Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2023

Summary of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

Unaudited Interim Financial Statements

The consolidated financial statements of Tesla, Inc. (“Tesla”, the “Company”, “we”, “us” or “our”), including the consolidated balance sheet as of June 30, 2023, the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of redeemable noncontrolling interests and equity for the three and six months ended June 30, 2023 and 2022, and the consolidated statements of cash flows for the six months ended June 30, 2023 and 2022, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements as of that date. The interim consolidated financial statements and the accompanying notes should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the accompanying notes.

Revenue Recognition

Revenue by source

The following table disaggregates our revenue by major source (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Automotive sales	$	20,419	$	13,670	$	39,297	$	29,184
Automotive regulatory credits		282		344		803		1,023
Energy generation and storage sales		1,359		717		2,772		1,220
Services and other		2,150		1,466		3,987		2,745
Total revenues from sales and services		24,210		16,197		46,859		34,172
Automotive leasing		567		588		1,131		1,256
Energy generation and storage leasing		150		149		266		262
Total revenues	$	24,927	$	16,934	$	48,256	$	35,690

Automotive Segment

Automotive Sales Revenue

Deferred revenue is related to the access to our Full Self Driving (“FSD”) features and ongoing maintenance, internet connectivity, free Supercharging programs and over-the-air software updates primarily on automotive sales, which amounted to $3.17 billion and $2.91 billion as of June 30, 2023 and December 31, 2022, respectively.

Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet date. Revenue recognized from the deferred revenue balance as of December 31, 2022 and 2021 was $256 million and $121 million for six months ended June 30, 2023 and 2022, respectively. Of the total deferred revenue balance as of June 30, 2023, we expect to recognize $747 million of revenue in the next 12 months. The remaining balance will be recognized at the time of transfer of control of the product or over the performance period.

We have been providing loans for financing our automotive deliveries in volume since fiscal year 2022. As of June 30, 2023 and December 31, 2022, we have recorded net financing receivables on the consolidated balance sheets, of which $234 million and $128 million, respectively, is recorded within Accounts receivable, net, for the current portion and $1.15 billion and $665 million, respectively, is recorded within Other non-current assets for the long-term portion.

Automotive Regulatory Credits

During the six months ended June 30, 2022, we had also recognized $288 million in revenue due to changes in regulation which entitled us to additional consideration for credits sold previously.

Automotive Leasing Revenue

Direct Sales-Type Leasing Program

For the three and six months ended June 30, 2023, we recognized $76 million and $177 million, respectively, of sales-type leasing revenue and $57 million and $133 million, respectively, of sales-type leasing cost of revenue. For the three and six months ended June 30, 2022, we recognized $133 million and $398 million, respectively, of sales-type leasing revenue and $82 million and $246 million, respectively, of sales-type leasing cost of revenue.

Lease receivables relating to sales-type leases are presented on the consolidated balance sheets as follows (in millions):


	June 30, 2023			December 31, 2022
Gross lease receivables	$	882		$	837
Unearned interest income		(96	)		(95	)
Allowance for expected credit losses		(6	)		(4	)
Net investment in sales-type leases	$	780		$	738

Reported as:
Prepaid expenses and other current assets	$	187		$	164
Other non-current assets		593			574
Net investment in sales-type leases	$	780		$	738

Energy Generation and Storage Segment

Energy Generation and Storage Sales

We record as deferred revenue any non-refundable amounts that are collected from customers related to fees charged for prepayments, which is recognized as revenue ratably over the respective customer contract term. As of June 30, 2023 and December 31, 2022, deferred revenue related to such customer payments amounted to $1.10 billion and $863 million, respectively, mainly due to billings for milestone payments. Revenue recognized from the deferred revenue balance as of December 31, 2022 and 2021 was $329 million and $79 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, total transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied for contracts with an original expected length of more than one year was $814 million. Of this amount, we expect to recognize $207 million in the next 12 months and the rest over the remaining performance obligation period.

We have been providing loans for financing our energy generation products in volume since fiscal year 2022. As of June 30, 2023 and December 31, 2022, we have recorded net financing receivables on the consolidated balance sheets, of which $28 million and $24 million, respectively, is recorded within Accounts receivable, net, for the current portion and $504 million and $387 million, respectively, is recorded within Other non-current assets for the long-term portion.

Income Taxes

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of June 30, 2023 and December 31, 2022, the aggregate balances of our gross unrecognized tax benefits were $1.01 billion and $870 million, respectively, of which $601 million and $572 million, respectively, would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset that is currently fully offset by a valuation allowance.

We file income tax returns in the U.S. and various state and foreign jurisdictions. We are currently under examination by the Internal Revenue Service (“IRS”) for the years 2015 to 2018. Additional tax years within the periods 2004 to 2014 and 2019 to 2021 remain subject to examination for federal income tax purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state income tax purposes. Our returns for 2004 and subsequent tax years remain subject to examination in U.S. state and foreign jurisdictions.

Given the uncertainty in timing and outcome of our tax examinations, an estimate of the range of the reasonably possible change in gross unrecognized tax benefits within twelve months cannot be made at this time.

Net Income per Share of Common Stock Attributable to Common Stockholders

The following table presents the reconciliation of net income attributable to common stockholders to net income used in computing basic and diluted net income per share of common stock (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023			2022
Net income attributable to common stockholders	$	2,703	$	2,259	$	5,216		$	5,577
Less: Buy-out of noncontrolling interest		0		3		(5	)		8
Net income used in computing basic net income per share of common stock		2,703		2,256		5,221			5,569
Less: Dilutive convertible debt		0		0		0			1
Net income used in computing diluted net income per share of common stock	$	2,703	$	2,256	$	5,221		$	5,568

The following table presents the reconciliation of basic to diluted weighted average shares used in computing net income per share of common stock attributable to common stockholders, as adjusted to give effect to the three-for-one stock split effected in the form of a stock dividend in August 2022 (the “2022 Stock Split”) (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Weighted average shares used in computing net income per share of common stock, basic		3,171		3,111		3,168		3,107
Add:
Stock-based awards		294		302		292		308
Convertible senior notes		2		3		2		4
Warrants		11		48		11		50
Weighted average shares used in computing net income per share of common stock, diluted		3,478		3,464		3,473		3,469

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income per share of common stock attributable to common stockholders, because their effect was anti-dilutive, as adjusted to give effect to the 2022 Stock Split (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Stock-based awards		15		3		17		2

Restricted Cash

Our total cash and cash equivalents and restricted cash, as presented in the consolidated statements of cash flows, was as follows (in millions):


	June 30,		December 31,		June 30,		December 31,
	2023		2022		2022		2021
Cash and cash equivalents	$	15,296	$	16,253	$	18,324	$	17,576
Restricted cash included in prepaid expenses and other current assets		384		294		294		345
Restricted cash included in other non-current assets		199		377		269		223
Total as presented in the consolidated statements of cash flows	$	15,879	$	16,924	$	18,887	$	18,144

Accounts Receivable and Allowance for Doubtful Accounts

Depending on the day of the week on which the end of a fiscal quarter falls, our accounts receivable balance may fluctuate as we are waiting for certain customer payments to clear through our banking institutions and receipts of payments from our financing partners, which can take up to approximately two weeks based on the contractual payment terms with such partners. Our accounts receivable balances associated with our sales of regulatory credits, which are typically transferred to other manufacturers during the last few days of the quarter, is dependent on contractual payment terms. Additionally, government rebates can take up to a year or more to be collected depending on the customary processing timelines of the specific jurisdictions issuing them. These various factors may have a significant impact on our accounts receivable balance from period to period. As of June 30, 2023 and December 31, 2022, we had $330 million and $753 million, respectively, of long-term government rebates receivable in Other non-current assets in our consolidated balance sheets.

Financing Receivables

As of June 30, 2023 and December 31, 2022, the majority of our financing receivables were at current status with only immaterial balances being past due. As of June 30, 2023, the majority of our financing receivables, excluding MyPower notes receivable, were originated in 2023 and 2022, and as of December 31, 2022, the majority of our financing receivables, excluding MyPower notes receivable, were originated in 2022.

As of June 30, 2023 and December 31, 2022, the total outstanding balance of MyPower customer notes receivable, net of allowance for expected credit losses, was $272 million and $280 million, respectively, of which $7 million was due in the next 12 months as of June 30, 2023 and December 31, 2022. As of June 30, 2023 and December 31, 2022, the allowance for expected credit losses was $37 million.

Concentration of Risk

Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, investments, restricted cash, accounts receivable and other finance receivables. Our cash and investments balances are primarily comprised of deposits which are diversified among high credit quality financial institutions or invested in U.S. government securities. These deposits are typically in excess of insured limits. As of June 30, 2023 and December 31, 2022, no entity represented 10% or more of our total receivables balance.

Supply Risk

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

Operating Lease Vehicles

The gross cost of operating lease vehicles as of June 30, 2023 and December 31, 2022 was $7.13 billion and $6.08 billion, respectively. Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $1.19 billion and $1.04 billion as of June 30, 2023 and December 31, 2022, respectively.

Goodwill

Goodwill increased $69 million within the automotive segment from $194 million as of December 31, 2022 to $263 million as of June 30, 2023 primarily from a business combination.

Warranties

Accrued warranty activity consisted of the following (in millions):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Accrued warranty—beginning of period	$	3,965		$	2,287		$	3,505		$	2,101
Warranty costs incurred		(296	)		(187	)		(576	)		(338	)
Net changes in liability for pre-existing warranties, including expirations and foreign exchange impact		188			14			396			17
Provision for warranty		608			319			1,140			653
Accrued warranty—end of period	$	4,465		$	2,433		$	4,465		$	2,433

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We adopted this ASU prospectively on January 1, 2023. This ASU has not and is currently not expected to have a material impact on our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which we adopted on January 1, 2020. This ASU also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We adopted the ASU prospectively on January 1, 2023. This ASU has not and is currently not expected to have a material impact on our consolidated financial statements.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law and is effective for taxable years beginning after December 31, 2022. The IRA includes multiple incentives to promote clean energy, electric vehicles, battery and energy storage manufacture or purchase, in addition to a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion. Some of these measures are expected to materially affect our consolidated financial statements. For the six months ended June 30, 2023, the impact was primarily a reduction of our material costs. We will continue to evaluate the effects of IRA as more guidance is issued and the relevant implications to our consolidated financial statements.