INVENTORY AND INVENTORY VALUATION

12 Months Ended

Dec. 31, 2022

Inventory is stated at the lower of cost or net realizable value (“LCNRV”) and consists of raw materials, work in progress, finished goods, and service parts. The Company primarily calculates inventory value using standard cost, which approximates actual cost on the first-in, first-out (“FIFO”) basis. NRV is the estimated selling price of inventory in the ordinary course of business, less estimated costs of completion, disposal, and transportation. The Company assesses the valuation of inventory and periodically adjusts its value for estimated excess and obsolete inventory based upon expectations of future demand and market conditions, as well as damaged or otherwise impaired goods. The following table summarizes the components of “Inventory” on the Consolidated Balance Sheets (in millions):


	December 31, 2021		December 31, 2022
Raw materials and work in progress	$	245	$	949

Finished goods	29		$	399
Total inventory	$	274	$	1,348

The Company recorded a $95 million and $582 million charge to reflect the LCNRV of inventory as of December 31, 2021 and 2022, respectively, in “Cost of revenues” in the Company’s Consolidated Statements of Operations. The Company is obligated to make inventory firm purchases commitments during the next year. Losses to reflect the LCNRV on these firm purchase commitments as of December 31, 2022 were $338 million in “Cost of revenues” in the Company’s Consolidated Statements of Operations and are reflected in the inventory component of “Accrued liabilities” on the Consolidated Balance Sheets. Refer to Note 8 "Accrued Liabilities" for more information about Accrued liabilities. The increase in these charges is primarily due to an increase in overall inventory and firm purchase commitment values as production ramps, which were adjusted to reflect the amount we anticipate receiving upon vehicle sale (after considering future costs necessary to ready the inventory for sale).