In June 2019, we adopted the 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the grant of stock options, restricted stock, RSUs, stock appreciation rights, performance units and performance shares to our employees, directors and consultants. Stock options granted under the 2019 Plan may be either incentive stock options or nonstatutory stock options. Incentive stock options may only be granted to our employees. Nonstatutory stock options may be granted to our employees, directors and consultants. Generally, our stock options and RSUs vest over four years and our stock options are exercisable over a maximum period of 10 years from their grant dates. Vesting typically terminates when the employment or consulting relationship ends.

As of December 31, 2021, 49.0 million shares were reserved and available for issuance under the 2019 Plan.

The following table summarizes our stock option and RSU activity for the year ended December 31, 2021:


	Stock Options									RSUs
						Weighted-							Weighted-
				Weighted-		Average		Aggregate					Average
	Number of			Average		Remaining		Intrinsic		Number			Grant
	Options			Exercise		Contractual		Value		of RSUs			Date Fair
	(in thousands)			Price		Life (years)		(in billions)		(in thousands)			Value
Beginning of period		146,933		$	68.26						18,789		$	136.49
Granted		925		$	830.83						2,192		$	784.00
Exercised or released		(27,359	)	$	16.82						(7,877	)	$	115.36
Cancelled		(1,459	)	$	195.10						(1,667	)	$	208.37
End of period		119,040		$	84.46	5.98		$	115.75		11,437		$	264.68
Vested and expected to vest, December 31, 2021		115,794		$	83.15		6.11	$	112.74		11,181		$	250.49
Exercisable and vested, December 31, 2021 (1)		67,828		$	74.47		5.96	$	66.63

(1)

Tranche 8 of the 2018 CEO Performance Award, which represents 8.4 million stock options, was achieved in the fourth quarter of 2021 and will vest upon expected certification following the filing of this Annual Report on Form 10-K.

The weighted-average grant date fair value of RSUs granted in the years ended December 31, 2021, 2020 and 2019 was $784.00, $300.51 and $56.55, respectively. The aggregate release date fair value of RSUs in the years ended December 31, 2021, 2020 and 2019 was $5.70 billion, $3.25 billion and $502 million, respectively.

The aggregate intrinsic value of options exercised in the years ended December 31, 2021, 2020, and 2019 was $26.88 billion, $1.55 billion and $237 million, respectively. During the year ended December 31, 2021, our CEO exercised all of the remaining vested options from the 2012 CEO Performance Award, which amounted to an intrinsic value of $23.45 billion.

Our employees are eligible to purchase our common stock through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The purchase price would be 85% of the lower of the fair market value on the first and last trading days of each six-month offering period. During the years ended December 31, 2021, 2020 and 2019, we issued 0.5 million, 1.8 million and 2.5 million shares under the ESPP. There were 33.8 million shares available for issuance under the ESPP as of December 31, 2021.

We use the fair value method in recognizing stock-based compensation expense. Under the fair value method, we estimate the fair value of each stock option award with service or service and performance conditions and the ESPP on the grant date generally using the Black-Scholes option pricing model. The weighted-average assumptions used in the Black-Scholes model for stock options are as follows:


	Year Ended December 31,
	2021			2020			2019
Risk-free interest rate		0.66	%		0.26	%		2.4	%
Expected term (in years)		4.3			3.9			4.5
Expected volatility		59	%		69	%		48	%
Dividend yield		0.0	%		0.0	%		0.0	%
Grant date fair value per share	$	384.07		$	216.14		$	22.32

The fair value of RSUs with service or service and performance conditions is measured on the grant date based on the closing fair market value of our common stock. The risk-free interest rate is based on the U.S. Treasury yield for zero-coupon U.S. Treasury notes with maturities approximating each grant’s expected life. We use our historical data in estimating the expected term of our employee grants. The expected volatility is based on the average of the implied volatility of publicly traded options for our common stock and the historical volatility of our common stock.

In March 2018, our stockholders approved the Board of Directors’ grant of 101.3 million stock option awards, as adjusted to give effect to the five-for-one stock split effected in the form of a stock dividend in August 2020 (“Stock Split”), to our CEO (the “2018 CEO Performance Award”). The 2018 CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational milestones (performance conditions) and market conditions, assuming continued employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12 vesting tranches of the 2018 CEO Performance Award will vest upon certification by the Board of Directors that both (i) the market capitalization milestone for such tranche, which begins at $100.0 billion for the first tranche and increases by increments of $50.0 billion thereafter (based on both a six calendar month trailing average and a 30 calendar day trailing average, counting only trading days), has been achieved, and (ii) any one of the following eight operational milestones focused on total revenue or any one of the eight operational milestones focused on Adjusted EBITDA have been achieved for the four consecutive fiscal quarters on an annualized basis and subsequently reported by us in our consolidated financial statements filed with our Forms 10-Q and/or 10-K. Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest expense, provision (benefit) for income taxes, depreciation and amortization and stock-based compensation. Upon vesting and exercise, including the payment of the exercise price of $70.01 per share, our CEO must hold shares that he acquires for five years post-exercise, other than a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

The achievement status of the operational milestones as of December 31, 2021 is provided below. Although an operational milestone is deemed achieved in the last quarter of the relevant annualized period, it may be certified only after the financial statements supporting its achievement have been filed with our Forms 10-Q and/or 10-K.


Total Annualized Revenue			Annualized Adjusted EBITDA
Milestone (in billions)		Achievement Status	Milestone (in billions)		Achievement Status
$	20.0	Achieved	$	1.5	Achieved
$	35.0	Achieved	$	3.0	Achieved
$	55.0	Probable	$	4.5	Achieved
$	75.0	Probable	$	6.0	Achieved
$	100.0	-	$	8.0	Achieved
$	125.0	-	$	10.0	Achieved (1)
$	150.0	-	$	12.0	Probable
$	175.0	-	$	14.0	Probable

(1)

Achieved in the fourth quarter of 2021 and expected to be certified following the filing of this Annual Report on Form 10-K.

Stock-based compensation under the 2018 CEO Performance Award represents a non-cash expense and is recorded as a Selling, general, and administrative operating expense in our consolidated statement of operations. In each quarter since the grant of the 2018 CEO Performance Award, we have recognized expense, generally on a pro-rated basis, for only the number of tranches (up to the maximum of 12 tranches) that corresponds to the number of operational milestones that have been achieved or have been determined probable of being achieved in the future, in accordance with the following principles.

On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed amount of expense for such tranche and (ii) the future time when the market capitalization milestone for such tranche was expected to be achieved, or its “expected market capitalization milestone achievement time.” Separately, based on a subjective assessment of our future financial performance, each quarter we determine whether it is probable that we will achieve each operational milestone that has not previously been achieved or deemed probable of achievement and if so, the future time when we expect to achieve that operational milestone, or its “expected operational milestone achievement time.” When we first determine that an operational milestone has become probable of being achieved, we allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected full achievement time.” The “expected full achievement time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market capitalization milestone achievement time (if the related market capitalization milestone had not yet been achieved). We immediately recognize a catch-up expense for all accumulated expense for the quarters from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved. Each quarter thereafter, we recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected full achievement time, except that upon the achievement of both a market capitalization milestone and operational milestone with respect to a tranche, all remaining expense for that tranche is immediately recognized.

As a result, we have experienced significant catch-up expenses in quarters when one or more operational milestones were first determined to be probable of achievement. Historically, the expected market capitalization achievement times were generally later than the related expected operational milestone achievement times. Therefore, when market capitalization milestones were achieved earlier than originally forecasted due to periods of rapid stock price appreciation, we had higher catch-up expenses and the remaining expenses were being recognized over shorter periods of time at a higher per-quarter rate. All market capitalization milestones were achieved as of the second quarter of 2021.

During the year ended December 31, 2021, five operational milestones became probable of achievement and consequently, we recognized an aggregate catch-up expense of $571 million.

As of December 31, 2021, we had $65 million of total unrecognized stock-based compensation expense remaining, which will be recognized over a weighted-average period of 0.6 years. For the years ended December 31, 2021, 2020 and 2019, we recorded stock-based compensation expense of $910 million, $838 million and $296 million, respectively, related to the 2018 CEO Performance Award.

In August 2012, our Board of Directors granted 26.4 million stock option awards to our CEO (the “2012 CEO Performance Award”), as adjusted to give effect to the Stock Split. The 2012 CEO Performance Award consists of 10 vesting tranches with a vesting schedule based entirely on the attainment of both performance conditions and market conditions, assuming continued employment and service through each vesting date. During the year ended December 31, 2021, our CEO exercised all of the remaining 22.9 million vested options from the 2012 CEO Performance Award.

As of December 31, 2021, the performance milestone of gross margin of 30% or more for four consecutive quarters was considered not probable of achievement for which the unrecognized stock-based compensation is immaterial. For the years ended December 31, 2021, 2020 and 2019, we did not record any stock-based compensation expense related to the 2012 CEO Performance Award.

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 us, the Compensation Committee of our Board of Directors granted stock option awards to certain employees (excluding our CEO) to purchase an aggregate of 5.4 million shares of our common stock, as adjusted to give effect to the Stock Split. Each award consisted of four vesting tranches with the vesting schedule based entirely on the attainment of the future performance milestones, assuming continued employment and service through each vesting date.

As of December 31, 2021, the performance milestone of annualized gross margin of greater than 30% for any three-year period was considered not probable of achievement for which the unrecognized stock-based compensation is immaterial. For the years ended December 31, 2021, 2020 and 2019, we did not record any stock-based compensation expense related to this grant.

During the fourth quarter of 2021, the Compensation Committee of our Board of Directors granted to certain employees restricted stock units and stock options to purchase an aggregate 0.7 million shares of our common stock to create incentives for continued long-term success and to closely align compensation with our stockholders' interests in the achievement of certain performance milestones by our company.

We begin recording stock-based compensation expense when the performance milestones become probable of achievement. Following achievement, vesting occurs over a two year period with continued employment. As of December 31, 2021, we had unrecognized stock-based compensation expense of $413 million for this grant as it was not considered probable of achievement. For the year ended December 31, 2021, we did not record stock-based compensation expense related to this grant.

The following table summarizes our stock-based compensation expense by line item in the consolidated statements of operations (in millions):


	Year Ended December 31,
	2021		2020		2019
Cost of revenues	$	421	$	281	$	128
Research and development		448		346		285
Selling, general and administrative		1,252		1,107		482
Restructuring and other		—		—		3
Total	$	2,121	$	1,734	$	898

Our income tax benefits recognized from stock-based compensation arrangements in each of the periods presented were immaterial due to cumulative losses and valuation allowances. During the years ended December 31, 2021, 2020 and 2019, stock-based compensation expense capitalized to our consolidated balance sheets was $182 million, $89 million and $52 million, respectively. As of December 31, 2021, we had $3.43 billion of total unrecognized stock-based compensation expense related to non-performance awards, which will be recognized over a weighted-average period of 2.10 years.