revoked the Servicer’s power to direct payments from the Warehouse SUBI Collection Account pursuant to the Transaction Documents, the  Administrative Agent) shall cause the monies in the Warehouse SUBI Collection Account attributable to Available Amounts for such Payment Date to be applied in the following amounts and order of priority pursuant to instructions of the Servicer approved by the Administrative Agent (as confirmed by the Administrative Agent to the Servicer and the Collection Account Bank):

(i)first, to the Servicer, reimbursement for Residual Advances and Monthly Payment Advances required to be reimbursed to the extent set forth in Section 2.4 of the Warehouse SUBI Servicing Agreement;

(ii)second, to the Servicer for the payment of the accrued Servicing Fees payable for the immediately preceding Settlement Period (plus, if applicable, the amount of Servicing Fees payable for any prior Settlement Period to the extent such amount has not been distributed to the Servicer); and, if the Back-Up Servicer is the Successor Servicer under the Warehouse SUBI Servicing Agreement, for the payment of the Successor Servicer Engagement Fee (to the extent not paid by TFL) and the unpaid out-of-pocket expenses and indemnities owed to it as Successor Servicer; provided, however, that the aggregate amount distributed on any Payment Date for out-of-pocket expenses and indemnities pursuant to this clause shall not exceed $200,000 per calendar year (or such other amount as shall be designated pursuant to Section 5.03) unless approved by the Administrative Agent and the Borrower;

(iii)third, on a pari passu basis, (x) to the Trustee Bank (to the extent not previously paid by TFL), for the payment of accrued and unpaid fees of the Trustee Bank of $2,000 per annum, and (y) to the Back-Up Servicer for the payment of the accrued and unpaid Back-Up Servicing Fees;

(iv)fourth, on a pari passu basis, (x) to the Trustee Bank (to the extent not previously paid by TFL), for the payment of out-of-pocket expenses incurred by the Trustee Bank and the indemnities owed to the Trustee Bank, and (y) to the Back-Up Servicer for the payment of out-of-pocket expenses incurred by the Back-Up Servicer and the indemnities owed to the Back-Up Servicer; provided, however, that the aggregate amount distributed pursuant to subclause (x) shall not exceed $100,000 per calendar year; and provided, further, that the amount distributed pursuant to subclause (y) shall not exceed $20,000 per calendar year (or such other amount as shall be designated pursuant to Section 5.03);

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(v)fifth, on a paripassu basis and pro rata based on the applicable amounts payable under subclauses (x) and (y) of this clause fifth, (x) to the Administrative Agent, the Group Agents and the Lenders, the Interest Distributable Amount, and (y) to each applicable provider of an Interest Rate Hedge, any Interest Rate Hedge Payments and Interest Rate Hedge Termination Payment required to be paid by the Borrower, to the extent not previously paid;

(vi)sixth, on a pari passu basis and pro rata to the Lenders, the Principal Distributable Amount;

(vii)seventh, for deposit in the Reserve Account, the amount necessary to cause the amount on deposit therein to equal to the Required Reserve Account Balance for such Payment Date;

(viii)eighth, on a pari passu basis, to the payment of all other Secured Obligations then due and owing by the Borrower to the Lender Parties;

(ix)ninth, on a pari passu basis, to the payment of all other costs, expenses, fees, indemnities and other amounts payable at such time to the Trustee Bank and the Back-Up Servicer or Successor Servicer pursuant to the Trust Agreement and this Agreement, as applicable, in each case, solely to the extent such costs, expenses, fees, indemnities and other amounts are payable in respect of the Collateral and not otherwise paid to the Trustee Bank, the Back-Up Servicer or Successor Servicer, as applicable;

(x)tenth,  if (A) no Default is continuing and has not been waived or (B) if the Termination Date has occurred, the balance, if any, to be paid to the Borrower for its own account.

Any Available Amounts remaining in the Warehouse SUBI Collection Account after the distribution of such amounts pursuant to this Section 2.04(c) on a Payment Date shall remain in the Warehouse SUBI Collection Account to be distributed as Available Amounts for the following Payment Date.

In approving or giving any distribution instructions under this Section 2.04(c), the Administrative Agent shall be entitled to rely conclusively on the most recent Settlement Statement provided to it pursuant to Section 2.08 and shall incur no liability to any Person in connection with relying on such Settlement Statementsor if the Administrative Agent makes different payments or makes no payments if the Administrative Agent has concerns that the Settlement Statement might be incorrect.

(d)For so long as the Monthly Remittance Condition is satisfied, the deposits into the Warehouse SUBI Collection Account pursuant to Section 2.04(a) may be made net of the Servicing Fee to be distributed to the Servicer pursuant to Section 2.04(c).  Nonetheless, the Servicer shall account for the Servicing Fee in the Settlement Statement as if such amount was deposited into the Warehouse SUBI Collection Account and/or transferred separately.

SECTION 2.05  Payments and Computations, Etc.  All amounts to be paid or deposited to a Lender Party (whether for its own account or for the account of another Lender

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Party) by the Borrower or the Servicer hereunder shall be paid or deposited to the applicable Group Agent Account until otherwise notified by the applicable Group Agent in accordance with the terms hereof, no later than 11:00 a.m. (New York time) on the day when due in immediately available funds; provided that any such payment or deposit received by the applicable Group Agent after 11:00 a.m. (New York time) on any day shall be deemed to be received by the applicable Group Agent on the next Business Day.  The Borrower shall, to the extent permitted by law, pay to each Lender Party, on the first Payment Date that is at least ten (10) days after demand therefor, interest on all amounts not paid or deposited when due to such Lender Party hereunder at a rate equal to the Default Rate.

SECTION 2.06  Reserve Account.

(a)The Borrower shall cause to be established and maintained in the name of the Administrative Agent (or in the name of the Borrower for the benefit of the Administrative Agent) the Reserve Account.  The Reserve Account will be an Eligible Account established pursuant to a Control Agreement with respect to which the Administrative Agent shall, at all times, be an Entitlement Holder or purchaser with Control and will bear a designation to clearly indicate that the funds and Financial Assets deposited therein are held for the benefit of the Administrative Agent. If the Reserve Account ceases to be an Eligible Account, the Borrower shall within ten days of receipt of notice of such change in eligibility transfer such account to an account that meets the requirements of an Eligible Account and that is established pursuant to a substitute Control Agreement with respect to which the Administrative Agent shall be an Entitlement Holder or purchaser with Control and which bears a designation to indicate clearly that the funds and Financial Assets deposited therein are held for the benefit of the Administrative Agent.  The Borrower may, with the consent of the Administrative Agent and each Group Agent, establish a new Reserve Account subject to a new Control Agreement in replacement of the existing Reserve Account and related Control Agreement.

(b)The Servicer may invest the funds, if any, in the Reserve Account in Eligible Investments, held in the name of the Administrative Agent, which shall mature no later than the Payment Date following such investment.  Any income or other gain from such Eligible Investments in the Reserve Account shall be retained in the Reserve Account to the extent the amount on deposit in the Reserve Account is less than the Required Reserve Account Balance and the excess, if any, shall, subject to Section 2.04(b), be paid on each Payment Date to the Borrower.  Any losses on Eligible Investments shall be made up by the Servicer on each Payment Date.

(c)The Servicer shall determine the Required Reserve Account Balance for each Payment Date.  On each Payment Date, the Servicer shall deposit into the Reserve Account the amount, if any, required to be deposited therein for such Payment Date in accordance with Section 2.04(c).

(d)Upon the occurrence of a Servicer Default, TFL shall pay the Successor Servicer Engagement Fee by depositing such amount into the Reserve Account within three Business Days after receiving notice of such Servicer Default, for application in accordance with Section 2.07, and if TFL fails to make such payment within such time, TFL shall continue to be

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obligated to make such payment by deposit to the Warehouse SUBI Collection Account for application pursuant to Section 2.04(c).  

SECTION 2.07  Withdrawals from Reserve Account.  Moneys in the Reserve Account shall, on each Payment Date, be transferred to the Warehouse SUBI Collection Account as and to the extent required in Section 2.04(b).  Upon the appointment of the Back-Up Servicer as successor servicer pursuant to Section 4.2 of the Warehouse SUBI Servicing Agreement, the Successor Servicer Engagement Fee shall be withdrawn from the Reserve Account and distributed to the Back-Up Servicer, if TFL has complied with the obligation to deposit such amount into the Reserve Account in accordance with Section 2.06(d).  On each Payment Date, to the extent that the funds in the Reserve Account exceed the Required Reserve Account Balance, the Servicer may, subject to Section 2.04(b), cause the amount of such excess to be withdrawn from the Reserve Account and distributed to the Borrower; provided, however, that if the Successor Servicer Engagement Fee is deposited into the Reserve Account pursuant to Section 2.06(d) and until such fee amount is withdrawn therefrom, any such excess amount distributable to the Borrower shall be net of the Successor Servicer Engagement Fee. On the first Payment Date occurring on or after the Termination Date, all funds in the Reserve Account shall be withdrawn and transferred to the Warehouse SUBI Collection Account.  To the extent that any funds remain in the Reserve Account after the Secured Obligations have been reduced to zero after the Termination Date, such funds shall be withdrawn and distributed to, or as directed by, the Borrower.  Each Settlement Statement shall specify the amount, if any, which is scheduled to be withdrawn from the Reserve Account and distributed to the Borrower on the next succeeding Payment Date.

SECTION 2.08 Reports.  On or before the Determination Date in each month, the Servicer shall prepare and forward to the Administrative Agent a Settlement Statement, calculated as of the close of business of the Borrower on the last day of the related Settlement Period and including information for the next succeeding Payment Date. The Servicer shall include, without limitation, in the Settlement Statement whether any Portfolio Performance Condition shall have occurred or shall be continuing during the related Settlement Period, shall describe any such Portfolio Performance Condition, and shall evidence the calculations used to make such determination.

For the avoidance of doubt:

(i)each Settlement Statement shall include a calculation (in detail reasonably satisfactory to the Lender) of the average of the Delinquency Ratios and annualized average of the Credit Loss Ratios for the three (3) most recent Settlement Periods ended on the last day of the calendar month preceding the related Determination Date;

(ii)each Settlement Statement delivered on a Quarterly Report Date shall include a calculation of the Residual Value Performance Ratio with respect to the three consecutive Settlement Periods ended on the last day of the calendar month immediately preceding the most recent RVPR Calculation Date and, without limiting the generality of the foregoing, the Servicer shall, upon the Administrative Agent’s request delivered at least five (5) Business Days prior to a Quarterly Report Date,

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furnish to the Administrative Agent an updated calculation of the Residual Value Performance Ratio furnished to the Administrative Agent on the immediately preceding Quarterly Report Date, it being understood and agreed that any such updated calculation of the Residual Value Performance Ratio shall be solely for informational purposes; and

(iii)each Settlement Statement delivered on a Quarterly Report Date shall include a calculation in detail reasonably satisfactory to the Administrative Agent of the Mark to Market Adjustment (if any) for the Mark to Market Adjustment Date immediately preceding such Quarterly Report Date.

In addition, the Servicer shall deliver to the Administrative Agent (i) on each Quarterly Report Date, unaudited reports (substantially in the form of Exhibits I , J and K hereto, respectively) containing delinquency, loss and residual value data as of, and for the for the Servicer’s fiscal year to date ended on, the last day of the calendar quarter immediately preceding such Quarterly Report Date with respect to all leases owned by the Trust and serviced by TFL (regardless of whether such leases are allocated to the Warehouse SUBI) and (ii) on each Quarterly Report Date occurring in the months of February, May, August and November, a copy of a report produced by Automotive Lease Guide (in form and substance reasonably satisfactory to the Administrative Agent) setting forth the Mark-to-Market MRM Residual Value of each Leased Vehicle related to each Warehouse SUBI Lease, in each case, as of the Mark to Market Adjustment Date immediately preceding such Quarterly Report Date.  The Borrower shall, or shall cause the Servicer to, furnish to the Administrative Agent at any time and from time to time, such other or further information in respect of the Leases, the Borrower and the Servicer as the Administrative Agent or any Lender may reasonably request.

SECTION 2.09  Reallocation and Repurchase of Warehouse SUBI Assets.

(a)Upon (i) the occurrence of an event requiring the Servicer to purchase a Lease and the related Leased Vehicle pursuant to Section 2.2 of the Warehouse SUBI Servicing Agreement, or (ii) the occurrence of an event requiring TFL to reallocate a Lease and the related Leased Vehicle pursuant to Section 2.7 of the Warehouse SUBI Sale Agreement, the Borrower shall cause the Repurchase Amount paid by the Servicer or TFL, as applicable, to be deposited or shall deposit the Repurchase Amount paid by it, as applicable, into the Warehouse SUBI Collection Account.  Upon such payment, the applicable Lease and Leased Vehicle shall be conveyed to the Servicer or reallocated to the UTI in accordance with the terms of the Warehouse SUBI Servicing Agreement or the Warehouse SUBI Sale Agreement, as applicable.

(b)From time to time in its sole discretion, the Borrower may provide notice to the Administrative Agent and each Group Agent that it wishes to remove from the Collateral and reallocate to the UTI the Securitization Take-Out Collateral.  Any such removal and reallocation of Securitization Take-Out Collateral (each a “Securitization Take-Out”) shall be subject to the following additional terms and conditions.

(i)(A) The Borrower shall have given the Administrative Agent and each Group Agent at least five (5) Business Days’ prior written notice in the form of Exhibit F hereto of its desire to effect a Securitization Take-Out, and (B) the Servicer

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shall have delivered to the Administrative Agent and each Group Agent at least three (3) Business Days prior to the proposed Securitization Take-Out Date a certificate in the form of Exhibit G hereto (each a “Securitization Take-Out Certificate”);

(ii)Any such Securitization Take-Out shall be in connection with a reallocation of Warehouse SUBI Leases and the related Leased Vehicles to the UTI in connection with a securitization transaction or other type of financing or refinancing and shall relate to the removal of Leases with a minimum Securitization Value of $75 million;

(iii)The Borrower shall have sufficient funds on the related Securitization Take-Out Date to effect the contemplated Securitization Take-Out in accordance with this Agreement.  In effecting any such Securitization Take-Out, the Borrower may (A) give effect to Available Amounts on deposit in the Warehouse SUBI Collection Account at such time to the extent consistent with the requirements of clause (v) below (as evidenced by the related Securitization Take-Out Certificate), (B) based on the related Securitization Take-Out Certificate, give effect to the amounts on deposit in the Reserve Account, to the extent the amount on deposit therein exceeds the Required Reserve Account Balance (after giving effect to such Securitization Take-Out and to any Loan on the related Securitization Take-Out Date); provided that such excess may be used by the Borrower on the related Securitization Take-Out Date to pay a portion of the Securitization Take-Out Price and/or (C) use its own funds not in a Trust Account;

(iv)In connection with any such Securitization Take-Out that does not constitute a removal and reallocation of all of the Warehouse SUBI Assets, the Warehouse SUBI Assets constituting part of the Securitization Take-Out Collateral with respect to such Securitization Take-Out shall be selected in a manner not involving any adverse selection procedures (excluding, however, any Leases subject to a repurchase obligation);

(v)After giving effect to any Securitization Take-Out, on the related Securitization Take-Out Date, (A) if such Securitization Take-Out does not include all of the Warehouse SUBI Leases, no Default or Event of Default shall have occurred and be continuing and the Scheduled Expiration Date shall not have occurred, (B) each Interest Rate Hedge then in effect shall satisfy the requirements contained in the definition of Eligible Interest Rate Hedge Agreement and the aggregate notional principal amount of all such Eligible Interest Rate Hedge Agreements shall satisfy the requirements contained in the definition of “Required Aggregate Notional Principal Amount,”such that the aggregate notional amount of all Interest Rate Hedges thereafter in effect shall be equal to the Loan Balance, and the Borrower shall have terminated any Interest Rate Hedges (terminating interest rate swap transactions in descending order from the interest rate swap transaction with the highest fixed rate to the Interest Rate Hedge with the next highest fixed rate and so on) and shall have paid all Interest Rate Hedge Termination Payments due and owing in connection with the termination thereof, provided that in no event shall any interest rate cap be required to be terminated, (C) the Loan Balance shall not exceed the Maximum Loan Balance

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(determined on the basis of the remaining Warehouse SUBI Leases not included in the Securitization Take-Out Collateral that constitute Eligible Leases on the Securitization Take-Out Date, determining whether such Warehouse SUBI Leases are Eligible Leases as if they were then being first allocated to the Warehouse SUBI), and (D) sufficient funds will be available in the Warehouse SUBI Collection Account on the next Payment Date for payments in accordance with and to the extent required by clauses first through ninth of Section 2.04(c);

(vi)On the related Securitization Take-Out Date, the Administrative Agent shall have received, in immediately available funds, an amount equal to the Securitization Take-Out Price;

(vii)No later than three (3) Business Days prior to any Securitization Take-Out Date, the Borrower shall have delivered to the Administrative Agent and each Group Agent a list of Leases (which list may be in an electronic format) subject to such Securitization Take-Out; and

(viii)The Borrower shall have paid (or shall pay promptly following receipt of an invoice therefor) the reasonable legal fees and expenses (including fees and expenses of counsel) of the Lender Parties in connection with such Securitization Take-Out.

SECTION 2.10  Procedures for Extension of Scheduled Expiration Date.   So long as no Default or Event of Default shall have occurred and be continuing, no more than ninety (90) and no less than sixty (60) days prior to the then current Scheduled Expiration Date, the Borrower may request that each Lender consent to the extension of the Scheduled Expiration Date for up to a 364-day period as provided in this Section 2.10, which decision shall be made by each Lender in its sole discretion.  Each Lender shall use reasonable efforts to notify the Borrower of its willingness or its determination not to consent to such extension of the Scheduled Expiration Date as soon as practical after receiving such notice, and in any event by the thirtieth (30th) day preceding the then current Scheduled Expiration Date (the “Response Date”), it being understood that any Lender that fails to provide such notice shall be deemed not to consent to such extension.  If (i) a Lender has agreed by the Response Date to the extension of the Scheduled Expiration Date, (ii) as of the Response Date, no Default or Event of Default shall have occurred and be continuing, and (iii) all Loans and accrued interest thereon and other Secured Obligations owing to non-extending Lenders shall have been paid by the Borrower in full on the current Scheduled Expiration Date, then, in such event, the Scheduled Expiration Date shall be extended to the date which is such requested number of days (but in no event more than 364 days) following the Response Date or, if such day is not a Business Day, the next preceding Business Day and, to the extent any Committed Lenders did not consent to such extension, the Facility Limit shall be reduced by the amount of such Committed Lenders’ Commitments (except to the extent concurrently replaced by increases in the Commitments of consenting Lenders or new Lenders).

SECTION 2.11  Reduction of the Facility Limit.  The Borrower may, upon at least five (5) Business Days’ written notice to the Administrative Agent and each Group Agent reduce, in part, the Facility Limit to (but not below) the Loan Balance; provided, however, that

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each such partial reduction shall be in a minimum amount equal to $10,000,000 or an integral multiple thereof.

SECTION 2.12  Optional Prepayment.  The Borrower may prepay the Loans, ratably as among the Lenders in accordance with the respective outstanding principal amount of their respective Loans, on any day, in whole or in part, on three Business Days’ prior notice to the Administrative Agent and each Group Agent, provided that (i) the principal amount prepaid is at least $500,000 (unless otherwise agreed to in writing by the Administrative Agent and each Group Agent), and (ii) the Borrower pays, on the date of prepayment (a) accrued unpaid Interest on the amount so prepaid, and (b) except with respect to a prepayment made on a Payment Date, any Breakage Fee incurred by the Lender Parties as a result of such prepayment as reasonably determined by such Lender.  Reference is made to Sections 2.09 and 3.03 for the procedure for the release, if applicable, of Leases and Leased Vehicles from the Warehouse SUBI in connection with any such prepayment.  The Borrower may rescind any notice delivered pursuant to this Section at any time up to 3:00 p.m. on the Business Day immediately prior to the date specified in Borrower’s notice for such prepayment, or extend the date specified in such notice for such prepayment for a period of up to three additional Business Days.

SECTION 2.13  Intended Tax Treatment.  Notwithstanding anything to the contrary herein or in any other Transaction Document, all parties to this Agreement covenant and agree to treat the Loans hereunder as debt for all federal, state, local and franchise tax purposes and agree not to take any position on any tax return inconsistent with the foregoing.

ARTICLE III

COLLATERAL AND SECURITY INTEREST

SECTION 3.01  Grant of Security Interest; Collateral.

(a)In order to secure the Loans, the Interest Rate Hedges, all other Secured Obligations and compliance with this Agreement, the Borrower hereby pledges and grants to the Administrative Agent for the benefit of the Secured Parties a valid continuing security interest in all of the Borrower’s right, title and interest, whether now owned or hereafter acquired or arising and wherever located, in and to all of the following (collectively, the “Collateral”):

(i)all accounts, general intangibles, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods (together with all embedded software, accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor), letters of credit, letter-of-credit rights, commercial tort claims, uncertificated securities, securities accounts, security entitlements, Financial Assets, other investment property and supporting obligations, including (A) the Warehouse SUBI Certificate and the interests in the Warehouse SUBI Assets represented thereby, (B) all Collections, including all cash collections and other cash proceeds of the Warehouse SUBI Certificate and the Warehouse SUBI Assets represented thereby, with respect to, and other proceeds of, such Warehouse SUBI Certificate, (C) the Warehouse SUBI Collection Account and the Reserve Account, (D) the Warehouse SUBI Sale Agreement, (E) each Interest Rate Hedge and all rights

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to payments thereunder and (F) all the Borrower’s rights and claims under the Warehouse SUBI Servicing Agreement, the Warehouse SUBI Sale Agreement and all other Transaction Documents; and

(ii)all cash and non-cash Proceeds and other proceeds of all of the foregoing; and

(iii)all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to any of the foregoing, all claims and/or insurance proceeds arising out of the loss, nonconformity or any interference with the use of, or any defect or infringement of rights in, or damage to, any of the foregoing, and all proceeds, products, offspring, rents, issues, profits and returns of and from, and all distributions on and rights arising out of, any of the foregoing.

The possession by the Administrative Agent of notes and such other goods, letters of credit, money, documents, chattel paper or certificated securities shall be deemed to be “possession by the secured party,” for purposes of perfecting the security interest pursuant to the Relevant UCC (including Section 9-313(c)(1) (or other section of similar content as Section 9-313(c)(1) of the UCC) thereof).  Without limiting the generality of the foregoing, for purposes of Section 9-313 (or other section of similar content) of the Relevant UCC, the Administrative Agent hereby notifies the Servicer of the Administrative Agent’s security interest in the Collateral.  The Servicer acknowledges such notification, agrees to act as the bailee of the Administrative Agent with respect to the Collateral in its possession from time to time and acknowledges that possession of Collateral by the Servicer is deemed to be possession by the Administrative Agent.

(b)The security interest granted in the Collateral pursuant to this Agreement  does not constitute and is not intended to result in an assumption by the Administrative Agent of any obligation (except for the obligation not to disturb a Lessee’s right of quiet enjoyment) of the Trust, the Borrower or the Servicer to any Lessee or other Person in connection with the Warehouse SUBI Certificate, the Warehouse SUBI Assets or the other Collateral.

Without limiting the generality of the foregoing, an executed original of the Warehouse SUBI Certificate and each other document that constitutes a part of the Warehouse SUBI has been delivered to the Administrative Agent on the Closing Date and shall be held by the Administrative Agent.

Each of the Borrower and the Administrative Agent represents and warrants with respect to itself that each remittance of Collections by the Borrower to the Administrative Agent hereunder will have been (i) in payment of a debt incurred by the Borrower in the ordinary course of business or financial affairs of the Borrower and (ii) made in the ordinary course of business or financial affairs of the Borrower and the Administrative Agent.

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SECTION 3.02  Protection of the Administrative Agent’s Security Interest.

(a)The Borrower agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all action that the Administrative Agent may reasonably request in order to perfect or protect the Administrative Agent’s security interest in the Collateral or to enable the Administrative Agent, to exercise or enforce any of its rights hereunder.  Without limiting the foregoing, the Borrower authorizes the filing of such financing or continuation statements or amendments thereto or assignments thereof as may be required by the Administrative Agent and, without limiting any other provision of this Agreement, (i) agrees to deliver to the Administrative Agent the Warehouse SUBI Certificate together with an assignment in blank signed by the Borrower, and (ii) agrees to mark its master data processing records with a notation describing the Administrative Agent’s security interest in the Collateral.  Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement.  The Borrower will, promptly upon acquiring any commercial tort claim with a value exceeding $100,000, notify the Administrative Agent of the details thereof and promptly grant to the Administrative Agent a security interest therein and in the proceeds thereof to secure the Secured Obligations pursuant to documentation in form and substance satisfactory to the Administrative Agent.

(b)Without limiting the preceding clause (a), the Servicer and the Borrower, as applicable, agree to take all actions reasonably necessary, including the filing of appropriate financing statements and the giving of proper registration instructions relating to any investments, to protect the Administrative Agent’s interest in the Warehouse SUBI Collection Account, the Reserve Account and any Eligible Investments acquired with moneys therein (and any investment earnings thereon) and to enable the Administrative Agent to exercise and enforce its rights under the Control Agreement relating to the Warehouse SUBI Collection Account and the Reserve Account.  Any such financing statement or amendment may describe the Collateral in the same manner as described in this Agreement or any other agreement entered into by the parties in connection herewith, or may contain an indication or description of collateral that describes such property in any other manner as the Administrative Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral, including describing such property as “all assets of the debtor whether now owned or hereafter acquired or arising and wheresoever located, including all accessions thereto and all products and proceeds thereof” or words of similar import.

SECTION 3.03  Termination of Security Interest and Release of Collateral under Certain Circumstances.

(a)The Administrative Agent’s security interest in monies, if any, from time to time paid to the Borrower in accordance with clause tenth of Section 2.04(c) or 2.07 shall be released at the time of such payment.

(b)Upon the repayment in full of the Loan Balance, reduction of the Facility Limit to zero, the novation of or the termination and payment in full of all obligations of the Borrower under all Interest Rate Hedges, the satisfaction in full of all other Secured Obligations in accordance with this Agreement and the termination of this Agreement, the Administrative Agent’s security interest in the Collateral shall terminate.

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(c)Upon the termination of the Administrative Agent’s security interest in all or any portion of the Collateral as provided in this Section 3.03, the Administrative Agent will, at the request and expense of the Borrower, (i) execute and deliver to the Borrower such instruments of release with respect to such Collateral, in recordable form if necessary, in favor of the Borrower, as the Borrower may reasonably request, (ii) deliver any such Collateral in its possession to the Borrower, and (iii) take such other actions as the Borrower may reasonably request (all without recourse to, and without representation or warranty by, the Administrative Agent, other than a representation to the effect that no Adverse Claim in the Collateral has been created by such Person) to evidence the termination of the Administrative Agent’s security interest in the Collateral or the portion thereof in which the Administrative Agent’s security interest has been released.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

SECTION 4.01  Representations and Warranties of Borrower.  The Borrower represents and warrants to the Administrative Agent, the Group Agents and the Lenders on and as of the Closing Date, the Initial Loan Date, each subsequent Loan Increase Date and each Warehouse SUBI Lease Allocation Date that:

(a)Organization and Power.  The Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.  The Borrower has all requisite power and all governmental licenses, authorizations, consents and approvals required to carry on its business, including its business relating to the Borrower’s purchasing and selling of receivables relating to sales of automobiles in each jurisdiction in which its business is now conducted except where the failure to have any of the foregoing does not, and is not reasonably expected to, have a Material Adverse Effect.

(b)Due Qualification.  The Borrower is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business shall require such qualifications except where the failure to do so does not, and is not reasonably expected to, have a Material Adverse Effect.

(c)Authorization and Non-Contravention.  The execution, delivery and performance by the Borrower of this Agreement and the other Transaction Documents to which it is a party are within the Borrower’s limited liability company powers, have been duly authorized by all necessary limited liability company action, require no action by or in respect of, or filing with, any Official Body or official (except as contemplated by Section 3.02), and do not contravene or violate, or constitute a default under, (i) any provision of applicable law, (ii) any order, rule or regulation applicable to the Borrower, (iii) the Certificate of Formation or the Operating Agreement of the Borrower, as the case may be, (iv) any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or (v) result in the creation or imposition of any lien on assets of the Borrower (except as contemplated by Section 3.02); except, in the case of clauses (i), (ii), (iv) or (v), where such contravention, violation, default or lien does not and is not reasonably expected to have a Material Adverse Effect.

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(d)Binding Effect.  This Agreement and the other Transaction Documents to which the Borrower is a party constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally.

(e)Accuracy of Information.  As of the Initial Loan Date, the list of Warehouse SUBI Leases delivered to the Administrative Agent, any Group Agent or any Lender on or prior to the Initial Loan Date, the list of Warehouse SUBI Leases delivered to the Administrative Agent, any Group Agent or any Lender as of each applicable Warehouse SUBI Lease Allocation Date thereafter, and all other information heretofore furnished in writing by the Borrower to the Administrative Agent, any Group Agent or any Lender for purposes of or in connection with this Agreement or any other Transaction Document or any transaction contemplated hereby or thereby is, and all such information hereafter furnished in writing by the Borrower to the Administrative Agent, any Group Agent or any Lender, taken as a whole, contained or will contain as of the date so furnished, no untrue statement of a material fact or omitted or will omit to state a material fact necessary to make the statements contained herein or therein materially misleading in light of the circumstances in which such statements were made; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time and information available to it at such time, it being understood that the Borrower is under no obligation to update such projections or underlying information.

(f)Actions, Suits.  Except as set forth in Schedule 1, there are no actions, suits or proceedings pending, or to the knowledge of the Borrower or TFL threatened, against or affecting the Borrower or its properties, in or before any court, arbitrator or other body, which (i) are individually or collectively reasonably expected to have a Material Adverse Effect, or (ii) assert the invalidity of this Agreement or any other Transaction Document to which the Borrower is a party or seek to prevent the consummation of the transactions contemplated hereby or thereby.

(g)Place of Business.  The chief place of business and chief executive office of the Borrower are located in Palo Alto, California, and the offices where the Borrower keeps its records regarding the Collateral and the Electronic Lease Vault are located in the United States in jurisdictions where all action required by Section 6.02(a) has been taken and completed during the time periods required therein.  Within the last five years, the Borrower has not changed its type of entity or jurisdiction of organization and has not merged or consolidated with any other Person or been the subject of any bankruptcy proceeding.

(h)Names.  Except as described in Schedule 2, the Borrower has not used any limited liability company names, trade names or assumed names other than its name set forth on the signature pages of this Agreement.

(i)Use of Proceeds.  No proceeds of the Loans will be used for a purpose which violates, or would be inconsistent with regulation T, U or X promulgated by the Board of Governors of the Federal Reserve System.

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(j)Credit and Collection Policy.  The Borrower has complied in all material respects with the Credit and Collection Policy in regard to each Warehouse SUBI Lease.  The Borrower has not extended or modified in any material respect the terms of any Warehouse SUBI Lease except in all material respects in accordance with the Credit and Collection Policy.

(k)Absence of Certain Events.  No Default, Event of Default, Potential Servicer Default or Servicer Default has occurred and is continuing on the applicable Loan Increase Date.

(l)Permitted Lockboxes and Permitted Accounts.  The Borrower has instructed Lessees to make all payments on the related Leases or on behalf of Lessees directly to a Permitted Lockbox or a Permitted Account.  Each Permitted Lockbox is located in the United States and each Permitted Account is maintained in the United States by a bank.

(m)Investment Company; Volcker Rule.  Neither the Borrower nor the Trust is an “investment company” or a company “controlled by an investment company” within the meaning of the Investment Company Act of 1940, and neither relies on Section 3(c)(1) or Section 3(c)(7) thereof to reach such determination.  The Borrower is not a “covered fund” within the meaning of the final regulations issued December 20, 2013, implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

(n)Financial Condition.  The Borrower is Solvent and is not the subject of an Event of Bankruptcy and the pledge of the Warehouse SUBI Certificate is not being made in contemplation of the occurrence thereof.

(o)Good Title; Perfection.  Immediately prior to the pledge hereunder, the Borrower shall be the legal and beneficial owner of the Warehouse SUBI Certificate and the beneficial owner of the Warehouse SUBI Assets with respect thereto, free and clear of any Adverse Claim.  This Agreement is effective to create, and shall transfer to the Administrative Agent a valid security interest in the Warehouse SUBI Certificate and the Borrower’s beneficial interest in the Warehouse SUBI Assets and Collections (to the extent provided by Section 9-315 of the UCC (or other section of similar content of the Relevant UCC) with respect thereto and in the other Collateral free and clear of any Adverse Claim (except as created by this Agreement), which security interest is perfected (except as to the Warehouse SUBI Leased Vehicles themselves) and of first priority.  On or prior to the Closing Date (and, with respect to Additional Warehouse SUBI Assets, on the applicable Warehouse SUBI Lease Allocation Date, including a Warehouse SUBI Lease Allocation Date which is a Loan Increase Date), all financing statements and other documents required to be recorded or filed in order to perfect and protect the Administrative Agent’s security interest in and to the Collateral against all creditors of and transferees from the Borrower will have been duly filed in each filing office necessary for such purpose (other than any notation of the security interest of the Administrative Agent on any Certificates of Title for Warehouse SUBI Leased Vehicles) and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full.  No effective financing statement or other instrument similar in effect covering any Collateral with respect thereto is on file in any recording office, except those filed pursuant to this Agreement.

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(p)Electronic Chattel Paper and Electronic Lease Vault.  Each such Lease is Electronic Chattel Paper and is not Tangible Chattel Paper, and there exists a single, authoritative copy of the record or records comprising such Electronic Chattel Paper, which copy is unique and identifiable (all within the meaning of Section 9-105 of the UCC (or other section of similar content of the Relevant UCC)), that has been communicated to and maintained in the Electronic Lease Vault.  The description of the Electronic Lease Vault attached hereto as Schedule 3 is complete and accurate.

(q)Insurance Policies.  The Borrower, in accordance with its normal and customary procedures, shall have determined that the related Lessee has obtained or agreed to obtain physical damage insurance covering each Warehouse SUBI Leased Vehicle, and such Lessee is required under the terms of its related Warehouse SUBI Lease to maintain such insurance.

(r)Anti-Corruption Laws and Sanctions.  The Borrower or Tesla Motors, Inc. has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower and its directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Borrower and its Affiliates, officers and employees and to the knowledge of the Borrower, its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects.  None of (a) the Borrower or its Affiliates, directors, officers or employees, or (b) to the knowledge of the Borrower, any agent of the Borrower that will act in any capacity in connection with or benefit from the facility established hereby, is a Sanctioned Person.   No Loans, use of proceeds or other transaction contemplated by this Agreement will violate Anti-Corruption Laws or applicable Sanctions.

(s)No ERISA Liability.  Neither the Borrower, TFL nor any ERISA Affiliate of either maintains or has any obligation to contribute to any Plan or Multiemployer Plan.

(t)Not a Designated Person.  Neither the Borrower nor TFL nor any of their respective directors, officers, brokers or other agents acting or benefiting in any capacity in connection with this Agreement or the other Transaction Documents, or any of their respective parents or subsidiaries, is a Designated Person.

(u)Ownership.  TFL  owns, directly or indirectly, 100% of the equity interests of the Borrower free and clear of all Liens.  Such equity interests of the Borrower are validly issued and fully paid, and there are no options, warrants or other rights to acquire equity securities of the Borrower.

(v)Compliance with Law.  The Borrower has complied with all applicable Requirements of Laws to which it may be subject, except for where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.

If any breach of the statements and representations made in this Section 4.01 materially and adversely affects the interests of any Lender Party or of any Lender Party in any Warehouse SUBI Lease or Warehouse SUBI Leased Vehicle, then, if the Borrower is unable to remedy such breach by the Payment Date next succeeding the earlier of the date on which the Borrower knows of such breach and the Borrower receives notice of such breach, the Borrower shall

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enforce its rights to cause TFL to cause such Leases and related Leased Vehicles to be reallocated to the UTI pursuant to Section 2.7 of the Warehouse SUBI Sale Agreement and to remit to the Warehouse SUBI Collection Account on the Deposit Date next succeeding such knowledge or notice an amount equal to the aggregate of the Repurchase Amounts with respect to all such Leases at the time of such removal in accordance with the Warehouse SUBI Sale Agreement, and all such Leases and Leased Vehicles removed from the Collateral shall no longer constitute Warehouse SUBI Assets and Collateral hereunder.

If any breach of the statements and representations made in this Section 4.01, together with all prior such breaches, affect Warehouse SUBI Leases and the repurchases required by the preceding paragraph have occurred, then, except for the indemnification rights of the Indemnified Parties under this Agreement, following the reallocation by the Borrower required under the preceding paragraph, the Lender Parties shall have no further remedy against the Borrower with respect to such removed Leases and Leased Vehicles and such breaches shall not constitute an Event of Default.

SECTION 4.02  Representations and Warranties of the Servicer.  TFL, as initial Servicer,  and (except as to clauses (k) through (p) below) the Back-Up Servicer, by its entering into the Warehouse SUBI Servicing Agreement, and (except as to clauses (o) and (p) below and except, prior to the completion of the servicing transition period, clauses (k) through (n) below) any successor Servicer by its appointment hereunder, represents and warrants to the Administrative Agent, the Group Agents and the Lenders on and as of the Closing Date, the Initial Loan Date, each Loan Increase Date thereafter and each Warehouse SUBI Lease Allocation Date, in the case of TFL and the Back-Up Servicer, and in the case of any successor Servicer, on and as of the date of its appointment, each Loan Increase Date thereafter and each Warehouse SUBI Lease Allocation Date thereafter, that:

(a)Corporate Existence and Power.  The Servicer is a limited liability company (or other business entity) duly organized, validly existing and (if applicable) good standing under the laws of the state of its organization (or formation).  The Servicer has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted except where the failure to have any of the foregoing does not, and is not reasonably expected to, have a Material Adverse Effect.

(b)Due Qualification.  The Servicer is duly qualified to do business as a foreign limited liability company (or other business entity) in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business shall require such qualifications except where the failure to do so does not, and is not reasonably expected to, have a Material Adverse Effect.

(c)Corporate and Governmental Authorization; Non-Contravention.  The execution, delivery and performance by the Servicer of this Agreement and the other Transaction Documents to which it is a party are within the Servicer’s company powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any Official Body or official (except as contemplated by Section 2.5 of the Warehouse SUBI Sale Agreement), and do not contravene or violate, or constitute a default under, (i) any

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provision of applicable law, (ii) any order, rule or regulation applicable to the Servicer, (iii) the certificate of formation, operating agreement or any other organic or governing document of the Servicer, as the case may be, (iv) any agreement, judgment, injunction, order, decree or other instrument binding upon the Servicer or (v) result in the creation or imposition of any lien on assets of the Servicer or any of its Subsidiaries (except as contemplated by Section 2.5 of the Warehouse SUBI Sale Agreement and Section 3.01), except, in the case of clauses (i), (ii), (iv) or (v), where such contravention, violation, default or lien does not and is not reasonably expected to have a Material Adverse Effect.

(d)Binding Effect.  This Agreement and the other Transaction Documents to which the Servicer is a party constitute the legal, valid and binding obligations of the Servicer, enforceable against the Servicer in accordance with their respective terms, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally.

(e)Accuracy of Information.  All information heretofore furnished in writing by the Servicer to the Administrative Agent, any Group Agent or any Lender for purposes of or in connection with this Agreement or any other Transaction Document or any transaction contemplated hereby or thereby is, and all such information hereafter furnished in writing by the Servicer to the Administrative Agent, any Group Agent or any Lender, taken as a whole, contained or will contain as of the date so furnished, no untrue statement of a material fact or omitted or will omit to state a material fact necessary to make the statements contained herein or therein materially misleading in light of the circumstances in which such statements were made; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time and information available to it at such time, it being understood that the Borrower is under no obligation to update such projections or underlying information.

(f)Actions, Suits.  Except as set forth in Schedule 1, there are no actions, suits or proceedings pending, or to the knowledge of the Servicer threatened, against or affecting the Servicer or its Subsidiaries or their respective properties, in or before any court, arbitrator or other body, which (i) are reasonably likely to have a Material Adverse Effect or (ii) assert the invalidity of this Agreement or any other Transaction Document to which the Servicer is a party or seek to prevent the consummation of the transactions contemplated hereby or thereby.

(g)Credit and Collection Policy.  The Servicer has complied in all material respects with the Credit and Collection Policy in regard to each Warehouse SUBI Lease.  The Servicer has not extended or modified in any material respect the terms of any Warehouse SUBI Lease except in accordance with the Credit and Collection Policy.

(h)No Servicer Default.  No Servicer Default has occurred and is continuing on the applicable Loan Increase Date.

(i)No ERISA Liability.  If TFL is the Servicer, neither the Servicer  nor any ERISA Affiliate of the Servicer maintains or has any obligation to contribute to any Plan or Multiemployer Plan.

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(j)Permitted Accounts.  The Servicer has not entered into any agreement with any Person which grants to such Person an interest in, or rights to, any Permitted Lockbox or Permitted Account, it being understood that certain collections from time to time received in a Permitted Lockbox or Permitted Account may relate to Leases that are not Warehouse SUBI Leases and to which the Secured Parties may not have an interest.

(k)Lease File Complete.  The Servicer holds a file pertaining to each Warehouse SUBI Lease and such file contains, without limitation, each of the material items described in the definition of “Lease Documents” and, with respect to each document contained therein, each form has been correctly prepared.

(l)Insurance Policies.  The Servicer, in accordance with its normal and customary procedures, shall have determined that the related Lessee has obtained or agreed to obtain physical damage insurance covering each Warehouse SUBI Leased Vehicle, and such Lessee is required under the terms of its related Lease to maintain such insurance.

(m)Eligible Leases.  Each Lease allocated to the Warehouse SUBI on the applicable Warehouse SUBI Lease Allocation Date is an Eligible Lease as of the related Cut-Off Date.  

(n)Electronic Chattel Paper.  Each Lease is Electronic Chattel Paper and is not Tangible Chattel Paper and there exists a single, authoritative copy of the record or records comprising such Electronic Chattel Paper, which copy is unique and identifiable (all within the meaning of Section 9-105 (or other section of similar content) of the Relevant UCC), that has been communicated to and maintained in the Electronic Lease Vault.  Each Lease allocated to the Warehouse SUBI was originated by or for the Trust without the involvement of any motor vehicle dealer that is not an Affiliate of a Tesla Party.

(o)Taxes; Tax Status.

All Tesla Parties have (i) timely filed all material tax returns they are required to file and (ii) paid, or caused to be paid, all material taxes, assessments and other governmental charges, which are shown to be due and payable on such returns, other than taxes, assessments and other governmental charges being contested in good faith. Adequate provisions in accordance with GAAP for taxes on the books of the applicable Tesla Party have been made for all open years and for the current fiscal period.

TFL owns 100% of the membership interests in the Borrower and the Borrower has not elected to be treated as a corporation under U.S. Treasury Regulation § 301.7701-3 for U.S. federal income tax purposes.

None of the Borrower, the Warehouse SUBI or the Trust (or any portion thereof) is or will at any relevant time become an association (or a publicly traded partnership) taxable as a corporation for U.S. federal income tax purposes.

(p)Anti-Corruption Laws and Sanctions.  TFL has implemented and maintains in effect policies and procedures designed to ensure compliance by TFL and its directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions,

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and TFL and its Affiliates, officers and employees and to the knowledge of TFL, its directors and agents, are in compliance withAnti-Corruption Laws and applicable Sanctions in all material respects.  None of (a) TFL or its Affiliates, directors, officers or employees, or (b) to the knowledge of TFL, any agent of TFL that will act in any capacity in connection with or benefit from the facility established hereby, is a Sanctioned Person.No Loans, use of proceeds or other transaction contemplated by this Agreement will violate Anti-Corruption Laws or applicable Sanctions.

(q)Compliance with Law.  TFL has complied with all applicable Requirements of Laws to which it may be subject, except for where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.

If any breach of the statements and representations made in this Section 4.02 materially and adversely affects the interests of any Lender Party or in any Warehouse SUBI Leases or Warehouse SUBI Leased Vehicles, then, if the Servicer is unable to remedy such breach by the Payment Date next succeeding the earlier of the date on which the Servicer knows of such breach and the Servicer receives notice of such breach, the initial Servicer shall purchase such Leases and Leased Vehicles from the Warehouse SUBI and remit to the Warehouse SUBI Collection Account on the Deposit Date next succeeding such knowledge or notice an amount equal to the aggregate of the Repurchase Amounts with respect to all such Leases and Leased Vehicles at the time of such purchase in accordance with Section 2.2(d) of the Warehouse SUBI Servicing Agreement, and all such Leases and Leased Vehicles purchased from the Warehouse SUBI shall no longer constitute Warehouse SUBI Assets or Collateral.  

If any breach of the statements and representations made in this Section 4.02, together with all prior such breaches, affect Leases and the repurchases required by the preceding paragraph have occurred, then, except for the indemnification rights of the Indemnified Parties under this Agreement, following such purchase by the initial Servicer required under the preceding paragraph, the Lender Parties shall have no further remedy against the Servicer with respect to such removed Leases and Leased Vehicles and such breaches shall not constitute an Event of Default.

ARTICLE V

CONDITIONS PRECEDENT

SECTION 5.01  Conditions to Closing.  On or prior to the Closing Date, the Borrower shall deliver (or cause to be delivered) to the Administrative Agent and each Group Agent the following documents and instruments, all of which shall be in form and substance acceptable to the Administrative Agent and each Group Agent:

(a)A certificate of an authorized signatory of each of the Borrower, TFL and the Trust, certifying (i) the names and signatures of the officers or other persons authorized on its behalf to execute each of this Agreement and the other Transaction Documents to be delivered by it hereunder (on which Certificate the Lender Parties may conclusively rely until such time as the Administrative Agent and each Group Agent shall receive from such Person a revised Certificate meeting the requirements of this clause (a)(i)), (ii) a copy of such Person’s certificate

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of incorporation, certificate of formation, certificate of trust or charter, as the case may be, as amended or restated, certified as of the date reasonably near the Closing Date by the Secretary of State of the State of such Person’s jurisdiction of formation or incorporation, as the case may be, (iii) a copy of such Person’s Operating Agreement, By-laws or declaration of trust, as and if applicable, as amended, (iv) a copy of resolutions of the managers, the Board of Directors (or any executive committee designated by the Board of Directors) or other governing body of such Person approving the transactions contemplated hereby, (v) a certificate as of a date reasonably near the Closing Date of the Secretary of State of such Person’s jurisdiction of incorporation or formation, as the case may be, certifying such Person’s good standing under the laws of such jurisdiction, (vi) certificates of qualification as a foreign corporation, trust or limited liability company, as the case may be, issued by the Secretaries of State or other similar officials of each jurisdiction where such qualification is material to the transactions contemplated by this Agreement and the other Transaction Documents and (vii) either certificates of the appropriate state official in each jurisdiction specified by the Administrative Agent or search reports by parties acceptable to the Administrative Agent as to the absence of any tax liens against such Person under the laws of Delaware (except in the case of TFL) and California, each such certificate or report to be dated a date reasonably near the Closing Date;

(b)An officer’s certificate for each of the Borrower and Servicer dated the Closing Date, to the effect that (i) the representations and warranties of the Borrower and the Servicer, as the case may be, in Article IV are true and correct in all material respects as of the Closing Date, (ii) the Borrower and the Servicer, as the case may be, are in compliance in all material respects with the covenants and agreements contained herein, the Warehouse SUBI Servicing Agreement and in the Warehouse SUBI Sale Agreement, (iii) no Default, Event of Default or Servicer Default exists on the Closing Date and (iv) except for financing statements filed pursuant to this Agreement or the Warehouse SUBI Sale Agreement, no financing statements have been filed or recorded against the Borrower or TFL, as applicable, relating to the Collateral;

(c)Proper financing statements (Form UCC-1) naming the Borrower, as debtor, and the Administrative Agent, as secured party, or other similar instruments or documents, as may be necessary or in the opinion of the Administrative Agent desirable under the Relevant UCC or any comparable law to perfect the security interest of the Administrative Agent in all Collateral;

(d)Proper financing statements (Form UCC-1), naming TFL as the transferor (debtor) of the Warehouse SUBI and the Warehouse SUBI Certificate, the Borrower as transferee (assignor secured party) and the Administrative Agent as assignee, or other similar instruments or documents, as may be necessary or in the opinion of the Administrative Agent and each Group Agent desirable under the Relevant UCC or other comparable law to perfect the Administrative Agent’s interest in the Warehouse SUBI and the Warehouse SUBI Certificate;

(e)[Reserved]

(f)Proper financing statements (Form UCC-3), if any, necessary to release all security interests and other rights of any Person in the Collateral previously granted by the Borrower or TFL;

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(g)Certified copies of request for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Administrative Agent and each Group Agent) dated a date reasonably near the Closing Date listing all effective financing statements which name the Borrower or TFL (under its present name or any previous name) as transferor or debtor and which are filed in jurisdictions in which the filings are to be made pursuant to item (c) or (d) above, together with copies of such financing statements (none of which shall cover any Collateral);

(h)Favorable opinions of Winston & Strawn LLP, special counsel for the Borrower and TFL, addressed to the Borrower, TFL, the Administrative Agent, the Group Agents and the Lenders as to true sale, non-consolidation, no conflicts, enforceability, and creation, perfection and priority of security interests, in forms reasonably acceptable to the Administrative Agent and each Group Agent;

(i)A favorable opinion of Todd Maron, General Counsel for Tesla Motors, Inc., addressed to the Borrower, TFL, the Administrative Agent, the Group Agents and the Lenders, as to such matters as the Administrative Agent and each Group Agent may reasonably request;

(j)A favorable opinion of Richards, Layton & Finger, P.A., Delaware counsel for the Borrower, TFL and the Trust, addressed to the Borrower, TFL, the Administrative Agent, the Group Agents and the Lenders as to such matters as the Administrative Agent and each Group Agent may reasonably request;

(k)Representative forms of Leases;

(l)Fully executed copies of the Warehouse SUBI Sale Agreement and the other Transaction Documents;

(m)A favorable opinion of Richards, Layton & Finger, P.A., counsel to U.S. Bank Trust, as Trustee, addressed to the Administrative Agent, the Group Agents and the Lenders, as to such matters as the Administrative Agent and each Group Agent may reasonably request;

(n)[Reserved];

(o)An Officer’s certificate of U.S. Bank Trust, certifying as to (i) the names and signatures of the officers authorized on its behalf to execute each of the Transaction Documents to be delivered by it hereunder (on which certificate the Lender Parties may conclusively rely until such time as the Administrative Agent and each Group Agent shall receive from such Person a revised certificate meeting the requirements of this clause (n)(i)), (ii) a copy of its By-laws,  as amended, and (iii) a certificate as of a date reasonably near the Closing Date of the office of the Comptroller of the Currency, certifying its good standing under the laws of such jurisdiction;

(p)An executed Fee Letter as in effect on the Closing Date, together with receipt of the fees and expenses referred to therein;

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(q)Evidence of the establishment of the Warehouse SUBI Collection Account and the Reserve Account;

(r)An executed Control Agreement with respect to the Warehouse SUBI Collection Account and the Reserve Account;

(s)The original Warehouse SUBI Certificate, together with an assignment thereof to the Administrative Agent;

(t)A favorable opinion of Richards, Layton & Finger, P.A., special counsel to the Borrower, addressed to the Administrative Agent, the Group Agents and the Lenders, as to perfection and priority of security interest under Delaware law;

(u)A favorable opinion of Winston & Strawn LLP, counsel to the Borrower, addressed to the Administrative Agent, the Group Agents and the Lenders as to perfection and priority of security interests in the Warehouse SUBI Collection Account and the Reserve Account under applicable law;

(v)A schedule of Warehouse SUBI Leases as of the Cut-Off Date (which schedule may be in electronic form);

(w)Evidence of the payment in full of all fees payable on the Closing Date of all fees payable to the Lender Parties on the Closing Date pursuant to the Fee Letter and all fees and expenses of the Lender Parties (including legal fees and expenses) incurred in the negotiation, documentation and closing of this Agreement and the other Transaction Documents;

(x)[Reserved]; and

(y)Evidence of the establishment of the Electronic Lease Vault.

SECTION 5.02  Conditions to Loan Increases.  Each Lender’s obligation to fund its initial Loan on the Initial Loan Date and each Loan on each subsequent Loan Increase Date shall be subject to satisfaction of the following applicable conditions precedent:

(a)The Borrower and TFL, as applicable, shall have complied in all material respects with the covenants and agreements contained herein and in each other Transaction Document;

(b)No Default, Event of Default, Potential Servicer Default or Servicer Default shall have occurred and the Termination Date shall not have occurred;

(c)At least three (3) Business Days preceding each Loan Increase Date following the Initial Loan Date, the Borrower shall have delivered (i) to the Administrative Agent and each Group Agent an electronic copy of (A) a Loan Request in substantially the form of Exhibit A to this Agreement (without the Pool Cut Report referenced therein) and (B) if such Loan Increase Date is also a Warehouse SUBI Lease Allocation Date, a “Notice of Warehouse SUBI Lease Allocation” in substantially the form of Exhibit D to this Agreement, and (ii) to the Administrative Agent and each Group Agent (A) a duly executed copy of the Loan Request and,

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if applicable, the Notice of Warehouse SUBI Lease Allocation given pursuant to preceding clause (i) (which notice may be delivered by email with hard copy to follow promptly) and (B) a Pool Cut Report as to all Leases included in the Warehouse SUBI (including the Lease Pool (if any) to be allocated to the Warehouse SUBI on such Loan Increase Date if such Loan Increase Date is a Warehouse SUBI Lease Allocation Date);

(d)After giving effect to the related Loan, (i) the Loan Balance shall not exceed the Maximum Loan Balance and (ii) the Loan Balance shall be less than or equal to the Commitment Amount;

(e)The Borrower and the Servicer shall have taken any actions necessary or advisable, and reasonably requested in writing by the Administrative Agent and any Group Agent as soon as practicable, to maintain the Administrative Agent’s perfected security interest in the Collateral;

(f)If such Loan Increase Date is a Warehouse SUBI Lease Allocation Date, then solely with respect to any Leases and Leased Vehicles to be allocated to the Warehouse SUBI on such date, the Administrative Agent and each Group Agent shall have received a copy of a report produced by Automotive Lease Guide (in form and substance reasonably satisfactory to the Administrative Agent and each Group Agent) setting forth the Mark-to-Market MRM Residual Value of the Leased Vehicle related to each Lease, in each case, as of the related Mark to Market Adjustment Date;

(g)The Borrower shall have provided evidence, in form and substance reasonably satisfactory to the Administrative Agent and each Group Agent, of the purchase of an Eligible Interest Rate Hedges, including the related Eligible Interest Rate Hedge Providers’ acknowledgment of the collateral assignment by the Borrower to the Administrative Agent of such Eligible Interest Rate Hedges as required by Section 6.02(m); provided that the Borrower shall not be required to enter into a new Eligible Interest Rate Hedge on such Loan Increase Date if, after giving effect to the funding on such Loan Increase Date, there are already in full force and effect one or more Interest Rate Hedges (i) which satisfy the requirements contained in Section 6.02(m) and (ii) the aggregate notional principal amount of which (when taken together) satisfies the requirements contained in the definition of Required Aggregate Notional Principal Amount;

(h)The Borrower shall have deposited (or caused to be deposited) into the Reserve Account an amount equal to the amount, if any, necessary to cause the amount in the Reserve Account to equal the Required Reserve Account Balance; and

(i)The representations and warranties of the Borrower and the Servicer contained in Article IV are true and correct in all material respects except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date.

SECTION 5.03  Conditions Subsequent  The obligation of the Lenders (or any Lender) to continue to make and maintain Loans is subject to the conditions that on or prior to October 1, 2016,

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(a)the Borrower and the Administrative Agent in writing shall have designated the Back-Up Servicer and agreed to the compensation to be paid to the Back-Up Servicer (including the Back-Up Servicing Fee, the Back-Up Servicing Fee Rate, the Successor Servicer Engagement Fee and the limitation on payments to the Back-Up Servicer pursuant to Sections 2.04(c)(ii) and 2.04(c)(iv));

(b)the Back-Up Servicer shall have accepted such terms and become a party to the Servicing Agreement pursuant to the terms thereof (or such other terms as may be agreed upon by the Borrower, the Servicer, the Back-Up Servicer and the Administrative Agent);

(c)counsel to the Back-Up Servicer shall have delivered a favorable opinion, addressed to the Administrative Agent, the Group Agents and the Lenders, as to such matters as the Administrative Agent and each Group Agent may reasonably request; and

(d)the Back-Up Servicer shall have delivered to the Borrower and the Administrative Agent officer’s certificates certifying as to each (i) the names and signatures of the officers authorized on its behalf to execute each of the Transaction Documents to be delivered by it hereunder (on which certificate the Lender Parties may conclusively rely until such time as the Administrative Agent and each Group Agent shall receive from such Person a revised certificate meeting the requirements of this clause (d), (ii) a copy of its By-laws,  as amended, and (iii) good standing under the laws of the jurisdiction of its organization as of a date reasonably near the date of satisfaction of these conditions.

The parties agree that the failure by Borrower to perform or cause to be performed such conditions subsequent as and when required by the terms hereof, shall constitute an Event of Default.

ARTICLE VI

COVENANTS

SECTION 6.01  Covenants of the Borrower.  At all times from the date hereof to the date on which this Agreement terminates in accordance with Section 12.01, unless the Administrative Agent and each Group Agent shall otherwise consent in writing:

(a)Compliance Certificate and Certain Notices and Information.  The Borrower will furnish to the Administrative Agent and each Group Agent:

(i)Compliance Certificate.  Together with the annual report required to be delivered pursuant to Section 6.03(k), a compliance certificate in substantially the form of Exhibit C hereto signed by the chief accounting officer or treasurer of the Borrower and the Servicer stating that no Default, Event of Default or Servicer Default exists, or if any Default, Event of Default or Servicer Default exists, stating the nature and status thereof.

(ii)Notice of Certain Events.  As soon as practicable, and in any event within five (5) Business Days after a Responsible Officer of the Borrower obtains knowledge of the occurrence of each Default, Event of Default, Potential Servicer

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Default or Servicer Default, a statement of the chief financial officer or chief accounting officer of the Borrower setting forth the details of such Default, Event of Default, Potential Servicer Default or Servicer Default, and the action which the Borrower or, if known to the Borrower, the Servicer proposes to take with respect thereto.

(iii)Other Information.  Such other information (including non-financial information) as the Administrative Agent or any Group Agent may from time to time reasonably request.

(b)Conduct of Business.  The Borrower will do all things necessary to remain duly organized, validly existing and in good standing as a domestic limited liability company in its jurisdiction of formation.  The Borrower will maintain all requisite authority to conduct its business in each jurisdiction in which its business requires such authority, except, in each case, where the failure to do so does not, and is not reasonably expected to, have a Material Adverse Effect.

(c)Compliance with Laws.  The Borrower will comply in all material respects with all Requirements of Law to which it may be subject or which are applicable to the Collateral, except where the failure to comply does not, and is not reasonably expected to, have a Material Adverse Effect.

(d)Furnishing of Information.  The Borrower will furnish to the Administrative Agent and each Group Agent, as soon as reasonably practicable after receiving a request therefor, such information with respect to the Collateral as the Administrative Agent or any Group Agent may reasonably request, including listings identifying the outstanding remaining Monthly Lease Payments and the Base Residual Value for each Warehouse SUBI Lease.  Without limiting the generality of the foregoing, the Borrower will furnish to the Administrative Agent and each Group Agent, as soon as reasonably practicable after receiving a request therefor, (i) the names and addresses of all banks which maintain one or more Permitted Lockboxes and the addresses of all related Permitted Lockboxes and the account holder, the account number and the bank at which each Permitted Account is maintained and (ii) the name and address of each Person in possession of any Lease Documents (including the street address at which such Lease Documents are located).  At the request of any Group Agent, the Borrower agrees to reasonably cooperate in providing information to any rating agency in connection with such Group Agent’s seeking, at the expense of such Group Agent, of a rating of the Loans under this Agreement.

(e)Fulfillment of Obligations.  The Borrower will duly observe and perform, or cause to be observed or performed, all material obligations and undertakings on its part to be observed and performed by it under or in connection with this Agreement, the other Transaction Documents to which it is a party and the Warehouse SUBI Leases, will duly observe and perform all material provisions, covenants and other promises required to be observed by it under the Warehouse SUBI Leases, will do nothing to materially impair the security interest of the Administrative Agent in and to the Collateral and will pay when due (or contest in good faith) all taxes, including any sales tax, excise tax or other similar tax or charge, payable by it in connection with the Collateral and their creation and satisfaction.

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(f)Enforcement.  The Borrower shall take all commercially reasonable actions necessary and appropriate to enforce its rights and claims under the Warehouse SUBI Sale Agreement.

(g)No Other Business.  The Borrower shall engage in no business other than the business contemplated under its Certificate of Formation and its Limited Liability Company Agreement and shall comply in all material respects with the terms of its Limited Liability Company Agreement.

(h)Separate Existence.  The Borrower shall do (or refrain from doing) all things necessary to maintain its legal existence separate and apart from TFL and all other Affiliates of the Borrower.  Without limiting the generality of the foregoing, the Borrower shall:

(i)observe all corporate and limited liability company procedures required by its Certificate of Formation and its Limited Liability Company Agreement;

(ii)maintain adequate capitalization to engage in the transactions and activities contemplated in its Certificate of Formation, its Limited Liability Company Agreement, the Warehouse SUBI Sale Agreement and this Agreement;

(iii)provide for the payment of its operating expenses and liabilities from its own funds (except that certain of the organizational expenses of the Borrower have been paid by TFL);

(iv)maintain an arm’s length relationship with its Affiliates, and shall not (A) lend money to, or borrow money from, any of its Affiliates or any unaffiliated third party or (B) transact any business, or enter into any transaction with any of its Affiliates, except, in each case, pursuant to binding and enforceable written agreements the terms of which, on the whole, are arm’s-length and commercially reasonable and, in the case of money borrowed by the Borrower from any of its Affiliates, the subordination and payment provisions of all such indebtedness shall be satisfactory in form and substance to the Administrative Agent and each Group Agent;

(v)not (A) perform any of its Affiliates’ duties or obligations, (B) commingle assets with those of any affiliated or unaffiliated third party (except for the temporary commingling of Collections), (C) guarantee or become obligated for the debts of any affiliated or unaffiliated third party or hold out its credit as being available to satisfy the obligations of others, (D) operate or purport to operate as a single integrated entity with respect to its Affiliates or any affiliated or unaffiliated third party, (E) endeavor to obtain credit or incur any obligation to any affiliated or unaffiliated third party based upon the assets or creditworthiness of the other, (F) acquire any obligations or securities of any of its partners, members or shareholders, (G) pledge its assets for the benefit of any entity (except pursuant to this Agreement), or (H) fail to correct any known misunderstanding or misrepresentation with respect to any of the foregoing;

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(vi)maintain bank accounts and books of account separate from those of its Affiliates;

(vii)to the extent it shares its office with any of its Affiliates, maintain separate records storage space and files in the building they share, and maintain and use separate telephone capacity and business forms;

(viii)(A) ensure that at least one manager of the Borrower shall be an “Independent Manager” (as defined in the Limited Liability Company Agreement) and cause its Operating Agreement to provide that (x) at least one manager of the Borrower shall be an Independent Manager, (y) the managers of the Borrower shall not approve, or take any other action to cause the filing of, a voluntary bankruptcy petition with respect to the Borrower or, to the fullest extent provided by applicable law, the dissolution of the Borrower unless a unanimous vote of all of the Borrower’s managers (which vote shall include the affirmative vote of the Independent Manager) shall approve the taking of such action in writing prior to the taking of such action and (z) the provisions requiring at least one Independent Manager and the provisions described in clauses (x) and (y) of this paragraph (viii) cannot be amended without the prior written consent of the Independent Manager; and

(B)in addition to the requirements set forth in preceding clause (A), ensure that the “Independent Manager” (as defined in the Limited Liability Company Agreement) (x) has prior experience as an independent director for a corporation or limited liability company whose charter documents required the unanimous consent of all independent directors thereof before such corporation or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (y) has at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities;

(ix)take such actions as are necessary to ensure that no Independent Manager shall at any time serve as a trustee in bankruptcy for the Borrower or any Affiliate thereof;

(x)take such actions as are necessary to ensure that any financial statements of TFL or any Affiliate thereof which are consolidated to include the Borrower (a) will contain notes clearly stating that securitization transactions of the kind contemplated in the Warehouse SUBI Sale Agreement are structured legally as sales (although the Borrower may be consolidated with TFL or its Affiliates for financial accounting purposes) and (b) will not suggest in any way that (1) the assets of the Borrower will be available to pay the claims of creditors of TFL or any Affiliate of TFL other than the Borrower or (2) the Borrower is not a separate limited liability company (although in each case, it being understood that the Borrower may be consolidated with TFL or its Affiliates for financial accounting purposes); and

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(xi)to the fullest extent permitted by applicable law, take no action to dissolve itself, including applying (or consenting to the application) for judicial dissolution.

(i)Compliance with Opinion Assumptions.  Without limiting the generality of Section 6.01(h) above, in all material respects, the Borrower shall (as to itself) maintain in place all policies and procedures, and take and continue to take all actions, described in the assumptions as to facts set forth in, and forming the basis of, the opinions set forth in the opinion delivered to the Administrative Agent, the Group Agents and the Lenders pursuant to Section 5.01(h).

(j)Payment of Taxes.  The Borrower will pay and discharge all material taxes, assessments, and governmental charges or levies imposed upon it, or upon its income or profits, or upon any property belonging to it, or them, before delinquent, other than taxes, assessments and other governmental charges being contested in good faith.

(k)Maintenance of Security Interests in Warehouse SUBI.  The Borrower shall take such steps as are necessary to preserve and maintain the security interest of the Administrative Agent (for the benefit of the Secured Parties) in the Warehouse SUBI and other Collateral as a valid and enforceable first priority perfected security interest, subject to no Adverse Claims.

(l)Electronic Chattel Paper.  The Borrower shall take such actions as are necessary to cause all vehicle leases of the Trust and the Borrower (including all Warehouse SUBI Leases) to constitute Electronic Chattel Paper (and not to constitute Tangible Chattel Paper) held in the Electronic Lease Vault.

(m)Interest Rate Hedges.  The Borrower shall, at all times beginning thirty (30) days after an Interest Rate Hedge Trigger Event occurs, maintain in full force and effect one or more Eligible Interest Rate Hedges which, together with the aggregate notional amount of such Eligible Interest Rate Hedges, when taken together, at all times satisfy the requirements contained in the definition of Required Aggregate Notional Principal Amount, and shall comply with the terms thereof; provided that:

(i)if any interest rate hedge provider party to an Interest Rate Hedge ceases to satisfy the requirements set forth in the definition of “Eligible Interest Rate Hedge Provider,” the Borrower shall within thirty (30) days (x) cause such Person to assign its obligations under the related Interest Rate Hedge to a new Eligible Interest Rate Hedge Provider (or such person shall have thirty (30) days to again satisfy the requirements set forth in the definition of “Eligible Interest Rate Hedge Provider”), or (y) obtain a substitute Eligible Interest Rate Hedge, including the related Eligible Interest Rate Hedge Provider’s acknowledgment of the collateral assignment by the Borrower to the Administrative Agent of such Eligible Interest Rate Hedge;

(ii)if any provider of an Interest Rate Hedge fails to make a payment when due under the applicable Interest Rate Hedge, the Borrower shall within thirty (30) days (x) cause such Person to assign its obligations under the related Interest Rate

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Hedge to a new Eligible Interest Rate Hedge Provider or (y) obtain a substitute Eligible Interest Rate Hedge, including the related Eligible Interest Rate Hedge Provider’s acknowledgment of the collateral assignment by the Borrower to the Administrative Agent of such Eligible Interest Rate Hedge;

(iii)the Borrower may not, without the prior written consent of the Administrative Agent and each Group Agent, exercise any rights (including any termination rights) under any Interest Rate Hedge that could reasonably be expected to adversely affect the right of the Lenders to receive payments hereunder or under such Interest Rate Hedge;

(iv)on each Payment Date from and after the Interest Rate Hedge Trigger Date, if the aggregate notional amount of all Interest Rate Hedges is then less than 90%, of the Loan Balance (after giving effect to any Loan Increase on such date), the Borrower shall enter into one or more Eligible Interest Rate Hedges such that the aggregate notional amount of all Interest Rate Hedges, including the new Interest Rate Hedge, is equal to the Loan Balance;

(v)notwithstanding the foregoing, one or more Interest Rate Hedges may be combined into a single Interest Rate Hedge which, in the aggregate, satisfies the requirements set forth in this Section 6.01(m);

(vi)if, on any Payment Date the aggregate notional amount of all Interest Rate Hedges that are interest rate swaps is greater than 110% of the Loan Balance on such date (after giving effect to any payments or Loan Increase on such date), the Servicer shall cause the Borrower to amend or terminate existing Interest Rate Hedges that are interest rate swaps such that the aggregate notional amount of all Interest Rate Hedges that are interest rate swaps at such time shall be equal to the Loan Balance at such time (terminating those Interest Rate Hedges that are interest rate swaps in descending order from those Interest Rate Hedges with the highest fixed rate to those Interest Rate Hedge with the next highest fixed rate and so on); and all Interest Rate Hedge Termination Payments owed by the Borrower and other costs incurred in connection with the termination contemplated by this paragraph shall be paid by the Servicer; and

(vii)the Administrative Agent at any time on or after the Termination Date shall have the right to amend or terminate any Interest Rate Hedges in its sole discretion; and all Interest Rate Hedge Termination Payments owed by the Borrower and other costs incurred in connection with the termination contemplated by this paragraph shall be paid by the Servicer.

On or prior to the effective date of any Interest Rate Hedge, the Borrower shall establish and thereafter maintain an Eligible Account in the name of the Borrower with respect to each Interest Rate Hedge Counterparty, other than Deutsche Bank AG or any Affiliate thereof (a “Hedge Counterparty Collateral Account”) in trust and for the benefit of the Lenders and the related Interest Rate Hedge Counterparty.  In the event that pursuant to the terms of the applicable Interest Rate Hedge, the related Interest Rate Hedge Counterparty is required to deposit cash or

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securities as collateral to secure its obligations (“Hedge Collateral”), the Borrower shall deposit all Hedge Collateral received from the Interest Rate Hedge Counterparty into the Hedge Counterparty Collateral Account.  All sums on deposit and securities held in any Hedge Counterparty Collateral Account shall be used only for the purposes set forth in the related credit support annex (“Credit Support Annex”) to the Interest Rate Hedge.  The only permitted withdrawal from or application of funds on deposit in, or otherwise to the credit of, a Hedge Counterparty Collateral Account shall be (i) for application to the obligations of the applicable Interest Rate Hedge Counterparty under the related Interest Rate Hedge in accordance with the terms of the Credit Support Annex and (ii) to return collateral to the Interest Rate Hedge Counterparty when and as required by the Credit Support Annex.  Amounts on deposit in each Hedge Counterparty Collateral Account shall be invested at the written direction of the related Interest Rate Hedge Counterparty, and all investment earnings actually received on amounts on deposit in a Hedge Counterparty Collateral Account or distributions on securities held as Hedge Collateral shall be distributed or held in accordance with the terms of the related Credit Support Annex.  Any amounts applied by the Borrower to the obligations of an Interest Rate Hedge Counterparty under an Interest Rate Hedge in accordance with the terms of the related Credit Support Annex shall constitute Interest Rate Hedge Receipts and be deposited in the Collection Account and applied in accordance with Section 2.04(c) of this Agreement.  The Borrower agrees to give the applicable Interest Rate Hedge Counterparty prompt notice if it obtains knowledge that the Hedge Counterparty Collateral Account or any funds on deposit therein or otherwise to the credit of the Hedge Counterparty Collateral Account, shall or have become subject to any writ, order, judgment, warrant of attachment, execution or similar process.

(n)Anti-Corruption Laws and Sanctions.  The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower and each of its Affiliates and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.

SECTION 6.02  Negative Covenants of the Borrower.  At all times from the date hereof to the date on which this Agreement terminates in accordance with Section 12.01, unless the Administrative Agent and each Group Agent shall otherwise consent in writing:

(a)Name Change and Offices.  The Borrower shall not change its name, identity or organizational structure (within the meaning of Section 9-506, 9-507 or 9-508 of the UCC (or other sections of similar content of the Relevant UCC)) nor relocate its chief executive office or its jurisdiction of formation nor change its “location” under Section 9-307 of the Relevant UCC, unless, within (30) days after such change or relocation it shall have: (i) given the Administrative Agent and each Group Agent written notice thereof and (ii) delivered to the Administrative Agent and each Group Agent all financing statements, instruments and other documents requested by the Administrative Agent or any Group Agent in connection with such change or relocation.  The Borrower shall at all times maintain its chief executive office and its jurisdiction of formation within a jurisdiction in the United States and in which Article 9 of the Relevant UCC is in effect and in the event it moves its chief executive office or its jurisdiction of formation to a location which may charge taxes, fees, costs, expenses or other charges to perfect the security interest of the Administrative Agent in the Collateral, it shall pay all taxes, fees, costs, expenses and other charges associated with perfecting the security interest of the Administrative Agent in the Collateral and any other costs and expenses incurred in order to

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maintain the enforceability of this Agreement and the security interest of the Administrative Agent in the Collateral.

(b)Transfers, Liens, Etc.  Except for the Adverse Claims of the Administrative Agent created by this Agreement and except for other transfers permitted under this Agreement, the Borrower shall not transfer, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim (including the filing of any financing statement) upon or with respect to the Collateral (or any portion thereof), or upon or with respect to any account to which any Collections are sent, or assign any right to receive income in respect thereto.

(c)Limited Liability Company Membership Interests.  The Borrower shall not issue any membership interests (other than non-economic “special membership interests”) except to a Tesla Party or one of its Subsidiaries or create any Subsidiary.  The Borrower shall not pay or make any distributions to any owner of its membership interests if, at the time or as a result of such payment or the making of such distribution, a Default, an Event of Default or the Scheduled Expiration Date shall have occurred and be continuing under this Agreement.

(d)Amendments to Certificate of Formation and Limited Liability Company Agreement.  The Borrower shall not materially amend, alter or change or repeal (and shall not permit the material amendment, alteration or change or repeal of) its Certificate of Formation or its Limited Liability Company Agreement.

(e)Change to other Agreements.  The Borrower shall not terminate, amend, supplement, modify or waive, or grant or consent to any such termination, amendment, waiver or consent, or permit to become effective any amendment, supplement, waiver or other modification to the Warehouse SUBI Servicing Agreement, the Warehouse SUBI Sale Agreement, the [***] Subservicing Agreement or the other Transaction Documents without the consent of the Administrative Agent and each Group Agent (such consents not to be unreasonably withheld, delayed or conditioned).

(f)ERISA Matters.  Neither the Borrower nor any of its ERISA Affiliates shall establish or have any obligation to contribute to any Plan or Multiemployer Plan.

(g)[Reserved].

(h)Consolidations and Mergers.  The Borrower shall not consolidate or merge with or into any other Person.

(i)Tax Matters.

(i)No Tesla Party shall take or cause any action to be taken that could result in the Borrower being treated as a corporation or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes.

(ii)No Tesla Party shall take or cause any action to be taken that could result in the Borrower, the Warehouse SUBI or the Trust (or any portion

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thereof)becoming an association (or a publicly traded partnership) taxable as a corporation for U.S. federal income tax purposes

(j)Anti-Corruption Laws and Sanctions.  The Borrower shall not request any Loan, and shall not use, and shall ensure that its Affiliates and its and their respective directors, officers, employees and agents not use, the proceeds of any Loan (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (C)  in any manner that would result in the violation of  any Sanctions applicable to any party hereto.

(k)Debt.  The Borrower shall not create, incur, assume or suffer to exist any Debt except for Debt expressly contemplated under the Transaction Documents.

(l)Guarantees.  The Borrower shall not guarantee, endorse or otherwise be or become contingently liable (including by agreement to maintain balance sheet tests) in connection with the obligations of any other Person, except endorsements of negotiable instruments for collection in the ordinary course of business and reimbursement and indemnification obligations in favor of the Administrative Agent, any Group Agent, any Lender or any Indemnified Party as provided for under the Transaction Documents.

(m)Limitation on Transactions with Affiliates.  The Borrower shall not enter into, or be a party to any transaction with any Affiliate of the Borrower, except for: (i) the transactions contemplated hereby, by the Transaction Documents and (ii) capital contributions by TFL to the Borrower which are in compliance with all applicable Requirements of Law and the Transaction Documents.

(n)Limitation on Investments.  The Borrower shall not make or suffer to exist any loans or advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of indebtedness, acquisition of the business or assets, or otherwise) in, any Affiliate or any other Person, except for Eligible Investments and the Warehouse SUBI Certificate.

(o)Change in Business.  The Borrower shall not make any change in the character of its business.

(p)Subsidiaries.  The Borrower shall not form or own any Subsidiary.

SECTION 6.03  Covenants of the Servicer.  At all times from the date hereof to the date on which this Agreement terminates in accordance with Section 12.01, unless the Administrative Agent and each Group Agent shall otherwise consent in writing:

(a)Notice of Certain Events.  

(i)As soon as practicable, and in any event within five (5) Business Days after any Responsible Officer of the Servicer obtains knowledge of the occurrence of each Default, Event of Default, Potential Servicer Default or Servicer Default, the

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Servicer will furnish to the Administrative Agent and each Group Agent a statement of the chief financial officer or chief accounting officer of the Servicer setting forth the details of such Default, Event of Default, Potential Servicer Default or Servicer Default, and the action which the Servicer or, if known to the Servicer, the Borrower proposes to take with respect thereto.

(ii)Promptly and in no event more than five (5) Business Days after any Responsible Officer of the Servicer obtains knowledge of the occurrence of any Lien with respect to the Collateral, the statement of a Responsible Officer of the Servicer setting forth the details of such Lien and the action which the Servicer is taking or proposes to take with respect thereto.

(iii)Promptly and in no event more than five (5) Business Days after any Responsible Officer of the Servicer obtains knowledge of any matter or the occurrence of any event concerning the Borrower, the Servicer, the Trust or the Collateral which would reasonably be expected to have a Material Adverse Effect, the statement of a Responsible Officer of the Servicer setting forth the details of such default and the action which the Servicer is taking or proposes to take with respect thereto.

(iv)Promptly and in no event more than five (5) Business Days after any Responsible Officer of the Servicer obtains knowledge of (a) any action, suit, proceeding or investigation pending or, to the best knowledge of the Servicer, threatened, against the Servicer or the Trust or its respective property, or (b) any order, judgment, decree, injunction, stipulation or consent order of or with any Governmental Authority, in each case adversely affecting (x) TFL or the Trust in excess of $15,000,000, or (y) the Borrower in excess of $2,000,000, the statement of a Responsible Officer of the Servicer setting forth the details of such default and the action which the Servicer is taking or proposes to take with respect thereto.

(v)Promptly and in no event more than five (5) Business Days after any Responsible Officer of the Servicer obtains knowledge of any amendment, modification, supplement or other change to the Credit and Collection Policy that would reasonably be expected to have a material adverse effect on the collectability of the Warehouse SUBI Leases or the interests of the Lenders, the statement of a Responsible Officer of the Servicer setting forth the details of such amendment, modification or supplement.

(vi)As soon as reasonably practicable, from time to time, such other information, documents, records or reports, in each case held by or reasonably available to the Servicer, respecting the Warehouse SUBI Assets or the conditions or operations, financial or otherwise, of the Servicer or such other matters relating to the Servicer, the Warehouse SUBI Assets or this transaction, in each of the foregoing cases, as the Administrative Agent or any Group Agent may from time to time reasonably request.

(b)Conduct of Business.  The Servicer will do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation (or other business entity) in its jurisdiction of organization (or formation).  The Servicer will maintain all requisite authority to conduct its business in each jurisdiction in which its business requires such

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authority except, in each case, where the failure to do so does not, and is not reasonably expected to, have a Material Adverse Effect.

(c)Compliance with Laws.  The Servicer will comply, and will cause the Borrower to comply, in all material respects with all Requirements of Law to which it may be subject or which are applicable to the Collateral except where the failure to so comply does not, and is not reasonably expected to, have a Material Adverse Effect.  Without limiting the foregoing, the Servicer agrees to provide to the Administrative Agent with evidence satisfactory to the Administrative Agent no later than the six month anniversary of the Closing Date of the establishment of formal written legal compliance policies, procedures and training, including as to fair lending policies, lease forms complying with Regulation M and the Truth in Lending Act, formalized vendor management processes and general policies and procedures.

(d)Furnishing of Information.  The Servicer will furnish to the Administrative Agent and each Group Agent, as soon as practicable after receiving a request therefor, such information with respect to the Collateral, the Servicer, the Trust or the Borrower as the Administrative Agent or any Group Agent may reasonably request, including, without limitation, listings identifying the outstanding Securitization Value for each Warehouse SUBI Lease.  Without limiting the generality of the foregoing, the Servicer will furnish to the Administrative Agent and each Group Agent, as soon as reasonably practicable after receiving a request therefor, (i) the names and addresses of all banks which maintain one or more Permitted Lockboxes and the addresses of all related Permitted Lockboxes and the account holder, the account number and the bank at which each Permitted Account is maintained and (ii) the name and address of each Person in possession of any Lease Documents (including the street address at which such Lease Documents are located). At the request of any Group Agent, the Servicer agrees to reasonably cooperate in providing information to any rating agency in connection with such Group Agent’s seeking, at the expense of such Group Agent, of a rating of the Loans under this Agreement.

(e)Keeping of Lease Documents and Books of Account.  The Servicer will maintain and implement administrative and operating procedures, including an ability to recreate Lease Documents evidencing the Warehouse SUBI Leases in the event of the destruction of the originals thereof, and keep and maintain, or obtain, as and when required, all documents, books, Lease Documents and other information reasonably necessary or advisable for the collection of all Warehouse SUBI Leases (including Lease Documents adequate to permit the daily identification of all Collections of and adjustments to each existing Warehouse SUBI Lease).  The Servicer will give the Administrative Agent and each Group Agent prompt notice of any material change in the administrative and operating procedures referred to in the previous sentence, to the extent such change is likely to have a Material Adverse Effect.

(f)Fulfillment of Obligations.  The Servicer will duly observe and perform, or cause to be observed or performed, all obligations and undertakings on its part to be observed and performed by it under or in connection with this Agreement, the other Transaction Documents to which it is a party and will perform in all material respects all obligations of the lessor under the Leases, will duly observe and perform in all material respects all provisions, covenants and other promises required to be observed by it under the contracts related to the Leases, and will do nothing to impair the security interest of the Administrative Agent in and to

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the Collateral (except in accordance with the Credit and Collection Policy).  The Servicer will pay when due (or contest in good faith) any taxes, including any sales tax, excise tax or other similar tax or charge, payable by it in connection with the Leases and their creation and satisfaction, except where the failure to pay such taxes could not reasonably be expected to have a Material Adverse Effect.

(g)Total Systems Failure.  The Servicer shall promptly notify the Administrative Agent and each Group Agent of any total systems failure and shall advise the Administrative Agent and each Group Agent of the estimated time required to remedy such total systems failure and of the estimated date on which a Settlement Statement can be delivered.  Until a total systems failure is remedied, the Servicer shall (i) furnish to the Administrative Agent and each Group Agent such periodic status reports and other information relating to such total systems failure as the Administrative Agent or any Group Agent may reasonably request and (ii) promptly notify the Administrative Agent and each Group Agent if the Servicer believes that such total systems failure cannot be remedied by the estimated date, which notice shall include a description of the circumstances which gave rise to such delay, the action proposed to be taken in response thereto, and a revised estimate of the date on which a Settlement Statement can be delivered.  The Servicer shall promptly notify the Administrative Agent and each Group Agent when a total systems failure has been remedied.

(h)Compliance with Credit and Collection Policy.  The Servicer shall comply in all material respects with the Credit and Collection Policy in regard to each Warehouse SUBI Lease.

(i)Insurance.  The initial Servicer shall maintain with financially sound and reputable insurers at least the types and levels of insurance set forth on Schedule 5.

(j)Modification of Systems.  The Servicer agrees, as soon as practicable after the replacement or any material modification of any operating systems used to make any calculations or reports hereunder, to give notice of any such replacement or modification to the Administrative Agent and each Group Agent, to the extent such replacement or modification is likely to have a Material Adverse Effect.

(k)Annual Report; Quarterly Financial Statements.  

(i)Within ninety (90) days after the close of each fiscal year of the Servicer and Tesla Motors, Inc. (commencing with the fiscal year ending December 31, 2016), the Servicer shall cause a firm of independent certified public accountants (of nationally recognized standing selected by the Servicer or otherwise reasonably acceptable to the Administrative Agent and each Group Agent) to deliver to the Administrative Agent and each Group Agent (x) the consolidated financial statements of Tesla Motors, Inc. and the Servicer, which financial statements shall have been audited by such firm in accordance with GAAP), together with a report of such firm expressing such firm’s opinion thereon without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of the audit and (y) a report (in form, substance and scope set forth in Schedule 1 to the Fee Letter) indicating that

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such firm has examined the Settlement Statements delivered by the Servicer during the immediately preceding fiscal year and expressing such firm’s opinion that (1) the data reported, and calculations set forth, in such Settlement Statements are the data required to be reported, and the calculations required to be made, in accordance with the terms of this Agreement (including Exhibit L hereto, as in effect from time to time) and (2) the data reported in such Settlement Statements accurately reflects the data contained in the Servicer’s systems and other applicable source records; provided, that notwithstanding the foregoing, following the occurrence and during the continuation of an Event of Default, the Servicer shall cause the report described in this clause (y) to be furnished to the Administrative Agent and each Group Agent from time to time promptly following the request by the Administrative Agent or a Group Agent therefor.

(ii)Within sixty (60) days after the end of each fiscal quarter of each fiscal year of the Servicer and Tesla Motors, Inc. (commencing with the fiscal quarter ending September 30, 2016), the Servicer shall deliver to the Administrative Agent and each Group Agent the unaudited consolidated balance sheet and related statements of operations and stockholders’ equity as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, for Tesla Motors, Inc. and the Servicer, setting forth in each case in comparative form the figures for the corresponding period of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its chief financial officer, principal accounting officer, treasurer or controller as presenting fairly in all material respects the financial condition and results of operations of Tesla Motors, Inc., the Servicer and their consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes.

(iii)Documents required to be delivered pursuant to this Section 6.03(k) (to the extent any such documents are included in materials otherwise filed with the Securities and Exchange Commission) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (A) on which the Servicer posts such documents, or provides a link thereto on the Servicer’s website on the Internet at a website address provided to the Administrative Agent and each Group Agent; or (B) on which such documents are posted on the Servicer’s behalf on an Internet or intranet website, if any, to which each Group Agent and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent).

(l)Actions, Suits.  Promptly following receipt of notice thereof, the Servicer shall notify the Administrative Agent and each Group Agent of any actions, suits or proceedings pending, or to the knowledge of the Servicer threatened, against or affecting the Servicer or its Subsidiaries or their respective properties, in or before any court, arbitrator or other body, which (i) are reasonably likely to have a Material Adverse Effect or (ii) assert the invalidity of this Agreement or any of the Transaction Documents or seek to prevent the consummation of the transactions contemplated hereby or thereby.

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(m)Payment Instructions to Lessees.  The Servicer shall instruct all Lessees to cause all payments made by (or on behalf of) Lessees to be made or deposited directly to a Permitted Lockbox or a Permitted Account.  The Servicer shall use commercially reasonable efforts to deposit all Collections sent to it directly into a Permitted Lockbox or Permitted Account in the same form received as soon as reasonably practicable after identification thereof.

(n)Maintenance of Security Interests in Warehouse SUBI.  The initial Servicer shall take such steps as are necessary to preserve and maintain the security interest of the Administrative Agent (for the benefit of the Secured Parties) in the Warehouse SUBI and other Collateral as valid and enforceable first priority perfected security interest, subject to no Adverse Claims.

(o)Electronic Chattel Paper.  The initial Servicer shall take such actions as are necessary to cause all vehicle leases of the Trust and the Borrower (including all Leases) to constitute Electronic Chattel Paper (and not to constitute Tangible Chattel Paper) held in the Electronic Lease Vault. The initial Servicer shall, at all times, maintain, or cause the Trust to maintain, “control” (as defined in Section 9-105 of the UCC or other Section of similar content of the Relevant UCC) of all Warehouse SUBI Leases and all Lease Documents related to Warehouse SUBI Leases that constitute Electronic Chattel Paper.

(p)Certificates of Title.  The Servicer shall use commercially reasonable efforts to obtain possession of the original Certificate of Title for each Warehouse SUBI Leased Vehicle as soon as is practicable (but only to the extent Certificate of Title documents are required under applicable state law to be held by a secured party to perfect such secured party’s security interest in a Warehouse SUBI Leased Vehicle).

(q)Mark-to-Market.  Effective as of each Mark-to-Market Adjustment Date, the Servicer shall recalculate the Mark-to-Market MRM Residual Value of each Warehouse SUBI Lease for which there is a Mark-to-Market MRM Residual Value at the end of the calendar month which preceded such Mark-to-Market Adjustment Date, and thereafter shall use such value in the calculation of the Base Residual Value for such Warehouse SUBI Lease until the next Mark-to-Market Adjustment Date.

(r)Payment of Taxes. TFL will, and will cause the Trust to, pay and discharge all material taxes, assessments, and governmental charges or levies imposed upon it, or upon its income or profits, or upon any property belonging to it, or them, before delinquent, other than taxes, assessments and other governmental charges being contested in good faith.

(s)Retention.  TFL represents and undertakes, to the Administrative Agent and each Lender that is required to comply with the Retention Requirements, that, until the Secured Obligations have been paid in full, it shall:

(i)hold and will retain 100% beneficial interests in the Borrower directly or indirectly through one or more consolidated wholly-owned Subsidiaries;

(ii)on an ongoing basis hold and maintain the Retained Interest indirectly through its 100% beneficial ownership interests in the Borrower;

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(iii)not sell or subject the Retained Interest to any hedge, credit risk mitigation or any short positions in a manner that would be contrary to the Retention Requirements;

(iv)confirm to the Servicer that it continues to comply with subsections (i) and (ii) above;

(A)for the purpose of the confirmation in each Settlement Statement (as detailed below);

(B)in the event of a material change in the anticipated value of the Warehouse SUBI Leases or the risk characteristics of the Loans, as reasonably requested by the Administrative Agent; and

(C)upon the occurrence of any Event of Default;

(v)provide notice promptly to each such Lender in the event it has breached subsections (i) or (ii) above;

(vi)notify such Lender of any change to the form of retention of the Retained Interest; and

(vii)provide all information which such Lender would reasonably request in order for such Lender to comply with its obligations under the Retention Requirements.

TFL, represents that, on the Closing Date, the Retained Interest takes the form of a first loss position represented by its indirect 100% ownership interest in the Borrower. The Servicer shall include in each Settlement Statement verification that TFL has confirmed that, as of the date of such Settlement Statement, it (A) continues to hold the Retained Interest on the date of such Settlement Statement, and (B) has not sold or subjected the Retained Interest to hedge, any credit risk mitigation or any short positions in a manner that would be contrary to the Retention Requirements.

SECTION 6.04  Negative Covenants of the Servicer.  At all times from the date hereof until the date on which this Agreement terminates in accordance with Section 12.01, unless the Administrative Agent and each Group Agent shall otherwise consent in writing:

(a)Name Change and Offices, Lease Documents and Books of Accounts.  The initial Servicer shall not change its name, identity or corporate structure (within the meaning of Section 9-506, 9-507 or 9-508 of the UCC (or other sections of similar content of the Relevant UCC)) nor relocate its chief executive office or its jurisdiction of organization nor change its “location” under Section 9-307 of the UCC (or other section of similar content of the Relevant UCC), unless, within thirty (30) days after such change or relocation, it shall have: (i) given the Administrative Agent and each Group Agent written notice thereof and (ii) delivered to the Administrative Agent and each Group Agent all financing statements, instruments and other documents requested by the Administrative Agent or any Group Agent in connection with such change or relocation.  The initial Servicer shall at all times maintain its chief executive office and its jurisdiction of organization within a jurisdiction in the United States and in which Article 9 of the Relevant UCC is in effect and in the event it moves its chief executive office or its

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jurisdiction of organization to a location which may charge taxes, fees, costs, expenses or other charges to perfect the security interest of the Administrative Agent in the Collateral, it shall pay all taxes, fees, costs, expenses and other charges associated with perfecting the security interest of the Administrative Agent in the Collateral and any other costs and expenses incurred in order to maintain the enforceability of this Agreement and the security interest of the Administrative Agent in the Collateral.

(b)Transfers, Liens, Etc.  Except for the Adverse Claims of the Borrower created by the Warehouse SUBI Sale Agreement and except for other transfers permitted under this Agreement and the other Transaction Documents, the Servicer shall not transfer, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim (including the filing of any financing statement) upon or with respect to the Collateral (or any portion thereof), or upon or with respect to any account to which any Collections of any Lease are sent, or assign any right to receive income in respect thereto.

(c)Rescission, Extension or Amendment of Leases.  The Servicer shall not rescind, amend, modify or waive any material term or condition of any Warehouse SUBI Lease, other than in all material respects in accordance with the Credit and Collection Policy.

(d)Change in Business or Credit and Collection Policy.  The Servicer shall not make any change in the character of its business or in the Credit and Collection Policy that would be reasonably likely to result in a Material Adverse Effect.

(e)[Reserved].

(f)Consolidations, Mergers and Sales of Assets.  If TFL is the Servicer, the Servicer shall not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person; provided that the Servicer may (I) merge with another Person if (A)(x) the Servicer is the corporation surviving such merger or (y) the Person with whom the Servicer is merged into or consolidated with is an Affiliate of the Servicer and the surviving corporation assumes in writing all duties and liabilities of the Servicer hereunder, and (z) in either case, the long-term unsecured debt ratings of the surviving corporation shall be at least equal to those of TFL (or, if TFL is not separately rated by a Rating Agency, at least equal to the long-term unsecured debt ratings of TFL’s parent) immediately prior to such merger or consolidation, and (B) immediately after and giving effect to such merger, no Default or Event of Default shall have occurred and be continuing and (II) sell, lease or otherwise transfer all or substantially all of its assets to an Affiliate of the Servicer if (A) such Affiliate assumes in writing all duties and liabilities of the Servicer hereunder, and (B) immediately after giving effect to such sale, lease or other transfer, no Default or Event of Default shall have occurred and be continuing.

(g)ERISA.  If TFL is the Servicer, neither the Servicer nor any of its ERISA Affiliates shall establish or have any obligation to contribute to any Plan or Multiemployer Plan.

(h)Change to other Agreements.  The Servicer shall not terminate, amend, supplement, modify or waive, or grant or consent to any such termination, amendment, waiver or consent, or permit to become effective any amendment, supplement, waiver or other

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modification to the Warehouse SUBI Servicing Agreement, the Warehouse SUBI Sale Agreement, the [***] Subservicing Agreement or the other Transaction Documents without the consent of the Administrative Agent and each Group Agent.

(i)Anti-Corruption Laws and Sanctions.  The Servicer shall not request any Loan, and shall not use, and shall ensure that its Affiliates and its and their respective directors, officers, employees and agents not use, the proceeds of any Loan (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (C)  in any manner that would result in the violation of  any Sanctions applicable to any party hereto.

ARTICLE VII

SERVICING AND COLLECTIONS

SECTION 7.01  Maintenance of Information and Computer Lease Documents.  The Borrower will, or will cause the Servicer to, hold in trust and keep safely for the Administrative Agent all evidence of the Administrative Agent’s security interest in and to the Warehouse SUBI and other Collateral.

SECTION 7.02  Protection of the Interests of the Secured Parties.

(a)The Borrower and the initial Servicer shall, from time to time and at the Borrower’s sole expense, do and perform any and all necessary acts and execute any and all necessary documents, including the obtaining of additional search reports, the delivery of further opinions of counsel, the execution, amendment or supplementation of any financing statements, continuation statements and other instruments and documents for filing under the provisions of the Relevant UCC of any applicable jurisdiction, the execution, amendment or supplementation of any instrument of transfer and the making of notations on the Lease Documents of the Borrower or TFL as may be reasonably requested by the Administrative Agent or any Group Agent in order to effect the purposes of this Agreement and the creation, perfection and priority of the Administrative Agent’s security interest in the Collateral, to protect the Administrative Agent’s security interest in and to the Collateral (other than a Lease which has been removed from the Collateral pursuant to Section 2.09, 4.01 (the last two paragraphs thereof) or 4.02 (the last two paragraphs thereof) or Section 2.2 of the Warehouse SUBI Servicing Agreement) against all Persons whomsoever or to enable the Administrative Agent to exercise or enforce any of their respective rights hereunder.

(b)To the fullest extent permitted by applicable law, the Borrower hereby irrevocably grants to the Administrative Agent an irrevocable power of attorney, with full power of substitution, coupled with an interest, to authorize and file in the name of the Borrower, or in its own name, such financing statements and continuation statements and amendments thereto or assignments thereof as the Administrative Agent deems necessary to protect the Collateral or perfect the Administrative Agent’s security interest therein; provided, however, that such power of attorney may only be exercised without the prior written consent of the Borrower if (i) the

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Servicer fails to perform any act required hereunder after receiving five (5) Business Days written notice of such failure from the Administrative Agent or (ii)(A) a Servicer Default or (B) an Event of Default shall have occurred and be continuing.

(c)Once during each calendar year, in the case of the Administrative Agent and one or more times during each calendar year, in the case of each Group Agent, at such times during normal business hours as are reasonably convenient to the Borrower or the Servicer, as the case may be, and upon reasonable request of the Administrative Agent or such Group Agent, and prior written notice to the Borrower or the Servicer, as the case may be, the Administrative Agent or such Group Agent (or a Person engaged by the Administrative Agent or such Group Agent) may conduct audits and/or visit and inspect any of the properties of the Borrower or the Servicer (including [***] as subservicer) where Lease Documents are located, as the case may be, to examine the Lease Documents, to confirm and verify the existence, amount and status of the Warehouse SUBI Leases, to examine internal controls and procedures maintained by the Borrower or Servicer, as the case may be, and take copies and extracts therefrom, and to discuss the Borrower’s or the Servicer’s, as the case may be, affairs with its officers and employees, subservicers (including [***]) and upon prior written notice to the Borrower or the Servicer, as the case may be, independent accountants.  In addition to the audits and/or visits and inspections permitted under the preceding sentence, prior to the date that is 60 days following the Closing Date, the Group Agents (or Persons engaged by the Group Agents) may conduct an audit and/or visit and inspect any of the properties of the Borrower or the Servicer (including [***] as subservicer) where Lease Documents are located, as the case may be, during normal business hours as are reasonably convenient to the Borrower or the Servicer, as the case may be, at the expense of the Borrower or the Servicer, as the case may be, to examine the Lease Documents, to confirm and verify the existence, amount and status of the Warehouse SUBI Leases, to examine internal controls and procedures maintained by the Borrower or Servicer, as the case may be, and take copies and extracts therefrom, and to discuss the Borrower’s or the Servicer’s, as the case may be, affairs with its officers and employees, subservicers (including [***]) and upon prior written notice to the Borrower or the Servicer, as the case may be, independent accountants.  The Borrower or the Servicer, as the case may be, hereby authorizes such officers, employees, subservicers and independent accountants to discuss with the Administrative Agent, the Group Agents and the Back-Up Servicer, the affairs of the Borrower or the Servicer, as the case may be.  The Borrower or the initial Servicer, as the case may be, shall reimburse the Administrative Agent, the Group Agents and the Back-Up Servicer for all reasonable out-of-pocket fees, costs and expenses incurred by or on behalf of the Administrative Agent or the Group Agents in connection with the foregoing actions promptly upon receipt of a written invoice therefor in connection with the initial post-closing audit, visit and inspection, the initial audit, visit and inspection by the Administrative Agent (or a Person engaged by the Administrative Agent) in any calendar year, and all audits, visits and inspections made after the occurrence and during the continuation of a Servicer Default, a Default or an Event of Default.  Any audit provided for herein shall be conducted in accordance with Borrower’s or the Servicer’s, as the case may be, reasonable rules respecting safety and security on its premises and without materially disrupting operations.  Nothing in this Section 7.02(c) shall affect the obligation of the Servicer to observe any applicable law prohibiting the disclosure of information regarding the Lessees, and the failure of the Servicer to provide access to information as a result of such obligation shall not constitute a breach of this Section 7.02(c).

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(d)To the fullest extent permitted by applicable law, TFL hereby irrevocably grants during the term of this Agreement to the Administrative Agent (or its designated agent) or the successor Servicer, if any, an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of TFL all steps and actions permitted to be taken under this Agreement with respect to the Collateral which the Administrative Agent may deem necessary or advisable to negotiate or otherwise realize on any right of any kind held or owned by TFL or transmitted to or received by the Administrative Agent or its designated agent (whether or not from the Borrower or any Lessee) in connection with the Collateral; provided, however, that such power of attorney may not be exercised without the prior written consent of TFL, unless (A)(i) a Servicer Default or (ii) an Event of Default shall have occurred and be continuing or (B) the Servicer fails to perform any act required hereunder after receiving ten (10) Business Days written notice of such failure from the Administrative Agent.  The Administrative Agent will provide such periodic accounting and other information related to the disposition of funds so collected as TFL may reasonably request.

SECTION 7.03  Maintenance of Writings and Lease Documents.  The Borrower will at all times keep or cause to be kept at its Chief Executive Office or at an office of the Servicer designated in advance to the Administrative Agent, each writing or written Lease Document which evidences, and which is necessary or desirable to establish or protect, including such books of account and other Lease Documents as will enable the Administrative Agent or its designee to determine at any time the status of, the security interest of the Administrative Agent in the Collateral.  TFL shall at its own expense prepare and maintain the Lease Documents in electronically readable form in such format as TFL customarily maintains its Lease Documents; provided, however, that upon the appointment of a Successor Servicer pursuant to the Warehouse SUBI Servicing Agreement, TFL shall within thirty (30) days of such appointment prepare such Lease Documents in such format as may be required to permit or facilitate the transfer of such Lease Documents to the Successor Servicer.

SECTION 7.04  Information.  TFL will furnish or cause to be furnished to the Administrative Agent and each Group Agent such additional information with respect to the Leases (including but not limited to TFL’s procedures for selecting Leases for sale and TFL’s standards and procedures for granting credit) as the Administrative Agent or any Group Agent may reasonably request.  TFL will also furnish to the Administrative Agent and each Group Agent on each Quarterly Report Date a copy of the Credit and Collection Policy indicating all material modifications, adjustments or supplements thereto; provided, however, the Servicer shall not, without the prior written consent of the Administrative Agent and each Group Agent, alter the Credit and Collection Policy as in effect from time to time unless such alteration is in compliance with Section 6.04(d).

SECTION 7.05  Performance of Undertakings Under the Leases.  The Servicer, acting on behalf of the Borrower, will at all times observe and perform, or cause to be observed and performed, all material obligations and undertakings to the Lessees arising in connection with each Lease and will not take any action or cause any action to be taken to materially impair the rights of the Administrative Agent in or to the Collateral.

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SECTION 7.06  Administration and Collections.

(a)General.  Until a Successor Servicer shall be appointed pursuant to the Warehouse SUBI Servicing Agreement, TFL will be responsible for the administration, servicing and collection of the Leases in accordance with this Agreement and the Warehouse SUBI Servicing Agreement, all of which shall be conducted in all material respects in accordance with the Credit and Collection Policy and applicable law.  TFL (for itself and on behalf of any Person to which it delegates any of its duties hereunder) acknowledges and agrees that, upon a transfer of servicing from TFL, the Administrative Agent or any successor Servicer shall have the right, in its sole discretion, to terminate any delegation of duties by TFL without penalty or liability of any kind.

(b)Payment of Certain Expenses by Servicer.  Except as otherwise set forth in this Agreement, the initial Servicer will be required to pay all expenses incurred by it in connection with its activities under this Agreement, including the fees and disbursements of independent certified public accountants, Taxes imposed on such Servicer, expenses incurred in connection with payments and reports pursuant to this Agreement, fees and expenses of subservicers (including [***]) and agents of such Servicer and all other fees and expenses not expressly stated under this Agreement for the account of the Borrower.  

(c)Delegation.  The Servicer may delegate in the ordinary course of business any or all of its duties and obligations hereunder to one or more third parties or subservicers (including to [***] pursuant to the [***] Subservicing Agreement); provided, however, that the Servicer shall at all times remain liable and responsible for the performance of such duties and obligations.

(d)Warehouse SUBI Collection Account.  The Borrower shall cause to be established and maintained in the name of the Borrower for the benefit of the Administrative Agent the Warehouse SUBI Collection Account for the purpose of receiving and disbursing all Collections on the Collateral, all payments made by the Borrower pursuant to this Agreement, all Interest Rate Hedge Receipts and all other payments to be made into the Warehouse SUBI Collection Account.  The Warehouse SUBI Collection Account shall be an Eligible Account used only for the collection of the amounts and for application of such amounts as described in Section 2.04 of this Agreement.  The Warehouse SUBI Collection Account will be an Eligible Account established pursuant to a Control Agreement with respect to which the Administrative Agent shall, at all times, be an Entitlement Holder or purchaser with Control and will bear a designation to clearly indicate that the funds and Financial Assets deposited therein are held for the benefit of the Administrative Agent.  The Servicer and the Borrower agree to deposit in the Warehouse SUBI Collection Account (a) at least 95% of all Collections received during each Settlement Period that are not received directly in the Warehouse SUBI Collection Account no later than two (2) Business Days after receipt,  and (b) the remainder of such Collections as soon as reasonably practical but not later than two (2) Business Days after identification.  If the Warehouse SUBI Collection Account ceases to be an Eligible Account, the Borrower shall within thirty (30) calendar days of receipt of notice of such change in eligibility transfer the Warehouse SUBI Collection Account to an account that meets the requirements of an Eligible Account and that is established pursuant to a substitute Control Agreement with respect to which the Administrative Agent shall be an Entitlement Holder or purchaser with Control and which

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bears a designation to indicate clearly that the funds and Financial Assets deposited therein are held for the benefit of the Administrative Agent.  If there shall have been deposited in the Warehouse SUBI Collection Account any amount not required to be deposited therein and so identified to the Administrative Agent, such amount shall be withdrawn from the Warehouse SUBI Collection Account, any provision herein to the contrary notwithstanding, and any such amounts shall not be deemed to be a part of the Warehouse SUBI Collection Account.  The Borrower may, with the consent of the Administrative Agent and each Group Agent, establish a new Warehouse SUBI Collection Account subject to a new Control Agreement in replacement of the existing Warehouse SUBI Collection Account and Control Agreement.

(e)Security Deposits.  The Servicer shall cause all Security Deposits to be held in a Permitted Account pledged to the Administrative Agent for the benefit of the Secured Parties to secure the Secured Obligations, which security interest shall be perfected by control pursuant to a Control Agreement.

(f)Investment.  The Servicer may cause the funds in the Warehouse SUBI Collection Account to be invested in Eligible Investments, held in the name of the Administrative Agent, which shall mature no later than the Payment Date following such investment.  Any income or other gain from such Eligible Investments (i) shall be transferred to the Reserve Account if necessary to satisfy the Required Reserve Account Balance, if any, and (ii) shall, to the extent there remains any balance after giving effect to preceding clause (i), be paid to the Borrower.

ARTICLE VIII

EVENTS OF DEFAULT

SECTION 8.01  Events of Default.  The occurrence of any one or more of the following events shall constitute an Event of Default:

(a)any Tesla Party shall fail to perform or observe any term, covenant, agreement or undertaking hereunder or under any other Transaction Document (other than as described elsewhere in this Section 8.01), and such failure shall remain unremedied for:

(i)in the case of any covenant set forth in any of Sections 2.06(a), 7.06(d), 6.01(k), 6.03(n) or 6.03(o), five (5) Business Days after the earlier of (x) any Responsible Officer of the Borrower or the Servicer becomes aware thereof or (y) written notice thereof has been given to the Borrower or the Servicer by a Lender Party; or

(ii)in the case of any other covenant thirty (30) calendar days after the earlier of (i) any Responsible Officer of the Borrower or the Servicer becomes aware thereof or (ii) written notice thereof has been given to the Borrower or the Servicer by a Lender Party; or

(b)any representation, warranty, certification or statement made by any Tesla Party in this Agreement or in any other Transaction Document shall have been untrue or incorrect in any material respect when made or deemed made and, if capable of being cured,

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shall remain unremedied for thirty (30) calendar days after the earlier of (i) any Responsible Officer of the Borrower or the Servicer becomes aware thereof or (ii) written notice thereof has been given to the Borrower or the Servicer by a Lender Party; or

(c)the Borrower shall fail to pay or shall fail to cause to be paid to the Lender Parties (i) the Loan Balance in full, together with all other Secured Obligations, on the Loan Maturity Date, or (ii) the Interest Distributable Amount, Usages Fees or Unused Fees in full for any Payment Date on such Payment Date and such failure to pay the Interest Distributable Amount in full shall continue for three (3) Business Days; or

(d)any Repurchase Amount fails to be paid when due, and such failure shall continue for three (3) Business Days; or

(e)any Tesla Party shall fail to pay or fail to cause to be paid when due any other amount due hereunder or under any other Transaction Document (other than any amount described in any other clause of this Section 8.01) when due and such failure shall continue for three (3) Business Days after written notice thereof by any Lender Party to the Borrower; or

(f)any Tesla Party shall fail to pay any principal of or premium or interest on any Debt having a principal amount of $[***] or greater (or, in the case of Tesla Motors, Inc., $[***] or greater), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt and shall not be waived by the requisite holders of such Debt; or any other default under any agreement or instrument relating to any such Debt of any Tesla Party, or any other event shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case, prior to the stated maturity thereof; or

(g)an Event of Bankruptcy shall occur with respect to any Tesla Party; or

(h)a Servicer Default (so long as TFL is the Servicer) shall have occurred under the Warehouse SUBI Servicing Agreement; or

(i)there shall be entered against (x) the Servicer or the Trust one or more final judgments or orders for the payment of money in an individual amount exceeding $[***] or an  aggregate amount (as to all such judgments or orders) exceeding $[***], or (y) the Borrower one or more final judgments or orders for the payment of money in an individual or aggregate amount exceeding $[***], in each case to the extent not paid or covered by insurance (other than customary reservation of rights letters) or third party indemnification), and any such judgment or order  shall not have been fully paid or otherwise satisfied, vacated, dismissed, discharged, appealed (and bonded pending such appeal if and to the extent required by law) or stayed within sixty (60) days (or such earlier date when valid enforcement proceedings are commenced by any creditor upon such judgment or order) from the entry thereof; or

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(j)a Change in Control shall have occurred; or

(k)the average of the Delinquency Ratios for any three (3) consecutive Settlement Periods shall exceed the Delinquency Ratio Trigger; or

(l)the annualized average of the Credit Loss Ratios for any three (3) consecutive Settlement Periods shall exceed the Credit Loss Ratio Trigger; or

(m)the Residual Value Performance Ratio, as of any Statistically Significant RVPR Calculation Date, shall be less than the Residual Value Performance Ratio Trigger; or

(n)on any Payment Date, the Loan Balance, after giving effect to all increases and decreases in the Loan Balance on such Payment Date, shall exceed the Maximum Loan Balance for such Payment Date and such condition shall continue for three (3) Business Days; or

(o)the outstanding balance of the Reserve Account shall be less than the Required Reserve Account Balance; or

(p)the TFL Total Debt to Tangible Net Worth Ratio shall exceed [***] to 1 at any time after the Closing Date; or

(q)the TFL Tangible Net Worth shall at any time be less than the sum of (x) $[***] plus (y) [***] % of the cumulative positive net income (without deduction for negative net income) of TFL and its Subsidiaries on a consolidated basis for each fiscal quarter having been completed since the Closing Date;

(r)a Responsible Officer of the Servicer or the Borrower shall become aware of any breach any of the covenants in Section 6.01(m) relating to Interest Rate Hedges or the Borrower shall have been given written notice of any such breach by a Lender Party; or

(s)the Borrower, TFL or the Trust shall become an “investment company” within the meaning of the Investment Company Act or a “covered fund” under the Volcker Rule.

SECTION 8.02   Remedies Upon the Occurrence of an Event of Default.

(a)If an Event of Default has occurred and has not been waived, the Administrative Agent shall, at the request, or may with the consent, of the Group Agents, by notice to the Borrower (a “Notice of Termination”), declare all of the Secured Obligations to be immediately due and payable (except that, in the case of any event described in Section 8.01(g) or (h) (due to a Servicer Default under clause (f) of the definition thereof in Section 1.1 of the Warehouse SUBI Servicing Agreement), all of the Secured Obligations shall automatically become immediately due and payable) and the Commitments shall be terminated without presentment, demand, protest or notice of any kind (except as expressly required in this Section 8.02), all of which are hereby expressly waived by the Borrower.  On and after the occurrence of an Event of Default that has not been waived, the Lenders shall fund no further Loan Increases.  In addition, (i) following the occurrence of an Event of Default, the Administrative Agent shall, at the request, or may with the consent, of the Group Agents, terminate TFL or any Affiliate thereof as Servicer pursuant to Section 4.1 of the Warehouse

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SUBI Servicing Agreement (but may, at the Administrative Agent’s option, retain the services of [***] as subservicer), and (ii) following the occurrence of an Event of Default (and in no event before the occurrence of an Event of Default), the Administrative Agent shall, at the request, or may with the consent, of the Group Agents, exercise its rights and remedies under the Control Agreements relating to the Reserve Account and the Warehouse SUBI Collection Account and as otherwise contemplated herein.  In addition, following the occurrence of an Event of Default, the Loan Balance shall accrue interest at the Default Rate in accordance with Section 2.02.  

(b)In addition to all rights and remedies under this Agreement or otherwise, the Administrative Agent shall have all other rights and remedies provided under the Relevant UCC and under other applicable laws, which rights shall be cumulative.  Without limiting the generality of the foregoing, if an Event of Default has occurred and has not been waived, the Administrative Agent may, without being required to give any notice (except as herein provided or as may be required by mandatory provisions of law), sell the Collateral or any part thereof in any commercially reasonable manner at public or private sale, for cash, upon credit or for future delivery, and at such price or prices as the Administrative Agent may deem satisfactory.  The Borrower will execute and deliver such documents and take such other action as the Administrative Agent reasonably deems necessary or advisable in order that any such sale may be made in compliance with applicable law.  Upon any such sale, the Administrative Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold.  Each purchaser at any such sale shall hold the Collateral so sold to it absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of the Borrower which may be waived, and the Borrower, to the extent permitted by applicable law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted.  The Administrative Agent, instead of exercising the power of sale herein conferred upon it, shall, at the direction, or may with the consent, of the Group Agents proceed by a suit or suits at law or in equity to foreclose the security interests in the Collateral and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

(c)In furtherance of the rights, powers and remedies of the Administrative Agent, the Borrower hereby irrevocably appoints the Administrative Agent as its true and lawful attorney, with full power of substitution, in the name of the Borrower, or otherwise, for the sole use and benefit of the Administrative Agent (for the further benefit of the Secured Parties), but at the Borrower’s expense, to the extent permitted by law to exercise, at any time and from time to time if an Event of Default has occurred and has not been waived, all or any of the following powers with respect to all or any of the Collateral:

(i)to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due thereon or by virtue thereof,

(ii)to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto,

(iii)to sell, transfer, assign or otherwise deal in or with the Collateral or the proceeds or avails thereof, as fully and effectually as if the Administrative Agent were the absolute owner thereof, and

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(iv)to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto;

provided that the Administrative Agent shall give the Borrower at least ten (10) days prior written notice of the time and place of any public sale or the time after which any private sale or other intended disposition of any of the Collateral is to be made.  The Borrower agrees that such notice constitutes “reasonable authenticated notification” within the meaning of Section 9-611(b) of the UCC (or other section of similar content of the Relevant UCC).

(d)Notwithstanding anything to the contrary contained in this Agreement, if at any time the rights, powers and privileges of the Administrative Agent following the occurrence of an Event of Default conflict (or are inconsistent) with the rights and obligations of the Servicer, the rights, powers and privileges of the Administrative Agent shall supersede the rights and obligations of the Servicer to the extent of such conflict (or inconsistency), with the express intent of maximizing the rights, powers and privileges of the Administrative Agent following the occurrence of an Event of Default.

(e)The Administrative Agent agrees with the Borrower, with respect to any Control Agreement and the related deposit or securities account, that the Administrative Agent will not deliver a “Notice of Exclusive Control” or “Access Termination Notice” (as defined in such Control Agreement) to the applicable securities intermediary or account bank except after an Event of Default has occurred that has not been waived.

(f)The parties hereto acknowledge that this Agreement is, and is intended to be, a contract to extend financial accommodations to the Borrower within the meaning of Section 365(e)(2)(B) of the Bankruptcy Code (or any amended or successor provision thereof or any amended or successor code).

ARTICLE IX

THE ADMINISTRATIVE AGENT

SECTION 9.01  Authorization and Action.  Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto.  The Administrative Agent shall not have any duties other than those expressly set forth in the Transaction Documents, and no implied obligations or liabilities shall be read into any Transaction Document, or otherwise exist, against the Administrative Agent.  The Administrative Agent does not assume, nor shall it be deemed to have assumed, any obligation to, or relationship of trust or agency with, any Tesla Party, the Conduit Lenders, the Committed Lenders or the Group Agents, except for any obligations expressly set forth herein.  Notwithstanding any provision of this Agreement or any other Transaction Document, in no event shall the Administrative Agent ever be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to any provision of any Transaction Document or applicable law.

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SECTION 9.02  Administrative Agent’s Reliance, Etc.  Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Administrative Agent under or in connection with this Agreement (including the Administrative Agent’s servicing, administering or collecting Warehouse SUBI Assets in the event it replaces the Servicer in such capacity pursuant to Article VII), in the absence of its or their own gross negligence or willful misconduct.  Without limiting the generality of the foregoing, the Administrative Agent: (a) may consult with legal counsel (including counsel for a Group Agent, the Borrower or the Servicer), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Group Agent or Lender (whether written or oral) and shall not be responsible to any Group Agent or Lender for any statements, warranties or representations (whether written or oral) made by any other party in or in connection with this Agreement; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of any Tesla Party or to inspect the property (including the books and records) of any Tesla Party; (d) shall not be responsible to any Group Agent or Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (e) shall be entitled to rely, and shall be fully protected in so relying, upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telecopier or telex) believed by it to be genuine and signed or sent by the proper party or parties.

SECTION 9.03  Administrative Agent and Affiliates.  With respect to any Loan or interests therein owned by any Lender that is also the Administrative Agent, such Lender shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent.  The Administrative Agent and any of its Affiliates may generally engage in any kind of business with any Tesla Party, any of their respective Affiliates and any Person who may do business with or own securities of any Tesla Party or any of their respective Affiliates, all as if the Administrative Agent were not the Administrative Agent hereunder and without any duty to account therefor to any other Secured Party.

SECTION 9.04  Indemnification of Administrative Agent.  Each Committed Lender agrees to indemnify the Administrative Agent (to the extent not reimbursed by the Tesla Parties), ratably according to the respective Percentage of such Committed Lender, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other Transaction Document or any action taken or omitted by the Administrative Agent under this Agreement or any other Transaction Document; provided that no Committed Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s gross negligence or willful misconduct.

SECTION 9.05  Delegation of Duties.  The Administrative Agent may execute any of its duties through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all

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matters pertaining to such duties.  The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

SECTION 9.06  Action or Inaction by Administrative Agent.  The Administrative Agent shall in all cases be fully justified in failing or refusing to take action under any Transaction Document unless it shall first receive such advice or concurrence of the Group Agents and assurance of its indemnification by the Committed Lenders, as it deems appropriate.  The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Transaction Document in accordance with a request or at the direction of the Group Agents and such request or direction and any action taken or failure to act pursuant thereto shall be binding upon all Lenders and the Group Agents.  

SECTION 9.07  Notice of Defaults and Events of Default; Action by Administrative Agent.  The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Servicer Default, Default or Event of Default unless the Administrative Agent has received notice from any Group Agent, Lender or the Borrower stating that a Servicer Default, Default or Event of Default has occurred hereunder and describing such Servicer Default, Default or Event of Default.  If the Administrative Agent receives such a notice, it shall promptly give notice thereof to each Group Agent, whereupon each Group Agent shall promptly give notice thereof to its respective Conduit Lender(s) and Related Committed Lenders.  The Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, concerning a Servicer Default, Default or Event of Default or any other matter hereunder as the Administrative Agent deems advisable and in the best interests of the Secured Parties.

SECTION 9.08  Non-Reliance on Administrative Agent and Other Parties.  Each Group Agent and Lender expressly acknowledges that neither the Administrative Agent nor any of its directors, officers, agents or employees has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of the Tesla Parties, shall be deemed to constitute any representation or warranty by the Administrative Agent.  Each Lender represents and warrants to the Administrative Agent that, independently and without reliance upon the Administrative Agent, any Group Agent or any other Lender and based on such documents and information as it has deemed appropriate, it has made and will continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of each Tesla Party and the Warehouse SUBI Assets and its own decision to enter into this Agreement and to take, or omit, action under any Transaction Document.  Except for items expressly required to be delivered under any Transaction Document by the Administrative Agent to any Group Agent or Lender, the Administrative Agent shall not have any duty or responsibility to provide any Group Agent or Lender with any information concerning the Tesla Parties or any of their Affiliates that comes into the possession of the Administrative Agent or any of its directors, officers, agents, employees, attorneys-in-fact or Affiliates.

SECTION 9.09  Successor Administrative Agent.

(a)The Administrative Agent may, upon at least thirty (30) days’ notice to the Borrower, the Servicer and each Group Agent, resign as Administrative Agent.  Except as

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provided below, such resignation shall not become effective until a successor Administrative Agent is appointed by the Group Agents as a successor Administrative Agent and has accepted such appointment.  If no successor Administrative Agent shall have been so appointed by the Group Agents, within thirty (30) days after the departing Administrative Agent’s giving of notice of resignation, the departing Administrative Agent may, on behalf of the Secured Parties, appoint a successor Administrative Agent.  If no successor Administrative Agent shall have been so appointed by the Group Agents within sixty (60) days after the departing Administrative Agent’s giving of notice of resignation, the departing Administrative Agent may, on behalf of the Group Agents, petition a court of competent jurisdiction to appoint a successor Administrative Agent, which successor Administrative Agent shall be either (i) a commercial bank having a combined capital and surplus of at least $250,000,000 and short-term debt ratings of at least “A-1” from S&P and “P-1” from Moody’s or (ii) an Affiliate of such an institution.

(b)The Borrower, the Servicer and any Administrative Agent that resigns pursuant to clause (a) above or is terminated pursuant to clause (b) above shall cooperate with the applicable successor Administrative Agent, and shall use commercially reasonable efforts, in each case, to facilitate the appointment of such successor as the Administrative Agent hereunder (including by entering into such amendments to the Control Agreements and other Transaction Documents and authorizing the filing of amendments to financing statements, in each case, as are reasonably requested by the successor Administrative Agent to reflect such succession).

(c)Upon such acceptance of its appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall succeed to and become vested with all the rights and duties of the resigning or terminated Administrative Agent, and the resigning or terminated Administrative Agent shall be discharged from its duties and obligations under the Transaction Documents.  After any resigning or terminated Administrative Agent’s resignation or termination hereunder, the provisions of Article XI and this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent.

ARTICLE X

THE GROUP AGENTS

SECTION 10.01  Authorization and Action.  Each Lender that belongs to a Group hereby appoints and authorizes the Group Agent for such Group to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to such Group Agent by the terms hereof, together with such powers as are reasonably incidental thereto.  No Group Agent shall have any duties other than those expressly set forth in the Transaction Documents, and no implied obligations or liabilities shall be read into any Transaction Document, or otherwise exist, against any Group Agent.  No Group Agent assumes, nor shall it be deemed to have assumed, any obligation to, or relationship of trust or agency with any Tesla Party, any Lender except for any obligations expressly set forth herein.  Notwithstanding any provision of this Agreement or any other Transaction Document, in no event shall any Group Agent ever be required to take any action which exposes such Group Agent to personal liability or which is contrary to any provision of any Transaction Document or applicable law.

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SECTION 10.02  Group Agent’s Reliance, Etc.  No Group Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as a Group Agent under or in connection with this Agreement or the other Transaction Documents in the absence of its or their own gross negligence or willful misconduct.  Without limiting the generality of the foregoing, a Group Agent: (a) may consult with legal counsel (including counsel for the Administrative Agent, the Borrower or the Servicer), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Lender (whether written or oral) and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made by any other party in or in connection with this Agreement or any other Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Transaction Document on the part of any Tesla Party or any other Person or to inspect the property (including the books and records) of any Tesla Party; (d) shall not be responsible to any Committed Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Transaction Documents or any other instrument or document furnished pursuant hereto; and (e) shall be entitled to rely, and shall be fully protected in so relying, upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telecopier or telex) believed by it to be genuine and signed or sent by the proper party or parties.

SECTION 10.03  Group Agent and Affiliates.  With respect to any Loan or interests therein owned by any Lender that is also a Group Agent, such Lender shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not a Group Agent.  A Group Agent and any of its Affiliates may generally engage in any kind of business with any Tesla Party, any of their respective Affiliates and any Person who may do business with or own securities of any Tesla Party or any of their respective Affiliates, all as if such Group Agent were not a Group Agent hereunder and without any duty to account therefor to any other Secured Party.

SECTION 10.04  Indemnification of Group Agents.  Each Committed Lender in any Group agrees to indemnify the Group Agent for such Group (to the extent not reimbursed by the Tesla Parties), ratably according to the proportion of the Percentage of such Committed Lender to the aggregate Percentages of all Committed Lenders in such Group, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against such Group Agent in any way relating to or arising out of this Agreement or any other Transaction Document or any action taken or omitted by such Group Agent under this Agreement or any other Transaction Document; provided that no Committed Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Group Agent’s gross negligence or willful misconduct.

SECTION 10.05  Delegation of Duties.  Each Group Agent may execute any of its duties through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning

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all matters pertaining to such duties.  No Group Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

SECTION 10.06  Action or Inaction by Group Agent.  Each Group Agent shall in all cases be fully justified in failing or refusing to take action under any Transaction Document unless it shall first receive such advice or concurrence of the Conduit Lenders and Committed Lenders in its Group and assurance of its indemnification by the Committed Lenders in its Group, as it deems appropriate.  Each Group Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Transaction Document in accordance with a request or at the direction of the Committed Lenders in its Group representing a majority of the Commitments in such Group, and such request or direction and any action taken or failure to act pursuant thereto shall be binding upon all Conduit Lenders and Committed Lenders in its Group.

SECTION 10.07  Notice of Events of Default.  No Group Agent shall be deemed to have knowledge or notice of the occurrence of any Servicer Default, Default or Event of Default unless such Group Agent has received notice from the Administrative Agent, any other Group Agent, any Lender, the Servicer or the Borrower stating that a Servicer Default, Default or Event of Default has occurred hereunder and describing such Servicer Default, Default or Event of Default.  If a Group Agent receives such a notice, it shall promptly give notice thereof to the Lenders in its Group and to the Administrative Agent (but only if such notice received by such Group Agent was not sent by the Administrative Agent).  A Group Agent may take such action concerning a Servicer Default, Default or Event of Default as may be directed by Committed Lenders in its Group representing a majority of the Commitments in such Group (subject to the other provisions of this Article X), but until such Group Agent receives such directions, such Group Agent may (but shall not be obligated to) take such action, or refrain from taking such action, as such Group Agent deems advisable and in the best interests of the Conduit Lenders and Committed Lenders in its Group.

SECTION 10.08  Non-Reliance on Group Agent and Other Parties.  Except to the extent otherwise agreed to in writing between a Lender and its Group Agent, each Lender expressly acknowledges that neither the Group Agent for its Group nor any of such Group Agent’s directors, officers, agents or employees has made any representations or warranties to it and that no act by such Group Agent hereafter taken, including any review of the affairs of the Tesla Parties, shall be deemed to constitute any representation or warranty by such Group Agent.  Each Lender represents and warrants to the Group Agent for its Group that, independently and without reliance upon such Group Agent, any other Group Agent, the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, it has made and will continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Tesla Parties and the Warehouse SUBI Assets and its own decision to enter into this Agreement and to take, or omit, action under any Transaction Document.  Except for items expressly required to be delivered under any Transaction Document by a Group Agent to any Lender in its Group, no Group Agent shall have any duty or responsibility to provide any Lender in its Group with any information concerning the Tesla Parties or any of their Affiliates that comes into the possession of such Group Agent or any of its directors, officers, agents, employees, attorneys-in-fact or Affiliates.

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SECTION 10.09  Successor Group Agent.  Any Group Agent may, upon at least thirty (30) days’ notice to the Administrative Agent, the Borrower, the Servicer and the Lenders in its Group, resign as Group Agent for its Group.  Such resignation shall not become effective until a successor Group Agent is appointed in the manner prescribed by the relevant Liquidity Agreement (if any) or, in the absence of any provisions in such Liquidity Agreement providing for the appointment of a successor Group Agent, until a successor Group Agent is appointed by the Conduit Lender(s) in such Group (with the consent of Committed Lenders representing a majority of the Commitments in such Group) and such successor Group Agent has accepted such appointment.  If no successor Group Agent shall have been so appointed within thirty (30) days after the departing Group Agent’s giving of notice of resignation, then the departing Group Agent may, on behalf of the Lenders in its Group, appoint a successor Group Agent for such Group, which successor Group Agent shall have short-term debt ratings of at least “A-1” from S&P and “P-1” from Moody’s and shall be either a commercial bank having a combined capital and surplus of at least $250,000,000 or an Affiliate of such an institution.  Upon such acceptance of its appointment as Group Agent for such Group hereunder by a successor Group Agent, such successor Group Agent shall succeed to and become vested with all the rights and duties of the resigning Group Agent, and the resigning Group Agent shall be discharged from its duties and obligations under the Transaction Documents.  After any resigning Group Agent’s resignation hereunder, the provisions of Article XI and this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was a Group Agent.

SECTION 10.10  Reliance on Group Agent.  Unless otherwise advised in writing by a Group Agent or by any Lender in such Group Agent’s Group, each party to this Agreement may assume that (i) such Group Agent is acting for the benefit and on behalf of each of the Lenders in its Group, as well as for the benefit of each assignee or other transferee from any such Person, and (ii) each action taken by such Group Agent has been duly authorized and approved by all necessary action on the part of the Lenders in its Group.

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ARTICLE XI

INDEMNIFICATION

SECTION 11.01  Indemnification.  (a) Without limiting any other rights that any Lender Party may have hereunder or under applicable law, the Borrower hereby agrees to indemnify each Indemnified Party from and against any and all damages, losses, claims, liabilities, documented and reasonable costs and expenses (other than any damages, losses, claims, liabilities, costs and expenses in respect of taxes, which shall be governed by Section 11.02), including reasonable attorneys’ fees and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against or incurred by any of them arising out of or as a result of this Agreement, the other Transaction Documents or the ownership of the Loans, or their respective interests in the Collateral, excluding, however, Indemnified Amounts to the extent resulting from the fraud, bad faith, gross negligence or willful misconduct on the part of the applicable Indemnified Party.  Without limiting the generality of the foregoing, the Borrower shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from:

(i)reliance on any representation or warranty made by the Borrower (or any officers of the Borrower) under or in connection with this Agreement, any other Transaction Document or any other information or report delivered by the Borrower pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made;  

(ii)the failure by the Borrower to comply in all material respects with any applicable law, rule or regulation with respect to any Lease or any portion thereof, or the nonconformity of any Lease, or any portion thereof, with any such applicable law, rule or regulation;

(iii)the failure to vest and maintain vested in the Administrative Agent, a first priority perfected security interest in the Collateral free and clear of any Adverse Claim;

(iv)the failure to file, or delay in filing, financing statements or other similar instruments or documents under the Relevant UCC or other applicable laws with respect to any portion of the Collateral or the Warehouse SUBI Leases;

(v)any dispute, claim, offset or defense of a Lessee (other than discharge in bankruptcy of a Lessee or arising from the financial inability of a Lessee to pay) to the payment of any Lease (including a defense based on the related Lease not being a legal, valid and binding obligation of such Lessee enforceable against it in accordance with its terms), or any other claim resulting from the lease of a Leased Vehicle or furnishing of services related to such Leases or Leased Vehicles, or the failure to furnish such services;

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(vi)any failure of the Borrower to perform its respective duties or obligations in accordance with the provisions of this Agreement or the other Transaction Documents;

(vii)any products liability claim or personal injury or property damage suit arising out of or in connection with Leased Vehicles or services that are the subject of any Leases or Leased Vehicles;

(viii)the commingling of Collections; or

(ix)any litigation, proceeding or investigation (a) before any Governmental Authority in respect of any Warehouse SUBI Lease or Warehouse SUBI Leased Vehicle (1) that is not commenced by such Indemnified Party or (2) if commenced by an Indemnified Party, in which such Indemnified Party is the prevailing party; or (b) relating to or arising from the Transaction Documents, the transactions contemplated hereby and thereby, the use of proceeds of the Loans by the Borrower or any other investigation, litigation or proceeding relating to the Borrower in which any Indemnified Person becomes involved as a result of any of the transactions contemplated by the Transaction Documents, excluding, however, in each case, Indemnified Amounts to the extent resulting from the fraud, bad faith, gross negligence or willful misconduct on the part of the applicable Indemnified Party.

(b)Without limiting any other rights that any Lender Party may have hereunder or under applicable law, TFL hereby agrees to indemnify each Indemnified Party from and against any and all damages, losses, claims, liabilities, costs and expenses (other than any damages, losses, claims, liabilities, costs and expenses in respect of taxes, which shall be governed by Section 11.02), including reasonable attorneys’ fees and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against or incurred by any of them relating to or resulting from any of the following excluding, however, Indemnified Amounts to the extent resulting from the fraud, bad faith, gross negligence or willful misconduct on the part of the applicable Indemnified Party:

(i)reliance on any representation or warranty made by the Borrower or TFL (or any officers of the Borrower or TFL) under or in connection with this Agreement, any other Transaction Document or any other information or report delivered by the Borrower or TFL pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made;

(ii)the failure by the Borrower or the Trust (to the extent TFL is responsible under the Transaction Documents for performing such duties on behalf of the Borrower or the Trust) or TFL to comply in all material respects with any applicable law, rule or regulation with respect to any Lease or any portion thereof, or the nonconformity of any Lease, or any portion thereof, with any such applicable law, rule or regulation;

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(iii)the failure to vest and maintain vested in the Administrative Agent a first priority perfected security interest in the Collateral free and clear of any Adverse Claim;

(iv)the failure to file, or delay in filing, financing statements or other similar instruments or documents under the Relevant UCC or other applicable laws with respect to any portion of the Collateral or the Warehouse SUBI Leases;

(v)any dispute, claim, offset or defense of a Lessee (other than discharge in bankruptcy of a Lessee or arising from the financial inability of a Lessee to pay) to the payment of any Lease (including a defense based on the related Lease not being a legal, valid and binding obligation of such Lessee enforceable against it in accordance with its terms), or any other claim resulting from the lease of a Leased Vehicle or furnishing of services related to such Leases or Leased Vehicles, or the failure to furnish such services;

(vi)any failure of the Borrower or the Trust (to the extent TFL is responsible under the Transaction Documents for performing such duties on behalf of the Borrower or the Trust) or TFL to perform their respective duties or obligations in accordance with the provisions of this Agreement or the other Transaction Documents;

(vii)any products liability claim or personal injury or property damage suit arising out of or in connection with Leased Vehicles or services that are the subject of any Leases or Leased Vehicles;

(viii)the commingling of Collections; or

(ix)any investigation, litigation or proceeding relating to or arising out of TFL’s origination or servicing of Leases in which any Indemnified Party becomes involved as a result of any of the transactions contemplated by the Transaction Documents, excluding Indemnified Amounts to the extent resulting from the fraud, bad faith, gross negligence or willful misconduct on the part of the applicable Indemnified Party or from litigation or proceedings commenced by the Indemnified Party in which it is not the prevailing party.

(c)Promptly upon receipt by an Indemnified Party under this Section 11.01 of notice of the commencement of any suit, action, claim, proceeding or governmental investigation against such Indemnified Party, such Indemnified Party shall, if a claim in respect thereof is to be made against the Borrower or TFL (each an “Indemnifying Party”) under this Section, promptly notify the applicable Indemnifying Party in writing of the commencement. Such Indemnified Party’s failure or delay to so promptly notify such Indemnifying Party shall not limit the obligations of such Indemnifying Party to such Indemnified Party in respect of such claim except to the extent such Indemnifying Party is actually prejudiced in its defense of such claim by such failure or delay.  The applicable Indemnifying Party may participate in and assume the defense of any such suit, action, claim, proceeding or investigation at its expense, and no settlement thereof shall be made without the approval of such Indemnifying Party and such Indemnified Party.  The approval of the Indemnifying Party shall not be unreasonably withheld or delayed.  

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After notice from the Indemnifying Party to such Indemnified Party of its intention to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Party, and so long as the Indemnifying Party so assumes the defense thereof in a manner reasonably satisfactory to such Indemnified Party, the Indemnifying Party shall not be liable for any legal expenses of counsel for such Indemnified Party unless there shall be a conflict between the interests of the Indemnifying Party and such Indemnified Party, in which case such Indemnified Party shall have the right to employ counsel to represent it at the Indemnifying Party’s expense.  If the Indemnifying Party shall have made any indemnity payments pursuant to this Section 11.01 and such Indemnified Party thereafter collects any of such amounts from others, such Indemnified Party shall promptly repay such amounts to the Indemnifying Party, without interest (except to the extent interest is received by such Indemnified Party).

SECTION 11.02  Tax Indemnification.  

(a)Any and all payments by or on account of any obligation of the Borrower hereunder shall be made without deduction or withholding for any Taxes, except as required by applicable law.  If any applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

(b)The Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.

(c)The Borrower shall indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of another Lender Party, shall be conclusive absent manifest error.

(d)Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 12.10(h) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to

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such Lender, in each case, that are payable or paid by the Administrative Agent in connection with this Agreement, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error.  Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (d).

(e)As soon as practicable after any payment of Taxes by the Borrower to a Governmental Authority pursuant to this Section 11.02, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(f)(i) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments made hereunder shall deliver to the Servicer, the Borrower and the Administrative Agent, at the time or times reasonably requested by the Servicer, the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Servicer, the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if reasonably requested by the Servicer, the Borrower or the Administrative Agent, shall deliver such documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Servicer, the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.  Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 11.02(f)(ii)(A), (ii)(B), and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii)Without limiting the generality of the foregoing:

(A)any Lender that is a U.S. Person shall deliver to the Servicer, the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Servicer, the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax.  

(B)Any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time

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thereafter upon the reasonable request of the Servicer, the Borrower or the Administrative Agent), whichever of the following is applicable:

(1)in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest hereunder, executed originals of IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments hereunder, IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(2)executed originals of IRS Form W-8ECI; or

(3)in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Internal Revenue Code, (x) a certificate substantially to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or a controlled foreign corporation” described in Section 881(c)(3)(C) of the Internal Revenue Code and (y) executed originals of IRS Form W-8BEN-E.

(C)Any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made.

(D)If a payment made to a Recipient under any Loan Document would be subject to U.S. federal withholding tax imposed by FATCA if such Recipient were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Internal Revenue Code, as applicable), such Recipient shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply

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with their obligations under FATCA and to determine that such Recipient has complied with such Recipient’s obligations under FATCA or to determine the amount to deduct and withhold from such payment.  Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.  

Any Administrative Agent or Group Agent that is a U.S. Person shall deliver to the Borrower and the Servicer executed originals of IRS Form W-9 certifying that such Person is exempt from U.S. federal backup withholding tax (in each case, if such form was not provided pursuant to Section 11.02(f)(ii)(A) above).  Any Administrative Agent or Group Agent that is not a U.S. Person shall deliver to the Borrower and the Servicer (and in the case of a Group Agent, to the Administrative Agent) two duly completed executed originals of Form W-8IMY certifying that it is a “U.S. branch” and that the payments it receives for the account of others hereunder are not effectively connected with the conduct of its trade or business in the United States and that such Form W-8IMY evidences its agreement with the Borrower to be treated as a “United States person” with respect to such payments (in each case, pursuant to Treasury Regulation section 1.1441-1T(b)(2)(iv)).

Each Recipient agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.  

SECTION 11.03  Additional Costs.  

(a)The Borrower shall pay to each Indemnified Party from time to time as specified in Section 11.04, such amounts reasonably necessary to compensate it for any increase in costs which are attributable to its funding a Loan or being committed to fund the same under this Agreement, or any reduction in any amount receivable by such Indemnified Party hereunder, under a Loan in respect of any such purchase or funding obligation (such increases in costs, payments and reductions in amounts receivable being herein called “Additional Costs”) resulting from any Regulatory Requirement and which (i) imposes any tax on, or changes the method or basis of taxation of, any amounts payable to such Lender under this Agreement in respect of any such purchase or funding (in each case) excluding (x) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes, (y) Connection Income Taxes, and (z) Indemnified Taxes, (ii) imposes or modifies any reserve, special deposit, deposit insurance or assessment, capital or similar requirements relating to any extensions of credit or other assets of, or any deposits with or credit extended by such Indemnified Party or (iii) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities); provided that the Borrower shall not be required to compensate an Indemnified Party pursuant to this Section 11.03 for any increased costs incurred or reductions suffered more than twelve (12) months prior to the date that such Indemnified Party notifies the Borrower of the Regulatory Requirement giving rise to such increased costs or reductions, and of such Indemnified Party’s intention to claim compensation therefor (except that, if the Regulatory Requirement giving rise to such increased costs or reductions is retroactive, then the twelve-month period referred to above shall be extended to include the period of retroactive effect thereof). Each of the Borrower and the Servicer acknowledges that any Indemnified Party may implement, as an internal institutional

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matter, measures in anticipation of a final or proposed Regulatory Requirement (including, without limitation, the imposition of internal charges on such Indemnified Party’s interest or obligations under this Agreement) and may commence recognizing the incurrence of charges by and seeking compensation under this Section 11.03(a) in connection with such measures, in advance of the effective date of such final or proposed Regulatory Requirement, and each of the Borrower and the Servicer agrees that such charges or compensation shall be payable, but only to the extent funds are then or thereafter become available therefor pursuant to Section 2.04(c) of this Agreement following demand therefor without regard to whether such proposed Regulatory Requirement has been adopted or whether such effective date has occurred.

(b)If any Indemnified Party has or anticipates having any claim for Additional Costs from the Borrower pursuant to Section 11.03(a), and such Indemnified Party believes that having the facility evidenced by this Agreement publicly rated by a credit rating agency would reduce the amount of such Additional Costs (such amount “Reduction Amount”) by an amount deemed by such Indemnified Party to be material, such Indemnified Party shall provide written notice to the Borrower and the Servicer (a “Ratings Request”) that such Indemnified Party intends to request public ratings of the facility from a credit rating agency selected by such Indemnified Party and reasonably acceptable to the Servicer (the “Facility Rating”).  The Borrower and the Servicer agree that they shall cooperate with such Indemnified Party’s efforts to obtain a Facility Rating within 60 days of such request, and shall provide the applicable credit rating agency (either directly or through distribution to the Administrative Agent or such Indemnified Party), any information requested by such credit rating agency for purposes of providing and monitoring the Facility Rating.  The Indemnified Party requesting the ratings shall pay the initial fees payable to the credit rating agency for providing the rating and all ongoing fees payable to the credit rating agency to the extent not paid by the Servicer. The Servicer shall pay such ongoing fees payable to the credit rating agency for its continued monitoring of the rating up to the Reduction Amount.  Nothing in this Section 11.03(b) shall preclude any Indemnified Party from demanding compensation from the Issuer pursuant to Section 11.03(a) hereof at any time and without regard to whether a Facility Rating shall have been obtained, or shall require any Indemnified Party to obtain any ratings on the facility prior to demanding any such compensation from the Borrower.  Any Facility Rating obtained pursuant to this Section 11.03(b) is exclusively for purposes of Section 11.03 and shall not amend or modify any other term or provision of this Agreement or any other Transaction Document.

SECTION 11.04  Procedures for Indemnification; Etc.

(a)Each Indemnified Party agrees to promptly notify the Borrower or TFL, as the case may be, of (i) any event of which it has knowledge which will entitle such Person to compensation or indemnification from the Borrower or TFL and (ii) any potential tax assessment of which it has knowledge by any tax authority for which the Borrower may be liable pursuant to Section 11.02(c) or 11.03. Such Indemnified Party’s failure or delay to so promptly notify such Indemnifying Party shall not limit the obligations of such Indemnifying Party to such Indemnified Party in respect of such claim except to the extent such Indemnifying Party is actually materially prejudiced in its defense of such claim by such failure or delay.  Any such notice claiming compensation or indemnification hereunder shall, if applicable, set forth in reasonable detail and in good faith the amount or amounts to be paid to such Indemnified Party hereunder and shall be conclusive in the absence of manifest error.  In determining such amount,

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such Indemnified Party may use any reasonable averaging and attribution methods.  The Borrower or TFL, as the case may be, shall pay each claim for compensation for which it is liable under Section 11.02(c) or 11.03 on the first Payment Date which is at least ten (10) days after notice of such claim is given to the Borrower or TFL, as the case may be.

(b)Each Indemnified Party agrees that it will use reasonable efforts to mitigate, reduce or eliminate any claim for indemnity pursuant to Section 11.02 or 11.03 including, subject to applicable law, a change in the funding office of such Indemnified Party; provided, however, that nothing contained herein shall obligate such Indemnified Party to take any action that imposes on such Indemnified Party any material additional costs or any legal or regulatory burdens, nor which, in such Indemnified Party’s sole discretion, would have an adverse effect on its business, operations or financial condition.

(c)If any Indemnified Party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to Section 11.02 or Section 11.03, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under Section 11.02 or Section 11.03 with respect to the Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses of such Indemnified Party, as the case may be, and without interest (other than any interest paid by the relevant Official Body with respect to such refund), provided that the Borrower, upon the request of such Indemnified Party, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Official Body) to such Indemnified Party in the event such Indemnified Party is required to repay such refund to such Official Body.  Notwithstanding anything to the contrary in this paragraph, in no event will any Indemnified Party be required to pay any amount to the Borrower pursuant to this paragraph the payment of which would place such Indemnified Party in a less favorable net after-Tax position than such Indemnified Party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid.  This paragraph shall not be construed to require any Indemnified Party to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

SECTION 11.05  Other Costs and Expenses.  The Borrower shall pay on the first Payment Date which is at least ten (10) Business Days after demand therefor, all actual and reasonable documented costs and expenses of (i) the Lender Parties in connection with the administration or amendment of this Agreement, the other Transaction Documents and the other documents to be delivered hereunder, including reasonable and documented fees and out-of-pocket expenses of legal counsel for the Administrative Agent, and (ii) the Lender Parties in connection with obtaining advice as to its rights and remedies under this Agreement or any other Transaction Document or in connection with the enforcement hereof or thereof, including reasonable and documented counsel fees and expenses of each such Person in connection therewith.  

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ARTICLE XII

MISCELLANEOUS

SECTION 12.01  Term of Agreement.  This Agreement shall terminate following the Termination Date upon the earlier to occur of (i) the Payoff Date or (ii) the date on which all Leases have been collected and distributed to the Administrative Agent or written off by TFL as being uncollectible in accordance with its Credit and Collection Policy; provided, however, that (i) the indemnification and payment provisions of Article XI and (ii) the agreements set forth in Article XII shall be continuing and shall survive any termination of this Agreement.  For the avoidance of doubt, after termination of this Agreement, the Administrative Agent shall cease to have any read only access rights under the eVault Letter Agreement.

SECTION 12.02  Waivers; Amendments.  No failure on the part of the Group Agents, the Conduit Lenders, the Committed Lenders or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.  No amendment or waiver of any provision of this Agreement or consent to any departure by the Borrower or TFL therefrom shall be effective unless in a writing signed by the Administrative Agent and each Group Agent (and, in the case of any amendment, also signed by the Borrower and, if applicable, TFL), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No amendment or waiver which affects the rights of the Trustee Bank with respect to Section 2.04 shall be effective without, in each specific instance, the written approval of the Trustee Bank.

SECTION 12.03  No Implied Waiver; Cumulative Remedies.  No course of dealing and no delay or failure of any Lender Party in exercising any right, power or privilege under the Transaction Documents shall affect any other or future exercise thereof or the exercise of any other right, power or privilege; nor shall any single or partial exercise of any such right, power or privilege or any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or of any other right, power or privilege.  The rights and remedies of the Lender Parties under the Transaction Documents are cumulative and not exclusive of any rights or remedies that the Lender Parties may otherwise have.

SECTION 12.04  No Discharge.  The respective obligations of the Borrower and TFL under the Transaction Documents shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by (a) any exercise or nonexercise of any right, remedy, power or privilege under or in respect of the Transaction Documents or applicable law, including any failure to set-off or release in whole or in part by any Lender Party of any balance of any deposit account or credit on its books in favor of the Borrower or TFL, as the case may be, or any waiver, consent, extension, indulgence or other action or inaction in respect of any thereof, or (b) any other act or thing or omission or delay to do any other act or thing that could operate as a discharge of the Borrower or TFL as a matter of law.

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SECTION 12.05  Notices.  All notices, requests, demands, directions and other communications (collectively “notices”) under the provisions of this Agreement shall be in writing (including facsimile or electronic communication, if the recipient provides an e-mail address) unless otherwise expressly permitted hereunder and shall be sent by first-class mail, postage prepaid, electronic mail, prepaid courier, or by facsimile.  Any such properly given notice shall be effective when received.  All notices shall be sent to the applicable party at the addresses specified below or on Schedule 6 hereto, as applicable, or in accordance with the last unrevoked written direction from such party to the other parties hereto.

If to Borrower:	c/o Tesla Motors, Inc. 3500 Deer Creek Road Palo Alto, CA 94304 Attention:  General Counsel
If to Servicer:	c/o Tesla Motors, Inc. 3500 Deer Creek Road Palo Alto, CA 94304 Attention: General Counsel
If to the Back-Up Servicer: If to the Administrative Agent:	As Designated pursuant to Section 5.03 Deutsche Bank AG, New York Branch 60 Wall Street, 5th Floor New York, New York 10005 Tel: (212) 250-3001 Fax: (212) 797-5300 Attention: Katherine Bologna Email: abs.conduits@db.com and katherine.bologna@db.com

SECTION 12.06  Governing Law; Submission to Jurisdiction.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York, WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS (OTHER THAN SECTION 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).  Each party hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York, New York for purposes of all legal proceedings arising out of or relating to this Agreement, any other Transaction Document or the transactions contemplated hereby or thereby.  Each party hereto hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.  Nothing in this Section 12.06 shall affect the right of any party hereto to bring any action or proceeding against any other party or their respective properties in the courts of other jurisdictions.

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SECTION 12.07  Integration.  This Agreement and the other Transaction Documents contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings.

SECTION 12.08  Counterparts; Severability.

(a)This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement.

(b)Any provisions of this Agreement that are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

SECTION 12.09  Set-Off.

(a)Each of the Borrower and TFL hereby waive any right of setoff which it may have or to which it may be entitled against any Lender Party and their respective assets.

(b)In case an Event of Default shall occur and be continuing, each Lender Party, to the fullest extent permitted by law, shall have the right, in addition to all other rights and remedies available to it, without notice to the Borrower or TFL, as the case may be, to set-off against and to appropriate and apply to any amount owing by the Borrower or TFL hereunder which has become due and payable, any debt owing to, and any other funds held in any manner for the account of, the Borrower or TFL by such Lender Party, including all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise), now or hereafter maintained by the Borrower or TFL with such Lender Party (it being understood that no such set-off with respect to either the Borrower or TFL shall be applied to any amounts owing by the other such Person hereunder).  Such right shall exist whether or not such debt owing to, or funds held for the account of, the Borrower or TFL is or are matured other than by operation of this Section 12.09 and regardless of the existence or adequacy of any collateral, guaranty or any other security, right or remedy available to the Lender Parties.  Nothing in this Agreement shall be deemed a waiver or prohibition or restriction of any Lender Party’s rights of set-off or other rights under applicable law.

SECTION 12.10  Successors and Assigns.  (a)   Binding.  This Agreement shall be binding on the parties hereto and their respective successors and assigns; provided, however, that neither the Borrower nor TFL may assign any of its rights or delegate any of its duties hereunder without the prior written consent of the Administrative Agent and each Group Agent.  

(b)Assignment by Conduit Lender.  This Agreement and the rights of each Conduit Lender hereunder (including each Loan made by it hereunder) shall be assignable by

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such Conduit Lender and its successors and permitted assigns (1) to any Program Support Provider of such Conduit Lender without prior notice to or consent from any Tesla Party or any other party, or any other condition or restriction of any kind or (2) with the prior written consent of the Borrower (such consent not to be unreasonably withheld or delayed, to any other Eligible Assignee; provided, however, that such consent shall not be required if an Event of Default, Default or Servicer Default has occurred and is continuing).  

(c)Information.  Each assignor of a Loan or any interest therein may, in connection with the assignment or participation, disclose to the assignee (if such assignee would be permitted under the Transaction Documents) or participant any information relating to the Tesla Parties, including the Warehouse SUBI Assets, furnished to such assignor by or on behalf of any Tesla Party or by the Administrative Agent; provided that, prior to any such disclosure, such assignee or participant agrees to preserve the confidentiality of any confidential information relating to the Tesla Parties received by it from any of the foregoing entities in a manner consistent with Section 12.11.

(d)Assignment by Committed Lender.  Each Committed Lender may assign to any Eligible Assignee or to any other Committed Lender all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and any Loan or interests therein owned by it); provided, however that

(1)except for an assignment by a Committed Lender to any Lender or any Affiliate of any Committed Lender, each such assignment shall require the prior written consent of the Borrower (such consent not to be unreasonably withheld or delayed; provided, however, that such consent of the Borrower shall not be required if an Event of Default, Default or Servicer Default has occurred and is continuing);

(2)each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement;

(3)the amount being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance Agreement with respect to such assignment) shall in no event be less than the lesser of (x) $5,000,000 and (y) all of the assigning Committed Lender’s Commitment; and,

(4)the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance Agreement.

Upon such execution, delivery, acceptance and recording from and after the effective date specified in such Assignment and Acceptance Agreement, (x) the assignee thereunder shall be a party to this Agreement and, to the extent that rights and obligations under this Agreement have been assigned to it pursuant to such Assignment and Acceptance Agreement, have the rights and obligations of a Committed Lender hereunder and (y) the assigning Committed Lender shall, to the extent that rights and obligations have been assigned by it pursuant to such Assignment and Acceptance Agreement, relinquish such rights and be released from such obligations under this Agreement (and, in the case of an Assignment and Acceptance Agreement covering all or the

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remaining portion of an assigning Committed Lender’s rights and obligations under this Agreement, such Committed Lender shall cease to be a party hereto).  In addition, any Committed Lender or any of its Affiliates may assign any of its rights (including rights to payment of principal and Interest) under this Agreement to any Federal Reserve Bank without notice to or consent of any Tesla Party, any other Committed Lender or Conduit Lender, any Group Agent or the Administrative Agent, provided that no such assignment shall relieve such assignor of its obligations under this Agreement.

(e)Register.  The Administrative Agent shall, acting solely for this purpose as an agent of the Borrower, maintain at its address referred to on the signature page of this Agreement (or such other address of the Administrative Agent notified by the Administrative Agent to the other parties hereto) a copy of each Assignment and Acceptance Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Committed Lenders and the Conduit Lenders, the Commitment Amount of each Committed Lender and the aggregate outstanding principal amount (and stated interest) of the Loans of each Conduit Lender and Committed Lender from time to time (the “Register”).  The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Servicer, the Administrative Agent, the Group Agents, the Conduit Lenders and the Committed Lenders shall treat each Person whose name is recorded in the Register as a Committed Lender or Conduit Lender, as the case may be, under this Agreement for all purposes of this Agreement.  The Register shall be available for inspection by the Borrower, the Servicer, any Group Agent, any Conduit Lender or any Committed Lender at any reasonable time and from time to time upon reasonable prior notice.

(f)Procedure.  Upon its receipt of an Assignment and Acceptance Agreement executed and delivered by an assigning Committed Lender and an Eligible Assignee or assignee Committed Lender, the Administrative Agent shall, if such Assignment and Acceptance Agreement has been duly completed, (i) accept such Assignment and Acceptance Agreement, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower and the Servicer.

(g)Participations.  Each Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more Eligible Assignees (each, a “Participant”) participating interests in all or a portion of its rights and obligations under the Loans.  Notwithstanding any such sale by such Lender of participating interests to a Participant, (i) such Lender’s rights and obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible for the performance hereof and thereof, and (iii) the Borrower and the Servicer shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the Loans.  Each Lender agrees that any agreement between such Lender and any such Participant in respect of such participating interest shall not restrict or condition such Lender’s right to agree to any amendment, supplement, waiver or modification of this Agreement.  The Borrower and the Servicer agree that each Participant shall be entitled to the benefits of Article XI (subject to the requirements and limitations therein, including the requirements under Section 11.02(f) to the same extent as if such Participant were a Lender and had acquired such participation pursuant to an assignment), it being understood that the documentation required under Section 11.02(f) shall be delivered to the participating Lender to the same extent as if such Participant was a Lender

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and had acquired such Participation pursuant to an assignment; provided that all such amounts payable by the Borrower or the Servicer to any such Participant shall be limited to the amounts which would have been payable to such Lender selling such participating interest had such interest not been sold; provided further that such Participant agrees to be subject to the provisions of Section 11.04 as if it were a Lender.

(h)Participant Register.  Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under this Agreement (the “Participant Register”); provided that no Committed Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any commitments, loans, letters of credit or its other obligations under any this Agreement) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations.  The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.  For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(i)Assignments by Agents.  This Agreement and the rights and obligations of the Administrative Agent and each Group Agent herein shall be assignable by the Administrative Agent or such Group Agent, as the case may be, and its successors and assigns; provided that in the case of an assignment to a Person that is not an Affiliate of the Administrative Agent or such Group Agent, so long as no Event of Default, Default or Servicer Default has occurred and is continuing, such assignment shall require the Borrower’s consent (not to be unreasonably withheld or delayed).

(j)Addition of Lenders or Groups; Increase in Commitments.

(i)The Borrower may, from time to time, with the written consent of the Administrative Agent and each Group Agent, add additional Persons as Lenders (either to an existing Group or by creating new Groups). Each new Lender (or Group) shall become a party hereto, by executing and delivering to the Administrative Agent and the Borrower, an assumption agreement (each, an “Assumption Agreement”) in the form of Exhibit N hereto (which Assumption Agreement shall, in the case of any new Lender or Lenders, be executed by each Person in such new Lender’s Group).  

(ii)The Borrower may, from time to time, with the written consent of the Administrative Agent and each Group Agent, request that the then existing Committed Lenders increase their respective Commitment Amounts (and accordingly the Facility Limit) on a pro rata basis according to their respective Percentages of the aggregate amount of increases in Commitment Amounts requested.  Each existing Committed Lender may in its discretion agree to all or

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

part of such pro rata increase of its Commitment.  If any existing Committed Lender does not agree to increase its Commitment Amount or agrees to increase its Commitment Amount by an amount that is less than its Percentage of the aggregate amount of increases in Commitment Amounts requested by the Borrower, then the Borrower may effect such portion of the requested increase in Commitment Amounts not agreed to by an existing Committed Lender by adding additional Persons as Lenders (either to an existing Group or by creating new Groups) to undertake Commitments or obtaining the agreement of another existing Committed Lender to increase its Commitment Amount on a greater than pro rata basis; provided, however, that the Commitment of any existing Lender may only be increased with the prior written consent of such Lender.

SECTION 12.11  Confidentiality.  The Administrative Agent, each Group Agent, each Lender, the Borrower and TFL shall keep all non-public information obtained pursuant to this Agreement and the transactions contemplated hereby or effected in connection herewith confidential in accordance with customary procedures for handling confidential information of this nature and will not disclose such information to outside parties (except counsel and auditors) but may make disclosure (a) reasonably required by (i) a bona fide transferee (including an assignee or a Participant) or prospective transferee (including a prospective assignee or Participant) that is an Eligible Assignee, including any successor Lender in connection with the participation in this Agreement by such successor Lender, and its counsel and auditors, (ii) a commercial paper issuer or any provider of liquidity or credit support facilities to, or for the account of, a commercial paper issuer, and its or their counsel and auditors, provided that any such bona fide transferee or prospective transferee, including without limitation, any successor Lender, any commercial paper issuer or provider of liquidity or credit support facilities to a commercial paper issuer, and its counsel and auditors to whom such disclosure is made shall abide by the confidentiality provisions of this Section 12.11 or (iii) any member or other Person holding equity interests in a commercial paper conduit purchaser; provided that any such member or other Person has agreed to hold such information in confidence, (b) necessary in order to obtain any consents, approvals, waivers or other arrangements required to permit the execution, delivery and performance by the Borrower and TFL of this Agreement, (c) in connection with the enforcement of this Agreement or any other Transaction Document, (d) as required or requested by any Official Body or pursuant to legal process or as required by applicable law (including securities laws), (e) to any Rating Agency, provided that such Rating Agency has agreed to hold such information in accordance with such Rating Agency’s customary procedures, and (f) without limiting preceding clause (e), to any “nationally recognized statistical rating organization” (as defined in, or by reference to, Rule 17g-5 under the Securities Exchange Act of 1934, as amended (“Rule 17g-5”)) (each an “NRSRO”) by posting such confidential information to a password protected internet website accessible to each NRSRO in connection with, and subject to the terms of, Rule 17g-5.  Each Lender Party agrees that any confidential information (which includes all information (i) that is not and does not hereafter become publicly available through no fault of such Lender Party or any of its agents or representatives and (ii) that is provided by the Borrower or TFL or any of their respective agents or representatives, in any format whatsoever, including any and all analyses, compilations, reports or other material based upon such information and prepared by such Lender Party or any of its agents or representatives) shall be used only in connection with this Agreement and the transactions contemplated hereby and not for any other purpose; provided, however, that such

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Lender Party may disclose on a confidential basis any such confidential information to any Rating Agency.  Without limiting the generality of the foregoing, each Lender Party shall observe any applicable law prohibiting the disclosure of information regarding Lessees and shall request of each Person to whom disclosure is made pursuant to this Section 12.11 to observe any such applicable laws.

Notwithstanding any other provision herein, each Lender Party, the Borrower and TFL (and each of their respective employees, representatives or other agents) may disclose to any and all Persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transaction contemplated by this Agreement and the other agreements related hereto and all materials of any kind (including opinions or other tax analysis) that are provided to any of them relating to such U.S. tax treatment and U.S. tax structure, other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws.

SECTION 12.12  Payments Set Aside.  To the extent that the Borrower, TFL or any Lessee makes a payment to a Lender Party or a Lender Party exercises its rights of set-off and such payment or set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by, or is required to be refunded, rescinded, returned, repaid or otherwise restored to the Borrower, TFL, such Lessee, a trustee, a receiver or any other Person under any law, including any bankruptcy law, any state or federal law, common law or equitable cause, the obligation or part thereof originally intended to be satisfied shall, to the extent of any such restoration, be reinstated, revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred.  The provisions of this Section 12.12 shall survive the termination of this Agreement.

SECTION 12.13  No Petition.  Each party hereto agrees, prior to the date which is one (1) year and one (1) day after the payment in full of all indebtedness for borrowed money of the Borrower, not to acquiesce, petition or otherwise, directly or indirectly, invoke, or cause the Borrower to invoke, the process of any Official Body for the purpose of (a) commencing or sustaining a case against Borrower, under any federal or state bankruptcy, insolvency or similar law (including the Bankruptcy Code), (b) appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for the Borrower, or any substantial part of the property of the Borrower, or (c) ordering the winding up or liquidation of the affairs of the Borrower.

SECTION 12.14  Characterization of the Transactions Contemplated by this Agreement.  The parties to this Agreement agree to treat the transactions contemplated by this Agreement as a debt financing for tax and accounting purposes and further agree to file on a timely basis all federal and other tax returns consistent with such treatment.

SECTION 12.15WAIVER OF JURY TRIAL.  EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

SECTION 12.16  Loans.  Any references to the Agreement herein shall, wherever applicable, be read to include each Loan Request and each Notice of Warehouse SUBI Lease Allocation.

SECTION 12.17  TFL or Tesla Motors, Inc. Liability.  Except as provided in the Transaction Documents, neither TFL nor Tesla Motors, Inc. shall be liable for the payment obligations of the Borrower hereunder or under any Loan.

SECTION 12.18  Limitation on Consequential, Indirect and Certain Other Damages.  No claim may be made by the Borrower, TFL, the Servicer or any of their Affiliates against any Lender Party or any of its Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages arising out of or related to the transactions contemplated by this Agreement and  the other Transaction Documents, or any act, omission or event occurring in connection therewith and each of the Borrower, TFL and the Servicer, to the extent permitted by law, hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

No claim may be made by any Lender Party or any of its Affiliates against the Borrower, TFL, the Servicer, or any of their Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages arising out of or related to the transactions contemplated by this Agreement and the other Transaction Documents, or any act, omission or event occurring in connection therewith and each Lender Party, to the extent permitted by law, hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor; provided that a claim for damages arising from a breach of Section 12.11 shall not be deemed to be a claim for special, indirect or consequential damages.

SECTION 12.19  Ratable Payments.  If any Lender, whether by setoff or otherwise, has payment made to it with respect to any Secured Obligations in a greater proportion than that received by any other Lender entitled to receive a ratable share of such Secured Obligations, such Lender agrees, promptly upon demand, to purchase for cash without recourse or warranty a portion of such Secured Obligations held by the other Lenders so that after such purchase each Lender will hold its ratable portion of such Secured Obligations; provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.

SECTION 12.20  No Third Party Beneficiaries; Hedge Counterparties.  Except as provided in the next sentence, this Agreement is not intended to confer any benefit upon, to give any rights or remedies whatsoever to, or to be enforceable by, any Person other than the parties hereto, the other Indemnified Parties and, with respect to Sections 2.04 and 12.02, the Trustee Bank.  The parties hereto expressly intend the provisions of this Agreement to be enforceable by each Interest Rate Hedge provider as a third party beneficiary of this Agreement.

SECTION 12.21 Back-Up Servicing. The Administrative Agent and TFL agree to discuss in good faith on an ongoing basis TFL’s ability to perform its obligations under the

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Transaction Documents without the need for a Back-Up Servicer and, if the Administrative Agent and TFL agree in writing that TFL  has such ability, then TFL may, upon 30 days’ prior written notice, terminate the Back-Up Servicer, and, for the avoidance of doubt, no Back-Up Servicer shall thereafter be required and no Back-Up Servicing Fees shall thereafter be payable.

[Signature Pages Follow]

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[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

TESLA 2014 WAREHOUSE SPV LLC,
	as Borrower
By:	/s/ Susan Repo
	Name: Susan Repo
	Title: Vice President
TESLA FINANCE LLC, in its individual capacity
	and as Servicer
By:	/s/ William Donnelly
	Name: William Donnelly
	Title: President

[Signature Page to Loan and Security Agreement 1 of 2]

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent, as a Group Agent and as a Committed Lender
By:	/s/ Katherine Bologna
	Name: Katherine Bologna
	Title: Director
By:	/s/ Jay Steiner
	Name: Jay Steiner
	Title: Managing Director

[Signature Page to Loan and Security Agreement 2 of 2]

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Schedule 1
to Loan and Security Agreement

Schedule of Litigation

None.

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Schedule 2
to Loan and Security Agreement

Schedule of Corporate and Limited Liability Company

Names, Trade Names or Assumed Names

With respect to Borrower:  Tesla 2014 Warehouse SPV LLC

Schedule 2-1

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Schedule 3

to Loan and Security Agreement

Description of Electronic Lease Vault

See attached.

Schedule 3-1

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

eOriginal, Inc. Authoritative Copy System Description

Utilizing eOriginal SmartSign^® Web Signature Solution

The eContract Processes Background

The eOriginal, Inc. Authoritative Copy System (the “System”) licensed by or on behalf of Originator enables the fully electronic creation, execution and management of Authoritative Copies and uses a combination of technological and administrative features in order to: (i) designate a single copy of the Record or Records comprising an eContract as being the Authoritative Copy of such eContract; (ii) manage access to and the rendering of the Authoritative Copy; (iii) identify each entity who has authorized access to the System, (each such entity, a “System User”); (iv) identify which System User or third party that is not a System User (each such third party, a “Non-System User”) is the Owner of Record of the Authoritative Copy; and (v) provide a means for transferring record ownership of, and the exclusive right of access to, the Authoritative Copy from the current Owner of Record to a successor Owner of Record (the processes performed by the System to execute the functions described in the foregoing clauses (i) through (v) are collectively referred to as the “eContract Processes”). The System comprises a Production System and a Back-up System. The Production System is accessible to System Users as described herein and represents that portion of the System of which the Vault is a part. The Production System is backed-up onto the Back-up System as described in Section J.1. below. The System gives each System User and each Authoritative Copy a unique identification number and maintains such unique identification numbers in the System’s administrative database.

The System enables the fully electronic creation, execution and management of Authoritative Copies, including ancillary electronic Records which amend, modify, support and/or supplement Authoritative Copies (collectively, “eDocuments”), and the logical association of each of the eDocuments with the applicable Authoritative Copy. The System also enables the conversion of Authoritative Copies and related eDocuments from electronic media to paper media, and the conversion of Chattel Paper and ancillary documents from paper media to electronic media for management within the System as Authoritative Copies and eDocuments.

Glossary of Defined Terms:

[***]

A. Agreements:

[***]

B. eContract Execution Using eOriginal SmartSign^®:

[***]

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

C. eContract Deposit and Verification:

[***]

D. Creation of the Legend

[***]

E. Vault Storage and Management:

[***]

F. System Access:

[***]

G. Rendering of Records:

[***]

H. Authority of Owner of Record:

[***]

I. Transfer or Export:

[***]

J. Back-Up:

[***]

Summary of System Operations:

Below is a summary of the eContract Processes performed by the System with respect to a specific eContract:

[***]

Integration-Specific Exceptions:

As of the date of execution of the attached Certification, Originator has elected to customize the System as described below, which customizations have not been described above as optional or alternative functionality of the System:

[***]

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Schedule 4

to Loan and Security Agreement

Ineligible Assignees

1. Toyota Motor Corporation

2. General Motors Company

3. Volkswagen AG

4. Hyundai Motor Company

5. Ford Motor Company

6. Nissan Motor Corporation

7. Honda Motor Co., Ltd.

8. Peugeot S.A.

9. Suzuki Motor Corporation

10. Renault S.A.

11. Fiat Chrysler Automobiles NV

12. Daimler AG

13. Bayerische Motoren Werke AG

14. SAIC Motor Corporation Limited

15. Tata Motors Limited

16. Mazda Motor Corporation

17. Dongfeng Motor Corporation

18. Mitsubishi Motors Corporation

19. Chang'an Automobile (Group) Co Ltd.

20. Zhejiang Geely Holding Group Co., Ltd.

21. Faraday & Future Inc.

22. Atieva Inc.

Schedule 4-1

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Schedule 5

to Loan and Security Agreement

Insurance Requirements

See the attached insurance certificates.

Schedule 4-1

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

CERTIFICATE OF LIABILITY INSURANCE

DATE (MM/DD/YYYY) 7/11/2016

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

PRODUCER Woodruff-Sawyer & Co. 50 California Street, Floor 12 San Francisco CA 94111

CONTACT NAME: Brian Holl

PHONE (A/C, No, Ext): 415-391-2141

FAX (A/C, No): 415-989-9923

E-MAIL ADDRESS: bholl@wsandco.com

INSURER(S) AFFORDING COVERAGE

NAIC#

INSURER A: Zurich American Insurance Company

16535

INSURED                                                 TESLMOT-01 Tesla Motors, Inc. and its Subsidiaries 3500 Deer Creek Road Palo Alto CA 94304

INSURER B: American Guarantee and Liability In

26247

INSURER C:

INSURER D:

INSURER E:

INSURER F:

COVERAGES   CERTIFICATE NUMBER: 1711502975                                                  REVISION NUMBER:

THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.

INSR LTR

TYPE OF INSURANCE

ADDL INSD

SUBR WVD

POLICY NUMBER

POLICY EFF (MM/DD/YYYY)

POLICY EXP (MM/DD/YYYY)

LIMITS

A

[***]

[***]

10/31/2015

10/31/2016

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

$

A

[***]

[***]

10/31/2015

10/31/2016

[***]

[***]

[***]

$

[***]

$

[***]

$

$

B

[***]

[***]

10/31/2015

10/31/2016

[***]

[***]

[***]

[***]

$

[***]

N/A

[***]

[***]

[***]

$

[***]

$

[***]

$

DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached if more space is required) Issued as Evidence of Insurance.

CERTIFICATE HOLDER

CANCELLATION

Tesla Motors, Inc. 3500 Deer Creek Road Palo Alto, CA 94304

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS.

AUTHORIZED REPRESENTATIVE /s/ Brian Holl

© 1988-2014 ACORD CORPORATION. All rights reserved. ACORD 25 (2014/01)                                         The ACORD name and logo are registered marks of ACORD

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

CERTIFICATE OF LIABILITY INSURANCE

DATE (MM/DD/YYYY) 7/11/2016

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

PRODUCER Woodruff-Sawyer & Co. 50 California Street, Floor 12 San Francisco CA 94111

CONTACT NAME: Brian Holl

PHONE (A/C, No, Ext): 415-391-2141

FAX (A/C, No): 415-989-9923

E-MAIL ADDRESS: bholl@wsandco.com

INSURER(S) AFFORDING COVERAGE

NAIC#

INSURER A: Zurich American Insurance Company

16535

INSURED                                                 TESLMOT-01 Tesla Motors, Inc. and its Subsidiaries 3500 Deer Creek Road Palo Alto CA 94304

INSURER B: American Guarantee and Liability In

26247

INSURER C:

INSURER D:

INSURER E:

INSURER F:

COVERAGES   CERTIFICATE NUMBER: 760703616                                                  REVISION NUMBER:

THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.

INSR LTR

TYPE OF INSURANCE

ADDL INSD

SUBR WVD

POLICY NUMBER

POLICY EFF (MM/DD/YYYY)

POLICY EXP (MM/DD/YYYY)

LIMITS

A

[***]

[***]

10/31/2015

10/31/2016

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

$

A

[***]

[***]

10/31/2015

10/31/2016

[***]

[***]

[***]

$

[***]

$

[***]

$

$

B

[***]

[***]

10/31/2015

10/31/2016

[***]

[***]

[***]

[***]

$

[***]

N/A

[***]

[***]

[***]

$

[***]

$

[***]

$

DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached if more space is required) Tesla Lease Trust is a wholly owned subsidiary of Tesla Motors Inc.

CERTIFICATE HOLDER

CANCELLATION

Tesla Lease Trust                 3500 Deer Creek Road Palo Alto CA 94304

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS.

AUTHORIZED REPRESENTATIVE /s/ Brian Holl

© 1988-2014 ACORD CORPORATION. All rights reserved. ACORD 25 (2014/01)                                         The ACORD name and logo are registered marks of ACORD

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

EVIDENCE OF [***] INSURANCE

DATE (MM/DD/YYYY) 7/11/2016

THIS EVIDENCE OF [***] INSURANCE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE ADDITIONAL INTEREST NAMED BELOW. THIS EVIDENCE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS EVIDENCE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE ADDITIONAL INTEREST.

AGENCY Woodruff-Sawyer & Co. 50 California Street, Floor 12 San Francisco CA 94111

PHONE (A/C, No, Ext): 415-391-2141

COMPANY Zurich American Insurance Company

FAX (A/C, No): 415-989-9923

EMAIL ADDRESS:

CODE:

SUB CODE:

AGENCY CUSTOMER ID #: TESLMOT-01

INSURED Tesla Motors, Inc. 3500 Deer Creek Road Palo Alto CA 94304

LOAN NUMBER

POLICY NUMBER [***]

EFFECTIVE DATE 10/31/2015

EXPIRATION DATE 10/31/2016

CONTINUED UNTIL TERMINATED IF CHECKED ☐

THIS REPLACES PRIOR EVIDENCE DATED:

[***] INFORMATION

LOCATION/DESCRIPTION

THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS EVIDENCE OF [***] INSURANCE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.

COVERAGE INFORMATION

COVERAGE/PERILS/FORMS

AMOUNT OF INSURANCE

DEDUCTIBLE

[***]

[***]

[***]

REMARKS (Including Special Conditions)

Issued as Evidence of Insurance.

CANCELLATION

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS.

ADDITIONAL INTEREST

NAME AND ADDRESS Tesla Motors, Inc. 3500 Deer Creek Road Palo Alto CA 94304

MORTGAGEE LOSS PAYEE

ADDITIONAL INSURED

LOAN #

AUTHORIZED REPRESENTATIVE /s/ Brian Holl

© 1993-2009 ACORD CORPORATION. All rights reserved. ACORD 27 (2009/12)                                         The ACORD name and logo are registered marks of ACORD

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

EVIDENCE OF [***] INSURANCE

DATE (MM/DD/YYYY) 8/23/2016

THIS EVIDENCE OF [***] INSURANCE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE ADDITIONAL INTEREST NAMED BELOW. THIS EVIDENCE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS EVIDENCE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE ADDITIONAL INTEREST.

AGENCY Woodruff-Sawyer & Co. 50 California Street, Floor 12 San Francisco CA 94111

PHONE (A/C, No, Ext): 415-391-2141

COMPANY Lloyds Underwriters

FAX (A/C, No): 415-989-9923

EMAIL ADDRESS:

CODE:

SUB CODE:

AGENCY CUSTOMER ID #: TESLMOT-01

INSURED Tesla Motors, Inc. Attn: Accounts Payable 3500 Deer Creek Road Palo Alto CA 94304

LOAN NUMBER

POLICY NUMBER [***]

EFFECTIVE DATE 08/11/2015

EXPIRATION DATE 10/31/2016

CONTINUED UNTIL TERMINATED IF CHECKED ☐

THIS REPLACES PRIOR EVIDENCE DATED:

[***] INFORMATION

LOCATION/DESCRIPTION

THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS EVIDENCE OF [***] INSURANCE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.

COVERAGE INFORMATION

COVERAGE/PERILS/FORMS

AMOUNT OF INSURANCE

DEDUCTIBLE

[***]

[***]

[***]

REMARKS (Including Special Conditions)

Issued for Evidence of Insurance Purposes Only.

CANCELLATION

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS.

ADDITIONAL INTEREST

NAME AND ADDRESS Deutsche Bank AG New York Branch, as collateral agent Attention: Phelecia Parker 60 Wall Street New York NY 10005

MORTGAGEE LOSS PAYEE

ADDITIONAL INSURED Lenders Loss Payable

X

LOAN #

AUTHORIZED REPRESENTATIVE /s/ Alex Arvanitas

© 1993-2009 ACORD CORPORATION. All rights reserved. ACORD 27 (2009/12)                                         The ACORD name and logo are registered marks of ACORD

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Schedule 6

to Loan and Security Agreement

Notice Addresses

Borrower:

c/o Tesla Motors, Inc.

3500 Deer Creek Road

Palo Alto, CA 94304

Attention: General Counsel

Servicer:

c/o Tesla Motors, Inc.

3500 Deer Creek Road

Palo Alto, CA 94304

Attention: General Counsel

Administrative Agent:

Deutsche Bank AG, New York Branch

60 Wall Street, 5^th Floor

New York, New York 10005

Tel: (212) 250-3001

Fax: (212) 797-5300

Attention: Katherine Bologna
Email: abs.conduits@db.com and katherine.bologna@db.com

Deutsche Bank AG, New York Branch, as Lender:

Deutsche Bank AG, New York Branch

60 Wall Street, 5^th Floor

New York, New York 10005

Tel: (212) 250-3001

Fax: (212) 797-5300

Attention: Katherine Bologna
Email: abs.conduits@db.com and katherine.bologna@db.com

Schedule 6-1

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Schedule 7

to Loan and Security Agreement

Credit and Collection Policy

See attached.

Schedule 7-1

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

TESLA FINANCE LLC

CREDIT AND COLLECTIONS POLICY

Effective January 2016

Proprietary and Confidential property of Tesla Finance LLC

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Table of Contents

				Page
1.	Mission and Philosophy			4
2.	Credit Policy			4
	A.	Covered Products		4
	B.	General Policy Statement		5
	C.	Risk Framework and Appetite		5
	D.	Credit Department Roles and Responsibilities		6
	E.	Credit Decisioning		7
		i.	Complete Credit Application	7
		ii.	Credit Bureau History	8
		iii.	Risk Rating 8	8
		iv.	Credit Analysis	9
		v.	Adverse Action Reasons	9
	F.	Lending [***], Authority, and Exceptions		11
		i.	Lease Credit Approval Limits and Authority	11
		ii.	High Risk Credit Applications	14
		iii.	Potential Skip/Fraud applications	15
		iv.	Down Payment and Trade-ins	15
		v.	Exception Authority and Process	15
	G.	Fair Lending and Regulatory Compliance		16
		i.	General Policy Statement	16
		ii.	Applicant Notification Letters	17
		iii.	Audit Policy	17
		iv.	Records Retention	18
	H.	Origination Metrics		18
3.	Collections Policy			19
	A.	General Policy Statement		19
	B.	Collections Department Roles and Responsibilities		19
	C.	Collections Treatment Strategy and Plan		20
		i.	Collections Account Review	20
		ii.	Daily Collection Activity	20
		iii.	Collections Risk Strategy	21
		iv.	Delinquency Lifecycle Activity	21

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

			Page
	v.	Customer Contact and Documentation Policy	23
	vi.	Telephone Collection Policy	24
D.	Bankruptcy Handling		25
E.	Repossession and Reinstatement		25
F.	Charge-off Policy		26
G.	Fair Debt Collection and Regulatory Compliance		26
	i.	General Policy Statement	26
	ii.	Customer Letters	28
	iii.	Audit Policy	28
	iv.	Records Retention	28
H.	Collections and Portfolio Management Metrics		29

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

TESLA FINANCE CREDIT AND COLLECTIONS POLICY

1.MISSION AND PHILOSOPHY

The purpose of the credit and collections policy is to provide Tesla Finance LLC (also referred to as Tesla Finance or TFL) with an organized and repeatable practice of credit adjudication and portfolio management practices in support of Tesla vehicle sales and profitability, brand experience and loyalty. TFL underwrites credit decisions on behalf of, and acts as the servicer for, Tesla Lease Trust (TLT). This policy helps establish authority, rules, process and the framework to originate, manage, and liquidate the lease portfolio effectively. It is based on sound and established lending and collection practices while operating within the limitations of regulatory requirements. It is, however, not a comprehensive interpretation of specific laws and regulations governing the business but is, rather, a high- to medium-level discussion of intent, practice, and compliance.

While certain roles have specific functional responsibilities, risk management generally is a shared responsibility across the organization. Although credit and collections are distinctly separate functions in the product lifecycle, it is imperative that there be full alignment, communication, and transparency on overall goals, actions, and performance of the portfolio. This is accomplished through a regular and frequent feedback loop between the two functions at the appropriate levels.

This policy is intended to serve as a basic and practical manual. However, no document can fully replace: prudent business judgment; sound assessment of a borrower’s ability, capacity, and willingness to pay; or effective decision making about a specific credit request or delinquency resolution activity that is appropriate to the situation and the needs of both the borrower and TFL. The roles and incentives of the various functions are designed to provide the appropriate alignment, unity of purpose, and check and balance to maximize the benefit to the company.

2.CREDIT POLICY

A. Covered Products

The Tesla Lease product covers individual and joint consumer leasing, small business leasing and commercial leasing. Consumer leasing is intended for consumers – individually and jointly – who wish to lease their Tesla vehicle. Small business leasing is intended for owners and principals of small and medium sized enterprises who wish to lease a vehicle jointly with their business. This may allow the flexibility to deduct some or all of lease payments from business income taxes (customers are always encouraged to consult with a tax professional to understand their own particular situation and eligibility). The lessee will be the business and the co-lessee will be the business owner or principal. Credit worthiness will be solely evaluated based on the co-lessee, who is the business owner or principal. Commercial leasing is a product offered to

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

well established and significant sized businesses who wish to lease in the company’s name only and with no co-buyer. This allows for the corporate tax benefits of leasing and these vehicles are often for the use of C-suite executives. This product is offered on a limited basis upon request.

B. General Policy Statement

TFL’s policy is to review and consider all applications for Leases submitted on the MyTesla portal and processed through the Loan/Lease Origination System (LOS) using an appropriate risk/reward balance. The goal of credit decisioning is to approve credit applications with an acceptable probability of payment by considering the following:

• A complete credit application,

• A thorough credit review and analysis in support of the four facets of a good credit approval (Ability, Stability, Credit History, and Deal Structure), and

• Proper communication, follow up, and documentation.

C. Risk Framework and Appetite

TFL accepts risks generally in line with those of other U.S. captive auto finance companies. Our approach to risk management is based on these guiding principles:

• Innovative support of Tesla sales, profitability, and brand experience

• Strike appropriate risk/reward balance

• Forward looking analytics with timely feedback loop

• Robust governance and compliance

• Overall - Sound business judgment rules!

Credit Risk Appetite: Credit risk is the possibility of losses stemming from the failure of lessees to meet their financial obligations under the lease agreement. Overall, TFL’s credit risk appetite for the lease portfolio is defined by a [***] of [***] and [***] of [***]. The credit policy parameters (discussed in section 2F) with [***] on [***] and [***] of [***] of [***] along with the [***] are setup to ensure that risk exposure and portfolio performance are at acceptable levels.

Concentration Risk: Our leasing portfolio concentration follows that of our general business model distribution with new Tesla vehicles including Model S and Model X. Our model mix is expected to shift and grow with the introduction of new products, such as Model III. Sales are [***] in [***] and this distribution will be monitored and managed dependent on business and market conditions.

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

Qualitative Risk factors: The qualitative elements of the risk appetite framework define, in general, the positioning that TFL’s management wishes to adopt or maintain in the course of its business model. Generally speaking, the framework is based on maintaining the following qualitative objectives:

• A [***] and predictable risk profile based on a simple and transparent business model, focused primarily on retail customers,

• A stable and consistent credit policy and practice to generate growth, earnings and manage volatility,  

• An independent risk function with active involvement of senior management that guarantees a strong risk culture focused on protecting and ensuring an adequate return on capital, and

• Focus on the business model and products that TFL knows sufficiently well and has the management capacity (people, systems, processes) to execute successfully.

D. Credit Department Roles and Responsibilities

The credit function is headed by the President of Tesla Finance. Credit Analysis is performed by the Underwriting Department and is authorized to make credit decisions per the credit criteria specified in this policy.

The Underwriting Department evaluates and identifies the risk and merits of each application on a case by case basis. The Credit Analysts are experienced and trained professionals whose primary role is to make a credit decision after conducting a full analysis of the applicant’s credit worthiness within established underwriting guidelines in compliance with fair lending and other applicable regulations. Credit Specialists are a part of the broader Financial Services team and function as the primary interface with the customer, Sales Advisors and Delivery Specialists in the field, and internal teams on matters related to contracts, documents, communication and follow-up. The department is required to consult with, and escalate, deals to more senior members of the Underwriting team on approvals above the specified limits.

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

E. CREDIT DECISIONING

i. Complete Credit Application:

To enable a well-rounded credit decision, a complete credit application refers to thorough and accurate information as it pertains to the applicant’s income, financial resources and assets, employment and residence history, credit obligations and payment history, and the amount of credit desired as it relates to the vehicle configuration and options. The application specifically needs to contain:

• Information regarding the applicant(s)

• Valid SSN (US), SIN (Optional in Canada) or Tax ID number

• Asset and debt (liability) information

• Vehicle price details

• Any trade-in, capitalized tax or additional down payments that impact the capitalized cost

The credit application information is supplemented with the consumer credit bureau record of the applicant’s credit borrowing and payment history.

For the purposes of this policy, a credit application is considered incomplete when there is insufficient information to make a fully informed credit decision. Common reasons contributing to an incomplete credit application are:

• SSN is not accurate or does not match true applicant

• Applicant / co-applicant did not have sufficient time, desire, or available information to complete all sections at credit application or upon follow up

An incomplete credit application can be decisioned as pending (Manual Review) or declined with ‘Credit Application Incomplete’ noted in the adverse action letter. If the applicant provides the requested information, the credit department can continue to process the application through the normal process. If the applicant does not provide the requested information after reasonable attempts to obtain this information are exhausted, the adverse action notice should be sent and no further action is needed.

Requesting information from the applicant/co-applicant: When insufficient information is received, or additional information is needed to support the credit decision process, the credit department may follow up with the applicant(s), their legally authorized representatives, or Tesla sales /delivery personnel as appropriate. The credit department associates may not ask, discuss, infer, or consider prohibited bases such as an applicant’s Race, Color, Religion, Ethnic  Origin, Age (if legally eligible to contract), Sex and marital status, public assistance usage with the applicant or any other individual involved in the credit transaction. Inquiries regarding the applicant’s

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

immigration status are permissible only to ascertain TFL’s rights and remedies regarding contractual repayments and end of lease termination activities.This policy applies to all verbal, written, in person, and electronic communication methods used during the process.

ii. Credit Bureau History:

Credit history is a measure of the borrower’s creditworthiness evidenced through their current and past borrowing and payment performance. An accurate and valid SSN is crucial for pulling the right credit record. For Canadian customers, while having an accurate SIN is helpful for locating a credit file, consumers are not required to provide one. The major components of the consumer bureau report are:

• FICO Score

• Length and performance of tradelines

• Inquiries

• Bankruptcy and public record information

TFL uses the [***], a score [***]. TFL’s primary source for [***] is [***] in the United States.

iii. Lease [***] System:  

The advantages of using [***] and grades in lending include consistency, a quick turnaround, and uniform risk assessment and monitoring. [***] are [***] into [***] based on [***] and [***] the [***] into [***] as shown below.

[***]

iv. Unscored Applications

An unscored credit file signifies that there is not enough information available to compute a statistically-valid credit score or that there was no credit bureau record found. Applicants without a FICO score will be considered but supplemental documentation will likely be required including but not limited to: proof of income, proof of assets, and/or proof of home ownership and/or a higher down payment to mitigate a lack of established credit history. Unscored applications may occur when a customer is new to the country, when they have not used credit actively in for many years, or when the applicant is a business.

v. Credit Analysis:

A thorough credit analysis covers all the information provided on the credit application, vehicle pricing, and the credit bureau report. In addition, there may be discussions with the applicant regarding, but not limited to, verification of income and residence, contact

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

numbers and references where appropriate. The following attributes should be considered [***] during the decisioning process.

Ability

[***]

Stability

[***]

Credit History

[***]

Deal Structure

[***]

i. Adverse Action Reasons:

The LOS displays the designated decline reasons or stipulations selected at the time the application is decisioned. For consistency and accuracy the credit department will check only [***] reasons for the credit request denial or counter from the list below.

[***]

The [***] is a critical, but not the only, component of sound judgmental credit decisioning.

F. Lending [***], Authority and Exceptions

Lease Credit Approval Authority:

[***]

è Authority levels will be assigned based on experience and performance and represent the maximum an analyst is permitted to approve

è If multiple applicants, [***] is based on [***] of the [***]

è Exceptions above these guidelines must be approved by [***] of [***]

è In the absence of an entire Authority Level with nobody higher available (i.e. outside of normal working hours), [***] in the [***] may [***] the [***]

Tesla customers often have unique and complex financial situations. Many are self-employed or have multiple sources of income and bank accounts. Some have relatively

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

low true income but are still very high net-worth individuals (as is the case for some retirees). We [***] and [***].

Due to the fact that [***] is self-reported and is, therefore, inherently of varying quality (due to accidental or deliberate misstatement – both high and low), we [***] on [***] when possible to make a credit decision. [***] such as [***] are generally [***] than [***] and [***], both of which are calculated using [***].

[***] capacity guidelines are as follows:

[***]

[***] and [***] will generally require additional support, but will be considered for approval if [***] indicate [***]. In many cases [***] may be required, but in order to provide [***] experience consistent with the Tesla brand, Credit Analysts operate with the goal of identifying and documenting [***] while [***]. As part of this process, applications are reviewed for [***] supporting [***]. This includes: [***]. It is the responsibility of the Credit Analyst to determine what is [***] in the context of a credit request. All findings will be well documented within the LOS.

ii. Unscored

See above.

iii. Commercial Leasing

Commercial leases will be underwritten based on the strength of the commercial entity since there is no consumer co-buyer as there is in small business leases.

General characteristics of companies that will be considered for a commercial lease include:

[***]

Commercial Applications will be evaluated on the following criteria and compared to the industry average as reported by [***]:

[***]

Supplemental information may be requested and will be considered if provided such as trade references and bank ratings.

iv. Auto Decisioning

Automated decisioning serves to improve efficiency and maintain uniformity of decisions across applications. Automated decisioning has been set up within TFL’s LOS. The logic generally checks the same variables evaluated in judgmental credit decisions made by a live analyst.

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

It is important to note that auto approvals eliminate the need for manual review of the strongest segment of applications. This allows Credit Analysts to spend more time working on and investigating the remaining deals requiring a judgmental credit decision.

Auto decisioning is maintained by TFL’s LOS System Administrator and will be reviewed periodically to ensure decisions are consistent with the Credit Policy. Accordingly, the System Administrator may update and adjust the logic, with authorization from TFL’s President, to remain in line with business needs while remaining compliant the Credit Policy and lending regulations.

Auto Approval Logic:

[***]

Auto Decline Logic:

[***]

• In the case of a joint consumer applicant, [***] must [***] or [***] to result in an automated decision

v. High Credit Risk Applications:

All credit applications with [***] are generally considered high risk and require the following investigations:

• Proof of Employment

• Proof of Income/assets

• Proof of Residence

• Personal Cell number

• References

vi. Potential Skip/Fraud Applications:

Fraud detection is a challenging and rapidly changing phenomenon in lending businesses that requires an agile and measured response. To minimize the approval of potential fraudulent and skip hazards, the analyst must perform a careful examination of any credit application that often indicate one or more of the following characteristics:

• Unverifiable, unsubstantiated, and questionable information

• Aliases commonly used and reversed

• References with incomplete information

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

• Short time in residence and employment

• Inconsistencies or facts not adding up to the overall application profile

Proper diligence should be used in analyzing the above factors in compliance with all applicable laws.

vii. Down Payment and Trade-ins:

A down payment serves to improve TFL’s equity position in the vehicle, lower the applicant debt and payment to income ratios and increases the applicant’s vested interest in the transaction. There are no mandatory down payment requirements other than the deposits for ordering the vehicle and for the leasing program. Security deposits are not currently required in the leasing program. However, the credit decision may include a stipulation of additional down payment to qualify the customer for the lease.

A net negative down payment exists when the value of the trade-in adds to the capitalized cost of the leased vehicle and there is not an adequate cash down payment to offset the amount. When this condition exists, the credit analyst must evaluate the potential impact to TFL’s equity position.

viii. Exception Authority and Process:

TFL may consider applications from borrowers whose credit profile does not fit within the provisions of this lending policy on a case by case basis.  Any exception to this policy must be for the clear benefit of TFL, meet the standards for review and approval of exception leases established by this policy, and be approved by [***] and documented in the LOS. A written justification that clearly sets forth all the relevant credit factors that support the underwriting decision is needed to support the application approval.

Additionally, it is the responsibility of the risk department to:

• Monitor compliance with this policy,

• Track the aggregate level of exceptions to help detect shifts in the risk characteristics of that element(s) within the lending portfolio, and

• Regularly analyze aggregate exception levels and report them to Senior Management.  An excessive volume or a pattern of exceptions may signal an unintended or unwarranted relaxation of TFL’s underwriting standards.

When viewed individually, underwriting exceptions may not appear to increase risk significantly. However, when aggregated, even well mitigated exceptions increase portfolio risk to TFL, especially under adverse business and economic conditions. When higher risk approvals are made from on an exception basis from sound and normal underwriting policies, it is policy to make them only in limited amounts and only when

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

robust risk management practices are in place to manage and control the higher risk. Exceptions are [***] and will [***] based on [***].

Applicants with [***] present a significant default risk.  TFL will consider applicants with [***] with [***], and strong supporting evidence that [***]. Exceptions may be made if the applicant [***]. Adequate documentation to support such an approval is required which should include a direct in depth conversation with the applicant to gather all the material facts.

G.Fair Lending and Regulatory Compliance

i. General Policy Statement:

It is TFL’s policy to follow sound lending practices in letter and spirit to comply with applicable federal, state, and local laws. The Credit department will be trained and required to comply with all applicable regulations at the federal, state, and local level. In regards to Fair Lending, we will not discriminate in our treatment of any credit applications with respect to the following prohibited basis:

(1) race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);

(2) because all or part of the applicant’s income derives from any public assistance program; or

(3) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

In addition to Fair Lending, the following regulations generally apply to TFL’s leasing activities:

• Consumer Leasing Act (Reg. M)

• FCRA and Adverse Action Notice

• OFAC

• Red Flag / ID theft

• California Credit Score Disclosure

• Information Security (Safeguards Rule)

• Service Providers / Vendor Management

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

In accordance with the Fair Lending program and other regulatory compliance, it is the company’s policy to:

• Maintain up to date regulatory policy statements,

• Perform and document periodic training for all employees involved with any aspect of the lending transactions,

• Perform ongoing monitoring for compliance with regulatory policies, procedures and practices,

• Conduct a regular assessment of the marketing of leasing products, and

• Perform meaningful oversight of compliance by Senior Management.

ii. Applicant Notification Letters:

The credit department will issue an adverse action notice within 30 days of the decision on each application that is declined or conditionally approved. The LOS generates the adverse action letter which informs the applicant’s rights under law including the right to obtain specific adverse action reasons by writing to us within 30 days.

In addition, all California applicants will receive the California Credit Score Disclosure Notice indicating the credit score, the source of that score, and information about where their score falls with respect to other consumers.

iii. Audit Policy:

The business activities of Tesla Finance are subject to periodic audits in accordance with Tesla Motors Audit Committee rules and risk assessment results. This review may cover all leases or include a sample over a predetermined period, current, past due and liquidated leases.  In addition, a sample of smaller leases may also be examined to ensure compliance and flag major departure from established policy and procedures.

iv. Records Retention:

The following documents will be held for a period not less than required by relevant statutesin electronic format, where possible:

• Original credit application,

• Credit report obtained from a credit reporting agency,

• Copies of all legal notices sent to the applicant,

• Any written complaint filed by the applicant alleging a violation of the law by TFL,

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

• Original copy of manufacturer’s invoice, and

• Copy of the lease sales contract enforceable in the jurisdiction where the collateral is located, whereby TFL can acquire title and repossess the collateral property in the event of a default.

H.Origination Risk Metrics

Timely tracking and reporting of appropriate metrics are key to effective risk and performance management.  The following metrics will be tracked for appropriate actions [***]:

[***]

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

3.COLLECTIONS POLICY

A.General Policy Statement

The performance of a lending portfolio is subject to individual, maturation, seasonal, economic, and collateral factors. The role of the collections function is to satisfactorily resolve the delinquency situation taking into account the customer’s situation, TFL’s risk exposure, and overall portfolio performance goals. At a high level the primary collections goals are to:

• Provide outstanding customer service in line with Tesla brand values and expectations,

• Minimize collection costs by identifying the most effective ways to allocate resources,

• Increase collections effectiveness by assessing the cost versus benefit at the lease level,

• Increase total recovered dollars by optimizing early to late stage collection activities while determining the ideal contact method and collection strategy, all at the lease level, and

• Determine the ideal repossession and recovery strategy

B.Loss Mitigation Department Roles and Responsibilities

To successfully achieve each of the above goals, the Loss Mitigation department at TFL’s servicer, [***], maintains timely, professional, compliant, and effective collection practices. The importance of immediate collection follow-up on a delinquent account cannot be over-emphasized. Account profitability is affected by more than the potential loss due to repossession. The use of a servicing partner is an important complement to the lease origination function. Employing the expertise of a well-established servicer relieves the company of the many details of this function and can effectively minimize losses, provide outstanding customer service, and reduce the costs of collection.  

Daily collections efforts are performed by the servicer’s Loss Mitigation Team and managed by the Customer Service and Operations Lead at Tesla. The Loss Mitigation Team is currently comprised of trained collection representatives, each of whom is trained in customer service, client interaction and collections. Leads or Supervisors oversee the daily actions of up to five representatives, with a manager for every two or three leads/supervisors. Each of these functional managers has been at the servicer for more than 10 years, and has worked with the Tesla Roadster lease program from inception.

Tesla’s Customer Service and Operations Lead maintains frequent (often daily) interaction with the servicer’s Loss Mitigation Manager and is kept abreast of lease level collection efforts through shared reporting and bi-monthly review. The CSO Lead remains the servicer’s primary point of contact for escalations that require expedient

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

treatment. While the CSO Lead acts as the servicer’s primary escalation point, it is the CSO Lead’s responsibility to report abnormal risk exposure to the President of TFL.

C.Collections Treatment Strategy and Plan

The timing and intensity of collections activity is determined by the delinquency stage, risk exposure, and the customers’ ability and willingness to fulfill the agreed upon course of action. A combination of relationship building, customer service, and assertive collection skills are critical in an effective collector. The collections process will generally escalate from customer service (how can we help?) towards a front-line collections (when can we expect payment?) approach as the customer’s delinquency and risk of default increases.  

All past due lease accounts are evaluated on their payment due date and assigned a specific collection strategy which includes payment notices, emails and telephone follow-up calls as part of the delinquency lifecycle activity stream.

i. Initial Delinquency/Customer Service Call:

Unless the situation requires it, [***] an account would be worked is [***]. At this point, Tesla’s customer service team will perform courtesy calls to ensure billing related questions (the most common reason for early stage delinquency) are resolved.

ii. Formal Daily Collection Activity:

Once account becomes delinquent [***], Tesla will turn over formal collections activity to our servicer’s Loss Mitigation Team. The team is composed of representatives assigned the responsibility of handling outbound and inbound calls. Representatives handling outbound calls review collection lists and place calls to delinquent accounts. Representatives should attempt to address customer delinquency on a one-call resolution basis.

The Work List sequences accounts for follow-up by the associate based upon the review date and payment due date. This list displays the first ‘available’ account on the collection list and requires the associate to work the account before moving on to the next account requiring collection activity.

An ‘available’ account is one that:

• is scheduled to be worked that day

• is not being worked by another associate

• has not been worked that day

Once an account has been worked, the representative must assign a specific activity code describing the collection effort, and leave detailed notes of the collection activity in the customer’s account. Tesla’s customer service team has viewing access to account

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notes and is prepared to pick up where the servicer’s team left off should the customer contact a Tesla representative regarding payment.

iii. Collections Risk Strategy:

Given the size, quality and expected performance of our portfolio, all delinquent accounts are [***] on [***].[***] customers will be handled differently than those [***] of the [***]. Customized data driven optimization strategies at the account level incorporating [***] will be deployed over time. Overall, the risk approach to collections is based on a matrix of risk/exposure levels and delinquency stage.

[***]

The low end of the risk spectrum is handled through [***] progressing to and culminating in [***] approach.

iv. Delinquency Lifecycle Activity:

The following sequence of activities will drive the collection efforts throughout the delinquency lifecycle.  

[***]

[***]

[***]

[***]

A late fee of 5% of the contractual base monthly payment (or as limited by state laws) of any amount not received 10 days after the due date will be collected.

Collections Authority and Exceptions:

[***] Contact will be performed by Tesla’s customer service and operations team. Once [***], the servicer’s Loss Mitigation Team will begin collections activity unless an account has been flagged as “DNC – Do Not Contact” by the Tesla team. An account is flagged DNC if an ACH or other payment issue is the process of being resolved.

Delinquency collections activities are performed by the servicer. The CSO Lead stays in frequent communication with the Loss Mitigation Manager to ensure the Collections Policy is adhered to, and that customers are receiving TFL’s desired brand and customer experience.

In unique situations where collections activity may deviate from the standard collections timeline, the CSO Lead may authorize collection notices to be mailed in advance or

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after normal policy guidelines. The CSO Lead may [***]after presenting the payment plans to [***].

In any event where credit loss may occur, the CSO Lead will provide full account details to the President of TFL. Together, the President of TFL and CSO Lead will plan the optimal recovery strategy. The recovery strategy will aim to minimize loss, protect the asset/equipment, and maintain positive customer experience.

v. Customer Contact and Documentation Policy:    

All forms of communication (telephone, general correspondence, email) between TFL, the servicer and customers should be performed in an appropriate professional manner. Representatives are not to demonstrate conduct that is annoying, illegal, or harassing.

Representatives must utilize effective and professional telephone skills when contacting customers. When speaking with the customer, representatives must identify themselves and state they are calling on behalf of Tesla Finance.

Representatives must not indicate they are calling on behalf of Tesla Finance when speaking to a party other than the debtor or when leaving voice messages.

Representatives should communicate in a clear, confident and polite manner and treat all customers fairly, courteously and equitably. Upon assuming control of the conversation, representatives should employ the following guidelines:

• Determine the customer's financial situation.

• Demonstrate understanding by allowing the customer the opportunity to propose solutions to the delinquency. Customers are more likely to follow through on their own proposals or promises rather than those suggested by the representative.

• Explore viable short-term and long-term solutions to the delinquency.

• Offer the customer satisfactory payment arrangements to remit the full amount due, including late charges.*

• Obtain a specific and detailed payment commitment from the customer for bringing the account current.

• Emphasize to the customer the importance of keeping the payment arrangements.

• Follow-up on promises or commitments to pay on agreed upon dates.

• Promote positive customer relations.

*Once payment arrangements are obtained, the loss mitigation representative should ensure the appropriate system entry notes and update tasks are accomplished.

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vi. Telephone Collection Policy:

TFL collection procedures emphasize the use of the telephone as the primary means for contacting delinquent customers. Telephone contact is timely and often provides for immediate results. When conducting telephone collections, it is policy to treat all delinquent customers in a fair manner and comply with all regulations. A delinquent customer is entitled to receive helpful assistance in a courteous manner.

Objectives:

The representative's main objectives in contacting the customer should be:

• Verify pertinent customer information such as current home address, home and/or business telephone number, and employment status.

• Obtain the reason(s) for delinquency.

• Obtain a firm commitment from the customer on payment arrangements for bringing the account current and keeping the account current until account liquidation.

It is essential that the reason for delinquency is determined, notated on the system, and the account delinquency is resolved on the initial customer contact (once and done).

Basic Guidelines for Effective Customer Interaction:

Each customer has a reason(s) for delinquency; therefore, the representative must evaluate and work each account on an individual basis. The representative must maintain a positive and professional approach in resolving the delinquency situation of each account. The basic guidelines are as follows:

• Focus on Specifics - The representative must focus on the specifics of the delinquency situation. A customer may overreact to the most business like collection contact by raising his/her voice or by using profanity. Representatives should not take these actions personally and never reply in kind.

• Build and Maintain Self-Confidence and Self-Esteem – Representatives must emphasize the benefits of keeping the account in good standing, without engaging in any threats, implied or otherwise.

• Build and Maintain a Positive, Constructive Relationship – Representatives must advise the customer of their intention to help resolve the situation.

D.Bankruptcy Handling

Filing of the bankruptcy petition requires (with limited exceptions) TFL to cease or "stay" further action to collect their claims. Once filed, the petition prohibits actions to accelerate, set-off, enforce a statutory, or otherwise collect the debt. The petition also

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prohibits post-bankruptcy contacts with the lessee (i.e., "dunning" letters.) The stay remains in effect until the bankruptcy court releases the lessee’s property from the estate, dismisses the bankruptcy case, and approves a creditor's request for termination of the stay or the lessee obtains or is denied a discharge.

E.Repossession and Reinstatement

Unless [***], the repossession of a leased vehicle [***] action considered to resolve the situation. However, repo assignment should happen [***]. All repo assignments must be approved by the President of TFL. TFL will comply with all applicable state level laws regarding cure notices, reporting delinquency to bureaus, and right to reinstate. Repossessed vehicles may be sold at public auction to reduce TFL’s exposure to loss. The President of TFL will decide how repossessed equipment is sold.

F.Charge-off Policy

The general policy is to charge-off [***]. The following conditions should generally result in a charge-off:

[***]

G.Fair Debt Collection and Regulatory Compliance

i. General Policy Statement:

It is TFL’s policy to follow sound collections practices in letter and spirit to comply with applicable federal and state laws. The collections department will be trained and required to comply with all applicable regulations at the federal, state, and local level. We will follow the provisions and intent of the Fair Debt Collection Practices Act (FDCPA) to:

(1) Eliminate the use of abusive, deceptive, and unfair debt collection practices by debt collectors,

(2) To ensure that those reputable debt collectors who refrain from using abusive debt collection practices are not competitively dis-advantaged, and

(3) Promote consistent state action to protect consumers against debt collection abuses.

The FDCPA defines activities that are harassing, deceptive, or otherwise unacceptable. The representatives are not permitted to engage in any conduct that would mislead, harass, or abuse any person. Some examples of such conduct include:

• The use or threat of violence, or other criminal means to harm the customer, the customer's reputation, or the customer's property.

• Collecting any amount unless authorized by the contract or applicable law.

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• The use of obscene or profane language, or language which the receiving party could consider abusive.

• Calling outside the hours or frequency prescribed by law. Engaging the customer or any third person (to the extent otherwise permitted) in telephone conversation repeatedly or continuously.

• Continuous attempts to contact a customer through the customer's employer.

• Failing to reveal to the customer that the purpose of the call is to collect a debt.

• Threatening to initiate a specific type of collection action against the customer that cannot be taken legally or for which there is no intent to take the action.

• Implying that non-payment will result in arrest, imprisonment, or garnishment of wages or otherwise falsely representing the amount that may be collected or the manner in which collection may be enforced.

• Falsely representing the outstanding balance amount or nature or status of an account, or the penalties or late charges that may be assessed because of non-payment.

• Utilizing deceptive means or false representations in an attempt to collect an account or to obtain information concerning the customer.

• Placing collect telephone calls to the customer.

• Attempting to shame or disgrace a customer by falsely representing or implying that the customer has committed a crime or acted disgracefully.

• Use of any business, company, or organization names other than that of Tesla Finance LLC and Tesla Lease Trust.

• Discussing the delinquency status of an account with any person other than the customer, unless specifically authorized by the customer in writing.

• Deceptive claims regarding debt payments and impact on credit reports, scores, and credit worthiness.

In addition, we will fully comply with the following regulations that generally apply to TFL’s servicing and collection activities:

• EFTA

• GLBA (Privacy Rule and Notice, Reg. P)

• SCRA

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• Bankruptcy Laws

• Information Security (Safeguards Rule)

• Service Providers / Vendor Management

• Customer Complaint Management

All representatives involved in servicing and collections are trained and certified on the Fair Debt Collection Practices Act and additional compliance training is done by the servicer’s Loss Mitigation Manager.

ii. Customer Letters:

The Privacy Notice is mailed with the first statement to the lease customer and annually thereafter. Additional letters sent out during the servicing and collections process may include collection letters, repossession notices, and end of lease notices.

iii. Audit Policy:

TFL’s business activities are subject to periodic audits in accordance with Tesla Motors Audit Committee rules and risk assessment results. This review may cover all leases or include a sample over a predetermined period, current and past due and liquidated leases. In addition, a sample of smaller leases may also be examined to ensure compliance and flag major departure from established policy and procedures.

iv. Records Retention:

The following documents and information will be held for a period not less than required by statutes in electronic format, where possible:

• Refresh credit report obtained from a credit reporting agency,

• Other supporting information obtained during the collections process,

• Copies of all legal and collection notices sent to the customer,

• Any written complaint filed by the applicant alleging a violation of the law by TFL,

• Copy of the lease sales contract, incl. the security agreement enforceable in the jurisdiction where the collateral is located, whereby TFL can acquire title and repossess the collateral property in the event of a default.

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H.Collections and Portfolio Management Metrics

Timely tracking and reporting of appropriate metrics are key to effective risk and performance management.  The following metrics will be tracked for appropriate actions [***] as the portfolio grows and performance evolves:

[***]

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Schedule 8

to Loan and Security Agreement

[Reserved]

Schedule 8-1

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Schedule 9

to Loan and Security Agreement

Short-Term Note Rate

None

Schedule 9-1

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Exhibit A
to Loan and Security Agreement

Form of Loan Request

Loan Request

[DATE]

To:  

Deutsche Bank AG, New York Branch,

as Administrative Agent

60 Wall Street, 5^th Floor

New York, New York 10005

Attention: Katherine Bologna

VIA EMAIL, FACSIMILE AND OVERNIGHT COURIER

Re: Loan and Security Agreement (Warehouse SUBI Certificate) dated as of August 31, 2016 (as amended, supplemented or otherwise modified and in effect from time to time, the “Agreement”), among Tesla 2014 Warehouse SPV LLC, as Borrower (the “Borrower”), Tesla Finance LLC (“TFL”), in its individual capacity and as Servicer, the Lenders and Group Agents party thereto and Deutsche Bank AG, New York Branch, as Administrative Agent (“Administrative Agent”)

Ladies and Gentlemen:

This is a Loan Request delivered pursuant to the Agreement.  Capitalized terms used in this Loan Request but not otherwise defined herein shall have the respective meanings assigned to such terms in the Agreement.

The Borrower hereby requests that the Lenders make Loans on [__________] in the aggregate  principal amount of $[_________] [if the Loan Increase Date is a Warehouse SUBI Lease Allocation Date, insert: and that a proposed allocation be made to the Warehouse SUBI of Leases and related Leased Vehicles with an aggregate Securitization Value of $[__________] as of the applicable Cut-Off Date].  

Attached hereto are (i) a completed worksheet which calculates the amount of the Loans, its impact on the Loan Balance, the Available Facility Limit (on a pro forma basis as of the date hereof, after giving effect to such Loans) and the relationship of the increased Loan Balance to the Maximum Loan Balance, after giving effect to the allocation of the Lease Pool, if any, to the Warehouse SUBI on the Loan Increase Date (Attachment A), (ii) [if the Loan Increase Date is a Warehouse SUBI Lease Allocation Date, insert:  an Allocation Notice with respect to the proposed allocation to the Warehouse SUBI of Leases and related Leased Vehicles on the Loan Increase Date] and [(iii)] in the copy of this Notice delivered to the Lender, a Pool Cut Report as

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to all Leases included in the Warehouse SUBI (including, without limitation, the Lease Pool (if any) proposed to be allocated to the Warehouse SUBI on the Loan Increase Date) (Attachment B).

Each of the Borrower and TFL hereby certifies that each of the conditions precedent to the Loan Increase herein contemplated set forth in Sections 2.01(b) and 5.02 of the Agreement shall be satisfied as of the Loan Increase Date.

IN WITNESS WHEREOF, the Borrower and TFL have caused this Loan Request to be executed and delivered by its duly authorized officer as of the date first above written.

Very truly yours, TESLA 2014 WAREHOUSE SPV LLC
By:
	Name:
	Title:
TESLA FINANCE LLC
By:
	Name:
	Title:

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Exhibit B

to Loan and Security Agreement

Form of Control Agreement

This Control Agreement (as amended, supplemented or otherwise modified and in effect from time to time, the “Agreement”), dated as of [_________], is among Tesla 2014 Warehouse SPV LLC (the “Borrower”), Tesla Finance LLC (the “Servicer”), Deutsche Bank AG, New York Branch, as administrative agent (the “Secured Party”), and [___________], as securities intermediary (the “Securities Intermediary”).  Except as otherwise defined herein, capitalized terms used herein shall have the respective meanings assigned to such terms in the Loan and Security Agreement (defined below) and the interpretive rules thereof shall apply to this Agreement.

RECITALS

WHEREAS, pursuant to the Loan and Security Agreement, the Borrower has granted to the Secured Party a security interest in investment property consisting of the Securities Accounts, related Security Entitlements and the Financial Assets and other investment property from time to time included therein; and

WHEREAS, the parties hereto desire that the security interests of the Secured Party in the Securities Accounts be a first priority security interest perfected by “control” pursuant to Articles 8 and 9 of the UCC.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01.General Definitions.  Except as otherwise specified herein or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Agreement.

“Agreement” has the meaning set forth in the Preamble.

“Bankruptcy Code” means the United States Bankruptcy Code, Title 11 United States Code.

“Borrower” has the meaning set forth in the Preamble.

“Entitlement Holder” means, with respect to any Financial Asset, a Person identified in the records of the Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary with respect to such Financial Asset.

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“Entitlement Order” means a notification directing the Securities Intermediary to transfer or redeem a Financial Asset.

“Financial Asset” has the meaning specified in Section 8-102(a)(9) of the UCC.

“Loan and Security Agreement” means the Loan and Security Agreement (Warehouse SUBI Certificate) dated as of August 31, 2016 (as amended, supplemented or otherwise modified and in effect from time to time), among the Borrower, Tesla Finance LLC, in its individual capacity, the Servicer, the Lenders and the Group Agents parties thereto from time to time and the Administrative Agent described therein.

“Person” means any legal person, including any individual, corporation, partnership, joint venture, association, limited liability company, joint stock company, trust, business trust, bank, trust company, estate (including any beneficiaries thereof), unincorporated organization or government or any agency or political subdivision thereof.

“Secured Party” has the meaning set forth in the Preamble.

“Securities Accounts” means the Warehouse SUBI Collection Account and the Warehouse SUBI Reserve Account, individually or collectively, as the context requires or permits.

“Securities Intermediary” has the meaning set forth in the Preamble.

“Security Entitlement” means the rights and property interest of an Entitlement Holder with respect to a Financial Asset, as specified in Part 5 of Article 8 of the UCC.

“Servicer” has the meaning set forth in the Preamble.

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York.

“Warehouse SUBI Collection Account” means account number 4492301270 in the name “Warehouse SUBI Collection Account of Tesla 2014 Warehouse SUBI SPV LLC for the benefit of Deutsche Bank AG, New York Branch, as Administrative Agent” established with the Securities Intermediary pursuant to the Loan and Security Agreement, together with any successor accounts established pursuant to the Loan and Security Agreement.

“Warehouse SUBI Reserve Account” means account number 4492301288 in the name “Reserve Account of Tesla 2014 Warehouse SUBI SPV LLC for the benefit of Deutsche Bank AG, New York Branch, as Administrative Agent” established with the Securities Intermediary pursuant to the Loan and Security Agreement, together with any successor accounts established pursuant to the Loan and Security Agreement.

Section 1.02.Incorporation of UCC by Reference.  Except as otherwise specified herein or as the context may otherwise require, all terms used in this Agreement not otherwise defined herein which are defined in Article 1, 8 or 9 of the UCC shall have the respective meanings assigned to such terms in such Article the UCC.

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ARTICLE II

ESTABLISHMENT OF CONTROL OVER SECURITIES ACCOUNT

Section 2.01.Establishment of Securities Account.  The Securities Intermediary hereby confirms that (i) the Securities Intermediary has established the Securities Accounts specifically referenced in the definition thereof, (ii) each of the Securities Accounts is an account to which Financial Assets are or may be credited, (iii) the Securities Intermediary shall, subject to the terms of this Agreement, treat the Secured Party as entitled to exercise the rights that comprise any Financial Asset credited to any Securities Account, (iv) all property delivered to the Securities Intermediary by or on behalf of the Borrower, the Servicer or the Secured Party for deposit to any Securities Account will promptly be credited to such Securities Account and (v) all securities or other property underlying any Financial Assets credited to any Securities Account shall be registered in the name of the Securities Intermediary, endorsed to the Securities Intermediary or in blank or credited to another securities account maintained in the name of the Securities Intermediary and in no case will any Financial Asset credited to any Securities Account be registered in the name of the Borrower or the Servicer, payable to the order of the Borrower or the Servicer or specially endorsed to the Borrower or the Servicer, except to the extent the foregoing have been specially endorsed to the Securities Intermediary or in blank.

Section 2.02.“Financial Assets” Election.  The Securities Intermediary hereby agrees that each item of property (whether investment property, financial asset, security, instrument or cash) credited to a Securities Account shall be treated as a “financial asset” within the meaning of Section 8-102(a)(9) of the UCC.

Section 2.03.Entitlement Orders.  If at any time the Securities Intermediary shall receive an Entitlement Order from the Secured Party with respect to any Securities Account (or the Financial Assets credited thereto), the Securities Intermediary shall comply with such Entitlement Order without further consent by the Borrower, the Servicer or any other Person.  Without limiting the generality of the foregoing, if the Secured Party notifies the Securities Intermediary in writing that the Secured Party shall exercise exclusive control over any Securities Account (and any Financial Assets credited thereto) (such notice, which shall be substantially in the form of Attachment A attached hereto, “Notice of Exclusive Control”), the Securities Intermediary shall cease (i) complying with Entitlement Orders or other directions relating to such Securities Account (or the Financial Assets credited thereto) originated by the Borrower, the Servicer or any other Person other than the Secured Party and (ii) distributing to the Borrower, the Servicer or any Person other than the Secured Party interest, dividends or other amounts received by the Securities Intermediary in respect of any Financial Asset or other property credited to such Securities Account (and, instead, shall (at the direction of the Secured Party from time to time) retain such interest, dividends and other amounts in such Securities Account or distribute same to, or at the direction of, the Secured Party).  The Securities Intermediary shall provide to the Borrower copies of Entitlement Orders received from the Secured Party.  

Except as otherwise provided in this Section 2.03, the Servicer may give Entitlement Orders to the Securities Intermediary relating to the redemption or transfer of Financial Assets in

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the Securities Accounts.  Such Entitlement Orders shall be in accordance with the information contained in the related Settlement Statement.

Section 2.04.Waiver of Lien; Waiver of Set-Off.  In the event that the Securities Intermediary has or subsequently obtains by agreement, operation of law or otherwise a security interest in any Securities Account or any Security Entitlement or Financial Asset credited thereto, the Securities Intermediary hereby waives such security interest (except as provided in the next sentence).  The Financial Assets and other items deposited to any Securities Account will not be subject to deduction, set-off, banker’s lien or any other right in favor of any Person or entity other than the Secured Party (except that the Securities Intermediary may set off against amounts on deposit in the Securities Accounts (i) all amounts due to it in respect of its customary fees and expenses for the routine maintenance and operation of the Securities Accounts, and (ii) the face amount of any checks that have been credited to any such Securities Account, but are subsequently returned unpaid because of uncollected or insufficient funds).

Section 2.05.Notice of Adverse Claims.  Except for the claims and interests of the Secured Party and the Borrower in the Securities Accounts, the Securities Intermediary does not know of any claim to, or interest in, any Securities Account or in any Financial Asset credited thereto.  If any Person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against any Securities Account or in any Financial Asset carried therein, the Securities Intermediary will promptly notify the Secured Party and the Borrower thereof.

ARTICLE III

REPRESENTATIONS, WARRANTIES AND

COVENANTS OF THE SECURITIES INTERMEDIARY

Section 3.01.Representations, Warranties and Covenants of the Securities Intermediary.  The Securities Intermediary hereby represents and warrants to the Secured Party, the Borrower and the Servicer, and covenants that:

(a) The Securities Intermediary is a banking corporation duly organized, validly existing and in good standing under the laws of [_________] and each other state where the nature of its business requires it to qualify, except to the extent that the failure to so qualify would not have a material adverse effect on the ability of the Securities Intermediary to perform its obligations under this Agreement.

(b) Each Securities Account has been established as set forth in Section 2.01 and will be maintained in the manner set forth herein until termination of this Agreement.  The Securities Intermediary shall not change the name or account number of any Securities Account without the prior written consent of the Secured Party.

(c) No Financial Asset carried in any Securities Account is or will be registered in the name of the Borrower, payable to the order of the

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Borrower, or specially endorsed to the Borrower, except to the extent such Financial Asset has been endorsed to the Securities Intermediary or in blank.

(d) This Agreement is the valid and legally binding obligation of the Securities Intermediary.

(e) The Securities Intermediary has not entered into, and until the termination of this Agreement will not, without the prior written consent of the Borrower, the Servicer and the Secured Party, enter into, any agreement pursuant to which it agrees to comply with Entitlement Orders of any Person other than the Secured Party with respect to each Securities Account.

(f) The Securities Intermediary has not entered into, and until the termination of this Agreement will not, without the prior written consent of the Borrower, the Servicer and the Secured Party, enter into, any other agreement with the Borrower the Servicer, the Secured Party or any other Person purporting to limit or condition the obligation of the Securities Intermediary to comply with Entitlement Orders as set forth in Section 2.03.

(g) If requested by the Secured Party, the Securities Intermediary will deliver to the Secured Party copies of all statements and confirmations relating to the Securities Accounts (and the Financial Assets credited thereto), such delivery to be made at the same time as delivery to the Borrower or the Servicer.

ARTICLE IV

MISCELLANEOUS

Section 4.01.Choice of Law.  This Agreement and the Securities Accounts shall be governed by the laws of the State of New York (without regard to its conflicts of law principles).  Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the Securities Intermediary’s location and the Securities Accounts (as well as the Security Entitlements related thereto) shall be governed by the laws of the State of New York.

Section 4.02.Conflict with other Agreements.  As of the date hereof, there are no other agreements entered into between the Securities Intermediary in such capacity and the Borrower with respect to any Securities Account.  In the event of any conflict between this Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail.

Section 4.03.Amendments.  No amendment or modification of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by all of the parties hereto.

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Section 4.04.Successors.  The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors.

Section 4.05.Notices.  All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, return receipt requested, to, in the case of (i) the Borrower, at c/o Tesla Motors, Inc., 3500 Deer Creek Road, Palo Alto, California 94304, Attention:  Deputy General Counsel, telecopier no. [__________], (ii) the Servicer, at c/o Tesla Motors, Inc., 3500 Deer Creek Road, Palo Alto, California 94304, Attention:  Deputy General Counsel, Attention:  [_______], telecopier no. [_________], (iii) the Secured Party, [__________], Attention: Asset Finance Group, telecopy no. [_________], and (iv) the Securities Intermediary, [__________________, telecopy no.(___)__________] or as to any of such parties, at such other address as shall be designated by such party in a written notice to the other parties.

Section 4.06.Termination.  The rights and powers granted herein to the Secured Party have been granted in order to perfect its security interest in each Securities Account, are powers coupled with an interest and will neither be affected by the bankruptcy of the Borrower nor by the lapse of time.  The obligations of the Securities Intermediary hereunder shall continue in effect with respect to each Securities Account until the Secured Party has notified the Securities Intermediary in writing that its security interest under the Loan and Security Agreement has been terminated.  Upon the joint written instruction of the Secured Party and the Borrower, the Securities Intermediary shall close a Securities Account and disburse as directed the balance of any assets therein.

Section 4.07.Counterparts.  This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts.

Section 4.08.No Petition.  Each party hereto agrees, prior to the date which is one (1) year and one (1) day after the payment in full of all indebtedness for borrowed money of the Borrower, not to acquiesce, petition or otherwise, directly or indirectly, invoke, or cause the Borrower to invoke, the process of any Official Body for the purpose of (a) commencing or sustaining a case against Borrower, under any federal or state bankruptcy, insolvency or similar law (including the Bankruptcy Code), (b) appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for the Borrower, or any substantial part of the property of the Borrower, or (c) ordering the winding up or liquidation of the affairs of the Borrower.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written.

TESLA FINANCE LLC,

as Servicer

By:

Name:

Title:

TESLA 2014 WAREHOUSE SPV LLC,

as Borrower

By:

Name:

Title:

DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent, as Secured Party,

By:

Name:

Title:

[],
as Securities Intermediary

By:

Name:

Title:

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ATTACHMENT A
to
Control Agreement

FORM OF NOTICE OF EXCLUSIVE CONTROL

[ , ]

[BANK]

[ADDRESS]

Re:Control Agreement

Ladies and Gentlemen:

We hereby notify you that, in accordance with the provisions of the Loan and Security Agreement, dated as of August 31, 2016 (as amended, supplemented or otherwise modified and in effect from time to time, the “Agreement”), among the Borrower, Tesla Finance LLC, in its individual capacity, the Servicer, the Lenders and the Group Agents parties thereto from time to time and the undersigned, as Administrative Agent (“Administrative Agent”), we intend to exercise in the place and stead of the Borrower and the Servicer any and all rights in respect of or in connection with the Control Agreement dated [•], 20[•], among the Administrative Agent, the Borrower, the Servicer and you (the “Control Agreement”) and the [__________] Account.

Capitalized terms used herein without definition shall have the respective meanings assigned to such terms in the Control Agreement.

Very truly yours,

DEUTSCHE BANK AG, NEW YORK BRANCH,

as Administrative Agent

By:

Title:

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Confidential Treatment Requested by Tesla Motors, Inc.

Exhibit C
to Loan and Security Agreement

Form of Compliance Certificate

Certificate of Treasurer

I, the undersigned, Treasurer of Tesla 2014 Warehouse SPV LLC (the “Borrower”) and Treasurer of Tesla Finance LLC (“TFL”), do hereby CERTIFY, pursuant to Section 6.01(a)(i) of the Loan and Security Agreement (Warehouse SUBI Certificate) dated as of August 31, 2016 (as amended, supplemented or otherwise modified and in effect from time to time, the “Loan and Security Agreement”) among the Borrower, TFL, in its individual capacity and as Servicer, the Lenders and Group Agents party thereto, and Deutsche Bank AG, New York Branch, as Administrative Agent, that on and as of the date hereof, there exists no Default, Event of Default or Servicer Default.

Capitalized terms not otherwise defined herein have the respective meanings assigned to such terms in the Loan and Security Agreement.

IN WITNESS WHEREOF, the undersigned has executed this Certificate this day of , 20.

TESLA 2014 WAREHOUSE SPV LLC
By:
	Name:
	Title:  Treasurer
TESLA FINANCE LLC
By:
	Name:
	Title:  Treasurer

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Confidential Treatment Requested by Tesla Motors, Inc.

Exhibit D
to Loan and Security Agreement

Form of Notice of Warehouse SUBI Lease Allocation

Notice of Warehouse SUBI Lease Allocation

[DATE]

Deutsche Bank AG, New York Branch,

as Administrative Agent

60 Wall Street, 5^th Floor

New York, New York 10005

Attention: Katherine Bologna

VIA EMAIL, FACSIMILE AND OVERNIGHT COURIER

Re: Loan and Security Agreement (Warehouse SUBI Certificate) dated as of August 31, 2016 (as amended, supplemented or otherwise modified and in effect from time to time, the “Agreement”), among Tesla 2014 Warehouse Borrower SPV LLC, as Borrower (the “Borrower”), Tesla Finance LLC (“TFL”), in its individual capacity and as Servicer, the Lenders and Group Agents party thereto and Deutsche Bank AG, New York Branch, as Administrative Agent (“Administrative Agent”)

Ladies and Gentlemen:

This is a Notice of Warehouse SUBI Lease Allocation delivered pursuant to the Agreement and Section 11.2 of the Warehouse SUBI Supplement.  Capitalized terms used in this Notice of Warehouse SUBI Lease Allocation but not otherwise defined herein shall have the respective meanings assigned to such terms in the Agreement.

The Borrower hereby notifies the Administrative Agent of a proposed allocation to the Warehouse SUBI of Leases and related Leased Vehicles to occur on [_____] (the “Warehouse SUBI Lease Allocation Date”) pursuant to the Agreement and the Warehouse SUBI Supplement.  The aggregate Securitization Value of such Leases is $[__________] as of the applicable Cut-Off Date.

Attached hereto are (i) a Pool Cut Report as to the Leases proposed to be allocated to the Warehouse SUBI on the Warehouse SUBI Lease Allocation Date (Attachment A) and (ii) a schedule of Leases proposed to be allocated to the Warehouse SUBI on the Warehouse SUBI Lease Allocation Date (Attachment B).

Pursuant to Section 2.3 of the Warehouse SUBI Servicing Agreement, TFL, as Servicer, hereby certifies to the Administrative Agent, it has received all of the Lease Documents (other

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than (x) the original Certificates of Title, which shall be delivered to the Servicer promptly following receipt from the applicable Registrar of Titles and (y) any Lease Documents (including each Lease that constitutes Electronic Chattel Paper) related to the Leases identified in Attachment B hereto.

IN WITNESS WHEREOF, the Borrower and TFL have caused this Notice of Warehouse SUBI Lease Allocation to be executed and delivered by its duly authorized officer as of the date first above written.

Very truly yours, TESLA 2014 WAREHOUSE SPV LLC
By:
	Name:
	Title:
TESLA FINANCE LLC
By:
	Name:
	Title:

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Exhibit E
to Loan and Security Agreement

Form of Pool Cut Report

Tape Account Number Customer State FICO Score Current Lease Receivable Buy Rate (APR) Contractual Total Monthly Payment Amount Contractual Residual Amount ALG Estimate of Residual Facility Base RV Req Disc Rate Facility SV Facility Ineligible? Maturity Month Initial SUBI Allocation Mark-to-Market ALG Value Identifier

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Confidential Treatment Requested by Tesla Motors, Inc.

Exhibit F
to Loan and Security Agreement

Form of Notice of Securitization Take-Out

[Date]

Deutsche Bank AG, New York Branch,
as Administrative Agent
60 Wall Street, 5^th Floor

New York, New York 10005

Attention: Katherine Bologna

Attention:  

Re: Loan and Security Agreement (Warehouse SUBI Certificate) dated as of August 31, 2016 (as amended, supplemented or otherwise modified and in effect from time to time, the “Agreement”), among Tesla 2014 Warehouse SPV LLC, as Borrower (the “Borrower”), Tesla Finance LLC, in its individual capacity and as Servicer, the Lenders and the Group Agents party thereto from time to time, and Deutsche Bank AG, New York Branch, as Administrative Agent (“Administrative Agent”)

Ladies and Gentlemen:

This is a Notice of Securitization Take-Out delivered pursuant to the Agreement.  Capitalized terms used in this Notice of Securitization Take-Out but not otherwise defined herein shall have the respective meanings assigned to such terms in the Agreement.

The Borrower hereby notifies the Administrative Agent that it intends to effect a Securitization Take-Out on the Securitization Take-Out Date of _______, 20__ [Insert date which may be no fewer than 5 Business Days after the date of this Notice].

The Aggregate Securitization Value of the Leases to be included in the Securitization Take-Out is estimated to be $ .

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Confidential Treatment Requested by Tesla Motors, Inc.

IN WITNESS WHEREOF, Borrower has caused this Notice of Securitization Take-Out to be executed and delivered by its duly authorized officer as of the date first above written.

Very truly yours, TESLA 2014 WAREHOUSE SPV LLC
By:
	Name:
	Title:

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Confidential Treatment Requested by Tesla Motors, Inc.

Exhibit G
to Loan and Security Agreement

Form of Securitization Take-Out Certificate

Tesla 2014 WAREHOUSE SPV LLC

Securitization Take-Out Certificate

This Securitization Take-Out Certificate is delivered pursuant to Section 2.09(b)(i) of the Loan and Security Agreement (Warehouse SUBI Certificate), dated as of August 31, 2016, among Tesla 2014 Warehouse SPV LLC, as Borrower, Tesla Finance LLC, in its individual capacity and as Servicer, certain Lenders party thereto, certain Group Agents party thereto and Deutsche Bank AG, New York Branch, as Administrative Agent (as in effect from time to time, the “Loan and Security Agreement”).  Unless otherwise defined herein, capitalized terms used in this Securitization Take-Out Certificate shall have the respective meanings assigned to such terms in the Loan and Security Agreement.

Today’s Date:

Securitization Take-Out Date:

I.	CALCULATION OF LOAN BALANCE
	A.	Securitization Value of Warehouse SUBI Leases (prior to Securitization Take-Out)	$                  -
	B.	Less:  Securitization Value of Warehouse SUBI Leases to be reallocated to UTI in connection with Securitization Take-Out	$
	C.	Remaining aggregate Securitization Value of Warehouse SUBI Leases other than Defaulted Leases, Terminated Leases, Delinquent Lease and Leases which exceed the Excess Concentration Amount and after giving effect to any other reductions thereto in accordance with the term “Maximum Loan Balance” determined as if the remaining Leases are now being allocated to the Warehouse SUBI	$                  -
	D.	Advance Rate	%
	E.	Maximum Loan Balance which can be outstanding following Securitization Take-Out (= (D. x C.)	$                  -
II.	LOAN BALANCE RECONCILIATION
	A.	Loan Balance prior to Securitization Take-Out	$                  -
	B.	Maximum Loan Balance which can be outstanding following Securitization Take-Out (I.E)	$                  -
	C.	Portion of Loan Balance to be repaid on Securitization Take-Out Date (A. minus B.)	$                  -
	D.	Actual Loan Balance following Securitization Take-Out  (A. minus C.)	$
III.	AVAILABLE MAXIMUM LOAN BALANCE
	A.	Maximum Loan Balance	$[]
	B.	Loan Balance (following Securitization Take-Out) (II.D)	$                  -
	C.	Available Maximum Loan Balance (A. minus B.)	$

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The Servicer hereby represents and warrants, in connection with the Securitization Take-Out to which this Securitization Take-Out relates, that each of the conditions and other requirements set forth in Section 2.09(b) of the Loan and Security Agreement has been satisfied.

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IN WITNESS WHEREOF, I _________, a Responsible Officer of Tesla Finance LLC, have executed this Securitization Take-Out Certificate as of the date set forth above.

TESLA FINANCE LLC
By:
	Name:
	Title:

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Exhibit H
to Loan and Security Agreement

[RESERVED]

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Exhibit I

to Loan and Security Agreement

[RESERVED]

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Exhibit J

to Loan and Security Agreement

[RESERVED]

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Exhibit K

to Loan and Security Agreement

[RESERVED]

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Confidential Treatment Requested by Tesla Motors, Inc.

Exhibit L

[RESERVED]

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Confidential Treatment Requested by Tesla Motors, Inc.

Exhibit M
to Loan and Security Agreement

Form of Assignment and Acceptance Agreement

This Assignment and Assumption Agreement (this “Assignment”) dated as of [___________], 20___ is made by [_____________] [(together with the Group Agent (as defined below),] the “Assignor”) to [____________] (the “Assignee”) [with the consent of Tesla 2014 Warehouse SPV LLC, as Borrower under the Loan and Security Agreement (defined below)], pursuant to Section 12.10 of the Loan and Security Agreement (Warehouse SUBI Certificate) dated as of August 31, 2016 (as amended, supplemented, or otherwise modified and in effect from time to time, the “Loan and Security Agreement”), among Tesla 2014 Warehouse SPV LLC, as Borrower, Tesla Finance LLC, in its individual capacity and as Servicer, the Lenders and Group Agents party thereto from time to time, and Deutsche Bank AG, New York Branch, as Administrative Agent.  Capitalized terms used (but not defined) in this Assignment shall have the respective meanings assigned to such terms in the Loan and Security Agreement.

SECTION 1.Assignment and Assumption.  In consideration of the payment of $___________ by the Assignee to the Assignor, the receipt and sufficiency of which payment is hereby acknowledged, effective on _________, 20__ (the “Effective Date”), the Assignor hereby assigns to the Assignee [(or to _________ (the “Assignee Group Agent”), for the benefit of the Assignee)] without recourse and (except as provided below) without representation or warranty, and the Assignee hereby purchases and assumes, an undivided ___% interest in the Assignor’s Loans (and the Assignor’s rights and obligations under its Loans), together with the Assignor’s related interest in the Collateral and the Assignor’s Commitment Amount.  The Assignor represents and warrants to the Assignee that (i) it is the owner of the portion of the Loans assigned hereby and (ii) it has not created any lien upon or with respect to the portion of the Loans assigned hereby.

SECTION 2.Effect of Assignment.  (a)   From and after the Effective Date, (i) the Assignee  shall be a party to and be bound by all of the terms of the Loan and Security Agreement and shall have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the assignment effected hereby, relinquish its rights and be released from its obligations under the Loan and Security Agreement.  Without limiting the generality of this Section 2(a), the Assignee acknowledges receipt of a copy of Section 12.11 of the Loan and Security Agreement and agrees to be bound thereby.

(b)After giving effect to the assignment effected by this Assignment, (i) the Assignor’s Commitment Amount shall be $___________, and its portion of the Loan Balance shall be $_____________, and (ii) the Assignee’s Commitment Amount shall be $__________, and its portion of the Loan Balance shall be $___________.

SECTION 3.Administrative Agent.  The Assignee [and the Assignee’s Group Agent] hereby accept(s) the appointment of, and authorizes, the Administrative Agent to take such action on its behalf and to exercise such powers as are delegated to the Administrative Agent by

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the terms of the Loan and Security Agreement, together with such powers as are reasonably incidental thereto.

SECTION 4.Miscellaneous.

(a)The Assignor shall deliver a copy of this Assignment to the Servicer, the Borrower and the Administrative Agent.

(b)THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES).

(c)Schedule I attached hereto sets forth information (as such information may be changed from time to time in accordance with Section 12.05 of the Loan and Security Agreement) relating to the Assignee [and its Group Agent].  Such Schedule I shall be deemed to amend Schedule I to the Loan and Security Agreement without any further action of any party to the Loan and Security Agreement.

(d)This Assignment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto, by their duly authorized signatories, have executed and delivered this Assignment as of the date first above written.

[ASSIGNOR]
By:
	Authorized Signatory
	Title:
[ASSIGNOR’S FACILITY AGENT]
By:
	Authorized Signatory
	Title:
[ASSIGNEE]
By:
	Authorized Signatory
	Title:

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[ASSIGNEE’S FACILITY AGENT]
By:
	Authorized Signatory
	Title:

[CONSENTED TO:
TESLA 2014 WAREHOUSE SPV LLC,
as Borrower
By:	]
	Authorized Signatory
	Title:

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Schedule I to
Assignment and Assumption
Agreement

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Confidential Treatment Requested by Tesla Motors, Inc.

Exhibit N
to Loan and Security Agreement

Form of Assumption Agreement

THIS ASSUMPTION AGREEMENT (this “Agreement”), dated as of [______ __, ____], is among Tesla 2014 Warehouse SPV LLC (the “Borrower”), [________], as a Conduit Lender (the “New Conduit Lender”), [________], as a Related Committed Lender (the “New Committed Lender[s]” and together with the New Conduit Lender, the “New Lenders”), and [________], as group agent for the New Lenders (the “New Group Agent” and together with the New Lenders, the “New Group”).

BACKGROUND

The Borrower and various others are parties to a certain Loan and Security Agreement (Warehouse SUBI Certificate), dated as of August 31, 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Loan Agreement”).  Capitalized terms used and not otherwise defined herein have the respective meaning assigned to such terms in the Loan Agreement.

NOW, THEREFORE, the parties hereto hereby agree as follows:

SECTION 1.This letter constitutes an Assumption Agreement pursuant to Section 12.10 of the Loan Agreement.  The Borrower desires the New Lenders and the New Group Agent to become a Group under the Loan Agreement, and upon the terms and subject to the conditions set forth in the Loan Agreement, the New Lenders and the New Group Agent agree to become a Group thereunder, each in the respective capacities set forth on the signature pages hereto.

SECTION 2.Upon execution and delivery of this Agreement by the Borrower and each member of the New Group, satisfaction of the other conditions with respect to the addition of a Group specified in Section 12.10 of the Loan Agreement (including the written consent of the Administrative Agent) and receipt by the Administrative Agent of counterparts of this Agreement (whether by facsimile or otherwise) executed by each of the parties hereto:

(a)the New Conduit Lender shall become a party to, and have all of the rights and obligations of, a Conduit Lender under the Loan Agreement;

(b)[each of] the New Committed Lender[s] shall become a party to, and have the rights and obligations of, a Committed Lender under the Loan Agreement and the Commitment shall be as set forth on its signature page hereto; and

(c)the New Agent shall become a party to, and have all the rights and obligations of, a Group Agent under the Loan Agreement.

SECTION 3.Each party hereto hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, any Conduit Lender, any bankruptcy,

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reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the latest maturing commercial paper notes issued by such Conduit Lender is paid in full. The covenant contained in this paragraph shall survive any termination of the Loan Agreement.

SECTION 4.THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.  This Agreement may be executed in counterparts, and by the different parties on different counterparts, each of which shall constitute an original, but all together shall constitute one and the same agreement.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date first above written.

[___________], as a Conduit Lender

By:

Name Printed:

Title:

[Address]

[], as a Committed Lender

for the New Group

By:

Name Printed:

Title:

[Address]

[Commitment]

[Scheduled Termination Date]

[                           ], as Group Agent

for the New Group

By:

Name Printed:

Title:

[Address]

TESLA 2014 WAREHOUSE SPV LLC, as Borrower

By:

Name Printed:

Title:

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EX-10.3

EXHIBIT 10.3

Confidential Treatment Requested by Tesla Motors, Inc.

AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT

This AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is made as of November 1, 2016 (the “Effective Date”), by and among Tesla 2014 Warehouse SPV LLC (the “Borrower”), Tesla Finance LLC, as servicer (“TFL”), the lenders (the “Lenders”) and group agents party thereto from time to time, and Deutsche Bank AG, New York Branch, as administrative agent (in such capacity, the “Administrative Agent”).  Capitalized terms used in this Amendment (including the Recitals), to the extent not otherwise defined herein, shall have the respective meanings assigned such terms in the Loan and Security Agreement, dated August 31, 2016 (as may be further amended, restated, amended and restated, modified, or otherwise supplemented, the “Loan and Security Agreement”), among the Borrower, TFL, Lenders and group agents party thereto from time to time and the Administrative Agent.

RECITALS

WHEREAS, the Borrower, TFL and the Administrative Agent desire to make certain amendments to the Loan and Security Agreement on the terms and conditions expressly set forth herein.

NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Amendments to the Loan and Security Agreement.

a.The definition of “Portfolio Performance Condition” contained in Section Section 1.01 of the Loan and Security Agreement is hereby amended and restated to read in its entirety as follows:

“Portfolio Performance Condition” shall mean, on any date of determination, the occurrence of any one or more of the following events:

(i)         the annualized average of the Delinquency Ratios for any three (3) consecutive Settlement Periods shall exceed [***]; or

(ii)        the Residual Value Performance Ratio, as of any Statistically Significant RVPR Calculation Date shall be less than [***]; or

(iii)       the annualized average of the Credit Loss Ratios for the three (3) most recent Settlement Periods shall exceed [***];

provided, however, that a Portfolio Performance Condition shall no longer be deemed to be continuing if:

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EXHIBIT 10.3

Confidential Treatment Requested by Tesla Motors, Inc.

(x) with respect to the Portfolio Performance Condition referred to in clause (i), the annualized average of the Delinquency Ratios for the three (3) most recent consecutive Settlement Periods subsequent to the occurrence of such Condition shall be less than or equal to [***],

(y) with respect to the Portfolio Performance Condition referred to in clause (ii), the Residual Value Performance Ratio as of the first Statistically Significant RVPR Calculation Date subsequent to the occurrence of such Condition shall be greater than or equal to [***],

(z) with respect to the Portfolio Performance Condition referred to in clause (iii), the annualized average of the Credit Loss Ratios for the three (3) most recent Settlement Periods subsequent to the occurrence of such Condition shall be less than or equal to [***].

2. Conditions Precedent to Effectiveness of this Amendment.  This Amendment shall not become effective until all of the following conditions precedent shall have been satisfied or waived by:

(a)The Administrative Agent shall have received this Amendment fully executed in a sufficient number of counterparts for distribution to all parties.

(b)The representations and warranties set forth herein and in the Transaction Documents (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) shall be true and correct in all material respects.

(c)The Administrative Agent shall have received all other documents and legal matters in connection with the transactions contemplated by this Amendment and such documents shall have been delivered or executed or recorded and shall be in form and substance reasonably satisfactory to Administrative Agent.

3.Representations and Warranties.  The Borrower and TFL each individually represents and warrants to Administrative Agent and the Lenders as follows:

(a)Authority.  Such Person has the requisite power and authority to execute and deliver this Amendment, and to perform its obligations hereunder and under the Transaction Documents (as amended or modified hereby) to which it is a party.  The execution, delivery and performance by such Person of this Amendment have been duly approved by all necessary action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restriction binding on such Person, which would be reasonably likely to have a Material Adverse Effect.

(b)Enforceability.  This Amendment and each Transaction Document (as amended or modified hereby) is the legal, valid and binding obligation of such Person, enforceable against such Person in accordance with their terms, except as enforceability may be limited by equitable principles relating to enforceability or by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally.

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Confidential Treatment Requested by Tesla Motors, Inc.

(c)Representations and Warranties.  The representations and warranties contained in each Transaction Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof.

(d)No Default.  After giving effect to this Amendment, no event has occurred and is continuing that constitutes a Default or Event of Default.

4.Choice of Law.  The validity of this Amendment, the construction, interpretation, and enforcement hereof, and the rights of the parties hereto with respect to all matters arising hereunder or related hereto shall be determined under, governed by, and construed in accordance with the laws of the State of New York.

5.Counterparts.  This Amendment may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument.  Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile or other electronic method of transmission shall be effective as delivery of a manually executed counterpart of this Amendment.

6.Reference to and Effect on the Transaction Documents. Upon and after the effectiveness of this Amendment, each reference in the Loan and Security Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import referring to the Loan and Security Agreement, and each reference in the other Transaction Documents to “the Loan and Security Agreement”, “thereof” or words of like import referring to the Loan and Security Agreement, shall mean and be a reference to the Loan and Security Agreement as modified and amended hereby. This Amendment shall constitute a “Transaction Document” for all purposes of the Loan and Security Agreement and the other Transaction Documents.

[Remainder of Page Intentionally Left Blank; Signature Pages Follow.]

3

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.

TFL:

TESLA FINANCE, LLC

By: /s/ William DonnellyName: William Donnelly
Title:    President

BORROWER:

TESLA 2014 WAREHOUSE SPV, LLC

By: /s/ Susan RepoName: Susan Repo
Title:   Vice President

[Signature Page to Amendment No. 1 to Loan and Security Agreement]

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

Confidential Treatment Requested by Tesla Motors, Inc.

ADMINISTRATIVE AGENT AND LENDER:

DEUTSCH BANK AG, NEW YORK BRANCH

By: /s/ Katherine BolognaName: Katherine Bologna
Title: Director

By: /s/ Maureen FarleyName: Maureen Farley
Title: Vice President

[Signature Page to Amendment No. 1 to Loan and Security Agreement]

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.

EX-31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Elon Musk, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Tesla Motors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2016	/s/ Elon Musk
	Elon Musk
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Jason Wheeler, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Tesla Motors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2016	/s/ Jason Wheeler
	Jason Wheeler
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATIONS

I, Elon Musk, certify, pursuant to 18 U.S.C. Section 1350, that, to my knowledge, the Quarterly Report of Tesla Motors, Inc. on Form 10-Q for the quarterly period ended September 30, 2016, (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Tesla Motors, Inc.

Date: November 1, 2016	/s/  Elon Musk
	Elon Musk
	Chief Executive Officer
	(Principal Executive Officer)

I, Jason Wheeler, certify, pursuant to 18 U.S.C. Section 1350, that, to my knowledge, the Quarterly Report of Tesla Motors, Inc. on Form 10-Q for the quarterly period ended September 30, 2016, (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Tesla Motors, Inc.

Date: November 1, 2016	/s/  Jason Wheeler
	Jason Wheeler
	Chief Financial Officer
	(Principal Financial Officer)

EX-99.1

EXHIBIT 99.1

RISK FACTORS

Risks Related to the Merger

The Exchange Ratio is fixed and will not be adjusted in the event of any change in the stock prices of either Tesla or SolarCity.

Upon closing of the Merger, each share of SolarCity Common Stock will be converted into the right to receive 0.110 shares of Tesla Common Stock with cash paid in lieu of fractional shares. This Exchange Ratio is fixed in the Merger Agreement and will not be adjusted for changes in the market price of either Tesla Common Stock or SolarCity Common Stock. Because the Exchange Ratio is fixed, changes in the price of Tesla Common Stock prior to the Merger will affect the value of the merger consideration that SolarCity stockholders will receive on the date of the Merger. In addition, Tesla will issue an amount of shares of Tesla Common Stock in the Merger based on the number of shares of SolarCity Common Stock outstanding as of the effective time of the Merger, and the amount of shares of Tesla Common Stock issued in the Merger will not change based on the price of the shares of Tesla Common Stock or SolarCity Common Stock as of the date of the Merger or their relative price, or any changes in their price or relative price prior to the Merger.

Stock price changes may result from a variety of factors (many of which are beyond our control), including the following:

• changes in our respective businesses, operations and prospects;

• changes in market assessments of the business, operations, and prospects of either company;

• investor behavior and strategies, including market assessments of the likelihood that the Merger will be completed;

• interest rates, general market and economic conditions and other factors generally affecting the price of Tesla’s and SolarCity’s common stock; and

• federal, state, and local legislation, governmental regulation, and legal developments in the jurisdictions in which SolarCity and Tesla operate.

The price of Tesla Common Stock at the closing of the Merger may vary from its price on the date the Merger Agreement was executed, on the date of this joint proxy statement/prospectus, and/or on the dates of the special meetings of Tesla and SolarCity. As a result, the market value represented by the Exchange Ratio will also vary. For example, based on the range of closing prices of Tesla Common Stock during the period from June 21, 2016, the last full trading day before Tesla’s public announcement of its intent to acquire SolarCity, through October 10, 2016, the latest practicable date before the date of this joint proxy statement/prospectus, the Exchange Ratio represented a market value ranging from a low of $21.96 to a high of $22.46 for each share of SolarCity Common Stock.

The ability of Tesla and SolarCity to complete the Merger is subject to a number of conditions, including the absence of antitrust challenges from governmental entities, which may impose conditions that could have an adverse effect on Tesla or SolarCity or could delay or cause us to abandon the Merger.

Notification and Report Forms required by the HSR Act were filed with the DOJ and the FTC on August 15, 2016. The FTC granted early termination of the applicable HSR Act waiting period to the parties on August 24, 2016. The DOJ, the FTC and others, however, may still challenge the Merger on antitrust grounds at any time before or after the completion of the Merger, any of the DOJ, the FTC or another person could take action under the antitrust laws as it deems necessary or desirable in the public interest, including without limitation seeking to enjoin the consummation of the Merger, conditionally approve the Merger upon the divestiture of assets of Tesla or SolarCity, subject the consummation of the Merger to regulatory conditions or seek other remedies. We cannot assure you that a challenge to the Merger will not be made or that, if a challenge is made, it will not succeed. The Merger Agreement may be terminated in accordance with its terms, and the Merger may not be completed.

Completion of the Merger is subject to a number of other conditions that must be fulfilled, including, among others, the conditions that (i) the Tesla Merger and Share Issuance Proposal be approved by (a) the affirmative vote of the holders of a majority of the total votes of shares of Tesla Common Stock cast in person or by proxy at the special meeting to approve the Tesla Share Issuance pursuant to the NASDAQ Market Rules and (b) the affirmative vote of the holders of a majority of the shares of Tesla Common Stock cast in person or by proxy at the Tesla Special Meeting that are not owned, directly or indirectly, by the Excluded Tesla Parties, pursuant to the terms of the Merger Agreement; (ii) the SolarCity Merger Proposal be approved by (a) the affirmative vote of the holders of a majority of the outstanding shares of SolarCity Common Stock entitled to vote in person or by proxy at the special meeting pursuant to Delaware law and (b) the affirmative vote of the holders of a majority of the shares of SolarCity Common Stock cast in person or by proxy at the SolarCity Special Meeting that are not owned, directly or indirectly, by the Excluded SolarCity Parties, pursuant to the terms of the Merger Agreement; (iii) the absence of certain continuing defaults or mandatory prepayment events under SolarCity’s indebtedness; and (iv) SolarCity having a specified level of accounts payable. These conditions may not be fulfilled, and if this occurs, the Merger may not be completed. In addition, if the Merger is not completed by April 30, 2017, either Tesla or SolarCity may choose not to proceed with the Merger, and the parties can mutually decide to terminate the Merger Agreement at any time prior to the consummation of the Merger, before or after stockholder approval. In addition, Tesla or SolarCity may elect to terminate the Merger Agreement in certain other circumstances. See “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 129 and “The Merger Agreement—Termination of the Merger Agreement” on beginning on page 131 for a fuller description of these circumstances.

Any delay in completing the Merger may reduce or eliminate the expected benefits from the transaction.

The Merger is subject to a number of conditions beyond Tesla’s and SolarCity’s control that may prevent, delay or otherwise materially adversely affect its completion. Tesla and SolarCity cannot predict whether and when these other conditions will be satisfied. There can be no assurance that either Tesla or SolarCity or both parties will waive any condition to closing that is not satisfied. Furthermore, the requirements for obtaining the required clearances and approvals and the time required to satisfy any other conditions to the closing could delay the completion of the Merger for a significant period of time or prevent it from occurring. Any delay in completing the Merger could cause Tesla not to realize some or all of the benefits that it expects to achieve if the Merger is successfully completed within its expected timeframe. See the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 129.

Failure to complete the Merger could negatively impact the stock prices and the future business and financial results of Tesla and SolarCity.

If the Merger is not completed, the ongoing businesses of Tesla or SolarCity may be adversely affected and Tesla and SolarCity will be subject to several risks, including the following:

• being required, under certain circumstances, to pay a termination fee of $78.2 million, in the case of a payment by Tesla to SolarCity, and $78.2 million or $26.1 million, in the case of a payment by SolarCity to Tesla (see “The Merger Agreement—Expenses and Termination Fees” beginning on page 132);

• having to pay certain costs relating to the proposed Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees;

• under the Merger Agreement, each of Tesla and SolarCity being subject to certain restrictions on the conduct of its business, which may adversely affect its ability to execute certain business strategies; and

• the focus of management of each of the companies on the Merger instead of on pursuing other opportunities that may be beneficial to each company.

If the Merger does not occur, Tesla and SolarCity may incur these costs without realizing any of the benefits of the Merger being completed. In addition, if the Merger is not completed, Tesla and/or SolarCity may experience negative reactions from the financial markets and from their respective customers and employees. Tesla and/or SolarCity could also be subject to litigation related to any failure to complete the Merger or to enforcement proceedings commenced against Tesla or SolarCity to perform their respective obligations under the Merger Agreement. If the Merger is not completed, Tesla and SolarCity cannot assure their respective stockholders that these risks will not materialize or will not materially affect the business, financial results and stock prices of SolarCity or Tesla.

The Merger Agreement contains provisions that could discourage a potential competing acquiror or could result in any competing proposal being offered at a lower price than it might otherwise be.

The Merger Agreement contains “no shop” provisions that, after the expiration of the “go-shop” period, which concluded on September 14, 2016, with no parties qualifying as Excluded Parties, subject to limited exceptions, restrict SolarCity’s ability to solicit, encourage, facilitate or discuss competing third-party proposals to acquire all or a significant part of SolarCity. Further, even if the SolarCity Board withdraws or modifies its recommendation of the SolarCity Merger Proposal, it will still be required to submit the matter to a vote of the SolarCity stockholders at the SolarCity Special Meeting unless the Merger Agreement is terminated in accordance with its terms. In addition, Tesla generally has an opportunity to offer to modify the terms of the Merger and the Merger Agreement in response to any competing Acquisition Proposals that may be made before the SolarCity Board may withdraw or modify its recommendation. In some circumstances, upon termination of the Merger Agreement, one of the parties may be required to pay a termination fee to the other party. Tesla is subject to similar “no shop provisions” with respect to competing third-party proposals to acquire all or a significant part of Tesla. For additional information, see the sections entitled “The Merger Agreement—SolarCity Go-Shop” beginning on page 126, “—No Solicitation of Alternative Proposals” beginning on page 126, “—Termination Rights in Response to a Superior Proposal; Changes in Board Recommendations” beginning on page 128 and “—Termination of the Merger Agreement” beginning on page 131.

These provisions could discourage a potential competing acquiror from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market value proposed to be received or realized in the Merger, or might result in a potential competing acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

Tesla’s Amended and Restated Bylaws provide that a state court within the State of Delaware will be the sole and exclusive forum for substantially all disputes between Tesla and its stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with Tesla or its current or former directors, officers or employees.

Tesla’s Amended and Restated Bylaws (“Tesla’s Bylaws”) provide that unless Tesla consents in writing to the selection of an alternative forum, a state court within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Tesla, any action asserting a claim of breach of fiduciary duty owed by any current or former director, officer or other employee of Tesla to Tesla or its stockholders, any action asserting a claim arising pursuant to any provision of the DGCL or Tesla’s Amended and Restated Certificate of Incorporation (“Tesla’s Charter”) or Tesla’s Bylaws, any action asserting a claim governed by the internal affairs doctrine, or any action asserting an “internal corporate claim” as that term is defined by Section 115 of the Delaware General Corporation Law (the “DGCL”). The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Tesla or its current or former directors, officers or other employees, which may discourage such lawsuits against Tesla and its current or former directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in Tesla’s Charter to be inapplicable or unenforceable in an action, Tesla may incur additional costs associated with resolving such action in other jurisdictions, which could harm its business, results of operations, and financial condition.

SolarCity’s Amended and Restated Bylaws, as amended to date, provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between SolarCity and its stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with SolarCity or its current or former directors, officers or employees.

SolarCity’s Amended and Restated Bylaws, as amended to date (“SolarCity’s Bylaws”), provide that unless SolarCity consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the “Delaware Court of Chancery”) (or, if no state court located within the State of Delaware has jurisdiction, any state or federal court located within the State of Delaware) will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of SolarCity, any action asserting a claim of breach of fiduciary duty owed by any current or former director, officer, employee or agent of SolarCity to SolarCity or its stockholders, any action asserting a claim arising pursuant to any provision of the DGCL or SolarCity’s Amended and Restated Certificate of Incorporation (“SolarCity’s Charter”) or SolarCity’s Bylaws, or any action asserting a claim governed by the internal affairs doctrine. SolarCity’s Bylaws further provide that any acquiror of SolarCity’s capital stock is deemed to have notice of and consented to (i) this provision, (ii) the personal jurisdiction of the Delaware Court of Chancery (or any state or federal court located within the State of Delaware, as applicable), and (iii) having service of process made upon such stockholder. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with SolarCity or its current or former directors, officers, employees or agents, which may discourage such lawsuits against SolarCity and its current or former directors, officers, employees or agents. Alternatively, if a court were to find the choice of forum provision contained in SolarCity’s Charter to be inapplicable or unenforceable in an action, SolarCity may incur additional costs associated with resolving such action in other jurisdictions, which could harm its business, results of operations, and financial condition.

The Merger will involve substantial costs.

Tesla and SolarCity have incurred and expect to continue to incur substantial costs and expenses relating directly to the Merger and the Tesla Share Issuance, including debt refinancing costs, fees and expenses payable to financial advisors, other professional fees and expenses, insurance premium costs, fees and costs relating to regulatory filings and notices, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses. If the Merger is not completed, Tesla and SolarCity will have incurred substantial expenses for which no ultimate benefit will have been received by either company.

The pendency of the Merger and related uncertainty could adversely affect the relationships of Tesla and SolarCity with employees, customers, commercial partners, financing parties and other third parties.

Uncertainty about the effect of the Merger on employees, customers, commercial partners and other third parties may have an adverse effect on SolarCity and Tesla. These uncertainties may cause customers, suppliers commercial partners, financing parties and others that deal with SolarCity or Tesla to seek to change, delay or defer decisions with respect to existing or future business relationships. Retention, hiring and motivation of certain current and prospective employees by SolarCity or Tesla may be challenging while the Merger is pending, as they may experience uncertainty about their future roles with SolarCity or Tesla. If key employees, customers, commercial partners, financing parties and other third parties terminate or change, or seek to terminate or change, their existing relationships with SolarCity or Tesla, SolarCity’s business or Tesla’s business, and the Combined Company’s business as a result, could be harmed.

The consummation of the Merger may permit counterparties to other agreements to terminate those agreements.

SolarCity is party to certain agreements that give the counterparties to such agreements, including investors and commercial partners, certain rights, including notice, consent and other rights in connection with “change of control” transactions or otherwise, that may give rise to a default by SolarCity under the agreements or a right by the counterparty to terminate the agreement. Under certain of these agreements, the Merger may constitute a “change of control” or otherwise give rise to consent or termination rights and, therefore, the counterparties may assert their rights in connection with the Merger and claim a default of the agreement by SolarCity and/or terminate the agreements, which may adversely affect business and operations of Tesla and the value of Tesla’s common stock following the Merger.

The fairness opinions obtained by the Tesla Board and the SolarCity Special Committee from their respective financial advisors will not be updated to reflect changes in circumstances between signing the Merger Agreement and the completion of the Merger.

Neither the Tesla Board nor the SolarCity Special Committee has obtained an updated fairness opinion as of the date of this joint proxy statement/prospectus from Evercore, Tesla’s financial advisor, or Lazard, the SolarCity Special Committee’s financial advisor. Changes in the operations and prospects of Tesla or SolarCity, general market and economic conditions, and other factors that may be beyond the control of Tesla and SolarCity and on which the fairness opinions were based, may alter the value of Tesla or SolarCity or the price of shares of Tesla or SolarCity Common Stock by the time the Merger is completed.

The fairness opinions do not speak as of the time the Merger will be completed or as of any date other than the dates of such opinions. Neither Tesla nor SolarCity anticipates asking their respective financial advisors to update their fairness opinions. The fairness opinions of Evercore and Lazard are included as Annexes CandD, respectively, to this joint proxy statement/prospectus. For a description of the fairness opinions that the Tesla Board received from its financial advisor and a summary of the material financial analyses it provided to the Tesla Board in connection with rendering such opinions, see the section entitled “The Merger—Opinion of Tesla’s Financial Advisor” beginning on page 74. For a description of the opinion that the SolarCity Special Committee received from its financial advisor and a summary of the material financial analyses such financial advisor provided to the SolarCity Special Committee in connection with rendering such opinion, see the section entitled “The Merger—Opinion of the Financial Advisor to the SolarCity Special Committee” beginning on page 88.

For a description of the factors considered by the Tesla Board in determining to approve the Merger and the Tesla Share Issuance, see the section entitled “The Merger—Tesla’s Reasons for the Merger and Tesla Share Issuance; Recommendation of the Tesla Board of Directors” beginning on page 70. For a description of the factors considered by the SolarCity Board in determining to approve the Merger Agreement and the Merger, see the section entitled “The Merger—SolarCity’s Reasons for the Merger; Recommendation of the SolarCity Special Committee and Board of Directors” beginning on page 83.

Certain directors and executive officers of Tesla and SolarCity have interests in the Merger that may be different from, or in addition to, the interests of Tesla’s stockholders and SolarCity’s stockholders generally.

Certain executive officers of Tesla and SolarCity participated in the negotiation of the terms of the Merger Agreement. The Tesla Board, with two directors recusing themselves, approved the Merger Agreement and the Tesla Share Issuance and determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the Tesla Share Issuance, are advisable and in the best interests of Tesla and its stockholders. The Special Committee and the SolarCity Board, upon the recommendation of the Special Committee approved the Merger Agreement and determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of SolarCity and its stockholders. In considering these facts and the other information contained in this joint proxy statement/prospectus, you should be aware that certain of Tesla’s directors and executive officers and certain of SolarCity’s directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of Tesla’s or SolarCity’s stockholders. For example, some Tesla directors and executive officers own shares in SolarCity and serve on the SolarCity Board, and some SolarCity directors own shares of Tesla and serve on the Tesla Board. See the sections entitled “Stock Ownership of Certain Beneficial Owners and Management/Directors of Tesla” beginning on page 172 and “The Merger—Interests of Tesla’s Directors and Executive Officers in the Merger” beginning on page 106 and “Stock Ownership of Certain Beneficial Owners and Management/Directors of SolarCity” beginning on page 175 and “The Merger—Interests of SolarCity’s Directors and Executive Officers in the Merger” beginning on page 108.

SolarCity stockholders will not be entitled to dissenters’ or appraisal rights in the Merger.

Dissenters’ or appraisal rights are statutory rights that, if applicable under law, enable stockholders of a corporation to dissent from an extraordinary transaction, such as a Merger, and to demand that such corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction. Under the DGCL, stockholders do not have appraisal rights if the shares of stock they hold, at the record date for determination of stockholders entitled to vote at the meeting of stockholders to act upon the Merger or consolidation, are either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders. Notwithstanding the foregoing, appraisal rights are available if stockholders are required by the terms of the Merger Agreement to accept for their shares anything other than (a) shares of stock of the surviving corporation, (b) shares of stock of another corporation that will either be listed on a national securities exchange or held of record by more than 2,000 holders, (c) cash instead of fractional shares or (d) any combination of clauses (a)-(c).

Because SolarCity Common Stock is listed on NASDAQ, a national securities exchange, and is expected to continue to be so listed on the record date, and because the Merger otherwise satisfies the foregoing requirements, holders of SolarCity Common Stock will not be entitled to dissenters’ or appraisal rights in the Merger with respect to their shares of SolarCity Common Stock.

Pending litigation against Tesla could result in an injunction preventing the completion of the Merger or a judgment resulting in the payment of damages.

Between September 1, 2016 and October 5, 2016, seven lawsuits were filed in the Court of Chancery of the State of Delaware by purported stockholders of Tesla challenging the Merger. These lawsuits are captioned as City of Riviera Beach Police Pension Fund v. Elon Musk, et al., C.A, No. 12711-VCS; Ellen Prasinos v. Elon Musk, et al., C.A. No. 12723-VCS; Arkansas Teacher Retirement System, et al. v. Elon Musk, et al., C.A. No. 12740-VCS; and P. Evan Stephens v. Elon Musk, et al., C.A. No. 1275-VCS; Pyare Diwana v. Elon Musk, et al., C.A. No. 12796-VCS; Nguyen v. Elon Musk, et al., C.A. No. 12808-VCS; and Wolf v. Elon Musk, et al., C.A. No. 12805-VCS (collectively, the “Actions”), naming as defendants the Tesla Board, and certain of the Actions also name as defendants Merger Sub, SolarCity, and certain members of the SolarCity Board, Evercore, and The Goldman Sachs Group, Inc. Other potential plaintiffs may also file additional lawsuits challenging the proposed Merger. The outcome of any such litigation is uncertain.

If any Action is not resolved, the lawsuit(s) could prevent or delay completion of the Merger and result in substantial costs to Tesla and SolarCity, including any costs associated with the indemnification of its respective directors and officers. One condition to closing the Merger is the absence of any law, order, judgment or other legal restraint by a court or other governmental entity that prevents, makes illegal or prohibits the closing of the Merger. If any lawsuit is filed challenging the Merger and is successful in obtaining an injunction preventing the parties to the Merger Agreement from consummating the Merger, such injunction may delay or prevent the Merger. As such, if plaintiffs are successful in obtaining an injunction prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement, then such injunction may prevent the Merger from being completed, or from being completed within the expected timeframe. Additionally, if the Merger is completed, Tesla would assume the risks and liabilities associated with litigation that SolarCity and certain members of the SolarCity Board are party to, and Tesla has agreed to indemnify the directors and officers of SolarCity following the completion of the Merger for liability arising out of the fact that each such person was a director or officer of SolarCity prior to the date of the Merger Agreement.

The defense or settlement of these Actions and any future additional litigation could be time-consuming and expensive, divert the attention of Tesla management and/or SolarCity management away from their regular business, and, if any one of these Actions or any future litigation is adversely resolved against either Tesla or SolarCity, could have a material adverse effect on their respective financial condition, results of operations or liquidity of Tesla or the Combined Company if resolved after the Merger is completed. For more information, see “The Merger—Litigation Relating to the Merger.”

Until the completion of the Merger or the termination of the Merger Agreement in accordance with its terms, in consideration of the agreements made by the parties in the Merger Agreement, Tesla and SolarCity are each prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Tesla or SolarCity and their respective stockholders.

Until the Merger is completed, the Merger Agreement restricts each of Tesla and SolarCity from taking specified actions without the consent of the other party, and requires each of Tesla and SolarCity to operate in the ordinary course of business consistent with past practices. SolarCity is subject to a number of customary interim operating covenants relating to, among other things, its capital expenditures, incurrence of indebtedness, entry into or amendment of certain types of agreements, equity grants and changes in employee compensation. These restrictions may prevent Tesla and/or SolarCity from making appropriate changes to their respective businesses or pursuing attractive business opportunities that may arise prior to the completion of the Merger. See “The Merger Agreement—Conduct of Business” beginning on page 122 for a description of the restrictive covenants applicable to Tesla and SolarCity, respectively.

Risks Related to the Business of the Combined Company Following the Merger

Tesla is expected to incur substantial expenses related to the integration of Tesla and SolarCity.

Tesla is expected to incur substantial expenses in connection with the integration of the business, policies, procedures, operations, technologies and systems of SolarCity with those of Tesla. There are a large number of systems that must be integrated, including management information, purchasing, administrative, accounting and finance, sales, marketing, billing, payroll and benefits, installation, engineering, infrastructure and regulatory compliance, among others. While Tesla has assumed that a certain level of expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of all of the expected integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately at the present time. These integration expenses likely will result in Tesla taking significant charges against earnings following the completion of the Merger, but the amount and timing of such charges are uncertain at present, and if such charges are greater than expected, they could offset the cost synergies that Tesla expects to achieve from the Merger.

Following the Merger, the Combined Company may be unable to integrate successfully the businesses of Tesla and SolarCity and realize the anticipated benefits of the Merger.

The Merger involves the combination of two companies which currently operate as independent public companies. Following the Merger, the Combined Company will be required to devote significant management attention and resources to integrating its business practices and operations. The Combined Company may fail to realize some or all of the anticipated benefits of the Merger if the integration process takes longer than expected or is more costly than expected. Potential difficulties the Combined Company may encounter in the integration process include the following:

• the inability to successfully combine the businesses of Tesla and SolarCity in a manner that permits the Combined Company to achieve the synergies anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized partly or wholly in the time frame currently anticipated or at all;

• lost sales and customers as a result of certain customers of either of the two companies deciding not to do business with the Combined Company;

• complexities associated with managing the combined businesses;

• integrating personnel from the two companies;

• creation of uniform standards, controls, procedures, policies and information systems;

• potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger; and

• performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the Merger and integrating the companies’ operations.

In addition, Tesla and SolarCity have operated and, until the completion of the Merger, will continue to operate, independently. It is possible that the integration process could result in the diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of the Merger, or could reduce the earnings or otherwise adversely affect the business and financial results of the Combined Company.

Activities undertaken during the pendency of the Merger to complete the Merger and the other transactions contemplated by the Merger Agreement may divert management attention and resources.

If the efforts and actions required of Tesla and SolarCity in order to consummate the Merger and the other transactions contemplated by the Merger Agreement are more difficult, costly or time consuming than expected, such efforts and actions could result in the diversion of each company’s management’s attention and resources or the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses, which could adversely affect the business and financial results of Tesla or SolarCity, as applicable.

In connection with the Merger and the continuing operations of the Combined Company following the Merger, Tesla may refinance a significant amount of indebtedness and otherwise require additional financing; it cannot guarantee that it will be able to obtain the necessary funds on favorable terms or at all.

Tesla may elect to refinance certain of SolarCity’s indebtedness even if not required to do so by the terms of such indebtedness. In addition, Tesla may need or want to raise additional funds for the operations of the Combined Company following the Merger. Tesla and SolarCity have been and may continue to be engaged in discussions with certain potential financing sources, including with respect to one or more credit facilities to be entered into by Tesla or SolarCity at the time of the closing of the Merger, funds from which would be used in part to make any such refinancing and to provide a source of additional funds and liquidity for the operations of the Combined Company following the Merger. However, the ability of the Combined Company to obtain such financing will depend on, among other factors, prevailing market conditions at the time of the closing of the Merger and other factors beyond the control of the Combined Company. There is no assurance that the Combined Company will be able to obtain additional financing on terms acceptable to the Combined Company, or at all.

In connection with the Merger, Tesla or one of its subsidiaries will be subject to significant additional indebtedness, which could adversely affect Tesla, including by decreasing Tesla’s business flexibility and increasing Tesla’s interest expense.

As of June 30, 2016, Tesla’s consolidated indebtedness was approximately $3.7 billion, and SolarCity’s consolidated indebtedness was approximately $3.3 billion. If the Merger is completed, Tesla expects that certain entities forming part of the Combined Company will be subject to most of the consolidated indebtedness of SolarCity, and the Combined Company may have to incur additional indebtedness in connection with any extinguishment of certain of such debt in connection with the closing of the Merger, as well as for its ongoing business needs. As a result, it is expected that the Combined Company will be subject to substantially increased indebtedness in comparison to Tesla’s indebtedness on a recent historical basis. This increased indebtedness could have the effect, among other things, of reducing Tesla’s flexibility to respond to changing business and economic conditions and increasing Tesla’s interest expense. In addition, the amount of cash required to pay interest on the Combined Company’s indebtedness following completion of the Merger, and thus the demands on the Combined Company’s cash resources, will be greater than the amount of cash required to service the indebtedness of Tesla prior to the transaction. The increased levels of indebtedness following completion of the Merger could therefore reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes.

Tesla’s and SolarCity’s operations require substantial ongoing capital, and if financing is not available to the Combined Company on acceptable terms, if and when needed, its operations, growth and prospects could be negatively affected.

Tesla’s and SolarCity’s respective businesses are capital intensive. Following the Merger, the Combined Company is expected to incur significant costs on an ongoing basis to continue its operations, develop and manufacture its current or future products, and to pay any significant unplanned or accelerated expenses or for new significant strategic investments. For example, the Combined Company may need or seek to raise capital from third-party fund investors and lenders to help finance the deployment of SolarCity’s existing residential and commercial solar energy systems. If it is unable to do so when needed, or on desirable terms, to enable our customers’ access to our solar energy systems with little or no upfront cost, it may be unable to finance installation of our customers’ systems, or its cost of capital could increase and its liquidity may be constrained, any of which could have a material adverse effect on the Combined Company’s business, financial condition and results of operations.

Tesla may also need or want to raise additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes in connection with the Merger. Tesla’s ability to raise capital from third-party fund investors and lenders to fund its operations and growth, or to refinance its existing indebtedness, will depend on, among other factors, Tesla’s financial position and performance, as well as prevailing market conditions and other factors beyond Tesla’s control, such as any decisions by credit ratings agencies with respect to credit ratings that they may maintain with respect to Tesla. Any concerns regarding Tesla’s business and liquidity, uncertainty regarding the timing and completion of the Merger and the capital structure of SolarCity and Tesla following the Merger and general market conditions could negatively impact Tesla’s ability to access the capital markets or to raise funds on acceptable terms, or at all.

Current Tesla and SolarCity stockholders will have a reduced ownership and voting interest in the Combined Company after the Merger and will exercise less influence over the Combined Company’s management.

Current Tesla stockholders currently have the right to vote in the election of the Tesla Board and other matters affecting Tesla. Current SolarCity stockholders currently have the right to vote in the election of the SolarCity Board and on other matters affecting SolarCity. Immediately after the Merger is completed, it is expected that current Tesla stockholders will own approximately 93.1% of the Tesla Common Stock and current SolarCity stockholders will own approximately 6.9% of the outstanding shares of Tesla Common Stock after the completion of the Merger, based on the number of shares of common stock outstanding of Tesla and SolarCity as of September 23, 2016, the record date for the special meetings.

As a result of the Merger, current Tesla and SolarCity stockholders will have less influence on the Combined Company’s management and policies than they now have on the management and policies of Tesla and SolarCity, respectively.

Future equity issuances could result in dilution of the Tesla Common Stock, which could cause the price of Tesla Common Stock to decline, and future sales of Tesla Common Stock could depress the market price of Tesla Common Stock.

Tesla may from time to time in the future issue additional shares of common stock, including to finance the business of the Combined Company following the Merger. Such future issuances may be at prices that are below the prevailing or historical market price of Tesla Common Stock. Actual or anticipated issuances or sales of substantial amounts of common stock could cause the market price of Tesla Common Stock to decline and make it more difficult for Tesla to sell equity securities in the future at a time and on terms that Tesla deems appropriate. The issuance of any shares of Tesla Common Stock in the future (including after the date of this joint proxy statement/prospectus or the date of the Tesla or SolarCity Special Meetings and prior to the completion of the Merger) also would dilute the percentage ownership interest held by stockholders prior to such issuance and would reduce the percentage ownership that SolarCity stockholders would have owned in Tesla upon completion of the Merger, and any such dilution may reduce the value of the consideration that SolarCity stockholders will receive in the Merger. Further, Tesla’s ability to complete any future capital raise, including any offering of shares of Tesla Common Stock, on commercially reasonable terms is dependent on market conditions and factors which may be beyond Tesla’s control, including actual or anticipated fluctuations in Tesla’s operating results, changes in earnings estimated by securities analysts or Tesla’s ability to meet those estimates, the operating performance and stock price of comparable companies, changes to the regulatory and legal environment under which Tesla operates, and domestic and worldwide economic conditions.

The unaudited pro forma condensed combined financial data for Tesla included in this joint proxy statement/prospectus is preliminary, and Tesla’s actual financial position and operations after the Merger may differ materially from the unaudited pro forma financial data included in this joint proxy statement/prospectus.

The unaudited pro forma financial data for Tesla included in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what Tesla’s actual financial position or operations would have been had the Merger been completed within the expected time frame. Tesla’s actual results and financial position after the Merger may differ materially and adversely from the unaudited pro forma financial data included in this joint proxy statement/prospectus. The unaudited pro forma condensed combined financial information reflects adjustments, which are based upon preliminary estimates, to record the SolarCity identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of SolarCity as of the date of the completion of the Merger. Further, the Combined Company expects to recognize a significant amount of additional goodwill in the Merger. The goodwill will be subject to annual impairment assessments and a material charge may be necessary if the results of operations and cash flows are unable to support the goodwill subsequent to the Merger. For more information see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 141.

The prospective financial forecasts for SolarCity included in this joint proxy statement/prospectus reflect SolarCity management estimates and SolarCity’s actual performance may differ materially from the prospective financial forecasts included in this joint proxy statement/prospectus.

The prospective financial forecasts for SolarCity included in this joint proxy statement/prospectus are based on assumptions of, and information available to, SolarCity at the time such prospective financial forecasts were prepared. SolarCity does not know whether the assumptions made will prove correct. Any or all of such information may turn out to be wrong. Such information can be adversely affected by inaccurate assumptions or by known or unknown risks and uncertainties, many of which are beyond SolarCity’s control. Further, prospective financial forecasts of this type are based on estimates and assumptions that are inherently subject to factors such as company performance, industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of SolarCity, including the factors described under “Other Risk Factors of Tesla and SolarCity” beginning on page 48 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 34, which factors and changes may cause the prospective financial forecasts or the underlying assumptions to be inaccurate. As a result of these contingencies, there can be no assurance that the prospective financial forecasts of SolarCity will be realized or that actual results will not be significantly higher or lower than projected. In view of these uncertainties, the inclusion of the prospective financial forecasts of SolarCity in this joint proxy statement/prospectus should not be regarded as an indication that the Tesla Board, the SolarCity Board, Tesla, SolarCity, Merger Sub, Evercore, Lazard or any other recipient of this information considered, or now considers, it to be an assurance of the achievement of future results.

The prospective financial forecasts were not prepared with a view toward public disclosure or toward compliance with U.S. GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information.

In addition, the prospective financial forecasts have not been updated or revised to reflect information or results after the date the prospective financial forecasts were prepared or as of the date of this joint proxy statement/prospectus. For more information see the section entitled “The Merger—Certain Tesla and SolarCity Unaudited Prospective Financial Information” beginning on page 99.

The Combined Company’s future results will suffer if it does not effectively manage its expanded operations following the Merger.

Following the Merger, the size and scope of operations of the business of the Combined Company will increase beyond the current size and scope of operations of either Tesla’s or SolarCity’s current businesses. In addition, Tesla may continue to expand its size and operations through additional acquisitions or other strategic transactions. Tesla’s future success depends, in part, upon its ability to manage its expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that the Tesla will be successful or that it will realize the expected economies of scale, synergies and other benefits currently anticipated from the Merger or anticipated from any additional acquisitions or strategic transactions.

The trading price of Tesla Common Stock is likely to continue to be volatile.

The trading price of Tesla Common Stock has been highly volatile and could continue to be subject to wide fluctuations in response to various factors, some of which are beyond Tesla’s control. Tesla’s Common Stock has experienced an intra-day trading high of $271.57 per share and a low of $141.05 per share over the last 52 weeks. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including Tesla’s, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. For example, a stockholder litigation like this was filed against Tesla in 2013. While the trial court dismissed the plaintiffs’ complaint with prejudice, this litigation (if the trial court’s order is successfully appealed) or others like it could result in substantial costs and a diversion of the attention and resources of Tesla’s management.

The shares of Tesla Common Stock to be received by SolarCity stockholders as a result of the Merger will have different rights from the shares of SolarCity Common Stock currently held by SolarCity stockholders.

Upon completion of the Merger, SolarCity stockholders will become Tesla stockholders and their rights as stockholders will be governed by Tesla’s Charter and Tesla’s Bylaws. The rights associated with Tesla Common Stock are different from the rights associated with SolarCity Common Stock. See the section entitled “Comparison of the Rights of Holders of Tesla Common Stock and Holders of SolarCity Common Stock” beginning on page 156 for a discussion of the different rights associated with Tesla Common Stock.

The market price of Tesla’s common stock may decline in the future as a result of the Merger.

The market price of Tesla Common Stock may decline in the future as a result of the Merger for a number of reasons, including if the integration of Tesla and SolarCity is unsuccessful (including for the reasons set forth in the preceding risk factor) or if Tesla fails to achieve the perceived benefits of the Merger, including financial results, as rapidly as or to the extent anticipated by financial or industry analysts. These factors are, to some extent, beyond the control of Tesla.

The Merger may not be accretive and may cause dilution to Tesla’s earnings per share, which may negatively affect the market price of Tesla Common Stock.

Tesla currently anticipates that the Merger will be accretive to earnings per share in 2016, assuming refinancing of SolarCity’s outstanding debt at or around the closing of the Merger and excluding one-time costs. This expectation, however, is based on preliminary estimates which may materially change, including the currently expected timing of the Merger. Tesla could also encounter additional transaction-related costs or other factors such as a delay in the closing of the Merger and/or the failure to realize all of the benefits anticipated in the Merger. All of these factors could cause dilution to Tesla’s earnings per share or decrease or delay the expected accretive effect of the Merger and cause a decrease in the market price of Tesla Common Stock.

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 25, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Trading Symbol	TSLA
Entity Registrant Name	TESLA MOTORS INC
Entity Central Index Key	0001318605
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		149,891,190

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Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets
Cash and cash equivalents	$ 3,084,257	$ 1,196,908
Restricted cash and marketable securities	23,711	22,628
Accounts receivable	326,895	168,965
Inventory	1,604,571	1,277,838
Prepaid expenses and other current assets	132,978	115,667
Total current assets	5,172,412	2,782,006
Operating lease vehicles, net	2,949,297	1,791,403
Property, plant and equipment, net	4,309,048	3,403,334
Restricted cash	90,994	31,522
Other assets	70,646	59,674
Total assets	12,592,397	8,067,939
Current liabilities
Accounts payable	1,606,284	916,148
Accrued liabilities	695,018	422,798
Deferred revenue	625,899	423,961
Resale value guarantees	204,054	136,831
Customer deposits	690,364	283,370
Current portion of long-term debt and capital leases	260,771	627,927
Total current liabilities	4,082,390	2,811,035
Long-term debt and capital leases	2,443,420	2,021,093
Deferred revenue	581,202	446,105
Resale value guarantees	2,056,068	1,293,741
Other long-term liabilities	737,559	364,976
Total liabilities	9,900,639	6,936,950
Commitments and contingencies (Note 10)
Convertible senior notes (Notes 8)	11,270	47,285
Stockholders' equity:
Preferred stock; $0.001 par value; 100,000 shares authorized; no shares issued and outstanding
Common stock; $0.001 par value; 2,000,000 shares authorized as of September 30, 2016 and December 31, 2015; 149,825 and 131,425 shares issued and outstanding as of September 30, 2016 and December 31, 2015	150	131
Additional paid-in capital	5,530,928	3,409,452
Accumulated other comprehensive income (loss)	25,310	(3,556)
Accumulated deficit	(2,875,900)	(2,322,323)
Total stockholders' equity	2,680,488	1,083,704
Total liabilities and stockholders' equity	$ 12,592,397	$ 8,067,939

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Preferred stock par value	$ 0.001	$ 0.001
Preferred stock shares authorized	100,000,000	100,000,000
Preferred stock shares issued	0	0
Preferred stock shares outstanding	0	0
Common stock par value	$ 0.001	$ 0.001
Common stock shares authorized	2,000,000,000	2,000,000,000
Common stock shares issued	149,825,000	131,425,000
Common stock shares outstanding	149,825,000	131,425,000

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Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues
Automotive	$ 1,917,442	$ 769,015	$ 3,849,558	$ 2,417,247
Automotive leasing	231,285	83,540	507,085	206,718
Total automotive revenue	2,148,727	852,555	4,356,643	2,623,965
Services and other	149,709	84,234	358,858	207,680
Total revenues	2,298,436	936,789	4,715,501	2,831,645
Cost of revenues
Automotive	1,355,102	582,545	2,895,483	1,808,576
Automotive leasing	161,959	46,184	310,176	118,284
Total automotive cost of revenues	1,517,061	628,729	3,205,659	1,926,860
Services and other	144,640	76,564	345,863	199,846
Total cost of revenues	1,661,701	705,293	3,551,522	2,126,706
Gross profit	636,735	231,496	1,163,979	704,939
Operating expenses
Research and development	214,302	178,791	588,448	527,657
Selling, general and administrative	336,811	236,367	976,173	633,578
Total operating expenses	551,113	415,158	1,564,621	1,161,235
Income (loss) from operations	85,622	(183,662)	(400,642)	(456,296)
Interest income	2,858	327	6,351	758
Interest expense	(46,713)	(29,308)	(133,706)	(80,234)
Other expense, net	(11,756)	(15,431)	(9,952)	(24,503)
Income (loss) before income taxes	30,011	(228,074)	(537,949)	(560,275)
Provision for income taxes	8,133	1,784	15,628	7,991
Net income (loss)	$ 21,878	$ (229,858)	$ (553,577)	$ (568,266)
Net income (loss) per share of common stock:
Basic	$ 0.15	$ (1.78)	$ (3.94)	$ (4.47)
Diluted	$ 0.14	$ (1.78)	$ (3.94)	$ (4.47)
Weighted average shares used in computing net income (loss) per share of common stock:
Basic	148,991	129,006	140,581	127,225
Diluted	156,935	129,006	140,581	127,225

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
Net income (loss)	$ 21,878	$ (229,858)	$ (553,577)	$ (568,266)
Other comprehensive income (loss):
Unrealized net gain on derivatives and short-term marketable securities, net of tax	3,349	11	48,359	219
Reclassification adjustment for net gains included in net income (loss)	(14,246)		(15,523)
Foreign currency translation adjustment	2,014	(9,192)	(3,970)	(24,182)
Other comprehensive income (loss)	(8,883)	(9,181)	28,866	(23,963)
Comprehensive income (loss)	$ 12,995	$ (239,039)	$ (524,711)	$ (592,229)

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash Flows From Operating Activities
Net loss	$ (553,577)	$ (568,266)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	620,160	278,867
Stock-based compensation	246,512	142,359
Amortization of discount on convertible debt	63,924	51,376
Inventory write-downs	50,289	23,303
Loss on disposal of property and equipment	12,181	8,800
Non-cash interest and other operating activities	21,735	11,011
Foreign currency transaction loss	10,422	35,583
Changes in operating assets and liabilities, net of impact of business acquisition
Accounts receivable	(110,510)	78,373
Inventories and operating lease vehicles	(1,798,214)	(1,091,382)
Prepaid expenses and other current assets	34,636	(35,962)
Other assets	(2,586)	(14,297)
Accounts payable and accrued liabilities	697,528	89,238
Deferred revenue	256,187	186,255
Customer deposits	409,139	20,314
Resale value guarantees	322,244	249,548
Other long-term liabilities	44,310	40,230
Net cash provided by (used in) operating activities	324,380	(494,650)
Cash Flows From Investing Activities
Purchases of property and equipment excluding capital leases, net of sales	(759,190)	(1,223,628)
Maturities of short-term marketable securities	16,667
Business acquisition		(12,260)
Increase in other restricted cash	(79,156)	(23,383)
Net cash used in investing activities	(821,679)	(1,259,271)
Cash Flows From Financing Activities
Proceeds from issuance of common stock in public offerings	1,701,734	750,000
Proceeds from issuance of convertible and other debt	1,685,279	183,972
Repayments of convertible and other debt	(1,678,475)
Collateralized lease borrowing	557,669	359,951
Proceeds from exercise of stock options and other stock issuances	153,461	94,026
Principal payments on capital leases	(30,447)	(72,906)
Common stock and debt issuance costs	(18,072)	(16,558)
Net cash provided by financing activities	2,371,149	1,298,485
Effect of exchange rate changes on cash and cash equivalents	13,499	(24,241)
Net increase (decrease) in cash and cash equivalents	1,887,349	(479,677)
Cash and cash equivalents at beginning of period	1,196,908	1,905,713
Cash and cash equivalents at end of period	3,084,257	1,426,036
Supplemental noncash investing activities
Acquisition of property and equipment included in accounts payable and accrued liabilities	459,472	313,850
Estimated fair value of facilities under build-to-suit leases	$ 236,538	$ 64,552

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Overview of the Company

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Overview of the Company

Note 1 - Overview of the Company

Tesla Motors, Inc. (Tesla, we, us or our) was incorporated in the state of Delaware on July 1, 2003. We design, develop, manufacture and sell high-performance fully electric vehicles and energy products. We have wholly-owned subsidiaries in North America, Europe and Asia. The primary purpose of these subsidiaries is to market, manufacture, sell and/or service our vehicles and energy products.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2 - Summary of Significant Accounting Policies

Public Offering

In May 2016, we completed a public offering of common stock and sold a total of 7,915,004 shares of our common stock for total cash proceeds of approximately $1.7 billion, net of underwriting discounts and offering costs.

Acquisition

On July 31, 2016, we entered into a definitive agreement to acquire SolarCity Corporation, which designs, finances and installs solar power systems. Pursuant to the definitive agreement, each issued and outstanding share of the common stock of SolarCity would be converted into the right to receive 0.110 (the Exchange Ratio) shares of Tesla common stock. SolarCity options and restricted stock unit awards would be converted into corresponding equity awards in respect of Tesla common stock based on the Exchange Ratio, with the awards retaining the same vesting and other terms and conditions as in effect immediately prior to consummation of the Merger. This acquisition is subject to various closing conditions, including the receipt by each company, at a separate meeting of its stockholders scheduled to take place on November 17, 2016, of the affirmative vote of at least the minimum number of its non-interested stockholders as specified in the definitive agreement.

Basis of Consolidation

The consolidated financial statements include the accounts of Tesla and its wholly-owned subsidiaries. Intercompany balances and transactions between consolidated entities have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities and accompanying notes.  Estimates are used for, but not limited to, determining the selling price of products and services in multiple element revenue arrangements and determining the amortization period of these elements, residual value of operating lease vehicles, inventory valuation, warranties, fair value of financial instruments, depreciable lives of property and equipment, inputs used to value stock-based compensation including volatility, expected terms of stock option awards and forfeiture rates, income taxes, and contingencies. Actual results could differ from those estimates.

Unaudited Interim Financial Statements

The accompanying consolidated balance sheet as of September 30, 2016, the consolidated statements of operations and consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015 and the consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015, and other information disclosed in the related notes are unaudited. The consolidated balance sheet as of December 31, 2015, was derived from our audited consolidated financial statements at that date. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission.

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

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. The new guidance provides a new model to determine when and over what period revenue is recognized. Under this new model, revenue is recognized as goods or services are delivered in an amount that reflects the consideration we expect to collect.  In March 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the principal versus agent guidance in the new revenue recognition standard. In April 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the guidance on accounting for licenses of intellectual property and identifying performance obligations in the new revenue recognition standard. In May 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedient, which clarifies the transition, collectability, noncash consideration and the presentation of sales and other similar taxes in the new revenue recognition standard. The guidance is effective for fiscal years beginning after December 15, 2017; early adoption is permitted for periods beginning after December 15, 2016. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method and are evaluating the impact of adopting this guidance.

In August 2014, the FASB issued Accounting Standards Update No. ASU 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, provide certain footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, including interim reporting periods thereafter. We do not anticipate that adopting this guidance will have an impact on the financial statements and are currently evaluating the potential impact to our footnote disclosures.

In April 2015, the FASB issued new authoritative accounting guidance on simplifying the presentation of debt issuance costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We have retrospectively adopted this standard as of March 31, 2016, and as a result, on the December 31, 2015, consolidated balance sheet we reclassified $9.6 million as a reduction in prepaid expenses and other current assets, along with $15.0 million reduction in other assets, with a corresponding reduction in the aggregate carrying value of the Company’s long term debt liabilities. Similarly, as a result of the change in carrying value of long term debt, $5.2 million was reclassified out of additional paid in capital and into mezzanine equity on the December 31, 2015 consolidated balance sheet.

In February 2016, the FASB issued Accounting Standards Update No. 2016 - 02, Leases (Topic 842). The new standard is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The standard will require lessees to report most leases as assets and liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The standard requires a modified retrospective transition approach for existing leases, whereby the new rules will be applied to the earliest year presented. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In August 2016, the FASB issued Accounting Standards Update No. ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230).  ASU 2016-15 addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted.  We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

Revenue Recognition

We recognize revenue for products and services when: (i) a persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) pricing or fees are fixed or determinable; and (iv) collection is reasonably assured.

Automotive revenue includes revenues related to deliveries of new vehicles, sales of regulatory credits to other automotive manufacturers, and specific other elements that meet the definition of a deliverable under multiple-element accounting guidance including free internet connectivity, free access to our Supercharger network, and free future over the air software updates. These deliverables are valued on a stand-alone basis and we recognize their revenue over our performance period, which is generally the eight-year life of the vehicle, except for internet connectivity which is over the free four year period. If we sell a deliverable separately, we use that pricing to determine its fair value; otherwise, we use our best estimated selling price by considering costs used to develop and deliver the service, third party pricing of similar options, and other information which may be available.

Starting in the third quarter of 2016, we started to separately present automotive leasing revenue and related cost of revenue. All prior periods have been reclassified to conform to this presentation.  Automotive leasing revenue includes revenue recognized under lease accounting guidance for our direct leasing programs as well as programs with resale value guarantees. See “Resale Value Guarantees and Other Financing Programs” and “Vehicle Leasing Program” for further details.

Services and other revenue consists of repair and maintenance services, service plans and merchandise, sales of pre-owned Tesla vehicles, sales of electric vehicle powertrain components and systems to other manufacturers, Tesla Energy products, and sales of non-Tesla vehicle trade-ins.

As of September 30, 2016, we had deferred $57.5 million, $84.7 million, $52.7 million, and $8.0 million related to the purchase of vehicle maintenance and service plans, access to our Supercharger network, internet connectivity, and future software updates, respectively. As of December 31, 2015, we had deferred $53.6 million, $49.5 million, $32.4 million, and $2.7 million related to these same performance obligations, respectively.

Resale Value Guarantees and Other Financing Programs

Vehicle sales to customers with a residual value guarantee

Through June 30, 2016, we offered resale value guarantees or similar buy-back terms to all customers who purchase vehicles and who financed their vehicle through one of our specified commercial banking partners. Subsequent to June 30, 2016, this program is available only in certain international markets.  Under this program, customers have the option of selling their vehicle back to us during the guarantee period for a determined resale value. Guarantee periods generally range from 36 to 39 months.  Although we receive full payment for the vehicle sales price at the time of delivery, we are required to account for these transactions as operating leases.  The amount of sale proceeds equal to the resale value guarantee is deferred until the guarantee expires or is exercised.  The remaining sale proceeds are deferred and recognized on a straight line basis over the stated guarantee period to automotive leasing revenue. The guarantee period expires at the earlier of the end of the guarantee period or the pay-off of the initial loan.  We capitalize the cost of these vehicles to operating lease vehicles on our Consolidated Balance Sheets as operating lease vehicles, net, and depreciate their value, less salvage value, to cost of automotive leasing revenue over the same period.  

In cases when a customer retains ownership of a vehicle at the end of the guarantee period, the resale value guarantee liability and any remaining deferred revenue balances related to the vehicle are settled to automotive leasing revenue and the net book value of the leased vehicle is expensed to costs of automotive leasing revenue. In cases when customers return the vehicle back to us during the guarantee period, we purchase the vehicle from the customer in an amount equal to the resale value guarantee and settle any remaining deferred balances to automotive leasing revenue and we reclassify the net book value of the vehicle on our balance sheet to pre-owned vehicle inventory. As of September 30, 2016 and December 31, 2015, $204.1 million and $136.8 million of the guarantees were exercisable by customers within the next twelve months.

Vehicle sales to leasing partners with a residual value guarantee

We also offer resale value guarantees in connection with automobile sales to certain bank leasing partners.  As we have guaranteed the value of these vehicles and as the vehicles are leased to end-customers, we account for these transactions as interest bearing collateralized borrowings as required under ASC 840 - Leases.  Under this program, cash is received for the full price of the vehicle and is recorded within resale value guarantees for the long-term portion and deferred revenue for the current portion.  We accrete the deferred revenue amount to automotive leasing revenue on a straight line basis over the guarantee period and accrue interest expense based on our borrowing rate.  We capitalize vehicles under this program to operating lease vehicles, net, on our Consolidated Balance Sheets and we record depreciation from these vehicles to cost of automotive leasing revenues during the period the vehicle is under a lease arrangement.  Cash received for these vehicles, net of revenue recognized during the period, is classified as collateralized lease borrowings within cash flows from financing activities in our Consolidated Statements of Cash Flows.

At the end of the lease term, we settle our liability in cash by either purchasing the vehicle from the leasing partner for the resale value guarantee amount, or paying a shortfall to the guarantee amount the leasing partner may realize on the sale of the vehicle.  Any remaining balances within deferred revenue and resale value guarantee will be settled to automotive revenue.  In cases where the bank retains ownership of the vehicle after the end of our guarantee period, we expense the net value of the leased vehicle to costs of automotive leasing revenue.  The maximum cash we could be required to pay under this program, should we decide to repurchase all vehicles, is $742.0 million at September 30, 2016.

As of September 30, 2016 and December 31, 2015, we had $1.0 billion and $527.5 million of such borrowings recorded in resale value guarantees and $250.4 million and $120.5 million recorded in deferred revenue liability, respectively. As of September 30, 2016 and December 31, 2015, we had a total of $79.5 million and $33.6 million in account receivables from our leasing partners.

On a quarterly basis, we assess the estimated market values of vehicles under our resale value guarantee program to determine if we have sustained a loss on any of these contracts. As we accumulate more data related to the resale values of our vehicles or as market conditions change, there may be material changes to their estimated values.

Account activity related to our resale value guarantee and similar programs consisted of the following for the periods presented (in thousands):

	Three Months Ended			Nine Months Ended
	September 30, 2016			September 30, 2016
Operating Lease Vehicles
Operating lease vehicles—beginning of period	$	2,126,581		$	1,556,529
Net increase in operating lease vehicles		375,287			1,085,551
Depreciation expense recorded in cost of automotive leasing revenues		(71,454	)		(179,087	)
Additional depreciation expense recorded in cost of automotive leasing revenues as    a result of early cancellation of resale value guarantee		(5,509	)		(11,166	)
Additional depreciation expense recorded in cost of automotive leasing revenues    result of expiration and exercises of resale value guarantee		(55,009	)		(55,009	)
Increases to inventory from vehicles returned under our trade-in program		(18,718	)		(45,640	)
Operating lease vehicles—end of period	$	2,351,178		$	2,351,178
Deferred Revenue
Deferred revenue—beginning of period	$	851,684		$	679,132
Net increase in deferred revenue from new vehicle deliveries and reclassification of    collateralized borrowing from long-term to short-term		188,113			574,226
Amortization of deferred revenue and short-term collateralized borrowing recorded in    automotive leasing revenue		(125,411	)		(330,093	)
Additional revenue recorded in automotive leasing revenue as a result of early    cancellation of resale value guarantee		(1,521	)		(4,333	)
Recognition of deferred revenue resulting from return of vehicle under trade-in program		(3,456	)		(9,523	)
Deferred revenue—end of period	$	909,409		$	909,409
Resale Value Guarantee
Resale value guarantee liability—beginning of period	$	2,007,347		$	1,430,573
Increase in resale value guarantee		361,434			1,013,369
Reclassification from long-term to short-term collateralized borrowing		(33,129	)		(79,171	)
Additional revenue recorded in automotive leasing revenue as a result of early    cancellation of resale value guarantee		(4,291	)		(10,110	)
Release of resale value guarantee resulting from return of vehicle under trade-    in program		(15,516	)		(38,816	)
Release of resale value guarantee resulting from expiration and exercises of resale    value guarantee		(55,722	)		(55,722	)
Resale value guarantee liability—end of period	$	2,260,123		$	2,260,123

Vehicle Leasing Program

We offer a leasing program in the United States, Canada, the UK and Germany. Qualifying customers are permitted to lease a vehicle directly from Tesla generally for 36 or 48 months. At the end of the lease term, customers have the option of either returning the vehicle to us or purchasing it for a determined residual value. We account for these leasing transactions as operating leases and recognize leasing revenues over the contractual term and record the depreciation of these vehicles to cost of automotive leasing revenues. As of September 30, 2016 and December 31, 2015, we had deferred $61.6 million and $25.8 million of lease-related upfront payments which will be recognized on a straight-line basis over the contractual term of the individual leases. Lease revenues are recorded in automotive leasing revenue and were $31.4 million and $72.0 million for the three and nine months ended September 30, 2016. Lease revenues for the three and nine months ended September 30, 2015, were $11.5 million and $27.4 million, respectively.

Warranties

We provide a manufacturer’s warranty on all new and certified pre-owned vehicles, production powertrain components and systems, and energy products we sell.  We accrue a manufacturer’s warranty reserve which includes our best estimate of the projected costs to repair or to replace items under warranty. These estimates are based on actual claims incurred to-date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain and changes to our historical or projected warranty experience may cause material changes to our warranty reserve in the future. The portion of the warranty provision expected to be incurred within 12 months is classified as current within accrued liabilities, while the remaining amount is classified as long-term within other long-term liabilities.

Accrued warranty activity consisted of the following for the periods presented (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Accrued warranty—beginning of period	$	216,459		$	164,595		$	180,754		$	129,043
Warranty costs incurred		(16,571	)		(21,593	)		(56,734	)		(50,666	)
Net changes in liability for pre-existing warranties, including    expirations and foreign exchange impact		(19,523	)		1,306			(12,889	)		12,635
Provision for warranty		46,454			26,026			115,688			79,322
Accrued warranty—end of period	$	226,819		$	170,334		$	226,819		$	170,334

Our warranty reserves do not include projected warranty costs associated with our vehicles subject to lease accounting, as costs to repair these vehicles are expensed as incurred. The warranty reserve increased primarily due to incremental vehicle deliveries, offset by actual claims and an overall decrease in accrual rates for vehicles, batteries, and drive units due to improved reliability. For the three and nine months ended September 30, 2016, warranty costs incurred for vehicles subject to lease accounting were $7.2 million and $12.3 million, and for the three and nine months ended September 30, 2015, costs were $1.8 million and $6.0 million. Warranty expense is recorded as a component of cost of automotive revenue and cost of automotive leasing revenue.  

Inventory Valuation

Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. We record inventory write-downs for excess or obsolete inventories based upon assumptions about current and future demand forecasts. If our inventory on hand is in excess of our future demand forecast, the excess amounts are written off.

We also review inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our vehicles less the estimated cost to convert inventory on hand into a finished product. After inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Should our estimates of future selling prices or production costs change, additional and potentially material increases to this reserve may be required. A small change in our estimates may result in a material charge to our reported financial results.

Concentration of Risk

Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash and accounts receivable. Our cash equivalents are primarily invested in money market funds with high credit quality financial institutions in the United States. At times, these deposits and securities may be in excess of insured limits. We invest cash not required for use in operations in high credit quality securities based on our investment policy. Our investment policy provides guidelines and limits regarding credit quality, investment concentration, investment type, and maturity that we believe will provide liquidity while reducing risk of loss of capital. Our investments are currently of a short-term nature and include U.S. treasury bills.

As of September 30, 2016 and December 31, 2015, our accounts receivable were derived primarily from amounts to be received from financial institutions and leasing companies offering various financing products to our customers, sales of regulatory credits, as well as the development and sales of powertrain components and systems to automotive original equipment manufacturers (OEMs).  As of September 30, 2016, we have two customers who individually account for 17% and 14% of our accounts receivable, respectively. 

Supply Risk

The majority of our suppliers are currently single source suppliers, despite efforts to qualify and obtain components from multiple sources whenever feasible. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to vehicle design changes, increased costs and delays in vehicle deliveries to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, financial condition and operating results.

Stock-Based Compensation

We use the fair value method of accounting for our stock options and restricted stock units (RSUs) granted to employees and our Employee Stock Purchase Plan (ESPP) to measure the cost of employee services received in exchange for the stock-based awards. The fair value of stock options and ESPP are estimated on the grant date and offering date using the Black-Scholes option-pricing model. The fair value of RSUs is measured on the grant date based on the closing fair market value of our common stock. The resulting cost is recognized over the service period, which is generally four years for stock options and RSUs and six months for the ESPP. Stock-based compensation expense is recognized on a straight-line basis, net of estimated forfeitures.

For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable.

For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the implicit or derived service period of the performance and market conditions, beginning at the point in time that the relevant performance condition is considered probable of being met.

Derivative Financial Instruments

In November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated in Japanese yen.  The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months or less. We do not enter into derivative contracts for trading or speculative purposes.  

The bank counterparties in all contracts expose Tesla to credit-related losses in the event of their nonperformance. However, to mitigate that risk, Tesla only contracts with counterparties who meet the Company’s minimum requirements under its counterparty risk assessment process. Tesla monitors ratings, credit spreads, and potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, the Company will adjust its exposure to various counterparties. We generally enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. However, we do not have any master netting arrangements in place with collateral features.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and losses on derivatives, net of any reclassifications, our available-for-sale marketable securities, and foreign currency translation adjustment that have been excluded from the determination of net income (loss).

Net Income (Loss) per Share of Common Stock

Our basic and diluted net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the number of shares underlying outstanding stock options and warrants as well as our convertible senior notes, are not included when their effect is antidilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share for the three months ended September 30, 2016 (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016			2015
Basic net income per share
Net income (loss)	$	21,878	$	(229,858	)	$	(553,577	)	$	(568,266	)
Weighted-average shares used in computing basic net income    (loss) per share		148,991		129,006			140,581			127,225
Basic net income (loss) per share	$	0.15	$	(1.78	)	$	(3.94	)	$	(4.47	)
Diluted net income per share
Net income (loss)	$	21,878	$	(229,858	)	$	(553,577	)	$	(568,266	)
Weighted-average shares used in computing basic net income    (loss) per share		148,991		129,006			140,581			127,225
Add:
Employee share based awards		5,911		—			—			—
Convertible senior notes		1,571		—			—			—
Warrants issued in May 2013		462		—			—			—
Weighted-average shares used in computing diluted net income    (loss) per share		156,935		129,006			140,581			127,225
Diluted net income (loss) per share	$	0.14	$	(1.78	)	$	(3.94	)	$	(4.47	)

The following table presents the potential weighted common shares outstanding that were excluded from the computation of diluted net income (loss) per share of common stock for the periods presented:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Employee share based awards		5,666,686		14,917,083		16,527,336		15,426,144
Convertible senior notes		—		2,710,738		1,959,492		2,454,778
Warrants issued May 2013		—		1,463,838		629,782		1,084,627

Since we expect to settle the principal amount of our outstanding convertible senior notes in cash, we use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $124.52, $359.87 and $359.87 per share for the convertible senior notes due 2018 (2018 Notes), convertible senior notes due 2019 (2019 Notes), and convertible senior notes due 2021 (2021 Notes).

Income Taxes

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of September 30, 2016 and December 31, 2015, the aggregate balances of our gross unrecognized tax benefits were $162.8 million and $99.3 million. $158.1 million and $95.7 million of these aggregate balances would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset which is currently offset by a full valuation allowance.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Note 3 - Fair Value of Financial Instruments

The carrying values of our financial instruments including cash equivalents, marketable securities, accounts receivable, accounts payable, and accrued liabilities approximate their fair value due to their short-term nature. As a basis for determining the fair value of certain of our assets and liabilities, we follow a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level III) unobservable inputs in which there is little or no market data which requires us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Our financial assets that are measured at fair value on a recurring basis consist of cash equivalents and marketable securities.

All of our cash equivalents and current restricted cash, which are comprised primarily of money market funds, are classified within Level I of the fair value hierarchy because they are valued using quoted market prices or market prices for identical securities. Our restricted short-term marketable securities are classified within Level I of the fair value hierarchy.

As of September 30, 2016 and December 31, 2015, the fair value hierarchy for our financial assets that are carried at fair value was as follows (in thousands), and unrealized gains (losses) on all financial assets for all periods presented were less than $1.0 million:

	September 30, 2016								December 31, 2015
	Fair Value		Level I		Level II		Level III		Fair Value		Level I		Level II		LevelIII
Money market funds	$	2,391,562	$	2,391,562	$	—	$	—	$	297,810	$	297,810	$	—	$	—
U.S. treasury bills		—		—		—		—		16,664		16,664		—		—
Total	$	2,391,562	$	2,391,562	$	—	$	—	$	314,474	$	314,474	$	—	$	—

As of September 30, 2016, the estimated fair value of our 2018 Notes, 2019 Notes, and 2021 Notes was $363.0 million (par value $224.3 million), $834.9 million (par value $920.0 million), and $1.19 billion (par value $1.38 billion). As of December 31, 2015 the estimated fair value of our 2018 Notes, 2019 Notes, and 2021 Notes was $1.29 billion (par value $659.8 million), $864.8 million (par value $920.0 million), and $1.27 billion (par value $1.38 billion). These fair values represent Level II valuations. When determining the estimated fair value of our long-term debt, we used a commonly accepted valuation methodology and market-based risk measurements that are indirectly observable, such as credit risk. As of September 30, 2016, the $200 million carrying value of our Credit Agreement liability and $300 million carrying value under our Warehouse Agreement approximates the fair value of the borrowings based upon the borrowing rate available to us for debt with similar terms and consideration of credit and default risk using Level II inputs.

Derivative Financial Instruments

In November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated in Japanese yen. The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months or less. We do not enter into derivative contracts for trading or speculative purposes.

We document each hedge relationship and assess its initial effectiveness at the inception of the hedge contract and we measure its ongoing effectiveness on a quarterly basis using regression analysis. During the term of an effective hedge contract, we record gains and losses within accumulated other comprehensive income (loss). We reclassify these gains or losses to cost of automotive revenue in the period the related finished goods inventory is sold to cost of automotive leasing revenue or over the depreciation period for those sales accounted for as leases. Although our contracts are considered effective hedges, we may experience small amounts of ineffectiveness due to timing differences between our actual inventory purchases and the settlement date of the related foreign currency forward contracts. Ineffectiveness related to the hedges is immaterial as of September 30, 2016.

The net notional amount of these contracts was $95.4 million at September 30, 2016. Outstanding contracts are recognized as either assets or liabilities on the Consolidated Balance Sheet at fair value within prepaid expenses and other current assets or within accrued liabilities, depending on our net position. The cumulative gain of $40.3 million in accumulated other comprehensive income (loss) as of September 30, 2016 is expected to be recognized within cost of automotive revenue in the next twelve months. The total fair values of foreign currency contracts designated as cash flow hedges as of September 30, 2016 is $19.2 million and was determined using Level II inputs and recorded in prepaid expenses and other current assets on our Consolidated Balance Sheets. During the three months and nine months ended September 30, 2016, $14.2 million and $15.5 million has been reclassified to costs of automotive revenue.

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Inventory

9 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Inventory

Note 4 - Inventory

As of September 30, 2016 and December 31, 2015, our inventory consisted of the following (in thousands):

	September 30,		December 31,
	2016		2015
Raw materials	$	353,751	$	528,935
Work in process		329,938		163,830
Finished goods		791,600		476,512
Service parts		129,282		108,561
Total	$	1,604,571	$	1,277,838

Finished goods inventory includes vehicles in transit to fulfill customer orders, new vehicles available for immediate sale at our retail and service center locations, pre-owned Tesla vehicles, and energy products. The increase in finished goods is primarily due to 97% more vehicles in transit to customers as of September 30, 2016.

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Property, Plant, and Equipment

9 Months Ended

Sep. 30, 2016

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

Note 5 - Property, Plant and Equipment

As of September 30, 2016 and December 31, 2015, our property, plant and equipment, net, consisted of the following (in thousands):

	September 30,			December 31,
	2016			2015
Machinery, equipment and office furniture	$	2,004,316		$	1,694,910
Tooling		780,140			550,902
Leasehold improvements		422,110			338,392
Building and building improvements		706,112			461,303
Land		63,238			60,234
Computer equipment and software		218,079			175,512
Construction in progress		1,027,159			693,207
		5,221,154			3,974,460
Less: Accumulated depreciation and amortization		(912,106	)		(571,126	)
Total	$	4,309,048		$	3,403,334

Construction in progress is comprised primarily of tooling and equipment related to the manufacturing of vehicles, a portion of Gigafactory construction, and related capitalized interest. Completed assets are transferred to their respective asset class and depreciation begins when the asset is ready for its intended use. Interest expense on outstanding debt is capitalized during the period of significant capital asset construction. Capitalized interest on construction in progress is included in property, plant and equipment, net, and is amortized over the life of the related assets. During the three and nine months ended September 30, 2016, we capitalized $11.4 million and $30.4 million of interest expense. During the three and nine months ended September 30, 2015, we capitalized $11.8 million and $32.4 million of interest expense, respectively.

We are sometimes involved in construction at our leased facilities primarily related to retail stores, service centers, and certain manufacturing facilities. In accordance with Accounting Standards Codification 840, Leases, for build-to-suit lease arrangements where we are involved in the construction of structural improvements prior to the commencement of the lease or take some level of construction risk, we are considered the owner of the assets and land during the construction period. Accordingly, upon commencement of our construction activities, we record a construction in progress asset and a corresponding financing liability. Once the construction is completed, if the lease meets certain “sale-leaseback” criteria, we will remove the asset and related financial obligation from the balance sheet and treat the building lease as an operating lease. If upon completion of construction, the project does not meet the “sale-leaseback” criteria, the leased property will be treated as a capital lease and included in building and building improvements in the table above. As of September 30, 2016 and December 31, 2015, the table above includes $443.1 million and $206.1 million of build-to-suit assets. As of September 30, 2016 and December 31, 2015, corresponding financing obligations of $2.6 million and $1.3 million are recorded in accrued liabilities and $454.2 million and $201.3 million are recorded in other long-term liabilities.

Depreciation and amortization expense during the three and nine months ended September 30, 2016, was $126.8 million and $337.9 million. Depreciation and amortization expense during the three and nine months ended September 30, 2015, was $71.8 million and $184.7 million. Total property and equipment assets under capital lease as of September 30, 2016 and December 31, 2015 were $80.5 million and $58.1 million. Accumulated depreciation related to assets under capital lease as of these dates were $36.1 million and $22.7 million.

We have incurred $608.4 million of costs for our Gigafactory as of September 30, 2016.

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Accrued Liabilities

9 Months Ended

Sep. 30, 2016

Payables And Accruals [Abstract]

Accrued Liabilities

Note 6 - Accrued Liabilities

As of September 30, 2016 and December 31, 2015, our accrued liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2016		2015
Taxes payable	$	129,044	$	101,206
Accrued purchases		358,292		140,540
Payroll and related costs		89,859		86,859
Warranty and other		117,823		94,193
Total	$	695,018	$	422,798

Taxes payable includes Value Added Tax, sales tax, property tax, and income tax payables.  

Accrued purchases reflects primarily liabilities related to the construction of the Gigafactory along with engineering design and testing accruals. As these services are invoiced, this balance will reduce and accounts payable will increase.

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Customer Deposits

9 Months Ended

Sep. 30, 2016

Other Liabilities Disclosure [Abstract]

Customer Deposits

Note 7 - Customer Deposits

Customer deposits include cash payments from customers at the time they place an order for a vehicle and additional payments up to the point of delivery including the fair value of customer trade-in vehicles that are applicable toward a new vehicle purchase. Customer deposit amounts and timing vary depending on the vehicle model and country of delivery. Customer deposits are fully refundable up to the point the vehicle is placed into the production cycle. Customer deposits are included in current liabilities until refunded or until they are applied to a customer’s purchase balance at time of delivery.  

As of September 30, 2016 and December 31, 2015, we held customer deposits of $690.4 million and $283.4 million.  The increase is primarily due to Model 3 deposits.  

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Convertible and Long-term Debt Obligations

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Convertible and Long-term Debt Obligations

Note 8 - Convertible and Long-term Debt Obligations

0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant Transactions

In March 2014, we issued $800.0 million principal amount of 0.25% convertible senior notes due 2019 (2019 Notes) and $1.20 billion principal amount of 1.25% convertible senior notes due 2021 (2021 Notes) in a public offering. In April 2014, we issued an additional $120.0 million aggregate principal amount of 2019 Notes and $180.0 million aggregate principal amount of 2021 Notes, pursuant to the exercise in full of the overallotment options of the underwriters of our March 2014 public offering. The total net proceeds from these offerings, after deducting transaction costs, were approximately $905.8 million from 2019 Notes and $1.36 billion from 2021 Notes. We incurred $14.2 million and $21.4 million of debt issuance costs in connection with the 2019 Notes and the 2021 Notes and are amortizing to interest expense using the effective interest method over the contractual terms of these notes. In April 2015, the FASB issued new authoritative accounting guidance on simplifying the presentation of debt issuance costs, which we retrospectively adopted as of March 31, 2016 and reclassified debt issuance costs in connection with the notes to related debt liability. The interest rates are fixed at 0.25% and 1.25% per annum and are payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2014.  

Each $1,000 of principal of these notes is initially convertible into 2.7788 shares of our common stock, which is equivalent to an initial conversion price of approximately $359.87 per share, subject to adjustment upon the occurrence of specified events. Holders of these notes may convert their notes at their option on or after December 1, 2018 for the 2019 Notes and on or after December 1, 2020 for the 2021 Notes. Further, holders of these notes may convert their notes at their option prior to the respective dates above, only under the following circumstances: (1) during any fiscal quarter beginning after the fiscal quarter ending June 30, 2014, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the applicable notes on each applicable trading day; (2) during the five business day period following any five consecutive trading day period in which the trading price for the applicable notes is less than 98% of the average of the closing sale price of our common stock for each day during such five trading day period; or (3) if we make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon conversion of the 2019 Notes, we would pay or deliver as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. Upon conversion of the 2021 Notes, we would pay the holders in cash for the principal amount and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock) based on a daily conversion value. If a fundamental change occurs prior to the maturity date, holders of these notes may require us to repurchase all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount of the notes, plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the applicable maturity date, we will increase the conversion rate for a holder who elects to convert their notes in connection with such a corporate event in certain circumstances. During the third quarter of 2016, the closing price of our common stock did not meet or exceed 130% of the applicable conversion price of our 2019 Notes and 2021 Notes on at least 20 of the last 30 consecutive trading days of the quarter; furthermore, no other conditions allowing holders of these notes to convert have been met as of September 30, 2016. Therefore, the 2019 Notes and 2021 Notes are not convertible during the fourth quarter of 2016 and are classified as long-term debt. Should the closing price conditions be met in a future quarter, the 2019 and/or the 2021 Notes will be convertible at their holders’ option during the immediately following quarter. As of September 30, 2016, the if-converted value of the 2019 Notes and 2021 Notes did not exceed the principal value of those notes.

In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the notes from the respective host debt instrument and initially recorded the conversion option of $188.1 million for the 2019 Notes and $369.4 million for the 2021 Notes in stockholders’ equity. The resulting debt discounts on the 2019 Notes and 2021 Notes are being amortized to interest expense at an effective interest rate of 4.89% and 5.96%, respectively, over the contractual terms of the notes. 

In connection with the offering of these notes in March 2014, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 5.6 million shares of our common stock at a price of approximately $359.87 per share. The total cost of the convertible note hedge transactions was $524.7 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 2.2 million shares of our common stock at a price of $512.66 for the 2019 Notes and a total of approximately 3.3 million shares of our common stock at a price of $560.64 per share for 2021 Notes. We received $338.4 million in cash proceeds from the sale of these warrants. Similarly, in connection with the issuance of additional notes in April 2014, we entered into convertible note hedge transactions and paid an aggregate $78.7 million. In addition, we sold warrants to purchase (subject to adjustment for certain specified events) a total of approximately 0.3 million shares of our common stock at a price of $512.66 per share for the warrants relating to 2019 Notes, and a total of approximately 0.5 million shares of our common stock at a price of $560.64 per share for the warrants relating to 2021 Notes. We received aggregate proceeds of approximately $50.8 million from the sale of the warrants. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to reduce potential dilution and/or offset potential cash payments upon the conversion of these notes and to effectively increase the overall conversion price from $359.87 to $512.66 per share in the case of warrants relating to 2019 Notes and from $359.87 to $560.64 in the case of warrants relating to 2021 Notes. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on the consolidated balance sheet.

1.50% Convertible Senior Notes and Bond Hedge and Warrant Transactions

In May 2013, we issued $660.0 million aggregate principal amount of 2018 Notes in a public offering. The net proceeds from the offering, after deducting transaction costs, were approximately $648.0 million. We incurred $12.0 million of debt issuance costs in connection with the issuance of the 2018 Notes and are amortizing to interest expense using the effective interest method over the contractual term of the 2018 Notes. The interest under the 2018 Notes is fixed at 1.50% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013.

Each $1,000 of principal of the 2018 Notes is initially convertible into 8.0306 shares of our common stock, which is equivalent to an initial conversion price of approximately $124.52 per share, subject to adjustment upon the occurrence of specified events. Holders of the 2018 Notes may convert their 2018 Notes at their option on or after March 1, 2018. Further, holders of the 2018 Notes may convert their 2018 Notes at their option prior to March 1, 2018, only under the following circumstances: (1) during any fiscal quarter beginning after the fiscal quarter ending September 30, 2013, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period following any five consecutive trading day period in which the trading price for the 2018 Notes is less than 98% of the average of the closing sale price of our common stock for each day during such five trading day period; or (3) if we make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon conversion, we would pay the holders in cash for the principal amount of the 2018 Notes and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock) based on a calculated daily conversion value. If a fundamental change occurs prior to the maturity date, holders of the 2018 Notes may require us to repurchase all or a portion of their 2018 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2018 Notes, plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its 2018 Notes in connection with such a corporate event in certain circumstances.

In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the 2018 Notes from the host debt instrument and recorded the conversion option of $82.8 million in stockholders’ equity. The resulting debt discount on the 2018 Notes is being amortized to interest expense at an effective interest rate of 4.29% over the contractual term of the 2018 Notes.

In connection with the offering of the 2018 Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to certain specified events) a total of approximately 5.3 million shares of our common stock at a price of approximately $124.52 per share. The cost of the convertible note hedge transactions was $177.5 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially (subject to certain specified events) a total of approximately 5.3 million shares of our common stock at a price of $184.48 per share. We received $120.3 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any actual dilution from the conversion of the 2018 Notes and to effectively increase the overall conversion price from $124.52 to $184.48 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on the consolidated balance sheet as of December 31, 2015.

During first three quarters of fiscal 2016, the closing price of our common stock exceeded 130% of the applicable conversion price of our 2018 Notes on at least 20 of the last 30 consecutive trading days of the quarter; therefore, holders of 2018 Notes may convert their notes during the fourth quarter of fiscal 2016. As such, we classified the $213.0 million carrying value of our 2018 Notes as current liabilities and classified $11.3 million, representing the difference between the aggregate principal of our 2018 Notes of $224.3 million and the carrying value of 2018 Notes, as mezzanine equity on our consolidated balance sheet as of September 30, 2016. Should the closing price conditions be met in a future quarter, 2018 Notes will be convertible at their holders’ option during the immediately following quarter.

During the three and nine months ended September 30, 2016, we repaid $421.8 million and $435.5 million in aggregate principal amount of our 2018 Notes pursuant to conversions by their holders.  As of September 30, 2016, we had remaining outstanding $224.3 million in aggregate principal amount of the 2018 Notes. As of September 30, 2016, there were also outstanding a corresponding amount of convertible note hedge transactions, as well as warrants to issue up to 2.2 million shares at $184.48 per share as of September 30, 2016, in each case issued in connection with the offering of the 2018 Notes.  

Convertible Senior Notes Carrying Value and Interest Expense

In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the Notes from the respective host debt instrument and initially recorded the conversion option for the 2018, 2019, and 2021 Notes in stockholders’ equity. The resulting debt discounts on the 2018 Notes, 2019 Notes, and 2021 Notes are being amortized to interest expense at the effective interest rate over the contractual terms of the Notes.

	September 30, 2016						December 31, 2015
	2018 Notes		2019 Notes		2021 Notes		2018 Notes		2019 Notes		2021 Notes
	(in thousands, except years and percentages)
Carrying value	$	212,993	$	817,480	$	1,118,885	$	612,476	$	788,004	$	1,080,867
Unamortized discount and issuance costs		11,270		102,520		261,115		47,285		131,996		299,133
Principal amount	$	224,263	$	920,000	$	1,380,000	$	659,761	$	920,000	$	1,380,000
Remaining amortization period (years)		1.7		2.4		4.4
Effective interest rate on liability component		4.29%		4.89%		5.96%
Initial equity component	$	82,800	$	188,100	$	369,400
If converted, value in excess of par value	$	143,195

Asset-Based Credit Agreement

In June 2015, we entered into a senior secured asset-based revolving credit agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreement provides for a senior secured asset-based revolving credit facility (the “Credit Facility”), which we may draw upon as needed. In October 2015, lenders increased their total funding commitments to us under the Credit Facility by up to an additional $250.0 million, subject to certain conditions, for total commitments up to $750 million. In addition, the Credit Agreement provides for a $200.0 million letter of credit sub-facility and a $40.0 million swing-line loan sub-facility. The Credit Agreement is collateralized by a pledge of certain of our accounts receivable, inventory, and equipment, and availability under the Credit Agreement is based on the value of such assets, as reduced by certain reserves. In February 2016, we amended the Credit Agreement and increased the availability and the commitments under the Credit Agreement from $750.0 million to $1.0 billion.

Borrowed funds bear interest, at our option, at an annual rate of (a) 1% plus LIBOR or (b) the highest of (i) the federal funds rate plus 0.50%, (ii) the lenders “prime rate” or (iii) 1% plus LIBOR. The fee for undrawn amounts is 0.25% per annum. Interest is payable quarterly. The Credit Agreement terminates, and all outstanding loans become due and payable, in June 2020. As of September 30, 2016, we had $200.0 million in borrowings under the Credit Facility and zero borrowings under the swing-line loan sub-facility.

We are required to meet various covenants, including meeting certain reporting requirements, such as the completion and presentation of audited consolidated financial statements for our borrowings. As of September 30, 2016 we were in compliance with all covenants contained in the Credit Agreement.

Loan and Security Agreement

On August 31, 2016, we entered into a Loan and Security Agreement (the “Warehouse Agreement”) with Deutsche Bank as administrative agent and a committed lender.  Under the Warehouse Agreement, which will support the Tesla Finance direct vehicle leasing program, and is secured by an interest in certain leases and vehicles under such program, we may borrow up to $300.0 million in total principal amount. Subject to extension in accordance with the terms of the Warehouse Agreement, the ability to draw under the Warehouse Agreement expires on August 31, 2017, and the full amount outstanding under the Warehouse Agreement is due September 20, 2018. As of September 30, 2016, we had $300.0 million in borrowings outstanding under the Warehouse Agreement.

Amounts drawn under the Warehouse Agreement generally bear interest at a rate based on LIBOR plus a fixed margin. We are subject to various customary events of default and financial, lease portfolio performance and other covenants and limitations, including an advance rate limit, a required reserve account,  and various performance triggers and excess concentration limits.

Pledged Assets

As of September 30, 2016 and December 31, 2015, we have pledged or restricted $1.9 billion and $1.4 billion principally from finished goods and raw materials inventory, as well as certain property and equipment, direct lease vehicles, receivables and cash as collateral for letters of credit including our Credit Agreement, real estate leases, and insurance policies.

Interest Expense

The following table presents the aggregate amount of interest expense recognized on a prior secured credit facility to support our direct leasing program, which was terminated in December 2015, the Credit Agreement, the Warehouse Agreement, the 2018 Notes, the 2019 Notes, and the 2021 Notes relating to the contractual interest coupon and amortization of the debt issuance costs and debt discount (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Contractual interest coupon	$	6,615	$	8,362	$	23,330	$	23,410
Amortization of debt issuance costs		4,952		1,945		8,835		5,202
Amortization of debt discount		24,660		24,802		75,493		72,653
Total	$	36,227	$	35,109	$	107,658	$	101,265

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Equity Incentive Plans

9 Months Ended

Sep. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity Incentive Plans

Note 9 - Equity Incentive Plans

In July 2003, we adopted the 2003 Equity Incentive Plan. Concurrent with the effectiveness of our registration statement on Form S-1 on June 28, 2010, we adopted the 2010 Equity Incentive Plan (the Plan) and all remaining common shares reserved for future grant or issuance under the 2003 Equity Incentive Plan were added to the 2010 Equity Incentive Plan. The Plan provides for the granting of stock options, RSUs and stock purchase rights to our employees, directors and consultants. Options granted under the Plan may be either incentive options or nonqualified stock options. Incentive stock options may be granted only to our employees including officers and directors. Nonqualified stock options and stock purchase rights may be granted to our employees and consultants. Generally, our stock options and RSUs vest over four years and are exercisable over a period not to exceed the contractual term of ten years from the date the stock options are granted. Continued vesting typically terminates when the employment or consulting relationship ends. As of September 30, 2016, there were 15,483,680 shares of outstanding stock awards under the Plan. As of September 30, 2016 and December 31, 2015, 645,553 and 2,816,785 shares were available for grant relating to stock options and RSUs.

Performance-based Stock Option Grant

In 2014, to create incentives for continued long term success beyond the Model S program and to closely align executive pay with our stockholders’ interests in the achievement of significant milestones by our Company, the Compensation Committee of our Board of Directors granted stock options to certain employees to purchase an aggregate 1,073,000 shares of our common stock. Each such grant consists of four vesting tranches with a vesting schedule based entirely on the attainment of future performance milestones, assuming continued employment and service to us through each vesting date.

• 1/4th of the shares subject to the options are scheduled to vest upon completion of the first Model X Production Vehicle;

• 1/4th of the shares subject to the options are scheduled to vest upon achieving aggregate vehicle production of 100,000 vehicles in a trailing 12-month period;

• 1/4th of the shares subject to the options are scheduled to vest upon completion of the first Model 3 Production Vehicle; and

• 1/4th of the shares subject to the options are scheduled to vest upon achievement of annualized gross margin of greater than 30.0% in any three years.

As of September 30, 2016, the following performance milestone was achieved and approved by our Board of Directors.

• Completion of the first Model X Production Vehicle

As of September 30, 2016, the following performance milestone was considered probable of achievement.

• Completion of the first Model 3 Production Vehicle; and

• Achieving aggregate vehicle production of 100,000 vehicles in a trailing 12-month period

We begin recording stock-based compensation expense as each milestone becomes probable. For the three and nine months ended September 30, 2016, we recorded stock-based compensation expense of $11.6 million and $22.8 million related to this grant. For the three and nine months ended September 30, 2015, we recorded stock-based compensation expense of $2.7 million and $10.4 million related to this grant.

2012 CEO Grant

In August 2012, our Board of Directors granted 5,274,901 stock options to our CEO (2012 CEO Grant). The 2012 CEO Grant consists of ten vesting tranches with a vesting schedule based entirely on the attainment of both performance conditions and market conditions, assuming continued employment and service to us through each vesting date.

Each of the ten vesting tranches requires a combination of one of the ten pre-determined performance milestones and an incremental increase in our market capitalization of $4.0 billion, as compared to the initial market capitalization of $3.2 billion measured at the time of the 2012 CEO Grant.

As of September 30, 2016, the market conditions for seven vesting tranches and the following five performance milestones were achieved and approved by our Board of Directors:

• Successful completion of the Model X Alpha Prototype;

• Successful completion of the Model X Beta Prototype;

• Completion of the first Model X Production Vehicle;

• Aggregate vehicle production of 100,000 vehicles; and

• Successful completion of the Model 3 Alpha Prototype.

As of September 30, 2016, the following performance milestones were considered probable of achievement:

• Successful completion of the Model 3 Beta Prototype;

• Completion of the first Model 3 Production Vehicle;

• Aggregate vehicle production of 200,000 vehicles; and  

• Aggregate vehicle production of 300,000 vehicles.

We begin recording stock-based compensation expense as each milestone becomes probable. We recorded stock-based compensation expense of $4.6 million for the three months period ended September 30, 2016 and $14.9 million for the nine months period ended September 30, 2016 related to this grant. For the three and nine months ended September 30, 2015, we recorded stock-based compensation expense of $6.8 million and $9.5 million related to this grant.

Our CEO earns a base salary that reflects the currently applicable minimum wage requirements under California law, and he is subject to income taxes based on such base salary. However, he has never accepted and currently does not accept his salary.

Summary Stock-Based Compensation Information

The following table summarizes our stock-based compensation expense by line item in the Consolidated Statements of Operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of revenues	$	8,939	$	3,828	$	21,837	$	13,249
Research and development		40,220		24,153		113,328		63,857
Selling, general and administrative		40,384		28,052		111,347		65,288
Total	$	89,543	$	56,033	$	246,512	$	142,394

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 10 - Commitments and Contingencies

Legal Proceedings

From time to time, we are subject to various legal proceedings that arise from the normal course of business activities. In addition, from time to time, third parties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand.

In November 2013, a putative securities class action lawsuit was filed against Tesla in U.S. District Court, Northern District of California, alleging violations of, and seeking remedies pursuant to, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint made claims against Tesla and our CEO, Elon Musk, sought damages and attorney’s fees on the basis of allegations that, among other things, Tesla and Mr. Musk made false and/or misleading representations and omissions, including with respect to the safety of Model S. This case was brought on behalf of a putative class consisting of certain persons who purchased Tesla’s securities between August 19, 2013 and November 17, 2013. On September 26, 2014, the trial court, upon the motion of Tesla and Mr. Musk, dismissed the complaint with prejudice, and thereafter issued a formal written order to that effect. The plaintiffs have appealed from the trial court’s order, and that appeal is pending.

From time to time, we have received requests for information from regulators and governmental authorities, such as the National Highway Traffic Safety Administration, the National Transportation Safety Board and the Securities and Exchange Commission.  We are also subject to various other legal proceedings that arise from the normal course of business activities. In addition, from time to time, third parties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand.

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Subsequent Events

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

Subsequent events

Note 11 – Subsequent events

Land Purchase

In October 2016, we purchased 24.5 acres of land that is adjacent to our factory in Fremont, California for $30.8 million which will be used for the future expansion of our manufacturing facilities. 

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Public Offering

Public Offering

In May 2016, we completed a public offering of common stock and sold a total of 7,915,004 shares of our common stock for total cash proceeds of approximately $1.7 billion, net of underwriting discounts and offering costs.

Acquisition

Acquisition

On July 31, 2016, we entered into a definitive agreement to acquire SolarCity Corporation, which designs, finances and installs solar power systems. Pursuant to the definitive agreement, each issued and outstanding share of the common stock of SolarCity would be converted into the right to receive 0.110 (the Exchange Ratio) shares of Tesla common stock. SolarCity options and restricted stock unit awards would be converted into corresponding equity awards in respect of Tesla common stock based on the Exchange Ratio, with the awards retaining the same vesting and other terms and conditions as in effect immediately prior to consummation of the Merger. This acquisition is subject to various closing conditions, including the receipt by each company, at a separate meeting of its stockholders scheduled to take place on November 17, 2016, of the affirmative vote of at least the minimum number of its non-interested stockholders as specified in the definitive agreement.

Basis of Consolidation

Basis of Consolidation

The consolidated financial statements include the accounts of Tesla and its wholly-owned subsidiaries. Intercompany balances and transactions between consolidated entities have been eliminated.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities and accompanying notes.  Estimates are used for, but not limited to, determining the selling price of products and services in multiple element revenue arrangements and determining the amortization period of these elements, residual value of operating lease vehicles, inventory valuation, warranties, fair value of financial instruments, depreciable lives of property and equipment, inputs used to value stock-based compensation including volatility, expected terms of stock option awards and forfeiture rates, income taxes, and contingencies. Actual results could differ from those estimates.

Unaudited Interim Financial Statements

Unaudited Interim Financial Statements

The accompanying consolidated balance sheet as of September 30, 2016, the consolidated statements of operations and consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015 and the consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015, and other information disclosed in the related notes are unaudited. The consolidated balance sheet as of December 31, 2015, was derived from our audited consolidated financial statements at that date. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission.

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. The new guidance provides a new model to determine when and over what period revenue is recognized. Under this new model, revenue is recognized as goods or services are delivered in an amount that reflects the consideration we expect to collect.  In March 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the principal versus agent guidance in the new revenue recognition standard. In April 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the guidance on accounting for licenses of intellectual property and identifying performance obligations in the new revenue recognition standard. In May 2016, the FASB issued an ASU, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedient, which clarifies the transition, collectability, noncash consideration and the presentation of sales and other similar taxes in the new revenue recognition standard. The guidance is effective for fiscal years beginning after December 15, 2017; early adoption is permitted for periods beginning after December 15, 2016. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method and are evaluating the impact of adopting this guidance.

In August 2014, the FASB issued Accounting Standards Update No. ASU 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, provide certain footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, including interim reporting periods thereafter. We do not anticipate that adopting this guidance will have an impact on the financial statements and are currently evaluating the potential impact to our footnote disclosures.

In April 2015, the FASB issued new authoritative accounting guidance on simplifying the presentation of debt issuance costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We have retrospectively adopted this standard as of March 31, 2016, and as a result, on the December 31, 2015, consolidated balance sheet we reclassified $9.6 million as a reduction in prepaid expenses and other current assets, along with $15.0 million reduction in other assets, with a corresponding reduction in the aggregate carrying value of the Company’s long term debt liabilities. Similarly, as a result of the change in carrying value of long term debt, $5.2 million was reclassified out of additional paid in capital and into mezzanine equity on the December 31, 2015 consolidated balance sheet.

In February 2016, the FASB issued Accounting Standards Update No. 2016 - 02, Leases (Topic 842). The new standard is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The standard will require lessees to report most leases as assets and liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The standard requires a modified retrospective transition approach for existing leases, whereby the new rules will be applied to the earliest year presented. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In August 2016, the FASB issued Accounting Standards Update No. ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230).  ASU 2016-15 addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted.  We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

Revenue Recognition

Revenue Recognition

We recognize revenue for products and services when: (i) a persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) pricing or fees are fixed or determinable; and (iv) collection is reasonably assured.

Automotive revenue includes revenues related to deliveries of new vehicles, sales of regulatory credits to other automotive manufacturers, and specific other elements that meet the definition of a deliverable under multiple-element accounting guidance including free internet connectivity, free access to our Supercharger network, and free future over the air software updates. These deliverables are valued on a stand-alone basis and we recognize their revenue over our performance period, which is generally the eight-year life of the vehicle, except for internet connectivity which is over the free four year period. If we sell a deliverable separately, we use that pricing to determine its fair value; otherwise, we use our best estimated selling price by considering costs used to develop and deliver the service, third party pricing of similar options, and other information which may be available.

Starting in the third quarter of 2016, we started to separately present automotive leasing revenue and related cost of revenue. All prior periods have been reclassified to conform to this presentation.  Automotive leasing revenue includes revenue recognized under lease accounting guidance for our direct leasing programs as well as programs with resale value guarantees. See “Resale Value Guarantees and Other Financing Programs” and “Vehicle Leasing Program” for further details.

Services and other revenue consists of repair and maintenance services, service plans and merchandise, sales of pre-owned Tesla vehicles, sales of electric vehicle powertrain components and systems to other manufacturers, Tesla Energy products, and sales of non-Tesla vehicle trade-ins.

As of September 30, 2016, we had deferred $57.5 million, $84.7 million, $52.7 million, and $8.0 million related to the purchase of vehicle maintenance and service plans, access to our Supercharger network, internet connectivity, and future software updates, respectively. As of December 31, 2015, we had deferred $53.6 million, $49.5 million, $32.4 million, and $2.7 million related to these same performance obligations, respectively.

Resale Value Guarantees and Other Financing Programs

Vehicle sales to customers with a residual value guarantee

Through June 30, 2016, we offered resale value guarantees or similar buy-back terms to all customers who purchase vehicles and who financed their vehicle through one of our specified commercial banking partners. Subsequent to June 30, 2016, this program is available only in certain international markets.  Under this program, customers have the option of selling their vehicle back to us during the guarantee period for a determined resale value. Guarantee periods generally range from 36 to 39 months.  Although we receive full payment for the vehicle sales price at the time of delivery, we are required to account for these transactions as operating leases.  The amount of sale proceeds equal to the resale value guarantee is deferred until the guarantee expires or is exercised.  The remaining sale proceeds are deferred and recognized on a straight line basis over the stated guarantee period to automotive leasing revenue. The guarantee period expires at the earlier of the end of the guarantee period or the pay-off of the initial loan.  We capitalize the cost of these vehicles to operating lease vehicles on our Consolidated Balance Sheets as operating lease vehicles, net, and depreciate their value, less salvage value, to cost of automotive leasing revenue over the same period.  

In cases when a customer retains ownership of a vehicle at the end of the guarantee period, the resale value guarantee liability and any remaining deferred revenue balances related to the vehicle are settled to automotive leasing revenue and the net book value of the leased vehicle is expensed to costs of automotive leasing revenue. In cases when customers return the vehicle back to us during the guarantee period, we purchase the vehicle from the customer in an amount equal to the resale value guarantee and settle any remaining deferred balances to automotive leasing revenue and we reclassify the net book value of the vehicle on our balance sheet to pre-owned vehicle inventory. As of September 30, 2016 and December 31, 2015, $204.1 million and $136.8 million of the guarantees were exercisable by customers within the next twelve months.

Vehicle sales to leasing partners with a residual value guarantee

We also offer resale value guarantees in connection with automobile sales to certain bank leasing partners.  As we have guaranteed the value of these vehicles and as the vehicles are leased to end-customers, we account for these transactions as interest bearing collateralized borrowings as required under ASC 840 - Leases.  Under this program, cash is received for the full price of the vehicle and is recorded within resale value guarantees for the long-term portion and deferred revenue for the current portion.  We accrete the deferred revenue amount to automotive leasing revenue on a straight line basis over the guarantee period and accrue interest expense based on our borrowing rate.  We capitalize vehicles under this program to operating lease vehicles, net, on our Consolidated Balance Sheets and we record depreciation from these vehicles to cost of automotive leasing revenues during the period the vehicle is under a lease arrangement.  Cash received for these vehicles, net of revenue recognized during the period, is classified as collateralized lease borrowings within cash flows from financing activities in our Consolidated Statements of Cash Flows.

At the end of the lease term, we settle our liability in cash by either purchasing the vehicle from the leasing partner for the resale value guarantee amount, or paying a shortfall to the guarantee amount the leasing partner may realize on the sale of the vehicle.  Any remaining balances within deferred revenue and resale value guarantee will be settled to automotive revenue.  In cases where the bank retains ownership of the vehicle after the end of our guarantee period, we expense the net value of the leased vehicle to costs of automotive leasing revenue.  The maximum cash we could be required to pay under this program, should we decide to repurchase all vehicles, is $742.0 million at September 30, 2016.

As of September 30, 2016 and December 31, 2015, we had $1.0 billion and $527.5 million of such borrowings recorded in resale value guarantees and $250.4 million and $120.5 million recorded in deferred revenue liability, respectively. As of September 30, 2016 and December 31, 2015, we had a total of $79.5 million and $33.6 million in account receivables from our leasing partners.

On a quarterly basis, we assess the estimated market values of vehicles under our resale value guarantee program to determine if we have sustained a loss on any of these contracts. As we accumulate more data related to the resale values of our vehicles or as market conditions change, there may be material changes to their estimated values.

Account activity related to our resale value guarantee and similar programs consisted of the following for the periods presented (in thousands):

	Three Months Ended			Nine Months Ended
	September 30, 2016			September 30, 2016
Operating Lease Vehicles
Operating lease vehicles—beginning of period	$	2,126,581		$	1,556,529
Net increase in operating lease vehicles		375,287			1,085,551
Depreciation expense recorded in cost of automotive leasing revenues		(71,454	)		(179,087	)
Additional depreciation expense recorded in cost of automotive leasing revenues as    a result of early cancellation of resale value guarantee		(5,509	)		(11,166	)
Additional depreciation expense recorded in cost of automotive leasing revenues    result of expiration and exercises of resale value guarantee		(55,009	)		(55,009	)
Increases to inventory from vehicles returned under our trade-in program		(18,718	)		(45,640	)
Operating lease vehicles—end of period	$	2,351,178		$	2,351,178
Deferred Revenue
Deferred revenue—beginning of period	$	851,684		$	679,132
Net increase in deferred revenue from new vehicle deliveries and reclassification of    collateralized borrowing from long-term to short-term		188,113			574,226
Amortization of deferred revenue and short-term collateralized borrowing recorded in    automotive leasing revenue		(125,411	)		(330,093	)
Additional revenue recorded in automotive leasing revenue as a result of early    cancellation of resale value guarantee		(1,521	)		(4,333	)
Recognition of deferred revenue resulting from return of vehicle under trade-in program		(3,456	)		(9,523	)
Deferred revenue—end of period	$	909,409		$	909,409
Resale Value Guarantee
Resale value guarantee liability—beginning of period	$	2,007,347		$	1,430,573
Increase in resale value guarantee		361,434			1,013,369
Reclassification from long-term to short-term collateralized borrowing		(33,129	)		(79,171	)
Additional revenue recorded in automotive leasing revenue as a result of early    cancellation of resale value guarantee		(4,291	)		(10,110	)
Release of resale value guarantee resulting from return of vehicle under trade-    in program		(15,516	)		(38,816	)
Release of resale value guarantee resulting from expiration and exercises of resale    value guarantee		(55,722	)		(55,722	)
Resale value guarantee liability—end of period	$	2,260,123		$	2,260,123

Vehicle Leasing Program

We offer a leasing program in the United States, Canada, the UK and Germany. Qualifying customers are permitted to lease a vehicle directly from Tesla generally for 36 or 48 months. At the end of the lease term, customers have the option of either returning the vehicle to us or purchasing it for a determined residual value. We account for these leasing transactions as operating leases and recognize leasing revenues over the contractual term and record the depreciation of these vehicles to cost of automotive leasing revenues. As of September 30, 2016 and December 31, 2015, we had deferred $61.6 million and $25.8 million of lease-related upfront payments which will be recognized on a straight-line basis over the contractual term of the individual leases. Lease revenues are recorded in automotive leasing revenue and were $31.4 million and $72.0 million for the three and nine months ended September 30, 2016. Lease revenues for the three and nine months ended September 30, 2015, were $11.5 million and $27.4 million, respectively.

Warranties

Warranties

We provide a manufacturer’s warranty on all new and certified pre-owned vehicles, production powertrain components and systems, and energy products we sell.  We accrue a manufacturer’s warranty reserve which includes our best estimate of the projected costs to repair or to replace items under warranty. These estimates are based on actual claims incurred to-date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain and changes to our historical or projected warranty experience may cause material changes to our warranty reserve in the future. The portion of the warranty provision expected to be incurred within 12 months is classified as current within accrued liabilities, while the remaining amount is classified as long-term within other long-term liabilities.

Accrued warranty activity consisted of the following for the periods presented (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Accrued warranty—beginning of period	$	216,459		$	164,595		$	180,754		$	129,043
Warranty costs incurred		(16,571	)		(21,593	)		(56,734	)		(50,666	)
Net changes in liability for pre-existing warranties, including    expirations and foreign exchange impact		(19,523	)		1,306			(12,889	)		12,635
Provision for warranty		46,454			26,026			115,688			79,322
Accrued warranty—end of period	$	226,819		$	170,334		$	226,819		$	170,334

Our warranty reserves do not include projected warranty costs associated with our vehicles subject to lease accounting, as costs to repair these vehicles are expensed as incurred. The warranty reserve increased primarily due to incremental vehicle deliveries, offset by actual claims and an overall decrease in accrual rates for vehicles, batteries, and drive units due to improved reliability. For the three and nine months ended September 30, 2016, warranty costs incurred for vehicles subject to lease accounting were $7.2 million and $12.3 million, and for the three and nine months ended September 30, 2015, costs were $1.8 million and $6.0 million. Warranty expense is recorded as a component of cost of automotive revenue and cost of automotive leasing revenue.  

Inventory Valuation

Inventory Valuation

Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. We record inventory write-downs for excess or obsolete inventories based upon assumptions about current and future demand forecasts. If our inventory on hand is in excess of our future demand forecast, the excess amounts are written off.

We also review inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our vehicles less the estimated cost to convert inventory on hand into a finished product. After inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Should our estimates of future selling prices or production costs change, additional and potentially material increases to this reserve may be required. A small change in our estimates may result in a material charge to our reported financial results.

Concentration of Risk

Concentration of Risk

Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash and accounts receivable. Our cash equivalents are primarily invested in money market funds with high credit quality financial institutions in the United States. At times, these deposits and securities may be in excess of insured limits. We invest cash not required for use in operations in high credit quality securities based on our investment policy. Our investment policy provides guidelines and limits regarding credit quality, investment concentration, investment type, and maturity that we believe will provide liquidity while reducing risk of loss of capital. Our investments are currently of a short-term nature and include U.S. treasury bills.

As of September 30, 2016 and December 31, 2015, our accounts receivable were derived primarily from amounts to be received from financial institutions and leasing companies offering various financing products to our customers, sales of regulatory credits, as well as the development and sales of powertrain components and systems to automotive original equipment manufacturers (OEMs).  As of September 30, 2016, we have two customers who individually account for 17% and 14% of our accounts receivable, respectively. 

Supply Risk

The majority of our suppliers are currently single source suppliers, despite efforts to qualify and obtain components from multiple sources whenever feasible. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to vehicle design changes, increased costs and delays in vehicle deliveries to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, financial condition and operating results.

Stock-Based Compensation

Stock-Based Compensation

We use the fair value method of accounting for our stock options and restricted stock units (RSUs) granted to employees and our Employee Stock Purchase Plan (ESPP) to measure the cost of employee services received in exchange for the stock-based awards. The fair value of stock options and ESPP are estimated on the grant date and offering date using the Black-Scholes option-pricing model. The fair value of RSUs is measured on the grant date based on the closing fair market value of our common stock. The resulting cost is recognized over the service period, which is generally four years for stock options and RSUs and six months for the ESPP. Stock-based compensation expense is recognized on a straight-line basis, net of estimated forfeitures.

For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable.

For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the implicit or derived service period of the performance and market conditions, beginning at the point in time that the relevant performance condition is considered probable of being met.

Derivative Financial Instruments

Derivative Financial Instruments

In November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated in Japanese yen.  The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months or less. We do not enter into derivative contracts for trading or speculative purposes.  

The bank counterparties in all contracts expose Tesla to credit-related losses in the event of their nonperformance. However, to mitigate that risk, Tesla only contracts with counterparties who meet the Company’s minimum requirements under its counterparty risk assessment process. Tesla monitors ratings, credit spreads, and potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, the Company will adjust its exposure to various counterparties. We generally enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. However, we do not have any master netting arrangements in place with collateral features.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and losses on derivatives, net of any reclassifications, our available-for-sale marketable securities, and foreign currency translation adjustment that have been excluded from the determination of net income (loss).

Net Income (Loss) per Share of Common Stock

Net Income (Loss) per Share of Common Stock

Our basic and diluted net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the number of shares underlying outstanding stock options and warrants as well as our convertible senior notes, are not included when their effect is antidilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share for the three months ended September 30, 2016 (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016			2015
Basic net income per share
Net income (loss)	$	21,878	$	(229,858	)	$	(553,577	)	$	(568,266	)
Weighted-average shares used in computing basic net income    (loss) per share		148,991		129,006			140,581			127,225
Basic net income (loss) per share	$	0.15	$	(1.78	)	$	(3.94	)	$	(4.47	)
Diluted net income per share
Net income (loss)	$	21,878	$	(229,858	)	$	(553,577	)	$	(568,266	)
Weighted-average shares used in computing basic net income    (loss) per share		148,991		129,006			140,581			127,225
Add:
Employee share based awards		5,911		—			—			—
Convertible senior notes		1,571		—			—			—
Warrants issued in May 2013		462		—			—			—
Weighted-average shares used in computing diluted net income    (loss) per share		156,935		129,006			140,581			127,225
Diluted net income (loss) per share	$	0.14	$	(1.78	)	$	(3.94	)	$	(4.47	)

The following table presents the potential weighted common shares outstanding that were excluded from the computation of diluted net income (loss) per share of common stock for the periods presented:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Employee share based awards		5,666,686		14,917,083		16,527,336		15,426,144
Convertible senior notes		—		2,710,738		1,959,492		2,454,778
Warrants issued May 2013		—		1,463,838		629,782		1,084,627

Since we expect to settle the principal amount of our outstanding convertible senior notes in cash, we use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $124.52, $359.87 and $359.87 per share for the convertible senior notes due 2018 (2018 Notes), convertible senior notes due 2019 (2019 Notes), and convertible senior notes due 2021 (2021 Notes).

Income Taxes

Income Taxes

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of September 30, 2016 and December 31, 2015, the aggregate balances of our gross unrecognized tax benefits were $162.8 million and $99.3 million. $158.1 million and $95.7 million of these aggregate balances would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset which is currently offset by a full valuation allowance.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Schedule of Activity Related to Resale Value Guarantee Program

Account activity related to our resale value guarantee and similar programs consisted of the following for the periods presented (in thousands):

	Three Months Ended			Nine Months Ended
	September 30, 2016			September 30, 2016
Operating Lease Vehicles
Operating lease vehicles—beginning of period	$	2,126,581		$	1,556,529
Net increase in operating lease vehicles		375,287			1,085,551
Depreciation expense recorded in cost of automotive leasing revenues		(71,454	)		(179,087	)
Additional depreciation expense recorded in cost of automotive leasing revenues as    a result of early cancellation of resale value guarantee		(5,509	)		(11,166	)
Additional depreciation expense recorded in cost of automotive leasing revenues    result of expiration and exercises of resale value guarantee		(55,009	)		(55,009	)
Increases to inventory from vehicles returned under our trade-in program		(18,718	)		(45,640	)
Operating lease vehicles—end of period	$	2,351,178		$	2,351,178
Deferred Revenue
Deferred revenue—beginning of period	$	851,684		$	679,132
Net increase in deferred revenue from new vehicle deliveries and reclassification of    collateralized borrowing from long-term to short-term		188,113			574,226
Amortization of deferred revenue and short-term collateralized borrowing recorded in    automotive leasing revenue		(125,411	)		(330,093	)
Additional revenue recorded in automotive leasing revenue as a result of early    cancellation of resale value guarantee		(1,521	)		(4,333	)
Recognition of deferred revenue resulting from return of vehicle under trade-in program		(3,456	)		(9,523	)
Deferred revenue—end of period	$	909,409		$	909,409
Resale Value Guarantee
Resale value guarantee liability—beginning of period	$	2,007,347		$	1,430,573
Increase in resale value guarantee		361,434			1,013,369
Reclassification from long-term to short-term collateralized borrowing		(33,129	)		(79,171	)
Additional revenue recorded in automotive leasing revenue as a result of early    cancellation of resale value guarantee		(4,291	)		(10,110	)
Release of resale value guarantee resulting from return of vehicle under trade-    in program		(15,516	)		(38,816	)
Release of resale value guarantee resulting from expiration and exercises of resale    value guarantee		(55,722	)		(55,722	)
Resale value guarantee liability—end of period	$	2,260,123		$	2,260,123

Schedule of Accrued Warranty Activity

Accrued warranty activity consisted of the following for the periods presented (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Accrued warranty—beginning of period	$	216,459		$	164,595		$	180,754		$	129,043
Warranty costs incurred		(16,571	)		(21,593	)		(56,734	)		(50,666	)
Net changes in liability for pre-existing warranties, including    expirations and foreign exchange impact		(19,523	)		1,306			(12,889	)		12,635
Provision for warranty		46,454			26,026			115,688			79,322
Accrued warranty—end of period	$	226,819		$	170,334		$	226,819		$	170,334

Schedule of Computation of Basic and Diluted Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share for the three months ended September 30, 2016 (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016			2015
Basic net income per share
Net income (loss)	$	21,878	$	(229,858	)	$	(553,577	)	$	(568,266	)
Weighted-average shares used in computing basic net income    (loss) per share		148,991		129,006			140,581			127,225
Basic net income (loss) per share	$	0.15	$	(1.78	)	$	(3.94	)	$	(4.47	)
Diluted net income per share
Net income (loss)	$	21,878	$	(229,858	)	$	(553,577	)	$	(568,266	)
Weighted-average shares used in computing basic net income    (loss) per share		148,991		129,006			140,581			127,225
Add:
Employee share based awards		5,911		—			—			—
Convertible senior notes		1,571		—			—			—
Warrants issued in May 2013		462		—			—			—
Weighted-average shares used in computing diluted net income    (loss) per share		156,935		129,006			140,581			127,225
Diluted net income (loss) per share	$	0.14	$	(1.78	)	$	(3.94	)	$	(4.47	)

Schedule of Potential Weighted Common Shares Outstanding that were Excluded from Computation of Diluted Net Loss per Share of Common Stock

The following table presents the potential weighted common shares outstanding that were excluded from the computation of diluted net income (loss) per share of common stock for the periods presented:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Employee share based awards		5,666,686		14,917,083		16,527,336		15,426,144
Convertible senior notes		—		2,710,738		1,959,492		2,454,778
Warrants issued May 2013		—		1,463,838		629,782		1,084,627

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of Fair Value Hierarchy of Financial Assets Carried at Fair Value

As of September 30, 2016 and December 31, 2015, the fair value hierarchy for our financial assets that are carried at fair value was as follows (in thousands), and unrealized gains (losses) on all financial assets for all periods presented were less than $1.0 million:

	September 30, 2016								December 31, 2015
	Fair Value		Level I		Level II		Level III		Fair Value		Level I		Level II		LevelIII
Money market funds	$	2,391,562	$	2,391,562	$	—	$	—	$	297,810	$	297,810	$	—	$	—
U.S. treasury bills		—		—		—		—		16,664		16,664		—		—
Total	$	2,391,562	$	2,391,562	$	—	$	—	$	314,474	$	314,474	$	—	$	—

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Inventory (Tables)

9 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Schedule of Inventory

As of September 30, 2016 and December 31, 2015, our inventory consisted of the following (in thousands):

	September 30,		December 31,
	2016		2015
Raw materials	$	353,751	$	528,935
Work in process		329,938		163,830
Finished goods		791,600		476,512
Service parts		129,282		108,561
Total	$	1,604,571	$	1,277,838

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Property, Plant, and Equipment (Tables)

9 Months Ended

Sep. 30, 2016

Property Plant And Equipment [Abstract]

Schedule of Property, Plant and Equipment, Net

As of September 30, 2016 and December 31, 2015, our property, plant and equipment, net, consisted of the following (in thousands):

	September 30,			December 31,
	2016			2015
Machinery, equipment and office furniture	$	2,004,316		$	1,694,910
Tooling		780,140			550,902
Leasehold improvements		422,110			338,392
Building and building improvements		706,112			461,303
Land		63,238			60,234
Computer equipment and software		218,079			175,512
Construction in progress		1,027,159			693,207
		5,221,154			3,974,460
Less: Accumulated depreciation and amortization		(912,106	)		(571,126	)
Total	$	4,309,048		$	3,403,334

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Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

Payables And Accruals [Abstract]

Schedule of Accrued Liabilities

As of September 30, 2016 and December 31, 2015, our accrued liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2016		2015
Taxes payable	$	129,044	$	101,206
Accrued purchases		358,292		140,540
Payroll and related costs		89,859		86,859
Warranty and other		117,823		94,193
Total	$	695,018	$	422,798

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Convertible and Long-term Debt Obligations (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Schedule of Debt Discounts

In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversion option associated with the Notes from the respective host debt instrument and initially recorded the conversion option for the 2018, 2019, and 2021 Notes in stockholders’ equity. The resulting debt discounts on the 2018 Notes, 2019 Notes, and 2021 Notes are being amortized to interest expense at the effective interest rate over the contractual terms of the Notes.

	September 30, 2016						December 31, 2015
	2018 Notes		2019 Notes		2021 Notes		2018 Notes		2019 Notes		2021 Notes
	(in thousands, except years and percentages)
Carrying value	$	212,993	$	817,480	$	1,118,885	$	612,476	$	788,004	$	1,080,867
Unamortized discount and issuance costs		11,270		102,520		261,115		47,285		131,996		299,133
Principal amount	$	224,263	$	920,000	$	1,380,000	$	659,761	$	920,000	$	1,380,000
Remaining amortization period (years)		1.7		2.4		4.4
Effective interest rate on liability component		4.29%		4.89%		5.96%
Initial equity component	$	82,800	$	188,100	$	369,400
If converted, value in excess of par value	$	143,195

Schedule of Aggregate Amount of Interest Expense Recognized

The following table presents the aggregate amount of interest expense recognized on a prior secured credit facility to support our direct leasing program, which was terminated in December 2015, the Credit Agreement, the Warehouse Agreement, the 2018 Notes, the 2019 Notes, and the 2021 Notes relating to the contractual interest coupon and amortization of the debt issuance costs and debt discount (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Contractual interest coupon	$	6,615	$	8,362	$	23,330	$	23,410
Amortization of debt issuance costs		4,952		1,945		8,835		5,202
Amortization of debt discount		24,660		24,802		75,493		72,653
Total	$	36,227	$	35,109	$	107,658	$	101,265

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Equity Incentive Plans (Tables)

9 Months Ended

Sep. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock-Based Compensation Expense

The following table summarizes our stock-based compensation expense by line item in the Consolidated Statements of Operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of revenues	$	8,939	$	3,828	$	21,837	$	13,249
Research and development		40,220		24,153		113,328		63,857
Selling, general and administrative		40,384		28,052		111,347		65,288
Total	$	89,543	$	56,033	$	246,512	$	142,394

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Summary of Significant Accounting Policies - Additional Information (Detail)		1 Months Ended		3 Months Ended		9 Months Ended
	Jul. 31, 2016	May 31, 2016 USD ($) shares	Apr. 30, 2014	Sep. 30, 2016 USD ($) $ / shares	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) Customer $ / shares	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Summary Of Significant Accounting Policies [Line Items]
Common stock shares sold | shares		7,915,004
Proceeds from issuance of common stock in public offerings		$ 1,700,000,000				$ 1,701,734,000	$ 750,000,000
Prepaid expenses and other current assets				$ 132,978,000		132,978,000		$ 115,667,000
Other assets				70,646,000		70,646,000		59,674,000
Resale value guarantees, current portion				204,054,000		204,054,000		136,831,000
Accounts receivable				326,895,000		326,895,000		168,965,000
Maximum repurchase price of vehicles under resale value arrangement				742,000,000		742,000,000
Automotive leasing revenues				1,917,442,000	$ 769,015,000	3,849,558,000	2,417,247,000
Warranty costs incurred for operating lease vehicles collateralized debt arrangements				7,200,000	1,800,000	$ 12,300,000	6,000,000
Number of major customers | Customer						2
Maximum maturities of the cash flow hedges, in months						12 months
Unrecognized tax benefits				162,800,000		$ 162,800,000		99,300,000
Unrecognized tax benefits that would not affect effective tax rate				$ 158,100,000		$ 158,100,000		95,700,000
2018 Notes [Member]
Summary Of Significant Accounting Policies [Line Items]
Convertible notes, conversion price | $ / shares				$ 124.52		$ 124.52
2019 Notes [Member]
Summary Of Significant Accounting Policies [Line Items]
Convertible notes, conversion price | $ / shares				359.87		359.87
2021 Notes [Member]
Summary Of Significant Accounting Policies [Line Items]
Convertible notes, conversion price | $ / shares				$ 359.87		$ 359.87
Accounts Receivable [Member] | Customer A [Member]
Summary Of Significant Accounting Policies [Line Items]
Accounts receivable in excess of 10% of total accounts receivable						17.00%
Accounts Receivable [Member] | Customer B [Member]
Summary Of Significant Accounting Policies [Line Items]
Accounts receivable in excess of 10% of total accounts receivable						14.00%
Deferred lease revenue [Member]
Summary Of Significant Accounting Policies [Line Items]
Deferred upfront payments				$ 61,600,000		$ 61,600,000		25,800,000
Automotive leasing revenues				31,400,000	$ 11,500,000	72,000,000	$ 27,400,000
Sales To Leasing Companies With Guarantee [Member]
Summary Of Significant Accounting Policies [Line Items]
Deferred upfront payments				250,400,000		250,400,000		120,500,000
Resale value guarantees				1,000,000,000		1,000,000,000		527,500,000
Accounts receivable				79,500,000		$ 79,500,000		33,600,000
Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Guarantee period for resale						36 months
Direct lease term			36 months
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Guarantee period for resale						39 months
Direct lease term			48 months
Internet [Member]
Summary Of Significant Accounting Policies [Line Items]
Deferred upfront payments				52,700,000		$ 52,700,000		32,400,000
Future software updates [Member]
Summary Of Significant Accounting Policies [Line Items]
Deferred upfront payments				8,000,000		8,000,000		2,700,000
Vehicle maintenance and service plans [Member]
Summary Of Significant Accounting Policies [Line Items]
Deferred upfront payments				57,500,000		57,500,000		53,600,000
Supercharger network [Member]
Summary Of Significant Accounting Policies [Line Items]
Deferred upfront payments				$ 84,700,000		$ 84,700,000		49,500,000
New Accounting Pronouncement [Member]
Summary Of Significant Accounting Policies [Line Items]
Prepaid expenses and other current assets								(9,600,000)
Other assets								(15,000,000)
Reclassified out of current portion of long term debt in to the additional capital								$ 5,200,000
SolarCity [Member]
Summary Of Significant Accounting Policies [Line Items]
Share exchange ratio	0.110

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Summary of Significant Accounting Policies - Schedule of Account Activity Related to Resale Value Guarantee Program (Detail) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016	Sep. 30, 2015
Operating Lease Vehicles
Net increase in operating lease vehicles		$ 1,798,214	$ 1,091,382
Resale Value Guarantee
Increase in resale value guarantee		(322,244)	$ (249,548)
Resale Value Guarantee [Member]
Operating Lease Vehicles
Operating lease vehicles—beginning of period	$ 2,126,581	1,556,529
Net increase in operating lease vehicles	375,287	1,085,551
Depreciation expense recorded in cost of automotive leasing revenues	(71,454)	(179,087)
Additional depreciation expense recorded in cost of automotive leasing revenues as a result of early cancellation of resale value guarantee	(5,509)	(11,166)
Additional depreciation expense recorded in cost of automotive leasing revenues result of expiration and exercises of resale value guarantee	(55,009)	(55,009)
Increases to inventory from vehicles returned under our trade- in program	(18,718)	(45,640)
Operating lease vehicles—end of period	2,351,178	2,351,178
Deferred Revenue
Deferred revenue—beginning of period	851,684	679,132
Net increase in deferred revenue from new vehicle deliveries and reclassification of collateralized borrowing from long-term to short-term	188,113	574,226
Amortization of deferred revenue and short-term collateralized borrowing recorded in automotive leasing revenue	(125,411)	(330,093)
Additional revenue recorded in automotive leasing revenue as a result of early cancellation of resale value guarantee	(1,521)	(4,333)
Recognition of deferred revenue resulting from return of vehicle under trade-in program	(3,456)	(9,523)
Deferred revenue—end of period	909,409	909,409
Resale Value Guarantee
Resale value guarantee liability—beginning of period	2,007,347	1,430,573
Increase in resale value guarantee	361,434	1,013,369
Reclassification from long-term to short-term collateralized borrowing	(33,129)	(79,171)
Additional revenue recorded in automotive leasing revenue as a result of early cancellation of resale value guarantee	(4,291)	(10,110)
Release of resale value guarantee resulting from return of vehicle under trade- in program	(15,516)	(38,816)
Release of resale value guarantee resulting from expiration and exercises of resale value guarantee	(55,722)	(55,722)
Resale value guarantee liability—end of period	$ 2,260,123	$ 2,260,123

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Summary of Significant Accounting Policies - Schedule of Accrued Warranty Activity (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Standard Product Warranty Disclosure [Abstract]
Accrued warranty—beginning of period	$ 216,459	$ 164,595	$ 180,754	$ 129,043
Warranty costs incurred	(16,571)	(21,593)	(56,734)	(50,666)
Net changes in liability for pre-existing warranties, including expirations and foreign exchange impact	(19,523)	1,306	(12,889)	12,635
Provision for warranty	46,454	26,026	115,688	79,322
Accrued warranty—end of period	$ 226,819	$ 170,334	$ 226,819	$ 170,334

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Summary of Significant Accounting Policies - Computation of Basic and Diluted Net Income (Loss) Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Basic net income per share
Net income (loss)	$ 21,878	$ (229,858)	$ (553,577)	$ (568,266)
Weighted-average shares used in computing basic net income (loss) per share	148,991	129,006	140,581	127,225
Basic net income (loss) per share	$ 0.15	$ (1.78)	$ (3.94)	$ (4.47)
Diluted net income per share
Net income (loss)	$ 21,878	$ (229,858)	$ (553,577)	$ (568,266)
Weighted-average shares used in computing basic net income (loss) per share	148,991	129,006	140,581	127,225
Weighted-average shares used in computing diluted net income (loss) per share	156,935	129,006	140,581	127,225
Diluted net income (loss) per share	$ 0.14	$ (1.78)	$ (3.94)	$ (4.47)
Employee share based awards [Member]
Diluted net income per share
Dilutive securities	$ 5,911
Convertible senior notes [Member]
Diluted net income per share
Dilutive securities	1,571
Warrant issued in May 2013 [Member]
Diluted net income per share
Dilutive securities	$ 462

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Summary of Significant Accounting Policies - Schedule of Potential Weighted Common Shares Outstanding that were Excluded from Computation of Diluted Net Loss per Share of Common Stock (Detail) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Employee share based awards [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Potential common shares excluded from computation of net loss per share	5,666,686	14,917,083	16,527,336	15,426,144
Convertible senior notes [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Potential common shares excluded from computation of net loss per share		2,710,738	1,959,492	2,454,778
Warrant issued in May 2013 [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Potential common shares excluded from computation of net loss per share		1,463,838	629,782	1,084,627

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Fair Value of Financial Instruments - Additional Information (Detail) - USD ($)	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Sep. 30, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Carrying value of credit agreement liability	$ 200,000,000	$ 200,000,000
Fair value of credit agreement liability	200,000,000	$ 200,000,000
Maturity of cash flow hedges in months		12 months
Notional amount presented as net settled	95,400,000	$ 95,400,000
Accumulated other comprehensive income (loss) cumulative gain expected to be recognized within cost of automotive revenue	40,300,000	40,300,000
Reclassification to costs of automotive revenue	14,200,000	15,500,000
Prepaid Expenses and Other Current Assets [Member]
Debt Instrument [Line Items]
Fair value of foreign currency contracts designated as cash flow hedges	19,200,000	19,200,000
2018 Notes [Member]
Debt Instrument [Line Items]
Estimated fair value of notes	363,000,000	363,000,000	$ 1,290,000,000
Principal amount of convertible senior notes	224,300,000	224,300,000	659,800,000
2019 Notes [Member]
Debt Instrument [Line Items]
Estimated fair value of notes	834,900,000	834,900,000	864,800,000
Principal amount of convertible senior notes	920,000,000	920,000,000	920,000,000
2021 Notes [Member]
Debt Instrument [Line Items]
Estimated fair value of notes	1,190,000,000	1,190,000,000	1,270,000,000
Principal amount of convertible senior notes	1,380,000,000	1,380,000,000	1,380,000,000
Warehouse Agreement [Member] | Deutsche Bank AG [Member]
Debt Instrument [Line Items]
Carrying value of credit agreement liability	300,000,000	300,000,000
Fair value of credit agreement liability	$ 300,000,000	300,000,000
Maximum [Member]
Debt Instrument [Line Items]
Unrealized gains (losses) on financial assets		$ 1,000,000	$ 1,000,000

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Fair Value of Financial Instruments - Schedule of Fair Value Hierarchy of Financial Assets Carried at Fair Value (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Financial assets, Fair Value	$ 2,391,562	$ 314,474
Level I [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Financial assets, Fair Value	2,391,562	314,474
Money market funds [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Financial assets, Fair Value	2,391,562	297,810
Money market funds [Member] | Level I [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Financial assets, Fair Value	$ 2,391,562	297,810
U.S. treasury bills [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Financial assets, Fair Value		16,664
U.S. treasury bills [Member] | Level I [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Financial assets, Fair Value		$ 16,664

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Inventory - Schedule of Inventory (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Inventory Disclosure [Abstract]
Raw materials	$ 353,751	$ 528,935
Work in process	329,938	163,830
Finished goods	791,600	476,512
Service parts	129,282	108,561
Total	$ 1,604,571	$ 1,277,838

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Inventory - Additional Information (Detail)	Sep. 30, 2016
Minimum [Member]
Inventory [Line Items]
Percentage of vehicles in transit to customers	97.00%

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Property Plant and Equipment - Schedule of Property, Plant and Equipment, Net (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 5,221,154	$ 3,974,460
Less: Accumulated depreciation and amortization	(912,106)	(571,126)
Property, plant and equipment, net	4,309,048	3,403,334
Machinery, equipment and office furniture [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	2,004,316	1,694,910
Tooling [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	780,140	550,902
Leasehold improvements [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	422,110	338,392
Building and building improvements [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	706,112	461,303
Land [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	63,238	60,234
Computer equipment and software [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	218,079	175,512
Construction in Progress
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 1,027,159	$ 693,207

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Property Plant and Equipment - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Property Plant And Equipment [Line Items]
Interest expense capitalized	$ 11,400	$ 11,800	$ 30,400	$ 32,400
Property, plant and equipment, net	4,309,048		4,309,048		$ 3,403,334
Accrued liabilities	695,018		695,018		422,798
Other long-term liabilities	737,559		737,559		364,976
Depreciation and amortization expense	126,800	$ 71,800	337,900	$ 184,700
Total property and equipment assets under capital lease	80,500		80,500		58,100
Accumulated depreciation related to assets under capital lease	36,100		36,100		22,700
Build To Suit Arrangements [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, net	443,100		443,100		206,100
Accrued liabilities	2,600		2,600		1,300
Other long-term liabilities	454,200		454,200		$ 201,300
Gigafactory [Member]
Property Plant And Equipment [Line Items]
Costs related to construction activities	$ 608,400		$ 608,400

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Accrued Liabilities - Schedule of Accrued Liabilities (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Payables And Accruals [Abstract]
Taxes payable	$ 129,044	$ 101,206
Accrued purchases	358,292	140,540
Payroll and related costs	89,859	86,859
Warranty and other	117,823	94,193
Total	$ 695,018	$ 422,798

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Customer Deposits - Additional Information (Detail) - USD ($) $ in Millions	Sep. 30, 2016	Dec. 31, 2015
Other Liabilities Disclosure [Abstract]
Customer deposits	$ 690.4	$ 283.4

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Convertible and Long-term Debt Obligations - 0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant Transactions - Additional Information (Detail)	1 Months Ended		3 Months Ended	9 Months Ended
	Apr. 30, 2014 USD ($) $ / shares shares	Mar. 31, 2014 USD ($) $ / shares shares	Sep. 30, 2016 USD ($) $ / shares	Sep. 30, 2016 USD ($) d $ / shares shares	Dec. 31, 2015 USD ($)
0.25% Convertible senior notes due 2019 [Member]
Debt Instrument [Line Items]
Debt conversion, converted instrument, amount			$ 188,100,000	$ 188,100,000
Debt instrument, effective interest rate			4.89%	4.89%
1.25% Convertible senior notes due 2021 [Member]
Debt Instrument [Line Items]
Debt conversion, converted instrument, amount			$ 369,400,000	$ 369,400,000
Debt instrument, effective interest rate			5.96%	5.96%
0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant Transactions [Member]
Debt Instrument [Line Items]
Convertible principal amount				$ 1,000
Convertible instrument, shares issued | shares				2.7788
Convertible notes, conversion price | $ / shares			$ 359.87	$ 359.87
Debt instrument convertible, percentage of conversion price			130.00%	130.00%
Average percentage of closing sale price of common stock				98.00%
Percentage of repurchase price is equal to principal amount of convertible notes				100.00%
Common stock price to conversion price, percentage			130.00%
0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant Transactions [Member] | One Hundred Thirty Percent Applicable Conversion Price [Member]
Debt Instrument [Line Items]
Debt instrument convertible consecutive trading days | d				20
Debt instrument convertible trading days				30 days
0.25% and 1.25% Convertible Senior Notes and Bond Hedge and Warrant Transactions [Member] | Ninety Eight Percent Applicable Conversion Price
Debt Instrument [Line Items]
Debt instrument convertible consecutive trading days | d				5
Debt instrument convertible trading days				5 days
Senior Notes [Member]
Debt Instrument [Line Items]
Percentage of repurchase price is equal to principal amount of convertible notes				100.00%
Debt instrument, effective interest rate			4.29%	4.29%
Payment for purchase of common stock | shares		5,600,000
Common stock purchase price | $ / shares		$ 359.87
Hedge transactions		$ 524,700,000
Senior Notes [Member] | Warrants [Member]
Debt Instrument [Line Items]
Hedge transactions	$ 78,700,000
Proceeds from issuance of warrants	50,800,000
Senior Notes [Member] | 0.25% Convertible senior notes due 2019 [Member]
Debt Instrument [Line Items]
Principal amount of convertible senior notes	$ 120,000,000	$ 800,000,000	$ 920,000,000	$ 920,000,000	$ 920,000,000
Debt instrument interest rate		0.25%
Proceeds from convertible senior notes, net of underwriting discounts and offering costs				905,800,000
Debt issuance costs			14,200,000	$ 14,200,000
Debt instrument maturity year				2019
Debt conversion, converted instrument, amount			$ 188,100,000	$ 188,100,000
Debt instrument, effective interest rate			4.89%	4.89%
Shares issued under warrants | shares	300,000	2,200,000
Exercise price of warrant | $ / shares	$ 512.66	$ 512.66
Senior Notes [Member] | 0.25% Convertible senior notes due 2019 [Member] | Minimum [Member] | Warrants [Member]
Debt Instrument [Line Items]
Conversion price per share | $ / shares	359.87
Senior Notes [Member] | 0.25% Convertible senior notes due 2019 [Member] | Maximum [Member] | Warrants [Member]
Debt Instrument [Line Items]
Conversion price per share | $ / shares	$ 512.66
Senior Notes [Member] | 1.25% Convertible senior notes due 2021 [Member]
Debt Instrument [Line Items]
Principal amount of convertible senior notes	$ 180,000,000	$ 1,200,000,000	$ 1,380,000,000	$ 1,380,000,000	$ 1,380,000,000
Debt instrument interest rate		1.25%
Proceeds from convertible senior notes, net of underwriting discounts and offering costs				1,360,000
Debt issuance costs			21,400,000	$ 21,400,000
Debt instrument maturity year				2021
Debt conversion, converted instrument, amount			$ 369,400,000	$ 369,400,000
Debt instrument, effective interest rate			5.96%	5.96%
Shares issued under warrants | shares	500,000	3,300,000
Exercise price of warrant | $ / shares	$ 560.64	$ 560.64
Proceeds from issuance of warrants		$ 338,400,000
Senior Notes [Member] | 1.25% Convertible senior notes due 2021 [Member] | Minimum [Member] | Warrants [Member]
Debt Instrument [Line Items]
Conversion price per share | $ / shares	359.87
Senior Notes [Member] | 1.25% Convertible senior notes due 2021 [Member] | Maximum [Member] | Warrants [Member]
Debt Instrument [Line Items]
Conversion price per share | $ / shares	$ 560.64
Senior Notes [Member] | 1.25% Convertible senior notes due 2021 [Member]
Debt Instrument [Line Items]
Debt instrument interest rate and payment description				The interest rates are fixed at 0.25% and 1.25% per annum and are payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2014.

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Convertible and Long-term Debt Obligations - 1.50% Convertible Senior Notes and Bond Hedge and Warrant Transactions - Additional Information (Detail)	1 Months Ended			3 Months Ended			9 Months Ended
	Apr. 30, 2014 USD ($) $ / shares shares	Mar. 31, 2014 USD ($) $ / shares shares	May 31, 2013 USD ($)	Sep. 30, 2016 USD ($) $ / shares shares	Jun. 30, 2016	Mar. 31, 2016	Sep. 30, 2016 USD ($) d $ / shares shares	Dec. 31, 2015 USD ($)
0.25% Convertible senior notes due 2019 [Member]
Debt Instrument [Line Items]
Debt instrument, effective interest rate				4.89%			4.89%
Senior Notes [Member]
Debt Instrument [Line Items]
Percentage of repurchase price is equal to principal amount of convertible notes							100.00%
Debt conversion, converted instrument, amount							$ 82,800,000
Debt instrument, effective interest rate				4.29%			4.29%
Payment for purchase of common stock | shares		5,600,000
Common stock purchase price | $ / shares		$ 359.87
Hedge transactions		$ 524,700,000
Senior Notes [Member] | Warrants [Member]
Debt Instrument [Line Items]
Hedge transactions	$ 78,700,000
Proceeds from issuance of warrants	50,800,000
Senior Notes [Member] | 1.50% Convertible senior notes due 2018 [Member]
Debt Instrument [Line Items]
Principal amount of convertible senior notes			$ 660,000,000	$ 224,263,000			$ 224,263,000	$ 659,761,000
Debt instrument interest rate			1.50%
Debt instrument maturity year			2018
Proceeds from convertible senior notes, net of underwriting discounts and offering costs			$ 648,000,000
Debt issuance costs			$ 12,000,000
Debt instrument interest payment description							payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013
Convertible principal amount							$ 1,000
Convertible instrument, shares issued | shares							8.0306
Convertible notes, conversion price | $ / shares				$ 124.52			$ 124.52
Debt instrument convertible, percentage of conversion price				130.00%			130.00%
Average percentage of closing sale price of common stock							98.00%
Debt instrument, effective interest rate				4.29%			4.29%
Payment for purchase of common stock | shares				5,300,000			5,300,000
Common stock purchase price | $ / shares				$ 124.52			$ 124.52
Hedge transactions							$ 177,500,000
Shares issued under warrants | shares				5,300,000			5,300,000
Exercise price of warrant | $ / shares				$ 184.48			$ 184.48
Common stock price to conversion price, percentage				130.00%	130.00%	130.00%
Notes carrying value				$ 213,000,000			$ 213,000,000
Unamortized debt discount				11,270,000			11,270,000	47,285,000
Repayment of notes principal amount pursuant to conversions by their holders				$ 421,800,000			435,500,000
Senior Notes [Member] | 1.50% Convertible senior notes due 2018 [Member] | Warrants [Member]
Debt Instrument [Line Items]
Proceeds from issuance of warrants							$ 120,300,000
Senior Notes [Member] | 1.50% Convertible senior notes due 2018 [Member] | Minimum [Member] | Warrants [Member]
Debt Instrument [Line Items]
Conversion price per share | $ / shares				$ 124.52			$ 124.52
Senior Notes [Member] | 1.50% Convertible senior notes due 2018 [Member] | Maximum [Member]
Debt Instrument [Line Items]
Outstanding convertible note hedge transactions and warrants | shares				2,200,000			2,200,000
Senior Notes [Member] | 1.50% Convertible senior notes due 2018 [Member] | Maximum [Member] | Warrants [Member]
Debt Instrument [Line Items]
Conversion price per share | $ / shares				$ 184.48			$ 184.48
Senior Notes [Member] | 1.50% Convertible senior notes due 2018 [Member] | One Hundred Thirty Percent Applicable Conversion Price [Member]
Debt Instrument [Line Items]
Debt instrument convertible consecutive trading days | d							20
Debt instrument convertible trading days							30 days
Senior Notes [Member] | 1.50% Convertible senior notes due 2018 [Member] | Ninety Eight Percent Applicable Conversion Price
Debt Instrument [Line Items]
Debt instrument convertible consecutive trading days | d							5
Debt instrument convertible trading days							5 days
Senior Notes [Member] | 0.25% Convertible senior notes due 2019 [Member]
Debt Instrument [Line Items]
Principal amount of convertible senior notes	$ 120,000,000	$ 800,000,000		$ 920,000,000			$ 920,000,000	920,000,000
Debt instrument interest rate		0.25%
Debt instrument maturity year							2019
Proceeds from convertible senior notes, net of underwriting discounts and offering costs							$ 905,800,000
Debt issuance costs				$ 14,200,000			$ 14,200,000
Debt instrument, effective interest rate				4.89%			4.89%
Shares issued under warrants | shares	300,000	2,200,000
Exercise price of warrant | $ / shares	$ 512.66	$ 512.66
Unamortized debt discount				$ 102,520,000			$ 102,520,000	$ 131,996,000
Remaining principal balance of notes				$ 224,300,000			$ 224,300,000
Senior Notes [Member] | 0.25% Convertible senior notes due 2019 [Member] | Minimum [Member] | Warrants [Member]
Debt Instrument [Line Items]
Conversion price per share | $ / shares	359.87
Senior Notes [Member] | 0.25% Convertible senior notes due 2019 [Member] | Maximum [Member] | Warrants [Member]
Debt Instrument [Line Items]
Conversion price per share | $ / shares	$ 512.66

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Convertible and Long-term Debt Obligations - Schedule of Debt Discounts (Detail) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015	Apr. 30, 2014	Mar. 31, 2014	May 31, 2013
2019 Notes [Member]
Debt Instrument [Line Items]
Effective interest rate on liability component	4.89%
Initial equity component	$ 188,100,000
2021 Notes [Member]
Debt Instrument [Line Items]
Effective interest rate on liability component	5.96%
Initial equity component	$ 369,400,000
Senior Notes [Member]
Debt Instrument [Line Items]
Effective interest rate on liability component	4.29%
Senior Notes [Member] | 1.50% Convertible senior notes due 2018 [Member]
Debt Instrument [Line Items]
Carrying value	$ 212,993,000	$ 612,476,000
Unamortized discount and issuance costs	11,270,000	47,285,000
Principal amount of convertible senior notes	$ 224,263,000	659,761,000			$ 660,000,000
Remaining amortization period (years)	1 year 8 months 12 days
Effective interest rate on liability component	4.29%
Initial equity component	$ 82,800,000
If converted, value in excess of par value	143,195,000
Senior Notes [Member] | 2019 Notes [Member]
Debt Instrument [Line Items]
Carrying value	817,480,000	788,004,000
Unamortized discount and issuance costs	102,520,000	131,996,000
Principal amount of convertible senior notes	$ 920,000,000	920,000,000	$ 120,000,000	$ 800,000,000
Remaining amortization period (years)	2 years 4 months 24 days
Effective interest rate on liability component	4.89%
Initial equity component	$ 188,100,000
Senior Notes [Member] | 2021 Notes [Member]
Debt Instrument [Line Items]
Carrying value	1,118,885,000	1,080,867,000
Unamortized discount and issuance costs	261,115,000	299,133,000
Principal amount of convertible senior notes	$ 1,380,000,000	$ 1,380,000,000	$ 180,000,000	$ 1,200,000,000
Remaining amortization period (years)	4 years 4 months 24 days
Effective interest rate on liability component	5.96%
Initial equity component	$ 369,400,000

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Convertible and Long-term Debt Obligations - Asset-Based Credit Agreement - Additional Information (Detail) - USD ($)	1 Months Ended
	Jun. 30, 2015	Sep. 30, 2016	Feb. 29, 2016
Debt Instrument [Line Items]
Carrying value of credit agreement liability		$ 200,000,000
Asset Based Revolving Credit Facility [Member] | Syndicate of Banks [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Additional Borrowing Capacity	$ 250,000,000
Line of credit facility, conditional maximum borrowing capacity	750,000,000
Carrying value of credit agreement liability	200,000,000	200,000,000
Swing-line loan sub-facility	$ 40,000,000
Line of credit facility, maximum borrowing capacity			$ 1,000,000,000
Asset Based Revolving Credit Facility [Member] | Syndicate of Banks [Member] | Revolving Credit Facility [Member] | Federal Funds Rate [Member]
Debt Instrument [Line Items]
Line of credit, additional interest rate	0.50%
Asset Based Revolving Credit Facility [Member] | Syndicate of Banks [Member] | Revolving Credit Facility [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Line of credit, additional interest rate	1.00%
Asset Based Revolving Credit Facility [Member] | Syndicate of Banks [Member] | Revolving Credit Facility [Member] | Undrawn amounts interest rate [Member]
Debt Instrument [Line Items]
Line of credit, additional interest rate	0.25%
Asset Based Revolving Credit Facility [Member] | Syndicate of Banks [Member] | Swing-Line Loan Sub-Facility [Member]
Debt Instrument [Line Items]
Carrying value of credit agreement liability		$ 0

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Convertible and Long-term Debt Obligations - Loan and Security Agreement - Additional Information (Detail) - USD ($)	9 Months Ended
	Sep. 30, 2016	Aug. 31, 2016
Debt Instrument [Line Items]
Warehouse agreement, borrowings outstanding	$ 200,000,000
Warehouse Agreement [Member] | Deutsche Bank [Member]
Debt Instrument [Line Items]
Warehouse agreement, maximum borrowing capacity		$ 300,000,000
Warehouse agreement, description	Subject to extension in accordance with the terms of the Warehouse Agreement, the ability to draw under the Warehouse Agreement expires on August 31, 2017, and the full amount outstanding under the Warehouse Agreement is due September 20, 2018.
Line of credit facility, expiration date	Sep. 20, 2018
Warehouse agreement, borrowings outstanding	$ 300,000,000

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Convertible and Long-term Debt Obligations - Pledged Assets - Additional Information (Detail) - USD ($) $ in Billions	Sep. 30, 2016	Dec. 31, 2015
Debt Disclosure [Abstract]
Pledged or restricted inventory, certain property and equipment, receivables and cash as collateral	$ 1.9	$ 1.4

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Convertible and Long-term Debt Obligations - Schedule of Aggregate Amount of Interest Expense Recognized (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Debt Disclosure [Abstract]
Contractual interest coupon	$ 6,615	$ 8,362	$ 23,330	$ 23,410
Amortization of debt issuance costs	4,952	1,945	8,835	5,202
Amortization of debt discount	24,660	24,802	75,493	72,653
Total	$ 36,227	$ 35,109	$ 107,658	$ 101,265

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Equity Incentive Plans - Additional Information (Detail) $ in Thousands	1 Months Ended		3 Months Ended		9 Months Ended
	Jan. 31, 2014 Tranches shares	Aug. 31, 2012 Tranches shares	Sep. 30, 2016 USD ($) shares	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) Tranches Vehicle shares	Sep. 30, 2015 USD ($)	Dec. 31, 2015 shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period, in years					4 years
Contractual term of stock options, in years					10 years
Aggregate number of vehicle production | Vehicle					300,000
Stock-based compensation					$ 246,512	$ 142,359
Fourth Tranche [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Aggregate number of vehicle production | Vehicle					100,000
Third Tranche [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Aggregate number of vehicle production | Vehicle					200,000
2012 CEO Grant [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of stock options granted | shares		5,274,901
Number of vesting tranches | Tranches					7
Stock-based compensation			$ 4,600	$ 6,800	$ 14,900	9,500
CEO Grant consists of number of vesting tranches | Tranches		10
Market capitalization			4,000,000		4,000,000
Initial market capitalization			$ 3,200,000		$ 3,200,000
First Model X Production Vehicle [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Portion of stock options scheduled to vest upon successful completion of performance objectives					0.25%
12-month period [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Portion of stock options scheduled to vest upon successful completion of performance objectives					0.25%
Aggregate number of vehicle production | Vehicle					100,000
First Gen III Production Vehicle [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Portion of stock options scheduled to vest upon successful completion of performance objectives					0.25%
Three year period [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Portion of stock options scheduled to vest upon successful completion of performance objectives					0.25%
Gross margin					30.00%
Stock​ Options and ​Restricted​ Stock​ Units (RSUs) [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares of outstanding stock awards | shares			15,483,680		15,483,680
Shares available for grant | shares			645,553		645,553		2,816,785
Performance-based Stock Option Grant [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of stock options granted | shares	1,073,000
Number of vesting tranches | Tranches	4
Stock-based compensation			$ 11,600	$ 2,700	$ 22,800	$ 10,400

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Equity Incentive Plans - Summary of Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 89,543	$ 56,033	$ 246,512	$ 142,394
Cost of revenues [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	8,939	3,828	21,837	13,249
Research and development [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	40,220	24,153	113,328	63,857
Selling, general and administrative [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 40,384	$ 28,052	$ 111,347	$ 65,288

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Subsequent Events - Additional Information (Detail) - Subsequent Event - California [Member] $ in Millions	1 Months Ended
	Oct. 31, 2016 USD ($) a
Subsequent Event [Line Items]
Area of land | a	24.5
Purchase of land for expansion of manufacturing facilities | $	$ 30.8