Good day, ladies and gentlemen, and welcome to the Tesla Motors fourth quarter 2010 earnings call. Now I'll turn the call over to Jeff Evanson, Vice President of Investor Relations. Please begin, sir.
Thank you, Tyrone, and thank you everyone for joining us this afternoon. Welcome to Tesla Motors' earnings call for the fourth quarter of 2010. With me on the call today are Elon Musk, Chairman, Product Architect, and CEO of Tesla Motors, and Deepak Ahuja, our Chief Financial Officer. Before we begin the call, I'll read the following statement to inform you of certain safe harbor provisions under the Private Securities Litigation Reform Act of 1995. During the course of this conference call, we will discuss our business outlook and make other forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are only predictions based on management's current expertise.
Actual results or events could differ materially from those predictions due to a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recently filed 10-Q, filed on November 12th, 2010, and our financial prospectus related to our initial public offering filed with the SEC as amended on June 29th, 2010. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent today. With that, I'll turn it over to Elon.
Thanks. The fourth quarter was just another solid quarter of execution on all aspects of our business, including Roadster, Model S, and powertrain. The Model S alpha phases went really well. Very pleased with that. The development of the Model S is on track. We did quite well in the powertrain business with increase in deliveries for the and orders for the Smart EV, completion of the development program for the Daimler A-Class, commencement of the Toyota RAV4 EV development program. We also added a tremendous amount of talent. I think this is a point that's really worth emphasizing, that the quality of people we're attracting to Tesla is just really phenomenal.
I mean, it's absolutely at the best of the one world industry and of the high-tech industry. I think that's one of the best indications of this is if you were to attend a college fair, any one of the college fairs where Tesla is present, and looked at the line at the Tesla booth and compared that to the line at any other booth, including Facebook, Google, Apple, or anyone else, the Tesla line is the longest line at the entire recruiting fair. I think that says a lot. On the Roadster business, that's, we're doing pretty well. It's increased 10% sequentially in revenue driven by better selling prices and a favorable leasing mix.
Despite seasonality, because obviously, you know, people aren't necessarily looking to buy a two-seater convertible sports car in the middle of winter, we delivered 149 Roadsters globally, on pace with the resulting much easier selling environment of the September quarter. We have also increased the order for Lotus, going to a total of 2,500 cars from 2,400. We're not gonna increase it anything beyond that, even though there is actually demand that's in excess of doing 2,500 vehicles because we wanna stay true to our original commitment that the Roadster is intended to be a collector's item, limited edition collector's item. So we're increasing it at just by 100 vehicles from 2,400 to 2,500, because we are seeing quite a bit of demand.
We're not gonna go beyond that. It will allow us to sell a few more units in 2011 and 2012. As far as retail expansion, we opened a new store in Tokyo, where Akio Toyoda personally attended. Just recently, last week, we had the Washington, D.C., and Milan store openings. Coming up, we're gonna have the San Jose store in Santana Row opening in a few months. This is gonna be one of the first stores that really emphasizes our new model for selling cars. We're not quite prepared to talk about it now, but I think it'll be something that's worth paying attention to in the future.
Model S is on plan for first customer deliveries in mid-2012. Really no change from what I talked about last quarter. If you mentioned the IPO, there would, of course, be a slow ramp in production in 2012, with it reaching steady-state production in 2013, as we've talked about in the past. First for the alpha build, I drive the alpha build, the latest alpha build every week, and I must say I think the car is great even at this early stage. Although it is a sedan which is comparable in size to a 5-series BMW or a Mercedes C-Class or sort of Audi A6, it feels very light and agile on the road.
Has tremendous power as you'd expect from Tesla or from something with an advanced electric motor. I'm really pleased with how the product is developing. It's I really think this car is going to be the car that even if it wasn't electric would be the preferred vehicle among premium sedans. We completed as scheduled last quarter, we were driving it in December and accumulated a lot of miles. We've actually finished just this week our 15th alpha prototype, the body in white prototype. Last month we exhibited an exploded view of the body in white at the North American Auto Show in Detroit.
Part of the goal of that show was really to emphasize the quality of vehicle engineering at Tesla, 'cause this is one of the least appreciated aspects of Tesla's capabilities. I think people generally appreciate that we've got the world's best powertrain. They can obviously appreciate the aesthetics of the Model S by looking at it. We really had to go under the skin to show that the vehicle engineering is just as good as the powertrain engineering and the aesthetic design. It's an all aluminum body and chassis. In fact will be the only aluminum car made in North America. The next most advanced car is probably the Audi A8, which is obviously made in Germany.
We feel there are reasons to say that the Model S is actually more advanced and better on the objective metrics of things like torsional rigidity, surface to weight, strength to weight, safety characteristics, internal useful volume, that kind of thing than the A8. Yeah, it's going really well in that respect. We feel very confident about having compelling data that will be available for test drives this summer of this year. Let's see. With respect to Fremont, our manufacturing facility, this is really a substantially integrated manufacturing facility for the Model S. This includes stamping, plastics, paint and body assembly shops, and manufacturing of powertrain components.
This is, you know, really taking advantage of an amazing infrastructure that we inherited from Toyota, where they made the Toyota Corolla and Tacoma trucks. I You know, some will disagree with this strategy, but I think vertical integration is a smart move. It allows us to adapt quickly, to maybe, you know, rapidly innovate, and also to control our unit costs. This is quite important for a small car company, because we don't have the leverage of a larger car company.
Whereas a large car company could, you know, has leverage with suppliers because they can always say, "Well, if you don't do a good job on this program, you're, you know, we're gonna, you know, not give you access to another program," or something like that. We don't really have that flexibility or that leverage. It's important for us to be able to say, "Okay, if you as a supplier are not gonna do a great job for us here, we will insource," and have that be a credible threat. The large hydraulic press line is being assembled in Fremont on schedule. This is really epic. I mean, it's the largest hydraulic press line in North America, one of the largest in the world.
We expect it to be fully assembled by the second quarter of this year. We finalized the Model S production layout, and we're actually gonna design it to allow for 20,000 units on a single shift. This is slightly different from our prior plans where we thought 20,000 on a double shift. It's a little bit of extra money spent now. We think it lays a better foundation for the future, because it means that we can go to double shift or even, say, a triple shift, and quickly adapt to increased customer demand. Particularly, you know, bringing in something like the Model X.
You know, if we wanna rapidly scale to sort of an annualized production of 40,000 or 50,000, then this allows us to do that without having to reconfigure the line substantially. The Model S alpha powertrain is looking very strong. I don't think this is a risk at all for the Model S. In fact, I think it'll be better than what I expected, and my expectations are very high. I think this is looking really strong.
I'm very excited about the idea of sort of a sport version of the Model S or performance version of the Model S that, you know, potentially outperforms something like the M5, which I think would be a great product. Supplier sourcing for production remains on track, really. It's almost entirely done. I think this is an important data point because, you know, one of the questions is, well, does Tesla gonna stay on track for the expenditures for the Model S program, in terms of, you know, total ED& T and all that, as well as, does Tesla have a sort of a handle on the unit cost?
I think having almost all suppliers, almost all supplier agreements done, and being able to say that, "Yeah, we feel good about both of those elements," I think is very important. That, that is the case. Yeah, we, we have supplies kicked off for equipment and process finalization in the paint shop, which is Geico Taikisha and BASF. I've talked before about how important I think paint is. This is a, you know, really, really important detail of the car. On the body shop side, Paslin and EDAG for final assembly, Dürr and KUKA. Tooling suppliers kickoff is also underway for, well, kickoff tooling for our dies, for stampings. Fuji is our die supplier there.
They're hard at work and have been for a few months. As far as Model S reservations, we now have over 3,700 reservations. Bearing in mind that the minimum amount for reserving a Model S is $5,000, so this is not like it's a $100 reservation. It's a $5,000 reservation. We're still dedicating very minimal resources to this effort. It's really gonna be in around the middle of this year, maybe the second half of this year, really, when we start to ramp up our sales effort on Model S. Coincident with the, with having data vehicles that we can give people test drives in. On the strategic relationships front, just to roll into that a little more, the Daimler business continues to progress well.
Daimler's increased their order by 300 vehicles to 1,800 for the Smart. This is the third time that Daimler has increased its order, which was originally just 1,000 units. I think it shows that there's continued, you know, interest from Daimler. We delivered a record amount of battery packs and charges in the fourth quarter. As far as the A-Class EV, as I mentioned, development work is essentially done. We're now shipping production battery packs and chargers, so that all looks quite promising. For the Toyota RAV4 EV, total development revenues projected to be about $59 million. In this case, we are providing the entire electric vehicle powertrain work, including the motor and gearbox, in addition to the battery, the charger and software.
We've met the first major milestone under the agreement. We've been delivering RAV4 prototypes since July, and we're just about to finalize the production supply agreement. Obviously Toyota choosing to have Tesla do the powertrain for the RAV4 is a tremendous endorsement. I think really having both Toyota and Daimler, I mean, Daimler's the company that invented the internal combustion engine car. Toyota's the largest car company in the world and leader in hybrids. To have them as strategic partners is obviously a great honor for us, and then really couldn't ask for a better endorsement of our core technology. Then there's also Panasonic. Panasonic, I recall, has a, you know, they invested in Tesla late last year, which is great validation.
They were also kind enough to say publicly that Tesla has the most advanced battery pack technology in the world for EV applications. We continue to work to optimize the 18650 form factor specifically for automotive use. This is an important point that sometimes people aren't aware of, which is that the 18, although with Roadster we use an almost unmodified laptop cell, in the case of Model S it is actually a highly modified cell that has the same external dimensions as a laptop cell. We can use the automated cell handling equipment, it is a significantly different internal geometry.
Those redesigns come at the behest of Tesla, and we're able to transfer that, those changes to other suppliers. This is not an exclusive supply agreement that we have with Panasonic. And we do expect to establish a second source for cell supply, given its importance. Although Panasonic, of course, remains our preferred, our number one source cell supplier. As far as 18650s in general, we see at least for the next several years, we do not see anything better than an 18650.
For those that think it's that there's a larger format cell that's better, I would simply ask, "What is the cost per kilowatt hour, and what is the energy density?" Until some cell supplier comes back to us with a number that is better than the 18650. It's really as simple as that. Just a little bit of operational guidance. You know, last quarter our primary objective was completion of the drivable alpha prototype. You can see videos on our website of that car doing great carving turns through Southern California. This quarter our Model S related activities include the finishing off the fleet of alphas, doing extensive testing of the alphas in a variety of climates, testing braking, safety, handling, NVH, and all the rest.
We're completing the last release of series of product to suppliers, and executing detailed readiness plans at each of the stamping, plastics paint, and final assembly shops. Later on this year, we'll be going into beta build. The beta build is, it's kinda like, you know, just standard of high tech. You know, when something's in, at beta stage, it is almost indistinguishable from the production article, except then of course there's still a series of bugs that have to be worked out and maybe some corner case functionality that needs to be added and that kind of thing. It's really, it's what you see at the beta phase is almost identical to what you would receive in production.
Like I said, we feel confident of having our first beta build this summer. Just maybe a few sentences just on the Model X and maybe clarify a few things on that front before I hand it over to Deepak Ahuja. Because there's been a few incorrect things have been printed. The Model X is a variant on the Model S platform. It is a crossover SUV. It's intended to be cooler than any other SUV, and that's our aspiration. It actually have functionality that exceeds that of a minivan. This is a tough goal to achieve, but I think we've got a shot at doing that.
That's really what we're aiming it for that. Pricing would be comparable to that of the Model S. This is not our, you know, sort of third generation mass production vehicle. That vehicle is still several years away. The Model X is really just a way of generating potentially twice as much volume in the premium vehicle segment by offering a crossover SUV in addition to a sedan. We're looking to unveil the design prototype of that at the end of this year. With that, I'll turn it over to Deepak.
Thanks, Elon. The primary takeaway from the quarter is that in addition to delivering on the Model S, as Elon has shared with you, we have continued to improve revenue and gross margin of our existing business. As the December quarter marked the end of our fiscal year, I'll discuss both our quarterly and annual performance and then conclude with some thoughts on guidance. While discussing the financials, I'll provide commentary on both a GAAP and non-GAAP basis. Our non-GAAP financials include or exclude, sorry, non-cash charges related to stock-based compensation and change in the fair value of our outstanding stock warrants. A reconciliation of the non-GAAP information is included in our earnings release. Turning first to the P&L, overall revenue for Q4 was $36 million, a 16% increase over Q3 and almost double that reported in Q4 of last year.
For the year, revenues were $117 million, up slightly from $112 million for 2009. Given that we were shipping Roadsters against a two-year backlog during most of 2009, we believe the 2010 performance is a strong result for the company. Let me remind you that we report revenue in two categories, automotive sales and development services. Automotive sales consists primarily of Roadster sales and to a lesser extent, the sales of powertrain components to OEMs, as well as zero-emission vehicle credits. On the other hand, development services revenue consists of services we provide to other OEMs to develop electric powertrain components and systems for their vehicles. Starting with the Roadster portion of our automotive sales, as Elon mentioned, we delivered 149 Roadsters in Q4 versus 151 in Q3.
We believe this is a very good result given that our sales have some degree of seasonality during winter months. Average selling prices increased as compared to the prior quarter. This result when combined with a lower leasing mix contributed to a 10% sequential increase in Roadster related revenue to $20 million in Q4. For the year, Roadster revenues were $76 million as compared to $112 million in 2009. A comparison that is a bit apples to oranges, again, due to the two-year reservations backlog in 2009. Looking at the powertrain components portion of automotive sales, revenues were up almost 80% sequentially to $9 million in this quarter. We achieved our third consecutive record quarter for deliveries of battery packs and chargers to Daimler.
As Elon noted, Daimler increased its order by 300 battery packs and chargers for the smart fortwo EV, hence the total program is now up to 1,800 units. We currently anticipate delivering these components until the summer of this year. In Q4, we also started recognizing revenue from the delivery of battery packs and chargers for the Daimler A-Class program, which we expect to continue through the balance of 2011. It's worth noting that our revenue per unit for the A-Class battery pack is roughly double that for smart fortwo, which is in proportion to the increase in the size of the battery capacity. For the year, powertrain revenue was $22 million. This portion of our revenue stream was negligible in 2009 since we had just started shipping production powertrain components in Q4 of 2009.
Overall, automotive sales revenues increased sequentially by 25% to $29 million, which we believe is a strong result. On a full-year basis, automotive sales revenues were $97 million as compared to $112 million in 2009, again, due to higher Roadster sales in 2009 to clear out the two-year reservations backlog. Turning to development services revenue. Development services revenue decreased sequentially by 10% to $7 million in Q4, primarily due to the completion of the Daimler A-Class development program during the quarter. This was partially offset by work underway on the Toyota RAV4 EV program. After agreeing on the final specifications of the RAV4 EV during Q4, we now have the opportunity to earn up to $69 million in development services revenue as we execute on our deliverables.
We currently anticipate recognizing this revenue over the next four to five quarters, given Toyota's stated intent to enter production with the RAV4 EV in 2012. Just as clarification, the sale of production parts for the RAV4 EV will be part of a separate agreement which has not been finalized yet. On a full-year basis, development services revenue in 2010 were $20 million. The comparison with 2009 is not meaningful here since we started recognizing revenue for development services only in Q1 of 2010. Total gross margin for the quarter was a record 31% as compared to 30% last quarter. Gross margins increased across all revenue lines, showing great execution by our entire team.
Gross margin from our automotive sales was 20% as compared to 17% in Q3, the highest we have ever achieved in any calendar quarter. This was due to a combined focus or a continued focus on both average selling prices and cost reductions. Gross margin for development services was 78% in Q4, as the timing of revenue recognition did not fully match the period in which we booked the underlying cost of revenues. This mismatch was further heightened in Q4 with the completion of the A-Class program and the start of the Toyota development contract in the same period. Remember that this gross margin for development services is not an indicator of future performance due to these timing differences. Total gross margin for the year increased from just 9% in 2009 to 26% in 2010.
While this increase was partially driven by a change in mix between the automotive and development services revenue, we also increased automotive gross margin from 9% in 2009 to 18% in 2010. This shows the extent of improvement we've been able to achieve in both our Roadster and powertrain activities. We are intent on keeping the same discipline on the Model S program as well. Our operating expenses continue to reflect continued emphasis on the development of the Model S and our spending on infrastructure. R&D expenses were $38 million for the quarter on a GAAP basis and $36 million on a non-GAAP basis. Non-GAAP R&D expenses increased 40% sequentially, primarily due to expenses related to the Model S alpha prototype build and one-time relocation expenses of our vehicle engineers from L.A. to Palo Alto.
We also had higher production and engineering headcount that grew by 15% during the quarter and the accelerated completion of engineering work underway at several suppliers. We expect quarterly spending in 2011 to increase moderately from the Q4 level as we continue to execute on the Model S program, and the spending may be lumpy in some quarters. SG&A expenses for the quarter were $25 million on a GAAP basis and $20 million on a non-GAAP basis. The 9% increase in our SG&A expenses on a non-GAAP basis from the prior quarter is due principally to the growth of our sales and marketing activities and headcount to support the continued growth of our company globally. We expect quarterly SG&A expenses in 2011 to increase slightly from the Q4 level as we continue this global expansion.
This will be offset by our continued cost control in G&A. We are closely monitoring expenses and have strong controls in place to ensure that our spending is tracking to our plan. We are incurring a net loss despite improved margin and will continue to do so for the next several quarters while we are making significant investments in R&D and our infrastructure to launch the Model S. Net loss for the fourth quarter was $51 million on a GAAP basis. This loss included $8 million of non-cash stock-based compensation, of which $3 million related to a Model S-based performance grant, reflecting a higher probability of achieving future milestones. Without these expenses, the loss in this quarter on a non-GAAP basis was $44 million or $0.47 per share, with 94 million weighted average common shares outstanding.
For the year, net loss per share was $3.04 on a GAAP basis and $2.53 on a non-GAAP basis, with 51 million weighted average common shares outstanding. As a quick note, we expect that most of our interest expense will be capitalized until the start of production of the Model S since the DOE loan is being used to build out the Tesla factory in Fremont. Turning now to the balance sheet. Total cash, including our cash in the DOE dedicated account, was $173 million at the end of the quarter. This compares to total cash of $185 million at the end of the prior quarter. Combining total cash with the remaining DOE facility, we had capital resources of approximately $566 million available as of the end of the year.
We currently anticipate that this will be sufficient to fund our operations through the launch of the Model S based on our present plans. Looking at cash flows for the quarter. Operating activities consumed $34 million as compared to $46 million in the prior quarter, despite a higher operating loss in Q4. The majority of the cash used in operating activities during Q4 is reimbursable under the DOE loan as it relates to our expanding R&D spending. Our inventory continued to grow to support our Roadster and powertrain sales, but at a slower rate than the prior quarter.
Over the next few quarters, we expect inventory to continue to rise as we have elected to build Roadsters at a faster pace than our sales forecast, given that Lotus production of Roadster gliders will stop just after year-end 2011, and we intend to continue with Roadster sales in 2012. Capital expenditures were $24 million in this quarter as compared to $67 million last quarter. Recall that last quarter's numbers included $56 million related to the acquisition of the Fremont facility. Over the last two quarters, we have made opportunistic purchases from the old NUMMI operations, particularly in stamping and plastics, which is allowing us to in-source a greater number of parts where we believe it makes good business sense. For the full year, we invested approximately $105 million in CapEx.
This was lower than we anticipated, mainly due to timing. We expect that this deferral in spending will now show up in 2011. Offsetting our cash usage in the quarter was the drawdown of $15.3 million from our DOE loan facility at interest rates under 3%. Since the end of Q4, we have drawn an additional $15.6 million from the DOE loan facility related to our Q4 spending. As shared with you earlier, the DOE funds half the expenses up front and the remaining half on a deferred basis. I'd like to offer some thoughts on guidance. Since we remain focused on the long-term objective of delivering the Model S on time and at planned profitability, we are providing full-year financial guidance for 2011.
We project revenue to increase by about 40%-50% in 2011 to a range of $160 million-$175 million. We expect Roadster sales to grow over last year, but still expect some seasonality during the winter months. The total Roadster program, as Elon mentioned, is now 2,500 units, and we have delivered over 1,500 so far. Thus, to the extent we exceed planned Roadster sales in 2011, we might not be able to meet all the Roadster demand in 2012.
As Elon mentioned, 2011 should be our biggest year for capital spending for the Model S program, as we will purchase most of the tooling and manufacturing equipment required for production. Looking at all of our capital expenditures for the full year, we expect to invest about $190 million-$215 million. Remember that the majority of these capital investments should be reimbursable under the terms of our DOE loan. With this level of CapEx spending, we can execute on our strategic decisions to increase insourcing, primarily in stampings and plastics. We've also elected to invest incrementally in new technologies, primarily in our paint and body shops, to produce even higher quality at affordable costs. Furthermore, we are investing in additional plant automation, as Elon mentioned, to expand capacity to produce up to 20,000 units on just one shift.
This has about a one-year payback in terms of saved labor and overhead costs. The strategic benefit of this decision is that it also accommodates either higher Model S production or the efficient introduction of future models such as the Model X. Finally, as we have concluded negotiations with most of our suppliers, some investments planned for 2010 have been deferred into 2011, while others have come in at a slightly higher cost to our plan. Please remember that all depreciation of our capital expenditures related to the Tesla factory will begin after the start of Model S production. Moving on to Model S reservations, we have received slightly over 3,400 Model S reservations as of December 31 and have now surpassed 3,700.
We plan to disclose this number of refundable reservations received during these earnings calls, but will not provide future guidance on this number. Since we are not actively focused on getting Model S reservations at this time, we do not regard the number of new Model S reservations received in any given quarter to be an indicator of our performance, at least for the next year or so. I'd like to conclude in summary by reinforcing that we continue to be excited about our long-term opportunities. This ends my prepared remarks.
Okay, analysts, just a quick note to all of you and our investors as well. We just want you to note that when comparing our results to what services such as Thomson Reuters present as consensus expectations, that these services are reporting a 2010 annual loss expectation of $2.23 per share. Clearly, this is incorrect since even before this quarter, we'd already reported a year-to-date loss of $2.50 a share. We think this discrepancy appears to be driven primarily by a misread of the sell-side analyst models, and that may be attributable to the difference between past, actual, and pro forma share counts. Analysts, we ask you to please make sure that going forward, the consensus service providers actually accurately reflect what your expectations are. With that, Tyrone, let's now open the call for Q&A, please.
Our first question is from Dan Galves of Deutsche Bank. Your line is open.
Thanks very much. Congratulations on a good quarter. Can you guys hear me?
Yes, sir.
Okay, great.
Yes.
Just wanted to, you know, think about, how should we think about cost expectations, how they've changed for the Model S over the last, you know, couple quarters, in terms of, you know, raw material, changes to raw material pricing that you've seen in the market. It sounds like this investment in automation for, you know, 20,000 units on one shift is a cost reduction. You know, as you've gone through the supplier sourcing process, how have your cost expectations, unit cost expectations changed for the Model S?
Well, I just see one here. I think that they're in line. I mean, there's always a little bit of fluctuation in the cost of a car, you know, sort of, but it's really, we feel pretty confident of being able to achieve, you know, I'd say really good margins on the car. I guess there are some, I mean, there's slight sort of issues of maybe currency risk among some of our suppliers or, you know, some chance of raw materials going bonkers. I mean, those things can affect costs. Overall, I feel good about, you know, achieving the 25% gross margins that we've, we think we can achieve with the Model S. I'd say it just really reaffirmed, our ability to do that.
Okay, thanks very much. On the vertical integration strategy you talked quite a bit about, is there any part of that that, you know, essentially the timing of, you know, validating some of your processes, could there be a chance that you get to the point where you wanna outsource a part of the vehicle production? Do you have backup plans, or is there any part of that vertical integration strategy that could really change the timing of the Model S launch if it didn't work the way you thought?
No, it's actually intended to do the opposite, which is to reduce the risk of, you know, having one or two suppliers that cause a delay in the deliveries of Model S. The basic philosophy for insourcing is to, if we need to be able to do almost anything in-house. You know, we don't expect to do everything in-house. That would be foolish. But to have the ability, to have that optionality to say, worst case scenario, we can crank 24/7 internally and make that part ourselves is incredibly powerful. I think also, you know, helps keep suppliers honest if they know that we have that ability.
Because sometimes what can happen is suppliers will wait until, you know, quite late in the game before trying to raise costs on you or do some kind of bait and switch or tell you that or reveal that they really can't deliver. I've seen that so many times. Being able to rally the troops internally and solve that problem is I think very important for controlling one's destiny.
Okay. Just one other quick one. Can you give us an indication of incremental investment for new top hats and potential timing for those vehicles after Model S?
Yeah. You know, bear in mind these are just rough approximations, so I wouldn't, you know, treat this as gospel or anything. For something like the Model X, you know, we're thinking it's between $100 million and $150 million total CapEx. Hopefully, we're, you know, we're trying to do it at the lower end of that. Even if it's at the higher end of that, I mean, it's a ridiculously good return on investment, so it's like an obvious move.
Okay, thanks very much.
Yeah, thanks.
Thank you, sir. Our next question is from Joshua Paradise of Morgan Stanley. Your line is open.
Hey, guys. Congratulations, on great execution, and thank you for taking the question. You talked a little bit about the battery chemistry that you're developing with Panasonic. I guess, is the chemistry that you're gonna use in the Model S, at least in the first version of the Model S, finalized or is that still under development or refinement?
It is finalized in the broad brushstrokes. There are a few finesse items, but that are, you know, little details that'll continue to be optimized over this year. There are no major outstanding question marks. We're very pleased with the results we're getting in our test packs. You know, I think people will be pretty impressed with the results. I think it's, as far as I can tell, it's more than what anyone thinks is possible.
Okay. Can you give a little bit more information on what you're refining? Is it the chemistry? Is it the internal geometry? Is it something else?
All of the above. Yeah. There've been some tweaks to the internal chemistry, a lot of tweaks to the internal geometry. It's fairly proprietary, so, you know, we can't talk about exactly what they are. Of course, I mean, as soon as we have the car on the road, somebody's gonna buy a car and then do, of course, more, you know, to start dissecting the pack and the cell. But we'll leave it to that point before they can before they know what exactly we've done.
Right. In the past, you've talked about potential agreements with other OEMs. Obviously, you have a strong agreement with Toyota. You have Daimler. Can you give any update on where you are with discussions with other OEMs?
Yeah. We are, I'd say we've had some recent significant discussions with OEMs. I mean, with other OEMs besides our two main partners. I mean, we do need to be a little cautious about you know, engaging another big OEM deal, co-development deal right now, given the importance of the Model S program, and focus on that, as well as making sure we do a great job for Daimler and Toyota. I mean, I think we definitely have our hands full right now. I, you know, so it's, it Yeah, I think we want to make sure, particularly with respect to the RAV4 development, which is a very intense development program this year, that we do a really great job for Toyota. Yeah.
Like I said, for the Model S as well, which is kind of our mainstay. Think of it like it's not, it's not as though there aren't deals that we could do if we wanted to do them, but we have to be, you know, I think, make sure we don't, we don't bite off more than we can chew.
Right. Okay, thanks so much.
Yeah.
Thank you. Our next question is from Patrick Archambault of Goldman Sachs. Your line is open.
Hi, good afternoon, everybody.
Hi, Pat.
You know, I guess a couple questions. You know, on the CapEx spending, you know, I think you had said $190-$215 for 2011, if I got that right. You know, Deepak, how does that compare to what you had originally envisioned for the year? You know, maybe could you tell us a little bit about some of the variances, you know, what was timing, you know, what's increased vertical integration, you know, what's maybe just, you know, cost that is a little higher than you guys had budgeted?
Yeah, Pat, it is higher than our initial numbers, but for very good reasons that we have fully vetted out and understood. As we said, Jigar and I have discussed. I think it's all strategic related to what makes sense for us to in-source, particularly in stamping and plastics. What makes sense for us to go invest in better technology to get that high quality in the paint shop, to get that perfect fit and finish in our body shop? What makes sense for us to add that, spend that extra bit of money and get 20,000 units on a single shift and get a quick payback, which helps us to achieve our total profitability.
I think the bottom line of all of this is that we have sufficient sources of cash on hand, as I mentioned, the $566 million between cash and the DOE loan facility that we feel comfortable about completing the Model S program with that funding in place.
In fact, I'd just like to reemphasize what Deepak just said. Even if we raise no additional funds at all, we have sufficient availability of capital to complete the Model S program and reach profitability. I think this is perhaps, I just wanna be really explicit about that. I think that there is a likelihood, in fact, of, I mean, arguably an expectation that we will raise some incremental capital for the Model X program. That would be kind of at maybe towards the end of this year in terms of timing. It's not like any in the immediate future.
I think we wouldn't do it any sooner than after the Model S beta is unveiled, so people perhaps can feel, you know, can sort of get a more direct sense of what kind of products Tesla can deliver and are they really great products or not. That seems like the sort of soonest timing that we would do it.
You know, on that note is, you know, kind of the incremental capital that you'd be looking for for the Model X program, is that the sort of in the zip code of what you outlined to Dan there?
Yeah.
$100, $150 or something?
Yeah, it would be, probably in the order of $100-$150 type of thing.
Okay. On the beta prototype, when do you guys actually start testing on that, excuse me, for safety rating purposes?
Oh, actually, well, the safety stuff is already underway with the alpha prototype. That testing is then used to calibrate crash simulations. Then we make modifications from those initial safety tests that have been done with the alphas. There's a slight design iteration going to the betas. Just to be clear, the beta crash testing is actually gonna start very shortly. We already started safety testing of doing things like the ABS brakes testing, which is underway with Bosch. That was an important milestone because we need to get cold weather ABS testing underway, which is great. That's happening now.
There's gonna be another period of intense crash testing for the betas, starting towards the end of summer. Yet more crash testing that takes place once we have our release candidates. 'Cause the beta is, you know, call it sort of 98%, 99% production design, but it isn't entirely made with production tooling. We have yet another confirmation step with the release candidate articles, which would be kind of in the, you know, roughly, 11, 12 months from now, to confirm that the process used to manufacture the cars results in cars that are consistently of the design intent.
There's a tremendous amount of crash testing taking place. I mean, because, you know, our standard, you know, that we're, what we're aiming for here with Model S is pretty extraordinary in terms of safety. You know, we're aiming for sort of all around 5-star rating by 2012 standards, which is a very high standard to meet. A car that was 5-star by 2010 standards would be a 3-star in 2012. This is important to appreciate just how high a bar it is that we're aiming for. We can miss that standard by a mile and still be better than other standards on the road.
But we wanna be the best, so that involves a lot of crashes, unfortunately. I mean, we have to do them, but it is sad to see so many cars getting mashed up. But, you know, this is extremely important competitive dimension. Certainly, you know, I'll have my family and my friend's families, you know, I wanna make sure that there isn't a safer car on the road. Sorry for the boring answer.
Gotcha. I guess, well, I mean, one more question related to that, actually. Is it, is the, you know, the release candidate, can you talk us through, is that what happens? You have kind of an assembly tooling product that you release to NHTSA and that's when you get your final rating and that happens sometime next year. Is sort of that the way to think about it at the end of your internal testing process? Is that how it works?
Yeah, I mean, well, in the U.S., you know, it's sort of a, it's kind of a, I guess, a self-certification process. I mean, you conduct the tests, you compile the data, then you, your tests aren't chaperoned by others. It's different in Europe. The tests are chaperoned. We'll be doing these tests both according to U.S. and European specifications. Because the Model S is designed to a super set of those requirements. It's actually more of a, in terms of a witnessing step, it's more on the European side. Yeah, it's basically, you know, alpha is about validating the calibrating the crash simulations. You know, do the computer models match what we see in reality?
Is there anything that we learn that's perhaps not captured in the simulations? We do an iteration going to beta. In the beta phase, we sort of confirm the corrected design. There'll be some sort of minor iterations in the beta phase. Like, the release candidate phase is really just confirming that we've been consistent in the way that we make actual vehicles.
Gotcha. One last, just a small modeling thing. Can you tell us how many, you know, battery units you sold for the quarter?
I don't think we have publicly shared that information so far, Matt.
Okay. How about ZEV credits? Do you have that handy?
I think we do mention that it's about $800,000 in Q4.
Yeah. Just on the ZEV credit front, I mean, for the Model S, you know, our margin assumptions depend, you know, only very slightly on ZEV credits. I think it's only, like, a few percentage points or something like that.
It's broader than ZEV credits.
Yeah.
Global, and it's, you know, any other trading of credits that may be happening in Europe.
Yeah. That said, we are seeing a little more interest in ZEV credits than we previously thought might be the case. We'll see. We don't know if that's gonna materialize or not.
Great. Thanks a lot, guys.
Thanks.
Thank you again, ladies and gentlemen. Our next question is from Andrea James of Dougherty & Company. Your line is open.
Guys.
Hey.
A question about some of your OEM partnerships. Can you tell us a little bit more about what Daimler was thinking with upsizing the number of battery packs? Is there a possibility of you guys getting a production contract on that?
Yeah. Well, I can tell you what I think Daimler thinks. They'd be obviously the best entity to comment on this officially. They're just seeing a lot of interest in the Smart EV. People really like it. Cities around the world are clamoring for it. That's why they've increased the, you know, the sort of test fleet, size and length. I think that's the rationale there. As far as the, kind of the larger production deal for Smart battery packs, that's, you know, they're going through sort of a detailed, RFQ preparation process right now. We certainly think that we're in an excellent position to win such a contract.
I don't wanna be presumptuous, but certainly we're in an excellent position. I mean, our pack is in the test fleet. You know, any other alternatives would have to Well, I'm not sure what testing process they'd have to go through, but it would certainly be, they would certainly be behind whatever we've done. You know, it sort of stands to reason that if the test fleet is using our pack and charger, that kind of gives us, you know, arguably pole position in a production situation for Smart.
Yeah, for sure. As far as the A-Class E-Cell, I think you had said something in your commentary about you mentioned production. Can you just, I missed, I didn't quite understand, I didn't realize that had been, that was production yet?
Sorry, could you repeat that question again, Andrea?
Yeah. I guess, you, Elon, you had said something about the A-Class you started delivering. I thought you said production battery packs. Is that a production contract or is it still development?
Sorry, just to clarify, we call it production battery packs because the development contract's over, and now we're providing them battery packs for their test fleet.
Yeah.
Which will primarily be running in Europe.
Call it perhaps a small scale production versus large scale production. It's production by Daimler standards because you have to meet all of the, you know, very intense safety and reliability standards of Daimler, even for a test fleet. Daimler regards it as production because they hold it as the same standard they would hold a much larger production level.
Okay.
Yeah.
That explains it. About the Toyota upsize that you said $59, and I think before it had been $60. Is it just that you're doing more for them now? It's a bigger contract than before?
No, let me just clarify. We signed an initial contract in Q3 for $9 million to provide them some initial prototypes. Later on, we followed that up with a $50 million dollar in Q4. For the development contract, which is Goran's scope, and it meets completely the specifications that they want. That's the combined $59 million.
Okay. My final question is just on the Model S distribution. When can we hope to hear more about, you know, I guess your store rollout and what your plans are there?
Well, I think there's two parts to that. One is kind of the schedule of store rollout. The other is kind of the, you know, the refinement of the whole purchasing and servicing process. The sales and service process for automotive, 'cause we're trying to innovate significantly on that dimension of the auto business, which is, I think historically has been not, been rather poor. I mean, a lot of people would regard their car buying experience as the worst retail experience they've had. Not always, but a lot of people would say that, and in fact have said that to me. So we really wanna change that so that you really look forward to buying a car, and that you actually would come into a Tesla store to sort of just browse around and kind of see what's happening, even if you weren't specifically in the mood to buy a car right at that moment. You know, we wanna be really inviting, essentially.
And the, you know, our first quote, prototype of that experience is going to be the Santana Row store, I think in a couple months. But it is going to take us a little bit of time to refine that process, or to refine the experience. I think you'll really start to see that kind of develop over the course of this year. As far as the rollout is concerned, right now we're making sure that we're identifying locations in key metros for Model S, and beginning kind of the long lead process of lease negotiation, and permitting and that kind of thing.
We're gonna try to avoid applying a ton of capital to it too far in advance of the Model S sales. Because we, you know, we really won't have any trouble selling the first, you know, the 2012 production of Model S. In fact, 2012 production of Model S will probably be sold before, I mean, I make this prediction, but I think I'm reasonably safe in doing so, that our production, our 2012 production of Model S will be sold out before 2012 starts. I think that is a very likely thing to occur. Obviously there isn't a need to have a huge number of stores because, well, we've already sort of, they'll be selling cars for delivery in 2013. Really you'll see like the big ramp in store, you know, locations and whatnot for Model S in 2012 rather than 2011, in preparation for really driving sales in 2013.
Got it.
That's kind of a sensible strategy.
Thank you so much. That's all for me.
Bye. Thanks.
Thank you. Our next question is from Ben Kallo of Robert W. Baird. Your line's open.
All right. Thanks for taking my question. Could you guys talk about your strategy, if you have one, at this point about entering new developing markets? Do you plan on developing market-specific car models, or would you do this, and would you do this alone or with a partner?
We definitely by developing markets, I think you may be thinking about the, you know, the BRIC nations. China's arguably not a developing market at this point. Are there particular markets that you have in mind?
Yes. Yeah, BRIC markets.
I think really although China is by far and away the most significant, you know, given that new cars living in China are now greater than that in the U.S. That could shift as the U.S. economy improves, but that certainly has been for last few quarters. We're thinking that entry to China would be in kind of the 2013 timeframe. You know, as I mentioned just a moment ago, just in our existing markets, we'll have covered all of the demand for 2012. You know, I should say, we'll have demand in excess of the production of 2012 and probably have pre-sold 2012 by the end of 2011.
Therefore it, you know, getting to markets beyond that is kind of only important really in the 2013 timeframe. That's logically when we would go to China. We would go with a, we would go direct, so it would be just Tesla, not a local partner.
As you modify your models, if you need to enter those markets, do your costs increase, or how do you view costs by entering those different markets?
We don't anticipate significant modifications apart from local language related stuff. Then there's sort of small homologation changes that need to take place, but, you know, just as Mercedes doesn't modify their S-Class significantly by market or, you know, BMW doesn't modify their 5 or 7 Series or Maserati doesn't really modify their Quattroporte, then I think we would likewise not significantly modify the Model S. There may be like long-term, there may be market-specific models that we bring out, but I don't anticipate that in the next few years.
Great. Thank you very much.
Thanks.
Thank you. I'm showing no further questions or comments at this time. I'd like to turn the call over to Elon Musk for any closing remarks.
Thanks. I don't have any closing remarks. Good, good questions. Appreciate everyone's time on the call.
Okay. Thank you, everyone. We look forward to seeing many of you on Wednesday, March second in San Francisco at Morgan Stanley Technology, Media & Telecom Conference, where Deepak will be presenting. Thank you.
Ladies and gentlemen, thank you for your participation.