<str<strong>on</strong>g>Registrati<strong>on</strong></str<strong>on</strong>g> <str<strong>on</strong>g>Statement</str<strong>on</strong>g> <strong>on</strong> <strong>Form</strong> S-1 http://www.sec.gov/Archives/edgar/data/1318605/000119312510017054/ds1.htm#toc51863_17 2/18/10 10:17 AM Page 44 of 300
<str<strong>on</strong>g>Registrati<strong>on</strong></str<strong>on</strong>g> <str<strong>on</strong>g>Statement</str<strong>on</strong>g> <strong>on</strong> <strong>Form</strong> S-1 Table of C<strong>on</strong>tents http://www.sec.gov/Archives/edgar/data/1318605/000119312510017054/ds1.htm#toc51863_17 2/18/10 10:17 AM final design, a manufacturing facility or a manufacturing process. The automobile industry has traditi<strong>on</strong>ally been characterized by significant barriers to entry, including large capital requirements, investment costs of designing and manufacturing vehicles, l<strong>on</strong>g lead times to bring vehicles to market from the c<strong>on</strong>cept and design stage, the need for specialized design and development expertise, regulatory requirements and establishing a brand name and image and the need to establish sales and service locati<strong>on</strong>s. As a manufacturer and seller of <strong>on</strong>ly electric vehicles, we face a variety of added challenges to entry that a traditi<strong>on</strong>al automobile manufacturer would not encounter including additi<strong>on</strong>al costs of developing and producing an electric powertrain that has comparable performance to a traditi<strong>on</strong>al gasoline engine in terms of range and power, inexperience with servicing electric vehicles, regulati<strong>on</strong>s associated with the transport of lithium-i<strong>on</strong> batteries and unproven high-volume customer demand for fully electric vehicles. In additi<strong>on</strong>, while we are designing the Model S to have the capability to swap out its battery pack, there are no specialized facilities today to perform such swapping. While we may offer this service in the future at our stores, no assurance can be provided that we will do so, or that any other third party will offer such services. We must successfully overcome these barriers as we move from producing the low volume Tesla Roadster to the Model S which we plan to produce at much higher volumes. If we are not able to overcome these barriers, our business, prospects, operating results and financial c<strong>on</strong>diti<strong>on</strong> will be negatively impacted and our ability to grow our business will be harmed. Any changes to the Federal Trade Commissi<strong>on</strong>’s electric vehicle range testing procedure or the United States Envir<strong>on</strong>mental Protecti<strong>on</strong> Agency’s energy c<strong>on</strong>sumpti<strong>on</strong> regulati<strong>on</strong>s for electric vehicles could result in a reducti<strong>on</strong> to the advertised range of our vehicles which could negatively impact our sales and harm our business. The Federal Trade Commissi<strong>on</strong>, or FTC, requires us to calculate and display the range of our electric vehicles <strong>on</strong> a label we affix to the vehicle’s window. The FTC specifies that we follow testing requirements set forth by the Society of Automotive Engineers, or SAE, which further requires that we test using the United States Envir<strong>on</strong>mental Protecti<strong>on</strong> Agency’s, or EPA’s, combined city and highway testing cycles. The EPA recently announced that it would develop and establish new energy efficiency testing methodologies for electric vehicles. Based <strong>on</strong> initial indicati<strong>on</strong>s from the EPA, we believe it is likely that the EPA will modify its testing cycles in a manner that, when applied to our vehicles, could reduce the advertised range of our vehicles by up to 30% as compared to the combined two-cycle test currently applicable to our vehicles. However, there can be no assurance that the modified EPA testing cycles will not result in a greater reducti<strong>on</strong>. To the extent that the FTC adopts these procedures in place of the current procedures from the SAE, this could impair our ability to advertise the Tesla Roadster as a vehicle that is capable of going in excess of 200 miles. Moreover, such changes could impair our ability to deliver the Model S with the initially advertised range, which could result in the cancellati<strong>on</strong> of a number of the approximately 2,000 reservati<strong>on</strong>s that have been placed for the Model S. Although the real life customer experience of the range of our electric vehicles will not change due to the changes in the FTC or EPA standards, the reducti<strong>on</strong> in the advertised range could negatively impact our sales and harm our business. We have no experience with using comm<strong>on</strong> platforms in the design and manufacture of our vehicles. If we are unable to effectively leverage the benefits of using an adaptable platform architecture, our business prospects, operating results and financial c<strong>on</strong>diti<strong>on</strong> would be adversely affected. We intend to design the Model S with an adaptable platform architecture and comm<strong>on</strong> electric powertrain so that we can use the platform of the Model S to create future electric vehicles. We have no experience with using comm<strong>on</strong> platforms in the design and manufacture of our vehicles and the design of the Model S is not complete. We may make changes to the design of the Model S that may make it more difficult to use the Model S platform for future vehicles. There are no assurances that we will be able to use the Model S platform to bring future vehicle models to market faster or more inexpensively by leveraging use of this comm<strong>on</strong> platform or that there will be sufficient customer demand for additi<strong>on</strong>al vehicle variants of this platform. 23 Page 45 of 300
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