1. How will the reservation, purchase agreement, and the delivery of a Model 3 impact Tesla’s financial statements?

2. Tesla Model 3 Mid-size all-electric four-door sedan
Long-range battery model goes 310 miles per charge; starts at $50,000
Standard-range battery model goes 220 miles per charge; starts at $35,000

3. Customer process for buying a Model 3
Make a reservation accompanied by a reservation payment of $1,000 1
Receives invitation to make a purchase agreement when production is within 1 – 3 months 2
Pays in full (less the $1,000 reservation payment) upon delivery of Model 3 3

4. Tesla’s backlog of reservations
Tesla produced and delivered 1,772 units during 2017
Plans to produce 5,000 units per week, starting in the second half of 2018
Currently more than 400,000 outstanding reservations
Receiving, on average, 1,800 reservations per day

5. Question 1
When Tesla receives a $1,000 reservation payment from a customer, what Tesla general ledger accounts does this $1,000 impact? Explain.

6. Question 2
Now assume that a customer orders a Model 3 by completing the purchase agreement. Will this purchase agreement directly impact Tesla’s balance sheet or income statement at the date of the purchase agreement?

7. Question 3
When the Model 3 is delivered to the customer and payment is received, how will Tesla’s balance sheet and income statement be impacted at the point of delivery?

8. Question Recap
When Tesla receives a $1,000 reservation payment from a customer, what Tesla general ledger accounts does this $1,000 impact? Explain.
Now assume that a customer orders a Model 3 by completing the purchase agreement. Will this purchase agreement directly impact Tesla’s balance sheet or income statement at the date of the purchase agreement?
When the Model 3 is delivered to the customer and payment is received, how will Tesla’s balance sheet and income statement be impacted at the point of delivery?

9. Contact Dr. Wendy Tietz at wtietz@kent.edu
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