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You have been hired as a financial analyst by an asset management firm, Bicentennial, LLC. A fund manager, John Edward, is constructing a new equity investment fund focusing on the burgeoning industry of electric vehicles. John assigns you a financial statement analysis project comparing recent operational performances and current financial position of the three companies: Ford, General Motors, and Tesla Inc. Specifically, John is expecting you to read those companies annual reports in the Form 10-K and assist him to understand the financial implication of the following four areas: (1) the use of finance and operating leases, (2) financial reporting of pension liabilities, (3) the efficiency of tax planning and the reporting of tax positions; and (4) cash management policy and soundness of operating, investing, and financing cash flows.

Question 3. In Footnote 18. Lease Commitment of Fords 10-K (page 148), Footnote 16. Commitments and Contingencies of GMs 10-K (page 87), and Footnote 13. Leases of Teslas 10-K (page 89), the three companies are disclosing the discount rate they used to calculate the present value of future minimum lease payment amounts as the lease liabilities. What are the discount rates of FY 2019 and FY 2020 for each company? What do you think is the effect of having a relatively higher or lower discount rate on the balance sheet and income statement? Compared to the average interest rates of debt instruments (See Footnote section for Debt), is the lease discount rate is higher or lower in general? Why do you think the companies use leases instead of borrowing money and purchase those assets?

Ford

GM

Tesla

FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 18. LEASE COMMITMENTS (Continued) Supplemental cash flow information related to leases for the years ended December 31 was as follows (in millions): 2019 2020 $ 460 $ 434 15 6 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for lease liabilities Operating leases Finance leases (a) 35 105 $ $ 527 43 304 306 The components of lease expense for the years ended December 31 were as follows (in millions): 2019 2020 $ 467 $ 53 463 57 (14) (16) Operating lease expense Variable lease expense Sublease income Finance lease expense Amortization of right-of-use assets Interest on lease liabilities Total lease expense 15 27 6 15 548 $ 525 $ The weighted average remaining lease term and weighted average discount rate at December 31 were as follows: 2019 2020 6.3 6.3 14.8 3.0 Weighted average remaining lease term (in years) Operating leases Finance leases (a) Weighted average discount rate Operating leases Finance leases 3.4 % 3.3 % 3.8 % 3.5 % (a) Includes the addition of a 20-year finance lease for about $300 million that commenced in January 2020. Note 17. Income Taxes 2020 2018 $ U.S. income Non-U.S. income Income before income taxes and equity income Years Ended December 31, 2019 6,881 $ 3,826 $ 540 2,342 7,421 $ 6,168 $ 4,433 1,953 6,386 Years Ended December 31, 2019 2020 2018 $ $ $ 84 272 493 849 42 102 758 902 (104) 113 577 586 Current income tax expense (benefit) U.S. federal U.S. state and local Non-U.S. Total current income tax expense Deferred income tax expense (benefit) U.S. federal U.S. state and local Non-U.S. Total deferred income tax expense (benefit) Total income tax expense 632 (15) 308 925 1,774 (145) 3 9 (578) 250 216 (112) 474 (133) $ 769 $ Provisions are made for estimated U.S. and non-U.S. income taxes which may be incurred on the reversal of our basis differences in investments in foreign subsidiaries and corporate joint ventures not deemed to be indefinitely reinvested. Taxes have not been provided on basis differences in investments primarily as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested of $3.2 billion at December 31, 2020 and 2019. Additional basis differences related to investments in nonconsolidated China JVs exist of $4.1 billion at December 31, 2020 and 2019 as a result of fresh-start reporting. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable. Note 13 - Leases We have entered into various operating and finance lease agreements for certain of our offices, manufacturing and warehouse facilities, retail and service locations, equipment, vehicles, and solar energy systems, worldwide. We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. We have lease agreements with lease and non-lease components, and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease. We have elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. Our leases, where we are the lessee, often include options to extend the lease term for up to 10 years. Some of our leases also include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Lease expense for operating leases is recognized on a straight-line basis over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. Certain operating leases provide for annual increases to lease payments based on an index or rate. We calculate the present value of future lease payments based on the index or rate at the lease commencement date for new leases commencing after January 1, 2019. For historical leases, we used the index or rate as of January 1, 2019. Differences between the calculated lease payment and actual payment are expensed as incurred. Amortization of finance lease assets is recognized over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. Interest expense on finance lease liabilities is recognized over the lease term in interest expense. The balances for the operating and finance leases where we are the lessee are presented as follows (in millions) within our consolidated balance sheet: December 31, 2020 December 31, 2019 Operating leases: Operating lease right-of-use assets $ 1,558 $ 1,218 $ Accrued liabilities and other Other long-term liabilities Total operating lease liabilities 286 1,254 1,540 228 956 1,184 S $ Finance leases: Solar energy systems, net Property, plant and equipment, net Total finance lease assets 29 1,465 1,494 30 1,600 1,630 $ $ $ Current portion of long-term debt and finance leases Long-term debt and finance leases, net of current portion Total finance lease liabilities 374 1,094 1,468 386 1,232 1,618 $ FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 18. LEASE COMMITMENTS (Continued) Supplemental cash flow information related to leases for the years ended December 31 was as follows (in millions): 2019 2020 $ 460 $ 434 15 6 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for lease liabilities Operating leases Finance leases (a) 35 105 $ $ 527 43 304 306 The components of lease expense for the years ended December 31 were as follows (in millions): 2019 2020 $ 467 $ 53 463 57 (14) (16) Operating lease expense Variable lease expense Sublease income Finance lease expense Amortization of right-of-use assets Interest on lease liabilities Total lease expense 15 27 6 15 548 $ 525 $ The weighted average remaining lease term and weighted average discount rate at December 31 were as follows: 2019 2020 6.3 6.3 14.8 3.0 Weighted average remaining lease term (in years) Operating leases Finance leases (a) Weighted average discount rate Operating leases Finance leases 3.4 % 3.3 % 3.8 % 3.5 % (a) Includes the addition of a 20-year finance lease for about $300 million that commenced in January 2020. Note 17. Income Taxes 2020 2018 $ U.S. income Non-U.S. income Income before income taxes and equity income Years Ended December 31, 2019 6,881 $ 3,826 $ 540 2,342 7,421 $ 6,168 $ 4,433 1,953 6,386 Years Ended December 31, 2019 2020 2018 $ $ $ 84 272 493 849 42 102 758 902 (104) 113 577 586 Current income tax expense (benefit) U.S. federal U.S. state and local Non-U.S. Total current income tax expense Deferred income tax expense (benefit) U.S. federal U.S. state and local Non-U.S. Total deferred income tax expense (benefit) Total income tax expense 632 (15) 308 925 1,774 (145) 3 9 (578) 250 216 (112) 474 (133) $ 769 $ Provisions are made for estimated U.S. and non-U.S. income taxes which may be incurred on the reversal of our basis differences in investments in foreign subsidiaries and corporate joint ventures not deemed to be indefinitely reinvested. Taxes have not been provided on basis differences in investments primarily as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested of $3.2 billion at December 31, 2020 and 2019. Additional basis differences related to investments in nonconsolidated China JVs exist of $4.1 billion at December 31, 2020 and 2019 as a result of fresh-start reporting. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable. Note 13 - Leases We have entered into various operating and finance lease agreements for certain of our offices, manufacturing and warehouse facilities, retail and service locations, equipment, vehicles, and solar energy systems, worldwide. We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. We have lease agreements with lease and non-lease components, and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease. We have elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. Our leases, where we are the lessee, often include options to extend the lease term for up to 10 years. Some of our leases also include options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Lease expense for operating leases is recognized on a straight-line basis over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. Certain operating leases provide for annual increases to lease payments based on an index or rate. We calculate the present value of future lease payments based on the index or rate at the lease commencement date for new leases commencing after January 1, 2019. For historical leases, we used the index or rate as of January 1, 2019. Differences between the calculated lease payment and actual payment are expensed as incurred. Amortization of finance lease assets is recognized over the lease term as cost of revenues or operating expenses depending on the nature of the leased asset. Interest expense on finance lease liabilities is recognized over the lease term in interest expense. The balances for the operating and finance leases where we are the lessee are presented as follows (in millions) within our consolidated balance sheet: December 31, 2020 December 31, 2019 Operating leases: Operating lease right-of-use assets $ 1,558 $ 1,218 $ Accrued liabilities and other Other long-term liabilities Total operating lease liabilities 286 1,254 1,540 228 956 1,184 S $ Finance leases: Solar energy systems, net Property, plant and equipment, net Total finance lease assets 29 1,465 1,494 30 1,600 1,630 $ $ $ Current portion of long-term debt and finance leases Long-term debt and finance leases, net of current portion Total finance lease liabilities 374 1,094 1,468 386 1,232 1,618 $

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