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Exhibit 99.1
Tesla Motors, Inc. Third Quarter 2012 Shareholder Letter
Over 250 Model S deliveries in Q3, exceeding target upper bound
Successful transition to volume production
Supercharger network launched, enabling convenient long distance driving
Store & service center openings accelerate
Model S named AUTOMOBILE Magazines Automobile of the Year, Yahoo! Autos Car of the Year and a TIME Magazine Invention of the Year
Record new Model S reservations
|
November 5, 2012
Dear Fellow Shareholders,
The third quarter was a fundamental turning point for Tesla as we successfully transitioned to a mass production car company, growing from manufacturing 5 cars per week at the beginning of the quarter to 100 cars per week by the end. That rate has doubled since last month and is now at over 200 cars per week or 10,000 cars per year, which is at the critical threshold needed for Tesla to generate positive operating cash flow. One month from now, we expect Tesla to double production again and achieve the target rate of 400 cars per week or 20,000 per year. Despite many short term costs associated with the ramp, Tesla nonetheless expects to get approximately halfway to the 25% gross margin target by end of year.
During the quarter, we also increased the number of showrooms and service centers in the United States by almost 30% and launched the Supercharger network. Our breakthrough charging technology fundamentally changes the traditional notions of recharging, making it easy and convenient to travel long distances. By placing solar panels over existing highway rest stop parking spaces where we pay little to no rent, our Supercharger operating costs are so low that we are able to offer free, sustainably powered long distance travel to Model S customers. This system makes long distance trips in an electric car better than, not merely on par with a gasoline car. All it takes is one road trip where you didnt have to stop at a gas station, immerse yourself in fumes and pay $100 to fill your tank to appreciate the difference.
Ramping High Quality Production
In Q3, we produced almost 350 and delivered over 250 Model S sedans to our customers, all while maintaining very high build quality levels. Every review of the Model S has been positive, and there have been no recalls. We also resolved a myriad of supply chain issues in Q3 and are continuing to work with our suppliers to improve the timely and efficient delivery of parts.
As our supply chain and internal manufacturing processes improved, production has continued to ramp into Q4, with over 200 cars produced this past week. Absent short term cost inefficiencies, such as expediting parts delivery and the learning curve of new employees, we are now at a production rate capable of generating positive operating cash flow. Given Teslas rate of progress over the past few months, we are confident of being able to deliver 2,500 to 3,000 Model S vehicles in Q4 and over 20,000 in 2013. |
General Assembly Trim Line |
A Great Car That Improves Over Time
Model S continues to accumulate accolades from automotive reviewers. Numerous publications took Model S for extended drives and conducted independent performance tests. Automobile Magazine and Yahoo! Autos were so impressed that they recently named Model S as their Car of the Year for 2013. Others independently verified (or surpassed) our claims about Model S. Edmunds achieved a 0 60 mph time of 4.3 seconds from Model S Performance, which was faster than our advertised time, and The New York Times was able to achieve a 300.1 mile range during its test drive. Automobile Magazine also drag raced a Model S Performance against a 2013 BMW M5 (Model S won). Multiple objective critics are saying that the Model S is not simply the best electric car, but the best car of any kind. We are at a turning point in history where, for the first time, a purely electric car is a better product than any gasoline car.
Model S captures AUTOMOBILE Magazines Automobile of the Year for 2013
and Yahoo! Autos Car of the Year!
As good as these reviews are today, we believe they are likely to get even better. Unlike any car before it, Model S is upgradeable. Tesla drivers experience a vehicle that offers enhanced user functionality over time.
Easy to Update Software |
For example, in response to customer ideas, our October software release introduced an optional creep feature for those who prefer the feel of slight movement once the brake is released. We also released driver configuration settings which store almost 20 different settings for multiple drivers, added functionality to the entertainment system and introduced a beta version of a mobile phone application. Since Model S has been designed to permit over-the-air software updates, existing customers improved their Model S simply by selecting the install now button. With upgradability like this, Model S is truly a great car that improves over time. |
While our software teams are dreaming up even more functionality, other Tesla teams are working to enhance Model S and introduce it to the global market. Our Canadian and European homologation efforts are progressing according to plan, with EU regulatory approval expected early next year. We are preparing for deliveries of the 60 kWh car later this year and expect EPA certification shortly. Deliveries of the 40 kWh battery version should begin in Q1 next year.
Teslas Supercharger Network: Changing the Game
In September, we unveiled our Supercharger network. Our internally developed and manufactured Supercharger is substantially more powerful than any charging technology to date, providing almost 100 kilowatts of direct DC power to Model S. This enables Model S owners to regain up to 165 miles of range in 30 minutes with the 85 kWh car, about the time needed for travelers to refresh or grab a meal. This marks an inflection point in electric vehicle convenience for long distance traveling. Our initial Supercharger network already covers all common long-distance routes in California, enabling convenient and free driving throughout the state, as well as to Las Vegas or Lake Tahoe. East coast travel all the way from Boston to Washington, DC, will be enabled next month. Recently, one of our Los Angeles based customers was so excited to take delivery of his Model S that he hopped on a plane to our factory in the San Francisco Bay area, took delivery of his car and used the Supercharger network to cover almost 400 miles needed to get back home, all in the same day!
Supercharger in Hawthorne, CA |
Over time, all Superchargers will be equipped with a solar panel canopy, enabling Tesla to provide electricity for long distance travel at negligible marginal cost. This enables us to offer free, unlimited access to the network. For the first time, recharging our cars can be done at zero cost to the driver and the environment! This can save a Model S owner thousands of dollars over their ownership period.
We are planning to methodically expand the Supercharger network. By the end of next year, we plan to install Superchargers in high traffic corridors across the continental United States, enabling fast, free, purely electric travel from Vancouver to San Diego, Miami to Montreal and Los Angeles to New York. |
Building for the Future
We continue to open showrooms and service centers to put infrastructure in place to support a broader base of Model S customers. Since the beginning of Q3, we have opened up showrooms in seven new locations, including Long Island, New York, Paramus, New Jersey, and Boston, Massachusetts. There are now 29 showrooms around the world. We plan to open five more showrooms this year at strategic locations in North America, including Miami, Florida, Morristown, New Jersey, and McLean, Virginia. This year, we have welcomed over 1.8 million visitors to our eighteen showrooms across the United States.
In addition, we continue to aggressively expand our network of service centers, and are on plan to nearly double our service locations around the world. By the end of this year, over 85% of all Model S reservation holders in North America will be within 50 miles of a Tesla Service Center, and 92% will be within 100 miles. Offering outstanding service is a top priority at Tesla. |
Garden State Mall New Jersey |
The EU press drive event in October kicked off official marketing of the Model S outside of the United States. Increasing international marketing efforts will pave the way for an acceleration of store and service center openings. As occurred in the United States, Tesla will start deliveries in Europe during the first half of next year with the Signature Series, all of which have been reserved for months.
With growing public exposure of Model S, we continue to set records for new reservations. In Q3, we received almost 2,900 new reservations, over 30% more than the prior record in Q2. As we began converting our early reservations into firm, non-refundable orders, cancellations increased as well. The net effect still demonstrated a continued growth in our net reservation count to over 13,200, up from 11,500 at the end of Q2. We expect Q4 to set a new high water mark in net reservations.
Quarterly Results
Our Q3 revenues were $50 million, an 88% increase from the prior quarter, which reflects ramping deliveries of Model S, continued sales of the remaining Roadsters internationally, and an increase in powertrain component sales to Toyota for the RAV4 EV. We delivered 253 Model S and 68 Roadsters in the quarter. Limited development services revenue was recognized in the quarter; however, progress on the full electric powertrain for the Mercedes Benz EV continues on schedule.
Gross margin for Q3 was negative 17%, in line with previous guidance, primarily because the cost of automotive sales reflects the full burden of operating our Tesla factory allocated over a limited number of vehicles produced, along with launch-related variable cost inefficiencies.
Research and development (R&D) expenses were $55 million on a non-GAAP basis and $62 million on a GAAP basis. The 19% sequential decrease in non-GAAP R&D expenses was primarily due to the shift of manufacturing expenses from R&D into cost of revenues as the Tesla Factory became fully operational.
Selling, general and administrative (SG&A) expenses were $32 million on a non-GAAP basis and $38 million on a GAAP basis. A modest increase in expenses for the expansion of our store network and service infrastructure was partially offset by a decline in general and administrative expenses.
Our non-GAAP net loss for the quarter was $97 million, or $(0.92) per share, and GAAP net loss was $111 million, or $(1.05) per share, based on 105.6 million weighted common shares outstanding.
Capital expenditures were about $69 million in Q3, as we continued to build out the Tesla Factory and made final tooling payments to suppliers of Model S components. Most of the remaining tooling payments are expected to be made in Q4 based on our supplier terms.
We concluded the quarter with total cash of $109 million. This includes short term restricted cash, primarily to prefund the first DoE loan payment due in December 2012. Just after quarter end, we raised $222 million in net proceeds in a follow-on offering. This brought total available cash to $330 million heading into Q4.
We completed our draw down of the $465 million DoE loan facility in Q3. In October, we pre-funded our second loan payment, related to principal and interest due in March of next year. We continue to maintain a strong relationship with the DoE.
Updated 2012 Financial Guidance
We are maintaining our 2012 revenue guidance of $400 $440 million, including our expectation of approximately 2,500 3,000 Model S deliveries to customers in Q4. Towards the end of the quarter, we expect to achieve positive free cash flow (cash flow from operations, inclusive of capital expenditures) in spite of short term cost inefficiencies.
Automotive sales gross margin is expected to improve significantly in Q4 due to higher volumes and planned cost reductions. We are also reaffirming our gross margin target of 25% in 2013 upon achieving the manufacturing efficiencies and planned cost reductions associated with our objective of 20,000 deliveries in 2013.
We expect that R&D spending will be flat in Q4, as we continue with further vehicle development, including introduction of smaller battery packs, and homologation for EU and Asian markets. Selling, general and administrative expenses should rise moderately on a quarterly basis as we continue to increase our vehicle selling and servicing capabilities. We remain on plan for about $240 million of capital expenditures for the year.
Sincerely,
Elon Musk, Chairman, Product Architect and CEO | Deepak Ahuja, Chief Financial Officer |
Webcast Information
Tesla will provide a live webcast of its third quarter 2012 financial results conference call beginning at 5:00 a.m. PT on November 5, 2012, at ir.teslamotors.com. This webcast will also be available for replay for approximately one year thereafter.
Forward-Looking Statements
Certain statements in this shareholder letter, including statements in the Updated 2012 Financial Guidance section of this Shareholder Letter; statements relating to the progress Tesla is making with respect to the development, testing, performance, homologation expectations, including European and Canadian homologation expectations, attributes, schedule for the introduction of future options and variants, quality improvements, schedule of development, production ramp and volume expectations of Model S; the ability of our suppliers to supply quality parts consistent with our production ramp of Model S; the ability to achieve vehicle volume, revenue, gross margin, spending, profitability and cash flow targets; the ability of Tesla to produce vehicles in volume at the Tesla Factory in Fremont, California; the schedules related to, the financial results, including the total value expected from, and the expected benefits from working on, the development programs with Daimler and Toyota; our ability to execute multiple product development programs simultaneously; the ability of Tesla customers to save substantial amounts over the duration of their ownership period; the expected growth rate in reservations, and future store, service center and Tesla Supercharger expected costs, openings and expansion plans are forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are based on managements current expectations, and as a result of certain risks and uncertainties actual results may differ materially from those projected. The following important factors, without limitation, could cause actual results to differ materially from those in the forward-looking statements: Teslas future success depends on its ability to design and achieve market acceptance of new vehicle models, specifically Model S and Model X; the risk of delays in the manufacture, production and delivery ramp of Model S; the ability of suppliers to meet quality and part delivery expectations; consumers willingness to adopt electric vehicles and electric cars in particular; risks associated with the ability to achieve the expected financial results from the production of powertrain systems for the Toyota RAV4 EV and vehicles for Daimler; competition in the automotive market generally and the alternative fuel vehicle market in particular; Teslas ability to establish, maintain and strengthen the Tesla brand; the unavailability, reduction or elimination of governmental and economic incentives for electric vehicles; Teslas ability to establish, maintain and strengthen its relationships with strategic partners such as Daimler, Toyota and Panasonic; and Teslas ability to execute on its plans for its new interactive retail strategy and for new store, service center and Tesla Supercharger openings. More information on potential factors that could affect the Companys financial results is included from time to time in Teslas Securities and Exchange Commission filings and reports, including the risks identified under the section captioned Risk Factors in Exhibit 99.1 in our current report on Form 8-K filed on September 25, 2012. Tesla disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.
Investor Relations Contact: | Press Contact: | |||
Jeff Evanson | Christina Ra | |||
650-681-5050 | Tesla Motors | |||
ir@teslamotors.com | cra@teslamotors.com |
For additional information, please visit ir.teslamotors.com.
Tesla Motors, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||||||
Sept 30, 2012 |
June 30, 2012 |
Sept 30, 2011 |
Sept 30, 2012 |
Sept 30, 2011 |
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Revenues |
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Automotive sales |
$ | 50,023 | $ | 22,054 | $ | 43,235 | $ | 91,323 | $ | 115,891 | ||||||||||
Development services |
81 | 4,599 | 14,431 | 15,601 | 48,976 | |||||||||||||||
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Total revenues |
50,104 | 26,653 | 57,666 | 106,924 | 164,867 | |||||||||||||||
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Cost of revenues |
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Automotive sales |
58,865 | 20,150 | 32,752 | 92,947 | 90,241 | |||||||||||||||
Development services |
| 1,741 | 7,690 | 7,767 | 20,866 | |||||||||||||||
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Total cost of revenues (1) |
58,865 | 21,891 | 40,442 | 100,714 | 111,107 | |||||||||||||||
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Gross profit (loss) |
(8,761 | ) | 4,762 | 17,224 | 6,210 | 53,760 | ||||||||||||||
Operating expenses |
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Research and development (1) |
61,901 | 74,854 | 54,083 | 205,146 | 147,776 | |||||||||||||||
Selling, general and administrative (1) |
37,798 | 36,083 | 27,618 | 104,464 | 76,545 | |||||||||||||||
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Total operating expenses |
99,699 | 110,937 | 81,701 | 309,610 | 224,321 | |||||||||||||||
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Loss from operations |
(108,460 | ) | (106,175 | ) | (64,477 | ) | (303,400 | ) | (170,561 | ) | ||||||||||
Interest income |
38 | 74 | 80 | 203 | 166 | |||||||||||||||
Interest expense |
(78 | ) | (84 | ) | | (228 | ) | | ||||||||||||
Other income (expense), net |
(2,188 | ) | 691 | (594 | ) | (2,573 | ) | (2,150 | ) | |||||||||||
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Loss before income taxes |
(110,688 | ) | (105,494 | ) | (64,991 | ) | (305,998 | ) | (172,545 | ) | ||||||||||
Provision for income taxes |
116 | 109 | 87 | 284 | 377 | |||||||||||||||
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Net loss |
$ | (110,804 | ) | $ | (105,603 | ) | $ | (65,078 | ) | $ | (306,282 | ) | $ | (172,922 | ) | |||||
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Net loss per common share, basic and diluted |
$ | (1.05 | ) | $ | (1.00 | ) | $ | (0.63 | ) | $ | (2.91 | ) | $ | (1.75 | ) | |||||
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Shares used in per share calculation, basic and diluted |
105,556 | 105,242 | 104,077 | 105,196 | 99,040 | |||||||||||||||
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Notes: |
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(1) Includes stock-based compensation expense of the following for the periods presented: |
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Cost of revenues |
$ | 471 | $ | 78 | $ | 171 | $ | 556 | $ | 506 | ||||||||||
Research and development |
6,356 | 7,133 | 3,588 | 19,421 | 8,904 | |||||||||||||||
Selling, general and administrative |
5,648 | 5,332 | 4,127 | 15,752 | 11,327 | |||||||||||||||
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Total stock-based compensation expense |
$ | 12,475 | $ | 12,543 | $ | 7,886 | 35,729 | $ | 20,737 | |||||||||||
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Tesla Motors, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
September 30, 2012 |
December 31, 2011 |
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Assets |
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Cash and cash equivalents |
$ | 85,693 | $ | 255,266 | ||||
Short-term marketable securities |
| 25,061 | ||||||
Restricted cash - current |
22,861 | 23,476 | ||||||
Accounts receivable |
9,164 | 9,539 | ||||||
Inventory |
159,048 | 50,082 | ||||||
Prepaid expenses and other current assets |
7,775 | 9,414 | ||||||
Operating lease vehicles, net |
11,789 | 11,757 | ||||||
Property and equipment, net |
486,248 | 298,414 | ||||||
Restricted cash - noncurrent |
4,688 | 8,068 | ||||||
Other assets |
21,911 | 22,371 | ||||||
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Total assets |
$ | 809,177 | $ | 713,448 | ||||
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Liabilities and Stockholders Equity |
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Accounts payable and accrued liabilities |
$ | 190,535 | $ | 88,250 | ||||
Deferred revenue |
5,381 | 5,491 | ||||||
Reservation payments |
138,338 | 91,761 | ||||||
Common stock warrant liability |
9,734 | 8,838 | ||||||
Capital lease obligations |
9,466 | 3,897 | ||||||
Long-term debt |
465,048 | 276,251 | ||||||
Other long-term liabilities |
18,550 | 14,915 | ||||||
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Total liabilities |
837,052 | 489,403 | ||||||
Stockholders equity (deficit) |
(27,875 | ) | 224,045 | |||||
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Total liabilities and stockholders equity |
$ | 809,177 | $ | 713,448 | ||||
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Tesla Motors, Inc.
Supplemental Consolidated Financial Information
(Unaudited)
(In thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||||||
Sept 30, 2012 |
June 30, 2012 |
Sept 30, 2011 |
Sept 30, 2012 |
Sept 30, 2011 |
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Selected Cash Flow Information |
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Cash flows used in operating activities |
$ | 94,952 | $ | 60,981 | $ | 21,491 | $ | 206,020 | $ | 87,276 | ||||||||||
Cash flows used in investing activities |
70,088 | 19,215 | 178,170 | 168,743 | 191,181 | |||||||||||||||
Cash flows provided by financing activities |
40,179 | 72,180 | 93,609 | 205,190 | 392,227 | |||||||||||||||
Other Selected Financial Information |
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Capital expenditures |
$ | 68,472 | $ | 61,286 | $ | 68,844 | $ | 197,745 | $ | 143,634 | ||||||||||
Depreciation and amortization |
$ | 7,521 | $ | 4,348 | $ | 4,280 | $ | 16,033 | 12,115 |
Sept 30, 2012 |
June 30, 2012 |
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Cash |
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Cash and cash equivalents |
$ | 85,693 | $ | 210,554 | ||||
Restricted cash - current |
22,861 | 21,960 | ||||||
Restricted cash - noncurrent |
4,688 | 3,973 |
Tesla Motors, Inc.
Reconciliation of GAAP to Non-GAAP Financial Information
(Unaudited)
(In thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||||||
Sept 30, 2012 |
June 30, 2012 |
Sept 30, 2011 |
Sept 30, 2012 |
Sept 30, 2011 |
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Research and development expenses (GAAP) |
$ | 61,901 | $ | 74,854 | $ | 54,083 | $ | 205,146 | $ | 147,776 | ||||||||||
Stock-based compensation expense |
(6,356 | ) | (7,133 | ) | (3,588 | ) | (19,421 | ) | (8,904 | ) | ||||||||||
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Research and development expenses (Non-GAAP) |
$ | 55,545 | $ | 67,721 | $ | 50,495 | $ | 185,725 | $ | 138,872 | ||||||||||
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Selling, general and administrative expenses (GAAP) |
$ | 37,798 | $ | 36,083 | $ | 27,618 | $ | 104,464 | $ | 76,545 | ||||||||||
Stock-based compensation expense |
(5,648 | ) | (5,332 | ) | (4,127 | ) | (15,752 | ) | (11,327 | ) | ||||||||||
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Selling, general and administrative expenses (Non-GAAP) |
$ | 32,150 | $ | 30,751 | $ | 23,491 | $ | 88,712 | $ | 65,218 | ||||||||||
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Net loss (GAAP) |
$ | (110,804 | ) | $ | (105,603 | ) | $ | (65,078 | ) | $ | (306,282 | ) | $ | (172,922 | ) | |||||
Stock-based compensation expense |
12,475 | 12,543 | 7,886 | 35,729 | 20,737 | |||||||||||||||
Change in fair value of warrant liability |
1,205 | (154 | ) | 340 | 896 | 2,101 | ||||||||||||||
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Net loss (Non-GAAP) |
$ | (97,124 | ) | $ | (93,214 | ) | $ | (56,852 | ) | $ | (269,657 | ) | $ | (150,084 | ) | |||||
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Net loss per common share, basic and diluted (GAAP) |
$ | (1.05 | ) | $ | (1.00 | ) | $ | (0.63 | ) | $ | (2.91 | ) | $ | (1.75 | ) | |||||
Stock-based compensation expense |
0.12 | 0.11 | 0.08 | 0.34 | 0.21 | |||||||||||||||
Change in fair value of warrant liability |
0.01 | (0.00 | ) | 0.00 | 0.01 | 0.02 | ||||||||||||||
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Net loss per common share, basic and diluted (Non-GAAP) |
$ | (0.92 | ) | $ | (0.89 | ) | $ | (0.55 | ) | $ | (2.56 | ) | $ | (1.52 | ) | |||||
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Shares used in per share calculation, basic and diluted (GAAP and Non-GAAP) |
105,556 | 105,242 | 104,077 | 105,196 | 99,040 | |||||||||||||||
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Non-GAAP Financial Information
Consolidated financial information has been presented in accordance with GAAP as well as on a non-GAAP basis. On a non-GAAP basis, financial measures exclude non-cash items such as stock-based compensation as well as the change in fair value related to Teslas warrant liability. Management believes that it is useful to supplement its GAAP financial statements with this non-GAAP information because management uses such information internally for its operating, budgeting and financial planning purposes. These non-GAAP financial measures also facilitate managements internal comparisons to Teslas historical performance as well as comparisons to the operating results of other companies. Non-GAAP information is not prepared under a comprehensive set of accounting rules and therefore, should only be read in conjunction with financial information reported under U.S. GAAP when understanding Teslas operating performance. A reconciliation between GAAP and non-GAAP financial information is provided above.