Tesla First Quarter 2019 Update GAAP operating loss of $522M, GAAP net loss of $702M, including $188M of non-recurring charges Cash and cash equivalents of $2.2B at Q1-end Model 3 gross margin 20% in Q1 Revealed Tesla Model Y Started production of Full Self Driving computer We ended the quarter with $2.2 billion of cash and cash equivalents, a $1.5 billion reduction from the end of 2018. This reduction was driven by a $920 million convertible bond repayment and an increase in the number of vehicles in transit to customers at the end of Q1. In addition, we began production and deliveries of Model 3 vehicles for overseas markets. As noted in our Q1 2019 Vehicle Production & Deliveries letter, due to unforeseen challenges we had only delivered half of the quarters numbers ten days before the end of the quarter. This caused a large number of vehicle deliveries to shift into Q2. In Q1, we experienced non-recurring items that negatively impacted our net loss by $188 million. As a result of Q1 pricing actions taken on Model S and Model X, we incurred net $121 million loss for increases in the assumed forecasted return rates for cars sold under our Residual Value Guarantee and Buy Back Guarantee programs, as well as inventory write downs for used and service loaner inventory. We also incurred $67 million due to a combination of restructuring and other non-recurring charges. Vehicle production and deliveries We produced roughly 63,000 Model 3 vehicles in Q1, which was approximately 3% more than the previous quarter. This improvement in production rate was modest mainly due to changes to the production process for the introduction of new variants of Model 3, fewer working days and a supplier limitation. We started production and deliveries of Model 3 vehicles for overseas markets during Q1. To quickly meet international demand, Europe and China Model 3 builds occurred in the first half of the quarter, with builds for local US markets in the second half. This wave of quarter-end deliveries in the US, China and Europe meant that even short delays caused deliveries to be deferred to Q2. To improve our operations, cost efficiency and customer experience, we are in the process of balancing our regional vehicle builds throughout the quarter. Mid-size premium sedan unit sales in Q1 z Price before incentives Model 3 was yet again the best-selling premium car in the US in Q1, outselling the runner-up by almost 60%. This is not surprising given that, for the first time in history, the price of an electric vehicle is lower than its gas-powered equivalents. While global premium vehicle sales reached 8 to 9 million units (depending on definition) last year, the Model 3 is attracting buyers from other segments. Since introduction of Model 3 Standard Range and Standard Range Plus, 69% of trade-ins were non-premium vehicles, indicating that Model 3 is demonstrating appeal beyond the premium segment. Our global expansion for the Model 3 has just begun, competing in a segment that is vastly larger than just the US. Model 3s average selling price (ASP) in the US remains strong, as a majority of these orders are for long range or all-wheel drive versions. We are also seeing increasing take rates of our Autopilot options, as this suite of features improves. Deliveries of Model S and Model X declined to 12,100 vehicles in Q1 compared to our two- year run rate of roughly 25,000 units per quarter. This decline was mainly caused by weaker Q1 demand due to seasonality, pull-forward of sales into Q4 2018 in the U.S. due to the first scheduled reduction of the federal EV tax credit in Q1 and discontinuation of our 75 kWh battery pack. We also had a mismatch between orders and deliverable cars. For example, due to adjustments in pricing mid-quarter, the take rate for the performance versions of Model S and Model X increased faster than we were able to supply. In Q1, the Model S and Model X production line was updated to accommodate the next generation of powertrain for these vehicles. Our flagship vehicles now have a longer range and better performance. Model S, with a 370 mile (EPA) maximum range, and Model X, with a 325 mile (EPA) maximum range, remain the longest range EVs ever made by a wide margin. These products continue to lead in motor efficiency, allowing us to achieve improved range at a lower cost without increasing the capacity of our battery packs. With an efficiency of 3.3 EPA miles / kWh, Model X is at least 25% more energy efficient than other SUV electric vehicles (2.1 to 2.6 miles / kWh). These efficiencies also enabled us to re-introduce more compelling standard range versions Model S with Tesla EPA range vs. competitors Source: OEM Data Source: OEM Data Source: OEM Data a 285 mile (EPA) maximum range and Model X with a 250 mile (EPA) maximum range at an improved price point. Inventory in terms of days of sales Unlike Model S and Model X, we do not build Model 3 vehicles to order. Rather, given its significantly higher volume, we build different variants of Model 3 in batches (including regional versions), and every vehicle that leaves the factory initially becomes inventory. While in inventory, those vehicles are then matched to a specific order made by each customer. As this was our first quarter delivering Model 3 outside of North America, we faced challenges in ramping our logistics channels and increasing the capacity of our international delivery operations. In addition to these factors, with a massive number of cars being shipped globally from a single factory in Fremont, the international expansion of Model 3 unavoidably resulted in longer average shipping times and increased vehicles in transit. Despite this, our global Model S, Model X and Model 3 inventory (including vehicles in transit and vehicles owned by our sales and service organizations) at the end of Q1 equaled 30 days of sales, less than half of US industry average and in line with our historical numbers. Autopilot We recently hosted our first ever Autonomy Investor Day, showcasing our new in-house designed full self-driving (FSD) computer and our AI-based software trained by more than 400,000 Tesla vehicles. We expect this foundation will enable us to make our vehicles fully autonomous (subject to regulatory approvals) through over-the-air software updates, enabling Tesla and our customers to use the Tesla ride-hailing network fleet and generate income. Our new FSD computer is capable of processing 2,300 images per second, about 21- times more than the processor we used previously. A custom-made robotaxi capable of running about a million miles using a single battery pack, with all the sensors and computing power for full autonomy, should cost less than $38,000 to produce. We believe low vehicle cost, low maintenance cost and an expected powertrain efficiency of 4.5 miles per kWh should make this the lowest cost of ownership, and to be the most profitable autonomous taxi on the market. Capacity expansion Gigafactory Shanghai and Model Y For the past two years, our primary focus has been on Model 3 production ramp and cost. After all, it is imperative for the future of Tesla to produce Model 3 vehicles at high volume with sustainable profitability. We have learned valuable lessons, not only about mass manufacturing but also about capital efficiency, which are incorporated into our expansion plans. Relative capex per unit of capacity We intend Model 3 to be the first step in a platform which we can cost effectively and quickly replicate across geographies and vehicle types. We have spent years developing this platform, and Gigafactory Shanghai and our planned Model Y production line will be the first to reap the benefits of this investment. Learning from our experience, we can now build a second-generation Model 3 line in China that we expect will be at least 50% cheaper per unit of capacity than our Model 3-related lines in Fremont and at Gigafactory 1. Our Model Y manufacturing capacity will have the same simplicity as the line planned for Gigafactory Shanghai. The long-range version of Model Y will be an all-electric compact SUV priced at $48,000, roughly $20,000 less than other all-electric SUVs. Given the well-appointed standard equipment, superior acceleration and handling, interior size and up to 300 mile range that we expect for Model Y and the size of the addressable market, we believe it will ultimately have higher sales than Model S, Model X and Model 3 combined. Energy generation and storage In addition to focusing attention on growth of our vehicle production and deliveries, we are making exciting changes to improve our energy business. For residential solar and energy storage, traditional industry-wide sales techniques require customized systems, installations and purchasing processes. This results in a cumbersome buying experience and limits market potential. As we have done for the vehicle business, the key to accelerating mass adoption is to standardize the product offering, simplify the customer buying experience, and focus on the markets with the strongest economics. This results in cost efficiencies, enabling industry leading pricing and an expanded market. Our residential customers can now purchase solar and energy storage directly from our website, in standardized increments of capacity. We aim to put customers in a position of cash generation after deployment with only a $99 deposit upfront. That way, there should be no reason for anyone not to have solar generation on their roof. Energy storage production in the second half of 2018 was limited by cell production as we routed all available Gigafactory 1 cell capacity to supply Model 3. Some Gigafactory 1 cell production has been routed back to the energy storage business, enabling us to increase production in Q1 by roughly 30% compared to the previous quarter. Source: Autonews Q1 2019 RESULTS Revenue & Gross Margin Three Months Ended Change March 31, December 31, March 31, 2019 2018 2018 QoQ YoY Automotive revenue ($000) $ 3,723,861 $ 6,323,219 $ 2,735,317 -41 % 36 % Automotive gross margin GAAP 20.2 % 24.3 % 19.7 % -415 bp 43 bp Automotive gross margin excluding SBC and ZEV credit non-GAAP 20.3 % 24.7 % 18.8 % -438 bp 149 bp In Q1, we recognized $15 million in revenue from ZEV credit sales compared to less than $1 million in Q4 2018. Approximately 2% of our vehicle deliveries were subject to lease accounting. Model 3 gross margin declined slightly to 20%. Model S and Model X gross margin declined in Q1 predominantly due to reduced volume and pricing actions. As a result of the pricing actions, we adjusted our sales return reserve for cars sold with a Resale Value Guarantee or Buy Back Guarantee. This one-time adjustment had a negative revenue impact of $501 million with a corresponding decrease in automotive cost of goods sold impact of $409 million resulting in a $92 million reduction in gross profit. Three Months Ended Change March 31, December 31, March 31, 2019 2018 2018 QoQ YoY Energy generation and storage revenue ($000) $ 324,661 $ 371,497 $ 410,022 -13 % -21 % Energy generation and storage gross margin 2.4 % 11.5 % 8.5 % -912 bp -606 bp Energy generation and storage revenue in Q1 decreased by 13% over Q4 2018. This decrease was mainly driven by lower solar deployments that fell from 73 MW to 47 MW sequentially, which was partially offset by a 2% increase in storage deployments. A new pricing and deployment strategy has been introduced in early Q2. GAAP gross margin of the Energy generation and storage business in Q1 dropped to 2.4% compared to Q4 primarily due to reduced volume in the solar retrofit business. Other Highlights Service and Other revenue in Q1 decreased by 7% compared to Q4. This was predominantly due to decreased used car sales which move directionally with total new vehicle deliveries. Service and Other gross margin in Q4 declined sequentially to negative 39%. Total gross loss of Service and Other increased compared to Q4. This increase is primarily attributed to used car inventory revaluation and reduction of ASP relating to new car pricing actions. Our total GAAP operating expenses increased to $1.09 billion in Q1, which was 6% more than in Q4 2018. Excluding restructuring and other one-time items, operating expenses declined from Q4 2018 to Q1 2019. Gains attributable to non-controlling interests impacted our income statement negatively by $35 million in Q1. Interest and Other expenses were $123 million in Q1 compared to $182 million in Q4. This reduced due to the repayment of the $920 million convertible notes and foreign exchange fluctuations primarily from a weaking euro. Non-cash items accounted for $66 million of total interest expense. We adopted the new leasing standard, ASC 842 on January 1, 2019, which resulted in (i) recognition of right-of-use assets of $1.29 billion (as “Operating lease right-of-use assets”) and lease liabilities of $1.24 billion for operating leases on the consolidated balance sheet, and (ii) de-recognition of build-to-suit lease assets (from “Property, plant & equipment”) and liabilities of $1.62 billion and $1.74 billion, respectively, with the net impact of $96.7 million recorded to accumulated deficit. Cash Flow and Liquidity Our cash position decreased from $3.7 billion to $2.2 billion mainly due to a $920 million repayment of convertible notes, of which $188 million negatively impacted operating cash flow. Gigafactory Shanghai will be almost fully funded through local debt. Thus far, we have secured an approximately $522 million (as at March 31, 2019) credit line from local banks. Our capital expenditures were $280 million in Q1 including early investments for Gigafactory Shanghai. OUTLOOK Although we are driving towards higher internal goals, we reaffirm our prior guidance of 360,000 to 400,000 vehicle deliveries in 2019, representing an increase of approximately 45% to 65% compared to 2018. Please note that vehicle production will be significantly higher than deliveries, as it takes several weeks to transport cars from California to distant customers, especially in other countries, where they must also be processed by customs. Deliveries, production and customer orders, which are all materially different, are often conflated when analyzing Tesla. If our Gigafactory Shanghai is able to reach volume production early in Q4 this year, we may be able to produce as many as 500,000 vehicles globally in 2019. This is an aggressive schedule, but it is what we are targeting.