Tesla Motors, Inc.

– Fourth Quarter & Full Year 2012 Shareholder Letter

 Achieved 20,000 annualized production rate

 Record new Model S reservations
 Model S unanimously named Motor Trend Car of the Year®
 Q4 revenue increases sequentially by 500% to $306 million
 Rapid growth of Model S sales and service network
 First profit now expected Q1 2013 versus prior guidance of late 2013


February 20, 2013

Dear Fellow Shareholders:

We started 2012 with a few Model S prototypes in hand and the goal of going from producing hundreds of
Roadsters per year to producing hundreds of Model S vehicles per week. During the year, we successfully
completed homologation of the car, started initial deliveries on time in June and ramped the production rate to our
year-end target of 400 vehicles per week. Along the way, Model S picked up almost every major automobile award,
®
including the first ever unanimous designation as the Motor Trend Car of the Year . Tesla powered cars have now
been driven more than 40 million miles.

With our production now reliably at an annualized rate of 20,000 units per
year and thousands of Model S vehicles on the road, our plan for 2013 is to
introduce Model S to customers around the world. Many of our reservation
holders and potential customers have yet to experience Model S. That will
change this year, with our growing network of stores and galleries, service
locations and Supercharger sites, along with first deliveries in Europe and
Asia scheduled for later this year.

We will also continue to implement production and delivery efficiencies

throughout the year. We have already made significant progress this
quarter. As a result, we expect to be slightly profitable (excluding only non-
cash option and warrant-related expenses) in Q1 2013.

Achieved 2013 Production Rate Goals

Our most significant achievement in Q4 was the successful ramp of production volume to more than 400 vehicles
per week for three consecutive weeks in December, and this has continued at a consistent rate in Q1. This has
established a production level that will allow us to achieve our goal of 20,000 Model S deliveries in 2013. We
produced over 2,750 vehicles during the quarter and more than 3,100 vehicles during the full year, while
maintaining our stringent quality standards.

To quadruple the pace of production during the quarter, we dramatically improved our manufacturing processes,
and made significant strides in improving initial end-of-line quality. We were also able to overcome many of our
past supply chain challenges and methodically stabilized the supplier base.

In the quarter, we also began to scale our delivery strategies. Both personal home delivery and factory pick-up
were very popular delivery options for customers. However, we faced some challenges scheduling deliveries near
the end of Q4 as our peak production coincided with vacations during the holiday season. As a result, we delivered
 approximately 2,400 Model S vehicles during the quarter and about 2,650 for the year. We have improved the
delivery process in Q1 of 2013, and will continue to make enhancements to the process throughout the year.

Growing Model S Demand

New reservation activity once again hit record levels during the quarter driven by holiday traffic to our stores,
multiple Car-of-the-Year awards, the start of European marketing, and visibility of customer cars on the road and
related word-of-mouth enthusiasm. As a result, we added more than 6,000 new reservations in Q4, up from almost
2,900 in Q3. During the quarter, we also announced a U.S.
price increase for new reservations made after December
st
31 .

We invited a large number of reservation holders to

configure their cars during the quarter. Converting these
reservations to firm, non-refundable orders increased
cancellations, as expected. After deliveries and
cancellations, our net reservations at year end, were over
15,000, up from about 13,000 at the end of Q3. New
reservations continue at a steady, although slower pace in
Q1 2013, as compared to December, due in part to the pull
ahead of reservations into Q4 by customers seeking to
avoid the price increase. Q1 cancellations are likely to
remain elevated as the remaining older reservation holders
are invited to configure their vehicles within a set timeframe
or pay the higher price just like new reservation holders.
Tesla Store in Toronto

Targeted Model S Infrastructure Investments

To expand and support our growing customer base, we continue to make targeted investments in stores and
galleries, service centers and Superchargers. Because our distribution and service strategies are less
expensive to build and operate than the traditional dealer model, we are able to expand this support network
in a cost effective manner.

We opened eight stores and galleries during the fourth quarter in Chicago, Illinois; Morristown and Paramus,
New Jersey; San Diego and Los Angeles, California; Seattle, Washington; Toronto, Canada; and Miami,
Florida. Visitor traffic soared during the holiday season, as we welcomed more than 1.6 million visitors to our
nineteen new-design stores and galleries in North America during Q4. This was almost as many people who
visited our stores and galleries during the entire first three quarters of 2012.

At year end, we had 32 stores and galleries

around the world. We plan to open 15 to 20
more stores and galleries this year with about
half the openings in Europe and Asia to
support our expansion into these regions
during the second half of 2013. Notably, we
have already started construction of our first
store in Beijing, China in preparation for its
opening this spring. We also opened eight

Tesla Fremont Service Center

 new service locations during the quarter, for a total of 29 locations at the end of Q4. We plan to double this
number by the end of 2013 to keep pace with the growing fleet of customer cars.

Following the successful launch of our Supercharger network in California, we opened the first two
Superchargers on the east coast in Q4, in Milford, Connecticut and Newark, Delaware. These
Superchargers allow for fast and convenient travel between Boston, New York and Washington, D.C. As
expected, our customers are enjoying the speed and convenience of charging for free during road trips.
Construction planning is underway to install additional Superchargers in 2013. Our plan is to expand
coverage on the U.S. West and East Coasts, and around the rest of the country.

Quarterly Results

Total revenues for Q4 were $306 million, a 500% increase over Q3. During the quarter we delivered approximately
2,400 Model S vehicles. We delivered the remaining North American Signature Series cars and shipped exclusively
cars with the 85 kWh battery pack. We also saw strong demand for options such as the Performance version and
Tech Package. Finally, we sold most of our remaining Roadsters
during the quarter.

In Q4, we completed various milestones under the Mercedes-Benz B-

Class EV program which contributed to total development services
revenue of $12 million. We also continued to deliver full electric
powertrains at a steady pace to Toyota for the RAV4 EV program.

From Q3 to Q4, total gross margin rose from (17)% to almost 8%, as a
result of a higher Model S production rate, the move to production
prices for certain Model S parts, sale of regulatory credits and healthy
margin contribution from development services. Still, as expected, we
experienced significant early-stage cost inefficiencies in Q4 as a result Unique 3rd Row Seat Option
of several factors. These factors included lower fixed cost absorption,
manufacturing inefficiencies during the initial production ramp and higher logistics costs as our supply chain took
time to mature. We also had higher component prices as many vendors were not supplying parts at production
prices early in the quarter due to their own manufacturing inefficiencies. Elevated costs during the initial ramp
phase of a new factory and a new vehicle, as well as subsequent efficiency improvements, are typical in the
automotive industry and consistent with our own past experience with the Roadster.

Since we are now producing cars at steady state production, we have shifted our focus to cost reduction. As a
result, the cost of producing Model S is beginning to decline. Our operations in 2013 are already more efficient
compared to Q4, as we continue to stabilize and improve the production process. In addition, further cost reduction
efforts undertaken by both us and our suppliers will continue to reduce costs in Q1 and in upcoming quarters.
Consequently, we expect gross margin to continue to improve towards our 25% target by year-end.

Research and development (R&D) expenses were $62 million on a non-GAAP basis and $69 million on a GAAP
basis. A significant portion of the R&D costs in Q4 were non-recurring, as we completed engineering, design and
testing of our vehicle and components both internally and at our suppliers. As a result, Q1 R&D spending is
expected to decline by about 15% from Q4 2012.

Selling, general and administrative (SG&A) expenses were $40 million on a non-GAAP basis and $46 million on a
GAAP basis. Much of the increase in selling expenses was again driven by the expansion of our store network and
service infrastructure. General and administrative expenses also rose slightly in Q4, driven primarily by higher
information technology costs. Q1 SG&A spending will continue to rise moderately primarily due to the growth in our
stores and service centers.
 Our non-GAAP net loss for the quarter was just under $75 million, or $(0.65) per share, based on 113.8
million weighted common shares outstanding. Our GAAP net loss was $90 million, or $(0.79) per share for
the quarter.

We ended the year with more than $221 million in total cash, after having made the first quarterly principal payment
of $12.7 million to repay the loan to the U.S. Department of Energy (DoE) on schedule. Our short term restricted
cash is primarily for the second DoE loan payment due in March 2013. In Q4 2012, our negative free cash flow
(cash from operations plus capital expenditures) was $102 million, down by almost 40% from the prior quarter. In
the month of December we generated positive free cash flow, through growing sales and careful working capital
management.

2013 Outlook

We plan to deliver about 20,000 Model S units in 2013. We expect to start the year with about 4,500 deliveries in
Q1, as we gave the manufacturing team the first week of the year off to celebrate their accomplishments during
2012.

We plan to start European deliveries of the Model S this summer and Asian deliveries later this year. We have now
started delivering Model S with the 60 kWh battery pack. These cars have an EPA-rated range of 208 miles on a
single charge. Delivery of cars with the 40 kWh battery pack is expected to begin later this summer.

As we enter 2013, production efficiency is improving substantially as labor inputs decline and initial end-of-line
production quality improves. We expect first quarter material, labor and overhead costs to be substantially lower
than in the fourth quarter of 2012, and for this
trend to continue in 2013.

As a result of these actions and the favorable

impact of regulatory credits, Q1 gross margin is
projected to improve to the mid-teens percentage
range. We expect our gross margin to continue
to rise into the second half of the year to our
target of 25%, despite a much lower contribution
from regulatory credits.

Longer term, regulatory credit revenue should

decline relative to our automotive sales as we
grow our sales outside the United States and
earn fewer credits on the smaller battery packs.
While we will pursue opportunities to monetize
the credits we earn from the sales of our vehicles,
we do not need to rely on such sales to be a
significant contributor to gross margin, and our
business model is not predicated on such credits.

In the first quarter of 2013, we expect to generate slightly positive net income, on a non-GAAP basis. We also
expect to be near breakeven on cash flow from operations. These targets would be achieved through a
combination of improved gross margin and lower R&D expenses. The achievement of operational and
manufacturing efficiencies will drive some adjustments in our personnel, primarily affecting contractor and
temporary employees. At the same time, we are continuing to hire and convert to full time key talent where
required.
In 2013, we plan to spend significantly less on capital expenditures than we did in 2012, as we have concluded the
majority of our investment in the Tesla Factory and Model S tooling. This reduction will be partially offset by
expenditures related to expanding our service and store network, investing in new capital equipment and tooling to
reduce variable costs and new product development.

To conclude, 2012 was indeed the Year of Model S. This year, we are on a journey to expand the presence of
Model S and turn profitable.

Sincerely,

Elon Musk, Chairman, Product Architect and CEO Deepak Ahuja, Chief Financial Officer
Webcast Information
Tesla will provide a live webcast of its fourth quarter and year ended 2012 financial results conference call beginning at
2:30 p.m. PT on February 20, 2013, 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 “2013 Outlook” section of this Shareholder
Letter; statements regarding profitability in Q1 2013 and cost reduction efforts; statements relating to the progress Tesla
is making with respect to the development, European and Asian launch expectations, schedule for the introduction of
future options and variants, quality improvements, delivery and volume expectations of Model S; the ability of our
suppliers to supply quality parts at reduced costs; the ability to achieve vehicle volume, revenue, gross margin, spending,
profitability and cash flow targets; the expected growth rate in reservations and cancellations, 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 management’s 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: Tesla’s future success depends on its ability to design and achieve market acceptance of Model S and other
new vehicle models, specifically Model X; the risk of delays in the manufacture, production and delivery ramp of Model S
vehicles; the ability of suppliers to meet quality and part delivery expectations; consumers’ willingness to adopt electric
vehicles and electric cars in particular; competition in the automotive market generally and the alternative fuel vehicle
market in particular; Tesla’s ability to establish, maintain and strengthen the Tesla brand; the unavailability, reduction or
elimination of governmental and economic incentives for electric vehicles; Tesla’s ability to establish, maintain and
strengthen its relationships with strategic partners such as Daimler, Toyota and Panasonic; and Tesla’s 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 Company’s financial results is included from time to time in
Tesla’s Securities and Exchange Commission filings and reports, including the risks identified under the section
captioned “Risk Factors” in our quarterly report on Form 10-Q filed on November 7, 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 Shanna Hendriks
650-681-5050 Tesla Motors
[email protected] [email protected]

For additional information, please visit ir.teslamotors.com.

Tesla Motors, Inc.
Condensed Consolidated Statem ents of Operations
(Unaudited)
(In thousands, except per share data)

Three Months Ended Year Ended

Dec 31, Sept 30, Dec 31, Dec 31, Dec 31,
2012 2012 2011 2012 2011
Revenues
Automotive sales $ 294,377 $ 50,023 $ 32,677 $ 385,699 $ 148,568
Development services 11,955 81 6,698 27,557 55,674
Total revenues 306,332 50,104 39,375 413,256 204,242

Cost of revenues
Automotive sales 278,710 58,865 25,241 371,658 115,482
Development services 3,765 - 6,299 11,531 27,165
Total cost of revenues (1) 282,475 58,865 31,540 383,189 142,647
Gross profit (loss) 23,857 (8,761) 7,835 30,067 61,595
Operating expenses
Research and development (1) 68,832 61,901 61,206 273,978 208,981
Selling, general and administrative (1) 45,908 37,798 27,556 150,372 104,102
Total operating expenses 114,740 99,699 88,762 424,350 313,083
Loss from operations (90,883) (108,460) (80,927) (394,283) (251,488)
Interest income 85 38 89 288 255
Interest expense (27) (78) (43) (254) (43)
Other income (expense), net 746 (2,188) (495) (1,828) (2,646)
Loss before income taxes (90,079) (110,688) (81,376) (396,077) (253,922)
Provision for (benefit from) income taxes (147) 116 112 136 489
Net loss $ (89,932) $ (110,804) $ (81,488) $ (396,213) $ (254,411)

Net loss per common share, basic and diluted (2) $ (0.79) $ (1.05) $ (0.78) $ (3.69) $ (2.53)
Shares used in per share calculation, basic and
diluted (2) 113,763 105,556 104,392 107,349 100,389

Notes:
(1) Includes stock-based compensation expense of the follow ing for the periods presented:

Cost of revenues $ 1,638 $ 471 $ 164 $ 2,194 $ 670

Research and development 7,159 6,356 4,473 26,580 13,377
Selling, general and administrative 5,619 5,648 4,045 21,371 15,372
Total stock-based compensation expense $ 14,416 $ 12,475 $ 8,682 $ 50,145 $ 29,419

(2) On October 3, 2012, the Company completed its follow -on public offering, pursuant to w hich the Company sold 7,964,601 shares of
common stock.
Tesla Motors, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)

Decem ber 31, Decem ber 31,

2012 2011
Assets
Cash and cash equivalents $ 201,890 $ 255,266
Restricted cash - current 19,094 23,476
Short-term marketable securities - 25,061
Accounts receivable 26,842 9,539
Inventory 268,504 50,082
Prepaid expenses and other current assets 8,438 9,414
Operating lease vehicles, net 10,071 11,757
Property and equipment, net 552,229 298,414
Restricted cash - noncurrent 5,159 8,068
Other assets 21,963 22,371
Total assets $ 1,114,190 $ 713,448

Liabilities and Stockholders' Equity

Accounts payable and accrued liabilities $ 343,180 $ 88,250
Deferred revenue 4,964 5,491
Reservation payments 138,817 91,761
Common stock w arrant liability 10,692 8,838
Capital lease obligations 14,330 3,897
Long-term debt 452,337 276,251
Other long-term liabilities 25,170 14,915
Total liabilities 989,490 489,403
Stockholders' equity 124,700 224,045
Total liabilities and stockholders' equity $ 1,114,190 $ 713,448

Tesla Motors, Inc.

Supplem ental Consolidated Financial Inform ation
(Unaudited)
(In thousands)

Three Months Ended Year Ended

Dec 31, Sept 30, Dec 31, Dec 31, Dec 31,
2012 2012 2011 2012 2011
Selected Cash Flow Inform ation
Cash flow s used in operating activities $ (28,839) $ (94,952) $ (27,088) $ (234,861) $ (114,364)
Cash flow s provided by (used in) investing activities (69,408) (70,088) 15,254 (238,150) (175,928)
Cash flow s provided by financing activities 214,444 40,179 53,772 419,635 446,000

Other Selected Financial Inform ation

Cash flow s used in operating activities $ (28,839) $ (94,952) $ (27,088) $ (234,861) $ (114,364)
Capital expenditures (72,703) (68,472) (54,262) (270,448) (197,896)
Free cash flow $ (101,542) $ (163,424) $ (81,350) $ (505,309) $ (312,260)

Depreciation and amortization $ 12,793 $ 7,521 $ 4,804 $ 28,825 $ 16,919

Dec 31, Sept 30, Dec 31,

2012 2012 2011
Cash and Investm ents
Cash and cash equivalents $ 201,890 $ 85,693 $ 255,266
Restricted cash - current 19,094 22,861 23,476
Short-term marketable securities - - 25,061
Restricted cash - noncurrent 5,159 4,688 8,068
Tesla Motors, Inc.
Reconciliation of GAAP to Non-GAAP Financial Inform ation
(Unaudited)
(In thousands, except per share data)

Three Months Ended Year Ended

Dec 31, Sept 30, Dec 31, Dec 31, Dec 31,
2012 2012 2011 2012 2011

Research and developm ent expenses

(GAAP) $ 68,832 $ 61,901 $ 61,206 $ 273,978 $ 208,981
Stock-based compensation expense (7,159) (6,356) (4,473) (26,580) (13,377)
Research and developm ent expenses
(Non-GAAP) $ 61,673 $ 55,545 $ 56,733 $ 247,398 $ 195,604

Selling, general and adm inistrative

expenses (GAAP) $ 45,908 $ 37,798 $ 27,556 $ 150,372 $ 104,102
Stock-based compensation expense (5,619) (5,648) (4,045) (21,371) (15,372)
Selling, general and adm inistrative
expenses (Non-GAAP) $ 40,289 $ 32,150 $ 23,511 $ 129,001 $ 88,730

Net loss (GAAP) $ (89,932) $ (110,804) $ (81,488) $ (396,213) $ (254,411)

Stock-based compensation expense 14,416 12,475 8,682 50,145 29,419
Change in fair value of w arrant liability 958 1,205 649 1,854 2,750
Net loss (Non-GAAP) $ (74,558) $ (97,124) $ (72,157) $ (344,214) $ (222,242)

Net loss per com m on share, basic and

diluted (GAAP) $ (0.79) $ (1.05) $ (0.78) $ (3.69) $ (2.53)
Stock-based compensation expense 0.13 0.12 0.08 0.47 0.29
Change in fair value of w arrant liability 0.01 0.01 0.01 0.02 0.03
Net loss per com m on share, basic and
diluted (Non-GAAP) $ (0.65) $ (0.92) $ (0.69) $ (3.20) $ (2.21)

Shares used in per share calculation,

basic and diluted (GAAP and Non-GAAP) 113,763 105,556 104,392 107,349 100,389

Non-GAAP Financial Inform ation

Consolidated financial information has been presented in accordance w ith GAAP as w ell as on a non-GAAP basis. On a non-GAAP
basis, financial measures exclude non-cash items such as stock-based compensation as w ell as the change in fair value related to
Tesla’s w arrant liability. Management believes that it is useful to supplement its GAAP financial statements w ith 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 management’s internal comparisons to Tesla’s historical performance as w ell 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 w ith financial information reported under U.S. GAAP w hen
understanding Tesla's operating performance. A reconciliation betw een GAAP and non-GAAP financial information is provided above.