| Summary of Significant Accounting Policies | Note 2 – Summary of Significant Accounting Policies Unaudited Interim Financial Statements The consolidated balance sheet as of June 30, 2020, the consolidated statements of operations, the consolidated statements of comprehensive income (loss), the consolidated statements of redeemable noncontrolling interests and equity for the three and six months ended June 30, 2020 and 2019 and the consolidated statements of cash flows for the six months ended June 30, 2020 and 2019, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2019 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, 2019. 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. The estimates used for, but not limited to, determining significant economic incentive for residual value guarantee arrangements, sales return reserves, the collectability of accounts receivable, inventory valuation, fair value of long-lived assets, goodwill, fair value of financial instruments, fair value and residual value of operating lease vehicles and solar energy systems subject to leases could be impacted. 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 . T hese 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. Reclassifications Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes. Restricted cash and MyPower customer notes receivable have been reclassified to other assets and resale value guarantees has been reclassified to other liabilities. 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,
2020
2019
2020
2019
Automotive sales without resale value guarantee
$
4,423
$
4,919
$
8,790
$
8,602
Automotive sales with resale value guarantee (1)
60
138
232
(252
)
Automotive regulatory credits
428
111
782
327
Energy generation and storage sales
225
226
398
438
Services and other
487
605
1,047
1,098
Total revenues from sales and services
5,623
5,999
11,249
10,213
Automotive leasing
268
208
507
423
Energy generation and storage leasing
145
143
265
255
Total revenues
$
6,036
$
6,350
$
12,021
$
10,891
(1)
Due to pricing adjustments we made to our vehicle offerings in the first half of 2019 and in the second quarter of 2020, we estimated that there was a greater likelihood that customers would exercise their buyback options and adjusted our sales return reserve on vehicles previously sold under our buyback options program, which resulted in a reduction of automotive sales with resale value guarantee. For the three and six months ended June 30, 2020, price adjustments resulted in a reduction of automotive sales with resale value guarantee of $60 million. For the three and six months ended June 30, 2019, price adjustments resulted in a reduction of automotive sales with resale value guarantee of $64 million and $565 million, respectively Automotive Sales Revenue Automotive Sales with and without Resale Value Guarantee Deferred revenue related to the access to our Supercharger network, internet connectivity and Full Self Driving (“FSD”) features and over-the-air software updates on automotive sales with and without resale value guarantee amounted to $1.61 billion and $1.47 billion as of June 30, 2020 and December 31, 2019, 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, 2019 and 2018 was $149 million and $114 million for the six months ended June 30, 2020 and 2019, respectively. Of the total deferred revenue on automotive sales with and without resale value guarantees, we expect to recognize $876 million of revenue in the next 12 months. The remaining balance will be recognized over the various performance periods of the obligations, which is up to the eight-year life of the vehicle. At the time of revenue recognition, we reduce the transaction price and record a sales return reserve against revenue for estimated variable consideration related to future product returns. Such estimates are based on historical experience. On a quarterly basis, we assess the estimated market values of vehicles under our buyback options program to determine whether there will be changes to future product returns. As we accumulate more data related to the buyback values of our vehicles or as market conditions change, there may be material changes to their estimated values. Due to price adjustments we made to our vehicle offerings during the three months ended June 30, 2020, we estimated that there is a greater likelihood that customers will exercise their buyback options that were provided prior to such adjustments. As a result, along with the estimated variable consideration related to normal future product returns for vehicles sold under the buyback options program in the second quarter, we adjusted our sales return reserve on vehicles previously sold under our buyback options program resulting in a reduction of automotive sales revenues of $60 million for the three months ended June 30, 2020. If customers elect to exercise the buyback option, we expect to be able to subsequently resell the returned vehicles, which resulted in a corresponding reduction in automotive cost of sales of $37 million for the three months ended June 30, 2020. The net impact was $23 million reduction in gross profit for the three months ended June 30, 2020. With the exception of two programs which are discussed within the Automotive Leasing Revenue 93 Automotive Regulatory Credits In connection with the production and delivery of our zero emission vehicles in global markets, we have earned and will continue to earn various tradable automotive regulatory credits. We have sold these credits, and will continue to sell future credits, to automotive companies and other regulated entities who can use the credits to comply with emission standards and other regulatory requirements. For example, under California’s Zero Emission Vehicle Regulation and those of states that have adopted California’s standard, vehicle manufacturers are required to earn or purchase credits, referred to as ZEV credits, for compliance with their annual regulatory requirements. These laws provide that automakers may bank or sell to other regulated parties their excess credits if they earn more credits than the minimum quantity required by those laws. We also earn other types of saleable regulatory credits in the United States and abroad, including greenhouse gas, fuel economy and clean fuels credits. Payments for 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 revenue in the consolidated statements of operations. Deferred revenue related to sales of automotive regulatory credits was $0 million and $140 million as of June 30, 2020 Automotive Leasing Revenue Automotive leasing revenue includes revenue recognized under lease accounting guidance for our direct leasing programs as well as the two programs with resale value guarantees described below. Vehicle Sales to Leasing Partners with a Resale Value Guarantee and a Buyback Option The maximum amount we could be required to pay under our collateralized lease borrowing program, should we decide to repurchase all vehicles, was , million For the three and six months ended June 30, 2020, we recognized $19 million and $52 million, respectively, of leasing revenue related to this program, and $50 million and $103 million, respectively, for the same periods in 2019. The net carrying amount of operating lease vehicles under this program was $88 million and $190 million as of June 30, 2020 and December 31, 2019, respectively. Vehicle Sales to Customers with a Resale Value Guarantee where Exercise is Probable As of June 30, 2020, we had an immaterial amount of resale value guarantees where exercise is probable recorded in accrued liabilities and other. As of December 31, 2019, we had $115 million of resale value guarantees where exercise is probable recorded in accrued liabilities and other. For the three and six months ended June 30, 2020, we recognized $66 million and $101 million, respectively, of leasing revenue related to this program, and $37 million and $85 million, respectively, for the same periods in 2019. The net carrying amount of operating lease vehicles under this program was immaterial as of June 30, 2020 and $83 million as of December 31, 2019. This portfolio will wind down completely in the third quarter of 2020. Energy Generation and Storage Sales As of June 30, 2020 and December 31, 2019, deferred revenue related to non-refundable customer prepayments, remote monitoring service, and operations and maintenance service amounted to $172 million and $156 million, respectively. Revenue recognized from the deferred revenue balance as of December 31, 2019 and 2018 was $28 million and $22 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, 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 $105 million. Of this amount, we expect to recognize $5 million in the next 12 months and the remaining over a period of up to 28 years. 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, 2020 and December 31, 2019, the aggregate balances of our gross unrecognized tax benefits were $276 million and $273 million, respectively, of which $250 million and $247 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. Net Income (Loss) per Share of Common Stock Attributable to Common Stockholders Basic net income (loss) per share of common stock attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. During the six months ended June 30, 2019, we increased net loss attributable to common stockholders by $8 million to arrive at the numerator used to calculate net loss per share. This adjustment represents the difference between the cash we paid to the financing fund investor for their noncontrolling interest in one of our subsidiaries and the carrying amount of the noncontrolling interest on our consolidated balance sheet, in accordance with ASC 260, Earnings per Share Debt The following table presents the computation of basic and diluted net income (loss) per share of common stock attributable to common stockholders (in millions, except per share data):
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Net income (loss) per share of common stock attributable to common stockholders, basic
Net income (loss) attributable to common stockholders
$
104
$
(408
)
$
120
$
(1,110
)
Less: Buy-out of noncontrolling interest
—
—
—
8
Net income (loss) used in computing net income (loss) per share of common stock, basic
104
(408
)
120
(1,118
)
Weighted average shares used in computing net income (loss) per share of common stock, basic
186
177
184
175
Net income (loss) per share of common stock attributable to common stockholders, basic
$
0.56
$
(2.31
)
$
0.65
$
(6.40
)
Net income (loss) per share of common stock attributable to common stockholders, diluted
Net income (loss) attributable to common stockholders
$
104
$
(408
)
$
120
$
(1,110
)
Less: Buy-out of noncontrolling interest
—
—
8
Net income (loss) used in computing net income (loss) per share of common stock, diluted
104
(408
)
120
(1,118
)
Weighted average shares used in computing net income (loss) per share of common stock, basic
186
177
184
175
Add:
Stock-based awards
10
—
10
—
Convertible senior notes
8
—
7
—
Warrants
3
—
2
—
Weighted average shares used in computing net income (loss) per share of common stock, diluted
207
177
203
175
Net income (loss) per share of common stock attributable to common stockholders, diluted
$
0.50
$
(2.31
)
$
0.59
$
(6.40
) The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income (loss) per share of common stock attributable to common stockholders, because their effect was anti-dilutive (in millions):
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Stock-based awards
0
13
0
12
Convertible senior notes
0
1
0
1
Accounts Receivable and Allowance for Doubtful 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 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, depending upon the specific jurisdictions issuing them, can take more than six months to be collected. These various factors may have a significant impact on our accounts receivable balance from period to period. 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. The fair value of our restricted cash invested in commercial paper equals the carrying value using quoted prices in active markets (Level I). 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):
June 30,
December 31,
June 30,
December 31,
2020
2019
2019
2018
Cash and cash equivalents
$
8,615
$
6,268
$
4,955
$
3,686
Restricted cash included in prepaid expenses and other current assets
203
246
128
193
Restricted cash included in other non-current assets
288
269
366
398
Total as presented in the consolidated statements of cash flows
$
9,106
$
6,783
$
5,449
$
4,277
MyPower Customer Notes Receivable We have customer notes receivable under the legacy MyPower loan program. MyPower was offered by one of our subsidiaries to provide residential customers with the option to finance the purchase of a solar energy system through a 30-year loan. The outstanding balances, net of any allowance for credit losses, are presented on the consolidated balance sheet as a component of prepaid expenses and other current assets for the current portion and as other non-current assets for the long-term portion. We adopted ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments for credit losses, was $ 351 million and $ million, respectively, of which $ 10 million and $ 9 million was due in the next 12 months as of June 30, 2020 and December 31, 2019, respectively . As of June 3 0 , 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 June 3 0 , 2020. Concentration of Risk Credit Risk Financial instruments that potentially subject us to a concentration of credit risk consist of cash and 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 June 30, 2020, one entity represented 10% or more of our total accounts receivable balance, which was related to sales of regulatory credits. As of December 31, 2019, no entity represented 10% of our total accounts receivable balance. Supply Risk We are dependent on our suppliers, the majority of which are 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. Although we have resumed operations at all of our manufacturing facilities, continue to increase our output and add additional capacity, and are working with each of our suppliers and government agencies on meeting, ramping and sustaining our production, our ability to sustain this trajectory depends, among other things, on the readiness and solvency of our suppliers and vendors through any macroeconomic factors resulting from the COVID-19 pandemic. Operating Lease Vehicles The gross cost of operating lease vehicles as of June 30, 2020 and December 31, 2019 was $2.93 billion and $2.85 billion, respectively. Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $408 million and $406 million, as of June 30, 2020 and December 31, 2019, respectively. Warranties We provide a manufacturer’s warranty on all new and used vehicles and production powertrain components and systems we sell. In addition, we also provide 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 when 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 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 June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Accrued warranty—beginning of period
$
1,130
$
844
$
1,089
$
748
Warranty costs incurred
(62
)
(61
)
(143
)
(115
)
Net changes in liability for pre-existing warranties, including expirations and foreign exchange impact
9
5
12
42
Provision for warranty
120
153
239
266
Accrued warranty—end of period
$
1,197
$
941
$
1,197
$
941
Recent Accounting Pronouncements Recently issued accounting pronouncements not yet adopted 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. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. We have not early adopted this ASU as of June 30, 2020. The ASU is currently not expected to have a material impact on our consolidated financial statements. 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 June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions and forecasts. Subsequently, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards. Further, the FASB issued ASU No. 2019-04, ASU No. 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02 and ASU 2020-03 to provide additional guidance on the credit losses standard. The ASUs are effective for interim and annual periods beginning after December 15, 2019. Adoption of the ASUs is on a modified retrospective basis. We adopted the ASUs on January 1, 2020. The ASUs did not have a material impact on our consolidated financial statements. This ASU applies to all financial assets including loans, trade receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The adoption of this ASU did not have any impact except on MyPower customer notes receivable. Refer to MyPower Customer Notes Receivable In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, to simplify the test for goodwill impairment by removing Step 2. An entity will, therefore, perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. The ASU is effective for interim and annual periods beginning after December 15, 2019. Adoption of the ASU is prospective. We adopted the ASU prospectively on January 1, 2020. The ASU did not have a material impact on our consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU is effective for interim and annual periods beginning after December 15, 2019. Adoption of the ASU is either retrospective or prospective. We adopted the ASU prospectively on January 1, 2020. The ASU did not have a material impact on our consolidated financial statements. |
