Table of ContentsGross margin for total automotive increased from 18.7% to 20.1% in the three months ended September 30, 2024 ascompared to the three months ended September 30, 2023 primarily due to lower average combined cost per unit of our vehicles,an increase in FSD revenue and an increase in regulatory credits revenue, partially offset by lower average selling price on ourvehicles, as discussed above.Gross margin for total automotive decreased from 19.7% to 19.0% in the nine months ended September 30, 2024 ascompared to the nine months ended September 30, 2023 primarily due to lower average selling price on our vehicles andtemporary under-utilization of manufacturing capacity during production ramps, partially offset by lower average combinedcost per unit of our vehicles, an increase in regulatory credits revenue and an increase in FSD revenue, as discussed above.Gross margin for total automotive & services and other segment increased from 17.4% to 18.7% in the three monthsended September 30, 2024 as compared to the three months ended September 30, 2023. Gross margin for total automotive &services and other segment decreased from 18.5% to 17.6% in the nine months ended September 30, 2024 as compared to thenine months ended September 30, 2023. The changes in gross margin are primarily due to the automotive gross margin factorsdiscussed above.Energy Generation and Storage SegmentCost of energy generation and storage revenue increased $473 million, or 40%, in the three months ended September 30,2024 as compared to the three months ended September 30, 2023. Cost of energy generation and storage revenue increased$1.39 billion, or 37%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30,2023. The increases in cost of revenues were primarily due to increases in Megapack and Powerwall deployments, partiallyoffset by increases in IRA manufacturing credits recognized as compared to the prior periods.Gross margin for energy generation and storage increased from 24.4% to 30.5% in the three months endedSeptember 30, 2024 as compared to the three months ended September 30, 2023. Gross margin for energy generation andstorage increased from 18.0% to 26.6% in the nine months ended September 30, 2024 as compared to the nine months endedSeptember 30, 2023. The increases were primarily due to margin improvements for our energy storage products driven by costreductions, including benefits from IRA manufacturing credits, and a higher proportion of our storage business, which operatedat a higher gross margin, within the segment as compared to the prior periods.Research and Development ExpenseThree Months EndedSeptember 30, ChangeNine Months EndedSeptember 30, Change(Dollars in millions)2024 2023 $ % 2024 2023 $ %Research and development$ 1,039 $ 1,161 $ (122) (11)% $ 3,264 $ 2,875 $ 389 14 %As a percentage of revenues4 % 5 % 5 % 4 %Research and development (“R&D”) expenses decreased $122 million, or 11%, in the three months ended September 30,2024 as compared to the three months ended September 30, 2023 primarily due to a decrease in vehicle programs, partiallyoffset by an increase in AI related costs year over year. R&D expenses as a percentage of revenue decreased from 5% to 4% inthe three months ended September 30, 2024 as compared to the three months ended September 30, 2023 primarily due to lowerR&D expenses in the current period.R&D expenses increased $389 million, or 14%, in the nine months ended September 30, 2024 as compared to the ninemonths ended September 30, 2023. The overall increases were primarily driven by additional costs year over year related to AIprograms. R&D expenses as a percentage of revenue increased from 4% to 5% in the nine months ended September 30, 2024as compared to the nine months ended September 30, 2023 as we continue to expand our product roadmap and technologies.Selling, General and Administrative ExpenseThree Months EndedSeptember 30, ChangeNine Months EndedSeptember