TSLATesla, Inc.

We note your response in your letter dated April 27, 2021 to our prior comment. You disclose that you earn tradeable credits in the operation of your business for zero-emission vehicles, greenhouse gas, fuel economy and clean fuel.

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It appears the sales of regulatory credits may be a revenue stream that is distinct from your automotive sales and appears to have a material impact on your consolidated gross margin, automotive sales gross margin and net income. As such, it continues to be unclear why you have chosen to include regulatory credit sales in your presentation of automotive sales on the face of your financial statements and automotive gross margin disclosed outside your financial statements. Please address the following items regarding your sales of regulatory credits: • In your response to our comment you state that you “have chosen to combine regulatory credit sales in the “Automotive sales” financial statement line item because: The regulatory credit sales included in the automotive sales revenue line item relate solely to, and are the direct outcome of, the production and sale of our new vehicles”. Please provide us with a fulsome analysis that supports your choice to present the sale of regulatory credits within the Automotive sales line item. Specifically address and compare and contrast automotive sales and the sale of regulatory credits. Without limitation, address the nature of the underlying item sold, the timing of when the item is available for internal use and/ to be sold to a third party and the conditions and timing of when you recognize the sale. • Please quantify for us your sales of other regulatory credits or incentives (e.g. Solar/renewable energy) not included in your Automotive Sales line item of your Statement of Operations. In addition, clarify for us where sales of non-automotive credits and incentives are presented in the Statement of Operations. Without limitation, specifically address the Governmental Programs, Incentives and Regulations noted in your disclosures on page 9 and page 73. • In future filings, expand your Results of Operations in MD&A to separately address the impact the sale of all regulatory credits and incentives had on your gross profit and net income. You should emphasize that the sales of regulatory credits have no associated cost and the timing of such sales is not necessarily correlated to the actual sales of automobiles.

On behalf of Tesla,

Inc. (“Tesla” “us,” “we” or “our”), we acknowledge receipt of the letter dated December 23, 2021 (the “Comment Letter”) from the staff (the “Staff”) of the Securities and Exchange relating to the above-referenced filing.

We are working to respond to the Comment Letter. However, we will require additional time to consider and respond to the Staff’s comments. Accordingly, we respectfully request an extension of ten business days to respond to the Comment Letter such that we would respond by January 25, 2022.

We are grateful for the Staff’s accommodation in this matter.

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Please do not hesitate to call me at 510-946-6441 with any questions you may have.

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We note the sale of regulatory credits has increased substantially in 2020 and now exceeds your revenues from other activities such as automotive leasing. As regulatory credit sales represent sales of an intangible asset, it appears you should either present the revenues separately as their own source of revenue or present them in your "Services and other" category to avoid investor confusion.

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We further note your inclusion of the sales of regulatory credits in Automotive Sales is favorably impacting your gross profit metrics, which could lead to further investor confusion regarding the nature and quality of your automotive sales margins. This comment also applies to your tabular presentation within your Results of Operations discussion on page 40 of MD&A. Please refer to Rule 503(1) of Regulation S-X for guidance.

We respectfully advise the Staff that we evaluate our revenues for separate presentation on the face of our consolidated statements of operations in accordance with Rule 5-03 of Regulation

S-X, Statements of comprehensive income, which states in paragraph (b):

“If income is derived from more than one of the subcaptions described under §210.5-03.1, each class which is not more than 10 percent of the sum of the items may be combined with another class.

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If these items are combined, related costs and expenses as described under §210.5-03.2 shall be combined in the same manner.”

Following such evaluation, we have chosen to combine regulatory credit sales in the “Automotive sales” financial statement line item because:

•

The regulatory credit sales included in the automotive sales revenue line item relate solely to, and are the direct outcome of, the production and sale of our new vehicles;

Such regulatory credit revenues represented approximately 6% of our automotive sales revenues and approximately

5% of our total revenues for the year ended December 31, 2020, and therefore did not exceed the 10% threshold specified above; and

We expect that regulatory credit sales will continue to constitute less than 10% of our revenues, and that they may in fact decrease, in the long term.

While we acknowledge that sales of automotive regulatory credits represent sales of intangible assets, we respectfully submit that it does not appear that Rule 5-03 of Regulation S-X prohibits combination with another class on that basis alone.

When considered with the factors above, we do not believe it would be more appropriate to present these sales as a standalone revenue category, because they are generated if and only to the extent we produce and deliver new vehicles and we therefore do not manage them as an independent line of business. We have also determined that the combination of automotive regulatory credits with our “Services and other” revenue category would be inconsistent with the nature of the credits, as that category does not include any items directly related to new vehicle production or deliveries and is instead defined as:

“Services and other revenue consists of non-warranty after-sales vehicle services, sales of used vehicles, retail merchandise, sales by our acquired subsidiaries to third party customers, and vehicle insurance revenue” (page 64).

In addition, we respectfully advise the Staff that we have been consistently transparent about this source of revenue as distinguished from new vehicle sales generally as well as its impact on profitability, which avoids any confusion by investors as to the trends and changes in our revenues and the resulting gross margins. In particular:

We present the sources of revenues in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements in a section entitled “Revenue by source,” which specifically lists “Automotive regulatory credits” as a separate item (page 61).

In “Management’s Discussion and Analysis of Financial Condition and Results of

Operations—Results of Operations,” the composition of the “Automotive sales” line item is clearly disclosed in the paragraph directly under the “Revenues” table:

“Automotive sales revenue includes revenues related to cash deliveries of new Model S, Model X, Model 3 and Model Y vehicles, including access to our Supercharger network, internet connectivity, FSD features and over-the-air software updates, as well as sales of regulatory credits to other automotive manufacturers. Cash deliveries are vehicles that are not subject to lease accounting. Our revenue from regulatory credits fluctuates depending on when a contract is executed with a buyer and when the credits are delivered” (page 40).

We also include in “Management’s Discussion and Analysis of Financial Condition and Results of

Operations—Results of Operations” any significant trends in revenues and profitability (relevant language shown in boldface below):

“There was also an increase of $986 million from additional sales of regulatory credits to $1.58 billion in the year ended December 31, 2020” (page 41); and

“Gross margin for total automotive increased from 21% to 26% in the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to an improvement of Model 3 gross margin primarily from lower material, manufacturing, freight and duty costs from localized procurement and manufacturing in China, partially offset by a decrease in the average selling price of Model 3 due to a higher proportion of Model 3 Standard Range variants in our sales mix compared to the prior year. Additionally, there was an increase of

$986 million in sales of regulatory credits and a positive impact from Model Y deliveries in 2020 as Model Y gross margin was higher than our prior year total automotive gross margin” (page 43).

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Please quantify material factors to which changes in accounts are attributed. For example, we note your disclosure that the increase in cost of automotive sales revenue was primarily due to higher volume of Model 3 deliveries, partially offset by reductions in Model 3 average costs per unit and lower overall costs for Model S and Model X deliveries from fewer units delivered.

We respectfully advise the Staff that we believe we have provided information regarding any material factors that have impacted our accounts in our disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” in the 2018 Form 10-K, in accordance with Item 303 of Regulation S-K.

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We have quantified individual factors where they were material and where we believed it would be helpful to understand their relative impact, whether in their amount relative to a single material factor that was the clear and

3500 Deer Creek Road, Palo Alto, California 94304 predominant reason for a change in an account, or otherwise in their unique significance to the account or our business. Moreover, we have not quantified certain enumerated material factors where their amounts could be derived from the other values provided in the same discussion.

For example, with respect to our cost of automotive sales revenues, we respectfully submit that we delivered 245,506 total vehicles in 2018, a 138% increase over the 103,184 total vehicles we delivered in 2017. The single most significant factor in such increase was the ramp during 2018 of Model 3, which we launched and of which we delivered 1,764 units during the second half of 2017, compared to 146,094 units delivered during 2018 (the difference between which we disclosed in the 2018 Form 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Revenues” (page 56)). The fact that Model 3 deliveries increased from a negligible number to our highest-selling product accounted for the vast majority of the $6.96 billion increase in cost of automotive sales revenue between fiscal years 2017 and 2018. Accordingly, other than $969.8 million of additional cost of automotive sales revenue arising from a new accounting standard, we determined that it would not be meaningful to separately quantify any individual factors that were comparatively insignificant.

On the other hand, we respectfully submit that where we believed that it would be helpful to quantify material factors that significantly impacted changes in our cost of revenues between periods, or factors that were otherwise material in significance in a given period, we have done so. For example, in comparing the cost of revenues between applicable periods in the 2018 Form 10-K, we specified that: $969.8 million in additional cost of automotive sales revenue was recognized and $624.4 million in cost of automotive leasing revenue was no longer recognized in 2018 due to a new accounting standard (page 58); an increase of $23.4 million in cost of automotive leasing revenue was recognized in 2017 compared to 2016 due to early payoffs and expiration of resale value guarantees (page 59); and an increase of $72.5 million in cost of energy generation and storage revenues was recognized in 2018 compared to 2017 due to a specific commercial battery project (page 60). Likewise, in the 2019 Q2 Form 10-Q, we recently specified reductions in cost of automotive sales of $49.6 million and $458.4 million for the three months and six months ended June 30, 2019, respectively, owing to certain price adjustments we made in the first half of 2019 (pages 43 and 44).

Finally, we further respectfully advise the Staff that we have also quantified and/or compared factors that were material in amount or other significance in our discussion of our financial results other than our cost of revenues, such as in the following excerpts from the 2018 Form 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” (emphasis added):

“Automotive sales revenue increased $9.10 billion, or 107%, in the year ended December 31, 2018 as compared to the year ended December 31, 2017, primarily due to an increase of approximately 144,330 Model 3 deliveries from our significant production ramp in the year ended December 31, 2018, delivered at average selling prices that remained relatively consistent year-over-year. Additionally, we recognized $1.40 billion of additional automotive sales revenue due to the adoption of the new revenue standard and an increase of $58.3 million in sales of regulatory credits to $418.6 million in the year ended December 31, 2018. ZEV credits sales were $103.4 million and non-ZEV regulatory credits sales were $315.2 million in the year ended December 31, 2018, compared to $279.7 million ZEV credit sales and $80.6 million in non-ZEV regulatory credit sales in the year ended December 31, 2017. The growth in non-ZEV regulatory credits year-over-year was generally consistent with the delivery volume growth. The above increases in revenue were offset by a decrease of approximately 3,240 Model S and Model X deliveries during the year ended December 31, 2018, excluding the impact of adoption of the new revenue standard, at average selling prices that remained relatively consistent as compared to the year ended December 31, 2017.” (page 56)

“R&D expenses increased $82.3 million, or 6%, in the year ended December 31, 2018 compared to the year ended December 31, 2017. This increase was primarily due to an $84.2 million increase in employee and labor related expenses from headcount growth to support our business expansion and $45.2 million increase in stock-based compensation expense related to an increase in headcount and number of employee stock awards granted for new hire and refresher employee stock grants. Additionally, there was an increase of $16.0 million in facilities, freight, and depreciation expenses due to business expansion, offset by a $69.7 million decrease in expensed materials as there were higher costs in the year ended December 31, 2017 primarily related to Model 3 development.” (page 60)

“SG&A expenses increased $358.0 million, or 14%, in the year ended December 31, 2018 as compared to the year ended December 31, 2017. The increase was primarily due to a $193.1 million increase in stock-based compensation expense related to the 2018 CEO Performance Award and stock awards granted for new hires and refresher employee stock grants. Additionally, there was a $153.9 million increase in office, information technology and facilities-related expenses and sales and marketing activities to support our business expansion.” (page 61)

In future filings, we will continue to disclose where appropriate quantitative information about material factors to which changes in accounts are attributed.

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We note that your services and other revenue consists of revenue from various sources including "sales by our acquired subsidiaries to third party customers." Please further clarify for us the nature of these sales.

We respectfully advise the Staff that certain companies that we acquired in previous fiscal years continued to provide services to third party customers following their acquisition pursuant to their remaining pre-acquisition contractual obligations, which has generated immaterial amounts of revenues to Tesla from time to time. We have classified such revenues within the “Services and other” line item in our consolidated financial statements.

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If the resulting revenue from acquisitions lead to a material change or represents a meaningful factor in our Services and other revenue, we have disclosed such information in our Annual Reports on Form 10-K. For example, in the 2018 Form 10-K, information regarding the most significant of such acquisitions during the periods reported was discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Results of Operations–Revenues” as follows, and substantially identical disclosure was provided in the same section of our Annual Report on Form 10-K for the year ended December 31, 2017 (page 49):

“Service and other revenue increased $533.2 million, or 114%, in the year ended December 31, 2017 compared to the year ended December 31, 2016. This was primarily due to an increase in used vehicle sales as a result of increased automotive sales as well as from the expansion of our trade-in program. Additionally, there was a $41.1 million increase from the inclusion of engineering service revenue from Grohmann Engineering GmbH (now Tesla Grohmann Automation GmbH), which we acquired on January 3, 2017, and a $68.4 million increase in non-warranty maintenance services revenue as our fleet continued to grow during the year ended December 31, 2017.” (page 56)

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We note your disclosure that the warranty reserve does not include projected warranty costs associated with your vehicles subject to lease accounting and your solar energy systems under lease contracts or PPAs, as the costs to repair these warranty claims are expensed as incurred. Please tell us the basis for recognizing these costs as incurred.

We respectfully advise the Staff that we have followed the guidance set forth by the Financial Accounting Standards Board within Accounting Standards Codification (“ASC”) Section 460-10-20, which defines “Warranty” as “[a] guarantee for which the underlying is related to the performance (regarding function, not price) of nonfinancial assets that are owned by the guaranteed party.” In the case of our vehicles subject to direct lease accounting and solar energy systems under lease contracts or Power Purchase Agreements (“PPAs”), the underlying non-financial assets (i.e., the vehicles and solar

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energy systems) are not owned by the guaranteed parties (i.e., the customers). These vehicles and solar energy systems are recorded as assets within the “Operating lease vehicles, net” and “Solar energy systems leased and to be leased, net” financial statement line items in our consolidated balance sheet. Therefore, the leasing customers obtain the benefit from Tesla’s owned productive assets. The repairs and maintenance on such owned assets are incurred over the term of usage of the assets rather than as an upfront cost. Therefore, there are no warranty obligations to customers, and we expense the costs to repair as incurred.

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We note your disclosure that you capitalize shipping costs and initial direct costs such as the incremental costs of contract administration, referral fees and sales commissions from the origination of automotive lease agreements as an element of operating lease vehicles, net, and subsequently amortize these costs over the term of the related lease agreement.

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Please explain to us the nature of the type of costs considered “contract administration” costs and how your policy for these costs complies with ASC 842-10-30-9 and 30-10. Note 12. Leases, page 25

We respectfully advise the Staff that we only capitalize initial direct costs that are incurred upon lease execution, such as sales commissions and referral fees from the origination of automotive lease agreements. In the 2019 Q2 Form 10-Q, we indicated that initial direct costs include contract administration costs. As a policy, incremental contract administration costs include fees payable upon execution of the leases, such as legal fees resulting from the execution of the lease and lease document preparation costs incurred upon execution of the lease.

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We believe that this is consistent with the guidance provided in ASC 842-10-30-9 and 30-10.

We further respectfully submit that our current lease arrangements have not resulted in external and incremental contract administration costs as of June 30, 2019. Therefore, no contract administration costs have been capitalized in our consolidated financial statements as of June 30, 2019. However, we will continue to monitor our initial direct costs as we may incur these costs in the future with new product offerings, and accordingly we will continue to ensure that only eligible costs under ASC 842 are capitalized in our consolidated financial statements.

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We note your disclosure in Note 12 that certain of your operating leases provide for annual increases to lease payments based on an index or rate. We also note that you disclose you estimate the annual increase in lease payments based on the index or rate at the lease commencement date, for both your historical leases and for new leases commencing after January 1, 2019.

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Please tell us how your accounting complies with the guidance in ASC 842-10-30-5(b). As part of your response, please explain the estimates used in your calculation of lease payments and tell us the nature and terms of any arrangements where the lease payments are not initially measured using the index or rate at the commencement date.

We respectfully advise the Staff that most of our lease arrangements do not provide for increases in lease payments based on an index, and instead provide for either no future increases in lease payments or increases in lease payments in fixed amounts specified in the respective lease agreements. Moreover, we have no lease arrangements where we use estimates to calculate any lease payments.

For each lease arrangement that provides for annual increases in lease payments based on a specific index or rate, we obtain the value of such index or rate at lease commencement and include it in the

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lease payments schedule to calculate the right-of-use asset and corresponding liability. Subsequent to the lease commencement date, when the actual payments in the subsequent period are known based on changes in the specific rate or index, we do not re-measure the lease payments unless there is a re-measurement event. We believe that this is consistent with the guidance provided in ASC 842-10-30-5(b). If, however, the lease arrangement specifies that the increases in lease payments based on a specific rate or index are subject to a cap, we instead apply the capped increase to lease payments over the contracted lease term and we deem such capped increases to be, in substance, fixed increases to our lease payments schedule. Any future changes in lease payments due to the movements of such index or rate are reflected directly in our consolidated income statement as a period cost. Furthermore, any differences resulting from the application of any caps specified in our lease arrangements, as compared to the index or rate specified at lease commencement, are immaterial to our consolidated financial statements.

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