| Summary of Significant Accounting Policies | Note 2 – Summary of Significant Accounting Policies Unaudited Interim Financial Statements The consolidated balance sheet as of March 31, 2021, the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of redeemable noncontrolling interests and equity, and the consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2020 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, 2020. 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. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets which could impact our estimates and assumptions. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. Revenue Recognition Revenue by source The following table disaggregates our revenue by major source (in millions):
Three Months Ended March 31,
2021 2020
Automotive sales without resale value guarantee $ 8,013 $ 4,367
Automotive sales with resale value guarantee 174 172
Automotive regulatory credits 518 354
Energy generation and storage sales 383 173
Services and other 893 560
Total revenues from sales and services 9,981 5,626
Automotive leasing 297 239
Energy generation and storage leasing 111 120
Total revenues $ 10,389 $ 5,985 Automotive Segment Automotive Sales Revenue Automotive Sales with and without Resale Value Guarantee We recognize revenue when control transfers upon delivery to customers in accordance with ASC 606 as a sale with a right of return when we do not believe the customer has a significant economic incentive to exercise the resale value guarantee provided to them at contract inception. The total sales return reserve on vehicles previously sold under our buyback options program was $ 629 million and $ 703 million as of March 31, 2021 and December 31, 2020, respectively, of which $ 206 million and $ 202 million was short term, respectively. Deferred revenue activity related to the access to our Supercharger network, internet connectivity, Full Self Driving (“FSD”) features and over-the-air software updates on automotive sales with and without resale value guarantee amounted to $ 2.00 billion and $ 1.93 billion as of March 31, 2021 and December 31, 2020, 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, 2020 and 2019 was $ 79 million and $ 57 million for the three months ended March 31, 2021 and 2020, respectively. Of the total deferred revenue on automotive sales with and without resale value guarantees as of March 31, 2021, we expect to recognize $ 1.21 billion of revenue in the next 12 months. The remaining balance will be recognized over the performance period which is generally the expected ownership life of the vehicle or the eight-year life of the vehicle. Automotive Regulatory Credits We earn tradable credits in the operation of our automotive business under various regulations related to zero-emission vehicles, greenhouse gas, fuel economy and clean fuel. We sell these credits to other regulated entities who can use the credits to comply with emission standards and other regulatory requirements. Payments for automotive regulatory credits are typically received at the point control transfers to the customer, or in accordance with payment terms customary to the business. We recognize revenue on the sale of automotive regulatory credits at the time control of the regulatory credits is transferred to the purchasing party as automotive sales revenue in the consolidated statements of operations. Deferred revenue related to sales of automotive regulatory credits was $ 61 million and $ 21 million as of March 31, 2021 and December 31, 2020, respectively. We expect to recognize the majority of the deferred revenue as of March 31, 2021 in the next 12 months . Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was immaterial for the three months ended March 31, 2021 and 2020, respectively. Automotive Leasing Revenue Direct Sales-Type Leasing Program For the three months ended March 31, 2021, we recognized $ 42 million of sales-type leasing revenue and $ 26 million of sales-type leasing cost of revenue. There was no sales-type leasing revenue or associated cost of revenue recognized in the three months ended March 31, 2020 as we had not launched this offering. Net investment in sales-type leases, which is the sum of the present value of the future contractual lease payments, is presented on the consolidated balance sheet as a component of Prepaid expenses and other current assets for the current portion and as Other assets for the long-term portion. Lease receivables relating to sales-type leases are presented on the consolidated balance sheet as follows (in millions):
March 31, 2021 December 31, 2020
Gross lease receivables $ 134 $ 102
Unearned interest income ( 14 ) ( 11 )
Net investment in sales-type leases $ 120 $ 91
Reported as:
Prepaid expenses and other current assets $ 23 $ 17
Other assets 97 74
Net investment in sales-type leases $ 120 $ 91 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 and remote monitoring service and operations and maintenance service, which is recognized as revenue ratably over the respective customer contract term. As of March 31, 2021 and December 31, 2020, deferred revenue related to such customer payments amounted to $ 195 million and $ 187 million, respectively. Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 33 million and $ 21 million for the three months ended March 31, 2021 and 2020 respectively. As of March 31, 2021, 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 $ 107 million. Of this amount, we expect to recognize $ 6 million in the next 12 months and the remaining over a period up to 27 years. Income Taxes There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of March 31, 2021 and December 31, 2020, the aggregate balances of our gross unrecognized tax benefits were $ 387 million and $ 380 million, respectively, of which $ 356 million and $ 353 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. The local government of Shanghai granted a beneficial corporate income tax rate of 15 % to certain eligible enterprises, compared to the 25 % statutory corporate income tax rate in China. Our Gigafactory Shanghai subsidiary was granted this beneficial income tax rate of 15 % for 2019 through 2023. We file income tax returns in the U.S., California and various state and foreign jurisdictions. We are currently under examination by the IRS for the years 2015 to 2018 . Additional tax years within the period 2004 to 2014 and 2019 remain subject to examination for federal income tax purposes, and tax years 2004 to 2019 remain subject to examination for California income tax purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and California income tax purposes. Tax years 2008 to 2020 remain subject to examination in other U.S. state and foreign jurisdictions. The potential outcome of the current examination could result in a change to unrecognized tax benefits within the next twelve months. However, we cannot reasonably estimate possible adjustments at this time. Net Income per Share of Common Stock Attributable to Common Stockholders Basic net income per share of common stock attributable to common stockholders is calculated by dividing net income attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying outstanding stock-based awards, warrants and convertible senior notes using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income per share of common stock attributable to common stockholders when their effect is dilutive. On January 1, 2021, we adopted ASU 2020-06 using the modified retrospective method. Following this adoption, we utilize the if-converted method for diluted net income per share calculation of our convertible debt instruments (see Recent Accounting Pronouncements section below for further details). During the three months ended March 31, 2021 , we increased net income attributable to common stockholders by $ 5 million to arrive at the numerator used to calculate diluted net income per share, which represents the interest expense recognized on the convertible debt instruments that were subject to this change in methodology. Prior to the adoption, we applied the treasury stock method when calculating the potential dilutive effect, if any, of the following convertible senior notes which we intended to settle or have settled in cash the principal outstanding: our 1.25 % Convertible Senior Notes due in 2021 (“2021 Notes”), 2.375 % Convertible Senior Notes due in 2022 (“2022 Notes”), 2.00 % Convertible Senior Notes due in 2024 (“2024 Notes”) and our subsidiary’s 5.50 % Convertible Senior Notes due in 2022 . Furthermore, in connection with the offerings of our convertible senior notes, we entered into convertible note hedges and warrants (see Note 10, Debt ). However, our convertible note hedges are not included when calculating potentially dilutive shares since their effect is always anti-dilutive. Warrants which have a strike price above our average share price during the period were out of the money and were not included in the tables below. Warrants will be included in the weighted-average shares used in computing basic net income per share of common stock in the period(s) they are settled. 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 five-for-one stock split effected in the form of a stock dividend in August 2020 (the “Stock Split”) (in millions):
Three Months Ended March 31,
2021 2020
Weighted average shares used in computing 961 915
Add:
Stock-based awards 97 46
Convertible senior notes (1) 21 30
Warrants 54 3
Weighted average shares used in computing 1,133 994 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 Stock Split (in millions):
Three Months Ended March 31,
2021 2020
Stock-based awards 0 0
Convertible senior notes (1) 1 2 (1) Under the modified retrospective method of adoption of ASU 2020-06, the dilutive impact of convertible senior notes was calculated using the if-converted method for the three months ended March 31, 2021. Certain convertible senior notes were calculated using the treasury stock method for the three months ended March 31, 2020. Refer to discussion above for further details. Restricted Cash We maintain certain cash balances restricted as to withdrawal or use. Our restricted cash is comprised primarily of cash as collateral for our sales to lease partners with a resale value guarantee, letters of credit, real estate leases, insurance policies, credit card borrowing facilities and certain operating leases. In addition, restricted cash includes cash received from certain fund investors that have not been released for use by us and cash held to service certain payments under various secured debt facilities. We record restricted cash as other assets in the consolidated balance sheets and determine current or non-current classification based on the expected duration of the restriction. Our total cash and cash equivalents and restricted cash, as presented in the consolidated statements of cash flows, was as follows (in millions):
March 31, December 31, March 31, December 31,
2021 2020 2020 2019
Cash and cash equivalents $ 17,141 $ 19,384 $ 8,080 $ 6,268
Restricted cash included in prepaid expenses 305 238 193 246
Restricted cash included in other non-current assets 277 279 274 269
Total as presented in the consolidated statements of cash flows $ 17,723 $ 19,901 $ 8,547 $ 6,783 Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable primarily include amounts related to receivables from financial institutions and leasing companies offering various financing products to our customers, sales of energy generation and storage products, sales of regulatory credits to other automotive manufacturers, government rebates already passed through to customers and maintenance services on vehicles owned by leasing companies. We provide an allowance against accounts receivable for the amount we expect to be uncollectible. We write-off accounts receivable against the allowance when they are deemed uncollectible. 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. MyPower Customer Notes Receivable As of March 31, 2021 and December 31, 2020, the total outstanding balance of MyPower customer notes receivable, net of allowance for credit losses, was $ 324 million and $ 334 million, respectively, of which $ 10 million and $ 9 million were due in the next 12 months as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, the allowance for credit losses was $ 45 million . In addition, there were no material non-accrual or past due customer notes receivable as of March 31, 2021 and December 31, 2020 . Concentration of Risk Credit Risk Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash, accounts receivable, convertible note hedges, and interest rate swaps. Our cash balances are primarily invested in money market funds or on deposit at high credit quality financial institutions in the U.S. These deposits are typically in excess of insured limits. As of March 31, 2021 and December 31, 2020 , no entity represented 10 % or more of our total accounts receivable balance. The risk of concentration for our convertible note hedges and interest rate swaps is mitigated by transacting with several highly-rated multinational banks. 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 March 31, 2021 and December 31, 2020 was $ 3.89 billion and $ 3.54 billion, respectively. Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 498 million and $ 446 million as of March 31, 2021 and December 31, 2020 , respectively. Digital Assets, Net During the three months ended March 31, 2021, we purchased an aggregate of $ 1.50 billion in digital assets, comprised solely of bitcoin. In addition, during the three months ended March 31, 2021, we began accepting bitcoin as a payment for sales of certain of our products in specified regions, subject to applicable laws. We account for such non-cash consideration at the time we enter into transactions with our customers in accordance with the non-cash consideration guidance included in the Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , based on the then current quoted market prices of bitcoin. We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other . We have ownership of and control over our bitcoin and we may use third-party custodial services to secure it. The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition. We determine the fair value of our bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement , based on quoted prices on the active exchange(s) that we have determined is its principal market for bitcoin (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired. In determining if an impairment has occurred, we consider the lowest market price of one bitcoin quoted on the active exchange since acquiring the bitcoin. If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined. Impairment losses are recognized within Restructuring and other in the consolidated statements of operations in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale(s), at which point they are presented net of any impairment losses for the same digital assets held within Restructuring and other. In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. See Note 3, Digital Assets, Net , for further information regarding digital assets. Warranties We provide a manufacturer’s warranty on all new and used vehicles and a warranty on the installation and components of the energy generation and storage systems we sell for periods typically between 10 to 25 years. We accrue a warranty reserve for the products sold by us, which includes our best estimate of the projected costs to repair or replace items under warranties and recalls if identified. 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 given our relatively short history of sales, and changes to our historical or projected warranty experience may cause material changes to the warranty reserve in the future. The warranty reserve does not include projected warranty costs associated with our vehicles subject to operating lease accounting and our solar energy systems under lease contracts or Power Purchase Agreements ("PPAs"), as the costs to repair these warranty claims are expensed as incurred. The portion of the warranty reserve expected to be incurred within the next 12 months is included within Accrued liabilities and other, while the remaining balance is included within Other long-term liabilities on the consolidated balance sheets. Warranty expense is recorded as a component of Cost of revenues in the consolidated statements of operations. Due to the magnitude of our automotive business, accrued warranty balance was primarily related to our automotive segment. Accrued warranty activity consisted of the following (in millions):
Three Months Ended March 31,
2021 2020
Accrued warranty—beginning of period $ 1,468 $ 1,089
Warranty costs incurred ( 116 ) ( 81 )
Net changes in liability for pre-existing warranties, ( 1 ) 3
Provision for warranty 183 119
Accrued warranty—end of period $ 1,534 $ 1,130 Recent Accounting Pronouncements Recently issued accounting pronouncements not yet adopted In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. The ASU is currently not expected to have a material impact on our consolidated financial statements. Recently adopted accounting pronouncements In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination. We adopted ASU 2019-12 starting 2021, which did not have a material impact on our consolidated financial statements. ASU 2020-06 In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments. The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, the ASU made amendments to the EPS guidance in Topic 260 for convertible debt instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020. Adoption of the ASU can either be on a modified retrospective or full retrospective basis. On January 1, 2021, we adopted the ASU using the modified retrospective method. We recognized a cumulative effect of initially applying the ASU as an adjustment to the January 1, 2021 opening balance of accumulated deficit. Due to the recombination of the equity conversion component of our convertible debt remaining outstanding, additional paid in capital and convertible senior notes (mezzanine equity) were reduced. The removal of the remaining debt discounts recorded for this previous separation has the effect of increasing our net debt balance and the reduction of property, plant and equipment was related to previously capitalized interest. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. Accordingly, the cumulative effect of the changes made on our January 1, 2021 consolidated balance sheet for the adoption of the ASU was as follows (in millions):
Balances at Adjustments from Balances at
Assets
Property, plant and equipment, net $ 12,747 $ ( 45 ) $ 12,702
Liabilities
Current portion of debt and finance leases 2,132 50 2,182
Debt and finance leases, net of current portion 9,556 219 9,775
Mezzanine equity
Convertible senior notes 51 ( 51 ) —
Equity
Additional paid-in capital 27,260 ( 474 ) 26,786
Accumulated deficit ( 5,399 ) 211 ( 5,188 ) The impact of adoption on our consolidated statements of operations for the three months ended March 31, 2021 was primarily to decrease net interest expense by $ 145 million and to decrease depreciation expense by an immaterial amount. This had the effect of increasing our basic and diluted net income per share of common stock attributable to common stockholders for the three months ended March 31, 2021 by $ 0.15 and $ 0.13 , respectively. The change in methodology to determine the denominator used in the calculation of diluted net income per share of common stock attributable to common stockholders contributed less than $ 0.01 of the increase by requiring the use of the if-converted method as discussed above. |
