Table of ContentsEnergy Generation and Storage Demand, Production and DeploymentThe long-term success of this business is dependent upon incremental volume growth. We continue to increase theproduction and capabilities of our energy storage products to meet high levels of demand, including the introduction ofPowerwall 3 in 2024, the construction of a new Megafactory in Shanghai and the ongoing ramp at our Megafactory in Lathrop,California. For Megapack, energy storage deployments can vary meaningfully quarter to quarter depending on the timing ofspecific project milestones and logistics. As these product lines grow, we will have to maintain adequate battery cell supply forour energy storage products. At the same time, changes in government and economic incentives or tariffs may also impact oursales, cost structure and the competitive landscape.Cash Flow and Capital Expenditure TrendsOur capital expenditures are typically difficult to project beyond the short-term given the number and breadth of ourcore projects at any given time, and may further be impacted by uncertainties in future global market conditions. We aresimultaneously developing and ramping new products, building or ramping manufacturing facilities on three continents,piloting the development and manufacture of new battery cell technologies, expanding our Supercharger network and investingin autonomy and other artificial intelligence enabled training and products, and the pace of our capital spend may varydepending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among ourvarious products, increased capital efficiencies and the addition of new projects. Owing and subject to the foregoing as well asthe pipeline of announced projects under development, all other continuing infrastructure growth and varying levels ofinflation, we currently expect our capital expenditures to exceed $11.00 billion in 2024 and be between $8.00 to $10.00 billionin each of the following two fiscal years.Our business has generally been consistently generating cash flow from operations in excess of our level of capitalspend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding,our sales growth is also generally facilitating positive cash generation. We have and will continue to utilize such cash flows,among other things, to invest in autonomy, do more vertical integration, expand our product roadmap and provide financingoptions to our customers. At the same time, we are likely to see heightened levels of capital expenditures during certain periodsdepending on the specific pace of our capital-intensive projects and other potential variables such as rising material prices andincreases in supply chain and labor expenses resulting from changes in global trade conditions and labor availability. Overall,we expect our ability to be self-funding to continue as long as macroeconomic factors support current trends in our sales.Critical Accounting Policies and EstimatesFor a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policiesand Estimates in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no materialchanges to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year endedDecember 31, 2023.Recent Accounting PronouncementsSee Note 1, Overview & Summary of Significant Accounting Policies, to the consolidated financial statements includedelsewhere in this Quarterly Report on Form 10-Q.28
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