Note 7 – Property, Plant and Equipment, Net

Construction in progress is primarily comprised of construction of Gigafactory Berlin-Brandenburg and Gigafactory Texas, expansion of Gigafactory Shanghai and equipment and tooling related to the manufacturing of our products. Completed assets are transferred to their respective asset classes and depreciation begins when an asset is ready for its intended use. Interest on outstanding debt is capitalized during periods of significant capital asset construction and amortized over the useful lives of the related assets. During the three and nine months ended September 30, 2022, we capitalized interest of an immaterial amount. During the three and nine months ended September 30, 2021, we capitalized $14 million and $52 million, respectively, of interest.

Depreciation expense during the three and nine months ended September 30, 2022 was $620 million and $1.75 billion, respectively. Depreciation expense during the three and nine months ended September 30, 2021 was $495 million and $1.38 billion, respectively. Gross property, plant and equipment under finance leases as of September 30, 2022 and December 31, 2021 was $2.76 billion and $2.75 billion, respectively, with accumulated depreciation of $1.56 billion and $1.21 billion, respectively.

Panasonic has partnered with us on Gigafactory Nevada with investments in the production equipment that it uses to manufacture and supply us with battery cells. Under our arrangement with Panasonic, we plan to purchase the full output from their production equipment at negotiated prices. As the terms of the arrangement convey a finance lease under ASC 842, Leases, we account for their production equipment as leased assets when production commences. We account for each lease and any non-lease components associated with that lease as a single lease component for all asset classes, except production equipment classes embedded in supply agreements. This results in us recording the cost of their production equipment within Property, plant and equipment, net, on the consolidated balance sheets with a corresponding liability recorded to debt and finance leases. Depreciation on Panasonic production equipment is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the respective assets. As of September 30, 2022 and December 31, 2021, we had cumulatively capitalized gross costs of $2.01 billion and $1.98 billion, respectively, on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement.