AGM 2012

Jun 6, 2012

Welcome to Tesla Motors' 2012 annual meeting. Very much appreciate everyone joining us today. I know some of you have traveled for a long distance. We're very much glad to have you here with us today. I'm Eric Whitaker, Tesla's General Counsel and Secretary. I'd like to get started by calling the annual meeting to order and introduce our co-founder, CEO, and chief product architect, Elon Musk. We also have a number of executives with us in the audience. Deepak Ahuja, our Chief Financial Officer, Jeff Evanson, our head of investor relations, JB Straubel, who's head of technical IT. We've got the members of our board here today, like Steve Jurvetson, Ira Ehrenpreis. I see Kimbal Musk and Antonio Gracias coming in as well. Thanks everyone for joining. I'd also like to introduce Steve Sullens of PricewaterhouseCoopers, who's our lead auditor here with us today. There are two parts to today's meeting. First, we'll conduct the formal part of the meeting, where we will cover the two items that stockholders have been asked to vote upon. Elon will provide a brief overview of the company, followed by a question-and-answer period. Before we turn to the formal agenda, I'd like to announce that the polls are now open. If you haven't voted or would like to change your vote, please do so now. Please raise your hand and a ballot will be brought to you by a Computershare who's sitting over here. While we collect those ballots, I would like to ask that everyone review the rules of the meeting that were provided at the entrance. During the question-and-answer session, if you would like to ask a question, please raise your hand and wait until you are recognized. Please identify yourself as a stockholder or as a representative of a stockholder, then go ahead and ask your question. Thank you very much for your cooperation. We appreciate it. Our meeting today will follow the agenda provided to you. Tesla's board of directors has appointed Lisa Brenton of Computershare Investor Services to serve as our inspector of election for this year's annual meeting. Lisa is handing out the ballots right now. Lisa has taken and signed an oath as inspector of election. This document will be filed with the minutes of today's meeting. Computershare Investor Services has certified that starting on April 13th, 2012, the proxy materials or a notice of availability of the proxy materials were mailed to all shareholders of record as of April 9th, 2012. Copies of these proxy materials and related certificates will be attached to the minutes of today's meeting. I have also been advised by the inspector of elections that we have a majority of the outstanding shares represented here at the meeting today. I declare that there is a quorum present, and we may proceed with the business of the meeting. We're conducting the meeting in accordance with the company's bylaws. We have two items on the agenda. They are, first, to elect the two class 2 directors, Antonio Gracias and Kimbal Musk, to serve for a term of three years or until their respective successors are duly elected and qualified. Second, to ratify the appointment of PricewaterhouseCoopers LLP as Tesla's independent registered public accounting firm for the fiscal year ended December 31st, 2012. Are there any proxies remaining in the audience that have not been submitted? I know some of you asked for a ballot, we'd like to get those turned in. All the ballots have been turned in. Are there any others? One more here. Over there. Lisa, you have them all? Great. Thank you very much. The polls are now closed. All the measures have passed. That concludes the official business of today's meeting. I declare that the formal part of today's meeting is hereby adjourned. I now welcome you to stay for Elon's presentation. During the course of this presentation, we may discuss our business outlook and make forward-looking statements. Such statements are only predictions based on management's current expectations. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned on our most recent 10-Q filed with the SEC. Such forward-looking statements represent our views only as of today and should not be relied upon after today. We also disclaim any obligation to update these forward-looking statements. With that, I give you what you all really have been waiting for, Mr. Elon Musk. Which is right up there. Thanks for coming. Something I believe in doing so at every shareholder meeting is saying thank you for being a shareholder. I really appreciate your faith in Tesla, and yeah, we will not disappoint you. We're really excited to announce that we've delivered the first two production cars. The first to Steve Jurvetson, who's sitting right there, and his car is outside. Then my car on Saturday. Steve got his on Friday, and I got mine on Saturday, which essentially means we've satisfied all of the regulatory requirements, and the car is completely able to be sold as a normal production car. The reason the first two cars are going to Steve and myself is so that we can spend a few weeks just going through the cars in detail and experiencing any tiny issues ourselves before regular customers experience them. I think it's really important to thoroughly test your own product and be extremely tough on it before giving it to general customers. I actually spent Most of Saturday and Sunday just with the Tesla team going over every detail of the product. Going through the interior, exterior, everything. Most of the issues, there were hundreds of issues identified, and most of these, I think hardly anyone would notice. We want to have a product that even if you were a complete perfectionist and you were looking in all sorts of places that people never really look, that it's right in those places, too. That there's not some little corner or little tucked-away place that isn't right. We want every aspect of that car to be as perfect as possible. Things have gone really well on achieving the benchmarks that we were looking for. In terms of safety, our goal was to achieve a five-star crash rating, which we believe we've done. In fact, if there were a six star, I think we would get a six star. We saturated on the ratings. The reason for that is if you break down crashes into different categories, you have front crash, which is responsible for the super majority of all fatal collisions are frontal impacts. We have a real advantage because we don't have this huge steel engine block in the front. We have a much longer crumple zone. It's a crumple zone that's two to three times longer than it would be in a normal sedan. Sometimes people think, "Oh, I've got this big engine in front of me, and that's protecting me." Well, not really, because in a really high-speed impact, you've got to have a certain compression, and at some point that engine is going to go through your chest. That's not good. By having that longer distance is really important for high-speed impacts. It's perhaps not well appreciated, but it's really important. It's like if you were to jump out of a five-story window, do you want to jump into a shallow pool or a deep one? That's basically what it amounts to. For most cars, it's like jumping into a kiddie pool, but in our case, it's much deeper. With respect to the side impacts, we've designed a really strong structure to go along the side. It's this kind of an extruded lattice structure. If you look at the side sill of the Model S, you'll see it's a little wider than a normal car, and that's to resist the side impacts. We have the lowest side pole intrusion of any passenger car in the world. We didn't just test according to the regulations. The regulations will say, for example, that if you do a side pole test, it's got to be at this location. The problem is that allows companies to game the system and say, "Okay, we're going to strengthen it just at that location." We did those tests, but then we said, "Okay, what is the weakest location? Let's do a side pole crash at that location and make sure that is good, too." Really good on side pole. For rear collisions, because we have a third-row seat, I want to be really careful about that. Also, I have my kids in there, my friend's kids will be in there. The regulations around rear collisions are really quite low. For other cars with a third-row situation, they're typically designed to a full rear impact at around 30-35 miles an hour. We actually are designing to an impact at over 50 miles an hour, so highway speed, and being able to absorb that impact on only half of the car. You can imagine yourself if you're stuck on the side of a highway or something and a car hits, it's not going to hit you full on. It's going to hit you on half of the rear. You want to be able to resist that impact and drive into the crumple zone of the impacting car to ensure that if there's anyone in the third row or in the second row, that they are protected as much as possible. We did all those tests effectively at a crash energy level about four or five times greater than what the regulations allow, which is quite a tricky thing to do, but we were able to get that done. The roll cage of the car is also designed to be able to handle about four times the mass of the car if you roll over. The car can really just tumble, and you don't get a collapse of the roof structure. That really encompasses the safety side of things. I apologize if that was a little bit laborious, I thought it was worth making that explanation because if you look at one car to the next, you can't really tell. It's not super obvious that one is better, this is really, I think, by far the safest car on the road. In terms of reliability, we're doing extensive testing where before significant customers have the car. We've put millions of miles on the car effectively with accelerated life testing. We've got what we call all these shake and bake systems where the car is literally being shaken heavily, and it's in a chamber that is being cycled to extremely low temperatures and high temperatures. It's going through salt fog. It's going through really everything to make sure that under any circumstances, the worst situations you can imagine, the car never lets you down. If it's midnight in a Norwegian winter or it's the hottest day in Death Valley, the car still works, and works well. Obviously, we want it to be beautiful, and that speaks for itself. We're going to continue to tweak small elements of the aesthetics because, although it's a great car, we want it to be as perfect as possible. We're going to continue to refine just little elements here and there. It's very economical. This is perhaps important because although we set the Model S to be at a price point which is comparable to other premium sedans, that doesn't take into account the cost savings to be gained from using electricity versus gasoline. The Model S costs about a tenth as much to run as if you bought gasoline. Roughly on that order. Anyway, up. You want a little bit? You're seeing body parts being stamped at our Fremont factory, which is right across from here. The parts are getting assembled. What this is perhaps helping to illustrate is that at Tesla, we're really creating two machines. One is the Model S itself, and the other is the factory to create the Model S. The factory itself is a very complex machine. I should say that the two work hand in hand because in order to create a product with revolutionary technology, you need to have a revolutionary factory to create that thing because it's not made in the way that other things are made. There are similarities, of course, paint being one of them, this is the only all-aluminum car made in North America. The way the car is architected with the battery pack and the floor pan and the motor and transmission and power electronics co-axial with the rear axle, there's no other car that's like that in the world. What you saw at the end there was the test track for the Model S. We test every car over a wide range of road conditions before it is given to customers. We don't do statistical testing. We do literal testing, where every car is tested. Our aspiration is not to have a low defect rate. It is to have no defect rate. Interest in the car has been good, particularly given that very few people have actually test-driven the car. Only a handful of people within the company have test-driven the car. The orders so far are without a test drive. Some people have had an opportunity to ride in a Model S and certainly see it up close. The demand has been strong despite the unavailability of test drives. Once people do experience a test drive in the Model S, I think it will exceed their expectations. It's just not like other cars. Steve getting his car. That's the Tesla team handing over the first car. There's me. We're going to hand over our first 10 cars in three weeks. These will be our first handover of a bunch of cars for people that are not Tesla insiders. We're going to hand over 10 cars and do a big ride event on the 22nd and 23rd. I'm really excited by how our store's going. We keep evolving the store design and technology. There's Effectively like a new store version that keeps getting iterated and upgraded, led by George Blankenship. I think he's doing a really great job on revolutionizing the auto buying and ownership experience. That's one of the things we wanted to do at Tesla was, if we're going to create a new car company, well, let's try to fix all the things that are wrong with buying and owning a car. One of the things that's wrong with buying and owning a car is that the experience of learning about a car and acquiring it and owning it is usually not a positive one. It's rare that buying a car ranks as somebody's top retail experience. We want that to be the case. I think we're making great strides in that direction. Later this month or later in, yeah, I guess we're in June. Are we June? In a few weeks, we'll be opening our store in Santa Monica on the 3rd Street Promenade. This will be the latest in-store technology. I think if people would like to go and see that, if you're in L.A., that's worth seeing. Our Santana Row store also is very close to that in experience, and we plan to upgrade and expand the Santa Monica store experience as well. You'll see a continued evolution in our store technology, if you will. It really is store technology. The overarching goal for the stores is if you see a Tesla store in a mall, you should be magnetically drawn to that store, even if you don't own a car. It should just be, you want to go in and feel welcome and really like being there. Our goal is, may sound somewhat counterintuitive, but it's really we never want to sell a car in the store. It sounds like, well, why would you not want to do that? Because if you're being sold something, it's like somebody's, I don't know. To me, it feels like somebody's pulling the wool out of your eyes. You want to learn about something. You want to experience something, but you don't want to be sold. That's the best way to want to own a product. If somebody knows that going into a Tesla store, they're not going to be hounded and it's going to be a pleasant experience, you're not going to have any compunction about going in. That's the goal there. On the EV powertrain side, we're very proud of our relationship with our two partners, Mercedes and Toyota. We announced about a month or so ago that we'll be doing a full powertrain deal with Mercedes. We'll be doing a battery pack, motor, transmission, inverter and everything for Mercedes, and this is going to be at a reasonably high volume level. This is a real production program as opposed to prior programs, which have been more demonstration and proof of concept. This is really expanding to more of a mainstream situation with the Mercedes deal. Toyota with the RAV4, that's just about to come out. This is still at the proof of concept stage, seeing how things go. We're hoping in the future that that will transition to more of a mainstream high volume situation on the RAV4 side as well. I think if this goes well, that's what should occur. Next, we're going to take Model S throughout the world. We're starting off, obviously, in the U.S., but in about six months, we'll be delivering Model S cars in Europe and Japan, and a number of other places in the world. We're finishing what's needed to homologate or essentially certify the Model S for sale in these different markets. We also expect to hopefully go to China next year and start selling there. We're going to deploy our Supercharger network. I'm not going to talk much about this. We're being deliberately coy. When we do the unveiling of the first Supercharger and people see what our Supercharger network is going to look like and just how awesome it is, it's going to blow your mind. It's going to be like, "Oh, this is cool." It's like, yeah. You have to have all the pieces in place for the crystal to glow, if that reference makes any sense. The light bulb, when people see the Supercharger system unveiled and everything we're going to do there, it'll finally make sense to a lot of people. Not just those who have been enthusiastic about electric vehicles for a long time, but it's going to make sense to the broader population. They're like, "Okay, now I finally get it." Then we've got Model X. We're continuing development of Model X. Then we'll have our third generation vehicle development that'll follow Model X. That'll be a high volume thing at an order of magnitude greater production than the Model S or the Model X. If you think of the Model S as being comparable to, say, a 5 Series BMW, then the third generation will be, say, comparable to a 3 Series BMW. Of course, next year, profitability and positive cash flow. That'd be nice. Around the middle of next year is when we'll do the right-hand drive, which will be important for certain markets like the U.K. and Japan. In Japan, you can sell left-hand drive as well as right-hand drive, but it's mostly right-hand drive. We're going to continue expanding stores throughout the world. With the Model X, which obviously we unveiled earlier this year, our goal was to really be as innovative as possible on the SUV and minivan, addressing the SUV and minivan market. I think the Model S has so much functionality. It has so much cargo space. It has the ability to carry five adults and two kids. That in effect, the Model S spans both the sedan market and part of the SUV market. With the Model X, it'll address the remainder of the SUV market and the minivan market. With those two products, we're essentially going to cover three major segments. In fact, the Model X will have more functionality than any minivan. A bigger door opening, more usable cargo space, and all in a form factor that is about the same wheelbase, but actually slightly shorter than an Audi Q7. We haven't achieved that functionality just by making a super huge car. I think one of the signs of good design of a car, is that it's bigger on the inside than it looks on the outside. Conversely, a sign of a bad design would be it's a huge car, but its utility on the inside is limited. It'll be the first dual motor all-wheel drive, where it's got a motor in the front and a motor in the back. It actually has incredible performance as a result of that, and it can actually beat a Porsche 911 Carrera in zero to 60. It's zero to 60 in 4.4 seconds versus a zero to 60 in 4.6 seconds for a Porsche 911 Carrera. I think if you're ever at a light and there's some guy with a Porsche who's thinking he's a stud. We'll put a dent in his ego with your SUV. I really love the dual motor thing. As a result of having a motor in the front and motor in the back, we can dynamically adjust torque within milliseconds, to effectively get the best roadholding of any all-wheel drive ever. This is simply in a different league in terms of roadholding capability relative to other all-wheel drive vehicles, which are simply mechanically connected. You don't have the reaction time. Well, first of all, it's just a dumb mechanical connection. It's not smart like this would be. You can't do that fast adjustment front to rear. Then just intrinsically, an electric motor is much more precise than a gasoline engine. There's a reason surgical instruments are not powered by a gasoline engine. A laser printer would seem odd if it was powered by a gasoline engine. If you want high precision, you need an electric motor. We had a really great response from customers on this. This just shows the basic Tesla Master Plan, which I put in place in pretty much day one, which was to do a high price, low volume vehicle, which is the Roadster. Go to mid price, mid volume, which is the Model S and Model X. The third step will be to go to high volume, lower price, which will be our third generation. This year, we expect to do a little over 5,000 units. Obviously, a very tiny market share. Next year, about 20,000 units, which is still a tiny market share. Bearing in mind that the total number of new vehicles sold every year in the world is around, well, depending upon how you count it, 80 to as much as 90 million units a year. In 2014, I will have the X out as well. Those percentages are just as a percentage of the premium market. Still a small percentage, a lot of room, and a lot of opportunity for growth in the future. It should be noted that our factory in Fremont has a capacity of somewhere on the order of half a million vehicles a year. We've got a lot of growth and a lot of potential to use that asset and with very good capital efficiency, achieve high production levels. We remain confident of the 25% gross margin next year. My confidence level at this point, I think, I feel very confident in committing to that number. Operating margin sort of about half that. All right. Just any Q&A? We have a mic coming down the room. Tony Mazzapeli, shareholder. To achieve a somewhat normal price-earning ratio, we're going to have to sell tens of thousands of units per year, several tens of thousands of units per year. I would like to ask you about a key component of the car that may or may not make that happen, and that's the battery. Lots of government labs, university labs, and lots of companies are working on battery technology to make the battery cheaper, charge faster- Right or store more. That's very good because that'll help our cars take- Yeah market share from the gasoline cars. What technologies, for us shareholders, should we be watching? Do you know? Well, I think from a Tesla standpoint, we do get exposed to a lot of the upcoming advancements in battery technology. I have to say, that there are few industries with more BS than the battery industry. It's quite remarkable. The reason is because there are a lot of complicating factors with a battery. There's the gravimetric and volumetric energy density, there's the cost per kilowatt-hour, there's the cycle life, there's the calendar life, there's safety. Sometimes you'll see an announcement that sounds really great, and it's an improvement in one area, but it really short-changes the other areas, and they forget to mention that in the article. Just sort of putting all that aside, I think what's reasonable to expect in the future is roughly an 8% to 10% improvement per year in the cost and energy density of the battery packs. Most of the time, it's not some hugely revolutionary change. It's an improvement in the anode, cathode, separator electrolytes. Those are really the things that drive it, particularly the cathode side, although now we're seeing some improvement at the anode side. One of the things that's occurring is transitioning from a purely carbon anode to either a carbon silicon or silicon anode. I'm not sure what the best way is to, say, invest in opportunities like that because from a Tesla standpoint, because we need such huge scale in terms of production, we tend to talk to the cell producers who have the scale to meet our needs, to sort of ask them how they see things evolving. If something looks good, let's say, at the lab level, and it's meeting all the requirements at the lab level, it's at least five years before that gets to scale production. We do have pretty good visibility, but we can't say, "Oh, you should invest in such and such a company because we think that's good." But I can say with confidence that we will see something on the order of a 10% improvement per year for the next several years at least. That's not speculative. That's known. Yeah. Good morning. Steve Goldsmith. I have two or three questions. One, for the buyer, what support will they get in a home charger system? What connection to solar panel home production to really wipe out the cost and any connection to SpaceX components? Let's see. I think there are a few questions embedded there. I am a big fan of solar power, obviously, as the chairman of SolarCity and helped create the company. I think SolarCity is doing an awesome job. I'm not sure most people are aware of this, SolarCity is the largest provider of solar power in the country, continuing to grow at a really good clip. I really believe that solar will be the single biggest source of electricity production in the world, certainly by the midpoint of the century and maybe even sooner. I recommend getting solar power installed in your house. In most cases, installing solar power can be done with no money down, it will result in a reduction in your electricity costs. It's kind of a no-brainer. It's like if you have a house that could work for solar at all, you should get solar. It'll cost you less, and you'll be doing good for the environment. There's going to be some interesting stuff with solar and the Superchargers, but I don't want to jump the gun on that. That's going to be exciting to see, because I think solar really helps short-circuit this idea that electric cars are just gasoline cars with a long tailpipe. Sure, it uses electricity, but isn't that electricity produced by coal, and haven't we therefore not solved the problem, but moved it somewhere else? It's like, no, we have to solve sustainable power generation as well. Solar is the best way to do that, in my opinion. If we have sustainable power generation and sustainable power consumption, then we really have solved the problem. That's something we want to make clear, and I think the Supercharger system will help illustrate that. George Cranen, a stockholder. Two-part question. First part is, are you going to strap a couple of Falcons together and send one of those to the space station? No. I forgot to. Part two, a recent op-ed piece in Automotive News held a position that increasing CAFE standards are discouraging mainline auto manufacturers from investing in electric powertrains, because the technology payback is in improving internal combustion. From the customer's point of view, when cars get an average of 54.5 miles per gallon, is the urgency in the general public's mind for buying an electric car diminished? Are the EPA fuel standards, CAFE standards, going to discourage, perhaps, electric car sales? No, I think improving the requirements, the Corporate Average Fuel Economy for car makers actually does help send them in the direction of sustainable transport. I think it's actually okay if what they do as a large part of that solution is improve the efficiency of the gasoline-powered cars. But ultimately, in order to meet the really high CAFE standards that are scheduled to come into effect later this decade, they will have to go to electric cars or at least plug-in hybrids or something like that. I think it's overall a good thing. I don't think it's the best way to achieve the goal. I think the best way to achieve the goal of, say, reducing carbon emissions is to tax carbon emissions, just as one taxes, say, cigarettes or alcohol. I really feel quite strongly that since the federal government needs to raise taxes, it makes sense to weight those taxes on what likely is bad for us versus stuff that's good. It would be silly in food to have really high taxes on bread and none on cigarettes. People are like, "Oh, that would be dumb." That's how it is with fuel. We have really low taxes on the stuff that's bad for us, which is coal and oil and all that. In fact, we have negative taxes on those, I should point out. The level of subsidies and tax breaks that exist for oil, gas, and coal are enormous. In fact, just mind-bogglingly huge. So it's not just that there's no tax on it, there's a negative tax. There's a subsidy, effectively. That makes it harder for the sustainable stuff to compete. There are some subsidies on the sustainable stuff, but it's nothing compared to the gargantuan ones that are there for oil, gas, and coal, and that have been there for a long time, unfortunately. Anyway, I really think there ought to be a tax according to that which is going to harm us. In fact, there really are a lot of parallels between how smoking was perceived, say, 40 or 50 years ago, where you actually had these ads claiming that cigarettes were good for your health, and pregnant women in ads and things like that. Then all these scientists were saying, "Well, we think there may be a link between lung cancer and smoking." Then there would be all these counter studies funded by the tobacco companies that curiously found that there was no link. Over time, that evidence mounted more and more, eventually it became overwhelmingly obvious that smoking is bad for your health. What we're doing here with carbon emissions from oil, coal, and gas is we're smoking the planet. It doesn't seem we've learned our lesson there. Hi. Doug McKenzie, a shareholder. First, just congratulations on the amazing things that you've done with Tesla and with SpaceX, just amazing. Thank you. I think last year you mentioned how there was a swap out of the battery in the Model S, that could be done, I've been telling people, I think I heard this, in under a minute. Yeah Potentially. Could you comment about that, whether that looks like something that still has potential, when that might happen? In terms of the Model S, I intentionally architected the Model S to have a battery pack in the floor pan that can be swapped out in under a minute. I think we're going to show something interesting in that regard. You're going to keep a few cards in the vest there. I think there'll be something exciting to see in that regard. Yeah. Sure. Yeah, go ahead. Jeff's got the microphone here. Oh, sorry. Yeah. Yeah. Well, first, congratulations on getting the Model S- Yeah out the door a month early. That's an incredible achievement. I'm very excited to drive a Model S. I'm equally excited for the Model S to drive me. What are your thoughts on a self-driving Tesla? I think the whole self-driving thing is pretty cool. That is something that I'd like Tesla to implement. We have a fairly close relationship with a number of people at Google, I think it would be really great to implement the first production self-driving car at Tesla. Another way to think about it is a super smart active safety system, so that the car is always taking care of you and preventing an accident. Yeah, that's another way to characterize it. Sometimes you say self-driving, people are like, "Oh, the car's going to go nuts." Actually, a better way to think about it maybe is to say this is the best, smartest active safety system you could have. Sure. You can just talk. Yeah. Yeah. Yeah. Congratulations on all your achievements Thanks. Last year, I had the opportunity to participate in the first annual, I invited you as well last year to consider the possibility of partnering with me and my company to start a service and repair control. Now, I was wondering if you had any time to reflect on whatever Our focus is just on making cars. If you want to buy cars and do with them what you wish, you're welcome to do that. Okay. All right. Right back here with the microphone, just because we're webcasting, so it's easier if everyone can hear as well. Oh, I see. Yeah. Yeah. Hi, thank you. Hi, my name is Roy Philipose. Can't hear the question. Sure. I'll be able to answer him then. It's up to you guys. It's like a mic drop. Hi, Roy Philipose, investor from Philadelphia. I believe in what Tesla is doing, the vision, and what you're trying to achieve. The question I have here is basically, Tesla seems to be running out of money. If you remember the financial crisis, we had a difficulty raising funds in 2008. As you know, there's a lot of concerned shareholders out there that we have a significant short position and as well as maybe they know something that we don't know. Basically regarding profitability, it seems that Tesla, can you assure Tesla is going to be 100% sure you're going to sell 20,000 cars by next year? It seems like the evidence seems otherwise. Thank you. I could not hear the question. Let me Okay. from the microphone. Elon, it's where we are on cash, and can we really achieve the 20,000 unit sales next year? Yeah. I absolutely feel highly confident we'll achieve 20,000 units next year, in excess of that. What happens when it doesn't happen? Maybe you only sell 10,000. If you only sell 10,000. Our break-even point is probably around 8,000. You'll be able to be cash flow positive with that number? Yeah, around that. Yeah. About 8,000? Probably something in that order, yeah. Okay. Thank you. Yeah. Obviously, we've got over 10,000 orders, I think we're safe in that regard. Thank you. Does it work? Is it working? Hello. I'm Eric Decroto, I'm a shareholder. With your talk about rethinking the entire version of the car company, I know that you said you're building the car to be of extreme high quality, eventually with cars and the life of the car, things do end up going wrong. I know that right now you're handling service on a very personal relationship basis, with a team coming over and helping to fix the car. What happens with Gen 3, with past that, when you have 50, 100,000 cars that all have all these different problems, people are getting in accidents and stuff. How do you plan on rethinking or scaling the service of the entire car company at that point? Our approach to service is that we want to have regional service centers that would cover a metropolitan area, or in some case, for a really big metropolitan area like, say, the Bay Area, we might have three or four service stations. The general approach is that the theory with service is I want it to be what I call invisible love. The best kind of service is, first of all, for your car not to be serviced. Our goal is to absolutely minimize the service needs of the car in the first place. In this, I think we have an advantage relative to traditional cars because a lot of the dealers make most of their money with servicing. I think the cars tend to be a little over-serviced. Yeah. Our goal is to make a car that's so reliable that it doesn't need to be serviced. Of course, all cars come with 4G connectivity, so we can do over-the-air updates of software like you're used to getting on a phone or a computer. We can also do remote diagnostics. If the car is reporting a problem, then with the user's permission, if you give us permission, we can look at the car and determine what's wrong and be able to pre-position any spare parts. In the ideal scenario, if the car does need to be serviced, what would be great is, let's say you took a car to work. You tell us the car's going to be at work at your office for the following period of time. We come, pick up your car, bring it to our service center, where the parts are pre-positioned to be replaced. We replace them, return the car before you need to go home from work. It was invisible to you, and you will love that. That's who would invisible love. That's, I think, the good way to do it. That may sound, well, gee, isn't that expensive? No, it's not. If you look at, say, the way that Enterprise Rent-A-Car operates, it's a really efficient organization, and yet they pick you up and drop you off for your rental car. That's a much better use of time to have someone valet the car than for you personally to pick up and drop off the car. We can have a fewer number of service centers that are sort of located near major highway intersections. We can have economies of scale at the service center level. I think it's both more efficient and a better experience for the customer. The mic is on, right? Okay. My name is Russ Engel. Besides a shareholder, I'm a Model S and Model X reservationist. My wife has been complaining about the time I spend on the Tesla Motors Club website since last summer when we reserved. We happen to own a small business in Fremont, California, of all places. My question's about leasing. Normally, when we acquire vehicles, we lease them because it is more tax advantageous for our business. Right. You need to move 20,000 vehicles next year. As you know, your competitors lease a large percentage of their vehicles. Sure. The question is, what are your plans in regards to leasing in the U.S.? I know you have it in Europe with Athlon. What are the plans for U.S. leasing? When do we see that? Yeah. We will absolutely offer leasing for U.S. customers. It'll probably be starting next year. We may be able to get something done this year, but it's not really necessary since we've got more than enough demand just from straight purchases to satisfy as many cars as we can make this year. Starting next year, we will offer leasing options, absolutely. Yeah. I think actually leasing, we may see an even greater proportion of our cars being leased than normal gasoline cars because the best way to really understand the operational cost advantage of an electric car is if you lease it. Because then you could see the lease cost plus your electricity cost and your servicing cost, and you're like, wow, it costs so much less to operate because electricity is so much more efficient. And your servicing is tiny. You don't have any oil changes or tune-ups or filter changes. You can look at your total monthly cost of operating a car, and then it's a much more obvious advantage relative to operating a gasoline car. You can see the economic difference is quite substantial. I actually think, as with solar, where the vast majority of solar projects that we do are leases, I think we may see a really high percentage of electric cars be leases because it so obviously illustrates the economic advantage. Jeff, we have time for two or three more questions. Yeah, thank you. Anton Wahlman, shareholder, right here in town. Quick question on the charging interface. About a month ago, almost all automakers came together and announced a new joint standard for AC/DC charging. Yeah. I know you have your own. This might not be important for, say, the first 20,000, 40,000, pick a number, of cars. Over the longer run, to drive mass market deployment, might it not be just a little bit awkward to be the only guy who was not on board? Of all the ways in which you can differentiate, this might not be the preferred item. Yeah. Well, first of all, I should clarify that the Model S will be able to charge anywhere. The onboard charging system is very intelligent and highly adaptive. It'll adapt to any input current and voltage you can feed it. The adapters for the various standards around the world, because they're not quite consistent, come with the car. When you buy the car, you'll be able to charge that car anywhere you want. For the actual connector that goes into the car, we did design our own because the standard just isn't good enough. We're forced to either have a highly compromised connector in the car or have two, one which is big and bulky and ugly, in addition to our one, which is small and compact and beautiful. I just couldn't do it on the big ugly one that sucks. We do have an adapter. The adapter itself is as small an adapter as can be made. You can just carry that in the trunk and have access to charging infrastructure anywhere. Another key factor is just the power. I wanted to have something that could have a huge amount of power, something on the order of almost 100 kilowatts of input energy. That's far beyond what any standard exists. There's no standard for a connector of that size. Even the ones that are, say, half that capability are gigantic and bulky and uncomfortable. We have a connector that is dialed down to the limits of what physics can really achieve, which is great. We kind of needed to do that. I wish we could adhere to the standard, but unfortunately, the standard is not good. We will not compromise the product to adhere to a standard that's not good. Mike Garoot, shareholder. The collapse of Solyndra was a big shock, and we know a lot of that was competition from China. I'm more concerned, do you see any pushback or pullback from the government on its support of green energy? How would that affect us? I think the government support of green energy is okay. I think it should be better. If we were to truly think long term, it should be much greater than what it is right now. Another way, I like the word sustainable energy because then it makes it really obvious. It's like, why are we massively subsidizing non-renewable energy, unsustainable energy at the expense of sustainable energy? By definition, unsustainable is going to run out. Then we run this dangerous experiment of seeing how much CO2 can we put in the atmosphere before there's a massive catastrophic disaster. The outcome of that experiment could be, oh, gee, you can put a huge amount of CO2 in the atmosphere and it's okay. That's one of the outcomes. The other outcome is it's not okay. It just seems like a bad idea to run that experiment, but people seem to want to run it. I think what's likely to occur is that as the evidence mounts that unsustainable energy is bad, even a complete fool can't ignore it, then that's when we'll see quite a dramatic shift in favor of sustainable energy. I just hope it's not too late. Hi. As you showed in the presentation briefly, there's another part of it, which is the manufacturing. I am so happy that the U.S. still can make something that is not only competitive but is leading edge, and I really think that should be emphasized more as much as the cars itself, because that's really important, not just for the company, but for the whole country. I'd also like to get a tour of the factory, too, if that's possible. We'll be having a bunch of factory tours, I think, on the 23rd. Actually, at various points throughout the year, we'll be offering opportunities for customers to get test drives and tour the factory.