1) Decompose Tesla's ROE for the annual periods 2012-2014. Note any trends you observe.

2) Tesla notes that Q1 automotive revenue includes $51 million from the sale of ZEV credits.* Assuming that 2012-2014 annual revenues are comprised of the same percentage of ZEV revenues as was the case in Q1 of 2015, re-compute Tesla's income after removing the effect of the ZEV sales and decompose ROE using the revised data.

3) Compare your new calculations to your ROE decomposition from question 1.

4) Comment on the quality of Tesla's earnings.

5) Given that Tesla has consistently generated losses, how has the company managed to survive? Read Tesla's Stockholder Letter for the first quarter of 2015. Tesla repeatedly refers to "non- GAAP" results.

6) What are the specific departures Tesla makes from GAAP in computing these numbers?

7) Why do you think the company keeps referring to "non-GAAP" measures?

Here's how ZEV (zero emission vehicle) credits work: Every major auto manufacturer in the

U.S. is required to sell a given percentage of zero-emission vehicles (by 2025 it will reach 15%). Failure to meet this standard results in a fine. Manufacturers receive zero emission vehicle "credits" for each ZEV sold. ZEV sales were, however, only 1% of automotive sales in 2014. This means many manufacturers fall below the threshold. They can, however, buy "credits" from other companies in order to keep from paying the fines. Since Tesla only sells ZEVs it has "extra" credits that it can sell.

In 2015, we have already expanded our product portfolio with exciting new products and features while continuing to execute on our long-term plans. We ramped the manufacturing and availability of All-Wheel Drive Model S 85D, introduced 70D, and are building release candidate prototypes of Model X. Last week, we also launched our new Tesla Energy business, introducing a

suite of energy storage products with a vision that we believe will help to eventually transform the global energy paradigm. Both our vehicle and Tesla Energy businesses will benefit from our Gigafactory project, which should start producing initial quantities of battery packs in 2016.

We also significantly improved manufacturing efficiency and reduced per unit vehicle costs while achieving a higher average weekly production rate during Q1. These efforts, combined with a favorable product mix, helped us reach our Q1 non-GAAP automotive gross margin target, despite the significant negative impact of a strong dollar. We were also able to accelerate yearover- year revenue growth in Q1, while improving operational efficiency as reflected in lower than expected growth of operating expenses. Overall, these achievements represent a strong start to a very big year at Tesla. Expanding the Market for Model S We continue to see growing Model S demand. In Q1, both North American and European orders were much higher than Q1 last year, despite limited availability of 85D and before the announcement of 70D. While we still have work to do in China, we saw encouraging signs of a return to growth in orders there as well. Recently, order rates have accelerated even further with greater availability of 85D and the launch of 70D. This is especially encouraging as potential customers in many markets have yet to experience these products first hand. 70D has only been shown in North America, and our all-wheel drive cars will not be available in right hand drive markets until Q3. We remain confident in our ability to deliver approximately 55,000 Model S and Model X vehicles combined in 2015, as increased availability of all our Model S variants continue to drive demand. To sustainably scale for increased deliveries, our inventory of in-transit customer-configured cars must increase, and in Q1 we added 1,100 such vehicles to the pipeline. Our ability to continually innovate and reduce costs enabled us to recently launch the new Model S 70D. As a very compelling value in the premium sedan segment, the All-Wheel Drive 70D expands the market for Model S. 70D has 240 miles of EPA-rated range, superior all-weather performance, and a 0-60 mph time of 5.2 seconds. It also includes a comprehensive list of standardfeatures such as Autopilot safety technology, access to our Supercharger network, and turn-by-turn navigation for $75,000, before tax credits and fuel cost savings. So far we are pleased with the increased demand that has been created by the 70D and the little effect it has had on the demand for our other Model S variants.

All-Wheel Drive Model S 85D

Model S customers benefit from our free data connectivity and unique over-the-air software updates, which allow us to improve customer cars over time. In March, we introduced our second significant software update of Q1, enabling new active safety capabilities, adding intelligent range and charge management features, and boosting performance by increasing acceleration and top speed. Additional software updates are scheduled in Q2 that will include more Autopilot safety and convenience features for appropriately equipped cars. The expansion of our customer support network continues at a rapid pace. With 425 Supercharger locations and 100 service locations globally, driving a Model S is becoming more compelling every day. So far, our customers have Supercharged 111

million miles globally. Improving Production Capabilities In Q1, we manufactured 11,160 vehicles, 10% better than guidance, as we averaged more than 1,000 cars per production week. We successfully increased production on our new small drive unit line, which was critical to meeting the demand for our all-wheel drive cars. Our production launches of 85D and 70D proceeded more smoothly than our prior launches, highlighting the flexibility and increasing maturity of our manufacturing capabilities. With a more stable production cadence in Q1, we implemented efficiency improvements and reduced labor hours by more than 20% per car by the end of the quarter. During the quarter, we also made significant progress on the installation of a new body shop, paint shop and stamping presses that will establish extra capacity for both Model X and Model S. We are now building and testing release candidate Model X prototypes with increasing design maturity, and are pleased with the progress of this program. These developments, along with our maturing production capabilities, boost our confidence in the launch and production ramp of

Model X, which is on track for start of deliveries in late Q3.In addition, steady construction progress continues at the Gigafactory, and together with Panasonic, we now expect to start complete battery manufacturing, from cells to modules to battery packs, in 2016. Tesla Energy

In Q1, we made substantial progress on our 2nd generation Tesla Energy grid battery products. This led to our April 30th launch of the $250/kWh industrial Powerpack and the $350/kWh residential Powerwall, and these attractive prices include controls, cooling and DC/DC power electronics. The customer response to these products and the Tesla Energy vision broadly has been extremely positive. We are now preparing our supply chain and production teams to start volume builds on these new products in Q3. Production will begin at the Tesla Factory in Fremont, and in Q1 2016 will expand into the Gigafactory and accelerate significantly.

The total addressable market size for Tesla Energy products is enormous and much easier to scale globally than vehicle sales. We are pursuing product certification in multiple markets simultaneously and plan to ramp deliveries in the US, EU and Australia in Q4. When combined with low cost renewable energy, Tesla Energy batteries provide an achievable pathway to a 100% zero carbon energy system. Tesla Powerwall

Question: Results Starting this quarter, our income statement reflects the new classifications of revenues and costs of revenues to segregate our new vehicle business from our other business activities. "Automotive" revenue and related costs now reflect activities related to the sale or lease of new vehicles including regulatory credits, data connectivity and Supercharging. "Services and other" revenues and related costs include activities such as powertrain sales, service revenue, Tesla Energy and pre-owned Tesla vehicle sales. As usual, we have presented both GAAP and non-GAAP financial information in this letter. A full explanation of our non-GAAP information and reconciliation to GAAP are included in the tables and accompanying footnotes.